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Market Analysis: Jul 09, 2004

posted on July 9, 2004


Grain traders got out the sell orders this week on prospects for a big harvest and sluggish demand. For the week, nearby wheat futures fell by a nickel. July corn retreated by 13 cents.

Demand in the soy complex was a little better, although export numbers released Friday were below par. For the week, July beans advanced more than 14 cents. Nearby meal gained $15.80 per ton.

Cotton continued discovering new lows, falling another $1.62 on the new nearby October contract.

In livestock, the August live cattle contract dropped $1.02. Nearby feeders jumped $4.15. And the July lean hog contract gained 45 cents.

In the financials, Comex gold soared $9.80 an ounce. The Euro moved up 95 basis points against the dollar. And the CRB Index climbed three-and-a-half points to close at 269-even.

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: Jul 09, 2004

Robinson: THANK YOU, MARK.

Pearson: VIRGIL, WE'VE BEEN TALKING ABOUT SOYBEANS SO MUCH THAT IT'S HARD TO FATHOM, BUT WE'VE GOT TO START WITH THEM AGAIN. I MEAN WE'VE GOT THIS DICHOTOMY GOING. WE'VE GOT CASH PRICES DRAMATIC -- BASIS THAT'S FAR SURPLUS TO WHAT THEY'RE TRADING FOR ON THE BOARD. WE HAVE DIFFERENT PARTS OF THE COUNTRY NEEDING BEANS. WHAT'S AHEAD, REAL QUICK, ON THESE OLD CROP SOYBEANS?

Robinson: WELL, THE JULY FUTURES CONTRACTS, MARK, WILL EXPIRE NEXT WEDNESDAY, THE 14TH. AND OF COURSE, AT THIS POINT THEY CONTINUE TO CARRY A FAIRLY SIGNIFICANT PREMIUM TO THE NEXT FUTURES CONTRACT, WHICH IS THE AUGUST. IN THAT CONTEXT, I DID A LITTLE SPOT RESEARCH BEFORE COMING TO THE STUDIO, SO IT WAS QUICK. BUT IN YEARS OF A SIMILAR NATURE, AND THERE WERE A FEW, MARK, I WENT BACK AND LOOKED, AND WHEN THE JULY CONTRACT EXPIRED, AT WHATEVER PRICE THAT PROVES TO BE NEXT WEDNESDAY, HISTORY WOULD SUGGEST THAT THE AUGUST MAKES A PASS AT OR VERY CLOSE TO WHATEVER PRICE THE JULY FUTURES CONTRACT EXPIRES AT. SO WE NEED TO KEEP THAT IN MIND HERE, PARTICULARLY FOR THOSE IN THE AUDIENCE THAT ARE STILL LUGGING OLD CROP BEANS. YOU MENTIONED A VERY STRONG BASIS, HISTORICALLY A PRETTY STRONG PRICE. THE AVAILABILITY OF BEANS IN THE SOUTHERN PART OF THE UNITED STATES IS LIKELY TO COME ON-STREAM LATE AUGUST, EARLY SEPTEMBER. IT'S CONCEIVABLE, MARK, THAT PROCESSORS WITH LAST WEEK'S SPIKE IN PRICE AND ADJUSTING BASIS VALUES, AT LEAST IN SELECT AREAS, TOOK ON A PRETTY GOOD JAG OF CASH BEANS. SO WE NEED TO BE EXTREMELY CAREFUL WITH OLD CROP BEANS HERE. I THINK TIME IS NO LONGER OUR FRIEND BUT, RATHER, OF CONCERN TO ME. SO I'D USE THIS NEXT BUMP IN AUGUST FUTURES, POST THE EXPIRATION OF JULY, COMBINED WITH STRONG BASIS, I WOULD BE INCLINED TO FINISH UP OLD CROP SALES.

Pearson: IT'S ALL RIGHT TO BE THE -- USE THESE GAMBLING BEANS, BUT YOU DON'T WANT TO BE THE LAST ONE AT THE TABLE.

Robinson: THIS IS AN UNUSUAL MARKET, A HIGHLY VOLATILE SITUATION, MARK. AND AS YOU MENTIONED, THERE IS ALWAYS THE THREAT OF IMPORTATION WHICH, TO THIS POINT, REALLY HASN'T RECEIVED A LOT OF PUBLICITY. I THINK TOKEN QUANTITIES OF MEAL ARE ARRIVING AS WE VISIT, IN WILMINGTON, NORTH CAROLINA. BEANS PERHAPS NOT. BUT IT MAY BE ENOUGH PSYCHOLOGICALLY, IN COMBINATION WITH WHAT APPEARS TO BE A RELATIVELY GOOD U.S. NEW CROP DEVELOPING, TO TAKE THE EDGE OFF THIS BULL MARKET HERE IN THE NEXT THREE OR FOUR WEEKS.

Pearson: OKAY. A LOT OF PEOPLE KICKING THEMSELVES IN THIS NEW CROP BEAN MARKET. DO YOU THINK WE'LL GET ANOTHER SHOT FOR SOME UPSIDE THERE?

Robinson: WELL, THERE'S ALWAYS THE PROSPECT, MARK, AS WE HAVE THE MONTH OF AUGUST YET TO DEAL WITH. AND HISTORICALLY AUGUST IS THE MONTH WHERE PRICE VOLATILITY AND SOYBEAN FUTURES IS WELL PRONOUNCED. THERE ARE ANY NUMBER OF CASES WHERE PRICES CAN FLUCTUATE AS MUCH AS A DOLLAR OR MORE IN AUGUST. SO, YEAH, I THINK THERE'S ALWAYS THAT PROSPECT. I WOULD BE PREPARED, HOWEVER, WITHIN THE NEXT FEW DAYS, POST NEXT MONDAY'S NEW DATA, AS A MATTER OF FACT, TO DO SOME TYPE OF MARKETING, SOME TYPE OF DEFENSIVE STRATEGY AS THE NOVEMBER FUTURES CONTRACT PUSHES ABOVE 675, MARK. FOR THOSE IN OUR GROUP THAT HAVE DONE NOTHING TO THIS POINT IN TIME, I BELIEVE I'D BEGIN AT 675 AND HOPE, IN FACT, IT'S MY WEAKEST SALE OF THE YEAR.

Pearson: ALL RIGHT. WHAT ABOUT NEW CROP ON CORN? WHAT ARE YOUR STRATEGIES AND THOUGHTS THERE? THAT'S SOFTENED UP QUITE A BIT.

Robinson: YEAH, THE DYNAMICS IN CORN HAVE CHANGED SINCE YOU AND I VISITED LAST, MARK, DOCUMENTED BY THE INCREASE IN U.S. ACRES, A COUPLE OF MILLION. NOW THE NUMBER OF ACRES TO BE HARVESTED IS STILL QUITE DEBATABLE, AS THE NORTHWESTERN PART OF THE CORN BELT EXPERIENCED UNUSUALLY WET, COLD CONDITIONS THROUGH MUCH OF THE SPRING. AND THERE MAY BE SOME ABANDONMENT THERE. THERE MAY BE SOME LOST THAT WILL NOT BE HARVESTED. BUT AT PRESENT THE MARKET IS OF THE OPINION WE ARE ON TRACK FOR TRENDLINE OR BETTER YIELDS, WHICH WOULD SUGGEST, MARK, THE FIRST TIME IN MY MEMORY WE'D HAVE CONSECUTIVELY LARGE -- RECORD LARGE U.S. YIELDS BACK TO BACK. WITH THAT AND THE FACT THAT EXPORT SALES AND SHIPMENTS HAVE SLOWED VERY NOTICEABLY HERE, WE ARE LIKELY TO SEE, MONDAY MORNING, AN INCREASE IN THIS YEAR'S CARRYOUT, WHICH WOULD BE ADDED TO THE PROJECTIONS FOR 2004/2005. BOTTOM LINE IS THAT CARRYOUT IS PROBABLY GOING TO BE A BILLION BUSHEL, PERHAPS A LITTLE MORE. SO ALL OF A SUDDEN, THE U.S. DYNAMICS HAVE CHANGED FROM ONE OF TERRIBLE CONCERN ABOUT SUPPLY BEING TOO SMALL TO ONE NOW WHERE WE'RE COMFORTABLE AND VERY ADEQUATE. AND AS A RESULT, THE FUTURES MARKET HAS BEEN DRIVEN TO FIVE- OR SIX-MONTH LOWS HERE. MARK, AGAIN, ON MONDAY THE USDA -- THE WORLD AGRICULTURAL SUPPLY AND DEMAND WILL ADDRESS GLOBAL ISSUES. CHINESE NUMBERS, CORN, WHEAT, COARSE GRAINS, ARE OF MAJOR INTEREST, I THINK, TO ALL OF THE TRADE. IT'S UNLIKELY THAT GLOBAL STOCKS-TO-USE RATIOS, FOR EXAMPLE, CORN AND COARSE GRAIN AND WHEAT, FOR THAT MATTER, WILL CHANGE APPRECIABLY FROM LAST MONTH. SO WE'RE STILL TALKING ABOUT A WORLD SITUATION THAT HISTORICALLY IS PRETTY DARN TIGHT.

Pearson: LET'S TALK ABOUT THIS WHEAT MARKET. A LOT OF PRESSURE. WE'RE IN THAT HARVEST SWING FOR WHEAT SO NOT REALLY TO BE TOO SURPRISED. IS THERE SOME DEMAND POTENTIAL FOR THIS WHEAT MARKET? WHAT DO YOU LOOK OUT THERE AND SEE ON THE UPSIDE?

Robinson: WELL, U.S. EXPORTS TO DATE, MARK, ARE RUNNING AT A PACE AHEAD OF LAST YEAR, OR EARLY ON IN THE CROP YEAR. BUT THAT'S ENCOURAGING. WITH THIS PULLDOWN IN PRICE IN EACH OF THE LAST COUPLE OF WEEKLY EXPORT SALES REPORTS, WE'VE SEEN WEEK-OVER-WEEK INCREASES IN WHEAT SALES. SO I THINK THIS PULLDOWN IN PRICE HAS ATTRACTED SOME NEW BUSINESS, MARK. IN THAT CONTEXT, WE ARE IN THE TIME FRAME, HISTORICALLY SEASONALLY, WHERE WHEAT FUTURES, NOT UNCOMMON TO SEE THEM PUT TOGETHER SOME TYPE OF SEASONAL LOW IN THIS LATE JULY, EARLY AUGUST TIME FRAME, MARK. SO I THINK WE'RE IN THE CONFINES OF DOING THAT. I'LL BE INTERESTED IN SEEING HOW THE USDA APPROACHES WORLD PRODUCTION AND SUBSEQUENT DISAPPEARANCE. AS MENTIONED, STOCKS REMAIN HISTORICALLY PRETTY TIGHT. I'LL ALSO TAKE A GANDER AT THE RICE STOCKS, WHICH AT LEAST LAST MONTH WERE PROJECTED TO BE THE TIGHTEST DATING BACK TO '82, '83. SO BOTH OF THOSE FOOD GRAINS APPEAR, IN MY MIND, TO BE APPROACHING AND MAKING SOME SEASONAL LOWS.

Pearson: ALL RIGHT. LET'S TALK COTTON MARKET. A LOT OF PRESSURE HERE. SLOWDOWNS, BIG CROPS, ALL THE SAME FACTORS.

Robinson: WORLD PRODUCTION IS PROJECTED TO GROW 10 PERCENT YEAR OVER YEAR, AND WORLD ENDING STOCKS, 10 PERCENT AS WELL, MARK. AND THAT HAS REALLY BEEN THE CROWNING BLOW, THE KNOCK-OUT PUNCH IN THE WHEAT MARKET. I THINK WHEAT FUTURES -- I BEG YOUR PARDON; I THINK COTTON FUTURES ARE IN POSITION HERE THE NEXT TWO WEEKS TO RECOVER BACK TOWARDS 50 CENTS OR HIGHER. AND WHILE THAT'S A FAR SIGHT LOWER THAN WE TALKED A FEW SHORT WEEKS AGO, MARK, AT A MINIMUM I WOULD CREATE SOME MINIMUM PRICE CONTRACTS BECAUSE, AGAIN, THE PROSPECTS FOR COTTON PRICES ARE NOT VERY BRIGHT OVER THE COURSE OF AT LEAST THE NEXT FEW MONTHS.

Pearson: LET'S TALK LIVESTOCK, VIRGIL, WHICH HAS BEEN A VERY BRIGHT STORY IN THE U.S. DESPITE THE BSE AND ALL THE THINGS WE TALKED ABOUT IN TONIGHT'S SHOW, BEEF DEMAND HAS BEEN STRONG. CAN WE KEEP THIS UP? WHAT'S AHEAD NOW FOR CATTLE?

Robinson: WELL, THE BSE ISSUE ALWAYS UNDERMINES THE MARKET, MARK, AND WE HAD A COUPLE OF REPORTS -- OR POTENTIAL CASES OF BSE PROVEN TO BE NOT A PROBLEM. BUT THERE COULD WELL BE MORE OF THOSE. BEEF PRODUCTION IS 10 PERCENT, IN THE U.S., BELOW A YEAR AGO AT THIS TIME, MARK. RETAIL PRICES, WHOLESALE PRICES REMAIN VERY STRONG. I HAVE NOTED, HOWEVER, OF LATE, LESS OF A COW SLAUGHTER THAN WAS THE CASE. IT APPEARS TO ME WE MIGHT WELL BE STABILIZING THE HERD, PERHAPS EVEN SLOWLY GROWING THE HERD, SO SOMETHING TO KEEP IN MIND AS WE LOOK FORWARD. BUT IN TERMS OF A PRICE FROM THIS POINT IN CALENDAR UNTIL WE BEGIN THE FOURTH QUARTER OF THE YEAR, I STILL THINK WE CAN MAINTAIN THIS LOW- TO MID-$80 MARK AS LONG AS WE REMAIN CURRENT. I DID NOTICE THIS AFTERNOON, LIVE AND DRESSED WEIGHTS, MARK, A LITTLE LARGER WEEK OVER WEEK, YEAR OVER YEAR. SO THERE IS PERHAPS AN INDICATION HERE THAT FEEDLOTS AND PRODUCERS ARE HOLDING BACK AND NOT MAYBE AS CURRENT AS WE'VE BEEN UP UNTIL LATELY. SO THAT IS OF CONCERN TO ME.

Pearson: YOU ALLUDED TO THAT WEAKER CORN PRICE, AND THAT SURE HAS HELPED THIS FEEDER CALF MARKET.

Robinson: FEEDER CATTLE MARKET IS UNLIKE ANYTHING I'VE SEEN IN MY CAREER, MARK. I NOTICED THIS WEEK A RELATIVELY LIGHT RUN OF CASH FEEDERS IN OKLAHOMA CITY, FOR EXAMPLE, AND NOT A REAL GOOD TEST. BUT TO SUGGEST THEY WERE WEAKER WEEK OVER WEEK OR VERSUS THE LAST TWO WEEKS IS MISLEADING. I THINK FUTURES ARE YET POSITIONED TO MOVE HIGHER, MARK. I THINK THE LEAD FUTURES CONTRACT IS IN POSITION TO TRADE UP TOWARDS THAT 115 TO 116 AREA. AND AGAIN, WHAT CAN YOU SAY? I MEAN I WAS OF THE OPINION AT $85 TO $90, YOU NEEDED TO CREATE SOME KIND OF A MINIMUM PRICE. AND AT THIS LEVEL, I WOULD HAVE TO SUGGEST THE SAME.

Pearson: ALL RIGHT. LET'S MOVE OVER TO THE HOG MARKET WHERE WE HAVEN'T HAD THE BSE SCARE, WHERE DEMAND HAS BEEN PRETTY GOOD, AND PRICES HAVE RECOVERED PRETTY DECENT. WHAT'S AHEAD NOW FOR HOGS?

Robinson: YEAH, $50 PLUS CASH HOGS FOR QUITE AN EXTENDED PERIOD OF TIME. AS YOU MENTIONED, DEMAND IS JUST PHENOMENAL, BOTH DOMESTIC AND FOR EXPORT. MARK, I DID NOTICE WEIGHTS THIS WEEK VERSUS LAST, NO SIGNIFICANT CHANGE THERE. IT DOESN'T APPEAR TO ME THE HIGHER PRICED MEAL, FOR EXAMPLE, HAS CURTAILED FEED RATIONS. I THINK LIVE HOG PRICES ARE LIKELY TO HANG RIGHT AT THIS $50 MARK INTO THE LATE THIRD QUARTER. FOURTH QUARTER I WOULD BE ADVISED I THINK THEY'LL HEAD LOWER.

Pearson: OKAY. VIRGIL, AS USUAL, SOME GREAT IDEAS AND GREAT ADVICE. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM VIRGIL ON JUST WHERE THESE MARKETS MAY BE HEADED, BE SURE TO CHECK OUT 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 MEET SOME IOWA FARMERS WHO ARE BANKING ON A FUTURE GROWING PHARMACEUTICAL CROPS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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