Market Analysis: Sue Martin

Market Analysis: Sue Martin
Market to Market | Podcast
Feb 18, 2022 |

Sue Martin discusses the commodity markets.


Yeager: The market seemed stuck on the treadmill of South American weather and Russian aggression. For the week, the nearby week contract was even while May corn improved 2 cents. China sent signals they're looking to reduce soy demand, but kept making purchases. The May soybean contract gained 17 cents. May meal lost eight 30 per ton. May cotton shrank by a $1.75 per hundred weight. In the dairy parlor, March class three milk future shed 31 cents. A mixed week in the livestock sector. April cattle cut 30 cents, March feeders declined 80 cents and the April lean hog contract jumped up by $7.17.  In the currency markets, U.S. Dollar index lost one tick. March crude oil dropped a dollar 92 per barrel. Comex Gold rose by $32.40 per ounce and the Goldman Sachs Commodity Index increased more than five points to finish its 643, even. Joining us now to provide some insight is Sue Martin. Hello, Sue.

Martin: Hi, Paul

Yeager: With wheat, we could easily just again, discuss Russia. Ukraine has that story. Has the market absorbed it and now looking for other, uh, fundamental news to move it, like say a cold snap coming to the plains?

Martin: Well, I think it depends on which market you're looking at. Uh, I think that, uh, the cold snap is affecting, I think it affected KC wheat on Friday. Uh, I think that, uh, yes, the Ukrainian-Russian geopolitical situation is an underlying support and you hear so much news and how much of it's true and how much of it isn't, you know, are starting to get used to that, but it has the market ebbing and flowing. There's a little bit of, uh, disruptions in the Eastern part of Ukraine. The, uh, dissidents that are really preferring to be Russian, um, and speak Russian are probably making a little bit of end rows here and if need be, Russia will try to protect them if they have to. Uh, but at the moment there's, we're kind of on a status quo. Um, so we'll see what happens.

Yeager: Because it's been an influence on all the markets, really corn and soybeans, to an extent, but let's very much, let's go back to wheat and wrap that one up. Uh, if I'm someone here in the states, we're, we're getting up on that acreage report, we know our winter weeds kind of in, we just hope it comes up. We just don't know. How do I protect myself right now?

Martin: I'd only do it with puts, uh, because I do think that we've got some bitterly, cold weather coming and, you know, wheat’s coming outta dormancy as we move into March and through March. And you know, when you're dry or dirt freezes easier. And, um, you know, that might allow for it depend on how cold these temperatures get in the 20s and they stay there. Uh, it might be that they try to freeze down into some roots. Um, I think that, uh, the wheat crop, this is one year that we're gonna find out, does it really have nine lives.

Yeager: We truly are. Especially after that storm in December, we still don't a hundred percent know all of that. Let's flip to corn, uh, again, uh, dependent a little bit with Russia, Ukraine, but there's still that South American story that's underneath there, which is winning. Do you think in terms of having the most way over the direction?

Martin: I would have to say it's probably more the South American concern. Um, Argentina is number two exporter in the world, especially after, uh, Brazil had their issues. Last year. Corn to me is the evolving market. It's the one that still has a big story to write. And, uh, when I look at, uh, Brazil, uh, they're estimated at around a hundred, I think I, may, estimated at 113 million metric tons, USDA sitting at 114. Now, that's still a record crop far down from where they started. But it's still quite a bit over 87 million metric tons of a year ago. And everybody keeps ‘em remembering that. However, if the forecast remains--and you're planting Safrina now, and that's about 70, 75 percent of the Brazilian crop. So if you go dry through March and April, you're gonna have a market on fire. And I suspect it won't even take getting well into April. And then you look at Argentina. And of course today there was reductions in their production estimates. And even, uh, in the bean crop, you know, the good to excellent was dropping 9 percent. Um, you know, but they do have a forecast of rain, some pretty decent rains here by midweek of this coming week. And if those rains prevail, it could stabilize the crop for a minute. But, um, we'll have to see, because in January we heard that same story, looked back, and the rains were disappointing,

Yeager: Right. And then once you wrap up the months that you're talking about in South America, we're all of a sudden turned to it here and it becomes a story. Are we setting up, uh, for a, uh, that we've just begun to see a March higher in corn?

Martin: Well, I think this next week you'll have the USDA, Ag Outlook Forum. And, um, they'll tend to come out with the acres and, and they, they don't do too bad of an estimating of acres. Um, I tend to think we're gonna see a reduction of course, in corn acres. And so it's a matter of how much, so the trait's gonna be watching that along with the weather in Argentina and Brazil. And, but then here's the kicker, you look at the weather and we go into our weather. Now there's some varying forecasts out there. There are some who are talking bitterly, cold weather through March and April. I have my sources that I really like, and they're talking that we're going to be warmer, maybe cool in the first part of April, but then we turn warmer by the latter part of spring or the last half of spring, and then we're hot right on through the summer. So if that be the case, let's say that the ones who are talking cold weather are right, that's gonna be kind of a market mover too, because of the fact that it's gonna delay the planting and the ground, temperatures

Yeager: Slow the, the plant, once it gets into the ground.

Martin: Exactly. And then it slows you. And then you get into that warmer dryer period. And all of a sudden, there you are.

Yeager: With no root system to, to handle hot and dry

Martin: Exactly the corn market. To me, you look at what's going on and you know, you look at, um, uh, China, and this could even almost infringe on beans too, but you look at China and here's the kicker, back in 2019, we talked about COFCO, uh, showing up in the deliveries, taking the over 90 percent of the in fact, 90 plus percent deliveries of soybeans. Then now you get in and that's in ‘19, when they've had no bad weather, then you get into 2020, and they've had the most horrific weather. They were worried about the Three Gorges Dam going by the wayside, you know, breaching and, and worst flooding in a hundred years. Now, are we to believe the crops were good in that year, then you get into 2021 and they experience flooding again in and releasing waters from a lot of their dams that, um, basically were in country sites, farming areas. Now how can, how can, uh, the, the crops have been so good? And they said, they came out with 275 million metric tons, didn't show much of a reduction. But here's the kicker, in March of last year, the, uh, food and commodity reserve administration started to crack down or started to admonish, uh, the, um, state own grain enterprises or state own enterprises of the country, like Sinograin type of a thing. And also their supervisory managers of the granaries started to kind question 'em. Then, as you recall, we got in through, um, you know, the, um, um, pandemic in China and the government was saying last year, last summer, you know, asking people to really conserve their food, not to be so wasteful. Why did they say that? Well, one, I suspect their factories weren't running any better than ours. They had everybody locked up

Yeager: And the reserves that may have been there, aren't there anymore. Exactly. Given what you're saying, and I'm sitting here with maybe some new crop unpriced. Do I hold to given cuz there's a whole lot of story that could still develop in this new crop soybean?

Martin: Yes. Um, I I'm recommending that when people price stuff this year, because we still have the U.S. to go through and I think we're gonna be the frosting on the cake. But, um, when you go through that, uh, pricing, one, I would not tie up basis because if we have a weather market on the tie up of south America, our basis is gonna be ballistic. So I'm recommending buying puts or doing put spreads and you'll have to talk to your broker, um, for the recommendation of those spreads and you have to manage those, but it'll help cheapen your cost. The other thing is, if you go to the elevator and you're bent marketing and, and I get it, you know, $6 futures were right at $6 on Friday, 5 99 a quarter, whatever I, you know, I have to say, okay, if you wanna do a percentage, lay some groundwork and maybe do hedge to arrive. But to be honest, my favorite would be more doing put spreads.

Yeager: Okay. I need to get to livestock. Let's go out of order for a minute on hogs. This has been a seven, almost $11 run in the last three weeks. Does this have more steam in it?

Martin: I think it does. Um, the hog market, you know, here's the kicker on hogs one, you look at China and I think they have around 355 million head of hogs. And I know they have like 43.8 million sows And you know, those sows have gotta be bred. And in the meantime, prices have been dirt low. You take the eight largest producing entities in China for pork, and they've lost combined $8 billion plus in this past year. Then you look at the mom and pops who are the biggest percentage of producers and look at them how much they're losing. You know, there's going to be a liquidation, which will put a lot of product onto the marketplace. So once we start to see pig prices base out and stabilize we'll know that that break is probably over with, but there are looking at expanding poultry production and that's a, a corn and meal user.

Yeager: Yes, that they need some feed

Martin: And they're looking at expanding and increasing beef production, cuz they're getting a good taste of us beef. So they're looking at that. They're not gonna expand the pork industry. So when I look at what they're doing and God forbid, if they down with avian bird flu, but they're looking at trying to increase proteins in their country and they're doing, going to do so by 2025, that tells you there's gonna be a good need. And if their granaries are empty well, but the pork industry, the hog market, not only are we looking at the demand around the world because you had liquidation going across parts of Europe, but you look at the US, we've had PRRS. We've had PED virus. We've had ASF, you know, it's uh it's and that's on top of the liquidation we went through in 2020.

Yeager: Okay. Hold the thought on hogs. Let's go to beef real quick in the last 45 seconds. Uh, the, the feed price has been hard for a lot of these feeders to handle. Is there any relief for them or any strategies they can do?

Martin: Well, there's no relief for in my, in my mind, you know, my glass is half full. So I would have to say some, well, you know it, cattle prices can't go up because corn prices are higher. Normally the old fashioned way that was true and may still be. But the thing is, is it rationing the use of corn? Are they slowing up buying feeder cattle? No, they are not. Last year. Corn got to $7.75 And it didn't stall a thing. So here we are. And we're seeing cattle because of the dryness in pastures and cattle country coming off of grasses into the feed lots. We're gonna see heavy placements in, you know, in our next report.

Yeager: More to come. I always have to interrupt. I'm so sorry. I know, I know. We'll continue it though to say thank you, Sue. We'll continue it in Market Plus. Because that's gonna have to do it for this TV show. Market Plus available on podcast forum also on our website of market to Hey, we wanna let you know that we are coming up to the pledge season. Uh, if we're public television stations like this one are asking for your support. We may also be airing in different time slots to accommodate changes in schedule. So if you value the work of this program and your station, please consider making a gift of support now. Next week, the first indicator of the winner in the looming acreage battle. Thank you for watching. Have a great week.