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Market Analysis: Jun 04, 2004

posted on June 4, 2004


It was a choppy week in the grain markets as heavy farmer selling drove speculators for cover. For the week, nearby wheat futures gained eight cents. July corn advanced more than four cents.

Soybean prices improved despite softening Chinese demand and an explosion in planting progress. For the week, nearby beans climbed by more than 24 cents. July meal gained $8.90 per ton.

July cotton had another rough week, losing $3.39 over last week's close.

In livestock, strong demand spurred prices higher. For the week, the nearby live cattle contract gained $2.83. May feeders advanced another $1.42. And the lean hog contract gained $3.18.

In the financials, Comex gold dropped $3.10 an ounce. The Euro edged up 87 basis points against the dollar. And the CRB Index retreated a point-and-a-half to close at 274.75.

Here now to lend us her insight on these and other market trends is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Jun 04, 2004

Martin: THANK YOU, MARK.

Pearson: WELL, THE VOLATILITY CONTINUED IN THE OLD CROP BEAN CONTRACTS THIS WEEK, UP AND DOWN AND UP AND DOWN. WE FINISHED STRONGER. WHAT'S YOUR TAKE ON THIS OLD CROP SITUATION?

Martin: WELL, I THINK, MARK, WE FINALLY HIT AN AREA OF SUPPORT. AFTER A $2.60-SOME BREAK, THE MARKET HAS COME INTO AN AREA OF SUPPORT. THE 7.99 AREA IS A HALFWAY RETRACEMENT OF THE FULL MOVE SINCE WE STARTED LAST YEAR IN AUGUST. AND THEN ALSO THE 7.99 1/2 AREA IS A 200-DAY MOVING AVERAGE. AND WE FILLED THE GAP PROJECTIONS FROM THE 9.32 DOWN TO AROUND THE 9.12 AREA. THAT PROJECTED DOWN TO ABOUT 8.06. SO ALL THAT HAS BEEN DONE TECHNICALLY. IN THE MEANTIME, AS WE BROKE BACK AND FILLED THE GAP THAT WAS LEFT ON TUESDAY MORNING FROM FRIDAY'S CLOSE, THEN WE GOT INTO THAT SUPPORT AREA. AS WE ENDED THE WEEK, I THINK THERE WAS FEARS BECAUSE THE CRUSHERS IN CHINA ARE GOING TO MEET AGAIN THIS WEEKEND. AND, YOU KNOW, THERE SHOULDN'T BE ANYTHING NEGATIVE COMING OUT OF THAT. THE WORST THING WOULD BE THAT THEY DON'T ACCOMPLISH MUCH AT THE MEETING, BUT I DOUBT THAT'S THE CASE BECAUSE THEY'RE VERY BENT ON SUPPORTING THEIR PRICE VALUES AND TRYING TO KEEP THINGS FROM DROPPING FURTHER. SO THE MARKET, ANTICIPATING THAT, CAME BACK AND SHORT COVERED AND CLOSED THE WEEK HIGHER. NOW, HAVING MADE LOWER LOWS AND CLOSING THE WEEK HIGHER, WHAT WOULD THE ODDS BE FOR THIS NEXT WEEK? I SUSPECT TRYING TO ATTACK THE 8.64 AREA AGAIN, 8.67. AND IF YOU CAN ATTACK THAT 8.50 TO 8.67 AREA WITH CONVICTION, THEN THAT PROBABLY WILL GIVE US ENOUGH POWER TO SEND THIS MARKET RUNNING BACK UP OVER THIS COMING WEEK AND THE NEXT WEEK, SO THE WEEK OF THE 14TH THROUGH THE 21ST, PROBABLY BACK UP OVER $9. NOW, THERE'S WHERE YOU'VE GOT TO WATCH THIS MARKET BECAUSE I'M NOT OF THE CONVICTION THAT WE'RE GOING TO NEW HIGHS IN THIS MARKET. SO THESE ARE RETRACEMENTS. ON THESE RALLIES, PRODUCERS NEED TO BE SAYING GOOD-BYE TO SOME OF THAT OLD CROP BEANS THAT THEY'RE HANGING ONTO AND MAYBE EVEN LETTING GO OF SOME LONGS THAT THEY'VE SUFFERED WITH.

Pearson: ALL RIGHT. WHAT ABOUT ON NEW CROP?

Martin: ON THE NEW CROP, IF THIS HAPPENS IN THE OLD -- OF COURSE THE FRONTS WILL LEAD THE WAY -- THOSE SPREADS WILL START TO GO BACK WHERE THE JULYS LEAD. IF THAT OCCURS, THEN YOU'LL HAVE THE NOVEMBERS COMING BACK OVER $7, UP TO AROUND $7.30. PROBABLY NO BETTER THAN $7.50, IF WE CAN EVEN MAKE IT THAT FAR. I DOUBT THAT WE GET THAT FAR. IT'S ALL GOING TO BE UP FRONT IF THIS MARKET RALLIES. NOW ANOTHER THING, HAVING SAID ALL OF THIS, I WOULD USE THAT RALLY, THEN GO AHEAD AND MARKET SOME NEW CROP BEANS IF YOU SO WISH. EVERYBODY IS WORRIED ABOUT WEATHER AND ALL THIS TYPE OF THING. BUT IF YOU'VE GOT BEANS THAT NEED TO GO OFF THE COMBINE, YOU PROBABLY WANT TO HAVE THEM SOLD ON THIS RALLY OVER THE NEXT TWO WEEKS IF WE GET THAT. IF THIS MARKET FOR SOME REASON THIS NEXT WEEK TURNS AROUND AND IT TRIES THE $8.50 LEVEL, CAN'T GET OVER IT, AND IT COMES BACK UNDER $7.99, BE PREPARED, WE'RE HEADED FOR $7.31.

Pearson: ALL RIGHT. SO MAYBE GET READY TO PULL THE TRIGGER ON SOME NEW CROP SALES IF YOU HAVEN'T DONE SO.

Martin: ABSOLUTELY. BUT ALSO, I'M VERY POSITIVE TOWARDS THE MAY CONTRACT OF NEXT YEAR. ONCE WE GET THIS MARKET GELLED OUT AND SOLIDIFIED, THAT MAY CONTRACT OF NEXT YEAR HAS GOT SOME NICE POTENTIAL. OF COURSE, WHEN YOU LOOK AT WHAT'S GOING ON IN BRAZIL, THEY HAVE A LOT OF PROBLEMS IN BRAZIL. THOSE FARMERS DOWN THERE ARE GOING TO HAVE A TOUGH TIME. THEY RENEGED ON THEIR DEBTS. THEY'RE GOING TO HAVE A TOUGH TIME GETTING CREDIT THIS NEXT YEAR. ALSO, THE GOVERNMENT -- YOU KNOW, IN THE PAST WHEN PRICES WERE DROPPING, WHAT DID THEY DO? THEY DEVALUED THE CURRENCY DOWN THERE. THEY'RE NOT DOING THAT NOW. AND THEN THEY'VE GOT A DOLLAR EXTRA OF COSTS ON INPUTS. I'VE GOT A FEELING WE WON'T SEE THE INCREASED ACRES, ESPECIALLY IF THE U.S. COMES OFF WITH A GOOD CROP THIS YEAR, SOUTH AMERICA WILL NOT INCREASE IN ACRES LIKE THEY'VE BEEN DOING.

Pearson: ALL RIGHT. LET'S TALK ABOUT CORN. AND, OF COURSE, OLD CROP THERE WAS STRONGER THIS WEEK. TALK ABOUT -- ANY OLD CROP SALES STILL TO BE MADE OUT THERE? WHAT WOULD YOU DO?

Martin: WELL, I THINK I WOULD SURE BE WATCHING THE JULY CONTRACT HERE BECAUSE WE CLOSED RATHER POORLY FOR THE WEEK. IN FACT, IT MAKES IT LOOK LIKE WE'VE GOT A SINGLETON TOP OR A SPIKE HIGH ON THE WEEKLY CHARTS. DEC. LOOKS THAT WAY TOO. SO THE GAP THAT WAS LEFT FROM LAST WEEK TO THE END OF THIS WEEK CERTAINLY LOOKS LIKE IT'S BEEN, FOR THE MOST PART, FILLED. IT WILL BE PROBABLY EARLY NEXT WEEK. AND SO I THINK THAT WHEN I LOOK AT THE OLD CROP CORN, I'D BE WILLING TO TAKE SOME $3 OLD CROP CORN. I THINK I'D GO AHEAD AND BE MARKETING. THERE'S A FAIR AMOUNT OF CORN IN FARMERS' HANDS. SO THIS MARKET STILL HAS THE POTENTIAL TO STILL SIFT LOWER. NOW, HAVING SAID THAT, IF THIS MARKET CAN BASE OUT HERE AND COME BACK AND ATTACK THAT 3.22 LEVEL AGAIN IN THE DEC. CONTRACT, THEN YOU'RE HEADED FOR NEW HIGHS. BUT, MARK, I'M NOT A MAJOR BULL THERE EITHER. I THINK IF YOU MAKE NEW HIGHS IN THIS CORN CONTRACT, IT'S DONE BY THE 7TH OF JULY, AND I THINK YOU'RE LUCKY IF YOU GET MUCH OVER $3.45 TO $3.50.

Pearson: ALL RIGHT. SO NEW CROP SALES, YOU MENTIONED THAT SPIKE IN DECEMBER. WOULD YOU START MAKING SOME NEW CROP SALES?

Martin: I PROBABLY WOULD. I THINK I WOULD. NOW, WE'RE GOING TO -- AS WE GO TOWARDS THE FOURTH OF JULY, THE FORECAST FROM MY SOURCES THAT I USE IS FOR HOT AND DRY. AND A LOT OF THIS CROP -- WE STILL HAVE TO REMEMBER, THIS CROP ALL WENT IN FAIRLY CLOSE TOGETHER. GRANTED, IT'S BEEN SLOWED DOWN A LITTLE BIT BUT THE STANDS WERE EXCELLENT THIS YEAR. SO OTHER THAN WHERE IT'S BEEN PONDED -- AND OF COURSE, SOME OF THAT CORN HAS EVEN LIVED THROUGH THE DURESS OF IT AND IT'S SET BACK A LITTLE BIT, BUT IT STILL LIVED. A LOT OF THIS CORN IS GOING TO POLLINATE TOGETHER. I WOULD PROBABLY SAY BY THE 7TH OF JULY, ANY RALLIES YOU'VE GOTTEN INTO THAT TIME FRAME SAYS SAY GOOD-BYE.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET. THE HARVEST IS PROGRESSING. IT'S MOVING ALONG. THE EQUATION JUST DOESN'T SEEM TO BE -- THE POSITIVE EQUATION JUST DOESN'T SEEM TO BE THERE FOR WHEAT.

Martin: WELL, I THINK WHAT WE'RE SUFFERING IS THAT, ONE, WHEAT IS NOT GETTING GOOD EXPORT SALES AT THIS TIME. AND SECONDLY, WE KNOW THAT WE DO BELIEVE THAT CHINA IS GOING TO BE IN THE WORLD MARKET PRETTY AGGRESSIVELY, AND WE SHOULD BE GOOD BENEFACTORS OF THAT DEMAND BECAUSE THEIR RICE CROP WAS HURT SO BAD LAST YEAR AND DIDN'T HAVE MUCH BETTER THIS YEAR. AND THE WHEAT CROP WAS PUSHED AHEAD, JUST LIKE OUR OWN, BECAUSE OF HOT, DRY WEATHER. AND SO THE QUALITY AND THE PRODUCTION SOUNDS LIKE IT'S GOING TO BE DOWN A LITTLE BIT. SO WE'RE GOING TO SEE CHINA IN THE WORLD MARKET, BUT THAT'S TO COME DOWN THE ROAD. I THINK THAT THE WHEAT MARKET IS STILL DEALING WITH -- IT'S WATCHING CORN AND BEANS. IT'S STILL DEALING WITH HARVEST PRESSURE.

Pearson: ALL RIGHT. COTTON ALSO UNDER PRESSURE THIS WEEK.

Martin: WELL, THE COTTON MARKET -- YOU KNOW, I'VE BEEN A LITTLE PRICE POSITIVE TO COTTON. I STILL AM. BUT HERE'S A MARKET THAT DOES GO INTO FIRST NOTICE DAY AROUND JUNE 25, 24. AND WE'VE DROPPED A LITTLE BIT THIS WEEK, BUT WE DID COME BACK AND NOT CLOSE THE WEEK TOO BADLY. I THINK WE'RE GOING TO TRY TO TEST THE 62-CENT AREA AGAIN IN THE NEAR TERM. MY TIMING INDICATORS ON WEEKLY DATA FOR THE JULY CONTRACT ARE STILL PRICE POSITIVE. THEY'RE LEANED UP INTO A PERCENTAGE HIGHER, AND THAT SHOULD BE GOOD FOR THE MARKET. BUT WE'RE HAVING A LITTLE BIT OF DIFFICULTY WITH THE 200-WEEK MOVING AVERAGE. WE CAME DOWN TO IT, FOUND SUPPORT, AND BOUNCED BUT, BOY, THAT'S UNUSUAL IN THE PAST. WHEN YOU TEST THAT, YOU'LL TRY IT AGAIN.

Pearson: LET'S TALK ABOUT LIVESTOCK. VERY POSITIVE STORY AGAIN ON FED CATTLE. THIS MARKET JUMPED UP AGAIN THIS WEEK. CASH MARKET SEEMS TO BE IN PRETTY GOOD SHAPE. WHAT'S AHEAD THERE?

Martin: WELL, IF YOU COULD SCRIPT ANYTHING FOR A BULL MARKET, THIS ONE SURE HAS HAD IT. THE DIETS BOTH HERE AND IN CANADA, THEY CONTINUE TO BE VERY STRONG. THEY SAY IT'S JUST A KIND OF A TREND OR A -- NOT A TREND BUT A PATTERN THAT WE'RE JUST INTO FOR TEMPORARY. I DON'T THINK SO. I THINK THIS IS GOING TO BE MORE OF A LONGER LIVED THING. IF YOU LOOK AT IT, ALL MEATS ARE HIGH PRICED: POULTRY, PORK, BEEF. AND BEEF, OF COURSE, STANDING IN THE WAY A LONG TIME. BUT THE ONE THING THAT CONCERNS ME IS MY TIMING INDICATORS ON WEEKLY DATA ARE VERY, VERY OVERCOOKED. OCTOBER FAT CATTLE AT 99.7 PERCENT MONDAY MORNING. YOU HAVE THE FEEDERS AT EXTREMELY HIGH LEVELS. THEY MIGHT GO TO 1.10 IN AUGUST. YOU HAVE THE AUGUST FAT CATTLE MIGHT MAKE IT TO 92. BUT HOWEVER, IF YOU LOOK AT THE PUT OPTIONS, THEY ARE VERY HIGH PRICED AS WELL. SO IT TELLS YOU THAT THAT'S WHERE PEOPLE ARE TAKING PROTECTION, AND THEY'RE NOT SELLING THE FUTURES BECAUSE THEY CAN'T LOCK IN PROFITABILITY OR EVEN BREAK-EVENS YET WITH WHAT THEY'RE PAYING FOR THESE CATTLE. SOMEWHERE ALONG THE LINE, THIS MARKET IS GOING TO BURN PEOPLE BAD IN THIS CATTLE MARKET. AND I WOULD RECOMMEND -- I KNOW THAT EVERYBODY IS BULLISH. SUPPLIES ARE TIGHT. SO WHERE IS THE CHANGE GOING TO COME FROM? IT'S GOING TO COME FROM EITHER A BSE SCARE WHEN THEY START TESTING MORE -- AND MAYBE IT CHANGES PEOPLE'S FEELINGS, THE CONSUMERS' FEELINGS A LITTLE BIT -- OR MAYBE IT COMES WITH THE FACT THAT MAYBE CANADA BEATS US TO THE RUSH, AND THEY END UP GETTING A BORDER OPEN WITH JAPAN BEFORE WE DO. SOMETHING IS GOING TO CHANGE BECAUSE THEY'RE LOOKING AT CANADA MAYBE DOING A TOTAL BAN ON MEAT AND BONE MEAL, AND THE U.S. ISN'T THERE YET. SO I SUSPECT THAT SOMETHING IS GOING TO CHANGE THIS, BUT IT'S GOING TO COME AS A SHOCK. AND THESE PRICES ARE EXTREMELY HIGH. I FEAR THAT WHEN IT DOES, IT'S GOING TO CATCH PRODUCERS EXTREMELY BAD. I MEAN THEY'RE PAYING WAY TOO MUCH FOR THESE CATTLE.

Pearson: ALL RIGHT. YOU MENTIONED THE FEEDER CATTLE MARKET EXCEPTIONALLY STRONG RIGHT NOW.

Martin: EXACTLY.

Pearson: $400 ON CALVES JUST COMING OFF A COW, AND SO PEOPLE MIGHT WANT TO TAKE ADVANTAGE OF THAT IN THE FEEDER MARK. THIRTY SECONDS OR SO, SUE. LET'S TALK ABOUT HOGS, WHICH ALSO HAVE BENEFITTED FROM THIS WHOLE BSE PROBLEM.

Martin: WELL, THEY CERTAINLY HAVE AND, OF COURSE, WE'VE SEEN SOME LIQUIDATION IN THE SOW MARKET. I THINK THE HOG MARKET IS STILL GOING HIGHER. WE'VE STABILIZED THE PRODUCT HERE THIS PAST WEEK, SO THIS NEXT WEEK CASH MARKETS SHOULD BE A LITTLE FIRMER. I THINK THE JUNE FUTURES -- OF COURSE, THEY EXPIRE ON MONDAY THE 14TH. BUT I THINK WE'RE GOING TO TAKE THE HOG MARKET HIGHER, AND I LOOK FOR JUNE FUTURES TO GET TO 82 CENTS.

Pearson: OKAY. AND THAT MIGHT BE SOME PLACE WHERE PEOPLE WANT TO TAKE ADVANTAGE. WITH ALL THE VOLATILITY, SUE, -- WE HAVE ABOUT FIVE SECONDS -- WOULD YOU LOOK AT LOCKING IN SOME FEED NEEDS TO COVER YOU THROUGH THE VOLATILE SUMMER MONTHS?

Martin: NO, I'D GO HAND-TO-MOUTH.

Pearson: HAND-TO-MOUTH ON FEED. THERE'S THE FINAL WORD. THANKS SO MUCH, SUE MARTIN. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM SUE ON WHERE THESE UNCERTAIN MARKETS MAY BE HEADED, BE SURE TO CHECK OUT THE STREAMING AUDIO OF THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE'LL LEARN HOW SOME SOUTH DAKOTA CATTLE PRODUCERS ARE DRIVING DEMAND BY PASSING THE BUCK. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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