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Market Analysis: Sep 16, 2005

posted on September 16, 2005


Weak basis at Gulf Coast terminals is spurring some LDP activity in corn, while tight supply-demand numbers have the funds back in the wheat markets. For the week, nearby wheat futures lost 1 1/2 cents. The December corn contract fell almost 10 cents.

The crop report pushed soybean prices to near lows midweek, with lousy export numbers adding to the bearish sentiment. For the week, the November contract lost nearly 19 cents. The nearby meal contract was down $8.20 per ton.

USDA numbers outweighed concerns over hurricane losses in the cotton market. For the week, the October futures contract dropped $2.06.

In livestock, the October cattle contract was up $1.25. Nearby feeders gained 30 cents. And the October lean hog contract fell by a quarter.

In the financials, Comex gold advanced $10.30 an ounce. Nearby crude oil prices fell $1.00 a barrel. The Euro lost 174 basis points against the dollar. And the CRB Index fell more than five points to close at 319.75.

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

Market Analysis: Sep 16, 2005 Pearson: ...one of our senior market analysts Doug Hjort, Doug welcome back.

Hjort: Thank you, Mark.

Pearson: Well, let's talk about this corn market first. Corn harvest is well under way in the Corn Belt and the corn basis levels are still struggling, still under a lot of pressure, still completely falling out of bed. So, producers are gathering up this crop. We're hearing all kinds of anecdotal evidence that in the good parts of the Corn Belt and the western Corn Belt in particular the market or the production has been outstanding. In the drought areas it's been spotty but still better than some people expected. A lot of corn coming in, a lot of corn stored. What is ahead Doug?

Hjort: Well, number one I don't know that we've seen the bottom on prices yet. Although basis has been so wide especially in the western Corn Belt and eastern plains that I don't know that it can get much worse out there. As a matter of fact, that is the strong demand pull area right now with the Mississippi River and the Gulf area still somewhat lacking. As you look at the production estimate, of course, a big jump, more than anybody had anticipated. And the yields are there. So, USDA said that those yields were going to be high. So, now the combines have to prove that. I've seen a lot of reports on yields and I haven't seen anything that has exceeded what USDA, you should expect from the USDA report. But once you get that kind of result this corn seed just has the ability to hang on and produce, it's just tremendous. We learned that last year, of course, and we're seeing it again this year.

Pearson: What should we be doing Doug, a producer who is piling up corn right now?

Hjort: Well, of course, about the only thing to do right now is to not sell the cash because it is so weak but look at cashing LDP's. In the 40's somewhere depending on where you're at in the country is what the LDP value is right now. And I think that should be cashed in as you move on into harvest. I wouldn't wait too long because the demand for corn is going to be good. Sure, the Gulf slowed the shipments and well both on the river and out of the ports. Excuse me. But that is not going to remain down for long. The Gulf may not get back to full operation for several weeks or months. But they'll transfer that out to other areas.

Our export market is going to be good because the excess of world grains is here in the United States. The shortage, if there is going to be one is around the world. So, U.S. exports I think will increase from current estimates. It's still not going to make a bullish situation in the New Year because we've got an ending stock projected to be over 2 billion bushel. That needs to be down at 1.2 or 1.3 if you want to talk bullish numbers. so, it's not going to get there in my opinion but prices will rebound after harvest. It's going to take longer, though, this year for prices to come back after harvest just because of number one the large new crop plus the old crop that is still left out there.

Pearson: Alright, let's talk about soybeans Doug. Again, not quite the problem there in terms of exports. But certainly some pressure on cash prices there and, of course, plenty of beans out of South America and perhaps plenty of beans again in 2006. It doesn't set up for very bullish situation for soybeans either right now.

Hjort: No, it really doesn't. Soybean prices dropped hard too after the report partly because in relationship they were probably a little bit higher yet than the corn was. but the real negative thing on the soybeans as I see it is the chart damage that was done. On Monday after that report came, excuse me, on Friday, a week ago prices closed below a major support level and then on Monday gapped lower again and never could recover. That technical barrier added onto the weak fundamentals is going to make it very difficult for this soybean price to recover. There is some thought that maybe the hot and windy weather that we had seen since the first of September may limit the filling of some of the beans and so on, that may be true. But it's not going to take very many bushels away. At least it usually does not. So, I would not expect that this year either.

On soybeans as far as pricing I'm really not too interested in pricing something now. But if you're looking at selling some corn or beans I would price some beans off the combine even at these lower prices.

Pearson: Let's talk about the wheat market which has been pretty hot. It's been a very interesting situation. We were down a cent or two but the wheat market has held on pretty strong. What is driving this thing Doug?

Hjort: Well, you've really got two wheat markets here in the United States. You have a soft red winter wheat market that has just totally collapsed here in the last three weeks first because the Gulf shut down and that is where a good share of the soft red is exported from. Then you have the hard wheats, hard red winter and hard red spring, they are very good quality wheats. The demand from the world is for that top quality wheat and the United States has it. So, that is one of the reasons that the wheat, the hard wheat prices had been going up while the soft wheat prices had been going down. That is cash. Futures too but cash is really accentuated.

Wheat prices therefore you have to look at which class of wheat you're talking about. Part of the reason the soft red is down is because corn and soybeans are being harvested. Merchants don't want to mess with wheat during that time. So, you're going to have to wait until into the winter before those prices come back for a sell opportunity in my opinion. On the hard wheats though, those markets could be close to a near term top. And remember, wheat prices usually top out in October or November so I would watch that price action very carefully in the next few weeks on the hard wheats to make some sales.

Pearson: Lets talk about the cotton market. Of course, Hurricane Katrina you'd think would have a big impact on cotton production. IT doesn't sound like it, at least from what the USDA is saying.

Hjort: No, there may be some losses that come, that get on a later reports but that market is under pressure just like the corn and the beans. Production is there, supply is larger than demand and remember, you could expect demand to increase with lower prices. But we've got some world economic concerns to be worried about too and that could limit the demand for cotton.

Pearson: Let's talk about the livestock market. Now, there is a bright spot, Doug. We've had higher fed cattle prices, what, ten days, almost two weeks in a row and it's looked awfully strong out there.

Hjort: It is an amazing market is what it is. I think part of it was that the retailer and the wholesaler feared that maybe beef demand would evaporate after Labor Day. It did not. So, the packer was left without enough inventory, the retailer was asking for more and the prices just exploded. I think we're up, what, eight, nine dollars in a month. So, it's a tremendous market. Cash market you've got to be selling cattle if they're finished. When you're looking at feeder cattle, the feeder cattle futures went up along with live cattle but the cash did not here in the last two weeks. IF you've got those calves or feeders that haven't been priced for fall delivery yet I would do so now.

Pearson: Alright, so we've got our fed cattle and our feeder cattle market taken care of there. And of course this feeder cattle market has been unbelievable. Doug, are we starting to build this cow herd some?

Hjort: We are a little bit. Just out in Montana last week and talking to a few ranchers yeah they're holding a few heifers back but it's not land office business yet out there. They're still liking that price that they're getting for the calves.

Pearson: Absolutely, and of course, the rainfall they finally got some so it brightens the attitudes a little bit. Let's talk about the hog market. This hog market has been pretty darn good. Now, we know we have expansion going on in the hogs and yet this hog market is defying again. We get into that post Labor Day mentality I think and we think that prices for the red meats are going to follow and we've seen just the opposite both in cattle as you just talked about and now hogs.

Hjort: The hogs are kind of struggling here but I think they're getting a little bit of support from the cattle market too. I'd be a little cautious on hogs here. If you look at futures prices, hedging opportunities you're up against some major resistance levels there, of course you are on the cattle too. But on the hogs that might be something you'd want to talk to your broker about and look at during some hedging for on down the road somewhere. Cash markets though over the next month or six weeks I think will be pretty good. I don't expect them to go much higher than they are but the sell offs will probably amount to one or two dollars and then they'll come back again to this level. So, take advantage of those and keep the sales made on a current basis.

Pearson: Excellent. Thank you so much Doug Hjort, that will wrap up this edition of Market to Market. But be sure to join us again next week when we'll learn why one rural school finds it necessary to teach the town kids about agriculture. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news wheat