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Market Analysis: Nov 05, 2004

posted on November 5, 2004


The grain trade remains choppy as traders focus on huge supplies and uneven demand. For the week, nearby wheat futures were down a dime. December corn declined by three cents.

Long-term fundamentals remain bearish for soybeans, and January beans made new contract lows. For the week, November beans were down more than 22 cents. The nearby meal contract lost $6.90 per ton.

The cotton market remains sluggish, and for the week dropped $1.62.

In livestock, the December live cattle contract was down $2.02 for the week. November feeders lost $1.80. But the December lean hog contract jumped $4.80.

In the financials, Comex gold advanced $4.90 an ounce. The Euro rose to an all-time high against the dollar this week, jumping another 156 basis points. And the CRB Index fell nearly two points to close at 283-even.

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

Market Analysis: Nov 05, 2004 Robinson: NICE TO BE WITH YOU, MARK.

Pearson: LET'S TALK A LITTLE BIT ABOUT THE CORN MARKET. A LITTLE BIT OF A DECLINE AGAIN THIS WEEK. ALL I'M HEARING, VIRGIL, AS I TRAVEL AND SPEAK THROUGHOUT THE CORN BELT IS "BIG YIELDS." FOR MOST PEOPLE, IT'S THE BIGGEST EVER.

Robinson: NEXT FRIDAY, MARK, THE USDA WILL AGAIN UPDATE THEIR U.S. AS WELL AS GLOBAL CORN AND COARSE GRAIN PROJECTIONS. AND MORE OFTEN THAN NOT, WHEN THE OCTOBER REPORT IS LARGER THAN THE SEPTEMBER REPORT, THE ENSUING NOVEMBER DATA IS ALSO LARGER. SO AS YOU AFOREMENTIONED HERE PRIOR TO OUR DISCUSSION, MOST PRIVATE ANALYSTS ARE SUGGESTING A LARGER CORN CROP OR A LARGER PRODUCTION NUMBER HERE A WEEK FROM TONIGHT. SO THE THEME REMAINS: BASICALLY BIG PRODUCTION HERE IN THE U.S. AS WELL AS THE WORLD; GROWING USAGE, MARK; BUT ALSO GROWING ENDING INVENTORIES OR ENDING STOCKS. SO THE SUPPLY ISSUE, AT LEAST AS WE VISIT TONIGHT, IS NOT A MAJOR CONCERN.

Pearson: WE MENTIONED FUTURES PRICES DOWN 3 CENTS. AS YOU GO FORWARD, VIRGIL, ANY STRATEGIES OUT THERE? ENOUGH CARRY IN THE MARKET TO GO AFTER THOSE NEXT SUMMER CONTRACTS AND DO ANYTHING?

Robinson: WELL, INTERESTING YOU MENTIONED CARRY. THIS WEEK, MARK, THE FUTURES CONTRACTS IN CHICAGO, THE SPREADS, THE CARRYING CHARGE SPREADS DID IN FACT CONTINUE TO WIDEN. SO IT DOES PROVIDE FOR THOSE WHO HAVE STORAGE, MARK, PREDOMINANTLY OR PARTICULARLY ON-FARM STORAGE. THERE ARE, I THINK, SOME HEDGING OPPORTUNITIES FOR THEM. TO THAT EXTENT, SHORT OF SUGGESTING A STRATEGY, MARK, I THINK THERE ARE A NUMBER OF UNIVERSITY SITES, WEB SITES, THAT EXPLAIN AND GO THROUGH THE MECHANICS OF THOSE WHO DO HAVE ON-FARM STORAGE, AS WELL AS THOSE WHO DO NOT, HOW THEY MIGHT UTILIZE THE WIDENING OF THE CARRY IN THE MARKET TO TAKE ADVANTAGE OF THEIR SPACE, PAY FOR THEIR SPACE, AND WHEN COMBINED WITH SOME BASIS KNOWLEDGE, LOCAL BASIS KNOWLEDGE, THE OPPORTUNITY TO IMPROVE RETURNS BEYOND WHAT'S BEING OFFERED AS A CASH DEFERRED BID TONIGHT. IOWA STATE UNIVERSITY, UNIVERSITY OF ILLINOIS, KANSAS STATE, NEBRASKA, AND I'M SURE I'M FORGETTING SEVERAL. BUT ALL OF THOSE SITES WILL ADDRESS THAT ISSUE, MARK, IN GREAT DETAIL.

Pearson: WE'VE BEEN TALKING ABOUT FUTURES, BUT THE IMPACT CAN DEFINITELY BE SEEN ON THE DTN NATIONAL CORN INDEX AS WE TAKE A LOOK AT IT AND THE IMPACT IT'S HAD THERE. AND OF COURSE, THE TOP LINE IS THE TWO-YEAR AVERAGE. THE GREEN LINE IS WHERE WE ARE RIGHT NOW, AND YOU CAN SEE THE PLUMMETING EFFECT THERE.

Robinson: MARK, I MEAN IT'S PRETTY OBVIOUS THE TREND OF THAT PARTICULAR INDEX. IT DOES REMAIN DOWN. I TRACK THAT INDEX TO SOME EXTENT. IT WOULD BE MY BEST OPINION, AT LEAST IN THE NEAR FUTURE, SHOULD THAT INDEX, WHICH IS CURRENTLY AT ABOUT $1.70 OR THEREABOUTS, RECOVER BACK TOWARDS $1.80. I THINK THAT'S GOING TO INVITE AND ATTRACT SOME NEW SELLING. SO FOR THOSE THAT DO HAVE AN INTEREST IN THAT CASH INDEX, IT CAN BE TRACKED. IT IS VERY TRANSPARENT AT THE MINNEAPOLIS GRAIN EXCHANGE WEB SITE.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS, VIRGIL. AS WE LOOK AT, OF COURSE, WHAT'S HAPPENED HERE IN TERMS OF THE BEAN ACREAGE, AS YOU MENTIONED, PERHAPS EVEN BIGGER NUMBERS FOR NOVEMBER, WE ALSO HAVE A SITUATION IN SOUTH AMERICA WHERE WE COULD HAVE RECORD ACREAGE. WHAT'S AHEAD FOR A SOYBEAN PRODUCER, AND WHAT KIND OF TIME FRAME WOULD YOU LOOK AT WHEN YOU LOOK AT THE BOARD?

Robinson: WELL, AGAIN, I THINK THE THEME, MARK, NEXT FRIDAY WILL MOST LIKELY BE LARGER U.S. PRODUCTION, PROJECTED RECORD SOUTH AMERICAN PRODUCTION. SO LARGE SUPPLIES, GROWING DISAPPEARANCE, WHICH IS AN IMPORTANT FACT TO MENTION, BUT IN THIS INSTANCE, GROWING ENDING STOCKS AS WELL. SO I THINK IT'S GOING TO BE DIFFICULT, AT LEAST IN THE FORESEEABLE FUTURE, TO THINK ABOUT ANY KIND OF PRICING OPPORTUNITY BEYOND LOAN OR SUBLOAN VALUE HERE IN THE UNITED STATES. IT SHOULD BE NOTED, HOWEVER, MARK, IN SPECIFIC GEOGRAPHIES, PARTICULARLY INTERIOR POINTS TRIBUTARY TO PROCESSORS, THAT SPOT BASIS LEVELS, AS THE HARVEST HAS PROGRESSED AND NEARS COMPLETION, HAVE IMPROVED, IN MANY INSTANCES 25 TO 30 CENTS A BUSHEL, AS PROCESSORS TRY AND SOURCE INVENTORY FOR GRIND. VERY UNUSUAL SET OF CIRCUMSTANCES. SOUTHERN MINNESOTA, FOR EXAMPLE, NORTHERN IOWA, THE BASIS AS WE VISIT TONIGHT IS NEAR OPTION PRICE JANUARY FUTURES. I'VE NOT SEEN THAT IN MY THIRTY YEARS THIS PARTICULAR TIME OF THE YEAR. SO I DON'T WANT TO MISLEAD PEOPLE. DEMAND REMAINS STRONG FOR SOYBEANS, BUT THE SUPPLY SCENARIO IS SUCH, MARK, IT'S GOING TO BE DIFFICULT TO PUSH THESE MARKETS APPRECIABLY HIGHER UNLESS THERE'S SOME TYPE OF MAJOR WEATHER EVENT THAT TAKES SHAPE IN THE SOUTHERN HEMISPHERE.

Pearson: ALL RIGHT. LET'S TAKE A LOOK AT THAT DTN CASH INDEX ON SOYBEANS, NATIONAL CASH INDEX. AND AGAIN, AS YOU MENTIONED, SOME POCKETS OF STRENGTH OUT THERE FOR SOYBEAN DEMAND. BUT AGAIN, YOU CAN SEE THE TWO-YEAR AVERAGE UP ABOVE THE GREEN LINE WHERE WE ARE CURRENTLY AND YOU CAN SEE WHERE THE PRESSURE HAS BEEN. BUT YOU DID MENTION SOME SPOT AREAS WHERE BASIS LEVELS ARE STRONG.

Robinson: YEAH, THEY ARE. YOU KNOW, THE PROBLEM WITH THAT OBSERVATION WOULD BE -- AND PEOPLE ARE PROBABLY ASKING THEMSELVES, WELL, IF THAT'S THE CASE, A STRONG BASIS SHOULD BE REWARDED. WELL, THAT'S TRUE. I THINK CERTAINLY IN MOST INSTANCES YOU SHOULD. HOWEVER, IN THIS LOAN ENVIRONMENT, MARK, ONCE YOU RELINQUISH OWNERSHIP TO THOSE BEANS, THEN YOU RELINQUISH THE OPPORTUNITY TO CAPTURE YOUR LDP. AND AT PRESENT LDPs ARE NOT PARTICULARLY ATTRACTIVE AND ARE FORECAST TO BECOME MORE ATTRACTIVE IN THE LATE WINTER/SPRING OF 2005.

Pearson: GOOD POINTS. QUICKLY, LET'S MOVE ON TO WHEAT, VIRGIL. AND OF COURSE, WE'RE PAST OUR BIG MARKETING TIMES FOR THE WHEAT MARKET. WE'VE SEEN A LITTLE BIT OF RECOVERY THERE. WHAT'S YOUR TAKE ON WHEAT?

Robinson: YEAH, WHEAT IS FIRM, MARK. CASH DEMAND FOR WHEAT IS STRONG, AS DOCUMENTED BY STRONG BASIS PREMIUMS AND LACK OF CARRY IN THAT PARTICULAR MARKET. I THINK CHICAGO FUTURES -- THREE FUTURES CONTRACTS WE'LL TALK ABOUT TONIGHT HERE REAL BRIEFLY. CHICAGO FUTURES, IN MY OPINION, ARE POSITIONED TO RECOVER BACK TOWARDS 320, AT WHICH POINT ANYONE CARRYING CASH THAT'S RELATED TO THAT FUTURES CONTRACT I THINK IS A PRETTY GOOD SALE, MARK. KANSAS CITY WHEAT FUTURES I THINK ARE POSITIONED TO RETURN BACK TOWARDS ABOUT 365, AT WHICH POINT ANYTHING TRIBUTARY TO THAT MARKET CASH-WISE I THINK REPRESENTS A GOOD SALE. AND MINNEAPOLIS WHEAT FUTURES AROUND THAT 380 MARK I THINK REPRESENT A GOOD SALE. AND AS WE VISIT TONIGHT, I THINK THOSE TARGETS ARE ATTAINABLE IN THE VERY NEAR FUTURE.

Pearson: LET'S QUICKLY CHECK THOSE -- THE NATIONAL CASH INDEX ON THE WHEAT. AND OF COURSE, THIS IS THE HARD RED WHEAT. THIS IS WHAT, OF COURSE, COMES OUT OF KANSAS CITY. AND THERE YOU SEE -- YOU SEE THE SERIOUS DIP ON THE GREEN LINE. OF COURSE, THAT'S WHERE WE ARE CURRENTLY. THE TWO-YEAR AVERAGE IS UP ABOVE. BUT WE'VE HAD A VERY STRONG PULLBACK, AND WE SEEM TO BE NEAR SOME HIGHS ON THE CASH SIDE.

Robinson: YEAH, THAT INDEX IS AROUND 3.25, MARK, AND I THINK IT'S POSITIONED TO PUSH ABOVE 330 INTO THE 335 AREA, AT WHICH POINT I WOULD USE THE INDEX AS A BAROMETER OF MAKING A GOOD SALE. THE SCENARIO HERE IS WHEAT INVENTORIES GLOBALLY ARE ADEQUATE TO MEAT SUPPLY -- OR TO MEAT DEMAND, MARK. SO WHILE I THINK THE MARKET IS FIRMLY UNDERPINNED, PROFIT -- OR RALLYING POTENTIAL IS LIMITED.

Pearson: ALL RIGHT. LET'S TALK LIVESTOCK, VIRGIL. NOT MUCH TO SAY, REALLY, ABOUT THE COTTON MARKET. AS FAR AS CATTLE ARE CONCERNED, THOUGH, THIS FED-CATTLE MARKET, PEOPLE ARE CONCERNED ABOUT BACKING THESE CATTLE UP.

Robinson: AND I THINK A VALID CONCERN. WEIGHTS REMAIN LARGE, MARK: 1,270 POUNDS ON AVERAGE; DRESSED WEIGHTS SIGNIFICANTLY ABOVE THE PREVIOUS YEAR AS WELL. FIRST CLUE, I THINK, OF SOME TROUBLE DEVELOPED IN THE LAST COLD STORAGE REPORT WHEN BEEF INVENTORIES GREW MONTH OVER MONTH AND GREW PRETTY SIGNIFICANTLY YEAR OVER YEAR. I THINK THE BALANCE OF THE FOURTH QUARTER, THE CASH MARKET IS CAPABLE OF HANGING AT OR NEAR AROUND $85, AND I WOULD USE THAT AS MY BENCHMARK. THAT PRICE, IN MY OPINION, IS A GOOD ONE. THE FIRST QUARTER OF 2005, MARK, SOMEWHERE IN THE VICINITY OF 84 TO 86; $85 THERE ALSO I THINK REPRESENTS A GOOD BENCHMARK. I'D TRY AND PROTECT THAT NUMBER FOR ANYTHING MARKETED IN THE FIRST QUARTER OF 2005. FUTURES WILL NEED TO RECOVER ABOUT $2 TO $3, BOTH THE DEC. AND THE FEB. FUTURES CONTRACT, FOR PEOPLE TO USE AS A HEDGING VEHICLE TO PROTECT THOSE NUMBERS. I THINK WE'RE CAPABLE OF DOING THAT SOMETIME DURING THE MONTH OF NOVEMBER.

Pearson: REAL QUICK, FEEDER CATTLE MARKET HAS JUST BEEN ON FIRE. OF COURSE, THE SITUATION IN CANADA, WHO KNOWS WHAT'S GOING TO HAPPEN THERE. BUT THESE CALVES ARE AWFULLY HIGH RIGHT NOW.

Robinson: YEAH, THEY'VE COME DOWN IN VALUE, MARK, SOME, AS A RESULT OF THE DECLINE IN LIVE PRICES AND DEFERRED CATTLE FUTURES CONTRACTS. BUT SURPRISINGLY, I NEVER THOUGHT I'D EVER SAY THIS IN MY CAREER, AT OR NEAR $100 APPEARS TO BE AWFULLY STRONG SUPPORT IN THE FUTURES MARKET. I THINK WE MAY TEST THAT. BUT AGAIN, I THINK THAT'S AN AREA THAT IF I WERE BUYING FEEDERS, I WOULD BE INTERESTED IN DEVISING SOME TYPE OF STRATEGY EVOLVING AROUND FUTURES AT OR NEAR $100.

Pearson: WE'RE SEEING NUMBERS THIS YEAR WE NEVER THOUGHT WE'D SEE. IN THAT CASE IT'S GOOD TO SEE THEM IN SOME RESPECTS. WHAT ABOUT THE HOGS, VIRGIL? A BIG MOVE UP ON THE BOARD THIS WEEK IN HOGS.

Robinson: YEAH, FUTURES AND CASH BOTH STRONGER, MARK. AGAIN, THIS IS A DEMAND -- A CLASSIC DEMAND-DRIVEN MARKET. VERY HARD TO HANDICAP AND THE DEMAND IS ELASTIC AND CAN CHANGE VERY ABRUPTLY. FUTURES BEHAVIOR TODAY, A LITTLE SUSPECT. IT LOOKS LIKE THE FUTURES MAY BE RIPE FOR SOME TYPE OF PULLDOWN HERE. BUT I THINK FOURTH QUARTER OF THIS YEAR, FIRST QUARTER OF 2005 AT OR VERY NEAR $50 IS MOST LIKELY GOING TO BE OUR MARKET.

Pearson: VERY GOOD. VIRGIL, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT BEFORE WE GO, A PERSONAL NOTE. MY RADIO PARTNER AND CLOSE FRIEND FOR THE PAST TEN YEARS, GARY WERGIN, PASSED AWAY YESTERDAY. GARY WAS A NEBRASKA NATIVE WHO SPENT MORE THAN TWENTY YEARS DOING WHAT HE LOVED BEST, WORKING IN FARM BROADCASTING, TALKING TO FARMERS. HIS CONTRIBUTIONS TO FARM BROADCASTING WERE SUBSTANTIAL, AND HE'LL BE DEARLY MISSED. UNTIL NEXT WEEK, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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