Pearson: This is the Friday, June 30, 2017
version of the Market Plus segment.
Joining us now is Sue Martin.
Sue, welcome back.
Martin: Thank you, Mike.
Pearson: I want to get your thoughts on the
cotton market.
We saw a pretty big sell off over the past almost a
month in cotton, finally looks like it maybe caught
a little bit and we rebounded this week.
What are your thoughts here going forward?
Martin: Well, I think that we have, the cotton market
is like many of the other markets in agriculture,
they have just been so sideways.
And when you look at a long-term chart it's not
uncommon or cotton to do this.
But when I look at it, it looks to me like there's a
lot of resistance around 72 to 75.
So, if we can get the October cotton up around
that level I'd probably get some hedges on.
Pearson: Okay.
Alright.
Now, I wanted to come back to talk about something we
were talking about briefly on the show just because
it has been such a story over the past week.
Hard red spring of course driving built on
fundamental concerns.
I want to talk about the Chicago wheat market.
We've seen Chicago rally right along with spring
wheat.
My question is why?
We haven't seen production issues.
We've got ample feed wheat type supplies.
What's going on?
Martin: Well, I think first off when you look at
the wheat, Minneapolis had been not so short, it was
tipped long.
Kansas City recently we were seeing where the
funds had come out of their shorts and tipped
long and Chicago was the one where they were still
short, which justifiably could be because they
haven't had near the wet, they've had some frost
freezes but not near the issues that the hard red
was handed nor the spring wheat, the hard red
spring.
So I think what you're catching is a thought
about protein because that's the foregoing
conclusion here that protein is going to be at
a premium this year and in demand, great demand and
of course it was hard red spring wheat that had the
protein.
But the problem is now if this weather comes in and
plus their supplies are really tight, KC wheat
protein levels are down 10%, that's a concern.
But then you look at Chicago wheat, they might
be buying it also with the thought of some protein
that are a better type of a wheat.
So it's probably the last one.
But here's the thing, if you look at the KC and
Chicago, in the old days, like hogs, you used to
have KC wheat running 80 cents to $1.20 over the
price of Chicago.
And for some reason it has been stuck neck to neck
almost.
My take is when I look at these wave counts that I
do, a wave 4 on KC September wheat is $8.51
and a half.
Now, on first off, just off the path here a
second, the KC wheat hasn't even seen a wave 2.
Wave 2 is $5.69 and because of that I sort of
think if there was ever a time to hit a wave 2 it
ought to be now, so I don't think your highs are
in.
On Chicago wheat it's $7.33 and a half is your
wave 4 on that one.
So I'm thinking, is it possible we're going to
start to see this old fashioned spread come back
into reality and KC starts to push out here and move.
Pearson: So if you were just to make a speculative
play, not a wheat producer, would you buy
the spread between Kansas City and Chicago right now
while they're neck and neck?
Martin: Yes I would.
And I would probably do it with Sept to Sept or I
probably would even maybe go to Dec to Dec.
Pearson: Give it some time.
Martin: Yes.
And then if you have to, move it on out into March
of next year.
But here's the other thing too, wheat has got to buy
acres, it needs acres this next year and then the
other thing is you look at abandonment in those acres
for wheat being down lower than they were even in the
March 31st report.
The one thing we've got to remember is they hit
abandonment on the hard red wheat, but I'm
wondering if there isn't more.
Today I was talking to a client out in Western
Kansas, the western portion of Kansas, and was
telling me first off, the surprise was that yields
coming out of wheat with mosaic was actually not as
bad as I would have guessed, 38, 39 bushel to
the acre.
I would have guessed it worse than that, although
in parts of Nebraska it is worse than that.
Okay, but telling me one producer has 8,000 acres,
they're only harvesting 1,800.
Another producing harvesting, or has 4,000
acres, harvesting around I believe they said 500.
Another producer has 1,000 acres, producing 500.
I think it's a big concern with all the abandonment
that is going on out there that there is an issue and
this yield in wheat is going to come down.
But the demand for a good quality wheat -- and then
you've got Ukraine kind of vulnerable, France is
vulnerable, Italy, Spain, of course Australia we've
talked about.
I don't know, I think that the KC wheat has still got
a bigger story and because of that old fashioned
spread I just sort of have a sneaking hunch it's
going to spread out.
Pearson: This could be the year that we return to
those traditions.
Now, we've got a question here from our friend on
Twitter, his name is the 2018 Corn Bull in South
Central Nebraska.
He's on Twitter @a_bonifas.
Martin: I like that.
Pearson: He's asking, and this is something again
you touched on during the show in the wheat market,
he's looking at corn.
Are the yearly corn lows in?
And do you still see corn rallying to the mid-$4
range?
And what is your outlook for 2018?
Martin: Okay, first off, I did a study on corn and it
goes on a fundamental basis where first you have
U.S.
stocks increasing for corn and global supplies
increasing.
Okay, we got that.
Then you have the stocks to usage ratio of course
increasing, which we have.
Then you have foreign production deficits where
you take the U.S.
out of the picture to see how bad the rest of the
world needs us and for corn and wheat increasing
as well all in the same year.
We have that.
Well, going back to 1970 there's been six other
times that we've had this setup.
In those six times, now history is no guarantee,
but it kind of gives you an idea or a pattern.
Interestingly, the high for December corn was
never in June, nor was it ever in July.
It either was in April, late April or early May or
it came in, it tended to favor late November, very
late November, almost to December and December.
Pearson: Interesting, so a post-harvest high.
Martin: Exactly, where maybe realization starts
to set in and say, this isn't so good.
And I'm not trying to spread fear here but it
has been a long time since we've had an early frost
freeze.
So if someone is trying to speculatively bet on the
crop going higher in price, you can go by
cereal corn October calls that are based off of
December, they take you through September 22nd or
you can do November short-dated December corn
calls.
But my take is that we have some huge gaps above
this market.
I think I've mentioned it before, year in, year out
on July, year in, year out September and December,
none before that.
And those gaps are humongous and they haven't
been filled yet.
They don't show up in a monthly chart or anything
like that, but they show up in a daily continuation
chart for specific contracts.
And those are huge gaps from $5.48 up to $7.09.
I don't think I've ever seen gaps that big.
They will get filled.
So if you start coming through, first off if you
start to take the June high out, rule of thumb is
June is a pivotal month.
When you look at June in markets, especially in
corn, and say you get down into August and all of a
sudden you're coming back up and taking the June
high out, it should have your attention, it's
telling you markets are going much higher.
And likewise because we have this outside range
month, if we come down because of that doggone
bean thing that is bugging me, if we come down
through $3.74, I want everybody to understand
there is a wave 5 potential on December corn
that would be at $3.40 and a half.
Now, that sounds awful, but $3.74 has been our low
here in June, $3.40 and a half, okay, you're talking
30 cents.
That's not super bad in the realm of yet the year
to move and knowing that it's a wave 5 that's still
much higher than the $3.08 we got to a year ago.
That tells me, see I think that was your bottom a
year ago, we're slowly working this market into
an up.
When I look at my indicators on quarterly
data they're just turning positive on corn.
I cannot be a bear on corn.
So I think 2018 is going to be a better year.
Pearson: Alright.
Well, now I want to take us to Tim in Crookston,
Minnesota.
You've talked about how beans are just nagging at
your subconscious here.
And Tim says, he's living the dream right now with
hard red spring wheat, but is there any hope for
soybeans?
Any news on beans is bearish.
So sad.
So bearish.
What are your thoughts?
We've got this conflicting feature where the bean
news should be the fundamental news, demand
is good, like you mentioned drought in the
Dakotas, we should be looking forward but you're
concerned about that cycle low.
Martin: Because it seems to be so consistent and
that is what is bugging me.
Pearson: So tell us what that would look like.
What should we be watching for in the markets?
Martin: Probably somewhere in here this rally fizzles
and it's a weather market so it could be a change in
the forecast and all of a sudden what will happen,
the beans will just turn and collapse.
And we're heading towards August bean month.
The acres are up this year, yes, but not as much
as everybody thought.
So it's psychological.
But you come down, you take these lows out, I
think I gave the wave 4's on the show, so that would
be areas I would certainly be watching.
As we go down the road here, of course we don't
know what our fall is going to be like, if we
have an early frost, as late as these crops are
we're going to have a disaster.
And that's an if.
I'm not saying it's going to happen.
I have some weather sources that are pretty
good that say it will, or predict it to be.
I don't know, I just take it as it comes.
But all I can say is if that happens the bean
market is going to have bottomed and it will have
done it with nice wave counts, an 84 year cycle
and this thing will be ready to take off and run.
And in the meantime, as we get in towards fall
because the Brazilian farmer still has beans to
sell -- Pearson: Quite a bit of beans to sell.
Martin: Yes he does, he kind of shut his bins
again because of this real falling on count of all
the corruption that they've got going.
So we'll still have them back in our face to
compete.
But in the meantime, as we go towards fall/winter,
especially heading in towards when their
planting season is going to happen, we need to
watch because they had a pretty good year this
year, I'm wondering if we haven't seen a peak in
their production and production maybe heads
south in the bean market there.
Pearson: Alright.
Well now, Sue, before we let you go, we have been
taking questions on video from agriculture students
across the country.
And tonight we have a question from one of the
students at Iowa State University.
And you can learn more about this project if you
listen to MtoM podcast #143.
So Sue, here is the latest installment of our ag
student questions.
Craig: Do you see corn prices going up in the
future?
Martin: That one was easy.
Pearson: You've kind of touched on it but I'm
guessing he's thinking, as a young producer, five,
ten years out.
Corn prices, are we in a new range, Sue?
Or are we going to have to look at $1.80, $2.50 again
at some point?
Martin: I don't think so.
I think we're in a new range.
Although look at the hog market how it has had
times like that and then turns around and comes
back really vibrant.
But I think we're looking at, first off, you're
expanding pork production, you're expanding poultry
and cattle industry is certainly on an uptick.
One thing I thought was interesting this week was
that I had seen where at Stanford University they
have found a way to make ethanol out of carbon
dioxide.
And I thought that was a rather interesting thing
because God forbid we don't need competition for
our corn.
So, I thought that was something because if that
was to happen we're going to need mouths to feed
this extra corn because our ethanol usage has been
very good and it is comparable of what feed
usage is and it used to be feed usage was your
biggest usage for corn.
Exports have been phenomenal for corn as
well.
And I've got a study I'm going to be doing on corn
that is centered around exports compared to a year
ago.
And I just needed to see because it, again, may
give us another clue on Dec corn.
But I think over time agriculture is going to
get better.
I think we've been through these spells before but we
just have to be more willing of forward
contracting out ahead, when we get some of these
high years be willing to take some marketing and do
it even a year out.
You don't do it after five years being down, you want
those big up years to start thinking about it.
Pearson: When you get a 2012, take advantage of
it.
Martin: Exactly.
Pearson: Alright.
Well, Sue Martin, thank you so much for taking the
time to join us this week, always appreciate your
insights.
Martin: Thank you.
Pearson: And join us again next week when Dan Hueber
will sit across from me at the Market to Market table
and we explore the recovery from a double
whammy of weather on the Palmetto state.
Until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week.
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