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Market Analysis: Apr 09, 2004

posted on April 9, 2004


Better-than-expected export sales, coupled with USDA's supply-demand report, allowed grain markets to hold steady in a holiday-shortened trading week.

For the week, the nearby wheat futures contract lost less than two cents. The May corn contract was unchanged, while July corn was up by less than a penny.

As mentioned, soybeans took a hit despite the seemingly friendly trends. For the week, nearby beans lost more than 57 cents. May meal lost its gains from last week and was off by $19.20 per ton.

The May cotton contract retreated another 91 cents from a week ago.

In livestock, live cattle gained $1.97. April feeders advanced $1.82. But the lean hog contract was down $1.10.

In the financials, Comex gold dropped $2.30 an ounce. The Euro was down 48 basis points against the dollar. And the CRB Index gained almost six points to close the week at 284-even.

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: Apr 09, 2004

Martin: THANK YOU, MARK.

Pearson: WOW! THIS SOYBEAN MARKET, WHAT A WEEK, WHAT A YEAR. WE'RE UP, WE'RE DOWN. DOWN A BUNCH THIS WEEK. IS THIS TELLING US SOMETHING? ARE THEY TRYING TO PAINT A PICTURE FOR US?

Martin: WELL, I THINK THE MARKET IS TELLING US SOMETHING. THE ALL-TIME HIGH FOR THE MAY SOYBEANS HAS BEEN 10.77, AND MAY BEANS ARE OUR LEAD MONTH. AND THEN THE HIGHEST CLOSE EVER IN HISTORY FOR A MONTH HAS BEEN 10.58 IN 1973 WITH THE JULY CONTRACT. SO THE MARKET HAS A LOT OF RESISTANCE FROM 10.55 TO 10.77. AND UNTIL THAT 10.77 IS BROKEN ON THE MAY CONTRACT, I DON'T THINK ANYONE CAN BE TALKING ABOUT $11 BEANS. UNFORTUNATELY, BECAUSE OF THIS THE FUNDS ARE LIQUIDATING. AND ON FRIDAY THE FUNDS LIQUIDATED OVER 25,000 CONTRACTS OF SOYBEANS. THAT'S NEARLY A THIRD OF THEIR POSITION. SO IT SHOWS THAT THEY TOO ARE FEELING LIKE, OKAY, MOST OF THE NEWS IS IN THE MARKET AT THE MOMENT. YOU KNOW, WHEN YOU'RE TRADING - BASICALLY WE'VE PRICED IN A 52-, 53-MILLION METRIC TON CROP. USDA IS AT 56. WELL, YOU KNOW THE MARKET THEN SAYS, OKAY, SO WE'VE LOWERED OUR CARRYOUT DOWN 10 MILLION BUSHELS TO 115, THE SOUTH AMERICAN CROP IS BIG ENOUGH TO STILL COMPENSATE FOR THAT. SO THE TRADE IS FEELING EVERYTHING IS PRICED IN FOR THE MOMENT. BUT WE'RE IN THE LAST 40 PERCENT OF OUR CROP PRODUCTION HARVEST DOWN IN SOUTH AMERICA, AND THESE ARE GOING TO BE YOUR WORST YIELDS THAT YOU HEAR. AND SO WE NEED TO BE SEEING MORE YIELDS DROPPING DOWN THAT PRODUCTION TOWARDS 50 OR UNDER, AND THEN THIS MARKET WILL GIVE US ANOTHER SWING BACK ONE MORE TIME. THAT SWING BACK, ONCE YOU TAKE OUT 10.77 -- AND THAT CAN HAPPEN. IF YOU EXPIRE THE MAY OFF THE BOARD, THEN YOU START LOOKING AT THE JULY CONTRACT. WELL, ITS ALL-TIME HIGH IS 12.90. YOU NOW BYPASS THE 10.77 AND START LOOKING FOR BETTER THINGS, AND THAT WILL GIVE YOU ANOTHER SWING OR AN ABILITY TO HAVE ANOTHER SWING. THE ACREAGE AT 70 -- EXCUSE ME, AT TWO MILLION MORE ACRES THAN LAST YEAR, I THINK THAT THAT KIND OF TOOK A LITTLE WIND OUT OF THE NEW CROP SALES, BUT THE THING IS IS THAT THE SPREADS ARE KIND OF STILL PROPPING UP NEW CROP BEANS. I WOULD RECOMMEND FARMERS OR PRODUCERS THAT THEY CAN HEDGE THOSE NEW CROP BEANS. $8 OVER THE YEARS HAS BEEN A TOUGH AREA FOR THE NOVEMBER CONTRACT. WHAT I WOULD DO IS I'D BE BUYING AT THE MONEY PUTS AND SELLING ABOUT $1 TO $1.50 OUT OF THE MONEY PUTS TO KIND OF CHEAPEN UP THE VALUE, BECAUSE EVEN IF THE MARKET SELLS OFF INTO HARVEST, I'M NOT SURE YOU GO MUCH UNDER $6.50 TO MAYBE $6.40.

Pearson: OKAY, SO THERE'S YOUR STRATEGY THERE IN A NUTSHELL. AND YOU WOULD RECOMMEND GETTING SOME KIND OF OPTION STRATEGY TOGETHER NOW.

Martin: WELL, I CERTAINLY WOULD BECAUSE, MARK, WHAT THAT DOES IS IT STILL LEAVES THE UPSIDE AVAILABLE FOR YOU. IF THE MARKET RALLIES, YES, YOU'RE GOING TO FORFEIT PART OF THE PREMIUM BETWEEN THE TWO, BUT YOU'RE NOT GOING TO BE PAYING THAT HIGH PREMIUM THAT'S THERE. AND BECAUSE OF THE TIME AND THE VOLATILITY THAT'S IN THIS MARKET, IF YOU WERE TO OUTRIGHT DO PUTS, IT WOULD BE EXPENSIVE. SO I THINK YOU CAN LOOK AT SOME SORT OF A STRATEGY IN THAT. AND THEN ALSO, IF YOU'RE LOOKING, TRYING TO FIND SOME BASIS CONTRACTS THAT WILL BE TIGHTER, LOCK UP THE BASIS AND THEN GO FROM THERE. SHOULD WE HAVE A WEATHER ISSUE, THEN WE'LL TAKE BEANS THROUGH $8 AND POSSIBLY SEE AN 11 IN FRONT OF NEW CROP BEANS. THAT'S WHY I THINK I'D WANT TO GO FOR THE OPTION STRATEGY, AND I DON'T SEE ANYTHING MUCH WORSE THAN THAT. NOW, ANOTHER THING WE HAVE TO KEEP IN MIND IS, IS THAT SOUTH AMERICAN BEAN PRODUCTION IS GOING TO BE SOLD OUT EARLY THIS YEAR BECAUSE OF THE INVERSE PRICES. NO SOUTH AMERICAN FARMER IS GOING TO WANT TO CARRY BEANS INTO NOVEMBER THIS YEAR, SO THOSE ARE GOING TO BE MOVED EARLY. BUT THEN IN AUGUST WE'RE GOING TO BE LOOKING AT AN EARLY HARVEST HERE WITH EARLY BEANS BEING HARVESTED OUT OF THE DELTA AND THE DAKOTAS. SO THAT'S ONE THING WE HAVE TO KIND OF KEEP AN EYE ON TOO. WE'LL HAVE SOME HEDGE PRESSURE COMING AT US. I LOOK FOR THAT THIRD QUARTER TO BE DOWN.

Pearson: OKAY. LET'S TALK ABOUT THE CORN MARKET. AGAIN, VERY TIGHT GOING FORWARD. WE'VE GOT A REAL DEMAND-DRIVEN CORN MARKET. WHAT'S THE STRATEGY FOR A PRODUCER OUT THERE WHO STILL HAS NOT MADE ANY NEW CROP SALES?

Martin: WELL, I THINK -- I DON'T THINK THAT IN THE FIRST HALF OF THIS YEAR AND MAYBE NOT EVEN UNTIL ALMOST AUGUST CAN WE EXPECT THAT DEC. CORN OR JULY CORN WOULD WANT TO COME BACK UNDER $3. IT DOESN'T MEAN YOU CAN'T HAVE A SETBACK TO ABOUT 3.25 OR 3.23. YOU COULD. I THINK THAT IT GOES BACK TO LOOKING AT BEANS. BEANS MADE NEW CONTRACT HIGHS THIS LAST WEEK, CLOSED AT THE END OF THE WEEK ON THEIR LOWS. IF WE DON'T GET BEANS COMING BACK HERE FAIRLY SOON, WHICH THAT WOULD BE A DISAPPOINTMENT -- I THINK WE MAY -- BUT IF WE DON'T, THEN I THINK CORN IS GOING TO STRUGGLE TO STILL TRY TO GO HIGHER EVEN THOUGH CORN IS CORN AND BEANS ARE BEANS. 340 IS KIND OF A TARGET ON THE CHARTS FOR THE END-WAVE COUNTING ON THE DECEMBER. 340 IS ALSO THE SAME THING ON THE JULY CONTRACT. YOU COULD POSSIBLY TAKE JULY CORN UP TO 3.64, BUT I DON'T KNOW IF YOU DO MUCH MORE THAN THAT. EARLY PLANTING HERE; THE WEATHER SEEMS IDEAL GOING INTO PLANTING SEASON. AND SO I THINK WE'RE GOING TO STILL PICK UP MORE CORN ACRES THAN WHAT THE LAST PLANTING INTENTIONS REPORT SHOWED. OF COURSE, YOU KNOW, AT 79 MILLION ACRES OF PLANTING, YOU KNOW, ONLY 71.9 OF THOSE MIGHT BE HARVESTED. BOY, THAT SAYS YOU'VE GOT TO HAVE IDEAL OPTIMUM YIELDS TO BE ABLE TO PULL OFF A 10.4 CROP, AND WE HAVE TO HAVE THAT. LAST YEAR WE UTILIZED ABOUT A BILLION BUSHELS FOR ETHANOL. THIS YEAR 15 PERCENT OF THAT CROP IS GOING TO GO TO ETHANOL, AND WE'RE ALREADY IN THE YEAR 2004 USING MORE CORN EVERY MONTH TOWARDS ETHANOL THAN WHAT THE USDA EXPECTED.

Pearson: ALL RIGHT. SO STRATEGY-WISE FOR A CORN PRODUCER, WHAT WOULD YOU TELL THEM?

Martin: WELL, I THINK THEY DO DO A LITTLE PRICING HERE. I WOULD BE PROBABLY LOOKING TO BE PRICING IN SOME 340 HEDGE TO ARRIVES, AND THEN THE ONLY THING YOU'VE GOT TO DEAL WITH IS THE BASIS AND ALSO PRODUCING THE CROP. THE MARKET WILL GIVE YOU TIME TO LOOK AT A WEATHER SCARE IF THERE'S GOING TO BE ONE. I DON'T KNOW AS IF I WOULD EXPECT ONE THIS YEAR MYSELF, BUT THE MARKET IS GOING TO GIVE YOU TIME TO DEAL WITH THAT. AND IF YOU UTILIZE FUTURES IN ANY WAY, YOU'LL BE ABLE TO COME BACK AND PROTECT YOURSELF ON THE BOARD. I WOULD NOT MISS THIS CHANCE AND LIVE IN FEAR OF A WEATHER MARKET AND NOT MARKET ANYTHING.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. AGAIN, NOT MUCH OF A PULLBACK THIS WEEK, BUT AS YOU LOOK AT WHEAT, THE FUNDAMENTALS ARE KIND OF CHANGING A LITTLE BIT.

Martin: WELL, THEY ARE. THERE'S GOOD DEMAND FOR WHEAT, FAIRLY GOOD DEMAND. WE STILL HAVE THE WESTERN PART OF THE WHEAT COUNTRY VERY DRY, FROM KANSAS ALL THE WAY UP TO THE DAKOTAS, AND WESTERN MINNESOTA IS VERY, VERY DRY. SO THIS IS ONE THING THAT WE DO HAVE TO WATCH. IF WE COME IN WITH BELOW-NORMAL TEMPERATURES, WHICH IS IN THE FORECAST FOR THE SIX- TO TEN-DAY FORECAST, WE MIGHT NIP THE WINTER WHEAT A LITTLE BIT. THAT COULD SEND THE MARKET BACK UP TO NEW CONTRACT HIGHS BASIS THE K.C. WHEAT. OTHER THAN THAT, THIS MARKET IS STRUGGLING STILL TO HANG ON. IT ALL GOES BACK TO THE MAIN BULL MARKET OF BEANS. TRADERS KEEP SAYING THEY WANT TO BE LONG CORN AND FORGET ABOUT BEANS HERE FOR A MOMENT. BUT YOU KNOW WHAT, THE FUNDS ARE HEAVY, HEAVY, HEAVY LONG IN CORN, AND I WOULD SUSPECT THAT WE'RE LOOKING AT A MARKET THAT IF THOSE BEANS DON'T PERFORM, THEY'RE GOING TO START TO LIQUIDATE OUT OF SOME POSITIONS IN THE OTHER TWO AS WELL.

Pearson: REAL QUICK ON COTTON, ACREAGE NUMBERS ARE IN NOW. WE KIND OF KNOW WHAT THAT'S GOING TO LOOK LIKE AND WHAT'S AHEAD FOR DEMAND. CHINA IS ALWAYS A KEY QUESTION. WHAT WOULD YOU TELL A COTTON PRODUCER?

Martin: WELL, I THINK THE COTTON PRODUCER, RIGHT IN FRONT OF US, SHOULD BE SEEING, FAIRLY SOON, A RALLY IN THIS MARKET. I HAVE MENTIONED TIMING INDICATORS BEFORE ON THE SHOW AND IN THE PAST. AND I LOOKED AT THE TIMING INDICATORS ON WEEKLY DATA FOR COTTON, AND THE MAY COTTON IS DOWN TO ABOUT 4 PERCENT ON THE WEEKLY DATA. IT DOESN'T GO TO ZERO. THAT'S VERY OVERDONE. I THINK WE'RE GOING TO SEE SOME LIFT IN THIS MARKET.

Pearson: LET'S MOVE OVER TO LIVESTOCK. FED-CATTLE MARKET HAS BEEN PERFORMING PRETTY GOOD. THE CASH MARKET LOOKS PRETTY GOOD GOING INTO NEXT WEEK. WHAT'S AHEAD NOW?

Martin: WELL, I THINK AS WE GO INTO THIS NEXT WEEK, CASH WILL PROBABLY HOLD FAIRLY STEADY, MAYBE A LITTLE SOFTER. BUT THE THING THAT'S BEEN GOOD FOR THE CATTLE MARKET IS THE FACT THAT, ONE, WE DON'T HAVE THE CANADIAN BORDER JUST REALLY TOTALLY OPEN YET AND, TWO, THE SLAUGHTER HAS BEEN DOWN SUBSTANTIALLY FROM WHAT WAS EXPECTED. THE CATTLE-ON-FEED REPORTS, THE PLACEMENTS HAVE NOT BEEN -- YOU KNOW, THEY'VE BEEN INDICATING MORE NUMBERS, WE JUST AREN'T SEEING THEM, SO IT MAKES YOU THINK THAT THE REPORTS WERE WRONG. SO I THINK THAT WHEN WE GO DOWN HERE THROUGH THE MONTH OF APRIL, APRIL CATTLE FUTURES ARE GOING TO HOLD FAIRLY WELL. THE DEMAND FOR BOXED BEEF IS PHENOMENAL. WE HAVE AN EARLIER GRILLING SEASON THIS YEAR. THE CATTLE MARKET LOOKS GOOD TO ME, AT LEAST INTO THE END OF APRIL, POSSIBLY EARLY MAY. ONCE WE START TO GET TOWARDS JUNE, THINGS MIGHT BE A LITTLE DIFFERENT. WEIGHTS I THINK WILL BOTTOM OUT ABOUT MID MAY AND START HIGHER, SO I THINK THAT WE HAVE TO LOOK AT THIS CATTLE MARKET AND BY THEN WE'LL KNOW WHERE WE'RE AT WITH THE CANADIAN BORDER AS WELL. WE CAN'T UNDERESTIMATE THE IMPACT THAT THESE DIETS HAS BEEN HAVING ON MEATS. YOU LOOK AT BROILERS AND YOUR ALL-TIME HIGHS. YOU LOOK AT PORK BELLIES MAKING NEW ALL-TIME HIGHS AND STILL PULLING THEM OUT OF THE FREEZER. THE DEMAND FOR MEAT IS PHENOMENAL, AND I'LL BET IT'S THAT WAY IN CANADA AS WELL.

Pearson: I'M HEARING ANECDOTAL EVIDENCE OF SOME OF THESE REALLY HIGH FLYAWAY CALF PRICES OUT THERE IN THE COUNTRY. AND THIS FEEDER MARKET LOOKS FAIRLY ATTRACTIVE DESPITE THE FACT YOU'RE TALKING $3 -- $3.20 PLUS CORN.

Martin: THAT'S CORRECT. I THINK THAT EVERYTHING I HEAR IS THAT THERE'S NOT ENOUGH CATTLE IN THESE FEEDLOTS, AND BECAUSE OF THAT, THERE'S GOING TO BE A GOOD DEMAND FOR CATTLE DOWN THE ROAD. SO I THINK CATTLE PRICES OVERALL AS WE GO TOWARDS THE THIRD QUARTER THROUGH AUGUST, SEPTEMBER, THERE COULD BE SOME GOOD PRICES.

Pearson: REAL QUICK, SUE, A WORD TO THAT PORK PRODUCER OUT THERE.

Martin: WELL, YOU KNOW, WE'VE HAD A GOOD MONTH HERE IN APRIL. PRICES HAVE DONE WELL. WE'VE HAD GOOD DEMAND TO JAPAN. WE CONTINUE TO SEE FAIRLY DECENT DEMAND. I THINK THE HOG MARKET ON THE JUNE CONTRACT -- THAT'S THE ONE I'VE ALWAYS BEEN MORE FRIENDLY TO -- I THINK IT'S GOING FOR 78 CENTS.

Pearson: OKAY. SO PORK PRODUCERS, KEEP AN EYE OUT. SUE MARTIN, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT REMEMBER, IF YOU'D LIKE EVEN MORE INFORMATION FROM SUE ON WHERE THESE ACTIVE MARKETS MAY BE HEADED, THEN BE SURE TO VISIT THE MARKET PLUS PAGE AT OUR "MARKET TO MARKET" WEB SITE. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE UNCERTAIN FUTURE OF THE LONE TRACTOR TESTING FACILITY IN NORTH AMERICA. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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