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Market Analysis: Nov 21, 2003

posted on November 21, 2003


Trade worries over a pullback in Chinese demand dominated the markets this week, as the grains saw a big sell-off.

For the week, the nearby wheat futures contract lost more than 22 cents. The December corn contract lost 4½ cents. March corn was off 5½ cents.

Soybean contracts retreated on speculation of weakening Chinese demand. Nearby beans lost 25 cents. The March contract was off by almost 23 cents. December meal lost $12.30 per ton.

December cotton plunged $7.30.

In livestock, November live cattle gained $1.15. Nearby feeders advanced by $1.38. The lean hog contract lost 50 cents.

In financials, Comex gold was $2.00 lower per ounce. The Euro gained 144 basis points against the dollar. And the CRB Index lost more than seven points to finish the week at 250.50.

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

Market Analysis: Nov 21, 2003

Pearson: WELL, TOMM, LET'S START OFF WITH THE WHEAT MARKET. AS YOU LOOK AT THIS, WE KEEP HEARING THAT WORLD DEMAND IS GOOD BUT WHEAT HAS BEEN SOFTENING UP HERE FOR THE LAST FEW WEEKS.

Pfitzenmaier: WELL, YEAH. WHEAT GOT VERY OVERSOLD. IT HAD A PRETTY BIG FUND POSITION IN THERE THAT'S FINALLY GETTING LIQUIDATED A LITTLE BIT. IT GOT CAUGHT UP IN THE SAME THING CORN AND BEANS DID THIS WEEK IN THIS TEXTILE MESS WITH THE CHINESE, AND I THINK THEY'LL USE THAT AS AN EXCUSE TO SELL. WHEN THE BEANS WENT DOWN HARD, IT TOOK THE WHEAT ALONG WITH IT. I THINK YOU HAVE TO BE A LITTLE ENCOURAGED BY HOW WELL WHEAT CAME BACK AT THE END OF THE WEEK. WE STILL HAVE A SITUATION OF A WEAK DOLLAR. WE STILL HAVE A SITUATION OF FAIRLY STRONG DEMAND WORLDWIDE, POORER CROPS ALL AROUND THE WORLD, AND THAT'S WITH BEING THE MAIN SUPPLIER. SO I THINK THE WHEAT MARKET IS GOING TO BE ALL RIGHT. WE PROBABLY DEFINED THE TRADING RANGE WITH THE LOW WE PUT IN THIS WEEK, DEFINING THE BOTTOM END, AND THAT HIGH WE PUT IN A WEEK OR SO AGO DEFINING THE UPPER END. PROBABLY THE NEXT SIX WEEKS GOING INTO THE HOLIDAYS, WE'LL PROBABLY CHOP AROUND IN THAT RANGE.

Pearson: OKAY. SO YOU'RE NOT REALLY EXPECTING ANY REAL BIG MOVES ONE WAY OR THE OTHER BETWEEN NOW AND CHRISTMAS?

Pfitzenmaier: NO, I'M NOT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE CORN MARKET. AGAIN, A RELATIVELY FLAT WEEK ON CORN. WE FINISHED MAYBE A NICKEL LOWER. BUT AS YOU LOOK LONGER TERM, IT SEEMS LIKE THERE SHOULD BE SOME BULLISHNESS IN THIS CORN MARKET. DO YOU AGREE?

Pfitzenmaier: WELL, THERE SHOULD BE. IT DEPENDS ON WHAT YOU WANT TO LOOK AT. IF YOU LOOK AT THESE WORLDWIDE NUMBERS, WHICH EVERYBODY HAS BEEN RUNNING AROUND TALKING ABOUT NOW FOR A MONTH AND A HALF, AND THAT'S WHAT PUT THAT 30 CENTS ON, AND YOU SAY, BOY, THE WORLD IS RUNNING OUT. WE NEED TO GO OUT AND BUY -- THEY'RE ALL GOING TO RUN OUT AND BUY U.S. CORN. WELL, MAYBE THEY ARE. MAYBE THEY'RE GOING TO JUST DO WITHOUT. THE USDA HAS TAKEN SOME OF THAT INTO ACCOUNT. WE STILL HAVE A 1.3 PLUS BILLION BUSHEL CARRYOUT. OKAY, SO THEY BUMP IT UP ANOTHER COUPLE HUNDRED AND WE'RE STILL OVER A BILLION BUSHEL CARRYOUT. SO THINGS ARE GOING TO HAVE TO RAMP UP QUITE A BIT HERE IN ORDER FOR US TO RUN OUT. YOU KNOW, THIS ENERGY BILL, IF THAT FALLS THROUGH, MAYBE THE ETHANOL ISN'T GOING TO GET PUSHED QUITE AS QUICKLY AS WE THOUGHT IT WAS GOING TO. CATTLE NUMBERS OBVIOUSLY ARE DOWN. SO I GUESS I'M NOT CONVINCED THAT THE CORN MARKET HAS TO NECESSARILY GO SHOOTING UP OUT OF HERE. I THINK IT'S GOING TO BE VERY DIFFICULT TO TAKE OUT THOSE HIGHS THAT WE PUT IN HERE A COUPLE WEEKS AGO ON THE CORN MARKET, UNLESS SOME REALLY PHENOMENAL DEMAND DOES SHOW UP HERE.

Pearson: SO AT THIS STAGE OF THE GAME, WHAT ARE YOU TELLING PRODUCERS?

Pfitzenmaier: I THINK YOU GET RALLIES BACK UP INTO THAT DIME TO 15 CENTS UP AGAINST THESE LEVELS. THEN I THINK YOU HAVE TO MAKE SOME SALES. CERTAINLY I DON'T THINK COMMERCIAL STORAGE IS GOING TO PAY, SO I GUESS I WOULDN'T STORE A CROP IN THE ELEVATOR AND PAY TO DO THAT. IF YOU'RE A FARMER WITH GRAIN STORAGE AND THAT'S ALL FILLED UP, THERE'S GOING CARRYING CHARGES IN THE MARKET. YOU KNOW, IF YOU GET THE JULY CONTRACT UP IN THE MID 250s TO POSSIBLY 260, I THINK YOU GO OUT AND SELL THAT CARRYING CHARGE AND TAKE ADVANTAGE OF IT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE BEANS. YOU MENTIONED THE TEXTILE SITUATION WITH CHINA. POTENTIALLY MAYBE SHIFTING SOME OF THEIR PURCHASES SOUTH. THIS SOYBEAN MARKET HAS BEEN STRONG. WE'VE SEEN QUITE A WEAKENING HERE.

Pfitzenmaier: AND THAT'S BEEN PREDICATED ON US DOING GOOD BUSINESS. NOW, IF THEY START SHIFTING AND USING THAT AS A WAY TO RETALIATE AGAINST US BY SHIFTING SOME DEMAND TO SOUTH AMERICA, THAT'S GOING TO HURT US A LITTLE BIT. AND ULTIMATELY THAT'S THE MARKET'S JOB IS TO KIND OF FIND THAT FINE POINT WHERE EVERYBODY IN THE WORLD FINDS ENOUGH SUPPLIES IN THE U.S. TO GET THEM THROUGH THAT MARCH/APRIL PERIOD, AND THEN SOUTH AMERICA KICKS IN AND FULFILLS THE REST OF THE NEEDS FOR THE YEAR. SO THAT'S WHAT THAT MARKET HAS BEEN WORKING ON DOING. WE GOT PRETTY WELL OVERBOUGHT, AND THAT WAS GETTING TO BE KIND OF A TIRED BULL AND NEEDS A CORRECTION ANYWAY. I THINK YOU COULD SEE THE FRONT MONTH OF JANUARY CONTRACT WORK ITS WAY BACK DOWN INTO THE 690 TO 710 AREA. IF IT GETS DOWN IN THAT AREA, THEN I THINK YOU CAN BUY IT AGAIN.

Pearson: OKAY. SO MAYBE LOOK AT IT FROM THAT STANDPOINT AS A PRODUCER.

Pfitzenmaier: WELL, AS A PRODUCER, THE MARKET HAS BEEN SCREAMING NOW FOR THREE MONTHS THEY WANT CASH, AND THEY DON'T CARE WHETHER YOU -- THEY'RE NOT GOING TO PAY YOU TO STORE IT. IF YOU LOOK AT EACH SUCCESSIVE MONTH, THERE'S AN INVERTED CARRYING CHARGE. AND THAT MARKET IS NOT TELLING YOU TO STORE YOUR SOYBEANS.

Pearson: ALL RIGHT. WELL, THERE'S YOUR TIP FOR THE WEEK. NOW LET'S TALK ABOUT COTTON. AGAIN, WITH THIS CHINESE SITUATION, A LOT OF CONCERN ABOUT THAT COMMODITY.

Pfitzenmaier: AGAIN, THE SAME SITUATION. THE MARKET WAS VERY OVERBOUGHT. FUNDS HAD A HUGE LONG POSITION. WE'RE COUNTING ON SOME PRETTY GOOD DEMAND, WHICH I GUESS I'M NOT SURE NECESSARILY THAT THIS TEXTILE MESS IS GOING TO HURT THAT DEMAND IN THE LONG RUN. YOU STILL -- WE HAVE THE DOLLAR SITUATION THAT'S PRETTY HELPFUL TO THE COTTON MARKET. BUT IT NEEDED A GOOD CORRECTION HERE, AND WE'RE IN THE PROCESS OF GETTING THAT. $60 WAS A VERY, VERY BIG RESISTANCE AREA ON THE WAY UP. I'M FAIRLY CONFIDENT THAT THAT'S PROBABLY GOING TO BE FAIRLY GOOD SUPPORT ON THE DOWN SIDE. SO, YOU KNOW, MAYBE THERE'S ANOTHER $7 OR $8 DOWN IN THE COTTON MARKET. BEYOND THAT, I THINK YOU'RE GOING TO FIND FAIRLY GOOD SUPPORT.

Pearson: LET'S TALK LIVESTOCK. YOU THOUGHT THERE WOULD BE SOME LEGS UNDER THIS CATTLE MARKET BACK IN AUGUST. NOW, ARE WE STARTING TO RUN OUT OF GAS THERE? IT'S BEEN A RELATIVELY GOOD WEEK.

Pfitzenmaier: THE FRONT END IS STILL GOING TO BE STRONG. WE HAD A CATTLE-ON-FEED REPORT OUT ON FRIDAY AFTERNOON. IT AGAIN SHOWS THAT THE FEEDLOTS ARE VERY CURRENT. THE WEIGHTS CONTINUE TO BE LOWER, SO I THINK THE FRONT END OF THE CATTLE IS IN GOOD SHAPE. THE CASH MARKET IS STILL AT A GOOD PREMIUM TO THE DECEMBER CONTRACT. THAT'S GOING TO SUPPORT THAT CONTRACT. HISTORICALLY, WHEN YOU PUT A BIG SPIKE IN THAT, YOU HAVE A PRETTY GOOD CORRECTION IN THE MARKET. AND THE INTERESTING THING ABOUT THIS MARKET IS THAT CORRECTION IS ALREADY FACTORED INTO THOSE DEFERRED CONTRACTS. SO THOSE DEFERREDS ALREADY HAVE A LOT OF THAT BUILT IN. THE CATTLE-ON-FEED REPORT THIS AFTERNOON SHOWED PLACEMENTS OF 116 PERCENT, BUT THE KEY TO THAT WAS THAT WERE LIGHT CATTLE. SO THOSE CATTLE AREN'T GOING TO BE COMING AT THE MARKET UNTIL LATE APRIL, THROUGH THAT JUNE PERIOD. SO IT SHOULD MAKE FOR FAIRLY GOOD MARKETS AS WE GO THROUGH THE WINTER. I GUESS I STILL THINK FEBRUARY IS PROBABLY A LITTLE OVERVALUED. IF YOU'RE GOING TO START DOING SOME HEDGING, TAKING SOME PRICING PROTECTION, I THINK YOU DO IT ON THAT FEBRUARY, APRIL CONTRACT. I'D STAY AWAY FROM THE DECEMBER.

Pearson: ALL RIGHT. FEEDER CATTLE HAVE REALLY SHOWN SOME STRENGTH TOO, BUT THERE'S ALSO BEEN SOME CONCERN ABOUT THIS CORN MARKET. NOT ONLY HAVE WE SEEN THAT PULL BACK SOME, DOES THIS FEEDER MARKET MAYBE HAVE SOME UPSIDE TO IT?

Pfitzenmaier: YEAH. WELL, IT'S GOING TO CONTINUE TO BE STRONG, ESPECIALLY IF YOU EVER START TO GET ANY UPWARD PRESSURE ON THOSE DEFERRED CONTRACTS. THAT'S GOING TO LEAVE A LITTLE VACUUM IN THAT FEEDER CONTRACT AND ALLOW IT TO WORK HIGHER. THEY'RE GOING TO HAVE A TOUGH TIME BREAKING THAT FEEDER MARKET, AS LONG AS THIS FAT MARKET STAYS AS STRONG AS IT IS. LIKE YOU ALLUDED TO, IF CORN CHEAPENS UP A LITTLE BIT, THAT'S JUST ANOTHER PIECE IN THAT PUZZLE.

Pearson: LET'S TALK ABOUT THE HOG BUSINESS. AGAIN, IT'S GOING TO DEPEND ON HERD SIZE AND WHAT'S GOING TO HAPPEN IN THIS USDA HOGS AND PIGS REPORT AT THE END OF THE YEAR. WHAT'S AHEAD, TOMM, RIGHT NOW ON THIS HOG MARKET?

Pfitzenmaier: YOU'VE GOT BIG NUMBERS AND YOU'VE GOT HEAVY -- AND THEY'RE ALL HEAVY. THAT DOESN'T BODE WELL FOR -- EVERYBODY HAS BEEN THINKING, WELL, IT'S CANADIAN HOGS. WELL, IT'S MORE THAN CANADIAN HOGS. I THINK THE USDA PROBABLY MISJUDGED THE NUMBER A LITTLE BIT BECAUSE WE'VE BEEN SLAUGHTERING A LOT OF HOGS LATELY. I THINK THERE'S BEEN SOME EXPECTATION THAT YOU'RE GOING TO START TO SEE SHIFTING IN DEMAND AWAY FROM THE BEEF OVER TO THE PORK. I THINK THAT'S HAPPENING BUT IN A VERY SUBTLE WAY. SOME OF THAT HAS TO DO WITH THE HOLIDAY SHIFTING ANYWAY, AND WE'RE GOING TO HAVE TO SEE AFTER THAT KIND OF GETS WORKED THROUGH THE SYSTEM, HOW DOES THE CONSUMER, IF THEY START GETTING HIT WITH THEIR CHRISTMAS EXPENSES AND ALL THAT, ARE THEY GOING TO SHIFT AWAY FROM THAT EXPENSIVE BEEF INTO THE PORK. IF THEY DO, THEN THE PORK HAS GOT A CHANCE HERE.

Pearson: ALL RIGHT. WELL, THE HOLIDAY -- WE'LL HAVE TO WAIT FOR THE HOGS. TOMM, THANK YOU SO MUCH. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE ADDITIONAL INFORMATION FROM TOMM ON THESE ACTIVE MARKETS, BE SURE TO VISIT THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL SEE HOW A TINY RED FRUIT MADE AN INDUSTRY LEADER OUT OF THE DAIRY STATE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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