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Market Analysis: Nov 19, 2004

posted on November 19, 2004


The funds were showing renewed interest in the corn market at week's end, despite the size of the crop. For the week, nearby wheat futures were up seven cents. December corn fell by less than a penny.

The twin specters of Asian rust and another potential BSE case firmed up prices in the soy complex. For the week, January beans advanced more than 25 cents. The nearby meal contract gained $8.50 per ton.

The cotton market finally enjoyed a rally, and for the week gained $3.49.

News from USDA of the inconclusive BSE test sent cattle prices lower. For the week, the December live cattle contract lost 82 cents. Nearby feeders dropped $1.38. And the December lean hog contract fell by 65 cents.

In the financials, Comex gold advanced $8.70 an ounce. The Euro set another all-time high against the dollar and for the week climbed 36 basis points. And the CRB Index jumped nearly four points to close at 287.75.

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

Market Analysis: Nov 19, 2004 Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT ABOUT WHAT'S BEEN HAPPENING. WE'VE BEEN WATCHING THE WHEAT MARKET. I KNOW THAT'S ONE THAT YOU ESPECIALLY TRACK CLOSELY. AND AGAIN, A FAIRLY DECENT WEEK FOR WHEAT PRICES.

Hjort: IT REALLY WAS. THIS WHEAT MARKET, YOU'LL GET THE FUNDAMENTALS THAT WILL START TO PULL PRICES UP. AND THEN ONCE THE RALLY SEEMS TO STALL OUT, THE SPEC BOYS COME IN AND START SELLING IT AGAIN. IT'S BEEN THE PATTERN ALL SUMMER LONG AND CONTINUING NOW. THE FUNDAMENTALS, IF YOU LOOK AT TOTAL WHEAT PRODUCTION WORLDWIDE, NOT NECESSARILY BULLISH. BUT WHAT IS BULLISH ABOUT IT IS THE QUALITY. THE MILLING QUALITY WHEAT HAS BEEN DROPPED OFF QUITE A BIT THIS YEAR, ESPECIALLY THE HARD SPRING WHEAT FROM CANADA, FOR EXAMPLE, A LOT OF THAT GRADING ALL THE WAY DOWN TO FEED GRADE, BUT CERTAINLY TAKEN OUT OF THE TOP MILLING CATEGORIES. SO YOU'VE SEEN BASIS LEVELS STARTING TO IMPROVE FOR THE HARD RED WINTER AS WELL AS THE HARD SPRING. YOU'VE ALSO SEEN BASIS IMPROVE FOR THE SOFT RED WINTER WHEAT IN THE UNITED STATES, AGAIN BECAUSE VOMITOXIN LEVELS WERE JUST A LITTLE BIT HIGHER THAN SHOULD BE, NOT AT A REAL CRITICAL LEVEL SO IT CAN'T BE USED, BUT IT NEEDS TO BE BLENDED OFF JUST A LITTLE BIT. AND THAT, THERE AGAIN, YOU KNOW, IF YOU'VE GOT THE TOP QUALITY WHEAT, YOU'RE GETTING A PREMIUM FOR IT. A RECOMMENDATION, SOMETHING TO KEEP IN MIND HERE ON THIS WHEAT, ALL CLASSES OF WHEAT BY THE WAY, BUT ESPECIALLY THE HARD RED SPRING AND THE SOFT RED WINTER, IS TO REALLY HOLD TOUGH BECAUSE ANY END USER THAT NEEDS THAT TOP-QUALITY STUFF IS JUST GOING TO HAVE TO PAY UP FOR IT BECAUSE THERE IS A DEFINITE SHORTAGE IN BOTH CATEGORIES. OBVIOUSLY PRICE RALLIES WILL STOP OFF SOMEWHERE. AND WHEN YOU LOOK AT THE CHARTS, YOU CAN SEE SOME OF THAT RESISTANCE THAT IS BUILDING PRETTY STRONGLY, JUST UP ABOVE THE HIGHS OF THIS WEEK; SO, TRYING TO MOVE HIGHER IN THE WHEAT MARKET IN THE NEXT MONTH OR SO. WE SHOULD BE ABLE TO DO IT, BUT THERE IS INCREASING TECHNICAL PRESSURES AGAINST THE MARKET, AS WELL.

Pearson: ALL RIGHT. LET'S TALK ABOUT CORN PRICES. I WAS DOWN SOUTH IN SPRINGFIELD, ILLINOIS, THIS WEEK AND, BOY, SOME AWFUL GOOD CORN YIELDS ARE BEING REPORTED EVERYWHERE IN THE CORN BELT. THAT AREA IN PARTICULAR SEEMED TO BE STRONG, AND A LOT OF PEOPLE ARE HOLDING ONTO PRODUCT. IS THAT GOING TO PAY? WHAT WOULD YOU RECOMMEND A CORN PRODUCER DO AT THIS STAGE OF THE GAME?

Hjort: WELL, I THINK YOU CAN STORE IT FOR A WHILE. BUT YOU'RE ABSOLUTELY RIGHT, BASIS LEVELS ARE FIRMING EVEN THOUGH -- LIKE EARLY THIS WEEK AND, WELL, FRIDAY A WEEK AGO AND IN THROUGH WEDNESDAY, CORN PRICES RALLIED A DIME OR A LITTLE MORE. AND THAT WAS A BIG SURPRISE TO THE TRADE BECAUSE THE USDA REPORT WAS CONSIDERED TO BE SOMEWHAT BEARISH. ONCE WE GOT UP AGAINST THAT TECHNICAL RESISTANCE AROUND DECEMBER $2.08, $2.09, THE MARKET GAVE UP AGAIN AND DID NOT PUSH ON THROUGH THAT. SO WE SETTLED IT BACK DOWN AND CLOSED ALMOST DOWN, WELL, ACTUALLY BELOW $2.00 ON FRIDAY. SO THE FUTURES MARKET CHOPPING AROUND A LOT, BUT AS YOU POINT OUT, FARMERS ARE NOT SELLING IN HUGE QUANTITIES. A LITTLE BIT HERE, A LITTLE BIT THERE, AND YOU'LL SEE THAT REFLECTED IN BASIS. BUT GENERALLY SPEAKING, BASIS LEVELS HAVE BEEN FIRMING ON THE CORN. SO YOU CAN STORE IT FOR A WHILE, BUT I'M GUESSING THAT BY JANUARY OR EARLY FEBRUARY, WE'RE PROBABLY GOING TO HAVE TO BE LOOKING AT HAVING MOVED SOME OF THIS CORN.

Pearson: ALL RIGHT. HERE'S OUR DTN NATIONAL CORN INDEX CHART, AND IT SHOWS JUST WHAT YOU'RE SAYING, DOUG. AND YOU SEE JUST THE UPTICK. THE TOP IS OUR TWO-YEAR AVERAGE. THE GREEN LINE, OF COURSE, IS OUR CURRENT CASH BASIS, SO YOU CAN SEE WHERE THAT PRICE HAS STRENGTHENED HERE A LITTLE BIT. THE LDP ALSO WAS A FACTOR IN HERE, AND A LOT OF PEOPLE TOOK THE LDP, IT WOULD APPEAR, AT LEAST THE LAST COUPLE OF WEEKS. SO NOW THEY'RE KIND OF FREED UP AS TO WHAT IT IS THEY CAN DO. DOES IT MAKE SENSE TO HOLD THIS WINTER OR NOT?

Hjort: NOT VERY LONG BUT, YES, IT DOES FOR SOME TIME. YOU'RE LOOKING AT THE LDPs, OH, 30 CENTS GIVE OR TAKE, DEPENDING ON WHICH STATE YOU'RE IN. AND THAT -- THEY'RE A LITTLE LESS ON THAT NOW AS OF FRIDAY. BUT THEY'RE AT PRETTY GOOD LEVELS. AND I ADVISED TO CASHING THOSE LDPs AND BEING DONE WITH THAT PART OF IT. THE MARKETING PART THOUGH, BASIS IMPROVEMENT SHOULD COME ALONG. EXPORT SALES ON THE CORN HAVE SLOWED DOWN A LITTLE BIT IN THE LAST TWO OR THREE REPORTS, BUT BASICALLY OVER THE LAST TWO MONTHS HAVE BEEN VERY, VERY STRONG. AND REMEMBER THAT EXPORTS ONLY AMOUNT TO 17 PERCENT OF OUR TOTAL DEMAND. THE OTHER 83 PERCENT IS HERE IN THE UNITED STATES. WE DON'T GET A READING ON THAT EXCEPT THE QUARTERLY STOCKS REPORTS. BUT THAT DEMAND IS RUNNING VERY, VERY STRONG TOO FOR ETHANOL AND FOR FEED USE AND SO ON. SO DEMAND IS EXTREMELY STRONG FOR CORN, RECORD HIGH, OF COURSE, JUST LIKE RECORD SUPPLIES ARE.

Pearson: ALL RIGHT. SOYBEANS, RECORD SUPPLIES THERE TOO.

Hjort: THEY SURE ARE. AND, OF COURSE, THE MOST BEARISH PART OF THE SOYBEAN MARKET IS THE WORLD MARKET. THAT IS CONTINGENT UPON THE FACT THAT THE SOUTH AMERICAN SOYBEAN PRODUCTION COMES IN AT 20 TO 25 PERCENT ABOVE LAST YEAR. YES, ACREAGE WILL BE UP AND MOST ARE ESTIMATING THAT THEIR YIELDS WILL COME BACK TO NORMAL. BRAZIL'S YIELDS LAST YEAR WERE QUITE LOW ACTUALLY, VERY LOW FOR THEM. SO WHETHER THEY CAN MAINTAIN THAT OR NOT, WHO KNOWS? FOR EXAMPLE, THEY'VE HAD -- THEY'RE UP TO 65 PERCENT PLANTED NOW, SOMEWHERE IN THAT AREA. AND THEY'VE ALREADY HAD SEVERAL REPORTS OF THE ASIAN RUST. NOW, THEY'VE HAD A FEW YEARS OF EXPERIENCE WITH IT AND KNOW HOW TO SPRAY FOR IT AND SO ON AND SO FORTH. THE SPRAY IS VERY COSTLY, BUT AT LEAST YOU CAN SALVAGE GOOD YIELDS OUT OF IT IF YOU DO THAT. THAT, BY THE WAY, IS ONE OF THE MOST IMPORTANT THINGS I THINK THAT U.S. PRODUCERS NEED TO DO THIS WINTER, MORE IMPORTANT THAN EVEN MARKETING, AND THAT IS FIND OUT YOUR EXPERT SOURCES FOR THIS ASIAN RUST AND SEE WHAT YOU MAY BE FACED WITH NEXT YEAR.

Pearson: THAT'S A REAL GOOD POINT. CASH MARKET THERE ON THE SOYBEANS AS WE TAKE A LOOK AT THE DTN NATIONAL SOYBEAN INDEX. AND AGAIN, YOU CAN SEE IT ALMOST LOOKS LIKE A DOUBLE BOTTOM THAT WE'VE SEEN ON THAT GREEN LINE SHOWING CURRENT CASH PRICES. AND, OF COURSE, THERE'S OUR TWO-YEAR AVERAGE. IT LOOKS LIKE THEY'RE HOLDING OFF ON THE SOYBEANS TOO.

Hjort: WELL, THEY ARE TO A DEGREE. NOW, EXPORT SALES ON SOYBEANS HAVE BEEN JUST TREMENDOUS, AND CHINA IS STILL IN THERE BUYING, EVEN ON THURSDAY AND FRIDAY OF THIS WEEK. WE THOUGHT MAYBE THEY WOULDN'T BE BUYING FROM US NOW BECAUSE BRAZIL AND CHINA GOT TOGETHER HERE ABOUT A WEEK AGO AND SAID, OKAY, THE RIFT IS OVER, WE'LL START BUYING -- CHINA SAID THEY'D START BUYING BRAZILIAN BEANS. WELL, THEY CAME TO THE UNITED STATES AND BOUGHT EVEN AFTER THAT, SO THAT'S GOOD NEWS. THE BASIS LEVELS, QUITE GOOD ON THE BEANS, VERY, VERY GOOD IN SOME AREAS. FUTURES PRICES GOT UP AGAINST SOME MAJOR RESISTANCE BANDS THIS WEEK. PROBABLY GOING TO BE VERY DIFFICULT IN THE NEXT TWO OR THREE WEEKS TO PUSH THROUGH THERE, BECAUSE IF YOU DO PUSH THROUGH THAT BAND, THEN THERE'S AN OPENING FOR MAYBE 35 TO 40 CENTS IN THAT MARKET. DON'T BE TOO QUICK TO SELL THE SOYBEANS HERE THIS FALL BECAUSE THIS DEMAND -- EXPORT DEMAND WILL REMAIN STRONG FOR AT LEAST THE NEXT MONTH OR TWO. YOU GET INTO LATE JANUARY AND FEBRUARY, THEN THE TALK WILL START TO TURN BACK TOWARDS BRAZIL AGAIN. BUT IN THE MEANTIME, DEMAND IS HERE AND IT'S VERY STRONG, SO DON'T BE TOO QUICK TO SELL.

Pearson: ALL RIGHT. REAL QUICK, DOUG, THE COTTON MARKET HAS SHOWN SOME IMPROVEMENT THIS WEEK. AGAIN, IT'S GOT A LONG ROAD TO HOE.

Hjort: WELL, IT SURE DOES. IT BOUNCED UP A LITTLE BIT, BUT I THINK MAYBE BOTTOMS MIGHT BE IN. THAT'S PROBABLY THE BEST NEWS FOR THE COTTON MARKET. HOW MUCH IT CAN RALLY IS A BIG, BIG QUESTION YET, PRIMARILY BECAUSE OF THE LARGE WORLD SUPPLY.

Pearson: LET'S TALK LIVESTOCK. FED-CATTLE MARKET, CATTLE-ON-FEED REPORT WAS OUT FRIDAY AFTERNOON. AGAIN, WE'RE AHEAD OF LAST YEAR ON FEED. WE'RE A LITTLE SLOWER ON MARKETINGS. WHAT'S YOUR TAKE NOW? I KNOW WE'VE HAD THIS REPORT CARD ON WHERE THE CATTLE BUSINESS IS. WHAT'S YOUR TAKE OVER THE NEXT 90 DAYS?

Hjort: DISREGARD THE BSE PROBLEM BECAUSE WE DON'T KNOW HOW THAT'S GOING TO TURN OUT. IF THAT TURNS OUT TO BE NEGATIVE, SO THERE IS NO MAD COW, THEN THE CATTLE MARKET WILL STAY FAIRLY SOLID. IT WILL STAY PRETTY SOLID UNTIL WE GET ON INTO THE WINTER MONTHS. UNDERSTAND THAT TEXAS FEEDLOTS ARE HAVING A LOT OF TROUBLE, TOO MUCH MUD DOWN THERE RIGHT NOW. AND THEY'RE GETTING SNOW OR ARE FORECAST TO HAVE SNOW AGAIN THIS WEEKEND. THAT'S NOT GOOD FOR PUTTING GAINS ON. THE CARCASS WEIGHTS HAVE BEEN COMING DOWN JUST A LITTLE BIT. THEY'RE STILL QUITE HIGH. BUT THEY ARE STARTING TO COME DOWN, AND THE FEED YARD CONDITION MIGHT BE A PART OF IT. SO WHAT WE'RE LOOKING AT HERE ON THE CATTLE MARKET, IF WE DON'T HAVE THE MAD COW, WE'RE LOOKING AT CATTLE PRICES BEING VERY SOLID, MAYBE INCHING UP $2, $3, $4 INTO THE WINTER, AND THEN PROBABLY COMING BACK DOWN AS WE HEAD TOWARDS SPRING.

Pearson: OK, SO A REPRIEVE, MAYBE, FOR THE NEXT 90 DAYS. LET'S TALK ABOUT THIS HOG, MARKET, DOUG, WHICH IMPROVED NICELY. YOU TURNED KIND OF FRIENDLY TO HOGS THIS SUMMER. THE MARKET CERTAINLY TOOK YOUR ADVICE. IT'S COME UP. WHAT'S AHEAD NOW? WHAT ARE YOU SEEING? ARE WE GOING TO SEE SOME EXPANSION IN THESE HOG NUMBERS?

Hjort: ONE OF THE BIGGEST PROBLEMS FROM A MARKETING STANDPOINT THAT WE SAW IS GOOD NEWS NOW. WE DID NOT SEE THE PRICES DROP OFF IN THE FALL THE WAY THEY NORMALLY DO. THE HEDGES TURNED OUT TO BE HORRIBLE BECAUSE OF THAT, OF COURSE. BUT THE CASH PRICE IS STAYING RIGHT IN THERE. I THINK THE HOG MARKET CAN BE IN PRETTY GOOD SHAPE. PORK DEMAND WILL ALSO PLAY INTO THIS BSE THING. NOW, IT DID BEFORE, YOU KNOW. PORK DEMAND WAS HELPED BY THE BSE. SO IF WE HAVE A MAD COW NOW, THEN WE'RE GOING TO HAVE MORE SUPPORT IN THE HOG MARKET. BUT REALLY THE HOG MARKET LOOKS PRETTY SOLID.

Pearson: EXCELLENT. THANK YOU, DOUG HJORT. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE DETAIL FROM DOUG 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 EXAMINE ONE FARMER'S FORAY INTO AN ALTERNATIVE ENERGY BEST DESCRIBED AS COW POWER. UNTIL NEXT WEEK, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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