Iowa Public Television

 

Market Analysis: Oct 01, 2004

posted on October 1, 2004


The prospect of bumper crops continues to be the key factor in the markets these days.

For the week, nearby wheat futures lost more than 18 cents, while December corn was up fractionally.

Soybeans this week fell to their lowest level since July of 2003. But by week's end, concerns over an untimely frost led to a rally.

For the week, November beans gained more than 10 cents. The nearby meal contract advanced $.80 per ton.

The cotton market continues to

weaken and this week it plummeted 1.40.

In livestock, the October live cattle contract gained 1.40. Nearby feeders were up 40 cents. But the October lean hog contract retreated by more than a dollar and a half.

In the financials, Comex gold gained $11.40 an ounce. The Euro was up 144 basis points against the dollar. And the CRB Index advanced 6.25 points to close at 284.75.

Here now to lend us their insight on these and other trends are two of our regular market analysts, Walt Hackney and Doug Jackson. Welcome back.

Market Analysis: Oct 01, 2004

Jackson: HI, MARK.

Pearson: DOUG, LET'S MOVE OVER TO THIS CORN MARKET. IT'S BEING HARVESTED RIGHT NOW. ANECDOTALLY, IT SOUNDS LIKE AN AWFULLY GOOD CROP OUT THERE.

Jackson: MARK, WE HAD A WELL-FOLLOWED PRIVATE ANALYST, OF COURSE, ABOUT A WEEK AGO SUGGEST THE NATIONAL YIELD ABOUT 7 BUSHELS AN ACRE BETTER THAN THE GOVERNMENT'S LAST ESTIMATE IN SEPTEMBER. AND THERE'S ENOUGH ANECDOTAL REPORTS OF RECORD YIELDS, FABULOUS YIELDS, YIELDS FAR BEYOND ANYBODY'S IMAGINATION THAT THE INDUSTRY IS NOT WILLING TO DISCOUNT THE POSSIBILITY THAT THAT PRIVATE ANALYST HAS ESSENTIALLY GOT THE ESSENCE OF THIS THING RIGHT. WE'LL BE PUTTING OUT SOME CROP ESTIMATES LATER NEXT WEEK, AS WILL OTHER PRIVATES, AND THEN WE'LL GO INTO THE GOVERNMENT REPORT OF THE 12TH. BUT THE MARKET IS ALREADY ANTICIPATING AND FACTORING IN THE PROSPECTS OF A BIGGER NUMBER, AND THE QUESTION SIMPLY IS JUST HOW BIG. CORN IS CHEAP, HOWEVER, VERSUS ANY KIND OF HISTORICAL STANDARD. THE WORLD SUPPLY/DEMAND SITUATION IS NOT THAT OVERSUPPLIED. WE NEEDED THIS KIND OF A RECORD CROP TO STABILIZE AND REBUILD INVENTORY SLIGHTLY. BUT THE PROSPECTS, AMAZINGLY, AFTER KNOWING THAT WE HAD A RECORD DEMAND, THAT WE NEEDED A RECORD CROP, IT LOOKS LIKE IN FACT WE'VE GOT THAT. AND WE MAY BE IN A 10-CENT TRADING RANGE ALL WINTER AND INTO SPRING, MARK, AND A SITUATION THAT'S FAR DIFFERENT THAN WHAT COULD HAVE BEEN A POSSIBILITY IF IT HAD HAD ANY KIND OF A WEATHER PROBLEM. BUT IT LOOKS LIKE WE NEEDED A RECORD YIELD AND WE'VE GOT IT.

Pearson: ALL RIGHT. WE'RE IN THAT KIND OF A TRADING RANGE. WHAT DO YOU RECOMMEND RIGHT NOW? LDPs ARE PRETTY FAT. SHOULD WE TAKE ADVANTAGE OF THAT NOW AND THEN SIT ON THE CORN?

Jackson: A LOT OF PEOPLE WILL DO THAT, MARK, TRY TO PICK A BOTTOM IN THIS MARKET. AND, YOU KNOW, WHEN WE SEE BASIS RECOVERY AFTER HARVEST THAT HELPS NARROW THAT LDP, THAT'S OKAY. BUT IT'S NOT GOING TO BE A GET-RICH STRATEGY. AND REALLY, FOR THOSE THAT SUSPECT THAT THIS THING COULD BE A LOT BIGGER, HISTORICALLY WE DON'T FIND THAT REVELATION. WE DIDN'T FIND IT IN '94. WE DIDN'T FIND IT IN '92. WE DON'T GET THAT FULL CROP NUMBER UNTIL NOVEMBER. PEOPLE MIGHT WANT TO DELAY A LITTLE BIT, AT LEAST GET THE OCTOBER CROP REPORT UNDER OUR BELT AND SEE WHAT WE'RE REALLY DEALING WITH HERE.

Pearson: IN TERMS OF THE SOYBEAN MARKET, WE SAW SOME PRESSURE THERE. IT BACKED OFF SOME. CONCERN ABOUT FROST, TALK ABOUT THAT. HOW CONCERNED ARE YOU ABOUT THESE COLD TEMPERATURES OVERNIGHT IN THE NORTHERN FRINGES OF THE CORN BELT?

Jackson: IT LOOKS LIKE WE'RE GOING TO GET A FROST SOMETIME BETWEEN SATURDAY AND NEXT TUESDAY, A FROST DATE THAT'S GOING TO BE A FEW DAYS LATER THAN A NORMAL FROST DATE. WE NEEDED A WARM SEPTEMBER. WE GOT IT. THE MARKET DOESN'T THINK WE'RE GOING TO HAVE A MAJOR PROBLEM OR IMPACT, AND YET WE'D ESTIMATE THAT POTENTIALLY 800 MILLION BUSHELS OF CORN AND MAYBE 200 MILLION BUSHELS OF BEANS ARE NOT MATURE AS OF THIS WEEKEND'S FROST. COULD YOU LOSE 10 PERCENT; COULD YOU LOSE 20 PERCENT? WE'RE GOING TO BE GUESSING THIS ALL THE WAY INTO WINTER. AND YET AGAIN, WITH THE PRIVATE ANALYSTS SUGGESTING A MUCH LARGER CROP, RIGHT NOW THE MARKET DOESN'T THINK THE FROST DAMAGE IS GOING TO BE THAT SIGNIFICANT.

Pearson: ALL RIGHT. SALES STRATEGIES ON SOYBEANS?

Jackson: MARK, WE THINK THE DOWNSIDE POTENTIAL IS STILL SUBSTANTIAL. WE'VE HAD THREE INSTANCES SINCE 1999, WHEN WE'VE TRADED WELL BELOW $5. TWO OF THOSE INSTANCES WERE LESS BEARISH THAN WHAT WE THINK THIS YEAR WILL BE. IF WE HAVE A 40 YIELD OR BETTER, WHICH WE THINK IS VERY REASONABLE, CARRYOUT IS GOING TO BE 300 TO 350 MILLION. YOU PUT A THREE IN FRONT OF THE CARRYOUT IN THE UNITED STATES IN A MARKETING LOAN PROGRAM, AND WE CAN GO RIGHT BACK TO THE 430, 450 KIND OF FUTURES PRICES THAT WE SAW IN 2001 AND 2002. YOU'VE GOT A POSSIBILITY THAT WESTERN HEMISPHERE PRODUCTION WILL BE UP 35 MILLION TONS. DEMAND ONLY GOES UP 10 MILLION TONS A YEAR. IT DOESN'T TAKE MUCH ANALYSIS THERE TO SEE THAT WE COULD REBUILD THESE OILSEED SUPPLIES DRAMATICALLY. THE NORTH AMERICAN AND SOUTH AMERICAN FARMER HAS SOLD NOTHING AHEAD. WE'VE GOT THE POTENTIAL HERE FOR SUBSTANTIAL ADDITIONAL DOWNSIDE. SO IF YOU THINK THE YIELD IS ABOVE 40 BUSHELS AN ACRE, WE MIGHT STILL MAKE SOME SALES NOW AND EXPECT TO PICK UP A MUCH, MUCH BIGGER LDP PAYMENT LATER ON. THOSE THAT ARE FORECASTING THESE MUCH HIGHER PRICES, WE CAN'T IMAGINE WHAT THEY'RE THINKING, UNLESS YOU'RE SIMPLY GOING FOR THE POSSIBILITY OF A CATASTROPHIC DROUGHT IN SOUTH AMERICA. ANYTHING IS POSSIBLE BUT I THINK YOU'RE BETTING AGAINST THE ODDS WITH THE POTENTIAL THAT THERE'S A LOT MORE DOWNSIDE FROM WHERE WE ARE EVEN TODAY. WE'RE GOING TO TRADE WELL BELOW LOAN LONGER TERM.

Pearson: REAL QUICK, WHEAT MARKET UNDER SOME PRESSURE THIS WEEK.

Jackson: THE BIG SURPRISE THIS WEEK IN THE STOCKS AND WHEAT PRODUCTION NUMBER WAS THE SPRING WHEAT CROP WAS ABOUT 40 MILLION BUSHELS BIGGER, A RECORD SPRING WHEAT CROP, DESPITE ALL THE COLD, WET MALADIES THAT APPARENTLY WE HAD. SO EVEN THOUGH WE'VE GOT SOME PROBLEMS WITH A LATE, WET CROP IN CANADA, WITH QUALITY PROBLEMS, IT'S JUST THE U.S. CROP IS JUST GOING TO ADD TO CARRYOUT. THERE'S PROBABLY 30, 40 CENTS DOWNSIDE IN THE DEFERRED WHEAT FUTURES. WE'VE GOT A CARRYOUT THAT'S PROBABLY ABOUT 600 MILLION IN THE U.S., A HUGE CROP IN EUROPE. SO WHEAT PROBABLY LOSES THE CORN AND DRIFTS LOWER LONG TERM.

Pearson: EXCELLENT. ALL RIGHT, DOUG. THANK YOU SO MUCH. LET'S GO OVER AND TALK LIVESTOCK NOW. WALTER, I WANT TO TALK ABOUT THE FED-CATTLE MARKET. IT'S HELD IN THERE. WE'VE SEEN SOME PRESSURE. THE LAST TIME YOU WERE ON, YOU WERE CONCERNED ABOUT THIS BACKING UP CATTLE, WHICH THERE WERE A LOT OF REASONS TO DO THAT AND YOU WEREN'T ALL THAT NEGATIVE ON THE PEOPLE DOING IT.

Hackney: THE FACT IS WE BACKED UP A LOT OF CATTLE THAT SHOULD HAVE BEEN IN THE MARKET AS WE SPEAK. WE'VE GOT OVERWEIGHT CATTLE, PARTICULARLY IN THE CORN BELT. WE'VE GOT AN INVENTORY THAT IS NOT CURRENT IN THE FEEDLOTS. AND THE F.I.S., THE FEDERAL INSPECTED SLAUGHTER, IS UNDER WHERE IT SHOULD BE IF BEEF DEMAND WOULD SUPPORT IT. BUT IT DOES NOT SEEM TO SUPPORT 130- OR -35,000-HEAD-A-DAY KILL. SO WE'RE STRUGGLING AT 120-, 125,000 A DAY. AS A RESULT, WE'RE BACKING UP CATTLE IN OUR FEEDLOT ENVIRONMENT. DRESSED BEEF HAS GOT MORE COMPETITION, AS WE SPEAK, THAN IT APPEARS IT CAN HANDLE FROM PORK AND POULTRY IN THE RETAIL END OF IT. AS A RESULT, THEY'RE FEATURING THE PORK. THEY'RE FEATURING THE POULTRY. BUT THERE ARE NO SIGNIFICANT REAL MEANINGFUL FEATURES ON THE BEEF. SO WE'VE GOT A PROBLEM, AS WE SPEAK; 81, 82 CENTS THIS WEEK PROBABLY CAUGHT THE MAJORITY OF THE TOPSIDE SALES. SOME REPORTS OF $83 IN THE SOUTHWEST FEEDLOTS TODAY. I DON'T KNOW THAT THAT WILL MEAN VERY MUCH GOING INTO NEXT WEEK. WE'RE GOING TO COME INTO THE END OF THE WEEK WITH A 600-, 625,000-HEAD KILL, COMPARED TO A TWO MILLION OR BETTER HOG KILL THIS WEEK. YOU CAN'T BACK BEEF UP FAR ENOUGH TO GET IT TO COMPETE FIGURATIVELY WITH THE -- WITH THE PORK AND THE BEEF.

Pearson: LET'S TALK ABOUT THESE FEEDER CATTLE, WALT. I MEAN DOUG JUST GAVE A SCENARIO FOR CORN THAT SOUNDED PRETTY NEGATIVE PRICE-WISE THERE. THAT'S GOT TO BE GOOD NEWS FOR YOUR CATTLE FEEDERS OUT THERE.

Hackney: OH, IT IS BUT, MARK, THERE'S AN ADAGE: CHEAP CORN NEVER REALLY SUPPORTED A HIGH-PRICED CATTLE MARKET, ACTUALLY -- OR HOG MARKET. LIGHT CATTLE PROBABLY ARE AS GOOD A BUY IN OUR INDUSTRY RIGHT NOW AS ANY ONE SPECIES OF CATTLE. YEARLINGS FED $1.50 CORN ARE STILL GOING TO HAVE A BREAK-EVEN OF SOMETHING BETTER THAN $90 A HUNDREDWEIGHT WEIGHING 1,300. THERE IS NOTHING IN THE DEFERRED MONTHS THAT WOULD GIVE YOU AN INDICATION OF THAT BEING A GOOD, SENSIBLE BUY. CALVES, YOU'VE GOT A TERM TIME ON THOSE. AND WITH SILAGE AS BEING CUT AS WE SPEAK WITH POTENTIALLY A BUCK AND A HALF CORN, THAT CALF, IF YOU HAVE THE CHANCE OF PUTTING 700 POUNDS ON HIM OR 800 POUNDS ON HIM, USING THAT PRICE RATION, YOU'VE GOT AN OPPORTUNITY TO BACK THAT LIGHTWEIGHT ANIMAL UP CONSIDERABLY.

Pearson: LET'S TALK ABOUT THE COMPETITION FOR BEEF, AND THAT'S PORK. SURPRISING MOOD. WALT, WE'RE KILLING BIG NUMBERS ON HOGS DAILY, AND WE'VE BEEN ABLE TO RALLY UP UNTIL THIS WEEK.

Hackney: I GUESS THE EXPORT INDUSTRY HAS SUPPORTED THAT FOR US. BEYOND THAT, OUR DOMESTIC USAGE, EVEN AS ACTIVE AS IT IS, COULD NOT HAVE SUSTAINED TWO MILLION HEAD A WEEK FROM WEEK IN AND WEEK OUT. SO I WOULD SUGGEST THAT EXPORTS ARE THE DRIVING FORCE BEHIND OUR HOG MARKET.

Pearson: AND A REAL QUICK THOUGHT; WILL THEY CONTINUE?

Hackney: YES, I THINK THEY WILL.

Pearson: THANK YOU SO MUCH, WALT AND DOUG. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM OUR EXPERTS 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 BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE HOW AN URBAN AGRICULTURE PROGRAM IS TURNING EMPTY LOTS INTO PRODUCTIVE GARDENS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


Tags: agriculture commodity prices crops markets news