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Market Analysis: Apr 02, 2004

posted on April 2, 2004


The funds were active in all CBOT pits this week, as the trade mulled those watched-for USDA numbers.

For the week, the nearby wheat futures contract gained 11 cents. The May corn contract jumped by 25 cents.

Rallies on old crop beans held support for the time being, but gains in new crop prices were slowed by the planting intentions report. For the week, nearby beans advanced more than 32 cents, while November beans were up by half as much. May meal gained $19.10 per ton.

The May cotton contract retreated $2.28 from a week ago.

In livestock, live cattle gained $2.75. April feeders edged up 70 cents. But the lean hog contract was down $2.23.

In the financials, Comex gold dropped 60 cents an ounce. The Euro was up a mere 23 basis points against the dollar. And the CRB Index gained almost two points to close the week at 280-even.

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

Market Analysis: Apr 02, 2004

Robinson: THANK YOU, MARK. NICE TO BE WITH YOU.

Pearson: ALL RIGHT. YOU HAVE THE ACREAGE NUMBER NOW, VIRGIL. WE KNOW WHAT THAT IS. WE KNOW ABOUT WHERE THE STOCKS WERE THE FIRST OF THE MONTH. WHAT'S AHEAD? LET'S TALK ABOUT THE CORN MARKET FIRST, BECAUSE IT ALMOST SEEMS LIKE WE'VE SEEN A LITTLE BIT OF, AT LEAST ON NEW CROP, MOMENTUM SHIFT OVER TO THE CORN NOW.

Robinson: MARK, THE DRAWDOWN IN U.S. AND WORLD CORN AND COARSE GRAIN SUPPLIES IS UNDERPINNING THE STRENGTH IN CORN FUTURES AND IN THE CORN -- IN THE CASH CORN MARKET. SURPRISINGLY, IN THIS RECENT INTENTIONS REPORT WAS THE INDICATION FROM THE USDA THAT CORN ACRES WOULD BE VIRTUALLY ABOUT UNCHANGED YEAR OVER YEAR, WHILE MOST OF US WERE ASSUMING, INCLUDING YOURS TRULY, AN INCREASE IN THE VICINITY OF 1 TO 1.5 MILLION ACRES. SO THE POINT I'M TRYING TO MAKE HERE IS THE DRAWDOWN IN GLOBAL INVENTORIES AND U.S. INVENTORIES WITH THE PROSPECT NOW OF NO INCREASE -- SIZABLE INCREASE IN U.S. PLANTED ACREAGE, AS WELL AS OTHER FEED GRAINS, INCLUDING MILO AND OATS AND BARLEY, SETS THE STAGE FOR A VERY TENUOUS SITUATION THE BALANCE OF THIS YEAR AND INTO 2005. THE POINT IS WE NEED TO GROW, MARK, A CROP OF CORN OF RECORD PROPORTION BECAUSE OUR DEMAND BASE HERE IN THE STATES AS WELL AS GLOBALLY CONTINUES TO GROW YEAR OVER YEAR. AND IT IS QUITE UNUSUAL, AT LEAST HISTORICALLY SPEAKING, WHEN WE PRODUCE BACK-TO-BACK RECORD CROPS IN THE UNITED STATES, AS WELL AS OTHER REGIONS FOR THAT MATTER.

Pearson: LET'S TALK ABOUT PRICING OLD CROP FIRST ON THE CORN.

Robinson: MARK, YOU KNOW, OLD CROP CORN, WE'RE PROJECTED TO CARRY OUT ABOUT 900 MILLION BUSHELS THIS CROP YEAR, WHICH IS CLEARLY ENOUGH CORN TO SATISFY DEMAND, AT LEAST AS WE HAVE IT PROJECTED TODAY. I NOTICED THIS WEEK, FOR EXAMPLE, THAT IN SELECT AREAS, THE CORN BASIS ACTUALLY WEAKENED AND THE CORN SPREADS AND CARRYING CHARGE SPREADS ACTUALLY WIDENED, WHICH IS SUGGESTIVE OF THE FACT THERE'S ENOUGH CORN IN THE PIPE TO SATISFY DEMAND. I THINK PRODUCERS ARE RESPONDING TO THIS SPIKE IN PRICE AND MOVING THROUGH OLD CROP INVENTORY. I EXPECT THAT TO CONTINUE. NOW, ASKING FOR A TARGET -- AND I'LL TRY HERE -- AS MEASURED BY FUTURES, THE MAY FUTURES CONTRACT, MARK, IS IN POSITION, IN MY OPINION, TO MAKE A SWING AT 355. OKAY? SO THAT'S 25 OR 30 CENTS ABOVE TONIGHT'S PRICE. WILL IT HAPPEN MONDAY MORNING? NO, NOT NECESSARILY. BUT CLEARLY THAT IS A TARGET, AND IT'S ONE THAT I THINK WILL REMAIN IN PLACE AT LEAST FOR THE NEXT THIRTY DAYS, UNTIL WE EVALUATE HOW THE FUTURES BEHAVE AND WHETHER THEY'RE ABLE TO SUSTAIN THESE GAINS OR NOT. CASH MARKETS SHOULD, IN FACT, MOVE HIGHER AS WELL. WE'RE TRACKING THE NATIONAL CASH INDEX OUT OF MINNEAPOLIS. THE TREND OF THAT MARKET REMAINS HIGHER WITH THE -- EXCUSE ME, WITH A TARGET THERE, MARK, OF ABOUT 335. AND THAT'S ABOUT 25 CENTS FROM TONIGHT'S PREVAILING LEVEL.

Pearson: ALL RIGHT. NOW CROP, YOU'RE NOT IN ANY HURRY TO PRICE ANY NEW CROP AT THIS STAGE OF THE GAME? YOU PUT A LITTLE BIT IN EARLIER.

Robinson: MARK, I WAS GOING TO SAY DID YOU FORGET. MY FIRST TARGET WAS ACTUALLY TOUCHED ON JANUARY 12 AT 260. AND I'VE MADE A SALE, POST THAT ONE AS WELL, MARK. NOW, THE DYNAMICS OF THE MARKET, AS MENTIONED HERE A FEW MOMENTS AGO, HAVE CHANGED ENORMOUSLY SINCE THOSE SALES WERE MADE. FOR SOMEONE THAT'S NOT MADE A SALE, THIS IS A PRICE -- THIS IS A CASH PRICE THAT I THINK WHEN YOU PENCIL RETURN ON INVESTMENT PER ACRE FOR MOST EVERYONE, BE YOU A LANDOWNER, BE YOU A SHARECROPPER, A RENTER, OR EVEN A NEW LAND PURCHASER, THERE'S PROFIT TO BE MADE HERE. AT A MINIMUM, I THINK SOME TYPE OF MINIMUM PRICE STRATEGY IS APPROPRIATE, MARK. AND AGAIN, FOR THOSE WHO DO NOT USE OPTIONS, THEN MAINTAIN AN AS-IS BASIS, BUT BE FLEXIBLE, BE NIMBLE OVER THE COURSE OF THE NEXT FEW WEEKS, BECAUSE SEASONALLY, ONCE WE GET PAST ABOUT THE MIDDLE OF MAY OR THEREABOUTS, THE ODDS START SHIFTING FROM BULLISH BEHAVIOR TO LESS BULLISH BEHAVIOR.

Pearson: ABSOLUTELY. AND THEN WE GET ANOTHER POTENTIAL SPOT DURING A WEATHER MARKET LATER ON IN POLLINATION, BUT YOU'RE ABSOLUTELY CORRECT. SO NEAR TERM, IF YOU WANT TO MAKE SOME SALES, WHICH MAY BE IN THE NEXT FOUR TO SIX WEEKS, THAT'S MAYBE WHAT WE OUGHT TO BE LOOKING AT. LET'S TALK ABOUT SOYBEANS, VIRGIL. ALSO NOT EXACTLY A SHY CONTRACT THERE ON THE BEANS. LOOKING AT WHAT BEANS HAVE DONE HERE THIS WEEK, ANOTHER VOLATILE WEEK, UP SHARPLY. USDA NUMBERS, I DON'T WANT TO SAY THEY WERE SHRUGGED OFF, BUT IT'S VERY TIGHT. OLD CROP IS VERY TIGHT AND NEW CROP HAS HUNG IN THERE.

Robinson: YEAH, IT HAS, MARK. THAT REMINDS ME, NEXT WEEK, I THINK ON THE 8TH OF APRIL, THE USDA WILL FRESHEN BOTH DOMESTIC AND WORLD AG SUPPLY AND DEMAND ESTIMATES. AND OF COURSE, WE'LL ALL ANXIOUSLY AWAIT THE USDA'S ADJUSTMENT REGARDING BRAZILIAN AND ARGENTINE PRODUCTION. WE ALL EXPECT IT TO BE LOWER. TO WHAT EXTENT REMAINS TO BE SEEN. PROCESSING MARGINS, MARK, YOU KNOW WE'VE TALKED ABOUT THIS IN TIMES PAST. THEY CONTINUE TO MAINTAIN, AT LEAST BASED ON MY CALCULATIONS, PROFITABLE LEVELS, WHICH IS TO IMPLY THE FACT THAT PROCESSORS, REGARDLESS OF INPUT PRICE, ARE GOING TO TRY AND CONTINUE TO BUY BEANS AND PRODUCE PRODUCT AS LONG AS THEY CAN SELL THAT PRODUCT PROFITABLY. THAT HAS NOT CHANGED. AND CLEARLY, BETWEEN NOW AND THE END OF AUGUST, WE NEED TO RATION THAT DOMESTIC USAGE FACTOR, WHICH WE HAVE NOT DONE. EXPORTS HAVE SLOWED. INSPECTIONS HAVE SLOWED, BUT NOT TO THE EXTENT, MARK, THAT WOULD SUGGEST THAT WE, QUOTE, HIT THE WALL. AND ALL OF THE BUSINESS THAT WE'VE BEEN DOING HAS SHIFTED FROM HERE DOWN SOUTH. SO UNTIL THAT BECOMES MORE EVIDENT, THE UNDERPINNINGS IN THE SOYBEAN MARKET REMAIN VERY SUPPORTIVE AND VERY STRONG. THERE WILL BE PERIODS OF WEAKNESS, OF COURSE, AS WE'VE SEEN IN THE PAST, BUT THERE'S STILL POTENTIAL FOR HIGHER PRICES IN THE OLD CROP BEAN MARKET AS WELL AS THE NEW.

Pearson: ALL RIGHT. NEW CROP BEANS, WHAT'S YOUR STRATEGY THERE?

Robinson: WELL, AGAIN, I STARTED FAR EARLIER THAN THE PRICE LEVELS THAT WE HAVE TONIGHT. NOW, GRANTED THE DYNAMICS HAVE CHANGED, MARK. AGAIN, I'M JUST GOING TO MEASURE AND MAKE THIS STATEMENT BASED ON SOME HISTORICAL DATA AND OBSERVATIONS. ANYTIME YOU'RE AT AND ABOVE $8, THE AMOUNT OF TIME WE SPENT IN NEW CROP FUTURES, THERE AND HIGHER HAS BEEN VERY, VERY LIMITED THE LAST SEVERAL YEARS. I'D BEGIN SOME TYPE OF MINIMUM PRICE PROGRAM AT OR NEAR $8.

Pearson: LET'S -- REAL QUICK, COTTON. I WANT TO GET TO COTTON. I WANT TO TALK FIRST ABOUT WHEAT, THOUGH. AND AGAIN, THE WHEAT NUMBERS WERE OUT THIS WEEK. WHAT WAS YOUR TAKE ON THAT?

Robinson: WELL, THE U.S. WHEAT SITUATION, THERE'S AN ADEQUATE SUPPLY TO SATISFY DEMAND IF WE'VE PROJECTED IT CORRECTLY. WORLD STOCKS REMAIN TIGHT. WE ARE IN HOPES OF RECHARGING SUPPLIES, PERHAPS UPWARDS OF 40 MILLION METRIC TONS YEAR OVER YEAR, BUT THAT YET REMAINS TO BE SEEN. MARK, I THINK OLD CROP WHEAT -- I'VE ALREADY SOLD MY OLD CROP WHEAT. FOR THOSE WHO HAVEN'T, AGAIN, 430 TO 450, I THINK DEFINITELY THAT'S A PLACE TO MAKE A SALE. NEW CROP WHEAT, I'D PROJECT $4 WITH A MINIMUM PRICE CONTRACT OR SOME TYPE OF HYBRID CASH CONTRACT OFFERED LOCALLY.

Pearson: COTTON MARKET, I MENTIONED THE DYNAMICS HAVE CHANGED THERE. WHAT'S AHEAD NOW FOR COTTON? DEFINITELY A SOFT WEEK THIS WEEK.

Robinson: YEAH, YOU KNOW, MARK, AGAIN, BASIS PREMIUMS FOR SPOT COTTON AND EVEN DEFERRED POSITIONS HAVE WEAKENED. THE CARRYING CHARGES IN THE FUTURES MARKETS HAVE WIDENED, AS THEY HAVE IN CASH. THOSE ARE ALL CHARACTERISTIC OF INDICATING ADEQUATE SUPPLIES. IT APPEARS TO ME OLD CROP COTTON IS GOING TO STRUGGLE FUTURES-PRICE-WISE AT $67 OR HIGHER. NEW CROP COTTON, I'D PROTECT NEW CROP COTTON PRODUCTION AT 69 CENTS WITH A MINIMUM PRICE OR SOME TYPE OF MODEST NEW CROP SALE.

Pearson: LET'S TALK LIVESTOCK, THE FED CATTLE MARKET. OF COURSE, CATTLE FEEDERS ARE LOOKING AT WHAT'S HAPPENING WITH FEED GRAINS AND WONDERING HOW THEY'RE GOING TO MAKE EVERYTHING WORK. LET'S TALK FIRST ABOUT THE FED CATTLE MARKET. AS WE'RE GOING FORWARD THERE, VIRGIL, WHAT DO YOU SEE? BARBECUE SEASON IS HEATING UP.

Robinson: WELL, MARK, AGAIN, TO REALLY REITERATE THE OBVIOUS, YOU'VE GOT A CASH MARKET SOMEWHERE, A LIVE MARKET AROUND $83 OR $84, AND DEFERRED FUTURES DISCOUNTED PRETTY SIGNIFICANTLY TO THAT. SO BETWEEN NOW AND LATE SPRING OR SUMMER, ONE OF TWO THINGS MUST OCCUR. EITHER THIS FED MARKET COMES DOWN IN VALUE OR THESE DEFERRED FUTURES CREEP HIGHER IN VALUE OR SOME COMBINATION OF THE TWO. I STILL THINK, MARK, IT'S LIKELY, GIVEN THE CURRENT FUNDAMENTAL STRUCTURE OF THIS MARKET AND ASSUMING OUR LOW-CARB DIET FAD CONTINUES AND DEMAND CONTINUES STRONG, $80 AND HIGHER OVER THE COURSE OF THE NEXT SEVERAL MONTHS, IN MY MIND, IS AN ATTRACTIVE HEDGE.

Pearson: THESE CALF PRICES -- THESE SPRING CALVES ARE COMING OFF NOW; THEY'RE HOLDING UP DESPITE THIS STRONG CORN MARKET.

Robinson: YEAH, THE DEMAND FOR THEM REMAINS PRETTY STRONG, MARK. I THINK HOPES ARE PINNED ON SIGNIFICANTLY HIGHER FED VALUES IN EACH OF THE THIRD AND FOURTH QUARTERS, AND I THINK THAT'S KIND OF A RISKY BET. BUT AT PRESENT, THE TREND OF THE FEEDER MARKET, THE DEMAND FOR THE FEEDER MARKET IS LEGITIMATE AND REAL. I THINK FEEDERS ARE POISED TO MOVE HIGHER.

Pearson: LET'S TALK ABOUT HOGS. A SOFT WEEK IN HOGS. THERE'S STILL A LOT OF CONCERN ABOUT NUMBERS OUT THERE, VIRGIL.

Robinson: YEAH, YOU KNOW, PORK PRODUCTION IS 2.3 OR 2.5 PERCENT LARGER YEAR OVER YEAR TO DATE. SLAUGHTER REMAINS RELATIVELY LARGE, MARK. AGAIN, THE DEMAND ELEMENT IN THE PORK MARKET IS VERY, VERY STRONG. IT'S STRONGER THAN ANY OF US ANTICIPATED A FEW SHORT MONTHS AGO. PERHAPS THE LOW-CARB DIET IS PART OF THAT. EXPORTS -- THE INCREASE IN EXPORTS TO THE SACRIFICE OF BROILERS AND BEEF IS A FACTOR AS WELL. I'VE CALCULATED, MARK, USING JUNE, JULY, AND AUGUST FUTURES AND ASSUMING WHAT I FELT TO BE A REASONABLE SOUTHERN-MINNESOTA/IOWA BASIS, THERE ARE HEDGING OPPORTUNITIES THROUGH THAT WINDOW OF TIME, APRIL THROUGH AUGUST, ANYWHERE FROM $46 TO $50. I WANT SOME OF THAT. I'M GOING TO TAKE SOME OF THAT.

Pearson: VERY GOOD. VIRGIL ROBINSON, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT REMEMBER, IF YOU'D LIKE ADDITIONAL INFORMATION FROM VIRGIL ON WHERE THESE FAST MOVING 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 A COOPERATIVE VENTURE THAT GIVES NORTHEASTERN DAIRYMEN A DAY OFF FROM WORK. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


Tags: agriculture commodity prices markets news USDA