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Market Analysis: Nov 07, 2003

posted on November 7, 2003


The bears are lurking on the edges of the grain pits this week, as news of record export sales failed to slow the price decline.

For the week, the nearby wheat futures contract gained 8½ cents, but the December corn contract lost 12 cents. March corn was off 11 cents.

Soybean contracts were hammered up and down the line. November beans lost more than 53 cents. January beans were off by 49 cents. The December meal contract lost $12.90 per ton.

December cotton gained 54 cents.

In livestock, November live cattle gained $5.10. Nearby feeders advanced by $2.65. The lean hog contract was up a nickel.

In financials, Comex gold was $1.20 lower per ounce. The Euro lost 45 basis points against the dollar. And the CRB Index gained nearly three points to finish the week at 249.75.

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

Market Analysis: Nov 07, 2003

Robinson: THANKS, MARK. NICE TO BE HERE.

Pearson: WELL, GOOD TO HAVE YOU. LET'S TALK ABOUT THIS BEAN MARKET FIRST. YOU THOUGHT RIGHT AROUND NOW WE WOULD PROBABLY SEE A TOP IN BEANS. HAVE WE SEEN A TOP IN SOYBEANS, VIRGIL?

Robinson: MARK, I'M NOT CONVINCED WE'VE SEEN A TOP. CLEARLY THIS WEEK'S PRICE BEHAVIOR IS SUGGESTIVE OF ONE, BUT I'M STILL INCLINED TO BELIEVE WITH QUITE A LENGTH OF TIME HERE BETWEEN THE AVAILABILITY OF WHAT IS PERCEIVED TO BE RECORD LARGE PRODUCTION IN SOUTH AMERICA AND THAT REALITY, THERE'S A LOT OF THINGS THAT CAN GO ON HERE, MARK. NEXT WEEK ON THE 12TH, THE USDA WILL FRESHEN U.S. AS WELL AS WORLD SUPPLY AND DEMAND BALANCE SHEETS, MARK. AND I'M KIND OF ANXIOUS TO SEE WHAT THEY HAVE DONE OR WHAT THEY WILL DO WITH PROJECTIONS IN THE SOUTHERN HEMISPHERE REGARDING BEAN PRODUCTION. MORE SPECIFICLY, MARK, I DID NOTE THROUGH THE COURSE OF THIS WEEK, WHILE FUTURES WERE ALL SHARPLY LOWER, PROCESSING MARGINS -- AND I TRY AND TRACK BOARD GROSS PROCESSING MARGINS FAIRLY CLOSELY -- IMPROVED PRETTY NICELY THROUGH THE WEEK, MARK, TO THE LEVEL THAT I STILL BELIEVE REPRESENTS GOOD PROFITABILITY IN GRINDING BEANS DOMESTICALLY. SO THE POINT HERE IS WHILE FUTURES HAVE PULLED DOWN, I'M ENCOURAGED TO SEE THE DOMESTIC PART OF THE EQUATION, I THINK REMAIN PRETTY STRONG. ANYBODY TRIBUTARY, ADJACENT TO A PROCESSING PLANT HAS, IN MY OPINION, THE ABILITY TO NEGOTIATE BASIS, IF NOTHING ELSE HERE, AND PROBABLY DEMAND PREMIUMS FOR NEARBY AND QUICK DELIVERY BEANS, MARK.

Pearson: WOULD YOU RECOMMEND, VIRGIL, THAT PEOPLE START MAKING THOSE SALES RIGHT NOW? YOU'VE GOT SOYBEANS AND YOU JUST CAME OUT -- I THOUGHT YOU WERE GOING TO HAVE A 40-BUSHEL, 50-BUSHEL BEAN YIELD, AND YOU'VE GOT A 20-, 25-BUSHEL SOYBEAN YIELD. ALL THOSE PEOPLE ARE STILL TRYING TO DO THE MATH AS TO WHAT IT'S GOING TO TAKE TO GET THOSE DOLLARS TO WORK OUT.

Robinson: MARK, AGAIN, I'M GOING TO DIFFERENTIATE, TRY HERE TONIGHT, THOSE WHO ARE CASH SELLERS ONLY AND THOSE WHO UTILIZE VARIOUS OTHER TOOLS IN THEIR MERCHANDISING OR MARKETING STRATEGIES. FOR THOSE WHO ARE CASH GRAIN SELLERS ONLY, I'M INCLINED TO SEE HOW WE HANDLE BASIS JANUARY FUTURES, THE $7.25 AREA, WHICH I THINK THE MARKET IS ALIGNED AND POSITIONED TO TEST NEXT WEEK. IF WE HOLD THAT LEVEL AND CLOSE THE WEEK WELL, I THINK WE'LL RECOVER BACK TOWARDS RECENT HIGHS. IF THAT, IN FACT, IS THE CASE, THEN THOSE WHO ARE ONLY CASH GRAIN SELLERS CAN CARRY SOME TYPE OF LITTLE MENTAL STOP AND SAY, "I'M WILLING TO RISK 20 CENTS FROM THIS LEVEL HIGHER." BUT FOR THOSE WHO ARE JUST CASH SELLERS, I'M GOING TO RECOMMEND THEY HOLD ON TO THAT INVENTORY. AND FOR THOSE, MARK, THAT USE FUTURES AND/OR OPTIONS, WE'VE DISCUSSED THIS IN PREVIOUS PROGRAMS BACK TO THE EXTENT WHERE I THOUGHT SELLING BEANS BASED ON FUTURES AT $6.50 AND HIGHER WAS A GOOD OPPORTUNITY, PROVIDED THEY REPURCHASED WITH OPTIONS. THE MINIMUM PRICE STRATEGY, IN MY OPINION, STILL APPLIES HERE.

Pearson: ALL RIGHT. WOULD YOU USE MINIMUM PRICE STRATEGY ON THIS CORN MARKET, WHICH SOFTENED UP AFTER A GOOD TEN DAYS?

Robinson: NO, I THINK, MARK, I KIND OF LIKE THE UNDERPINNINGS OF THE CORN MARKET. TO THIS POINT IN THE CALENDAR, NINE WEEKS INTO THE CROP YEAR, WE'VE SOLD AND BOOKED ABOUT 40 PERCENT OF OUR YEARLY EXPORT PROJECTION. IT APPEARS TO ME THERE WILL BE A SMALLER CROP IN ARGENTINA, OR AT LEAST THAT IS AT PRESENT THE ASSUMPTION. A LITTLE LESS AGGRESSIVE EXPORT PACE OUT OF THE CHINESE, A LITTLE SMALLER SOUTH AFRICAN CROP, LESS FEED WHEAT ON THE GLOBE THAN WAS THE CASE A YEAR AGO. I THINK IT'S LIKELY U.S. EXPORTS WILL BE RAISED NEXT WEDNESDAY IN THEIR PROJECTION, MAYBE A HUNDRED MILLION BUSHEL, MARK, PERHAPS A LITTLE MORE, OFFSETTING WHAT'S PERCEIVED AND ASSUMED TO BE A LARGER CROP. SO I LIKE THE STRUCTURE OF THE CORN MARKET AS WE VISIT TONIGHT. AT SOME POINT BEFORE THE END OF THIS CALENDAR YEAR, I THINK DECEMBER CORN FUTURES WILL TAKE ANOTHER SWING AT THAT RECENT HIGH OF ABOUT $2.60.

Pearson: OKAY. WE'VE GOT ANOTHER OPPORTUNITY THERE. WHEAT MARKET ALSO SOFTENED UP A LITTLE BIT THIS WEEK.

Robinson: WHEAT FUTURES ACTUALLY STRENGTHENED, MARK, A LITTLE BIT THROUGH THE COURSE OF THE WEEK. AND AGAIN, U.S. WHEAT IS COMPETITIVE IN QUITE A NUMBER OF AREAS ON THE GLOBE, AND EXPORT BUSINESS IS PRETTY DOGGONE FIRM, MARK, EVEN IN AREAS WHERE TRADITIONALLY WE'VE BEEN KIND OF PENCILED OUT OF THE PICTURE. SO I THINK WHEAT FUTURES HAVE RECOVERED NICELY. THIS $3.85 TO $4 ZONE BASIS THE SPOT, CHICAGO AND KANSAS CITY WHEAT FUTURES CONTRACT, FOR THOSE WHO YET HAVE OLD CROP WHEAT TO SELL, I'D -- I WOULD USE THAT ZONE TO DO SO. NEW CROP FUTURES $3.60 AND HIGHER, I LIKE THE IDEA OF SOME MINIMUM PRICE STRATEGY THERE.

Pearson: ALL RIGHT. VIRGIL, HOW FAR OUT ARE YOU LOOKING TO GET WHEAT PRICED?

Robinson: MARK, OLD CROP WHEAT, IF IT WERE LEFT TO ME AND ONLY TO ME AS A CASH SELLER, FUTURES AT $3.85 AND HIGHER, I'D FINISH UP. I'D FINISH UP MY SALES, MARK. WE REALLY STRUGGLED WITH $4.00 AND IT'S LIKELY THAT THROUGH THE COURSE OF THE NEXT SEVERAL MONTHS, MAJOR EXPORTERS ARE GOING TO MAKE EVERY EFFORT TO GROW A SIGNIFICANT CROP IN 2004.

Pearson: REAL QUICK, THE COTTON MARKET. WE'VE TALKED ABOUT THE CHINESE DEMAND. WOW. WHAT'S AHEAD THERE, VIRG?

Robinson: MARK, I THOUGHT THE LAST TIME WE VISITED, $70 WAS A GREAT SALE, AND WE WENT TO $90. SO CLEARLY, I WAS LEFT BEHIND IN MY STRATEGY. ALL I CAN TELL THOSE FOLKS WHO YET ARE LUGGING OLD CROP COTTON, HERE AGAIN THERE'S POTENTIAL FOR THIS MARKET TO MOVE HIGHER, BUT I THINK IT'S MANDATORY YOU DISCIPLINE YOURSELF MUCH LIKE IN BEANS TO CARRY OR RETAIN SOME TYPE OF MENTAL STOP. FOR EXAMPLE, IF COTTON FUTURES CLOSE NEXT WEEK $3.00 LOWER OR MORE THAN THAT, I'VE GOT TO GIVE UP SOME OF THIS OLD CROP COTTON. NEW CROP COTTON FUTURES AROUND 70 CENTS, MARK, I LIKE AGAIN, THE IDEA OF MINIMUM PRICE EITHER IN THE CASH MARKET WITH A VENDOR OR WITH OPTIONS.

Pearson: WE HAD MORE VOLATILITY AGAIN THIS WEEK IN THE FED CATTLE MARKET. THIS CATTLE MARKET HAS JUST BEEN WILD, AND THESE COWBOYS ARE WONDERING JUST WHAT'S AHEAD. LET'S TALK ABOUT THE FED CATTLE MARKET FIRST, VIRGIL. WHAT DO YOU TELL A FED CATTLE OPERATOR OUT THERE EXCEPT, "BOY, JUST KEEP THEM COMING"?

Robinson: YEAH, COWBOYS AND PIONEER EMPLOYEES ALIKE KIND OF WONDERING WHAT'S NEXT HERE, MARK. WHAT A MARKET. AGAIN, PRODUCERS CONTINUE TO MAINTAIN THE DISCIPLINE OF MARKETING VERY AGGRESSIVELY, MARK. THIS WEEK'S SLAUGHTER WAS ABOUT 6 PERCENT LESS THAN THE PREVIOUS WEEK. WEIGHTS, BOTH DRESSED AND LIVE, REMAIN SIGNIFICANTLY BELOW LAST YEAR. DEFERRED CATTLE FUTURES DEEPLY DISCOUNTED TO CASH. MARK, AGAIN, THE EMPLOYMENT NEWS YOU AFOREMENTIONED HERE IN YOUR SHOW, THE UNDERPINNINGS TO THE MARKET REMAIN STRONG, AND I DON'T SENSE ANY SIGNIFICANT WEAKENING OF DEMAND TO THIS POINT IN TIME. THERE'S A LOT OF COMPETITION IN THE FORM OF PORK AND POULTRY, AND THAT'S COMING ON-LINE. AND AS HIGHER RETAIL PRICES STRIKE HOME, THERE'S GOING TO BE, I THINK, SOME SWITCHING OUT OF BEEF INTO THOSE OTHER PRODUCTS, MARK. SO TRY AND DEFEND YOUR INVENTORY WITH SOME TYPE OF CASH SALES STRATEGY OR OPTION STRATEGY.

Pearson: ABOUT FIFTEEN SECONDS, VIRG. THESE CALVES RIGHT NOW AWFULLY PRICEY. WOULD YOU RECOMMEND YOU LOOK AT THAT FUTURES CONTRACT DOWN THE ROAD FOR THESE COW/CALF GUYS?

Robinson: IN CONTRAST, PLACING LIVE, MARK, BUY THE FUTURES INSTEAD? WELL, YOU COULD PROBABLY MANAGE YOUR MONEY A LITTLE BETTER IN THAT REGARD. THAT'S A TOUGH ONE TO SELL BUT, YEAH, I THINK IT DOES HAVE SOME VALUE IN THAT REGARD, MARK.

Pearson: AND REAL QUICK ON THESE HOGS, VIRGIL. A LITTLE BIT OF AN UP-TICK THIS WEEK ON THIS HOG BUSINESS.

Robinson: YEAH, MARK, I THINK YOU NEED TO DEFEND AGAINST THE PROSPECT OF 2004 PORK PRODUCTION BEING LARGER THAN 2003. IN THAT CONTEXT, I THINK DECEMBER HOG FUTURES, FEB HOG FUTURES, APRIL HOG FUTURES, $1.00 OR A $2.00 RALLY FROM TONIGHT'S CLOSE. CONVERT THAT INTO LIVE, LESS A WESTERN CORN BELT BASIS, AND I THINK YOU CAN HEDGE DECEMBER LIVE HOGS AT $36.50, FEBS AT ABOUT $41.00, AND APRILS AT $43.00, AND I WOULD DO THAT.

Pearson: EXCELLENT, VIRGIL. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE ADDITIONAL INFORMATION FROM VIRGIL ON THESE ACTIVE MARKETS, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE HOW A SMALL MANUFACTURER OF TOFU FOUND A WAY TO BECOME A MAJOR PRODUCER OF SOY PRODUCTS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


Tags: agriculture commodity prices markets news