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Market Analysis: Feb 20, 2004

posted on February 20, 2004


From the accelerating South American harvest to Chinese purchases of wheat, there was plenty of news for the grain markets to digest this week.

For the week, the March wheat futures contract lost almost nine cents. But nearby corn climbed by more than two cents.

Weather worries in South America helped the soybean market explode to new highs. For the week, nearby beans gained a whopping 63 cents and on Friday flirted with the $9.00 level. The March meal contract jumped by $23.70 per ton.

March cotton was up by $1.34.

In livestock, the nearby live cattle contract improved $1.73. March feeders gained 20 cents. And the new lean hog contract jumped another $1.40.

In the financials, Comex gold plunged $12.80 an ounce. The Euro lost 228 basis points against the dollar. And the CRB Index fell fractionally and closed at 264.50.

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: Feb 20, 2004

PEARSON:TOMM, WELCOME BACK.

PFITZENMAIER: THANKS, MARK.

PEARSON: WELL, LET'S TALK ABOUT THE ONE THAT KIND OF JUMPED OUT AT EVERYBODY THIS WEEK, AND THAT WAS SOYBEANS. IN THE SOYBEAN MARKET, WE'VE HAD THIS VOLATILITY. WE'VE BEEN TALKING ABOUT $9. WE GOT AWFULLY CLOSE THIS WEEK. WHAT'S AHEAD FOR THIS SOYBEAN MARKET, AND WHO'S DOING THE BUYING.

PFITZENMAIER: WELL, AS YOU ALLUDED TO JUST PRIOR TO THIS IS THAT EVERYBODY HAD KIND OF BEEN ASSUMING THE USDA'S NUMBER OF 61 MILLION METRIC TONS ON THAT SOUTH AMERICAN CROP, AND NOW THAT'S STARTING -- THERE'S SEVERAL SOURCES STARTING TO LOWER THAT DOWN AS LOW AS 56, 56.5. IT WAS KIND OF IMPORTANT THAT SOUTH AMERICA HAVE A GOOD CROP BECAUSE WORLD STOCKS AND ESPECIALLY U.S. STOCKS ARE GETTING A LITTLE BIT TIGHT, SO THAT'S SORT OF THE IMPETUS BEHIND THAT. WHERE WE'RE GOING IS -- THE PURPOSE OF THE MARKET HERE IS TO CHOKE OFF DEMAND. WE HAD ANOTHER GOOD EXPORT NUMBER FRIDAY MORNING, AND OBVIOUSLY WE'RE NOT NOT CHOKING OFF DEMAND TOO MUCH YET. SO I THINK SOME OF THE END USERS ARE BUYING. SOME OF THE PROCESSORS ARE BUYING TO TRY AND FORCE DELIVERY POSSIBLY ON THAT MARCH CONTRACT. YOU SAW IT BE -- IT WAS THE LEADER ALL WEEK LONG. SO THERE'S SOME INTERESTING THINGS HAPPENING AS YOU COME INTO THE END OF THE MONTH. AND ON FIRST NOTICE DAY ON THAT MARCH CONTRACT, IT'S GOING TO BE KIND OF INTERESTING NEXT WEEK.

PEARSON: WHEN WE TALK ABOUT THE SOUTH AMERICAN WEATHER SITUATION, IT SEEMS LIKE WE GET IN THE PROCESS WE'RE KILLING THAT CROP OFF A LOT BEFORE WE TURN OUT WITH PRETTY DECENT YIELDS. WHAT ARE YOU HEARING AND WHAT'S YOUR FEELING ON IT?

PFITZENMAIER: WELL, THEIR CONCERN IS WET WEATHER IN NORTHERN BRAZIL, AND I GUESS I'M THE ONE THAT -- IT SEEMS LIKE BEAN CROPS ALWAYS GET HARVESTED. THEY HAVE RELATIVELY POOR SOIL, SO I GUESS I'M NOT AS CONCERNED ABOUT THAT AS THE MARKET SEEMS TO BE. BUT THE DEMAND SIDE AND DEMAND NOT GETTING CHOKED OFF, TO ME, IS THE MOST IMPORTANT THING.

PEARSON: IF YOU HAD SOME OLD CROP BEANS LEFT, TOMM, WOULD YOU --

PFITZENMAIER: SIT ON 'EM.

PEARSON: SIT ON 'EM.

PFITZENMAIER: BECAUSE EVERYBODY WANTS TO BUY UP, BID UP. AND THERE'S ALMOST A BIDDING WAR FOR ANYBODY WHO HAS BEANS LEFT, SO I WOULDN'T GET IN ANY BIG HURRY TO PART WITH THEM.

PEARSON: ARE YOU IN ANY KIND OF A BIG HURRY TO GET SOME NEW CROP BEANS --

PFITZENMAIER: ABSOLUTELY NOT. I MEAN IT'S VERY CRITICAL THAT WE GET A NEW -- THAT WE ATTRACT SOME ACREAGE, THAT WE HAVE A CROP. THEY'RE GOING TO PUT SOME FAIRLY HEFTY WEATHER PREMIUM IN THIS NEW CROP SOYBEAN MARKET, AND THERE'S NO SENSE GETTING IN A BIG TOOT ABOUT SELLING THOSE AT LEAST UNTIL YOU GET UP AROUND $7. SO SIT BOTH ON OLD CROP AND ON NEW CROP. YEAH. IN THE SHORT RUN, I DON'T SEE ANY REASON TO GET IN A BIG HURRY.

PEARSON: ALL RIGHT.

PFITZENMAIER: THE ONE THING THAT HAPPENED THIS WEEK AND YOU SORT OF MENTIONED IN YOUR PRIOR REPORT WAS THAT WE DID HAVE A MAJOR REVERSAL IN THE DOLLAR. YOU KNOW, ONE OF THE THINGS THAT SORT OF PREDICATED ALL THIS RALLY IN THE GRAINS IS THE CHEAP GRAIN PRICES BECAUSE OF THE WEAK DOLLAR. WE WENT DOWN AND MADE NEW CONTRACT LOWS IN THE DOLLAR, REVERSED ON THAT, BROKE A DOWNTREND LINE THAT'S BEEN GOING ON FOR A LONG, LONG TIME, AND CLOSED WELL ABOVE THAT THIS WEEK. SO THAT'S ONE AREA TO BE A LITTLE CAUTIOUS AND TO KEEP IN MIND. AND THAT ALSO PROMPTED THAT DROP IN THE GOLD THAT YOU TALKED ABOUT EARLIER.

PEARSON: SO THE STRENGTHENING DOLLAR MAKES THOSE BEANS MORE EXPENSIVE OVERSEAS.

PFITZENMAIER: ABSOLUTELY.

PEARSON: SO THOSE ARE A COUPLE OF FACTORS THERE. ANOTHER FACTOR THAT I KEEP HEARING ABOUT FROM YOU ANALYSTS IS THIS CORN MARKET AND HOW TIGHT WE ARE GOING FORWARD. TALK ME THROUGH THAT. WE WERE UP A COUPLE OF CENTS ON CORN THIS WEEK, BUT WE HAVEN'T SEEN MUCH OF A BREAK THIS SPRING.

PFITZENMAIER: THAT U.S. OUTLOOK MEETING THAT CAME OUT THIS WEEK LOWERED -- CAME OUT WITH A 2.2-MILLION-ACRE INCREASE, CAME OUT WITH A FAIRLY HEFTY NUMBER IN TERMS OF TOTAL PRODUCTION. BUT WE STILL ENDED UP WITH AN INCREASE IN ETHANOL AND DOMESTIC USAGE AND A SLIGHT INCREASE IN EXPORT, DROPPING CARRYOUT PROJECTED DOWN TO 800. THAT'S IF EVERYTHING KIND OF GOES RIGHT. IF ANYTHING GOES WRONG THERE WHERE, YOU KNOW, YIELD IS NOT OFF A LITTLE BIT, IF CORN ACREAGE ISN'T UP LIKE THEY THINK IT'S GOING TO BE, THEN ALL OF A SUDDEN YOU'RE GOING TO HAVE A PRETTY TIGHT SITUATION HERE. AND AS A RESULT, IT'S GOING TO BE VERY DIFFICULT TO BREAK DECEMBER CORN BACK TOO MUCH. NOW, IF YOU GET THE FIRST OF JULY AND WE'VE HAD GOOD ACREAGE AND THE CROP LOOKS GOOD, THEN WHERE WE'RE AT RIGHT NOW ARE FAIRLY HIGH LEVELS. BUT BETWEEN NOW AND THEN, WE'RE GOING TO KEEP SOME PRETTY GOOD WEATHER PREMIUM IN THAT DECEMBER CONTRACT.

PEARSON: YOU TALK ABOUT BUYING ACRES, WE DON'T SEEM TO REALLY BE GETTING THAT DONE AT THIS POINT.

PFITZENMAIER: EVERYBODY YOU TALK TO THAT KNOWS A LOT MORE ABOUT PROFITABILITY BETWEEN CORN AND BEANS THAN I DO TELLS ME IT'S ABOUT A WASH. SO, YOU KNOW, YOU'RE NOT ATTRACTING ALL THAT MANY BEANS AWAY -- AWAY FROM THE BEAN ACREAGE. AFTER WE HAD ALL THE APHID PROBLEMS AND ALL THE PROBLEMS WE HAD WITH THE SOYBEANS PRODUCTION LAST SUMMER, A LOT OF PEOPLE SAID THEY'D HAD IT WITH SOYBEANS, THEY WEREN'T GOING TO GROW THEM NEXT YEAR. WELL, ALL OF A SUDDEN, YOU KNOW, YOU THINK, WELL, MAYBE WE CAN TREAT FOR THE APHIDS. YOU KNOW, THE ODDS OF IT NOT RAINING AT ALL IN AUGUST NEXT YEAR AREN'T ALL THAT GREAT. IF I PLANT CORN, I'VE GOT TO HANDLE FIVE TIMES AS MANY BUSHELS, AND THERE'S JUST A LOT INVOLVED WITH SWITCHING. IT'S GOING TO BE TOUGH TO ATTRACT ACRES AWAY FROM BEANS OR CORN, GIVEN THE PROFITABILITY BEING ABOUT EQUAL.

PEARSON: DO YOU WANT TO PRICE ANY NEW CROP?

PFITZENMAIER: I THINK THERE'S SOME UPSIDE POTENTIAL. I THINK A LOT OF PEOPLE WILL BE REALLY DISGUSTED WITH THEMSELVES IF THE HIGH GETS PUT IN HERE AND THEY DROP AND DON'T HAVE ANYTHING SOLD. YOU KNOW, YOU CAN MAKE A CASE FOR THAT. I GUESS I'D BE MORE INCLINED TO DO THAT WITH EITHER BUYING PUTS, SELLING THE FUTURES AND BUYING A CALL TO COVER THEM, A SYNTHETIC PUT, SOME STRATEGY LIKE THAT. BUT I WOULD DO SOMETHING TO MAKE SURE I LEFT SOME UPSIDE OPEN ON THIS MARKET.

PEARSON: WHAT'S YOUR TARGET ON NEW CROP CORN DECEMBER?

PFITZENMAIER: OH, I THINK IT'S GOING TO AT LEAST TAKE A RUN AT $3 AND MAYBE UP TO $3.25.

PEARSON: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET. NOT SUCH A GREAT WEEK IN WHEAT THIS WEEK. WE DID HAVE SOME NEWS; CHINA BUYING AND SO FORTH. WHAT'S AHEAD FOR OUR WHEAT GROWERS?

PFITZENMAIER: WELL, CHINA BOUGHT BUT THEY DIDN'T BUY NEAR WHAT EVERYBODY THOUGHT THEY WERE GOING TO BUY. AND IT LOOKS LIKE PROJECTING AHEAD, WE'RE PROBABLY GOING TO HAVE PLENTY OF WHEAT AROUND. THERE'S SOME PEOPLE STARTING TO SUBSTITUTE A LITTLE WHEAT INTO THEIR RATIONS AS OPPOSED TO CORN. THERE'S THIS GENERAL FEELING THAT AROUND THE WORLD, WHEAT PRODUCTION HAS -- AND WE HAD KIND OF A TOUGH YEAR LAST YEAR PRETTY MUCH EVERYWHERE -- AND THE FEELING THAT THAT'S GOING TO GET A LITTLE BIT BETTER THIS YEAR. SO I THINK THAT THE WHEAT MARKET NEEDS TO FIND VERY GOOD SUPPORT AT THAT 358 LEVEL, BOUNCE OFF THAT. YOU GET UP IN THAT 380 AREA, IT PROBABLY NEEDS TO BE SOLD. IF YOU BREAK THROUGH 358, THERE'S NOT A WHOLE LOT OF SUPPORT UNDER THAT WHEAT MARKET UNTIL YOU'RE DOWN AROUND 331.

PEARSON: NICE UP MOVE IN COTTON THIS WEEK.

PFITZENMAIER: YEAH, WE'VE TALKED BEFORE, THERE'S PRETTY GOOD SUPPORT IN THE COTTON DOWN IN THE MID 60S. AND WHEN YOU GET DOWN THERE, YOU TEND TO HAVE SOME BUYING SHOW UP THAT TAKES UP BACK UP. WE HAD A DECENT EXPORT NUMBER. PROFITABILITY IN COTTON IS GETTING ENOUGH THAT -- THERE'S ANOTHER QUESTION MARK ABOUT HOW MANY ARE THEY GOING TO BE ABLE TO STEAL COTTON ACRES FOR CORN. EXPORTS WERE DECENT AND ARE PROJECTED TO STAY DECENT. YOU KNOW, WE'RE HAVING A LITTLE BOUNCE HERE. WE CLOSE JUST OVER 70. WE MAY BOUNCE TO 74, MAYBE 76. IT'S GOING TO BE TOUGH TO GO BEYOND THAT, HOWEVER.

PEARSON: WE JUST HAD THE REPORT ON THE CATTLE-ON-FEED NUMBERS FOR JANUARY. PRETTY MUCH IN LINE. THAT MARKETINGS AND PLACEMENTS NUMBER, THOUGH, THAT'S LOW.

PFITZENMAIER: AND THAT'S ALL WELL AND GOOD, BUT THEY WERE NEUTRAL NUMBERS. THE SUPPLY -- I MEAN WE CAN TALK ALL DAY LONG ABOUT SUPPLY. THE SUPPLY IS NOT THE ISSUE HERE. THE QUESTION IS DEMAND. YOU KNOW, IF YOU CUT BACK SUPPLY A PERCENT BUT LOSE 10 PERCENT OF YOUR EXPORTS, YOU STILL HAVE A 9-PERCENT INCREASE IN THE CATTLE YOU'VE GOT TO FIND SOMETHING TO DO WITH. YOU COMBINE THAT WITH THE FACT THAT NOBODY WANTS TO TAKE OUR POULTRY, YOU'RE GOING TO HAVE, BY SOME ACCOUNTS, 16-PERCENT INCREASE IN POULTRY NUMBERS OVER THE NEXT MONTH OR TWO AND ALL OF A SUDDEN THERE'S A LOT OF MEAT AVAILABLE ON THE MARKET. SO THE DEMAND SIDE IS REALLY THE ISSUE HERE. NOW, WE'VE GOTTEN CHEAP ENOUGH THAT I THINK YOU CAN SEE THE RETAILERS PROBABLY FEATURE BEEF A LITTLE BIT RELATIVE TO PORK, SO THAT'S GOING TO HELP. BUT 9 PERCENT, THAT'S A LOT OF BEEF TO EAT OUR WAY THROUGH.

PEARSON: ABSOLUTELY. ANY HEDGE PROTECTION?

PFITZENMAIER: YEAR, THERE'S DOWNSIDE POTENTIAL IN THESE CATTLE. I THINK IF YOU CAN BUY YOURSELF A $70 JUNE PUT, THAT'S PROBABLY THE THING TO DO. IF YOU'RE PUTTING CATTLE ON FEED RIGHT NOW AND YOU CAN GO OUT AND BUY SOME OCTOBER PUTS, MAYBE SELL SOME CALLS AGAINST THEM TO PAY FOR THEM OR SOME STRATEGY LIKE THAT, THAT'S PROBABLY NOT A BAD THING TO BE LOOKING AT EITHER.

PEARSON: CALF PRICES FOR A COW/CALF GUY, WHAT DO YOU SEE THAT DOING?

PFITZENMAIER: WELL, GENERALLY THAT MARKET IS AN INVERSE TO CORN. IF YOU SEE CORN CREEP UP LIKE WE'RE TALKING ABOUT HAPPENING AND FLAT PRICES DROP, FEEDERS ARE GOING TO STRUGGLE.

PEARSON: LET'S TALK ABOUT THE HOG MARKET. WE HAVE ABOUT THIRTY SECONDS, TOMM. THE PORK MARKET HAS BEEN SUCH A STRUGGLE HERE FOR A WHILE. A LITTLE BIT OF AN UP MOVEMENT ON THE BOARD THIS WEEK. WE SEEM TO BE GOING PRETTY GOOD.

PFITZENMAIER: YEAH, IT'S GOING WELL BECAUSE IT'S THE ONLY HEALTHY MEAT. EVERYBODY IS AFRAID OF THE CHICKEN AND EVERYBODY IS AFRAID OF THE BEEF. AND AS A RESULT, PORK DEMAND IS GETTING A GOOD POP HERE. IF ANY OF THAT CHANGES, PORK IS GOING TO START TO STRUGGLE.

PEARSON: HEDGE PRODUCTION?

PFITZENMAIER: YEAH, I THINK, AGAIN, YOU HAVE TO GO AND BUY YOURSELF SOME PUTS ON THAT MARKET TOO.

PEARSON: VERY GOOD. THANK YOU, TOMM, SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INSIGHT FROM TOMM ON WHERE THESE MARKETS ARE HEADED, THEN BE SURE TO VISIT THE MARKET PLUS PAGE ON OUR "MARKET TO MARKET" WEB SITE. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL LEARN HOW A DAIRY COOPERATIVE OFFERS PRODUCERS ONE MORE OPTION FOR MAKING A PROFIT. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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