Market Plus: Sue Martin (July 20, 2018)

Jul 20, 2018  | 11 min  | Ep4348 | Podcast

Podcast

Howell:  This is the Friday, July 20, 2018 version of the Market Plus segment.  Joining us now is Sue Martin. Sue, welcome back.

Martin:  Thank you.

Howell:  So, we didn't get to talk about cotton or hogs during the main program.  So, I want to make sure we get those in before we get to our social media questions.  Let's talk about cotton first.  Why did we see cotton loose so much this week?

Martin:  Well, I thought it was interesting because here we are with a forecast of some of the hottest weather in Texas and yet the market went down.  And I think it is kind of one of those weather markets that has priced in, kind of like our corn market, you know the hottest day the day after the fourth of July and the market goes down instead of up.  I think that part of it also could be tied back tariffs and also cotton acres were up this year aggressively and so I think it is the mix of all of that.  Cotton is also and oil see and because of that oil seed production looks like it is going to be up pretty good this year.  Stocks are rising especially in the soybean oil.  Malaysian palm oil stocks are increasing there and it is in decline and so because of that we have also seen India out of our market.  So, I think that is weighing on cotton in another direction also.  I think that cotton probably should be hedged here on any little rally we get I think it should be hedged.  Granted if you a producer in Texas it is probably hard to do that right now. 

Howell:  Definitely it is.  Let's talk about hogs.  With everything that has been going on tariff etc., what position would you looking to take right now in the hog markets?  

Martin:  I would buy it.  I'd buy the hogs.  I think that one weights are dropping.  You have a cash index, hog index that is running about 12 dollars, I think at one time on Friday it was $12.70 over the board August futures.  So, I would be buying it.  In fact I would be buying out of the money cause.  They are very cheap, very cheap, and also exports are starting to pick up.

Howell:  They are.

Martin:  Yes and demand for pork seems to be increasing.  So, I would be of the opinion, I know we follow some indicators that are all looking positive - about to turn positive for hogs.  So, I think I would be buying the August hogs because you have too wide of a basis spread from the futures to the cash index and we have seen that in cattle and it tends to narrow in.  And so even if the futures go up some and cash index comes down, I think you could easily get back to 71/72.

Howell:  Would you just be looking to buy the August contract?

Martin:  I tend to like the August the best and I would probably use that rally at some point to possibly, maybe it will take us into September but I would probably use that rally then to go back after the short side of December.  This fourth quarter is going to be an interesting time.  I am fearing that we are going to have a boat load of protein around between poultry and pork and beef.

Howell:  Flooding the domestic market.

Martin:  Right.

Howell:  Sue, I wanted to ask about a statement that you have made in a previous program.  You said in another market episode when we had you on corn was heading to 4.25 and obviously that is not the case now.  Why were you saying that at the time?

Martin:  Well, futures had hit 4.29 and we have had the December contract there three times now in the life of that contract since it came on the board, the 2018 contract.  Corn has huge demand base underneath it.  Now at the time I was on, I think it was for Memorial weekend and in our market letter we did alert subscribers that there could be some timing for a high around the 29th of May, but I really thought the true highs would be around June 10th to the 18th.  Somewhere in there.  

Howell:  Prior to all the tariff stuff that happened. 

Martin:  Yes and so I guess, you know when I was asked would you be selling cash corn here?  Yes, I had to hesitate, I know I hesitated for quite a while but I also said be sure to retain some ownership.  My fear is that at some point here producers are going to get caught selling in the hole and then no protection to the upside.  So, we have been really suggesting if you sell grain, get some calls bought.  Probably you need to be out into 2019 because we are going to need the time, but I do think the corn has a very bullish demand base.  It is just getting through this movement that we are in.  I don't see a much lower low than what we have been into, but I just think it is all forming this bottom and then getting up through the recent major highs which would be 3.74.  Something like that.

Howell:  Exactly.  That will be a great springboard here for the next question.  I am going to take a social media question here from Glen Newcomer.  With the price movement is it safe to say that we have established a floor for beans?  If not, why?

Martin:  Well, I do think we have got kind of a floor established.  We do wave counts and they are not Elliott Wave and we hit a wave five and wave fives are very rare.  I am not sure I have ever seen one in beans.  I remember cattle about two years ago.  We hit a wave five and so the market has stabilized against that.  What might happen is we might turnaround, push back down, take a look at it because beans really don't have near the bullish fundamental base under it than what corn has.  So, I think beans could turn around, come back down, take a look at it.  Here is an interesting thing, I w5ent back and I noticed sometimes years will mirror other years of market behavior and the bean market seems to be following the patter of 1978.  In 1978, November beans put a high in on - or a low, I should say, on January 17th.  This year it was January 12th.  That year it put a high in on May 30th which felt like it should be the high for the year, appeared like it, and this year it May 29th.  That year we fell into about the same time this week and turned around, got a rally into about the 25th.  So, we shall see.  Do we rally into the 23rd?

Howell:  How much of a rally are we talking?

Martin:  It wasn't a super big one but it was a corrective rally which is kind of like what we are doing right now.  Then the market turned and it broke back down into August 8th.  I have cycle window timing for August 7th.  Will the market keep this pattern going?  It might and the interesting thing about that year after it had that break?  It turned around on August 7th, started up not real fast and all of the sudden it was moving to new highs for the year by October 30th.  `

Howell:  Ok, so watching around that harvest timing.  

Martin:  Yes.  It maybe that we do a counter here and of course we still have a lot of growing season left.  

Howell:  We do.  We do.  Absolutely weather is definitely going to be a factor there.  An interesting question came in this week as we were talking about all the things going on kind of on the fundamental side.  We had a question about lab grown or cultured meats.  Lexi Freund said with lab grown or cultured meat gaining momentum what will be the repercussions to the protein industry and will these synthetic products become competitive to those normal proteins in the market?5

Martin:  I think it will compete a little bit against possibly it could compete against hamburger.  It could also compete against poultry, a little bit, but I wonder if it won't find more of a niche with people who are vegetarian only because they don't want to eat meat because of environmental protection and animals.

Howell:  Humane stuff.  Yes.

Martin:  Yes, humane.  I wonder if that won't be more of a niche for them.  But also in place of veggie burgers and what have you, it may take on presence there.  I have to say lab grown meat just doesn't sound very palatable.  

Howell:  No, it doesn't.  I agree.

Martin:  So, I have to, you know I wonder about that.  It may also be a product if they can get it priced right, they might be able to send it into 3rd world countries.  That is probably a long stretch for a while.  The other thing is they are going to have to do a fabulous marketing blitz to get that one going.

Howell:  Probably not call it cultured meat or lab grown dish meat.  Something like that.

Martin:  Yes, they need to find a different name.  Something catchy but different.

Howell:  Absolutely.  Well interesting thoughts there Sue. Let's take just one more question from social media.  Tim Dufault says he still has about 20 percent of his old crop and 10 percent of his bean, I am sorry old crop wheat and 10 percent of his beans.  If he needs some cash flow for expenses what are some options that he and other producers have? 

Martin:  That would have to be old crop that he has talked about.  I would say take advantage of this rally that we are getting and market it because - and you don't want wait too long on this especially if it was corn, I would say especially.  Beans I think there is kind of a niche.  The processors seem to keep pulling for beans and so there is good demand, I think for the crush for soy meal, but I would say go ahead and try to move it on this rally because I do think we are going to catch one more step down.  Now that said, if we rally into August contrary to what I am looking for?  That maybe a kiss of death that it prolongs our break into more Fall like October, November, something like that.  A year ago corn put its lows in December for last year and I don't think we have that and I do not think this is a year where we put lows in at the end of August, early September.  I think the lows are going to come just a little bit sooner or that is what I would really to see.  For corn, my one concern and I am hearing that corn has really been moving out in the countryside.  I hear it in other states too and that is good.  But if a person is hanging onto old crop corn and they hold it too long into August or - and are trying to get rid of it in September. 

Howell:  When everybody else is harvesting.  

Martin:  Yes.  Other years there is a market for corn in September and that contract can go old crop, new crop.  This year it may be a new crop contract and that could kind of hit them hard because of the old or the new crop harvest coming on sooner than you think.
  
Howell:  Absolutely.  Well, Sue Martin always a pleasure.  

Martin:  Thank you.  

Howell:  Join us again next week when we look at new uses for the next generation of cover crops and Mark Gold will sit across from me at the Market to Market table.  Until then thanks for watching, listening or reading.  I am Delany Howell, have a great week. 

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