Market Analysis: Sue Martin

Market Analysis: Sue Martin

Feb 26, 2021  | Ep4628 | Podcast

Podcast

Export sales reports took the wind out of many markets this week as lower totals sent some long contract holders for the exits. For the week, May wheat gained a nickel while the nearby corn contract added six cents. Another large outbreak of African swine fever in China is likely going to curtail the demand for U.S. soybeans. Nearby soybeans improved 24 cents.  May soybean meal dropped $2.20 per ton. May cotton shrank by $1.65 per hundredweight. Over in the dairy parlor, March Class III milk futures declined 5 cents. A mixed week in the livestock sector, April cattle fell $3.68. April feeders dropped a dime. And the April lean hog contract added $2.65. In the currency markets, the U.S. Dollar index gained 46 ticks. April crude oil increased $2.62 per barrel. COMEX Gold weakened $50.90 per ounce. And the Goldman Sachs Commodity Index added more than 9 points to finish at 477.85.     

Yeager: Now here to provide insight is one of our regular market analyst, Sue Martin. Hello, Sue.

Martin: Hello there.

Yeager: All right, so exports is what I started to try to say smoothly, but sometimes it doesn't always go that way. The export sales we've become accustomed to a certain level of exports here in the last couple of months. I want to start with a question that came -- we got a lot of great questions via Facebook and Twitter -- this one came to us from James in Oklahoma. And it's a little bit about stocks and exports. He says, with large U.S. and world wheat stocks, what is the justification for these prices? Is it exports? Is it something else?

Martin: I think it's, one, global supplies you might think that stocks are burdensome in wheat but they're not. They're in decline. And U.S. stocks are tightening as well. And then you have corn which is interchangeable with wheat and our stocks are tightening considerably there. And so the only domino left to fall in that category would be rice. And rice stocks are aggressive in the world at this time. So wheat is moving along because it's a food item, China has imported wheat, they took in January, or December I should say they took pretty much most of the Chicago wheat deliveries, which is unusual. And I think that when we look at the wheat market, here is a market that has gone through, it's like a cat with nine lives, you keep trying to kill it but it doesn't seem to die. But there's the uncertainty of knowing just how the U.S. crop has fared through this bitterly Siberian polar vortex that we went through and then that is on top of Russia being very concerned about their supplies and domestic food inflation prices rising to where they have added on export tax and on March 1st another one goes into effect. And so then you've got Ukraine who has also become very protectionistic of their supplies. So I think it's a fundamentally demand driven market.

Yeager: You mentioned the weather. We're going to get a good sense next week, because if you looked at the snow pack picture from the beginning of the week to the end of the week it just disappeared in two days in the Wheat Belt. Is it one of those live we will find out if we spent in the wheat market next week? Or do you think we already know and the market has already factored it in?

Martin: No, I think the market is still in quandary as to what really is out there and the condition of the crop and they're waiting. This past week the crop condition ratings that we got were a little, they were optimistic I guess and traders were disappointed. But that also we had to realize that was a very early crop condition rating and those are going to change appreciably as we go forward. So I think that when we look at the wheat, March is a month that you start breaking dormancy and then you have a seasonality in corn where prices tend to decline. So you've kind of got the two playing together and we've had a lot of velocity in the wheat market here and $7, you get close to it and it seems like that is a magical number. So we're falling back and the market is kind of just saying I need to rest for a minute.

Yeager: Magic numbers are floating around in corn and in soybeans. Let's start with corn first. There was one question that we had that somebody was asking, when are we going to put a 5 in front? We had a 5. When are we going to put 6 or 7? Are those magical numbers out of reach in corn?

Martin: No, not they're not. I think, we've talked about the gaps that are on these individual contract months, July corn, Sept corn, December corn and they go, there's various combinations and they go all the way up to $7.09. So I do think we get them. Do we get them all this year? Probably not. But we get a chunk of it and then we'll catch a pullback. I don't -- July corn, for example, made new contract highs here in the month of February. Normally very rarely would you put a February high in and that be, especially after a post-harvest rally, and that be your top for the year. It's I think you've got better coming yet and I would have to say we might see a healthy correction first.

Yeager: Because you have said in the past, I think maybe just in the last couple of weeks you have written that when we perform well in February that bodes well down the road.

Martin: Yes it does. It has a very strong tendency when you take out those post-harvest rally highs, in other words that's from November through January, in February and it's a new contract thigh then you tend to come back and make higher highs again. And this year is following, this is a question that probably is going to come up, but we are following the path of 2008 pretty closely.

Yeager: All right. And somebody wanted to know, are we?

Martin: Yes, yes we are and in beans as well. However, it is just not 2008 that we're following. Even in beans I have 2 studies where one is on May and one is on the July contract and we have set those up, it took us right almost to the end of the month to get it done, but they're set up as well and the key here is that we're in a demand pulled market. And I went back and I looked at the year of 2008 but there's other years that are very similar as well. But in 2008 I thought it was rather interesting, it started off with a client asking me, could you go back and look at 2012 and see if your cycles were the same then? So I went back and no, they were clicking every month just like clockwork. And so then I thought, I'm going to go look at 2008 because China was a huge buyer of commodities into that year. They were awarded in 2003 the Beijing Summer Olympics and when that happened they needed everything.

Yeager: We were just talking about that last week after the show with Elaine, we were discussing the Olympics. So, with soybeans though there is a question that is floating out, have they left the party right now in buying? Have they taken a pause? Do you think they're coming back? Using your '08 and '12 references that you were just marking.

Martin: Well, I think that we made the new contract highs so I think there's very good potential that we will come back and make higher highs again for the year. I don't think our highs are in period for the year straight across, especially corn and soybeans. But I do think we are going to have a pause. One of the things that feeds that thought, not just because it happened in 2008, but you've got, there's several things. One is my cyclical work that I do. Ironically that year is identical to this year, maybe a few days off in time, but pretty close and we broke that year before we renewed the last hoorah rally and Chinese buying then culminated. Well, this year we've got Phase 1 culminating. But the other thing is, is that you look at South America and you look at Brazil and very late in getting their crop in is part of the reason they're late getting it out. And then the rains that kept coming across the north. Now we're seeing the European model waffle a bit and kind of show that they might start to dry out in the north and a ridge set up and if that occurs that will push rains to the south and then on into Argentina, which they badly need. That kind of gave us a chatter. So we do have a weather market going. But in the meantime, the concern of tight supplies, U.S. supplies, how tight we are and then you look at the draw that the farmer in Brazil sold so far ahead early and then all of a sudden he had to stop because he wasn't sure how his crop was going to be and now the quality issue is coming into play because we don't know what that true quality is on those beans with the rains that have been coming. That could impact some oil content. And then the other thing that we're looking at, of course like with China with the ASF, concerns there that they might slow but their crushing margins aren't as great right now either. But more than anything it's our stocks, how tight they are, tight supplied. And the COVID did pull into the demand side for veg oils, everybody is cooking at home, we're not using used oil and reusing it like in a restaurant sometimes. Everybody is cooking at home.

Yeager: Big demand. Okay. So soy oil was a story for the soybeans. But also I want to flip into the hog market just a little bit because there is the report of the emergence again of African swine fever in China. Hogs were the livestock winner this week. Is it because of China that we're up in hogs but yet down in soybeans a little bit because of less demand for feed? Was that -- we had that debate about a year ago, two years ago.

Martin: I think more than anything the market has had a huge run and it's kind of tired. It has taken a whole month to get the higher highs in beans. Okay, now you look at hogs and I've been bullish hogs for some time and it's starting to be more towards fruition, it's not done yet. I believe that you're going to take June hogs to 100 and that is kind of a magical -- we've been there before. The all-time high is 133 something. But I think that when I look at the hog market pork is probably a cheaper product of meat, you have pers going on in the U.S. and PED virus following up on a year when you had liquidation because of horribly cheap prices and packers not able to process all the animals and what have you. And then you look at over in China, they're in the process of getting themselves back up to speed, they said by June they would be back to where they were to begin with before ASF hit them. That's fine. They're moving more into a westernized commercial oriented, more efficient situation, production situation. And when I look at China do I see them stopping at that level where they once were? No, I think they're going to surpass it because food is so critical right now and they want supplies and they need to replenish their supplies.

Yeager: Let's move into the cattle market because inflation is a concern a little bit on the consumer that is going to buy on the live cattle market. Is that a weight do you think on live cattle?

Martin: Well, the cattle market is ironically, go back to the year of 2008 again, and here again cattle were doing the same thing then that they're doing now, don't know for sure just totally why. But I will say this, when I look at the cattle market, first off, the recent really bad cold snap, the black swan event that happened all the way down to the Gulf, there's a lot of utility bills that are going to have to be paid and that is going to, in the old days and I think it will again, it's going to interfere with the grocery bill and that is beef that is probably going to take a back seat to other things. You have an earlier Easter this year and that is on April 4th. So I think that is weighing on the beef market a little bit right now too. And then today on Friday you had the expiration on the February contract and it went off the board at $113.90 on its face. That is a little disappointing. I don't trust cattle.  I don't think they're done. There is a major trendline of support about I want to say around maybe a dollar lower than where we closed on Friday but I don't trust this market very well.

Yeager: Okay, what about the feeder market in 30 seconds? They're also weighted with some of those factors but the feed issue is still a problem.

Martin: Well, the feed issue is a problem and I hear this often that it's kind of like, well back in my day when I started it didn't matter what feed costs were, that didn't mean prices had to go up. Unfortunately I do think that feed costs are really going to irritate the cattle feeder, producer, for some time, at least into June and July. Then we'll get some relief and they better use it to lock up all the way through 2023 if they can.

Yeager: We'll talk signals and what to look for in Market Plus. Thank you so very much, Sue. Good to see you.

Martin: Thank you.

Yeager: All right. That will do it for the installment of the TV show we call Market to Market. We will keep it going in Market Plus so join us there. Find that on our website of MarketToMarket.org. Now, during the next few weeks we're headed into an important part of public television, pledge time. Many of the stations that carry this program may shift when we are on but the message is clear. If you value the work done on this program, please consider supporting the work that we do with a financial contribution to your local PBS station. Next week, we check out the report card for the Mississippi River. Until then, thanks for watching and have a great week.

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