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Market Analysis: Apr 30, 2004

posted on April 30, 2004


Weak export sales and the record pace of planting did little to deter the grain markets this week. The nearby wheat futures contract gained more than eight cents. The May corn contract improved by 13 cents.

Tight old crop supplies and robust crush numbers for March returned some steam to the bean pits this week, though new crop prices continue to drift lower. For the week, the nearby bean contract gained a healthy 67 cents. May meal was up by $14.70 per ton.

The WTO ruling prompted a $4.45 drop in May cotton futures over last week.

In livestock, the nearby live cattle contract went off the board Friday with an impressive gain of $5.48. May feeders advanced by the same amount. And the lean hog contract jumped another $3.05.

In the financials, Comex gold dropped another $7.60 an ounce and is now off $34 an ounce for the month of April. The Euro was up 148 basis points against the dollar. And the CRB Index jumped more than 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: Apr 30, 2004

Jackson: THANK YOU.

Hackney: THANK YOU, MARK.

Pearson: GOOD TO SEE YOU. DOUG, LET'S TALK ABOUT THIS SOYBEAN MARKET, BECAUSE THAT SEEMS TO BE DOMINATING SO MUCH TALK IN FARM COUNTRY THESE DAYS, ESPECIALLY IN THE CORN AND SOYBEAN BELT. AN UP WEEK THIS WEEK. A CLOSE ABOVE $10 ON THAT MAY CONTRACT. WHAT DO YOU THINK IS -- WHAT'S AHEAD NOW FOR BEANS?

Jackson: WELL, MARK, MARKET ENTHUSIASM WAS RESTIMULATED THIS WEEK WITH THE CRUSH REPORT THAT SHOWED ONLY A MINOR DECLINE FROM LAST YEAR. SO WE FACE THE PROSPECT HERE OF HAVING TO CUT DEMAND CATASTROPHICALLY IN THE LATTER PART OF THE YEAR TO END UP WITH ANY INVENTORY AT ALL. THIS IS AN OLD STORY BUT IT'S THE SAME STORY. AND WE'VE GONE THROUGH NOW SIX OR SEVEN MONTHS OF THE CROP YEAR, AND WE'VE SHOWN NO EVIDENCE WHATSOEVER NOW OF ANY REDUCTION AT ALL IN EITHER OIL OR MEAL USAGE IN THE UNITED STATES DESPITE, OF COURSE, $10 FUTURES. SO THE MARKET PANICKED A LITTLE BIT THIS WEEK, AND WE'RE STILL ON A GLIDE PATH. WE'RE STILL ON A TRACK TO A CARRYOUT THAT WOULD BE FAR BELOW ANYTHING WE'VE EVER TOLERATED BEFORE. THE PREVIOUS SMALLEST CARRYOUT BEING ABOUT 130 MILLION A FEW YEARS AGO. AND RIGHT NOW WE WOULD SUGGEST THAT WE'RE ON A TRACK TO A CARRYOUT OF SOMEWHERE BETWEEN 0 AND 50 MILLION BUSHELS. SO THE MARKET IS TRYING TO DEAL WITH THE PROSPECT HERE THAT WE SIMPLY HAVE A POTENTIAL HERE OF A LACK OF SUPPLY AT ANY PRICE IN THE LATTER MONTHS OF THE CROP YEAR FOR THE DOMESTIC MARKET. AND THE WAY WE SOLVE THIS, OF COURSE, IS TO MOVE THE NORTH AMERICAN, SOUTH AMERICAN SPREAD TO A LEVEL WHERE WE CAN IMPORT LARGE TONNAGES INTO THE U.S. WHAT WE'RE TALKING ABOUT HERE, MARK, IS SOMETHING THAT MIGHT MEAN IMPORTING 10 OR 20 TIMES AS MUCH AS WE'VE EVER IMPORTED BEFORE. SO WE DON'T EVEN KNOW IF THIS IS POSSIBLE, PARTICULARLY IF WE TRY AND DO THIS IN A VERY SHORT PERIOD OF TIME IN THE LATTER PART OF THE CROP YEAR. SO THE MARKET IS JUST GOING TO BE SCARED TO DEATH. CASH MARKET LEVELS ARE WELL ABOVE DELIVERY VALUES. YOU'RE GOING TO SEE PEOPLE STOPPING THE FUTURES. WE'VE GOT TO TAKE THIS SOUTH AMERICAN BASIS DOWN, THESE U.S. FUTURES HIGHER, UNTIL WE CAN IMPORT A LARGE AMOUNT OF OIL AND MEAL. OIL IS COMING IN NOW. WE'RE NOT SURE EXACTLY WHERE THE MEAL CAN BE BROUGHT IN. IT MIGHT NOT BE TOO FAR AWAY, BUT WE PROBABLY NEED TO STAY AT THAT LEVEL OR TRADE HIGHER IF WE'RE NOT IMPORTING ENOUGH LATER IN THE SEASON. IT'S GOING TO BE A VERY VOLATILE MARKET ALL THE WAY TILL THE END OF THE CROP YEAR.

Pearson: TALKED TO A LOT OF PRODUCERS. VERY FEW SEEM TO HAVE BEANS LEFT, EXCEPT FOR MAYBE SOME OF THE OLD GAMBLING BUSHELS.

Jackson: WELL, STOCKS ARE NEAR 25-YEAR LOWS, OF COURSE. AND THEN, OF COURSE, THE WHOLE THING IS EXACERBATED BY LOWER SOUTH AMERICAN PRODUCTION NUMBERS. WE HAD SEVERAL THIS WEEK. IT'S INTERESTING, HOWEVER, THAT IF WE EXAMINE THE HISTORY OF THESE PRIVATE ANALYST ESTIMATES IN SOUTH AMERICA, THEY HAVE A TENDENCY TO UNDERESTIMATE THE CROP BY ABOUT 2.5 MILLION TONS EVERY YEAR. SO WE MAY BE RACING TO UNREALISTICALLY LOW NUMBERS THERE, BUT THAT JUST MAKES THE NEW CROP SITUATION BULLISH TOO, MARK. SO WE HAVE A MULTI-YEAR PROBLEM HERE IN THIS OIL SEED SITUATION WITH A RARE CASE OF SIMULTANEOUS DROUGHT NOW BOTH IN NORTH AND SOUTH AMERICA IN THIS LAST CROP CYCLE.

Pearson: REAL QUICK, STRATEGY FOR NEW CROP.

Jackson: WE'RE NOT EXCITED ABOUT SELLING THOSE NEW CROP BEANS. TOO MANY THINGS ARE POSSIBLE. MAY 12 YOU'LL GET YOUR NEW CROP SUPPLY/DEMAND ESTIMATES FROM THE GOVERNMENT. THAT'S GOING TO BE FASCINATING. I WANT TO SEE HOW THEY STRUCTURE THOSE NEW CROP BALANCE TABLES BEFORE WE DO ANYTHING OUT THERE. THE CROP IS AS MUCH AS 10 MILLION TONS SMALLER IN SOUTH AMERICA TODAY THAN WHEN THEY PUT OUT THEIR FEBRUARY PROJECTIONS A FEW MONTHS AGO.

Pearson: LET'S TALK ABOUT THE CORN MARKET. PARTICULARLY NEW CROP AND PEOPLE ARE SAYING, GOSH, MAYBE WE MISSED THIS CORN MARKET. ARE YOU IN ANY KIND OF A HURRY TO PRICE NEW CROP CORN?

Jackson: THE ONLY REASON I WOULD EVEN VAGUELY CONSIDER THE IDEA THAT YOU'VE MISSED SELLING OPPORTUNITIES ON DEC. CORN IS IF YOU ARE ABSOLUTELY SURE THAT THIS IS GOING TO BE A RECORD WEATHER AND A RECORD CROP HERE. OTHERWISE, MARK, REALLY RELATIVE TO THE RISK, THE VOLATILITY, WE THINK THE CORN MARKET IS A LOT MORE BULLISH THAN THE SOY COMPLEX. IF YOU HAVE ANY WEATHER PROBLEM AT ALL, THE CORN MARKET WILL EXPLODE. IF YOU HAVE A MARGINAL OR MODERATE WEATHER PROBLEM, THIS WILL BE A REPEAT OF '95-'96 WITH THE $5 CORN FUTURES. WE LEARNED THE LESSON THEN THAT WE HAD TO GO TO $5 FUTURES TO CUT 750 MILLION BUSHELS WORTH OF DEMAND. WE THINK YOU GOT A 10-6 DEMAND BASE NEXT YEAR. YOU DON'T HAVE MANY MORE ACRES. ANY KIND OF A WEATHER PROBLEM AND YOU'LL PUT 50 CENTS ON THIS CORN MARKET IN A WEEK. IN FACT, WE'RE WATCHING THE HEAT NOW IN THE WESTERN UNITED STATES. IT'S ALREADY MAKING NEWS. ELECTRICITY IS GOING UP BECAUSE OF THAT. IF YOU HAVE ANY INNUENDO THAT THAT HEAT IS COMING TOWARD THE CORN BELT AT ANY TIME DURING THE GROWING SEASON, THEN THE CORN MARKET WILL LITERALLY EXPLODE. THE PROBLEM IS THAT YOUR TWO MAJOR PRODUCERS OF CORN IN THE WORLD, CHINA AND THE U.S., ARE FACING THE SAME BASIC PROBLEMS: A LACK OF ACREAGE; SURGING DEMAND; AND ABNORMAL WEATHER PROBLEMS.

Pearson: I WANT TO TALK ABOUT THE WHEAT MARKET, WHICH WE JUST MENTIONED. REALLY WE'RE AT PREHARVEST LOWS ON WHEAT. FUNDAMENTALS THERE, ARE THEY THAT DRASTICALLY DIFFERENT?

Jackson: AT THE MOMENT THE WORLD WHEAT PRODUCTION SITUATION MAY REBOUND SHARPLY. EUROPEAN CROPS LOOK GOOD. EASTERN EUROPEAN CROPS LOOK GOOD. THE U.S. CROP WILL BE SMALLER THAN LAST YEAR BUT PROBABLY NOT DOWN ENOUGH TO CONTRACT STOCKS APPRECIABLY. WE'RE GOING TO BUILD U.S. MAJOR EXPORTER STOCKS THIS YEAR, BUT THIS WHEAT SITUATION IS NOT SO SURPLUS THAT IT CAN TOLERATE A CORN PROBLEM. THE BOTTOM LINE IS WHAT YOU NEED TO KNOW ABOUT WHEAT PRICES IS WHERE IS CORN GOING. IF THE CORN MARKET EXPLODES, THE WHEAT MARKET CAN'T CONTROL THAT AND THE WHEAT WOULD BECOME A FEED GRAIN. IN A PERFECT, YOU KNOW, WEATHER ENVIRONMENT, WHEAT CAN LOSE SLOWLY TO CORN, BUT AGAIN, CORN PRICE ACTION WILL DICTATE WHEAT POTENTIAL. WHEAT PRICES MAY DRIFT DOWN SOME FROM HERE INTO HARVEST. IT'S PROBABLY THE BEST SALE OF THE THREE GRAINS BUT CAN STILL FOLLOW THE CORN MARKET ALL SUMMER LONG.

Pearson: EXCELLENT POINTS. SOME GOOD INSIGHTS, DOUG. THANKS SO MUCH. LET'S SWITCH OVER TO LIVESTOCK AND BRING IN WALT HACKNEY. AND, WALTER, THIS CATTLE MARKET, DESPITE SOME PROBLEMS BEING THROWN AT IT, I.E., THE BSE BACK IN DECEMBER, WE'VE RALLIED BACK. BEEF PRICES LOOK STRONG. THIS COW HERD IS STILL SMALL. WHAT'S AHEAD FOR BEEF PRICES?

Hackney: WELL, WE'VE HAD AN ENORMOUS REACTION HERE WITHIN EVEN THE LAST TWO WEEKS, MARK. WE WERE IN A SLUMP. IT LOOKED LIKE WE MIGHT BE IN AN OVERPRODUCTION POSITION DUE TO OUR LACK OF EXPORT. BUT IN THE LAST TWO WEEKS, WE'VE REKINDLED THE DEMAND ON THIS BEEF. FAT CATTLE HAVE COME UP TO $90 THIS WEEK. THESE CATTLE ARE MAKING EXCELLENT PROFIT FOR THE PRODUCERS. AND YOU KNOW, LISTENING HERE TO DOUG'S DISSERTATION IN REGARD TO THE GRAINS, THAT MAY INDIRECTLY BE ONE OF THE REAL ASSETS TO OUR BEEF AND PORK MARKETS. WE'RE TODAY KILLING OR CULLING 8 PERCENT MORE SOWS OUT OF THE NATIONAL HERD THAN WE WERE A MONTH AGO, DUE TO THE COST OF HIGH-PRO PROTEIN. WE GET CORN ON A REBOUND SUCH AS MIGHT BE SUGGESTED HERE, THAT AGAIN IS GOING TO CAUSE ANOTHER LIQUIDATION IN THE SOW HERD. IN REGARD TO FEEDLOT CATTLE, THE PRICE FEEDER CATTLE ARE, THESE ESCALATING RATION COSTS ARE GOING TO BE A REAL PROBLEM, AND THAT'S GOING TO HOLD DOWN ON PRODUCTION. WE'LL BE SELLING LIGHTER WEIGHT CATTLE, LIGHTER WEIGHT HOGS, REGARDLESS OF THE FEDERAL INSPECTED SLAUGHTER ON A WEEKLY BASIS. THE LIGHTER TONNAGE, THE LESS AMOUNT OF TONNAGE GOING INTO THIS MARKET AND AS HIGH AS DEMAND IS, THERE ISN'T REALLY ANYTHING TO STOP A GOOD, STRONG PORK AND BEEF MARKET EVEN THOUGH WE DON'T HAVE THE EXPORT ON THE BEEF.

Pearson: AS YOU GO FORWARD NOW, WALTER, FOR BOTH CATTLE AND HOGS, YOU'RE NOT INTERESTED IN TAKING ON ANY HEDGES AT THIS POINT. YOU THINK THIS THING IN THE MEAT SECTOR COULD CONTINUE TO STRENGTHEN.

Hackney: THE DEFERRED CONTRACTS ARE NOT AT A LEVEL THAT WILL ALLOW ANY KIND OF A HEDGE POSITION ANYWAY, MARK. AND IN REGARD, THE CASH MARKET ITSELF, AS WE SPEAK, HAS TAKEN CARE OF THE PRODUCTION. IN THE HOGS, WE'RE GOING TO GET INTO A LESSER SUPPLY. GOING INTO THE SUMMER, WE'RE GOING TO HAVE LIGHTER HOGS. WE'RE GOING TO HIT THE SAME THING IN THE BEEF. WE'RE KILLING LESS POUNDS TODAY OUT OF THE FEED LOT THAN WE DID ANYTIME PRIOR TO TODAY.

Pearson: ALL RIGHT. THAT SETS UP A BULLISH SCENARIO DOWN THE ROAD FOR BEEF AND PORK PRODUCERS, DESPITE THE FACT THEY'RE GOING TO BE PAYING MORE FOR INPUTS. WALTER HACKNEY, THANK YOU SO MUCH. DOUG JACKSON, THANK YOU. WHAT A WEEK IN THE MARKETS. MORE COMING UP. THAT WILL WRAP UP THIS EDITION "MARKET TO MARKET." BUT IF YOU'D LIKE ADDITIONAL DETAILS FROM DOUG AND WALT ON THESE UNCERTAIN MARKETS AND WHERE THEY MAY BE HEADED, BE SURE TO CHECK OUT THE STREAMING AUDIO OF THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL REVIEW THE PROSPECTS FOR BARGE TRAFFIC ON THE MISSOURI RIVER. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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