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Market Analysis: Oct 24, 2003

posted on October 24, 2003


As mentioned earlier, soybeans shot to contract highs again, but the surprising movers this week were in the grain pits.

For the week, the nearby wheat futures contract gained 41 cents. December corn advanced nearly 21 cents.

The nearby soybean contract was up more than 33 cents. January beans did even better, gaining 36 cents. December meal also hit contract highs and finished the week almost $21 higher per ton.

Cotton futures jumped $6.59 a hundredweight.

In livestock, October live cattle lost 20 cents. Nearby feeders were down by $2.38. And the lean hog contract got hammered, losing $7.12.

In financials, Comex gold crept closer to the $400 mark and closed the week more than $17 higher per ounce. The Euro gained 175 basis points against the dollar. And the CRB Index shot up seven and a half points to close at 249.50.

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

Market Analysis: Oct 24, 2003

Pfitzenmaier: THANKS MARK.

Pearson: THE BEAN MARKET, RECORD HIGHS. THE FUTURES ARE HIGHS. THE BASIS IS STRONG. PRODUCERS RIGHT NOW ARE LOOKING AT SOME PRETTY ATTRACTIVE RETURNS RIGHT OFF THE PLANTER IN THE FACE OF DIMINISHED YIELDS. WHAT ARE YOU TELLING PRODUCERS?

Pfitzenmaier: WELL, AS LONG AS YOU'VE GOT A STRONG BASIS AND NO CARRYING CHARGE IN THE MARKET, OBVIOUSLY THE MARKET IS TELLING YOU TO GO AHEAD AND MAKE CASH SALES. HAVING SAID THAT, I THINK THERE'S STILL A LOT OF OPTIMISM. I THINK THERE'S STILL UPSIDE POTENTIAL IN THE BEAN MARKET. SO IN THAT CIRCUMSTANCE, YOU DON'T WANT TO LOSE OWNERSHIP, SO YOU'RE PROBABLY GOING TO WANT TO REOWN FUTURES OR REOWN A CALL OPTION OR REOWN THEM SOMEHOW. BUT THE OBVIOUS CASH THING TO DO IS TO PART WITH THE CASH WHEN THEY WANT TO PAY UP TO GET IT.

Pearson: ABSOLUTELY. SO ARE YOU IN ANY KIND OF A MOOD TO WHERE YOU WANT TO REOWN THEM ON THE BOARD, OR IS THAT WORTH DOING?

Pfitzenmaier: THE PURPOSE OF THE MARKET HERE IS TO CHOKE OFF DEMAND. I MEAN WE HAVE TO RALLY -- WE OBVIOUSLY HAVE A TIGHT SITUATION. WE HAD A POOR CROP AND MAYBE EVEN FIND OUT IT'S EVEN POORER THAN WE THOUGHT IN THE NOVEMBER REPORT. SO THE PURPOSE OF THE MARKET HERE IS TO CHOKE OFF DEMAND, AND WE HAVEN'T SEEN ANY SIGNS OF THAT. THE CHINESE CAME IN AND HAD A GOOD PURCHASE THIS WEEK. WE HAD AN EXPORT NUMBER THURSDAY MORNING THAT WAS ABOVE THE HIGHEST END OF THE RANGE OF EXPECTATIONS. SO WE'RE NOT, BY ANY MEASUREMENTS WE CAN SEE, CHOKING OFF DEMAND YET. SO WE NEED TO RALLY THIS MARKET AND WORK IT HIGHER TO THE POINT WHERE WE DO THAT. NOW, WHERE IS THAT GOING TO BE? IS THAT GOING TO BE $8 OR $8.50 OR $8.20. I DON'T KNOW THAT. BUT WE'RE PROBABLY GOING TO END UP IN THOSE KIND OF RANGES AT SOME POINT HERE. SO YOU KNOW, WE'RE AT 8 --7.60 TONIGHT. THAT MEANS WE'VE GOT SOME GOOD UP YET IN THE BEAN MARKET. PROBABLY WORTH REOWNING IT FOR.

Pearson: ALL RIGHT. AND YOU TALKED ABOUT THE FACT THAT THIS DEMAND CONTINUES STRONG. YOU MENTIONED CHINA. OBVIOUSLY BRAZIL IS GOING TO BE COMING AT US WITH A BIGGER CROP AGAIN NEXT STRING, AT LEAST IN TERMS OF PLANTED ACRES.

Pfitzenmaier: THAT'S RIGHT. AND THAT'S THE THING WE'RE GOING TO BANG UP AGAINST TOO. THERE'S JUST A WINDOW HERE BECAUSE -- YOU KNOW, I LIKE TO CALL IT THE SWEET SPOT IN THE MARKET IN THAT FEBRUARY/MARCH PERIOD, WHERE WE'VE GOT THE BEANS. THEIRS AREN'T AVAILABLE YET AND PEOPLE ARE GOING TO BID UP TO GET THEIR HANDS ON OURS. AFTER THAT, THERE'S A DIMINISHING RETURN AND YOU'RE GOING TO START TO RUN OUT OF GAS ON THE MARKET, ASSUMING THEY HAVE A NORMAL CROP. SO, YOU KNOW, YOU CAN MASSAGE THE MARKET FOR A FEW MONTHS HERE, BUT YOU NEED TO BE A LITTLE CAREFUL TOO.

Pearson: WE'VE BEEN HEARING AND WE SAW FROM THE USDA NUMBER, AT LEAST IN OCTOBER, A MUCH BIGGER CORN CROP THAN A LOT OF PEOPLE FELT WE COULD PULL OFF IN LIGHT OF THE EXTREMELY DRY WEATHER IN SO MANY PARTS OF THE CORN BELT. NOW THAT WE'RE SEEING SOME OF THESE NUMBERS COME IN, PRETTY DECENT CORN YIELDS, IT'S PRETTY SURPRISING WHAT HAPPENED THIS WEEK FOR CORN. <

Pfitzenmaier: YEAH, THERE WAS A SERIES OF EVENTS THAT SORT OF TOOK PLACE LATE LAST WEEK, WHERE THE MARKET GOT VERY OVERSOLD. AND YOU STARTED TO SEE SOME OF THE MOVING AVERAGES, THE STOCHASTICS, A LOT OF THESE TECHNICAL INDICATORS, WHICH THE FUNDS TEND TO TRADE OFF, STARTING -- TURN AROUND AND STARTING TO MOVE HIGHER. AND THEN WE CAME IN LATE THIS WEEK, MIDWEEK, WITH A REPORT THAT CHINA WAS GOING TO SHUT DOWN THEIR EXPORTS, THAT THERE WAS A BIG JUMP IN THE CASH PRICE ON CHINESE CORN. AND ALL OF A SUDDEN THAT WAS SORT OF THE SPARK THAT LIT THAT FUSE THAT HAD BEEN STICKING OUT THERE. AND ALL OF A SUDDEN, THURSDAY WE HAD THE BIGGEST AMOUNT OF BUYING BY THE FUNDS WE EVER HAD IN HISTORY -- THE BIGGEST VOLUME THE BOARD OF TRADE HAS EVER HAD. BY MOST ACCOUNTS, THEY BOUGHT ALMOST 200 MILLION BUSHEL OF CORN. SO HUGE MOVE UP ON A DAY WHICH DIDN'T SEEM THAT IMPORTANT. WE HAD EXPORTS THAT WERE BELOW THE EXPECTATIONS. AND YOU HAD THIS HUGE RUN UP, WHICH I THINK IS GOING TO CREATE A GREAT OPPORTUNITY. WE NEED TO START MOVING CORN. WE NEED TO EXPORT CORN. AND RALLYING THE MARKET 20 CENTS IS GOING TO START TO CHOKE OFF THAT EXPORT BUSINESS, AND WE DON'T WANT TO DO THAT. SO I THINK THIS IS A MARKET RALLY THAT NEEDS TO BE REWARDED. THAT DECEMBER OF '04 CORN, I THINK AS DISAPPOINTING AS PEOPLE FOUND THEIR BEAN YIELDS TO BE, THERE'S GOING TO BE SOME SHIFTING PROBABLY IN ACREAGE TO CORN. DECEMBER OF '04 CORN UP THERE AT 248 I THINK IS A GREAT PLACE TO START MAKING SOME SALES, AND MAYBE THE OLD CROP WOULD BE A GOOD PLACE TO START SELLING TOO.

Pearson: ALL RIGHT. SOME GOOD THOUGHTS THERE ON WHAT'S DUE ON DOWN THE ROAD. LET'S TALK ABOUT THIS WHEAT MARKET, ALSO A BIG SURPRISE THIS WEEK. A HUGE RUN IN THE WHEAT MARKET.

Pfitzenmaier: WELL, THE WHEAT AND THE CORN, TO SOME EXTENT BOTH, IS SORT OF GUILT BY ASSOCIATION. THEY'VE BEEN SITTING THERE FOR WEEKS HERE WATCHING THE SOYBEAN MARKET GO UP, AND THEIR MARKETS HAVEN'T DONE ANYTHING. AND I THINK EVERYBODY WAS A LITTLE ANTSY. AND THE SAME THING THERE; YOU'VE GOT SOME OF THE TECHNICALS STARTED TO TURN AND THEN, BOOM, UP YOU WENT, YOU STARTED RUNNING STOPS. AND I THINK THAT WHEAT MARKET IS PROBABLY WAY OVERDONE HERE. WE'LL PROBABLY START TO SEE IT STALL OUT A LITTLE BIT ON FRIDAY, AND IT'S PROBABLY GOING TO STRUGGLE AT THESE LEVELS.

Pearson: ALL RIGHT. PRODUCERS, YOU RECOMMEND TAKE ADVANTAGE OF THIS --

Pfitzenmaier: YEAH, I THINK THIS IS A RALLY TO BE SOLD. OVER THE NEXT SIX WEEKS, THE AUSTRALIAN CROP, WHICH IS SUPPOSED TO BE BUMPER, IS GOING TO BE HARVESTED, AND THAT'S GOING TO CONTINUE TO KEEP A LITTLE PRESSURE ON THE WORLD MARKET. SO I THINK WHEAT HAS PROBABLY DONE MOST OF WHAT IT'S GOING TO DO HERE.

Pearson: TALK ABOUT COTTON. AGAIN, BLISTERING MOVE UP THIS WEEK AND GOOD DEMAND THERE TOO.

Pfitzenmaier: PARTICULARLY CHINESE DEMAND. THE CHINESE DEMAND HAS BEEN VERY GOOD. WE'VE HAD A HUGE RUN UP. BUT WE'RE ALSO UP TO THE POINT HERE WHERE THE SYNTHETICS ARE REALLY GOING TO START TO COMPETE AGAINST THE NATURAL FIBERS THERE, AND I THINK THAT'S GOING TO TEND TO STALL OUT THAT COTTON MARKET TOO.

Pearson: AGAIN, PROBABLY A SALES OPPORTUNITY.

Pfitzenmaier: YEAH. I THINK UP THERE IN THE MID EIGHTIES IS ABOUT TWENTY BUCKS HIGHER THAN MOST PEOPLE THOUGHT IT WAS GOING TO BE. IT'S PROBABLY NOT A BAD PLACE TO REWARD THE MARKET.

Pearson: TALKING ABOUT REWARDING THE MARKET, CATTLEMEN HAVE BEEN SUFFERING THE LAST SEVERAL YEARS. BOY, THIS IS THE YEAR. IF YOU HAD FED CATTLE READY UP HERE AT 154 IN THE BEEF -- I'M HEARING PHENOMENAL DEMAND OUT THERE FOR FED CATTLE. FEEDER MARKET BACKED OFF SOME ON THE BOARD THIS WEEK. STILL THOSE AUCTIONS RUNNING AWFULLY STRONG. LET'S TALK ABOUT THIS BEEF MARKET GENERALLY. THE CANADIAN SITUATION, YOU KNOW, WHATEVER IS GOING TO HAPPEN IS GOING TO HAPPEN. WE DON'T KNOW. BUT IF YOU'RE LOOKING AT BUYING THESE CALVES RIGHT NOW, WHAT ARE YOU TELLING PRODUCERS?

Pfitzenmaier: I GUESS YOU HAVE TO BUY THEM. THE THING THAT'S HELD DOWN THAT MARKET IS YOU LOOK AT THE DEFERREDS AND THEY'RE SO DISCOUNTED THAT EVERYBODY IS A LITTLE AFRAID TO STEP IN THERE. BUT I THINK THAT CATTLE MARKET IS GOING TO BE ALL RIGHT. I GUESS I TAKE ISSUE WITH YOU A LITTLE BIT. A LOT OF PEOPLE LIKE TO TALK ABOUT THE CANADIAN THING, AND I THINK WE'RE SORT OF IGNORING THE FACT THAT WE'VE HAD ABSOLUTELY TREMENDOUS CONSUMER DEMAND, NEW DEMAND FOR BEEF. PEOPLE THAT HAVEN'T BEEN EATING BEEF FOR QUITE A WHILE ARE COMING IN AND EATING LARGE AMOUNTS OF IT. AND I THINK THAT'S PROBABLY BEEN A DRIVING FORCE THAT PEOPLE HAVE IGNORED. WE'VE KIND OF CONCENTRATED ON THAT CANADIAN THING, AND I THINK THE DEMAND SIDE OF THAT MARKET IS ONE THAT'S BEEN EXTREMELY THE POWERFUL.

Pearson: TALK ABOUT THE SUPPLY SIDE. YOU CAN TALK ABOUT WHAT'S HAPPENED IN CANADA, ALSO THE FACT THAT THIS MARKET IS THE MOST CURRENT CATTLE MARKET WE'VE HAD IN DECADES.

Pfitzenmaier: YEAH. WEIGHTS ARE DOWN, LIKE, 33, 34 POUNDS -- CARCASS WEIGHTS ARE DOWN THAT MUCH. WE ALWAYS HAVE GOOD MARKETS WHEN THE CATTLEMEN ARE SCARED. AND THESE MARKETS ARE SO GOOD, THEY'RE SCARED TO DEATH ALL THE TIME THAT IT'S JUST GOING TO FALL OFF THE CLIFF. AND EVERYBODY IS STAYING CURRENT. WHEN ANYTHING IS READY, THEY'RE MOVING IT. THE PACKERS ARE BEGGING THEM TO GET THEIR HANDS ON IT. I MEAN IT'S JUST A GOOD SITUATION FOR MAINTAINING A GOOD MARKET. AND EVERYBODY IS ALSO A LITTLE NERVOUS ABOUT -- YOU KNOW, WHAT HAPPENS IF THERE'S A WEATHER EVENT HERE OVER THE NEXT NINETY DAYS? THEN THE THING COULD REALLY GET EXCITING. SO, YEAH, THERE ARE REASONS TO BE OPTIMISTIC ABOUT THE CATTLE MARKET. THERE'S ALSO A REASON TO BE CAUTIOUS, AND I THINK THAT'S AT THE MEAT COUNTER. THE PRICE OF THE EXPENSIVE BEEF IS REALLY PUTTING A SQUEEZE ON A LOT OF THESE RESTAURANT OWNERS. THEY'RE TRYING TO FIGURE OUT HOW TO CHANGE THEIR MENUS, HOW TO ALTER THEIR MENUS, HOW TO ENCOURAGE PEOPLE TO PAY EXTREMELY HIGH PRICES FOR STEAKS AT RESTAURANTS. AND THAT'S ULTIMATELY GOING TO HURT THE MARKET SOME. YOU'RE ALSO HEADING INTO THE HOLIDAY PERIOD HERE, WHERE THE RETAILER IS PROBABLY GOING TO CHANGE HIS MIX A LITTLE BIT, FEATURE MORE POULTRY, FEATURE MORE PORK. AND THAT'S GOING TO START TO EAT AWAY AT US A LITTLE BIT TOO. SO, YOU KNOW, IT'S A GOOD MARKET. BUT THERE ARE SOME THINGS ON THE HORIZON THAT MAKE YOU A LITTLE CAUTIOUS.

Pearson: THIS CALF MARKET LOOKS AWFUL STRONG. DO YOU SEE ANY WAY TO MAKE THESE CALVES WORK?

Pfitzenmaier: NO. I MEAN THEY'RE PRETTY EXPENSIVE AND --

Pearson: WE HAVEN'T HAD VERY MANY OPPORTUNITIES WHERE YOU COULD DO THAT ANYWAY.

Pfitzenmaier: YOU'RE ALMOST ALL THE TIME BETTING ON THE CALM A LITTLE BIT WHEN YOU PUT CALVES IN, AND THAT SITUATION IS PROBABLY NOT THAT MUCH DIFFERENT NOW THAN NORMAL.

Pearson: ABOUT A MINUTE, TOMM. A BIG SELL-OFF ON THE BOARD ON THESE HOGS. HOG BUSINESS HAS JUST BEEN -- IT SEEMS LIKE WE GET UP AND START MOVING IN THE RIGHT DIRECTION, AND THEN WE FALL RIGHT BACK OFF AGAIN. WHAT'S AHEAD?

Pfitzenmaier: WELL, MARK, BACK IN 1998, WHEN WE DUMPED THIS HOG PRICE, ALL WE HEARD THE WHOLE TIME WAS WE DIDN'T HAVE SLAUGHTER CAPACITY FOR ALL THE HOGS. AND WE HAD SLAUGHTER OF HOGS OVER THE LAST TWO WEEKS THAT HAVE BEEN HIGHER THAN WE'VE EVER HAD BEFORE. SO, YOU KNOW -- AND I DON'T KNOW THAT WE'VE ADDED A LOT OF KILL CAPACITY SINCE 1998, SO IT DOES MAKE YOU CAUTIOUS. DECEMBER HOGS ARE AT $60. A YEAR AGO THEY WERE AT 40. AND WHAT'S CHANGED, REALLY? SO I THINK THESE HOGS ARE PROBABLY STILL A LITTLE OVERVALUED. YOU COULD SEE DECEMBER HOGS BREAK BACK TO AS MUCH AS $50, I BELIEVE.

Pearson: OKAY. THAT'S GOING TO BE QUITE A PULLBACK. ANY HEDGE OPPORTUNITIES OUT THERE FOR SPRING/SUMMER?

Pfitzenmaier: WELL, YEAH. I THINK ANY RALLIES THAT CAN BE SOLD ON THAT FEBRUARY/APRIL/MAY CONTRACTS PROBABLY NEED TO BE SOLD OR PUTS BOUGHT.

Pearson: VERY GOOD. TOMM PFITZENMAIER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT AS YOU KNOW, THESE MARKETS HAVE BEEN PRETTY ACTIVE, SO IF YOU'D LIKE ADDITIONAL GUIDANCE FROM TOMM ON WHAT'S AROUND THE CORNER, BE SURE TO GO TO THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE'LL EXAMINE THE CLASH BETWEEN TWO DIFFERENT AGRONOMIC CULTURES. 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 soybeans