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Market Analysis: Jun 11, 2004

posted on June 11, 2004


Traders in the grain pits reacted negatively to the increased S&D numbers. For the trade-shortened week, nearby wheat futures fell by more than 19 cents. July corn dropped by more than 22 cents.

The price reaction in the soy complex underscored the tight supply of old crop soybeans. For the week, July beans GAINED more than eight cents, but August beans FELL by more than 20 cents. Nearby meal gained $7.60 per ton.

July cotton staged a late rally to finish 37 cents above last week's close.

In livestock, the nearby live cattle contract lost $3.75. August feeders declined $1.12. And the lean hog contract fell by 60 cents.

In the financials, Comex gold dropped $5.00 an ounce. The Euro fell 187 basis points against the dollar. And the CRB Index retreated another five-and-a-half points to close at 269.25.

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

Market Analysis: Jun 11, 2004

Brugler: IT'S GOOD TO BE HERE, MARK.

Pearson: WELL, WE'VE GOT SOME REPORTS OUT AND UNDER OUR BELTS FROM THE USDA THIS WEEK, AND PRETTY BEARISH FOR THE BEANS.

Brugler: : YEAH, I THINK THE BIGGEST BEARISH NUMBER WAS THAT NEW CROP WORLD ENDING STOCKS ESTIMATE, THE 46 MILLION TONS. AND WHEN YOU LOOK AT THE INDIVIDUAL COUNTRY NUMBERS, USDA IS SAYING BRAZIL MAY HAVE A 66-MILLION-TON CROP NEXT YEAR, ARGENTINA MAY HAVE A 39-MILLION. IF YOU THROW IN THE OTHER SOUTH AMERICAN SMALL PRODUCERS, YOU GET 113 MILLION TONS, WHICH IS MORE THAN HALF OF THE WORLD PRODUCTION. SO IT'S A VERY LARGE NUMBER, AND THE TRADE INITIALLY REACTED NEGATIVELY. IT'S LIKE, GEE, HOW CAN WE HAVE THAT MUCH; AND IF WE'RE GOING TO HAVE THAT MUCH, THEN U.S. PRICES DON'T NEED TO BE THIS HIGH.

Pearson: IT'S THE TALE OF TWO MARKETS: STILL TIGHT ON OLD CROP, RELATIVELY SPEAKING; BUT THE NEW CROP HAS CERTAINLY LOOSENED UP A BIT.

Brugler: : EXACTLY. THE OLD CROP IS STILL DEALING WITH THAT 115-MILLION-BUSHEL CARRYOUT AND WONDERING IF WE'VE GOT ENOUGH BEANS TO MAKE IT THROUGH THE SUMMER. IN MY MIND, THAT IS GOING TO BE CONTROLLED PRIMARILY BY THE SOYBEAN MEAL MARKET. THE QUESTION IS WHETHER PRODUCERS HAVE STOCKPILED ENOUGH MEAL TO HOLD THEM TILL THE END OF THE SPRING -- I'M SORRY, TILL THE END OF THE FALL, BECAUSE THEY KNEW THERE WAS GOING TO BE A SHORTAGE THIS SUMMER AND THEY WANTED TO GET THEIR HANDS ON THE CASH MEAL. IF THEY'VE GOT ENOUGH MEAL INVENTORY, THEN WE PROBABLY WON'T SEE A BIG BOOST IN MEAL PRICES AND THE CRUSH RATE WILL SLOW DOWN. WE'LL GET A LITTLE BIT OF AN INDICATION OF THAT ON MONDAY WITH THE CRUSH REPORT.

Pearson: LET'S TALK ABOUT STRATEGIES FOR SOYBEANS FOR 2004/2005. NOW THAT WE HAVE THIS REPORT BEHIND US AND TAKING OUT A NEGATIVE TONE, WHAT WOULD YOU RECOMMEND TO A PRODUCER AT THIS STAGE?

Brugler: : BASICALLY OUR STRATEGY HAS BEEN PRETTY DEFENSIVE FOR THE LAST MONTH OR TWO. SINCE WE GOT THE 799 HIGH IN THE FUTURES, WE SAW THAT THOSE WERE EXCELLENT PRICES. AND IF WE HAVE ADDITIONAL ACREAGE BECAUSE OF THE WET WEATHER AND THE DELAYED PLANTINGS, POTENTIALLY SOME SHIFT FROM CORN TO BEANS, THAT WAS GOING TO PUT PRESSURE ON PRICES. SO I THINK YOU HAVE TO HAVE SOME SALES MADE ALREADY ON THE CASH SIDE JUST BECAUSE OF THE FACT THAT WE'RE AT THE HIGHEST PRICES WE'VE SEEN IN SEVERAL YEARS, AND HOPE TO GET A RALLY TO SELL SOME MORE.

Pearson: AND IF WE GET THAT, WHAT WOULD BE YOUR TARGET -- PRICE TARGET FOR MAKING MORE SALES?

Brugler: : I THINK WE'VE GOT SOME CHART OBJECTIVES, BOTH RETRACEMENTS AND GAPS ABOVE THE MARKET THAT WOULD BE GOOD TRIGGERS. IN A SUMMER WEATHER MARKET, IT'S ALWAYS A LITTLE DICEY TO PICK EXACT NUMBERS. YOU KIND OF HAVE TO PAY ATTENTION TO WHAT'S GOING ON WITH THE PSYCHOLOGY OF THE MARKET. BUT THE SCENARIO THAT I'M WORKING WITH IS THAT THE MARKET WILL FIND A LOW HERE SOMETIME BETWEEN NOW AND THE JUNE 30 PLANTING INTENTIONS. THE GRAIN STOCKS REPORTS WILL PROBABLY GET A LITTLE BIT OF SHORT COVERING GOING INTO THOSE REPORTS. AND THEN WE'LL LOOK AT THE WEATHER FORECAST AND DECIDE WHETHER WE NEED TO BE WORRIED ABOUT POLLINATION OR POD FILL OR ANY OF THE USUAL SUMMERTIME YIELD THREATS.

Pearson: ABSOLUTELY. LET'S TALK ABOUT THE CORN MARKET. AGAIN, OLD CROP VERSUS NEW CROP. NEW CROP STRATEGIES -- A LOT OF PRODUCERS ARE CONCERNED ABOUT TIGHT SUPPLIES FOR CORN FOR 2004/2005. AND I THINK A LOT OF PEOPLE ARE A LITTLE BIT FLAT FOOTED ON THIS CORN MARKET.

Brugler: : YEAH, THE CORN SITUATION IS DIFFERENT BECAUSE WE'VE GOT AN AMPLE OLD CROP SUPPLY, AND WE'RE GOING TO HAVE 800 MILLION PLUS BUSHELS THAT WE DON'T NEED BEFORE WE GET TO HARVEST. SO WE'VE GOT A BUFFER THERE. AND THEREFORE, THE JULY FUTURES DON'T HAVE THE LEAD LIKE THEY DO IN THE BEANS. NEW CROP IS GOING TO BE TOUCH AND GO. WE DON'T KNOW WHAT THE ACREAGE IS. THE TRADE ESTIMATES ARE KIND OF SETTLING IN THAT 80 TO 80.2, 80.3 MILLION ACRES FOR PLANTED ACREAGE. BUT WE DON'T REALLY KNOW BECAUSE WE'RE MAKING SUBTRACTIONS FOR WET WEATHER, BUT WE DON'T KNOW WHAT THE NUMBER WOULD HAVE BEEN WITHOUT IT. AND DEMAND IS SUCH THAT WE THINK WE NEED A 10.3- OR 10.4-BILLION-BUSHEL CROP JUST TO AVOID DRAWING DOWN THOSE ENDING STOCKS. SO WE CAN ARGUE THAT THE AVERAGE PRICE SHOULD BE HIGHER FOR THE YEAR AND THAT WE SHOULD HAVE A RISK PREMIUM IN THE SUMMERTIME, BUT WE'VE ALREADY HAD A CONSIDERABLE RISK PREMIUM WHEN WE WERE TRADING AT 330 OR 340 A BUSHEL. SO THE MARKET HAS KIND OF BACKED OFF HERE A LITTLE BIT, SAYING: THE CROP IS IN THE GROUND; WE DON'T SEE A DROUGHT THREAT AT THE MOMENT; WE DON'T NEED TO MAINTAIN THAT LEVEL OF PREMIUM; WE'LL PUT IT BACK IN IF THERE'S A WEATHER SCARE.

Pearson: SO THAT KIND OF PREMIUM CROP PROBLEM, FOR THE TIME BEING, PROBABLY HAS BEEN PULLED OUT OF THE CORN MARKET.

Brugler: : WE'VE PULLED A LOT OF IT OUT. I THINK WORSE CASE SCENARIO YOU COULD SEE DEC. CORN GO BACK INTO THE 260S, IF EVERYTHING IS PERKING ALONG WELL. AGAIN, EVEN IF THINGS ARE GOING TO BE TIGHT FOR '04, '05, WE'RE STILL GOING TO HAVE A TEN -- BASED ON WHAT WE KNOW TODAY, WE'LL STILL HAVE A 10-BILLION-BUSHEL-PLUS CROP COMING OUT OF THE FIELD AT HARVESTTIME. AS WE SAW WITH BRAZIL, WE DROPPED 8 MILLION TONS OFF OUR PRODUCTION, BUT WHEN THE ACTUAL CROP CAME OUT OF THE FIELD, IT DID PRESSURE THE WORLD PRICES. SO WHAT I'M SAYING IS ANY PRICE RATIONING -- SERIOUS PRICE RATIONING IS MORE LIKELY TO HAPPEN AFTER WE TURN THE CALENDAR TO '05. IN '04 IT'S JUST KIND OF TRYING TO KEEP THE LEVEL HIGH ENOUGH TO ANTICIPATE THAT THERE COULD BE A PROBLEM.

Pearson: REAL QUICK, YOUR STRATEGY ON CORN?

Brugler: : AGAIN, DEFENSIVE. PUTS UNDER THE MARKET, MINIMUM PRICE AGREEMENTS, VARIOUS TOOLS OF SAYING THIS IS A PRETTY GOOD PRICE COMPARED TO THE LAST COUPLE OF YEARS, LET'S MAKE SURE IT DOESN'T GET AWAY FROM US, BUT EXPECTING AT SOME POINT DURING THE YEAR WE'RE GOING TO HAVE A BIT OF A RALLY BECAUSE WE ARE IN THAT TOUCH-AND-GO SITUATION WHERE WE COULD DROP THE STOCKS. I DON'T SEE ANY BIG NEED TO BE BOOKING '05 CROP YET. GOOD QUESTIONS ON THAT: SHOULD WE BE SELLING DEC. '05 FUTURES. I DON'T THINK THERE'S ENOUGH OF A PREMIUM IN THERE TO JUSTIFY THAT AT THIS POINT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET. AND AGAIN, THERE'S BEEN SOME DEMAND CHALLENGES BUT THERE'S ALSO BEEN SOME GOOD NEWS ON THE WHEAT FRONT. PRICING ACTION, WE'RE HEADING INTO HARVEST SO ARE WE JUST GOING TO CONTINUE TO SEE SOME PRESSURE?

Brugler: : YEAH. WHEAT IS ACTING LIKE A TYPICAL HARVEST LOW IS DEVELOPING HERE. WE TRIED TO RALLY IT BASED ON THE CROP AND CROP CONDITIONS IN KANSAS AND A COUPLE OTHER PLACES. COULDN'T HOLD THE RALLY. OF COURSE, WE GOT CAUGHT IN THE DOWNSWEEP OF THE CORN MARKET AS WELL. BUT IT ACTS LIKE IT'S GOING TO FIND A HARVEST LOW. WE'RE TRYING TO FIND WHERE THE EGYPTIANS WILL BUY SOME MORE U.S. WHEAT. WE LOST THE LAST TENDER TO FRENCH WHEAT. WE WERE A COUPLE DOLLARS A TON HIGHER THAN THEY WERE. I THINK THE MARKET WOULD LIKE TO SEE A LITTLE MORE OF THAT EXPORT BUSINESS GO ON OUR SIDE OF THE BOOKS. AND WITH HARVEST SUPPLIES COMING ON BOARD, THAT'S EASY -- IT'S EASY TO DISCOUNT PRICES. WORLD ENDING STOCKS ARE, WHILE THE USDA RAISED THEM A LITTLE BIT THIS WEEK, THEY'RE STILL FAIRLY TIGHT. THEY'RE TIGHTER SINCE '72, '73 AS THE PROJECTION, AND U.S. STOCKS LOOK LIKE THEY'RE GOING TO BE DOWN PROBABLY LESS THAN 500 MILLION BUSHELS. SO AGAIN, ONCE WE GET PAST WHEREVER THIS HARVEST LOW IS, I THINK THERE'S GOOD POTENTIAL FOR A RALLY BETWEEN NOW AND THE END OF THE YEAR.

Pearson: REAL QUICK -- REAL QUICK ON THE COTTON MARKET. WHAT DO YOU SEE AHEAD THERE?

Brugler: : COTTON IS, AGAIN, SEEING A REAL TIGHT WORLD STOCKS FOR THE CURRENT YEAR. TRADERS WERE KIND OF FLOORED BY THE USDA'S ESTIMATE FOR CHINESE PRODUCTION FOR THE COMING YEAR. AND BASICALLY, I BELIEVE WAS ABOUT A 7-MILLION-BALE INCREASE, AND THAT'S PRETTY AGGRESSIVE EXPANSION IN CHINA. WE KNEW THE ACREAGE WAS THERE BUT, EVIDENTLY, THE YIELD IS THERE AS WELL. SO DECEMBER COTTON HAS BEEN UNDER QUITE A BIT OF PRESSURE. WE DID GET A LITTLE BOUNCE ON THURSDAY AND FRIDAY BECAUSE THE EXPORT SALES WERE BETTER, 180,000 BALES, IF I REMEMBER RIGHT, FOR LAST WEEK. AND THAT'S KIND OF GIVEN US SOME SUPPORT.

Pearson: ALL RIGHT. LET'S TALK LIVESTOCK. FED CATTLE MARKET: DEMAND KEEPS SHOWING UP. WHAT'S AHEAD FOR THE NEXT 60 DAYS ON FED CATTLE?

Brugler: : WELL, OUR THEME CONTINUES TO BE WATCH THE WHOLESALE BEEF MARKET. THAT'S OUR CANARY IN THE COAL MINE. AND PACKER OFFERINGS DRIED UP THE LAST COUPLE WEEKS. THEY WENT TO WHAT USDA DESCRIBES AS LIGHT TO MODERATE. AND THAT ALLOWED THE BOXED BEEF TO RALLY SEVERAL DOLLARS A HUNDRED. AND CASH CATTLE FOLLOWED RIGHT ALONG WITH THAT. WE GOT TO $90. THE PROBLEM THIS WEEK WAS WE THOUGHT THE ASKING PRICES WERE 93, 94. WE THOUGHT WE COULD GET IT, AND WE ENDED UP TAKING 90. SO PACKERS WEREN'T WILLING TO FOLLOW THE LEAD, EVIDENTLY WERE COMFORTABLE WITH THEIR INVENTORIES. THE MARKET DEFINITELY ACTS LIKE IT'S A LITTLE TIGHT ON BEEF. THAT'S NOT SURPRISING, GIVEN THE PRODUCTION YEAR TO DATE IS DOWN AROUND 9.7 PERCENT. COINCIDENTALLY, THAT'S ABOUT THE NUMBER OF CATTLE AND THE TONNAGE THAT WE NORMALLY BRING IN FROM CANADA.

Pearson: RIGHT. SO, YEAH WE HAVE A CLOSE RELATIONSHIP THERE. BIG TALK DONE ON -- ABOUT THAT THIS WEEK. BUT IN TERMS OF PRICING CATTLE OR HEDGING CATTLE, WHAT'S THE FALL LOOK LIKE?

Brugler: : WELL, WE'VE HAD REALLY NICE UP TRENDS GOING ON THE CHARTS. AND MY BASIC STRATEGY THERE HAS BEEN, RIGHTLY OR WRONGLY, AS LONG AS WE DON'T BREAK THE TREND LINES, WE DON'T HAVE TO DO MUCH HEDGING. NOW, WE'RE STARTING TO GET A LITTLE WEAKNESS IN JUNE AND AUGUST CONTRACTS, AND WE'RE STARTING TO LOOK A LITTLE MORE AGGRESSIVELY IN PUTTING SOME HEDGES ON. THERE'S ALWAYS THAT HEADLINE RISK IF THE ADMINISTRATION DOES DECIDE TO MOVE ON THE CANADIAN BORDER, PARTICULARLY IF THEY DO THAT BEFORE THEY COME TO A RESOLUTION WITH THE JAPANESE ON EXPORTS.

Pearson: LET'S TALK ABOUT THE HOG MARKET AND WHAT'S BEEN HAPPENING THERE. I'VE BEEN OUT WITH PORK PRODUCERS THE LAST WEEK OR SO, AND WE FINALLY HAVE SOME DECENT PRICES. THINGS ARE LOOKING UP IN THE HOG CYCLE, AND DEMAND THERE HAS BEEN GOOD.

Brugler: : DEMAND HAS BEEN EXCELLENT. WE'VE SEEN A LITTLE BIT OF SHIFT IN DEMAND CURVE, AND WE'VE ALSO SEEN EXCELLENT EXPORTS. USDA RAISED THEIR EXPORT ESTIMATE BY, I BELIEVE, 128 MILLION POUNDS THIS PAST THURSDAY ON THE REPORT. THAT'S FOR 2004. THEY BASICALLY ARE SAYING, YEAH, WE'RE MOVING THIS STUFF OUT. THE COMBINATION OF IMPROVED DOMESTIC DEMAND AND IMPROVED EXPORT DEMAND HAS HELPED US PUSH THE PRICES UP TO WHERE THEY ARE. MY BIGGEST CONCERN ON THE HOG MARKET IS THAT WE'RE RAPIDLY APPROACHING THE TONNAGE CAP FOR JAPAN UNDER THEIR SUSPENDED TARIFFS. IF THEY REINSTITUTE THOSE TARIFFS, I THINK THAT EXPORT SHIPMENT COULD SLOW DOWN PRETTY RAPIDLY.

Pearson: SOME GOOD POINTS AS USUAL. ALAN BRUGLER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE DETAIL FROM ALAN 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. AND, OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE'LL LEARN HOW SOME RURAL TELECOMS ARE BRIDGING THE DIGITAL DIVIDE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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