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Market Analysis: Jun 25, 2004

posted on June 25, 2004


Grain traders this week acted on the prospects for declining exports and tight supplies in advance of next week's big acreage and stocks report. For the week, nearby wheat futures fell by more than 11 cents. July corn gained just under two cents.

Tight supplies of old crop soybeans are sustaining nearby contract rallies and dragging new crop prices higher, as well. For the week, July beans gained more than 48 cents. Nearby meal jumped $25.00 per ton.

Cotton prices continued their freefall and for the week dropped another $2.00.

As mentioned, strong demand continues to drive the livestock sector. For the week, the nearby live cattle contract improved $3.05. August feeders gained $4.35. And the July lean hog contract lost 90 cents.

In the financials, Comex gold jumped $7.80 an ounce. The Euro edged up 16 basis points against the dollar. And the CRB Index climbed three points to close at 270.75.

Here now to lend us their insight on these and other market trends are two of our regular market analysts, Walt Hackney and Doug Jackson. Welcome back.

Market Analysis: Jun 25, 2004 Swalwell: WELCOME BACK, GENTLEMEN. DOUG, ALL EYES ARE LOOKING FORWARD TO NEXT WEEK, THAT BIG REPORT THAT I JUST MENTIONED. WHAT IMPACT IS THAT GOING TO HAVE ON THE GRAIN MARKETS?

Jackson: WE'RE GOING TO HAVE A BLIZZARD OF STATISTICS NEXT WEEK. PERHAPS THE FIRST THING WE COULD TALK ABOUT IS SINCE THE MARCH ACREAGE REPORT FROM USDA, WE'VE HAD PRIVATE ANALYSTS SUGGESTING THAT WE HAVE AS MANY AS TWO OR THREE MILLION MORE CORN ACRES THAN WHAT WAS INDICATED IN MARCH. SO THE MARKET IS FINALLY GOING TO BE ABLE TO NAIL DOWN THIS QUESTION OF WHAT IS PLANTED CORN ACREAGE. THE INNUENDO OF A LARGER ACREAGE, OF COURSE, HAS REALLY KIND OF CAPPED THE ENTHUSIASM IN THE CORN MARKET, COMBINED WITH THE GENERALLY FAVORABLE WEATHER. SO THAT'S GOING TO BE ONE OF THE PRIME THINGS WE'RE GOING TO LOOK AT. OF COURSE, WE'LL GET ANOTHER QUARTERLY FEED IMPLICATION, AND WE SUSPECT CORN FEED USE MAY BE LARGER. ONE OF THE THINGS THAT WE SUSPECT IS THAT THE MARKET IS OVERESTIMATING TOTAL CORN AND BEAN ACREAGE IN THIS REPORT. THE MARKET TRADE GUESSES ARE LOOKING FOR MORE THAN 2 MILLION MORE ACRES THAN WE HAD LAST YEAR. WE THINK THROUGH URBANIZATION AND OTHER PROBLEMS THAT THE MARKET IS OVERANTICIPATING ACREAGE. NOW, WE'RE NOT SURE WHETHER IT'S GOING TO BE A CORN OR BEAN ACREAGE SURPRISE, BUT WE THINK WE'RE STILL OVERANTICIPATING ACREAGE. SO IF YOU SET US BACK TO THE IDEAS THAT WE HAD ORIGINALLY IN MARCH, THAT CORN ACREAGE WAS NOT UP AS MUCH AS EXPECTED, AND THEN THE MARKET IS GOING TO WANT TO SUBTRACT SOMETHING FROM THAT JUNE REPORT BECAUSE WE'VE HAD SUBSEQUENT PLANTING PROBLEMS SINCE THEN. WE CAN REALLY, YOU KNOW, TIGHTEN UP THIS CORN SITUATION SUBSTANTIALLY FROM WHAT IS IMAGINED GOING HOME THIS WEEKEND. BUT AGAIN, A VERY KEY REPORT IN THAT CORN AREA. LODGER TERM, OF COURSE, IT DEPENDS ON THE WEATHER. THE MARKET IS TRYING TO EVALUATE THIS COOL AND WET PATTERN. CERTAINLY IT'S NOT OVERLY THREATENING, ALTHOUGH WE'RE STILL NOT SURE WHAT THE IMPACT OF THIS -- THE COOL TEMPERATURES ARE. BUT RIGHT NOW THE TRADE IS THINKING IN TERMS OF SOMETHING NEAR A RECORD YIELD, A POSSIBLE REPEAT OF LAST YEAR'S YIELD, MAYBE SOMETHING BETTER. WE'RE NOT SURE. BUT IF THAT'S THE CASE AND WE DO CONTINUE TO HAVE BENIGN WEATHER ALL SUMMER -- AND THAT'S A BIG IF -- WE MAY HAVE A YIELD BIG ENOUGH THAT WE'LL DODGE THE BULLET OF A SUBSTANTIAL SHORTAGE AND REMAIN IN A RELATIVELY TIGHT BUT ADEQUATE SITUATION WITH THAT RECORD YIELD, WHICH DOESN'T LEAVE A LOT OF DOWN SIDE TO PRICES BUT PERHAPS ELIMINATES THE REAL EXPLOSIVE PRICE POTENTIAL LONGER TERM TOO. BUT WE'VE GOT A LOT OF SUMMER TO GO, AND WE'RE JUST GOING TO HAVE TO WAIT AND SEE.

Swalwell: SOUNDS LIKE A LOT OF VOLATILITY OUT THERE AS YOU LOOK AHEAD.

Jackson: WELL, WE DO. AND THE CORN MARKET MAY STILL -- BELIEVING THAT PERHAPS WE'RE DEALING WITH A 140 TO 145 YIELD RANGE, YOU KNOW, IT STILL MAY BE A DOWN 20, UP 50 KIND OF AN ITEM, WHICH IS STILL A LOT OF VOLATILITY AND A LOT OF WEATHER TO GO. BUT THAT REPORT NEXT WEEK, THE MIDDLE OF THE WEEK IS GOING TO BE A MONSTER REPORT.

Swalwell: AND WHERE ARE WE STANDING RIGHT NOW, IN YOUR MIND, FOR SOYBEANS?

Jackson: WELL, THE SOYBEAN SITUATION, OF COURSE, WE'VE GONE TO 10, BACK TO 8 THE WITH CHINA BUYING PROBLEM. NOW WE'VE REBOUNDED A DOLLAR. OBVIOUSLY, TREMENDOUS VOLATILITY. AGAIN, THAT STOCKS REPORT, THAT ACREAGE REPORT IS GOING TO BE CRUCIAL. WE'RE AT THE POINT NOW WHERE JUST 25 MILLION BUSHELS WORTH OF BEANS, ALMOST AN INSIGNIFICANT AMOUNT STATISTICALLY, BUT WILL BE CRITICAL TO OUR PERSPECTIVE HERE. THE MAY CRUSH REPORT WAS A LITTLE LARGER THAN EXPECTED. AND RIGHT NOW WE MIGHT SUGGEST THAT WE'RE ON A GLIDE PATH TO A CARRYOUT IN THE UNITED STATES. IT MIGHT BE 60 TO 75 MILLION. NOW, THAT'S LESS THAN HALF OF OUR PREVIOUS RECORD TIGHT SITUATION OF 1997, SOMETHING THAT WE'VE NEVER TOLERATED BEFORE. WE DON'T KNOW WHETHER WE CAN TOLERATE THAT KIND OF A SITUATION AND, IF SO, WHAT KIND OF PRICE, WHAT KIND OF MARKET STRUCTURE, AND WHAT KIND OF INVERSES ARE WE GOING TO HAVE TO HAVE. NOW, BASIS LEVELS ARE VERY STRONG IN THE UNITED STATES. AND YET BEANS ARE $2 A BUSHEL UNDER THE FUTURES IN BRAZIL, CLEARLY AT LEVELS THAT COULD BE IMPORTED INTO THE U.S. BUT RUST FEARS ARE KEEPING US FROM ARBITRAGING THAT NORTH AMERICAN TIGHTNESS AGAINST SOUTH AMERICAN SUPPLIES. THE NEXT THING WE'VE GOT TO WATCH IS WHETHER WE CAN IMPORT SOYMEAL. ECONOMICALLY IT CAN BE DONE BUT, AGAIN, THE MARKET NEEDS A BIG ECONOMIC INCENTIVE TO MAKE THAT HAPPEN. THAT WILL ULTIMATELY BE THE THING THAT PROBABLY CAPS THIS OLD CROP PRICE ADVANCE. BUT AGAIN, THE STOCKS REPORT NEXT WEEK -- WE COULD MOVE AND PROBABLY WILL MOVE 50 CENTS A BUSHEL PERHAPS THAT DAY ONE WAY OR THE OTHER, DEPENDING ON JUST A SMALL VARIATION OF THOSE STOCKS, A MINUS RESIDUAL, FINDING BACK SOME INVENTORY, THE SUSPICION OF THE CROPS UNDERESTIMATED. WE COULD BREAK SHARPLY. BUT ANYTHING THAT CONFIRMS THE STOCKS NEAR 400 MILLION OR LESS, WHICH IS A HUNDRED MILLION LESS THAN A YEAR AGO AND THE SMALLEST, VIRTUALLY, IN TWENTY-FIVE YEARS, COULD PUSH PRICES SHARPLY HIGHER AGAIN.

Swalwell: SO THAT REPORT COULD BE --

Jackson: HOW WE'RE GOING TO MAKE OUR MOVE FROM THIS TO NEW CROP, WHICH COULD LONG-TERM BE BEARISH, WILL BE VERY INTERESTING.

Swalwell: AND ALL KINDS OF PRESSURES IN THE WHEAT MARKET TOO. TELL US ABOUT THAT.

Jackson: THE WHEAT MARKET BASICALLY IS FACING A SITUATION WHERE WE'RE GOING TO HAVE A SIGNIFICANT REBOUND IN BOTH WESTERN AND EUROPEAN PRODUCTION. WE'RE GOING TO FACE AGAIN THE RETURN OF TREMENDOUS EXPORT COMPETITION FROM EUROPE, AND THE MARKET KNOWS THAT. THE U.S. CROP MAY BE SMALLER. ACREAGE MAY BE SMALLER. KANSAS YIELDS MAY BE SMALLER. THE SPRING WHEAT CROP IS ONE OF THE POOREST RATED IN YEARS. BUT YET THE U.S. SITUATION IS PROBABLY GOING TO BE RELATIVELY STABLE, MAYBE NOT REAL INTERESTING. AND AS WE FACE THIS EXPORT COMPETITION, THEN, IN EUROPE, PRICE PROSPECTS REALLY MAKE WHEAT A MARGINAL FEED GRAIN AND, REALLY, WHEAT MAY JUST FOLLOW CORN PRICE ACTION. SO PERHAPS OF THE THREE GRAINS, THE LEAST EXCITING SITUATION FOR THE TIME BEING.

Swalwell: THANKS, DOUG. GOOD INFO THERE. WALT, YOU'RE UP NEXT. WE WERE CHATTING BEFORE THE SHOW THAT -- YOU CAN'T REMEMBER -- AND YOU'VE BEEN IN THIS BUSINESS A LONG TIME, AND YOU CAN'T REMEMBER CATTLE PRICES LIKE WE'RE LOOKING AT RIGHT NOW.

Hackney: I THINK ANYONE YOU WOULD DISCUSS THIS CURRENT MARKET WITH, SPECIFICALLY FEEDER CATTLE, WOULD HAVE TO TELL YOU WE'VE NEVER EXPERIENCED THIS KIND OF A MARKET. UNTIL WE REBUILD OUR HERD, NATIONAL BEEF HERD, WE PROBABLY NEVER WILL SEE THIS KIND OF A MARKET AGAIN FOR YEARS, IF EVER. I DON'T KNOW. IT HAS GOTTEN TO A LEVEL NOW WHERE IT'S A FEVER AMONG THE BUYERS. IT'S A RAMPANT SITUATION WITH THE CUTBACK IN THE SUPPLY OF FEEDER CATTLE, FOR INSTANCE. THESE BUYERS SIMPLY ARE AFTER POSSESSION. THEY'RE REALLY NOT LOOKING AT ANY OTHER FACTOR. THE FINANCIAL FACTOR OF BREAK-EVENS AND ROI AND SO FORTH THAT SOMETIMES HELP DRIVE THE FEEDER CATTLE MARKET HAVE GONE OUT THE WINDOW.

Swalwell: AND TALK A LITTLE BIT ABOUT THOSE TIGHT SUPPLIES THAT WE MENTIONED.

Hackney: WELL, THE SUPPLY WE HAVE IN FEEDER CATTLE IS ONE HUNDRED PERCENT RELATED TO THE REDUCTION IN THE COW HERD, AS A RESULT OF ABOUT A FOUR- OR FIVE-YEAR PROGRESSIVELY WORSE DROUGHT EVERY YEAR. THE RANCHERS SIMPLY HAVE HAD TO REDUCE THEIR ACTIVITIES BECAUSE THEY DIDN'T HAVE THE ABILITY TO BUY FEED AND SO FORTH FOR THE COWS. CERTAINLY DIDN'T HAVE THE PASTURAGE THAT THEY NEEDED, SO THEY CUT BACK AND CULLED OUT ON THEIR COWS. AS A RESULT, THE AVAILABILITY THING WENT DOWN AND WENT DOWN DRASTICALLY. IT WAS VERY PREDICTABLE, RICK. WE HAD ALL THIS KNOWLEDGE EVEN A YEAR AGO THAT THIS MARKET WOULD BE AN EXPLOSIVE MARKET GOING INTO THIS YEAR, DUE TO LACK OF SUPPLY. NO ONE EXPECTED IT TO BE AT THIS LEVEL, HOWEVER. WE'VE GOT CATTLE BEING SOLD TODAY INTO THE FAT-CATTLE MARKET, IF YOU WILL, THAT IN DECEMBER ARE GOING TO HAVE TO BRING BACK 98 TO $1 A POUND FINISHED TO BREAK EVEN FOR THE CATTLE FEEDER. NOW, THAT'S A REACH. WE'VE GOT FAT CATTLE TODAY BRINGING 90. WE HAVE CATTLE FEEDERS FEELING THAT NEXT WEEK WE COULD HAVE 92, MAYBE 93. THERE WILL BE 95-CENT ASKING PRICES OUT HERE FROM THE FEEDLOTS NEXT WEEK. WE HAVE DRESSED BIDS OF $1.42, -3. WE HAVE SOME EXTRAVAGANT BIDS BY A FEW OUTSIDE PACKERS AT $1.46 PICKED UP IN THE STATE OF IOWA, FOR INSTANCE. THIS MARKET IS BEYOND THE CONTROL OF ANY ONE PARTICULARLY INVOLVED IN IT, INCLUDING THE PACKER. THE ONLY WAY THE PACKER IS GOING TO BE ABLE TO PUT MUCH OF A CONTROL ON FAT-CATTLE PRICES IS TO CUT HIS KILL BACK. SO WE VERY POSSIBLY, NEXT WEEK, WILL SEE A SIGNIFICANT CUT BACK IN THE KILL, MAYBE DOWN AS FAR AS 620-, 30,000 HEAD OF CATTLE. THAT'S GOING TO BE A SIGNIFICANT BREAK IN USAGE. THAT'S GOING TO TEND TO BUILD SOME FEEDLOT INVENTORY.

Swalwell:MAYBE NOT THINGS QUITE SO DRAMATIC ON THE HOG SIDE, BUT LET'S FINISH UP BY TALKING ABOUT THEM.

Hackney: WELL, THE HOG MARKET IS PROBABLY AS STABLE, PROBABLY AS PREDICTABLE AS ANY MARKET THAT'S OUT THERE. OUR SUPPLY HAS HELD AND THE AVERAGE MARKET WEIGHT ON THE HOGS HAVE MAINTAINED WITHIN A 2-POUND VARIANCE FOR MONTHS. AND ONLY HERE WITHIN THE LAST WEEK HAVE WE STARTED TO SEE SOME DROP IN THE AVERAGE MARKET WEIGHTS OF HOGS, WHICH SIMPLY MEANS FEWER HOGS TONNAGE-WISE INTO THE MARKET. A MILLION NINE WAS PREDICTABLE WEEKLY SLAUGHTER, BUT NOW I DOUBT -- I THINK MAYBE A MILLION EIGHT TWO FIVE, A MILLION EIGHT FIVE PROBABLY IS GOING TO CATCH THE HOG SLAUGHTER. AND THE DEMAND, AS YOU REPORTED EARLIER, IS SO DRAMATIC IN PORK THAT IT SHOULD HELP HOLD THE CASH PRICE ON HOGS AROUND THAT 60- TO 65-CENT LIVE WEIGHT LEVEL.

Swalwell: ALL RIGHT. THANKS, GENTLEMEN. WALT AND DOUG, NEVER A DULL MOMENT WITH THE GRAINS OR THE LIVESTOCK. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM OUR EXPERTS ON 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. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE WHY THE FUTURE OF INDEPENDENT TRACTOR TRIALS MAY BE IN DOUBT. UNTIL THEN, THANKS FOR WATCHING. FOR MARK PEARSON, I'M RICK SWALWELL. HAVE A GREAT WEEK.


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