Pearson: This is the Friday, September 23, 2016
version of the Market Plus segment.
Joining us now is Sue Martin.
Sue, welcome back.
Martin: Thank you, Mike.
Pearson: While we were on the program I rudely, Sue,
and I apologize, had to cut you off as we were
discussing the pork market.
You had led in by saying October is pork month, we
have a ton of animals being processed here over
the next six to eight weeks or a year, depending
on how you look at it.
Can the demand soak up all of those critters?
Martin: Well, I think we have good demand and the
retailer continues to use pork and poultry to
feature, to draw, and cheap price to draw in the
consumer and while he's in there then the hope is he
buys a little bit of beef.
That is being kept pretty much at the same price or
not much less.
So the retailer is making good margins, the packer
is making good margins on both pork and beef.
And I think that when I look at the pork market,
this seems to be an old fashioned traditional kind
of a year where we have so much protein, just so much
protein, even eggs, just huge.
But on the same token of course like I say the
retailer is moving it as far as the pork and he's
moving the poultry too.
But the cold storage report showed supplies
down, which was a good sign.
So that might help us be a little firmer as we start
the week.
But the bottom line is what rally we get I don't
think lives because I think ultimately we will
move back down into November.
So October is pork month, that might help us a
little bit, get a little reprieve.
Usually the beef choice select does better usually
through the last week of September on through the
third week or so of October.
So in general we might get a little bit of a lift
here and part of that also comes off of the fact that
producers are busy, hopefully, combining corn
and beans and so we'll see.
But of course any more so many hogs are integrated
that when they're ready to go they just load them up.
And so I think that we have a market here that
still tips back down into November.
Pearson: How far down?
Sue, as I was on the road I hear people getting
nervous that we've taken out, we're now in, I
believe we're back into life of contract lows as
of Friday.
Are we looking at the same setup we saw in '98 where
we run out of capacity?
Martin: No, I don't think so.
I think that we're using this beef and pork
industry, we're using the production that we're
getting, and the poultry.
The one thing we have to keep in mind is we have a
good Hispanic population that we didn't have back
in '98 and on top of it we may be having other
populations coming in as well.
Pork and poultry are products that they like
and therefore the Hispanics are big users of
pork.
And so I think -- and they use cuts that we wouldn't
maybe normally have used.
So I think we're going to use it.
Our export market this past week was down, which
was a little disappointing.
My biggest concern would be China, if China becomes
the world's largest exporter, which it seems
like they're trying to gear towards, and yet they
also are a little tight supplied right now for
supplies of protein or meat for their consumer.
They're in the process of making huge changes in
China and they have a huge sow herd now that we're
under the understanding that by the middle of next
year they'll have their full cycle complete and be
full swing into production.
But they're trying to gain back the consumer
confidence.
Things have gone on in China that probably
weren't the best.
So now they're in the process of cleaning up
their act and getting things better but they're
also talking about becoming the world's
largest exporter of pork.
That would not be a good thing for us.
It makes you wonder why Shuanghui bought
Smithfield.
Pearson: Well we've got a couple of other questions
here.
This one is from Scott in Barrington, Illinois.
Scott wants to know, if we plant 3 million less
winter wheat acres how do we plant less corn acres
next year?
Martin: And he's right on that, although sorghum
could pick up some of those acres, and milo.
Beans I think pick up some of those acres.
It depends on the price too.
Right now you've got your producer thinking about
next year's acres and laying the groundwork for
that.
But we also know that the farmer, I believe the
farmer is in better shape at this time than he would
have been back in the mid-80s.
I don't think we have producers in trouble like
we had back then.
Yeah, they're not making money and they're strapped
a little bit, but on the same token it's not like,
you'll have some who maybe go out of business, you
have that always where it's an efficiency thing.
But the bottom line is, I think that it depends on
how bad the price is.
And with us putting in an 84 year cycle low I still
say you're going to have something better next year
than what we're looking at.
I'm not sure a year of a 7 tends to be usually
dynamic, they don't seem to be over history, but
we'll know for sure when I finish my research on
that.
But I think that when I look at corn prices
they're more intensive, input intensive, that
might be something that helps make these decisions
because this is not your first year, this is going
into at least your second year of pork prices and
that might be what plays a hand in that.
Pearson: And it's interesting you mention
that, I was speaking to a group of lenders and they
had all, not all of them, but a lot of them had
talked about how maybe they've done a refinance
or a restructuring already with some of their
borrowers and that one was okay.
They had the equity, they had the working capital,
they had the business in decent enough shape to do
it once.
Their concern is can we do it again?
And that's the answer that I guess we'll be getting
as we get into December and January and renewal
season.
Martin: Yes, and I'm kind of concerned too because
we still see piles of corn that never moved at some
of these larger elevator groups and that has to be
farmer owned corn and that's a concern.
Pearson: They're just hanging onto it.
Now, this time we've got a question from Phil in
Ontario, Canada.
He's got a couple of questions.
He wants to know, why does the USDA consistently
overestimate soybean stocks?
Or, another way to look at it is, why do they
underestimate soybean demand?
Martin: Well, first off, demand in any market is
usually hard to really quantify.
It seems easier after you look backwards and you see
what we've done.
If you look at our exports, we're running
behind the five year average, and even China's
imports for the month of August was down about one
and a half percent, or one and a half million metric
tons I should say, from what it was a year ago.
So it seems like we should be -- and yet we've seen
good demand.
But it makes you wonder are they front end
loading?
And they might be.
But on the same token, if they're going to cut or
try to dissuade DDG imports of corn that
competes against soy meal, well then that would say
that they're probably going to have to have more
soybeans or soybean meal down the road.
That would be a little bit supportive I think
underneath the bean market.
When I look at the beans, if you look at the
production we continue to do and yet our carryouts,
yeah they're growing, but they don't get burdensome,
so to speak.
It doesn't seem to take long if the right things
happen.
And we're the only game in town between now and
February to March.
So that's a lot of time.
And the one thing that I will say is, yes, weather
in Brazil is very important.
But I also think Argentina is the country we really
need to keep an eye on.
Argentina is very dry right now in the western
and northern part of the country.
So that's an area like Santiago del Estero,
Cordoba, those are areas that are big producers and
we need to keep an eye because their planting is
not going to take off real nicely as it should timely
for corn and what have you.
Their wheat crop also in that area is struggling
and being stressed.
So Argentina in a La Nina year and the southern
portion, southern half or whatever, at least the
southern third of Brazil, that area usually tends to
turn more hot and dry in a La Nina.
And while they say that we don't really have a La
Nina yet even in a weak one I'm looking at
Argentina's weather and it doesn't look real spiffy.
And if you look at the bean, they haven't lowered
the taxes for that next five percent -- Pearson:
And they decided they weren't going to, is that
correct?
Martin: The government has been talking that and the
farmer is not real pleased about that.
And that's why he's tilted more towards more corn and
wheat acres because there's zero taxation and
he's going to hang onto his beans.
And so I think that you give a weather issue to
the corn and the wheat in Argentina, keep in mind
Argentina is either second or third largest exporter
of corn and we have to keep that in mind, where
Brazil oversold their hand and so they need to
rebuild their supplies for their livestock industry.
I think the corn market has a story underneath it.
I think wheat might too.
Pearson: When do you think we'll start shipping corn
to Brazil?
Martin: Well, I think that we already have started to
send some in.
I think we were unloading as they were shipping some
out just a week ago.
And so I think that we already have.
Of course Argentina is going to be the main one
sending stuff.
But I think that when I look at South American
weather the northern side of the country should see
ample rain and better crops than they did this
last year.
But that's going to be a big market player as we go
down the road.
Pearson: Alright.
Well, Sue Martin, thank you so much for taking the
time to join us this week.
Martin: Thank you.
Pearson: Oh, we've got one final question for you,
Sue Martin.
Forgot about this.
Martin: 30 seconds, Mike.
Pearson: Yes, 30 seconds.
So we've got, we ask our analysts to define terms
that are used a lot and you used this one today.
What does it mean when a market is oversold?
Martin: Oh.
When a market is oversold it means that a market has
been prolonged to the downside, pretty much most
of the fund money is tilted to the short side,
for example, and when a market is oversold you
don't seem to follow through to the downside
because as the market moves down who is left to
sell it, everybody is already bearish and short.
So as that happens, and what will happen, like for
example in the wheat market, is that as you get
negative news and you think the market should
break, the funds are going to use it to cover shorts
and work their way back up so you never really break
apart.
Pearson: Okay.
Alright.
Thank you, Sue.
So that wraps up the Market Plus.
And I thank you for taking the time.
Martin: Thank you.
Pearson: Thanks to all of you for sending in your
questions via Facebook and Twitter.
Please continue to do so and we will get expert
analysis right to you.
Thanks for watching.
Have a great week.