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Market Analysis: Nov 14, 2003

posted on November 14, 2003


The markets digested government crop numbers quickly this week, which left just one overriding factor in the pits ... Chinese demand.

For the week, the nearby wheat futures contract jumped more than 27 cents. Both the December and March corn contracts advanced about a nickel.

In the bean pit, both nearby and January soybean contracts gained 30 cents. Soybean meal was up $3.50 a ton.

December cotton lost $2.37.

In livestock, nearby cattle lost $2.70. November feeders were off by $1.10. The lean hog contract was down more than three dollars.

In financials, Comex gold soared $14.80 per ounce. The Euro gained 248 basis points against the dollar. And the CRB Index shot up eight points to close the week at 257.75.

Here now to share his insight on these and the week's other fast-moving trends is one of our regular market analysts, Doug Hjort. Welcome back.

Market Analysis: Nov 14, 2003 WELCOME BACK, DOUG.

Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S TALK ABOUT ONE THAT'S ALWAYS NEAR AND DEAR TO YOUR HEART, AND THAT'S THIS WHEAT MARKET. BOY, A COUPLE GOOD RALLIES GOING IN HERE. SHOULD WE BE MAKING SALES?

Hjort: WELL, I SUPPOSE SO. WE JUST TOOK OUT THE OLD CONTRACT HIGHS IN THE CHICAGO MARKET THIS WEEK. NEXT RESISTANCE PROBABLY UP ANOTHER 20 CENTS, GIVE OR TAKE A LITTLE. I THINK THAT'S WHAT A PERSON NEEDS TO WATCH NOW. WHEN YOU LOOK AT THE OVERALL WHEAT MARKET, THE WORLD CONDITIONS HAVE EVEN TIGHTENED MORE -- SUPPLY/DEMAND BALANCES HAVE TIGHTENED MORE THAN WHAT WE'D BEEN LOOKING AT FOR A YEAR, AND THEY WERE RECORD TIGHT THEN. SO NOW WE'RE STARTING TO SEE A LITTLE BIT OF THE TRADE -- OR MORE OF THE TRADE LOOKING AT THOSE NUMBERS AND UNDERSTANDING THEM, UNDERSTANDING THAT WORLD TOTAL GRAIN, NOT JUST WHEAT BUT TOTAL GRAIN, SUPPLY/DEMAND BALANCES ARE RECORD TIGHT, MUCH TIGHTER THAN THEY WERE IN '95 AND '96. NOW, THE DIFFERENCE IS THAT WE HAVE A GOOD SIZED WHEAT CROP HERE IN THE UNITED STATES, AS WE DO A CORN CROP OBVIOUSLY. AND IN '95-'96 OUR PRODUCTION ON BOTH WERE DOWN HERE IN THE U.S. SO IT'S A WHOLE DIFFERENT MIX IN THE MARKET BUT -- SO YOU CAN'T LOOK AT THESE NUMBERS AND SAY, WELL, PRICES SHOULD GO AS HIGH AS THEY DID IN '95-'96. NO, THEY WON'T COME CLOSE TO THAT BECAUSE OF THE BIG SUPPLY WE HAVE HERE IN THE UNITED STATES. I DO THINK PRICES CAN GET BETTER AS WE GO ON INTO THE WINTER AND MAYBE INTO SPRING, BUT THE GAINS ARE GOING TO BE SOMEWHAT LIMITED, I THINK. SO, YES, I THINK WATCH PRICE ACTION VERY CAREFULLY BECAUSE JUST THIS WEEK, AS YOU APPOINTED OUT, PRICES UP SHARPLY. WE COULD DO ANOTHER 20 CENTS VERY EASILY HERE, SO DON'T TRY TO SELL TOO SOON, BUT BE READY TO TAKE ADVANTAGE OF ANOTHER POKE IN THE MARKET.

Pearson: CERTAIN MARKETS DOING BETTER THAN OTHERS, KANSAS CITY, MINNEAPOLIS, VERSUS CHICAGO?

Hjort: CHICAGO IS STILL A LITTLE BIT UNDERPRICED TO THE REST, BUT IT GAINED THE MOST. AND THE REASON FOR THAT WAS THAT ON THIS LAST REPORT, USDA LOWERED THE SOFT RED WINTER WHEAT CARRYOUT TO A 25-YEAR LOW. SO THAT MARKET REALLY HAD THE POWER TO PUSH THROUGH CONTRACT HIGHS. THE MINNEAPOLIS AND KANSAS CITY MARKETS ARE NOT AT CONTRACT HIGHS RIGHT NOW BUT SHOWED GOOD GAINS THIS WEEK AS WELL.

Pearson: LET'S TALK ABOUT THE CORN MARKET, NOT NEARLY AS DRAMATIC GAINS AS WE SAW IN WINTER BEANS, BUT AGAIN TO THE UPSIDE. AND ALSO SOMETHING -- THE LAST TIME YOU WERE ON, YOU TALKED ABOUT THE TIGHTNESS REALLY OF THE CORN SITUATION, WHEN THEY TALK ABOUT DEMAND FOR THE COMING YEAR AT THE 10-BILLION-BUSHEL-PLUS RANGE.

Hjort: THAT'S RIGHT. USDA MADE IT OFFICIAL ON THIS LAST REPORT. THEY PUT THE DEMAND OVER 10 BILLION BUSHEL. YEAH, WE PRODUCED A COUPLE HUNDRED MILLION MORE THAN THAT THIS YEAR, BUT THAT JUST SHOWS THAT EVERY YEAR -- AND THIS IS TRUE WORLDWIDE TOO. EVERY YEAR WE HAVE TO PLANT EVERY ACRE WE CAN FIND TO GRAIN, NOT JUST CORN BUT TO WHEAT, ALL THE REST, AND STILL HAVE REASONABLY HIGH YIELDS JUST IN ORDER TO STAY CLOSE TO THIS DEMAND. WHEN YOU LOOK AT DEMAND FOR THE WORLD GRAINS, WE'VE SEEN THE ENDING STOCKS DROP DRAMATICALLY OVER THE LAST FOUR YEARS. AND, YEAH, THERE'S BEEN CROP PROBLEMS SOMEPLACE IN THE WORLD EVERY ONE OF THOSE YEARS, BUT THAT'S PRETTY NORMAL. YOU USUALLY HAVE THAT. SO WHAT WE HAVE TO DO IS TRY TO GET THESE YIELDS UP MORE AND MORE IN THE GRAINS, OTHERWISE WE'RE REALLY GOING TO BE IN A SHORT SITUATION IN ANOTHER YEAR IF WE CAN'T DO THAT. SO THAT'S THE LONG-TERM PICTURE. DEMAND IS VERY GOOD FOR GRAINS, AND YOU'VE GOT THIS LIMITED SUPPLY OUT HERE EVEN THOUGH IT'S AS LARGE AS IT IS. SO THE DEMAND IS GOING TO KEEP TAKING PRICES HIGHER. THE PROBLEM -- IT'S NOT GOING TO COME QUICKLY IN THE CORN ESPECIALLY BECAUSE HERE AGAIN, USDA SAID ABOUT A 1.35-BILLION-BUSHEL CARRYOUT OR SOMETHING LIKE THAT. WELL, ANYTHING OVER A BILLON BUSHEL IS PLENTY TO GET YOU FROM ONE YEAR TO THE NEXT HERE IN THE UNITED STATES. BUT OUTSIDE THE UNITED STATES, YOU HAVE THIS TERRIFIC SHORTAGE SO OUR EXPORT SALES WILL INCREASE AS WE GO ON THROUGH THE YEAR. BUT THAT'S A MONTH-BY-MONTH THING, NOT A DAY-BY-DAY OR WEEK-BY-WEEK THING THAT FUTURES MARKETS NEED TO LIVE ON AND KEEP GOING HIGHER.

Pearson: ALL RIGHT. SO STRATEGY-WISE ON CORN, WHAT DO YOU THINK?

Hjort: WELL, WE SAW A HIGH OF DECEMBER CORN OF $2.51 BACK HERE A COUPLE WEEKS AGO. I THINK THAT WILL BE TESTED AGAIN. AND REALLY, I THINK IT WILL BE TAKEN OUT, BUT IT MAY NOT BE ON THE DECEMBER CONTRACT. IT MAY BE SOMETIME LATER IN MARCH OR APRIL. BUT AGAIN, LIKE THE WHEAT, WE'RE UP HERE IN LEVELS THAT ARE GOING TO PROVIDE PRETTY STRONG RESISTANCE, SO LET'S BE LOOKING AT MAKING SOME SALES AS WE APPROACH SOME OF THESE MAJOR RESISTANCE AREAS.

Pearson: THE SOYBEAN NUMBER CAME OUT AGAIN. THE MARKET WAS A LITTLE CAUTIOUS BEFORE THE REPORT, BUT THE BUYING CAME BACK IN AGAIN. WE TALKED ABOUT, AT THE TOP OF THE MARKET SEGMENT HERE, CHINESE DEMAND. A LOT OF FACTORS GOING ON RIGHT NOW IN SOYBEANS THAT COULD DETERMINE WHERE THIS THING GOES.

Hjort: WELL, IT REALLY COULD. AND THE SOYBEAN SUPPLY/DEMAND NUMBER THAT CAME OUT WAS VERY CONFUSING TO A LOT OF PEOPLE. TO A FUNDAMENTALIST THAT KNOWS BY LOOKING AT THOSE NUMBERS THAT THERE'S PROBABLY 100 TO 150 MILLION BUSHELS OF RATIONING THAT HAS TO TAKE PLACE, AND WE HAVEN'T STARTED THAT RATIONING YET EITHER IN THE EXPORT MARKET OR THE DOMESTIC MARKET, WE SEE IT AS PRICES HAVING TO GO CONSIDERABLY HIGHER. TO THE TECHNICIANS OR THOSE THAT DON'T LOOK VERY MUCH AT FUNDAMENTALS, JUST LOOK AT THE BOTTOM LINE. THEY SAW THE ENDING STOCK ON BEANS WERE DROPPED ONLY FROM 130 MILLION TO 125 MILLION BUSHELS. AND THEIR INITIAL REACTION WAS WAS, OH, THAT'S NOT BULLISH, IT LOOKS LIKE WE'RE GOING TO ESCAPE THROUGH AND DO ALL RIGHT. THAT'S WHY THE MARKET HAD SOME PROBLEMS TRYING TO BE SUPPORTIVE. BUT THE MARKET HAD A BIG SELL-OFF GOING INTO THE REPORT. WE'RE COMING BACK THIS WEEK AND PUT ON SOME NICE GAINS. WE'RE STILL 30 CENTS, GIVE OR TAKE A LITTLE, FROM THE HIGHS WE SAW A COUPLE WEEKS AGO. I THINK WE'LL GET TO THOSE LEVELS LIKE WE WILL ON THE CORN AND SO ON. BUT AGAIN, I THINK WE HAVE TO WATCH MARKET ACTION VERY CAREFULLY THERE. IT'S NOT JUST FUNDAMENTALS THAT CAN TAKE PRICES HIGHER. THE TECHNICAL HAS TO GO ALONG WITH IT. AND IF THESE RESISTANCE AREAS ARE THAT, SELLING POINTS FOR THE SPECULATIVE TRADE, IT WILL BE VERY DIFFICULT TO GET THROUGH THERE. I THINK WE CAN DO THAT SO DON'T SELL YOURSELF SHORT ON THESE PRICES, BUT DON'T BLOCK THE BIN DOOR WAITING FOR $9 OR $10 EITHER.

Pearson: ALL RIGHT. WE WANT TO TALK QUICKLY ABOUT COTTON. AGAIN, THERE'S BEEN A NICE RALLY THERE. WE'VE SEEN A NICE IMPROVEMENT. THESE LOOK LIKE GOOD PRICES FOR COTTON.

Hjort: WELL, THEY ARE. WE GOT A LITTLE NEGATIVE REPORT ON DOMESTIC PRICES -- OR DOMESTIC PRODUCTION THIS YEAR, A BIG CROP. BUT AGAIN, THE WORLD NUMBERS ARE RELATIVELY BULLISH, SO I WOULD EXPECT A RECOVERY, AND THESE PRICES TO KEEP GOING HIGHER.

Pearson: LET'S ABOUT THE BEEF MARKET. AGAIN, THAT'S BEEN ANOTHER WILD ONE HERE THIS YEAR. SOFTENING UP JUST A LITTLE BIT NOW, DOUG. DOES THAT CONCERN YOU ON THIS FED CATTLE MARKET?

Hjort: WELL, I TOLD CLIENTS NOT TO SELL CATTLE AT $98 TO $100 A HUNDREDWEIGHT THIS WEEK. THERE'S GOT TO BE SOMETHING WRONG WITH THAT PICTURE, MARK, YOU KNOW. AND YET, YOU KNOW, WE DID $105, $106 LAST WEEK AND ONE OF THE REASONS WAS THE TV STORIES OUT EARLIER THIS WEEK CALLED ATTENTION TO THE RECORD HIGH PRICES FOR BEEF AND CATTLE. AND THE FUTURES BOYS REALLY GOOD SPOOKED ON THAT, AND THEY WERE LIMIT DOWN, WHAT, THREE OR FOUR DAYS IN A ROW. WELL, THE CASH PRICE WAS UNNERVED AS WELL, AND WE SAW THESE BIDS COMING IN. AS OF 3:00 FRIDAY AFTERNOON, THERE WEREN'T MORE THAN JUST A FEW LOADS OF CATTLE THAT HAD BEEN SOLD. I'M SURE SOME MORE HAD HAPPENED, BUT WE'RE GOING TO GO INTO NEXT WEEK WITH A LITTLE BIT HEAVIER SHOW LIST. NOW, UNDERSTAND THESE WEIGHTS ARE VERY, VERY MANAGEABLE AND THE SHOW LIST VERY MUCH IN CONTROL, SO THERE'S NO PROBLEM CARRYING OVER CATTLE INTO NEXT WEEK FROM THE PRODUCER STANDPOINT. BUT WE'RE UP HERE AT THESE RAREFIED PRICES, AND I THINK YOU JUST KEEP SELLING CATTLE AS THEY'RE FINISHED. AS FAR AS HEDGING, PUT ON YOUR SEAT BELT IF YOU WANT TO GET INTO THAT MARKET. BUT THERE'S GOING TO BE SOME OPPORTUNITIES SOMEWHERE ALONG THE LINE HERE TO GET SOMETHING HEDGED FOR OUT INTO NEXT SPRING AND SO ON. CANADIAN SITUATION, VERY QUICKLY, I DON'T THINK THERE'S GOING TO BE ANY CANADIAN CATTLE COMING IN UNTIL NEXT SPRING. MORE BEEF WILL COME IN FROM CANADA MOST LIKELY DURING THE WINTER MONTHS, BUT NO CATTLE UNTIL LATE WINTER OR EARLY SPRING. THAT'S MY OPINION.

Pearson: ALL RIGHT. WELL, IT'S GOING TO BE A WHILE. I THINK YOU'RE ABSOLUTELY CORRECT. LET'S TALK ABOUT THIS HOG MARKET, WHICH HAS NOT BEEN A POSITIVE -- THE KIND OF POSITIVE MARKET WE THOUGHT IT WOULD BE BASED ON THE HOGS AND PIGS REPORT EARLIER. WERE WE OFF THERE. IS THIS ONE OF THE THOSE YEARS WHERE THE GOVERNMENT NUMBERS MAYBE OVERSTATED WHAT THIS BIG CROP WAS GOING TO BE?

Hjort: THEY MAY HAVE BUT I THINK THIS IS A CLASSIC CASE OF WHERE SEASONAL PRICE ACTION TRUMPS EVERYTHING ELSE. IT TRUMPS EXPECTATION. WE'VE SEEN THIS MARKET JUST DRIFT ON LOWER HERE THIS FALL. RIGHT ON TRACK. NORMALLY YOU'LL SEE THAT WHEN THAT HAPPENS, YOU NORMALLY SEE A BOTTOM LATE NOVEMBER, EARLY DECEMBER, AND SOMETIMES YOU CAN COME ROARING BACK VERY FAST DURING THAT TIME FRAME. FUTURES PRICES, THEY'VE JUST BEEN BOUNCING UP AND DOWN, UP AND DOWN FEBRUARY BETWEEN $55 AND $60 AND SPIKED ABOVE IT FOR ABOUT A WEEK'S TIME, BUT CAME RIGHT BACK INTO IT. SELLING THE CASH HOGS, I THINK WE CAN DO PRETTY GOOD THERE. HEDGING, I'D BE PRETTY NERVOUS ON THAT JUST BECAUSE OF THE WAY THAT MARKETS TRADES.

Pearson: VERY GOOD. DOUG, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT REMEMBER, YOU CAN GET ADDITIONAL INSIGHT FROM DOUG ON THESE ACTIVE MARKETS BY SIMPLY VISITING THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. WHEN YOU REACH THE HOME PAGE, PLEASE TAKE A MINUTE TO DROP US A LINE AND LET US KNOW WHAT YOU THINK OF OUR PROGRAM. UNTIL NEXT WEEK, THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


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