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Market Analysis: Jun 18, 2004

posted on June 18, 2004


Grain prices were mixed this week as the trade pondered crop conditions and the onset of harvest lows in wheat. For the week, nearby wheat futures climbed by more than two cents. July corn, though, dropped by more than 11 cents.

Nearby beans held support this week, although the gap between July and November contracts continues to widen. For the week, July beans gained 25 cents. Nearby meal jumped $11.70 per ton.

Cotton prices plunged thanks in part to WTO's final ruling on Friday that U.S. cotton subsidies are unfair. For the week, cotton was down by $6.17.

Trade guesses for Friday's Cattle on Feed report from USDA were so close there should be little impact on Monday's open. For the week, the nearby live cattle contract lost 20 cents. August feeders gained $2.30. And the July lean hog contract advanced by $1.53.

In the financials, Comex gold jumped $9.20 an ounce. The Euro gained 29 basis points against the dollar. And the CRB Index fell another point-and-a-half to close at 267.75.

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

Market Analysis: Jun 18, 2004

Roach: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT WHAT HAPPENED IN THE COMMODITIES. AGAIN, WE'RE LOOKING AT THAT SOYBEAN MARKET BECAUSE EVERYBODY IS STILL TALKING ABOUT SOYBEANS, PARTICULARLY THIS OLD CROP.

Roach: OLD CROP SOYBEANS ARE VERY TIGHT, BUT THEY'RE VERY TIGHT FOR A LIMITED QUANTITY. AS QUICKLY AS USERS GET THEIR NEEDS COVERED FOR THE SHORT TERM, THEY BACK AWAY FROM THE MARKET. AND SO ALTHOUGH WE HAVE A STRONG MARKET IN THE NEARBY, WE DO HAVE -- WE DO HAVE A LIMITATION AS TO HOW MUCH INVENTORY THE MARKETPLACE ACTUALLY WANTS AT THAT HIGHER LEVEL.

Pearson: OKAY. AND THE STORIES WE'RE GETTING IS THERE JUST ISN'T A LOT OF -- THERE AREN'T A LOT OF SOYBEANS LEFT ON THE FARM; ARE THERE?

Roach: NO, THERE REALLY AREN'T. THE CARRYOVER ESTIMATES ARE GOING TO BE SOMEWHERE IN THE NEIGHBORHOOD OF A HUNDRED MILLION BUSHELS, WHICH IS A LOT OF BUSHELS, BUT WHEN YOU LOOK AT THE VARIOUS PLACES THAT THE BUSHELS CAN BE STASHED, WE HAVE TO DO WHATEVER WE CAN DO TO GET THE BEANS TO MOVE INTO THE PIPELINE.

Pearson: NEW CROP SOYBEANS... A LOT OF PEOPLE FEEL LIKE THEY'VE MISSED THE BOAT FOR 2004. WOULD YOU TEND TO AGREE?

Roach: I THINK THEY DID. I THINK PEOPLE GOT LED DOWN THE PRIMROSE PATH A BIT. WHEN WE SAW NOVEMBER SOYBEANS IN THE $8 AREA, PEOPLE WERE TALKING ABOUT DEMAND SO LARGE THAT THEY WERE A LITTLE RIDICULOUS, I THINK. SO THE MARKET HAS COME DOWN. BUT I DON'T THINK THAT THE MARKET -- I THINK THE MARKET WILL GIVE US OPPORTUNITIES AT BETTER PRICE LEVELS, MARK.

Pearson: SO YOU'RE NOT PANIC STRICKEN IF YOU DIDN'T GET ANYTHING SOLD OR YOU HAVEN'T SOLD MUCH AT THIS STAGE OF THE GAME. YOU THINK WE'LL GET ANOTHER CHANCE TO SELL SOME BEANS HIGHER.

Roach: I THINK THAT THE CHINESE BUSINESS WILL COME BACK. I THINK WHAT HAPPENED WAS THAT THE CHINESE POULTRY INDUSTRY WAS DEVASTATED BY BIRD FLU, AND THAT'S AFTER BEING DEVASTATED BY SARS THE YEAR EARLIER. SO I THINK THAT WE'LL SEE THAT BUSINESS COME BACK. THAT ECONOMY IS STILL GROWING. THEY'RE SLOWING IT DOWN. MAYBE INSTEAD OF A 9-PERCENT ANNUAL GROWTH RATE, THEY'LL HAVE ONLY A 7-PERCENT ANNUAL GROWTH RATE. BUT IT'S STILL VERY STRONG GROWTH. THE DEMAND WILL COME BACK.

Pearson: WELL, LET'S TALK ABOUT CORN. NOT REALLY MUCH TO SAY ON OLD CROP, REALLY. EVERYONE SEEMS TO BE MORE FOCUSED ON WHAT COULD HAPPEN IN 2004. THE OUTLOOK WAS FOR FAIRLY TIGHT FEED GRAIN OUTLOOK FOR 2004, WHICH SHOULD HELP CORN PRICES?

Roach: WELL, WHAT WE'RE DOING NOW IS WE'RE DEALING WITH THE SUPPLY SIDE. THE DEMAND SIDE HAS BEEN WELL KNOWN, AND WE KNOW THAT IT'S A VERY STRONG LEVEL OF DEMAND. AND WE KNOW THAT NEXT YEAR'S CONSUMPTION WILL BE VERY LARGE, RECORD LARGE CONSUMPTION LEVELS, WHICH LEAVES THE WORLD IN VERY TIGHT STOCKS UNLESS WE HAVE A VERY BIG CROP IN THIS COUNTRY AND IN THE REST OF THE NORTHERN HEMISPHERE. SO THAT'S WHAT WE'RE NOW DEALING WITH. WE'RE DEALING WITH THAT CROP IN THE NORTHERN HEMISPHERE. WE'VE ALREADY HAD ONE SCARE. IT WAS A -- I THINK WE'VE HAD TWO SCARES, REALLY. THE FIRST SCARE WE SAW THAT PEAKED IN APRIL WAS A WORRY ABOUT HOW DRY WE WERE IN ADDITION TO DIALING IN THE DEMAND. THE SECOND SCARE, WHICH OCCURRED BACK HERE ABOUT TWO WEEKS AGO, WAS BECAUSE OF IT BEING TOO WET AND THE WORRY THAT WE ACTUALLY HAD DROWNED OUT A LOT OF CORN. NOW THE REALIZATION IS SETTING IN THAT MAYBE WE DIDN'T LOSE SO MUCH CORN. IN FACT, THE SPARKS WAS OUT, TALKING ABOUT 2.2 MILLION ACRES MORE CORN BEING PLANTED THAN LAST YEAR. SO SUDDENLY THE ACREAGE IS NOT SO WORRISOME, BUT THE YIELDS ARE WORRISOME -- OR HAVE BEEN WORRISOME AND ARE MUCH LESS WORRISOME TODAY THAN WHAT THEY WERE HERE JUST TWO OR THREE WEEKS AGO. THAT'S THE REASON THE PRICES HAVE COME DOWN.

Pearson: WE STILL HAVE TO GET THROUGH THE WORRY OF POLLINATION. I MEAN THERE'S A LOT OF THINGS HERE BEFORE THIS CROP IS IN THE BIN, BUT WE REALLY NEED TO PRODUCE, WHAT, A 10.4-BILLION-BUSHEL CORN CROP TO MEET DEMAND?

Roach: WE SURE DO. WE NEED TO HAVE THAT, AND WE'D STILL END UP WITH RELATIVELY TIGHT STOCKS AT THE END OF THIS GROWING YEAR ONE YEAR FROM NOW -- OR THE END OF THE MARKETING YEAR ONE YEAR FROM NOW. SO THE SITUATION IN CORN IS TIGHT. THE DEMAND IS VERY STRONG. WE'VE SEEN SELLING ON THE PART OF SPECULATIVE TRADERS, BUT WE'VE SEEN USERS BUY WHAT THE SPECULATORS WANTED TO SELL. WE'RE NOW DOWN AT A SUPPORT LEVEL, DECEMBER CORN AT THIS 280 AREA, JULY CORN AT 270. THESE ARE PRICE AREAS THAT WE NEED TO HOLD, OR IF WE FAIL, WE COULD NOTCH THE MARKET DOWN ONE MORE NOTCH. MOST PEOPLE DON'T THINK WE'RE GOING TO DO THAT. IF WE WERE TO NOTCH DOWN, WE COULD MAYBE TAKE ANOTHER 20 CENTS OUT OF THE MARKET, BUT THAT'S ALL I CAN SEE.

Pearson: SO AT THIS STAGE OF THE GAME, OBVIOUSLY YOU DON'T WANT TO BE PRICING MUCH IN THAT 250 RANGE. YOU'D WANT TO SEE NEW CROP PRICES. WHERE WOULD YOU START YOUR SELLING PROGRAM FOR A PRODUCER?

Roach: WE'VE BEEN PRETTY AGGRESSIVE MAKING SALES AT HIGHER PRICE LEVELS. NOW THE QUESTION IS IF THERE'S A 20-CENT RISK IN THE MARKET, DO I WANT TO SELL NOW TO AVOID THE 20-CENT RISK. I DON'T THINK SO. I THINK THE OTHER SIDE. I THINK IF I WERE IN THE LIVESTOCK BUSINESS, I WOULD BE LOOKING FOR OPPORTUNITIES TO ACCUMULATE INVENTORIES. I THINK THAT THE LIKELIHOOD IS THAT WE'LL HAVE HIGHER PRICES THAN 280 ON THE DECEMBER AS WE MOVE THROUGH THE MAJORITY OF THIS SEASON.

Pearson: SO A LONG WAY TO GO YET. DON'T PANIC HERE AND THINK THAT YOU'VE MISSED IT, PARTICULARLY ON THE CORN. WE'VE GOT SOME UPSIDE POTENTIAL.

Roach: YEAH, I THINK WE STILL HAVE UPSIDE POTENTIAL BOTH ON CORN AND SOYBEANS, QUITE FRANKLY. BUT AT THE MOMENT, EVERYTHING LOOKED ABOUT IDEAL.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET, WHICH WE'RE HEADING INTO HARVEST THERE NOW. THERE'S CONCERN ABOUT THE WHEAT CROP. CONCERN ABOUT DEMAND TOO. WHAT'S YOUR OUTLOOK FOR WHEAT?

Roach: THE WHEAT MARKET HAS BEEN PRESSURED QUITE A BIT, AND I THINK THAT THERE STILL MAY BE A LITTLE MORE TO GO DOWN. BUT FARMERS AREN'T SELLING MUCH WHEAT. THE CROP HAS BEEN HURT AND PRODUCERS ARE JUST RELUCTANT TO SELL AT THESE LOWER PRICE LEVELS. I THINK THE WHEAT MARKET MAYBE HAS ANOTHER 10 TO 15 CENTS LOWER TO SEE AT THE PEAK OF THE HARVEST PRESSURE. BUT WE'RE IN THE LOWER END OF THIS MARKET AND NOT THE UPPER END OF THIS MARKET. SO IT'S A TIME TO BE A HOLDER OF WHEAT, IN MY OPINION, AND LOOK FOR SOME POST-HARVEST RECOVERY IN THAT MARKET.

Pearson: ALL RIGHT. LET'S TALK ABOUT COTTON PRICES. WE TALKED ABOUT THE BIG FALLOFF EARLIER IN OUR SUMMARY, BUT DRAMATIC SELL-OFF IN COTTON. HOPEFULLY PEOPLE TOOK ADVANTAGE OF YOUR SOME OF YOUR EARLIER IDEAS, LIKE GETTING THAT CROP HEDGED.

Roach: WELL, THE COTTON MARKET IS STRUGGLING AS WE SEE THE CONSUMPTION AROUND THE WORLD SHIFTING. THE CHINESE CONSUMPTION IS INCREASING SHARPLY, WHILE THE U.S. CONSUMPTION IS DECLINING SHARPLY. AND THE WTO RULING IS SIMPLY GOING TO MOVE MORE COTTON PRODUCTION OFF SHORE OVER TIME. AND THAT WAS SEEN AS DEVASTATING TO THE MARKET, ALTHOUGH THIS 50-CENT AREA SHOULD HOLD THE BOTTOM OF THIS MARKET, ACCORDING TO THE WHAT THE TECHNICAL PEOPLE ARE LOOKING AT. WE'VE PROBABLY SEEN THE WORST OF THE NEWS COME THROUGH.

Pearson: ALL RIGHT. LET'S TALK ABOUT LIVESTOCK. FED-CATTLE MARKET HAS BEEN AMAZINGLY STRONG. IT LOOKS GOOD. WE TALKED ABOUT FEEDERS ON THE BOARD JUMPED UP AGAIN THIS WEEK. FED CATTLE MARKET SEEMS TO BE GOING PRETTY GOOD. WE DON'T SEEM TO BE BACKING THEM UP ANYWHERE. THERE'S ALWAYS A CONCERN OF ANOTHER INCIDENT -- ANOTHER EVENT OCCURRING. BUT SHORT OF THAT, WHAT DO YOU SEE AHEAD FOR FED CATTLE?

Roach: I THINK THAT THE CATTLE MARKET CAN BEST BE TERMED STRONG DEMAND. WE HAVE A BETTER ECONOMY IN THIS COUNTRY, I THINK, MAYBE THAN WHAT SOME OF THE NEWSPAPERS WOULD HAVE YOU BELIEVE. THE DEMAND IS VERY STRONG. WE'RE DOING THIS WITHOUT THE BENEFIT OF THE JAPANESE DEMAND. AND THE CATTLE-ON-FEED REPORT TODAY SHOWED WE HAD A COUPLE MORE PERCENT -- A 2-PERCENT INCREASE IN PLACEMENTS. THAT'S A LITTLE BIGGER THAN WHAT THE TRADE WAS LOOKING FOR. THE ON-FEED NUMBER IS ABOUT ONE PERCENT BIGGER THAN WHAT THE TRADE WAS LOOKING FOR, BUT THE MARKETINGS NUMBER -- IT WAS A GOOD MARKETINGS NUMBER. SO THE CATTLE BUSINESS IS STRONG BECAUSE OF STRONG DEMAND. IT'S THE TIME OF SUMMER WHEN NORMALLY DEMAND IS SUFFERING, SO WE MAY HAVE A LITTLE BIT MORE OF A SLIPPAGE IN THE MARKET. BUT THE CATTLE BUSINESS, I BELIEVE, WILL BE A GOOD BUSINESS ON OUT INTO THE FOURTH QUARTER, AS LONG AS WE DON'T HAVE ANYTHING TO THREATEN THE DEMAND IN THE MARKET, ANY KIND OF FEAR THINGS.

Pearson: OF COURSE, THIS FEEDER MARKET, I JUST WANT TO TOUCH ON BECAUSE WE HAD A NICE JUMP THERE ON THE BOARD THIS WEEK. THIS CALF MARKET LOOKS TO BE PRETTY STRONG GOING INTO THE LATE SUMMER AND FALL MONTHS.

Roach: IT LOOKS VERY STRONG. YOU'RE SEEING AN INVERSE IN THE MARKET. THE AUGUST FEEDER CATTLE ARE HIGHER PRICED THAN JANUARY FEEDER CATTLE. THE FEEDER CATTLE MARKET LOOKS VERY STRONG. THERE'S MAYBE SOME HEDGING OPPORTUNITIES HERE BECAUSE MAYBE THE FEEDERS ARE A LITTLE OVERPRICED RELATIVE TO WHERE THE FATS ARE, PARTICULARLY IF THE CORN MARKET DOESN'T GO DOWN ANYMORE. SO I MAY LOOK AT DOING SOME HEDGING INTO THE FALL MONTHS. BUT QUITE FRANKLY, I THINK THAT MARKET IS ON VERY SOLID FOOTING.

Pearson: LET'S TALK ABOUT THE HOG MARKET. HOW SOLID IS THE FOOTING THERE?

Roach: WELL, IT ALSO SEEMS VERY GOOD. THE FACT IS, IF YOU LOOK ACROSS MOST ALL OF THE PROTEIN SOURCES -- HUMAN PROTEIN SOURCES, WHETHER IT'S MILK, MEAT, AND EGGS, I MEAN THEY ARE VERY STRONG MARKETS ALL THE WAY ACROSS. SO DIETS ARE CHANGING A LITTLE BIT. THE ECONOMY IS STRENGTHENING. THIS IS THE TIME OF YEAR WHEN THE HOG MARKET NORMALLY PUTS ITS PEAK IN, THIS JUNE/JULY TIME FRAME. SO LOOK FOR STRONGER MARKETS. THE CASH MARKET LOOKS STRONGER THIS NEXT WEEK. AND IF YOU LIKE SOME OF THE PROFITABILITY THAT'S BEING OFFERED TO YOU ON OUT THROUGH THE BALANCE OF THE YEAR, THIS IS A GOOD TIME OF YEAR TO BE PUTTING ON HEDGES, BUT I WOULDN'T DO IT OUT OF FEAR. I WOULD JUST DO OUT OF OPPORTUNITY-BASED MARKETING. I DON'T SEE FEAR. I DON'T SEE A REASON FOR FEAR.

Pearson: ALL RIGHT. SO FAIRLY POSITIVE OUTLOOK ON THE HOGS, THEN, TOO.

Roach: I THINK IT'S A VERY POSITIVE OUTLOOK REALLY ACROSS ALL OF THE HUMAN PROTEIN SOURCES.

Pearson: EXCELLENT. THANK YOU, JOHN. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM JOHN ON WHERE THESE MARKETS MAY BE HEADED, BE SURE TO CHECK OUT THE STREAMING AUDIO ON THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE EFFORTS THAT PROPELLED ETHANOL PRODUCTION IN MINNESOTA TO THE NEXT LEVEL. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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