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Market Analysis: Aug 27, 2004

posted on August 27, 2004


Continued mild weather in the grain belt has most traders focusing on yield reports. For the week, nearby wheat futures lost more than 10 cents. September corn fell by 11 cents.

Improved export sales and on-target crush numbers helped support soybean prices. For the week, September beans gained more than five cents. But the nearby meal contract lost $20.60 per ton.

The cotton market gave back some of last week's gains, and for the week was down $2.90.

In livestock, the August live cattle contract fell $2.15. Nearby feeders dropped $2.67. And the October lean hog contract slipped by $2.05.

In the financials, Comex gold fell $9.90 an ounce. The Euro sank 286 basis points against the dollar. And the CRB Index slumped four-and-a-half points to close at 275-even.

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

Market Analysis: Aug 27, 2004

Hjort: THANK YOU, MARK.

Pearson: LET'S JUST TALK QUICKLY HERE, THE USUAL ORDER. LET'S TALK ABOUT THESE SOYBEANS FIRST. AGAIN, STILL SOME SCURRYING AROUND FOR THAT OLD CROP SOYBEAN OUT THERE.

Hjort: WELL, THERE SURE WAS, ESPECIALLY THE FIRST PART OF THIS PAST WEEK. BUT THEN BASIS LEVELS ON THURSDAY AND FRIDAY STARTED DROPPING IN THE WESTERN CORN BELT. THAT'S WHERE THE BASIS WAS THE STRONGEST, OF COURSE. THAT'S WHERE THE BIGGEST FIGHT WAS FOR THE BEANS THAT ARE LEFT. STILL GOT A MONTH TO GO BEFORE HARVEST WILL GET GOING STRONG IN THE NORTHWESTERN CORN BELT, SO WE'LL PROBABLY GO THROUGH THIS AGAIN, ANOTHER ROUND OF BASIS TIGHTENING OR FUTURES OR WHATEVER. BUT GENERALLY SPEAKING, THE MARKET IS RUNNING OUT FOR THE OLD CROP. THE FUTURES ON SOYBEANS, ON FRIDAY, WERE DOWN RATHER SIGNIFICANTLY. DON'T KNOW IF YOU DID ANY SPECIFIC TECHNICAL DAMAGE, BUT THAT'S REALLY WHAT THE MARKET IS TRADING RIGHT NOW. THE FUNDAMENTALS ARE PRETTY BENIGN, REALLY, BECAUSE YOU'VE GOT THIS FROST DAMAGE, NOT JUST IN THE UNITED STATES BUT UP IN CANADA ON THE CANOLA CROP AS WELL. WE DON'T KNOW HOW MUCH THAT IS. THERE'S ESTIMATES UP TO 80- OR EVEN 100-MILLION-BUSHEL LOSS IN THE UNITED STATES ON SOYBEANS. WELL, USUALLY THOSE ESTIMATES ARE OVERSTATED, BUT THE TRUTH IS NOBODY KNOWS UNTIL YOU PUT A COMBINE OUT THERE AND REALLY FIND OUT. BUT THE SOYBEAN MARKET IS KIND OF IN A GLIDE PATH TO SOMETHING LOWER, I THINK, FOR NEW CROP. ALTHOUGH, OBVIOUSLY, THE FINAL PRODUCTION NUMBER IS THE KEY TO THE WHOLE THING. SOME TRADERS ARE SAYING THAT, YEAH, WE GOT LOSS FROM FROST UP IN THE NORTHERN AREAS, BUT THE BETTER GROWING CONDITIONS HERE THIS PAST WEEK AND FORECAST FOR THE NEXT IN THE REST OF THE CORN BELT WILL HELP IMPROVE THOSE YIELDS. SO IT'S KIND OF A DRAW. AND ON THE DEMAND SIDE -- ONE THING ABOUT NEW CROP, EXPORT SALES ON THURSDAY -- THAT'S THE WEEKLY SALES -- VERY, VERY STRONG EXPORT SALES NUMBERS FOR THE NEW CROP. THAT'S A TREND I THINK THAT WILL BE THERE. CHINA WAS A BIG BUYER. THEY'LL BE IN THAT MARKET, IN OUR MARKET THAT IS, PRETTY STEADY NOW FOR SEVERAL WEEKS. SO THAT'S GOING TO BE A POSITIVE TO OFFSET SOME OF THE PRODUCTION CONCERNS.

Pearson: AND LET'S TALK A LITTLE BIT ABOUT WHAT'S HAPPENING WITH CORN AS WELL. A LOT OF PRESSURE THIS WEEK ON SEPTEMBER CORN. THROUGHOUT THE CORN BELT, I'VE BEEN OUT TALKING TO A LOT OF FARMERS HERE IN THE LAST COUPLE WEEKS. BUT ALL ACROSS THE CORN BELT, IT LOOKS AWFULLY GOOD, DOUG.

Hjort: YES, IT DOES. THE BIGGEST QUESTION MARK THERE, AGAIN, IS MAYBE A FROST DATE, BECAUSE CROPS IN THE NORTHWESTERN CORN BELT ARE RUNNING A COUPLE WEEKS BEHIND. THIS WEEK THEY SHOULD HAVE MAYBE CAUGHT UP A LITTLE BIT, BUT NOT VERY MUCH BECAUSE TEMPERATURES COOLED BACK DOWN AGAIN ALREADY BY THURSDAY NIGHT AND FRIDAY NIGHT IN THAT NORTHWESTERN AREA. IT'S NOT A SERIOUS MATTER FOR CORN -- I MEAN NOT CRITICAL, I SHOULD SAY. YES, IT COULD BE SERIOUS IF THEY HAVE AN EARLY FROST, OF COURSE. A NORMAL FROST PROBABLY WOULD NOT DO TOO MUCH DAMAGE THERE. YOU LOOK AROUND THE REST OF THE CORN BELT AGAIN, SIMILAR WITH SOYBEANS. YOU'RE RIGHT, THE CROPS ARE VERY GOOD. THEY'RE -- THEY DIDN'T GET AFFECTED BY TOO MUCH RAIN IN THE SPRING. THERE'S A LOT OF DROWNED OUT SPOTS AND SO ON. THE YIELDS ARE JUST TREMENDOUS. WE'RE GOING TO HAVE A HUGE CROP, A RECORD LARGE CROP ON TOP OF LAST YEAR'S RECORD LARGE CROP. IT'S JUST A QUESTION OF HOW BIG THAT'S GOING TO BE. USDA'S ESTIMATE IS 10.92 BILLION. OTHERS ARE DOWN AROUND 10.7 BILLION NOW. SOME EVEN A LITTLE BELOW THAT. BUT AGAIN, THOSE ARE ESTIMATES MADE AT THE DESK, NOT OUT IN THE FIELD. SO YOU -- THE RANGE OF ESTIMATES IS WIDE. DEMAND ON CORN IS GOING TO BE PRETTY GOOD, EVEN THOUGH RIGHT NOW EXPORT SALES HAVE BEEN VERY, VERY POOR. WELL, IF YOU'RE LOOKING AT A HUGE CROP, IF YOU'RE A FOREIGN BUYER LOOKING AT THIS HUGE PRODUCTION NUMBER, WHY WOULD YOU WANT TO BE IN THERE BUYING VERY MUCH FOR THE LONG TERM NOW WHEN THE PRICE DIRECTION IS DOWN AT THE PRESENT TIME.

Pearson: SO IF YOU'RE A PRODUCER, YOU'D SAY HOLD ONTO CORN AND HOLD ONTO SOYBEANS FOR THE TIME BEING?

Hjort: YES, YES, ESPECIALLY ON THE CORN. THERE'S A VERY GOOD CHANCE THERE WILL BE LDP VALUES OUT THERE THIS YEAR. I WOULDN'T WANT TO PRICE ANYTHING AHEAD RIGHT NOW BECAUSE YOU LOSE OWNERSHIP OF IT, YOU LOSE THE LDP POTENTIAL. AND WE'RE NOT THAT FAR AWAY FROM AN LDP VALUE ANYWAY, SO JUST RIDE IT OUT NOW.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS WHEAT MARKET. WE TALKED EARLIER ABOUT THE LARGER CROP ESTIMATES FOR GLOBAL PRODUCTION OF WHEAT, AND WE DO HAVE SOME EXCELLENT WHEAT YIELDS. LAST YEAR WE WERE BURNED UP IN A BIG PART OF EUROPE AND A BIG PART OF THE FORMER SOVIET UNION. THEY'VE DONE REAL WELL THIS YEAR. OUR CROPS HAVE NOT BEEN TOO BAD. CAN WE FIND A PLACE FOR ALL THAT WHEAT?

Hjort: WE'RE GOING TO INCREASE STOCKS THIS YEAR, RATHER DRAMATICALLY. I DID NOTICE THAT ON THE INTERNATIONAL NUMBERS OUT THIS WEEK, THEY WERE NOT QUITE AS -- THEY WEREN'T UP QUITE AS MUCH AS USDA PUSHED THEIR ESTIMATES UP IN AUGUST. SO REALLY THOSE NUMBERS WERE ALREADY IN THE MARKET, ALTHOUGH ANYTIME YOU RESTATE ANYTHING OF A BEARISH NATURE, IT HAS AN IMPACT ON THE MARKET. EXPORT SALES FROM THE UNITED STATES HAVE JUST BEEN MOVING AHEAD VERY, VERY WELL. USDA PREDICTS THAT OUR SALES ARE GOING TO BE DOWN ALMOST 20 PERCENT FOR THE YEAR, AND THAT'S BECAUSE OF THIS HUGE WORLD MARKET. SO SOMEWHERE ALONG THE LINE, THAT MOST LIKELY WILL COME TO ROOST, BUT RIGHT NOW EXPORT SALES ARE VERY GOOD. THE PROBLEM WITH IT IS THE FUTURES TRADERS IN CHICAGO ARE LOOKING AT THE LONG TERM AND BELIEVING USDA THAT OUR EXPORT SALES ARE GOING TO BE VERY POOR. SO THEREFORE, ANYTIME THEY GET A BULLISH REPORT, YOU MIGHT GET A FEW CENTS UP IN THAT MARKET AND THEN THEY VERY QUICKLY USE THAT RALLY FOR A SELLING OPPORTUNITY. I THINK WHEAT PRICES PROBABLY ARE JUST GOING TO CHOP AROUND HERE FOR SOME TIME, PRIMARILY BECAUSE I DON'T THINK CORN PRICES ARE GOING TO DROP A HECK OF A LOT MORE AS WE GO ON INTO HARVEST EITHER.

Pearson: LET'S TALK ABOUT COTTON. WE BACKED OFF SOME OF THE GAINS THAT WE HAD FROM A WEEK AGO.

Hjort: YEAH, WE DID. THE GAINS OF THE WEEK BEFORE I THINK WERE JUST KIND OF OVERDONE. THERE WAS SOME OPTIMISM THERE, NOT JUST ON NUMBERS BUT THE HOPE THAT THE NUMBERS COULD GET MORE BULLISH. WELL, COTTON NUMBERS ARE NOT BULLISH. THEY'RE REALLY QUITE BEARISH.

Pearson: AND THAT'S GOING TO CONTINUE. LET'S TALK ABOUT LIVESTOCK, WHERE IT HAS BEEN VERY BULLISH. WE HAVE SEEN UPTRENDS. THIS WEEK WE STARTED TO BACK OFF SOME. WE BACKED SOME OFF ON THE BOARD. YOU MENTIONED, I THINK THE LAST TIME YOU WERE ON, THE BIGGEST THING THAT COULD HURT US WOULD BE HOLDING CATTLE BACK. IT LOOKS LIKE WE'RE STARTING TO DO THAT, DOUG.

Hjort: WE HAVE DONE THAT. WE HAVE. OUR CARCASS WEIGHT, BEEF CARCASS WEIGHT IS UP SIGNIFICANTLY FROM A YEAR AGO. AND THAT OFFICIAL NUMBER IS TWO WEEKS OLD. IN THE LAST TWO WEEKS, WE HAVE NOT CLEANED UP THE SHOW LIST OUT THERE, SO WE'RE CONTINUING TO DO THE SAME THING. YOU CAN NEVER AFFORD TO DO THAT, ESPECIALLY AT THIS TIME OF YEAR. WHEN YOU GO THROUGH THE LABOR DAY PERIOD, RETAILERS ARE ALWAYS A LITTLE RELUCTANT TO BUY AHEAD -- BUY MEAT AHEAD FOR AFTER LABOR DAY BECAUSE THEY WANT TO SEE HOW THINGS HAPPEN THERE, WHAT THE WEATHER FORECAST LOOKS LIKE FOR SEPTEMBER AND SO ON. AND I'M A LITTLE CONCERNED ABOUT THIS BEEF MARKET. THE FED CATTLE MARKET IS GOING TO CHOP AROUND A LOT BECAUSE BEEF DEMAND IS STILL GOOD, BUT IT'S JUST NOT AS ROBUST AS IT LOOKED LIKE IT WAS -- OR IT HAD BEEN FOR A LONG TIME. SO ON THE CATTLE, I THINK THAT THE ADVICE THERE IS TO STAY VERY CURRENT ON MARKETINGS. EVEN IN A WEEK LIKE THIS TO WHERE PRICES DROP BACK DOWN $2, $3, OR WHATEVER, YOU JUST NEED TO STAY ON TOP OF IT AND DO THE MARKETING.

Pearson: FEEDER CATTLE HAVE BEEN EXTREMELY STRONG. ONLY ABOUT FIFTEEN SECONDS, DOUG. WHAT WOULD YOU TELL A CATTLE FEEDER THAT'S LOOKING AT THESE HIGH-PRICED FEEDERS?

Hjort: BUYING THE FEEDERS, IT'S REALLY DIFFICULT TO TRY TO DO IT. MAYBE LOOK AT SOMETHING ALTERNATIVE, BUYING COWS OR SOMETHING LIKE THAT, IF THAT WOULD WORK FOR YOU. ON FEEDER CATTLE -- OR FEEDER CALVES, RATHER, OR CALVES FOR THE FALL, BE SURE YOU'RE GETTING SOME CONTRACTING DONE OUT THERE. THESE PRICES ARE STILL VERY GOOD. FUTURES HAVE TURNED. THEY'VE STARTED TO SHOW A REVERSAL.

Pearson: REAL QUICK, SOME PRESSURE ON PORK ON THE BOARD THIS WEEK.

Hjort: YEAH, THERE WAS. PORK CUTOUT VALUES BOUNCED AROUND A LITTLE BUT GENERALLY DOWN. AGAIN, WE'RE LOOKING AT THE SAME PROBLEMS AS WE ARE IN THE BEEF. RETAILERS AREN'T REALLY CERTAIN WHAT THEY WANT TO DO AFTER LABOR DAY, AND THAT'S KEEPING THE PRESSURE ON. WE'RE KILLING AN AWFUL LOT OF HOGS TOO. PORK PRODUCTION IS VERY LARGE, SO THERE'S A REASON THEY'RE ON THE SUPPLY SIDE. DEMAND IS STILL PRETTY GOOD FOR PORK. BUT AGAIN, ON HOGS, KEEP YOUR MARKETINGS VERY, VERY CURRENT.

Pearson: GOOD ADVICE AS ALWAYS, DOUG HJORT. 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, 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 AN URBAN TEACHER CONNECTS THE LINKS IN THE FOOD CHAIN FOR HIS INNER-CITY STUDENTS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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