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Market Analysis: Feb 13, 2004

posted on February 13, 2004


The S&D numbers, along with debate over the size of the Brazilian soybean crop, dominated the markets this week.

For the week, the March wheat futures contract gained nearly two cents. Nearby corn climbed by more than three cents.

The prospects of a record South American harvest helped depress soybean prices. For the week, March beans lost 11 cents. And the March meal contract dropped by $10.30 per ton.

March cotton fell $2.72.

In livestock, the nearby live cattle contract improved 67 cents. March feeders gained 82 cents. And the lean hog contract jumped another $2.15.

In the financials, Comex gold advanced $6.70 an ounce. The Euro gained a mere 52 basis points against the dollar. And the CRB Index rose four-and-a-half points to close at 265-even.

Here now to lend us his insight on these and other market trends is one of our senior market analysts, Virgil Robinson. Welcome back.

Market Analysis: Feb 13, 2004 T

Robinson: THANK YOU, MARK. NICE TO BE WITH YOU.

Pearson: WELL, LET'S TALK FIRST ABOUT WHAT'S BEEN GOING ON IN THIS WHEAT MARKET AND WHAT'S AHEAD. IT SEEMS LIKE THINGS ARE IMPROVING ON THE DOMESTIC PRODUCTION SIDE. THERE'S DEFINITELY SOME SNOW COVER IN PARTS OF THE WHEAT BELT. BUT THE SUPPLY AND DEMAND NUMBERS ALSO TELL US THAT WE'RE USING A LOT OF THIS WHEAT, BUT THERE'S STILL AMPLE SUPPLIES?

Robinson: AT PRESENT, MARK, WORLD WHEAT STOCKS ARE AT A 25-YEAR LOW, AND THAT CERTAINLY HAS UNDERPINNED VALUES AND WILL LIKELY DO SO UNTIL WE HAVE A LITTLE BETTER READ ON THE EAST AND WESTERN EUROPEAN CROPS WHICH, INCIDENTALLY, AT THIS VIEWING, APPEAR TO BE IN PRETTY GOOD SHAPE, MARK. SO I THINK THE LAST TIME WE VISITED, I DID MAKE THE STATEMENT, MARK, THAT AS MEASURED BY FUTURES, CHICAGO FUTURES AS THEY APPROACHED OR NEARED $4, I WOULD COMPLETE OLD CROP SALES. SO AT LEAST AS WE VISIT TONIGHT, THAT DID OCCUR AND I WOULD HAVE DONE THAT. SO OLD CROP, I'M PRETTY WELL EXHAUSTED IN TERMS OF MAKING ANY SALES. NOW CROP, HOWEVER, HAVE YET TO MAKE ANY DECISIONS THERE. TONIGHT I WOULD SUGGEST AS THAT JULY CHICAGO FUTURES CONTRACT IN -- KANSAS CITY JULY FUTURES CONTRACT, APPROACHES THAT $3.95 TO $4 AREA, MARK, I WOULD BEGIN NEW CROP SALES, EITHER IN THE FORM OF A CASH SALE IF THE BASIS IS APPROPRIATE. IF NOT, THEN I WOULD USE FUTURES OR A HEDGE TO ARRIVE, BUT I WOULD BEGIN MY NEW CROP SALES IN THAT PRICE ZONE. I THINK THE REBOUND OR THE EXPECTED REBOUND IN GLOBAL WHEAT PRODUCTION AS MEASURED BY 2004 WILL ADEQUATELY SUPPLY THE PIPELINE AND KEEP MARKETS IN CHECK.

Pearson: ALL RIGHT. LET'S MOVE OVER TO THE -- FROM THE FOOD GRAIN TO THE FEED GRAIN. THE CORN MARKET, AS WE'VE BEEN WATCHING -- AND YOU'VE TALKED ABOUT THIS PREVIOUSLY ON THE SHOW, GOING FORWARD IT LOOKS LIKE VERY TIGHT SUPPLIES FOR CORN FOR THE 2004 AND 2005 CROP YEAR IF DEMAND CONTINUES. WHAT'S YOUR TAKE ON IT RIGHT NOW? ARE WE BUYING SOME CORN ACRES YET WITH PRICES WHERE THEY ARE?

Robinson: I THINK SO, MARK, AND MAYBE OUR FIRST -- I THINK OUR FIRST INDICATION WILL COME AS QUICKLY AS A WEEK FROM TONIGHT WHEN THE USDA, IN THEIR ANNUAL OUTLOOK MEETING IN WASHINGTON, WILL MAKE SOME PROJECTIONS. IT WOULD BE OUR BEST OPINION THAT NEW CROP ACREAGE IN THE UNITED STATES IS LIKELY TO GROW ABOUT 800,000 ACRES YEAR OVER YEAR. NOW, HAVING SAID THAT, AGAIN AS YOU ALLUDED TO, THE U.S. CORN INVENTORY AT, OR AT LEAST PROJECTED INVENTORY AT ABOUT 900 MILLION BUSHEL, AS WELL AS THE GLOBAL OR WORLD CORN STOCKS AT 67 MILLION METRIC TONS, ARE AS TIGHT WORLDWIDE-WISE AS WE'VE BEEN IN THE LAST THIRTY YEARS. SO IT'S IMPORTANT THAT WE DO GROW, IN THE NORTHERN HEMISPHERE, A SIZABLE CROP OF CORN IN 2004. UNTIL THE MARKET CAN FEEL MORE SECURE OR MORE COMFORTABLE ABOUT THAT, MARK, IT'S UNLIKELY THAT THAT NEW CROP CORN FUTURES CONTRACT WILL FALL MUCH, IF ANY, BELOW THE $2.70 OR -75 ZONE. IF THAT SHOULD OCCUR -- AND ONE OF THE REASONS THAT IT MIGHT WELL OCCUR, MARK, IS THAT AT LEAST AS OF TONIGHT, THE CFTC REPORT INDICATED AN ALL-TIME RECORD LARGE POSITION IN THE SPECULATIVE COMMUNITIES CAMP. THEY ARE LONG FUTURES CONTRACTS TO A DEGREE THEY'VE NEVER BEEN BEFORE. SO SHOULD THERE BE A PHASE OF LIQUIDATION FOR WHATEVER REASON, CORN FUTURES COULD PULL BACK. IN THE EVENT THAT HAPPENS, IF I'M A USER, I LOOK TO PROCURE AND BUY SOME CORN SUPPLY. AS A HEDGER OR A PRODUCER AND A SELLER, I THINK THE TARGET OF $2.90 TO $3 REMAINS A VERY VIABLE AND LIKELY TARGET WHEREBY I WOULD BEGIN SALES IF I HADN'T TO THIS POINT IN TIME.

Pearson: AGAIN, YOU'RE NOT GETTING REAL AGGRESSIVE, IT DOESN'T SOUND LIKE, ON THOSE NEW CROP SALES.

Robinson: WELL, MARK, AGAIN, I THINK THE UNCERTAINTY OF PRODUCTION IN THE NORTHERN HEMISPHERE IS SOMETHING THAT WILL HAVE TO BE RECKONED WITH AS, AGAIN, IN PARTS OF THE WESTERN CORN BELT IT REMAINS DRY. PARTS OF THE EASTERN CORN BELT WITH HEAVY SNOW COVER, PRETTY GOOD MOISTURE, IF NOT MORE THAN ADEQUATE MOISTURE LAST FALL, THERE COULD BE OBVIOUSLY SOME CONCERNS ABOUT PLANTING DELAYS, SHOULD THEY BE WET THROUGH THE PLANTING SEASON. SO A LOT OF UNCERTAINTIES THERE AND I THINK THAT'S GOING TO PREVENT THE MARKETS FROM MUCH DETERIORATION.

Pearson: LET'S TALK ABOUT SOME OTHER PLACE WHERE THERE HAS BEEN A LITTLE BIT OF DETERIORATION, AND THAT'S BEEN IN THE SOYBEAN MARKET. AND AGAIN, THERE'S -- AN INTERESTING SITUATION, A MORE COMPLEX SOYBEAN COMPLEX. I DON'T THINK YOU COULD -- TRY AND BOIL IT DOWN, VIRGIL. OLD CROP SALES, DO WE WANT TO CLEAR THOSE OUT? SHOULD WE START PRICING NEW CROP YET? WHAT'S YOUR THINKING?

Robinson: MARK, YOU KNOW, I ALWAYS LIKE TO USE, IN PERIODS OF TRANSITION OR PERIODS WHERE, AS YOU MENTIONED, THE FUNDAMENTALS ARE SO COMPLEX AND SO DIFFICULT TO HANDICAP, THE ASSISTANCE OF VARIOUS OPTION STRATEGIES. AND I STILL THINK THEY ARE APPROPRIATE AS WE VISIT TONIGHT IN THE OLD CROP SOYBEAN MARKET. BUT AS YOU AND I HAVE DISCOVERED, THERE ARE A GREAT MANY OF OUR LISTENERS THAT DO NOT EMPLOY OPTION STRATEGIES. SO FOR THOSE PEOPLE, I CAN ONLY TELL THEM THE TREND OF BOTH THE FUTURES MARKET AND THE CASH MARKET AS MEASURED BY THE NATIONAL SOYBEAN INDEX, THAT VEHICLE, THAT THAT SPOT INDEX IN MINNEAPOLIS, BOTH THOSE TRENDS REMAIN UP. HOWEVER, THOSE WHO HAVE CASH AND DEAL WITH CASH ONLY, I'D WATCH THAT MINNEAPOLIS SPOT NATIONAL SOYBEAN INDEX, AND SHOULD IT DROP AND CLOSE TWO CONSECUTIVE DAYS BELOW $7.69, THAT, TO ME, MARK, WOULD INDICATE THAT THE TREND OF THE SOYBEAN MARKET, THE CASH SOYBEAN MARKET HAS TURNED FROM UP TO DOWN. SO IN LIEU OF THAT, I WOULD REMAIN LONG BUT KEEP A VERY CLOSE EYE ON THAT INDEX. AND SHOULD IT DETERIORATE BELOW THE LEVEL WE MENTIONED, BE ADVISED THAT THERE'S LIKELY A TOP IN THE CASH MARKET.

Pearson: IT COULD BE VIRGIL'S COTTON MARKET, SOFTER AGAIN THIS WEEK. WHAT'S AHEAD NOW FOR COTTON?

Robinson: SINCE THE LAST TIME WE VISITED, MARK, COTTON FUTURES AND CASH COTTON, TO MUCH THE SAME EXTENT, HAVE DETERIORATED ABOUT $10. AND I REMEMBER VISITING ABOUT PARAMETERS AT THAT TIME. IF YOU WERE A PRODUCER, NEAR $74 REPRESENTED A GOOD PLACE TO SELL. NEAR $65 REPRESENTED, IN MY OPINION, A GOOD PLACE FOR THOSE WHO NEED TO BUY COTTON, IMPORTERS AND DOMESTIC SPENDERS AND USERS AND PEOPLE OF THAT NATURE, AN OPPORTUNITY TO BUY COTTON. TONIGHT WE'RE CLOSER TO $65 THAN $75. I THINK WE'RE AT AN AREA OF VERY SOLID SUPPORT IN BOTH THE CASH AND THE COTTON FUTURES MARKET. I AM NOT OF THE OPINION TO MAKE ANY KIND OF AN OLD CROP OR NEW CROP SALE AT OR BELOW 65 CENTS. I THINK THERE WILL BE ANOTHER OPPORTUNITY BETWEEN TONIGHT'S CONVERSATION, MARK, AND SOMETIME MID TO DEEP SPRING WHERE COTTON FUTURES WILL RECOVER BACK TOWARD $70 OR BETTER.

Pearson: LET'S SWITCH GEARS AND TALK LIVESTOCK. THE FED-CATTLE MARKET, OF COURSE, WE'VE HAD SO MANY FACTORS IN THIS MARKET AND, IN TERMS OF TOTAL PROTEIN AVAILABLE, THE SITUATION NOW, THE AVIAN INFLUENZA AND SO FORTH. AS YOU LOOK AHEAD ON FED CATTLE, VIRG, WHAT ARE YOU SEEING AS WE GO INTO THE SPRING?

Robinson: WELL, U.S. BEEF PRODUCTION AND TOTAL SUPPLY IS FORECAST TO DECREASE MODESTLY YEAR OVER YEAR, MARK. AND EQUALLY AS IMPORTANT IS THE FACT THAT WE ARE NOT REBUILDING THE U.S. COW HERD. THOSE ARE PRETTY SOLID UNDERPINNINGS, I THINK, TO THE MARKET. UNFORTUNATELY, WE STILL HAVE THE UNCERTAINTY HERE OF OUR EXPORT MARKET AND THE REOPENING OF THE BORDERS TO OUR PRIMARY EXPORTING CUSTOMERS. WITH THAT IN MIND, IT WOULD BE MY BEST OPINION, MARK, WITH THE NOTION THAT DATING BACK TO JUNE OF 2003, THE NUMBER OF CATTLE PLACED ON FEED AND SUBSEQUENTLY BECOMING AVAILABLE FOR MARKET BEGINNING QUITE SOON IS GOING TO BE PLENTIFUL, MORE THAN WE HAD A YEAR AGO, AT LEAST THE FIRST HALF OF 2004. I THINK IT'S IMPORTANT THAT WE TRY AND PROTECT SOMETHING NEAR $80. AND THE CASH MARKET IS THERE, OR PRETTY CLOSE TO THAT TONIGHT. I'D CERTAINLY REMAIN CURRENT, MARK. AND IF DEFERRED FUTURES OFFERED ME THE OPPORTUNITY -- AND TONIGHT THEY DO NOT -- AT A HEDGE IN THAT UPPER $70 TO $80 AREA, I WOULD TAKE IT AND I WOULD HEDGE PRODUCTION THROUGH THE BALANCE OF 2004.

Pearson: LET'S TALK ABOUT HOGS FOR JUST A MOMENT. WE'VE GOT A LITTLE BIT OF AN UP TREND GOING ON HERE IN THIS HOG MARKET. WHAT'S BEHIND THAT, VIRG?

Robinson: THE CASH MARKET, MARK, DEMAND HAS BEEN VERY, VERY STRONG. DESPITE HIGHER PORK PRODUCTION, DEMAND HAS CONSUMED THAT INCREASE IN PRODUCTION. AGAIN, THIS IS A YEAR WHERE IF USDA PROJECTIONS AND PRIVATE PROJECTIONS ARE CORRECT, PORK PRODUCTION, TOTAL SUPPLY, EXPORTS, AND ENDING STOCKS ARE FORECAST, MARK, TO GROW A LITTLE BIT YEAR OVER YEAR. I WONDER IF, IN FACT, THE LAST FEW WEEKS THE MARKET HASN'T BEEN SUPPORTED TO SOME EXTENT BY WEATHER AND THE FACT THAT WE HAVE CAPTURED SOME BEEF AND POULTRY BUSINESS. LONG STORY SHORT, I'D LIKE TO PROTECT ANYTHING AT $40 OR HIGHER FROM THIS POINT IN THE CALENDAR THROUGH 2004. I THINK THE LOW 40S AND PROBABLY AS STRONG AS THE CASH MARKET IS GOING TO BE.

Pearson: EXCELLENT. VIRGIL, THANK YOU SO MUCH. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE SOME ADDITIONAL DETAIL FROM VIRGIL ON WHERE THESE MARKETS MAY BE 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 LEARN HOW A TINY RED FRUIT HAS MADE AN INDUSTRY LEADER OUT OF THE DAIRY STATE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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