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Market Analysis: Apr 16, 2004

posted on April 16, 2004


The rising strength of the dollar slowed export sales this week, even as warmer weather accelerated spring planting across the Grain Belt.

For the week, the nearby wheat futures contract 26 cents. The May corn contract was declined by 16 cents.

The March soybean crush was lower than trade expectations but still had a bearish impact on prices. For the week, nearby beans lost 23 cents. May meal was off by $11.90 per ton.

The May cotton contract posted a nice rally gaining 28 cents from last week's close.

In livestock, live cattle lost 12 cents, while April feeders gained $1.73. But the big advance was in pork, where the lean hog soared to contract highs, gaining $5.35 from last week.

In the financials, Comex gold dropped $18.90 an ounce. The Euro was down 66 basis points against the dollar. And the CRB Index plummeted 7.25 closing the week at 276.75.

Here now to lend us his insight on these and other market trends is our senior market analyst, John Roach. Welcome back.

Market Analysis: Apr 16, 2004

Roach: THANKS, MARK.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT THIS BEAN MARKET SINCE THAT IS WHAT SO MANY PEOPLE ARE TALKING ABOUT. THE QUESTION I'VE HEARD THE MOST THIS WEEK, JOHN: IS THE BEAN BULL-MARKET RALLY OVER?

Roach: WELL, IT'S OVER FOR A MOMENT ANYWAY. WE SAW THIS WEEK THE INABILITY OF THE MARKET TO SUSTAIN A RECOVERY. REMEMBER THE BRAZILIAN HARVEST IS FULLY UNDERWAY. THEY'RE PROBABLY SOMEWHERE IN THE NEIGHBORHOOD OF 75 PERCENT HARVESTED. AND WITH A PREMIUM STRUCTURE BUILT INTO THE MARKET WHERE THE NEARBYS ARE HIGHER THAN THE BACK MONTHS, THOSE BEANS ARE BEING SOLD AS QUICKLY AS THE FARMER CAN GET THEM HARVESTED, LOADED ON THE TRUCK, AND MOVED TO MARKET. AND THAT'S THE PART OF THE MARKET HERE THAT WE STILL HAVE YET TO DEAL WITH. WE HAVE TO ABSORB THAT -- IN FACT THE ENTIRE SOUTH AMERICAN CROP. THE ARGENTINE CROP IS PROBABLY SOMEWHERE AROUND 50 PERCENT HARVESTED, MAYBE A LITTLE BIT LESS THAN THAT. AND SO -- AND IF WE PUT THE BUSHELS TOGETHER, IT'S THE SECOND LARGEST CROP RAISED IN A GEOGRAPHIC AREA EVER. SO WE'RE TALKING ABOUT SUBSTANTIAL QUANTITIES OF GRAIN THAT ARE TRYING TO FIND A HOME AND A BUYER. AND THE SPECULATIVE BUYERS, THE COMMODITY FUNDS WERE GOOD BUYERS ALL THE WAY THROUGH MARCH. BUT IN THE MONTH OF APRIL, THE COMMODITY FUNDS HAVE TURNED AND GONE THE OTHER DIRECTION.

Pearson: SHALL WE TAKE OUR CUES FROM THOSE BIG FUNDS?

Roach: WELL, IT DEPENDS ON YOUR POSITION. IF YOU'VE BEEN HOLDING ONTO SOYBEANS ALL THE WAY THROUGH, UP TO THE TOP, AND BACK DOWN, IT'S PROBABLY A PRETTY BITTER PILL TO MAKE THE SALE RIGHT HERE. WE STILL HAVE VERY TIGHT SUPPLIES IN THE UNITED STATES. THERE'S STILL A DANGER WE CAN MAYBE RUN EXTREMELY TIGHT BEFORE WE GET INTO THE NEW CROP HARVEST. IF WE HAVE ANY WEATHER PROBLEMS AT ALL, WE'RE GOING TO REIGNITE THE BEAN MARKET. SO IF YOU'VE BEEN HOLDING ONTO BIG INVENTORIES, IT'S PERHAPS TIME CERTAINLY TO GET IT WHITTLED DOWN SOMEWHAT. BUT IF YOU'VE BEEN HOLDING SOME GAMBLING BEANS, MY TENDENCY WOULD BE TO HANG ONTO THEM YET BECAUSE WE STILL DON'T HAVE THIS CROP PLANTED, YET RAISED.

Pearson: SO OLD CROP, KEEP SOME POWDER DRY. WHAT ABOUT NEW CROP, JOHN? WHAT'S YOUR STRATEGY THERE?

Roach: I'M VERY WORRIED ABOUT NEW CROP BEANS. THE WORRY THAT I HAVE IS THAT THE ENTIRE WORLD IS GOING TO INCREASE THEIR OILSEED PLANTINGS THIS YEAR. AND THE SOUTHERN HEMISPHERE WILL INCREASE AGAIN AS WELL. I'M AFRAID THAT NEXT FALL WHEN YOU'RE HARVESTING THE BEANS THAT YOU'RE ABOUT READY TO PLANT, I'M AFRAID THAT WE'RE GOING TO BE DEALING WITH THE U.S. INVENTORY, THE LEFTOVER INVENTORY OUT OF SOUTH AMERICA, AND A NEW CROP INVENTORY COMING ON FROM ALL SECTIONS OF THE WORLD THAT COULD BE QUITE LARGE. AT LEAST THE ACREAGE WILL BE QUITE LARGE. SO I THINK NEW CROP BEANS NEED TO BE SOLD ON ANY STRENGTH.

Pearson: OKAY. LET'S TALK ABOUT THE CORN MARKET. OBVIOUSLY, FUNDAMENTALLY GOING FORWARD, THERE'S QUITE A STORY TO TELL FOR CORN.

Roach: THE CORN MARKET HAS A VERY STRONG WORLD STORY. THE WORLD SUPPLIES OF COARSE GRAIN ARE VERY TIGHT. AND AS WE MOVE INTO THE SEASON, WE MUST HAVE VERY GOOD CROPS IN THIS COUNTRY AND REALLY AROUND THE WORLD. AND WE'RE GOING TO BE THE TIGHTEST, REALLY NOT JUST THIS FALL BUT A YEAR FROM NOW ACTUALLY. SO THERE IS A VERY GOOD STORY. BUT THE MARKET HAS ALREADY PLAYED THAT STORY. WE ALREADY MOVED THE CORN MARKET UP TO PRICE LEVELS THAT WE TEND TO ONLY BE ABLE TO MAINTAIN IN YEARS WHEN WE HAVE CROP PROBLEMS. AND INSTEAD OF HAVING A PROBLEM RIGHT NOW, WE ACTUALLY HAVE ONE OF THE BEST PLANTINGS SEASONS, AT LEAST THE BEGINNING OF THE BEST PLANTING SEASON THAT WE'VE SEEN FOR QUITE A WHILE. THERE'S GOING TO BE A LOT OF CROP PLANTED HERE OVER THIS WEEKEND. THERE'S ALREADY BEEN QUITE A BIT OF CROP PLANTED. THE WEATHER FORECAST LOOKS RELATIVELY CLEAR. WE MAY HAVE THE FASTEST PLANTING THAT WE HAVE EVER SEEN, AND TRADERS UNDERSTAND THAT AN EARLY PLANTING BOTH INCREASES THE ACREAGE THAT GOES TO CORN AND IMPROVES THE YIELD ESTIMATES. SO THE STORY ON CORN THAT WAS SO POSITIVE HAS NOW GOTTEN SOME NEGATIVE COMPONENT TO IT, WHICH IS THE EXCELLENT PLANTING CONDITION. SO FROM A SALES STANDPOINT, OLD CROP CLEAN UP, NEW CROP START TO MAKE SOME SALES?

Roach: I DON'T THINK I WOULD SELL ANYTHING ON THIS DOWN HERE IN CORN MARKET. I'D WANT SOME BOUNCE BACK TO MAKE SALES ON, AND I'D ALSO LOOK CLEAR OUT FORWARD TO THE 1995 DECEMBER CORN, WHICH IS IN EXCESS OF 275, AND I'D MAKE SOME SALES ON '05 CORN. THE '05 CORN, TO ME, IS A BETTER SALE RIGHT AT THE MOMENT THAN THE '04 CORN IS, QUITE FRANKLY.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET. TOUGH WEEK IN THE WHEAT PITS THIS WEEK. AGAIN, THERE'S CONCERN ABOUT THE U.S. CROP NOT BEING THAT GOOD, BUT THE WORLD DEMAND SEEMS TO BE SLACKENING. WHAT'S YOUR OUTLOOK FOR WHEAT?

Roach: WELL, THE WORLD DEMAND IS SLACKENING AND THE WORLD PRODUCTION IS GOING TO INCREASE QUITE DRASTICALLY. REMEMBER THE BEGINNING OF THIS BIG BULL MARKET WE HAD IN ALL THE GRAINS STARTED IN THE GROWING SEASON IN EUROPE THIS PAST YEAR, WHERE THEY HAD EXTREMELY DRY CONDITIONS AND A HEAT WAVE. THE CROP THERE IS GOING TO BE MUCH LARGER. WE'RE NOT FAR AWAY FROM HARVEST IN THE NORTHERN HEMISPHERE. THE SOUTHERN HEMISPHERE WHEAT HARVEST WAS BIG. THE AUSTRALIANS PARTICULARLY JUST ATE OUR LUNCH REALLY WHEN IT CAME TO DOING BUSINESS HERE THROUGH A LOT OF THE WINTER MONTHS. THE WHEAT MARKET IS ON ITS WAY TOWARD ITS HARVESTTIME LOWS, IN MY OPINION. AND I SEE A LOT OF PEOPLE TALKING ABOUT HARVEST LOWS THAT ARE IN THE MID THREES... 3.50 WHEAT INSTEAD OF THIS $4-PLUS WHEAT. SO FOR A WHEAT PRODUCER, YOU NEED TO BE LOOKING VERY CAREFULLY AND USING BOUNCES IN THE MARKET IF YOU'RE MAKING SALES.

Pearson: LET'S TALK ABOUT COTTON. COTTON MARKET, AGAIN, IS WORLD SENSITIVE. AS YOU LOOK AHEAD AT WHAT'S HAPPENED WITH THE SOYBEAN MARKET AND ITS IMPACT ON COTTON ACREAGE AND ALL THESE VARIABLES OUT THERE, SHAKE IT OUT AND TELL US WHAT'S AHEAD FOR COTTON.

Roach: WELL, THE COTTON MARKET HAS BEEN A WIDE-RANGING TRADE. IT PEAKED ACTUALLY LAST OCTOBER AND HAS BEEN IN A REAL WIDE TRADING RANGE EVER SINCE. AND IT'S ACTUALLY BEEN PRESSING DOWN TOWARD THE LOWER SIDE OF THE RANGE RECENTLY, ALTHOUGH WE DID SEE SOME BOUNCE HERE JUST THIS WEEK. THE PLANTING PROGRESS IS GOING FINE. ACREAGE WILL PROBABLY COME DOWN A LITTLE BIT. DEMAND HAS SLACKED OFF A LITTLE BIT. THAT'S BOTHERED THE TRADERS, ALTHOUGH THIS WEEK WE HAD A PRETTY GOOD WEEK OF EXPORT SALES. I THINK THE MARKET WILL CONTINUE TO BE BACK AND FORTH. I THINK WE'RE GOING TO HAVE TO RAISE THE CROP, AND SO I LOOK FOR CONTINUED TRADING RANGE BACK AND FORTH. AND ANYTHING UP IN THE HIGH 60S I THINK NEEDS TO BE SOLD, AND I THINK THE MARKET WILL HOLD THE LOW 60S.

Pearson: ALL RIGHT, LET'S TALK -- SWITCH GEARS. LET'S TALK LIVESTOCK, JOHN. FED-CATTLE PRICES. WE'RE HEADING TOWARDS THE SUMMER. THE GRILLING SEASON IS UNDERWAY, AS YOU MENTIONED. GOOD CORN PLANTING WEATHER ALSO IS CREATING GOOD DEMAND. WE'VE HAD THE ADKIN'S DIET. WE'VE HAD ALL THESE THINGS THAT HAVE BEEN SO POSITIVE FOR THE BEEF MARKET. CAN IT BE SUSTAINED IN LIGHT OF WHAT'S HAPPENING WITH THE EXPORT PICTURE?

Roach: WELL, THE CATTLE-ON-FEED REPORT OUT TODAY SHOWED A SMALLER PLACEMENT NUMBER, DOWN 11 PERCENT COMPARED TO A YEAR AGO. THE ON-FEED NUMBER ALSO WAS A LITTLE BIT SMALLER THAN WHAT PEOPLE ANTICIPATED. AS A CONSEQUENCE, WE'LL PROBABLY BE BACK A FIRMER MARKET AT LEAST ON THE OPENINGS ON MONDAY. THE DRESSED BEEF MARKET MOVED UP $25 A HUNDREDWEIGHT BEFORE PEAKING EARLIER HERE THIS WEEK. VERY STRONG DEMAND OCCURRING AND VERY LIMITED SUPPLIES. THE PACKER MAKING A VERY GOOD MARGIN, SO THE PRODUCERS CONTINUE TO PULL CATTLE AHEAD AND WE CONTINUE TO SLAUGHTER IT LIGHTWEIGHT. SO THE MARKET IS IN A VERY GOOD POSITION, BUT IT'S NERVOUS BECAUSE THERE'S A POSSIBILITY HERE AT ANY TIME THAT THE BORDER TO CANADA CAN BE OPEN, WHICH WILL INCREASE THE SUPPLIES A LITTLE BIT. WE STILL DON'T HAVE THE SITUATION FIGURED OUT WITH THE OVERSEAS BUYERS WHO ARE STILL, AS THE STORY EARLIER, TRYING TO GET INCREASED TESTING. THE CATTLE MARKET IS ON FAIRLY FIRM FOOTING BUT HAS SOME REASON TO BE A LITTLE NERVOUS IN HERE. AND WE MAY WELL HAVE PRINTED A HIGH IN HERE THIS WEEK THAT WILL LAST FOR A LITTLE WHILE.

Pearson: JUST SAY A WORD TO THOSE COW/CALF PRODUCERS OUT THERE. THIS SPRING CALF CROP IS COMING OUT IN PRETTY GOOD SHAPE. THE CALF MARKET HAS HELD UP PRETTY GOOD, DESPITE THIS HIGH CORN PRICE.

Roach: IT CERTAINLY HAS AND I THINK THAT YOU WANT TO TAKE A VERY CAREFUL LOOK HERE AS TO WHETHER YOU WANT TO STRETCH OUT YOUR OWNERSHIP OF THOSE CATTLE OR NOT. I'D BE CAUTIOUS. I'D BE CAUTIOUS. I THINK THAT WE'RE GOING TO HAVE HIGHER PRICED CORN, AND I THINK WE MAY STRUGGLE HERE TO MAINTAIN THE STRONG FEEDER MARKET.

Pearson: LET'S TALK ABOUT HOGS. BIG WEEK ON THE BOARD THIS WEEK. THERE'S BEEN SOME STRENGTHENING IN THIS HOG MARKET. PORK DEMAND HAS BEEN GOOD TOO, AS YOU ALLUDED TO. WHAT'S AHEAD NOW FOR HOG PRICES?

Roach: THE DEMAND HAS BEEN JUST PHENOMENAL. THE DEMAND -- FOREIGN DEMAND PARTICULARLY, 30-PERCENT INCREASE IN PORK EXPORTS IN THE MONTH OF FEBRUARY COMPARED TO THE PRIOR YEAR. BIG INCREASES TO JAPAN, TO MEXICO, AND TO CANADA. THE DEMAND IS JUST EXCELLENT. THE MARKET MOVES NORMALLY INTO A SEASONAL STRONGER -- MOVES STRONGER SEASONALLY THIS TIME OF YEAR. I THINK IT WILL. I DON'T THINK THAT WE'VE SEEN THE HIGHS YET ON THE HOGS. I THINK WE'LL PUSH TO HIGHER LEVELS. I THINK THE IMPACT OF HIGHER FEED PRICES WILL REDUCE THE AMOUNT OF PORK THAT'S AVAILABLE TO THE MARKETPLACE.

Pearson: OKAY. AND THE OLD STORY, CHEAP CORN MAKES FOR CHEAP HOGS AND HIGH PRICED CORN MAYBE FOR BETTER PRICED HOGS DOWN THE ROAD. SO HOPEFULLY PRODUCERS WILL HAVE THAT TO LOOK FORWARD TO.

Roach: THAT WOULD BE MY OUTLOOK; LOOK FOR STRONGER PRICE LEVELS.

Pearson: JOHN ROACH, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT REMEMBER, IF YOU'D LIKE ADDITIONAL DETAILS FROM JOHN ON WHERE THESE MARKETS MAY BE HEADED, THEN BE SURE TO VISIT THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US NEXT WEEK WHEN WE'LL EXAMINE AN AMBITIOUS EFFORT TO BRING STABILITY TO FLUID MILK PRICES WITHOUT GOVERNMENT INTRUSION. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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