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Market Analysis: Feb 19, 2010: Darin Newsom

posted on February 19, 2010


Wheat prices trended higher this week while a strengthening dollar pressured corn prices.

For the week, March wheat moved up 3 cents and the nearby corn lost a little more than a penny.

Despite favorable weather in the Southern Hemisphere, soybeans traded in a sideways fashion. The March contract ended the week exactly as it began and the meal contract was down more than $3.50 per ton.

In the softs, cotton prices rallied again this week with the March contract posting a gain of nearly $4.50.

In the dairy market, March Class III Milk futures were down 43 cents, and the deferred contract was down more than 45 cents.

Over in livestock, February cattle posted a gain of $3.40. Nearby feeders were up nearly $3.00. And the April lean hog contract gained $2.85.

In other markets of interest, the Euro gained 22 basis points against the dollar. Crude oil gained more than $5.50 per barrel to close above $80. Comex Gold rose $32.60 per ounce. And the Goldman Sachs Commodity Index gained more than 25 points to close at 522.80.

Market Analysis: Feb 19, 2010: Darin Newsom Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Darin Newsom. Darin, good to have you with us.

Newsom: Thank you, Mark.

Pearson: Well, let's talk a little about. Some interesting things happened this week. Let's talk about the dollar first. Do you think the dollar has made a big turn here and is slowly going to trend higher for most of 2010? What are your thoughts?

Newsom: Well, it certainly looks like it could. But if we just go back to earlier this week when the dollar was really coming under pressure, you mentioned the gains the euro was posting, one could almost make an argument that short term we were going to see this market come under some pressure, the dollar come under some pressure, but we did turn around. And I thought the Thursday overnight session was quite dramatic after the announcement by the fed. We saw the dollar index go up well over a full point or right at a full point. And then as the Friday session went along, it started to lose ground and lose ground, closing only moderately higher. So, you know, I think the argument can still be made that the idea is we're going to see higher interest rates at some point, and this could push us higher. Inflation, as we talked about, certainly doesn't seem to be an issue right now. It's going to be tough to push it a lot higher, but I think the trend right now certainly indicates it could.

Pearson: All right. With that in mind, crude oil big move up despite the stronger dollar. Gold up this week despite the stronger dollar. What's all this telling us?

Newsom: Yeah, there's a lot of interesting stuff going on this week, things that really don't seem to match up. You mentioned the dollar climbing higher but yet $5.50 gain in crude oil, gold skyrocketing. It looked like we've got some buying tied to what was going on in the Dow, going well over 10,400 today. Now, will it be able to hold? We've got a couple of things going. Fundamentally crude oil is still bearish. But it's the seasonal time of year where crude oil starts to rally. In fact, we see from mid-February through mid-July a 34-percent gain in the spot month contract. So we've got that ahead of us. Will it be able to do it if these fundamentals stay as bearish as they are. The weekly EIA stocks report showing crude oil stocks continuing to build, gasoline stocks continuing to build. The biggest question for crude oil, are we going to get back to that 2007 demand level? And right now, given the economic situation, it still is a big question.

Pearson: All right. You mentioned gold. It was a big week this week. But doesn't it look like it's had a turn to softer side as well?

Newsom: It did. In fact, it came down and tested that low thousand dollar mark, I mean right back to -- what had been resistance just over -- I think it was 1,030, something like that. And here early in February or late January, we fell down to where we almost tested that. What we're seeing is just a bit of a bounce off of that. Can it last long term? I don't know. Particularly if the dollar does push up past 82 points, makes its way toward 84 it's going to be very difficult for the gold to really push a lot higher.

Pearson: I'm going to have to get those gold teeth knocked out real quick if I'm going to take advantage of this thing. Let me ask you this -- let's talk about the wheat market. You're a Kansas boy. I'm hearing pretty good reports as far as the condition of the wheat that was planted for 2009, 2010 winter crop.

Newsom: Yeah, this weather that moved through, you know, this constant winter weather, snows and everything else, has also brought plenty of moisture to the southern plains. Now, we've also heard the horror stories, you know, where we're trying to kill the wheat crop off a couple times already with winter kill and all these other things. But I think, you know, the biggest thing is -- the crop is in pretty good shape right now. If and when it ever does decide to come out of dormancy, we're going to get a better read on this thing. We know we have fewer acres out there. But in the big picture, we've still got plenty of demand domestically. We still have plenty of this demand -- excuse me, supplies domestically and globally that it's going to be very difficult to create a weather market situation or a dead wheat crop situation this year.

Pearson: All right. Based on that, what are you looking for for highs? Where would you like to sell wheat?

Newsom: You know, I think we're getting to a point what we've seen here recently right up around this $5 in the Chicago -- in the Chicago March contract, right around that level. I think we should probably be making some sales. It certainly looks like the crop -- the contractor -- or the contract would be going lower at this point.

Pearson: All right. Let's talk about the corn market and what you see happening on that front.

Newsom: Well, corn has also been interesting. We were starting to get the idea that we were going to see a sell signal here late in the week. But activity on Friday where we were able to bounce off the overnight lows from Thursday, pretty good indication. Haven't got that sell signal yet just to finish off all sales. Longer term I do think the market wants to go back down. I think it wants to work back into the lower threes. See if we can continue to build demand, build more feed demand, build -- you know, the ethanol demand keeps climbing up. The weak link in that is the export demand, not really anticipating that going very far. In fact, probably see reductions in that. So this could be what really hampers the buying in corn and possibly rallies in corn, particularly if the U.S. dollar remains strong.

Pearson: All right. Your price targets, sales targets for corn would be about where and where?

Newsom: You know, right now we're trading right around that $3.50 to $3.60 mark. If we get up a little above that, let's say it's able to follow some other market higher, can't really do it on its own, we get up in that $3.65, $3.70, I think you can probably pull the trigger on some of the old crop 2009, 2010. You keep the new crop contracts up over $4 or something like that, I think you start looking at locking in some of the new crop as well. There are still so many questions in that old crop market that you may want to hold just a bit back until those are answered.

Pearson: All right. Let's talk about soybeans. And all the reports I hear are positive from South America, so it looks like that big crop is going to hold. But it seems like they promise a big crop down there a lot through the years, and most of the time it's come short.

Newsom: I think that is hanging over this market. If there's talk of 67-million-metric-ton production in Brazil and the possibility of 57 million metric tons in Argentina, this really should be knocking the pins out of the U.S. soybean market at this point, and we have seen it at different times. But it just doesn't want to collapse right now because underlying all of this is just this incredible demand coming from China. That hasn't slowed. We saw the reports again this week. Export sales and shipments, very strong, particularly on the shipment side. So we haven't seen the rollover yet from U.S. supplies to Brazil or to South America in general. I think it's coming. I think we'll start to see some more cancellations of U.S. purchases, of China buying U.S. -- previously U.S. supplies. I think that's going to happen. We just haven't seen it yet. And as we go further, then I think we're going to start to see this pressure build on the soybean market.

Pearson: All right. So you want to make -- so you don't want to make some sales right now on soybeans?

Newsom: Actually this past week we did finish off the sales. When we got -- when we got the March contract up over $9.60, we went ahead and finished off the 2009, 2010 sales in front of what could possibly be this record crop in South America.

Pearson: All right. Let's talk about the livestock side and what you see happening there. I mean we report on the show -- I mean manufacturing sector is improving. Again, the fed's rate increase on emergency loan of a quarter basis point is not a big deal. But, yeah, as it pointed to higher, are they reflecting maybe the underpinning of a stronger economy, and how could that play out for this beef market?

Newsom: Well, we've seen -- if we just look at the live cattle market itself, it's broken through some overhead resistance. It certainly looks like it wants to continue higher. So using that as an indicator, it certainly seems like the market saying they're feeling better about the economic situation, that this disposable income could start to build some demand in beef again. So I would say, you know, we've got a chance in here for the markets to move higher, not just the futures but the cash as well. So I would look for this next quarter in the market to actually be relatively bullish for cattle.

Pearson: All right. This calf market has been extremely strong. A lot of wet corn out there to feed. And obviously with prices down where they are, they're making these cattle work.

Newsom: They really are. That's one thing, if we've talked over the last couple years that we really needed to see happen, it looks like all the pieces are in place right now, certainly helping it all the way down to this calf market.

Pearson: My friend John Lawrence talks about this cattle crush and I've heard you refer to it and it's in the positive territory here.

Newsom: It is. And now the question will be how long can we keep it here. Right now all things look good. The trend of that crush number -- the crush numbers themselves certainly seem to be pointing in that direction.

Pearson: Let's talk about the hog market. We've had a pretty decent rally from the lows last fall. What's ahead for hogs? Are we going to continue to shrink the herd?

Newsom: You know, that's been discussed for so many years. It finally looks like it's starting to happen. I think we've got a little bit of demand picking up. We certainly saw this rally start off with -- you start on the cash side. So as long as we can keep this cash market, you know, going higher, I think certainly think we're going to be able to push the market as a whole higher as well.

Pearson: All right. What are you anticipating for hog prices?

Newsom: You know, right now looking at the weekly chart, one could certainly see the nearby contract, or even possibly going out to the April contract, approaching and possibly moving through that $75 mark.

Pearson: All right. I like that. Corn is cheap. Do you want to cover some feed needs in here? Bean meal?

Newsom: You know, I think if we can get -- you know, get some dips down here in the corn market, let it get down into the low $3 range, $3.10, $3.20, something like that, I do think you start covering your 2010 needs for feed?

Pearson: Okay. So maybe a little bit of cautiousness there, but at least get that input covered.

Newsom: Yeah, because I do think there's some chance for it to come down. Bean meal is pretty cheap right now compared to where it was before, so you can also start locking in some of that as well.

Pearson: All right. Maybe better prices ahead, better general economic conditions. Maybe the tables have turned and the livestock side will start making the money that's not coming in.

Newsom: It very possibly could.

Pearson: All right, Darin, as usual we appreciate your insights. That's going to wrap up this edition of Market to Market. If you'd like some more information from Darin on just where these markets may be headed why not visit our Market Plus page, it's at our Web site. And, of course, you'll also find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments absolutely free at our Market to Market Web site. Of course, join us again next week when we'll get the 411 on 911 when it comes to rural firefighters. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices corn markets news wheat