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Market Analysis: Aug 06, 2004

posted on August 6, 2004


Despite calls for record production and the continuation of near perfect weather, the grain markets seemed to stabilize this week. For the week, nearby wheat futures gained more than three cents. September corn jumped more than eight cents.

Better-than-expected export sales and speculation on Chinese buying helped the soybean market. For the week, August beans advanced more than seven cents. But the nearby meal contract fell by $9.30 per ton.

The cotton market made a slight recovery, gaining $1.07 for the week.

In livestock, the August live cattle contract fell $1.17. Nearby feeders slipped 60 cents. But the August lean hog contract advanced another $1.50.

In the financials, Comex gold gained $8.80 an ounce. The Euro jumped 255 basis points against the dollar. And the CRB Index improved more than a point to close at 268.25.

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

Market Analysis: Aug 06, 2004

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT ABOUT, FIRST OF ALL, SOME UPSIDE AND STABILIZATIONS. WE SAID AT THE OPEN, WE HAVE KIND OF STABILIZED HERE. THE BIG CONCERN IS ABOUT A BIG CROP. WE'LL GET A PRETTY GOOD ESTIMATE NEXT THURSDAY FROM THE USDA. LET'S TALK ABOUT SOYBEANS. THEY'VE BEEN KIND OF THE GLAMOUR CROP THIS YEAR. THEY'VE BEEN FALLING HARD AND FAST, TOMM. WHAT'S AHEAD?

Pfitzenmaier: WELL, THE AUGUST BEAN -- THE AUGUST BEAN IS KIND OF OPERATING IN ITS OWN LITTLE WORLD, AND THAT ABOUT OVER WITH. SO I THINK EVERYBODY'S FOCUS NOW IS ON NEW CROP. AND LIKE WE'VE BEEN TALKING FOR THREE OR FOUR MONTHS, THIS AUGUST WEATHER IS CRITICAL TO HOW THE SOYBEANS COME OUT. AND I'M NOT SURE EVERYBODY IS REALLY COMFORTABLE WITH THE COOL, WET CONDITIONS THAT WE'VE GOT GOING INTO AUGUST, HOW THAT'S GOING TO AFFECT YIELD. I MEAN IT'S HARD TO KNOW WHAT YIELDS ARE WHEN THE CROPS ARE MATURE AND READY TO BE HARVESTED, LET ALONE SPECULATING NOW. BUT, YOU KNOW, IF YOU'RE SCARED ABOUT THE HOT, DRY -- THAT'S NOT HAPPENING. SO NOW DO YOU NEED TO BE CONCERNED ABOUT THE COOL AND WET? AND I THINK THAT STARTED A LITTLE BIT THIS WEEK. THERE'S SOME PEOPLE TALKING ABOUT THAT AND A LITTLE CONCERNED ABOUT, YOU KNOW, THE LOWS IN THE UPPER 40S TO MID 50S IN SOME AREAS, AND I THINK THAT HAS PEOPLE UNEASY. YOU ALSO HAVE A MARKET THAT'S FAIRLY WELL SHORT, AND I THINK THERE'S A LOT OF SHORT COVERING GOING ON TO ADD TO THAT REPORT NEXT WEEK THAT YOU WERE TALKING ABOUT.

Pearson: AND MAYBE EVERYBODY IS GETTING OVER TO ONE SIDE OF THE BOAT SO THAT REPORT MAYBE IS NOT AS NEGATIVE.

Pfitzenmaier: RIGHT, EXACTLY. THAT COULD GIVE US A LITTLE LIFT HERE. HAVING SAID THAT, I THINK THAT NOVEMBER BEANS ABOVE 5.80, 5.80 TO $6 IS GOING TO BE PRETTY TOUGH RESISTANCE TO GET THROUGH, GIVEN HOW GOOD THE CROP LOOKS AT THIS POINT.

Pearson: I'VE BEEN OUT AND ABOUT, PRETTY MUCH CLEAR ACROSS THE CORN BELT OVER TO THE EASTERN CORN BELT, THE INDIANA/ILLINOIS LINE AND DOWN AROUND SANGAMON COUNTY IN CENTRAL ILLINOIS, OUT THROUGH SOUTH DAKOTA. EVERYWHERE THE CROP LOOKS DECENT, TOMM. FOR SOMEONE WHO HASN'T PRICED ANY BEANS YET, WHAT'S YOUR ADVICE?

Pfitzenmaier: WELL, THAT'S WHAT I'M SAYING. YOU'RE TALKING NEW CROP BEANS. IF YOU HAVEN'T PRICED ANY NEW CROP BEANS AND YOU GET SOME STRENGTH INTO THAT 5.80 TO $6 AREA, I THINK YOU HAVE TO LOOK AT THAT AS AN OPPORTUNITY TO SELL. NOW, IF YOU'RE STILL LOOKING FOR $12 BEANS AND THINK THEY'RE GOING HIGHER, THOSE CALLS KEEP GETTING CHEAPER AND CHEAPER, SO STEP IN AND BUY ONE OF THOSE TO COVER YOURSELF. BUT I THINK YOU HAVE TO MAKE SALES UP AGAINST THAT RESISTANCE. YOU KNOW, MAYBE YOU DON'T GET CARRIED AWAY, BUT 20, 25 PERCENT PROBABLY WOULDN'T HURT ANYTHING.

Pearson: NOT AT ALL. LET'S TALK ABOUT CORN. AGAIN, SIMILAR STORY. I MEAN WE'RE TALKING CLOSE TO 11-BILLION-BUSHEL CORN CROP, 149-PLUS NATIONAL AVERAGE BASED ON WHAT WE'RE SEEING SO FAR. WITH THOSE KIND OF NUMBERS, EVEN WITH THE STRONG DEMAND PICTURE, WE COULD HAVE A LOT OF EXTRA CORN NEXT YEAR.

Pfitzenmaier: YEAH, AND THERE'S A LOT OF SPECULATION ABOUT WHAT NEXT WEEK IS GOING TO GIVE US, YOU KNOW. THERE'S SOME PEOPLE FEEL THAT THE USDA IS GOING TO HAVE TO BACK OFF ON THEIR ACREAGE A LITTLE BIT BECAUSE OF ALL THE WET CONDITIONS WE HAD IN THE SPRING AND THAT THAT MIGHT COUNTERBALANCE A LITTLE BIT A LITTLE POP IN THE YIELD THAT WE MIGHT GET. BUT, YEAH, IT LOOKS LIKE WE'RE GOING TO HAVE -- I DON'T SEE ANYWAY AROUND US NOT HAVING A LOT OF CORN GOING INTO THE FALL. AND THEN YOU HAVE TO START FOCUSING ON, YOU KNOW, HOW IS DEMAND GOING TO SHAPE UP AND DID CORN PRICES DROP ENOUGH TO KEEP THAT DEMAND STIMULATED FAIRLY WELL. AND I GUESS THAT REMAINS TO BE SEEN. CERTAINLY THAT ETHANOL INDUSTRY IS CONTINUING TO ROCKET RIGHT ALONG, AND THAT'S GOING TO BE A SUPPORTIVE FACTOR IN THE CORN MARKET CERTAINLY.

Pearson: WE'VE SEEN THIS DEMAND HIT 10 BILLION BUSHELS, SO AN 11-BILLION-BUSHEL CORN CROP CERTAINLY IN TERMS OF CARRYOUT WOULDN'T BE ALL THAT DIFFERENT.

Pfitzenmaier: I MEAN WE'RE PROBABLY GOING TO BUILD CARRYOUT A LITTLE BIT. THERE'S NO QUESTION ABOUT THAT. WE'RE STILL NOT TALKING BIG NUMBERS, A BILLION, BILLION TWO MAYBE. YOU KNOW, THAT'S NOT $1.75 CORN PRICES. I THINK CORN PROBABLY HAS GOT A CHANCE OF RALLYING HERE, MAYBE A SHORT COVERING RALLY TAKE YOU TO 240, MAYBE 248 ON THE UPSIDE. YOU GET UNDER 225 TO 220, THEN I THINK YOU HAVE TO QUIT BEING SO BEARISH. IF YOU'RE A LIVESTOCK PRODUCER, USE THAT AS AN OPPORTUNITY TO START GETTING LONG SOME CORN. YOU KNOW, I MEAN YOU'RE AT THE LOAN RATES SO THEN EVERYBODY'S ENTHUSIASM FOR MARKETING TENDS TO DRY UP TOO. SO THAT'S PROBABLY THE RANGE WE'RE PROBABLY GOING TO BE IN FOR A WHILE HERE.

Pearson: OKAY. AND THEN AGAIN, FROM A STRATEGY STANDPOINT, IF WE GET THOSE RALLIES, YOU'D SELL INTO THEM. ANY OTHER STRATEGIES OUT THERE YOU'RE LOOKING AT, TOMM?

Pfitzenmaier: WELL, I'M ALWAYS A BIG ONE ON BUYING -- YOU KNOW, BUYING YOURSELF A 230 CORN PUT, GO OUT AND SELL A 250 CALL TO PAY FOR IT, AND LOCK YOURSELF INTO A LITTLE TRADING RANGE WITH A NICE FLOOR UNDERNEATH YOU. THAT'S ONE THAT'S CERTAINLY I THINK WORTH TAKING A LOOK AT ON A LITTLE BOUNCE HERE.

Pearson: AROUND THE COUNTRYSIDE, I'VE BEEN TALKING TO GROUPS AND PRODUCERS WHO HAVE TOLD ME, "ARE WE GOING TO SEE MORE OF A CLASSIC YEAR THIS YEAR WHERE WE'RE GOING TO KIND OF WORK INTO OUR HARVEST LOW THIS FALL AND THEN MAYBE IMPROVE FROM THERE?"

Pfitzenmaier: WELL, I THINK THE BEAN LOW COULD BE PUT IN BY THE FIRST OF SEPTEMBER. THAT REALLY WOULDN'T BE OUT OF CHARACTER AT ALL. SO WHATEVER NEGATIVITY WE HAVE IS PROBABLY GOING TO BE DONE BETWEEN THE TIME OF THAT REPORT ON THE 12TH AND THE END OF THE MONTH. SO, YEAH, I THINK THE END IS PROBABLY CLOSE.

Pearson: LET'S START TALKING ABOUT ANOTHER PRODUCT WE JUST TALKED ABOUT, AND THAT'S THE WHEAT MARKET. WE ARE TALKING ABOUT SOME BIG YIELDS UP IN NORTH DAKOTA WE POINTED TO EARLIER IN THE SHOW, BUT A LOT OF WHEAT OUT THERE. IT'S HAD KIND OF A SLUGGISH RESPONSE OUT THERE TO BEGIN WITH, DESPITE THE RALLIES IN THE CORN AND THE BEANS. WHAT'S AHEAD FOR WHEAT? HAVE WE KIND OF WORKED THROUGH THE HARVEST LOWS THERE?

Pfitzenmaier: WELL, I DON'T KNOW. IT LOOKS TO ME LIKE WE HAD A LITTLE DEAD-CAT BOUNCE HERE THIS WEEK AND WE COULD VERY EASILY GO BACK AND RETEST THOSE LOWS, MAYBE EVEN TAKE THEM OUT BY A LITTLE BIT. BUT YOU GET WHEAT DOWN AROUND 320 -- NEW CROP WHEAT DOWN TO 320 AND YOU CAN'T GET TOO BEARISH. NOW, THAT'S GOING TO BE A NEGATIVE INFLUENCE ON CORN, REFERRING BACK TO THAT A LITTLE BIT. SO THAT'S ANOTHER FACTOR IN THE CORN MARKET. BUT LIKE YOU ALLUDED TO, THE U.S. CROP IS GOOD. THE EUROPEAN CROP IS WONDERFUL, THE BEST THEY'VE HAD IN QUITE A LONG TIME. SO RECOVERY RALLIES ON THE WHEAT AREN'T PROBABLY GOING TO AMOUNT TO A WHOLE LOT. BUT, LIKE I SAID, 320 IS PROBABLY FAIRLY SOLID SUPPORT ON THE WHEAT CONTRACTS.

Pearson: COTTON MARKET, SPEAK OF A DEAD-CAT BOUNCE, DID SEE A LITTLE BIT OF RECOVERY THIS WEEK. THERE SEEMS TO BE A LOT OF COTTON OUT THERE. CHINA IS ALWAYS A BIG QUESTION MARK IN THIS COTTON EQUATION. WHAT DO YOU SEE AHEAD NOW?

Pfitzenmaier: WELL, YOU'VE GOT A GOOD CROP COMING ON AND, LIKE YOU ALLUDED TO, CHINA -- THEY'RE KIND OF HAVING SOME OF THE PROBLEMS WITH CHINA IN COTTON NOW THAT WE HAD WITH THE SOYBEANS HERE A COUPLE MONTHS AGO WHERE THEY'RE BACKING THEM UP AND THEY'RE NOT GETTING THEM UNLOADED AND THEY'RE NOT GETTING THEIR LETTERS OF CREDIT AND ALL THAT. SO THE RALLY IN COTTON PROBABLY ISN'T GOING TO AMOUNT TO MUCH. IF YOU CAN GET IT BACK UP INTO THAT $50 AREA, THAT'S PROBABLY ALL YOU'RE GOING TO BE ABLE EXPECT OUT OF COTTON.

Pearson: LET'S TALK ABOUT LIVESTOCK. SO MANY VARIABLES RIGHT NOW IN THIS FED-CATTLE MARKET. THERE'S CONCERN ABOUT BEEF COMING IN FROM CANADA. THERE'S CONCERN ABOUT ANOTHER BSE OUTBREAK. I MEAN, FRANKLY, IF YOU TALK TO PRODUCERS, THEIR BIG CONCERN IS ANOTHER EVENT. AND WE'RE LOOKING AT REAL GOOD FED-CATTLE PRICES, REAL GOOD FEEDER-CATTLE PRICES. YOU CAN'T KEEP PINCHING YOURSELF FOREVER, TOMM. DO YOU NEED TO TAKE SOME ACTION HERE?

Pfitzenmaier: $90 CATTLE IS A GOOD TICKET FOR CATTLE. I DON'T CARE -- I MEAN WHERE PROBABLY SOME OF THIS CANADIAN THING IS GETTING WORKED THROUGH, THERE'S CERTAINLY OTHER PEOPLE AROUND THE WORLD THAT ARE SUPPLYING THE JAPANESE WITH BEEF WHILE WE'RE SITTING HERE TWIDDLING OUR THUMBS. SO PART OF THAT MARKET IS GOING AWAY AND NOT GOING TO COME BACK FOR A WHILE. DEMAND IS NOT GOING TO BE AS GOOD AS IT WAS A YEAR AGO. THE CONSUMER CAN LOOK AROUND AT TURKEY AND CHICKEN AND PORK, FOR THAT MATTER, AND IT HASN'T GONE UP NEAR AS MUCH AS BEEF HAS ON A PERCENTAGE BASIS. SO THE COMPETITIVE MEATS ARE A REAL PROBLEM. AND THEN YOU HAVE TO FACTOR IN THIS $45 CRUDE OIL AND THE MONEY THAT'S GOING TO TAKE OUT OF THE CONSUMERS' POCKETS. SO WEIGHTS ARE SHIFTING UP. THAT'S ONE WE'VE ALWAYS LOOKED AT. YOU KNOW, YOU START TO SEE THOSE WEIGHTS GOING UP. AND I UNDERSTAND THAT CERTAINLY IT MAKES A LOT MORE SENSE TO PUT A LITTLE WEIGHT ON THE CATTLE YOU'VE GOT NOW THAN PAY WHAT YOU'RE GOING TO HAVE TO PAY FOR REPLACEMENTS, BUT THOSE ARE ALL FACTORS THAT ARE GOING TO KIND OF LIMIT THE RALLY HERE. WE'RE UP ABOVE WHERE WE WERE A YEAR AGO, AND I DON'T THINK WE'VE GOT AS GOOD OF A FUNDAMENTAL SITUATION AS WE HAD A YEAR AGO. SO, YEAH, YOU GET $90 CATTLE, I THINK YOU HAVE TO, YOU KNOW, SELL THE CATTLE, BUY A PUT AND SELL A CALL TO PAY FOR IT. COME UP WITH SOME STRATEGY, BUT I THINK YOU HAVE TO HAVE SOME KIND OF FLOOR UNDER YOU FROM THESE KIND OF LEVELS. AND MAYBE WE'LL GO A LITTLE HIGHER. MAYBE WE'LL GO TO 92 OR 94. I'M NOT SAYING THAT'S NOT A POSSIBILITY, BUT $90 IS A GOOD PRICE FOR CATTLE.

Pearson: FEEDER CATTLE HAVE BEEN JUMPING RIGHT AHEAD OF THIS THING TOO. IT'S THE SMALLEST COW HERD SINCE 1959. YOU KNOW, THIS MARKET IS VERY TIGHT --

Pfitzenmaier: AND CHEAP CORN.

Pearson: AND CHEAP CORN THROWN ON TOP OF IT. THIS HAS GOT TO BE ONE OF THE BEST FEEDER MARKET YEARS IN CATTLE RELATIVELY IN HISTORY.

Pfitzenmaier: AND PROBABLY WILL BE ALL YEAR. I DON'T SEE THAT GOING AWAY. I MEAN I DON'T THINK CORN IS GOING UP MUCH. DEMAND IS PROBABLY GOING TO STAY GOOD FOR THOSE CALVES. HISTORICALLY YOU HAVE A COUPLE YEARS RALLY WHEN YOU HAVE THOSE KIND OF LOW NUMBERS AND THINGS STAY GOOD FOR THAT PERIOD OF TIME, SO I DON'T SEE THAT MARKET FALLING APART, BY ANY MEANS. I THINK ANY BREAKS THERE ARE PROBABLY GOING TO BE WELL SUPPORTED. AND YOU CERTAINLY SEE THAT OUT IN THE COUNTRY AT THE SALE BARNS AND AROUND -- YOU KNOW, PEOPLE ARE ANXIOUS TO GET THEIR HANDS ON CALVES.

Pearson: ABSOLUTELY. I WANT TO ALSO TALK TO YOU ABOUT THIS HOG MARKET AND WHAT'S BEEN HAPPENING THERE. THERE'S ALSO BEEN SOME CONCERN THERE ABOUT THIS CONSUMER. WE SAW THE CONSUMER SPENDING REPORT FRIDAY WAS NOT GOOD. ARE PEOPLE GOING TO START BACKING AWAY FROM THE HI-END CUTS ON BOTH BEEF AND PORK?

Pfitzenmaier: $80 HOGS ARE PRETTY EXPENSIVE HOGS. YOU LOOK AT THAT OCTOBER CONTRACT CLOSE TO $71 TODAY. $71 FOR OCTOBER HOGS WITH THE BASIS SITUATION THAT NORMALLY COMES UP IN THAT SEPTEMBER/OCTOBER TIME PERIOD IS A TREMENDOUS PRICE FOR HOGS. AGAIN, MAYBE WE'RE GOING A COUPLE BUCKS, THREE BUCKS, FOUR BUCKS ABOVE THAT, BUT I DON'T THINK VERY MUCH FOR VERY LONG. SO, YOU KNOW, THESE ARE THE KIND OF AREAS WHERE -- YOU KNOW, WHEN YOU'RE KIND OF IN THAT MIDRANGE, IT'S KIND OF NICE TO LOOK AT A PUT BECAUSE YOU'VE GOT UPSIDE POTENTIAL. BUT HERE I DON'T THINK UPSIDE POTENTIAL IS THAT GREAT. I THINK YOU HAVE TO GO OUT AND SELL THEM, GET THEM SOLD. IF YOU'RE SCARED TO DEATH, GO BUY YOURSELF A CALL IF YOU THINK WE'RE GOING TO HUNDRED-DOLLAR HOGS OR WHATEVER, BUT I THINK YOU NEED TO GO OUT THERE AND GET THEM SOLD AT THESE LEVELS MYSELF.

Pearson: OKAY. SO AGAIN, LET'S START GETTING AGGRESSIVE BOTH ON CATTLE AND THE HOGS.

Pfitzenmaier: YEAH, ABSOLUTELY.

Pearson: AND WHETHER IT'S USING AN OPTION STRATEGY OR WHATEVER YOU'RE COMFORTABLE WITH, GET SOME OF THESE PRICES --

Pfitzenmaier: AT HIGH LEVELS, YOU'RE BETTER OFF USING THE FUTURES THAN AN OPTION STRATEGY. OPTION STRATEGIES ARE BETTER AT THE MIDRANGE OR DOWN TOWARD THE BOTTOM.

Pearson: GOOD POINTS AS USUAL. THANK SO MUCH, TOMM. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO GET SOME MORE DETAIL FROM TOMM 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 EXAMINE THE ELECTION-YEAR TORRENT OF GOVERNMENT FUNDING THAT'S FINDING ITS WAY TO THE RURAL SWING STATES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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