Market Analysis: Sue Martin

Market Analysis: Sue Martin

Oct 16, 2020  | Ep4609 | Podcast

Podcast

The big three commodities reached closes that were significantly higher at some point during the week as different stories involving China and Brazil weighed on the trade. For the week, December wheat increased 31 cents while the nearby corn contract gained 7 cents. A big selloff on Monday pushed the soybean complex into catch up mode the rest of the week. The November soybean contract lost 16 cents. December soybean meal increased $3.80 per ton. December cotton expanded $2.28 per hundredweight. Over in the dairy parlor, November Class III milk futures improved $1.18. A mixed week in the livestock sector. December cattle shed $3.97. November feeders dropped 50 cents. And the December lean hog contract moved higher by $2.67. In the currency markets, the U.S. Dollar index gained 60 ticks. November crude oil expanded 34 cents per barrel. COMEX Gold fell $27.50 per ounce. And the Goldman Sachs Commodity Index declined 2 points to finish at 360.50.

Yeager:  Joining us now to give us some insight is regular market analyst, Sue Martin. Hello, Sue.

Martin: Hi there.

Yeager: While I was reading that, the word volatility came into my head. Volatility is probably the biggest word of this week and maybe all of 2020. But why has volatility come back into wheat? We look at China buying corn, maybe that is pulling it up, or soybeans have been doing well. IS it volatility that is moving wheat or is it it's just so dry in Russia or something else?

Martin: That's it, Russia is extremely dry and continues to miss rains, Ukraine catching some in the western portion of the country. But again, they're not totally up to speed either in wheat production. And then you have Australia who is coming back from three years of drought and the western side of the country is a little on the dry side but the rest of it is coming back. But their stocks were getting so low that they need, their domestic demand is quite large. So we don't hear a lot about Australia. And then you look at U.S. wheat and our hard red winter wheat, extremely dry. And so the combination of all of this and I think when you look at the quarterly stocks report we've seen global supplies of rice fall, corn and now wheat kind of bordering the thought that it might. Feed grains were down. So you've got 3 out of 4 that are down and the 4th one is the last domino to fall and you've got a good bull market.

Yeager: So the feed is one comment about that. But the fundamentals just don't seem to jive with the market at times. But I guess the question is, you just mentioned maybe the fundamentals aren't necessarily right. So is the wheat bull train leaving the station right now?

Martin: I think wheat's bull train left the station and is working on it. We're still a ways away from a wave 4 objective. KC wheat on Friday did meet a wave 3 count. And so many markets this year are doing wave 4's. We've seen rice do a wave 4 and have an outside range year, lower low, higher high. We've seen lumber and we've seen silver and sugar, all of those have had lower lows, higher highs for the year and then meet wave 4's on the top side.

Yeager: So are you making any sales right now in wheat?

Martin: No.

Yeager: You're holding. How much longer?

Martin: I would probably hold off until we get more into the winter, February, maybe March. I would be more interested then.

Yeager: Let's get to corn. China buying corn or at least the discussion that they are, is that really the big story here?

Martin: Oh, I think corn is - now there is the market where the train is starting to leave the station.

Yeager: So hop on board?

Martin: We should have probably already have been there. But December corn reached a wave 3 on Friday at, well it came within 2 cents, got to $4.09, $4.11 is the wave 3. And a wave 4 is substantially higher. Now, we're still technically in this sideways range. But here's the deal, in Brazil at the Port of Santos the premium being offered for corn was $2 over the board of December futures. That speaks to how tight the supply of corn is in Brazil. There is talk this week that China may have to import 20 million metric tons of corn. They have already showed up again this week buying corn, we've seen one cargo out of the Gulf that is labeled as heading to China with DDGs and then we don't hear much more about it. We expect China to be coming back in also for ethanol. Chinese corn prices reached $9.70 this week, an all-time record high. And China's poultry production expanded 18% in 2019, it's up another 8% thus far this year and in 2021 those numbers are going to hold. Then you have the endeavor they say by the end of 2021 that they expect their pork production to be back up to par. That being the case, are they going to step back in poultry production? No. They're going to keep it where it's at. But it's not just China, you have Vietnam, you have South Korea, Taiwan, the Philippines, that whole area is really in need of pork and of course proteins.

Yeager: And something to feed those animals that are being there. So I need to get to a question before you answer that because I don't know if this plays at all here. Bradley in Upland, Nebraska is asking, what happened to the carry in the corn market? It seems to have disappeared. Is that tied at all to what you're talking about?

Martin: Yes, the demand for corn is so strong up front, farmers are storing their corn out of the field this year for the majority of it, there's some moving but not an awful lot. And I think you have your end users worried, especially the processing plants like ethanol plants. Just in Central Iowa, Grand Junction I think it was, you had basically corn 4 cents over the board at $4.12 on Friday. You had other areas, Valero out of Fort Dodge 4 cents under. They're worried that this corn is going in the bins and once it does and it gets there the farmer is going to hang on tight.

Yeager: So how long are you holding?

Martin: Well, here's the kicker. The corn, I always thought December corn would take out the January high, which was $4.04 and three-quarters. In the last 50 years there's only been 4 years that that did not happen, so the odds were pretty big. But here's the kicker. Okay, wave 4, but you also have started to push through various trendlines on long-term data. And on corn when we start looking at pushing this, the contract high for this year's December corn is $4.23. FOB basis out of the Pacific Northwest is 95% booked already through the end of the year, Brazil's planting on beans running way behind, Mato Grosso, the largest producing state or province in Brazil is already maybe 11% planted, a year ago they were 47% planted. And then as a country Ag Rural today came out with their data and said as of October 15th, Thursday, that Brazil was 7.9% planted compared to 21.4% last year and 21.3% for the five year average. the later that crop gets planted the more concerning it is because then the safrinha corn, the corn that follows those beans coming out, doesn't get in as early.

Yeager: It becomes a domino effect. And how is that affecting U.S. soybeans right now?

Martin: Well, U.S. soybeans have been very good. Now, we've done a wave 4 on the November contract in the weekly chart, this year's November contract. However, and we're kind of staggering and I've always thought November beans were following the year of 1980 and I always thought corn was following the year of 2010 and they both are. But the year of 1980 we stuck a low in on September 29th after having made higher highs, contract highs, and then we took off and moved on into October. In the last 50 years there has been 8 years in which we've had the same situation and 6 of those years marked new contract highs and fell back but hose lows, those secondary lows, were in by the 14th of October. Well, who knows when you've got a weekly wave 4 going, the market is chattering here. But here's the other thing, the market I think on the soybeans when you look at Brazil and you're looking at how premiums are, their supplies are extremely tight in corn, their bean exports are next to nil, their supplies are sold out, I've talked about the Great Grain Robbery and I'm very convinced that we have that and you've got it going here but this time around it's a whole new spin, it's in Brazil as well. And you have weather situations there where they're drier than normal, you've got the U.S. ending the growing season and harvest season drier than normal. So we're going into the next growing season and if China sees, they may be front end loaded, I think China needs every bit of what they're taking. But when they go into the turn of the year, if it continues to not be as wet as what the rainy season normally is for Brazil and they know we're dry, they're not going to let go of any crop, they're going to keep buying.

Yeager: I've got to get you pinned down real quick on soybeans because do you think that -- is there a reason to hold on for this thing to go higher given what you just said?

Martin: I think there is. I continue to feel that we're going higher into the election.

Yeager: I’ve got to get to livestock because that too has cattle this week down $4, the consumer into that market, but also the feeder that is coming, there's a whole lot of factors. What do you see as the biggest factor right now in cattle?

Martin: Well, you've got a couple of things. One is exports yeah, overall for the year they're up a little bit, but lately they have dropped back, weekly export sales were down 31%, we only shipped out 1% better than the 4-week average. You've got the product getting a little bit ahead of itself. Usually the last two weeks of October are better. This time around I think feeders, first of all, started the lead down. If we can get through this phase and start to stabilize we should then start to try to see something better going forward. But we're seeing imports of beef come up substantially and that is something we just don't need especially when you have carcass weights higher. And are we backed up on numbers? I'm not so sure about that. I think the restaurants, that is the other thing that's start to hurt us a little bit here is that the restaurants major, the old saying was as goes the stock market so goes the beef market or cattle market, but this time around there's a little different spin.

Yeager: This year you can throw all those phrases out, nothing seems to make sense.

Martin: I do think next year is going to be better.

Yeager: So for feeders or cattle or both?

Martin: Both.

Yeager: Okay. So what do you see in feeders moving ahead here in the next month?

Martin: Well, that market is still struggling pretty hard. The price of corn is not going to help it. But in the meantime I think that as we move forward to the turn of the year, I think we're going to strike some lows in here, get cheap enough and then try to catch a turn in this market and maybe conversely right about that time catch a little correction in the corn. But then we try to move up, traditionally January is a high and then you turn down, I believe April is going to be much better this coming year than what we were this year.

Yeager: April was tough, it was also tough in the hog market. Do you buy that theory of people leaving the hog market, going to the cattle market, sell a hog, buy a cow instead?

Martin: Well there's another thing I wanted to make a comment is, the concern over this election and the volatility that could erupt from it has got traders, even feedlots, booking their cattle ahead and hedging. It also is creating, because clearing firms, or let's put it this way exchanges have already told clearing firms that they're going to raise margins on many markets, especially S&P, the dollar, stuff like that, silver and gold. But they're going to probably do it in other markets too. And because of that managed money as margins go up they have a ratio they have to follow, they're starting to settle down and you're seeing long liquidation in the cattle market at this time.

Yeager: You get 5 seconds. Are we done with hogs going higher?

Martin: No.

Yeager: We'll keep going with that. Sue Martin, thank you so much. That will do it for this installment of Market to Market. We will talk more in Market Plus, you know we're going to talk volatility and hogs and other things. Join us there.  You can find it on our website of MarkettoMarket.org. The harvest pictures have been outstanding to see on our Instagram Feed. We may share some of yours, especially if you tag us with our handle of MarkettoMarketShow. You can also give us follow if you’re not doing so already. Why aren't you following us? Next week, we’ll learn more about monumental impacts on western stakeholders. Until then, thanks for watching and have a great week.

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