Market Plus: Sue Martin

Oct 16, 2020  | 12 min  | Ep4609 | Podcast

Podcast

Yeager: This is the Friday, October 16, 2020 version of the Market Plus segment. Joining us now is Sue Martin. Sue, time flies in Market Analysis, and you knew it would. There's no shortage of things to talk about. What is the headline of the week?

Martin: Oh my goodness, there's so many of them.

Yeager: That's the problem. I mean, volatility is what I wanted to talk about and we're going to talk about it now. Yesterday in soybeans along, down 16, up 9, it was like a football game, it was like a basketball rally. What is the headline?

Martin: Well, I think it goes back to as we see money and as Shawn would say, Shawn Hackett, smart money is selling, beans and corn and what have you, as we see that you're also still seeing on these sharp breaks China step in and buy. And that kind of keeps this market moving. So what you have here, and I believe both corn and beans, probably, wheat, but especially corn and soybeans, and especially probably even corn, we have anticipatory bull markets. They are your first stage of a bull market. They're harder to quantify and deal with. But then when you see the second phase of that demand driven market, which is realization, and that is just like when you get down the road a bit and you look back and say, oh my goodness, they've bought this much, or they're buying this much, that then starts to ignite the market and you get those fast, parabolic moves. That is the kind of markets we're dealing with.

Yeager: For much of the last 12 months we've been in a pretty tight range. We're now like way outside the lines, we'd get in trouble in kindergarten for coloring outside the lines right now. That is an opportunity but it's also a heartache and you need some type of coolant on your stomach, right?

Martin: Well, I think what it is, when you go -- we've been 5 years at least sideways from the '13, '14 lows and then back up and meandering in a range every since and since the 2012 highs, 8 years, that's about the extreme. If you look at history that is about the extreme. And when markets start coming out of those there is an old theory, the wall-to-wall theory, that when you start coming out of those your eventual projection could be whip of that sideways market. Plus, if you're in a range you take the depth of the range, both channel lines, and when you breakout out to the upside of that you roll it over and that is your objective.

Yeager: I cut you off in hogs because we needed to cover up in livestock. That is a market too that has gone outside the lines and had a major up and a major down. We're back up now?

Martin: Yes we are and it's a market, I look at December hogs -- there's an old saying, I've been here a while, an old saying that for basis December hogs, higher highs in September, higher highs Oct, Nov, December and doesn't always happen but many times it does and we have the fundamental base this year to do it. China is buying record amount of U.S. pork. You've had situations in German African Swine Fever they find more and more wild boars every day it seems like. In the meantime, China has a later than normal Lunar New Year coming, it's February 12th this next year, and therefore after having gone through the COVID lockdowns that they had right in the heart of their Lunar New Year last year, they are going ot make sure that they have pork on the table for those people and pork is the item that they have for their weeklong celebration.

Yeager: Being locked up didn't drive away what they love of that. We have a whole bunch of questions --

Martin: Gosh, I've got more on hogs too.

Yeager: You have more on hogs? All right, finish up.

Martin: Well, in the hog market on the December hogs that is where your shorts are. They have been selling December hogs but no one really has a good number on the amount of pigs that were vented more for production in November to December, no one really has a good number on just how many pigs, baby pigs were euthanized, not to mention how many sows were aborted. Packers are even increasing their sow kill. That tells you you're getting liquidation then if that's the case. And that just speaks to me that we have a very bullish pork market on our hands. I talked about it I think the last time I was on the show about the hog market on the monthly charts and weekly charts and when you take on the monthly the Bollinger bands and you push the market below the Bollinger bands going all the way back to 1970, every time you did that the market reversed, came out and eventually most of the time, I'd say 90% of the time, it went up to the upper Bollinger band eventually. That upper Bollinger band is 83 something in December hogs.

Yeager: Not bad considering right now we're at $69.80 is what the December contract is.

Martin: That contract is still a good $10 or so under the cash index. Do you see that cash index going down? I don't think so. I think the October, or the December hogs are heading higher, that's where the shorts are.

Yeager: Got a few question, got a few answers from you here. William in Audubon, we'll start with you. With tight basis we are eyeing $4 cash January delivered corn. What price should we be eyeing after that? Can we look at $4.20 cash?

Martin: Yeah, you can. Here's the thing, if between now and the end of December, the end of the year, if we continue to push corn prices overall, any breaks you get I think the market is just going to find very good support. And you keep pushing higher into December there is a pattern that normally when you've gone up through the fall and in through December you normally will see corn prices try to ebb higher all the way into June. I think you're coming out of a year where we're very dry. You don't get that much help from snow. We're going into La Nina into spring. Yes, farmers are going to be raring to go because everything is going to be done. But what happens, you get into spring, if we don't catch moisture at that time they're not going to sell anything at that time if we're still dry, they're going to get that crop planted and then they maybe will think about selling stuff. I think you're looking at a market that has got a good potential for a very tight basis through all the winter.

Yeager: So the old saying, as we sit here tonight, say it does start to rain dramatically in Brazil, they catch up, how long is that window before it slams shut on that, not option, that's not the right word, that opportunity?

Martin: I would say you're looking because the later the crop goes in, the later the second crop goes in and the safrinha is the one that gets exported, and they are extremely tight supplied as it is, in fact they're talking today about dropping the import tariffs. So that's another sign of just how tight they are. So I think what happens is you have a 6 month window here where U.S. corn is golden.

Yeager: Okay. I want to talk a soybean question and this was another one that I was kicking around -- Doug in Thornton, Iowa was asking, why the big moves from Monday to Thursday? Was that a computer algorithm thing? Or is it the funds shaking speculators out? Thursday was ridiculous and so was Monday.

Martin: Well, I think what it is, is we get these rallies and then all of a sudden, because November 3rd is only a little over two weeks away now, you're seeing some money start to find, because they don't want to wait until the last minute, so on these rallies they're starting to shake the limbs a little bit and say I'm going to draw some money in and step aside. I think there's a fear here, and again with margins going up, in fact clearing firms, our has told us be prepared, you may have to answer intraday margin calls with wires or ACH's. So if you have one clearing firm do it, they're all going to do it. And so consequently I think that has got everybody's attention. And like I say, this is an election that is like no other. I don't care which President gets in, I think you're going to have volatility.

Yeager: All right, well that is Shane in Bloomfield, Nebraska's question, Sue, this one you might have seen. With the upcoming election will there be a risk-off fervor to all the markets?

Martin: I think you're getting it first or you're going to get it gently. If we rally into November 3rd I'd be a little concerned about that. I have timing for that and I have timing for a high there.

Yeager: Concerned in what way?

Martin: I'd probably be selling the market.

Yeager: Because of a certain person winning? Is that what you mean?

Martin: No, just because of timing that I have in the marketplace looking for a high there actually on beans and corn will probably fill in a little bit with that. But do I think that's a long-lived high on corn? No. Beans probably not either. If you take a lead contract of beans and on year in, year out, just the daily chart of November beans, a lead contract, you can get a fourth count at $11.47 I think it is. If I take November beans year in, year out, on a daily chart, nothing but a November contract, 2018 goes off, you put '19 on there, that goes off, put '20 on, I can come up with $12.54. Now, do we get that this year? I don't know. I kind of think not but wherever we're at, if we're rallying into November 3rd, I want to step aside and take that money and be gone.

Yeager: So there's a side question to this in a way. Josh in Herrod, South Dakota and Jeff in Central Nebraska both asked kind of the same question here. Why would China cancel when they have beans locked in at a much, much lower price? And Jeff asked, what price does China start canceling contracts? The reason I come up out of the election is because there is a theory that one cancels on President Trump or one will not cancel because of President Trump's election or defeat. But Ted Seifried sat and told us just a couple of weeks ago and stood up on a chair and I think you're about to do the same thing, you don't see China canceling.

Martin: No, I don't. I agree with Ted. China needs everything, they need it. They've got such a huge demand pull for both corn and beans, for hogs and poultry. And so therefore I don't see them canceling. Plus, it has been said they might not make the 36.2 or 36 billion dollars that they need to make. Well, if that's the case do you think they're going to cancel? No, if Trump gets in they're not going to cancel, they're already working on phase 2. And if Biden gets in, well I think they're going to take it anyway because what's happening, are they going to cancel in front of the uncertainty of a South American issue when they're already bought ahead? Brazilian farmers are over 60% sold with some even sold into 2022 to China. You've got a grain robbery going on and then you throw in a weather situation with it, it's a good time for farmers, it's going to get better.

Yeager: All right, Sue, we can do this all day and all night but I know that people do need to get back to combining. Thank you, Sue.

Martin: Thank you.

Yeager: That will do it for this installment of Market Plus. Next week we're going to look at a story that has monumental impacts on western stakeholders and Ted Seifried will join us to analyze trends in the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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