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Market Analysis: Oct 15, 2004

posted on October 15, 2004


Despite record production estimates, favorable export sales this week helped stabilize grain prices.

For the week, nearby wheat futures gained 16 cents. And December corn was up 1.5 cents.

Soybeans plummeted to contract lows following the USDA production report. For the week, November beans were down 14.5 cents. And the December meal contract lost $7.20 per ton.

The fiber market appears to have already factored in a record harvest. For the week, cotton actually posted a gain of more than a dollar.

In livestock, the October live cattle contract was up 1.05. Nearby feeders gained $1.02. And the December lean hog contract declined by 15 cents.

In the financials, Comex gold lost $4.40 an ounce. The Euro was up 68 basis points against the dollar. And the CRB Index retreated 1.15 points to close at 286.45.

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: Oct 15, 2004 Hjort: THANK YOU, MARK.

Pearson: WELL, WE HAVE A LITTLE BIT OF CLARITY NOW IN THIS CORN AND SOYBEAN MARKET. CERTAINLY AN 11.6-BILLION-BUSHEL CORN CROP WAS ON THE HIGH SIDE, 300 MILLION BUSHEL HIGHER THAN THE AVERAGE TRADE GUESS. BUT AS WE POINTED OUT, THERE IS A POSITIVE STORY OUT THERE TOO, AND THAT IS THE DEMAND SIDE. SIZE IT UP NOW. WE KNOW AT LEAST WHAT THE OCTOBER NUMBERS LOOK LIKE.

Hjort: THE DEMAND IS VERY KEY TO THIS WHOLE THING. THE SUPPLY JUMPING SO SHARPLY, OF COURSE, JUST SHOCKED EVERYBODY. AND I THINK THE MARKET EVEN AS OF FRIDAY WAS STILL KIND OF IN A STATE OF SHOCK. I WOULD EXPECT TO SEE PRICES ON CORN DRIFT A LITTLE LOWER, AT LEAST NOT GO UP VERY MUCH OVER NEXT WEEK OR TWO, ESPECIALLY AS WE TRY TO FIND A PLACE TO PUT THIS RECORD LARGE HARVEST OF CORN, BEANS, ET CETERA. SO I DON'T KNOW THAT WE'VE GOT ANY -- WE CERTAINLY DON'T -- I DON'T LOOK FOR A SPIKE BOTTOM HERE TO HIT BOTTOM AND JUMP RIGHT UP ON THE DEMAND. DEMAND IS VERY STRONG, THOUGH. AND WHEN YOU LOOK AT THE TOTAL WORLD GRAIN PICTURE, IT REALLY POINTS THINGS OUT THERE. A BIG DIFFERENCE BETWEEN THE GRAINS AND THE OIL SEEDS, WHICH WE'LL GET TO LATER IN THE WORLD MARKET, BUT ON THE GRAINS, YEAH, WORLD ENDING STOCKS HAVE RISEN BUT NOT VERY MUCH. THEY'RE STILL HISTORICALLY VERY, VERY TIGHT. NOW, FOR THIS GIVEN YEAR, THIS 2004-2005 MARKETING YEAR, THE CORN MARKET IS GOING TO HAVE TROUBLE. WE'RE NOT GOING TO BE RISING TO THE $3 LEVEL AS WE SEE UP NOW ANYWAY. WE WON'T DO THAT. IF WE COME INTO NEXT YEAR AND HAVE A CROP PROBLEM, MAYBE YOU WOULD THEN, BECAUSE OF THIS VERY, VERY STRONG DEMAND. BUT ON THE OTHER SIDE, THE FUNDAMENTALS AS WE SEE THEM RIGHT NOW WITH THIS HUGE CROP, EVEN WITH THE STRONG DEMAND, IT WOULD SUGGEST THAT PRICES SHOULD DROP DOWN BELOW THE LOWS OF THIS WEEK, 197 DECEMBER FUTURES. HOWEVER, COMMERCIALS WERE THE ONES THAT CAME IN AND BOUGHT THAT MARKET AND STARTED TO BUY IT UP. REMEMBER, THOUGH, COMMERCIALS COME IN AND BUY ON A DAY-BY-DAY BASIS, MAYBE WEEK BY WEEK EVEN. BUT THE SPECULATIVE MARKET IS THERE EVERY DAY. AND IF THEY GET THIS MARKET CRACKING AND TAKING OUT LAST WEEK'S LOWS, THEY'LL PUSH IT DOWN SOME MORE. BUT I DON'T THINK WE GOT A LOT DOWN ON THE DOWN SIDE, BUT IT MIGHT TAKE TWO TO THREE WEEKS TO GET PRICES TO MOVE HIGHER.

Pearson: ALL RIGHT. THIS CORN HARVEST IS REALLY IN FULL SWING NOW. WHAT WOULD YOU TELL A PRODUCER TO DO. I MEAN IT'S GOING TO DEPEND ON THEIR OWN SITUATION. BUT TAKE THE LDP, UTILIZE THE LOAN, MAYBE GET ON THE SIDELINES FOR SIXTY DAYS?

Hjort: RIGHT, ESPECIALLY IF YOU HAVE STORAGE ON THE FARM, A LOAN PROGRAM IS A GOOD IDEA. CASHING LDPs, MAYBE THE WAY TO HANDLE THAT IS INSTEAD OF TRYING TO GO FOR BROKE AT ONE TIME, MAYBE START TO DO IT A LITTLE BIT EACH DAY AS YOU HARVEST AND SO ON. OBVIOUSLY IF YOU HAVE TO SELL THE GRAIN, YOU'RE CASHING THE LDP THAT DAY. BUT THAT'S JUST A GIVEN RIGHT THERE. I DO THINK WE'LL GET A BOUNCE OUT OF HERE EVEN WITH THIS HUGE SUPPLY, PRICE BOUNCE, THAT IS, AFTER HARVEST. IT MAY TAKE A LITTLE LONGER, AND IT CERTAINLY IS NOT GOING TO BE VERY MUCH, BUT IT'S WORTH CASHING THE LDP AND THEN HANGING ONTO THE CORN FOR AT LEAST A FEW WEEKS.

Pearson: ALL RIGHT. AND THEN WHAT ABOUT THE POSSIBILITY FOR SOME STRENGTH COME SPRING?

Hjort: WELL, IN SPRING WE'LL START DEALING WITH OTHER FACTORS, BUT REMEMBER THIS, ON THE SUPPLY SIDE WE'LL DEAL WITH ACRES. THAT'S ALL WE'VE GOT TO DEAL WITH AND, OF COURSE, WEATHER, GROUND MOISTURE, AND THAT SORT OF THING, BOTH FALL AND THE SPRING. BUT THE DEMAND IS HERE TO STAY. DEMAND IS NOT GOING TO FALL OFF. SO IT MEANS THAT WE HAVE TO HAVE VERY HIGH YIELDS WORLDWIDE ON THE GRAINS EVERY YEAR TO STAY AHEAD OF THIS BURGEONING DEMAND. THAT'S A VERY STRONG STATEMENT FOR THE LONG-TERM OUTLOOK FOR GRAINS.

Pearson: LET'S TALK ABOUT SOYBEANS AND, AGAIN, RECORD CROP THERE, RECORD LARGE. AND AGAIN, LARGER THAN WHAT MOST OF THE TRADE WAS EXPECTING. WE SAW THE REACTION THIS WEEK ON THE BOARD. BEANS TOOK A BIG HIT. AND, OF COURSE, THEY'RE TALKING ABOUT BIG ACREAGE DOWN IN SOUTH AMERICA AS WELL. WHAT WOULD YOU TELL A SOYBEAN PRODUCER ABOUT SELLING THAT CROP?

Hjort: WELL, I THINK IT'S MUCH THE SAME AS THE CORN, BUT A DIFFERENT LONG-TERM PICTURE, IN MY BOOK. CASHING LDPs, OF COURSE, HARVESTTIME, THAT'S WORTHWHILE. MAYBE EVEN TAKING THE LOAN ON THAT TOO. BUT WHEN YOU LOOK AT THE LONG TERM ON THE BEANS, THE MOST BEARISH NUMBER THAT CAME OUT ON THIS REPORT, IN MY OPINION, WAS THE WORLD SOYBEAN ENDING STOCK PROJECTION; 59 MILLION TON, 20 MILLION TON MORE THAN THE PREVIOUS RECORD. THAT IS JUST HUGE. AS YOU SAY, A GOOD SHARE OF THAT IS BECAUSE OF THE HUGE INCREASE IN PRODUCTION -- OR PROJECTED FOR SOUTH AMERICA. BUT IT'S THERE AND IT'S PAINTED ON THE WALL AND WE HAVE TO LOOK UP AND LOOK AT THAT ALL THE TIME. SO WHENEVER PRICES START TO RISE ON THE SOYBEANS, THEY'RE GOING TO FIND THAT RESISTANCE. WE IN THE UNITED STATES ARE ENJOYING A VERY STRONG EXPORT MARKET FOR SOYBEANS RIGHT NOW, PARTLY BECAUSE OF THIS RIFT THAT'S STILL GOING ON BETWEEN CHINA AND BRAZIL. AND WE WILL MAINTAIN THAT STRENGTH IN OUR EXPORT MARKET FOR SOME TIME. SO THAT'S GOING TO GIVE US THE AFTER-HARVEST PULL UP IN THIS MARKET. BUT I'D WATCH THAT MARKET VERY CAREFULLY, BECAUSE YOU GET A RUN THERE -- AND SPECULATORS CAN DO THAT; THEY CAN RUN THAT MARKET 30, 40 CENTS IN A GIVEN DAY OR A WEEK. AND TAKE ADVANTAGE OF THAT IN YOUR MARKETING.

Pearson: ABSOLUTELY. WE MENTIONED EARLIER THE RECORD SHORTS THE FUNDS ARE HOLDING, SO THAT COULD SUPPLY. WE WANT TO TALK ABOUT THE WHEAT MARKET. AND AGAIN, A BIG WHEAT CROP. AND IT LOOKS LIKE GOOD YIELDS ALL OVER THE WHEAT BELT.

Hjort: THAT'S RIGHT. IT'S GOOD YIELDS AND IN CANADA TOO. THE ONLY QUESTION IN THE WORLD WHEAT PICTURE IS QUALITY. WE STILL DON'T REALLY KNOW HOW MUCH TOP-GRADE MILLING QUALITY WE HAVE ON THE HARD RED SPRING WHEAT CROP IN THE UNITED STATES AND IN CANADA. THAT COULD BE A PROBLEM, BUT THIS WHEAT MARKET LOOKS VERY GOOD. EXPORTS ARE GOING WELL. THE LOW DOLLAR VALUE ON WHEAT REALLY DOES MAKE A DIFFERENCE IN THE WORLD COMPETITION FOR WHEAT SALES. IT'S NOT SO IMPORTANT FOR SOYBEANS OR CORN EITHER ONE, BUT FOR WHEAT IT'S VERY IMPORTANT. AND THAT DOLLAR VALUE SLIPPED TO NEW LOWS AGAIN THIS WEEK.

Pearson: THAT'S A GOOD POINT. NOW, LET'S TALK ABOUT COTTON. AGAIN, WE TALKED ABOUT A LITTLE STRENGTH IN THAT MARKET THIS WEEK. THERE HAVE BEEN SOME WEATHER CONCERNS BUT BY AND LARGE A BIG COTTON CROP.

Hjort: A HUGE CROP AND THAT'S GOING TO BE THE LONG-TERM PROBLEM THERE. YEAH, WE'LL GET THE SPECULATIVE BOUNCES AND TURNS AND TWISTS IN THIS MARKET, BUT TO GET ANY SIGNIFICANT RALLY IN THAT MARKET LOOKS LONG TERM AT BEST.

Pearson: LET'S TALK ABOUT LIVESTOCK. FED-CATTLE MARKET, AGAIN, PRICES HAVE HELD ON HERE. THE LAST TIME YOU WERE ON, YOU WERE TALKING ABOUT HEAVIER WEIGHT CATTLE POTENTIALLY BEING A PROBLEM. WELL, WE'VE KIND OF STARTED TO SEE THAT HAPPEN NOW. WHAT'S -- AND IT HAS HAPPENED HERE IN THE LAST TWO, THREE WEEKS. WHAT'S AHEAD NOW ON THIS FED-CATTLE MARKET. WHERE ARE WE IN TERMS OF BEING CURRENT?

Hjort: I THINK WE'RE FAIRLY CURRENT. ONE OF THE PROBLEMS WE HAVE IN THE LAST THREE WEEKS AT LEAST IS THAT WE DON'T TRADE VERY MANY CATTLE UNTIL LATE FRIDAY AFTERNOON. AND THEN OVER THE WEEKEND, IT GETS KIND OF MUDDIED AS TO WHAT THE CLEANUP REALLY WAS. AND YOU DON'T GET THE DIALOGUE OUT OF THE FEED YARDS. THE FEW FEEDLOTS THAT I TALK WITH ARE IN FAIRLY GOOD SHAPE, ALTHOUGH THESE WEIGHTS ARE GETTING HEAVIER, BUT I DON'T KNOW THAT THAT'S FROM BACKING UP. I THINK THAT'S JUST THAT PRICES ARE GOOD. THEY'RE MAKING MONEY AT THE CORN -- THE FEED PRICE NOW. SO THEY'RE ADDING A LITTLE MORE DOLLARS ON. THAT GIVES THEM A PROBLEM IN THE LONG TERM, OF COURSE. YOU KNOW, YOU CAN'T BUY FEEDER CATTLE NOW, GO TO THE BOARD AND PROTECT THEM IN THE FEEDLOT. SO IT'S A LONG-TERM PROBLEM FOR THE CATTLE MARKET. BUT IN THE SHORT TERM, WE SHOULD SEE CASH PRICES HOLDING STEADY, MAYBE MOVING HIGHER AS WE GO ON INTO NOVEMBER.

Pearson: OKAY, SO WE'VE HIT OUR POST LABOR DAY LOW. YOU THINK WE SHOULD START CLIMBING OUR OUR WAY OUT.

Hjort: YES, I THINK WE WILL. NOW, THERE WILL BE AN OPPORTUNITY, I THINK, TO DO SOME, AT LEAST, SPOT HEDGING LATER ON, BUT PROBABLY NOT UNTIL WE GET LATE NOVEMBER OR INTO DECEMBER.

Pearson: YOU MENTIONED THE FEEDER CATTLE. THAT MARKET HAS JUST BEEN TOO HOT TO TOUCH, IT ALMOST SEEMS LIKE. HAVE WE COOLED IT OFF SOME?

Hjort: WE STARTED TO AND NOW IN THE FUTURES THIS WEEK, WE PUNCHED OUT A NEW HIGH IN THE NOVEMBER FUTURES. WE DIDN'T QUITE CLOSE THERE BUT VERY CLOSE ON FRIDAY. NOW, THE CASH MARKET HAS NOT FALLEN BACK. IT'S NOT UP AS HIGH AS IT WAS FOR CONTRACTED CATTLE. AND THAT'S GOING TO STRUGGLE A LITTLE BIT PRIMARILY BECAUSE IT'S TIME TO BE MOVING THE CATTLE, AND THEY ARE STARTING TO MOVE. SO I THINK THE FEEDER CATTLE MARKET WILL STAY STRONG, BUT CASH PRICES PROBABLY WILL NOT MOVE MUCH HIGHER THAN THEY ARE RIGHT NOW.

Pearson: ALL RIGHT, LET'S TALK ABOUT HOGS. A BIT OF A SURPRISE EARLY FALL, WHERE THIS HOG MARKET HAS BEEN STRUGGLING NOW FOR THE LAST COUPLE OF WEEKS.

Hjort: THIS HOG MARKET, IT'S A TOUGH ONE. YOU PUT HEDGES ON AND THEY JUST GET STUFFED, YOU KNOW. THEY KEEP GOING RIGHT UP. ON FRIDAY AFTERNOON, FUTURES PRICES WERE LIMIT UP. NOW, THAT WAS BECAUSE OF THE COMMERCE DEPARTMENT MADE THE ANNOUNCEMENT THAT THEY AGREED THAT CANADA WAS DUMPING HOGS INTO THE UNITED STATES. NOW, THAT'S BEEN TALKED ABOUT FOR A LONG TIME, BUT THE INITIAL ANNOUNCEMENT CAME OUT FRIDAY AFTERNOON, ABOUT NOON I GUESS, SO IT PUSHED THOSE PRICES LIMIT UP. SO IF YOU'RE LOOKING AT FUTURES PRICES VERSUS CASH PRICES, YOU GET A WHOLE DIFFERENT PICTURE. CASH PRICES HAVE BEEN ON THE DOWNTREND FOR THE LAST TWO AND A HALF TO THREE WEEKS. FUTURES HAVE BEEN GOING UP AND THEN BOUNCING AROUND QUITE A BIT AND SO ON AND NOW STARTING ON THE WAY BACK UP AGAIN. CASH PRICES I THINK ARE GOING TO BE UNDER PRESSURE AND PROBABLY CONTINUE TO MOVE SIDEWAYS TO LOWER IN THE NEXT MONTH OR MAYBE SIX WEEKS. THEN WE COULD SEE SOME REBOUNDING. BUT IF YOU LOOK AT YOUR DISTANT FUTURES CONTRACTS, YOU HAVE THAT DISCOUNT ALL THE WAY ON OUT THERE. AND THAT IS PROBABLY WHERE THE CASH IS HEADED.

Pearson: SOME GOOD INSIGHTS AS USUAL FROM DOUG HJORT. THANKS, DOUG. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM DOUG 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 HOW A CALIFORNIA MAN INSTILLS RURAL VALUES IN URBAN YOUTH. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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