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Market Analysis: Oct 10, 2003

posted on October 10, 2003


As reported earlier, the USDA's October crop estimates gave bulls the run of the bean market, while the bears took up residence in the grain pits.

For the week, the nearby wheat futures contract was down by 25½ cents. December corn was off by nearly 7 cents.

Driven by the crop report, November beans gained a whopping 35½ cents for the week. October meal was up $16.30 per ton.

December cotton futures enjoyed a $4.21 gain.

In livestock, live cattle soared $7.50, nearby feeders were up $5.22, while the October lean hog contract gained a mere nickel for the week.

In the financials, Comex gold jumped $4.20 an ounce. The Euro gained 244 basis points against the dollar. And the CRB Index advanced more than four points for the week to close at 246.75.

Here now to lend us further insight on these impulsive markets is one of our regular expert analysts, Doug Hjort. Welcome back.

Market Analysis: Oct 10, 2003

Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S START OFF WITH THE ONE THAT WAS THE MOST VOLATILE. THAT WAS THE SOYBEAN MARKET, AT LEAST ON THE UPSIDE. WHAT A SURPRISE. THE USDA NUMBER, ROUGHLY 2.5 BILLION BUSHELS, A HUNDRED MILLION UNDER WHAT THE ANALYSTS WERE EXPECTING. WHAT'S AHEAD NOW FOR BEANS?

Hjort: WELL, ON FRIDAY AFTER THE REPORT CAME OUT, WE OPENED NEAR THE HIGH OF TRADING THAT DAY, 35 CENTS HIGHER, TRADED AROUND THERE FOR A WHILE, CLOSING 21 CENTS HIGHER. THERE ARE THOSE AROUND THAT SAY THAT'S NOT GOOD NEWS CLOSING THAT MUCH OFF THE HIGH. I WOULD THINK THAT'S VERY GOOD BECAUSE IT GIVES EVERYBODY IN THE MARKETPLACE A FOOTHOLD. THEY CAN DO WHATEVER THEY WANT TO AND POSITION THEMSELVES ACCORDINGLY. I WOULD IMAGINE MOST OF THE SPECULATIVE CROWD, AT LEAST, WAS LONG GOING INTO THIS REPORT, OR AT LEAST WANTED TO BE POSITIONED WITH SPREADS OR WHATEVER. WHAT'S REALLY HAPPENING HERE IS THAT OUR PRODUCTION IS SO LOW THAT A SIGNIFICANT AMOUNT OF RATIONING WILL HAVE TO TAKE PLACE, EVEN THOUGH WE'VE GOT THIS HUGE SUPPLY COMING FROM SOUTH AMERICA, NOT ONLY COMING WITH THE NEW CROP BUT SUPPLIES THAT ARE STILL HANGING OUT THERE FROM THE OLD CROP.

Pearson: WELL, AS WE GO AHEAD, AS WE GO ON DOWN THE ROAD, DOES IT LOOK LIKE WE'RE GOING TO BREAK THIS BASIS VALUE VERY MUCH OR IS DEMAND HOLDING UP PRETTY GOOD IN THE FACE OF THIS VERY LIGHT FALL HARVEST?

Hjort: WELL, I DON'T THINK WE'RE GOING TO BREAK BASIS VERY MUCH AT ALL, BECAUSE REMEMBER WHEN WE MOVED FROM THE OLD CROP PRICES TO THE NEW CROP, BASIS LEVELS DROPPED DRAMATICALLY. AND SO NOW WE'RE DOWN HERE PROBABLY A LITTLE BIT STRONGER BASIS THAN NORMAL AT THIS TIME. BUT GIVEN THE CROP SIZE, FARMERS KNOW THAT NOW, SO THEY'RE NOT GOING TO BE WILLING SELLERS UNLESS THEY GET THEIR PRICE. WHO KNOWS WHERE THAT'S GOING TO BE? SOME FARMERS, OBVIOUSLY, ARE VERY, VERY BULLISH, LOOKING FOR $1, $2. PICK YOUR NUMBER OUT THERE. BUT I THINK SALES WILL BE LIMITED IF FOR NO OTHER REASON THAN THE SMALLER CROP ITSELF. SO I THINK BASIS LEVELS WILL STAY QUITE FIRM. ALSO, WHEN YOU LOOK AT THE END USER, YES, THERE ARE SOME SUPPLIES AROUND THE WORLD YET THAT WEREN'T CLEANED UP FROM LAST YEAR, BUT STILL THOSE BUYERS ARE GOING TO HAVE TO COME TO THE UNITED STATES TO FILL ORDERS AS WELL. IF THEY LOOK AT THIS REPORT, THEY KNOW THAT PRICES HAVE NO BUSINESS GOING DOWN. SO IF THE LESS -- THE PATH OF LEAST RESISTANCE IS TO THE UPSIDE, THEY CERTAINLY WOULD WANT TO COME IN AND BE BUYERS TO FILL THEIR NEEDS.

Pearson: ALL RIGHT. SO FROM A FARM PERSPECTIVE, FROM A STRATEGY STANDPOINT, IT LOOKS AWFULLY TEMPTING TO ME JUST TO SELL RIGHT OFF THE COMBINE.

Hjort: WELL, IT DOES AND YET THERE'S AWFULLY GOOD REASON TO BE LOOKING AT SOME SIGNIFICANT RALLIES TOO. IF YOU LOOK AT JUST THE U.S. NUMBERS, WHICH YOU CAN'T DO, OF COURSE, HERE WITH SOYBEANS, YOU SHOULD BE UP $2 OR $3 JUST GIVEN THESE NUMBERS. THAT IS GOING BACK TO PREVIOUS YEARS AND LOOKING AT SIMILAR SUPPLY/DEMAND RELATIONSHIPS. WITH THIS LARGER SUPPLY IN THE WORLD, THOUGH, WE'RE NOT GOING TO GO THAT MUCH. BUT THE RALLY POTENTIAL IS REALLY GOING TO BE THERE. NOW, WHEN YOU LOOK AT WHERE PRICES CLOSED ON FRIDAY AND HOW THEY COULD POSSIBLY BE RALLYING AND RESISTANCE POINTS, YOU'RE LOOKING AT PROBABLY 30, 35 CENTS TO THE NEXT MAJOR RESISTANCE POINT FROM FRIDAY'S CLOSE. AS YOU MOVE UP THAT LADDER, OBVIOUSLY YOU NEED TO BE VERY MUCH AWARE OF WHAT THE REST OF THE PRICE POSSIBILITY IS -- RALLY POSSIBILITY IS. SO, YES, I THINK LOOKING AT SELLING OPPORTUNITIES AND WATCHING PRICING ACTION VERY, VERY CAREFULLY HERE, BECAUSE IT WOULD BE WAY TOO EASY TO GET TOO BULLISH HERE AND MISS GOOD SELLING OPPORTUNITIES.

Pearson: ALL RIGHT. WELL, LET'S FLIP OVER TO THE GRAINS, WHERE BOTH WHEAT AND CORN TOOK IT ON THE CHIN THIS WEEK. A 10.2-BILLION-BUSHEL CORN CROP. THE WHEAT NUMBER, A LITTLE BIT ON THE DISAPPOINTING SIDE. A LITTLE BETTER YIELDS THAN MAYBE AROUND THE WORLD THAN WHAT PEOPLE HAD THOUGHT. WHAT'S YOUR TAKE THERE, DOUG? LET'S START FIRST WITH WHAT'S HAPPENING AS FAR AS THE WHEAT MARKET IS CONCERNED.

Hjort: WELL, IN THE WHEAT MARKET, THERE REALLY WEREN'T A WHOLE LOT OF CHANGES ON THIS REPORT. BUT THE DAMAGE DONE TO THE WHEAT MARKET THIS WEEK, 25 CENTS DOWN OR SO, CAME ON A -- IT SHOWS HOW FRAGILE THIS MARKET REALLY IS. AUSTRALIA PICKED UP TWO CONSECUTIVE SALES OF WHEAT TO EGYPT. WELL, EGYPT IS U.S. TERRITORY. THAT'S WHAT WE USED TO THINK ANYWAY UP UNTIL LAST YEAR, AND WE HAD HOPED TO GET MOST OF THAT BACK. WELL, WE PROBABLY WILL GET A GOOD SHARE OF THAT BACK, BUT JUST THE FACT THAT EGYPT WAS STEALING A LITTLE BIT AWAY FROM US, SO TO SPEAK, PUT THAT MARKET DOWN. THAT MARKET IS GROSSLY OVERSOLD RIGHT NOW, GIVEN WORLD CONDITIONS, GOOD BUYING OPPORTUNITIES. AND I WOULD EXPECT TO SEE SOME RALLY POTENTIAL THERE, BUT WE'VE HURT THAT MARKET A LOT, TAKEN A LOT AWAY FROM IT. SO RALLIES NEED TO BE USED AS SELLING OPPORTUNITIES.

Pearson: OKAY, THE CORN MARKET, 10.2-BILLION-BUSHEL CORN CROP. A GOOD ONE BY ALL -- FOR ALL INTENTS AND PURPOSES. AGAIN, IT SAYS SOMETHING FOR THESE HYBRIDS THAT ARE OUT THERE THAT WHEN YOU DON'T HAVE RAIN IN MANY PLACES IN THE CORN BELT FOR FOUR TO FIVE WEEKS, TO STILL PRODUCE A TREMENDOUS CROP. SALES-WISE, WHAT ARE WE GOING TO DO THERE?

Hjort: WELL, I DON'T THINK YOU DO ANYTHING BUT CASH LDPs DURING THE HARVESTTIME. WHEN YOU LOOK AT RALLY POTENTIAL FOR CORN, YOU HAVE TO LOOK AT THE TOTAL WORLD GRAIN SITUATION. THAT'S JUST AS BULLISH NOW AS IT EVER HAS BEEN. NOW, WITH CHINA'S CORN PRODUCTION BEING CUT 4 MILLION TONS ON THIS REPORT, USDA DID NOT LOWER THEIR EXPORT POTENTIAL. NOW, CHINA'S STOCK LEVEL IS ALWAYS A BIG QUESTION MARK. WE NEVER REALLY KNOW WHAT IT IS. BUT THERE'S A POSSIBILITY THAT THE U.S. COULD PICK UP MORE EXPORT SALES THAN WHAT USDA IS PREDICTING AT THE PRESENT TIME... PERHAPS A HUNDRED MILLION, MAYBE EVEN 200 MILLION BUSHEL. NOW, THAT'S STILL NOT GOING TO MAKE A REAL BULL CASE OUT OF OUR CORN, BUT IT SHOULD PROVIDE FOR A GOOD SOLID RALLY AFTER THE HARVEST LOWS ARE IN. SO I THINK THAT THE PLAN HERE WOULD BE TO CASH THE LDPs IF THAT'S YOUR -- IF YOU'RE IN A CASH MODE, AND HOLD ON TO THE GRAIN FOR A WHILE, A COUPLE MONTHS MAYBE. FIND STORAGE IF YOU NEED TO, BUT TAKE ADVANTAGE OF POST-HARVEST RALLIES.

Pearson: SPEAKING OF RALLIES, BIG RALLY IN COTTON THIS WEEK TOO.

Hjort: YEAH, THERE WAS, YET THE REPORTS ON FRIDAY WERE A LITTLE BIT ON THE NEGATIVE SIDE. NOT AS BULLISH AS WAS EXPECTED, LET'S PUT IT THAT WAY. SO WE'LL SEE THAT MARKET UNDER A LITTLE BIT OF PRESSURE HERE NEXT WEEK.

Pearson: OKAY. I WANT TO TALK ABOUT LIVESTOCK. THIS FED-CATTLE MARKET, IN OUR LIFETIMES I DON'T THINK WE EVER THOUGHT WE'D SEE THIS, WHAT WE'RE SEEING HERE IN THE LAST TEN DAYS, TWO WEEKS IN THIS FED-CATTLE MARKET. EVERYONE KEEPS PINCHING THEMSELVES. I'VE HEARD GUYS SAY, "I'M RIDING AWFUL HIGH IN THE SADDLE. I'M KIND OF WORRIED ABOUT FALLING OFF." ARE WE GOING TO FALL OFF? WHAT'S GOING TO HAPPEN IN THIS FED-CATTLE MARKET, DOUG?

Hjort: WELL, YOU MENTIONED EARLIER IN THE SHOW THE MAD COW SITUATION IN JAPAN THIS TIME AROUND. THAT'S ALL IT TOOK TO JUST GET IN THE MINDS OF THE CATTLE PEOPLE, HEY, THERE'S NO CHANCE THAT WE'RE GOING TO BRING THESE YOUNG ANIMALS, THESE FEEDLOT ANIMALS IN FROM CANADA NOW. WELL, WE MIGHT. THAT WILL BE ONE OF THE THINGS. THE OTHER THING IS THESE PRICES ARE GETTING SO HIGH, WE HAVE TO SERIOUSLY WONDER ABOUT HOW LONG THIS DEMAND IS GOING TO STAY UP. SO ONE WAY OR ANOTHER, WE'RE GOING TO SEE A TOP IN THIS MARKET. VERY TOPPY ACTION HERE NOW, BUT THE BULLISHNESS IN THE FRONT MONTHS KEEP PULLING THE BACK MONTHS UP, EVEN AFTER THEY GO DOWN PRETTY SHARPLY. THEY'VE BEEN DOWN A COUPLE DAYS THIS WEEK, IN FACT, IN THE BACK MONTHS. SO YOU NEED TO PLAY THIS MARKET. WE KNOW THAT THESE PRICES ARE PROBABLY $20 OVERPRICED WHAT A NORMAL CONDITION WOULD HAVE BEEN, HAD IT NOT BEEN FOR THE CANADIAN SITUATION. AND YET WITHOUT CANADIAN BEEF, WE DON'T HAVE ENOUGH. NOW, IN ABOUT A MONTH'S TIME, WE SHOULD START TO SEE AN INCREASE IN THE SLAUGHTER NUMBERS COMING OUT OF THE UNITED STATES -- OR IN THE UNITED STATES. SO THAT MIGHT TEND TO BE THE CATALYST THAT WILL TOP THIS THING OFF AND START MOVING THINGS DOWN A LITTLE BIT. SELL THE CATTLE AS SOON AS THEY'RE FINISHED IF YOU'VE GOT CATTLE ON FEED. AND AS FAR AS HEDGING, I THINK YOU NEED TO BUT, BOY, THAT'S GOING TO BE A RISKY THING TO DO. YOU BETTER HAVE A LOT OF MARGIN MONEY BEHIND YOU TO PUT IT ON. IF YOU GO OUT TO THE DECEMBER OR ESPECIALLY THE FEBRUARY, I THINK A HEDGE THERE WOULD PAY $90, $91, BECAUSE CASH PRICES ARE NOT GOING TO BE THERE, I DON'T THINK. BUT IN THE MEANTIME, YOU MIGHT HAVE TO MARGIN THAT UP RATHER SIGNIFICANTLY TO HANG ON TO THE POSITION.

Pearson: OKAY. BUT OVERALL, YOU'RE NOT ALL THAT NEGATIVE ABOUT THIS MARKET.

Hjort: WELL, YOU CAN'T BE BECAUSE OUR PRODUCTION OF BEEF JUST IS NOT ENOUGH TO SATISFY THIS DEMAND. NOW, PRICE MIGHT CUT THAT DEMAND BACK, AS I SAID EARLIER, AND THAT'S ONE THING WE REALLY HAVE TO BE LOOKING FOR. BOXED BEEF VALUES, I THINK WE'RE UP OVER $12 IN SOME OF THE CUTS THIS WEEK. OBVIOUSLY THAT'S ALL-TIME RECORD HIGH PRICES, AND THE RETAILER IS GOING TO HAVE TO WORK WITH THAT SOMEHOW TO KEEP MOVING IT ON THROUGH THE COUNTER.

Pearson: ONE THING WE HAVE BEEN DOING IS FEATURING PORK, ALTHOUGH WE'RE REALLY NOT SEEING THAT MUCH OF AN IMPROVEMENT ON THIS CASH HOG MARKET.

Hjort: NO, WE'RE NOT. AND A LOT OF PEOPLE WERE THINKING THAT MAYBE WE WOULDN'T HAVE MUCH OF A SLIDE ON THE HOG PRICES THIS FALL. WELL, IT STARTED EARLIER THAN WE WOULD HAVE THOUGHT, AND IT'S STILL CONTINUING. THIS WEEK WE KIND OF STABILIZED A LITTLE BIT. FUTURES PRICES DROPPED OFF FIVE BUCKS OR SO. SOME HEDGE OPPORTUNITIES ON THE OCTOBER CONTRACT WORKED THIS TIME AROUND. SOME OF THE BACK MONTHS ARE VERY VOLATILE, BUT CONTRACT HIGHS THIS WEEK IN SOME OF THOSE NEXT SUMMER CONTRACTS. SOMETHING TO REALLY TAKE A LOOK AT, BECAUSE THIS PORK DEMAND REALLY HAS NOT PICKED UP ALL THAT MUCH, GIVEN THE SITUATION WITH THE BEEF.

Pearson: SO IN TERMS OF STRATEGY FOR A PORK PRODUCER, JUST KEEP GOING?

Hjort: YEAH, KEEP GOING WITH THEM. LOOK FOR HEDGING OPPORTUNITIES. OBVIOUSLY, I HAVE TO SAY IT AGAIN, AS I ALWAYS DO, PLAY THAT HEDGE ALMOST LIKE A SPEC POSITION THOUGH, BECAUSE THE SPECS IN CHICAGO ARE THE ONES THAT REALLY DETERMINE WHERE THAT PRICE IS GOING. DON'T JUST PUT A HEDGE ON AS YOU NORMALLY DO AND LEAVE IT THERE. THROW THE ORDER IN THE DRAWER.

Pearson: ALL RIGHT. DOUG HJORT, AS USUAL, WE APPRECIATE YOUR INPUT. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, AS ALWAYS, HERE'S YOUR REMINDER THAT YOU HAVE THE OPPORTUNITY TO GET ADDITIONAL ANALYSIS FROM DOUG ON THESE HOT MARKETS BY SIMPLY GOING TO THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. SO BE SURE TO CHECK THAT OUT. AND ALSO, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL DROP BY THE WORLD FOOD PRIZE INTERNATIONAL SYMPOSIUM FOR AN UPDATE ON THE BATTLE AGAINST HUNGER. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices Mad Cow markets news USDA