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Market Analysis: Sep 03, 2004

posted on September 3, 2004


A warming trend in the Grain Belt has diminished frost worries, leaving the trade to focus on private crop estimates. For the week, nearby wheat futures gained more than six cents. September corn advanced more than three cents.

Tight supplies continue to support the soybean market just ahead of harvest. For the week, September beans gained more than 14 cents. But the nearby meal contract lost $5.10 per ton.

The cotton market showed some signs of life and for the week was up $3.10.

In livestock, the October live cattle contract slipped 13 cents. Nearby feeders dropped $2.70. But the October lean hog contract gained $1.68.

In the financials, Comex gold fell another $2.30 an ounce. The Euro gained 38 basis points against the dollar. And the CRB Index inched up a quarter-point to close at 275.25.

Here now to lend us his insight on these and other market trends is our senior market analyst, John Roach. Welcome back.

Market Analysis: Sep 03, 2004 Roach: THANKS, MARK.

Pearson: LET'S TALK FIRST ABOUT THE WHOLE GRAIN PICTURE AND LET'S TALK ABOUT WHEAT FIRST. AN UP WEEK FOR WHEAT THIS WEEK. AND OF COURSE, THE PROTEIN DIFFERENCES OUT THERE HELPED SETTING UP SOME DIFFERENT MARKETS, DEPENDING ON WHERE YOU ARE AND WHAT YOU'RE GROWING. BUT AS YOU LOOK AT THIS WORLDWIDE DEMAND AND YOU LOOK AT WHAT PRODUCTION IS GOING TO BE, WHAT DO YOU SEE NOW FOR WHEAT?

Roach: THE WORLDWIDE DEMAND SEEMS TO BE RUNNING RELATIVELY CONSTANT. WE DON'T SEE MUCH CHANGE HAPPENING THERE, BUT THE SUPPLIES ARE TIGHTENING A BIT AROUND THE WORLD. AND THE PRICE HAS BEEN A LITTLE BIT TOO CHEAP, AND SOME PRICES HAVE ACTUALLY FIRMED WORLDWIDE OVER THE PERIOD OF THE LAST COUPLE, THREE WEEKS. THE MARKET ACROSS ALL THE GRAINS GOT WAY TOO CHEAP OR -- I DON'T KNOW IF I WANT TO SAY WAY TOO CHEAP, BUT CERTAINLY GOT TOO CHEAP. AND WHEAT WAS BEAT DONE ABOUT AS BAD AS ANY OF THEM WITH HEAVY FUND SELLING. AND SO WHEN SOME OF THAT PRESSURE WAS LIFTED HERE THIS WEEK, THE WHEAT MARKET CAME ALONG AS WELL. WE HAD VERY GOOD EXPORT SALES THIS WEEK ON WHEAT. OUR EXPORT SALES ARE RUNNING AHEAD OF THE PACE THAT THEY NEED TO. THE WHEAT MARKET IS KIND OF STUCK IN A TRADING RANGE, BUT WE THINK THAT WE CAN GET SOME FIRMNESS HERE AS WE MOVE A LITTLE BIT FURTHER ON INTO THE SEASON.

Pearson: YOU MENTIONED THE TRADING RANGE. AS WE NEAR THE TOP OF THAT, WOULD YOU BE MAKING SALES?

Roach: WELL, IF YOU'RE NEEDING TO, YES, I THINK YOU HAVE TO. WE NEARLY GOT A SELL SIGNAL IN WHEAT THIS WEEK, BUT THEN IS JUST DIPPED BACK DOWN YESTERDAY. AND WE'RE WORRIED ABOUT CHICAGO WHEAT PARTICULARLY BECAUSE IT'S GOING TO GET COMPETITION OUT OF CANADA. WITH THE FREEZE THAT OCCURRED THERE A COUPLE WEEKS AGO, THEY'VE GOT SOME POOR-QUALITY WHEAT, SOME FEED-QUALITY WHEAT THAT'S GOING TO COMPETE AGAINST THAT CHICAGO MARKET. SO WE ARE WORRIED A LITTLE BIT ABOUT THAT. THE WHEAT LONGER TERM OUTLOOK IS NOT OVERLY BRIGHT, BUT WE SHOULD SEE SOME FURTHER PRICE RECOVERY AND SOME OPPORTUNITIES TO MAKE SOME BETTER SALES.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE CORN MARKET. AGAIN, A LITTLE BIT OF A GAIN THIS WEEK. AGAIN, THERE WAS A LOT OF FROST CONCERN EARLIER IN THE WEEK AND CERTAINLY SOME DAMAGE, AS YOU MENTIONED, UP IN CANADA, THE NORTHERN PART OF THE HEMISPHERE. AND OF COURSE, THERE'S STILL A FROST CONCERN. HAVE WE HAD THE FROST CONCERN, AND HAS THAT COOLED NOW?

Roach: IT'S -- THE FROST WORRY WAS REALLY OUT FORWARD. AND GOING HOME TODAY, WE JUST DON'T HAVE TOO MUCH WORRY OUT IN THE LONG-TERM FORECAST, AT THE MOMENT ANYWAY. THERE WAS DEFINITELY SOME FROST DAMAGE THAT OCCURRED BACK A WEEK AGO SATURDAY, SUNDAY. AND IT WAS STILL -- IT'S YET TO BE DETERMINED HOW MUCH DAMAGE WAS THERE. BUT WE ALSO HAD VERY GOOD RAINS THAT CAME ACROSS, AND SOME AREAS THAT WERE REALLY NEEDING SOME RAIN GOT SOME REALLY NICE RAINS. AND THERE'S MORE RAIN IN THE FORECAST, SO THE ATTITUDE WAS THAT THE FROST DAMAGE WAS MAYBE OFFSET BY THE NICE RAIN. BUT FROM HERE ON FORWARD, THE MARKET IS GOING TO CONTINUE TO LOOK TO SEE WHEN THAT KILLING FREEZE OCCURS. BUT AT THE SAME TIME, WE'RE GETTING YIELD REPORTS COMING IN AND THE YIELD REPORTS ARE GOOD, PRINCIPALLY THE SOUTHERN PART OF THE COUNTRY, AND WE'LL SEE MORE OF THOSE KIND OF REPORTS COMING OUT NEXT WEEK. AND I ANTICIPATE WE'LL SEE MORE GOOD REPORTS THAN WE WILL BAD REPORTS FOR A WHILE, AND I'M AFRAID THAT'S GOING TO PRESSURE THE MARKET. WE DID SEE TWO CROP ESTIMATES OUT TODAY FROM FC STONE AND THE PEOPLE -- THE NEW NAME FOR SPARKS COMMODITIES. MOST PEOPLE KNOW THEM AS SPARKS. INFORMA IS THE NEW NAME. BOTH REPORTS WERE SHOWING THE CORN CROP BIGGER THAN THEY ESTIMATED A MONTH AGO, AND THEY CENTERED RIGHT AROUND WHERE THE USDA REPORT WAS A MONTH AGO. SO THE BIG CROP OF CORN IS STILL OUT THERE. IT'S GOING TO COME TO TOWN, AND WE HAVE NOT YET SEEN THE HARVEST LOW, IN MY OPINION.

Pearson: OKAY. BUT YOU'RE NOT IN A HURRY TO MAKE SALES RIGHT NOW.

Roach: WELL, I'M IN A HURRY TO MAKE ANY SALES THAT YOU MUST MAKE OVER THE VERY SHORT TERM. I TALKED TO A PRODUCER TODAY WHO STILL HAD OLD CROP CORN LEFT. AND IF YOU'RE HOLDING ON TO OLD CROP CORN, YOU'RE IN DANGER OF LOSING ALL THE PREMIUM THAT'S THERE AND TURNING THAT INTO A NEW CROP ITEM, WHICH I THINK YOU'LL BE SELLING AT CHEAPER PRICES. SO IF YOU HAVE OLD CROP CORN, IT'S TIME TO GET RID OF THAT FOR SURE. AS FAR AS LONGER TERM, I THINK CORN PRICES WILL BE HIGHER AS WE GET TOWARD THE END OF THE YEAR THAN WHAT THEY ARE TODAY. SO IF YOU HAVE THE CAPABILITY TO STORE THE GRAIN, I'D REALLY LIKE TO DO THAT AND, QUITE FRANKLY, I'D LIKE TO STORE IT ALL THE WAY INTO THE SPRING BECAUSE I THINK SPRINGTIME IS WHEN WE'LL SEE THE HIGHEST PRICES ON CORN, WHEN WE REALIZE THAT WE HAVE TO RAISE ANOTHER RECORD CROP NEXT YEAR.

Pearson: SO STILL A LITTLE BIT OF A BULLISH SCENARIO AS FAR AS THE CORN LONGER TERM.

Roach: LONGER TERM IS VERY MUCH A POSITIVE SCENARIO, ALL DEPENDING, OF COURSE, ON JUST THE SIZE OF THE CROP WE HAVE IN THE FIELD RIGHT NOW.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. AND AGAIN, THERE WERE FROST CONCERNS THERE. AND THAT'S BACKED OFF SOME, BUT ONE NEVER KNOWS. BUT AS YOU LOOK FORWARD IN THE SOYBEANS, A LOT OF PRODUCERS OUT THERE FEEL THEY MISSED THE BOAT THIS YEAR. THEY DIDN'T MAKE THOSE SALES, DIDN'T GET THIS CROP SOLD EARLY, AND NOW THEY'RE WATCHING THIS NEW CROP. AND AS YOU MENTIONED, THE CROP ESTIMATE IS COMING IN PRETTY HIGH ON THE BEANS.

Roach: YEAH, THE CROP ESTIMATES CERTAINLY ARE. THE ESTIMATES OUT THIS MORNING AGAIN CALLING FOR CROPS BIGGER THAN WHAT THEY FORECAST LAST MONTH AND BIGGER THAN WHAT THE USDA FORECAST LAST MONTH. THE BEAN PRICING STRUCTURE HERE OVER THIS LAST COUPLE, THREE WEEKS, WE'VE ACTUALLY HAD TWO SELL SIGNALS IN BEANS USING THE SYSTEMS THAT WE FOLLOW CLOSELY. AND WITH THE DECLINE THAT WE SAW YESTERDAY AND THEN AGAIN TODAY, WE'RE NO LONGER GETTING A SELL SIGNAL ON BEANS. BUT IF WE GET ANOTHER SURGE UP IN THE MARKET, I BELIEVE THAT A PRODUCER NEEDS TO BE MAKING SALES, BECAUSE I'M VERY MUCH AFRAID THAT THE HARVEST TIME LOW OUT FORWARD IS GOING TO BE LOWER THAN WHERE WE ARE. AND THEN THE LONGER TERM OUTLOOK ON SOYBEANS IS NOT VERY GOOD. WE'RE GOING TO HAVE A BIG CROP IN SOUTH AMERICA IF THEY HAVE NORMAL GROWING CONDITIONS, AND THEY WILL TAKE AWAY OUR MARKET THIS NEXT SPRING, I'M AFRAID. SO I'M AFRAID THAT THE TIME TO -- LET ME SAY IT DIFFERENTLY. THE TIME TO MARKET SOYBEANS WILL BE EARLY THIS YEAR AND NOT HOLD INTO THE SPRINGTIME. I'D LIKE TO BE COMPLETELY OUT OF SOYBEANS BY THE TIME WE GET TO THE FIRST OF THE YEAR. SO IF WE GET SOME SURGES UP IN THE MARKET BASED ON SOME FROST WORRIES AND SO FORTH, I THINK THOSE ARE OPPORTUNITIES TO MAKE SALES. I KNOW IT'S DIFFICULT IF YOU'RE A PRODUCER WHERE YOU'VE ALREADY MADE SOME SALES, YOU'RE NOT SURE HOW MUCH MORE YOU CAN SELL. BUT TO THE DEGREE THAT YOU FEEL SOME COMFORT IN MAKING SALES, I WOULD BE DOING SO ON STRENGTH.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS COTTON MARKET. AGAIN, IT'S TAKEN A HUGE HIT. IT'S HAD A LITTLE BIT OF A BOUNCE BACK. WHAT'S AHEAD THERE?

Roach: WELL, THE COTTON MARKET WAS CLEAR DOWN IN THE HOLE. WE HAD A VERY, VERY NICE BOUNCE BACK. WE ARE STILL GETTING -- EVEN WITH THE DECLINE TODAY, WE'RE STILL GETTING A SELL SIGNAL IN COTTON. THE STRENGTH HERE THIS WEEK CAME FROM A GOOD EXPORT SALES NUMBER AND WORRY ABOUT HURRICANE FRANCES COMING UP AND DAMAGING CROP THAT'S -- WITH THE BOLLS JUST OPENING AND THE WIND AND HEAVY, HEAVY RAINS. IF IT GETS INTO THAT PRODUCTION AREA THERE IN ALABAMA AND GEORGIA THAT'S NOT HARVESTED, THEN WE'RE GOING TO SEE SOME CROP LOSSES. AND THAT'S WHAT STIMULATED THE MARKET UP. AS WE SAW THE HURRICANE FORECAST BE DIMINISHED A LITTLE BIT TODAY, WE SAW THE COTTON MARKET SOFTEN BACK. SO THE HURRICANE REALLY GAVE US THE LAST STIMULATION. BUT WE ARE SEEING IMPROVED EXPORTS, WHICH MAY WELL KEEP US FROM GOING BACK DOWN TO THE LOWS WE SAW EARLIER. WE WOULD BE SELLING COTTON NOW HOWEVER, BECAUSE WE'RE GETTING A SOLID SELL SIGNAL IN THE MARKET.

Pearson: ALL RIGHT. LET'S TALK ABOUT FED CATTLE. YOU'VE BEEN A LITTLE WORRIED ABOUT THE WEIGHTS IN THIS FED-CATTLE MARKET. THE MARKET HAS BEEN GOOD. I MEAN THIS WHOLE FED-CATTLE MARKET HAS BEEN A REAL CINDERELLA STORY. WHAT'S AHEAD NOW AS WE HEAD INTO THE FOURTH QUARTER OF 2004?

Roach: WELL, THE WEIGHTS CONTINUE TO BE UP. THE LAST REPORT, WHICH TOOK US UP THROUGH THE THIRD WEEK OF JULY, DRESSED WEIGHTS ARE UP 23 POUNDS -- THE THIRD WEEK OF AUGUST. I'M LOSING TRACK OF MY MONTH. UP 23 POUNDS OVER LAST YEAR AND 20 POUNDS OVER THE FIVE-YEAR AVERAGE. SO WE ARE JUST NOT CURRENT IN THE FEEDLOTS. WE HAVE A TONNAGE ISSUE THAT WE HAVE TO DEAL WITH. AND THE PACKER IS NOT MAKING VERY MUCH MONEY. HE'S IN THE RED RIGHT NOW. SO YOU CAN JUST BET THAT IT'S GOING TO BE DIFFICULT TO MAINTAIN THIS MARKET UNLESS WE START TO SEE MORE POSITIVE NEWS. AND WHAT WE REALLY NEED IS WE NEED TO SEE THE JAPANESE BACK TAKING OUR BEEF EXPORTS. AND THERE'S TALK THIS WEEK BOTH DIRECTIONS. IT LOOKED LIKE MAYBE IT'S MOVING FORWARD WHEN YOU LISTEN TO THE USDA PEOPLE, BUT THEN WHEN YOU HEAR THE REPORT BACK FROM JAPAN, THEY'RE SAYING, NO, THE USDA PEOPLE ARE NOT RIGHT, THERE'S MORE THINGS THAT HAVE TO HAPPEN HERE. SO THERE'S A LOT OF POLITICAL POSTURING GOING ON BACK AND FORTH, BUT THE MARKETPLACE NEEDS THAT BUSINESS TO COME BACK AT US.

Pearson: ABSOLUTELY. FEEDER CATTLE HAVE ALSO BEEN ANOTHER PHENOMENAL STORY. AND WE SAW A BREAK THIS WEEK IN FUTURES. IF YOU'RE A COW/CALF PERSON, HOW DO YOU INTERPRET THAT?

Roach: WELL, IF YOU'RE IN THE COW/CALF BUSINESS, YOU HAVE TO UNDERSTAND THAT YOU'RE SELLING YOUR CATTLE AT PRICE LEVELS THAT PEOPLE ARE GOING -- THEY'RE HAVING TO HOPE THAT THEY'RE ABLE TO MAKE SOME PROFIT ON, BECAUSE THERE'S NO WAY TO LOCK ANY PROFITS IN RIGHT NOW. SO YOU'RE IN VERY HIGH PRICE LEVELS, AND I WOULD BE WORRIED HERE A LITTLE BIT ABOUT FEEDER CATTLE AT THESE KIND OF PRICE LEVELS. SO MAKING SALES ON STRENGTH MAKES SENSE TO ME.

Pearson: ALL RIGHT. LET'S TALK ABOUT HOGS AND THAT PROTEIN GROUP, WHICH AGAIN HAS HAD A NICE RUN THIS SUMMER. AS WE GO INTO THE FOURTH QUARTER THOUGH, JOHN, WHAT DO YOU SEE?

Roach: WELL, THE NORMAL LOW FOR THE HOG MARKET, IF YOU LOOK OVER SOME YEARS OF HISTORY, IS NOVEMBER. HOWEVER, IN TWO OF THE LAST FIVE YEARS, THE LOW HAS COME IN THE MONTH OF SEPTEMBER. SO WE MAY BE APPROACHING THAT LOW EBB AREA HERE OVER THE PERIOD OF THIS MONTH. IT WILL JUST DEPEND ON IF WE HAVE ADVANCED SOME OF THESE HOGS DUE TO THE COOL WHETHER THIS SUMMER, WHICH MY GUESS IS THAT WE HAVE. AND SO I'M LOOKING FOR THE LOW TO COME EARLIER THIS YEAR, AND THEN I THINK WE HAVE A STRONG MARKET AS WE MOVE ON INTO THE FOURTH QUARTER.

Pearson: STRATEGY-WISE WHAT WOULD YOU BE DOING AS A PORK PRODUCER?

Roach: WELL, I THINK THE MARKET IS NEAR THE LOW. SO TO ME IT'S A TIME, IF YOU'RE A FEEDER PIG BUYER, TO BE BUYING FEEDER PIGS HERE OVER THIS MONTH AT SOMEWHAT OF A LOW EBB. AND I THINK THAT FROM A PRODUCER WHO SELLS FINISHED PORK, I'D BE PATIENT. I THINK YOU'LL HAVE BETTER PRICES AS WE MOVE ON INTO THE FOURTH QUARTER THAN WHAT WE'RE GETTING TODAY ON THE FUTURES MARKET. SO I DON'T SEE ANY HEDGING OPPORTUNITY THERE TO DEAL WITH. I WOULD BE LOOKING TO BUY CORN FEED AS TIME GOES ALONG.

Pearson: EXCELLENT POINT. JOHN ROACH, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM JOHN 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 "MARKET TO MARKET" KICKS OFF ITS THIRTIETH SEASON WITH A STORY ON ALTERNATIVE ENERGY, BEST DESCRIBED AS COW POWER. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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