Market Analysis with Sue Martin

The weather story paused at week’s end for USDA’s WASDE and crop production report. For the week, the nearby wheat contract added 31 cents, while July improved 46 cents there in corn. A tight bean supply added to the bullish story in the soy complex. The nearby contract gained 48 cents. July meal jumped $21.20 per ton. July cotton expanded $6.88 per hundredweight. Over in the dairy parlor, July Class III milk futures added a penny. The livestock sector was mixed. August cattle put on $2.35. August feeders increased 60 cents. And the July lean hog contract fell $5.27. In the currency markets, the U.S. Dollar index improved by 202 ticks. July crude oil strengthened 87 cents per barrel. COMEX Gold added $24.10 per ounce. And the Goldman Sachs Commodity Index gained almost 7 points to finish at 811.90.

Yeager: Joining us now to provide some insight is Sue Martin. Hi, Sue.

Martin: Hi there, Paul.

Yeager: Thank you for coming in.

Martin: Thank you.

Yeager: I wrote the part about the weather because it seems all of a sudden weather has been all we've been talking about. We had this report, June is usually insignificant. Let's just quickly, we can sum it up, the report today was basically --

Martin: Neutral negative.

Yeager: Neutral negative. So let's start with wheat. Are we at the mercy of Putin only for wheat in the world and in the United States?

Martin: No. I believe that we've got French wheat has declined for the sixth week consecutively in conditions. You've got Germany, which is a very major producer as well in Europe that is having issues. India, which surprisingly the USDA did not reduce India's production or exports as much as we thought they should. But exports 2 million metric tons and 2.5 I think it was on the production where many in the industry think it should be more like at least 6. And I think that the fact that India banned exports was a major thing. And they didn't only ban exports of wheat, they also banned exports of sugar. And so I think that when you're looking at yes, the situation with Russia and Ukraine, back in February of '21 when I came off with my projections into '23, of course that was not on my radar. And I think that what we're in is a massive global demand market. And that was a disruption that helped drive this market. But I think that with time we're still going to see wheat prices evolve higher but you're heading into harvest and so right now you've got a wheat market that of course surprised everybody at the beginning of the week with 60 cents up because of Putin, but also then you turn around and we kind of give a chunk of it back. The market is kind of ebbing and flowing right now and so I think it takes patience. But I don't think we're done in the wheat market.

Yeager: Done, not done. 3% on the week. But let's look at deferred, mostly United States focused now. How does anybody prepare for the weather story that they've had to deal with? Again, wet in the north, dry in the south and then it turns wet. Kansas just got dumped on a week ago after we taped this show.

Martin: They did but the problem was that was probably a little too late for a chunk of that crop. So I think that if anything the rains were still a good thing as a whole for pastures and maybe for crops coming in after wheat for double cropping. I think in that light it was a good thing. But probably for the wheat crop as a whole a little too late.

Yeager: In corn, the almighty corn continues to try to pop out of the ground. We're facing weather in that story as well. We're done with the 70s business. It's going to get hot next week. What does that mean?

Martin: Well, at first heat should be a good thing because of the fact it's going to give the crop some growing degree energy units and it's going to encourage growth. So we're going to get the corn, it will be like you could almost stand there and watch it grow, beans pop out of the ground, it's going to help. But it also is going to cause probably if it's in an area where it has been wet and farmers have mudded crops in, it's probably going to create some crustiness on the ground. So that is not a good thing. But if we go past the next two weeks, traders right now are saying okay, two weeks of heat, we could use that. But if it goes beyond two weeks then they're going to start to get a little nervous. And a lot of this crop did go in later than it did a year ago so that means your pollination comes a little later and so traders are certainly going to be on cue because the last thing you need is a weather issue now. We have 1.4 billion bushel carryout for '22, '23. That is nothing real burdensome at all. And if you start lowering the yield on weather, well you've had issues in South America, issues around the world, and by the way traders probably weren't paying attention to the coarse grains globally fell too. So you're going to have some concerns with this crop. We just can't afford any issues.

Yeager: Well, and we had an issue this week in Nebraska and parts south with the hail that came in. The pictures were just awful to see. So there's that question of, what if that's a million acres there? We talk about this million acres in Minnesota or South Dakota, prevent plant. At what point does that all add up and I need to change my philosophy with December? What do I need to think about with that December contract?

Martin: Well, I think what it does is first off, a market never pays attention to hail. They always tend to think that that's kind of isolated situations. So the market doesn't pay attention to that. But if you start to get a drought going again, that will ignite this market and of course beans all-time high $8.49 and a half and we haven't quite made it there on a lead contract. But also keep in mind that was a December contract that did that in 2012. And so you start kicking this in and you could take corn up to $9, $9.50.

Yeager: Could also probably take beans up too. Are they the leader of this market right now?

Martin: Right now they have been. Soybeans, what is driving the bean market is the energies. You look at the demand for crude oil, gasoline prices high and all of a sudden the need for biofuels or renewable fuels is putting a push under the bean oil and also the lack of tighter supplies around the world of veg oils. And then you look at soybeans and they're bidding like crazy to get them and they're not buying them. And so they're saying okay, we're at pipeline supplies. Well, in the old days I was kind of around then, the pipeline supply would be viewed as 100 million bushels. Are we still that or are we closer to 200 million bushels with all the huge demand we've got going? I go back and look at the 70s, like '70 to '73 and the things that were happening then are on steroids now. You didn't have a pandemic globally where we do now and people around the world had given up having reserves where back then reserves were kind of cool, it was an expected thing. But you don't have that now and these countries have come to the realization they need to build reserves. But right now they're just living hand to mouth. I have not seen anything remotely say we have rationed yet.

Yeager: All right, I have another couple of soybean questions that we'll get to in Market Plus because this cattle market has had its own story and own life this week. We're looking at the numbers that continue, the weights are down, the numbers are up. What are you hearing and seeing in this cattle market that is causing this?

Martin: Well, first off, I think the beef cow slaughter the first five months of this year was up 115% from last year. And then you look at the imports and we're getting cattle, hogs too from Canada, Mexico because why? The dollar exchange is huge and it's profitable for the producers in those countries. And also if you look at Mexico, they're dealing with a lot of heat also as is Texas and the forecast, by the way, for the next 10 days is temperatures like Waco, Texas as high as 107 degrees not once but maybe two or three times and 104, 102. What does that say for the corn crop there, the cotton crop? But also what about livestock? And Mexico is going through that same thing so they're sending them into the U.S. and they're lighter weight animals that we're getting. So it's, again, cattle going into feedlots and you've got to feed them.

Yeager: Yeah, the southwest is extremely hot. You can't come too far north because that corn, the feed is expensive. So if I'm someone with a feedlot, where am I finding my feeders? Am I finding them to expand right now?

Martin: Your feeder cattle or the grain?

Yeager: Yeah, my feeder cattle.

Martin: Oh, they aren't having a problem finding feeder cattle. They're getting the feeders because they were moving off of pastures. Now that might slow up a little bit. But another thing we're seeing in that feeder market in the cow calf herd is individuals that have decided to call it quits and are retiring. Just it's a lot of work, prices for the calves isn't as good as it should be and they're just saying, when they look at grain prices they're saying, I'm done, I'm retiring, I'm going to quit. And you're seeing a fair amount I think of that as well. But then they don't have to look too hard because again, we've got cattle coming in from Mexico. So the next thing is when these cattle are into the feedlots they'll light weight in, they'll be light weight going out but they've got to have feed for them. I heard yesterday that there was feedlots in southwest Kansas paying $2.25 over the board for corn.

Yeager: That's a lot.

Martin: It seems like a lot. But will it be in the end?

Yeager: Well, we'll find out. I only have a few seconds left for hogs as we wrap up. Just give me a quick yes or no. Is that bottom in? This thing keeps falling.

Martin: I don't think so. I think the hog market is going to see, drift its way lower. The last day or so we've seen an improvement in the cutout or the product and I think that gave a short covering rally. But I don't think it's done.

Yeager: All right. Guess what is done? Our time in the show. Thank you, Sue, appreciate it.

Martin: It went fast.

Yeager: It does, it always does. Thank you. That will do it for this installment of Market to Market. We're going to talk more in Market Plus because we have a whole bunch of your questions to answer so join us there. You can find that free on our website of MarketToMarket.org. YouTube has something for everyone including full episodes, stories and our Market Plus. Subscribe by going to our page of markettomarket. Ring that bell to be notified each time that we post. Next week, weather and climate take center stage on Capitol Hill. Thank you for watching. Have a great week.

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