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Market Analysis: Sep 26, 2003

posted on September 26, 2003


Tight world demand rejuvenated the wheat market this week, while upbeat export news aided soybean prices.

For the week, nearby wheat gained better than 12 cents, while December corn futures were virtually unchanged.

The soybean market made contract highs at midweek before falling back. For the week, nearby beans were up 18½ cents. October meal gained $4.60 per ton.

December cotton was $1.16 lower.

In livestock, live cattle gained $1.00. October feeders advanced by $1.55. But the lean hog contract dropped $4.15.

In the financials, Comex gold lost $1.10 an ounce. The Euro gained 99 basis points against the dollar. And the CRB Index increased by just over a point to close the week at 240.50.

Here now to lend us his insight on these and other market trends is the newest member of our analyst corps, Alan Brugler. Welcome back.

Market Analysis: Sep 26, 2003

Brugler: GREAT TO BE BACK.

Pearson: WELL, GOOD TO HAVE YOU BACK. LET'S TALK ABOUT THIS WHEAT MARKET FIRST. NICE JUMP THIS WEEK. NOW, WHEAT PRICES, PEOPLE THOUGHT THEY KIND OF TOPPED OUT. MAYBE WE'VE GOT SOME ROOM HERE?

Brugler: YEAH, I THINK WE'VE GOT A LITTLE OVERSOLD WOULD BE THE TECHNICAL TERM. WE WERE DISCOUNTING THE PRICE TO TRY AND GET SOME MORE EXPORT BUSINESS IN THE BOOKS. THE U.S. HAS THE MARKET TO ITSELF FOR A BRIEF PERIOD HERE, UNTIL THE AUSTRALIANS COME OUT WITH THEIR CROP. OF COURSE, THEY'RE A SEASON OFF FROM US. AND WE STARTED TO SEE SOME RESPONSE IN THOSE EXPORT SALES NUMBERS. WE STARTED TO SEE EGYPT COMING BACK AND BUYING THE U.S. VERSUS AUSTRALIAN AND SOME COMPETITIVE TENDERS. THERE'S SOME THINKING THAT WE'RE RELATIVELY CHEAP VERSUS THE EUROPEAN UNION AS WELL, BECAUSE OF THE WEAKNESS OF THE DOLLAR. SO THINGS ARE LOOKING A LITTLE BETTER ON WHEAT.

Pearson: ALL RIGHT. SO STRATEGY-WISE, A WHEAT PRODUCER OUT THERE, MAYBE IN KANSAS, WHAT ARE YOU TELLING HIM THESE DAYS?

Brugler: WELL, I THINK IN A LOT OF CASES, WE'VE MOVED SOME OF THE CASH WHEAT BECAUSE THEY DON'T HAVE THE STORAGE. WE'RE LONG ON SOME KIND OF AN OPTION SPREAD TO REOWN THE WHEAT TO TRY AND HOLD IT INTO A SEASONAL TOP. HISTORICALLY THE SEASONAL HIGHS IN WHEAT RUN BETWEEN NOVEMBER AND FEBRUARY. NOW, THAT'S NOT AN EVERY-YEAR OCCURRENCE, BUT THAT'S THE HIGHER PROBABILITY. AND WHAT WE NEED TO HAVE THAT HAPPEN IS EVIDENCE THAT WE'RE CONTINUING TO GET THOSE EXPORT SALES INTO THE WORLD MARKET.

Pearson: WHAT ABOUT SOME OF THESE SCENARIOS WHERE THEY'RE TALKING ABOUT WHEAT PRICES REALLY TAKING OFF, AS WELL AS CORN, AS WE GO FORWARD? HAVE YOU YOU HEARD SOME OF THOSE?

Brugler: YEAH, THE ARGUMENT THERE IS THAT WE'VE GOT A VERY TIGHT WORLD STOCKS USE RATIOS FOR BOTH WHEAT AND CORN, AS TIGHT AS THEY WERE IN THE EARLY '70S. WHICH MOST OF US REMEMBER AS A VERY VOLATILE TIME IN THE COMMODITY MARKETS. SO THE ARGUMENT IS THE WORLD NEEDS OUR GRAIN, AND EVENTUALLY IT WILL COME AND GET IT. BUT WE'VE HAD THOSE KINDS OF FORECASTS BEFORE. THE USDA HAS HAD TO REVISE THEIR CORN FORECAST DOWN THREE YEARS IN A ROW FROM WHAT THEY ORIGINALLY CAME OUT WITH. SO THE MARKET IS A LITTLE SKEPTICAL, WANTS TO SEE THE ACTUAL DEMAND, WANTS TO SEE THE ACTUAL SALES MOVING OUT THROUGH THE PORTS. AND THEN AS WE GET FURTHER INTO THE YEAR AND WE START TO SEE THAT PILE DWINDLE, THEN MAYBE THE PRICES WILL GET A LITTLE MORE EXCITING.

Pearson: WHAT ABOUT THE CORN? YOU MENTIONED CORN. LET'S TALK ABOUT THE CORN MARKET. NOT MUCH ACTIVITY THIS WEEK. OBVIOUSLY, HARVEST IS STARTING TO BEAR DOWN ON THIS PRICE FOR 2003. BUT AGAIN, YOU TALKED ABOUT TIGHTNESS AND SUPPLY, WE'RE NOT REALLY HEAR DEPRESSING CORN YIELD SO FAR. THEY'VE BEEN ABOUT MEDIOCRE. WHAT'S YOUR TAKE AND WHAT ARE YOU RECOMMENDING TO CORN PRODUCERS OUT THERE?

Brugler: WELL, FIRST OF ALL, YOU SHOULD BE SEEING -- SHOULD BE HEARING SOME PRETTY GOOD YIELD NUMBERS. WE'VE BASICALLY GOT THE SAME ACREAGE BASIS AS WE HAD LAST YEAR, BUT WE'VE GOT, ACCORDING TO THE USDA'S LAST SET OF NUMBERS, 936 MILLION MORE BUSHELS COMING OUT OF THOSE SAME ACRES.

Pearson: YEAH, I KNOW.

Brugler: SO YOU SHOULD BE HEARING SOME PRETTY POSITIVE YIELD NUMBERS. YOU DON'T ALWAYS HEAR THAT IN THE BEGINNING. EARLY HARVEST TENDS TO BE THE STUFF THAT DRIED DOWN FAST BECAUSE IT WAS STRESSED OR VARIOUS OTHER -- OR IT WAS A SHORT SEASON VARIETY.

Pearson: RIGHT.

Brugler: ESSENTIALLY WE'RE LOOKING FOR A FAIRLY NORMAL HARVEST LOW. THE TYPICAL TIME WOULD BE EARLY OCTOBER. AND IF WE GET SOME COOPERATION ON THE EXPORT FRONT, AS THE NUMBERS WOULD SUGGEST FROM THIS WEEK, 1.3 MILLION TONS, THEN I THINK WE CAN RALLY THE MARKET OUT OF HARVEST AS THE DEMAND PICKS UP.

Pearson: ALL RIGHT. WHAT ABOUT BASIS RIGHT NOW?

Brugler: BASIS SHOULD BE WEAKER THAN LAST YEAR. AND WE ARE A LITTLE MORE -- A LITTLE MORE EVENLY DISTRIBUTED ACROSS THE COUNTRY AS TO WHERE THE GRAIN IS AND ISN'T. LAST YEAR, IF YOU RECALL, WE HAD VERY TIGHT SUPPLIES IN THE EASTERN CORN BELT AND THE EXTREME WESTERN CORN BELT AND PLENTY OF GRAIN IN THE CENTER. AND THEN IT WAS A MATTER OF ENTICING THE GRAIN TO MOVE OUT TO THE --

Pearson: TO THE EDGES.

Brugler: -- TO THE OUTSKIRTS.

Pearson: MM-HMM.

Brugler: THIS YEAR, OHIO LOOKS LIKE AN EXCELLENT CROP. NEBRASKA IS NOT GREAT BUT IT'S BETTER THAN IT WAS A YEAR AGO. AND MAYBE WE'VE LOST A LITTLE BIT OF YIELD OUT IN THE CENTRAL PART OF THE COUNTRY. SO BASIS, BECAUSE WE'RE NOT GOING TO BE BUILDING MUCH STOCKS -- WE'RE STILL HANGING AROUND THAT BILLION BUSHEL ESTIMATED CARRYOUT LEVEL -- BASIS SHOULD BE FAIRLY FIRM COMPARED TO THE LAST TWO OR THREE YEARS. BUT DEPENDING ON WHERE YOU ARE IN THE COUNTRY, IT'S PROBABLY NOT GOING TO BE AS GOOD AS IT WAS A YEAR AGO.

Pearson: ARE YOU STORING CORN?

Brugler: FOR THE MOST PART, YES. STORING THE CORN -- THE MARKET IS REALLY NOT GIVING YOU A DECENT CARRY YET, BUT WE THINK THAT AS WE GO THROUGH THE YEAR, YOU'LL START TO SEE THOSE MAY/JULY CONTRACTS MOVE OUT A LITTLE BIT. YOU'D EXPECT TO SEE A LITTLE DEPRESSION IN THE FRONT-MONTH CONTRACTS AT HARVEST. AND, YOU KNOW, IT IS, AFTER ALL, A NEAR 10-BILLION BUSHEL CROP. IT'S THE SECOND LARGEST CROP WE'VE HAD, AND THAT SHOULD DEPRESS THE FRONT AND ENCOURAGE PRODUCERS TO STORE SOME OF THE GRAIN FOR LATER.

Pearson: OKAY. WHAT'S YOUR TARGET FOR CORN?

Brugler: I THINK STATISTICS, CHART-WISE, IT'S EASY TO GET INTO THE 250S. IT WOULD BE UNUSUAL UNDER THIS CIRCUMSTANCE IF WE DIDN'T SEE THOSE JULY CONTRACTS INTO THE 260S OR MAYBE EVEN 270S. BUT IT WILL BE PROBABLY IN 2004, WHEN YOU'VE GOT THE CARRY BUILT INTO THE MARKET.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE SOYBEANS. NOW, I'M GETTING REALLY NEGATIVE SOYBEAN YIELDS. EVERYBODY I'VE TALKED TO HAS BEEN DISAPPOINTED SO FAR IN THE GRAIN. WE'RE TALKING EARLY STUFF AND WE'RE TALKING THE SIMILAR PROBLEMS WE'RE TALKING ABOUT WITH CORN, BUT THE SOYBEAN OUTLOOK JUST SEEMS TO BE, IN TERMS OF PRODUCTION, IT SEEMS TO BE LOWER ACROSS THE BOARD.

Brugler: WELL, IT DEFINITELY SOUNDS THAT WAY. YOU'RE HAVING A HARD TIME FINDING ANYBODY BRAGGING ABOUT THEIR BEAN YIELDS. BUT WE ALSO HAVE TO REMEMBER THAT THE GUYS WHO ARE SITTING ON 70-BUSHEL YIELDS PROBABLY AREN'T SAYING ANYTHING BECAUSE --

Pearson: I WOULD! I WOULD SAY SOMETHING IF I HAD A 70-BUSHEL YIELD!

Brugler: WELL, THAT'S AFTER HARVEST. THAT'S AFTER IT'S DONE.

Pearson: YEAH.

Brugler: WHEN THE MARKET IS GOING UP BECAUSE OF NO YIELDS, YOU DON'T MENTION THE FACT THAT YOU MIGHT HAVE SOME GOOD YIELDS.

Pearson: YES.

Brugler: I'M VERY CONCERNED THAT WHAT WE'RE DOING IS SENDING A SIGNAL TO THE BRAZILIANS TO PLANT MORE BEANS. I KNOW A FEW U.S. PRODUCERS THAT HAVE FARMS DOWN THERE, AND THEY ARE TWEAKING THEIR ACREAGE A LITTLE BIT MORE TOWARDS BEANS THAN WHAT THEY HAD ORIGINALLY INTENDED. YOU KNOW, WE DO HAVE A VERY TIGHT SCENARIO, THOUGH. IF WE WERE TO DROP THAT CROP DOWN TO 2.5 OR 2.55 BILLION BUSHELS, NOW WE'RE TALKING CARRYOVERS OF 50 MILLION OR EVEN ZERO. THE MARKET WON'T ALLOW THAT. WE FOUND SEVERAL TIMES IN THE LAST TEN YEARS, ENDING STOCKS SHOULD BE IN THAT 135 MILLION -- OR 140 MILLION. THAT'S PIPELINE. SO THE MARKET WILL FIND A WAY TO END THE YEAR WITH 135-, 140-MILLION BUSHEL ENDING STOCKS. IF WE DON'T PRODUCE IT, WE'LL RATION USAGE, AND THAT MAY REQUIRE HIGHER PRICES.

Pearson: ALL RIGHT. QUICKLY, YOU'RE BEAN STRATEGY, THEN, IS TO --

Brugler: THE BEAN STRATEGY IS BASICALLY -- RIGHT NOW WE'RE JUST SHORT PUTS TO COVER SOME GRAIN THAT WE'VE ALREADY SOLD AND TRYING TO EARN A LITTLE EXTRA INCOME ON IT. I THINK WE'RE LOOKING FOR A PLACE -- THERE'S SOME INDICATION IN THE CHARTS THAT WE NEED TO PUT A FLOOR UNDER THE MARKET. WE'LL MAKE SOME CASH SALES IN SITUATIONS WHERE THE BASIS IS VERY STRONG, AND THERE ARE SOME PROCESSORS THAT ARE BIDDING PRETTY AGGRESSIVELY YET FOR BEANS. BUT GENERALLY SPEAKING, WE WANT TO HAVE A LOT OF THE CROP SOLD BY THE FIRST OF MARCH.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT, QUICKLY, THIS COTTON. A LITTLE BIT SOFTER WEEK FOR COTTON.

Brugler: YEAH. COTTON SPENT ACTUALLY QUITE A NUMBER OF DAYS IN THE LAST TWO WEEKS DOWN, BUT BECAUSE OF A COUPLE BIG UP DAYS, WE DIDN'T SEE THAT MUCH DAMAGE ON THE CHARTS. THE COTTON SITUATION IS VERY CONFUSING FUNDAMENTALLY. WORLD STOCKS ARE VERY TIGHT. THE U.S. CROP IS SHRINKING, BECAUSE OF VARIOUS LITTLE NICKS AND DAMAGE. THE BIG QUESTION TO BE ANSWERED OVER THE NEXT WEEK IS WHAT HAPPENED IN NORTH CAROLINA AND VIRGINIA: HOW MUCH DID WE LOSE WHEN HURRICANE ISABEL CAME THROUGH. USDA SAID THEY DIDN'T HAVE VERY COMPLETE CROP CONDITION RATINGS FROM THOSE TWO STATES THIS PAST MONDAY BECAUSE OF THE LACK OF ELECTRICITY IN SOME CASES. SO WE -- WE'RE GOING TO BE WATCHING MONDAY NIGHT, IN PARTICULAR, TO SEE HOW FAR THOSE RATINGS DROPPED, HOW MUCH DAMAGE THERE WAS. MY SOURCES SAY THAT IT PROBABLY WASN'T AS LARGE AS WAS ORIGINALLY ANTICIPATED, BUT EVEN IF YOU TAKE 100,000, 200,000 BALES OUT OF -- THAT'S GOING TO MAKE A DIFFERENCE.

Pearson: ABSOLUTELY. LET'S TALK LIVESTOCK QUICKLY. FED-CATTLE MARKET JUST CONTINUES TO ASTOUND EVERYBODY, AND THIS FEEDER MARKET IS ASTOUNDING EVERYBODY TOO. TALK ABOUT WHAT'S AHEAD, FED CATTLE.

Brugler: FED CATTLE, I THINK WE'RE LOOKING AT A TEN-YEAR CYCLE HIGH, SIMILAR TO 1993. THESE THINGS CAN GO FURTHER THAN YOU THINK. BUT ULTIMATELY THEY END BADLY. THERE'S A REAL DANGER HERE WHEN YOU PAY $1 FOR FEEDER CATTLE THAT YOU'RE NOT GOING TO BE ABLE TO MAKE THOSE PENCIL OUT. HISTORICALLY WHAT'S HAPPENED IS ONCE WE COME PAST THE HIGHS, YOU END UP WITH HORROR STORIES SIX OR NINE MONTHS LATER OF SOME GUY LOSING $125 A HEAD. SO MY CAUTION IS, NUMBER ONE, DON'T CHASE THOSE MOST EXPENSIVE FEEDER CATTLE. NUMBER TWO, IF IT'S ANYWHERE CLOSE TO BREAKING EVEN, I THINK YOU'VE GOT TO PUT A PRICE FLOOR UNDER THE MARKET, WHETHER IT'S A PUT OPTION OR A PARTIAL HEDGE OF SOME TYPE. WE DON'T HAVE A TOP YET. WE'RE STILL WATCHING THE CHOICE SELECT SPREAD WIDEN OUT. THE CHOICE CATTLE, IF YOU HAVE THEM, ARE A GOLD MINE.

Pearson: YEP.

Brugler: AND I'M ENCOURAGING PRODUCERS THAT HAVE CATTLE THAT WILL GO CHOICE IN THE NEXT COUPLE WEEKS TO KEEP THEM ON FEED. THEY'LL PROBABLY BE REWARDED FOR THAT EXTRA TIME AND EFFORT. BUT WE DID LOSE $1 OFF THE CASH CATTLE THIS WEEK, AND THAT IS A WARNING THAT THINGS AREN'T ALL ROSY.

Pearson: THEY SELDOM STAY ROSY FOR TOO LONG IN OUR BUSINESS. TALK ABOUT THE HOG BUSINESS. IT HASN'T BEEN TOO ROSY AT ALL THIS SUMMER.

Brugler: IT'S ACTUALLY JUST PLAIN UGLY THE LAST WEEK OR SO.

Pearson: YEAH.

Brugler: WE HAD A CHART BREAKDOWN MIDWEEK. MACD AND SOME OF THE OTHER TECHNICAL INDICATORS WENT BEARISH. WE HAD A DOUBLE TOP ON THE OCTOBER FUTURES. ESSENTIALLY WE JUST HAD SOME LONGS GETTING OUT OF THE MARKET AHEAD OF THE MONTH END AND AHEAD OF THE USDA HOGS AND PIGS REPORT, WHICH CAME OUT ON FRIDAY AFTERNOON. AND JUST AVOIDING DELIVERY AGAINST -- THERE'S REALLY NOT DELIVERIES IN OCTOBER HOGS, BUT YOU DO GET ASSIGNED A VALUE BASED ON THE INDEX AND EXPIRATION. SO SOME OF YOUR SPECULATORS GOT OUT. I THINK THE PROBLEM IS ON THE RETAIL END. WE'RE HAVING TROUBLE MOVING THE PRODUCT. WE'D EXPECTED A LOT OF PORK FEATURING, AND WE'RE NOT GETTING IT.

Pearson: OKAY. SO PRODUCERS RIGHT NOW, IN ABOUT TEN SECONDS, KEEP ROLLING ALONG HERE? IT'S GOING TO BE A WHILE BEFORE WE SEE SOME BLACK INK AGAIN? I THINK YOU'VE GOT -- IN SOME CASES YOU STILL HAVE SOME BLANK INK, BUT YOU'VE GOT TO GET SOME KIND OF A PRICE FLOOR AND GET SOME PROTECTION ON IT.

Pearson: EXCELLENT. ALAN, THANK YOU SO MUCH. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR MORE OF ALAN'S COMMENTARY ON THESE LIVELY MARKETS, BE SURE AND VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE DANGERS POSED TO FARMING AND FOOD SUPPLIES BY GLOBAL WARMING. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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