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Market Analysis: Jul 02, 2004

posted on July 2, 2004


Between the crop production report and the specter of Mad Cow, it was NOT a great week for prices in the pits.

For the week, nearby wheat futures fell by more than six cents. July corn retreated by more than 21 cents.

In the soy complex, July beans went up 19 cents. Nearby meal up $6.20 per ton.

Cotton prices continue to search for a contract low and this week fell another $3.25.

In livestock, the August contract for live cattle dropped just three cents. August feeders lost $5.75. But the July lean hog contract gained $2.17.

In the financials, Comex gold sagged $4.20 an ounce. The Euro edged up 160 basis points against the dollar. And the CRB Index fell 5.25 points to close at 265.50.

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: Jul 02, 2004

Hjort: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT THIS. WE DID HAVE OUR ACREAGE AND STOCKS REPORT WE TALKED ABOUT JUST A MOMENT AGO. THE TRADE WAS LOOKING FOR SOME MORE BULLISH NUMBERS. THEY WEREN'T THERE. THE MARKET IS KIND OF CATCHING ITS BREATH HERE. A LOT OF RAIN IN MANY PARTS OF THE CORN BELT. AND, OF COURSE, IN CHICAGO, THAT SAYING "RAIN MAKES GRAIN" CONTINUES TO REVERBERATE. LET'S TALK FIRST ABOUT SOYBEANS, FROM A CASH STANDPOINT. THEY'RE STILL TRADING IN BIG PREMIUMS IN A LOT OF CASH MARKETS.

Hjort: YES, THEY ARE, AND THEY'LL CONTINUE UNTIL WE GET THIS RATIONING DONE. THE REPORTS OUT THIS WEEK SUGGEST THAT THERE'S PROBABLY STILL AT LEAST A HUNDRED MILLION BUSHELS OF RATIONING THAT NEEDS TO BE DONE IN JULY AND AUGUST. WE DON'T KNOW EXACTLY BECAUSE WE DON'T KNOW WHAT THE JUNE CRUSH IS, AND WE WON'T KNOW THAT UNTIL LATER IN THE MONTH. BUT WE'RE LOOKING AT A MARKET HERE THAT IS JUST FLAT RUNNING OUT OF BEANS. IF YOU LOOK AT IT ANOTHER WAY, THE CRUSHERS ARE GOING TO HAVE TO REDUCE THEIR CRUSH PROBABLY 40 PERCENT. WELL, THAT WOULD NOT PRODUCE ENOUGH SOYBEAN MEAL TO FEED OUT THE REST OF THIS MARKETING YEAR, THE HOGS AND POULTRY AND SO ON. SO IT'S AN UNBELIEVABLE SITUATION, ONE THAT I'VE NEVER SEEN IN THIRTY-FIVE YEARS IN THIS BUSINESS. WE CAME CLOSE IN 1995/96 IN THE CORN MARKET, BUT WE'VE NEVER BEEN THIS WAY IN THE SOYBEAN COMPLEX. HOW THAT'S GOING TO PLAY OUT WITH A NEGATIVE OUTLOOK FOR NEW CROP AND A MOST POSITIVE ONE FOR THE OLD IS REALLY A PUZZLE. AS YOU POINTED OUT, THE CASH BASIS LEVELS CONTINUE TO SKYROCKET, EVEN THOUGH FUTURES ARE GOING UP -- OR ARE ON DAYS WHEN THE FUTURES GO UP TOO. I BELIEVE THAT WE WILL PROBABLY SEE CASH PRICES AS HIGH AS WE SAW THEM BACK TWO MONTHS AGO OR TWO AND A HALF, WHENEVER WE SAW THAT BIG RUN UP ON PRICE. FUTURES MAY OR MAY NOT GO THERE. BASIS LEVELS TIGHTEN SO MUCH AND THEY WILL MORE. IT'S JUST HOW MUCH ARE THEY GOING TO PAY FOR THAT LAST SOYBEAN AND HOW MUCH WOULD THEY PAY FOR THE LAST TON OF MEAL TO FINISH OUT THEIR LIVESTOCK OR POULTRY OPERATIONS. REALLY A PUZZLE THERE. BUT THAT'S REALLY THE ONLY PLACE WHERE YOU REALLY HAVE BULLISHNESS LEFT IN THE GRAINS AND THE OIL SEEDS NOW IN THE SHORT RUN.

Pearson: WELL, TO BE HONEST WITH YOU, I'VE SPOKEN TO SEVERAL FARM ORGANIZATIONS, FARM GROUPS, AND IT'S VERY HARD TO GET ANY PEOPLE TO PUT THEIR HANDS UP WHO ARE STILL HOLDING OLD CROP BEANS.

Hjort: VERY LITTLE, VERY LITTLE. WE KNOW THAT FROM THE STOCKS REPORT, AND ASSUMING THAT THERE WAS SOME SALES MADE DURING THE MONTH OF JUNE. THE STOCK, OF COURSE, WAS AS OF THE FIRST OF JUNE. BUT, YEAH, THERE'S VERY LITTLE OUT THERE. LAS VEGAS BEANS, THEY CALL THEM. JUST TRY TO PRY THOSE AWAY. YOU KNOW, THERE'S AN OLD SAYING OUT THERE, "THEY BELONG TO THE 12-6 CLUB": BEANS ARE PRICED AT 12; BUT I'LL PROBABLY SELL THEM AT SIX.

Pearson: WE DON'T WANT TO BE A MEMBER OF THAT CLUB. LET'S TALK ABOUT THE CORN MARKET. ALSO, AS WE WATCH THIS WEEK, THE CORN MARKET ALSO IS STAGGERING. AGAIN, THE CROP LOOKS PRETTY GOOD. LET'S TALK NEW CROP PRIMARILY ON CORN.

Hjort: THE CORN NUMBER, ACREAGE NUMBER, OF COURSE, WELL ABOVE THE EXPECTATIONS. THE SPARKS GROUP WAS THE ONLY ONE THAT HAD EXCEEDED IT THAT I KNOW OF. THAT REALLY IS A BEARISH NUMBER, BUT IT'S BEARISH FOR CORN. IF YOU LOOK AT SORGHUM, DOWN OVER A MILLION ACRES. BARLEY AND OATS DOWN. THE TOTAL OF THE BARLEY, OAT, AND SORGHUM ACREAGE IS DOWN 2.33 MILLION ACRES. CORN WAS UP 2.23. SO TOTAL FEED GRAIN ACREAGE IS ACTUALLY DOWN A HUNDRED THOUSAND ACRES. NOW, YOU HAVE TO GO TO THE HARVESTED ACREAGE FIGURE, WHICH WAS ALLUDED TO A LITTLE EARLIER IN THE SHOW. THE PERCENTAGE OF HARVESTED TO PLANTED WAS VERY HIGH ON THESE REPORTS FOR BOTH CORN AND BEANS, BY THE WAY. THAT NUMBER ALMOST ASSUREDLY HAS TO COME DOWN SOME. THE HARVESTED ACREAGE HAS TO COME DOWN BECAUSE OF THE PROBLEMS WE HAD IN GETTING PLANTED OR REPLANTED AND PREVENTATIVE PLANTING CLAUSE AND SO ON AND SO FORTH. NOW, WE WON'T KNOW THAT AT LEAST -- WELL, THE EARLIEST WE COULD GET A HINT ON THAT WOULD BE THE AUGUST CROP REPORT, AND ONLY THEN IF USDA DOES A SPECIAL SURVEY ON PLANTED ACREAGE. THEY MAY IN SOME AREAS. IT MIGHT GO ALL THE WAY TO JANUARY, THE FINAL NUMBERS THEN, BEFORE WE SEE IT. SO WE HAVE TO LIVE WITH THAT HARVESTED ACREAGE NUMBER THAT WE SAW ON THE REPORT. AND THEN YOU LOOK AT THE YIELD -- YOU'RE RIGHT, THE WEATHER HAS BEEN GOOD. HARVEST -- OR YIELDS ARE EXPECTED TO BE GOOD. TREND LINES ABOUT 140 OR 141. MOST PEOPLE ARE USING SOMETHING ABOVE THAT YET. BUT TAKE THIS... USE THE HARVESTED ACREAGE FIGURE ON CORN THAT WAS OUT THIS WEEK, MULTIPLY IT TIMES 142.2 BUSHEL PER ACRE, WHICH WAS LAST YEAR'S RECORD HIGH YIELD, AND YOU COME UP WITH JUST OVER A 10.4 BILLION BUSHEL CROP. USDA IS CURRENTLY PROJECTING WE WILL USE A 10.5 BILLION BUSHEL CROP THIS COMING YEAR. SOME ARE DOUBTING THAT. BUT IF THE SORGHUM ACREAGE IS DOWN SO MUCH ON BARLEY AND OATS, YOU'RE GOING TO HAVE TO FEED MORE CORN TOO. SO THAT'S GOING TO -- EVEN IF OUR EXPORTS DROP OFF SOME IN THE NEW YEAR, THE TOTAL USAGE SHOULD BOUNCE UP.

Pearson: STRATEGY-WISE FOR A CORN GROWER AT THIS STAGE?

Hjort: WELL, IT'S TOUGH TO COME UP WITH ANY REASON FOR PRICES TO GO HIGHER. BUT REMEMBER TOO FOR THIS WEEKEND, GOING INTO THE WEEKEND THE FORECAST WAS FOR ABUNDANT RAINS AND GOOD GROWING CONDITIONS. IF WE COME IN ON TUESDAY AND FIND THAT DIDN'T HAPPEN, MAYBE TOO MUCH RAIN, TOO LITTLE RAIN, WHATEVER, OR THE FORECAST HAS CHANGED, THERE COULD BE SOME PRETTY REASONABLE BOUNCES IN THIS MARKET. I WOULD LOOK FOR A VERY VOLATILE PRICE ACTION. I DON'T THINK IT'S ALL STRAIGHT DOWN YET. SO THERE WILL BE MARKETING OPPORTUNITIES YET IN JULY AND AUGUST.

Pearson: ALL RIGHT. LET'S TALK ABOUT WHEAT MARKET. HARVEST WELL UNDERWAY THERE. WHEAT NUMBERS GOING FORWARD. AGAIN, THE DEMAND SIDE HAS NOT BEEN GREAT, BUT AT THE SAME TIME, THAT'S ALSO A FEED GRAIN TOO.

Hjort: WELL, IT BECOMES A FEED GRAIN, NOT NECESSARILY HERE BECAUSE IN JUST ABOUT ALL PLACES EXCEPT A FEW, WHEAT IS STILL PRICED OVER -- IT'S JUST PRICED TOO HIGH TO BE A FEED GRAIN. IN THE WORLD MARKET, THOUGH, THAT'S A WHOLE DIFFERENT STORY. WHEN YOU LOOK AT THE WHEAT MARKET, YOU'RE TALKING ABOUT HARVEST LOWS BEING PUT IN. THEY SHOULD BE HERE IN THE NEXT FEW WEEKS. BUT YOU HAVE TO REMEMBER THAT EVEN USDA IS PREDICTING FEWER EXPORTS THIS COMING YEAR. WE'VE GOT A LOT OF COMPETITION AROUND THE WORLD. SO I DON'T LOOK FOR THIS WHEAT MARKET TO RALLY AS MUCH. I THINK WE'RE PUTTING IN BOTTOMS HERE AND WE CAN RALLY SOME. BUT YOU BETTER BE AWARE TO MAKE MARKETING DECISIONS FAIRLY SOON THIS YEAR.

Pearson: REAL QUICK ON THE COTTON, I MEAN YOU TALK ABOUT A DOWNWARD SWING, THAT ONE HAS BEEN ON IT. WORDS TO OUR COTTON GROWERS OUT THERE?

Hjort: WELL, THERE'S REALLY NOT MUCH HOPE THERE. EVEN A PRIVATE ESTIMATE CAME OUT FRIDAY AFTERNOON. THEY'RE TALKING ABOUT EVEN LARGER ACREAGES IN BOTH THE U.S. AND THE WORLD. YOU'VE JUST GOT TO LET THIS MARKET FIND ITS BOTTOM AND THEN PLAN YOUR MARKETING FROM THERE.

Pearson: ALL RIGHT. LET'S TALK LIVESTOCK. THE FED CATTLE MARKET REPORT CAME OUT LATE FRIDAY AFTERNOON, THE TEST FOR THE EARLY TEST ON THE MAD COW. ON THE SECOND COW, NEGATIVE. NOT A MAD COW CASE. WE'RE GOING TO SEE A LOT OF THESE. USDA IS TALKING, WHAT, 40 TO 60 OF THESE FALSE POSITIVES THAT WE COULD SEE AGAIN. THE ONE FRIDAY AFTERNOON SAYING NO, THIS WAS NEGATIVE, DID NOT HAVE MAD COW. FOR CATTLEMEN OUT THERE, THIS CAN BE KIND OF ROUGH.

Hjort: WELL, IT IS, YOU KNOW. AND THE FIRST ONE NOW WAS ANNOUNCED, FUTURES LOST 250 TO 300 -- OR $2.50 TO $3. YEAH, THEY CAME BACK AND WENT DOWN AGAIN ON THE SECOND ONE. IT REALLY DOES RAISE THE QUESTION AS TALKED ABOUT EARLIER ON THE SHOW HERE: DO THEY REPORT THOSE EARLY TESTS OR WAIT FOR THE POSITIVE -- OR FOR THE FINAL, THE OFFICIAL TEST? I'M IN THAT CAMP MYSELF BECAUSE YOU CAN -- THE MARKET JUMPS ALL OVER. HOWEVER, ON THE OTHER SIDE, AS MORE AND MORE OF THESE COME OUT ON THE INITIAL TEST AND THEN ARE PROVEN NEGATIVE IN THE FINAL TEST, THE MARKET IS JUST GOING TO TOTALLY IGNORE IT. BEEF DEMAND IS STILL VERY, VERY STRONG. THAT'S FOR SURE. AND PEOPLE UNDERSTAND, I THINK PRETTY WELL, THAT WE DON'T CONSUME THE PARTS OF THE ANIMAL THAT WE COULD GET THE CREUTZFELDT-JAKOB DISEASE FROM. YOU CAN'T GET IT IF YOU'RE EATING MUSCLE MEAT, AND THAT'S BASICALLY WHAT WE EAT IN THE UNITED STATES. IT'S A GOOD SOLID PRODUCT. BEEF DEMAND IS THERE. CATTLE PRICES ARE GOING TO STAY FAIRLY STRONG.

Pearson: ALL RIGHT. LET'S TALK ABOUT FEEDER CATTLE REAL QUICK. THEY DID TAKE A HIT THIS WEEK.

Hjort: YEAH, THEY DID. THEY REALLY DID. AND THAT GETS INTO A WHOLE BUNCH OF DIFFERENT THINGS, BUT THE MAD COW ISSUE WAS ONE OF THEM. REMEMBER TOO THAT ON THE FUTURES PRICE, GETTING UP THERE AT VERY CHOPPY LEVELS. PLUS, TRYING TO BUY A FEEDER NOW, YOU CAN'T LOCK IT IN. YOU'RE LOOKING AT -- USING BOARD PRICES, YOU'RE PROBABLY TALKING $75 TO $100 LOSS RIGHT NOW. SO IT'S REALLY NOT A VERY ATTRACTIVE SITUATION. SOME FEEDLOT MANAGERS ARE JUST TAKING THE ATTITUDE LET'S JUST WAIT, LET'S GET DOWN THE ROAD FURTHER BEFORE WE BOOK ANYTHING NOW.

Pearson: LET'S TALK ABOUT THE HOG MARKET, WHICH HAS BEEN IN AN UPSWING. A NICE UPTREND SO FAR THIS SUMMER. AGAIN, PORK DEMAND HAS BEEN GOOD.

Hjort: IT REALLY HAS BEEN GOOD. CASH HOG PRICES WERE KIND OF SLOPPY THIS WEEK BUT HOLDING IN THERE. AND OCTOBER FUTURES JUST DROVE TO NEW HIGHS AGAIN. THAT MARKET HAS JUST BEEN IN A STEADY UPTREND, WELL, FOR MONTHS NOW ACTUALLY. IT, OF COURSE, IS PRICED UNDER THE CASH AND -- UNDER TODAY'S CASH, THAT IS, AND NEARBY FUTURES. BUT NO REASON TO THINK THAT WE CAN'T GO UP. ACCORDING TO THE HOGS AND PIGS REPORT, WE'RE GOING TO HAVE FEWER HOGS ON DOWN THE ROAD, SO THAT MARKET LOOKS VERY SOLID.

Pearson: VERY GOOD. THANK YOU SO MUCH. DOUG HJORT, THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM MR. HJORT 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. OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE HOW AN URBAN AGRICULTURE PROGRAM IS TURNING EMPTY LOTS INTO PRODUCTIVE GARDENS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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Tags: agriculture commodity prices Mad Cow markets news sorghum