Iowa Public Television

 

Market Analysis: Mar 10, 2006

posted on March 10, 2006


Another private firm, Informa Economics, projected somewhat higher planting intentions for wheat and soybeans and fewer acres being planted in corn. The USDA will release its planting numbers later this month. But for some current numbers -- for the week, the March wheat contract was up just a penny. The nearby corn contract was down 2 and a quarter. March soybean down 15 cents and the nearby soybean meal contract lost $2.70. A new contract month for cotton this week. The May contract was up 62 cents from last week. In livestock, the April live cattle contract ended the week down 2.57, with March feeders also down 4.75. Nearby hogs also fell with the April contract down 3.43. In the financials, Comex gold ended the week down $26.10 dollars per ounce. Nearby crude oil prices were down 3.71. The Euro lost 123 basis points against the dollar. And the CRB Index fell more than 9 points to close at 320.75. Here now to lend us their insights on these and other market trends are two of our market analysts, Erin Golly and Darin Newsom. Welcome back.
Market Analysis: Mar 10, 2006

Pearson: ALL RIGHT. WELL, LET'S START WITH THIS WHEAT MARKET. AND, DARIN, WE'LL GO TO YOU ON THAT. YOU'RE AN OLD KANSAS BOY. WE SAW PRICES BACK OFF JUST A PENNY THIS WEEK IN CHICAGO. THE STORY IS STILL CONTINUING TO BE THE CONDITION OF THE HARD RED WHEAT CROP, OF COURSE, KANSAS CITY, AND YOUR HOME AREA OVER THERE, OKLAHOMA, THE PANHANDLE OF TEXAS. A LITTLE BIT OF RAIN THIS WEEK.

Newsom: THEY DID. AND I THINK KEY TO THE WHOLE WHEAT THING -- THE WHEAT MARKET THIS WEEK WAS THAT THEY GOT IT IN PARTS AROUND WICHITA AREA -- WICHITA, KANSAS, WHICH IS THE -- WHICH IS THE BIGGEST GROWING, WHICH IS THE MOST PRODUCTIVE PART OF KANSAS AS FAR AS WHEAT IN THAT WHOLE SUMNER COUNTY AREA. SO, YOU KNOW, IT WAS -- THE MARKET TOOK A LOOK AT THAT, TOOK A COUPLE DAYS -- A LITTLE BIT OF A BREAK IN THERE EARLY IN THE WEEK, BUT WERE ABLE TO -- BUT WAS ABLE TO FINISH THE WEEK ON A PRETTY STRONG NOTE. WHAT WE'VE GOT IS, DESPITE SOME OF THESE FUNDAMENTAL THINGS COMING INTO PLAY HERE, SLOWDOWN IN EXPORTS AND SO ON, WE STILL HAVE VERY STRONG NONCOMMERCIAL TRADER INTEREST. AND SO THEY WERE ABLE TO PUSH THE MARKET BACK UP. IT WAS ONLY DOWN A COUPLE CENTS AT THE END OF THE WEEK. AND THE JULY KANSAS CITY WHEAT CONTRACT, BECAUSE OF THE CROP CONDITIONS BEING REPORTED IN TEXAS, OKLAHOMA, AND KANSAS, THE JULY KANSAS CITY WHEAT CONTRACT JUST CONTINUES TO -- CONTINUED TO PUSH HIGHER.

Pearson: IS THIS A SELLING POINT? I MEAN -- AND I HATE TO ACT THIS WAY BUT, YOU KNOW, WE LOSE THAT WHEAT CROP A LOT AND YET WE SEEM TO BE ABLE TO PULL IT OUT.

Newsom: YEAH, ABSOLUTELY. YOU KNOW, WE'RE LOOKING AT THE 2006/2007 CROPS. THEY'RE BOTH, YOU KNOW, IN THE 440, 450, AND THESE ARE THE JULY CONTRACTS. THESE ARE SOME OPPORTUNITIES TO GET SOME SALES ON BECAUSE, AS YOU SAID, THE WHEAT HAS A LOT -- IS GOING TO HAVE TO DIE A LOT MORE TIMES BEFORE IT'S ACTUALLY DEAD, AND WE'RE JUST REALLY AT THE BEGINNING HERE. WE'VE GOT A LONG WAY TO HARVEST. YES, THERE'S STILL A LOT THAT CAN HAPPEN, BUT THESE DO LOOK LIKE SOME PRETTY ATTRACTIVE SELLING OPPORTUNITIES.

Pearson: ALL RIGHT. AND WHAT KIND OF STRATEGY WOULD YOU TAKE RIGHT NOW?

Newsom: RIGHT NOW THE INTERESTING STRATEGY IS TO CONTINUE TO, EVEN IF YOU'RE GROWING HARD RED WINTER OR LOOKING AT HARD RED SPRING, IS TO CONTINUE TO PUT YOUR -- PUT YOUR HEDGES IN THE CHICAGO MARKET. I THINK WE'RE GOING TO CONTINUE TO SEE THOSE HARD RED MARKETS GAIN ON THE SOFT RED, JUST DUE TO THE FACT THERE'S NOT AS MUCH BUYING INTEREST, THERE'S NOT AS MUCH COMMERCIAL INTEREST, THERE'S NOT AS MUCH STRENGTH IN THE CHICAGO MARKET. AND SO THOSE SPREADS SHOULD CONTINUE TO WIDEN. SO AS WE SEE THESE PRICES START WORKING IN SOME HEDGES, IF THE HEDGES ARE A LITTLE BIT TOO VOLATILE FOR YOU, LOOK FOR SOME OPPORTUNITIES TO MAKE SOME FORWARD CONTRACTS IN HERE.

Pearson: ALL RIGHT. LET'S MOVE OVER AND TALK ABOUT WHAT'S HAPPENING ON THE CORN MARKET. AND OF COURSE, WE WELCOME RAINS IN THE CORN BELT. THAT RELIEVED A LOT OF CONCERN THAT IN THE UPPER MIDWEST, IN BOTH THE EASTERN AND WESTERN CORN BELT, WE DID SEE SOME RAINFALL THIS WEEK. AND IT HAS NOT BEEN A PARTICULARLY WET. WELL, WE'VE HAD SOME SNOW ON THE GROUND IN SOME SPOTS IN THE NORTHERN HALF OF THE CORN BELT, BUT OVERALL PEOPLE REALLY HAD THEIR EYE ON THE WEATHER. NO CLEAR LA NINA, EL NINO DEVELOPING ANYWHERE, SO NOT A LOT FOR PEOPLE TO HANG THEIR HATS ON. WE'RE EARLY IN THE YEAR. WHAT'S YOUR TAKE ON THIS CORN MARKET? WHAT SHOULD WE BE DOING?

Newsom: RIGHT NOW THE CORN MARKET -- AGAIN, LIKE WE TALKED ABOUT IN THE WHEAT, THE CORN MARKET RIGHT NOW IS BEING DRIVEN BY NONCOMMERCIAL TRADERS. YOU KNOW, WE'RE IN THE OFF SEASON, AS YOU SAID. THERE'S A LOT OF -- THERE'S A LOT OF THINGS THAT ARE GOING TO COME INTO PLAY; THEY'RE JUST NOT FRONT AND CENTER YET. SO WHAT WE HAVE -- WHAT'S LEFT IS THE FACT THAT WE'VE GOT NONCOMMERCIAL TRADERS WHO ARE VERY INTERESTED IN THIS MARKET THAT CONTINUE TO HOLD A VERY LARGE NET LONG FUTURES POSITION. SO WHEN WE SEE LITTLE DIPS DOWN LIKE WE SAW EARLIER THIS WEEK -- WHERE THE FIRST THREE DAYS SAW SOME NONCOMMERCIAL LONG LIQUIDATION, THEY STEPPED BACK INTO THE MARKET AND WERE ABLE TO PUSH IT BACK UP. NOW, WE ARE APPROACHING SOME NEARBY RESISTANCE LEVELS, 235 FRONT-MONTH CONTRACT. IT'S GOING TO BE A VERY INTERESTING EARLY NEXT WEEK BECAUSE THE MARCH CONTRACT GOES OFF THE BOARD, MAY TAKES OVER, AND SO FROM A TECHNICAL PERSPECTIVE AS THESE -- SO MANY OF THESE TRADERS ARE, THESE NONCOMMERCIAL TRADERS ARE TECHNICALLY BASED, WHAT THEY'RE GOING TO SEE IS THAT MAY CONTRACT IS PUSHING RIGHT UP AGAINST THAT 235 IF NOT TRADING ABOVE ABOUT THE TIME IT BECOMES -- BECOMES A FRONT-MONTH CONTRACT. SO WILL THIS TRIGGER ANOTHER ROUND? HARD TO IMAGINE, AGAIN, WITH THE ENORMOUS POSITION THAT THEY HAVE, BUT IT CERTAINLY COULD. WE'RE IN A TIME FRAME WHERE THERE'S A LITTLE BIT OF A VACUUM IN HERE, AND THERE COULD BE SOME ROOM FOR THEM TO PUSH IT A LITTLE HIGHER.

Pearson: AT THE BEGINNING OF THE YEAR, WE TALKED ABOUT THE HUNDRED PLUS BILLION DOLLARS COMING INTO CHICAGO AND THE SPECULATIVE COMMODITY MARKETS FROM PENSION FUNDS, FROM INSTITUTIONAL MONEY. IS THAT MONEY STILL FLOWING IN?

Newsom: THE MONEY IS STILL IN THERE. AND LIKE I SAID, YOU'RE STILL SEEING A LOT OF IT COMING IN. BUT AS WE SAW ON THE CRB GRAPH, THEY'VE TAKEN A LITTLE BIT OF A BEATING. AND THAT'S BECAUSE THE TRUE COMMERCIAL TRADERS HAVE DEVELOPED A VERY INTERESTING DEFENSE STRATEGY AGAINST THIS MONEY THAT'S COMING IN AND PUSHING THE MARKET HIGHER, AND THAT IS TO WIDEN OUT THE CARRY. IT'S MAKING THEM OWN IT AT HIGHER AND HIGHER PRICES AS THEY HAVE TO ROLL FROM ONE CONTRACT TO THE NEXT. AND SO WHAT WE'VE GOT NOW IS A VERY CLASSIC BATTLE BETWEEN ALL THIS BIG MONEY COMING IN VERSUS THE LONGSTANDING FUNDAMENTAL COMMERCIAL TRADERS WHO ARE WIDENING THE CARRIES IN THESE MARKETS, HAVE BEEN SINCE LAST SPRING. AND WE'LL SEE WHO WINS OUT. RIGHT NOW, AS I SAID, THERE'S NOT A LOT OF COMMERCIAL NEWS TO PUSH THE MARKET AROUND. IT LEAVES IT IN NONCOMMERCIAL HANDS.

Pearson: AS YOU LOOK AT THE DECEMBER CORN CONTRACT, ARE WE GETTING NEAR A SALES OPPORTUNITY THERE?

Newsom: WE CERTAINLY ARE. I MEAN WE'RE IN THE UPPER RANGES OF THE HISTORIC PRICE RANGE. HOW MUCH FURTHER CAN WE GO? I MEAN WE'RE IN THE 250, 260 RANGE. I'VE BEEN TALKING WITH SOME CUSTOMERS LOOKING AT THE 2006/2007 -- SOME HAVE EVEN MENTIONED THE 2008 CONTRACT BECAUSE, AGAIN, WE'RE IN THE UPPER 5, 10 PERCENT OF HISTORIC PRICE PROBABILITIES. THESE ARE SOME PRETTY ATTRACTIVE LEVELS. WE DON'T KNOW HOW LONG THEY'RE GOING TO STAY HERE. IF YOU LOOK AT THE LONG-TERM CYCLE IN THIS CORN MARKET, WE'RE ACTUALLY IN A FAIRLY FLAT TIME FRAME. SO TAKING THESE OPPORTUNITIES WHILE THEY EXIST, I THINK IT'S GOING TO LOOK PRETTY GOOD COMING INTO NEXT YEAR.

Pearson: ALL RIGHT. LET'S MOVE OVER -- LET'S TALK ABOUT SOYBEANS. ALL I'VE HEARD IS JUST WHAT A BIG PILE OF SOYBEANS THEY'RE GOING TO PRODUCE DOWN IN SOUTH AMERICA, WHAT A BIG PILE OF SOYBEANS WE HAVE LEFT OVER IN THE UNITED STATES FROM 2005'S HARVEST, AND YET THE SOYBEAN MARKET STILL SEEMS TO HANG IN THERE.

Newsom: HANG IN THERE IS ABOUT THE BEST THING THAT YOU CAN SAY. IT'S NOT REALLY GOING ANYWHERE. AND WHAT WE'VE GOT IS A LONG-STANDING -- BASICALLY GOING BACK TO NOVEMBER SIDEWAYS TREND. WHAT WE'VE SEEN IN THIS TIME FRAME IS COMMERCIAL TRADERS ACTUALLY STARTED OFF THIS TREND BEING A LITTLE BIT, YOU KNOW, NEUTRAL TO FAIRLY BULLISH. CARRIES WERE SMALL. THEY WERE STILL A LITTLE BIT CONCERNED ABOUT BEING ABLE TO SOURCE THE TYPE OF SUPPLY TO MEET DEMAND. NOW, AS THIS THING HAS GONE ON AND AS WE'VE GONE INTO THE SPRING HERE, THEY'VE GROWN MORE AND MORE BEARISH. WE'VE SEEN THE MARCH TO MAY WIDEN OUT. NOW WE'RE SEEING THE MAY TO JULY WORK OUT TO THAT -- THAT SPREAD WORK OUT TO ABOUT 80 PERCENT FULL COMMERCIAL CARRY. THIS IS INDICATING THEY'RE NOT IN A BIG PUSH RIGHT NOW TO BUY THESE BEANS. SO AGAIN, WITHOUT THEIR SUPPORT IN THE MARKET, THAT LEAVES IT IN THE HANDS OF THE NONCOMMERCIAL TRADERS, AND THEY'VE BEEN UNWILLING TO JUMP INTO THIS MARKET AT THIS POINT AND REALLY PUSH THIS THING HIGHER. THEY'VE BEEN FLUCTUATING BETWEEN JUST SMALL NET LONG, SMALL NET SHORT. AND AGAIN, THAT JUST CONTRIBUTES TO THE SIDEWAYS NATURE OF THE MARKET.

Pearson: ALL RIGHT. SO STRATEGY-WISE FOR '06 BEANS, WHAT WOULD YOU BE DOING?

Newsom: AGAIN, ABOUT THE SAME WITH THE CORN. IF WE LOOK AT THE NOVEMBER BEANS, THEY'RE IN A PRETTY GOOD RANGE. THEY'RE IN THE UPPER -- I THINK THEY'VE DROPPED DOWN TO LIKE THE UPPER 25 PERCENT ON SOME OF THIS SELLOFF THAT WE'VE SEEN HERE OVER THE LAST COUPLE WEEKS, BUT IT'S STILL NOT A BAD MARKETING OPPORTUNITY. IT COULD BUMP HIGHER SEASONALLY. IT WORKS HIGHER INTO EARLY JULY, SO I THINK WE'LL HAVE SOME BETTER OPPORTUNITIES. BUT BEING ABLE TO BREAK OUT OF THIS RANGE IS GOING TO BE CRITICAL, AND THE ONLY WAY TO REALLY DO THAT IS TO START DRAWING SOME OF THIS NONCOMMERCIAL MONEY IN.

Pearson: ALL RIGHT. LET'S MOVE OVER AND TALK ABOUT THE LIVESTOCK PICTURE. ERIN, I WISH YOU HAD A BETTER WEEK TO TALK ABOUT.

Golly: I WISH I COULD TOO.

Pearson: YEAH, WHAT A PLUNGE! I MEAN YOU NAME IT: BEEF, HOGS, POULTRY. GIVE US SOME WORDS OF WISDOM AS FAR AS THE FED-CATTLE MARKET FIRST. WHAT DO YOU SEE IN HERE?

Golly: THE FED-CATTLE MARKET, YOU KNOW THE FIRST THREE WEEKS OF LENT ARE ALWAYS A TOUGH TIME FOR THE FED-CATTLE MARKET. IN GOING BACK TO MARCH OF 2002 -- I WAS THINKING ABOUT THIS LAST WEEK -- WHEN WE HAD THE RUSSIAN STEEL TARIFF WHERE RUSSIA CAME OUT AND BANNED ALL U.S. POULTRY PRODUCTS. AND THAT YEAR BEEF AND PORK PRODUCTS TOOK A REAL TUMBLE THAT YEAR BECAUSE OF ALL THE DOMESTIC SUPPLIES OF POULTRY THAT WE HAD ON HAND. WE'VE GOT THE SAME SITUATION GOING ON RIGHT NOW, BUT BIRD FLU IS TO BLAME THIS YEAR. AND WE'RE SEEING THAT WAY ON THE BEEF AND PORK PRODUCT PRICES RIGHT NOW. AND THEN GOING BACK TO, LIKE, THE LAST FOUR MONTHS OF 2005, WHEN THE SUMMER OF '06 CATTLE FUTURES WERE RALLYING, YOU KNOW, WE HAD THAT EXPECTATION THAT THE EXPORT MARKET WAS GOING TO BE FULLY RESUMED, EVERYTHING WAS GOING TO BE GOING REALLY GREAT FOR THE EXPORT MARKET. BUT, YOU KNOW, NOW THAT WE REALIZE THAT'S NOT GOING TO BE -- AND WE'RE PRICING THAT REALIZATION THAT THINGS AREN'T SO HUNKY AND -- YOU KNOW, THAT WE THOUGHT IT WAS GOING TO BE.

Pearson: RIGHT. STRATEGY-WISE, WHAT DO YOU TELL THE CATTLE FEEDER RIGHT NOW?

Golly: WELL, WE -- YOU KNOW, I LIKE TO RECOMMEND PURCHASING PUT OPTIONS YET. AND IF YOU ALREADY HAVE PUT OPTIONS IN PLACE, LOOK AT ROLLING THOSE PUTS DOWN AND TAKING SOME OF THE EQUITY OUT OF THE TRADES. BUT BE CAUTIOUS, I LIKE TO TELL PEOPLE.

Pearson: ALWAYS A GOOD IDEA. TALK ABOUT THIS CALF MARKET. NOW, THAT'S BEEN UNBELIEVABLE. WE'VE HAD A THREE-YEAR HUGE RUN THERE. THERE ARE A LOT OF PEOPLE THAT ARE SAYING, OKAY, WELL, IT'S ALL DONE NOW, WE'RE BACK IN THIS CATTLE MARKET. IS THAT THE CASE OR CAN WE SEE FEEDERS MAYBE MAKE ANOTHER RUN LATER ON?

Golly: I THINK THAT FEEDER CATTLE ARE GOING TO TRY AND BOTTOM OUT AT THE END OF THIS MONTH AND MOVE HIGHER INTO APRIL. THERE'S A COUPLE OF THINGS THAT YOU NEED KEEP AN EYE ON. YOU KNOW, IF THE FED-CATTLE MARKET CONTINUES TO GO DOWN, HOW IS DEMAND GOING TO BE REACTIVE FOR THE FEEDER CATTLE AND IF WE HAVE ANY SITUATION WITH THE CORN, IF WE CAN SEE CONTINUATION OF THE DROUGHT OR IF WE SEE SOME ACREAGE SHIFTS. YOU KNOW, WE HAVE A LOT OF CORN SUPPLIES ON HAND NOW.

Pearson: LET'S TALK ABOUT THE HOG MARKET. I KNOW YOU FOLLOW THIS ONE REAL CLOSE. HOGS HAVE BEEN UNDER PRESSURE. YOU MENTIONED WITH THE POULTRY ISSUE OUT THERE. YOU TALKED ABOUT IT LAST QUARTER; THERE'S SOME EXPANSION THAT'S BEEN GOING ON IN THE HOG BUSINESS.

Golly: MM-HMM. AND THERE HAS BEEN AND I KNOW THERE'S SOME BUILDINGS GOING UP THIS YEAR. IT'S JUST REAL TOUGH GETTING THE LAND BOUGHT, AND THAT'S THE MAIN -- THE MAIN BARRIER IN GETTING THAT DONE. BUT THERE'S A TREMENDOUS CONCERN IN THE HOG INDUSTRY AROUND THE WORLD, AND IT'S -- IT'S THE CIRCLE VIRUS THAT THEY'RE TALKING ABOUT. AND IT DOESN'T AFFECT HUMANS, BUT IT'S A HIGHLY CONTAGIOUS VIRUS AND DISEASE. I'VE BEEN HEARING INSTANCES OF 3- TO 6-PERCENT DEATH LOSS IN FINISHERS AROUND THE UNITED STATES. AND ALONG WITH THE HIGH DEATH LOSS, THERE'S A VERY HIGH CALL RATE WITH THIS. AND SO -- AND THERE'S NO KNOWN CURE FOR IT. THAT'S THE BIGGEST THING. SO ALONG WITH LAST SUMMER'S BREEDING PROBLEMS AND NOW THIS HERD HEALTH ISSUE, WE COULD ACTUALLY SEE A SURPRISE IN SUPPLIES SOMETIME IN THE NEXT THIRTY TO SIXTY DAYS AND, WE HAVE MORE PACKER CAPACITY NOW TOO.

Pearson: ALL RIGHT. SO GOOD PACKER SUPPLY. STRATEGY-WISE, WHAT WOULD YOU DO AS A PORK PRODUCER?

Golly:I'D KEEP THEM -- I KEEP TELLING PRODUCERS TO PURCHASE PUT OPTIONS. YOU KNOW, WE COULD HAVE SOME UPSIDE HERE POTENTIAL WITH ALL THESE HERD HEALTH ISSUES AND BREEDING PROBLEMS.

Pearson: ALL RIGHT. AND, OF COURSE, YOU MENTIONED THE AVIAN FLU AND ALL THOSE OTHER ISSUES JUST LANDING ON THE CATTLE INDUSTRY AND THE HOG INDUSTRY AROUND THE MIDWEST. THANKS SO MUCH, ERIN AND DARIN. AS USUAL, SOME GREAT INSIGHTS. APPRECIATE YOU BOTH BEING WITH US. AND WE ALSO WANT TO LET YOU KNOW THAT "MARKET TO MARKET" MAY BE AIRING IN SOME DIFFERENT TIME SLOTS ON STATIONS HERE IN THE NEXT FEW WEEKS DUE TO PBS FUND-RAISING EFFORTS. NOW, HERE'S THE THING. IF YOU VALUE PROGRAMS LIKE "MARKET TO MARKET," PLEASE CONSIDER PHONING IN A PLEDGE AND INVESTING IN THE SERVICE PROVIDING YOU WITH ACCURATE, UNBIASED INFORMATION AND ANALYSIS. THANKS SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." I'M MARK PEARSON. FOR ALL OF US HERE ON "MARKET TO MARKET," HAVE A GREAT WEEK.

Tags: agriculture commodity prices markets news soybeans wheat