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Market Analysis: Feb 04, 2005

posted on February 4, 2005


The mid-winter doldrums have hit the grain markets as seasonal lows set in. For the week, nearby wheat futures lost more than two cents. March corn was down less than a penny.

Soybean prices pushed through contract lows as world demand shifts to South America. For the week, March beans lost more than 14 cents. The nearby meal contract declined $5.30 a ton.

The cotton market traded in a narrow range and for the week dropped 15 cents.

In livestock, the February live cattle contract gained $1.15. Nearby feeders lost 95 cents. And the February lean hog contract fell by $3.27.

In the financials, Comex gold dropped $11.80 an ounce. The Euro declined 170 basis points against the dollar. And the CRB Index lost one-and-a-half points to close at 281-even.

Here now to lend us his insight on these and other market trends is one of our regular market analysts, Tomm Pfitzenmaier. Welcome back.

Market Analysis: Feb 04, 2005 Pearson: Here now to lend us his insight on these and other trends, one of our regular market analysts Tomm Pfitzenmaier. Welcome back. We are tracking South America for most of the winter and the word out of the South America seems to be good. 27% of the crop is harvesting. You hear all these stories, Tomm. It looks like the numbers are going to be pretty big.

Pfitzenmaier: Yeah, it does. They're going to be big and they're going to come at us. We've had fairly good exports in the beans up to this point. But gradually from now on you're going to start to see some of that export business get switched down there. It's going to continue to pressure the market, I believe.

Pearson: A lot of farmers from the soybean belt have L.D.P.'d but a lot of them are still holding product.

Pfitzenmaier: Yes, they are. I would guess most of them that have L.D.P.'d are holding product. And that's kind of -- you're flying without the support underneath you all of a sudden.

Having said that, there still are -- the situation in beans isn't as bad as it is in corn. They haven't L.D.P.'d quite as many beans as they have corn. But still, if you've done that and you're sitting on them, you're vulnerable to a price break, that's for sure.

Pearson: What would you tell a producer in that position to do?

Pfitzenmaier: Oh, to sell. Either that or buy yourself a put or replace the government put with a board of trade put, one or the other. It looks to me like this bean market has potentially 30, 40, 50 cents down in it yet. And I think that's more than most people would like to risk. Everybody has kind of been sold this fear of rust thing.

We've been hearing that all winter long and everybody is scared to death to sell any beans because of the big rust rally. Brazil has had rust for how long? And look at the crop we just got done talking about the crop they're having down there. So granted, there's some spores spotted in the southern United States, and there's meetings and there's articles in the magazines and all that. But I don't know. It seems to me to be getting a bit overblown here. And planning your whole marketing strategy based on if that happens this summer seems a bit risky to me.

Pearson: So sell the cash beans. We've seen some decent basis levels.

Pfitzenmaier: Yeah, we have. Maybe you don't sell them. Maybe you wait for that. The market is a little oversold, wait for a 10, 15, 20-cent correction and sell there but that seems to me about the best strategy. When in a huge down trending market like we're in, the faster you can sell, the better off you are.

Pearson:Same thing on corn? You mentioned we have a bigger situation there. More corn L.D.P.'d than the beans.

Pfitzenmaier:Huge percentage of the corn market has been L.D.P.'d. We haven't broken corn enough that the L.D.P. is back up to where a lot of people receive. But you start creeping on down, 1.91, err, yeah, the old December low on the march contract is very important. If you break through that, and, you know, there's not much between there and 1.84. You break through that and you're back to those old lows of 1.75. There is some down side potential here on corn.

Pearson:As you look for 2005 growing season and you talk about soybean rust, maybe 2.5 million acres will switch over. You go out to the December 2005 contract. Would you start making sales here?

Pfitzenmaier: Think about it. With eve got huge carryout, prospects for an increase in acreage. You've got great sub soil moisture. You've gotten very few people predicting any drought problems this summer. That doesn't mean it won't happen, but in all likelihood, you have to assume normality, at least. And it's just -- and you've got the board of trade has the feeling that we can produce corn no matter what the weather conditions are after the last two years' experience. So everybody is waiting for this big spring rally because of concerns about growing. And I'm not sure that's going to amount to all that much. So in answer to your question, yeah, December corn anywhere in that 2.30 to 2.40, 2.42 range, anywhere up in there, I think you have to start making good sales. Because if we have another good crop, decent crop, it doesn't have to be a great crop because we're going to have higher acreage in all likelihood, we're going to be down to sub $2 on that December corn contract. Why wouldn't you start getting sold up here at 2.30 or 2.40.

Pearson: What about the wheat, Tom? As you look at that market, decent world supplies, good crops worldwide. 2004 was just phenomenal production wide worldwide.

Pfitzenmaier: It was. If you start to get a little bullish on corn, glance over to the wheat market and it's a pretty good sign of where you're going. I mean, they don't need to buy corn because the world is awash in wheat. Like you said, we had a great wheat crop. I don't know, wheat is on its lows, probably due far correction. If it does, use that to sell. And I think wheat continues its downward creep here.

Pearson: Cotton market didn't really do much this week but again, another victim of big carryouts, big supplies and good production.

Pfitzenmaier: Estimates out this week show the expectations are that acreage is going to be pretty similar. Cotton has benefited from the same thing corn and soybeans have. Biotechnology and seed technology that's just made them more -- less susceptible to some of the bugs and all of a sudden you're producing pretty darn good cotton crops. You're down to the low 40's where demand is starting to kick in and support that market. You know, it's kind of we pivot around the $45 level. You get up into the $47, $48 area, you need to be a seller.

Pearson: A couple of critical dates are coming up. The beef, the situation with Japan is coming up. The march deadline for Canadian cattle is coming in. Canada is wondering what's going to happen is there a wall of beef that's going to come down from the north like a glacier and overtake us. What do you do, particularly a cattle feed-

Pfitzenmaier: All, all that's true. The other date that gets bandied around here is July 1. Some people think that's going to be the opening date for opening things back up to Japan. There's a lot of stuff extraneous to the beef production that's causing problems. I think you're going to see market vacillate. You get down to the 86 range. You get above 90 and they're going to lose their enthusiasm quick. I think there's been some changes in the demand structure of beef. Atkins and some of those diets are starting to fade a little bit. And that has been, you know, one of the great benefits to the beef industry. In a trading range, up towards $90, you have to step in and buy $86, $88 puts.

Pearson: People tell me it's the calf producers, the feeder market,are you concerned about what happens there?

Pfitzenmaier: Yeah, although, I think the fad market is going to hang in there and we're going to have cheap corn. I don't think you're going to break the feeder market all that much.

Pearson: Let's move over to what's been an exciting business of 2004 because of all the trade issues was the pork business. We had a usda hogs and pigs report that really indicated very little in the way of expansion. We've got a largely vertically integrated business right now. Boy, we've seen the fade out here in the last three weeks.

Pfitzenmaier: We kind of have a build up of pork. And a huge long position in the futures. And all of a sudden, that kind of broke through. Now, you've got the situation where the front contract, February contract is at a fairly good discount to that two-day cash moving average. Thing's going to tend to support the cash market in here. Yeah, we've broken some uptrend lines that have been going for quite a while. And that propelled us on down. I think you're going to see corrections from that. But in all likelihood, this has turned into a seller's rally market that's not to say you're not going to have $4 or $5 rallies to sell on. But I think you need -- you know, up, up and away is probably over with and you use those rallies now to make sales. If the Japanese do start buying beef, that's going to be at the expense of pork. There's still a lot of concern about avian flu all over the world and the pork is really benefiting from that. And that in all likelihood is going to continue.

Pearson: All right. If you were a pork producer, would you look at making nearby sales?

Pfitzenmaier: Oh, I think at the very least I would be buying puts out into the June, July time period. I don't know if I would go a lot beyond that. But may, June and July you certainly have to look at.

Pearson: You wouldn't recommend covering of any feed?

Pfitzenmaier: I think you stay hand to mouth. Carrying charge in the meal market. Anytime you have that, stay hand to mouth.

Pearson: Thanks, Tomm. If you would like more information from Tomm on where these markets are headed, then be sure to visit the streaming audio on our market plus page on our "Market to Market" website. And while you're there, feel free to drop us a line with your comments on the show. Just click on the button that says interact. Until next week then, thanks for watching. I'm Mark Pearson have a great week.


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