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Market Analysis: Dec 19, 2003

posted on December 19, 2003


The holiday doldrums have settled over the markets, as even new word of Chinese buying had limited price impact.

For the week, the nearby wheat futures contract was up by less than a penny. March corn lost a little more than three cents. May corn was off 2ΒΌ.

Prices in the soy complex were dampened by estimates of a slightly larger than expected crop in Brazil. For the week, nearby beans were off by more than 11 cents. January meal was down $3.60 per ton.

A Friday rally took cotton prices higher by nearly a dollar for the week.

In livestock, December cattle were down $2.53. January feeders lost 33 cents. But the lean hog contract advanced $3.45.

In financials, Comex gold lost 20 cents an ounce. The Euro gained 93 basis points against the dollar. And the CRB Index lost more than two points to close the week at 259.50.

Here now to lend us their perspective on these and other market trends are two of our regular market analysts, Walt Hackney and Doug Jackson. Welcome back.

Market Analysis: Dec 19, 2003

Pearson:WALT, GOOD TO SEE YOU. DOUG, GOOD TO SEE YOU. LET'S TALK FIRST, DOUG, ABOUT WHAT'S HAPPENING IN THIS GRAIN MARKET. THE 390 PLUS ON CHICAGO WHEAT LOOKS FAIRLY ATTRACTIVE, BUT CAN WE SEE A RALLY FROM HERE OR SHOULD PEOPLE LOOK AT MAKING SALES?

Jackson: WELL, THE WHEAT MARKET, MARK, HAS BEEN KIND OF UNPREDICTABLY CHOPPY HERE IN THE LAST FEW WEEKS. WE'RE TRYING TO MAKE THE TRANSITION FROM OLD CROP TIGHTNESS TO THE ANTICIPATION OF A LARGER NEW CROP SITUATION. WE'RE DEBATING -- THE MARKET IS TRYING TO DEBATE JUST WHETHER EXPORTS ARE GOING TO EXCEED CURRENT USDA PROJECTIONS OR NOT. THEY'RE RUNNING PRETTY MUCH IN LINE. EARLIER THE MARKET HAD EXPECTED MUCH STRONGER EXPORTS, AND YET THIS WEEK WE HAD A MILLION TONS OF SALES. SO WE'RE IN THIS TRANSITION PHASE. WE HAVE SOME PRIVATE ANALYSTS PROJECTING A MUCH LARGER NEW CROP NEXT YEAR WHICH, OF COURSE, IS ANYBODY'S GUESS, GIVEN THE WIDE RANGE OF YIELDS WE'VE HAD IN THE LAST TWO YEARS AND UNPREDICTABLE WEATHER. BUT THE WHEAT MARKET SUSPECTS THAT WE CAN DRIFT LOWER LATER. AND SOME PRIVATE ANALYSTS ARE PROJECTING SHARPLY LOWER PRICES WITH GOOD WEATHER. IF THE WORLD PRODUCTION REBOUNDS, WHICH IS A BIG IF, WE CAN TO SEE A SURGE IN PRODUCTION NEXT YEAR THAT WOULD FIND EASTERN EUROPE EXPORTING AS WELL AS THE MAJOR CONVENTIONAL EXPORTERS AND CERTAINLY BE BEARISH. BUT THAT'S ALL IN THE FUTURE, WITH A LOT OF WEATHER QUESTIONS TO BE ANSWERED. BUT WE'RE PROBABLY IN THE PROCESS HERE OF SORT OF ROLLING OVER, PUTTING HIGHS IN FOR THE SEASON, LOOKING TO DRIFT LOWER LATER IN THE SEASON TOWARD SEASONAL HARVEST LOWS. SO THIS THING MAY NOT HAVE THE HIGH PRICED POTENTIAL THAT PEOPLE THOUGHT AT ONE TIME. PROBABLY ANY KIND OF SMALL RALLIES ON ONGOING EXPORT SALES ARE CHANCES TO LIGHTEN UP THIS OLD CROP INVENTORY.

Pearson: ALL RIGHT. TALK ABOUT THE CORN MARKET, DOUG, FOR THOSE OUT THERE WHO MAYBE HAVE NOT MADE SALES, ARE WAITING TILL AFTER THE FIRST OF THE YEAR. THERE'S A LITTLE BIT OF CARRY THERE. WHAT'S YOUR OUTLOOK FOR CORN?

Jackson: MARK, I THINK THE CORN MARKET HERE, ASSUMING THAT WE DON'T GET A MAJOR PRODUCTION SURPRISE IN THE JANUARY 12 FINAL PRODUCTION REPORT, IS REALLY PROBABLY A DOWN 10, UP 10 ITEM. NOT REAL EXCITING. PLENTY OF INVENTORY. STOCKS BUILDING A LITTLE THIS YEAR BUT NOT AS MUCH AS WE THOUGHT, BUT ONE THAT MAY JUST -- THE FUNDS ARE HEAVILY LONG HERE, WHICH IS A LITTLE BIT OF A PROBLEM. BUT WITH WHAT ELSE IS GOING ON IN THE OTHER GRAINS, THAT MAY BE ABLE TO BE MAINTAINED. THE INTERESTING ASPECT HERE, THOUGH, IS THE NEW CROP CORN. IT DOESN'T TAKE ANY IMAGINATION AT ALL TO PROJECT A 10.4, 10.5, WE EVEN SEE SOME 10.6-BILLION-BUSHEL RECORD DEMAND PROJECTIONS FOR NEXT YEAR. THAT'S ASSUMING INCREASED ETHANOL USAGE AND LESS EXPORTS OUT OF CHINA. THAT'S GOING TO MAKE IT MANDATORY THAT WE HAVE A RECORD CROP, A RECORD YIELD. AND ANYTHING OTHER THAN THAT, THE STOCKS GO DOWN. THAT'S GOING TO LIMIT THE DOWN SIDE. WE THINK NEW DECEMBER CORN IS CHEAP HERE. ANY KIND OF A WEATHER PROBLEM, REAL OR IMAGINED NEXT YEAR, AND IT EXPLODES TO THE UPSIDE, AND THAT HELPS HOLD THE OLD CROP HERE. SO REALLY, IF YOU'VE GOT A LOT OF PATIENCE, A LOT OF ABILITY TO HOLD THAT INVENTORY, DON'T NEED THE MONEY, PLENTY OF STORAGE, WE'D HOLD IT FOR A LONG-TERM PERSPECTIVE THAT WE THINK IS VERY OPTIMISTIC, EXPLOSIVE WITH ANY KIND OF WEATHER PROBLEM. BUT THE KEY HERE WOULD BE PATIENCE. IF YOU NEED MONEY IN THE SHORT TERM, NEED TO MAKE SALES, AGAIN, A SMALL RALLY OF ANY KIND, 3 TO 5 CENTS, IS PROBABLY GOING TO BE MET WITH GOOD FARMER SELLING, UNLESS YOU WANT TO MAKE A BET AGAIN ON THAT JANUARY 12 CROP REPORT.

Pearson: OKAY. SO YOU'RE DEFINITELY IN THE SALES MODE, BUT JUST WHENEVER THAT MARKET GIVES US AN UPTURN.

Jackson: SMALL RALLIES ARE MEANT TO BE SOLD IN THE SHORT RUN BUT, AGAIN, BULLISH LONG TERM.

Pearson: HOW WOULD YOU DO THAT, DOUG?

Jackson: I BELIEVE JUST HOLD THE PHYSICAL INVENTORY. AGAIN, OF COURSE, WE COULD REPLACE IT WITH FUTURES IF WE NEED TO SECURE THAT CASH. WE ACTUALLY HAVE AN OPPORTUNITY TO DO THAT, MARK WITH JULY FUTURES, ABOUT 5 CENTS OVER THE NEW DECEMBER. YOU CAN SELL THAT CASH NOW AND BUY THAT NEW DECEMBER FUTURES, REPLACE THAT OWNERSHIP AT A DISCOUNT. AND OUR HISTORICAL STUDIES SUGGEST THAT BY SUMMER THAT JULY SHOULD DRIFT UNDER THE DECEMBER, WHICH WOULD MAKE OWNING THAT DECEMBER EVEN MORE VALUABLE, MORE WORTHWHILE TO LOOK AT RIGHT NOW.

Pearson: LET'S TALK ABOUT THE SOYBEANS. AGAIN, A LITTLE BIT OF A DAMPENING, WE TALKED ABOUT THIS WEEK. WE ALSO MENTIONED THE HOLIDAYS ARE CERTAINLY PLAYING A FACTOR IN THIS MARKET. WHAT'S AHEAD FOR THE SOYBEAN MARKET? OBVIOUSLY A LITTLE BIT BIGGER NUMBER MAYBE IN BRAZIL.

Jackson: WELL, MARK, THE SOYBEAN SITUATION IS VERY COMPLEX, VERY INTERESTING. WE HAVE A DIAMETRICALLY OPPOSED SET OF CIRCUMSTANCES WHERE THE UNITED STATES IS LITERALLY ON A GLIDE PATH TO RUN OUT OF BEANS AT THE END OF THE YEAR. STOCKS IN MARCH THIS COMING SPRING WILL BE AT TWENTY-YEAR LOWS. SIMULTANEOUSLY ON THE FIRST OF MARCH, ASSUMING THE WEATHER STAYS RELATIVELY GOOD IN SOUTH AMERICA, WE'LL HAVE RECORD EVER SUPPLIES IN THE WESTERN HEMISPHERE. WE'LL HAVE 120 MILLION TONS OF BEANS IN THE WESTERN HEMISPHERE. WE'LL HAVE MORE BEANS IN THE WESTERN HEMISPHERE ON MARCH THAN WE DID IN SEPTEMBER. SO WHILE MANY MARKET OBSERVERS ARE VERY BULLISH, VERY OPTIMISTIC, WE'RE ACTUALLY MOVING FROM A PERIOD OF TIME WHEN WE HAD LESS BEANS TO MORE BEANS. THE PROBLEM IS THEY'RE NOT IN THE UNITED STATES, AND THAT'S WHERE THE FUTURES MARKET IS. THE MARKET IS TRYING TO DECIDE HERE WHETHER RECORD SUPPLIES IN SOUTH AMERICA CAN OFFSET SHORTAGES IN THE UNITED STATES OR NOT. SOME PEOPLE THINK THEY CAN. SOME PEOPLE THINK THEY CAN'T. SOME PEOPLE THINK THEY CAN SHIP 12 MILLION MORE TONS OR 20 PERCENT MORE THAN THEY DID A YEAR AGO FROM MARCH TO AUGUST TO OFFSET OUR SHORTAGE, AND OTHER PEOPLE DON'T. IT'S GOING TO BE FASCINATING. YOU HAVE PEOPLE OUT THERE THAT THINK $10 BEANS ARE IN THE CARDS. YOU HAVE OTHER MAJOR COMMERCIALS THAT THINK THE THING IS OVER WITH AND WILL DRIFT LOWER TO REFLECT THESE HUGE WESTERN SUPPLIES. WE THINK IT'S GOING TO BE VERY DIFFICULT FOR SOUTH AMERICA TO SHIP ENOUGH FAST ENOUGH TO OFFSET OUR SHORTAGES HERE. IT'S GOING TO KEEP THIS BEAN MARKET SCARED TO DEATH ALL YEAR LONG. FUNDS ARE HEAVILY LONG BUT THEY MAY HOLD THAT LENGTH ALL THE WAY TO NEXT SPRING AND SUMMER TO SEE IF SOUTH AMERICA CAN SHIP THOSE BEANS. WE'D PROBABLY HOLD INVENTORY TO BET THAT SOUTH AMERICA CAN'T SHIP ENOUGH FAST ENOUGH, BUT IT COULD BE VERY VOLATILE AND VERY CHOPPY. AND THE MARKET DID NOT PERFORM WELL FRIDAY AFTER WE HAD 1.1 MILLION TONS OF NEW SALES ANNOUNCED TO CHINA AND WE WERE ONLY UP A FEW CENTS. CASH MARKETS ARE VERY WEAK AND YET CHINA IS BUYING FOR POSSIBLY POLITICAL REASONS. THE MARKET HAD TROUBLE DIGESTING WHAT THAT REALLY MEANT ON FRIDAY.

Pearson: ALL RIGHT. WELL, IT'S GOING TO BE AN INTERESTING SCENARIO IN SOYBEANS AS WE GO FORWARD. AGAIN, PHYSICAL INVENTORY, YOU'RE SAYING.

Jackson: WE'D HOLD ON FOR THAT. JUST HOLD THAT CASH INVENTORY FOR THAT PROBLEM IN SOUTH AMERICA.

Pearson: ALL RIGHT. LET'S MOVE OVER TO THE LIVESTOCK BUSINESS AND LET'S TALK ABOUT CERTAINLY ANOTHER WILD ONE THAT'S BEEN INFLUENCED BY POLITICAL EVENTS. THE FED-CATTLE MARKET, WALT, AS YOU LOOK OVER THIS -- THIS IS GOING TO GO DOWN AS A HISTORIC YEAR IN THE FED-CATTLE BUSINESS.

Hackney: WELL, THERE'S NO QUESTION THAT WHEN YOU GET AN ALL-TIME HISTORIC VALUE ON BEEF CUTOUT, ALL-TIME HISTORIC LIVE CATTLE VALUES, NEAR HISTORIC FEEDER CATTLE PRICES, THEN, OF COURSE, YOU'VE GOT A POPULATION OUT HERE THAT ARE IN PRODUCTION THAT ARE POSSIBLY OVERBULLISH ABOUT THE FUTURE. RIGHT NOW WE HAD THE CATTLE ON FEED TODAY. IT DIDN'T UNDULY SURPRISE ANYONE. I THOUGHT THERE WAS A FAVORABLE APPROACH ON THAT, WHICH WAS IN THE MARKETING. YOU KNOW, THEY WERE ANTICIPATING THAT MARKETING DOWN TO 83 PERCENT. IT CAME IN AT 89. NOW, GIVEN ANY OTHER CONDITIONS, THAT WOULD HAVE BEEN AN EXTREMELY BULLISH FIGURE. I THINK WE FEEL THAT THE PACKER IS GOING TO HAVE HIS WAY WITH THIS CATTLE MARKET ON THE NEARBY UNTIL PROBABLY THE MIDDLE OF JANUARY. WE THINK THAT IF NO OTHER REASON THAN THE RETAIL IS GOING TO CURTAIL EXTRAORDINARY VOLUME IN THEIR SALES. WE THINK THAT PORK IS IN AN EXCELLENT POSITION TO BE FEATURED AND A COMPETITOR, AND SO WE DON'T BELIEVE THAT BEEF OR LIVE CATTLE ARE GOING TO NECESSARILY GO BEYOND THIS 91 OR -2 LEVEL THAT WE'RE LOOKING AT TODAY. NOW, WE'VE TAKEN A SIGNIFICANT DROP FROM $1.15, AND THEN WE WENT TO $1.10. NOW WE'RE AT 91 CENTS ON THESE LIVE CATTLE. UNDER ANY OTHER CONDITIONS, THAT WOULD BE A PHENOMENAL LOSS TO THE CATTLEMEN. IRONICALLY AT 91 CENTS, MANY OF THESE CATTLE ARE STILL MAKING VERY GOOD MONEY NET PROFIT FOR THE PRODUCERS. BUT RIGHT AROUND THE CORNER AS WE GET INTO THE FIRST QUARTER, WE HAVE MANY OF THESE HIGH PRICED YEARLINGS THAT WERE BOUGHT LAST SUMMER, THIS PAST MIDSUMMER THAT WILL BE COMING READY IN, OH, THE MIDDLE OF THE FIRST QUARTER. A LOT OF THOSE CATTLE, MARK, HAVE GOT A 91, -2 CENT BREAK-EVEN ON THEM. SO IF WE MIGRATE DOWN SOMETHING BELOW 90 CENTS, WE COULD PUT THIS CATTLE MARKET AND THE PRODUCERS IN A LOSS POSITION.

Pearson: LET'S TALK ABOUT THE -- YOU MENTIONED THIS CALF MARKET. THIS FEEDER MARKET HAS BEEN VERY STRONG. A LOT OF COW/CALF FOLKS WATCHING THE SHOW, AND SOME OF THEM ARE STARTING TO CALVE OUT IN THE SAND HILLS.

Hackney: THEY ARE. THEY'RE ACTUALLY GATHERING THE HEIFERS. THEY'RE PUSHING THEM IN CLOSER TO THE MIDDLE IN THE CALVING BARNS, PREPARING TO START CALVING IN JANUARY AND EARLY FEBRUARY, WHICH WOULD BE FAIRLY HISTORICAL. THIS FEEDER MARKET IS ALMOST TOTALLY DEPENDENT ON THAT COW HERD. AND WE SAW THE EFFECTS OF FEWER YEARLING CATTLE THIS PAST YEAR. WELL, WE'RE GOING TO SEE MORE OF THAT THIS COMING YEAR. THE WHEAT PASTURE COUNTRY IN THE SOUTHWEST HAS HAD A GOOD GO OF IT THIS YEAR. THEY'VE HAD DECENT MOISTURE, SOME AREAS A LITTLE DROUGHTIER THAN OTHERS. BUT THE CATTLE ARE GOING TO COME OFF, AS USUAL, IN MARCH. THE HIGHER PRICED WHEAT IS GOING TO STOP ANY OF THAT GRAZE-OUT, SO THOSE GUYS ARE GOING TO DELIVER CATTLE BY THE 10TH OF MARCH. IN THAT REGARD, WE'RE GOING TO SEE LIGHTER CATTLE, WHICH WOULD BE NATURAL. SO YOU'RE GOING TO HAVE FEWER FEEDERS, THE SAME SCENARIO OF FEWER FEEDER CATTLE, AND OUR COW HERD IS STILL TWO YEARS AWAY FROM A GROWTH FACTOR THAT WILL INFLUENCE CALF PRICE.

Pearson: ALL RIGHT. SO PRETTY DECENT TIMES AHEAD FOR THAT COW/CALF GUY. WHAT ABOUT THIS HOG GUY, WALT?

Hackney: THE HOG MARKET RIGHT NOW HAS BEEN A LOST LEADER FOR THE PRODUCER FOR NEARLY TWO YEARS. THERE'S NOTHING IN THAT MARKET AS WE SPEAK THAT WOULD CAUSE US TO HAVE A LOT OF OPTIMISM ABOUT THE FUTURE OF CASH FOR THE NEXT TWO OR THREE MONTHS AT A MINIMUM. WE'RE LOOKING AT HEAVIER HOGS BY 2.5 POUNDS THAN A YEAR AGO. WE'RE LOOKING AT 4 POUNDS HEAVIER ON HOGS IN SOME AREAS. SO THOSE AREN'T GOOD THINGS AND WE'RE KILLING OVER TWO MILLION HOGS A WEEK CONSISTENTLY FOR THE LAST TEN WEEKS.

Pearson: SO, AGAIN, IT LOOKS LIKE PROBLEMS STILL AHEAD FOR THE HOG INDUSTRY. WALTER, THANK YOU SO MUCH. DOUG JACKSON, THANK YOU. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE ADDITIONAL INFORMATION FROM WALT AND DOUG ON THESE ACTIVE MARKETS, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE'LL EXAMINE AN INNOVATIVE BRAND OF STEWARDSHIP THAT YIELDS BENEFITS FOR THE FARMER AND THE ENVIRONMENT. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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