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Market Analysis: Dec 26, 2003

posted on December 26, 2003


The discovery of the first U.S. case of Mad Cow Disease made a profound impact on the cattle markets this week, while a correlating trend was noted in the grain pits as well.

On Christmas Eve, when this program was taped, the nearby wheat futures contract was off 31 1/4 cents from the previous week's close. March corn was down 13 1/2.

In the soy complex, prospects for increased exports to China, are being offset by estimates of a slightly larger crop in Brazil. On Wednesday, nearby beans closed off a nickel, while January meal was up $5.40 per ton.

Cotton prices declined by 14-cents giving back some of last week's rally.

In livestock, the cattle markets declined sharply on news of Mad Cow Disease in the U.S. January Cattle opened and closed down the limit... as did the January feeder contract. The lean hog contract declined by $2.10.

In the financials, Comex gold lost 3.10 cents an ounce. The Euro gained 61 basis points against the dollar. And the CRB Index gained more 6.25 closing at 253.25 on Wednesday.

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

Market Analysis: Dec 26, 2003

Robinson: HELLO, MARK. HAPPY HOLIDAYS.

Pearson: HAPPY HOLIDAYS INDEED. CATTLEMEN ARE NOT EXPERIENCING THE HAPPY HOLIDAYS AS THEY'D HAD REALLY FOR MOST OF 2003. LET'S TALK ABOUT THIS FED CATTLE MARKET. OBVIOUSLY THE CASE OF MAD COW, FOREIGN IMPORTERS ARE NOW SAYING THEY AREN'T GOING TO USE U.S. BEEF. CERTAINLY A SLOWDOWN IN DEMAND THERE. IN U.S. CONSUMERS, IT REMAINS TO BE SEEN. WHAT'S AHEAD IN THIS FED CATTLE MARKET?

Robinson: WELL, MARK, THE FOREIGNERS -- THE IMPORTERS YOU MENTIONED, TEMPORARY BANS. I THINK OUR LEARNING EXPERIENCE FROM BOTH THE EUROPEANS AND THE CANADIANS WILL SERVE US WELL IN THIS ISSUE -- TO ADDRESS THIS ISSUE. I THINK OUR EDUCATIONAL EFFORT IS UNDERWAY, WILL CONTINUE. I THINK IT WILL BE SUPPLEMENTED BY SOME VERY SOLID SCIENCE. AND IN A RELATIVELY BRIEF TIME, I'M OF THE OPINION CONSUMER CONFIDENCE WILL AGAIN SURFACE AND BEEF DEMAND WILL AGAIN, I THINK, BE RELATIVELY STRONG, MARK, AS WE HEAD INTO THE FIRST QUARTER OF 2004. NOW, HAVING SAID THAT, WE ALL UNDERSTAND THAT THE LAST FEW MONTHS, CATTLE PLACED ON FEED HAVE INCREASED PRETTY SIGNIFICANTLY. SO PRIOR TO THIS NEAR-TERM SETBACK, PRICE PROJECTIONS, MARK, EACH OF THE FIRST, SECOND, AND THIRD QUARTERS OF 2004 WERE PROGRESSIVELY LESS IN VALUE. SO WE HAVE THAT IN TERMS OF A FUNDAMENTAL FACTOR. HOW LONG THIS PROBLEM PERSISTS AGAIN, MARK, IN MY OPINION, IS AN UNKNOWN. BUT AS MENTIONED EARLIER, I THINK WE'RE PREPARED. I THINK WE'LL HANDLE IT FAR MORE EFFECTIVELY THAN EITHER OF OUR TWO PREDECESSORS HAVE.

Pearson: AND NEAR TERM, THERE WILL BE A LOT OF MEDIA HYSTERIA AROUND THIS, BUT ONCE WE GET PAST THAT, VIRGIL, I MEAN BASED ON NORMAL DEMAND AND CONSUMPTION, AGAIN, HOPEFULLY A TEMPORARY SITUATION WITH OUR OVERSEAS BUYERS. WHERE DO YOU THINK WE SHOULD START LOOKING FOR PRICE?

Robinson: YOU KNOW, DEMAND, MARK -- YOU MENTIONED DEMAND IN NOVEMBER OF '03; OUR RETAIL BEEF PRICES AVERAGED ABOUT A DOLLAR HIGHER THAN THEY DID IN 2002, AND DEMAND JUST CONTINUED TO BLOSSOM. SO AGAIN, MARK, I THINK ONCE THE CONSUMER, HE OR SHE, IS SATISFIED THAT SCIENTIFICALLY WE'VE ADDRESSED THIS PROBLEM, WE'VE PREPARED FOR THIS PROBLEM, WE HAVE EMPLOYED A STRATEGY TO MANAGE THIS PROBLEM, I SEE DEMAND AGAIN SURFACING AND BEING RELATIVELY STRONG FOR THE FORESEEABLE FUTURE.

Pearson: TALKED TO A LOT OF COW/CALF PRODUCERS TODAY. AND, OF COURSE, THEIR CONCERN IS A LOT OF THEM ARE BRINGING CALVES IN AFTER THE FIRST OF THE YEAR, AND THEY'RE AFRAID THEY'RE GOING TO GET CLOBBERED FOR PRICE.

Robinson: WELL, NEARTERM-WISE, THAT'S PROBABLY CORRECT, MARK. BUT, AGAIN, IF OUR OPINION OF HOW THIS WILL BE HANDLED, HOW THIS WILL BE MANAGED AND RECEIVED BY CONSUMERS HERE IN THE UNITED STATES, AND THEN I THINK EQUALLY AS IMPORTANTLY WITH THE JAPANESE, WITH THE SOUTH KOREANS, SOME OF OUR SOLID IMPORT CUSTOMERS, I THINK AGAIN, MARK, THIS IS A RELATIVELY SHORT TERM AS MEASURED BY THE EUROPEAN EXPERIENCE AND THE CANADIAN EXPERIENCE PROBLEM.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET, WHICH I THOUGHT MIGHT SEE A LITTLE BIT OF A BUMP HERE, BECAUSE WE MIGHT SEE A SHIFT FROM BEEF TO PORK. IT HASN'T HAPPENED SHORT TERM.

Robinson: AND THAT MAY STILL YET OCCUR, MARK. AGAIN DEMAND, IN THE MONTH OF NOVEMBER, JUST CONCLUDED, RETAIL PORK PRICES WERE UP ON AVERAGE ABOUT 5 PERCENT -- 5 PERCENT VERSUS 2002, DESPITE THE FACT THAT PORK PRODUCTION WAS 2 TO 3 PERCENT LARGER. DEMAND FOR PORK IS VERY STRONG. OUR PROBLEM REMAINS A SUPPLY SITUATION, WHERE SUPPLIES REALLY DATING BACK TO THE FALL OF THIS YEAR HAVE EXCEEDED WHAT WAS PROJECTED BY THE USDA. THERE WILL BE ANOTHER QUARTERLY HOG AND PIG CROP REPORT DECEMBER 30, MARK. SHORTLY THEREAFTER, I THINK WE CAN LOOK FORWARD TO LIVE WEIGHTS BEGINNING TO DECLINE, WHICH IS KIND OF A SEASONAL TENDENCY AND SLAUGHTER NUMBERS ALSO TO DECLINE. I THINK HOG PRICES WILL IMPROVE THE FIRST QUARTER AND THE SECOND QUARTER OF 2004. THE NUMBER I WOULD LIKE TO PROTECT, I GUESS, AND PROJECT HERE THIS EVENING, WOULD BE SOMETHING NEAR $40 LIVE FIRST QUARTER OF 2004. A LITTLE STRONGER THAN THAT THE SECOND QUARTER OF 2004.

Pearson: GOOD IMPROVEMENT OVER 2003.

Robinson: YES, SIR.

Pearson: VIRGIL, LET'S TALK ABOUT SOYBEANS. AND, OF COURSE, WE'RE ALL TYING BACK TO THIS CATTLE MARKET. THE SOYBEANS, A WILD DAY WEDNESDAY, WHEN THE MAD COW SITUATION FIRST WAS ANNOUNCED. WHAT'S THIS TELLING US ABOUT THIS BEAN MARKET? WE COULD SEE INCREASED BEAN MEAL DEMAND. WE TALKED ABOUT THAT EARLIER IN THE SHOW.

Robinson: IF, MARK, AS THE TALK EVOLVED ON WEDNESDAY AFTERNOON, ALL RUMINANT DERIVED FEED -- AND THAT WOULD CALCULATE TO SOMETHING PERHAPS NEAR THREE MILLION METRIC TONS HERE IN THE U.S. -- IF THAT WERE TO BE REPLACED WITH VEGETABLE PROTEIN, IDEALLY SOYBEAN MEAL, IT WOULD MEAN, MARK, WE'D HAVE TO CRUSH SOMEWHERE IN THE VICINITY OF 70 TO 90 MILLION ADDITIONAL BUSHELS OF BEANS TO PRODUCE THAT MEAL. AND AS YOU WELL KNOW, WE'RE ONLY PROJECTING 120-MILLION-BUSHEL CARRYOUT THIS CROP YEAR, SO WE AREN'T IN A POSITION TO ACCOMMODATE THAT KIND OF MAJOR INFUSION OF NEW MEAL DEMAND, MARK, WITHOUT PRICES RISING. SO THIS IS A PHENOMENA THAT WILL REQUIRE TIME TO RESOLVE, BUT IT CERTAINLY UNDERPINNED AND CERTAINLY WAS BROUGHT TO THE ATTENTION OF TRADERS ON WEDNESDAY. AND BEAN PRICES, AFTER GAPPING LOWER, REVERSED AND CLOSED SHARPLY HIGHER, A VERY SOLID AND STRONG TECHNICAL INDICATION THAT PRICES WANT TO PUSH A LITTLE HIGHER.

Pearson: THE CORN MARKET. WE'RE GOING TO SEE IT PUSH HIGHER AS WE GET INTO 2004.

Robinson: WELL, CORN AGAIN, THE SITUATION WITH LIVE CATTLE IS A MAJOR FACTOR, MARK. BUT AGAIN, ETHANOL PRODUCTION JUST CONTINUES TO RAMP UP MONTH OVER MONTH. OUR EXPORT INSPECTION PACE, ABOUT 20 PERCENT AHEAD OF LAST YEAR. LAST WEEK WE INSPECTED 51 MILLION BUSHEL OF CORN FOR THE WEEK, THE BEST NUMBER WE'VE SEEN IN MANY, MANY MONTHS. DEMAND REMAINS VERY STRONG FOR CORN AND I THINK WILL CONTINUE TO REMAIN STRONG, MARK. THE MARKET REMAINS FEARFUL OF A COUPLE OF THINGS, A BIG SPECULATIVE LONG POSITION IN FUTURES AND THE ANTICIPATION THAT AS WE TURN THE CALENDAR INTO 2004, THE CASH MARKET IS GOING TO BE BURIED IN PRODUCT. BOTH OF THOSE REMAIN TO BE SEEN, IN MY OPINION. IF I WERE AN IMPORTER AND HAD BOUGHT NO CORN FOR THE FIRST QUARTER OF 2004, I WOULD DO SO BASED ON A MARCH CORN FUTURES CONTRACT OF AROUND $2.29, AND THAT'S ONLY A COUPLE, THREE CENTS FROM WHERE WE SETTLE TONIGHT. IF I'M A SELLER OF CORN FOR THE FIRST QUARTER OF 2004, I'D USE MARCH FUTURES, $2.42 OR HIGHER, TO MAKE THAT SALE.

Pearson: ALL RIGHT. GOOD POINTS. LET'S TALK ABOUT THE WHEAT MARKET. IT TOOK A BIG HIT THIS WHEAT, AT LEAST FOR OUR HOLIDAY SHORTENED WEEK TOOK A BIG HIT. BUT THE WHEAT MARKET, WE'VE HAD A RELATIVELY TIGHT SUPPLY. PRICES HAVE BEEN FAIRLY GOOD. WE WERE UP AROUND $3.90 OR BETTER. NOW WE'VE PULLED BACK. WHAT'S AHEAD ON WHEAT?

Robinson: MARK, WE'VE FOUND JUST RECENTLY SOME COMPETITION HAS SURFACED IN THE FORM OF AUSTRALIA AND CANADA. IT SHOULDN'T COME AS A MAJOR SURPRISE. BOTH RECOVERED IN PRODUCTION YEAR OVER YEAR AND ARE AGGRESSIVE IN TERMS OF MARKETING THAT PRODUCTION. MARK, I THINK OLD CROP WHEAT VALUES -- NOW WE'RE DEEP INTO THIS CROP YEAR -- WHEAT CROP YEAR, MARK, AND IT'S LIKELY WE'RE NOT GOING TO ATTAIN THE USDA'S TARGET. I'M TALKING ABOUT ALL WHEAT VARIETIES NOW, NOT ONE SPECIFIC. IF I'M A WHEAT PRODUCER AND I'M STILL HOLDING OLD CROP WHEAT, LAST YEAR'S CROP, MARK, I'D USE A RALLY BASIS MARCH FUTURES BACK INTO THE $3.65 TO $3.70 AREA, AND I WOULD COMPLETE MY SALES. I'D COMPLETE THEM. NEW CROP WHEAT I THINK IS IN KIND OF A TRADING RANGE HERE, PENDING THE HARD RED WINTER WHEAT CROP DEVELOPMENT HERE IN THE UNITED STATES. BUT I THINK $3.50 TO $3.70 IS GOING TO KIND OF CORRAL THOSE NEW CROP WHEAT PRICES FOR THE NEXT SEVERAL WEEKS. TOWARD $3.70, I WOULD MAKE A MINIMUM PRICE CONTRACT AT THE VERY LEAST. IF THAT IS NOT APPEALING TO OUR LISTENERS, THEN BEGIN YOUR CASH SALES, SOME PERCENTAGE, 15, 20, 25 PERCENT, AS THAT JULY CHICAGO WHEAT FUTURES CONTRACT APPROACHES THE $3.65 TO -70 AREA.

Pearson: ALL RIGHT. WELL, VIRGIL, LET'S TALK ABOUT THE COTTON MARKET. AGAIN, THIS HAS BEEN SUCH AN INTERESTING YEAR FOR COMMODITIES. AND CHINA DEMAND HAS BEEN A BIG PART OF WHAT'S BEEN HAPPENING IN COTTON. WHAT'S AHEAD NOW IN THIS COTTON TRADE?

Robinson: CHINA IS EVERYWHERE, MARK; AREN'T THEY? THE CORN MARKET FACTOR, WHEAT MARKET, AND COTTON. WORLD SUPPLIES ARE PROJECTED AT 32 MILLION BALES ENDING STOCKS, MARK, WHICH WOULD BE THE TIGHTEST SINCE '94-'95. U.S. INVENTORIES ARE PROJECTED AT A LITTLE OVER FOUR MILLION BALES THIS YEAR, WITH A STOCKS-TO-USE RATIO HERE IN THE STATES OF ABOUT 22 PERCENT. I THINK FUTURES HAVE ACCOUNTED FOR THAT TIGHTER SUPPLY. OLD CROP COTTON, AS MEASURED BY THE MARCH FUTURES CONTRACT, AS IT APPROACHES 72 TO 74, SELL IT. IF I'M A BUYER OF COTTON IN AND AROUND 64 TO -5 CENTS, I'M BUYING IT. NEW CROP COTTON, OCTOBER FUTURES, 67 CENTS. MINIMUM PRICE SALE, OR AT THE VERY LEAST, A 20-PERCENT NEW CROP COTTON SALE.

Pearson: EXCELLENT. VIRGIL ROBINSON, THANK YOU SO MUCH FOR BEING WITH US. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE MORE INFORMATION FROM VIRGIL ON WHERE THESE MARKETS ARE HEADED, THEN TREAT YOURSELF TO A VISIT TO "THE MARKET PLUS PAGE" ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE IMPACT OF MAD COW DISEASE IN THE U.S. AND OTHER ISSUES THAT ARE LIKELY TO DOMINATE THE RURAL AGENDA IN 2004. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


Tags: agriculture cattle commodity prices Mad Cow markets news