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Market Analysis: Jun 10, 2005

posted on June 10, 2005

The government's estimate of a smaller than expected wheat crop failed to rally prices, while the prospects for adequate rainfall fueled a sell-off in corn.

For the week, nearby wheat futures fell by nearly 10 cents. The July corn contract lost more than 8 cents.

Despite the government's call for record soybean exports, favorable crop conditions are dampening prices.

For the week, July beans lost 9 cents. The nearby meal contract dropped by $3.80 per ton.

The cotton market continued its decline and for the week the July futures contract fell by $1.38.

In livestock, the June cattle contract was down $1.17. Nearby feeders declined 45 cents. And the June lean hog contract fell another 95 cents.

In the financials, Comex gold gained $3.70 an ounce. The Euro fell 115 basis points against the dollar. And the CRB Index retreated by more than 4.00 to close at 302.48.

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: Jun 10, 2005

Hjort: Thank you, Mark.

Pearson: Let's start with soybeans because we have had so much volatility over there. The soybean market this week was under some pressure. There was some rain in some parts of the eastern corn belt. There apparently remain some dry areas in part of the soybean belt. What would you tell a producer to do?

Hjort: Well, I think the market, the data coming out from USDA on Friday was good news for the long-term. But, you know, we are talking about weather. Weather... weather... weather... Corn, beans, wheat, everything right now. And remember, too, that these estimates that USDA puts out, on production and so on, they are not derived from surveys in the field. Those are estimates made from desks in Washington, D.C., basically. Not to say that that is bad because it does give you a thumbnail sketch of what it looks like. The soybean complex, just to step back a little bit, you know, back about three or four months ago, the fundamentals were so terribly bearish that you wouldn't think prices could rally at all. Well, the ending stock for a year from this fall, a year in the fall of 2006 has been cut in half from earlier estimates. Still, at 255 million bushels, it's a very adequate supply if it turns out to be that way, to carry us on through the next year. So, there is not a big worry about soybean supply here, but when you are looking at the demand side of things, demand is very strong, I think prices can be reacting of course to the weather situation, the weather forecast can be fairly well supported here. I don't think it is time for soybean prices to collapse. So if anyone has any old crop soybeans around, I would probably take a look a moving those but on the new crop, I'm still not ready to start pricing new crop. I'm not terribly bullish on them but not bearish at all on soybean prices as we go into the new year. And the main reason for that is the strong demand and cutting back on production levels worldwide from last year, still at record-high level.

Pearson: Let's talk about the corn market. Fundamentals there aren't all that enticing either. The potential corn acreage this year in production based on what USDA is saying. And it looks like the markets are taking a look at that and brief rally we had seems to be fading.

Hjort: And the fundamentals on corn reall are quite negative. There is an abundant supply of corn now and it is expected to increase in the new year. One thing about this report on Friday, some of the analysts expected USDA to bring their corn yield down for the new year from 148 bushels per acre they put out in may but they don't change that very often unless they have got a survey to do so. Remember, the first survey on corn and beans doesn't come out until August. So we have a long time to play this what if game and what rainfall or lack of rainfall is doing to yield potential. The demand for grains, corn, wheat, everything worldwide is tremendous. So we have to have a good solid yield. We don't have to have record high yields like we did last year, by any means. We don't even have to have trend-line yields to have an abundant supply of corn. But if we or the rest of the world comes back and pull back very much on the total production, we could get into a very price friendly situation on down the road. Not going to affect us here in the next few weeks. Weather will judge what happens there and will be very volatile jumping up and down on price and so on. But in the long run, I'm relatively friendly on the corn, primarily because I'm very friendly on world grain prices in the long-term. So again, if you have old crop corn, you might look at selling some of that on these little bounces along the way. But on new crop, too, not ready to sell any new crop.

Pearson: All right, what about the wheat? The wheat report that came out as we just discussed again, plenty of wheat around the world and the U.S. wheat supply is not going to be substantial it would appear this year. What is your take on wheat prices and what they have done? Again, fairly flat the last few weeks...

Hjort: We are coming into the harvest pressures and I think we have enough of old crop to fly. New crop supply will be enough to keep from rallying prices here in the next few weeks. There again, like the corn, after we get through with the harvest pressures here in the United States, and if the world production and total grain does continue to slip a little, we saw a little bit of that, world corn and world wheat numbers on Friday's report, pulling production down just a little bit. So there is room for more pullback in my opinion, because we have had some minor weather concerns in several of the major producing areas in the northern hemisphere. So, you pull those stocks down, again, -- we are talking about a wildly bullish situation but I think wheat prices probably will drift a little lower throughout the next few months we get in through that harvest pressure. Then I would look for a very reasonable, very good price rally as we head into the fall period. So new crop sales on the wheat as well are not advised right now.

Pearson: All right, Doug, you are pretty friendly on these grains. What about the cotton?

Hjort: Cotton market, numbers came out, judged to be pretty much neutral. You look at the world numbers and maybe if you get a little bullish but there is no spark there to really get the market going. Supply looks to be very adequate for many months to come.

Pearson: Let's talk about livestock. Fed cattle market under a little pressure on the board this week... We have seen that cash beef trade drop from the peak we had a month or so again. As we are heading through summer, not uncommon to see this but what do you think is ahead for this beef market?

Hjort: It is going to struggle, I think it is going to struggle a lot. I think we are at the bottom right now and could probably rally back a little bit in the next two or three weeks but we have dropped off quite a bit on cash prices. Boxed beef as you say and futures have. So I wouldn't delay marketing of cattle until we get back to the highs we saw four or five, six weeks ago. Don't think we are going to get there. So take the opportunity if you have fat cattle, to sell them on some rallies. If they are not quite ready, look at some hedging opportunities. I think there will be some. There certainly were some in the last month and so on. But I would be a little cautious. Don't expect big jumps on these fed cattle prices. On feeder cattle prices, I think they are finally going start coming down a little bit, too. Hopefully you have taken advantage of that and marketed calves for fall or anything that you have for stocker cattle as well because those prices are just very good, still are. Take advantage of them if you can.

Pearson: Sell the next four or five years worth, if you can...

Hjort: If you can, yes.

Pearson: Still going back and forth with the Canadian issue and the Japanese issue and so farther. If we get any closure to any of those, impact relatively small?

Hjort: Relatively small, I think because the Canadian issue, I think we've lost some market share there. Canadian packing industry is expanding. They are going to be killing more cattle up there and sending us the beef. That's one of the reasons that I'm not so sure that we are going to get much of a price rebound out of this, this next pull to the upside on this cattle market.

Pearson: Alright, a good point. Let's talk hogs too for a minute. This hog market, the past 14 months have been awfully good. It appears as though expansion has crept back in. Doug you talked about that the last time you were on. What is ahead now? What kind of expansion do you think we will see?

Hjort : I don't think the expansion is going to be great. But we could be seeing 1% to 2% as we get on to the end of this year. That is assuming that prices have bottomed out now and we are going to chop along here and probably move a little bit higher towards the fall. The summer market I think is going to be a tough one. Tough, I mean, we are still making money on the hogs but not at the level that we were at even a month ago. On the hog marketing, futures prices have dropped off quite a bit, too. I don't think there is any hedging opportunities right at the present time. But we will get some rallies going in there. And I'm really kind of negative on the long-term picture on hogs. So take advantage of price rallies to do some hedging.

Pearson: Are you concerned about any feeds needing covering?

Hjort: No, just buy it as you need it now.

Pearson: Thanks Doug. That wraps up this edition of Market To Market. But if you'd like more information from Doug on where these markets are headed, then be sure to check out the streaming audio at the Market Plus page on our Market To Market Web site.

And be sure to join us again next week when we'll examine how farmer cooperatives are finding new ways to stay competitive in the marketplace.

Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news wheat