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Market Analysis: Oct 17, 2003

posted on October 17, 2003


Traders spent the week trying to determine if soybean prices had gone high enough to ration tight supplies, while fund buying keyed a small rally in wheat.

For the week, nearby wheat futures gained a penny and a half. The December corn contract remained under pressure and lost two cents.

Nearby bean futures retreated from midweek highs but still finished nearly 16 cents higher. December meal gained nearly seven dollars per ton.

December cotton had a great week, jumping nearly $4.00 a hundredweight.

In livestock, live cattle futures advanced more than two dollars. October feeders lost $1.17. And the lean hog contract gained $1.37.

In financials, Comex gold dropped $1.80 per ounce. The Euro lost 156 basis points against the dollar. And the CRB Index plunged nearly five points to close at 242-even.

Here now to lend us her insight on these and other fast-moving market trends is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Oct 17, 2003

Pearson:WELL, LET'S TALK FIRST ABOUT THIS SOYBEAN MARKET, WHERE ALL THE VOLATILITY HAS BEEN AND CONTINUES TO BE AND ALL THE CONCERN CONTINUES TO BE. SOME PEOPLE SAY WE'RE LOOKING MAYBE AT $7 IN A LOT OF THE MIDWEST FOR CASH BEANS. SOME PEOPLE ARE SAYING WE SHOULD HANG ONTO THEM; THIS THING COULD GET BETTER. WHAT'S YOUR OUTLOOK FOR SOYBEANS, SUE?

Martin: WELL, I DEFINITELY THINK BEANS ARE GOING TO GET BETTER. BUT AS A PRODUCER, YOU KNOW, THE BASIS LEVELS IS VERY GOOD. THE DEMAND IS ALL UP FRONT. THAT'S A GOOD BULL MARKET WHEN THE DEMAND HAPPENS TO BE UP FRONT AND IT PULLS. AND IT'S GOING TO CONTINUE TO PULL THAT WAY BECAUSE, BASICALLY, THE ONLY PLACE TO GET SOYBEANS FOR THE WORLD INTEREST IS OUT OF THE U.S. AND SO I THINK THAT AS A PRODUCER, IF YOU'RE SELLING CASH BEANS, I STILL THINK YOU WANT TO RETAIN SOME OWNERSHIP, GO OUT TO THE MAY FUTURES, BUY BACK MAY FUTURES. THEY'RE QUITE A BIT DISCOUNT TO BE UP FRONT. AND I THINK WITH TIME, THAT WILL REWARD YOU WITH SOMETHING. I THINK THAT ANOTHER WAY TO DO IT IS MAYBE ALSO BUYING CALL OPTIONS OUT IN THE MAY TIME FRAME, BUT I WOULD DEFINITELY WANT TO RETAIN SOME FORM OF OWNERSHIP. BUT NOTHING WRONG WITH MOVING SOYBEANS AT THE PRESENT TIME. NOW, THE $7 CASH PRICE LEVEL IS CREATING SOME HEDGE PRESSURE HERE AS FARMERS ARE SELLING. BUT THE 740, -42 AREA, WHICH ALLOWS FOR THAT CASH $7 PRICE IS TECHNICALLY A RESTING SPOT. EARLIER IN THE YEAR, AROUND MAY WHEN I WAS LOOKING FOR $7 TO $8 BEANS, 742 WAS A PRICE TARGET THAT WAS VENTED OFF OF A LEAD MONTH. WELL, SINCE WE DIDN'T GET IT AT THOSE TIME FRAMES, THAT STILL IS IN TARGET FOR NOW. AND SO THOSE SAME COUNTS ARE STILL IN FRONT OF. US AND SO ONCE WE GET THROUGH THE 740 AREA, I SUSPECT WE MAY COME IN -- WE'VE HAD ELEVEN WEEKS UP IN THIS BEAN MARKET, SO WE'RE DUE FOR SOME DOWN TIME, NOT MUCH BUT A LITTLE DOWN TIME, A RESTING PERIOD. WE PULL THE MARKET BACK. OPTIONS EXPIRE THIS FOLLOWING FRIDAY. I THINK THE MARKET COULD TRY TO COME BACK, EITHER TAKE OUT THE 720 LOW THAT WE HAD HERE THIS PAST WEEK AND THEN RESET ITSELF FOR HEADING HIGHER OR IT TRIES TO CLOSE LOWER AT THE END OF NEXT WEEK BEFORE IT STARTS TO REASSERT ANOTHER MOVE UP. I'M LOOKING FOR BEANS TO GO UP TO THE 764 AREA, 760, AND TEST THAT LEVEL. IT CAN EITHER BE THE NOV. -- PROBABLY THE NOVEMBER CONTRACT WILL DO SO. WE'RE LOOKING AT ANOTHER USDA REPORT COMING OUT IN NOVEMBER WITH LOWER PRODUCTION NUMBERS. THE USDA IN THE LAST REPORT IN THE SEPTEMBER -- OR THE OCTOBER SUPPLY/DEMAND REPORT CERTAINLY SHOWED THAT THEY ARE REASSERTING THEIR -- OR REISSUING NEW NUMBERS, OR REVISING THEIR NUMBERS IS A BETTER WAY TO PUT IT. SO THESE -- THEY'VE MADE SOME BLUNDERS IN THE PAST. AND, OF COURSE, THAT'S WHY OUR PRICES STAYED DOWN SO LOW FOR SO LONG, AND NOW THEY'RE CHANGING THEIR WAYS AND THEY'RE COMING OUT BEING MORE DIRECT, MORE HONEST WITH US. AND I THINK THE NOVEMBER REPORT IS GOING TO BE PRETTY FRIENDLY. I ALSO THINK THIS IS PROBABLY YOUR BEST NUMBER YOU'RE GOING TO SEE. I DON'T KNOW AS IF I BELIEVE THE FINAL IN JANUARY WILL BE ANY BETTER THAN WHAT WE SEE IN NOVEMBER. SO I CAN'T BELIEVE THE MARKET HOLDS DOWN PERIODS VERY LONG. ONCE WE MAKE IT THROUGH THE 760 LEVEL, THEN YOU'RE OPENING UP THE DOORS FOR 820 TO POSSIBLY 835, 840.

Pearson: 742, 760, THEN 8 --

Martin: YEAH, 820.

Pearson: 820 AND THEN, KATIE, BAR THE DOOR. HERE'S THE SCENARIO I HEAR PEOPLE TALKING ABOUT. I HEAR PEOPLE TALKING ABOUT THE FACT THAT BRAZIL BEANS HAVE BEEN SOLD OR A LARGE PORTION OF THEM HAVE BEEN SOLD. THEY'VE MOVED THE CROP DOWN THERE. CHINESE ECONOMY THERE IS STRONG. THEY'RE GOING TO BUY BEANS NO MATTER WHAT, OR BEAN MEAL. THEY'RE GOING TO BUY ONE OR THE OTHER. AND THERE WON'T BE MORE BEANS COMING OUT UNTIL THIS BRAZIL CROP STARTS SURFACING IN THE SPRING.

Martin: ABSOLUTELY, MARK. BEANS IN BRAZIL -- OR I MEAN IN CHINA ARE GOING FOR 10.40 A BUSHEL ON THEIR EXCHANGE. SOYMEAL IS OVER 310 A TON. SO BY THE TIME YOU TAKE FREIGHT RATES, YOU CAN TAKE AND DISCOUNT THE FREIGHT RATE OFF OF THAT, AND THEY STILL CAN BE PAYING WELL OVER $8 FOR BEANS. AND BEANS OUT OF THE U.S. ARE STILL CHEAPER THAN OUT OF SOUTH AMERICA. THE BRAZILIANS HAVE BEEN VERY AGGRESSIVE SELLERS AHEAD OF NEW CROP. AND AT SOME POINT, IF THERE'S A WEATHER ISSUE DOWN THERE, THEY'VE GOT TO BUY THOSE HEDGES BACK. I THINK THIS IS A MARKET THAT HAS THE EARMARKINGS OF A CATTLE MARKET. ANY SEVERE WEATHER ISSUES DOWN IN BRAZIL THAT DISPLACES THAT CROP AND YOU'VE GOT A BEANS-IN-THE-TEENS PHRASE COMING.

Pearson: ALL RIGHT. LET'S TALK ABOUT ONE THAT HAS BEEN GOING IN THE UP DIRECTION. THAT'S BEEN CORN. PEOPLE WERE TAKING LDPs ON CORN IN SOME PARTS OF THE CORN BELT THIS WEEK. WHAT'S AHEAD FOR THIS CORN MARKET, SUE?

Martin: WELL, UNFORTUNATELY, TODAY WAS A GOOD EXAMPLE OF THE CORN MARKET. 66 MILLION EXPORT -- BUSHEL EXPORT, AND THE MARKET OPENS A PENNY, PENNY AND A HALF HIGHER, AND ENDS UP CLOSING LOWER. BUT IT'S A GOOD HARVEST WEEKEND, SO YOU HAD HEDGE PRESSURE TODAY. THIS CORN MARKET -- WE ALL KNOW THERE'S GOOD CORN YIELDS OUT THERE, AN ABUNDANT CROP. SO WHILE WE HAVE GOOD DEMAND -- AND WE'RE GOING TO KEEP THAT GOOD DEMAND, AND IT'S EXPECTED TO GET BETTER AS WE GO TOWARDS THE WINTER -- I SUSPECT YOU HAVE A CORN MARKET HERE THAT ON THE DECEMBER FUTURES WANTS TO GO DOWN AND CHECK OUT THE CONTRACT LOWS. I LOOK FOR NEW CONTRACT LOWS ON DEC. CORN.

Pearson: OKAY. FROM A STRATEGY STANDPOINT, WHAT ARE YOU TELLING PRODUCERS?

Martin: I'M TELLING PRODUCERS TO TAKE ADVANTAGE OF LDPs BECAUSE THERE IS A LIMIT TO HOW LOW THIS MARKET IS GOING TO GO. SO ONCE WE GET THIS NEW LOW TAGGED -- AND 209.5 IS THE LOW -- ONCE WE TAG THAT, WE MAY VERY WELL BE DONE WITH THIS MARKET. IT MIGHT BE A DOUBLE BOTTOM LOW. SO I'M SUGGESTING TO PRODUCERS BE SURE YOU TAKE YOUR LDPs. I DON'T THINK THE GOVERNMENT WANTS TO PAY LDPs FOR VERY LONG. AND IN SOME PARTS OF INDIANA AND ILLINOIS, THEY'VE HAD UP TO 8 CENTS. IN IOWA, 3 TO 5 CENTS. MINNESOTA AROUND 3 CENTS. I WOULD SAY A 5-CENT LDP IN IOWA MIGHT NOT BE ALL BAD.

Pearson: OKAY. LET'S TALK ABOUT THE SISTER COMMODITY THERE, THE WHEAT MARKET. IT HAD A NICE BIG RUN, KIND OF A PRECURSOR TO WHAT'S HAPPENED IN SOYBEANS. IT SOFTENED UP SOME. AND AGAIN, WE HAD A LITTLE BIT OF A JUMP THIS WEEK. NOT A WHOLE LOT. WHAT'S AHEAD? WHAT ARE YOU TELLING WHEAT PRODUCERS?

Martin: WELL, I THINK THE PROBLEM WITH THE WHEAT MARKET IS, IS THAT IT NEEDS DEMAND. SEE, OUR RALLY OUT OF AN EARLY HARVEST LOW WAS ALL ON THE EXPECTATION OF DEMAND. DEMAND FIZZLED AND THE MARKET FELL. WE ARE NOW SEEING SOME WHEAT BEING SOLD BY THE FARMER. BUT I THINK MORE THAN ANYTHING, WE HOPED THAT THIS WEEK, ON SOME RUMORS OF EGYPTIAN BUYING, ALSO SOME RUMORS OF CHINA BUYING, WHICH MIGHT JUST BE A SMALL AMOUNT, WE HAD HOPED TO SEE THE WHEAT MARKET DO A REVERSAL WEEK, AND IT FAILED US. IT CLOSED HIGHER BUT IT WAS NOT THE REVERSAL WE EXPECTED. I THINK WHEAT WANTS TO GO DOWN AND CHECK OUT THE 313 LEVEL.

Pearson: OKAY. SO WE'RE PROBABLY HEADED A LITTLE BUT FURTHER SOUTH. THE COTTON MARKET, A BIG JUMP THIS WEEK. THAT'S BEEN A TREMENDOUS BULL MARKET.

Martin: OH, IT'S A WONDERFUL BULL MARKET. OF COURSE, GOOD DEMAND. CHINA IS GOING TO BE IN THE WORLD MARKET FOR COTTON, AS WELL AS BEANS. SO IT'S A GOOD MARKET. COTTON SURE HAD ITS SHARE OF ISSUES WITH WEATHER THIS YEAR OUT OF THE U.S. STOCKS ARE TIGHT. I THINK THAT THE COTTON MARKET WILL HOLD SOME GAINS HERE. I WOULDN'T BE SURPRISED IF WE STILL TRY TO GET UP TOWARDS -- AND TAG THAT 80-CENT LEVEL.

Pearson: ALL RIGHT. LET'S TALK ABOUT LIVESTOCK AND THE AMAZING CATTLE MARKET OF 2003. A LOT OF THINGS EARLY ON LOOKED NEGATIVE. WE BECAME CURRENT. DEMAND HAS HELD UP PRETTY GOOD. RECORD PRICES FOR FED CATTLE. IT'S UNBELIEVABLE. I DIDN'T THINK WE'D SEE IT IN OUR LIFETIMES, BUT IT'S HERE. AND EVERYONE IS KIND OF PINCHING THEMSELVES. THEY'RE ALL RIDING PRETTY HIGH IN THE SADDLE. AND WHEN YOU DO THAT, YOU KNOW, WHEN YOU FALL OFF, IT CAN HURT. WHAT'S AHEAD FOR THIS FED-CATTLE MARKET?

Martin: WELL, I THINK THAT YOU JUST SAID IT: IT CAN HURT WHEN YOU FALL OFF. AND I THINK THAT EVERYBODY GOT THROUGH AN EMOTIONAL WEEK AND A LOT OF MARGIN CALLING. AND THEY'RE SO CONCERNED ABOUT PAYING THESE MARGINS, AND NOTHING MAKES YOU MORE EMOTIONAL WHEN YOU'RE WRITING THOSE CHECKS. BUT WE HAVE TO PINCH OURSELVES AND REMEMBER THESE ARE ALL-TIME HIGHS. YOU'RE MAKING GOOD MONEY. YOU ARE HAPPY AS A LARK WITH WHAT YOU WERE LOCKING IN ON THOSE HEDGES. AND I'M AFRAID THAT NOW, BECAUSE THEY'VE BEEN PAYING HEDGES -- MARGIN MONEY FOR HEDGES, THEY'RE THINKING, WELL, I DON'T WANT TO DO THIS AGAIN, AND THEY'RE GOING TO END UP NOT HEDGING LIKE THEY SHOULD. AND THEN THEY'RE GOING TO GET CAUGHT. AND I THINK THAT WHAT'S GOING TO HAPPEN IS THEY NEED TO KEEP A LEVEL GROUND HERE, CONTINUE TO PENCIL THINGS OUT, AND SEE HOW GOOD YOUR MARGINS ARE. AND IF YOU'RE LOCKING IN SOME NICE PROFITS -- AND WITH SOME OF THESE HIGH PRICES YOU'RE PAYING FOR REPLACEMENT CATTLE, YOU'VE GOT TO BE LOOKING AT SOME KIND OF A PROGRAM FOR PROTECTION. PUTS ARE EXPENSIVE, SO YOU NEED TO LOOK AT STRATEGIES. BUT I THINK YOU HAVE TO KEEP SOME HEDGING PROGRAM IN PLACE. I THINK THAT OVER THE NEXT MONTH TO MONTH AND A HALF, WE'RE CERTAINLY NOT GOING TO SEE THE MARKETINGS AS AGGRESSIVE AS WE'VE BEEN SEEING. I THINK THAT THE PLACEMENTS WILL STAY AGGRESSIVE. I THINK THAT WHEN WE LOOK AT THIS CATTLE MARKET THIS NEXT WEEK, I THINK THIS IS WHERE THE BURDEN OF PROOF IS GOING TO BE. I THINK THE CATTLE PACKER IS GOING TO BECOME HARDER TO DEAL WITH.

Pearson: RETAIL-WISE, SO FAR WE'VE HELD UP PRETTY GOOD, BUT THERE'S A LOT OF PORK OUT THERE. IT'S BEEN GOING -- WE'RE GOING TO TALK ABOUT PORK IN A MOMENT. LET'S PURSUE THIS BEEF A LITTLE BIT FURTHER. RIGHT NOW WHEN YOU LOOK AT WHAT'S HAPPENING ON THE BOARD, WHAT'S HAPPENING TO THIS CASH MARKET, AND WHAT THESE FEEDERS ARE BEING PAID, IT LOOKS AWFUL CHALLENGING TO MAKE THOSE WORK.

Martin: I THINK SO TOO. AND THE ONE THING ABOUT THE PRODUCT -- THIS PRODUCT, WHILE IT HAS BEEN HIGHER, IT'S NOT BEEN MOVING VERY AGGRESSIVELY. IT'S BEEN SLOW MOVEMENT, WHICH HAS BEEN HELPING THE PORK OUT INSTEAD. WE ARE SEEING SOME RESISTANCE. WE'RE EXPORTING IT AND WE HAVEN'T SEEN OUR EXPORTS SLOW YET, WHICH GOES TO SHOW -- KIND OF SLIPPING BACK TOWARDS BEANS ON YOU, MARK -- BUT IT GOES TO SHOW THAT THEY WILL PAY A HIGH PRICE FOR SOMETHING, SO HOW HIGH CAN BEANS GET TOO. SO WHEN WE COME BACK TO THE MEAT MARKET, PORK IS CHEAP. I THINK THAT YOU'RE SEEING A LOT OF RESISTANCE. THE HOUSEWIFE, I'M SORRY, SHE HAS A BUDGET SHE HAS TO FOLLOW WHEN SHE'S FEEDING MOUTHS. AND, OF COURSE, HAMBURGER IS GETTING HIGH PRICED TOO.

Pearson: ALL RIGHT. LET'S TALK ABOUT PORK. THAT'S THE OTHER OPTION. AND WE'RE STARTING TO SEE MORE FEATURING OF PORK. FOR THE PORK PRODUCER OUT THERE, LOOKING DOWN THE ROAD -- WE'VE SEEN A NICE RALLY ON THE BOARD IN HOGS, LONG AWAITED. LONG OVERDUE, SOME WOULD SAY. IS THIS ALMOST A COUNTERSEASONAL SITUATION NOW WITH HOGS?

Martin: IT VERY MUCH IS. THIS IS A COUNTERSEASONAL MOVE IN THE HOG MARKET. I BELIEVE THAT WE'LL SEE DECEMBER HOGS GO OFF THE BOARD QUITE STRONG. I WILL SAY THIS, THE OCTOBER FUTURES WENT OFF THE BOARD DISCOUNT TO THE DECEMBERS. AND IN YEARS -- OH, IN THE LAST SIXTEEN, TWENTY YEARS, WHENEVER THAT'S OCCURRED, THE DEC. WILL MAKE AN EFFORT TO TRY TO COME BACK AND ALIGN A LITTLE BIT WITH THAT BEFORE IT PROCEEDS ON HIGHER. BUT I DO LOOK FOR A GOOD STRONG DECEMBER EXPIRATION.

Pearson: ALL RIGHT. LIKE YOU YOU SAY, IT'S GOING TO BECOME AN OPTIONAL PROTEIN NOW FOR THE CONSUMER OUT THERE.

Martin: WELL, IT CERTAINLY IS. AND, YOU KNOW, WHEN WE GO DOWN THE ROAD, I LOOK AT NEXT YEAR AND I BELIEVE THE HOG MARKET IS THE MEAT MARKET FOR NEXT YEAR. I THINK THAT THE HOG PRODUCERS HAD THREE YEARS OF BAD TIMES. HIS DAY IS COMING. IT MIGHT NOT BE WHAT THE CATTLE GUY GOT, BUT IT'S CERTAINLY GOING TO BE WAY BETTER THAN IT'S BEEN.

Pearson: OKAY. SO AGAIN, SO AT THIS STAGE, YOU'RE NOT IN A BIG HURRY TO HEDGE SPRING AND SUMMER HOGS.

Martin: NOT AT ALL. IN FACT, THE HOG MARKET, I WOULD SAY IF YOU'RE GOING TO BE HEDGING, VIA PUTS.

Pearson: OKAY. SOME EXCELLENT ADVICE AS USUAL FROM SUE MARTIN. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO LEARN MORE FROM SUE ON THESE VERY ACTIVE MARKETS, SIMPLY GO TO THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE FOR ADDITIONAL STREAMING AUDIO ANALYSIS. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE CONGRESSIONAL EFFORTS TO MAXIMIZE FARM INCOME. 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 wheat