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Market Analysis: Oct 03, 2003

posted on October 3, 2003


The grain markets moved sideways most of the week as traders digested crop size estimates from private groups.

For the week, nearby wheat futures were down nearly seven cents. December corn was more than three cents lower.

The November bean contract cleared the $7.00 level before retreating at week's end. For the week, nearby beans gained more than 21 cents. Soybean meal was up by $2.40 per ton.

December cotton was up nearly $3.00.

In livestock, October live cattle advanced $4.22. October feeders gained $3.65. The lean hog contract lost $1.77.

In financials, Comex gold was down more than eleven dollars per ounce. The Euro gained 97 basis points against the dollar. And the CRB index was just more than two points higher to close at 242.55.

Here now to share their insight on these and other market trends are two of our regular expert analysts, Walt Hackney and Doug Jackson. Welcome back.

Market Analysis: Oct 03, 2003

Hackney: HOW YOU DOING?

Pearson: WELL, I'M OKAY. I'LL TELL YOU WHAT, A A LOT OF PEOPLE WONDERING ABOUT THESE MARKETS. LET'S START FIRST, DOUG. LET'S TALK ABOUT THE WHEAT MARKET FIRST. SOFTER WEEK FOR BOTH WHEAT AND CORN.

Jackson: WELL, WE HAD SOME PRIVATE CROP ESTIMATES. WE PUT OUT OUR NUMBERS. SPARKS FOLLOWED UP LATER IN THE WEEK. BOTH NUMBERS WERE LARGER THAN THE LAST USDA NUMBER. OUR NUMBERS NEAR 10.1. SPARKS WAS SLIGHTLY LOWER THAN THAT. MARK, YOU KNOW, THE IDEA IS AGAIN THAT WE MAY REBUILD STOCKS SLIGHTLY THIS YEAR. THIS IS SOMETHING WE HAD GIVEN UP ON, OF COURSE, A FEW MONTHS AGO, AND PEOPLE ARE USING YIELD ESTIMATES MUCH LOWER. NOW PEOPLE ARE EXPERIENCING MUCH BETTER THAN EXPECTED YIELDS IN ALMOST ALL PARTS OF THE COUNTRY. SO THE MARKET IS REALLY ACCEPTING THE IDEA THAT USDA NEXT FRIDAY WILL BE A LITTLE LARGER, AND THEIR REPORT MAY BE SUBSEQUENTLY A LITTLE LARGER IN NOVEMBER. YOU'VE GOT SOME PEOPLE THAT STILL THINK THE CROP COULD BE 10.2 BILLION. OF COURSE, WE HAVE A DEMAND BASE CLOSE TO 10 BILLION BUSHELS, SO WE'RE ONLY TALKING ABOUT STOCKS MAYBE BUILDING 100 OR 200 MILLION. REALLY THIS IS ALL RELATIVELY KNOWN, RELATIVELY DISCOUNTED IN THE MARKET. UNLESS WE GET A TOTAL SHOCK IN ONE OF THESE UPCOMING GOVERNMENT CROP REPORTS, WE'RE GOING TO BE IN A 5- OR 10-CENT RANGE ON CORN, FRANKLY, MARK, FOR MAYBE SIX MONTHS, A SITUATION THAT, YOU KNOW, IS RELATIVELY IN BALANCE, STILL PLENTY OF STOCKS, HARVEST AHEAD OF US, AND JUST NOT A VERY EXCITING SITUATION. MAYBE OF THE THREE MAJOR GRAINS, THE CORN MARKET HAS TURNED OUT TO BE, FOR THE TIME BEING, THE LEAST INTERESTING. AT SOME POINT DOWN THE ROAD, IF CHINA STARTS TO DROP OUT OF THE CORN EXPORT PICTURE, THAT WOULD BE THE CATALYST FOR A BIG MOVE UP, BUT PEOPLE ARE TIRED OF TRYING TO OUTGUESS THAT. WE DON'T KNOW WHAT THEIR INVENTORIES ARE. THAT'S PROBABLY THE MOST INTERESTING THING TO WATCH IN THE NEXT SIX MONTHS. BEYOND THAT, OF COURSE, ETHANOL DEMAND CONTINUES TO INCREASE YEAR AFTER YEAR. TWO HUNDRED MILLION BUSHELS PER YEAR NOW, YEAR AFTER YEAR. THAT WILL GIVE US A 10.2-, 10.3-BILLION DEMAND BASE NEXT YEAR. IT WILL STILL REQUIRE PERFECT WEATHER, PLENTY OF PRODUCTION, ANY KIND OF A WEATHER PROBLEM OR BULLISH CORN LONG TERM, BUT IT'S GOING TO BE A CASE WHERE PRODUCERS HOLDING INVENTORY ARE JUST GOING TO HAVE TO BE PATIENT. THE DOWN SIDE MAY BE LIMITED BUT SO IS THE UPSIDE IN THE TIME BEING.

Pearson: ALL RIGHT. FOR A CORN PRODUCER OUT THERE WHO MAYBE IS LOOKING AT REDUCED YIELDS, MAYBE NOT QUITE SURE WHAT TO DO, MAYBE A SOFTENING, ESPECIALLY ON BASIS AS WE GO THROUGH, SO THERE MAY BE AN LDP TO PICK UP HERE?

Jackson: WE'RE JUST PLAYING IN THAT VICINITY HERE. WE'RE NOT GOING TO LOOK FOR ANY BIG PRICE DISCOUNT ALONE. MAYBE 5 OR 10 CENTS. TAKE IT AT HARVEST WHEN BASIS IS CHEAPEST. THAT'S GOING TO BE THE PLAY, AS IT NORMALLY IS, AND WILL BE AGAIN THIS YEAR.

Pearson: ALL RIGHT. I WANT TO TALK A LITTLE BIT ABOUT WHEAT. AND THE WHEAT MARKET AGAIN PUT UNDER SOME PRESSURE, BUT IT SEEMS LIKE WE'RE HEARING FORECASTERS SAYING WE COULD SEE THIS MARKET STRENGTHEN.

Jackson: THE WHEAT MARKET IS AN INTERESTING SITUATION, MARK. THIS WEEK WE CONFIRMED A MILLION TON LARGER CROP IN CANADA, CERTAINLY WELL ABOVE LAST YEAR'S DROUGHT REDUCED LEVELS. THE TRADE SUSPECTS THAT WE'LL SEE AN AUSTRALIAN CROP THAT'S EVEN LARGER, AND THE AUSTRALIAN CROP THERE THIS YEAR WILL BE MORE THAN DOUBLE THE DROUGHT REDUCED LEVELS OF A YEAR AGO. SO WE HAVE A DRAMATIC SHIFT THIS YEAR. WESTERN -- OR MAJOR EXPORTER OR WESTERN HEMISPHERE SUPPLIES WILL REBOUND SHARPLY WHILE EASTERN EUROPE AND RUSSIAN SUPPLIES ARE COLLAPSING. OF COURSE, IT WAS THOSE INVENTORIES THAT MUTED THE IMPACT OF THE SHORT CROPS HERE A YEAR AGO. SO A TREMENDOUS TRADE SHIFT IN THE WORLD. AND YET REALLY, YOU KNOW, ONE MAY BE OFFSETTING THE OTHER. EUROPE, OF COURSE, HAD A DROUGHT. THE QUESTION IS: HOW MUCH WILL THEY HAVE TO IMPORT OR HOW WILL THEY DEAL WITH THAT DROUGHT SITUATION; WILL U.S. WHEAT WORK INTO THOSE MARKETS? TEN CENTS DOWN FROM HERE, WE THINK WHEAT WILL MOVE INTO EUROPE. PEOPLE SORT OF HAVE THE PERCEPTION THAT THAT'S SORT OF THE LOWER END OF PRICE POSSIBILITIES. BUT ON THE OTHER HAND, WITH MORE COMPETITION AROUND THE WORLD NOW FROM AUSTRALIA AND CANADA AND OTHERS, MAYBE NOT THE BIG BULLISH SITUATION WE THOUGHT IT WAS GOING TO BE EITHER. THE FUNDS WERE LOADED UP LONG NEARLY 35,000 CONTRACTS IN CHICAGO. THEY'RE ABOUT MAXED OUT. WE MAY BE IN JUST SORT OF A CHOPPY, 30-CENT SIDEWAYS MARKET BACK AND FORTH HERE FOR THE FORESEEABLE FUTURE. RELATIVELY GOOD PLANTING CONDITIONS. RELATIVELY GOOD MOISTURE CONDITIONS IN THE U.S. GOING INTO WINTER PLANTING. AGAIN, IT KEEPS PEOPLE SORT OF UNENTHUSED, BUT WORLD STOCKS ARE STILL DECLINING. WE'VE HAD FOUR YEARS OF PRODUCTION BELOW USAGE IN THE WORLD, MARK. WE STILL DON'T HAVE ANY ROOM FOR ANYTHING OTHER THAN GOOD WEATHER NEXT YEAR. MAYBE LONG-TERM A BULLISH SITUATION IF YOU HAVE A WEATHER PROBLEM, BUT WE'RE GOING TO HAVE TO GET THAT IN OUR SIGHTS AND IT'S NOT THERE RIGHT NOW.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT THE ONE THAT HAS BEEN SO VOLATILE THIS WEEK, AND THAT'S CERTAINLY BEEN THE SOYBEAN MARKET. AGAIN, ANOTHER DRAMATIC MOVE. ANOTHER 20 CENTS UP OVER $7. COULDN'T SUSTAIN IT. WHAT'S AHEAD FOR BEANS, DOUG?

Jackson: THE SOYBEAN MARKET, MARK, IS VERY COMPLICATED. WE'RE LEARNING THE LESSONS THIS YEAR, OF COURSE, THAT THIS IS A BIOHEMISPHERIC SUPPLY SITUATION. AND THE MARKET IS GOING TO BE DEALING WITH A NUMBER OF IMPONDERABLES HERE FOR QUITE A PERIOD OF TIME. OF COURSE, THIS WEEK THE MARKET WAS DISAPPOINTED TO SOME DEGREE ON FRIDAY WITH A PRIVATE ANALYST ESTIMATE THAT CAME OUT. AND EVEN THOUGH IT WAS LOWER THAN THE PREVIOUS GOVERNMENT NUMBER, IT WASN'T AS LOW AS PEOPLE THOUGHT AND THEN WE SOLD OFF ABOUT 20 CENTS. THE BIGGER PICTURE, MARK, TO TRY TO SIMPLIFY IT IS THAT U.S. PRODUCTION IS GOING TO BE DOWN 4 OR 5 MILLION TONS. IT ISN'T A RATIONING OR DEMAND OR DIVERTING SITUATION. BUT AT THE SAME TIME SOUTH AMERICAN PRODUCTION, CONTINUE TO EXPAND ACRES VERY RAPIDLY, MAY BE UP 8 OR 9 MILLION TONS. THE JOKE HERE IS THAT WE ACTUALLY COULD BUILD INVENTORIES OF SOYBEANS IN THE WORLD NEXT YEAR BY NEXT SPRING. BUT THE QUESTION WILL BE: HOW DO WE SHIFT DEMAND FROM THE U.S. TO SOUTH AMERICA; CAN THEY HAVE A LOGISTICAL CAPACITY TO SHIP AND COVER OUR SHORTAGES? A VERY NERVOUS MARKET. WE MAY HAVE PUT A TOP IN, THOUGH, LATE THIS WEEK. SELL INTO THE RALLY THAT'S ASSOCIATED WITH THE OCTOBER CROP REPORT NEXT WEEK.

Pearson: ALL RIGHT. SELL INTO THE RALLY. GOOD IDEAS. ALL RIGHT. NOW, LET'S MOVE OVER AND TALK ABOUT LIVESTOCK. AND TALK ABOUT A RALLY, I HEARD FROM A COWBOY THIS WEEK WHO SAID HE'S NEVER RIDDEN THIS HIGH IN THE SADDLE. HE'S GETTING AWFUL NERVOUS IN THIS FED-CATTLE MARKET, WALTER. WHAT'S AHEAD?

Hackney: I THINK WE'RE RIDING HIGH IN THE SADDLE PARTIALLY BECAUSE OF THE CANADIAN MAD COW ISSUE BACK IN JUNE OF THIS YEAR. THE PSYCHOLOGY TO THE BEAR SIDE HELPED AN ENORMOUS LIQUIDATION OF CATTLE OUT OF PURE FEAR OF WHAT THE CANADIAN INFLUX OF THEIR CATTLE WOULD HAPPEN HERE, WHAT WOULD HAPPEN TO OUR MARKETS. ALONG WITH THE SIMPLE FACT THAT WHEN WE REDUCED OUR IMPORT OF BEEF BY, SAY, 10 PERCENT OF OUR DOMESTIC SLAUGHTER DUE TO THE LACK OF THE CANADIAN BEEF, THAT JUST PUT AN EXTRA USAGE FACTOR OR DEMAND ON OUR OWN BEEF. AS THAT OCCURRED THE FINANCIAL POSITION OF THE CATTLEMAN IN ABOUT JUNE AND JULY, AS A RESULT OF THE SEVERE LOSSES OVER THE PREVIOUS TWO YEARS, WASN'T ALLOWING REPLACEMENTS AS WELL AS WHAT WE MIGHT HAVE WANTED. WELL, A COMBINATION OF THOSE THINGS, MARK, HAVE RESULTED IN CATTLE, AS WE SPEAK, STEER CATTLE, ABOUT 35 POUNDS LIGHTER THAN A YEAR AGO, HEIFER CATTLE ABOUT 30 POUNDS LIGHTER THAN A YEAR AGO, PACKERS REDUCING THEIR KILL OUT OF TOTAL NECESSITY BECAUSE THEY SIMPLY CAN'T GET THE NUMBERS TO GET OUR KILL UP TO THAT 700,000 HEAD AND STILL SUSTAIN A GRADE OF HIGH QUALITY BEEF. SO THE COMBINATION OF ALL THOSE THINGS HAVE RESULTED IN RECORD MARKETS ALL THE WAY AROUND. THE FEEDER CATTLE INDUSTRY IS ENJOYING A TOTAL BANNER YEAR. THE FAT CATTLE OR FEED-LOT PRODUCER GROUP ARE ENJOYING RECORD PRICES, 95, 96 CASH. I KNOW OF SOME GRID CATTLE THAT WENT INTO AN IOWA PACKER THIS PAST WEEK, $1.06 ALIVE AS THE PREMIUMS WERE PAID OUT. WHAT'S TO STOP THIS MARKET? THAT PSYCHOLOGY -- PACKERS KILLING 625 TO 35,000 CATTLE SUCH AS POSSIBLY THIS WEEK, CATTLE -- PACKERS REDUCING THEIR KILL NEXT WEEK, THE PSYCHOLOGY OF THAT COULD, IN FACT, ALLOW THEM THE INDEPENDENCE TO CREATE A BOUGHT INVENTORY THAT WOULD SUBSTANTIATE ANYTHING THEY'RE WANTING TO DO ALONG THAT KILL LEVEL. THE IDEA BEING THEY CAN THEN COME OUT AND PUT SOME BEARISH EFFECTS TO THE CASH CATTLE MARKET, WHICH THEY VERY WELL MIGHT DO AT THIS LEVEL OF $95.

Pearson: NO QUESTION ABOUT IT. WALTER, SO WHAT'S YOUR TIME FRAME HERE? ARE WE GOING TO BE STRONG, DO YOU THINK, FOR THE FOURTH QUARTER, OR DO YOU THINK WE'LL START TO SEE THIS THING SOFTEN UP?

Hackney: I THINK LEFT TO BEEF ONLY, I THINK IT WOULD BE STRONG AS WE'VE GOT IT, MAYBE WITHIN A $2 OR $3 RANGE. THE UNKNOWN IS WHEN AND IF THEY START FEATURING THIS CHEAP PORK, AND IT IS CHEAP. AND COMPARED TO BEEF, IT'S $50 A HUNDREDWEIGHT CHEAPER. NOW, THAT SOUNDS ABSURD.

Pearson: IT'S -- I DIDN'T THINK WE'D SEE IT IN OUR LIFETIME. YOU MENTIONED PORK. LET'S TALK ABOUT THE HOG BUSINESS NOW. THIS HAS BEEN A NO-WIN DEAL HERE. WE HAD JUST GOT OUR NOSES INTO A LITTLE BIT OF PROFIT AND THEN THEY TOOK IT AWAY FROM US AND IT'S GOTTEN TOUGHER SINCE. WHAT'S AHEAD FOR HOGS?

Hackney: WELL, THE "US" THAT YOU USED FAIRLY LOOSELY THERE WOULD BE, OBVIOUSLY, INDEPENDENT PRODUCTION OF HOGS. THERE ARE DIFFERENT STROKES IN OUR INDUSTRY FOR PRICE FIX THAN WE KNOW ABOUT. AND THESE CONTRACT AGREEMENTS WITH SOME OF THE MEGAPRODUCERS ARE TOTALLY DIFFERENT THAN WHAT SOME OF US AS INDEPENDENT PRODUCERS ARE RECEIVING. YOU AND I UNDERSTAND WE CAN'T PRODUCE HOGS AT 35 TO 38 CENTS A POUNDS. BUT YET, IF YOU'RE IN A MEGAPRODUCTION UNIT, YOU MAY NOT BE TAKING 38 CENTS A POUND FOR YOUR HOGS EITHER, DEPENDING ON THE NEGOTIATED CONTRACTS.

Pearson: OKAY. SO WE'RE TALKING ABOUT A FLAT MARKET. IT MAY NOT BE WHAT YOU'RE SAYING THESE MEGAPRODUCERS ARE ACTUALLY RECEIVING, AT LEAST AT THIS STAGE OF THE GAME.

Hackney: THAT'S CORRECT.

Pearson: ALL RIGHT. WALTER, THANK YOU SO MUCH. AND, DOUG, THANK YOU. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT AS YOU'VE HEARD, THESE MARKETS ARE ACTIVE. SO IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM BOTH WALT AND DOUG, BE SURE TO CLICK ON THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. ALSO, BE SURE TO TUNE IN NEXT WEEK WHEN WE'LL EXAMINE THE ONGOING DEBATE IN CONGRESS OVER MEDICARE AND WHAT IT MEANS FOR RURAL AMERICANS. 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