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Market Analysis: Jan 23, 2004

posted on January 23, 2004


Fund buying and export news sustained the markets somewhat, although the trade was generally flat all week.

For the week, the nearby wheat futures contract lost more than 16 cents. Both March and May corn gained just over four cents.

Despite continued record usage, soybeans traded in a narrow range. For the week, March beans were up by 3 1/2 cents. Soybean meal gained $5.80 a ton.

March cotton was $1.22 higher.

In livestock, January cattle gained $4.10. January feeders edged up 95 cents. And the lean hog contract gained a dime.

In the financials, Comex gold rallied a whole dollar per ounce. The Euro shot up 225 basis points against the dollar. And the CRB Index advanced one point to close the week at 266.50.

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: Jan 23, 2004

Hackney: THANK YOU, MARK.

Pearson: WALT, DOUG, GOOD TO SEE YOU. DOUG, LET'S TALK A LITTLE BIT ABOUT WHAT'S AHEAD NOW FOR THIS CORN MARKET. PRODUCERS OUT THERE -- THERE'S STILL SOME CORN FROM 2003 THAT IS YET TO BE SOLD. WHAT WOULD YOU TELL A CORN PRODUCER THESE DAYS?

Jackson: WELL, MARK, WE THINK THE CORN MARKET LONG TERM HAS JUST INCREDIBLE FUNDAMENTALS. AND IT'S INTERESTING, REALLY, EVEN THOUGH WE CHARACTERIZE THE PRODUCER AS ALWAYS BEING BULLISH, THAT THE TRUTH IS THAT WE'VE ENCOUNTERED VERY HEAVY FARMER SELLING ON THIS RALLY THAT'S ENSUED AFTER THE GOVERNMENT REPORT TWO WEEKS AGO. AND IT'S ACTUALLY THAT HEAVY, PRONOUNCED FARMER SELLING THAT HAS BROKEN THE BASIS AND HAS REALLY TEMPERED THIS FLAT PRICE RALLY. SINCE THE MONDAY REPORT TWO WEEKS AGO WHERE THE USDA LOWERED THE CROP BY A RECORD AMOUNT FROM NOVEMBER TO JANUARY, WE'VE SEEN THE FUNDS BUY A HUNDRED THOUSAND CONTRACTS OF FUTURES, MARK. THEY NOW HAVE, WELL, CLOSE TO 200,000 LONG. ABOUT 185,000 LONG LATE IN THE WEEK; A RECORD LONG POSITION. BUT THAT'S BECAUSE THAT REPORT CHANGED THE FUNDAMENTALS SIGNIFICANTLY TWO WEEKS AGO AND WE THINK IS NOW SETTING US INTO A LONG-TERM TREND, MARK, WHERE, VERY SIMPLY, WE MAY HAVE A 10.4 TIGHT DEMAND BASE NEXT YEAR. SOMETHING ABOVE THE RECORD 10.2 RECORD DEMAND THIS YEAR. AND WITH NO MORE ADDITIONAL ACREAGE OR NO MORE SIGNIFICANT RANGE, WE'VE GOT TO HAVE A RECORD CROP. WE'VE GOT TO THINK WE HAVE A RECORD CROP ALL THE TIME. AND ANYTHING OTHER THAN THE ANTICIPATION OF A RECORD CROP AND A RECORD YIELD AND GOOD WEATHER, WE THINK THE ARITHMETIC ON THIS CORN SITUATION IS EXPLOSION TO THE UPSIDE.

Pearson: IT'S VERY EARLY BUT IT SEEMS LIKE WE HAVEN'T BOUGHT VERY MANY OF THOSE CORN ACRES OUT YET.

Jackson: WELL, THE PROBLEM IS WE HAVE HIGHER FERTILIZER PRICES. WE HAVE A BEAN MARKET THAT'S ALSO BULLISH, ATTEMPTING TO PULL ACREAGE TOWARDS THE SOYBEANS. AND SO WE'RE NOT EXPECTING A MAJOR SHIFT IN ACREAGE. IN FACT, WE HAD A PRIVATE ANALYST LAST WEEK ONLY ESTIMATE ACREAGE UP 300,000. BUT EVEN IF IT'S UP A MILLION -- AND TYPICALLY WE DON'T GET SHIFTS OF MORE THAN ONE TO TWO MILLION. EVEN IF IT'S UP A MILLION OR A MILLION AND A HALF, THAT DOESN'T REALLY CHANGE OUR CORN STORY LONGER TERM, WHICH IS THAT WITH LIMITED ACREAGE, DEMAND IS CATCHING UP WITH SUPPLY EVEN AT RECORD LEVELS NOW.

Pearson: SO YOU'RE NOT IN A HURRY TO SELL --

Jackson: SO WE'RE NOT IN A HURRY TO MAKE SALES HERE OF OLD CROP. ALTHOUGH THE OLD-CROP STORY IS NOT THAT EXCITING -- THE REAL DYNAMICS ARE IN THE NEW CROP -- WE'D BE VERY HESITANT TO MAKE NEW CROP SALES UNLESS WE'RE DOING IT WITH, LIKE, MINIMUM PRICE CONTRACTS, SOMETHING THAT ALLOWS US TO PARTICIPATE IN THIS UPSIDE THAT COULD BE FANTASTIC IF WE EVER HAVE JUST THE INNUENDO OF A WEATHER PROBLEM THIS SUMMER.

Pearson: ALL RIGHT. WELL, WE HAD A WEATHER PROBLEM LAST YEAR. IT DID AFFECT THE BEAN CROP. WE'RE SEEING THE FRUITS OF THAT IN TERMS OF PRICES. WHAT'S AHEAD FOR SOYBEANS? DEMAND CONTINUES TO BE STRONG.

Jackson: WELL, THAT'S EXACTLY RIGHT, MARK. YOU KNOW, THE BEAN MARKET IS SCARED OF ITS OWN SHADOW HERE. IT'S HIGH PRICED; WHEREAS, WITH THE CORN, WE MIGHT MAKE A CASE THAT THE DOWNSIDE IS PRETTY LIMITED. THE DOWNSIDE COULD BE SUBSTANTIAL, PARTICULARLY ON THE NEW CROP BEANS OVER A LENGTH OF TIME. WE COULD HAVE A VERY BEARISH OIL SEED SITUATION, YOU KNOW, SIX MONTHS TO A YEAR FROM NOW. WE HAVE A RECORD CROP IN SOUTH AMERICA OR CLOSE TO IT. WE HAVE GOOD WEATHER THERE. HARVEST IS BEGINNING. WE HAVE ABOUT THE SAME AMOUNT OF BEANS IN THE WESTERN HEMISPHERE TODAY AS WE DID A YEAR AGO, WHEN FUTURES WERE $2 CHEAPER. BUT WHAT WE HAVE ALSO IS A MAJOR, IN FACT, RECORD DISLOCATION OF INVENTORY. THE BEANS ARE IN SOUTH AMERICA. THE STOCKS IN THE UNITED STATES THIS SPRING WILL BE THE LOWEST IN TWENTY-TWO YEARS. HOW DO WE SHUT OFF DEMAND FAST ENOUGH NOW, AFTER A RECORD FIRST-HALF USAGE, TO END UP WITH ANY BEANS LEFT? WE HAVE PRIVATE ANALYSTS, MARK, SUGGESTING JULY FUTURES WILL GO TO $11 THIS YEAR. WE CERTAINLY HAVE PEOPLE PROJECTING SOMETHING WELL ABOVE THE 830-TYPE LEVELS WE'VE GOT TODAY. HOW ARE WE GOING TO CUT 10 MILLION TONS OR 300 MILLION BUSHELS OF DEMAND FROM THE U.S. IN THE NEXT SIX MONTHS? HOW WILL SOUTH AMERICA SHIP 25 PERCENT MORE BEANS AND PRODUCTS IN THE NEXT SIX MONTHS THAN THEY DID A YEAR AGO? THAT'S THE ARITHMETIC WE FACE. CAN WE DO IT? CAN SOUTH AMERICA SHIP THAT QUANTITY, A RECORD AMOUNT? I CAN'T PROVE OR DISPROVE THAT TO YOU, BUT WE HAVE SOME PEOPLE THINK THE UNITED STATES WILL RUN OUT OF BEANS LATER THIS YEAR AND THIS THING WILL STILL BE AN EXPLOSIVE SITUATION. BUT THE PROBLEM AT THE MOMENT IS THE FUNDS ARE RECORD LONG. WE'RE AT A RELATIVELY HIGH PRICE. THE MARKET IS GOING TO BE VERY CHOPPY, BUT WE COULD STILL SEE VOLATILITY OF THE UPSIDE. MY POSITION IS I'M GOING TO DARE SOUTH AMERICA TO SHIP THE QUANTITIES THEY NEED TO. IF THEY CAN'T SHIP 25 PERCENT MORE, WHICH IS MADE EVEN MORE DIFFICULT WITH THE OCEAN FREIGHT SITUATION TODAY, U.S. DEMAND COULD BE MUCH STRONGER THAN EXPECTED AND WE COULD RUN OUT AND PRICES COULD EXPLODE YET THIS YEAR.

Pearson: AND AGAIN, WE'RE TALKING OLD CROP BEANS.

Jackson: THIS IS OLD CROP THING. OF COURSE, THE NEW CROP BALANCE TABLE DOESN'T HAVE ROOM TO TOLERATE A WEATHER PROBLEM EITHER. WE'VE RUN OUT OF ACRES ENOUGH TO SATISFY ALL THREE DEMAND BASIS HERE. SO WITHOUT ANY BIG INCREASE IN BEAN ACRES, IF YOU HAVE A WEATHER PROBLEM, EVEN A MILD WEATHER PROBLEM NEXT YEAR, THE NOVEMBER FUTURES ARE A $7, $8 ITEM. SO THAT'S AN INTERESTING SITUATION LONG TERM, AND RIGHT NOW WE'RE TRYING TO FIGURE OUT THE OLD CROP BEAN SITUATION.

Pearson: ALL RIGHT. WELL, LET'S TALK REAL QUICK ABOUT THE WHEAT MARKET. WE HAD $4 IN CHICAGO. WE'VE KIND OF BEEN BACKING OFF. WHAT'S AHEAD FOR WHEAT?

Jackson: WELL, IF WE LOOK ACROSS THE SPECTRUM OF THE THREE MAJOR GRAINS, MARK, WE MIGHT MAKE A CASE, IF PUSHED, THAT THE WHEAT SITUATION IS LESS BULLISH. THE SEASONALS ARE STARTING TO TUG AT US HERE AS HARVEST IS IN THE FUTURE, BUT THE MARKET IS STILL VERY DELICATELY BALANCED EVEN IN THE WHEAT. WE WENT INTO THE WINTER WITH THE THIRD WORST CROP RATINGS ON WINTER WHEAT IN HISTORY. WE'VE GOT THE DRIEST NOVEMBER/DECEMBER/JANUARY -- SUMMER REPORTING IN OVER A HUNDRED YEARS IN KANSAS. SO IF THIS WEATHER SITUATION WITH THIS DROUGHT IN THE WESTERN UNITED STATES DOES NOT CHANGE, WE COULD STILL HAVE AN EXPLOSIVE WHEAT MARKET. BUT WE HAVE GOOD PROSPECTS IN SOME PARTS OF THE REST OF THE WORLD. THE MARKET KNOWS THAT THE UKRAINE AND RUSSIA COULD INCREASE SUPPLIES. WE JUST HAVE A LOT OF COMPETITION OF THE WHEAT. THE WHEAT CAN DRIFT 50 CENTS LOWER WITH RELATIVELY NORMAL WEATHER. WE MIGHT MAKE SOME SALES HERE BUT, AGAIN, WATCH THIS WESTERN DROUGHT.

Pearson: VERY GOOD. DOUG, LET'S MOVE OVER TO THE LIVESTOCK. AND, WALT, WE WANT TO TALK TO YOU ABOUT THE DROUGHT. I MEAN YOU'VE SEEN THE IMPACT OF THAT IN BIG PARTS OF THE COW COUNTRY IN THE HIGH PLAINS. ON TOP OF THAT, WE HAD THE BSE. WE'RE LOOKING AT A SMALL COW HERD AND HAVE BEEN. WE'VE SEEN A HUGE RECOVERY FROM THE INITIAL REACTION TO THE BSE OUTBREAK. WHAT'S AHEAD NOW FOR THIS FED CATTLE MARKET?

Hackney: MARK, AS THEY ANNOUNCED DECEMBER 23 THE BSE ISSUE, WE HAD, I GUESS YOU COULD SAY, AN INVERTED SPIKE IN OUR TRADE. CASH LITERALLY WENT TO 72 OR -3 CENTS A POUND FROM $1.05 A POUND LIVE WEIGHT. THAT WAS UNNECESSARY TO START WITH. THAT WAS A LOT OF PSYCHOLOGY. A LOT HAVE NEGATIVISM WENT INTO THAT TRADE. AND THERE WERE, UNFORTUNATELY, A LOT OF CATTLE FEEDERS GOT SWEPT UP IN THAT EMOTION. AS THAT HAS TRANSPIRED, WE FOUND THAT WE ARE ABLE TO CONTINUE WITH OUR DOMESTIC USAGE AND INCREASE IT. THE CONFIDENCE IN OUR BEEF IS HIGH AS MAYBE IT'S EVER BEEN. AND SO AS A RESULT OF THAT, WE'VE COME BACK FROM A LOW OF MAYBE 73 OR -4 CENTS BACK PRIOR TO THE FIRST OF THE YEAR, AND NOW WE'RE BACK UP TO $90. WE MAY BE AT A LEVEL THAT MAY NOT GO HIGHER. WE MIGHT NOT OUGHT TO GO HIGHER THAN 90 CENTS ON THESE CASH CATTLE; 85 MIGHT BE AN OPTIMUM LEVEL. WELL, WE'VE SWEPT THROUGH THAT THIS PAST WEEK. THERE ARE THOSE THAT THINK OUR INVENTORY IS SHORT ENOUGH. THEY FEEL OUR CATTLE ARE GREEN ENOUGH, IF YOU WILL, SHORT FED ENOUGH, THAT WE COULD EXCEED $90 CASH NEXT WEEK. I HAPPEN TO BE OF THE SCHOOL THAT HOPES THAT WE HOLD OUR MARKET SOMEWHERE IN THE HIGH 80S TO 90-CENT LEVEL.

Pearson: WALT, SHOULD YOU GET MORE AGGRESSIVE ON THE HEDGING FRONT RIGHT NOW IN THE EVENT OF PERHAPS ANOTHER EVENT?

Hackney: WELL, I'M NOT CRYING WOLF OVER EVENTS. I DIDN'T BELIEVE IN THE BSE ISSUE TO START WITH. I THOUGHT IT WAS OVERADVERTISED. I THOUGHT IT WAS OVERSTATED. I STILL BELIEVE THAT BUT WE'RE GOING TO SIMPLY RUN INTO MORE FED CATTLE WITHIN SIXTY DAYS. NOW, WHERE IS THAT MARKET GOING TO TAKE US? THE FUTURES SAY THAT WE'RE LOOKING AT SOMEWHERE IN THE LOW 70S. BREAK-EVENS CAN'T STAND THAT.

Pearson: THAT'S RIGHT. WALT, REAL QUICK ON THESE HOGS. IT'S BEEN A LONG PULL FOR THESE PORK PRODUCERS. HAVE YOU GOT ANY HOPE FOR THEM?

Hackney: I THINK THE CORPORATE HOG PRODUCTION IS IN MUCH BETTER SHAPE THAN THE INDEPENDENT HOG PRODUCTION. I THINK THAT THE GENERAL CONDITION OF CASH, AS WE LOOK INTO THE NEXT FOUR MONTHS, IS GOING TO BE TO A LOWER TRADE THAN WE'VE GOT RIGHT NOW.

Pearson: ALL RIGHT. WALT, AS USUAL, SOME GREAT INSIGHTS. WE APPRECIATE IT. WALT HACKNEY AND DOUG JACKSON, THANK YOU SO MUCH. OF COURSE, YOU CAN ALWAYS GET MORE ADVICE FROM WALT AND DOUG ON THESE VERY ACTIVE MARKETS AND WHERE THEY MAY BE HEADED BY VISITING OUR "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE A COOPERATIVE VENTURE THAT GIVES NORTHEASTERN DAIRYMEN A DAY OFF FROM WORK. 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