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Market Analysis: Jul 29, 2005

posted on July 29, 2005

The grains remain in a weather market with prices expected to drift higher until farmers start selling. For the week, nearby wheat futures declined nearly three cents. The September corn contract gained three cents.

Strong export sales failed to move soybean prices much as the fund buyers remained on the sideline. For the week, August beans gained more than two cents. But the nearby meal contract was down 20 cents per ton.

Cotton traded sideways for most of the week, with October futures gaining just 79 cents.

In livestock, the August cattle contract was up $1.95. Nearby feeders advanced $1.57. But the August lean hog contract dropped 35 cents.

In the financials, Comex gold moved up $4.90 an ounce. The Euro gained 63 basis points against the dollar. And the CRB Index soared nearly 14 points to close at 314.75.

Here now to lend us her insight on these and other market trends is one of our senior market analysts, Sue Martin. Welcome back.

Market Analysis: Jul 29, 2005 Pearson: Here to lend us her insight on these and other market trends one of our senior market analysts Sue Martin. Sue, welcome back.

Martin: Thank you, Mark.

Pearson: Well, you just saw our story about what is going on over in the state of Illinois in the land of Lincoln, my home turf, it's been a dry one over there. And when you see a key part of the Corn Belt get hit that hard it has to get the trade wondering. I want to start with soybeans because, again, that is where we always seem to have the most volatility to start there. What kind of impact do you see on the soybean market with the kind of problems that we've had particularly in Illinois as well as eastern Iowa and parts of Indiana?

Martin: Well, all through the month of July traders tried to down play any up move in the market and of course that move couldn't hold because they kept saying well, this isn't bean month, it's not August. And so they kept saying that there was potential yet for marked improvement if there was rains that came through, that type of thing. Now, having said that the crop is being pushed ahead a little bit and we noticed that we're well ahead in blooming and potting. But those with the heat are dropping blooms and that is not a good thing because then when we reset if we come back with another surge of heat the crop is going to suffer greatly. The next two weeks are very important and critical in this market and I don't have to tell very many people that, they already know it. But I think that as we go into next week if we come in on Sunday night, Monday and they are talking about taking some of the moisture out of the forecast and keeping the heat there, which is what I noticed by some of my weather sources late this afternoon, that makes me think that the market is going to be starting to go into another move up. The market is biding time. There is a cloud over this market that has been here since early in the year, late last year of bearishness where traders are so caught up and want to continue to look at supply and feel that demand isn't going to be good enough to take the supply down. But they're wrong. The end carries are going to be tighter, world supply is going to tighten up and of course it's going to just put more emphasis on South America, have to have more acres and of course they are expected to produce this next year. Already it's an early estimate of 62 million metric tons down from the original 66. They started out last year, didn't end up there but that is where they started. Well, the emphasis is going to be trying to enhance them to plant more. Now, that will come by a couple of things. One with prices going up through the fall and another thing the dollar holding decently. If you get the combination of both of those then that will enhance the South American farmer to maybe relinquish and start to plant more acres.

Pearson: Alright, but a lot of key decisions are going to have to be made here, like you say, in the next couple of weeks and particularly on where this plant size stands. What is your take on prices?

Martin: Well, I think that we're going to get a rally here. If you look at the month of July you closed higher for the month than you did at the end of June and you had an inside range, lower high and a higher low but you closed about twenty and a half cents higher for the month on new crop beans. I think you're going to take this market and you're going to try to rally it here. We should try to lift back up. Maybe we go back up to around $7.28, $7.40 again in Novembers but I also think that should we start to enhance this dryness the market is going to start to lift and get much more enthusiastic and go back and look at the highs again and probably take them out. We have a huge congestion going on or a huge pinnant formation if you will and when we come out of there the direction we come out of there will set the tone for the fall. I think we're going to come out of there to the top side. And, of course, I look for if we break this next week down into Friday the market is a buying opportunity. If it rallies into next Friday and a week from this coming Monday then I'm going to say take some money off the table and take a step back and take another look. But, you know, everybody in Chicago wanted to say that this was a 1988 market. I think it was more of a 1995 market but they were comparing to 1988. Beans topped on the same day as they did in 1988 in June and corn topped on the same day as 1988. Well, both markets put their lows in at the very tail end of July and then we rallied, didn't make new highs, but you rallied into September.

Pearson: Alright, let's talk about the corn market. In 1998 was a dry one. Sue, as you take a look at what has happened with this corn market we've had a big spike and we've been falling back and fell back a little bit this week. What is your take as we go forward?

Martin: Well, this has been a year about beans. It's always been all about beans and corn's weather has changed that a little bit and now the corn is coming on. Traders are not looking ahead, they are not able to realize or focus on the demand that is going to come at us in the next year. So, they haven't realized that yet but China has had a lot of issues. Beijing, China is on the same latitude as you've got Chicago, Illinois. And there has been some really major issues with their crop over there. So, they are going to probably become out of the export market and maybe even import a little bit. So, that is Asian buyers that would normally buy from them, that is going to come to the U.S. and be buyers. So, that is a helpful thing in the next year along with, of course, the increase in demand for ethanol and energy uses there and, of course, feeding. So, I think that we're going to have to look at this corn market on a long-term basis and I think there is more merit for corn. I think corn holds a chance of still coming back and making higher highs. Having said that, the weather is very important, again, over the next week to two weeks. By the 16th of August we're going to have a pretty good clue as to where this crop really is. And for viewers they can go to a Web site, doesn't have any advertisement on it but it is a beautiful Web site, it's called and you can go through every state, their crop touring right now, they've done Illinois, they are starting in Iowa and Missouri and you can go through and it will show you and even enlarge it up to where you can just almost like you're standing in the field looking at the crop yourself. They do not accept and put out what farmers are saying, they want it very unbiased. They have neutral based people out there scouting and they take pictures and they're measuring ears and boy it's very eye opening if you go to that site and take a look at those pictures, it's real interesting. Now, they'll tour again and make their final estimate around August 16th or that will be when they finally come up with their estimate of the crop. This government report that we've got coming out here on August 12th will be the first report that will be surveyed estimates.

Pearson: That's right and real in the field numbers.

Martin: Well, and another thing too, Mark, we have to keep an eye on this one because these numbers I think are going to be skewed higher because they'll be compared to last year and last year was just too record and so last year's numbers were skewed lower and then the final ended up showing much more. Well, these will be skewed higher and then we probably end up with less.

Pearson: Real quick, the wheat market, Sue, as the harvest wraps up and heads up to the north the wheat market is just kind of got a little bit a bounce from soybeans early on and now it's been relatively flat.

Martin: Well, it does. The wheat market is one market that, you know, as they did this crop tour up in North Dakota and did the hard red spring wheat and the durham wheat tour they were really surprised because they had expected yields much larger off of the USDA estimates than what they were seeing. A lot of disease, a lot of scab, there is a lot of disease that is just really going to bring the quality down of that crop. And I think that while we see the carry outs decline we're probably still going to have more than enough that take care of that crop. So, you know, I think it goes back to what corn is doing because wheat has a job to do to compete against the feed side of that market. And so I think wheat is going to have to follow the corn market. You know, we have to keep in mind there is going to be a lot of DDG, you know, competing against wheat.

Pearson: That's true. Cotton market, which has been interesting. Of course, you mentioned China and of course that is going to be a big determinant of what happens with the cotton prices. A little bit of a rally and then we've kind of been strengthening here the last couple of weeks.

Martin: Well, we have. Of course, you got down around forty-eight cents and under and I think there is merit to cotton prices. When they get down in that forty-nine to forty-seven cent area I think there is merit for worthiness of cotton and I would be, as a producer, I would probably be buying futures as a protection against your counter-cyclical payments.

Pearson: Alright, let's talk about the fed cattle market, Sue. And you were concerned about the fed cattle market. You really haven't been all that friendly to it so far this year. That has proven to be pretty accurate. What is your take? Now, we've had a little bit of a bounce here the last couple weeks on fed cattle.

Martin: Well, we have and of course today the market just really took off and rallied nicely and I think that we've been in more of a congestion but today really the market rised and shined. And I think that what we have to keep in mind is I think we're going into some want to say this is your summer lows. Perhaps but I think what it is, is you're getting a rally that is going to enter through next week, might make it into the week after and then I think we're going down again to take out these lows as we go into through September, early October. We did have a record amount of box beef movement for export this past week or a week ago and that is the largest amount we've had since the end of October of 2003 so that is a good thing. And I think box beef prices will be better next week which should help the price of cash market. The one thing that was interesting today we noted that when you look at the feeder index you now have futures higher than the feeder index for the first time in a long, long time.

Pearson: That has been quite a drought there. Let's talk about the hog market, benefited greatly last year because of the Mad Cow disease and the issues between the U.S., Canada and Japan. And we still have that situation going on but our numbers looks like they are starting to build.

Martin: Well, we have a lot of numbers out there. Now, the heat that we just came out of here about two weeks, over the past two to three weeks certainly bunched up hogs or backed them up a little bit which was negative and the market has tried to hold here. I think like cattle it's probably going to lift a little bit next week but then I think hogs turn down and I expect a poor fall for hog prices. I think we've got too many numbers and now that the cattle, you know, can move more freely between the Canadians and us I think -- and we're starting to pick up demand off of this break on the box beef for export -- I think that pork is going to have to compete a little bit and I think we're going to have -- last year it was a counter-seasonal fall, this year I would not expect that.

Pearson: Alright, Sue Martin, thank you so much, appreciate your insights as usual. That will wrap up this edition of Market to Market. But be sure to join us again next week when we'll examine whether the weather is ramping up farmer's selling. Until then thanks for watching, I'm Mark Pearson. Have a great week.

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