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Market Analysis: Jan 02, 2004

posted on January 2, 2004


In a week where the livestock pits were getting battered by Mad Cow news, grain and oilseed markets were recovering from the previous week's losses.

For the week, nearby Chicago wheat futures gained nearly 43 cents. The March corn contract was up by 17 1/2 cents.

Diminishing fears about feed usage helped pushed soybean prices higher. For the week, nearby beans gained nearly 33 cents. Soybean meal jumped $8.40 a ton.

March cotton also had a nice week and advanced by $3.92.

In livestock, nearby live cattle futures dropped $16.32 for the week. January feeders were off by $12.62. But the lean hog contract advanced $4.22

In financials, Comex gold gained another $3.80 an ounce. The Euro was up 152 basis points against the dollar. And the CRB Index gained three-and-a-half points for the week to close at 256.75.

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

Market Analysis: Jan 02, 2004

Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S GET RIGHT TO THE BEEF PRICE SITUATION. HAVE WE STABILIZED NOW, DOUG? WHERE ARE WE HEADED FROM HERE?

Hjort: IT'S PRETTY HARD TO SAY, THE WAY THE MARKETS HAVE BEEN ACTING AND THE TOTAL IMPACT OF THIS WHOLE THING. AS SEEN EARLIER IN THE SHOW, LOTS OF UNANSWERED QUESTIONS YET AS TO JUST WHERE ALL THIS IS GOING TO FALL OUT. BUT I DO THINK THAT MAYBE WE HAVE. WE'VE STABILIZED THE FUTURES MARKET AT LEAST TO THE POINT OF GETTING IT TO TRADE. DID THAT BY EXPANDING FUTURES LIMITS, OF COURSE, UNTIL THEY DID TRADE. BUT THAT'S A GOOD THING TO DO THAT, BECAUSE ONCE A MARKET STARTS TO TRADE, THEN YOU CAN TAKE YOUR MIND OFF FROM THAT BEING LOCK LIMIT DOWN EVERY DAY AND START THINKING ABOUT THE DEMAND SIDE OF THE EQUATION. AN ECONOMIC STUDY THAT I SAW WITHIN THE LAST WEEK SAID THAT IF OUR BEEF EXPORTS WERE CUT OFF FOR THE WHOLE YEAR, THAT WOULD PUT OUR CATTLE PRICES -- FED CATTLE PRICES DOWN IN THE LOW 70S. WELL, OF COURSE, WHEN THE MAD COW WAS DISCOVERED, WE WERE AT $92 AND DROPPED DOWN INTO THE -- SOMEWHERE IN THE HIGH 70S THIS WEEK. SO MAYBE WE ARE NEAR THE BOTTOM OF THIS THING. IF WE ARE, WE'LL PROBABLY BOUNCE IT UP A LITTLE BIT IF THE NEWS GETS A LITTLE BETTER, IN OTHER WORDS, PROVING THAT THIS COW WAS NOT BORN HERE AND THAT THERE IS NO COW BORN HERE IN THE UNITED STATES THAT HAS THE DISEASE. WE DON'T KNOW THAT FOR SURE YET, BUT IF THAT DOESN'T -- IF THAT DOESN'T SURFACE, THEN WE CAN PROBABLY SEE OUR CATTLE PRICES FIRMING A LITTLE BIT.

Pearson: IN TERMS OF PRODUCERS' OUTLOOK, I GUESS THE BEST ADVICE IS THE OLDEST; THAT'S CONTINUE TO STAY CURRENT.

Hjort: WELL, I THINK SO. I WAS TELLING MY CLIENTS THIS WEEK, DON'T SELL RIGHT NOW. LET'S GO INTO NEXT WEEK. NOW, I'VE BEEN ADVISING THEM STRONGLY TO SELL AT THE LIGHTEST POSSIBLE WEIGHTED, EVEN BEFORE THIS MAD COW THING HAPPENED BECAUSE, AS SHOWN EARLIER IN THE SHOW, PRICES HAVE STARTED TO COME DOWN A LITTLE BIT EVEN BEFORE THE MAD COW WAS DISCOVERED.

Pearson: ALL RIGHT. LET'S TALK ABOUT THESE COW/CALF OPERATORS OUT THERE. NOT ONLY FACING THIS YEAR'S CALF CROP SALES BUT ALSO NEXT YEAR'S CALF CROP SALES. ANY ADVICE FOR THEM?

Hjort: WELL, CERTAINLY DON'T GO OUT AND TRY TO DO ANY HEDGING OUT THERE IN THOSE NEW CROP MONTHS, IN OTHER WORDS, NOVEMBER 2004 AND SO ON. JUST WAIT THIS THING OUT. IT APPEARS THAT THE U.S. HAS JUMPED ON THIS IN GOOD SHAPE, TIMELY FASHION. MAYBE WE CAN GET THE MARKET STABILIZED. MOVING UP A LITTLE BIT, SO DON'T BE CONCERNED ABOUT SELLING NEXT YEAR'S CALF CROP AT ALL AT THIS TIME.

Pearson: ALL RIGHT. LET'S MOVE OVER TO THE POSITIVE SIDE OF THE MEAT SECTOR, AND THAT WAS THE HOG MARKET. WE DID SEE A LITTLE BIT OF AN INCREASE ON FUTURES THIS WEEK, BECAUSE A LOT OF US FEEL LONG OVERDUE.

Hjort: WELL, IT'S A CRAZY MARKET. WE HAD A NEGATIVE HOGS AND PIGS REPORT ON THURSDAY -- TUESDAY RATHER. THE MARKET WAS DOWN AS MUCH AS LIMIT ON WEDNESDAY, UP AS MUCH AS LIMIT ON FRIDAY. SO WHAT'S GOING ON? WELL, ONE OF THE THINGS IS THAT THE CASH MARKET RIGHT THROUGH THAT WHOLE THING HAS BOTTOMED OUT, TRYING TO MOVE A LITTLE HIGHER AND SO ON, HAS BEEN FOR OVER A MONTH. IT APPEARS THAT IT HAS PUT A BOTTOM IN FOR A SEASONAL BOTTOM AND WILL TRY TO MOVE HIGHER. HOWEVER, WE GET ON TOWARD SPRING AND THEN WE'RE GOING TO HAVE MORE HOGS COMING THAN WE HAD A YEAR AGO. SO I WOULDN'T LOOK FOR A BIG RALLY THIS WINTER, BUT I THINK CASH MARKETING PROBABLY DELAY THE SALES OF YOUR CASH HOGS JUST A LITTLE BIT HERE FOR THE NEXT MONTH OR SO AND THEN LOOK FOR SOME OPPORTUNITIES TO PUT ON SOME HEDGES FOR THE SPRING AND SUMMER MONTHS.

Pearson: LET'S GO OVER AND TALK ABOUT THE GRAINS, WHICH HAVEN'T GOT MUCH ATTENTION ON THE SHOW SO FAR, WHEAT MARKET IN PARTICULAR. THIS IS A DRAMATIC UPTURN IN THE WHEAT.

Hjort: IT REALLY WAS. TWO THINGS THAT HAPPENED THERE. NUMBER ONE, WHEAT PRICES HAVE DROPPED SO DRAMATICALLY OVER THE LAST, WHAT, MONTH OR SO, MUCH BELOW WHAT A FUNDAMENTAL ANALYSIS WOULD SUGGEST THEY SHOULD BE AT. THE SECOND THING WAS THAT WE GOT THE ANNOUNCEMENT FROM THIS CHINESE TRADE GROUP THAT THEY ARE GOING TO COME TO THE UNITED STATES AND THEY ARE INTENDING TO BUY SOME U.S. WHEAT. TRADERS GOT DISILLUSIONED THERE BECAUSE THE AUSTRALIANS AND THE CANADIANS HAVE BOTH SIGNED DEALS TO SELL WHEAT TO CHINA IN THE LAST TEN DAYS OR TWO WEEKS. BUT NOW IT LOOKS LIKE THE CHINESE ARE COMING. THEY PROBABLY WILL BUY. DON'T HAVE A DATE ON THAT WHEN THEY'RE COMING, BUT EARLY JANUARY, AND THAT WAS PART OF IT. AND THEN THE OTHER PART WAS THE MARKET WAS SO OVERSOLD THAT WE JUST GOT A WHOLE BUNCH OF BUYING. AND ON FRIDAY, NEW YEAR BUYING... FUTURES TRADERS HAD TAKEN THEIR PROFITS AT THE END OF THE YEAR, WANTED TO BE LONG THAT WHEAT MARKET, AND RAN IT UP AS MUCH AS LIMIT FOR A MOMENT OR TWO ON FRIDAY.

Pearson: WHAT'S AHEAD NOW FOR WHEAT?

Hjort: I THINK WE CAN RALLY BACK A LITTLE BIT, BUT WE'RE PROBABLY 20 CENTS OR SO AWAY FROM CONTRACT HIGHS. I THINK IT'S GOING TO BE ALMOST IMPOSSIBLE TO DRIVE THROUGH THAT UNTIL MAYBE THE MARCH PERIOD, AND THAT WOULD RELY ON HAVING WINDS BLOW AND DUST BLOWING IN THE WESTERN PLAINS HERE IN THE UNITED STATES.

Pearson: LET'S TALK ABOUT THE CORN MARKET, WHICH HAS REMAINED IN PRETTY DECENT SHAPE THROUGHOUT THE HARVEST SEASON, THROUGH THE START OF WINTER. NOW WE'RE INTO THE NEW YEAR. THERE'S AGAIN CONCERN. THERE'S GOOD DEMAND OUT THERE FOR CORN. WHAT'S AHEAD FOR CORN PRICES? WHAT ARE YOU TELLING CLIENTS?

Hjort: WELL, I THINK PRICES CAN GO UP FROM HERE, BASICALLY IN THE HIGH 240S, AROUND 250 IN THE FUTURES ON FRIDAY. WE HAD DROPPED THAT DOWN QUITE A BIT, PARTLY ON FEARS OF THE MAD COW THING, NOT KNOWING HOW THE BEEF DEMAND -- BEEF CALL FOR CORN WOULD BE AND SO ON. BUT WE'RE BACK. WE'RE RECOVERED, PARTLY ON THE HELP OF THE STRONG WHEAT MARKET. SO CORN HAS BEEN HOLDING IN, AS YOU SAY, SHOWING GOOD SOLID DEMAND, EVEN IN THE FACE OF ADVERSITY, AND THEN JUMPED QUICKLY HIGHER WHEN THE WHEAT MARKET HELPED IT MOVE UP. I THINK CORN PRICES CAN SLOWLY MOVE HIGHER, PROBABLY NO MORE THAN A FEW CENTS A WEEK, BUT I THINK THEY WILL MOVE HIGHER ON INTO THE SPRING AND EVEN INTO THE SUMMER PERHAPS. AND THAT WILL COME BECAUSE CHINA IS NOT GOING TO EXPORT AS MUCH CORN IN 2004 AS IT DID IN 2003, NOT NEARLY AS MUCH. AND THEY MIGHT EVEN BUY A LITTLE BIT OF CORN TO SHIP INTO THE SOUTHERN PART OF THE COUNTRY, TO WHERE IT MAKES MORE SENSE TO SHIP IT IN THERE THAN TO TRY TO RAIL IT OR BARGE IT DOWN FROM THE NORTHERN -- NORTHEASTERN PART OF THE COUNTRY WHERE MOST OF THEIR CORN IS RAISED. SO THE CORN MARKET LOOKS FAIRLY SOLID TO ME.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. AGAIN, IT'S BEEN A WILD RIDE ON BEANS; $8 SEEMS TO BE A REAL TOUGH AREA FOR THIS BEAN MARKET.

Hjort: I THOUGHT IT WAS AN INTERESTING THING. NOW, I'M BASICALLY A FUNDAMENTALIST, SO TURN ME LOOSE ON A CHART AND I GET KIND OF DANGEROUS, YOU KNOW. BUT FROM WHAT I KNOW ABOUT IT, WE MOVED SIDEWAYS IN ABOUT A 50-CENT BAND FOR A LONG TIME AND WE BROKE ABOVE THAT THIS WEEK. NOW, IN WE CAN MAINTAIN THAT, ONE MEASUREMENT IS THAT YOU'LL GO UP ABOUT WITH YOUR RANGE THAT YOU'VE BEEN IN. THAT'S ABOUT 50 CENTS A BUSHEL OR SO. SO THAT'S ONE TARGET. IF YOU DO ANOTHER MEASUREMENT, YOU RAISE THAT UP TO ABOUT A DOLLAR RALLY FROM HERE. NOW, THE FUNDAMENTALS SAY THAT WE SHOULD CERTAINLY GO HIGHER. WE'VE GOT TO GO HIGHER THAN WHERE WE'VE BEEN, BECAUSE WE HAVEN'T BEEN DOING ANY RATIONING SO FAR, AND WE'VE GOT TO RATION OUT 250- TO 300 MILLION BUSHELS OF BEANS BETWEEN NOW AND SUMMER, IN ORDER TO HAVE ANYTHING LEFT HERE IN THE UNITED STATES. SO, YES, I THINK PRICES ARE GOING HIGHER. WHETHER IT'S 50 CENTS, $1, $1.50, WHO KNOWS? EVERYBODY HAS GOT A TARGET OUT THERE. SOME OF THEM WAY UP THERE. BUT I DO THINK PRICES ARE GOING HIGHER. OTHER THAN JUST FOR CASH FLOW NEEDS HERE THE FIRST OF THE YEAR, I DON'T BELIEVE I'D BE SELLING VERY MANY SOYBEANS RIGHT NOW.

Pearson: DOUG, THERE'S SOME CONCERN ABOUT SOUTH AMERICA BEING ABLE TO DELIVER ON THOSE EARLY BEANS, THAT WE COULD HAVE A REAL SQUEEZE PLAY HERE AT THE END. IS THAT KIND OF YOUR TIMING, KIND OF MARCH/APRIL?

Hjort: WELL, THAT'S RIGHT, TWO TIME FRAMES. ONE WOULD BE THE FEBRUARY/MARCH PERIOD TO WHEN WE CAN REALLY SEE THAT OUR SUPPLY/DEMAND RELATIONSHIP IS JUST CRITICALLY, CRITICALLY TIGHT. AND THEN, LIKE YOU SAY, MAYBE SOME DELAY OUT OF SOUTH AMERICA. THE OTHER ONE WOULD BE COMING IN THE APRIL/MAY, MAYBE JUNE TIME FRAME WHEN, IF WE DON'T SLOW DOWN SOYBEAN USAGE HERE IN THE UNITED STATES, IT WILL BE CRYSTAL CLEAR THAT WE'RE GOING TO WIND UP WITH A NEGATIVE ENDING STOCK. SO HOWEVER -- WHENEVER THE MARKET DECIDES WHEN THEY SEE THAT AND BELIEVE IT, THAT'S WHEN WE'LL SEE THIS MARKET PRICE EXPLODE. IT COULD HAPPEN IN THE NEXT MONTH. IT MAY BE EVEN COMING THIS SPRING.

Pearson: LET'S TALK ABOUT COTTON; ALSO A BULLISH WEEK.

Hjort: YEAH, IT IS. AND THAT KIND OF GOES BACK TO CHINA TOO. THE HOPES THAT THIS TRADE BUYING MISSION THAT COMES HERE TO BUY WHEAT MIGHT POSSIBLY BE BUYING SOME COTTON AS WELL. NOW, THE WORLD SUPPLY DEMAND NUMBERS ON THE COTTON ARE OKAY. THEY'RE FRIENDLY; LET'S CALL IT THAT. SO I THINK THE COTTON PRICES CAN MOVE HIGHER BUT, BOY, THAT'S BEEN A WILD RIDE UP AND DOWN IN VERY VOLATILE TRADING FOR SOME TIME.

Pearson: I WANT TO BRING IT BACK TO THE LIVESTOCK PRODUCER JUST THIS LAST THIRTY SECONDS, DOUG. YOU LOOK AT WHAT COULD HAPPEN POTENTIALLY WITH CORN WITH THE TIGHTNESS THERE, BOTH POTENTIALLY WITH SOYBEANS. WE'VE SEEN A BIG MOVE IN BEAN MEAL WITH THE MEAT AND BONE MEAL FEEDING REGULATIONS, SO WHAT -- FROM A PRODUCER STANDPOINT, SHOULD WE BE COVERING FEED NEEDS?

Hjort: WELL, I THINK SO, TO A CERTAIN DEGREE. THE MEAL THING IS SOMETHING THAT COULD COME BACK AND HAUNT YOU BECAUSE MEAL PRICES ARE AT A PRETTY HIGH LEVEL NOW. IF THE FDA DOES NOT PREVENT FEEDING OF ALL BONE MEAL AND MEAT MEAL, EVEN TO HOGS AND POULTRY, I THINK SOYBEAN MEAL PRICES ALL BY THEMSELVES -- OBVIOUSLY IF SOYBEAN PRICES GO HIGHER, MEAL WILL GO WITH IT, AND I THINK THAT MIGHT HAPPEN. BUT IF WE COME BACK DOWN, THOSE SOYBEAN PRICES ARE OVERPRICED RIGHT AT THE PRESENT TIME.

Pearson: DOUG HJORT, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM DOUG ON THESE UNCERTAIN MARKETS AND WHERE THEY 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 livestock Mad Cow markets news