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Market Analysis: Jan 21, 2005

posted on January 21, 2005


The grain markets are trading in a narrow range as even the slightest bit of farmer selling limits rallies. For the week, nearby wheat futures lost nearly two cents. March corn basically was unchanged.

The South American crop continues to dominate soybean trading. For the week, March beans lost nearly three cents. The nearby meal contract gained $1.00 a ton.

The cotton market continues to move gradually upward and for the week gained 80 cents.

In livestock, the February live cattle contract declined $2.05. Nearby feeders lost 13 cents. And the nearby lean hog contract fell by 90 cents.

In the financials, Comex gold gained $3.90 an ounce. The Euro declined 54 basis points against the dollar. And the CRB Index dropped about a point and a half to close at 281.85.

Here now to lend us her insight on these and other market trends is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Jan 21, 2005 Pearson:The grain markets are trading in a narrow range as even the slightest bit of farmer selling limits rallies. For the week, nearby wheat futures lost nearly 2 cents. March corn was basically unchanged.

The South American crop continues to dominate soybean trading. For the week, march beans lost nearly 3 cents. The nearby meal contract gained $1 a ton.

The cotton market continues to move gradually upward and for the week gained 80 cents.

In livestock, the February live cattle contract declined $2.05. Nearby feeders lost 13 cents. And the nearby lean hog contract fell by 90 cents.

In the financials, comex gold gained $3.90 an ounce. The Euro declined 54 basis points against the Dollar.

And the C.R.B. index dropped about 1.5 points to close at 281.85.

And for insight on these and other market trends is our regular market analyst, Sue Martin. Welcome back. Good to have you here.

I want to get to beans first. Let's talk about this corn market. There have been some farmer selling after the beginning of the new year. And we've been watching this corn market just kind of trade in a trading range here. When are we going to break out snow.

Martin:Well, I think it's here for quite a while. I think when we look at the corn market, exports are down from a year ago. You've got piling sitting in a lot of areas. I'm hearing of some deterioration in some of those piles. But we do have a lot of corn to work through.

The basis point is remaining firm. Farmers aren't selling aggressively like everybody thought. And two, you also have the river system with the icing, the flooding on the Ohio river system. You have the sunken barges and so all of this has created logistical problems and it's allowed for the pipeline to get maybe a little bit empty and that's creating this basis push that we're seeing.

Once you get past the middle of February, maybe early March, all of a sudden that's going to start to change. And as that starts to change, basis levels are going to drop and maybe you see another chance at L.D.P.'s. There's not a lot of it left to go. I sense that that's the market that you're going to see farmers push sales up ahead. We need to see some demand step in here, domestic usage is a little bit questionable.

We know -- everybody got so enamored over the ethanol, they thought that was going to be the big savior for the crop and I don't think it is.

Pearson:Producers are making decisions and a soy rust situation in the United States.Talk of maybe more corn acres in 2005. Should we start looking at pricing some of these new crop contracts or are there anywhere attractive enough?

Martin:When you look at new crop soybeans, they're hovering around the $5.35 mark. November beans can get a little cheaper in price here. Granted, with all the bearish attitudes we have coming off the front months as we go into may. If South America does come on with a big crop, that's going to tug at that new crop price and drag it down, too. But in the meantime, I still believe that the old crop is going to find some support here.

I believe if we look at this corn market and especially the bean market, I don't hear a lot of people talk about it, but I believe they're missing the boat if they don't keep an eye on that dollar situation. Because that in and of itself can make the beans extremely cheap and buyers come in.

What this dollar does is enhances end users, or let's put it this way, world buyers, as to what they're going to do. Right now, they know, too, we have big crops coming possibly out of South America unless this Asian rust steps up a little bit and it's right about now we should start hearing more of that.

If that happens and we drop the crop size down in South America, now you've got a reason for maybe some enhancement in price. If the dollar turns and starts to put a low in here and rallies back up and starts to increase, you've also got another reason why world buyers will step up and start buying. Because before, expecting cheaper prices into late February for the February break, which I think we'll see, and then the dollar having gotten cheaper all the time, end users and world buyers have no reason to keep buying. They'll just go hand to mouth.

China has been very aggressive. And we continue to expect China to be remaining a fairly aggressive importer of beans.

Pearson:OK. You kind of ran right over into soybeans, which was good. I wanted to get into those. As we look at what's happened with soybean prices here in the last few week, you're right. We've seen this market drop and the whole focus has been on Brazil. And you talked so well about soybeans. I want to come back to corn for just a second. Would you look at pricing some of that new crop corn?

Martin: Sorry about that, Mark.

Pearson:That's all right.

Martin:I think I sort of bypassed and fast forwarded.

Pearson:Maybe I wasn't clear. Go ahead.

Martin:But I think on the corn, would I be selling new crop corn? Yes, I think I would be selling some. Now, prices have gotten down to $2.27. And I think these corns got support around $2.27 to $2.24 and then again at $2.17. If we can get this market to give us a bounce back up to $2.34, $2. I would say yes, start pricing some back in.

Pearson:I want to get back to soybeans. I'm hearing something we hear a lot about, that is wet weather to Brazil right now. They're starting their harvest. This rust can be a huge problem weeks before harvest in terms of damaging yield. So this is not a done deal. This is going to be a huge crop down there. Once we get past that time, how much pressure will we see on bean prices?

Martin:Well, if this crop does not get stabilize, what's important is how well the Brazilian farmer holds back that fungus. How well they control it. You know, last year and the year before, you know, it was expanding. It was going into more areas. We don't have that now. It's everywhere. Now it's a matter of how well they control it and the yields come out. If they're able to control it, then I think that's going to add more complacency in the U.S. with the U.S. farmer thinking he's one of the best farmers in the world and he'll just do fine and he's going to be too complacent. And that will probably lend a little weakness into the market.

If they do not and the fungus gets away on them and this weather stays wet, remember, 56% of the crop was just past flowering this past week, as opposed to 69% last year and 71% on the five-year average. So the crop is a little behind as compared to normal. That means that as we go in now towards the rainy season in Brazil, there's potential for this fungus to excel.

Pearson:Crop problems really continue through the harvest season. I want to talk about wheat. A little pressure on wheat. It's interesting what the USDA showed us is ahead in terms of wheat production. There hasn't been much response in this market.

Pearson: There really hasn't. But when you look in the world, the way they're bringing that into the market price is via basis. They're bidding up premium for good quality wheat. But in the meantime, we're basically pricing in all the feed wheat and, you know, lack of demand in the U.S. on the export picture. And just yesterday, I think we had the E.U. announce that they were going to come out with some wheat tenders with tax rebates an everything else. And that was not what we wanted to hear.

Canada is is a little upset about it as well. That's against some W.T.O., you know, restrictions. And rules and so that's not what we wanted to hear. And it certainly makes the U.S. kind of behind the 8-ball because we're the higher priced market in the world.

Pearson:OK. So again, the trade issues are so critical as we look at this crop going forward. And that's especially true in the beef market. The cattle market has been good. Last time you were on, you said we see the 1990's again. We should hold there for the month of January. Looks like we're going to get the job done. But what's ahead in this cattle market? We do have the Canadian situation. Who know what is' going to happen in Japan. We have tight numbers in the U.S.. What kind of scenario are you talking to clients about?

Pearson: We're trying to get producers to use this first-quarter rally. It might be over by early February. We're trying to get them to use the market and do some hedging.

Mark, we have carcass weights up about 10 pounds over the five-year average. We're getting feeder cat until, I think, 11% in greater than a year ago out of Mexico. They're picking up the slack for Canada. In the meantime, you've got Canadian slaughter houses picking up speed there, too, and ramping up capacity so when that border does open, we may not see as many cattle coming down as we originally thought. And suspect because of that killing capacity, the demand for feeders is going to be good in Canada as well as here.

In the meantime, you've also got, since the Japanese been a on U.S. imports of beef, we've got problems there because Australia has garnered 40% of our market share. And the longer we go without that Japanese business, the harder it's going to be to get the rest of that back.

Pearson:That's right. And convincing Japanese consumer, we're kind of reselling ourselves. So you're definitely looking at using hedges. What kind of price are you looking at?

Martin:I think that any bounce in this 90 to 92 area, I would be looking to get some Aprils on out hedge. The one thing I will say is that when you look at the lost market of beef exports, and then you look at all the good demand we had last year, we don't those diets anymore.

Pearson:Hogs, they've been able to fill up a lot of the protein market, particularly in Asia. Hog market has been very strong. And you said that will be the case last summer. It certainly panned out. We don't seem to be expanding the hog herd very much. What's head for hog prices?

Martin:Well, I think we're not expanding very quickly either. But the one key here is that demand is also softening there for protein, as well. It's just a general protein diet craze is passing, and that means less demand on pork as well. But in the meantime, we are exporting a lot more pork over to Japan and other sources. So I would look at this hog market. Any rallies you would get here, I would be using them to hedge.

Pearson:Excellent point. Sue Martin, thank you very much. Thanks Sue. That wraps up this edition of Market To Market. But if you'd like more information from Sue on where these markets are headed, then be sure to check out 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 how farmer cooperatives are finding new ways to stay competitive in the marketplace.

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


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