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Market Analysis: Aug 20, 2004

posted on August 20, 2004


The grain markets actually pondered some sell signals this week despite the continued prospect of a record harvest. For the week, nearby wheat futures gained more than 12 cents. September corn advanced by more than 13 cents.

Pent-up demand helped support soybean prices, though export sales have been soft. For the week, September beans gained more than eight cents. The nearby meal contract gained $12.10 per ton.

The cotton market finally had something to cheer about, and for the week jumped $7.25.

In livestock, the August live cattle contract fell $2.53. Nearby feeders were up another $2.62. But the October lean hog contract fell by $2.55.

In the financials, Comex gold jumped $14.30 an ounce. The Euro slipped 45 basis points against the dollar. And the CRB Index soared more than 10 points to close at 279.50.

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

Market Analysis: Aug 20, 2004

Robinson: MY PLEASURE, MARK.

Pearson: A LOT OF THINGS TO START. I'M NOT SURE WHERE TO START, BUT I'M GOING TO START WITH SOYBEANS, BECAUSE WE HAVE ALL YEAR. SOYBEAN MARKET, AGAIN, AN UP AND DOWN AFFAIR. A LITTLE SOFTER ON FRIDAY, BUT THE OLD CROP IS STILL FASCINATING, VIRGIL. AND JUST REAL QUICK -- AND THERE'S NOT A LOT OF OLD CROP LEFT OUT THERE -- BUT WHAT WOULD YOU TELL SOMEONE WHO'S STILL HANGING ON TO SOME GAMBLING OLD CROP SOYBEANS?

Robinson: MARK, A LOT WOULD DEPEND ON GEOGRAPHY. IN JUST THE LAST FEW DAYS IN PARTS OF THE WESTERN SOYBEAN GROWING AREAS, THE BASIS HAS IMPROVED A DOLLAR A BUSHEL AS PROCESSORS DESPERATELY TRY AND SOURCE BEANS TO FINISH THE GRIND HERE PRIOR TO THE AVAILABILITY OF NEW CROP. THOSE AREAS GEOGRAPHICALLY -- AND I'LL CERTAINLY FORGET SOME -- SOUTHERN MINNESOTA, PARTS OF NORTHERN -- NORTH CENTRAL IOWA, PARTS OF THE DAKOTAS. IN THOSE AREAS, IF I'M HOLDING OLD CROP SOYBEANS, MARK, AT A MINIMUM, I MAKE MY PROCESSOR AN OFFER BASIS WISE AND THEN FOLLOW IT UP WITH SOME TYPE OF FUTURES SALE HERE IN THE NEXT COUPLE OF WEEKS. IN THAT CONTEXT, MARK, I NOTED TONIGHT, IF MY DATA IS CORRECT BASED ON THE CFTC COMMISSION OF --

Pearson: THE COMMITMENT OF TRADERS.

Robinson: COMMITMENT OF TRADERS REPORT, THANK YOU. A RECORD OR VERY NEAR RECORD NET SHORT POSITION BY THE SPECULATIVE COMMUNITY. POINT HERE, SHOULD WE THREATEN THE CROP. AND WE HAD A LITTLE TASTE OF FROST CONCERNS HERE IN JUST THE LAST FEW HOURS. SHOULD WE AGAIN DO THAT IN THE NEAR FUTURE, GIVEN THE SPECULATIVE COMMUNITY, THERE COULD BE THE QUITE AN IMPRESSIVE SHORT-COVERING RALLY IN FUTURES. SO GET THE BASIS FIXED, MARK. ATTACH A PRICE HERE IN THE NEXT TWO TO THREE WEEKS. I THINK THERE'S A LITTLE OPPORTUNITY FOR THOSE WITH OLD CROP BEANS LEFT.

Pearson: THE SPECULATORS ARE LEANING WAY OVER TO THIS SIDE OF THE BOAT AGAIN. THAT GIVES US A CHANCE TO SELL CROPS OUT ON THE FARM. NOW, LET'S TALK NEW CROP SOYBEANS. WHAT ARE YOUR TARGETS THERE TO MAKE SOME SALES?

Robinson: WELL, WE'VE GOT TO ASSUME AT PRESENT THAT WE WILL PRODUCE A PRETTY SIZABLE CROP OF BEANS IN THE UNITED STATES. AND IF PROJECTIONS FROM THE USDA AND OTHERS ARE ACCURATE, THE SOUTHERN HEMISPHERE COME MARCH/APRIL OF 2005, MARK, COULD HAVE RECORD LARGE PRODUCTION IN THE PIPE OR APPROACHING THE PIPE. I THINK IT'S IMPORTANT WE LOOK NOW AT SOME TYPE OF SHORT-COVERING RALLY, WHICH I THINK WE ARE IN THE CONFINES OF DOING AS WE VISIT TONIGHT, AND AT LEAST ATTACH SOME TYPE OF MINIMUM PRICE. SO TARGET WISE, AT LEAST TONIGHT, MARK, THAT 2004 NOVEMBER FUTURES CONTRACT, 605, 620 I THINK IS A TARGET AREA WE CAN ATTAIN. THE 2005 FUTURES CONTRACT, MARK, I'M THINKING SOMEWHERE IN THE SAME VICINITY, 610 TO 630. I WOULD AT VERY LEAST ATTACH OR MAKE SOME TYPE OF MINIMUM PRICE COMMITMENT.

Pearson: LET'S TALK ABOUT CORN. NEW CROP THE STORY THERE. USDA PREDICTING A BIG NUMBER. YOU MENTIONED SOMETHING AND WE'RE STILL EARLY, BUT THERE'S A TREMENDOUS FROST CONCERN, PARTICULARLY IN THE WESTERN CORN BELT AND NORTHERN CORN BELT. VERY COLD TEMPERATURES REPORTED IN NORTHERN MINNESOTA THE PAST COUPLE OF DAYS, AND THAT'S GOT PEOPLE WONDERING. IT'S BEEN A VERY COOL SUMMER, SO THERE'S SOME CONCERN OUT THERE AND WE DO HAVE A CERTAIN LACK OF MATURITY OF THIS CORN CROP. WITH THAT AS A BACKDROP, WHAT ARE YOU RECOMMENDING IN TERMS OF MAKING SOME SALES?

Robinson: KIND OF INTERESTING, MARK, A YEAR AGO TONIGHT -- OR TODAY, 99 DEGREES IN DES MOINES, TODAY 73, WHICH KIND OF UNDERSCORES WHAT YOU'RE TALKING ABOUT HERE, MARK. I THINK IF MY CALCULATIONS ARE ANYWHERE IN THE BALL PARK, THERE'S PROBABLY 700 TO A BILLION BUSHEL OF CORN IN THE REGIONS YOU DESCRIBED THAT ARE SUSCEPTIBLE TO A FROST, LET'S SAY, PRIOR TO NORMAL IN OR AROUND OCTOBER 1. WILL THAT OCCUR? I DON'T KNOW. THE NEXT TWO WEEKS APPEAR TO BE RELATIVELY BENIGN WITHOUT MUCH OF A THREAT. BUT THERE ARE THOSE WHO ARE CONCERNED IN MID, LATE SEPTEMBER OF AN EARLY FROST. SO I THINK THAT WILL KEEP THE MARKET VERY NERVOUS, VERY VOLATILE, PROBABLY PROVIDE THE OPPORTUNITY, COMBINED WITH THE FACT THE SPECULATIVE COMMUNITY HAS A SIGNIFICANT SHORT POSITION. IT LEAVES THE DOOR WIDE OPEN HERE FOR A LITTLE SHORT COVERING RALLY, MARK. I THINK DECEMBER 2004 FUTURES ARE CAPABLE OF PUSHING BACK INTO THE 245 TO 250 AREA. THE 2005 CONTRACT, MARK, 270 OR PERHAPS EVEN A FRACTION ABOVE. THOSE KIND OF NUMBERS, IF NOTHING IS SOLD IN THE APPROACHING CROP, SELL SOMETHING, MINIMUM PRICE SOMETHING, MAKE A HEDGE TO ARRIVE IF THE BASIS IS POOR, BUT TAKE ADVANTAGE OF THAT. THE 2005 CROP, HISTORICALLY $2.70 OR NEAR THAT HAS PROVEN TO BE AN AWFULLY GOOD PRICE AS THE YEAR PROGRESSES.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET, WHICH DID HAVE A NICE UPTURN THIS WEEK. VERY SIMILAR. A LOT OF SHORT POSITIONS OUT THERE?

Robinson: GREAT LEAD-IN, MARK. LAST WEEK THE NET POSITION OF THE SPECULATIVE COMMUNITY WAS AT AN ALL-TIME LARGE POSITION IN WHEAT. WE DID CATCH THIS WEEK. THERE MAY BE SOME WEATHER CONCERNS IN SELECT AREAS OF THE WORLD. THE CHEAPER U.S. PRICE HAS ATTRACTED SOME NEW BUSINESS. EXPORTED INSPECTIONS ARE UP ABOUT 7 PERCENT YEAR OVER YEAR. BUT TO IMPLY THERE'S A SHORTAGE OF WHEAT GLOBALLY WOULD BE VERY MISLEADING. I THINK WE'VE GOT A SHORT-COVERING RALLY UNDERWAY AND A FARMER THAT'S BEEN FAIRLY OBSTINATE TO MAKE MUCH OF A COMMITMENT TO SALES. I THINK SEPTEMBER WHEAT FUTURES ARE POSITIONED HERE TO PUSH ABOVE 330. AND AT THAT POINT, MARK, I'M GOING TO SELL SOME WHEAT OR SUGGEST OUR PRODUCERS IN OUR AUDIENCE SELL SOME WHEAT -- SOME OLD CROP WHEAT.

Pearson: OKAY. SO GET THE SALE -- GET THE FINGER ON THE SALES TRIGGER. LET'S TALK ABOUT THE COTTON MARKET, WHICH HAD A HUGE UPSWING THIS WEEK.

Robinson: AS YOU MENTIONED, I THINK $7 PUTS THE MARKET IN POSITION. AND HERE'S ANOTHER GREAT ILLUSTRATION OF AS RECENTLY AS A WEEK AGO. THE NET SHORT POSITION OF THE SPECULATIVE COMMUNITY WAS EITHER AT OR NEAR RECORD LARGE PROPORTIONS. AND ALL OF A SUDDEN FOR NO APPARENT REASON, MAYBE SOME WEATHER CONCERNS AND SELECT GEOGRAPHIES, NO SIGNIFICANT INCREASE IN EXPORT BUSINESS THAT I'VE NOTED, MAYBE SOME DOMESTIC MILLER PRICING DID TAKE PLACE BUT, BOOM, WE CATCH A MAJOR SHORT-COVERING RALLY. THE BASIS IN MEMPHIS IS ABOUT TWO BUCKS UNDER THE OCTOBER FUTURES CONTRACT, MARK. I THINK OCTOBER FUTURES WILL TRADE TO AROUND 54 CENTS, MAYBE AS QUICKLY AS NEXT WEEK. AT THAT POINT, ASSUMING THE BASIS REMAINS UNCHANGED, $52 CASH COTTON IS AT THE UPPER END OF A LOT OF ANALYSTS' YEARLY FORECAST. I'D DO SOME THERE. I'D DO SOME THERE. I'D SELL SOME THERE.

Pearson: YOU AND I SPENT THE AFTERNOON TALKING TO A LOT OF FARMERS, PARTICULARLY A LOT OF CATTLEMEN. AND THOSE CATTLE FEEDERS OUT THERE, THEY'RE RELUCTANT TO BE BUYING THESE FEEDER CATTLE, BUT SOMEBODY MUST BE TO BE RUNNING THESE PRICES UP. AT THE SAME TIME, THE CATTLE FEEDER IS LOOKING AT THESE HIGH-PRICED FEEDERS. WE HAD STORIES OF 400-POUND FEEDER CALVES SELLING AT $1.58 IN THE WESTERN CORN BELT. LOOKING AT THAT, VIRGIL, WHAT DO YOU TELL THESE CATTLE FEEDERS OUT THERE WHO ARE LOOKING AT DECENT PRICES RIGHT NOW IN THIS FED CATTLE MARKET? IS THAT GOING TO CONTINUE OR CAN YOU MAKE BUYING THESE CALVES WORK?

Robinson: THERE'S A LITTLE CONCERN, I THINK, IN THE IMMEDIATE FUTURE, MARK. IF USDA DATA IS ACCURATE, THE BALANCE OF THE THIRD QUARTER, WE SHOULD SEE A LITTLE INCREASE IN SLAUGHTER. WE KNOW THAT WEIGHTS HAVE BEEN PUSHING HIGHER HERE OF LATE, AND THAT WAS CONFIRMED TONIGHT IN USDA DATA. MARK, I THINK THERE'S BEEN A TENDENCY TO MAYBE HOLD BACK ON MARKETING CATTLE AS AGGRESSIVELY AS WAS THE CASE A FEW SHORT WEEKS AGO. TONIGHT'S CATTLE-ON-FEED REPORT KIND OF CONFIRMED THAT. SO I SENSE THAT, COMBINED WITH THE FACT COLD STORAGE THIS AFTERNOON -- THIS AFTERNOON, INDICATED A MONTH-OVER-MONTH AND A YEAR-OVER-YEAR INCREASE IN TOTAL BEEF INVENTORIES THAT PERHAPS MOVEMENT AND DEMAND HAS SLOWED A LITTLE BIT. SO I SENSE SOME CONCERNS HERE IN THE IMMEDIATE FUTURE. $85, $86, $87 LIVE CATTLE I THINK ARE A SALE THE BALANCE OF THIS QUARTER. WE MAY SEE FEWER NUMBERS AND PERHAPS AN UPSWING IN DEMAND IN THE FOURTH QUARTER OF 2004. I THINK WE COULD SUPPORT A LIVE MARKET IN THE UPPER EIGHTIES WITH PERHAPS IN AN INSTANCE OR TWO AT THE $90 MARK. I'D TRY AND PROTECT THAT $90 MARK FOR THE FOURTH QUARTER OF 2004.

Pearson: OKAY. THE CATTLE-ON-FEED REPORT TOLD US PRETTY MUCH WHAT THE TRADE WAS GUESSING IN TERMS OF NUMBERS OUT THERE. LET'S TALK ABOUT THE PERSON WE DON'T TALK ABOUT THAT MUCH, AND THAT'S THAT COW/CALF PRODUCER OUT THERE. WITH CALVES GETTING READY TO GO, BOY, IT WOULD SEEM TO ME YOU'D WANT TO MOVE THEM AS QUICKLY AS YOU CAN.

Robinson: YEAH, THE DEMAND FOR THOSE REMAINS AWFULLY STRONG, MARK. AND I THINK THERE'S CERTAINLY NO SIGNIFICANT OR SURE SIGNS THAT WE'RE GROWING THE U.S. HERD TO THIS POINT. I CAN'T HELP BUT BELIEVE WITH FEEDER PRICES AS HIGH AS THEY ARE, THERE'S A TENDENCY FOR US TO MOVE IN THAT DIRECTION. BUT AT PRESENT I DON'T SENSE THAT. AND THE DEMAND FOR LIGHTWEIGHT CALVES REMAINS VERY, VERY STRONG, MARK, UNDERPINNED BY, I THINK, EXPECTATIONS OF A FAIRLY STRONG FED MARKET THE BALANCE OF THIS YEAR STRETCHING INTO 2005. IN TERMS OF HEDGES, YOU KNOW, I WAS OF THE OPINION $20 AGO THAT FEEDERS SHOULD BE DOING SOME TYPE OF DEFENSIVE STRATEGIES, AND I'VE GOT TO BELIEVE THE SAME AS WE VISIT TONIGHT. WE'RE AT HISTORIC LEVELS. A LOT OF INTEREST IN THE MARKET FROM THE SPECULATIVE COMMUNITY. THE FED MARKET SEEMS TO BE PLATEAUING AND FLATTENING HERE A LITTLE BIT. I THINK THERE'S SOME SIGNIFICANT RISK FOR THOSE PEOPLE THAT ARE LUGGING FEEDERS, BE THEY CALVES, BE THEY YEARLINGS.

Pearson: ALL RIGHT. LET'S TALK ABOUT ANOTHER GROUP, AND THAT'S THE PORK PRODUCTION SIDE. YOU MENTIONED KIND OF A SLOWDOWN FROM OUR REPORT FROM THE USDA REGARDING FROZEN PRODUCT. WHAT ABOUT ON THE PORK SIDE? ARE WE ABLE TO GET ALL OF OUR PRODUCT MOVED? WE DID SEE KIND OF A HIT THERE THIS WEEK ON THE FINISHED HOGS ON THE MERC.

Robinson: WELL, WE HAD A RECORD WEEK OF SLAUGHTER, MARK. OVER TWO MILLION HEAD. COLD STORAGE REPORT, THE DATA THERE JUST THE OPPOSITE OF BEEF. A MONTH-OVER-MONTH DECLINE IN TOTAL PORK INVENTORY, A YEAR-OVER-YEAR DECLINE. DEMAND REMAINS VERY STRONG, MARK. HOWEVER, WE ARE LOOKING AT I THINK A PRETTY SIGNIFICANT INCREASE IN AVAILABLE SLAUGHTER SUPPLY IN THE FOURTH QUARTER OF 2004. I WOULD TRY AND PROTECT A PRICE IN THE $42 TO $45 MARK, GIVEN FUTURES AND THE OPPORTUNITIES THEY PROVIDE TONIGHT. FIRST QUARTER OF 2005, I'D TRY AND PROTECT THAT $45 TO $48 LEVEL.

Pearson: EXCELLENT. THANK YOU SO MUCH, VIRGIL. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE DETAIL FROM VIRGIL ON 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 REPORT ON PRICE PROSPECTS DURING THE OPENING STAGES OF FALL HARVEST. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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