Market Analysis with Sue Martin

The weather in Brazil made for some extremes in conditions and ushered the return of volatility to the trade. For the week, the nearby wheat contract was even and the May corn contract added a dime. The meal portion of the soy complex helped drive the trade higher.  The July soybean contract gained 38 cents while May meal added $27.50 per ton. July cotton shrank by $3 per hundredweight. Over in the dairy parlor, June Class Three milk futures surged higher by $1.19. The livestock market was lower. June cattle fell $1.90. August feeders cut $5.80. And the June lean hog contract lost $3.53. In the currency markets, the US dollar index decreased 96 ticks. June crude oil fell $5.57 per barrel. COMEX gold dropped by $42.30 per ounce. And the Goldman Sachs Commodity Index was off nearly 23 points to settle at 573.85.

Yeager: Joining us now is regular Market Analyst Sue Martin. Hey, Sue.

Martin: Nice to be back.

Yeager: Good to have you here. Wheat last week was this bright spot, pulled everything along with it. Then wheat had its ups and its downs, even on the week. What does that tell you?

Martin: Well, last week into the early part of this week we've seen, for example, KC wheat reach the 200-day moving average and it was the first time that we had visited that since probably July 31st, August 2nd, around in there. So, naturally the first time at that resistance it's going to be tough. And the market had been pretty much straightforward and there's an old saying in the wheat market, the wheat doesn't take any prisoners because it kills them all. And it just goes very quickly. So, the market fell back to support and found support around that $6.22, $6.24 area and then on Friday turned and rallied back to breach the 200-day moving average again. However, it didn't hold it. But, again, it was going to catch some selling there. But I think the wheat market still has fundamentally reasons to still maybe try to push higher again.

Yeager: So, you're seeing a little move higher in the near-term?

Martin: Yes, I am. Seasonally wheat does move or tend to be firmer into mid-May. So, it's kind of doing its thing that way. Usually what helps us is that we're catching some frost freezes in hard red winter wheat areas and we haven't really had much of that. It's just that that area is very, very dry. Kansas is very dry. It counts for, what, 30% of the nation's crop. I think that the other thing is we're looking at, well the reason we kept staying down and breaking so much was because of Russian competitiveness. And Russia is very dry and warm in their southern portion of the country, which is where 40% of their wheat is grown. And so, we've seen values, freight on board values, firm and that has been helpful to us. But also, Ukraine is dealing in the eastern portion of the country with the same thing. So, I think it's more than just us, it's the whole global picture, and that is helping us push this market higher.

Yeager: Corn was pulled along by wheat a little bit last week. But then corn seemed to have its own independent story this week. The July contract, for example, took out the April high at one point this week. Why is it breaking through resistance now?

Martin: Actually, both July and December corn took out even the March high. So, we're at the highest we've been since the February 26th low. The corn market is responding to several things. One, of course, being into May and the thought of with the rain and everything that we're going to slow up the planting. Two, you've got less acres coming down the pike here. And so, if you take the reduction in acres that the prospective plantings report talked about and you look at the 181 trendline yield that they're using that we'll probably see next week on the report, you're looking at 500 million bushels less production. And then if we shake it all down, you're going to be looking at a carryout, or a carry in to the new crop of at least 500 if not 600 million bushels. So, then we have to look at ethanol usage has been strong. Feed usage has been strong. And exports have been pretty good because you've had Mexico and Columbia record imports, thank God for Mexico and Columbia. And so, I think the corn market kind of has its own mission. We may next week end up with possibly, I think it would be great if that carryout was a push with what we've had. But we may end up 100 million bushels more. But this is, we have to keep in mind, this is the start of our season really. And then you look at Brazil and the center and northern portion of Brazil has turned very dry. And if they put heat along with that, that is going to cause some concern there too. And then you've got Argentine corn with those leaf hoppers and the Buenos Aires Grain Exchange reduced production by their estimate by 3 million metric tons down to 46.5 million metric tons. That's 10 million metric tons less than where they started.

Yeager: Well, let's look at a little bit of seasonality the way things come together because you kind of covered the deferred contract there. But Phil in Ontario gets another question on the show, two weeks on a row, that's a streak, Phil, if we can put it together for three next week. It's been a bearish time for grains over the last year. Thoughts of $30 beans so long ago. Seasonality almost in the rear-view mirror. Or is it? Is a big rally for grains coming soon or more of the same?

Martin: No, I don't see it coming soon. We are, if you've noticed the markets, they're real volatile, they go quick and they move fast. But when you look at markets, and some say $30 beans, really? Well, I still believe that we have that potential but not this year because, first off, look at cocoa. Who would have thought cocoa would go over a hundred? Or look at orange juice over 400. Now, do you know what kind of a percentage increase that was? Now, those are two markets that we can live, if we have to, at the grocery store we can get along without. But to be honest with you, when you come down to food and global demand is up 6% and you look at the production and where Mother Nature is kind of picking away a little bit, now we've had bean production globally kind of pushing higher the last few years, we may look at that again if everything goes nicely. But the weather forecast is calling for a hot summer.

Yeager: When you look at beans, specifically that old crop as we're trying to finish it off, we do again, like in corn, we took out some of the shorts kind of went crazy when we hit some 50 and 40-day moving averages. What encouragement do you see -- there's a question coming in Plus about beans in the teens -- but I'll ask you now. Possible?

Martin: Yes.

Yeager: This year?

Martin: Well, you'd be saying $13 beans and I'm going to say it is possible but it's going to take getting some heat. And the forecast is June and July turns hot.

Yeager: So, then on the November contract, again, supported by heavy fund selling, but the weather then plays into that one as well. You look like you have a smile about November beans.

Martin: Well, November beans, if you didn't notice they took out the April high. The July contract this past week did not. It came within one penny. And I think that will happen. I've often talked about the election rally and we're in the election rally. We're working on it. Corn has already, like I said, made higher highs since February. Beans will be doing it next. Rio Grande do Sul, they're 25% left to harvest maybe. So, you're talking some are trying to say as much as 5 million metric tons reduction in production there. That could almost be a tongue twister. But I think I would have to say I would think more like 3 million metric tons reduction. And then again, you have to understand, Rio Grande do Sul is number three producing state in Brazil. So, again, we're kind of rolling that back. And the yields elsewhere weren't as good as everybody had hoped they would be. So, the question mark is this next week on the supply demand report, will WASDE be willing to reduce that production number now, now that they have been able to see the majority of the production? And they might. But I will say if we get into our season and we start rolling with some heat, and last summer I felt like that wasn't a hot summer, that smoke really encompassed a lot of the Midwest corn and bean production, that saved us. This year is going to be a little different. I think you're going to see the heat and the dryness and that could be what then sets this thing even more in motion as we move into July.

Yeager: Let's move into livestock for a moment. Live cattle and feeders and hogs all lower this week. Cattle is still trying to sort through some of this HPAI influence. The packer is losing money. Which factor is the biggest to you right now?

Martin: Well, the high pathogenic avian influenza is probably emotionally the big one because it's the unknown. We had testing that came back from the USDA saying they were negative, which is good. But if you want to put it in perspective, unfortunately you're talking about ground beef, every family eats ground beef and you have all your fast-food chains. So, the uncertainty is there. But our exports this past week were fabulous. They were up, what, 38% on the four-week average and they were also I believe a record high for sales. So obviously somebody overseas likes our meat. But when you look at the bird flu in chickens, of course they would get rid of the population, but that's an easy turnover, that's quick. Cattle is not that way. And in the meantime, did we quit eating chicken? No, we didn't quit eating chicken. Did we quit eating eggs? No, we didn't quit eating that. So, I think right now it's more of an emotional thing, the uncertainty, and any time you have uncertainty in a market they're going to send it south.

Yeager: Any uncertainty in feeders?

Martin: Well, feeders will go by way of fats. But I will say this, we have indicators, and I might have alluded to this before when I've been on the show, that are proprietary and they have served us very well and they're sitting on very long-term data and there's three of them that have to click together. And two of them are negative and the third one is not. It's still sitting at 99%, doesn't go to 100%. And I'm looking at that and I'm wondering, when that turns south, and it will, I'm a little concerned because I went back and I took years in which we had April cattle put highs in, in March, late February or March and closed higher at that time and then came into April, made lower lows for the month and closed the month lower. There were 17 years that this occurred. 12 of them went on to close lower at the end of April and out of those 12 I think one of them saw June cattle put a low in on the last day of April, but all of them pretty much of those 12 preceded to break on down to lower lows than April in May and many times into June. Then I looked at August and the August contract tended to sometimes strike a low, maybe try to bounce, but if we rally cattle, I don't think we're going to rally cattle into August, it's better if we don't.

Yeager: We'll see how it plays out. We'll also get your thoughts in hogs in Market Plus. Thank you, Sue.

Martin: Thank you.

Yeager: Appreciate your time. Sue Martin, everybody. And as I said, we're going to pause the Analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. Even if your fieldwork is at a standstill, you can still catch up on our three podcasts, the Market Analysis, the Market Plus and the MtoM Show. Each are available every week wherever you get your podcasts. Next week, an in-depth look at planting progress. Thank you so much for watching. Have a great week.

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