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Market Analysis: Sep 24, 2004

posted on September 24, 2004


Promising yields, agreeable weather and sluggish demand continue to pressure the grain markets. For the week, nearby wheat futures lost more than 11 cents. December corn fell a dime.

Supply-demand fundamentals also are pressuring soybean prices, as farmers ponder when to take their LDP. For the week, November beans lost more than 29 cents. The nearby meal contract dropped $6.50 per ton.

The cotton market has been in a slow retreat lately and for the week was down another 81 cents.

In livestock, the October live cattle contract lost 98 cents. Nearby feeders gained 50 cents. And the October lean hog contract jumped another $4.42.

In the financials, Comex gold gained $2.00 an ounce. The Euro climbed 81 basis points against the dollar. And the CRB Index advanced nearly three points to close at 278.50.

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

Market Analysis: Sep 24, 2004

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, WE'RE INTO HARVEST, AND YOU CAN CERTAINLY SEE IT. YOU CAN CERTAINLY SEE THE BASIS OUT THERE IN THE COUNTRYSIDE FOR CORN. SOME YIELD REPORTS ARE COMING IN. BY AND LARGE THEY'VE BEEN FAIRLY POSITIVE THROUGHOUT THE CORN BELT. IF YOU'RE A CORN GROWER AND YOU HAVEN'T DONE ANYTHING TO DATE, YOU'RE PROBABLY WATCHING WHAT THE LDP IS DOING LOCALLY AND ALSO WHAT THE BOARD IS DOING, WHICH IS SOFTENING UP. THIS IS NOT REALLY A GOOD TIME TO BE A SELLER.

Pfitzenmaier: YES AND NO. THERE'S OPPORTUNITIES HERE. CERTAINLY THE BIG THING TO WATCH THIS TIME OF THE YEAR AND OVER THE NEXT TWO, THREE WEEKS PROBABLY IS WHEN TO TAKE THAT LDP. UNFORTUNATELY, MOST PEOPLE ARE WORKING ON BEANS, AND THEY DON'T HAVE THAT MUCH CORN TO LDP THAT TIME. BUT I THINK YOU NEED TO TAKE THAT -- WE'RE WELL OVER 30 CENTS. YOU COULD BANG UP AGAINST 40 CENTS, AND YOU'D HAVE TO LOOK PRETTY HARD -- MAYBE EVEN AT 30 CENTS IS FINE. BUT WE'RE IN THE AREAS WHERE I THINK YOU HAVE TO START TO TAKE IT HERE. I THINK THE NEXT THING YOU HAVE TO LOOK AT IS WE'VE JUST GOT THIS TREMENDOUS CARRYING CHARGE IN THE MARKET. YOU KNOW, 20, 30 CENTS OUT THERE IS A PRETTY DARN GOOD RETURN ON YOUR BINS, SO I THINK YOU TAKE THE LDP, YOU SELL THE DEFERRED OUT INTO THE JULY CONTRACT, GIVE YOURSELF A VERY GOOD RETURN ON YOUR BIN, FILL IT UP, AND SIT. IT SEEMS TO ME THAT'S ABOUT THE BEST THING TO DO. IF YOU HAVE TO PAY COMMERCIAL STORAGE, THEN I GUESS I'D BE INCLINED TO TAKE THE LDP AND SELL IT, YOU KNOW, MAYBE REOWN IT ON THE BOARD IF YOU THINK, YOU KNOW, THERE'S SOME UPSIDE POTENTIAL. BUT FOR THE JUST CASH MERCHANDISER AND THE GUY WHO HAS STORAGE ON THE FARM, WITH THOSE KIND OF LDPs AND THOSE KIND OF CARRIES IN THE MARKET, THERE'S NOT MUCH ELSE TO DO.

Pearson: THEY'RE PAYING YOU TO HANG ONTO IT. TALK ABOUT THIS CORN PICTURE GLOBALLY. THIS DEMAND PICTURE IS DECENT.

Pfitzenmaier: YEAH, IT'S OKAY. I THINK USDA IS PROBABLY OVERSTATING EXPORTS A LITTLE BIT FOR THE U.S. BUT CERTAINLY DOMESTICALLY LIVESTOCK NUMBERS ARE OKAY. THAT'S PROBABLY NOT GOING TO CHANGE IT MUCH. THE REAL WILD CARD IN MY MIND DOMESTICALLY IS THE ETHANOL BUSINESS. THAT CERTAINLY IS GROWING IN LEAPS AND BOUNDS, UP 14 TO 17 PERCENT LAST YEAR. PROBABLY WILL BE AGAIN THIS YEAR EXPANSION ON ALREADY EXISTING PLANTS. SO WE CERTAINLY ARE BUILDING A DEMAND BASE, WHICH IS GOING TO MAKE IT IMPORTANT AGAIN NEXT YEAR TO CONTINUE TO PRODUCE A LOT OF CORN. PROBABLY ACREAGE IS GOING TO BE UP A LITTLE BIT NEXT YEAR SINCE CORN CONTINUES TO BE A LITTLE MORE PROFITABLE THAN THE BEANS DO. BUT, YEAH, WE'RE GOING TO -- WHAT'S THE USDA GOING TO END UP WITH A FINAL CROP? IT'S PROBABLY GOING TO BE OVER 11 BILLION BUSHEL THE WAY THESE YIELDS ARE COMING IN HERE.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. OF COURSE, IT LOOKS LIKE A BIG CROP COMING IN THERE AS WELL. FUNDAMENTALS ARE A LITTLE BIT DIFFERENT BECAUSE OF WHAT'S HAPPENING IN SOUTH AMERICA AND WHAT'S GOING TO HAPPEN DOWN THERE. WHAT'S AHEAD? WHAT ARE YOU TELLING A SOYBEAN PRODUCER TO DO?

Pfitzenmaier: WELL, THERE'S BEEN A LOT OF HANDWRINGING IN THE SOYBEAN SIDE OVER WHAT WAS GOING TO HAPPEN IN THE -- YOU KNOW, NORTH OF IOWA AND IN THE NORTHERN BELT THERE. AND EVERY WARM DAY THAT GOES BY HERE KIND OF SOLVES THAT PROBLEM. IT'S KIND OF INTERESTING, THE SEPTEMBER AVERAGE TEMPERATURE WAS HIGHER THAN THE AUGUST AVERAGE TEMPERATURE THIS YEAR, SO THAT REALLY KIND OF BAILED THEM OUT. YOU KNOW, YOU'VE GOT A FEW OF THOSE AREAS THAT KIND OF GOT STUNG THERE IN MID AUGUST, BUT SINCE THEN IT HAS BEEN FAIRLY GOOD. AS YOU MENTIONED SOUTH AMERICA, WE'RE ALREADY ASSUMING A 10-PERCENT INCREASE OVER LAST YEAR'S EXPECTED YIELD, NOT WHAT WE ACTUALLY GOT, WHAT WE EXPECTED TO GET. SO THEY'RE BEING FAIRLY OPTIMISTIC AND FIGURING 66 MILLION METRIC TON WHEN WE ONLY GOT 52.6 OR 8 LAST YEAR. SO THAT'S A PRETTY HEALTHY CHUNK THAT'S ALREADY FACTORED IN. IF THAT COMES TRUE, BEANS ARE GOING TO STRUGGLE. WHAT'S THE U.S. YIELD GOING TO BE? IT LOOKS LIKE IT'S GOING TO BE HUGE. EVERYBODY YOU TALK TO IS EXTREMELY HAPPY WITH THEIR SOYBEAN YIELDS, SO THE USDA IS PROBABLY GOING TO HAVE TO BUMP THAT AGAIN A LITTLE BIT IN THE NEXT REPORT. WE DO HAVE A STOCKS NUMBER OUT ON THE 30TH, AND THAT'S BEEN A BIG QUESTION MARK ALL SUMMER, WHAT ARE OUR STOCKS. SO THAT'S GOING TO BE ONE FOR PEOPLE TO KEEP A CLOSE EYE ON THIS WEEK BECAUSE IT COULD HAVE A MARKET MOVING EFFECT HERE. IF YOU END UP WITH A HUGE CROP UP HERE, SOUTH AMERICA COMES IN AT 66 MILLION METRIC TON LIKE THEY'RE TALKING, THERE'S PROBABLY ANOTHER 75 CENTS DOWN IN BEANS. BUT THOSE ARE A WHOLE LOT OF THINGS THAT HAVE TO FALL IN LINE, PLUS YOU'VE GOT THE WILD CARD IN CHINA. YOU KNOW, WE HAD ALL KINDS OF PROBLEMS MOVING BEANS INTO CHINA LAST YEAR. AND SOME OF THE EXPORTERS WERE A LITTLE DISCOURAGED WITH THAT. YOU'VE GOT BIRD FLU PROBLEMS. IT'S GOING TO HURT THE MEAL SIDE. SO, YOU KNOW, IF ALL OF THOSE THINGS FALL IN LINE, THERE'S A LOT OF DOWNSIDE POTENTIAL IN BEANS, BUT THOSE ARE A LOT OF THINGS THAT HAVE TO FALL IN LINE TOO.

Pearson: ABSOLUTELY. LET'S TALK ABOUT THE WHEAT MARKET. AS THE HARVEST WRAPS UP IN THE GREAT NORTHWEST, IT LOOKS LIKE THERE'S PLENTY OF WHEAT OUT THERE. IT DOESN'T SEEM TO BE A REAL TIGHT SITUATION. WHAT'S AHEAD NOW FOR WHEAT PRICES?

Pfitzenmaier: I THINK WHEAT IS GOING TO STRUGGLE. WORLDWIDE, A LOT OF PEOPLE ARE HAVING A PRETTY GOOD CROP. WE'VE HAD A DECENT CROP, AND THEN YOU LOOK AT ALL THE CORN THAT'S BEING PRODUCED THAT'S GOING TO COMPETE AGAINST THE WHEAT. I THINK WHEAT IS GOING TO STRUGGLE HERE, ALTHOUGH I'M NOT QUITE AS BEARISH ON THAT AS I AM CORN BECAUSE IT SORT OF MADE ITS LOW. I THINK WHEAT IN THIS $3.10 TO $3.20 AREA IS PROBABLY A FAIRLY GOOD VALUE, AND I DON'T SEE A LOT OF DOWNSIDE FOR FROM THAT POINT. AND YOU COULD SEE SOME RECOVERY AFTER WE GET THROUGH THE CORN HARVEST OF, YOU KNOW, WHEAT UP IN THAT $3.30 TO $3.40 RANGE.

Pearson: QUICKLY, TOMM, THE COTTON MARKET, WE'VE GOT ALL THIS HURRICANE ACTIVITY AND SO FORTH. THE MARKET RESPONDED ACCORDINGLY. SOME PRESSURE AGAIN THIS WEEK, EVEN THOUGH WE'VE GOT JEANNIE COMING UP BEHIND IVAN. WHAT'S YOUR TAKE ON COTTON PRICES, AND SHOULD WE BE MAKING SALES?

Pfitzenmaier: WELL, IVAN OBVIOUSLY TURNED OUT TO BE KIND OF A DUD COMPARED TO WHAT WE THOUGHT IT WAS GOING TO BE. JEANNIE DOESN'T LOOK LIKE IT'S PROBABLY GOING TO GO ANYWHERE OR IT'S GOING TO DO A LOT OF DAMAGE. LIKE YOU ALLUDED TO EARLIER IN THE REPORT, WE HAD KIND OF A DOWN WEEK IN COTTON. THE DOWN SIDE POTENTIAL IS, AT THE MAXIMUM, 42 CENTS. THAT WAS THAT OLD LOW THAT WAS PUT IN A FEW WEEKS AGO. I DON'T REALLY THINK WE'RE GOING TO TEST THAT, SO PROBABLY IN THAT 44-, 45-CENT RANGE. FIFTY-TWO IS PROBABLY AS HIGH AS YOU'RE GOING TO GET. SO YOU GET UP IN THAT 48 TO 52 CENT RANGE, YOU NEED TO BE A SELLER.

Pearson: ALL RIGHT. LET'S GO OVER TO THE LIVESTOCK SECTOR. THE FED CATTLE MARKET HELD UP FAIRLY WELL INTO THE POST LABOR DAY TIME PERIOD. YOU STARTED TO SEE SOME PRESSURE. ALSO HEARING REPORTS OF CATTLE STARTING TO BACK UP AND HAVE FOR ABOUT THE LAST FOUR WEEKS NOW. THAT'S GOING TO START TO IMPACT US.

Pfitzenmaier: OH YEAH, I BELIEVE SO. I MEAN THE OTHER THING WE'VE GOT SITTING OUT THERE IS CANADA. WHEN IS CANADA GOING TO GET REOPENED? YOUR EARLIER REPORT HERE TALKED ABOUT JAPAN AND US MOVING PRODUCT INTO THERE. YOU CAN'T HELP BUT WONDER IF THAT'S GOING TO BE SOMEHOW BE TIED INTO THE CANADIAN THING, BECAUSE WHEN THAT GETS OPENED UP, THAT'S GOING TO BE CERTAINLY A FACTOR FOR SOME PRETTY GOOD DOWNSIDE PRESSURE ON CATTLE. AND IF THEY'VE ALREADY ROLLED OFF -- OVER AND ARE STARTING TO DECLINE A LITTLE BIT ANYWAY, THAT'S GOING TO BE A PROBLEM. DEMAND, I THINK SOME OF THESE DIETARY FAD -- FADS FOR LOW-CARB AND ALL THAT IS PROBABLY STARTING TO RUN ITS COURSE JUST A LITTLE BIT. SO, YOU KNOW, WE'RE PROBABLY NOT GOING TO HAVE THE DEMAND BASE THERE THAT WE HAD A YEAR AGO. SO, YOU KNOW, I GUESS I THINK FOR A PRODUCER WHO'S GOT CATTLE ON FEED, YOU NEED TO LOOK AT THESE AREAS. AND I HARP ON THIS ALL THE TIME, BUT I CONTINUE TO: IS THIS A GOOD PLACE TO USE PUTS, BECAUSE THERE IS UPSIDE POTENTIAL. YOU KNOW, LOOK WHAT'S HAPPENED IN THE HOG MARKET. YOU KNOW, THERE IS SOME POTENTIAL FOR THE MARKET TO MOVE UP. OR IF THEY OPEN UP JAPAN, DON'T OPEN UP CANADA. YOU KNOW, MAYBE YOU'VE GOT, FIVE, SIX, SEVEN MORE BUCKS UP IN CATTLE. THAT PROBABLY JUSTIFIES USING PUTS RATHER THAN FUTURES. OR ELSE SELLING THE FUTURES OR BUYING CALLS TO COVER IT, WHICH IS A SYNTHETIC PUT.

Pearson: ABSOLUTELY. A POSSIBILITY THERE. BUT PART OF THE REASON WE'RE BACK IN CATTLE, WHAT WE'RE HEARING IS THEY DON'T WANT TO GO BACK OUT AND PAY THIS HIGH DOLLAR FOR THESE FEEDER CATTLE. WHAT'S AHEAD NOW ON FEEDERS?

Pfitzenmaier: AND WHY WOULD YOU? YOU KNOW, YOU'RE STILL GETTING GOOD GAINS ON THE CATTLE. THE CATTLE ARE WORTH QUITE A BIT. WHY NOT JUST KEEP PUTTING AWAY. I UNDERSTAND WHY THEY'RE DOING IT. I MEAN IT MAKES GOOD ECONOMIC SENSE. BUT AS FAR AS THE FEEDER MARKETS, IT PROBABLY OBVIOUSLY IS RELATED SOMEWHAT TO THE FAT MARKET, BUT ALSO AS A HUGE FUNCTION OF THE CORN MARKET. AND AS LONG AS CORN CONTINUES TO WORK LOWER, WHICH I THINK IT'S GOING TO, YOU'RE GOING TO CONTINUE TO SEE THE FEEDER MARKET BE FAIRLY WELL SUPPORTED HERE.

Pearson: LET'S TALK ABOUT THE MIRACLE STORY OF LATE MARKETING YEAR 2004. THAT'S THE HOGS. RECORD SLAUGHTER LEVELS. UNBELIEVABLE, 400,000 HEAD A DAY AND WE'RE MOVING AT TREMENDOUS PRICES. GOOD DEMAND, OBVIOUSLY. BUT HOW LONG CAN WE KEEP THIS UP?

Pfitzenmaier: WELL, I MEAN DEMAND IS THE STORY. WE ALL KNOW THE SUPPLY -- THERE'S PLENTY OF HOGS. WE HAD A HOG REPORT OUT THIS AFTERNOON. IT SHOWED A PERCENT -- A PERCENT AND A HALF HIGHER OF KEPT-FOR-BREEDING NUMBER THAN THE MARKET WAS EXPECTING WOULD BE ON THE SURFACE OF BEARISH NUMBER. BUT WHEN WE WALK IN HERE MONDAY MORNING, WE MAY STILL BE TALKING ABOUT DEMAND, AND WHO CARES ABOUT WHAT SUPPLY IS IN THE SHORT RUN. SO, YOU KNOW, THERE WAS TALK ABOUT SEVERAL LOADS OF LOINS BEING MOVED INTO CHINA, SO ALL OF A SUDDEN CHINA -- CHINESE DEMAND REARS ITS HEAD IN TERMS OF THE PORK INDUSTRY, JUST LIKE IT HAS THE GRAINS. YOU KNOW, WHEN IS DEMAND GOING TO RUN ITS COURSE? $76 HOGS LOOKS TO ME LIKE A FAIRLY GOOD TICKET HERE, AND IT WOULD BE A GOOD PLACE TO START -- TO BE MAKING FAIRLY AGGRESSIVE SALES. BUT, YOU KNOW, WHO KNOWS?

Pearson: ALL RIGHT. STRATEGY-WISE, WHAT WOULD YOU TELL A PORK PRODUCER AT THIS STAGE?

Pfitzenmaier: SAME THING. I THINK YOU'RE EITHER SELLING AND BUY YOURSELF CALLS IF YOU'RE SCARED ABOUT HOW HIGH THEY COULD GO OR JUST GO BUY A PUT. BUT I THINK YOU NEED TO GET YOURSELF SOME KIND OF PROTECTION BECAUSE THESE ARE REALLY GOOD PRICES, EXTREMELY GOOD PRICES.

Pearson: AT A STRANGE TIME OF THE YEAR. HISTORICALLY OUR LOWS ARE COMING IN ABOUT THIS TIME.

Pfitzenmaier: ABSOLUTELY.

Pearson: EXCELLENT INSIGHTS AS USUAL. TOMM PFITZENMAIER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM TOMM 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 REVISIT SOME IOWA FARMERS WHO ARE BANKING ON A FUTURE GROWING PHARMACEUTICAL CROPS. UNTIL THEN, THANKS FOR WATCHING. HAVE A GREAT WEEK.


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