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Market Analysis: Dec 03, 2004

posted on December 3, 2004


The sell-off in grains continues among farmers, elevators and the funds as traders provide some short-covering. For the week, nearby wheat futures fell more than eight cents. December corn declined by more than a penny.

Soybean prices plunged through support levels, but there's still hope that China will bail out the market. For the week, January beans sank more than 28 cents. The nearby meal contract lost $6.80 a ton.

The cotton market gave back the gains of the past fortnight, and for the week dropped $3.15.

In livestock, the December live cattle contract lost $2.60. Nearby feeders fell 37 cents. But the December lean hog contract was on the move again, climbing $1.95.

In the financials, Comex gold gained $5.10 an ounce. The Euro set another high against the dollar and for the week climbed 279 basis points. And the CRB Index dropped more than two points to close at 287.75.

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

Market Analysis: Dec 03, 2004 Brugler: IT'S ALWAYS GOOD TO BE HERE, MARK.

Pearson: WELL, LET'S TALK ABOUT WE'RE THROUGH THE BULK OF THE HARVEST. THERE'S STILL A LOT OF CORN TO BE SOLD OUT THERE. WHAT'S YOUR TAKE ON THIS CORN MARKET? HAVE WE HAD A MARKET BOTTOM THIS FALL?

Brugler: I DON'T THINK WE HAVE ANYTHING THAT WE CAN POINT TO THAT SAYS THE BOTTOM IS IN. WE APPROACHED A GOOD CHART SUPPORT AREA THERE AROUND 191, BUT IF THAT CAN'T HOLD, WE COULD EASILY GO DOWN TO $1.84, WHICH IS THE 2001 LOW. THE PROBLEM IS WE'VE GOT ALL THESE BIG PILES OF CORN. AND IN SOME CASES, THAT CORN IS GOING TO HAVE TO BE MOVED WITHIN THE NEXT NINETY DAYS. WE'VE GOT WEATHER CONCERNS AND JUST LACK OF PROPER PROTECTION FOR LONG-TERM STORAGE. SO I THINK WE'RE GOING TO HAVE TO KEEP THE PRICE DOWN IN THIS AREA FOR A WHILE JUST TO MAKE THAT CORN MOVE, GET IT INTO INTERNATIONAL COMMERCE, GET IT INTO THE ETHANOL PLANTS, GET IT INTO THE FEEDLOTS. AS WE GO FORWARD, I THINK WE CAN HAVE SOME SHORT-TERM BOUNCES JUST BECAUSE PROFIT TAKING AND NORMAL ROUTINE TRADING, BUT IT'S GOING TO BE TOUGH TO GET A REAL RALLY GOING HERE OVER THE NEXT THIRTY TO SIXTY DAYS.

Pearson: NOWHERE IS THAT MORE EVIDENT THAN IN THIS CASH MARKET CHART, THE NATIONAL CORN CHART FROM DTN. THIS IS THE NATIONAL CORN INDEX. THAT TOP LINE BEING THE TWO-YEAR AVERAGE. THE GREEN LINE WHERE WE STAND RIGHT NOW IN THE -- RIGHT AROUND $1.75. NOT A LOT OF INCENTIVE THERE TO MOVE CROP.

Brugler: BASICALLY YOU'RE SITTING IN A ROCKING CHAIR HERE. IF YOU HAVEN'T TAKEN YOUR LDP, YOU BASICALLY ARE GOING TO GET LOAN RATE AND YOU CAN ALLOW THE MARKET TO SIT HERE FOR A WHILE, AS LONG AS YOU DON'T NEED CASH FLOW. IF YOU NEED CASH FLOW, YOU'VE GOT TO PUT IT UNDER THE LOAN, LET UNCLE SAM SUPPORT YOU FOR A LITTLE WHILE. BUT YOU REALLY DON'T HAVE A LOT OF PRICE RISK AS LONG AS YOU'VE STILL GOT YOUR LDPs. NOW, IF YOU'VE ALREADY TAKEN THE LDP, THAT'S A LITTLE DIFFERENT SITUATION. YOU'VE GOT TO HAVE SOME KIND OF PRICE PROTECTION I THINK BECAUSE, AGAIN, WE HAVEN'T FOUND ANYTHING THAT WE CAN CATEGORICALLY SAY IS A BOTTOM.

Pearson: ALL RIGHT. SO AT THIS STAGE OF THE GAME, PEOPLE ARE TALKING ABOUT NEXT YEAR AND, YOU KNOW, WHAT'S AHEAD. AS YOU LOOK FORWARD IN THE CORN MARKET, WHAT DO YOU SEE?

Brugler: WELL, INITIALLY I THOUGHT WE WERE GOING TO HAVE A PRETTY GOOD RALLY IN THE SPRING TO ATTRACT ACREAGE. AND CLEARLY, WE'VE GOT A HUGE DEMAND BASE, 10.9 BILLION BUSHELS. IF WE DROP BACK TO A MORE TYPICAL YIELD OF 145 BUSHELS OR 140 BUSHELS AN ACRE, SOMEWHERE IN THERE, WE NEED TO HAVE A FAIRLY LARGE ACREAGE AGAIN. THE COMPLICATING FACTOR IS THE ASIAN RUST. WE CAN TALK ABOUT THAT MORE AS WE GET INTO SOYBEANS, BUT IT LOOKS TO ME LIKE WE'RE PROBABLY GOING TO GET AT LEAST TWO MILLION ACRES SWITCHED OUT OF BEANS INTO CORN THIS SPRING JUST FOR PEOPLE WHO WOULD RATHER SWITCH THAN FIGHT ON THE RUST ISSUE. AND THERE'S A DANGER OF GETTING MORE. SO THE CORN MARKET IS SITTING HERE SAYING, OKAY, THOSE ACRES ARE COMING TO US WITHOUT HAVING TO BID FOR THEM. THAT'S GOING TO LIMIT OUR ABILITY TO RALLY A LITTLE BIT.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. ASIAN RUST IS GOING TO BE A FACTOR AS WE GO AHEAD IN 2004. WE'VE HAD A NICE BUMP, KIND OF CALL IT THE ASIAN RUST RALLY, BUT NOW WE'VE BACKED OFF AGAIN. WE'VE GONE THROUGH SOME PRETTY SIGNIFICANT SUPPORT LEVELS.

Brugler: YEAH, WE BASICALLY GOT A RALLY ON SHORT COVERING. THE FUNDS HAD A HUGE SHORT POSITION. THEY BOUGHT THEM BACK BECAUSE THEY WEREN'T SURE WHAT THE RUST IMPACT WAS GOING TO BE, BUT THAT'S ALL NEXT SPRING AND SUMMER. WE DON'T KNOW WHAT THE ACREAGE IS GOING TO BE. WE DON'T KNOW WHAT KIND OF SPRAY PROGRAMS WE'RE GOING TO BE ABLE TO DO. WE REALLY DON'T KNOW HOW WIDESPREAD THE FUNGUS IS GOING TO BE. SO THE MARKET HAS SHIFTED BACK TO A NEAR-TERM FOCUS, WHICH IS RECORD U.S. PRODUCTION, RELATIVELY HIGH U.S. STOCKS AT 460 MILLION -- SOME PEOPLE THINK 500 MILLION BUSHELS -- AND THE FACT THAT THE BRAZILIAN CROP IS 89 PERCENT PLANTED AND IT LOOKS LIKE IT'S IN PRETTY GOOD SHAPE.

Pearson: THERE YOU HAVE IT. BIG CROP, BIG WALL OF SOYBEANS. THE DEMAND AGAIN LOOKS TO BE FAIRLY GOOD. OF COURSE, WE'VE GOT A SOUTH AMERICAN CROP TOO. WHAT ARE YOU WATCHING AND WHAT WOULD YOU RECOMMEND A PRODUCER TO BE DOING?

Brugler: THE KEY HERE IS THE EXPORT SALES. WE NEED TO MAKE ABOUT, RULE OF THUMB, 80 PERCENT OF OUR SALES BETWEEN NOW AND MARCH BECAUSE THAT'S WHEN THE SOUTH AMERICAN HARVEST BEANS COME OFF, THE CHEAP BEANS. TO DO THAT, WE'RE BETTER OFF WITH A LITTLE LOWER PRICE THAN WHAT WE SAW AFTER THE RUST RALLY. SO FROM A PRODUCER STANDPOINT, I THINK YOU REWARD RALLIES. THE BASIS IS PRETTY GOOD. THAT SAYS THE MARKET WANTS YOUR CASH BEANS. THERE'S NOT MUCH CARRY TO TELL YOU TO KEEP THEM TILL NEXT SUMMER. SO I THINK YOU LOOK FOR THOSE BASIS OPPORTUNITIES, YOU MOVE THE CASH BEANS. IF YOU WANT TO SPECULATE, YOU PUT IT ON SOME KIND OF A CALL POSITION OR SOME OTHER REOWNERSHIP STRATEGY.

Pearson: YOU'VE GOT A REAL GOOD POINT. WE'LL LOOK AT THIS CASH BEAN CHART NOW. THIS IS FROM DTN, THE NATIONAL SOYBEAN INDEX. AGAIN, THERE YOU HAVE YOUR TWO-YEAR AVERAGE UP AT THE TOP AND, OF COURSE, CURRENT CASH PRICES THERE IN THE GREEN. BOY, DEFINITELY THE PRESSURE HAS BEEN THERE, AND WE SEEM TO BE SLUMPING RIGHT BACK TOWARDS THOSE EARLIER HARVEST LOWS.

Brugler: I THINK SOME OF THE FUNDS HAD BUYERS' REMORSE, ACTUALLY. THEY BOUGHT BACK THE SHORTS AND THEN SAID, GEE, WHY DID WE DO THAT, WHY DID WE PANIC, AND THEY SOLD IT BACK OFF. NOW, IN THE BACKGROUND, OF COURSE, YOU'VE GOT THE U.S. DOLLAR. IT'S WEAK. THAT SHOULD BE HELPING COMMODITY PRICES IN GENERAL, BUT IT WON'T OVERRIDE A SURPLUS STOCK SITUATION. SO WE'RE KIND OF STILL JOCKEYING BETWEEN THOSE TWO ISSUES RIGHT NOW.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET. WHEAT HAS BEEN AN INTERESTING STORY HERE THIS FALL. AND YOU'RE SEEING NOW THE CHART IN FRONT OF YOU SHOWING WHERE FUTURES HAVE DIPPED. AGAIN, WE'VE HAD A PRETTY SIGNIFICANT FALL BACK JUST IN THE LAST TWO WEEKS.

Brugler: WHEAT HAD A TYPICAL PREDELIVERY KIND OF SLIDE. SOME PEOPLE CALL IT A FIRST NOTICE DAY SLAMMER, WHERE ALL THE OLD LONGS ARE GETTING OUT OF THE MARKET AND SHORTS WERE INCLINED TO NOT HELP THEM WITH THAT PROCESS. IT WAS VERY NOTICEABLE IN MINNEAPOLIS, WHERE WE WERE DOWN FOR ABOUT TEN DAYS IN A ROW. BUT WE DID GET A NICE BOUNCE AT THE END OF THE WEEK. WE WERE VERY OVERSOLD TECHNICALLY. THE SHORTS STARTED TO TAKE PROFITS AND GET OUT OF THOSE CONTRACTS. EXPORT SALES HAVE BEEN PRETTY GOOD. WE'RE ACTUALLY ONLY RUNNING A FEW MILLION BUSHELS BEHIND A YEAR AGO. AND THE USDA HAS BEEN ANTICIPATING A MUCH SHARPER DROP THAN THAT FOR THE YEAR AS A WHOLE. SO MAYBE THE SOFT DOLLAR IS HELPING US A LITTLE BIT IN THAT AREA. BUT WHEAT HAS A PROBLEM IN CHICAGO, PARTICULARLY SOFT RED WINTER WHEAT. IT'S A LITTLE TOO EXPENSIVE TO SHIP INTO THE SOUTHEAST BROILER MARKET. WE NEED TO KIND OF DISCOUNT IT EITHER IN THE CASH OR THE FUTURES. WE CAN'T DISCOUNT THE HARD WHEAT THOUGH, BECAUSE THERE'S GOOD DEMAND FOR HIGHER PROTEIN WHEAT FOR FOOD USE.

Pearson: ALL RIGHT. LET'S TALK IN TERMS OF SALES STRATEGY FOR WHEAT. WHAT DO YOU TELL A PRODUCER?

Brugler: BASICALLY WE'VE TRIED TO STAY HEDGED WITH PUTS PRIMARILY SO IF THERE IS A RALLY, WE'RE NOT GOING TO GET HURT TOO BAD WITH IT. WE'VE JUMPED UP OUR CASH SALES TWO WEEKS AGO. BASICALLY LOOKING AT NEW CROP, BUT I'M NOT REAL COMFORTABLE SELLING NEW CROP AT THIS PRICE LEVEL. I'D LIKE TO SEE A LITTLE BOUNCE BEFORE I DID ANY FORWARD SELLING OR HEDGING ON NEW CROP.

Pearson: ALL RIGHT. LET'S TALK REAL QUICK COTTON. AGAIN, ANOTHER BIG CROP SCENARIO.

Brugler: HUGE CROP IN BOTH THE U.S. AND THE WORLD. THE BIG PROBLEM, OF COURSE, IS CHINA. THEY HAD A NICE REBOUND IN THEIR CROP, SO THEY'RE NOT BUYING AS MUCH. THEY PROBABLY GOT CARRIED AWAY LAST YEAR ANYWAY IN TERMS OF WHAT THEY PAID AND WHAT THEY BOUGHT. SO THE COMPARATIVE EXPORT SALES YEAR OVER YEAR DON'T LOOK VERY GOOD RIGHT NOW, BUT I THINK AS WE GO FORWARD, THE CHINESE SALES WERE STARTING TO DROP LAST YEAR SO THE COMPARATIVE SALES THIS YEAR VERSUS LAST YEAR WILL START TO LOOK BETTER. AGAIN, THE DRIVER THERE IS MOSTLY COTTONS UNDER LOAN. IT DEPENDS ON WHAT THE TRADE HAS TO PAY TO GET IT AWAY FROM THE FARMER.

Pearson: ABSOLUTELY. LET'S TALK ABOUT THE FED-CATTLE MARKET. WE'VE GOT A NICE RECOVERY IN CATTLE -- CASH CATTLE PRICES. WE HAD A NICE BUMP IN THE FUTURES, AND THEN WE BACKED OFF SOME THIS WEEK. AGAIN, BIG RALLY AFTER THE FALSE POSITIVE TURNED OUT TO BE JUST THAT, FALSE, ON THAT BSE COW. SHORT TERM, WHAT DO YOU SEE IN FED CATTLE?

Brugler: I THINK THE MARKET HAS GOT A GOOD UNDERPINNING IN THAT THE BOXED BEEF -- THE WHOLESALE TRADE IS PRETTY GOOD RIGHT NOW. IT'S NOT GOING TO ALLOW CATTLE TO DROP A LOT FROM THAT STANDPOINT. THE PACKERS CAN MAKE SOME MONEY KILLING CATTLE. BUT THE SELLOFF AT THE END OF THE WEEK WAS PRIMARILY DUE TO THE CANADIAN SITUATION. THE ASSUMPTION IS THAT THE MARKET IS GOING TO BE STARING AT SOME CANADIAN IMPORTS PERHAPS AS EARLY AS MARCH OR APRIL. AND BASICALLY, WE START MAKING THAT ADJUSTMENT AHEAD OF THE EVENT; WE DON'T WAIT FOR THE EVENT.

Pearson: AND SO WHAT ADJUSTMENTS ARE YOU MAKING RIGHT NOW IF YOU'RE SELLING FED CATTLE?

Brugler: AGAIN, WE'RE USING A LOT OF CATTLE CRUSH SPREADS. THAT ALLOWS YOU TO PICK AN OPPORTUNITY WHERE THE FEEDERS, THE FATS, AND THE CORN ALL LINE UP IN A PROFITABLE RELATIONSHIP. IT'S PRETTY MUCH NOT SENSITIVE TO THE DAY-TO-DAY MARKET MOVEMENT. SO WE'RE TRYING TO LOCK THOSE IN LONGER TERM. IN THE SHORT RUN, WE'RE JUST STRAIGHT OUT HEDGED WITH PUT OPTIONS.

Pearson: ALL RIGHT, THE CATTLE CRUSH. ALL RIGHT. LET'S TALK ABOUT HOGS. WHAT'S A RUN WE'VE HAD IN HOGS SINCE JUNE. I MEAN IT'S BEEN A -- IT'S BEEN A GO-GO MARKET. ON THE UPSIDE, THEY DIDN'T BAN PORK IN JAPAN. AND WE'RE EVEN OFF OUR "MARKET TO MARKET" CHART THIS WEEK, ALTHOUGH WE'RE COMING BACK INTO THAT $70 RANGE. WHAT'S AHEAD FOR THIS HOG MARKET? WE WORKED OUR WAY THROUGH THE HOLIDAYS. WHAT DO YOU SEE?

Brugler: THE MOVEMENT OF HOGS HAS JUST BEEN PHENOMENAL. THE PORK DEMAND HAS BEEN GREAT. THE ACTUAL DEMAND CURVE HAS CHANGED A LITTLE BIT. WE'VE ALSO BENEFITTED FROM STRONG EXPORTS. THE SLAUGHTER RATE IS STILL RUNNING AT A HUGE LEVEL. YOU'D THINK THAT AFTER ALL THESE WEEKS OF TWO MILLION KILLS, WE'D START TO PRESSURE THE WHOLESALE MARKET. AND I THINK WE ARE STILL VULNERABLE TO THAT AS WE GET INTO WINTER. RIGHT NOW WE'RE GETTING A LITTLE HELP OUT OF THE POST THANKSGIVING, YOU KNOW, GET AWAY FROM TURKEY KIND OF ATTITUDE. BUT THE TECHNICAL SIDE OF THE MARKET IS SCARY IN THAT THE CHARTS ARE ALL SAYING THE LONGS WOULD LIKE TO GET OUT, BUT AS LONG AS THE FUTURES ARE AT A DISCOUNT TO THE INDEX, THEY REALLY CAN'T.

Pearson: ALL RIGHT. SO THAT'S WHERE WE'RE GOING TO LEAVE IT. ALAN BRUGLER, THANK YOU SO MUCH. APPRECIATE YOUR INSIGHTS, AS USUAL. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM ALAN ON JUST WHERE THESE MARKETS ARE HEADED, THEN BE SURE TO VISIT THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE AND CONTINUE TO EXAMINE OUR LOOK AT EFFORTS BY THE NAVAJO NATION TO PRESERVE BOTH CULTURAL AND AGRICULTURAL PRACTICES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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