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Market Analysis: Mar 26, 2004

posted on March 26, 2004


Grain prices were mixed this week as the trade begins to factor next weeks planting estimates from USDA.

For the week, the May wheat futures contract gained more than 12 cents. But the nearby corn contract declined by more than 6 cents.

The bean market pulled back slightly from last weeks contract high, but still managed to close above $10.00. For the week, May beans lost more than a dime but May meal

Cotton gave back last weeks gains declining by more than $3.00

In livestock, the nearby live cattle contract lost $3.60. April feeders improved by more than a buck-and-a-half, and the lean hog contract was up by 8 cents.

In the financials, Comex gold continued its rally gaining nearly 10-dollars per ounce. The Euro lost 160 basis points against the dollar. And the CRB Index declined by nearly $2.00, closing 278.25.

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

Market Analysis: Mar 26, 2004

Brugler: GOOD TO BE HERE.

Pearson: GOOD TO HAVE YOU. LET'S TALK ABOUT THE SOYBEAN MARKET. THAT'S WHAT EVERYBODY THAT I'VE BEEN OUT THERE AND YOU'VE BEEN OUT THERE TALKING TO FOLKS WANTS TO TALK ABOUT AND WHAT THEY SHOULD BE DOING. ARE THERE A LOT OF OLD CROP BEANS LEFT OUT THERE, ALAN?

Brugler: I THINK WE CLEANED UP A FEW OF THOSE WHEN WE HAD THE $10 CASH PRICES OVER THE LAST WEEK. THERE'S STILL SOME BEANS OUT THERE AND, IN FACT, USDA WILL BE GIVING US A STOCKS ESTIMATE ON WEDNESDAY. AVERAGE TRADE GUESS IS THERE ARE STILL 867 MILLION BUSHELS LEFT, BUT I THINK A LOT OF THOSE ARE IN COMMERCIAL HANDS NOW. THE COUNTRY IS GETTING PICKED OVER A LITTLE BIT, AND YOU'RE SEEING THAT -- YOU SEE THAT -- YOU SAW THAT MOVEMENT THIS WEEK IN THE BASIS, BECAUSE THE BASIS BACKED OFF AFTER WE SAW THE $10 CASH.

Pearson: WHAT'S AHEAD NOW FOR OLD CROP SOYBEANS?

Brugler: WE'RE STILL, AT THE MOMENT, TRADING THE BRAZILIAN SITUATION, THE ARGENTINE CROP. I THINK THE TRADE HAS RECONCILED ITSELF TO AN 84- TO 87-MILLION-TON PRODUCTION OUT OF THOSE TWO COUNTRIES COMBINED. SAFRAS CAME OUT THIS WEEK ON FRIDAY WITH A 52-MILLION-TON ESTIMATE. BUT I THINK ONE THING WE HAVE TO BE CAREFUL ABOUT IS THE WORLD DEMAND SIDE. I WENT BACK AND LOOKED AT SOME OF THE OLD -- OLDER PERIODS WHERE WE'VE HAD HIGH PRICES LIKE THIS, AND TYPICALLY WE'VE GONE FROM A CRUSH GROWTH OF 6 OR 7 PERCENT TO A 1-PERCENT GROWTH ANNUALLY IN THE YEARS WHERE WE'VE HAD $9 AND HIGHER PRICES. SO I THINK WE HAVE TO BE A LITTLE CAREFUL ABOUT ASSUMING THAT DEMAND IS GOING TO STAY THE SAME AND THEN JUST DROP THE PRODUCTION. THEY KIND OF GO HAND IN HAND, AND WE'RE GOING TO HAVE TO ESTABLISH HOW -- JUST HOW TIGHT THAT IS AND HOW FAST THAT REDUCTION IS TAKING PLACE.

Pearson: TEN DOLLARS LOOKED AWFUL GOOD, SO WOULD YOU KEEP SELLING OLD CROP?

Brugler: WELL, WE SOLD A LITTLE BIT MORE THIS WEEK JUST TO SAY WE DID IT, TO SAY WE SOLD SOME $10 BEANS. WE'RE STILL SITTING ON ABOUT 15 PERCENT OF OUR OLD CROP BEANS. AND STATISTICALLY, MY PRICE PROBABILITY FORECAST SAID THAT JULY BEANS HAD THE MOST LIKELY CHANCE OF GETTING TO $10.40, WHICH WE GOT TO THIS WEEK. THERE'S A ONE IN THREE CHANCE THAT WE COULD GET THEM OVER $11 SOMETIME BETWEEN NOW AND JULY.

Pearson: OKAY. THE EXPORT NEWS THIS WEEK, DID THAT SURPRISE YOU? IT STILL WAS PRETTY STRONG FOR BEANS.

Brugler: IT'S IMPRESSIVE THAT WE GOT -- WE'RE STILL MOVING OUT BEANS, MEAL, AND OIL, AND NOT LARGE QUANTITIES BUT WE'RE STILL MOVING IT OUT. WE ARE SLIPPING VERSUS THE YEAR AGO NUMBERS. WE'RE ALMOST A HUNDRED MILLION BUSHELS BEHIND A YEAR AGO NOW ON BOTH INSPECTIONS AND EXPORT SALES. BUT WE'RE STILL MOVING IT OUT, AND WE DON'T HAVE TO MOVE OUT VERY MANY. INSPECTIONS ONLY HAVE TO AVERAGE LESS THAN 5 MILLION BUSHELS A WEEK TO MEET USDA'S PROJECTION FOR THE YEAR. SO WE'RE ALMOST TO THE POINT WHERE WE CAN STUMBLE ACROSS THE LINE IN THE BEAN COMPLEX.

Pearson: WHAT ABOUT NEW CROP, ALAN? AT THIS STAGE OF THE GAME ON BEANS, ARE YOU GETTING SOME PRICED?

Brugler: WE'VE SOLD 20 PERCENT IN CASH. WE'VE GOT PUT POSITIONS OR PUT SPREADS, TO BE MORE PRECISE, ON ANOTHER 30 PERCENT OF THE CROPS, IN SOME CASES 40 PERCENT OF THE CROP, BASICALLY TO GIVE US A FLOOR GOING INTO THIS REPORT NEXT WEEK. WE'RE STARTING TO PICK UP RUMBLINGS THAT THE RALLY HERE IN MARCH GENERATED MORE ACREAGE. A LOT OF PRODUCERS DOWN SOUTH SUDDENLY DECIDED THEY COULD MAYBE PLANT A FEW ACRES AND TRY AND HIT THAT EARLY MARKET IN THE FALL. WE THINK BEANS AND CORN HAVE BOTH COMPETED WELL AGAINST SPRING WHEAT UP IN THE NORTH, AND THAT'S PROBABLY INCREASING THE ODDS OF A LITTLE MORE BEAN ACREAGE. THE QUESTION IS, IS $7.50 -- OR $7.80 KIND OF A SOYBEAN PRICE REPRESENTATIVE OF THOSE EXTRA ACRES AT THIS POINT IN THE GROWING SEASON.

Pearson: OKAY. WE'LL FIND OUT TUESDAY FOR THE --

Brugler: WEDNESDAY.

Pearson: WEDNESDAY FOR THE ACREAGE REPORT?

Brugler: YEAH.

Pearson: LET'S TALK ABOUT CORN MARKET AND WHAT ARE YOU DOING THERE? DO YOU STILL HAVE OLD CROP CORN LEFT?

Brugler: I'M STILL LUGGING 15 PERCENT OF THE OLD CROP. AGAIN, WE REWARDED THE MARKET FOR A LITTLE BIT OF OLD CROP WHEN WE GOT THE MAY CORN UP CLOSE TO $3.20 THERE. THAT WAS A MAJOR RETRACEMENT RESISTANCE LEVEL ON THE MONTHLY CHART, $3.19. AND SO WHEN WE GOT THERE, WE MOVED A LITTLE BIT OF CASH CORN. WE'RE AGAIN SITTING ON ABOUT 15 PERCENT. THE ODDS ARE PROBABLY BETTER FOR HIGH PRICES IN THE BEANS OVER THE SUMMER IN TERMS OF JUST OLD CROP TIGHTNESS. WE'VE GOT A COMFORTABLE 900-MILLION-BUSHEL CARRYOUT, WE THINK. BUT AGAIN, WE'RE GOING TO HAVE TO SEE WHAT USDA SAYS ABOUT THE GRAIN STOCKS HERE ON WEDNESDAY BECAUSE IF IT'S NOT A 5.2- OR 5.3-BILLION NUMBER, IF IT'S ONLY A 5.1, THEN THINGS ARE A LITTLE TIGHTER, PRICES PROBABLY OUGHT TO BE A LITTLE HIGHER.

Pearson: OKAY. ARE YOU IN ANY KIND OF A HURRY TO SELL NEW CROP CORN, OR WHAT'S YOUR STRATEGY THERE?

Brugler: STRATEGY THERE, AGAIN, IS DEFEND THE -- DEFEND THE GOOD PRICES WE HAVE. WE'VE GOT SOME DECEMBER $3 PUTS ON. I HAD A FEW PEOPLE TODAY WHO DIDN'T WANT TO SPEND THE PREMIUMS FOR THE $3 PUTS. THE SPREADS, THEY WERE BUYING JULY FOR THE SAME STRIKE PRICES BUT A LOWER PREMIUM. WE'RE -- WE DO KNOW THAT OUT OF THE LAST TEN REPORTS, SEVEN TIMES THE USDA NUMBER HAS BEEN LOWER FOR CORN. THE PLANTING INTENTIONS REPORT HAS BEEN LOWER THAN WHAT THE TRADE ESTIMATE WAS. SO IF THAT'S THE CASE THIS YEAR, THEN WE'VE PROBABLY GOT ANOTHER CHANCE TO BOUNCE.

Pearson: ALL RIGHT. LET'S TALK WHEAT MARKET, A NICE BUMP THIS WEEK, A NICE BUMP UP.

Brugler: VERY IMPRESSIVE RALLY. THINGS KIND OF FELL IN ORDER THERE. YOU HAD A NICE TECHNICAL BUY SIGNAL BACK ON THE 17TH. THEN WE GOT SOME EXPORT SALES TO IRAQ. WE GOT SOME SALES TO EGYPT. WE'RE NOT GETTING ALL THE BUSINESS. AUSTRALIA SEEMS TO BE COMPETING VERY EFFECTIVELY AGAINST US, BUT THE WEEKLY SALES NUMBERS WERE REAL RESPECTABLE FOR THE END OF MARCH AND EARLY APRIL. SO I THINK WE'VE GOT, AGAIN, AN ISSUE WITH ACREAGE, BECAUSE MY SUMMARY SAYS THAT WE CAN ONLY HAVE ABOUT 59 TO 59.5 MILLION ACRES OF ALL WHEAT. AND THAT'S BECAUSE OF A BIG DROP OFF IN SPRING WHEAT ACREAGE, WHICH IS AGAIN TIED TO THIS RALLY IN THE BEANS. SO IF WE'RE REALLY THAT TIGHT ON SPRING WHEAT, WE'VE GOT TO KEEP MOVING MINNEAPOLIS CONTRACT UP TO TRY AND GET A FEW EXTRA ACRES THROWN IN BEFORE THE FARMERS SWITCH OVER TO CORN PLANTING.

Pearson: OKAY. SALES STRATEGY ON WHEAT?

Brugler: SALES ON WHEAT WE'VE BEEN A LITTLE MORE AGGRESSIVE BASICALLY BECAUSE THAT 554-MILLION-BUSHEL ENDING STOCKS IS COMFORTABLE, BUT WE'RE STILL MOSTLY USING OPTIONS. WE'VE DONE VERY LITTLE ON THE CASH SALES SIDE. WE'RE USING OPTIONS AND WE'RE DOING IT AS THREE-WAY SPREADS, MEANING WE'RE SELLING BOTH CALLS ABOVE THE MARKET AND PUTS BELOW THE MARKET AND THEN WE'RE LAGGING OUT OF THOSE AS THE MARKET MAKES ITS SWING. AND WHEAT DOES TEND TO TREND, SO THAT MAKES THAT A LITTLE MORE VIABLE STRATEGY.

Pearson: LET'S TALK COTTON. SOME PRESSURE THERE THIS WEEK. YOU BROUGHT UP AN EARLIER POINT, THOUGH. SOME ACRES IN THE SOUTH COULD SWITCH AROUND.

Brugler: YEAH, COTTON HAS GOT KIND OF A BIG MOVE IN THE SPREAD GOING BETWEEN OLD CROP AND NEW CROP. THE OLD CROP WAS UNDER QUITE A BIT OF PRESSURE THIS WEEK. THAT'S PRIMARILY BECAUSE THE CHINESE WEREN'T SHOWING UP AND BUYING THE QUANTITIES THAT EVERYONE EXPECTS THEM TO BUY. ACTUALLY THE CHINESE NEWS I THOUGHT WAS ENCOURAGING BECAUSE THEY WERE TRYING TO LIMIT THEIR COTTON PRODUCTION GROWTH TO ABOUT 26.5 MILLION BALES THIS YEAR. THEY WERE AT 22, 23 LAST YEAR. BUT THE MARKET IS SKEPTICAL. THEY THINK THAT THE PRICES HAVE BEEN SO GOOD IN CHINA THAT CHINESE PRODUCERS ARE GOING TO GROW MORE COTTON THAN THAT. AND IF THAT'S TRUE, THEY'LL IMPORT LESS. THE BULL ARGUMENT, OF COURSE, IS IN THE U.S., THE ACREAGE IS ALMOST CERTAINLY DOWN BELOW 18 MILLION NOW.

Pearson: OKAY. LET'S TALK LIVESTOCK, FED-CATTLE MARKET. IT'S BEEN SUCH A WILD SWING HERE IN THIS FED-CATTLE MARKET AS WE GO FORWARD. STILL TALKING ABOUT A VERY SMALL COW HERD. WHAT'S AHEAD FOR FED-CATTLE PRICES?

Brugler: I THINK WHAT WE'VE GOT FACING US RIGHT NOW IS WE'VE GOT EXTRA FRONT-END SUPPLY. THE CATTLE THAT WERE PUT ON FEED LAST FALL ARE FINISHING UP. THEY'RE GETTING READY TO COME INTO THE PIPELINE. YOU SEE THE YEAR-TO-DATE BEEF PRODUCTION IS NOW 9.8 PERCENT BELOW A YEAR AGO. WE HAD BEEN RUNNING, A MONTH AGO, 12 OR 13 PERCENT BELOW A YEAR AGO. SO THAT TELLS YOU THERE'S SOME MORE BEEF COMING INTO THE PIPELINE. WE'RE GETTING A LITTLE BIT OF EXPORT BUSINESS, BUT MOST OF THAT BEEF IS STILL BACKING UP INTO THE U.S. AND WE'RE HAVING TO ABSORB THAT WITH THE DOMESTIC CONSUMER. SO THE WAY THAT EXPRESSES ITSELF IS BOXED BEEF PRICES DROP. WE CALL THAT OUR CANARY IN THE COAL MINE. WHEN IT STOPS SINGING, WE'VE GOT TO EXPECT WEAKER CASH CATTLE PRICES. AND THAT IS WHAT HAPPENED THIS WEEK. WE SAW THE CASH CATTLE BACK OFF $3 TO $4 IN MANY AREAS. THAT SHOULD BE ABOUT OVER. THE FUTURES ARE DEFINITELY -- PARTICULARLY ON THE FUTURES SIDE, THE FUTURES ARE DEFINITELY WELL DISCOUNTED TO THE CASH, AND YOU SAW A LITTLE BOUNCE TOWARD THE END OF THE WEEK BECAUSE APRIL HAD GOTTEN SO FAR AWAY FROM THE CASH MARKET.

Pearson: HEDGE STRATEGIES AT ALL NOW?

Brugler: WE'RE FAIRLY HEAVILY HEDGED IN THE APRIL AND THE JUNE CATTLE. WE HAVEN'T DONE MUCH FOR THE AUGUST THROUGH DECEMBER PERIOD. I DO HAVE SOME CLIENTS WHO HAVE DONE CATTLE CRUSH SPREADS FOR -- EXCUSE ME, SEPTEMBER AND OCTOBER FEEDERS, WHICH WOULD BE FINISHING AFTER THE FIRST OF THE YEAR, BECAUSE WE WERE ABLE TO LOCK IN PRETTY GOOD PRICE RELATIONSHIPS ON THE LIVE CATTLE FEEDERS AND THE CORN.

Pearson: ALL RIGHT. WHERE WOULD YOU ANTICIPATE FED-CATTLE PRICES TO REMAIN THEN FOR THE BALANCE OF SPRING?

Brugler: WELL, I THINK WE'RE PROBABLY -- WE HAVE TO TAKE USDA'S ASSESSMENT AND SAY THAT -- I THINK BY JUNE WE'RE GOING TO BE IN THE $76 TO $78 AREA. THAT'S COMPARES TO $82, $83 NOW. SO WE'VE GOT TO EXPECT SOME FURTHER DETERIORATION. BUT AGAIN, IT DOESN'T HAVE TO GO IN A STRAIGHT LINE.

Pearson: LET'S TALK ABOUT HOGS. WHAT'S YOUR OUTLOOK THERE?

Brugler: WELL, THE HOGS HAVE BEEN BENEFITING FROM THE PROBLEMS THAT BEEF HAS HAD, THE LACK OF PRODUCTION AND ALSO THE EXPORT RESTRICTIONS. SO BASICALLY WE'VE SEEN VERY GOOD DEMAND FOR PORK. YOU SAW THE FREEZER STOCKS LAST FRIDAY DOWN BOTH FOR PORK AND FOR BELLIES. WE'VE HAD SEVERAL LARGE SALES OF PORK BELLIES INTO THE OVERSEAS MARKETS. AND WE HAD A HOGS AND PIGS REPORT ON FRIDAY NIGHT THAT THE REPORT WAS ABOUT AS EXPECTED. IT SHOWS THAT THE U.S. BREEDING HERD IS DOWN, BUT THE MARKET HOG NUMBERS -- ALL HOG NUMBERS WERE UP 2 TO 3 PERCENT. SO WE'VE GOT PLENTY OF HOGS, BUT AS LONG AS THE DEMAND IS GOOD, THAT'S NOT AN ISSUE. I THINK WE'VE GOT TO BE AWARE, THOUGH, THAT WITH THE BEEF SUPPLIES RISING, THAT COULD HURT THE RALLY IN HOGS.

Pearson: OKAY. SO TAKE NOTE, PRODUCERS. THANK YOU, ALAN, VERY MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE ADDITIONAL INFORMATION FROM ALAN ON THESE HIGH-FLYING MARKETS, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND OF COURSE, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE HOW A SMALL-TOWN ETHANOL PLANT IS FUELING HOPES FOR A PROFITABLE FUTURE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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