Market Analysis with Sue Martin

A triple threat of factors to trade this week with harvest pressure, the dollar and drier weather leading the pack. For the week, the nearby wheat contract reversed course with a 41 cent loss, while the December corn contract gained six cents. Similar headwinds are blowing through the soybean complex with an eye on South America. The November contract improved 2 cents. December meal dropped $2.30 per ton. December cotton shrank $1.11 per hundredweight. Over in the dairy parlor, November Class III milk futures went up $1.23. The livestock market was higher. December cattle added a dollar as did November feeders. And the December lean hog contract increased by 92 cents. In the currency markets, the U.S. Dollar index expanded 57 ticks. November crude oil skyrocketed by $13.60, that's 17 percent per barrel. COMEX Gold gained $34.40 per ounce. And the Goldman Sachs Commodity Index jumped by 61 points to finish at 667.80.   

Yeager: Joining us now, our friend Sue Martin. Hi, Sue.

Martin: Hello, Paul.

Yeager: Wheat market, it's really easy to say right off the top these three things, the dollar. But each contract has been moving individually with different factors. But the question to start I think our discussion is, and you like the technical side of things, have we hit the top of this latest wave and we're done with this rally?

Martin: No.

Yeager: Why not?

Martin: No. The market has, in fact as we ended the week the Kansas City December contract closed near the 20 day moving average and also on a trendline from the very lows that we've had. So it's at a good support. But the market hasn't even -- now Chicago wheat did make a 38% retracement on Fibonacci, but KC has not. And I think the market has got capability of pushing even farther than that. You look at this stocks report that took everybody by surprise, I don't think hardly any of us anticipated the USDA would drop harvested acres and yield at the same time, but they did. So this next report that we get here next week is going to be rather important to see just how much they show for this crop as far as ending stocks where we're at. And I think that we could possibly see, the ultimate is the ending stocks drop under 600 million bushels. If that happens it's the first time since I want to say 2013, 2014, something like that. But also it will be the sixth year of a consecutive decline domestically and a third consecutive year ex China that we see global supplies drop.

Yeager: Well and it kind of goes with what we just talked about in the news segments, the dry in California, not as big of a wheat producing state, but Oklahoma is and in that area and when you mention '13 we're coming out of the drought from 10 years ago. So similar scenario. So what is a range then that we're going to be watching in wheat?

Martin: Well, I think when wheat, like Kansas City wheat for example, when you pull that back down in the lower 9's, if that can happen, I think that market is capable of going up closer towards $11 and maybe a little more. The question mark going forward for the next year is, okay, do we take this year's high out or do we take this year's low out? Well, when you've got Ukraine now talking that they may not see or, let's put it this way, 50% of their production could be down this year because of that much less in hectares that are planted because of the high input costs, the low cost of wheat in their country and the concern of the war. Well, that's another big thing because they right along with Russia are very big exporters of wheat. Russia has very low prices right now. They're planting and getting the crops, the winter crops, trying to get them planted. The southern part of Russia is pretty wet and so they're delayed a little bit there. But when you go into the southern part they've got until mid-November to get that in. So I think when you look at wheat it's a major food item and a feed but it's not kind of being used for feed right now, it's just too expensive.

Yeager: Right. Speaking of expensive, this corn, in some eyes. We can't seem to pop -- Friday I was just looking while you were talking about wheat so I was prepared for this and I couldn't remember the number. $6.83 is what we closed in on corn for the December contract. Why is $7 such a hard thing to get over?

Martin: Well, it's psychological because even in the prime part of our rallies into summer, into spring actually, we got to $7.47, that $7.50 area. And the old crop made it up around $8.27. So $8.27 came really close to the all-time high for a lead contract and therefore all three of these kind of markets, corn did a double top this year. Beans came within 10 cents double top. Wheat, KC wheat made new all-time highs but not to an extreme to where it qualifies as a double top. So when markets do this they kind of have to step back and sort of reset themselves and then we go on from there.

Yeager: So I'm listening to you hearing the words more of a technical explanation for this. So you're not going to give me a fundamental story on crude or an expensive dollar or the harvest pressure right now?

Martin: Well, let's look at corn. When we look at corn, we lost of course 150 million bushels out of the old crop supplies, which means in this report next week WASDE has got to give us some changes of numbers. And feed usage is going to be one we're going to watch. In fact, actually the numbers in wheat, I'm bouncing back a little bit on you, but in wheat it shows that the first quarter of feeding usage was near zero. But in corn they're going to have to play with the numbers. Right now you have slow disappointing exports. You have we lost 150 million bushels of old. What that says is that for every bushel that we lose per acre nationally in this number coming up with NAS, it's going to equate to 81 million bushels decline in stocks or they're going to have to play with it, let's put it that way.

Yeager: And that is a question that we have coming up that's interesting. But speaking of questions, I want to get this to you before we move on. Mitch in Hull has a question. We haven't even really discussed the weather side of this equation yet. Is there anything Western Corn Belt end users should be doing right now to protect themselves if the western's crop is shorter on production than anticipated?

Martin: Well, I think first off we've dialed in a pretty low corn number. But a lot of the reduction is in the Western Corn Belt. And you look at Kansas and those feedlots are going to have to be pulling and end users are going to have to pull Nebraska, South Dakota, Iowa, they're not going to be able to pull from the Eastern Corn Belt. So I think if they need -- and I've been hearing some pretty awesome basis levels by end users, $1.20 over even through all of October talking 40, 60 cents over. There was some talk that even based on December futures basing off of that but don't have to deliver it until next March. The end user was put on alert when he saw those quarterly stocks. And if he was nervous before, he became even more nervous because farmers' bins are empty and they have a tendency to put corn in those bins anyway. So it's going to be that they need to protect themselves with call spreads to protect that because the best thing for them would be oh my gosh, prices are dropping. Why would prices drop? It would have to be that our demand just sort of went out the door.

Yeager: We need to move to beans and that is a story of, we kind of alluded to the Mississippi River issue of transport. But is that again a technical story or a fundamental story right now driving to help the range that you’re going to tell us we're in?

Martin: I think in the beans we have to realize that it's kind of a fundamental situation. It plays with some other factors. You've got a 4.5 billion bushel bean crop expected to be harvest. And the export side of the demand accounts for 46% of demand. And that means we need to be exporting 80 million bushels a month. Well, half of those bushels would come out of the Gulf. Now you've had September and we've had a problem with Argentina competing there and they sort of stole any thunder that Brazil had at the time. And we thought we were going to get more business because of Brazil's lower crop and that's not happening. So we've already had September out the door. We have these very low water levels, they're having to dredge at Lake Providence and Greenville and they're offloading barges. You've already had one barge company file for force majeure. And what's happening is that all of a sudden there's not much rain in the forecast for all of October so now you've got two months out the door. This could mean that we could lose nearly 60 million bushels of our first quarter export business. That is huge. And we need that business. So I look at, I think what this does is it really puts emphasis on South American weather and right now they're planting very easily, they're catching some rain, especially in the Central and Southern parts. I think Brazilian weather right now looks kind of congenial. So once they get the crop in, you can't kill it anyway until it's in, and then we'll see what the weather is. But La Nina appears like it's pushing a peak and it could peak by the end of the year from what I'm hearing.

Yeager: I need to move to livestock in a hurry, we've just a few seconds left. Live cattle. Packer margins seem to be shrinking. The unemployment report, our friend Chris Swift was on last week, he says maybe with more people working they're going to keep buying meat. Do you buy that story?

Martin: Absolutely I do. I think that the amount of 263,000 people working, unemployment at 3.5%, the lowest in 50 years, our economy still looks pretty good. People working are going to spend money for the food for the proteins. You've got Europe looking at a horribly huge number of poultry losses because of Avian bird flu and that is falling on the backside of African swine fever. Demand, meat is going to be in huge demand. Exports, we just had China show up on our cumulative exports, China is in our export picture. I think they took a record amount of beef, so maybe not so much pork, but beef. And I've got to tell you, I've got another story too --

Yeager: Real quick.

Martin: We have to look at China and they're going to have on October 16th their 20th Chinese Congress and at that Congress, Xi is expected to be solidified for the next five years again as the President, leader of China.

Yeager: That's a story we're going to have to watch and I hate to do it, we'll continue in Plus. Thank you, Sue. Sorry. We have to put a pin in this for a minute. We're going to continue in Market Plus and pause this analysis. We're going to have your submitted questions, give them to you here from Market Plus in that segment. You can find that on our website of MarkettoMarket.org in podcast form and on YouTube. All of these resources are free. Now, the short bursts of information can be market moving or they can actually just be funny. We stick in the info lane with links to our stories and some of your content in a retweet. Give us a follow @MarketToMarket. Next week we're going to give the next government report the panel treatment. Thanks for watching. Have a great week.

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