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Market Analysis: Apr 27, 2007: Doug Hjort, Independent Analyst

posted on April 27, 2007


This week's crop conditions report from USDA revealed less-than-expected damage to the winter wheat crop and effectively put the brakes on last week's rally

For the week, May wheat lost 1 and-a-half cents, but weather-related planting delays pushed corn prices higher and the nearby contract gained nearly 4 cents.

Soybeans traded in a sideways fashion this week with the nearby contract moving fractionally lower. The May meal contract was down $4.50 per ton.

In the fiber market, the December cotton contract gave back nearly half of last week's gains with a loss of $2.19.

In livestock, the April live cattle contract was up $1.58, nearby feeders gained $1.10, and the May lean hog contract posted a loss of $2.12

In the financials, Comex gold lost $3.60 per ounce. Nearby crude oil prices were up 2.83 per barrel. The Euro advanced 96 basis points against the dollar. And the CRB Index lost more than 6 points to close at 311.50.

Here now to lend us his insight on these and other trends is one of our regular market analysts, Doug Hjort. Doug, welcome back.

Market Analysis: Apr 27, 2007: Doug Hjort, Independent Analyst Pearson: Here now to lend us his insight on these and other trends one of our regular market analysts, Doug Hjort. Alright, Doug, well let's talk a little bit about -- let's talk first about wheat. That was the big one certainly last week in the rally category, pretty much flat this week as maybe the word was not as negative particularly for the soft red wheat country as we'd heard from potential freezes particularly in southern Illinois. Let's talk about Chicago soft wheat. What do you see ahead? Are we going to see some of those acres shift from soft red wheat to corn? Is that a factor too?

Hjort: Been a lot of talk about that and I think that's true, I think there will be. With winter wheat it's so difficult to tell how much damage there really is. But in the Corn Belt area there's two things wrong with it. Number one was the freeze. The second thing is the wet soils. Winter wheat, any kind of wheat doesn't really like to keep its feet wet as they say and the soft red is more susceptible to water damage in the soils than other crops. We saw the deterioration started on the soft red winter before the freezes and that was due to the wet soil conditions. So, you've got two things going on there. But as far as acres torn up the wet ground, of course, is going to play into that and they don't have to tear that up for another couple of weeks yet either because they'll be busy, farmers will be busy trying to plant the original acres to corn and beans and so on. But it does look like there's going to be quite an acreage taken out. How much? Who knows. And there won't be -- there will not be a tally of that probably until the June 29th acreage report comes out and that might even be a preliminary number.

Pearson: So, it's going to be interesting. So, the soft red wheat has that going on. Hard red winter wheat, what is your condition outlook on that?

Hjort: The hard red winter wheat crop was in excellent condition before the freezes came on. There was some significant damage done there not just on the headed wheat but wheat that was in the jointing stage. But how extensive is that? that's the big question. A few counties in south-central Kansas seem to have been hit very, very hard, other areas maybe not so bad. One thing that could be negative to that freeze condition if we get really hot temperatures coming in here, and as I understand it temperatures are supposed to get quite warm this coming week, they've had showers this week, thunderstorms and so on and relatively cool temperatures, that's really good for a wheat plant to just kind of recover and rejuvenate. So, the jury is still out there too as far as losses. There are losses, it's just a question of how much. Remember too, though, that you don't have to take your yields down very much or lose very many acres on wheat before the U.S. supply-demand balance would tighten up even with trend line yields. And remember too, world wheat stocks are at historic lows, modern day lows and you've got some problems with wheat with dryness in Europe, Ukraine, Australia dry soils but they're getting some showers at least now and Canada cut back almost 16% on their spring wheat acreage or at least that's their intentions. So, you've got world conditions here that supply-demand relationship starting to tighten from an already record tight level. So, it's a pretty bullish scenario that could, I stress could, develop there if this stress really continues.

Pearson: So, you're not in a hurry to make sales?

Hjort: No, I'm not.

Pearson: Alright, let's talk about the corn market. And, again, corn a little bit stronger this week, still concern about just how much of this corn crop is planted. Obviously the USDA report for this week was prepared a week ago from today so as we're looking at what happened over the weekend last week there was some decent weather and a lot of corn was planted, no question about it, that's going to be a big question as I know the trade looks for on Monday. What are you watching right now on this corn crop, Doug? Obviously we're starting to run out a little bit of time for getting this 2007 crop planted.

Hjort: Well, we are and we'll get it planted but it's not getting planted under ideal conditions, a little later you know darn good and well that producers are going to go on this ground probably when it's still too wet just because it's getting late and they're going to get it done. If they get the appropriate weather after that, not too hot and some showers coming through and so, they can probably skate by. One thing about it the soil is full of moisture so if you can get the crop up and established we've got enough moisture to take us into or maybe through pollination and probably have to have something going on and not extreme temperatures so you can't rule out a high yield on corn yet, however, looking back in history when you have delayed plantings by a couple of weeks you don't have record high yields or even it's tough to make trend line. So, you're taking the top end off from the yields already. If we have rain next week there probably will be some acres that were intended to go to corn that would shift over to soybeans but that decision is not being made as of this weekend.

Pearson: Alright, obviously we've had a pullback since that prospective plantings report. Is this an area where you want to sell corn or what do you want to do?

Hjort: I don't want to sell very much at this time. If you've got any old crop you might nibble away on that and I would like to have some new crop sold. But the potential of this crop to really take off and rally strong is very good primarily because of the demand. We're talking about demand increasing dramatically. Even when you think about it if we planted 12 million acres more to corn we still have to have trend line yields to satisfy this projected demand. I happen to think that demand isn't quite as strong as is projected right now and it will weaken some. But still, that is an astounding statement, we've never been in that condition before. So, prices are not going to fall out of bed on corn in my opinion until we are dead sure that we've got a real good crop going on. So, I'm not really interested in selling a bunch of corn now, nibble away at it a little bit.

Pearson: Alright, let's talk about soybeans, Doug, and what's your take there?

Hjort: Well, soybean fundamentals just get more bearish every time you look at the numbers. But that's not the case. If you're looking at corn price staying in this general area soybean prices are going to stay here as well. Soybean prices have been supported by corn for well over a year now and that will continue. Demand for soybeans product and so on is very good, it's just that we've got such a huge supply of it around that, you know, we're not going to get rid of that this year unless there would be a significant crop problem. So, looking at areas to clean up any old crop sales on soybeans and maybe nibble away on the new crop but that could be a very explosive thing too. So, I wouldn't go very far with new crop sales.

Pearson: A long growing season and not much in the ground yet. Real quick, cotton market, Doug, this week gave back some of what it gave us the week before, still concerns about China and just a lot of cotton out there.

Hjort: Yeah, there is, they've got a lot of cotton in storage and that's the problem. Acreages are going to be down in the coming year but until you get down the road and see where that really starts to nibble away tightening up supply-demand cotton prices are not going to rally and stay there.

Pearson: Let's talk about the livestock markets. Fed cattle prices as we move into a critical time for the barbecue season and everything else fed cattle market has held in there pretty well. We had some surprises a couple of weeks ago on the car lot trade, we really had some jumps up. We kind of backed off since then, what's ahead now for cattle?

Hjort: Well, I think the market has backed off, like you say, but the stabilization is pretty good. Demand for beef is good and as you point out we're just coming into the barbecue season and you take the Father's Day market and heading on in through Memorial Day too and then on into the Fourth of July. I think demand is good and South Korea took a load of beef from us this week and they didn't complain about it yet anyway. You know, that will certainly help too and I think South Korea's had enough pressure put on them that they're going to start accepting this beef unless there's really something wrong with it and I don't expect that.

Pearson: Do you want to hedge anything right now?

Hjort: No, I don't. I don't but if you've got distant futures climbing up to or above that $100 mark I would. But at $95, $96, $97 I would not do that now.

Pearson: Alright, let's move over to the hog market and what's been happening there. And the last hogs and pigs report showed really flat in terms of expansion, maybe one percent growth. You go along with that, Doug?

Hjort: I do, I think this market is a mature market, what I call a mature market. It's kind of like where we were with the poultry industry back 30 years ago or 40, it's not quite that controlled by a few people but it's that way. Enough people are controlling the number of hogs and they like these profits they're getting out of it and they're going to try to keep it there. Yeah, we're going to have fluctuations and so on and we'll get into losing price scenarios I suppose down the road. But for right now I think this hog market looks very good. Another reason is that we aren't putting on extra pounds on these hogs. We are marketing them very religiously you might say and keeping the carcass weights pretty even. So, I look for hog prices to stay quite good for some time.

Pearson: Very good. Doug Hjort, thank you so much. That will wrap up this edition of Market to Market. But if you'd like more information from Doug on where these markets just may be headed visit the Market Plus page at our Market to Market Website. And of course remember you can download audio podcasts of our market analysis and Market Plus segments free at our Website. So, be sure to join us again next week when we'll visit one of the most technologically advanced farms in America to examine the benefits of precision farming. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices corn markets news USDA wheat