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Market Analysis: Feb 18, 2005

posted on February 18, 2005

The grain markets remain choppy as new signs of price weakness concern the wheat trade. For the week, nearby wheat futures gained a penny-and-a-half. March corn was up nearly two cents.

Soybeans have exploded higher in a short-covering rally that's pushed prices up more than 50 cents in two weeks. For the week, March beans jumped nearly 27 cents. The nearby meal contract advanced $12.10 a ton.

The cotton market enjoyed another positive week, and gained $1.59.

In livestock, there was a big cattle on feed report out Friday; more on that in a minute. The February live cattle contract lost $1.15. Nearby feeders dropped $1.85. But the April lean hog contract gained 35 cents.

In the financials, Comex gold improved $6.60 an ounce. The Euro gained 199 basis points against the dollar. And the CRB Index jumped more than four points to close at 289.75.

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

Market Analysis: Feb 18, 2005

Golly & Newsom: Thank you.

Pearson: Let's start with the corn markets. Darin let's talk about what's been happening there. I said corn, I meant the bean market. A 50 cent rally in two weeks. Is this just a good selling opportunity?

Newsom: That's what it amounts to. We've seen a short-covering rally sparked by the hot and dry weather in Brazil. This is a golden opportunity to get some cash sales, this is something that wasn't anticipated, it was always a possibility, there'd been a lot of talk about it, the funds had built up a record short position. They started covering them, the drier it got in Brazil. It doesn't change the fundamental situation. A near-record crop, we've seen this basis has stayed relatively firm, it's been choppy, it's a golden opportunity to get some cash sales on, and not to forget about the new crop, though there's still a lot of question, total acreage, a long way to go on that, some questions that'll come out in the spring. This has given us an opportunity to look out to the November contract as well.

Pearson: The very beginning stables of doing that.

Newsom: Yes. I wouldn't be looking at much more than 10%, 15%, 20%, just because of all the questions that remain. This is a weather market, a weather-driven market. When it rains down in Brazil, up until that point we could still have a lot of volatility.

Pearson: Again, we just didn't see much response.

Newsom: Since the fund started covering these positions. We've been able to tack on two cents to five cents. The overall fundamental continue to be bearish in this market, just showing it's going to have a tough time going anywhere now. That having been said, there's still some opportunities in there because of the carry that's evident. We've got about 8% of full commercial carry in this market. If producers have some hedges on, they've had the opportunity to roll them out to the May. Same opportunity will be to get them out to the July, and then at that point, with harvest coming on, the basis may start to get weaker. On the new crop, we've got a listening way to go before we're able to make any forward contracting sales. But what's interesting is to watch, what will be interesting to watch will be the relationship between the November bean and the December corn contract, because if it starts to get out of line, you could see the December corn start to rally, make sure it keeps its finger off some of the things that -- the acres that could be lost.

Pearson: Speaking of lost acres, has there been a calming influence in the soybean in not switching quite as many acres?

Newsom: There really is. It's probably an old cliche at this point, you can't have rust without leaves, and there's no leaves to look at this time. It's become a side issue that will come up again once we get out and start planting. We see what the conditions are, I think it's going to have, I think it still is one of those factors that'll have a lot of play in the mark.

Pearson: Don't get in a big hurry on corn yet.

Newsom: No.

Pearson: Let's talk about the wheat market. You're a Kansas boy, what's your take on this current wheat market.

Newsom: If you look at the hard red winter area, it's still looking at very good crop conditions. It's been a very quiet market, export sales have been OK without being fantastic, basis hasn't done much in the hard red winter. The real story in white has been the basis strength in hard red spring. The world is looking for quality wheat, we have it. We're seeing that back off as farmers are making sales. That's the right play in this type of market where those opportunities are available. The soft red winter market is very quiet, much like the Kansas City market. There just hasn't been much demand and with the poor quality so much of that crop had, right now, you're not seeing the premiums being bid up, futures in cash are still at a low level.

Pearson: What about making sales?

Newsom: In the wheat market, I'm not looking at any sales. If we get 15 cents to 20 cents moved in t July contracts, I would look for it. In the soft red winter, the Chicago market, there's still a big question about this fall and winter weather, it's been a little too wet, there's still some possibility for better markets down the road. Once that starts to come into play as the crop comes out of dormancy.

Pearson: Let's talk about the cotton market.

Newsom: We didn't quite have the export demand we saw last week, in fact we were down considerably. But those were Sunday levels. We've seen some support being built in here, funds are still short, they've been doing some buying. It's been firm, without being spectacular. It's holding its own, hasn't broken down below some key support levels. At this point, it's very similar to the corn market, in that it's not going anywhere. But at least it stopped going down.

Pearson: Let's talk livestock. Erin, Friday afternoon, what was your take on it?

Golly: It came out a little bit friendly, placements came out at 107, below trade estimate, and the markings came in at 100%, above strade estimates. There's a lot of uncertainty surrounding the market right now. Cattle supplies are tight, and there's not a lot of market-ready cattle right now. Slaughter came in down about 5% compared to last year, mainly due to the Tyson plants closing. Tyson said they're about to change. As those plants come online, the slaughter numbers should increase naturally. The cattle rates have stayed current, compared to 60 days ago, and the feed lots have stayed muddy due to weather conditions. The cattle market through the first few quarters of 2005 and through the summer. The market is already taken out the news of the Canadian news. We'll have to wait and see how that goes. The market has already discounted that news.

Pearson: What's your prize range?

Golly: We're looking forward my 80's to 90's.

Pearson: I don't think people will complain, especially after what Darin said about the corn market.

Golly: No.

Pearson: Talk about the feeder market. Part of that is supply and demand. The feeder market has been so strong.

Golly: The feeder cattle market has very good demand. There's custom feed lot. When your calves have their preliminary hearing. I think it's an important date for everyone to keep an eye on. I think feeder cattle prices could trade around the dollar range until we get the situation with Canada resolved.

Pearson: We open up Canada, what's your take?

Golly: I think it'll negatively impact the calf market for a while. We'll have to wait and see what happens.

Pearson: We're hearing about a wall of cattle, wall or beef, something. Usually by the time it happens the wall is gone.

Golly: They're saying there's not that many feeder cattle up in Canada. There's some debate.

Pearson: It remains to be seen. As you look ahead at the hog market, we had a great year in 2004, good price year for hogs and pork production, but now we're going to 2005, they're talking about lifting the sanctions, perhaps in Japan, maybe get U.S. beef back in there, that's got to scare a pork producer, doesn't it?

Golly: It does. There's a lot of situations that can happen with the hog industry. This last week we had very. It shows really good Goode packer demand. With these slaughter levels, they're get manager current with the marketings or the USDA underestimated the number of hogs. We'll see our highs in the market. That's when producers should be looking at capturing profits, because contrary to what people believe, we are expanding in this hog market. The industry is going through some changes, actually, and we're moving towards finish facilities, we're in that transition now, we're seeing some smaller facilities being built, and that's just sort of the way that's going.

Pearson: There's really some fine-tuning going on in the current hog market?

Golly: Right. There's just some smaller facilities getting built, we need to keeping an eye on it. We see expansion through the industry.

Pearson: So, again, get another wakeup call to the producers, would you be putting some prices on them?

Golly: For the last quarter, we look to have 2% to 4% more hogs than we expected. Producers need to keep a careful eye out.

Pearson: You're seeing expansion of the hog business.

Golly: Very much so.

Pearson: Thank you so much Erin, Darin. 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 visit the streaming audio on the market plus page at our "Market to Market" website. 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.

Tags: agriculture commodity prices markets news wheat