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Market Analysis: May 28, 2004

posted on May 28, 2004


Export sales, ethanol production and feed demand propped up corn prices this week at a time when most other grains went in the tank. For the week, nearby wheat futures lost more than six cents ... but July corn gained 14 cents.

Flagging Chinese demand has put a damper on the soybean market, even though April Census Crush numbers were friendly. For the week, nearby beans plunged more than 58 cents. July meal was off by $27.20 per ton.

July cotton remains in a downward trend, losing $1.81 over last week's close.

In livestock, the nearby live cattle contract gained $4.22. May feeders advanced another $1.85. And the lean hog contract gained 37 cents.

In the financials, Comex gold jumped $9.10 an ounce. The Euro climbed 195 basis points against the dollar. And the CRB Index roared up seven-and-a-half points to close at 276.25.

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

Market Analysis: May 28, 2004

Pfitzenmaier: THANKS, MARK.

Pearson: EVERYONE HAS BEEN TALKING ABOUT SOYBEANS. I'VE HEARD PEOPLE SAYING, YOU KNOW, WE'VE BEEN TALKING TOO MUCH ABOUT SOYBEANS. IT'S KIND OF HARD TO AVOID TALKING ABOUT SOYBEANS BECAUSE OF THE VOLATILITY WE'VE SEEN. DOWN THIS WEEK, DOWN 58 CENTS THIS WEEK. A LOT OF PEOPLE ARE FEELING LIKE THE BULL RUN HAS LOST SOME OF ITS WIND.

Pfitzenmaier: NO QUESTION ABOUT THAT. YOU KNOW, THAT JULY CONTRACT IS THE ONE WHERE A LOT OF THAT VOLATILITY HAS BEEN. AND THAT JULY CONTRACT, WELL, FOR THE LAST COUPLE WEEKS THROUGH THE END OF IT, IS PROBABLY GOING TO BE A LITTLE LIKE PLAYING WITH GAS AND MATCHES. I MEAN IT'S GOING TO BE A VOLATILE THING AND A LOT OF UP AND DOWN AND A PRETTY WILD RIDE I THINK. I THINK YOU'LL SEE A LITTLE MORE STABILITY IN THE DEFERRED CONTRACTS. YOU KNOW, THAT JULY CONTRACT AT 795 IS ABOUT A 50-PERCENT RETRACEMENT OF THE FULL MOVE UP, SO I WOULD GUESS YOU'RE GOING TO FIND FAIRLY GOOD SUPPORT THERE. THE NOVEMBER BEAN DOWN IN THAT 680 AREA IS PROBABLY GOING TO FIND PRETTY GOOD SUPPORT ALSO. SO I THINK THE WORST OF IT IS PROBABLY OVER WITH ON THE DOWN SIDE HERE. YET, THE WEATHER EVENTS THAT TOOK PLACE OVER THE LAST WEEK OR TWO ARE PROBABLY GOING TO SHIFT A LITTLE ACREAGE FROM CORN TO BEANS, AND WE'VE SORT OF HAD THAT -- HAVE MADE THAT ADJUSTMENT. AND NOW WE'RE GOING TO HAVE TO SEE HOW THE WEATHER SHAPES UP FOR ACTUALLY GROWING -- OR GETTING THEM PLANTED AND THEN GROWING THE BEANS.

Pearson: ALL RIGHT. WE'VE GOT A WAYS TO GO HERE TO FIND OUT JUST WHAT KIND OF A 2004 SOYBEAN CROP WE'RE GOING TO HAVE. BUT AT THE SAME TIME, WE ARE OFF TO KIND OF A ROCKY START.

Pfitzenmaier: YEAH, WE ARE, AND I THINK THAT'S PARTICULARLY TRUE FOR THE CORN. ONE OF YOUR EARLIER FEATURES TALKED ABOUT ALL THE DROWN OUTS. AND, YOU KNOW, TO SOME EXTENT, EITHER WE HAVE SOME GROUND DROWNED OUT OR THE NOBS DRY OUT, SO YOU'RE GOING TO LOSE SOME GROUND. THAT'S WHY THE HARVESTED ACREAGE ISN'T THE SAME AS THE PLANTED ACREAGE IN ANY PRODUCTION YEAR. SO, YOU KNOW, YOU HAVE TO DISCOUNT THAT A LITTLE BIT, AND HAVING MOISTURE IS ULTIMATELY PROBABLY A GOOD THING FOR THE CROP. SO ONCE WE GET THROUGH THIS LITTLE WEEK OR WEEK-AND-A-HALF, TWO-WEEK PERIOD HERE, I THINK THINGS ARE GOING TO START TO LOOK A LITTLE BETTER PRODUCTION-WISE.

Pearson: ALL RIGHT. SALES STRATEGY FOR BEANS ON NEW CROP.

Pfitzenmaier: DON'T HAVE ONE. THERE'S TOO MUCH WATER TO GO UNDER THE BRIDGE, SO TO SPEAK. AND I THINK YOU HAVE TO WAIT AND SEE HOW THAT SHAPES UP. AUGUST IS SO IMPORTANT. THE CARRYOUT IS SO TIGHT. I WOULDN'T -- I MEAN IF YOU GOT BACK UP IN THAT $7.50 TO $8 AREA, I CERTAINLY WOULD BE LOOKING AT EITHER MAKING SALES OR SOME SORT OF A PUT/CALL STRATEGY OR SOMETHING. BUT DOWN AT UNDER 7, I GUESS I'M NOT TOO EXCITED ABOUT IT YET.

Pearson: ALL RIGHT. THE SAME THING ON CORN?

Pfitzenmaier: THE SAME THING ON CORN. I THINK DECEMBER CORN HAS GOT FAIRLY GOOD SUPPORT HERE IN THIS 285 TO 290 AREA. I THINK IT CAN BE BOUGHT -- OWNED THERE. YOU KNOW, IF YOU'VE MADE SOME SALES AND YOU'RE A LITTLE NERVOUS ABOUT THEM, YOU GET DOWN THERE, YOU CAN BUY SOME CALLS TO COVER THEM. IF YOU'RE A LIVESTOCK PRODUCER, USE THAT AS A BASE SUPPORT. HAVING SAID THAT, I THINK RALLIES UP IN THAT 305 TO 315 AREA PROBABLY SHOULD BE SALES -- SALES OPPORTUNITIES ON CORN OR, AT THE VERY LEAST, OPPORTUNITIES TO BUY SOME PUTS.

Pearson: AND AGAIN, NOTHING REALLY HAS CHANGED. WE TALKED ABOUT CHINA AND ITS IMPACT ON SOYBEANS AND ITS IMPACT ON COTTON, BUT IN TERMS OF CORN, YOU'RE STILL LOOKING AT FAIRLY TIGHT USE RATIO.

Pfitzenmaier: YEAH, TIGHT USE RATIO. GOOD DEMAND -- I MEAN UP TO THIS POINT, WE'VE HAD VERY GOOD DEMAND. YEAH, THERE'S NO QUESTION THAT WE NEED TO PRODUCE A GOOD CROP. WE ALSO ARE PROBABLY GOING TO LOSE SOME ACREAGE BECAUSE, YOU KNOW, YOU GET PAST THE FIRST OF JUNE AND PEOPLE ARE LESS LIKELY TO WANT TO PLANT CORN. NOW, SOME OF THE THINGS I'VE HEARD THIS WEEK IS IF YOU PLANT AROUND, YOU KNOW, THAT CENTRAL CORN BELT ON THE FIRST OF JUNE, YOU'RE GOING TO LOSE ABOUT 80 PERCENT -- OR 20 PERCENT OF YOUR YIELD POTENTIAL. SO YOU STILL HAVE 80 PERCENT. SO IF YOU HAVE A FEW ACRES THAT ARE DOWN 20 PERCENT, IT DOESN'T, YOU KNOW, TOTALLY RUIN THE U.S. CORN CROP, BUT IT'S JUST ONE OF THOSE THINGS THAT TAKES A LITTLE OFF THE TOP. YOU GO TOO MUCH, ANOTHER RAIN THIS WEEK OR, YOU KNOW, AND THEN ALL OF A SUDDEN YOU'RE INTO JUNE AND THEN THERE MIGHT BE SOME SWITCHING TO BEAN ACRES.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. AGAIN, SOME PRESSURE THERE THIS WEEK.

Pfitzenmaier: YEAH, LACK OF DEMAND AND YOU'RE HEADING INTO HARVEST. THAT HARVEST PRESSURE IS GOING TO BE FELT HERE OVER THE NEXT WEEK OR TWO. ALTHOUGH, YOU KNOW, WE'VE BEEN TALKING ALL WINTER LONG, THAT WHEAT MARKET HAS BEEN IN A TRADING RANGE OF 360 ON THE DOWNSIDE, 410 AND 415 ON THE TOPSIDE, AND WE'RE BACK DOWN TO THE BOTTOM END OF THAT TRADING RANGE. SO I WOULDN'T WANT TO LET MYSELF GET TOO BEARISH DOWN IN HERE, BECAUSE IT SEEMS LIKE INVARIABLY SOMETHING COMES ALONG TO GIVE US A BOOST UP OUT OF HERE. AND A LOT OF THAT HARVEST PRESSURE HAS BEEN ANTICIPATED TO SOME EXTENT TOO. SO, YOU KNOW, DOWN IN HERE, I GUESS I WOULDN'T GET TOO EXCITED ABOUT MAKING ANY SALES ON WHEAT.

Pearson: OVERALL WE'RE LOOKING AT A WHEAT SITUATION WHERE, AGAIN, PRETTY DECENT SUPPLIES WORLDWIDE.

Pfitzenmaier: YEAH, THEY ARE, DECENT SUPPLIES AND DEMAND IS NOT ALL THAT GREAT. WHEAT IS GOING TO STRUGGLE. I'M NOT TALKING ABOUT RALLIES BACK TO THE 425 OR 450 OR ANYTHING, BUT I THINK YOU COULD RALLY A LITTLE OFF THE LOW LEVELS WE'RE AT RIGHT NOW.

Pearson: ALL RIGHT. THE COTTON HAS BEEN UNDER SOME PRESSURE. WE'VE BEEN IN A DOWNWARD SPIRAL. HOPEFULLY PEOPLE TOOK YOUR EARLIER ADVICE AND MADE SOME SALES. WHAT DO WE DO NOW?

Pfitzenmaier: YEAH, AGAIN, WE'RE DOWN AT THE BOTTOM END OF THAT $59 TO $60 SUPPORT POINT. ANY RALLIES UP IN THE MID TO UPPER SIXTIES NEED TO BE SOLD. WE'RE AT THE LOWER END OF THAT NOW. WE STILL HAVE SOME QUESTION MARK ABOUT ACREAGE: IS THE USDA GOING TO HAVE TO BACK THAT ACREAGE OFF A LITTLE BIT FROM THEIR PREVIOUS ESTIMATE? MANY PEOPLE THINK THEY WILL. THE PRODUCTION AT THIS POINT IN TIME LOOKS FAIRLY DECENT BUT, YOU KNOW, HOW IS -- IS CHINA GOING TO BACK AWAY FROM THERE? AND THEY'VE BEEN A BIG SUPPORTER OF OUR COTTON MARKET THIS YEAR. ARE THEY GOING TO BACK AWAY FROM THAT LIKE THEY SUPPOSEDLY ARE GOING TO IN BEANS? THAT'S ONE OF THE BIG QUESTION MARKS IN THAT COTTON MARKET.

Pearson: LET'S TALK ABOUT SOME OTHER QUESTION MARK. CERTAINLY WE TALKED EARLIER IN THE SHOW ABOUT THIS CATTLE MARKET AND WHAT WE FACED THERE AS FAR AS FED CATTLE PRICES ARE CONCERNED, THE LOSS OF JAPAN, THE LOSS OF SO MANY OF THOSE OVERSEAS MARKETS, AND YET PRICES HAVE BEEN VERY GOOD. U.S. DEMAND HAS BEEN PHENOMENAL. CAN WE KEEP THIS GOING?

Pfitzenmaier: NINETY PERCENT OF OUR DEMAND HAS COME -- ON THE BEEF SIDE HAS BEEN DOMESTIC DEMAND, SO THE U.S. CONSUMER HAS BEEN HANGING IN THERE. I THINK ONE OF THE THINGS THAT'S GOING ON IS I THINK WE'RE PROBABLY NOT GOING TO SEE ANY CANADIAN CATTLE COME INTO THIS COUNTRY UNTIL SEPTEMBER/OCTOBER TIME PERIOD. SO I THINK THROUGH THE SUMMER, WE'RE OKAY ON THAT SIDE OF IT. U.S. DEMAND HAS BEEN GOOD UP TO THIS POINT. THERE'S A LITTLE NERVOUSNESS THAT IF THE U.S. CONSUMER HAS A FINITE AMOUNT OF MONEY TO SPEND, GASOLINE PRICES ARE UP. IS THAT GOING TO CUT INTO THE BEEF DEMAND. THAT'S -- IT SEEMS UNLIKELY BUT THAT'S A THING THAT PEOPLE ARE A LITTLE WORRIED ABOUT. NUMBERS ARE GREAT. THE PRODUCER IS VERY CURRENT, ALTHOUGH YOU HAVE TO BE NERVOUS ABOUT THAT BECAUSE FOR ALL THROUGH THE WINTER WE HAD THAT CASH MARKET WELL PREMIUM TO WHERE THE FUTURES WERE AT. THAT KEPT EVERYBODY CURRENT, KEPT EVERYBODY MOVING. YOU HAD THE DEFERREDS LOWER. THAT KEEPS EVERYBODY -- THERE'S NO INCENTIVE TO HOLD. WELL, NOW ALL OF A SUDDEN THE FUTURES ARE STARTING TO CREEP ABOVE THE CASH MARKET A LITTLE BIT. THE DEFERRED CONTRACTS ARE ALMOST AS HIGH AS THE NEARBY IS, SO THERE'S SOME THINGS SETTING UP HERE. YOU KNOW, FEEDER PRICES ARE VERY HIGH. SO IF YOU'RE LOOKING AT PRETTY GOOD PRICES, YOU'VE GOT SOME CATTLE ON FEED, MAYBE YOU'RE GOING TO HOLD THEM A LITTLE LONGER RATHER THAN HAVING TO PONY UP FOR THE HIGH PRICED FEEDERS. THAT'S ONE THING THAT I'D BE A LITTLE NERVOUS ABOUT. THERE ALSO IS A SEASONAL FOR US TO DECLINE INTO THE MIDDLE OF JULY HERE ON CATTLE PRICES, SO THAT'S ANOTHER REASON FOR A LITTLE NERVOUSNESS. WE'RE AT VERY LOFTY LEVELS HERE AND COULD SIT BACK. NOW, HAVING SAID THAT, I STILL THINK IF YOU DO PULL BACK IN THE MIDDLE OF JULY, YOU'RE GOING TO RALLY OUT OF THAT POINT AND STILL HAVE A FAIRLY -- A VERY GOOD THIRD QUARTER. SO I'M NOT DOWN IN THE DUMPS HERE. I'M JUST SAYING WE'RE UP AT SOME FAIRLY HIGH LEVELS THAT PROBABLY YOU SHOULD BE A LITTLE CAUTIOUS ABOUT.

Pearson: YOU MENTIONED THAT CALF MARKET, WHICH HAS BEEN PHENOMENALLY GOOD. AND WITH THESE RAINS, WE'RE TALKING ABOUT THE PROBLEMS IN TERMS OF WHAT IT'S DONE ON THE GRAIN SIDE. WE'RE ALSO SEEING SOME PASTURES THAT ARE IN SOME PRETTY GOOD SHAPE IN PARTS OF NEBRASKA AND ELSEWHERE. WE HAVEN'T HAD GOOD WEATHER. IS THIS CALF MARKET GOING TO STAY PRETTY GOOD, DO YOU THINK?

Pfitzenmaier: IT'S GOING TO STAY GOOD AND PROBABLY GET BETTER. I THINK YOU'RE -- WE'RE PROBABLY GOING TO PRODUCE A DECENT CORN CROP. THAT'S GOING TO KEEP THE FEED PRICES HIGH. YOU OBVIOUSLY HAVE GOT THE FAT MARKET EVEN IN THE DEFERRED CONTRACTS HIGHER. I DON'T KNOW THAT WE'RE THAT CHEAP IN THE FEEDER MARKET IN TERMS OF WHERE WE'VE BEEN HISTORICALLY. I THINK THE FEEDER MARKET HAS SOME UPSIDE POTENTIAL YET IN IT AND MAYBE A FAIR AMOUNT.

Pearson: THIS HOG MARKET HAS BEEN VERY POSITIVE THE LAST FEW WEEKS. WE'RE UP AGAIN THIS WEEK, NOT A LOT BUT, AGAIN, IT'S HEADED IN THE RIGHT DIRECTION. WE'RE IN THAT SEASONAL TIME PERIOD WHERE WE SHOULD BE SEEING GOOD PRICES. IS THIS GOING TO BE ABOUT IT?

Pfitzenmaier: YEAH. I THINK ONCE WE'VE GOT MEMORIAL DAY OUT OF THE WAY, ONCE THAT'S DONE, I THINK YOU'RE GOING TO START TO SEE THAT PICK UP AGAIN. I GUESS I'M STILL IN THE CAMP THAT THINKS WE'RE GOING TO SEE JUNE HOGS HIT $80 BEFORE THIS WHOLE RUN IS OVER WITH. WE HAD A NICE LITTLE PULLBACK. WE HAD A LITTLE CORRECTION. KIND OF GOT THE PRODUCT CLEANED UP A LITTLE BIT. BACON DEMAND HAS BEEN PHENOMENAL, SO THE BELLY MARKET HAS BEEN STRONG. I THINK YOU'RE GOING TO CONTINUE TO SEE THAT HOG MARKET HANG RIGHT IN HERE.

Pearson: EXCELLENT. SOME GOOD NEWS OUT THERE FOR PORK PRODUCERS. THAT WILL WRAP UP THIS WEEK'S EDITION OF "MARKET TO MARKET." I WANT TO THANK TOMM PFITZENMAIER. NOW, IF YOU'D LIKE TO HEAR MORE INFORMATION FROM TOMM 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 AN URBAN TEACHER CONNECTS THE LINKS IN THE FOOD CHAIN FOR HIS INNER CITY STUDENTS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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