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Market Analysis: Apr 23, 2004

posted on April 23, 2004


The prospect of a big 2004 crop took some of the steam out of the grain markets this week, although there were reports of impressive export sales.

For the week, the nearby wheat futures contract lost more than 15 cents. The May corn contract fell by 11 cents.

The soybean market had been swamped by heavy South American selling before enjoying a nice Friday rally. For the week, nearby beans gained two cents. May meal was off by another $1.50 per ton.

The May cotton contract gained almost $2.00 over last week's close.

The midweek cold storage report on pork stocks was seen as neutral in the short-term, although a big drawdown in inventories should be supportive to lean hog futures in the long-term.

For the week, nearby live cattle futures gained $1.02. April feeders advanced $1.95. And the lean hog contract jumped $2.88.

In the financials, Comex gold dropped $5.90 an ounce. The Euro was down 117 basis points against the dollar. And the CRB Index plunged better than nine points to close the week at 267.50.

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: Apr 23, 2004 Pfitzenmaier: THANKS, MARK.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT WHERE WE'RE HEADED HERE ON THESE MARKETS. LET'S START WITH SOYBEANS, STILL THE ONE I THINK MOST PEOPLE ARE TALKING ABOUT AND WHERE THERE'S AN AWFUL LOT OF INTEREST. IT WAS A TOPSY-TURVY ONE THIS WEEK. WE CAME OUT FOR THE WEEK ABOUT 2 CENTS TO THE POSITIVE, BUT THERE WAS A LOT OF MOVEMENT BETWEEN THEN.

Pfitzenmaier: YEAH, AND WE KIND OF HAD TO ROAR BACK THERE ON FRIDAY TO MAKE THAT HAPPEN. WE HAVE TO FACE THE REALITY THAT WE'RE GOING TO HAVE FEWER BEANS TO CRUSH AS WE GO INTO THE SUMMER, AND THAT'S KIND OF WHAT YOU SAW ON FRIDAY, THE REALITY OF THAT HITTING THE BEAN OIL MARKET, WHERE BEAN OIL WAS UP SHARPLY BECAUSE PEOPLE ARE STARTING TO KIND OF TRIANGULATE AND SAY, "WHAT AM I GOING TO HAVE TO DO TO ENSURE SUPPLIES IF THE CRUSH IS DOWN." SO I THINK THE COMBINATION OF THAT AND TIGHTNESS IN MEAL IS PROBABLY GOING TO TEND TO BE SUPPORTIVE HERE IN THESE FRONT CONTRACTS OF SOYBEANS FOR END OF THE SUMMER ANYWAY. WE'VE HAD A NICE PULLBACK, AS YOU INDICATED IN YOUR PRIOR STORY. THE FUNDS HAVE LIQUIDATED A BIG CHUNK OF THEIR POSITION. PROBABLY AREN'T GOING TO GO -- AREN'T GOING TO GO SHORT IN THE MARKET, AND THEY'VE GOT THEIR LONG POSITION WEANED WAY BACK. SO MAYBE YOU'LL SEE JULY OR MAY PULL BACK IN THE $9 AREA, PROBABLY NOT MUCH MORE THAN THAT, IF IT GOES THAT LOW. AS FAR AS NEW CROP BEANS GO, I GUESS IF WE HAVE GOOD PLANTING CONDITIONS IN CORN, WHICH IT APPEARS WE ARE, THERE'S PROBABLY GOING TO BE A TENDENCY TO PULL AWAY FROM SOME OF THE BEAN ACRES. SO I THINK IT'S GOING TO BE HARD TO BREAK THAT NOVEMBER CONTRACT. WE HAD A LOW THIS WEEK OF 710. I SUSPECT THAT'S GOING TO BE A LOW THAT'S GOING TO HOLD FOR A WHILE HERE. YOU MAY SEE, IF ANY ADVERSITY COMES UP OR YOU GET SOME CONFIRMATION OF THAT ACREAGE SHIFT, SOME BOUNCE BACK UP ON THE NEW CROP SOYBEAN CONTRACT.

Pearson: OKAY. SO STRATEGY-WISE, WHAT WOULD YOU TELL A PRODUCER RIGHT NOW?

Pfitzenmaier: WELL, MOST OF THE GUYS THAT HAVE SOYBEANS ARE JUST HOLDING THAT 500 TO 1,000 FOR THE BIG MOVE UP INTO THE SUMMER, AND THAT'S PROBABLY FINE. YOU KNOW, IF YOU'VE GOT ALL OF LAST YEAR'S BEANS, YOU'VE PROBABLY MISSED THE HIGH AND YOU NEED TO USE ANY RALLIES NOW TO MAKE SALES. BUT FOR THE GUYS THAT HAVE THOSE FEW BUSHELS LEFT THAT THEY'RE SITTING ON, I GUESS I'D KEEP SITTING ON THEM PROBABLY.

Pearson: NEW CROP?

Pfitzenmaier: THERE'S ENOUGH POTENTIAL HERE, ESPECIALLY IF THERE'S ACREAGE SHIFTING AND ANY WEATHER PROBLEMS, THERE'S GREAT UPSIDE POTENTIAL IN BEANS. I PERSONALLY WOULDN'T GET IN ANY BIG HURRY TO BE SELLING ANY NEW CROP BEANS. MAYBE IF WE BANGED UP AGAINST $9 -- OR $8 AGAIN, THEN MAYBE YOU'D HAVE TO LOOK AT IT, BUT CERTAINLY NOT HERE.

Pearson: ALL RIGHT. IT WAS A TOUGH WEEK FOR CORN. OBVIOUSLY GOOD NEWS. WHATEVER THERE IS, A SMOOTH PLANTING PERIOD THAT USUALLY GIVES THE MARKET TAKES SOME OF THE STEAM OUT.

Pfitzenmaier: SURE. YOU'VE TAKEN ALMOST 40 CENTS OFF THE CORN CONTRACT, AND THAT'S PROBABLY APPROPRIATE. I THINK WE'RE PRICED FAIRLY WELL FOR WHAT WE KNOW RIGHT NOW. THE CROP IS GETTING PUT IN WELL. THE FORECAST FOR THE NEXT WEEK OR SO IS THAT PLANTING IS GOING TO RESUME WITH WARMER WEATHER. AND AS LONG AS THE PLANTERS ARE ROLLING, WE'RE PROBABLY GOING TO PLANT A LOT OF CORN, LIKE I INDICATED. SO I THINK CORN IS PROBABLY WELL PRICED HERE. NOW, IF ANYTHING GOES WRONG WITH THAT, THEN YOU'RE GOING TO HAVE TO PUT SOME PREMIUM BACK ON THAT MARKET.

Pearson: ALL RIGHT. WILL THERE BE MORE PREMIUM, DO YOU THINK, ON THIS DECEMBER MARKET? YOU WERE -- THE LAST TIME YOU WERE ON, YOU WERE SAYING LET'S START GETTING SOME OF THIS DECEMBER CORN SOLD. FOR THOSE PEOPLE THAT DIDN'T DO THAT, JUST WAIT FOR SOME RALLIES, TRY AND SELL INTO THOSE?

Pfitzenmaier: YEAH, I THINK YOU'LL GET RALLIES ON DECEMBER CORN BACK UP INTO THE 318 TO POSSIBLY, IF YOU HAVE A PROLONGED PERIOD OF WEATHER, UP INTO THAT 333 AREA. I GUESS UP IN THOSE AREAS, I'D EITHER LOOK AT MAKING SALES OR PROBABLY YOU'LL GET THAT DECEMBER $3 PUT DOWN IN THAT 20- TO 22-CENT RANGE, AND THAT MIGHT BE A GOOD WAY TO GO TOO TO GET YOURSELF A NICE FLOOR LOCKED IN.

Pearson: ABSOLUTELY. LET'S TALK ABOUT THE WHEAT MARKET. A TOUGH WEEK IN WHEAT. WHEAT SEEMS TO BE STRUGGLING IN HERE. HARVEST IS COMING.

Pfitzenmaier: YEAH, HARVEST IS COMING. THE WEATHER HAS BEEN CONDUCIVE. THERE'S A FEW AREAS IN COLORADO AND WAY OUT WEST THAT ARE STILL PRETTY DRY, BUT THE BIG CHUNK OF THE WHEAT BELT HAS GOTTEN SOME REALLY NICE RAINS OVER THE LAST WEEK OR SO, AND THAT'S PRESSURING IT. THE WHEAT MARKET IS GOING TO HAVE TO SEE SOME DEMAND SHOW UP HERE FOR IT TO GO ANYWHERE. NOW, MAYBE YOU COULD SEE JULY RALLY BACK UP IN THAT 3.90 TO $4 AREA. IT SHOULD BE SOLD PROBABLY IF IT DOES. BUT YOU ALSO COULD SEE THINGS SLIDE DOWN IN THAT 360 AREA. WE'VE SEEN WHEAT IN A RANGE OF 360 TO 410 BASICALLY THROUGH MOST OF THE WINTER, AND I'D GUESS WE'RE KIND OF IN -- STILL BOUNCING AROUND IN THAT RANGE. YOU SELL UP AT THE BOTTOM END OF IT, AND DON'T GET TOO NERVOUS.

Pearson: ALL RIGHT. LET'S SHIFT OVER AND TALK ABOUT COTTON. AGAIN, WE'RE TALKING ABOUT ACREAGE SHIFTS AND SO FORTH AND WORLD DEMAND. AND THE COTTON MARKET IS RIGHT THERE. WHAT'S AHEAD FOR COTTON? YOU WERE PRICING SOME HERE A WHILE BACK, AND THAT LOOKS PRETTY GOOD.

Pfitzenmaier: COTTON IS STILL ON THE DOWNTREND. AS YOU REPORTED HERE, WE HAD A NICE LITTLE POP UP HERE THIS WEEK. BASICALLY A MARKET THAT GOT VERY, VERY OVERSOLD AND NEEDED TO CORRECT. YOU ALSO HAVE SOME ROLLING GOING ON FROM THE MAY CONTRACT TO THE JULY, INTERNALS OF THE MARKET THAT GAVE US A LITTLE BOUNCE UP. WE COULD BOUNCE ALL THE WAY UP ON COTTON TO 68 WITHOUT VIOLATING THAT DOWNTREND LINE, AND I THINK THAT'S A POSSIBILITY. GOING MUCH BEYOND 68 IS GOING TO BE VERY DIFFICULT UNLESS YOU HAVE HUGE AMOUNTS OF ACREAGE SHIFT AWAY FROM COTTON TO BEANS OR SOMETHING, AND I DON'T -- MOST OF THAT IS PRETTY WELL ANTICIPATED ALREADY. SO A NICE LITTLE CORRECTION HERE. PROBABLY NOT MUCH MORE THAN THAT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE LIVESTOCK PRODUCER. AT THE OPEN OF THE SHOW, WE TALKED ABOUT THE FLIP SIDE OF THIS POSITIVE GRAIN AND OIL SEEDS MARKET. THE NEGATIVE IS TRYING TO MAKE THESE RATIONS WORK FOR PEOPLE WHO ARE TRYING TO FEED CATTLE, FINISH HOGS, WHATEVER. FED-CATTLE MARKET, PRETTY DECENT WEEK. CASH MARKET SEEMS TO BE PRETTY GOOD. WE'VE BEEN ROLLING ALONG HERE THROUGH TYPICALLY A TOUGHER TIME FOR CATTLE PRICES. ARE WE GOING TO PAY FOR THAT LATER ON? DO YOU SEE CATTLE KIND OF BUNCHING UP LATER?

Pfitzenmaier: WELL, THERE'S A TENDENCY TO HAVE A BREAK FROM THIS HIGH THAT'S PUT INTO SPRING INTO THAT JUNE/JULY LOW OF ABOUT 15 PERCENT, WHICH IT TAKES YOU FROM 85 DOWN TO AROUND 75. AND THAT'S ABOUT WHERE THE JUNE CONTRACT IS PRICED RIGHT NOW. SO I GUESS IT'S PRICED ABOUT RIGHT. MAYBE YOU CAN SEE RALLIES UP TOWARD $80 TO KIND OF -- YOU KNOW, IF THE WEIGHTS ARE DOWN AND EVERYTHING KIND OF WORKS RIGHT, DEMAND STAYS GOOD. BUT GOING BEYOND THAT, ON THE JUNE CONTRACT IS GOING TO BE VERY DIFFICULT, AND YOU'RE GOING TO HAVE A TENDENCY FOR THE CASH MARKET TO SAG AS YOU GO INTO THE SUMMER. NOW, I THINK AT THE END OF THE THIRD QUARTER AND THE FOURTH QUARTER, YOU'RE GOING TO START TO SEE THE NUMBERS BACK OFF A LITTLE BIT AND WE'RE PROBABLY GOING TO HAVE SOME DECENT PRICES AGAIN. NOW, ONE OF THE THINGS YOU ALLUDED TO IS THAT HIGH PRICE OF CORN AND MEAL AND IS THAT GOING TO HELP KEEP THINGS CURRENT AND KEEP THE WEIGHTS DOWN AND KEEP THE MARKETINGS GOING. IF THAT'S TRUE, THAT'S GOING TO CAUSE THE MARKET TO BOUNCE UP TOWARD THE UPPER END OF THOSE RANGES.

Pearson: LET'S TALK ABOUT THE FEEDER CATTLE MARKET. A LOT OF CALVES ARE HITTING THE GROUND RIGHT NOW. WHAT'S YOUR OUTLOOK NOW FOR THESE CALVES? AGAIN, WHEN YOU'RE TALKING $3 CORN -- WE'RE TALKING $1.75 CORN.

Pfitzenmaier: WELL, THERE'S AN OLD RULE OF THUMB THAT EVERY 10 CENTS IN CORN ABOUT TRANSLATES TO ABOUT $4 IN FEEDER CATTLE, SO YOU KNOW THAT RALLY -- THIS RALLY WE'VE HAD, THIS 80-CENT RALLY IN CORN IS ABOUT 32 BUCKS OR WHATEVER ON FEEDER CATTLE, THAT THEY'RE LOWER THAN THEY WOULD BE OTHERWISE. SO IF YOU -- IF YOU START TO SEE CORN PRICES SLOW UP HERE AS THE CROP GETS UP AND STANDS ARE DECENT AND WE GET A GOOD START ON IT, THEN I THINK YOU COULD SEE SOME UPSIDE POTENTIAL AGAIN IN THOSE FEEDERS -- IN THAT FEEDER MARKET AS THAT FEED COST STARTS TO DECLINE A LITTLE BIT.

Pearson: YOU MENTIONED THE DRYNESS OUT IN COLORADO AND SOME OF THOSE SPOTS OUT THERE WHERE WE JUST HAVE REALLY ELIMINATED A LOT OF COW HERDS OUT THERE.

Pfitzenmaier: THAT'S RIGHT. BUT I THINK EVERYBODY HAS BEEN A LITTLE RELUCTANT TO PUT THEM ON FEED TOO, SO THAT'S -- YOU KNOW, THEY'RE KIND OF STAYING OUT IN THE PASTURE HERE FOR A WHILE.

Pearson: GOOD POINT. ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET AND WHAT'S AHEAD FOR THE FINISHED HOG PRICES. NICE MOVE THIS WEEK ON THE BOARD.

Pfitzenmaier: YEAH. THE HOG MARKET -- WE'VE BEEN SAYING THIS NOW FOR MONTHS, THAT IT'S THE ONLY SAFE MEAT. EXPORTS HAVE BEEN VERY, VERY GOOD THERE. I THINK YOU'RE GOING TO SEE -- THERE'S A GOOD CHANCE YOU'RE GOING TO SEE THAT $80 LEVEL ON THE JUNE HOGS BEFORE THIS IS ALL SAID AND DONE. SO I WOULDN'T GET IN A BIG HURRY TO HEDGE THEM. IF THEY GOT UP IN THE UPPER SEVENTIES, I CERTAINLY WOULD BE. I THINK YOU'D HAVE TO LOOK REALLY HARD ON IT. BUT I THINK THAT POTENTIAL EXISTS. WE'RE IN A NICE UPWARD TRENDING CHANNEL ON THOSE HOGS, AND EVERY CORRECTION SEEMS TO GENERATE A LOT OF BUYING. DEMAND APPEARS TO BE GOOD, BOTH DOMESTICALLY AND OBVIOUSLY EXPORT-WISE. SO I THINK WE'RE OKAY ON THE HOGS FOR A WHILE HERE.

Pearson: WELL, STRATEGY-WISE, WHAT WOULD YOU TELL A PORK PRODUCER?

Pfitzenmaier: AGAIN, I THINK YOU GET UP IN THE UPPER SEVENTIES, YOU HAVE TO BE A SELLER -- A HEDGER. IF YOU THINK WE'RE GOING A LOT HIGHER THAN THAT, WHICH HISTORY SHOWS WE'RE PROBABLY NOT, THEN GO OUT AND BUY YOURSELF A PUT. BUT AT THESE LEVELS, I GUESS THERE'S ENOUGH UPSIDE POTENTIAL, I WON'T GET TOO CONCERNED ABOUT IT.

Pearson: ALL RIGHT. GOING BACK TO OUR INITIAL CONVERSATION AGAIN, THE FLIP SIDE OF THE GRAIN MARKETS. WITH WHAT'S HAPPENING IN THE MARKET, WE'VE GOT POTENTIAL WEATHER ISSUES AND SO FORTH, WOULD YOU TELL A CATTLE FEEDER, A PORK PRODUCER TO START LAYING IN SOME FEED NEEDS FOR THE NEXT SIX MONTHS?

Pfitzenmaier: ABSOLUTELY. I THINK THE OLD CROP CORN DOWN HERE AT THESE LEVELS, DECEMBER CORN, YOU GET IT UNDER $3, AND I THINK, YEAH, YOU HAVE TO STEP IN THERE AND START LOOKING AT IT. OBVIOUSLY, THERE'S ALL KINDS OF ROOM FOR EXPLOSION ON THE TOPSIDE ON THE MEAL OR SOYBEANS. SO ANY BREAKS THERE -- AND WE'VE HAD A BIG BREAK, ALMOST $1.30, $1.40 ON THE SOYBEAN MARKET. THAT'S A PRETTY GOOD BREAK TO STEP IN THERE AND START GETTING YOUR MEAL NEEDS COVERED FOR ON THROUGH HARVEST, REALLY.

Pearson: AND AT THIS STAGE OF THE GAME, WITH WHAT WE'VE SEEN IN THE TIGHTNESS FOR OLD CROP ESPECIALLY, IT MIGHT NOT BE A BAD IDEA TO GET THAT DONE.

Pfitzenmaier: YEAH, ABSOLUTELY.

Pearson: EXCELLENT POINTS AS USUAL. TOMM PFITZENMAIER WITH US HERE. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT REMEMBER, IF YOU'D LIKE ADDITIONAL DETAILS FROM TOMM ON WHERE THESE VOLATILE MARKETS MADE BE HEADED, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE EFFORT NEEDED TO TAKE FOOD-GRADE SOYBEANS FROM THE LAB TO THE GROCERY STORE SHELF. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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