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Market Analysis: Mar 11, 2005

posted on March 11, 2005

Despite the worsening fundamentals, grain prices actually improved this week thanks to the bull rush in soybeans. For the week, nearby wheat futures gained more than 22 cents. March corn advanced more than eight cents.

The enthusiasm by speculators for investment in commodities has become most apparent in the soybean pits. For the week, March beans jumped 34 cents. The nearby meal contract gained $12.20 a ton.

Cotton prices continued to improve and, for the week, the March contract gained $2.42.

In livestock, the April live cattle contract edged up by eight cents. Nearby feeders advanced $2.23. But the April lean hog contract retreated by $3.28.

In the financials, Comex gold jumped $11.70 an ounce. The Euro climbed 208 basis points against the dollar. And the CRB Index shot up another eight-plus points to close at a 24-year high of 315.50.

Here now to lend us their insight on these and other market trends are two of our regular market analysts, Walt Hackney and Darin Newsom. Welcome back.

Market Analysis: Mar 11, 2005 Hackney: Thank you, Mark.

Newsom:Newsom: Hi, Mark.

Pearson: Alright, Darin, let's talk about this bean market. That is all anybody is talking about these days. What a run we've had. 34 cent move this week, the CRB index -- we always talk about that every week on the show -- for years it never really did that much and the commodities would move, farm prices we wouldn't see much of an impact. It's moving now, it's off the chart. A lot of money is flowing in this market, increased volatility. What is ahead for beans?

Newsom: That is the key right there, Mark. And there has been a lot of talk this week and your point is well taken and we just saw -- we had a report out, we had a report out this week fundamentally for wheat and corn, it was a bearish report. Right now the markets don't care. Soybeans are probably considered the leader at this point but I think the true leader in the market right now, you probably have to go over to the energies. We've just seen this huge flow of money coming into the market. And in years past there has always been what is called the commodity fund. Well, we've gone beyond that. We're seeing worldwide money management coming into this market right now. They're hedging themselves against inflation and they're just looking for any commodity to buy. If you look across the wide spectrum of commodities - we were just talking about gold had a huge week, crude oil had a huge week, corn, wheat, beans all had a huge week -- right now it is an investment cycle. We've really been pushing these things. There is not a lot of fundamentals to back up these markets. That having been said we did see the Brazilian production reduced this week. USDA dropped their estimate from 63 million metric tons down to 59. Today we had some private Brazilian estimates come out closer to 54 million metric tons. If there are some fundamental traders out there wanting to pin their hats on something there is a little bit of hope out there. But overall this is an investment environment and they're just on the run.

Pearson: Don't you think we should be seeing Alan Greenspan standing up on the news telling us we've got irrational exuberance in commodities?

Newsom: It's a possibility because right now this thing is tied to US economic policy and that is all it is tied to. There is no -- as I said, there is really no fundamentals behind this thing. It is investments and economic policy and so, yeah, right now who could have the most impact on the commodity markets? It may very well be Alan Greenspan.

Pearson: Let's talk about what producers should be doing. We've had this huge move in beans. We've been telling people to sell this rally as it has gone along. Same advice?

Newsom: You know, I would like to say that. But I was visiting with some guys on the floor today, you know, trying to get a wide range of opinions because the opinion has been out there to sell into this thing and that is not a bad idea. How far can it go? Hard to tell. The advice I was getting back from the floor was to put on a flack jacket, wear a helmet and keep your head down because there is no way to put a top into this thing. It is only going to be when these managers, these money managers start to see signs of economic policy shift. So, sell into this thing? Sure, if you've got some old -- if you've still got some old crop soybeans and you like the way the prices moved by all means take advantage of it. New crop, look to be doing a little bit at a time in here because when we do get back to trading the fundamentals we're still looking at a large worldwide supply.

Pearson: Alright, make any new crop sales on beans?

Newsom: I would probably have a little bit done in here, in the $6.25, $6.50 range. Again, who knows how high it can go?

Pearson: Alright, real quick corn and wheat. You talked about the fact that they were bearish, corn first on that stock support. There is plenty of product out there.

Newsom: Absolutely, 2.055 billion bushels, US ending stocks cutting exports every month. Overall it wants to be a follower of the soybean market. Now, we did get some friendly -- again, for these funds -- we did get some bullish technicals kicking in this week. Seasonally we normally run this thing up through the end of March into early April. At that point it usually runs out of gas. Is the investment money coming in enough to offset some of these seasonal tendencies? Hard to tell. Will they throw them out of whack? It's possible. So, we still have some room to run in this corn market basically looking at the same type of strategy as we saw in the soybeans. If you've still got some old crop corn, if you've got it hedged and you don't know what to do with it possibly look at making some sales up here in the next ten, fifteen cents. New crop, again, wait to see how this enthusiasm takes the market. See if you can get another five, ten, fifteen cents out of it.

Pearson: Okay, looking at December?

Newsom: Looking at December crop.

Pearson:: Okay, wheat market and wheat seemed to be the most bearish one of all. We're up, what, 20 plus cents this week?

Newsom: Right, you know, they cut the US ending stocks in the latest report. Worldwide we're not, you know, there is no shortage of wheat coming about. But it was kind of the last one to really want to go, as you said, but we finally, late this week saw some, again, some bullish technicals kicking in, drew enough interest from the fund money that it also was able to post a very solid week. Seasonally you look at the Chicago contract, it is able to run up through March before it starts selling off into April and May. Same question as with corn, will it be strong enough to offset some of those seasonals due to the investment? I don't know but right now it is a pretty nice little ride that it's on.

Pearson: You want to sell some cotton in here?

Newsom: Cotton, it's also been a benefactor. It's one of those that, you know, we look at the market, it found some support in here. It was able to generate some speculative interest. It's had a nice little run. If I'm holding some cotton, looking to make some sales, yeah, this wouldn't be a bad area. If I don't have to I might wait to see how far this thing might be able to run.

Pearson: Okay, let's go over and talk about livestock. Walt Hackney, the livestock business hasn't been without a lot of ups and downs this year too. I'm just amazed, had a call this week from a buddy of mine, a western Corn-belt cattle feeder. He was getting offered $1.50 in the beef on cattle this week. He was at $1.40 a week ago. What is ahead in this cattle market? We've got the Canadian situation which is constantly in flux but let's work past that. What does it look like?

Hackney: I agree with your comment, Mark, and I'm glad to hear you say let's work past this Canadian issue. That has had too much influence on the psychology of our market the way it is. The cash market we simply ran out of beef at retail, the packer cut back so far in their kills they weren't able to support the market and then as a result when they did in fact throw the injunction, again, that Canadian border everyone was sitting here at an extreme deficit including the feedlots. The feedlots are current as they can be. We probably couldn't become much more current and still maintain a decent level of choice grading cattle. The point being we ran this market to 94 cents this week. We ran this market to $1.51 this week. It was too much, I think, for the market to bear. The market as we approach next week I would suggest is going to be softer. I don't know for sure about the dress beef trade because the retail got caught very short on inventory. But I think the packer is out of the emotional rise they expressed this past week. So, I would suggest that we'll see them trying to soften the trade by Wednesday of next week in the feedlots.

Pearson: Alright, so, again not really surprising. We had reports of people that were talking about cattle that were 30 days away that buyers were out looking at. So, it really gave you that impression that this thing was extremely close, we're extremely current. So, that is a positive. This calf market has been strong. Had a little bit of a break on the board earlier, it came back this week. What is ahead for calves?

Hackney: Well, I believe the calf market is going to experience the same thing as what the feedlots are going to experience next week. We had an emotional run-up on the calf market, 500 pound calves at $1.45, four to four and a quarter weight calves to $1.60, $1.65. There is no way that those calves are going to give an equitable return when they weigh 750 or 800 pounds off the grass or out of a grow yard. Our market, our consumer ability to pay can't support this kind of a rise in the beef trade. You've got hogs laying over here on the other side that are waiting for the consumer to back away from beef. And we may be approaching that level now.

Pearson: Let's talk about hogs. Again, this week we saw a falloff on the board in hogs. And you're right, I mean, they remain attractively priced next to beef and also we're hearing about this expansion out there, this kind of stealth expansion that is going on in the hog business.

Hackney: There are a few of them, the analysts out there, that would like to indicate a five to seven percent expansion of the hog, of the sow numbers. I don't think it's that much but we are going to see some expansion. There is a lot of anticipation that these hogs will not fall as some had projected for the third or fourth quarter mainly because they are encouraged by the fact that pork will become a real leader at the meat market at retail level. So, there is more opportunity in some people's mind that pork is going to be a leader as we get toward the end of the third quarter.

Pearson: Alright, as usual some good insights. Walt Hackney, thank you much. Darin Newsom, thank you. Lots happening in these markets so stay with us on Market to Market in the weeks ahead. That will wrap up this edition of Market to Market. But before we go we'd like to remind you that many public television stations across the country are seeking your investment in quality television programming. If you value the information you receive each week on programs like Market to Market please help with your generous support and we thank you for it. Until next time, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news soybeans