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Market Analysis: Oct 22, 2004

posted on October 22, 2004


Demand remains the thing for the grain markets although decent export sales this week failed to support prices. For the week, nearby wheat futures lost nearly 11 cents. December corn was down a nickel.

For soybeans, both futures prices and basis have strengthened to induce farmers into selling. For the week, November beans were up 16 cents. The nearby meal contract gained $3.70 per ton.

The cotton market continues to trade sideways, and for the week dropped a mere 15 cents.

In livestock, the October live cattle contract was up 83 cents. Nearby feeders lost 92 cents. And the December lean hog contract declined by 65 cents.

In the financials, Comex gold advanced $5.90 an ounce. The Euro jumped 169 basis points against the dollar. And the CRB Index climbed a half-point to close at 287-even.

Here now to lend us her insight on these and other market trends is an analyst new to Market To Market, but someone with plenty of experience in commodity forecasting, Erin Golly. Welcome to the program, Erin.

Market Analysis: Oct 22, 2004

Golly: THANK YOU VERY MUCH, MARK.

Pearson: GOOD TO HAVE YOU WITH US. WELL, LET'S TALKING ABOUT WHAT'S GOING ON RIGHT NOW. WE'RE IN THE THROES OF THE CORN HARVEST THROUGHOUT MUCH OF THE CORN BELT. CORN PRICES HAVE SAGGED. NOT MUCH EXCITEMENT THIS WEEK. BUT AS WE GO FORWARD, IF YOU HAVEN'T DONE ANYTHING YET, IF YOU'RE A PRODUCER, YOU HAVEN'T TAKEN YOUR LDP YET, MAYBE YOU HAVE THE CROP EITHER IN THE BIN OR AT THE ELEVATOR, WHAT CAN YOU DO?

Golly: WELL, WE'RE RECOMMENDING TO PRODUCERS IF THEY HAVE ON-FARM STORAGE OR COMMERCIAL STORAGE THAT YOU SHOULD LOOK AT LDP'ING YOUR CORN CROP IN GOOD TIME, BUT LOOK AT SELLING THE CARRY IN THE MARKET INTO NEXT SUMMER AND WAITING FOR THE BASIS TO TIGHTEN.

Pearson: OKAY, SO HOLD ONTO THE CASH IN ONE WAY SHAPE OR FORM.

Golly: Right.

Pearson: AND GO BACK ON THE BOARD AND OWN IT THERE AND TAKE ADVANTAGE OF THAT CARRY.

Golly: RIGHT.

Pearson: ALL RIGHT. LDP'S ARE RUNNING 30 CENTS IN SOME AREAS. IT VARIES AROUND THE COUNTRY. YOU'D GO AHEAD AND TAKE THAT?

Golly: YES, WE ARE LOOKING AT LDP'ING IN THIS TIME VERY SOON.

Pearson: ALL RIGHT. LET'S TALK ABOUT FURTHER ON DOWN THE ROAD. SO IF YOU'RE SAYING WE'RE GOING TO HOLD ONTO THIS CROP, YOU MUST THINK DEMAND LOOKS PRETTY GOOD FOR THIS CROP.

Golly: WE DO THINK DEMAND LOOKS VERY GOOD, ACTUALLY. AND I'D LIKE TO TALK A LITTLE BIT ABOUT THE ETHANOL INDUSTRY. WE'VE GOT ABOUT 70 ETHANOL PLANTS THAT ARE EITHER UNDER CONSTRUCTION OR IN THE PLANNING STAGES RIGHT NOW. ETHANOL PRODUCTION WAS UP ABOUT 22 PERCENT FROM LAST JULY, SO I THINK ETHANOL IS GOING TO BE A GREAT DEMAND BASE FOR THE CORN IN THE FUTURE.

Pearson: WELL, THAT'S A POSITIVE. WE NEED ALL THE USAGE WE CAN GET WITH 11.6-BILLION-BUSHEL CORN CROP. ALL RIGHT. LET'S TALK ABOUT SOYBEANS. THE SOYBEAN HARVEST IS WRAPPING UP IN MOST OF THE SOYBEAN BELT. WE HIT A NICE BUMP UP THIS WEEK. WOULD YOU MAKE SALES?

Golly: WE ARE LOOKING ACTUALLY OUT BETWEEN 30 AND 60 DAYS BEFORE WE MAKE SALES. WE'RE RECOMMENDING THAT FARMERS PUT THEIR BEANS UNDER LOAN RIGHT NOW AND WAIT FOR A RALLY IN THE MARKET BEFORE THE OVERWHELMINGLY BEARISH NEWS TAKES OVER. SO WE'RE GIVING IT A LITTLE BIT OF TIME BEFORE WE'LL MAKE SALES.

Pearson: ALL RIGHT, SO YOU'RE KIND OF HOPING FOR A POST-HARVEST BOUNCE AND MAKE SOME SALES THERE?

Golly: THAT'S CORRECT.

Pearson: ALL RIGHT. AT THIS STAGE OF THE GAME, IN SOME AREAS THERE'S AN LDP. IN SOME THERE'S NOTHING TO TALK ABOUT. WHAT'S YOUR FEELING THERE?

Golly: THE LDP ISN'T VERY PREVALENT RIGHT NOW, AND FARMERS DON'T THINK THE LDP'S ARE VERY ATTRACTIVE, SO WE'RE JUST SEEING A LOT OF BEANS GO INTO STORAGE.

Pearson: SO IF YOU'VE GOT ON-FARM STORAGE, YOU'RE AHEAD OF THE CURVE THERE TOO.

Golly: THAT'S CORRECT.

Pearson: ALL RIGHT. SO THIS COULD BE A YEAR WHERE THE STORAGE SPACE RUNS OUT.

Golly: I THINK SO.

Pearson: ALL RIGHT. WHAT'S YOUR FEELING GOING FORWARD ON THE SOYBEAN CROP?

Golly: ON THE SOYBEAN CROP FOR FUTURES WISE, WE THINK WE COULD TRY AND -- WE'D LIKE TO SEE IF WE CAN GET UP TO THE 540 AREA. IF WE CAN GET UP THERE, I THINK THAT WE CAN TRY AND FILL THE GAP LEFT AT 594 TO 608 AREA. SO I THINK THERE COULD BE A GOOD RALLY IN HERE.

Pearson: OKAY. SO, YEAH, YOU'RE NOT IN ANY BIG HURRY TO SELL.

Golly: NO.

Pearson: ALL RIGHT. THE SOYBEAN MARKET, WHAT'S GOING TO DRIVE THIS THING? WHAT'S GOING TO BE THE PUSH BEHIND THE SOYBEAN MARKET? YOU TALKED ABOUT ETHANOL FOR CORN. WHAT ABOUT FOR BEANS?

Golly: I THINK THE DRIVE FOR THE SOYBEAN MARKET IS ACTUALLY GOING TO BE THAT FARMERS ARE NOT SELLING, AND WE'RE GOING TO SEE BASIS CONTINUE TO TIGHTEN IN HERE.

Pearson: I KEEP HEARING ABOUT THIS SOUTH AMERICAN CROP, ERIN. DOES THAT CONCERN YOU WHEN IT COMES TO MARKETING NEXT SPRING?

Golly: I THINK IT SHOULD CONCERN EVERYBODY. AND I THINK WE'RE JUST GOING TO HAVE TO WAIT A LITTLE BIT, TIME TO SEE HOW THEIR CROP DOES. BUT WEATHER CONDITIONS ARE VERY GOOD DOWN THERE.

Pearson: IF THE SOYBEAN CROP IN BRAZIL COMES IN BIG AND WE HAVE -- WE'VE GOT A BIG NUMBER COMING IN THIS YEAR, LONG TERM WHAT'S YOUR OUTLOOK FOR SOYBEANS?

Golly: WE THINK THAT DEMAND WILL REALLY KEEP UP WITH THE SOYBEAN PACE AND THE LARGE PRODUCTIONS THAT WE'RE SEEING. WE'RE GOING TO NEED TO SEE LARGE PRODUCTIONS TO KEEP UP WITH THE DEMAND PACE AROUND THE WORLD.

Pearson: SO YOU'RE FRIENDLY TO THE BEANS.

Golly: YES, WE ARE.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. THEY DIDN'T HAVE A GOOD WEEK THIS WEEK. THERE WAS SOME PRESSURE THERE. THERE SEEMS TO BE PLENTY OF WHEAT AROUND THE WORLD.

Golly: YEAH, THERE IS ACTUALLY A LOT OF WHEAT, AND EXPORTS HAVE BEEN ON THE RISE IN THE WHEAT MARKET. I KNOW THAT THE AUSTRALIAN WHEAT MARKET HAS BEEN DETERIORATING VERY QUICKLY, BECAUSE THEY HAVE A LOT OF HOT TEMPERATURES AND DRY CONDITIONS. THEY NEED TO GET RAIN SOON, OTHERWISE THEIR CONDITIONS WILL DETERIORATE. KEEP IN MIND THAT AUSTRALIA IS THE SECOND LARGEST WHEAT EXPORTER IN THE WORLD, SO IF THEY DO HAVE PROBLEMS, LOOK FOR THE UNITED STATES AND CANADA TO GAIN SOME MARKET SHARE IN THE EXPORT MARKET.

Pearson: ALL RIGHT. WHAT'S YOUR STRATEGY FOR WHEAT?

Golly: WE THINK CHICAGO WHEAT WILL TRADE AROUND THE 360 TO 375 AREA AND POSSIBLY UP TO THE 420 AREA IF WE GET SOME GOOD DEMAND IN HERE.

Pearson: OKAY. SO AGAIN, SOME PRETTY POSITIVE TARGETS THERE FOR -- YOU'RE PRETTY POSITIVE ALL THE WAY AROUND, ERIN.

Golly: [LAUGHS] I'M SORRY.

Pearson: NO, YOU DON'T HAVE TO APOLOGIZE FOR BEING POSITIVE. THAT'S GREAT. NOW, I ALSO WANTED YOU TO COMMENT ON THE COTTON MARKET. WE TALKED ABOUT IN THE SHOW, IT REALLY HASN'T DONE MUCH. A BIG COTTON CROP AND, OF COURSE, PLENTY OF COTTON AROUND.

Golly: RIGHT. AND EXPORTS ARE FORECASTED TO RISE IN HERE. A LOT OF COTTON IS GETTING PUT UNDER LOAN, SO I THINK THE BASIS IS GOING TO CONTINUE TO TIGHTEN. THE WTO SITUATION IS REALLY UP IN THE AIR YET, SO I DON'T THINK PRODUCERS KNOW WHERE THEY SIT ON IT.

Pearson: ALL RIGHT. LET'S TALK ABOUT LIVESTOCK AND LIVESTOCK FEED NEEDS. IF YOU'RE A LIVESTOCK PRODUCER OUT THERE AND YOU'RE LOOKING AT WHAT'S HAPPENING WITH CORN PRICES CURRENTLY AND SOYBEAN PRICES AND IF, AS YOU'RE PROGNOSTICATING, IF IT HAPPENS WHERE PRICES STRENGTHEN THAT MUCH, WOULD YOU BE LOCKING IN FEED NEEDS?

Golly: WE WOULD BE LOOKING AT LOCKING IN FEED NEEDS JUST BECAUSE THE PRODUCTS ARE SO CHEAP IN THIS AREA. I THINK IT'S VERY PROFITABLE TO LOCK IN FEED NEEDS.

Pearson: ALL RIGHT. YOU MENTIONED THE DEMAND AS FAR AS THE GRAIN SIDE. YOU MENTIONED ETHANOL. YOU ALSO MENTIONED THE POSITIVE END FOR SOYBEAN MEAL. WHERE IS THAT SOY DEMAND GOING TO COME FROM.

Golly: I THINK THE SOY DEMAND IS ACTUALLY GOING TO COME FROM CHINA. WE'RE SEEING A LOT OF DEMAND COME OUT OF THERE, SO I THINK IF WE CAN GET SOME ISSUES RESOLVED, WE'LL SEE A LOT OF OVERSEAS TRADE.

Pearson: ALL RIGHT. SO HANG ON IS THE WORD FROM ERIN.

Golly: AND ALSO DOMESTIC USE WILL BE UP ANYWAY, WITH LARGE HOG NUMBERS.

Pearson: ALL RIGHT. LET'S GET OVER TO LIVESTOCK. LET'S TALK ABOUT FED CATTLE PRICES FIRST. IT'S BEEN A GOOD YEAR, 2004, FOR THE FED-CATTLE BUSINESS. DESPITE SOME TERRIBLE SETBACKS, THE SETBACK WITH BSE ABOUT TEN MONTHS AGO IN THIS COUNTRY, THE SETBACK WITH THE CANADIAN SITUATION, NOW CATTLE PRODUCERS, WE'RE LOOKING AT A REALLY GOOD YEAR. WE TALKED EARLIER IN THE SHOW ABOUT CONCERNS ABOUT THE FUTURE. NOW, WHAT'S YOUR OUTLOOK FOR THIS FED CATTLE MARKET?

Golly: WELL, PRODUCERS HAVE BEEN REALLY WAITING FOR A LARGE RALLY TO UNFOLD THAT IS CONTINUING TO BE TWO TO THREE WEEKS AWAY, AND THEY'VE BEEN FEEDING THEIR CATTLE A LOT LONGER THAN THEY USUALLY WOULD TRYING TO CATCH US UP IN THE MARKET. WE THINK THAT CATTLE ARE GOING TO NEED TO SEE SOME KIND OF WASHOUT TO GET THROUGH THESE HEAVY SUPPLIES THAT ARE IN FRONT OF US. I THINK THE CATTLE MARKET WILL BE GOOD, BUT FOR IT TO GET REAL GOOD, WE'RE GOING TO NEED SOME KIND OF WASHOUT WHETHER IT BE IN FUTURES OR CASH.

Pearson: WE TALKED ABOUT THE USDA REPORT, A REAL LOW MARKETING NUMBER COMPARED TO A YEAR AGO.

Golly: RIGHT. AND THE CATTLE-ON-FEED CAME OUT AT 103, WHICH WAS A LITTLE BIT HIGHER THAN WHAT PEOPLE EXPECTED, SO IT JUST CONFIRMS WHAT WE'RE SEEING OUT IN THE MARKETS.

Pearson: OKAY. SO GOING FORWARD, FED CATTLE STRATEGY WISE, WHAT WOULD YOU TELL A PRODUCER OUT THERE?

Golly: WE'RE TELLING PRODUCERS TO TRY AND STAY AS CURRENT AS THEY CAN, BUT IT'S REAL HARD BECAUSE PEOPLE KEEP WAITING FOR A RALLY IN THIS THING, BUT TRY TO STAY CURRENT. YOU KNOW, FEED COSTS ARE REAL CHEAP RIGHT NOW, AND IT'S EASY TO FEED THEM HEAVIER.

Pearson: YOU BET. AND THAT'S ALWAYS BEEN OUR PROBLEM IS NOT STAYING CURRENT. NOW, LET'S TALK ABOUT FEEDER CATTLE. THIS CALF MARKET HAS BEEN REALLY STRONG, ERIN. I MEAN ALL THROUGHOUT THE COUNTRY, THIS CALF MARKET HAS BEEN STRONG. YOU STARTED LOOKING AT THE MATH, AND THAT'S PART OF THE REASON WHY GUYS ARE LEAVING THOSE FED CATTLE IN THERE TO HEAVIER WEIGHTS BECAUSE THEY DON'T WANT TO STEP UP AND BUY THESE FEEDERS. WHAT DO YOU TELL THEM?

Golly: I THINK THE FEEDER CATTLE MARKET IS GOING TO STAY STRONG IN HERE. WE'VE GOT GREAT DEMAND RIGHT NOW FOR FEEDER CATTLE AND CHEAP INPUT COSTS. I THINK UNLESS THERE'S A PSYCHOLOGICAL BREAK OF THE LIVE CATTLE MARKET, I THINK FEEDER CATTLE ARE GOING TO STAY STRONG.

Pearson: OKAY. STRATEGY WISE, AS FAR AS THE PRODUCER IS CONCERNED, STEP UP AND START TAKING THEM?

Golly: YES.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET. I WANT TO GO SOME IN DEPTH ON THIS HOG MARKET. WE TALKED EARLIER IN THE SHOW ABOUT BIGGER FARROWINGS, BIGGER NUMBERS NEXT YEAR. THE HOG MARKET HAS BEEN GOOD. WE'VE HAD THAT NICE RUN. WE'VE BEEN KILLING A HUGE NUMBER OF HOGS, A COUPLE MILLION HEAD OF HOGS A WEEK, AND YET WE'VE BEEN ABLE TO MAINTAIN THESE PRICES. GIVE US YOUR OUTLOOK. WHAT'S AHEAD FOR THIS HOG MARKET, AS WE GO INTO 2005.

Golly: WELL, DEMAND HAS BEEN THE CATALYST FOR THE HOG MARKET THIS YEAR. AND I THINK DEMAND HAS GOT TO REALLY STEP UP HERE AND KEEP UP WITH THESE LARGE SLAUGHTER PACES WE'RE SEEING. WE THINK THE SLAUGHTER PACES ARE GOING TO CONTINUE TO STAY LARGE. AND ONE OTHER THING TO WATCH IS DISEASES HAVEN'T BEEN VERY PREVALENT IN THE HOG HERDS THIS YEAR, AND THAT'S REALLY ADDING TO THEIR PRODUCTION NUMBERS. WHAT WE'RE RECOMMENDING TO PRODUCERS IS TO PURCHASE PUTS TO CAPTURE YOUR PROFITABILITY RIGHT NOW BECAUSE THEY'RE FORECASTING PRICES TO BE 5 TO 10 PERCENT BELOW -- NEXT YEAR, 5 TO 10 PERCENT BELOW THIS YEAR.

Pearson: ALL RIGHT. SO YOU'D RECOMMEND SOME KIND OF AN OPTION STRATEGY.

Golly: RIGHT.

Pearson: TALK A LITTLE BIT MORE ABOUT THAT.

Golly: I THINK WE NEED TO LOOK AT NEXT SUMMER, ACTUALLY NEXT SPRING AND SUMMER, AND REALIZE YOUR PROFITABILITY OUT THERE. AND I KNOW THIS IS A DEMAND DRIVEN COMMODITY RIGHT NOW, AND WE DON'T WANT TO PUT A TOP ON YOUR OPTIONS RIGHT NOW, SO BUYING PUTS IS JUST A LOGICAL CHOICE.

Pearson: ALL RIGHT. DO YOU AGREE WITH WHAT USDA IS SAYING, A 1-PERCENT INCREASE IN FARROWINGS, OR DO YOU THINK IT COULD BE LARGER THAN THAT?

Golly: I THINK IT'S GOING TO BE RIGHT AROUND THAT AREA.

Pearson: ALL RIGHT. WHAT ARE YOU SEEING FROM YOUR PORK CLIENTS THIS YEAR WHO ARE TALKING TO YOU WHO MAY BE LOOKING AT EXPANSION, AS YOU GO INTO -- WE'VE HAD THIS NICE MOVE HERE THIS SUMMER.

Golly: WE HAVEN'T SEEN A LOT OF OUR CLIENTS EXPANDING YET. YOU KNOW, THERE IS A LOT OF TALK AROUND THE INDUSTRY THAT PEOPLE ARE EXPANDING, BUT WE HAVEN'T SEEN IT IN OUR AREA.

Pearson: AS YOU GO FORWARD IN THE LIVESTOCK BUSINESS, YOU'VE GOT A FAIRLY POSITIVE OUTLOOK THERE, WITH THE EXCEPTION, PERHAPS, OF BEEF CATTLE IF WE DON'T GET CURRENT. THE HOG MARKET, YOU'RE FAIRLY FRIENDLY THERE. THE FEEDER CATTLE MARKET, YOU SAY, IS GOING TO STAY FAIRLY STRONG. DO YOU SEE KIND OF A MAJOR SHIFT AS FAR AS COMMODITIES ARE CONCERNED, WHERE WE'RE SEEING MORE DOLLARS COMING IN AND DEMAND SETTING ITSELF BACK UP DESPITE BIG SUPPLIES?

Golly: WELL, WE ARE TRADING IN A WORLD COMMODITY PLACE NOW, AND I THINK WE'RE GOING TO MOVE TO NEW LEVELS IN ALL COMMODITIES AS GLOBAL DEMAND REALLY AFFECTS US.

Pearson: SO SOME GOOD NEWS OUT THERE AS FAR AS THE TRADE PICTURE IS CONCERNED.

Golly: YES.

Pearson: AND GOOD NEWS FOR U.S. AGRICULTURE. ERIN GOLLY, THANK YOU SO MUCH. AND THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM ERIN ON JUST WHERE THESE MARKETS MIGHT BE HEADED, THEN BE SURE TO CHECK THE STREAMING AUDIO ON 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 LEARN ABOUT THE FORTITUDE NECESSARY TO BE A FIFTH-GENERATION RANCHER IN THE RUGGED OUTBACK OF WYOMING. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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