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Market Analysis: Apr 01, 2005

posted on April 1, 2005

The fundamentals in the grain pits look bearish, as traders wait to see if yield keeps up with demand. For the week, nearby wheat futures lost 16 cents. May corn gained more than two cents.

The soybean market remains volatile as the markets mull everything from planting to harvest to hedge fund activity. For the week, May beans dropped nearly 15 cents. The nearby meal contract lost $4.60 a ton.

The cotton market had another good week, with the May contract gaining $1.21.

In livestock, the April cattle contract improved $1.37. Nearby feeders jumped $4.18. And the April lean hog contract lost 15 cents.

In the financials, Comex gold gained $1.10 an ounce. The Euro retreated 35 basis points against the dollar. And the CRB Index advanced four-and-a-half points to close at 311.25.

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: Apr 01, 2005 Pearson: Here to lend us his insight on these and other market trends, our senior market analyst Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks Mark.

Pearson: Well, let's get into it. We had that USDA acreage report which did show a shift of corn and soybean acres. Soybean market took that news and went up. What is ahead now for beans?

Pfitzenmaier: Well, it kind of went up and then it totally turned around and fell apart. So, I don't know -- it was kind of a confusing week, you know. You still have the funds in there rattling around and probably having a bigger impact on it than the report does in some respects because they are very long and they didn't have a report that was ultimately all that friendly. I mean, it was maybe a little friendly relative to what the trade expectation was but I mean ultimately we're going to have too many beans, the South American crop is probably going to be fairly good and the bean market has ended up struggling and it's probably going to continue to struggle for a while here.

Pearson: Alright, selling opportunity in here?

Pfitzenmaier: I think for the short run we've probably got some down in it, May beans could run down oh in that $5.70, $5.75 area. So, twenty-five to thirty cents down and then I think you'll find fairly good support in that market. Same on new crop, you know, maybe run down in that $5.80 area on the November beans that were around $6 when we closed Friday night. So, twenty cents down. And then I think you run pretty quickly out of selling enthusiasm for the beans. And one of the reasons I say that is there is still a lot of people that have rust on their mind. One of the numbers in that USDA report out this week did a little survey on, you know, how well informed people are on soybean rust and you found that a lot of the smaller farmers, particularly in the Southern states and Eastern states aren't really all that up to date on what is going on with rust and those are the ones that are the most vulnerable and if they don't get it controlled then it's going to have more likelihood to blow up into the prime soybean growing areas.

Pfitzenmaier: So, I think rust -- and if you talk to traders on the floor it's high on their mind, there are a lot of people wanting to trade it and so I don't think you want to press the thing too hard when you get down more than another twenty or thirty cents here.

Pearson: Alright, so soybean market does have certainly a couple of big variables in there. Asian rust is one of them. The other one is this Brazilian crop which you are convinced is probably going to be fairly decent. We've been shrinking that monthly.

Pfitzenmaier: Yeah, and that has all been taken into account and I think it fairly well -- you'd have to say in the market we've sort of moved on. And there is a lot of money flowing into the commodity funds. I mean, you talked about the CRB index this week and gold and silver and gasoline and oil prices higher. There is a lot of money flowing into these commodities with a general mindset of commodity inflation in general and you look around for a commodity inflation and you look at corn and beans and wheat and you go hmm, there are some that are kind of cheap, maybe we should just buy them and hold onto them. So, I think that is going to continue to be a factor here for a while.

Pfitzenmaier: Now, you know, another two or three weeks and we're going to start talking about weather here and if we start getting the crop planted and getting it up in good shape then maybe we're going to suffer a little more. But until that gets done we're going to stay fairly well supported I think probably.

Pearson: Alright, let's talk about the corn market. We do have more acres going to corn. Corn we have 2 billion plus billion bushel carryout. What is your thinking on this corn market?

Pfitzenmaier: Again, you back away from trade expectations and there wasn't anything friendly about the corn market. Stocks numbers showed higher stocks than we were expecting. There was an increase in acreage which backs us away from the cliff a little bit in terms of the size of crop we have to have. If we have any kind of a normal, average trend line yield we're going to, this corn market is really going to struggle. Demand is probably overstated on the export side, maybe a little bit on the livestock side and maybe a little bit on the ethanol side. So, I suspect we've got a projected carryout closer to 2.2 billion, 2.3 maybe rather just a shade over two billion like the USDA is talking.

Pfitzenmaier: In terms of downside potential to having July corn is probably going to test two dollars and maybe even take that out as you get the crop planted and up and looking good here which is, you know, around $2.18, $2.17 on Friday night. So, there is some downside potential yet in this corn.

Pearson: Old crop, new crop sales?

Pfitzenmaier: Old crop definitely. I mean, with that kind of downside potential I think any rallies, especially if you can get a pop again back in that $2.25 to $2.32 area you'd have to make sales. New crop, you get down in that $2.28. $2.26 area, that old low probably going to be well supported. You get up in the $2.40 to $2.50 then I think you either start to make sales or go out and buy $2.50 puts for twenty to twenty-two cents.

Pearson: IF you look at this acreage report you'd want to say wow, let's buy the wheat market because we have record low wheat plantings.

Pfitzenmaier: Right.

Pearson: And yet there is plenty of wheat around.

Pfitzenmaier: There is a lot of wheat around, demand hasn't been, I mean, it's been okay but it hasn't been great and the market is kind of watching that. And I think you have to look around the world. There has been a lot of wheat produced around the world. The European countries have been having very good wheat crops and probably are going to this year. So, I think wheat is going to -- if you're looking at trade between the wheat and the corn wheat is probably the weaker link there. It's going to lose relative to corn and I think you can see July wheat go down and retest that $3, $3.05 that support down in there.

Pearson: Cotton market was up again on the board this week. It's had a pretty good run here.

Pfitzenmaier: It's had a very good run. That Chinese business, you know, a lot of years it's kind of erratic, it's good and then it's bad and then they're gone and then they're back but there has been really steady demand all through the winter here. Yeah, I think maybe you'll see it sag a little bit down toward that fifty cent area but you could very easily go up and test fifty-seven just simply because the demand is good. Acreage was up some but not a huge amount. So, again, we're going to be watching to see how the crop goes in and how it develops here and bounce around in that kind of a trading range, I guess. I don't see a sub-50 again here for quite a while here.

Pearson: Let's talk about livestock. Fed cattle market, you know, we've got all of these trade situations out there and who knows what the bottom line is going to be. But the bottom line in terms of the U.S. calf crop is we're still looking at a relatively small cow herd.

Pfitzenmaier: Yeah, we are and if you look -- if you stand back and look at a long-term chart on cattle we've been in a nice solid uptrend ever since last August or September. And as long as that continues I think you just have to hold off and be a little cautious hedger, maybe buy yourself some puts in case of some political or judicial change. But other than that I think you watch that market and as long as it continues to trend higher you just hold off a little bit on it. With that kind of danger around I think buying puts is probably a pretty prudent business move. Don't spend a lot of money but get yourself some kind of safety net and then just watch the market continue to creep higher.

Pfitzenmaier: You know, the market that is really hot is that feeder market.

Pearson: Absolutely, and talk to these cattlemen here for a minute. I mean, buying these feeders right now and making it work you have to be a very confident person.

Pfitzenmaier: Yeah, you do, you have to be an optimist I think. You know, we had a big break and we topped out that feeder market a while back there in that $1.18 area. We dropped back under a hundred, fifty percent retrace would be back in that $1.08-$1.10 area. It's kind of where we were at at the end of this week. So, I guess I'd be surprised if we start to creep up much beyond that. But, I mean, these are pretty good feeder prices and I think you'd be pretty tempted to have to take a piece of that somehow.

Pearson: Yeah, exactly, whatever you're most comfortable doing but if you're a cow/calf person out there you want to get some of these.

Pfitzenmaier: I'm not sure the retained ownership would be all that great a deal this year. This might be one of those years to pass some of that off onto somebody else.

Pearson: Let somebody else have the risk.

Pfitzenmaier: And I think the other thing that is important, there is a lot of these calves going back in as breeding stock too. I mean, you're starting to hear more and more of that over the past two or three weeks. A lot of people are looking around for calves to breed or heifers to breed and throw back into that breeding. So, I mean, the growth in the cow herd is eventually going to have to come along here.

Pearson: Eventually because we're at the smallest cow herd since 1959, almost no expansion really in 2004 and we're hearing that. These heifer sales are good, these bull sales are going really strong so maybe 2005 we'll probably start seeing that cow herd expand.

Pfitzenmaier: The beef market is kind of interesting. When you had the beef market up there and the cash market up there at 92.5 and you've got the June cattle trading 85 or well discounted to that, you know, there is a lot of incentive there for the producer to continue to hold those cattle too.

Pearson: Absolutely. Let's talk about hogs for a minute. You mentioned expansion of the cow herd. There has been a lot of rumbling about the expansion that has been taking place in the hog herd. We've seen some confirmation of it.

Pfitzenmaier: Well, there is rumblings about it but it doesn't seem to show up. The only expansion that is taking place is basically in efficiency and production. I mean, the sow herd seems to stay constant. They just seem to get more pigs per sow every year and that is where the expansion is. Now, I'm starting to hear more anecdotal evidence and talk of it that there maybe is some people start -- and with a profitability they've had it's not a big surprise. You're going to start to see some increases in production there. But you've got just the opposite in the hog market where you've got cash hogs down at $65 and the futures running $12-14 ahead of the basis to June contract. So, it's a little hard to get excited about buying that June contract. But, again, that thing looks just like the cattle do here and a nice uptrend since last fall. As long as it continues we stay along in the hogs.

Pearson: Alright, Tomm thank you so much. That wraps up this edition of Market To Market. But if you'd like more information from Tomm on just 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 the pros and cons of U.S. food aid programs.

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

Tags: agriculture commodity prices markets news