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Market Analysis: Mar 12, 2004

posted on March 12, 2004


Grain prices were hampered this week by the high cost of overseas freight and the rising value of the dollar.

The March wheat futures contract went off the board Friday down nine cents from a week ago. The March corn contract closed with a five-cent gain.

Tight supplies and a smaller-than-expected Brazilian crop lifted soybean markets. For the week, nearby beans advanced more than 21 cents. March meal gained $6.20 per ton.

Cotton had another rough week, falling $3.38.

In livestock, the nearby live cattle contract gained $3.75. March feeders improved $2.50. And the lean hog contract was up by $2.43.

In the financials, Comex gold dropped $6.00 an ounce. The Euro lost another 166 basis points against the dollar. And the CRB Index dropped two points and closed the week at 272-even.

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

Market Analysis: Mar 12, 2004

Pearson: LET'S TALK FIRST ABOUT WHAT'S BEEN GOING ON IN THE SOYBEAN PIT. THERE'S SO MANY FACTORS AT WORK THERE. THIS IS A ONCE-IN-A-LIFETIME SITUATION WHAT WE HAVE WITH THE TIGHTNESS WITH THE NORTH AMERICAN BEAN SUPPLY. CONCERN NOW ABOUT WHAT'S HAPPENING IN SOUTH AMERICA AND PRODUCERS ARE SITTING OUT THERE WONDERING WHAT DO WE DO. FOR PEOPLE THAT HAVE OLD CROP SOYBEANS, WHAT ARE YOU TELLING THEM, DOUG?

Hjort: WELL, I THINK WE'RE RIGHT AT A CRUX IN THE ROAD HERE. WE'VE GOT -- WE'RE RUNNING UP AGAINST THE MAJOR RESISTANCE LEVELS. HAVEN'T BEEN ABLE TO PUSH ON THROUGH THEM. ONE OF THE RISKS I WOULD SEE HERE IN THIS MARKET, THE FUNDAMENTALS ARE STILL STRONG LONG TERM. SO WE DON'T HAVE TO WORRY TOO MUCH ABOUT THAT. BUT IN THE NEXT MONTH OR TWO, WE'RE GOING TO HAVE SOUTH AMERICAN BEANS COMING ON THE WORLD SCENE AT FULL SPEED, AND THAT'S GOING TO CREATE SOME PROBLEMS HERE FOR OUR MARKET. NOW, YOU MIGHT SAY WE'RE ALREADY HAVING PROBLEMS HERE, DOWN 21 DAY, UP 30 THE NEXT, DOWN 20 THE NEXT, AND SO ON. THAT SORT OF VOLATILITY SHOULD BE EXPECTED FOR SOME TIME IN THE SOYBEAN MARKET UNTIL WE SORT IT OUT AND FIND OUT WHERE WE'RE AT. NOW, WHEN YOU'RE LOOKING AT THE LONG-TERM PICTURE HERE, THE CHANCES OF GOING SHARPLY HIGHER ARE QUITE GOOD. BUT, OF COURSE, SEVERAL THINGS HAVE TO FALL IN PLACE, LIKE YOU SAY. AND PART OF THAT IS THAT WE HAVE SOME SORT OF A CONCERN WITH OUR NEW CROP COMING ON. NOW, IT'S TRUE; WE'VE USED WAY TOO MANY SOYBEANS SO FAR THIS YEAR. SO HERE IN THE UNITED STATES, WE ARE GOING TO BE RUNNING VERY, VERY SHORT OF OLD CROP SOYBEANS. SO AS FAR AS SELLING OLD CROP BEANS RIGHT NOW, IF WE CAN'T TAKE OUT CONTRACT HIGHS -- AND WE'RE PROBABLY STILL 20 CENTS AWAY, OR SOMETHING LIKE THAT, IN SOME OF THE FUTURES CONTRACTS. IF WE CAN'T TAKE THAT OUT IN THE NEXT WEEK OR SO, THE FUNDS MIGHT DECIDE TO TAKE SOME PROFITS THERE AND THAT COULD EASE THIS MARKET BACK QUITE A BIT. SO IN THAT REGARD, YOU NEED TO WATCH THE MARKET VERY CAREFULLY BECAUSE THERE IS THE POTENTIAL FOR THESE BEANS TO GO OVER THAT POINT AND GO SHARPLY HIGHER WITHIN THE NEXT TWO TO THREE WEEKS. BUT IF THEY DON'T DO THAT, WE COULD BE COMING BACK DOWN. SO MAKING SOME SALES ON ADDITIONAL GAINS, MAYBE EVEN RIGHT WHERE WE'RE AT IN FRIDAY'S CLOSE, WOULD NOT BE OUT OF THE QUESTION.

Pearson: DO YOU WANT TO MAKE ANY NEW CROP SALES AT THIS POINT?

Hjort: I HAVE NOT RECOMMENDED ANY NEW CROP SALES, AND THE REASON FOR THAT IS THAT PARTLY BECAUSE THE SOUTH AMERICAN CROP ESTIMATES ARE COMING DOWN. WE DON'T KNOW WHAT THAT CROP WILL BE. WE WON'T KNOW THAT FOR SEVERAL MONTHS, WHAT THE ACTUAL SIZE OF THAT CROP IS. BUT THE DEMAND IS SO TERRIBLY STRONG FOR BEANS THAT THERE'S GOING TO BE A GOOD SUPPORT FOR NEW CROP AS WE HEAD ON INTO THE SPRING AND SUMMER, SO I'M DELAYING SALES ON THE NEW CROP.

Pearson: ALL RIGHT. LET'S TALK ABOUT CORN, ALSO A TIGHT PICTURE GOING FORWARD, RELATIVELY TIGHT NOW. CORN SEEMS TO HAVE STALLED JUST A BIT.

Hjort: IT HAS. CORN IS DIFFERENT THAN BEANS IN THE FACT THAT THE SHORTAGE IN THE BEANS IS HERE IN THE UNITED STATES THIS YEAR; WHEREAS, THE SHORTAGE IN CORN IS OUTSIDE THE UNITED STATES. WE HAVE A COMFORTABLE BALANCE, 900 MILLION BUSHEL. IT WILL PROBABLY BE A LITTLE LESS THAN THAT BY THE TIME WE GET TO THE END OF THE YEAR, BUT STILL WE CAN MAKE IT THROUGH WITH PRICES NOT HAVING TO GO MUCH OVER $3 A BUSHEL. AND WE'VE ALREADY BEEN THERE IN THE FUTURES MARKET. SO, AGAIN, THOUGH, SAME AS THE BEANS. WE'VE GOT THIS HIGH FROM TWO WEEKS AGO THAT IS JUST THIS BARRIER HERE, AND THOSE REVERSALS ON THE CHARTS. AND THEY'VE BEEN TOUGH TO TRY TO TAKE THOSE OUT. THE CORN MARKET, THOUGH, I THINK HAS THE POTENTIAL TO MOVE UP 15, 20 CENTS, IF WE CAN TAKE THOSE HIGHS OUT. NOW, THE DOWNSIDE, YEAH, THE FUNDS -- IF THEY CAN'T -- IF THE MARKET DOESN'T TREND, THE FUNDS ARE GOING TO BECOME DISAPPOINTED IN IT BECAUSE THE MARKET GOES UP AND DOWN THIS WAY. THEY'RE NOT MAKING ANY MONEY. THEY MIGHT EVEN BE LOSING SOME MONEY ON TRADES, SO THEY WANT THE MARKET TO TREND. SO IF IT'S NOT GOING TO GO HIGHER, I WOULD SAY IN THE NEXT WEEK OR TWO, THEY'RE GOING TO BE TAKING PROFITS AND TRYING TO PUSH THIS MARKET DOWN. MY OWN GUT FEELING IS THAT WE WILL HOLD STEADY OR FAIRLY STEADY AND GRADUALLY MOVE HIGHER OVER THE NEXT TWO TO THREE MONTHS, BUT A LOT OF RISK IN ASSUMING THAT. SO SALES RIGHT HERE FOR OLD CROP AREN'T THAT BAD. FOR NEW CROP, SAME AS THE BEANS. I'M HOLDING OFF FOR RIGHT NOW. BECAUSE OF THE EXTREMELY STRONG DEMAND WE HAVE FOR ALL GRAINS WORLDWIDE. THAT'S GOING TO DEMAND THAT WE PLANT MORE ACRES TO CORN NEXT YEAR AND CONTINUE THE RECORD HIGH YIELDS OF LAST YEAR JUST TO STAY EVEN WITH THAT DEMAND.

Pearson: WE'LL HAVE AN ACREAGE REPORT BEFORE MUCH LONGER; WON'T WE?

Hjort: WE HAVE THE PROSPECTIVE PLANTING REPORT COMING OUT THE END OF THIS MONTH, ALONG WITH A QUARTERLY STOCKS REPORT, WHICH WILL BE VERY IMPORTANT FOR OLD CROP USAGE. AND HOGS AND PIGS REPORT QUARTERLY WILL HELP ON THE DEMAND SIDE FOR THE GRAINS AS WELL.

Pearson: ABSOLUTELY. A COUPLE OF KEY BAROMETERS WILL BE COMING OUT HERE BEFORE MUCH LONGER.

Hjort: THAT'S RIGHT.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. AGAIN, SOME SOFTENING UP ON WHEAT JUST A LITTLE BIT. YOU WERE IN FAVOR OF STEPPING UP SOME SALES A WHILE BACK. THAT LOOKS PRETTY GOOD. ARE YOU STILL IN THAT MODE, DOUG?

Hjort: YEAH, I AM. THIS MARKET -- THE FUNDAMENTALS AREN'T THAT BAD. OUR EXPORT SALES ARE RUNNING WAY ABOVE USDA'S PROJECTION. BUT THE PROBLEM WITH THAT IS TRADERS DON'T BELIEVE IT BECAUSE CHINA HAS A PRETTY GOOD CHUNK OF THAT BUSINESS ON THE BOOKS. AND CHINA HAS BEEN KNOWN TO CANCEL OUT OF A FEW THINGS HERE OVER THE YEARS; SO THE TRADERS ARE SAYING, WELL, SHOW ME THAT CHINA IS TAKING DELIVERY OF THAT WHEAT. THEN I'LL BELIEVE THAT MAYBE OUR EXPORTS WILL BE LARGER THAN WHAT USDA IS SAYING NOW. A REAL NEGATIVE. IT SEEMS TO ME THAT NOW THAT THE MARCH CONTRACT IS OUT OF THE WAY, MAYBE THE OTHER CONTRACTS, THE MAY AND THE JULY, THEY'LL START TO LOOK MORE TOWARD NEW CROP. AND OUR HARD RED WINTER WHEAT CROP REALLY ISN'T IN ALL THAT GOOD OF SHAPE. CONDITION IS RATHER POOR GOING INTO THE SPRING. SO MAYBE THEY'LL START LOOKING AHEAD TO THAT AND GET A LITTLE BIT OF A BOUNCE HERE. THERE'S NO QUESTION ABOUT IT OVER THE NEXT THREE MONTHS OR SO; RALLIES IN THE WHEAT MARKET ARE MADE TO SELL.

Pearson: ALL RIGHT. LET'S TALK ABOUT COTTON. AND, OF COURSE, THAT'S ALSO GOING TO PLAY INTO THAT ACREAGE MIX, LIKE YOU WERE TALKING ABOUT AT THE END OF THE MONTH. SO WHAT'S AHEAD NOW ON COTTON? OBVIOUSLY WE'VE HAD A GOOD RUN AGAIN. YOU RECOMMENDED SOME SALES LAST TIME. WHERE ARE YOU NOW ON COTTON?

Hjort: WELL, COTTON IS ONE OF THESE -- ABOUT LIKE WHEAT. IT'S VERY DISAPPOINTING BECAUSE THE FUNDAMENTALS AREN'T THAT BAD. AS A MATTER OF FACT, ON THIS LAST REPORT THIS WEEK, FUNDAMENTALS WERE PRETTY GOOD, PULLING DOWN U.S. STOCKS AGAIN AND SO ON AND YET THE MARKET WENT DOWN. SO IT'S MORE A TECHNICAL GAME GOING ON THERE. WE HAVE HIT SOME VERY IMPORTANT MAJOR, LONG-TERM SUPPORT LINES ON THE COTTON CHARTS. MAYBE THAT WILL HOLD IT AND GIVE US A REASONABLE BOUNCE.

Pearson: IT'S GOING TO CONTINUE TO BE VOLATILE. WE JUST SAW THE BOARD OF TRADE JUST EXPANDED THEIR TRADE LIMITS AND SO FORTH. SO WE'RE -- EXPECT THE VOLATILITY TO CONTINUE. WE CERTAINLY HAVE VOLATILITY IN THIS CATTLE MARKET, DOUG, WITH WHAT'S HAPPENED TO STRENGTH LAST YEAR, THE BSE OUTBREAK, THE PRESSURE, THE MARKET'S COME BACK. WHAT'S AHEAD NOW FOR BEEF PRICES?

Hjort: WELL, THIS PAST WEEK NOW, MEXICO HAS STARTED TO TAKE A LITTLE BIT OF OUR BEEF AGAIN. NOBODY ELSE HAS GRABBED ONTO THAT HOOK YET AND TAKEN THAT BAIT. JAPAN BEING THE BIG ONE, OF COURSE, WE'D LIKE TO GET BACK IN OUR CAMP AND BUYING SOME OF OUR BEEF. ON THE OTHER SIDE OF THE COIN, YOU'VE GOT USDA TALKING WITH CANADA ABOUT THE POSSIBILITY OR LOOKING AT WAYS THAT WE COULD BRING CANADIAN BEEF IN, CANADIAN CATTLE IN, AND SO ON, SINCE WE BOTH HAD MAD COWS IN OUR NEIGHBORHOODS. SO THE BEEF MARKET IS VERY, VERY STRONG. BEEF DEMAND JUST EXTRAORDINARILY STRONG. I THINK IN THE LAST TWO WEEKS, WE PROBABLY RALLIED CASH CATTLE PRICES UP MORE THAN THEY PROBABLY SHOULD HAVE GONE, SO WE MIGHT SEE A LITTLE BIT OF WEAKENING OF THAT. BOXED BEEF VALUE STARTED TO WEAKEN LATE THIS WEEK, AFTER ABOUT A TWO-WEEK RUN TO THE UPSIDE. WE'RE PROBABLY GOING INTO A LITTLE BIT OF A LULL HERE, BUT THE LONGER TERM LOOKS VERY GOOD FOR FAT CATTLE. I WOULD NOT RECOMMEND ANY SORT OF HEDGING AT THIS STAGE OF THE GAME. LET'S TALK ABOUT THESE COW/CALF PRODUCERS OUT THERE. THIS FEEDER MARKET HAS BEEN GOOD. IT LOOKS PRETTY STRONG. WE'RE HEARING ABOUT SOME HEDGE SALES OUT IN MONTANA AND COLORADO IN THE DOLLAR-PLUS RANGE ON CALVES. WHAT DO YOU TELL THOSE FOLKS?

Hjort: I'M SAYING THERE'S NO NEED TO FORWARD CONTRACT RIGHT NOW, I DON'T THINK. BUT JUST TAKE A LOOK AT THE FUTURES MARKET THIS PAST WEEK. REALLY HAD A PRETTY GOOD RUN. THE FUTURES HAVE BEEN VERY WEAK ON THE FEEDER CATTLE, VERY SKEPTICAL THAT SOMETHING COULD HAPPEN. MAYBE CANADIAN CATTLE COMING IN, FEEDER CATTLE COMING IN OR WHATEVER. I DON'T KNOW WHAT IT IS. BUT THIS WEEK THEY FINALLY PUSHED UP, WENT THROUGH SOME TECHNICAL RESISTANCE AREAS AND SO ON. AND AS YOU POINT OUT, THE CASH MARKET IS VERY SOLID. SO I THINK THAT MARKET HAS A LITTLE BIT MORE TO GO. IT'S GOING TO BE VERY TOUGH FOR THE FEEDER TO BUY FEEDER CATTLE AND TRY TO MAKE ANY MONEY ON THEM THIS YEAR. BUT NEVERTHELESS, FOR THE COW/CALF OPERATOR, THAT'S GOING TO BE A PRETTY GOOD BUSINESS I THINK.

Pearson: ALL RIGHT. LET'S TALK HOGS HERE FOR A MOMENT. AGAIN, A GOOD WEEK ON THE BOARD AS FAR AS HOGS ARE CONCERNED. WE'VE SEEN SOME RECOVERY IN THIS HOG BUSINESS. IS IT GOING TO CONTINUE?

Hjort: YEAH, THE BREAKING OUT OF CONTRACT HIGHS A WEEK AGO AND THEN CONFIRMING THAT THIS WEEK WITH THE BIG PUSH REALLY HELPED, I THINK, ALL THE WAY ACROSS. THE MAIN PROBLEM IN THE HOG MARKET RIGHT NOW IS THE PORK TRADE. IT'S PRETTY SLUGGISH. THE PORK CUTOUT VALUE IS UP A LITTLE BIT ONE WEEK, DOWN THE NEXT, AND SO ON. THE CASH BUTCHER PRICES, THOUGH, HANGING RIGHT IN THERE, MORE STEADY THAN ANYTHING ELSE BUT ABLE TO COME UP A LITTLE BIT, GO DOWN A COUPLE OF BUCKS, BUT COME RIGHT BACK IN THREE OR FOUR DAYS. SO I THINK THAT MARKET IS OKAY FOR A WHILE YET. I'M STILL NOT HEDGING ANYTHING, BUT IT'S VERY TEMPTING IN SOME OF THOSE SUMMER MONTHS.

Pearson: OKAY. SO AGAIN, NO HEDGES BUT BE WATCHING.

Hjort: YEAH, THAT'S RIGHT. YOU GET THOSE IN THE JUNE CONTRACT, TAKE A LOOK AT THAT, AND WE'RE LOOKING AT SOME PRETTY PRICEY LEVELS.

Pearson: DOUG, THANK YOU SO MUCH. THAT WILL WRAP 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. IF YOU VALUE THE INFORMATION YOU RECEIVE ON PROGRAMS LIKE "MARKET TO MARKET," THEN PLEASE REMEMBER TO HELP SUPPORT YOUR LOCAL PUBLIC TELEVISION STATION. IT'S AN INVESTMENT IN TELEVISION PROGRAMING THAT MATTERS. UNTIL NEXT WEEK, THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA.

Tags: agriculture commodity prices Mad Cow markets news