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Market Analysis: Mar 05, 2004

posted on March 5, 2004


The markets this week chewed through private estimates in advance of next week's supply and demand report. Understandably, most of the trade interest is on Brazil's soybean crop.

For the week, the March wheat futures contract lost almost 15 cents. Nearby corn was down nearly six cents.

Despite reports of dwindling South American yields, soybean prices retreated from last week's highs. For the week, nearby beans fell 10 cents. But March meal gained nearly $4.00 per ton.

Cotton also fell from last week's gains, with the March futures contract down $4.20.

In livestock, the nearby live cattle contract gained $2.45. March feeders improved another 80 cents. And the lean hog contract slipped a dime.

In the financials, Comex gold gained $4.80 an ounce. The Euro lost 125 basis points against the dollar. And the CRB Index was virtually unchanged, closing at 274-even.

Here now to lend us their insight on these and other market trends are two of our regular market analysts, Walt Hackney and Doug Jackson. Welcome back.

Market Analysis: Mar 05, 2004 Hackney: HELLO, MARK.

Jackson: HI, MARK.

Pearson: ALL RIGHT, DOUG, WELL LET'S TALK ABOUT THIS BEAN MARKET FIRST. IT'S BEEN SO VOLATILE ALL YEAR. WHAT'S AHEAD? WE HAD A LITTLE BIT OF A PULLBACK THIS WEEK. OBVIOUSLY, WE'RE MAKING OUR COMMENTS PRIOR TO USDA SUPPLY/DEMAND OUTLOOK. WHAT ARE YOU SEEING AS WE GO FORWARD?

Jackson: WELL, MARK, THIS WEEK THE MARKET RAN UP TO A LEVEL THAT I THINK EVERYBODY ACKNOWLEDGED WAS IMPORT PARITY LEVEL. AT THE HIGHS THIS WEEK, YOU COULD IMPORT MEAL, YOU COULD IMPORT OIL, YOU CAN IMPORT BEANS IN THE UNITED STATES FROM SOUTH AMERICA, EVEN OVERCOMING THE TREMENDOUS UNPRECEDENTED OCEAN FREIGHT RATES THAT WE HAVE TODAY. MARK, ON THE ONE HAND, WE'VE GOT FIFTEEN-YEAR HIGHS. WE HAVE CLEAR EVIDENCE THAT DEMAND IN THE WORLD IS SLOWING DOWN AND NOBODY FROM THE BOARD OF TRADES IS GOING TO SEND YOU A PERSONAL LETTER AND SAY THIS IS THE TOP OF THE MARKET. ON THE OTHER HAND, WE KNOW THE SOUTH AMERICAN CROP IS DETERIORATING, WHICH MAYBE IS MORE OF A NEW CROP ISSUE THAN AN OLD CROP ISSUE. AND FRANKLY, OF COURSE, THE QUESTION IS, IS THIS THE TOP OF THE MARKET. HAVE WE REALLY BUMPED OUR HEAD AGAINST A LEGITIMATE LEVEL THAT'S GOING TO STOP PRICE ADVANCES OR NOT? I DO NOT KNOW. WE HAVE HALF THE PEOPLE OUT THERE THAT THINK WE'VE STILL GOT TO GO TO SHARPLY HIGHER PRICES TO RATION THIS DEMAND AT THE END OF THE YEAR. ON THE OTHER HALF, WE COULD PROBABLY SAY TODAY THAT IF WE DO NOT SELL ANY MORE BEANS, MEAL, OR OIL FROM THE UNITED STATES, CRUSH WHAT WE NEED TO TO COVER FEED USE, EXECUTE WHAT SALES ARE ON THE BOOKS TODAY, THE CARRYOUT WOULD BE ABOUT 150 MILLION POSITIVE. THE QUESTION IS IF THAT'S THE CASE, DO YOU WANT TO BE BUYING BEANS AT 950, FIFTEEN-YEAR HIGHS OR NOT. REMEMBER, YOU CAN BUY BEANS $1.50 A BUSHEL CHEAPER IN SOUTH AMERICA TODAY. AND EVEN IF THE CROP IS SMALLER IN SOUTH AMERICA TO A LIMITED DEGREE, WE'VE STILL GOT 120 MILLION TONS OF BEANS IN THE WESTERN HEMISPHERE, WITH STILL A RECORD CROP IN SOUTH AMERICA. WE'RE $2 HIGHER THAN WE WOULD BE BASED ON A NORMAL DISTRIBUTION OF INVENTORY IN THE WESTERN HEMISPHERE. THE PROBLEM, OF COURSE, IS WE'RE TRADING U.S. FUTURES AND WE HAVE A RECORD SMALL SUPPLY IN THE UNITED STATES. WE ARE SELLING SOME BEANS HERE, MARK. TAKE ADVANTAGE OF THESE HIGH PRICES. THEY'RE THE FIRST SALES WE'VE REALLY RECOMMENDED. WE'VE BEEN BULLISH FOR A LONG TIME. NOT TO BET ON THE IDEA THAT WE HAVE TO SURGE HIGHER. I THINK THIS IS GOING TO BE AN EXTREMELY VOLATILE MARKET, AS WE SAW THIS WEEK. IN THE BIG PICTURE, WE MAY BE MAKING OUR HIGHS FOR THE YEAR WITHOUT A WEATHER PROBLEM THIS COMING SUMMER. BUT WE COULD SEE A 50-CENT SWING BACK AND FORTH HERE AS WE PUT THIS TOP IN THE MARKET. IT'S GOING TO BE VERY VOLATILE.

Pearson: ALL RIGHT. YOU'RE TALKING OLD CROP. WHAT ABOUT NEW CROP? YOU MENTIONED THE DETERIORATING SOYBEAN SITUATION IN BRAZIL.

Jackson: WELL, IF THE OLD CROP IS DIFFICULT, OF COURSE, THE NEW CROP IS EVEN MORE IMPOSSIBLE. IF YOU WRITE THIS CROP DOWN 6 OR 7 MILLION TONS IN SOUTH AMERICA, FROM WHAT WE THOUGHT JUST A FEW WEEKS AGO DUE TO THE PERSISTENT DRYNESS IN ARGENTINA AND SOUTHERN BRAZIL AND THE FLOODING IN THE NORTHERN PARTS OF THE COUNTRY, WHAT WE THINK IS THAT YOU TAKE THAT SUPPLY AWAY, WHICH IS REALLY A FACTOR SIX MONTHS FROM TODAY, NOT RIGHT NOW, AND YOU GIVE THE U.S. ANY KIND OF A WEATHER PROBLEM, YOU PUT US BACK INTO A RATIONING SITUATION AGAIN NEXT WE'RE. THAT'S GOING TO KEEP THESE NOVEMBER BEANS VOLATILE ALL YEAR. WE CAN GO BIG EITHER WAY ON THOSE NEW CROP FUTURES, DEPENDING ON SO MANY VARIABLES. BUT RIGHT NOW THE MARKET IS NOT PREPARED TO TRADE ABOVE 750 ON THOSE NOVEMBER FUTURES, SO WE MAY SEE THEM RUN OUT OF GAS, LOSE THEIR MOMENTUM, BUT SOME TREMENDOUS POSSIBILITIES LONG TERM THERE TOO IF WE HAVE THE SLIGHTEST HINT OF A WEATHER PROBLEM.

Pearson: THIS WEEK ON THE BOARD, NEARBY CORN PULLED BACK A LITTLE BIT. WHAT'S YOUR OUTLOOK FOR CORN, AND CAN WE BUY CORN ACRES?

Jackson: MARK, PEOPLE ARE MORE AWARE HERE IN THE LAST TWO WEEKS OF THE TREMENDOUS BRAZILIAN EXPORTS. THEY'RE GOING TO EXPORT A NUMBER OF MILLIONS OF TONS BIGGER THAN THE USDA IS FORECASTING WHILE, BY THE WAY, THEY'RE EXPORTING A RECORD AMOUNT OF BEANS TOO. SOME PEOPLE ARE STARTING TO BACK OUR IDEAS BACKWARDS A LITTLE BIT ON CORN EXPORTS, BUT IN A VACUUM, OLD CROP CORN PRICES, MARK, ARE HIGH ENOUGH. IN FACT, THEY MIGHT HAVE 10 OR 20 CENTS DOWN IN A VACUUM. BUT, OF COURSE, THE NEW CROP SITUATION IS REALLY WHAT'S DRIVING THIS THING. THE FUNDS HAVE ADDED A HUNDRED THOUSAND CONTRACTS OF LONG POSITIONS SINCE THE PRODUCTION REPORT IN JANUARY. WE STILL KNOW THAT A 10.3 -- 10.5 DEMAND BASE NEXT YEAR MAKES IT IMPERATIVE THAT WE HAVE A RECORD YIELD AND THINK WE HAVE A RECORD YIELD AT ALL TIMES. THE SLIGHTEST HINT OF A WEATHER PROBLEM IN DECEMBER CORN WILL EXPLODE HIGHER, EVEN IF THE FUNDS ARE LONG, EVEN IF EVERYBODY IS PREPARED FOR IT. WE HAVE NO ROOM TO TOLERATE ANYTHING BUT PERFECTION ON THIS CORN BALANCE TABLE. ETHANOL USAGE CONTINUES TO EXPAND. CHINA IS DROPPING OUT OF THE CORN EXPORT PROGRAM. A LOT OF SIMILARITIES TO 95-96. YOU GIVE US JUST A HINT OF A WEATHER PROBLEM, WE'LL TAKE DEC. CORN UP 50 CENTS IN A MATTER OF DAYS. AND THEN IF WE HAVE A REAL WEATHER PROBLEM, OF COURSE, YOU'RE IN A PRICE RATIONING MODE CLEARLY. WE DON'T WANT TO MAKE ANY NEW CROP SALES. IF YOU'VE GOT OLD CROP, THOUGH, AND DON'T HAVE A LOT OF PATIENCE HERE, BECAUSE WE MAY DO NOTHING FOR SEVERAL WEEKS HERE INTO SPRING, THEN WE MIGHT MAKE SOME OLD CROP SALES. BUT TOO MANY THINGS ARE COMPELLING ON THAT NEW CROP BALANCE TABLE TO RECOMMEND MUCH IN THE WAY OF SALES UNLESS YOU THINK FOR SURE THAT WE'RE GOING TO HAVE A RECORD CROP THIS COMING YEAR.

Pearson: WHAT ABOUT THE FEED WHEAT POTENTIAL? THIS WHEAT MARKET PULLED BACK SOME FAIRLY DRAMATICALLY THIS WEEK IN CHICAGO.

Jackson: WELL, THAT'S RIGHT. WE'VE HAD GOOD RAINS OVER MUCH OF THE WINTER WHEAT BELT IN THE UNITED STATES. THE TRADE THINKS THAT BASICALLY WE HAVE EXCELLENT CROP PROSPECTS NOW IN BOTH WESTERN EUROPE AND EASTERN EUROPE. THE EASTERN EUROPEAN, THE RUSSIAN/UKRAINE CROP LOOKS MUCH, MUCH BETTER THAN IT DID A YEAR AGO. NOW, THERE'S NO QUESTION, MARK, THAT IF WE HAVE A HUGE WORLD WHEAT CROP -- AND, OF COURSE, WE'VE GOT A LOT OF MONTHS OF WEATHER BEFORE WE CAN FIGURE THAT OUT FOR SURE -- BUT IF WE WOULD REBOUND WORLD PRODUCTION AS MUCH AS 40 MILLION TONS, WHICH SOME PEOPLE THINK IS POSSIBLE, THEN, YES, WHEAT CAN BE A FEED GRAIN COMPETITOR, AND WE'LL DRIFT WHEAT PRICES BACK DOWN TO WHERE IT REALLY JUST FOLLOWS CORN PRICES. SO WE COULD HAVE 30 TO 50 CENTS DOWNSIDE LONG TERM IN THIS WHEAT MARKET IF THE WEATHER STAYS GOOD. AND THAT TEMPERS CORN SOME BUT DOESN'T KILL THE CORN STORY LONG TERM PROBABLY. WE'RE NOT VERY BULLISH WHEAT. THE WHEAT IS THE LEAST INTERESTING OF THE THREE GRAINS. UNLESS SOMETHING CHANGES ON THE WEATHER, WHEAT PRICES ARE GOING TO DRIFT IRREGULARLY LOWER INTO SEASONAL PRESSURE INTO HARVEST.

Pearson: VERY GOOD. ALL RIGHT. WELL, SPEAKING ABOUT VOLATILITY, WALT HACKNEY, THAT CATTLE MARKET HAS CERTAINLY LIVED UP TO THE VOLATILITY AWARD FOR THIS YEAR. WHAT'S AHEAD NOW ON FED CATTLE? ARE YOU FRIENDLY?

Hackney: WELL, YOU HAVE TO BE FRIENDLY CONSIDERING WHAT HAS TAKEN PLACE IN THE LAST TEN DAYS, MARK. DEMAND DOMESTICALLY IS WONDERFUL AND IS MUCH GREATER THAN WHAT ANY OF THE INDUSTRY ANTICIPATED BACK AT ANY TIME AFTER DECEMBER OF LAST YEAR. WE'RE SITTING HERE AGONIZING OVER IS JAPAN GOING TO TAKE OUR EXPORTS. WHAT ARE WE GOING TO DO WITH MEXICO? YOU DON'T NEED TO CREDIT THIS EXPORT RATIONALE OR THE PSYCHOLOGY OF IT THAT WE'VE HAD THIS WEEK. YOU DON'T NEED TO CREDIT THAT TO ANY OF THE EXPORT NEWS. YOU CAN CREDIT IT TO DOMESTIC DEMAND OF OUR OWN PRODUCT WE'RE PRODUCING HERE. MANY OF US IN THIS INDUSTRY WOULD JUST AS SOON SEE US KILL 600,000 CATTLE A WEEK. WE WOULD LIKE TO BELIEVE THAT WE CAN MAKE THAT WORK TO EVERYONE'S ADVANTAGE DOMESTICALLY AND MAKE THIS BEEF A LUXURY CUT GOING TO EXPORT TO WHOMEVER CHOOSES TO BUY IT. WHAT WE DON'T BUY IS THE FACT OF THESE FOREIGN EXPORTERS MAKING US JUMP THROUGH THE HOOPS IN ORDER TO GRACIOUSLY TAKE OUR PRODUCT. WE DON'T THINK THAT'S NECESSARY. SO THE PROSPECTS OF OUR OWN CATTLE MARKET, AS WE SPEAK, MAY NOT EXCEED THE 87 THAT WE HAD THIS WEEK ALIVE IN THESE CATTLE, NOR POSSIBLY THE $1.37 DRESSED ON THESE CATTLE THIS WEEK. BUT THE FACT REMAINS AS LONG AS OUR INVENTORY IS NEARLY 30 POUNDS A HEAD LIGHTER THAN IT WAS A YEAR AGO, WE DON'T FEEL THAT WE'VE GOT AN ISSUE ON DEMAND THAT WILL CREATE A DOWNTREND. NOW, I DON'T SUSPECT THAT WE'LL HAVE A REPLAY OF NEXT -- OF THE LAST YEAR THIS YEAR. I THINK 87 WOULD BE A -- WOULD BE AN ADVANTAGEOUS MARKET FOR ALL OF US.

Pearson: WHAT ABOUT THIS FEEDER MARKET, WALT? THEN YOU'VE GOT TO BE FAIRLY FRIENDLY TO THAT AS YOU GO FORWARD.

Hackney: YOU CAN BE FRIENDLY. WE'VE SEEN A REAL APPRECIATION IN THE FEEDER CATTLE MARKET FOR THE LAST TWO MONTHS, ACTUALLY. THE THING THAT MAY CONTROL THE FEEDER TREND WOULD BE, AS DOUG IS TALKING ABOUT, THE PRICE OF CORN. THESE RATIONS WOULD GO UP TO 60 TO 65 WITH SOMETHING BETTER THAN $3 CORN, AND WE WILL LOSE THE ADVANTAGE WE MIGHT HAVE HAD WHEN CORN WAS AROUND 250, -65. SO THE POINT BEING, PRODUCTION COSTS MAY CONTROL FUTURE ADVANCES IN THESE FEEDER CATTLE.

Pearson: IT DOESN'T SEEM TO BEING SLOWING DOWN THE DEMAND FOR THOSE CALVES GOING FORWARD.

Hackney: THE DEMAND FOR THESE CALVES IS PHENOMENAL, MARK, AND THE REASON BEING IS WE'VE GOT ONE OR MORE PERCENT FEWER CATTLE ON RANCHES THAN WE HAD A YEAR AGO.

Pearson: AND, WALT, REAL QUICK, THIS HOG MARKET GOING FORWARD, AS ANOTHER COMPETITIVE RED MEAT, WHAT DO YOU SEE AHEAD FOR HOGS?

Hackney: I THINK HOGS MAY BE UNDER PRESSURE WITH THE RELAXATION OF SOME BORDERS. ANOTHER POINT IS WE'RE PRODUCING HOGS AT 3.6 POUNDS A HEAD ON THE MARKET WEIGHT HEAVIER THAN A WEEK AGO, SO WE'VE GOT TO BE CAREFUL THERE.

Pearson: GOOD POINT. WALTER, THANK YOU SO MUCH. DOUG, THANK YOU. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INSIGHT FROM OUR TWO EXPERTS ON WHERE THE MARKETS ARE HEADED, THEN BE SURE TO VISIT THE MARKET PLUS PAGE ON OUR "MARKET TO MARKET" WEBSITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL LEARN HOW CATTLE PRODUCERS IN SOUTH DAKOTA ARE DRIVING BEEF DEMAND BY PASSING THE BUCK. 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