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Market Analysis: Nov 26, 2004

posted on November 26, 2004


Traders are hoping the grain markets have put in their annual November lows, and that it's time to cycle higher. But for the week, nearby wheat futures dropped more than 10 cents. December corn fell by more than a penny.

In the soy complex, farmer selling and fund buying has picked up in advance of what promises to be a huge South American crop. For the week, January beans advanced more than three cents. The nearby meal contract gained $2.90 a ton.

The cotton market continued its uptick and for the week improved 57 cents.

The livestock market rallied at midweek on news there was no new case of Mad Cow. For the week, the December live cattle contract jumped $5.10. Nearby feeders advanced $1.65. And the December lean hog contract climbed $1.73.

In the financials, Comex gold gained $2.30 an ounce. The Euro moved still higher against the dollar and for the week climbed 156 basis points. And the CRB Index went flat, dropping a quarter-point to close at 287-even.

Here now to lend us his insight on these and other market trends is an analyst new to Market To Market, but someone with plenty of know-how in commodity forecasting, Darin Newsom. Welcome to the program, Darin.

Market Analysis: Nov 26, 2004 Newsom: THANK YOU, MARK.

Pearson: WELL, LET'S TALK ABOUT THESE MARKETS THIS WEEK, GET YOUR TAKE ON WHAT'S GOING ON. LET'S TALK FIRST ABOUT CORN. WE'VE SEEN SOME PRESSURE ON THE CORN MARKET, TYPICAL HARVEST PRESSURE. WE'VE HAD A LITTLE BIT OF BOUNCE HERE IN THE LAST WEEK. WHAT'S AHEAD FOR CORN? WHAT SHOULD A PRODUCER BE DOING?

Newsom: YOU KNOW, LOOKING AT THE CORN MARKET, THE FUTURES HAVE JUST BEEN SO FLAT, BASICALLY, SINCE SEPTEMBER. THEY JUST HAVE HAD A HORRIBLE TIME TRYING TO GET -- TRYING TO SPARK ANY TYPE OF RALLY. WE SAW A LITTLE BIT LAST WEEK WHERE WE SAW THE MARKET GET BACK UP OVER THE DECEMBER CONTRACT, OR GET BACK UP OVER THE $2 -- $2 MARK TESTED ITS NEARBY RESISTANCE UP AROUND 2.10. IT JUST WASN'T ABLE TO BUILD ANY MOMENTUM. A PRODUCER LOOKING AT THIS MARKET RIGHT NOW, YOU KNOW, THERE'S A GOOD CARRY BUILT INTO THIS MARKET. YOU CAN TAKE IT ALL THE WAY OUT THROUGH THE JULY OR SEPTEMBER CONTRACT. IF THEY'RE HOLDING ONTO THE GRAIN RIGHT NOW AND IF THEY'VE GOT IT HEDGED AND THEY'VE BEEN ABLE TO ROLL IT OUT, THEY'RE SITTING IN PRETTY GOOD SHAPE BECAUSE WE'VE SEEN BASIS HAS BEEN WEAK, BUT IT'S BEEN IMPROVING. IT'S WEAKER THAN IT HAS BEEN IN YEARS PAST BUT IT'S BEEN IMPROVING. THE MARKET AND THE FUTURES MARKET AS A WHOLE PROBABLY ISN'T GOING TO GO VERY FAR, YOU KNOW, OVER THE NEXT 30 DAYS, 45 DAYS. THERE'S JUST NOT THE HUGE PUSH TO BRING BUYERS BACK INTO THIS MARKET. EXPORT INSPECTIONS, EXPORT SALES HAVE ALL BEEN SLOW OVER THE PAST FEW WEEKS. AND THEY'RE JUST HAVING A HARD TIME BUILDING THE MOMENTUM TO GET ANYONE INTERESTED IN BUYING THIS MARKET AT THIS POINT.

Pearson: ALL RIGHT. WHAT ABOUT ON THE CASH SIDE OF THIS MARKET, DARIN? THIS IS -- WE'RE GOING TO LOOK AT YOUR CHART HERE IN JUST A MOMENT, THIS CASH AVERAGE CHART HERE. OF COURSE, THERE'S THE TWO-YEAR AVERAGE UP ABOVE IN THE BLACK, AND THE GREEN LINE IS, OF COURSE, IS WHERE WE ARE NOW. AND, BOY, THAT'S A PRETTY SAD LOOKING LINE.

Newsom: IT REALLY IS. AND THIS INDICATES THAT WE'RE -- IT'S KIND OF A STRETCH TO SAY THAT WE'RE IN A COUNTERSEASONAL SELLOFF RIGHT NOW BECAUSE, YOU KNOW, A LOT OF TIMES AT THIS POINT IN THE YEAR, WE REALLY AREN'T MAKING HEADWAY. BUT THIS YEAR IT JUST SEEMS TO FEEL SO HEAVY ON THE CASH SIDE OF THIS THAT THE BASIS MARKET HAS BEEN -- IS RUNNING WEAKER THAN IT NORMALLY DOES. IT HAS BEEN IMPROVING BUT THERE ISN'T A LOT OF REASON FOR THE CASH MARKET TO START RALLYING NOW. YOU KNOW, FROM A PRODUCER STANDPOINT, THAT'S REALLY NOT A GREAT SITUATION TO BE STARING AT OVER THE NEXT MONTH, MONTH AND A HALF. BUT FROM AN END USER, THERE'S SOME POSSIBILITIES IN HERE, AGAIN WITH THE WEAKER BASIS LEVELS. WITH FUTURES WHERE THEY'RE AT, THE RESULTING CASH PRICES BEING DOWN, THEY COULD BE LOOKING AT LOCKING IN SOME DECENT FEED.

Pearson: ALL RIGHT. EXCELLENT POINT. WE CAN TALK ABOUT THAT AND THAT'S WHAT HAPPENS TO HALF THE CORN WE PRODUCE. IT GETS FED ANYWAY. LET'S TALK ABOUT SOYBEANS, SOYBEAN FUTURES. WE'VE SEEN THE HARVEST LOW, WOULD YOU FEEL COMFORTABLE BY SAYING IS IN?

Newsom: I WOULD SAY YES. NORMALLY WE GET IN THIS TIME OF YEAR AND THERE'S NO NEWS OUT THERE REALLY TO PUSH THINGS AROUND AND THINGS JUST STAGNATE. BUT BEANS HAVE NOT. THAT HAS NOT BEEN THE CASE WITH BEANS THIS YEAR. WE'VE HAD PLENTY OF NEWS. WE HAD THE INTRODUCTION OF ASIAN SOYBEAN RUST HERE OVER THE LAST COUPLE WEEKS. WE'VE SEEN THE MARKET AND HOW WE CAN REACT. AND WHAT'S INTERESTING IS THE WAY THAT RIGHT NOW WE'RE UP TO SIX STATES WHERE THAT HAS -- WHERE THAT HAS APPEARED. THE SOYBEAN FUTURES, YOU KNOW, YOU TALK TO THE GUYS ON THE FLOOR AND THEY SAY 'WE DON'T UNDERSTAND WHY THIS MARKET IS GOING HIGHER.' BUT THERE IS PLENTY OF MOMENTUM IN HERE THAT WE'VE SEEN. WE'VE SEEN FUND BUYING, SPECULATIVE BUYING COME IN TO THE MARKET EVERY DAY. SINCE THAT WAS -- SINCE THAT WAS RELEASED. AND THAT'S REALLY IN A QUIET TIME. ALL WE REALLY NEED TO SEE TO HELP KEEP THESE PRICES SUPPORTED.

Pearson: THAT'S RIGHT AND SO THAT'S WHAT WE'RE SEEING ON THE BOARD. NOW, LET'S GO TO YOUR CHART ON THE CASH BEANS MARKET. AND AGAIN, WE'RE SEEING THE BOUNCE THERE ON THE GREEN LINE, WHICH IS CURRENT CASH. AND THEN THE TWO-YEAR AVERAGE, WHICH IS UP ABOVE. WE'RE SEEING A NICE BOUNCE THERE IN WHAT'S HAPPENING. AND YOU SAY SOME OF THAT MAY BE RELATED TO THAT RUST ISSUE.

Newsom: IT REALLY IS. AND YOU'RE SEEING THE, THE DEMAND SIDE OF THIS HAS STAYED STRONG OVER THE LAST -- AGAIN OVER THE LAST WEEK OR SO. THEY'RE SAYING, WELL, YOU'RE GOING TO SEE THE CHINESE INTEREST. THEY'RE GOING TO START STEPPING OUT OF THE MARKET. WE'RE NOT GOING TO SEE THEM. THEY'RE GOING TO BE LOOKING ELSEWHERE. ALL THESE OTHER THINGS, THEY HAD -- THEY HAD DONE SOME DEALS WITH BRAZIL. THEY WORKED OUT SOME OF THE DETAILS THAT IT BOTHERED THEM EARLIER THIS SPRING. BUT RIGHT AFTER THAT WAS A MESS WE STILL SAW THEM STEP IN. I THINK IT WAS TWO DAYS IN A ROW LATE LAST WEEK WHERE THEY STEPPED IN AND THEY WERE BUYING U.S. SOYBEANS. SO WE HAVE STRONG DEMAND THAT'S HELPING SUPPORT THE BASIS MARKET IN HERE. IT'S -- THE MARKET THE WAY IT'S SET UP IS BASICALLY TELLING PRODUCERS THAT THIS IS A GOOD MARKET TO BE SELLING INTO. THIS HAS -- IT MAY NOT BE THIS GOOD LATER DOWN THE ROAD. WE DON'T KNOW THAT. BUT RIGHT NOW IT'S A STRONG MARKET.

Pearson: TAKE ADVANTAGE OF THE BUMP.

Newsom: YEAH, TAKE ADVANTAGE OF THAT BUMP IN HERE.

Pearson: WE HAD A BUMP IN FUTURES ON WHEAT THIS WEEK. WHY DON'T YOU TALK A LITTLE BIT ABOUT THAT BECAUSE YOU'RE AN OLD KANSAS BOY, FORT HAYES NEIGHBORHOOD DOWN THERE, FORT HAYES STATE.

Newsom: YES, THE WESTERN KANSAS AREA; WHEAT AREA. WHEAT IS VERY -- EVEN THOUGH I'M IN THE CORN BELT RIGHT NOW, I'M STILL VERY INTERESTED IN THE WHEAT MARKET. I WATCHED -- I SPEND A LOT OF TIME WATCHING IT. AND WHAT -- YOU KNOW, WHAT WE'VE COME INTO IN THE WHEAT MARKET RIGHT NOW IS THE TIME OF YEAR AS WE GET TO THE END OF PLANTING WHERE THE WHEAT MARKET FUTURES, CASH START TO RUN INTO PROBLEMS. THEY START TO -- YOU START TO SEE YOUR SEASONAL HIGHS. THIS YEAR IS NO EXCEPTION. IT LOOKED LIKE AT THE END OF LAST WEEK, MIDWEEK LAST WEEK THAT WE WERE GOING TO BE ABLE TO START TO RALLY THIS MARKET. IT RAN OUT OF GAS AND NOW WE'RE STARTING TO SEE SOME OF THIS SEASONAL PRESSURE, WE'RE STARTING TO SEE THE FUNDS, THE SPECULATORS GET BACK INTO THIS MARKET. WE'VE GOT -- WE'VE GOT THE KANSAS CITY JULY CONTRACT TESTING OUR CONTRACT LOWS. WE'VE GOT EXCELLENT RAIN AND SNOW MOVING THROUGH THE SOUTHERN PLAINS, CROP CONDITIONS. THE LIST IS ENDLESS RIGHT NOW FOR REASONS WHY THERE'S SO MUCH PRESSURE ON THE WHEAT MARKET, AND IT DOESN'T LOOK LIKE IT'S GOING TO BE TURNING AT ANYTIME SOON.

Pearson: OUR CASH CHART SHOWS JUST THAT. LET'S TAKE A LOOK AT YOUR CASH CHART. AND THERE IT IS. AGAIN, WE'VE HAD THE BOUNCE UP FROM OUR LOWS, AND YET WE'RE JUST KIND OF TREADING WATER HERE FOR A WHILE. LET'S MOVE ON AND LET'S TALK ABOUT WHAT'S HAPPENED IN THE COTTON MARKET. COTTON PRICES HAVE -- AGAIN, A LOT OF SUPPLY OUT THERE. WE HAD A GOOD COTTON CROP.

Newsom: WE HAD AN EXCELLENT COTTON CROP. THEY FOUND SOME SUPPORT WHEN THEY DROPPED DOWN LAST SUMMER TO AROUND 45. THEY'VE SINCE BOUNCED BACK TO 48. THE THING TO WATCH IN THE MARKET IS IF THE SPECULATORS ARE WATCHING THE MONTHLY CHARTS. WHEN THE DECEMBER GOES OFF NEXT MONTH AND THE MARCH TAKES OVER, THAT CONTRACT IS A GOOD, YOU KNOW, IT'S DOWN AROUND 43. SO ONCE IT DOES, IF IT'S STILL DOWN IN THAT AREA BELOW THE SUPPORT, BELOW THE LOWS FROM THIS PAST SUMMER, THAT COULD TRIGGER ANOTHER ROUND OF SELLING IN THIS MARKET AND THEN, WITH THE HUGE SUPPLY, COULD TAKE IT LOWER.

Pearson: ALL RIGHT. LET'S MOVE OVER TO LIVESTOCK. YOU TALKED ABOUT GETTING FEED NEEDS COVERED. IT'S A GREAT IDEA. LET'S TALK ABOUT FED CATTLE. WE'VE SEEN A NICE IMPROVEMENT HERE THIS WEEK WITH GREAT NEWS. WE TALKED ABOUT AT THE OPEN OF THE SHOW, NO BSE. AGAIN, ANOTHER FALSE POSITIVE. WHAT'S AHEAD IN THE NEXT COUPLE OF MONTHS?

Newsom: WITH THE SEASONAL -- WITH THE SEASONAL TIME FRAME THAT WE'RE IN RIGHT NOW, WE USUALLY SEE SOME DEMAND STARTING TO COME BACK INTO THE MARKET. WE SAW A NICE MOVE IN THE CASH MARKET THIS WEEK, SOMEWHAT UNEXPECTED POSSIBLY WITH THE WAY THINGS WERE LOOKING EARLY IN THE WEEK. RIGHT NOW I'M GOING TO SAY, YOU KNOW, THIS MARKET LOOKS LIKE IT WANTS TO CONTINUE TO CHURN HIGHER. THERE'S GOOD DEMAND. THERE'S GOOD SUPPORT UNDER THIS; GOOD SOLID CASH BASE BEHIND IT. THE BASING RIGHT NOW THAT EVERYONE IS TALKING ABOUT IS THE HORRIBLE CONDITIONS AT THE LOTS -- THE FEEDLOTS IN THE TEXAS, OKLAHOMA PANHANDLES, DOWN IN SOUTHWEST KANSAS; TOO MUCH MUD, TOO MUCH RAIN. YOU CAN NEVER BELIEVE SAYING THAT ABOUT GROWING AREAS. BUT THE PENS ARE IN SUCH POOR SHAPE THAT IT COULD REALLY START TO CUT INTO HOW THE CATTLE DO. SO THAT'S REALLY KIND OF BEEN THE BACKBONE OF THE MARKET IN HERE. IT'S WHAT HELPED KEEP IT AFLOAT DESPITE ALL OF THIS BSE NEWS THAT'S BEEN FLOATING AROUND OVER THE LAST COUPLE -- OVER THE LAST WEEK, WEEK AND A HALF.

Pearson: ALL RIGHT, GOOD POINT. SO CHURNING HIGHER ON BEEF CATTLE. LET'S TALK ABOUT HOGS AND THE HOG MARKET. WHAT A RALLY THAT'S BEEN FROM THIS SUMMER.

Newsom: THE HOG MARKET HAS DONE REALLY WELL. IF YOU GO BACK AGAIN, THE DEMAND HAS JUST BEEN SO SOLID. ALMOST -- WE'RE SEEING 400,000 HEAD ALMOST EVERY DAY IS WHAT THEY'RE CALLING FOR ON SLAUGHTER -- JUST AN AMAZING DEMAND MARKET RIGHT NOW. NOW, IF WE GO BACK IN TIME AND LOOK AT WHAT THIS MARKET SHOULD BE DOING, IT'S FOLLOWED ITS LONG-TERM CYCLE PATTERNS THAT HOGS FIND THEMSELVES IN, YOU KNOW, WHERE IT SET AN AUGUST LOW, IT'S NORMAL, IT'S LOWER THAN IT NORMALLY IS. NORMALLY YOU SEE THE LOW COMING IN THE FOURTH QUARTER. BUT IT'S BEEN ABLE TO RALLY FROM THAT POINT. THIS SHOULD TELL PRODUCERS THAT MAYBE THIS DEMAND IS GOING TO STAY STRONG ENOUGH OUT INTO THE STRONG TIME FRAMES OF NEXT SPRING AND, THEREFORE, GIVING THEM SOME MARKETING OPPORTUNITIES FURTHER DOWN INTO THE NEXT CALENDAR YEAR.

Pearson: OK. SO AGAIN, SOME GOOD NEWS ON BOTH BEEF AND PORK. APPRECIATE YOUR INSIGHTS. DARIN NEWSOM, THAT IS GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM DARIN ON JUST WHERE THESE MARKETS ARE HEADED, THEN BE SURE TO VISIT THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. And OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL GET A RARE LOOK INSIDE THE NAVAJO NATION OF THE AMERICAN SOUTHWEST AND THE EFFORTS UNDERWAY THERE TO REVIVE TRADITIONAL FOOD AND FARMING PRACTICES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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