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Market Analysis: Feb 11, 2005

posted on February 11, 2005

The big carryout numbers failed to generate much price pressure in the grain markets. For the week, nearby wheat futures gained nearly seven cents. March corn was up more than three cents.

Strong export sales and heavy fund activity helped soybean prices move higher. For the week, March beans jumped more than 26 cents. The nearby meal contract advanced $8.30 a ton.

The cotton market recouped some of its recent losses, and for the week gained $1.75.

In livestock, the February live cattle contract lost 82 cents. Nearby feeders gained 88 cents. And the February lean hog contract fell another $3.15.

In the financials, Comex gold advanced $6.50 an ounce. The Euro declined just seven basis points against the dollar. And the CRB Index jumped nearly five points to close at 285.70.

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. Welcome back.

Market Analysis: Feb 11, 2005

Pearson: Welcome back.All right, Doug.Let's start with the soybean market where there always seems to be a great deal of interest, especially this week with the rally. Is this the beginning of something or is it just the last shot to make sales?

Jackson: It's an interesting situation where we have dry weather still a persistent problem in the Southern half of Brazil.Interestingly, last year, the final bean production number in Brazil ended up over 8 million to be smaller. Even though they would like to think there's no problem, we still about 30 days to develop the crop in the Rio Grande. It all comes down to a 50-day dry weather forecast. The market is scared of that. We don't think there's going to be a major problem at this point. Argentina is perfect, Brazil good. But with the markets like this, and needing the bull spread out of those positions in a narrow 10-day window, we may see the bull spreading, tight farmer holding, and the prospect of some deterioration in Brazil, so I think any rally is going to be met with selling in north and South America. South America has over a billion more bushels to sell today than a year ago.

Pearson: Keep that in mind. Let's look at corn, Doug. The USDA numbers are out this week, we have a better picture of where the crop was for 2004.As you look at this corn market, a potential shift?

Jackson: We think it's successive supply and demand reports will continually lower the demand report. The old crop stocks could be closer to 2.2 billion, rather then the 2 billion forecast. But the key figure will be summer weather as we make this transition. The fund bought 25,000 stocks of corn. Again, a big buying spree runs into farmers selling immediately. There's not a great prospect for the corn prices. We're going to go sideways until they can start trading summer weather. If we have average crops and yields next year, the crops will be moderately lower. If we have a weather problem, we can spook the fund out of this short position it's still got. We're going to have to get out in the summer and have patience, then it comes down to weather and production. There's not much going to happen on the demand side to change the run.

Pearson: Let's talk about the wheat market, which has been interesting. It seems it had a bit of a rally here in the last couple of weeks.

Jackson:You know, we have a relatively mediocre set of crop conditions on the red wheat here in the growing season. But we have some of the best hard red winter wheat crop in a long time. Radical departure in the weather pattern. We think we could have a record yield this year. I think we could have a total crop this year, it would be large enough to have crops. China will buy less next year, prospects for a bigger crop in Europe and Canada. While there's still a function of weather as we move into the summer, it looks like another large world crop, a large U.S. crop, that's going to limit the potential, much like the corn, in the wheat, unless we find a significant weather problem. What will drive wheat prospects will be eastern and western European situations. Right now they look pretty good. Not much there, with the potential to trade maybe 30 cents lower.

Pearson: As always, good analysis. Walt, let's talk livestock. Walter, this March 7 deadline still looms, seems like the date for the reopening somewhat of the Canadian border. What are you hearing from cattle. You buy a lot of calves up north. What could the impact be?

Hackney: The border states, particularly Montana, for instance, are hesitant to support that border opening, as you well know. We have a major cattleman group that is trying to get an injunction to stop that border from opening. Mark, it's a pro and con issue that no one is going to really come out the winner on anyway. It's gone on too long. Probably we need to open that border. Probably March 7 needs to be the deadline that we will open the border. I did like Johann's comment that the over 30-month cattle would not come in. I think that might be a plus to help with the confidence in U.S. beef as it goes to export. You know, you mix that threat of BSE in our beef supply down here, just the threat of it, it's bound to hold up on exporting that beef. With those cows out of our count down here, there's got to be a great help. As a cattleman and not representing any cattleman group, as a cattleman, I believe that it will be eventually for everyone's own benefit to get that border opened and get this thing over with. Real or imagined, the psychology of that Canadian border is going to affect the cash market on fed cattle. There isn't a question about that. How much? I don't know.$5, $7, it won't last long. The point being, it will be a psychological whip to be used in our market. Feeder cattle, same thing. They don't have all that many feeder cattle to affect our markets. But the fact is, they'll be coming in at a time when we're somewhat short of feeders. But it will still psychological affect on the downside our cash market.

Pearson: At this stage, what are you doing to market fed cattle, ones that are ready to go in April, May, and June?

Hackney: One feedlot sold 15,000 for March and April delivery at $90.That, to me is prudent business. I think that's what should be done. If you can get a packer to play that game with you. You're not going to get a big percentage of the federal supply, because a packer is going to want to try to break that market down and get a lesser cash price going for himself.

Pearson: Overall, 2005, as we go forward, are you still fairly friendly? Good cattle prices?

Hackney: I am and have been. I think that the cattle on feed reports probably are reflective of our feed lot inventories. We're not killing As much as we should be, but maybe we're killing as much as we could be. That 575 to 85,000 cattle a week seems to be enough combined with the hogs every week. The combination of the two meets, we probably are killing enough cattle. So hopefully that inventory doesn't grow as we get into the third quarter of 2005.

Pearson: Big hit this week on the board, we've seen a slide in the hog prices, a tremendous slide since the first of the year. Trade ideas open up, maybe less pork shipped overseas, what's your take on the year for he hog market?

Hackney: That's been a threat, obviously, the lack of export if they open up, the Japanese market and so forth for beef. It does not appear to me that that's going to be a real threat. It's more of a psychological tool to use in this hog market. We have no problem supplying 390,000 hogs every day, or 1.9 million or so. The entire meet complex need to expect that much pork coming out of our industry. Cattle is the one that's going to have to be regulated.

Pearson: All right. Walter, as usual, great insights. Doug, thank so much. That's going to wrap 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" Web site. And be sure to join us again next week when we'll examine the long-term viability of farmer-owned ethanol plants. Until then, thanks for watching. I'm Mark Pearson, have a great week.

Captioned by the National Captioning Institute

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