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Market Analysis: Jan 30, 2004

posted on January 30, 2004


Things were definitely more choppy in the grain markets this week as the trade digested export and weather news.

For the week, the March wheat futures contract gained more than seven cents. Nearby corn was unchanged.

The soybean market was nailed by a string of bad news, including word the Chinese are canceling some purchases. For the week, nearby beans lost nearly 20 cents. Soybean meal was down $7.70 a ton.

March cotton fell more than $5.00.

In livestock, nearby cattle lost $5.40. March feeders dropped 55 cents. But the lean hog contract gained $2.50.

In the financials, Comex gold lost $5.80 an ounce. The Euro dropped 137 basis points against the dollar. And the CRB Index fell more than four points to close the week at 262.10.

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

Market Analysis: Jan 30, 2004

Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT ABOUT WHAT HAPPENED. LET'S TALK ABOUT THE WHEAT MARKET. THAT WAS OUR SHINING STAR AS FAR AS AN UP TREND THIS LAST WEEK. WHEAT PRICES -- WE'RE LOOKING AT THE BOARD, YOU KNOW, IN THE 380, 390 RANGE. WHAT'S AHEAD, DOUG?

Hjort: WELL, IT'S GOING TO STRUGGLE, I THINK. WHEAT TOOK THEIR DIVE A WEEK EARLIER THAN THE CORN AND THE BEANS DID. WELL, THEIR LATEST DIVE, I SHOULD SAY. IT'S GOT A LOT OF WORK TO DO TO TRY TO PULL THINGS UP. IT WAS INTERESTING, THOUGH, THAT IN THE LAST TWO WEEKS, WHEAT PRICES WERE LOWER EVEN THOUGH EXPORT SALES WERE VERY, VERY GOOD, ABOVE EXPECTATIONS AND ABOVE A YEAR AGO AND RUNNING ABOVE USDA'S PROJECTIONS. NOW, EVEN THOUGH THE EXPORT POTENTIAL ON WHEAT IS RUNNING ABOUT 50 MILLION BUSHELS ABOVE USDA'S ESTIMATE, THAT STILL WOULD NOT PULL OUR ENDING STOCK BALANCE DOWN AS OF MAY 31 TO ANY CRITICAL LEVEL. SO WE HAVE TO LOOK AHEAD TO THE NEW YEAR BEFORE YOU GET REALLY EXCITED ABOUT PRICES. AND THERE IS SOME EXCITEMENT THERE FOR THE NEW YEAR, BUT OTHER COUNTRIES AROUND THE WORLD HAVE BETTER CROPS COMING ON TOO. SO THERE'S GOING TO BE MORE EXPORT COMPETITION. SO I THINK WHEAT PRICES ARE GOING TO STRUGGLE. YEAH, WE'LL PROBABLY TRY TO RALLY BACK, BECAUSE I THINK CORN AND BEAN PRICES WILL RALLY BACK, ESPECIALLY THE CORN. THAT SHOULD GIVE SOME SUPPORT TO THE WHEAT MARKET. BUT I THINK THERE'S SOME SELLING OPPORTUNITIES COMING UP HERE ON WHEAT IF YOU GET UP AGAINST THESE MAJOR RESISTANCE LEVELS ONCE AGAIN.

Pearson: ALL RIGHT. DOUG, WHAT'S YOUR OUTLOOK FOR CORN PRICES? AGAIN, WE'RE TALKING ABOUT TIGHT SUPPLY GOING FORWARD, GOOD DEMAND. WHAT'S AHEAD?

Hjort: YEAH, VERY, VERY STRONG DEMAND FOR THE CORN. THAT'S THE DRIVING FORCE. YOU KNOW, IT'S OLD NEWS BY NOW, BUT HERE WE HAD A RECORD LARGE CROP OF CORN THIS PAST YEAR, RECORD LARGE YIELDS BY A WIDE MARGIN, AND YET WE'RE USING MORE CORN THAN WE WERE ABLE TO PRODUCE LAST YEAR. SO IT'S NOT JUST THE TIGHTENING SUPPLIES OF CORN THIS YEAR. BUT YOU LOOK AHEAD TO NEXT YEAR, AND WHERE ARE THE ADDITIONAL ACRES GOING TO COME FROM TO SUPPLY AN INCREASED USAGE AGAIN NEXT YEAR? THAT BATTLE REALLY HASN'T STARTED FOR NEW CROP ACREAGE YET. YEAH, DECEMBER CORN IS QUITE GOOD, BUT THE PRICE RELATIONSHIP BETWEEN DECEMBER CORN AND NOVEMBER BEANS IS ABOUT A NORMAL LEVEL RIGHT NOW, SO THAT BATTLE HASN'T STARTED TO BE PLAYED THERE. NOW, ON THE CORN, STRONG EXPORT MARKETS. YOU'RE LOOKING AT PERCEIVED STRONG FEED USAGE. THIS COLD WEATHER DOESN'T HAVE NEAR THE EFFECT THAT IT USED TO ACROSS THE MIDWEST BECAUSE SO MANY ANIMALS AND POULTRY ARE HOUSED INSIDE NOWADAYS, BUT STILL IT DOES HAVE AN IMPACT. GREATER FEED DEMAND THERE. THE BIG QUESTION MARK NOW IS HOW FEED DEMAND WILL BE AFFECTED BY THE BIRD FLU IN ASIA, NOT JUST THE PROTEIN SIDE OF THINGS, WHICH IS VERY CRITICAL, BUT ALSO ON THE CORN. SO FAR, ANALYSTS DON'T THINK THAT THAT'S A SERIOUS MATTER, BUT THEY DON'T KNOW YET WHAT THE FULL EXTENT OF THE BIRD FLU IS EITHER. SO UNTIL WE FIND THAT OUT AND GET THAT TOTALLY CORRALLED, IT'S HARD TO PUT DEMAND NUMBERS FOR FEED. WE BROKE BACK FROM AROUND THE 280 LEVEL, BROKE 13, 14 CENTS. COMING BACK STRONG FRIDAY. AND I THINK THERE'S A VERY STRONG POSSIBILITY OF TAKING MARCH CORN UP TO THE $3 LEVEL. THAT'S A FLASHING LIGHT UP THERE, A BEACON FOR PEOPLE TO DRAW ATTENTION TO, AND I THINK THAT IT MAKES SENSE. FUNDAMENTALS SAY THAT WE SHOULD EASILY GO THERE. MAYBE SOMETHING HIGHER, BUT THAT'S THE TARGET RIGHT NOW.

Pearson: YOU'VE NOT BEEN IN A BIG HURRY TO PRICE NEW CROP.

Hjort: NO, I HAVEN'T BECAUSE THIS BATTLE HAS TO BE PLAYED OUT. AND WHERE ARE THESE ACRES GOING TO COME FROM? YOU SEE, DEMAND THIS YEAR IS NOW ESTIMATED AT 10.23 BILLION BUSHEL. WE HAD A 10.11-BILLION-BUSHEL CROP. NEXT YEAR THAT DEMAND IS ESTIMATED TO BE SOMEWHERE BETWEEN 10.3 AND 10.5 BILLION BUSHEL -- THAT'S A BIG INCREASE IN ACREAGE -- BECAUSE YOU CAN'T HARDLY EXPECT YIELDS TO MATCH LAST YEAR'S ALL-TIME RECORD HIGH. MAYBE THEY WILL BUT THAT WOULD BE KIND OF A FLUKE IF YOU HAD TWO BACK TO BACK. SO NEW CROP CORN PRICES, IT'S TEMPTING BECAUSE WE ARE AT LEVELS TO WHERE WE ALWAYS SAY YOU START PRICING NEW CROP CORN. ANYTHING OVER 250, YOU ALWAYS START. BUT THIS IS A WHOLE DIFFERENT BALL GAME. REMEMBER TOO THAT THE U.S. HAS THE MOST COMFORTABLE SUPPLY/DEMAND BALANCE OF ANYBODY IN THE WORLD RIGHT NOW. YOU LOOK AT THE TOTAL GRAIN -- TOTAL CORN PICTURE WORLDWIDE, WE'RE AT RECORD TIGHT SUPPLY/DEMAND RELATIONSHIPS, AND THAT'S NOT GOING TO BE RELIEVED ANYTIME IN THE NEXT 12 TO 18 MONTHS.

Pearson: LET'S TALK ABOUT SOYBEANS, DOUG. AGAIN, EXTREMELY TIGHT OLD CROP SITUATION. YOU MENTIONED IT; REALLY DECENT PRICES FOR NEW CROP. AT THIS STAGE OF THE GAME, WHAT'S YOUR ADVICE TO PEOPLE WHO ARE HOLDING SOME OLD CROP BEANS?

Hjort: WELL, I THINK YOU SELL INTO RALLIES. THIS PAST WEEK WHEN WE HAD THE BIG BULGE THAT ONE DAY, WHEN IT TOOK US UP TO THE 855 ON THE MARCH CONTRACT AND THEN TURNED RIGHT AROUND FROM THAT HIGH AND SOLD OFF AND CLOSED LOWER THAT DAY, OBVIOUSLY THAT'S CALLED A REVERSAL AND A VERY KEY ELEMENT TO PRICING. WELL, THAT MIGHT HAVE BEEN PART OF THE REASON, SEVERAL OTHER THINGS TOO THAT CAME ALONG, AND CAUSED THE WASHOUT IN THE SOYBEAN FUTURES. BUT THERE WAS A LOT OF PROFIT TAKING THERE, AND THAT WAS NEEDED TOO. SAME BACK IN THE CORN TOO; GOOD PROFIT TAKING THERE. AND THAT PROFIT TAKING IN BOTH CORN AND BEANS ALLOWS THE TRADERS TO HAVE MORE MONEY TO BUY INTO THE NEXT RALLY. SO I THINK WE CAN TAKE SOYBEAN PRICES BACK UP, BUT NOW THAT WE'VE SET THAT 855 UP THERE, THERE'S ALL KINDS OF FORECASTS OUT AND FUNDAMENTALS WOULD SUGGEST THAT MAYBE WE SHOULD GO UP TO THE 903 OR WHATEVER THAT LEVEL WAS IN 1997. NOW, YOU GET THERE -- IF YOU'RE LUCKY ENOUGH TO GET THERE, I THINK THAT'S A REAL STRONG SELLING POINT. ONE OTHER POINT ON THE BEANS: WE'RE NOT DOING THE RATIONING YET. RIGHT NOW, IF YOU LOOK AT WHERE WE'RE AT ON THE CRUSH AND THE EXPORTS, WE'RE RUNNING ABOUT 270 MILLION BUSHELS AHEAD ON USAGE FROM WHAT USDA IS PROJECTING. AND THEY ARE SAYING -- THEY'RE PROJECTING THAT TO HOLD THE ENDING STOCK AT 125 MILLION. SO IF WE CONTINUE THAT PACE, THAT WOULD MEAN THAT WE WOULD BE IN THE HOLE WITH SOYBEANS. WE COULD VERY EASILY FIND OURSELVES, COME SPRING, THAT WE'RE RUNNING OUT OF SOYBEANS. AND THAT COULD BE A VERY EXPLOSIVE TIME FRAME IF WE DON'T HAVE REAL PERFECT WEATHER, GOOD PLANTING CONDITIONS, AND SO ON FOR THE NEW CROP.

Pearson: ALL RIGHT. AGAIN, YOU'RE NOT IN A HURRY TO PRICE NEW CROP BEANS.

Hjort: NOT NEW CROP BEANS, NO. NOT YET. WAIT TILL -- AT LEAST WAIT TILL SPRING ON THAT, I THINK.

Pearson: ALL RIGHT. LET'S TALK LIVESTOCK. THE FED-CATTLE MARKET, AS WE'VE WATCHED THAT ONE -- AND ACTUALLY BEFORE I TALK ABOUT FED CATTLE, REAL QUICK ON THE COTTON. A BIG SELL-OFF THIS WEEK, DOUG.

Hjort: YEAH, IT IS. AND THE MARKET IS STILL BEING GOVERNED BY THE SPECULATIVE TRADE. THERE'S REALLY NOT MUCH -- THE FUNDAMENTALS THAT ARE CHANGING THAT MUCH. YOU HAVE SOME WORRIES HERE AND THERE. BUT IT'S THE SPEC TRADE AND THEY'RE VERY, VERY NERVOUS.

Pearson: THIS CATTLE MARKET HAS BEEN UNDER SOME PRESSURE HERE JUST IN THE LAST WEEK, PARTICULARLY ON THE BOARD. THERE'S STILL SOME CONCERN ABOUT THAT EXPORT DEMAND AND THE IMPACT IT COULD HAVE. WHAT DO YOU TELL A CATTLE FEEDER RIGHT NOW?

Hjort: WELL, FIRST OF ALL, IF YOU'RE BUYING FEEDER CATTLE, BE VERY CAREFUL WHAT YOU'RE BUYING AND WHAT PRICE YOU'RE PAYING. FOR SETTLING THE FAT CATTLE, A WEEK AGO WE HAD THESE PRICES JUMPING UP $5, $6, $7 A HUNDREDWEIGHT BECAUSE -- APPARENTLY BECAUSE THE PACKER HAD SOLD TOO MUCH BEEF AHEAD AND DIDN'T HAVE THE CATTLE TO COVER IT. THIS WEEK THEY TOOK ALL OF THAT PRICE BACK AWAY, SO WE'RE BACK DOWN AT THE $80 LEVEL. EVEN BIDS ON FRIDAY WERE $78 DOWN IN THE SOUTHWESTERN PLAINS. THIS MARKET IS GOING TO BE EXTREMELY VOLATILE. USE ANY SORTS OF PRICE RALLIES. TO KEEP CURRENT ON YOUR SALES, SELL THEM AS SOON AS THEY'RE FINISHED.

Pearson: ALL RIGHT. REAL QUICK ON THESE CALVES; THIS MARKET HAS BEEN AWFULLY GOOD. IT'S REALLY TEMPTING TO GET THESE CALVES MOVED.

Hjort: YEAH, AND I THINK IT'S A TWO-EDGED SWORD HERE, BUT I DO THINK A PERSON SHOULD BE LOOKING AT MARKETING SOME OF THESE CALVES. TOO MANY UNCERTAINTIES IN THIS WHOLE MARKET. WE SAW EARLIER ON THE SHOW THE INVENTORY REPORTS. WE'RE NOT GOING TO BE OVERRUN WITH ANIMALS THIS YEAR, NOT FOR THE NEXT 18 MONTHS IN FACT. BUT STILL PRETTY GOOD PRICES, AS YOU SAY, FOR THESE CALVES, AND I WOULD START TO GET THEM PRICED.

Pearson: LET'S TALK ABOUT THE HOG MARKET. IT'S BEEN KIND OF A DISMAL STORY. A LITTLE BIT OF AN UP TREND THIS WEEK. CAN YOU GIVE SOME HELP OUT THERE TO THESE PORK PRODUCERS?

Hjort: FOR THE NEXT MONTH OR SO, YES. AND THERE MIGHT BE SOME HEDGING OPPORTUNITIES, I THINK, WITHIN THAT TIME. ON FRIDAY WE FINALLY TOOK FUTURES PRICE, THE NEARBY FUTURES, UP ABOVE THE RECENT RESISTANCE LEVELS. IT OPENS THE DOOR FOR ANOTHER, OH, $2 TO $3 RALLY IN THESE CONTRACTS. AND I THINK IF YOU GET UP IN THAT AREA, YOU SHOULD SERIOUSLY BE LOOKING AT SOME HEDGING OPPORTUNITIES. WE'RE LOOKING AT CASH HOG PRICES ALSO HAVE BEEN COMING UP NICELY, MIXED, DEPENDING ON WHERE YOU'RE AT, BUT THEY HAVE BEEN COMING UP EVER SINCE THE DECEMBER LOWS -- EARLY DECEMBER LOWS. BUT AS YOU LOOK AT THAT WHOLE MARKET, PROBABLY ANOTHER MONTH OF FAIRLY STRONG PRICES, STEADY TO A LITTLE HIGHER. AND THEN WE'LL SEE THAT PRICE STARTING TO SLIP DOWN A LITTLE BIT FOR A MONTH OR SO, THEN TURN AND COME BACK UP FOR THE SUMMER MARKETS. SO BE CAREFUL. DON'T TAKE YOUR HOGS AT TOO HEAVY A LEVEL. GET THEM MARKETED WHEN THEY'RE FINISHED.

Pearson: GOOD POINT. DOUG HJORT, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE FURTHER REFLECTION FROM DOUG 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'LL EXAMINE AN AMBITIOUS EFFORT TO BRING STABILITY TO FLUID MILK PRICES WITHOUT GOVERNMENT INTRUSION. 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