Weather worries also spurred some speculative buying in the soybean pits. For the week, July beans gained more than 19 cents. The nearby meal contract moved up by $6.90 per ton.
July cotton took a hit, with prices falling $3.70 on the nearby contract.
In livestock, the June cattle contract was down by $1.65. Nearby feeders gained a nickel. But the June lean hog contract lost another $3.55.
In the financials, Comex gold dropped $3.00 an ounce. The Euro fell 57 basis points against the dollar. And the CRB Index declined more than three points to close at 294.25.
Here now to lend us their insight on these and other market trends are two of our senior market analysts, Walt Hackney and Doug Jackson.
Pearson: Walt, good to have you back. Doug, let's talk about the soybean market. Some real volatility there. It looks like the bean market is going to be exciting this year.
Jackson: Mark, we think of the three grains it's the most interesting situation. We have the demand number. Demand at almost three million bushels. We're going to need a 40 bushel yield to keep stocks from declining. The market knows we face the possibility of a unique combination of threats, Asian rust, very unknown threat afids and the normal summer weather threats. We just have no room to particularly tolerate any kind of a production threat. We see the soy market as having very limited downside currently. This is not going to relax. We'll maintain risk premium as we evaluate the threats. We don't see much down side. The potential to move sharply higher if we encounter an innuendo of production threat later on.
Pearson: With that scenario then you probably are not advocating a lot of new crop sales.
Jackson: The only reason we make sales is if we assume that the market is going to achieve and never believe that we don't have a trend type of yield. If we have a trend yield we can go back to $5.50. With higher production costs in the western hemisphere, the cost of fertilizer, the cost of Brazilian currency, the cost of controlling Asian rust, we've added more to the cost of production ratcheting the floor upwards underneath these prices long term.
Pearson: You mentioned Brazilian soy beans and contracts started trading.
Jackson: We had a new contract started trading Friday, very low volume but trading about 9 cents or 10 cents premium. About in line with where values are at the ports of Brazil where these contracts are deliverable. Whether this is going to get big volume remains to be seen. A lot of people were disturbed by the way prices exploded in the U.S. and we had our geographically explicit shortages a year ago. They want a contract that reflects the relative situation in both hmispheres. It probably will be successful and will dversify the hedging coming out of south America and that contract rather than the Chicago delivery contract.
Pearson: Let's talk about the corn market. Corn a little bit different fundamentally and here we saw a little bit of an increase. This is your spring planning increases.
Jackson:We have a situation, mark, that whereas the beans are interesting and potentially dynamic the corn is going to struggle. A situation where we're going to have one of the largest carryouts this year that we've seen in years. The largest free supplies, inventories outside of government hands ever, the largest absolute carryout in years, and so this is going to take a real problem with the weather to do anything the corn market prospects. If the weather is good, we're going to go down the lot. If the weather is average, we're going to go down a little bit. And the only scenario is if we have a legitimately real production threat which we may still have this summer but we're off to a reasonably good start. The markets are vaguely concerned about emergence problems, cool weather problems, some replanting. But the crop can normally grow out of those concerns and we may have a hard time doing much of the upside here. We see farmers selling imminent just above the market. We were buying good amounts of cash corn throughout the week on even two or three cent rallies. So the situation there is one of building stocks next year if we have normal weather. And even though we have record demand, Mark, it's not a problem of demand necessarily even though exports could be more robust. It's just it means with last year's record yield and record crop it's going to take a while to dig our way out of this hole.
Pearson: OK. So you wouldn't be in that big of a hurry of making sales. You're talking to 2 cent to 3 cent rallies.
Jackson: Well, producers that have old crop corn they've got to move before a potential storage problem again this fall may still want to sell rallies. But new crop prices below loan really making sales almost adds to your risk profile so there is not a lot of alternatives here barring a significant weather problem.
Pearson: Let's talk about the wheat harvest. And the reports we're getting on that production wise in the U.S. are very good. The market has been jumping around a little bit but we've been on more of a downward push. What is your take on the wheat market going forward?
Jackson: Well, Mark, the May winter wheat production estimate, the first estimate of the year was for a big crop, a significant increase in U.S. stocks back to the highest levels in several years. One, that if that crop could be achieved could take futures down as much as 40 or 50 cents from where we are today. Chicago futures maybe towards $2.75, prices well below loan. But as we've seen with the South American crop late in this growing cycle we can threaten crops up until the last minute and that is what we're doing with the U.S. wheat crop. We look for a hot, dry weekend this weekend. Crops deteriorating, dryness in Oklahoma and Kansas in particular where the concerns are. The crop is deteriorating and we don't know how much. Funds are short a significant quantity of Chicago wheat and we may see more short covering there.
Jackson: Right now, though, the market does not think that the damage is great enough to significantly alter the prospects of building stocks in the U.S. But it's still in flux, it's still a moving target and a real weather problem here with stripe rust and drought could still change the picture. But the world prospects look generally favorable. There is dryness in Australia so probably we're thinking barring a major catastrophe here at the last minute with the crop that the upside potential might just be no more than 10 or 20 cents and that really from funds short covering and that is the place to probably make sales assuming these crop conditions can stabilize here and maybe get a drink and not be a major problem, although that is yet to be seen.
Pearson: Alright, still eyes on the wheat market. Let's go over and talk about livestock, fed cattle market under some pressure in this meat sector, the hogs especially. And Walter, you talked about that last time you were on the show. But let's talk about this fed cattle market. Cattle on feed report Friday afternoon, what is your take on that?
Hackney: It'll be considered bearish. When you're down five percent on the marketing, when you're up four percent on placements, up three on the on feed it will be construed as a bearish report. The industry in general was geared toward a bearish week anyway. Three weeks ago, Mark, we had 95 dollar fat cattle in the Corn Belt, today it's 89. That is a significant drop in total cash flow and revenue out here. These cattle are going to gradually work toward a bear break even if not a loss and soon if we can't hold our cash market around 89 dollars, Mark. The cash, a lot of bears drove this market this week. There was some bullishness in the West Texas area. They tried all week to hold their market at 90 to 92 bucks, they couldn't get it done. Today they broke over sell cattle at 80 to 89.50. There were some buck eighty, a dollar forty-three dressed cattle in Nebraska earlier on this week. $1.41 took care of any sales yesterday at the high side. So, it would definitely appear that our very current feedlot position is probably gone. We're looking at heavier carcass cattle now by the week. We get a very bearish cattle on feed report today. I would suggest that we'll see packers come out next week bidding from one to two lower than today's close was in the cash market.
Pearson: Okay. Not a really optimistic report near-term. Longer-term what is your take Walter?
Hackney: Well, it's too much undecided in the long-term. There are too many avenues that could be opened or closed that will dramatically effect our cash market. One being the Japan market that you mentioned. If we could get that nine percent export back into our industry it is desperately needed right now and particularly if we progressively get heavier cattle. On the other hand another opening that probably would work against us would be the Canadian border. That in itself isn't going to be a physical problem but it will become a psychological problem. So, we have those offsetting influences working against us. As the physical market in the U.S. goes we probably are going to gear ourselves to an 87 to 89 dollar cash market as we progress into or maybe through the third quarter of this year.
Pearson: Let's talk about the hog market which is under some big pressure on the board this week. You talked about some expansion a couple of months ago on the show. You talked about it again last time you were on. Now we're really starting to see some of the effect and it's got some producers concerned. What is ahead now for this hog market?
Hackney: Well, in the first place every indicator that we had was showing that there was no significant expansion out there. That may have been but when you cut the kill back to under a 1.9 million head of hogs each week and you've got the productivity rate in the genetics of these hogs that we have right now the first thing happens is you're going to start building tonnage. And that is where we are now. We will this week have a heavier average market weight in our carcass hogs than we did a week ago and progressively so as this cash market takes the values down as it has done this week very dramatically. It's very possible that sometime within the next 10 days if we don't floor our cash market we could easily see cash hogs down around 47, 45 cents a pound.
Hackney: Now, in the retail side the only competitor that poultry has at 69 cents a pound in some retail stores is pork and you would think with Memorial weekend coming you would think people would pick up pork chops, boneless loins somewhere in that $1.99 to $2.50 range. But for some reason the retail feels that that isn't going to be competitive enough and they took $1.23 out of that retail trade yesterday. I am sure today it will drop some more. So, the bloom has in fact gone off of the hog trade.
Pearson: Okay, so not a real optimistic picture on the livestock front, Walt, thanks so much. That'll wrap up this edition of Market to Market. I want to thank Doug Jackson as well. And, of course, as we continue we'll be back next week we'll be talking more about the markets but also you can get more from Doug and Walt from our Market Plus page at our Market to Market Web site, so be sure to check that out. And, of course, be sure to join us again next week when we'll see how buying the competition allows U.S. farmers to do battle with Brazil. Until then, thanks for watching, I'm Mark Pearson. Have a great week.
Pearson: Thanks Walt, Doug. That wraps up this edition of Market To Market. But if you'd like more information from our experts 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 see how "buying the competition" allows U.S. farmers to do battle with Brazil.
Until then, thanks for watching. I'm Mark Pearson. Have a great week.