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Market Analysis: Aug 12, 2005

posted on August 12, 2005


The crop numbers plus some healthy export sales helped stabilize prices in the grain markets. For the week, nearby wheat futures gained less than one cent. While the September corn contract lost nearly 3 cents.

Soybean prices didn't fare well either. The August contract went off the board Friday, losing more than 15 cents. The nearby meal contract was down $7.90 per ton.

The cotton market declined as well, with the October futures contract sliding $2.67 this week.

In livestock, the August cattle contract was down $1.50. Nearby feeders declined $1.13. And the August lean hog contract fell 70 cents.

In the financials, Comex gold climbed $8.70 an ounce. The Euro gained 65 basis points against the dollar. And the CRB Index jumped more than 4 points to close at 322.75.

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

Market Analysis: Aug 12, 2005 Pearson: Here to lend us his insight on these and other market trends one of our senior market analysts Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mark. It's been interesting, that CRB index jumping four points and everything you talked about that before that was...

Pearson: The whole ag sector was down and yet I'm sure oil plays a big part in that CRB index. And, of course, we don't follow oil as a rule on this show but $67 a barrel big impact in agriculture.

Pfitzenmaier: Oh yeah, absolutely. Other people are starting to talk about, you know, the cost of drying corn this fall and diesel fuel and it's a pretty important thing...

Pearson: Fertilizer prices going into next year. I mean, it's going to impact us in a big way if these prices hold. Let's talk about what prices did this week as far as the soybean market. And the USDA's report, now, there is always a lot of consternation, a lot of predictions about this August report and then when it comes out it seems like the trade almost unanimously says "who cares", it's a week old, almost two weeks old now. The weather certainly has changed, you tend to make the soybeans in the month of August in the Bean Belt.

Pfitzenmaier: Right, and you know, the weather since approximately the first of August when this data was gathered has, you know, we've gotten good moisture especially in those dry areas that have had some good moisture finally. Temperatures have been fairly moderate since then so it's looking like maybe the number might be a little higher as we go through the end of the month here. One of the tricky things about soybeans in my mind is its seed size is so important. I mean, it's important to do pod counts and those count for something obviously but seed size, I mean, you think about it there is a huge difference between a marble and a BB and that gets determined here from now on. So, any data that was gathered as of August 1st I question whether it has a whole lot of meaning anyway.

Pearson: Just a windshield crop check I did across Iowa, across northern Illinois and into Lafayette, Indiana the last week there has definitely been huge crop stress in that region. But, again, soybeans really too early to tell. We'll talk about corn in a moment. But if you're a producer out there, Tomm, and you havent done anything yet in terms of pricing this 2005 crop what do you recommend?

Pfitzenmaier: On the soybean side I think you get rallies back into that $7.80, maybe even possibly $7 if we get some return to dry weather and a little heat and, you know, some good demand numbers. We've got the pro farmer tour starting the 21st through the 25th, that does sometimes give you a little spark. So, if any of those things pop along I think you have to start to make sales in that -- did I say $7.80 -- I meant $6.80 to $7 range.

Pearson: $6.80 to $7 would be a place to make some sales. Talk about this cash market.

Pfitzenmaier: The cash market is kind of benign on the soybean side. On the corn side it's really quite interesting. But the cash market is struggling. I mean, we know there is probably enough beans to get us through 180 million carryout is adequate, it's not particularly tight. I don't think there is a whole lot to talk about really in the cash market on beans right now.

Pearson: Alright, as you look ahead you want to make some sales on beans. Let's talk about the corn market. Northern Illinois, the eastern slope of Iowa going into the Mississippi River Valley, your home terrain real dry areas, real dry areas in parts of northern Indiana and spotty areas elsewhere. But an awful lot of corn left over from 2004.

Pftizenmaier: Yeah, I mean, this USDA report showing a 1.9 billion bushel carry out there is still plenty of corn and people are looking for a rally. And, you know, in the same conversation they'll tell me they're looking for corn to go up and they'll tell me that they have a fifty cent basis on corn. You only have a fifty cent basis of corn because there is lots of corn around and nobody needs to pay up to get it. So, the cash corn market is really kind of a problem. It also creates a couple of big, huge opportunities. Number one, for people that have on farm bin storage you've got two things shaping up here that are going to be very beneficial, make it beneficial to have that grain bin. Number one, you've got a really wide basis but a tightening carry out, which to me means that basis could easily go from fifty cents now to next spring down to 28.5 or 30 cents. So, you've got the potential of 20-25 cent gain to be had by putting that grain in your on farm storage.

Pfitzenmaier: Number one, number two you look out in the carry from December corn out to July is 20 cents, may get out to 24 or 25, 26 cents. There is another 25, 26 cents that that bin is going to make for you. That is 40-50 cents additional income that you can get out of that corn by putting it in on farm storage. So, I think everybody is going to try to max out that as much as they can. Now, having said that because that is there doesn't mean you can't, just doing nothing and you're going to get it. It means you have to go out and sell that carrying charge and capture that value in order to get it. You can't just wait and hope it's there. You can't use the bin as an excuse not to make a marketing decision. But it is creating some great opportunity versus the guy who was forced to sell, you know, straight out of the field at whatever they'll give him. Pearson: So, this is one of those where we've got some carry in the market, this is the year to take advantage of it?

Pfitzenmaier: Yeah, absolutely, an inordinately wide basis. Now, I hinted at another one, the other one is for feed. You know, if you're going to be a person who needs feed, needs to buy corn for feed that wide basis gives you a great opportunity to buy cash corn. You don't want to buy futures, you want to get out there and get your hands on physically the cash corn because that is where the bargain is. And the down side potential in that part of the corn market is probably not real great.

Pearson: So, again, a couple of opportunities you should be aware of at this stage of the game and now is the time to take advantage of those. Let's talk about the wheat market. USDA's report really wasn't all that dramatic for wheat. You've talked about the fact, big world supplies anyway.

Pfitzenmaier: Yeah, there is tons of wheat around. You know, you've got December wheat up around $3.35, that could easily work its way down in that $3.05 to $3.10 range and I think that is probably where you're ultimately going to drift to. You know, we didn't talk about it too much but I think the corn market has probably got 15-20 cents down basis the December contract and, you know, wheat has kind of been a little brother, little sister to the corn market and I think it's just going to follow it right on down.

Pearson: Well, let's talk about the cotton market where, again, we had prices under some pressure this week. You've got this huge China factor and the other weather factor here in cotton. Should people start to be making some sales in here? Should we try and get back up over the $50 mark?

Pfitzenmaier: Yeah, I guess I'd wait for a little pop over the $50 mark although, you know, unless there is a problem with this crop as you go into harvest which can happen fairly easy in cotton, the cotton market we've got a lot of cotton coming on. Hopefully these lower prices are going to stimulate demand which theoretically is the way it's supposed to work. But the cotton market is going to struggle. We're kind of approaching some very important points here down this $47 to $47.50 area and that really kind of needs to hold, you break through that and then the next stop is $45 so pretty good drop there. Hopefully we can get some good demand which it's starting to shape up a little bit here and some weather concerns at harvest that can give us some pops up over $50 but those kind of rallies need to be sold.

Pearson: Let's talk about the livestock market. We saw some pressure on futures this week and on fed cattle and again we kind of had a spike up and everyone thought happy days again and then we're right back down again. What is ahead, Tomm, on this board?

Pfitzenmaier: Well, I don't think there is a lot of down, maybe $78 area should be fairly good support on the beef side. $84 probably a big resistance on the top side and I guess I anticipate it kind of bouncing around in that range. The one thing that concerns me, I guess, is as we alluded to at the beginning of this section is the oil prices, the impact on the consumer because of tight dollars, dollars being tightened up because of gasoline prices. And that I guess is one thing that is sort of lurking off this side, it hasn't really affected us too much yet but historically it has a habit of coming around and biting us and that is a potential problem. But other than that I think that trading range I described is probably going to catch the cattle market.

Pearson: You don't see this cattle market falling off a cliff then?

Pfitzenmaier: I really do not, no.

Pearson: Alright, so let's talk about feeder cattle. and that has been phenomenally strong. I mean, this has been an unbelievable year in the feeder cattle market and I really respect these cattlemen who were paying up for these and these cattle feeders making them work.

Pfitzenmaier: Nothing like being around a bunch of optimists.

Pearson: That's right, they're an optimistic group.

Pfitzenmaier: Well, you've got, like I said, the fat market hanging in there fairly well. I think a lot of people anticipated when this Canadian border got opened up you'd see a big flood of cattle coming in and that doesn't appear to have happened. You've got declining corn prices, cheap corn prices on the cash side. I think people are looking ahead crunching some of those in and feeling a little optimistic about putting some cattle on feed. I don't know, you know, that $110 area on the feeder side is going to be pretty good resistance. You get down under $105 and it seems to get shored up pretty well.

Pearson: Hopefully they're listening to your comments about getting some physical corn covered right now.

Pfitzenmaier: Yeah.

Pearson: Because I think that will work a lot better.

Pfitzenmaier: That's right.

Pearson: Let's talk about hogs, Tomm, I know I hear from producers all the time they say gosh, you know, we don't have many of us independents left who are doing much. But I'll tell you what the impact that hogs have on beef and poultry and everything else is significant. And that market has been fairly good here the last 30 days.

Pfitzenmaier: Yeah, it has been. And if you look at the gap between where the August contract is and where the October is they've already anticipated some pretty big, some numbers showing up which historically, you know, through all the changes we've had in the pork industry we still have that discount of that October contract off of the August and that is already anticipated a fair amount of sell off. Now, I guess I think we're still going to have some numbers coming along that are going to pressure that market. We may see them running back down and retest that $53, $60 low that we had in the October contract, you know, two or three weeks ago. But I think that is probably your down side potential, your up side potential is $60 to $61.50, somewhere up in there.

Pearson: Much in the way of expansion occurring in this hog market? Obviously they're anticipating on the board.

Pftizenmaier: Yeah, there is a slight increase in sow numbers but, you know, the way our efficiencies go these days a slight increase in sow numbers make for a pretty big number of hogs being produced from that. So, I think there is -- you hear about buildings still going up, still being built. I think that is going to -- I mean, you have good profitability that almost has always brought on an expansion in the pork industry.

Pearson: Alright, and again, heads up for those folks, remember to get some cash feed beans covered at this stage of the game.

Pfitzenmaier: Yeah, absolutely. Again, cash not the futures.

Pearson: Absolutely, Tomm Pfitzenmaier, thank you so much. That will wrap up this edition of Market to Market. But be sure to join us again next week when we'll examine how used farm machinery is bringing top dollar at auctions all across America. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news