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Market Analysis: Mar 19, 2004

posted on March 19, 2004


Strong export sales and continuing tight supplies drove both corn and soybeans to new contract highs this week.

For the week, the May wheat futures contract gained more than 28 cents. The nearby corn contract advanced nearly 11 cents.

The dwindling size of the South American harvest impacted the bean market. For the week, May beans shot up more than 68 cents and now have gained more than a dollar in the past 10 days. May meal gained $21.50 per ton.

Cotton recovered nicely this week to post a gain of $3.30.

In livestock, the nearby live cattle contract gained 60 cents. March feeders improved 75 cents. And the lean hog contract was up by nearly $2.00.

In the financials, Comex gold soared more than $17.00 an ounce. The Euro gained a mere 79 basis points against the dollar. And the CRB Index jumped more than eight points to close at 280.20.

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: Mar 19, 2004

Pfitzenmaier: THANKS, RICK.

Swalwell: AS I RATTLED OFF ALL THOSE NUMBERS, THERE'S NOT ONE NEGATIVE ONE IN THE BUNCH. WHAT'S GOING ON, ESPECIALLY DOWN IN SOUTH AMERICA WITH THE GRAINS?

Pfitzenmaier: YEAH, IT WAS A PRETTY BULLISH WEEK ALL THE WAY AROUND. THE SOYBEAN MARKET OBVIOUSLY LED HIGHER BY THE MEAL. IF YOU NOTICED IN YOUR LITTLE WRAP UP THERE, THE MEAL WAS UP ALMOST $21. A TREMENDOUSLY STRONG WEEK THERE. MOST OF THAT, AS YOU SAID, WAS SPARKED BY PROBLEMS IN SOUTH AMERICA. THEIR CROP, BY PRIVATE ESTIMATES, KEEPS GETTING RATCHETED BACK. SOME PRETTY LOW NUMBERS CAME OUT THIS WEEK, SOME AS LOW AS 50, 50.5 MILLION METRIC TON, WHICH IS ALMOST 9 MILLION METRIC TON UNDER WHAT THE USDA IS USING. SO THAT, IN COMBINATION WITH THE DOCK STRIKE DOWN THERE, THAT COULD POTENTIALLY FLUB UP THE FLOW OF BEANS OUT OF BRAZIL. AND THAT HAPPENS EVERY YEAR BUT THIS YEAR IT'S PARTICULARLY IMPORTANT, WITH THE WHOLE WORLD AS TIGHT AS IT IS. WE KIND OF NEED TO GET THOSE BEANS MOVING OUT OF THERE.

Swalwell: AND THE GOOD NEWS ON THE BEAN MARKETS, KIND OF IMPACTING CORN AS WELL, AND CORN RIDING ON THE COATTAILS OF THE BEANS.

Pfitzenmaier: YEAH, ABSOLUTELY. CORN -- IT'S VERY IMPORTANT THAT ACREAGE BE -- AS A MATTER OF FACT, ONE OF THE MAJOR PRIVATE ESTIMATORS OF ACREAGE WAS OUT THIS WEEK. SPARKS COMPANY SHOWED AN INCREASE OF ABOUT 1.1 MILLION ACRES IN CORN -- OR ON BEANS AND 1.5 ON CORN. AND THAT'S REALLY IMPORTANT THAT THAT ACREAGE BE LEFT UP THERE. SO THAT'S WHY YOU SEE -- EVERY TIME YOU SEE BEANS RATCHET UP, YOU SEE CORN CHASE IT BECAUSE THEY'RE TRYING TO KEEP THAT EQUILIBRIUM THERE BETWEEN THE TWO. I GUESS I'M NOT SURE THAT CORN WOULD BE ABLE TO MAINTAIN THIS HIGH OF PRICE IF IT WASN'T FOR THE BEANS. BUT, YEAH, THERE'S A REAL COMPETITION THERE, AND IT MAKES FOR SOME PRETTY INTERESTING MARKETS. NOW, CORN HAD GOOD DEMAND THIS WEEK ALSO. THAT CERTAINLY HELPS. THE BEAN DEMAND WAS ALSO GOOD. A COUPLE WEEKS AGO WE WERE HAVING NEGATIVE EXPORT NUMBERS IN THE BEANS, AND EVERYBODY THOUGHT, WELL, MAYBE WE'RE STARTING TO CHOKE OFF DEMAND. BUT WE'VE HAD GOOD NUMBERS THE LAST TWO WEEKS. SO, YOU KNOW, THE WHOLE PURPOSE OF THIS MARKET IS TO FIND A PLACE IN THE BEAN MARKET THAT CHOKES OFF DEMAND. AND BY MOST ESTIMATES, WE HAVEN'T FOUND THAT POINT YET.

Swalwell: NOW, WITH THOSE FORECASTS IN HAND AND PRICES TRENDING POSITIVE, WHAT'S YOUR STRATEGY FOR BOTH CORN AND BEANS RIGHT NOW?

Pfitzenmaier: WELL, ON BEANS, WE'LL START OFF WITH THOSE. IT LOOKS LIKE THERE'S MORE UPSIDE POTENTIAL. HISTORICALLY WHEN YOU SEE THE FRONT CONTRACT OF BEANS MOVE UP ABOVE $10, THERE'S A FAIRLY GOOD CHANCE YOU'RE GOING TO MOVE UP IN THAT $10.90 TO $11 AREA. SO, YOU KNOW, HAVING CASH AND HAVING YOUR HANDS ON IT IS KING THERE. IF YOU GET UP IN THOSE POINTS, I THINK YOU'D BE CRAZY NOT TO BE SELLING SOMETHING AT LEAST. AND THERE'S NOT THAT MUCH -- NOT THAT MANY BEANS LEFT IN THE COUNTRY, AND PEOPLE HAVE BEEN MOVING THEM. BUT THESE ARE VERY, VERY HIGH PRICES AND NEED TO BE TAKEN ADVANTAGE OF. ON THE NEW CROP BEANS, HOWEVER, I MEAN THEY'RE GOOD, BUT RELATIVE TO WHERE WE'RE AT NOW, THEY'RE NOT SO GOOD. SO THAT'S A LITTLE TOUGHER. WE WENT UP AND MADE NEW HIGHS IN THAT CONTRACT ALSO THIS WEEK. I THINK YOU GET UP TOWARDS $8 AND YOU HAVE TO START LOOKING AT SOME KIND OF A STRATEGY, WHETHER IT'S MAKE A CASH SALE OR SOME FUTURES OR BUY A PUT OR SOME COMBINATION OF THOSE. YOU KIND OF HAVE TO START DRIBBLING SOME BEANS OUT THERE BECAUSE THESE ARE PRETTY LOFTY LEVELS. AND WHEN IT FALLS APART, IT'S PROBABLY GOING TO FALL APART PRETTY FAST AND IT'S GOING TO BE TOUGH TO TAKE ADVANTAGE OF IT. AS FAR AS CORN GOES, AGAIN, I'M NOT SURE WE'D BE THIS HIGH IF IT WASN'T FOR BEANS. SO YOU GET OLD CROP AND NEW CROP CORN UP IN THAT 320 AREA, AND I THINK YOU'D HAVE TO LOOK REALLY HARD AT DOING SOMETHING. AGAIN, MAKING CASH SALES, BUYING A PUT, DOING SOMETHING, BECAUSE I THINK YOU'D FEEL FAIRLY FOOLISH IF WE GO UP, TOP THIS THING OUT, AND YOU DIDN'T TAKE ADVANTAGE OF IT. IN ALL LIKELIHOOD, THESE HIGHER PRICES ARE GOING TO RATCHET UP CASH RENTS, THEY'RE GOING TO RATCHET UP SOME OF YOUR EXPENSES, AND YOU'RE GOING TO HAVE TO HAVE SOME HIGHER PRICES LOCKED IN TO BE ABLE TO MAKE THE WHOLE THING WORK. SO IT'S PRUDENT TO TRY TO TAKE ADVANTAGE OF IT. I'M FAIRLY FRIENDLY AND I THINK THERE'S UPSIDE POTENTIAL, BUT YOU'VE GOT TO START SOMEPLACE.

Swalwell: LET'S MOVE QUICKLY ONTO BOTH WHEAT AND COTTON. EXPORT DEMAND IMPACTING THINGS THERE TOO?

Pfitzenmaier: YEAH, EXPORTS WERE REALLY GOOD. BEANS KIND OF BOTTOMED OUT THERE, WENT DOWN, SPIKED DOWN TOWARD 360, FOUND REALLY GOOD SUPPORT, HAD GOOD EXPORT DEMAND THIS WEEK, HAD SOME TENDERS THAT WE DIDN'T EXPECT AND, BOOM, WHEAT GOES RIGHT BACK UP. BUT I THINK WHEAT IS IN PROBABLY A 50-CENT TRADING RANGE, WITH 360 BEING THE BOTTOM, FROM 4 TO 410 BEING THE TOP, AND WE'RE UP TOWARD THE TOP END OF THAT RANGE RIGHT NOW. I THINK YOU HAVE TO USE THAT AS A SELLING OPPORTUNITY, AND IT'S GOING TO BE TOUGH TO TAKE IT MUCH HIGHER. IT'S GOING TO BE IN COMPETITION WITH CORN TOO, SO YOU'RE GOING TO SEE SOME SWITCHING BACK AND FORTH TO KIND OF KEEP THAT EQUILIBRIUM IN PLACE. AS FAR AS THE COTTON GOES, A GOOD EXPORT NUMBER THIS WEEK BOOSTED THAT UP. FIFTY PERCENT OF THAT WAS CHINA.

Swalwell: HUGE PURCHASES.

Pfitzenmaier: HUGE PURCHASES BY CHINA. AND THAT'S -- WE'VE TALKED FOR WEEKS HERE ON THE SHOW THAT IF YOU GET DOWN IN THE LOW -- MID TO LOW 60S, YOU'RE GOING TO FIND SUPPORT ON COTTON, AND THAT'S EXACTLY WHAT HAPPENED. WE REVERSED BACK UP. NOW WE'RE HEADING BACK UP INTO THAT WIDE TRADING RANGE THERE. YOU GET COTTON -- SPOT MONTH OF COTTON UP AROUND 72, AND THAT'S PROBABLY AS MUCH AS YOU CAN EXPECT ON THE UPSIDE FOR THAT. <

Swalwell: ALL RIGHT. GOOD NEWS THERE. LET'S SWITCH TO LIVESTOCK AND TALK ABOUT POSITIVE NUMBERS AS WELL WITH CATTLE. TALK A LITTLE BIT ABOUT THE SLAUGHTER RATES AND HOW THAT COMBINES WITH THE BEEF DEMAND IN LIGHT OF MAD COW AND BIRD FLU AND ALL THOSE RELATED THINGS.

Pfitzenmaier: THE BEEF IS KIND OF -- THE BEEF SORT OF RAN OUT OF GAS. AS A MATTER OF FACT, WE HAD REVERSALS DOWN ON THE JUNE CONTRACT OF CATTLE THIS WEEK. SLAUGHTER RATES ARE STARTING TO GO UP, AND YOU'VE REACHED AN EQUILIBRIUM THERE WHERE YOU'RE TRYING TO KIND OF FIGURE OUT -- YOU KNOW, ON THE POSITIVE SIDE, WE'VE HAD THE MARKET OPENED UP TO MEXICO. THAT'S GOING TO HELP. THE PRODUCER HAS BEEN VERY -- DONE A VERY GOOD JOB IN MOVING CATTLE THROUGH SO WEIGHTS HAVE STAYED LOW, BUT SLAUGHTER RATES ARE STARTING TO GO UP A LITTLE BIT. AND THE OTHER POSITIVE THING IS YOU'VE GOT -- THE LOW CARB DIETS HAVE KEPT DOMESTIC DEMAND VERY STRONG. BUT ON THE OTHER SIDE, YOU'RE PROBABLY GOING TO GET THE CANADIAN BORDER OPENED BACK UP. THAT'S GOING TO BRING CATTLE IN. AND WE STILL HAVEN'T OPENED UP THAT JAPANESE MARKET, AND THAT'S THE HUGE ONE, THE MOST IMPORTANT ONE PROBABLY. SO WE NEED TO GET ALL THAT SORT OF IN LINE BEFORE THE CATTLE MARKET IS GOING TO BE ABLE TO DO ANYTHING. I THINK THE WAY IT ACTED THIS WEEK, YOU GET JUNE CATTLE UP TOWARDS $78 AND YOU'RE GOING TO HAVE TO IMPLEMENT SOME SORT OF A MARKETING STRATEGY, WHETHER THAT BE BUYING PUTS OR SELLING CALLS OR, YOU KNOW, JUST HEDGING OR SOME SORT OF A STRATEGY UP AGAINST $78.

Swalwell: AND TO CLOSE OUT CATTLE, WHAT'S THE IMPACT OF THE FRIDAY CATTLE-ON-FEED REPORT?

Pfitzenmaier: IT CAME OUT FAIRLY NEUTRAL. THE PLACEMENT NUMBER WAS JUST A COUPLE POINTS HIGHER THAN PEOPLE THOUGHT IT MIGHT BE. THAT MIGHT IMPACT THE BACK MONTHS JUST A LITTLE BIT. BUT I THINK OVERALL IT'S NEUTRAL AND WE'RE GOING TO BE RIGHT BACK TO CASH FUNDAMENTALS COME, YOU KNOW, 9, 10 MONDAY MORNING.

Swalwell: AND WE'LL JUST CONTINUE THE ROLL RIGHT INTO THE HOGS. MORE GOOD NEWS THERE.

Pfitzenmaier: YEAH, THE HOG MARKET IS REALLY ON A ROLL. NEW HIGHS THIS WEEK, AS YOU REPORTED EARLIER. UP A COUPLE BUCKS FOR THE WEEK. A VERY STRONG MARKET THERE. AGAIN, THEY'RE THE BENEFICIARY OF THIS PROBLEM WITH THE BEEF, WITH THE MAD COW DISEASE AND THE FEARS THAT THAT'S PUT IN BEEF AND THE EXPORT PROBLEMS IT'S CAUSED THERE. AND THEN YOU COMBINE THAT WITH THE BIRD FLU, AND ALL OF A SUDDEN PORK IS THE ONLY THING THAT'S SAFE FOR ANYBODY TO BUY. AND IT'S REALLY BEEN -- REALLY HELPED THE PORK MARKET OUT. AND THAT'S IN THE FACE OF SLAUGHTER THAT'S KIND OF SEASONALLY RISING HERE, AND WE'RE STILL GOING HIGHER. SO THERE'S POTENTIALLY $10 OR $12 UP IN THE HOG MARKET YET, UNDER THE RIGHT SET OF CIRCUMSTANCES.

Swalwell: TALK TO ME FOR JUST A SECOND, THOUGH. LET'S TOUCH BACK ON BEEF REAL QUICKLY. EXPORT DEMAND, WHAT'S THE IMPACT THERE?

Pfitzenmaier: EXPORT DEMAND ON THE BEEF I THINK IS THE KEY TO WHERE THAT MARKET IS GOING TO GO. YOU'VE GOT, LIKE I SAID, THE JAPANESE NOT BUYING BEEF. YOU'VE GOT THE MEXICANS STARTING TO. AND HOW THAT ALL SHAKES OUT IS GOING TO BE A BIG PART OF HOW BEEF GOES. I THINK THE OTHER THING WE SHOULD TALK ABOUT WITH BEEF IS AS IT RELATES TO THE GRAIN MARKETS. WITH UPSIDE POTENTIAL IN GRAIN, IF YOU'RE A BIG NEEDER OF MEAL OR CORN, IF YOU CAN CATCH ANY PULLBACKS HERE OVER THE NEXT TWO, THREE, FOUR WEEKS ON THOSE MARKETS, IT'S GOING TO BE A GOOD TIME TO PROBABLY GET SOME OF THAT LOCKED IN. AND THOSE MARKETS ARE GOING TO DIRECTLY IMPACT THE FEEDER CATTLE MARKET ALSO.

Swalwell: ALL RIGHT. LET'S WIND UP WITH YOUR STRATEGIES IN THE LIVESTOCK AREA.

Pfitzenmaier: AGAIN, WE TALKED ABOUT THE PUTS ON THE CATTLE. I THINK DEFINITELY ON THE HOGS, WHEN YOU'VE GOT AN UPTRENDING MARKET IN HOGS, YOU DON'T WANT TO GET YOURSELF SELLING FUTURES OR FORWARD CONTRACTING OR ANYTHING. I THINK YOU WANT TO LEAVE THAT UPSIDE OPEN. IF YOU'RE NERVOUS ABOUT A CORRECTION, THEN YOU BUY YOURSELF A PUT OR DO A PUT-CALL STRATEGY OR SOMETHING. BUT I WOULDN'T WANT TO DO ANYTHING AND JUST FLAT OUT LOCKED IN A PRICE ON HOGS WITH THE UPSIDE POTENTIAL THEY'VE GOT AND WITH THEM CONTINUALLY MAKING NEW CONTRACT HIGHS HERE.

Swalwell: ALL RIGHT. SO POSITIVE NOTES ALL AROUND.

Pfitzenmaier: YEAH, PRETTY MUCH.

Swalwell: TIME TO TAKE ADVANTAGE OF THAT.

Pfitzenmaier: ABSOLUTELY.

Swalwell: THANKS, TOMM. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." BUT BEFORE WE GO, WE'D LIKE TO LEAVE YOU WITH THIS REMINDER. THE WEEKLY JOURNAL OF RURAL AMERICA IS NOT JUST A SLOGAN TO US; IT'S THE EMBODIMENT OF OUR COMMITMENT TO BRING YOU NEWS AND ANALYSIS THAT'S IMPORTANT TO THE PEOPLE OF RURAL AMERICA. SO IF YOU VALUE THE INFORMATION YOU RECEIVE ON PROGRAMS LIKE "MARKET TO MARKET," THEN PLEASE HELP SUPPORT YOUR LOCAL PUBLIC TELEVISION STATION. IT'S AN INVESTMENT IN TELEVISION PROGRAMMING THAT MATTERS. FOR MARK PEARSON, I'M RICK SWALWELL. THANKS FOR WATCHING. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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