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Market Analysis: Jan 09, 2004

posted on January 9, 2004


Recent price trends reversed this week as the grain markets waited for Monday's USDA reports on ending stocks and revised 2003 crop totals.

Private forecasts on the new winter wheat crop spooked the nearby futures contract into a 20-cent loss for the week. March corn was off by two cents.

The bean market again failed to crack the $8.00 level and, in fact, the nearby contract retreated by more than two cents. January meal lost $4.80 a ton.

March cotton was off by 90 cents.

In livestock, the nearby live cattle contract gained $3.50. January feeders advanced $5.12. And the lean hog contract was down by $1.62

In financials, Comex gold jumped another $10.70 an ounce. The Euro continued its record advance and was up 223 basis points against the dollar. And the CRB Index soared more than 11 points to close the week at 268.25.

Here now to lend us his insight on these and the week's other market trends is one of our regular analysts, Tomm Pfitzenmaier. Welcome back.

Market Analysis: Jan 09, 2004

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT THIS BEEF MARKET TO START THINGS OFF. PEOPLE ARE STILL CONCERNED ABOUT MAD COW. NICE TURNAROUND ON FUTURES. ARE WE SEEING CASH PRODUCT GETTING CHEWED THROUGH OUT THERE?

Pfitzenmaier: I DON'T KNOW ABOUT THAT. I MEAN I DON'T THINK THE DOMESTIC SIDE OF THE BEEF MARKET IS A PROBLEM. AS A MATTER OF FACT, THE RETAILERS ARE STARTING TO FEATURE BEEF AGAIN, SO I THINK WE'RE GOING TO BE FINE ON THAT SIDE. EVERYBODY YOU TALK TO SAYS THAT PEOPLE HAVEN'T PANICKED OR ANYTHING DOMESTICALLY, BUT WE'VE GOT TO GET SOMETHING STRAIGHTENED OUT ON THIS -- BASICALLY IT'S THE JAPANESE COMING BACK IN AND BUYING BEEF AGAIN. YOU KNOW, THERE WAS RUMORS ALL WEEK WHERE THEY WERE GOING TO GET THAT DONE AND THEN THEY WEREN'T. AND I GUESS I'M -- I THINK IT'S GOING TO TAKE A WHILE TO GET THAT WORKED THROUGH. THEY'RE NOT JUST GOING TO JUMP RIGHT BACK IN HERE. I THINK THEY WERE TRYING TO MAYBE GET THE PUMP PRIMED A LITTLE BIT BY GETTING SOMETHING WORKED OUT WITH THE MEXICAN GOVERNMENT, AND THAT HASN'T HAPPENED YET EITHER. SO WE NEED TO GET THE EXPORT BUSINESS BACK BEFORE THE BEEF MARKET HAS GOT MUCH UP POTENTIAL. SO I GUESS I STILL THINK IT'S A SELL-THE-RALLIES KIND OF A MARKET. WE STILL HAVE THE POTENTIAL TO GO BACK AND RETEST THE LOWS THERE. IF WE HAVE ANOTHER OUTBREAK, WE'RE GOING TO TAKE THOSE LOWS OUT, SO I GUESS I'D STILL WANT TO BE PRETTY CAUTIOUS. GRANTED WE'VE HAD A DEAD-CAT BOUNCE. THAT'S NICE TO SEE SOME STABILITY IN THE MARKET. AND MAYBE IT HAS A LITTLE MORE UPSIDE TO IT, BUT I'D BE PRETTY CAUTIOUS ABOUT GETTING TOO EXCITED ABOUT THAT.

Pearson: ALL RIGHT. WHAT DO YOU TELL THE PRODUCER OUT THERE THAT MAYBE HAS SOME EXPENSIVE FEEDERS THAT'S GOING TO TRY TO FIND SOME WAY TO MAKE THOSE WORK?

Pfitzenmaier: WELL, I GUESS YOU SELL THE RALLIES AND IF YOU CAN GET A RALLY THAT GETS YOU TO THE POINT WHERE YOU CAN BREAK EVEN ON THEM, SO MUCH THE BETTER. YOU KNOW, THE OTHER PROBLEM, WE ALWAYS HAVE THIS IN A DOWN MARKET WHERE THE PRODUCER RESISTS SELLING, YOU START TO PUT WEIGHT ON, YOU START TO BUILD TONNAGE, AND THEN IT JUST SORT OF FALLS OVER ON ITSELF. NOW, THIS MAY BE A LITTLE DIFFERENT AND THE PEOPLE ARE SCARED. WHEN THEY'RE SCARED, THEY TEND TO STAY A LITTLE MORE CURRENT. BUT IF YOU START TO GET A LITTLE COMPLACENT AND THEY START TO PUT WEIGHT ON, THEN THE MARKET IS GOING TO STRUGGLE HERE.

Pearson: IT'S ALSO BEEN A PRETTY DECENT RECOVERY ON THESE FEEDER CATTLE?

Pfitzenmaier: OH, BOY. IF YOU WANT TO SEE A GROUP OF PEOPLE THAT ARE A RESILIENT, POSITIVE BUNCH, THAT'S THE GUYS THAT ARE OUT BUYING THOSE THINGS, BECAUSE WITHIN A WEEK THEY'RE RIGHT BACK OUT THERE BIDDING THEM BACK UP AGAIN. SO OBVIOUSLY, THERE'S SOME OPTIMISM STILL OUT IN THE COUNTRY. IF YOU CAN'T BUY THOSE FEEDERS AND LOCK SOMETHING IN, I'D BE PRETTY DARN NERVOUS ABOUT THAT BECAUSE OBVIOUSLY, IF SOME EVENT HAPPENS HERE, THERE IS DOWNSIDE POTENTIAL IN THE CATTLE MARKET. NOW, WE STILL HAVE CATTLE PRICES THAT ARE $2 OR $3 HIGHER THAN WE WERE A YEAR AGO, AND WE STARTED THIS BREAK FROM A FAIRLY HIGH LEVEL. BUT IF YOU'RE BUYING FEEDER CATTLE AND YOU'RE NOT PROTECTING THEM, IT'S A LITTLE HARD TO FEEL SORRY FOR THEM.

Pearson: AT THIS STAGE OF THE GAME, THE PORK PRODUCER IS SITTING OUT THERE AND HE'S BEEN WAITING FOR HIS MOMENT IN THE SUN, NOW, FOR QUITE A WHILE NOW. ARE WE HELPING OUT THE HOG SIDE HERE?

Pfitzenmaier: WELL, I GO BACK TO WHAT I SAID EARLIER. THE RETAILER IS STARTING TO FEATURE BEEF AGAIN, SO THAT'S GOING TO HURT THE PORK GUY. I MEAN THE DECEMBER HOGS WENT OFF THE BOARD AT $48.97, SOMETHING LIKE THAT. AND YOU'VE GOT FEBRUARY HOGS UP HERE IN THE MID $50S, AND WE'RE KILLING MORE HOGS NOW THAN WE WERE WHEN THE DECEMBER CONTRACT WENT OFF THE BOARD. IT LOOKS TO ME LIKE FEBRUARY IS STILL A LITTLE OVERPRICED, AND WE COULD GO BACK AND RETEST THE LOWS THERE. IF THE RETAILER STARTS FEATURING THE BEEF AT THE EXPENSE OF THE PORK, THAT'S NOT GOING TO BE HELPFUL TO THE PORK SIDE EITHER. NOW, MAYBE LATER IN THE YEAR, IF THE NUMBERS BACK OFF HERE, YOU'RE GOING TO BE FINE. BUT THIS FIRST QUARTER, MAYBE INTO THE SECOND QUARTER COULD BE A PROBLEM HERE FOR THE PORK.

Pearson: OKAY, MAYBE GET THESE RALLIES AND MAKE SOME SALES.

Pfitzenmaier: AGAIN, I THINK THE PORK MARKET, JUST LIKE THE BEEF, IS A SELL-THE-RALLIES KIND OF A MARKET. AND YOU GET A COUPLE BUCKS UP -- OR HERE TO A COUPLE BUCKS UP, AND I THINK YOU HAVE TO BE A SELLER. NOW, IF YOU THINK I'M CRAZY AND YOU THINK THAT'S A TERRIBLE IDEA, GO BUY YOURSELF A RELATIVELY INEXPENSIVE PUT AND AT LEAST BE ABLE TO SLEEP AT NIGHT.

Pearson: TALK ABOUT THE CORN MARKET. MAKE THESE CORN PRODUCERS -- HOW CAN THEY SLEEP BETTER AT NIGHT?

Pfitzenmaier: YOU KNOW, THAT'S KIND OF AN INTERESTING MARKET BECAUSE EVERYBODY IS -- EVERYBODY AND THEIR BROTHER IS LONG ON CORN. THE FUNDS HAVE A HUGE LONG CORN POSITION. THE FARMER IS SITTING ON CORN. EVERYBODY IS SURE THAT THE CARRYOUT IS GOING TO DROP SOME MORE, WHICH WE'LL FIND OUT MONDAY IF THAT KIND OF IS STARTING TO HAPPEN. AND CHINA IS GOING TO COME IN HERE AND SAVE US. AND THAT'S ABOUT THE ONLY THING THE CORN MARKET HAS GOT GOING FOR IT. IF WE CAN BREAK UP AND START TO MAKE NEW HIGHS, TAKE OUT THOSE MARCH HIGHS THAT WE PUT IN A WEEK OR SO AGO, THEN I THINK YOU'VE GOT A SHOT AT RUNNING MARCH CORN UP TO $2.70. IT WILL PROBABLY DRAG NEW CROP DECEMBER UP IN THAT $2.58 TO $2.60 LEVEL, AND I THINK AT THOSE POINTS, YOU NEED TO MAKE SOME SALES. BUT UNLESS THAT CHINESE BUSINESS SHOWS UP OR AN EXTRAORDINARY AMOUNT OF DEMAND SHOWS UP, THE CORN MARKET IS GOING TO STRUGGLE HERE.

Pearson: ALL RIGHT. WHAT ABOUT ON THE SOYBEANS? STILL A VERY TOUCH-AND-GO SITUATION.

Pfitzenmaier: THERE'S THREE THINGS THE SOYBEANS ARE DEPENDENT UPON. ONE IS THIS REPORT ON MONDAY MORNING. NUMBER TWO IS DEMAND FROM CHINA OR SOME OTHER PLACE IS GOING TO START TO SHOW UP TO BREAK US UP THROUGH THE TOPSIDE. AND THEN A LOT OF PEOPLE ARE HANGING THEIR HAT ON THIS RUST EVENT DOWN IN SOUTH AMERICA. UP TO THIS POINT, THE SOUTH AMERICAN CROP LOOKS VERY GOOD. RUST TENDS TO SHOW UP LATER IN THE -- LATER IN THE, YOU KNOW, PRODUCTION CYCLE, AND IT IS TREATABLE. AND SO UNLESS ONE OF THOSE THREE EVENTS TAKE PLACE -- I GUESS YOU COULD THROW A FOURTH ONE IN THERE. IF WE DO END UP BANNING LIVESTOCK PROTEINS, THAT WOULD BE ANOTHER BIG BOOST THAT COULD TAKE US UP THROUGH THE TOP. IT DOESN'T LOOK LIKELY THAT THAT'S GOING TO HAPPEN HERE, BUT YOU NEVER KNOW. BUT THOSE ARE THE THINGS THAT ARE SORT OF RATTLING AROUND IN THE MARKET. IF ANY OF THEM COME THROUGH, WE BUST UP, START TO MAKE NEW HIGHS, AND THEN I THINK YOU CAN TAKE BEANS UP AND MAKE A RUN AT $8.50, MAYBE $8.75.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE WHEAT MARKET, WHICH RAN INTO SOME HITS THIS WEEK PRIOR TO THIS USDA REPORT. WHAT'S YOUR TAKE ON WHEAT AND WHAT SHOULD WE BE DOING?

Pfitzenmaier: WHEAT UP AROUND $4 IS GOING TO STRUGGLE. I THINK WE CLOSED DOWN AROUND $3.85 ON FRIDAY SO, YOU KNOW, WE'RE KIND OF AT THE LOWER END OF THE RANGE, AND I WOULDN'T GET TOO NEGATIVE ON THAT MARKET THERE. BUT YOU GET UP AROUND $4 OR BREAK A LITTLE ABOVE THAT, THEN I THINK YOU HAVE TO BE A SELLER OF WHEAT. LIKE I SAID, I'M A LITTLE BEARISH ON THE CORN AND BEANS FROM THESE LEVELS UNLESS SOMETHING COMES ROARING IN HERE TO HELP US. AND WITHOUT THEM GOING ANYWHERE, THE WHEAT IS GOING TO STRUGGLE ALSO.

Pearson: HAVE WE GOT ENOUGH FEAR IN THESE GRAIN MARKETS THAT A LIVESTOCK PRODUCER SHOULD LOOK AT COVERING SOME FEED NEEDS IN HERE?

Pfitzenmaier: I THINK THEIR BIGGEST EXPOSURE, OR PROBABLY THEIR BIGGEST RISK, POTENTIALLY, IS ON THE MEAL SIDE. YOU KNOW, MEAL HAD A NICE LITTLE RUNUP WHEN WE THOUGHT WE WERE GOING TO BAN THOSE ANIMAL PROTEINS. NOW THAT THAT'S KIND OF GONE OUT OF THE MARKET, MEAL HAS FALLEN BACK AND I THINK YOU'RE GETTING IT BACK TO THE LEVEL WHERE YOU CAN PROBABLY STEP IN THERE AND GET YOURSELF A LITTLE BIT OF COVERAGE. I DON'T KNOW THAT I'D BE EXCITED ABOUT BUYING CORN HERE, BUT IF YOU DROP 10, 12, 15 CENTS FROM HERE, I'D CERTAINLY BE GETTING CORN COVERED THERE TOO.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE COTTON MARKET. AGAIN, IT'S BEEN VERY DEPENDENT ON CHINA AND WHAT'S BEEN GOING ON WORLDWIDE. WHAT'S AHEAD?

Pfitzenmaier: THAT'S IT, CHINA. WE'VE GOTTEN OURSELVES ALL EXCITED, BID THE PRICE UP BECAUSE OF EXCITEMENT OVER CHINESE BUSINESS, AND IT HASN'T COME THROUGH YET. SO EITHER WAY, YOU GET UP IN THAT $76 TO $80 LEVEL -- WE'RE KIND OF UP IN THERE NOW -- YOU HAVE TO BE A SELLER. THERE WILL BE VERY GOOD SUPPORT UNDER $70, I THINK. IF THE CHINESE COME THROUGH AND ACTUALLY START BUYING SOME PRODUCT, I DON'T KNOW. WE ANTICIPATED THAT SO IT MAKES YOU WONDER HOW MUCH THERE IS LEFT IN IT.

Pearson: ALL RIGHT. THIRTY SECONDS LEFT, TOMM. WE TALKED ABOUT CHINA AS BEING SUCH A CRITICAL PART OF THIS MARKET RIGHT NOW. THEY'RE VERY SAVVY TRADERS. WHAT'S YOUR TAKE, NOT JUST ON THE COTTON BUT AS YOU LOOK ACROSS THE BOARD?

Pfitzenmaier: WELL, SOMETIMES I FEEL WITH CHINA, I FEEL LIKE A FISH WITH A HOOK IN MY MOUTH BECAUSE WE TEND TO GET THE MARKET JERKED AROUND BY THEM. AND I GUESS I'D LIKE TO SEE SOMETHING ACTUALLY HAPPEN HERE, SOME ACTUAL BUYING TAKES PLACE, BEFORE I GET TOO EXCITED ABOUT CHINESE POTENTIAL HERE.

Pearson: VERY GOOD. TOMM PFITZENMAIER, THANK YOU SO MUCH FOR JOINING US. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM TOMM ON WHERE THESE UNCERTAIN MARKETS MAY BE HEADED, THEN BE SURE TO VISIT THE MARKET PLUS PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK AS WE CONTINUE TO TRACK THE FALLOUT OF MAD COW DISEASE IN THE U.S. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices Mad Cow markets news USDA