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Market Analysis: Dec 12, 2003

posted on December 12, 2003


As mentioned, this week's USDA crop report contained no major changes. Still, some traders fretted over signs of weakness in the wheat pits.

Friday was the final day of trading on both the nearby wheat and corn futures contracts. For the week, December wheat lost more than 10 cents. But December corn gained more than eight cents.

The rapid pace of usage continues to support the soybean market. For the week, the nearby bean contract was up nearly 16 cents. Soybean meal gained $5.30 a ton.

March cotton, the new nearby contract, dropped $1.18.

In livestock, live cattle futures were off $3.32. January feeders lost $3.75. But the lean hog contract was up another 80 cents.

In financials, Comex gold gained $3.00 an ounce. The Euro extended its record gains and, for the week, advanced 137 basis points against the dollar. And the CRB Index surged nearly six more points to close the week at 261.75.

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

Market Analysis: Dec 12, 2003

Brugler: GREAT TO BE HERE.

Pearson: WELL, LET'S TALK FIRST ABOUT THIS WHEAT MARKET. AGAIN, THE USDA REPORT WAS, I DON'T WANT TO CALL IT A YAWNER BECAUSE THERE WAS SOME STUFF IN THERE THAT ANALYSTS LIKE YOU HAVE BEEN WAITING TO SEE, BUT IN TERMS OF BIG MARKET MOVEMENT, WE REALLY DIDN'T SEE A HUGE REACTION.

Brugler: NO, THERE WASN'T A LOT THERE. YOU HAD A LITTLE BIT OF AN INCREASE IN THE WORLD ENDING STOCKS ESTIMATE. WE GOT HIGHER PRODUCTION FROM AUSTRALIA. WE HAD A LITTLE BIT MORE IN BRAZIL, EASTERN EUROPE. IT ADDED UP TO A LITTLE BIT MORE THAN WHAT THE TRADE HAD ANTICIPATED ON THE WORLD SIDE. U.S. WISE WE CUT THE ENDING STOCKS BY 25 MILLION BUSHELS, WHICH IS ABOUT WHAT THE AVERAGE TRADE GUESS IMPLIED. SO I THINK IT WAS MORE JUST A SITUATION OF PROFIT TAKING. WE'D HAD A PRETTY GOOD RUNUP GOING INTO THE REPORT. YOU HAD A LITTLE DISAPPOINTMENT THAT THERE WASN'T MORE BULLISH NEWS IN THERE. WE HAD TO RUN IT BACK DOWN A LITTLE BIT.

Pearson: ALL RIGHT. IN WHEAT, DO YOU THINK THAT'S THE CASE, WE JUST RUN THINGS BACK DOWN A LITTLE BIT OR SHOULD WE SEE THINGS IMPROVE BY NOW?

Brugler: WELL, SEASONALLY THE LAST TWO WEEKS OF DECEMBER AREN'T A REAL STRONG TIME FOR WHEAT, IF YOU LOOK AT THE MARCH CONTRACTS. YOU TEND TO GET A LITTLE BIT OF A PICK-UP AFTER THE FIRST OF THE YEAR, BUT THIS IS A TOUGH TIME TO HOLD THOSE GAINS. SO I GUESS I WOULDN'T BE SURPRISED TO SEE A LITTLE BIT MORE SOFTNESS IN THE NEXT WEEK OR TWO, AND THEN WE'LL TURN AROUND AND LOOK AT THAT WORLD SITUATION AGAIN AS WE GET TOWARDS THE FIRST OF THE YEAR.

Pearson: ALL RIGHT. NOT A TIME OF THE YEAR TO BE MAKING SALES.

Brugler: WE BASICALLY INCREASED OUR SALES HERE THIS WEEK BECAUSE OF THE RALLY THAT WE HAD BUT WE'VE STILL GOT SOME WE'RE HOLDING BACK.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE CORN MARKET. AGAIN, NO HUGE SURPRISES, REALLY, DISAPPOINTMENTS OR ANYTHING TO ENCOURAGE US FROM THE USDA REPORT. AS YOU LOOK AT WHAT'S GOING ON WITH CORN, I KEEP HEARING LONGER TERM THERE'S GOING TO BE BETTER OPPORTUNITIES TO SELL CORN. PEOPLE ARE SAYING LET'S HOLD ONTO IT. WHAT'S YOUR TAKE ON THE CORN MARKET?

Brugler: WELL, THERE'S NO QUESTION THAT THE PRODUCERS ARE BULLISH ON CORN. THE GENERAL SCENARIO HAS BEEN SELL YOUR CASH BEANS AND STORE YOUR CORN. AND WE'RE SEEING A RALLY IN THE NEARBYS, IN THE DECEMBER CONTRACT THAT JUST EXPIRED AND IN THE MARCHES BECAUSE WE'RE HAVING TROUBLE BUYING ENOUGH CORN TO MEET THE EXPORT PROGRAM. EXPORT SALES ARE PRETTY GOOD. WE'RE RUNNING ABOUT 25 PERCENT AHEAD OF A YEAR AGO RIGHT NOW, AND THAT'S DRIVING THE MARKET GRADUALLY HIGHER. I THINK THE BIG QUESTION IS, IN FACT, IS CHINA REALLY GOING TO BE OUT IN THE MARKET AFTER THE FIRST OF THE YEAR AND FOR HOW LONG WILL THEY BE OUT OF THE MARKET. THE USDA RAISED THE EXPORT SALES BY 50 MILLION BUSHELS IN THIS LAST REPORT, BUT THERE'S TALK THAT IT COULD BE ANOTHER 150 TO 200 MILLION BUSHELS IF CHINA WERE TO STAY CLEAR OUT OF THE MARKET FROM JANUARY TILL THE END OF THE CROP YEAR.

Pearson: WE STILL HAVE PLENTY OF SUPPLY, CORRECT? CARRYOVER-WISE, WHAT, A BILLION BUSHELS?

Brugler: WE HAD A RECORD CROP. WE HAD AN 11-BILLION-PLUS SUPPLY GOING INTO -- AT THE END OF HARVEST. AND WE'RE STILL GOING TO HAVE 7 OR 8 BILLION BUSHELS AT THE FIRST QUARTER. SO PLENTY OF CORN OUT THERE. THE BIG QUESTION IS CAN THE MARKET GET AT IT OR IS IT KIND OF SOCKED AWAY AND PRODUCERS ARE HOLDING OUT FOR A LITTLE HIGHER PRICES.

Pearson: OKAY. STRATEGY-WISE, DO YOU GO ALONG WITH THAT, SELLING THE CASH BEANS AND HOLDING ONTO THE CORN?

Brugler: WELL, I THINK TO A DEGREE YOU HAVE TO. I'M NOT TOTALLY CONVINCED BEANS ARE DONE GOING UP. BUT WE'VE GOT TO SELL SOMETHING FOR CASH FLOW PURPOSES. I THINK BASIS IS PROBABLY YOUR MAIN CONSIDERATION AND THE BASIS ON CORN RIGHT NOW IS NOT VERY GOOD. THE SOYBEAN BASIS, NATIONALLY, ISN'T VERY GOOD EITHER. IT'S 45 UNDER, OR AT LEAST IT WAS A COUPLE DAYS AGO. BUT I'M STARTING TO HEAR THAT THERE'S SOME TIGHT SPOTS DEVELOPING WHERE INDIVIDUAL CRUSH PLANTS ARE PUSHING THEIR BIDS. SO IN A SITUATION LIKE THAT, I MIGHT REWARD THE LOCALIZED DEMAND FOR THE GRAIN.

Pearson: ALL RIGHT. SO IN TERMS OF SOYBEANS, YOU STILL THINK WE HAVE SOME UPSIDE HERE.

Brugler: YEAH. I'M NOT NECESSARILY SAYING WE'RE GOING TO GET TO NEW HIGHS, BUT THE MARKET REFUSES TO BREAK. EVERY TIME WE GET AT A 15- OR 20- OR 25-CENT SELL-OFF, THEN WE TEND TO COME BACK. TECHNICALLY, WE DON'T HAVE ANY SELL SIGNALS YET ON THE WEEKLY OR MONTHLY CHARTS. I'LL ADMIT TO HAVING BOUGHT SOME PUTS BECAUSE OF SOME WEAKNESS IN THE JANUARY CHART, BUT THAT'S KIND OF BEEN A WASH. IT'S KIND OF GONE SIDEWAYS. SO I THINK THE MARKET IS STILL WAITING TO SEE HOW THE SOUTH AMERICAN CROP TURNS OUT. 98 PERCENT OF THE BRAZILIAN CROP IS PLANTED NOW, BUT WE DON'T HAVE MUCH OF AN INDICATION OF ANY YIELD PROBLEMS. EVERYBODY IS TALKING ABOUT ASIAN RUST, BUT WE REALLY DON'T HAVE A PROBLEM.

Pearson: YEAH, WE'VE HEARD ABOUT IT. WE'VE HEARD PEOPLE ARE TALKING ABOUT IT, AND WE'VE GOT A LONG WAY TO GO FOR THIS BRAZILIAN CROP.

Brugler: YEAH, BASICALLY YOU'LL SEE JUST A LITTLE BIT OF HARVEST AT THE END OF JANUARY, EARLY FEBRUARY, BECAUSE THEY'VE GOT SOME VALLEYS THAT KIND OF HAVE MICROCLIMATES THAT FAVOR THAT EARLY HARVEST. BUT ONE BEARISH FACTOR THAT KIND OF KICKED UP THIS WEEK WAS THE BRAZILIAN FEDERAL COURT OKAYING THE SOYBEAN SHIPMENTS. IN OTHER WORDS, THEY OVERRULED THE LAW IN PARANA, THE STATE THAT WAS SAYING YOU COULDN'T SHIP GMO BEANS OUT OF PARANAGUA, WHICH IS THE BIGGEST PORT. THAT KIND OF REMOVED THE BOTTLENECK. SOME OF THE BULLS HAVE BEEN EXPECTING A BIG SQUEEZE COMING UP IN FEBRUARY AND MARCH BECAUSE OF HAVING TO INSPECT EVERY TRUCKLOAD THAT CAME INTO THE STATE TO SEE IF IT WAS GMO. THAT APPEARS TO HAVE BEEN TAKEN AWAY AS AN OBSTACLE NOW.

Pearson: OKAY. SO IN TERMS OF SOYBEAN PRODUCERS HERE IN THE U.S. WHO ARE WATCHING THIS BRAZILIAN SITUATION, WE REALLY HAVE NO CARRY IN THIS MARKET. IT SEEMS TO ME, IT'S A PRETTY HARD ARGUMENT TO HANG ONTO BEANS, LIKE I SAY, DEPENDING ON WHAT YOUR BASIS SITUATION IS.

Brugler: YEAH. I THINK IF THE BASIS IS GOOD, YOU CERTAINLY HAVE A PRETTY GOOD PRICE COMPARED TO THE LAST COUPLE YEARS, AND YOU'VE GOT TO ASK YOURSELF HOW FAR AM I WILLING TO HOLD THIS AND AT WHAT POINT DO I GIVE UP. I THINK THE BEST APPROACH IS PROBABLY TO DRAW A LINE IN THE SAND AND SAY, "IF IT GOES BELOW THIS PRICE, I'M OUT, I'M GONE, I'LL FINISH MY SALES." YOU KNOW, WE DO HAVE TO REMEMBER THAT WE ONLY HAVE 125-MILLION BUSHEL CARRYOUT. THAT'S A PRETTY HIGHLY LEVERAGED MARKET. WE'VE GOT A GOOD OPPORTUNITY FOR ANOTHER POP UP IF THERE'S JUST ANY LITTLE DISRUPTION ON THE SUPPLY SIDE OR ANY UNUSUAL DEMAND THAT JUST POPS UP OUT OF NOWHERE.

Pearson: OR WEATHER PROBLEMS, LIKE YOU SAY, IN SOUTH AMERICA COULD DRIVE SOME OF THAT CONCERN. LET'S TALK ABOUT THE COTTON MARKET. COTTON AGAIN HAS BEEN AN INTERESTING ONE TO WATCH THIS YEAR. THEY ALL HAVE BEEN INTERESTING, COTTON IN PARTICULAR. CHINA, AGAIN, A KEY PLAYER IN THAT ONE.

Brugler: YEAH. THE MARKET GOT AHEAD OF ITSELF, I THINK. WE HAD A HUGE FUND LONG POSITION. WE HAD VERY ACTIVE CHINESE BUYING, KIND OF A PERFECT STORM. TOOK IT UP TO 84 CENTS A POUND, AND THEN ALL OF A SUDDEN WE HAD A RECORD LARGE EXPORT SALES WEEK. THE MARKET HAD WHAT'S CALLED A KEY REVERSAL DOWN, TECHNICALLY, AND THAT PANICKED A LOT OF THE FUNDS. THEY'VE BEEN LIQUIDATING EVERY SINCE. I THINK THE BULL ARGUMENT THERE IS CHINA HASN'T GONE AWAY. THEY STILL NEED A LOT OF COTTON. THEY'RE STILL BUYING SOME BUT, ESSENTIALLY, THEY'RE TRYING TO SHIP ALL THE STUFF THEY ALREADY COMMITTED TO. AND I THINK THE FUNDS HAVE NOT ACTUALLY GOTTEN OUT OF THEIR ENTIRE LONG POSITION. THEY'VE REDUCED IT BUT THEY'RE STILL THERE. SO THAT TELLS YOU THEIR BIAS IS STILL TOWARDS ANOTHER BOUNCE HERE. THE QUESTION IS AT WHAT POINT DO WE START.

Pearson: YOU MAKE SALES IN HERE?

Brugler: I WOULD NOT MAKE ANY SALES RIGHT HERE. WE'VE ALREADY SOLD 50 PERCENT OF OUR CASH COTTON. WE'VE GOT SOME SHORT HEDGES ON BUT COULD BE PERSUADED TO LIFT THOSE AND TAKE OUR PROFITS IF WE SEE JUST A LITTLE MORE UPTICK IN DEMAND. THE EXPORT SALES NUMBERS HAVE GONE DOWN IN THE LAST COUPLE WEEKS AT RELATIVELY NORMAL LEVELS. AND WHAT WE'RE LOOKING FOR IS SOME EVIDENCE THAT THE CHINESE ARE COMING IN FOR THE NEXT ROUND.

Pearson: WELL, OF COURSE, THEY'RE IN THE COUNTRY NOW SO WE'LL SEE WHAT ALL HAPPENS WITH THE CHINESE TRADE. LET'S TALK DOMESTIC, THIS BEEF MARKET. THE FED CATTLE MARKET HAS BEEN SO STRONG. WE'RE STILL OVER A BUCK IN SOME INSTANCES. FED CATTLE MARKET, THE FIRST QUARTER OF 2004, WHAT DO YOU THINK IS GOING TO HAPPEN?

Brugler: WELL, THE MARKET IS LABORING A LITTLE BIT RIGHT NOW, AND IT'S BECAUSE OF THE CONSUMER DEMAND SIDE. THE BOXED BEEF HAS COME DOWN SOMEWHAT. WE'RE HAVING TROUBLE MOVING THE BEEF, IT LOOKS TO ME. THE PACKERS ARE TRYING TO CUT THE KILLS TO SUPPORT THE WHOLESALE MARKET. AND WHENEVER THEY CAN, THEY BID LOWER FOR THE CATTLE. THIS WEEK WE SAW A PRETTY WEAK CASH CATTLE TRADE OUT IN THE COUNTRY, AS MUCH AS $4 LOWER IN SOME CASES. AFTER THE FIRST OF THE YEAR, YOUR BEEF DEMAND TENDS TO IMPROVE A LITTLE BIT. YOU GET PAST THE HOLIDAY PERIOD WHERE WE'RE DOING ALL THE TURKEYS AND THE HAMS, AND YOU START TO SEE WHAT'S HISTORICALLY A PRETTY GOOD FUTURES PERIOD FOR THE CATTLE. I AM CONCERNED THAT SOME OF THE LONGER TERM CHARTS ARE ROLLING OVER. THERE'S SOME INDICATION THAT THE HUGE SPECULATIVE LONG POSITION IS STARTING TO COME OUT -- CERTAINLY OUT OF THE DECEMBER CONTRACT. WE'LL HAVE TO SEE AFTER THE FIRST OF THE YEAR IF THEY WANT CLEAR OUT OR IF THEY'RE JUST KIND OF READJUSTING THEIR POSITIONS.

Pearson: ALL RIGHT. THIS CALF MARKET HAS BEEN, OF COURSE, FASCINATING AS WELL. WE'VE BEEN TRYING TO PULL CATTLE IN. THIS FEEDER MARKET HAS BEEN RELATIVELY STRONG. THE BOARD, ON BOTH FED CATTLE AND FEEDERS THIS WEEK, REALLY SOFTENED UP A LOT. SOMEWHAT SURPRISING. WHAT DO YOU THINK IS AHEAD ON THESE FEEDERS. OBVIOUSLY IT'S HARD TO MAKE THEM WORK.

Brugler: YEAH, THAT'S THE BIG PROBLEM. THE FEED LOTS ARE BEING VERY RATIONAL, WHICH ISN'T ALWAYS THE CASE IN THIS KIND OF A MARKET, IN THAT THEY'RE NOT CHASING THEM. THE CASH FEEDER AUCTIONS WERE ALL DOWN $1 TO $3, $1 TO $4, $2 TO $4, DEPENDING ON WHICH LOCATION YOU WERE LOOKING AT. THE INTERESTING THING IS THE BOARD IS WAY BELOW THE CASH INDEX, THE CMA INDEX, AND SOMETHING HAS TO GIVE THERE. EITHER THE INDEX IS GOING TO COME DOWN SHARPLY OR THE BOARD IS GOING TO HAVE TO REBOUND.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET ALSO. AGAIN, IT'S BEEN SUCH A DISAPPOINTMENT IN 2004. WE HAD A NICE RALLY UP AND THEN LANGUISHED. WE'RE AT THE END OF THE YEAR, GOING INTO 2004. WHAT CAN YOU TELL PORK PRODUCERS?

Brugler: I THINK THE BIG PROBLEM IS WE'VE GOT TOO MANY HOGS. WE'RE KILLING TOO MANY HOGS. THOSE 2.1-MILLION-HEAD WEEKS ARE GOING ON LONGER THAN THEY SHOULD. WE'VE -- SOME OF THAT CAN BE BLAMED ON IMPORTS FROM CANADA, BUT WE'VE ALSO GOT SOME EXPANSION IN DOMESTIC PRODUCTION. THE PRICE IS STILL RELATIVELY GOOD IF YOU LOOK AT THE TONNAGE.

Pearson: ALL RIGHT. WELL, KEEP THAT IN MIND, PRODUCERS. THANKS VERY MUCH, ALAN BRUGLER. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET," BUT THERE'S MORE EXPERT ANALYSIS AVAILABLE AT THE "MARKET TO MARKET" WEB SITE. TO FIND IT, SIMPLY GO TO THE WEB ADDRESS ON YOUR SCREEN AND THEN VISIT THE "MARKET PLUS" PAGE FOR FURTHER INSIGHT FROM ALAN. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL LEARN HOW SOME ELEVATORS ARE COPING IN THE MULTITRACK WORLD OF IDENTITY PRESERVED GRAIN HANDLING. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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