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Market Analysis: Jul 16, 2004

posted on July 16, 2004


Grain prices took a dramatic slide this week, with the corn market posting its lowest close since December 31st ... and wheat prices making contract lows. For the week, nearby wheat futures fell by almost five cents. September corn retreated by more than seven cents.

Falling futures and tumbling basis produced a squeeze play on soybean prices. For the week, August beans fell more than $1.06. The nearby meal contract plunged $48.20 per ton.

The cotton market traded sideways all week, which was the GOOD news. For the week, October cotton fell 55 cents.

In livestock, the August live cattle contract dropped $1.23. Nearby feeders gave back last week's gains and fell $4.03. And the August lean hog contract declined $3.05.

In the financials, Comex gold fell $1.10 an ounce. The Euro edged up 48 basis points against the dollar. And the CRB Index climbed two-and-a-half points to close at 271.50.

Here now to lend us her insight on these and other market trends is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Jul 16, 2004

Pearson: SUE, IN CHICAGO THIS WEEK, YOU COULD ALMOST HEAR THE AIR COMING OUT OF THIS BULL MARKET WITH WHAT WE SAW ON FUTURES AND ALSO ON THE CASH SIDE, AS FAR AS THE SOYBEANS WERE CONCERNED. EVERYONE'S ATTENTION HAS SHIFTED TO NEW CROP, SO LET'S DO THE SAME THING. WE JUST TALKED ABOUT CLOSE TO A 3-BILLION-BUSHEL CROP EXPECTED FOR THIS YEAR, BUT THERE'S STILL PLENTY OF DEMAND OUT THERE, ISN'T THERE?

Martin: WELL, THERE IS GOOD DEMAND. IN FACT, JUST ON FRIDAY AFTERNOON IT WAS ANNOUNCED THAT CHINA HAS BOUGHT A COUPLE CARGOS OF SOYBEANS FROM ARGENTINA. AND THEY'VE HAD SOME GENTLEMEN OVER THERE JUST TRYING TO WORK OUT A DEAL WITH THE EXPORTERS, TRY TO KIND OF GET SOLIDIFIED A BETTER PLAN FOR EXPORTING BEANS OUT OF SOUTH AMERICA INTO CHINA, AND IRONING OUT THE RULES AND REGULATIONS OF WHAT THEY HAVE TO HAVE FOR A PRODUCT. SO I THINK THE FACT THAT THEY BOUGHT A COUPLE CARGOS OUT OF ARGENTINA IS A GOOD SIGN THAT WE'RE STABILIZING THE PRICES. AUGUST BEANS GOT DOWN TO 7.05 TODAY, AND I THINK THAT THAT'S GETTING VERY CLOSE TO A TARGET OF $7.03, $7. THE AUGUST CONTRACT SHOULD STABILIZE HERE AND SLOW ITS PACE. AND IN FACT, I THINK WE COULD SEE A SHORT COVERING BOUNCE IN THE AUGUST FUTURES. DON'T KNOW HOW BIG THAT WILL BE, BUT I THINK WE SHOULD SEE A SHORT COVERING BOUNCE. IN THE MEANTIME, THEN, THE NOVEMBER CONTRACT WILL BE KEEPING ITS EYES OPEN ON THE WEATHER FORECASTS, BECAUSE WE ARE STARTING TO GO TOWARDS THE BEAN MONTH OF AUGUST. AND ON TOP OF THAT, EVERYBODY HAS, YOU KNOW, MEMORIES OF LAST YEAR WHEN WE TURNED DRY ABOUT THE SAME TIME. AND KEEP IN MIND THE LOWS ON THE SOYBEANS AND CORN CAME AT THE LAST WEEK OF JULY, FIRST WEEK OF AUGUST A YEAR AGO. AND I THINK THAT -- SO SEASONALLY WE DO HAVE A POTENTIAL FOR A LOW IN HERE, AND YOU CAN GET A BOUNCE. BUT IN THE MEANTIME, IF YOUR FORECASTS KEEP COMING VERY AMIABLE, COOLER WEATHER, NOT SO HOT, AND THEN YOU CATCH THESE SHOWERS, THAT'S GOING TO KEEP THE NOVEMBER BEANS ON THE DEFENSIVE. AND THEN IF YOU START GETTING A CORRECTION ON THE AUGUST CONTRACT, GETTING SOME SHORT COVERING, YOU COULD NOW HAVE THE AUGUST BEANS BEING BOUGHT BACK IN THE SPREADS AND YOU SEND THE NOVEMBERS DOWN.

Pearson: SO IF YOU HAVEN'T DOWN ANYTHING THIS YEAR WITH YOUR SOYBEAN CROP, WHAT'S YOUR ADVICE, SUE?

Martin: WELL, MY ADVICE IS IF YOU ARE A PRODUCER WHO DOES NOT PLAN ON SELLING OFF THE COMBINE, THEN YOU CAN BE USING THESE RALLIES THAT -- AS YOU GET THEM. AND THEY'RE NOT VERY BIG RALLIES. IF WE WERE TO PUT SOMETHING REALLY ENTHUSIASTIC IN, I WOULD SAY IT WOULD PROBABLY BE DONE BY THE MIDDLE OF AUGUST. THE LATEST WOULD BE SEPTEMBER 1, BUT I THINK IT WILL BE DONE EARLIER THAN THAT THIS YEAR. I THINK IF YOU GET A RALLY, IT WILL BE DONE AND OVER WITH BY THE MIDDLE OF AUGUST, SO YOU DON'T WANT TO MISS IT. AND I THINK THAT YOU TAKE ADVANTAGE OF THAT AND YOU TRY TO DO SOME PRICE ENHANCEMENT WHERE YOU SELL ON THE BOARD. AND YOU LOOK TO BUY THOSE BACK AROUND 592 IN THE NOVEMBER CONTRACT. AND I LOOK FOR MORE SEASONAL MARKETS, NOTHING THAT BOTTOMS EARLY THIS YEAR. I THINK YOU'LL BE MORE LIKE AN OCTOBER/NOVEMBER KIND OF A LOW THING. AS FAR AS SOMEONE -- A PRODUCER WHO HAPPENS TO MARKET OFF THE COMBINE, YOU REALLY DON'T WANT TO MISS ANY OF THESE RALLIES BECAUSE I DO THINK WE'RE GOING TO SEE A FIVE IN FRONT OF THE BEANS ON THE NEW CROP. THE ONE THING THAT WE'VE GOT COMING AT US IS THAT THE USDA KEEPS TALKING ABOUT SOUTH AMERICA, BRAZIL HAVING A 66-MILLION METRIC TON CROP ESTIMATED THIS NEXT YEAR. THAT'S NEGATIVE. THAT'S A LOT OF BEANS GOING TO BE COMING RIGHT BACK AT US IF EVERYTHING GOES SMOOTHLY FOR THEM. HOWEVER, I'VE MENTIONED THIS OCCASIONALLY BEFORE, I DO BELIEVE THAT MAY BEANS OF NEXT YEAR HAVE A POTENTIAL TO GO UP TO $8. AND SO SOMEWHERE ALONG THE LINE, FOR THE PERSON WHO'S GOING TO STORE BEANS, I THINK HE'LL HAVE ANOTHER CHANCE TO SELL. DO YOU CARRY OLD CROP BEANS INTO NEXT YEAR? VERY FOOLISH.

Pearson: KEEP THAT ONE IN MIND. LET'S TALK ABOUT THE CORN MARKET, ALSO UNDER HUGE PRESSURE. THE WEATHER HAS BEEN GOOD. IF YOU LOOK ACROSS THE CORN BELT, YEAH, THERE WERE A FEW WASHOUT SPOTS EARLY ON, BUT BY AND LARGE THE CORN IS TASSELING. FORECASTS LOOK PRETTY GOOD THIS WEEK. THE TRADE FEELS PRETTY CONFIDENT ABOUT A BIG CORN CROP IN 2004.

Martin: WELL, IT CERTAINLY DOES AND JUSTIFIABLY. PLANT COUNTS ARE UP IN ILLINOIS, OHIO, INDIANA, IOWA... IN FACT, UP NICELY FROM A YEAR AGO'S LEVELS. PLUS, EVERYTHING WENT IN EARLY. EVERY SEED GERMINATED. YOU KNOW, YES, WE'VE HAD SOME NICE RAINS COMING THROUGH. THERE ARE SOME AREAS, POCKETS THAT ARE COMPLAINING A LITTLE BIT ABOUT GETTING DRY. THE ONLY THING WE'VE GOT THAT COULD BE ADVERSE FOR THIS CORN CROP IS, IF IT DID TURN DRY AND FOR LIKE A MONTH OR A MONTH AND A HALF AND THEN ALSO RAMPED UP SOME HEAT AFTER THE FIRST FIVE DAYS OF BEING DRY, ALL OF A SUDDEN BECAUSE OF THE SHALLOW ROOT SITUATION IN SEVERAL AREAS OR MANY AREAS OF THE CORN CROP IN THE MIDWEST, WHY, YOU COULD CERTAINLY HAVE A SITUATION WHERE THE CROP WHILE, YES, YOU GET A CROP, IT'S GOING TO BE DOWNSIZED APPRECIABLY. BUT IF YOU DON'T GET THAT, YOU'RE GOING TO HAVE A WHALE OF A CROP THIS YEAR, AND IT MIGHT BE IN THIS AUGUST REPORT -- SUPPLY/DEMAND REPORT THAT WE DO SEE NEW NUMBERS COME AT US OUT OF USDA, MAYBE A RAMPED-UP PLANTING NUMBER AGAIN.

Pearson: AGAIN, 10.6. I THINK THEY WERE TALKING A 10.4 DEMAND BASE, SO STILL TIGHT. WHAT'S YOUR MARKETING IDEA, THEN, FOR A CORN PRODUCER? WHAT SHOULD HE BE DOING? PRICE LATER?

Martin: WELL, I THINK THE PROBLEM IS, FIRST OFF IN THE OLD CROP, THERE'S A LOT OF OLD CROP CORN SITTING AROUND IN FARMERS' HANDS. IT WILL COME OUT ALONE AT THE END OF AUGUST. YOU KNOW, THE LAST TWO YEARS PRODUCERS HAVE DONE THIS SAME THING: CARRIED CORN LONGER THAN THEY SHOULD HAVE, BUT THEY LUCKED OUT. THIS YEAR I DON'T EXPECT THEM TO LUCK OUT. SO I GUESS I WOULD HAVE TO SAY THAT YOU TRY TO GET ANY RALLY THAT WE COULD HAVE HERE BY THE MIDDLE OF AUGUST, GET THAT CORN SOLD AND GET RID OF IT. AND ON NEW CROP, USE THAT RALLY TO ALSO MARKET AS WELL, BECAUSE I DO THINK CORN IS GOING DOWN INTO HARVEST.

Pearson: ALL RIGHT. LET'S TALK ABOUT, QUICKLY, THIS WHEAT MARKET. WHAT'S HAPPENING THERE? TYPICAL HARVEST LOWS.

Martin: WELL, I THINK SO. THE ONE THING THAT'S INTERESTING IS THE KC WHEAT CONTINUES TO HOLD HERE AT THESE LOWS. IT DOESN'T SEEM TO BE MAKING NEW LOWS, WHILE THE CHICAGO WHEAT IS. I THINK THAT THE CHICAGO WHEAT COULD STILL GO DOWN ANOTHER 10, MAYBE 15 CENTS. THE MINNEAPOLIS WHEAT LOOKS RIGHT NOW THAT IT'S AT A PRICE LEVEL WHERE IT MAY GARNER SOME SUPPORT, GARNER SOME EXPORT DEMAND. BUT WE'VE LOST A LOT OF BUSINESS IN THE WORLD MARKET TO THE BLACK SEA. THEY'RE CERTAINLY UNDERPRICED TO US.

Pearson: THAT'S RIGHT. AND THEY HAD A CROP THIS YEAR AFTER A PROBLEM LAST YEAR.

Martin: ABSOLUTELY.

Pearson: QUICKLY, THE COTTON MARKET AGAIN UNDER SOME PRESSURE. NOT NEARLY AS BAD AS WHAT WE SAW THE PRIOR TWO WEEKS BUT, AGAIN, WE'RE LOWER AGAIN.

Martin: WELL, COTTON, THE COMMITMENT OF TRADERS REPORT CAME OUT AND IT SHOWED THE FUNDS VERY HEAVILY LONG COTTON. AND THAT'S PROBABLY A -- OR I SHOULD SAY SHORT COTTON. SO THAT'S KIND OF A DETRIMENT TO THE MARKET. IT JUST SHOWS THAT THEY CONTINUE TO SELL ANY RALLY WE GET. WE DID SEE SOME BUYING OF CALLS BY COMMERCIALS, AND THAT KIND OF GAVE US A LITTLE BIT OF STABILIZATION HERE THIS WEEK. BUT COTTON LOOKS CHEAP TO ME. WE MAY GET A LITTLE BIT LOWER HERE, BUT 45 CENTS IS A SUPPORT SHELF. AND ALSO WE CONTINUE TO HOLD THE LOWS OF JULY, SO I THINK -- BEFORE IT EXPIRED. SO I THINK THAT MAYBE IF WE COULD START TO TURN AROUND AND TAKE OUT A PREVIOUS RALLY HIGH, THEN WE'VE GOT THIS MARKET TURNED AROUND AND WE SHOULD START TO GET A RALLY COMING OUT OF COTTON. IT'S ABOUT TIME.

Pearson: WELL, THIS HAS BEEN A REAL WATERSHED WEEK, NOT JUST IN THE GRAINS, BUT ALSO IN LIVESTOCK. FED-CATTLE MARKET, ARE WE STARTING TO SEE SOME OF THE BALLOON COME OFF THIS FED-CATTLE PRICE?

Martin: ABSOLUTELY. I THINK THAT THESE CATTLE PRICES HAVE BEEN PHENOMENAL. GOOD FOR THE GUY WHO'S SELLING FEEDERS AND CALVES. NOT SO GOOD MAYBE DOWN THE ROAD FOR THE GUY WHO'S BOUGHT THEM. THERE'S NOT THE ABILITY TO BE ABLE TO HEDGE THEM. AND WHILE WE MAY GET SOME SECONDARY RALLIES, I DON'T THINK THEY'RE GOING TO BE REAL GOOD. AUGUST FEEDERS LOOK TO ME LIKE THEY'VE DOUBLE TOPPED. IF YOU TAKE OUT 107.50, I SEE AUGUST FEEDERS GOING DOWN TO ABOUT 104, MAYBE 102. THE FAT-CATTLE MARKET, AUGUST FATS CERTAINLY LOOK LIKE THEY HAVE -- OF COURSE, THEY ARE PROJECTED TO GO DOWN TO 80 CENTS, MAYBE 79.50.

Pearson: OUR FEEDER CATTLE GRAPH WILL EVEN SHOW YOU ALMOST A SPIKE THAT OCCURRED HERE THIS WEEK THAT YOU ALLUDED TO. SO COW/CALF PEOPLE NEED TO BE AWARE OF THAT. SUE, AS YOU LOOK AT THE OVERALL PICTURE, PORK MARKET ALSO UNDER PRESSURE THIS WEEK. AT LEAST ON THE BOARD, SOME SOFTENING UP. AS YOU LOOK AT THIS HOG MARKET GOING DOWN THE ROAD, WHAT DO YOU SEE?

Martin: WELL, I THINK THAT, FIRST OFF, IT'S NOT OUT OF LINE TO HAVE HOGS TRYING TO BE SOFTER IN JULY, AND THEN YOU BASE OUT, MAYBE GET A LITTLE RALLY INTO FAIR TIME, ABOUT MAYBE THE SECOND WEEK OF AUGUST, AND THEN THEY PEAK OUT AND DECLINE INTO HARVEST OR, YOU KNOW, INTO OCTOBER. I THINK THAT WHEN WE LOOK AT THE HOG MARKET, WE'VE HAD MORE NUMBERS THIS YEAR, AND YET WE'VE BEEN VERY FORTUNATE TO HAVE WONDERFUL DEMAND BECAUSE OF ALL THESE PROTEIN, LOW-CARB DIETS. I THINK THAT -- OF COURSE, THERE'S BEEN A LOT OF RHETORIC THIS WEEK ABOUT THOSE DIETS STARTING TO HAVE ALREADY SEEN THEIR PEAK. AND IF THAT IS THE CASE, MEAT DEMAND IS GOING SOUTH. AND WITHOUT AN EXPORT MARKET ON THE BEEF, YOU KNOW, THAT'S HURTFUL TO THE CATTLE MARKET. AND OF COURSE, THEN, IF YOU GET BEEF DROPPING BACK, IT GETS CHEAPER AGAINST HIGH-PRICED HOGS TOO. ALL OF A SUDDEN, YOU'VE GOT A HOG MARKET THAT'S VYING FOR AN EXPORT MARKET, YOU GET THE JAPANESE MARKET OPEN, AND WE'RE GOING TO SEE SOME OF THAT PORK DEMAND GO TO BEEF.

Pearson: SOME GOODS POINTS AS USUAL. SUE MARTIN, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM SUE ON WHERE THESE MARKETS ARE 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 EFFORT NEEDED TO TAKE FOOD-GRADE SOYBEANS FROM THE LAB TO THE SUPERMARKET. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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