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Market Analysis: Sep 19, 2003

posted on September 19, 2003


The grain markets slumbered this week waiting for world demand that never materialized, while soybeans continued a nice run just ahead of harvest.

For the week, December wheat futures were down by more than four cents. Nearby corn was down by two cents. November beans gained 15 cents, but the October meal contract lost 70 cents a ton. December cotton declined 56 cents.

In the livestock, September live cattle advanced another 80 cents. Nearby feeders gained 70 cents. And the October lean hog contract jumped by $2.17.

In the financials, Comex gold gained six dollars an ounce. The Euro rose 71 basis points against the dollar. And the CRB Index lost more than a point and a half to close at 239.45.

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

Market Analysis: Sep 19, 2003 ROBINSON: HI, MARK.

PEARSON: GOOD TO HAVE YOU WITH US.

ROBINSON: NICE TO BE HERE.

PEARSON: WELL, LET'S TALK ABOUT WHEAT FIRST OF ALL. NOT MUCH HAPPENING THERE. WE PULLED BACK QUITE A BIT FROM OUR BULL MARKET HIGH IN THIS WHEAT MARKET. WILL WE PICK THINGS BACK UP?

ROBINSON: YOU KNOW, MARK, THAT'S AN INTERESTING POINT. AS WE APPROACH THAT $4 MARK, U.S. PRODUCERS, IN MY OPINION, DID A PHENOMENAL JOB OF MOVING INVENTORY. AND AS WE VISIT TONIGHT, THERE ARE SIGNS THAT COMPETITION -- EXPORT COMPETITION IS HEATING UP, PARTICULARLY WITH THE AUSTRALIANS, AS WELL AS THE CANADIANS. BOTH OF THOSE TWO COUNTRIES, MARK, ARE LIKELY TO SEE LARGER PRODUCTION INCREASES IN UPCOMING REPORTS THAN WE HAVE BEEN LED TO BELIEVE. STATISTICS CANADA, AS A MATTER OF FACT, I THINK WILL FRESHEN FORECASTS THE THIRD OF OCTOBER. SO WE HAVE THOSE TWO COUNTRIES NOW, I THINK, THROWING THEIR HAT IN THE RING AND BECOMING MORE COMPETITIVE. I THINK IT'S GOING TO BE DIFFICULT, AND I'M GOING TO USE, TONIGHT, KANSAS CITY FUTURES, MARK, AS MY BENCH MARKS. THE SPOT CONTRACT, THE DECEMBER CONTRACT, I THINK AS IT APPROACHES THE 3.55 TO 3.60 AREA, MARK, I WOULD MAKE SALES, AND I WOULD GO TO THE EXTENT OF COMPLETING OLD CROP SALES, GIVEN THAT OPPORTUNITY. NEW CROP, A COUPLE THINGS HERE: BETTER YIELDS OUT OF THE HARD RED WINTER PRODUCTION AREA LAST SEASON, MARK; BETTER PRICE AND IMPROVED MOISTURE SITUATIONS. I THINK THERE WILL BE AN INCREASE IN HARD RED WINTER SOWN ACREAGE THIS SEASON. SO, WITH THAT IN MIND, AS THAT JULY KANSAS CITY CONTRACT TRADES $3.40 OR HIGHER, BEGIN TO DO SOME HEDGING.

PEARSON: OKAY. LET'S TALK ABOUT THE CORN MARKET. ALSO, NOT MUCH ACTIVITY THIS WEEK. AND SOME OF THE PRELIMINARY YIELD REPORTS FROM AROUND THE CORN BELT HAVE BEEN FAIRLY POSITIVE ON CORN SO FAR.

ROBINSON: YEAH, EARLY YIELDS, MARK, HAVE BEEN OUTSTANDING, FAR BETTER THAN MOST HAD FORECAST AND MOST HAD PREDICTED. SO THAT THEME CLEARLY HAS PENETRATED THE MARKETPLACE. BASIS LEVELS ARE SOFTENING, MARK, AS A FUNCTION OF THE HARVEST AND SOME MOVEMENT. I THINK FUTURES IN AND AROUND THE 2.15 TO 2.20 AREA, BASIS THAT DECEMBER CONTRACT, WILL ATTRACT PRETTY GOOD DOMESTIC COMMERCIAL PRICING, AS WELL AS EXPORT INTERESTS. I THINK IN TERMS OF SALES OPPORTUNITIES, I'M MORE INCLINED TO LOOK AT THAT JULY 2004 FUTURES CONTRACT AROUND 2.45 OR HIGHER FOR THE PURPOSE OF ESTABLISHING A SHORT HEDGE, WAITING FOR THE BASIS POST THE HARVEST TO APPRECIATE, AND THEN MAKING MY CASH SALE.

PEARSON: ALL RIGHT. SPEAKING OF TIGHT BASIS, THE SOYBEAN MARKET HAS CERTAINLY PROVIDED US WITH THAT. AS WE GET READY FOR THIS NEW CROP TO COME IN, DEMAND FOR OLD CROP REMAINS EXTREMELY STRONG. WE'RE EVEN SEEING SOME OF THE NEARBY CONTRACTS, CASH MARKETS TRADING ABOVE THOSE. VIRGIL, THIS BEAN MARKET, A STRONG WEEK THIS WEEK. HAVE WE GOT MORE TO GO?

ROBINSON: MARK, I WISH WE COULD BETTER DEFINE THE CROP HERE IN THE UNITED STATES. EARLY YIELDS HAVE BEEN, FOR THE MOST PART, DISAPPOINTING, SO LET US HOPE THE LATER MATURING BEANS IMPROVE YIELD-WISE. COUPLE THINGS HERE THAT ARE OF CONCERN TO ME, MARK. WE DO KNOW, I THINK WITH SOME DEGREE OF CERTAINTY, THAT THERE ARE MORE BEANS IN SOUTH AMERICA AND A BETTER BEAN CROP IN INDIA. AND AS MENTIONED, STATISTIC CANADA IS MOST LIKELY TO INCREASE CANOLA PRODUCTION HERE ON OCTOBER 3. I THINK THERE IS SOME COMPETITION IN THE NEAR-TERM FOR EXPORT BUSINESS OUT OF THOSE ENTITIES. HAVING SAID THAT, AS YOU MENTIONED, U.S. FUTURES ARE ON A ROLL AND APPROACHING THAT $6.50 MARK. TWO-PRONG ATTACK HERE, FROM MY PERSPECTIVE. I'D LIKE TO MAKE SOME CASH SALES BASED ON THE NOVEMBER FUTURES CONTRACT AS IT NEARS 6.50, WITH INTENTIONS SOMETIME MID TO LATE HARVEST HERE IN THE UNITED STATES, AS WE GET A LITTLE BETTER READ ON CROP AND SIZE OF CROP, TO REPURCHASE, MARK, EITHER IN THE FORM OF A FUTURES CONTRACT OR SOME TYPE OF OPTION STRATEGY. NOW, I'M OFTEN CRITICIZED FOR USING OPTIONS AS MY MARKETING PRIMARY TOOL. SO FOR THOSE WHO HAVE NO NEED OR NO USE OF OPTIONS AND ARE STRICTLY CASH ORIENTED ONLY, MY BEST ADVICE AS WE VISIT TONIGHT IS TO DO NOTHING BUT WAIT FOR HIGHER PRICES OR THE PROSPECT OF HIGHER PRICES.

PEARSON: OKAY. SO IF YOU DON'T WANT THAT SECURITY BLANKET, DON'T DO IT.

ROBINSON: IF YOU DON'T LIKE THE INSURANCE IDEA, MARK, WHICH OPTIONS IS REALLY ALL ABOUT, THEN I WOULD WAIT PATIENTLY, BETTER READ ON THE CROP. PROSPECTS HERE FOR A STRONGER PRICE, BASED ON WHAT COULD BE A DISAPPOINTINGLY SMALL U.S. CROP, ARE STILL VERY STRONG.

PEARSON: LET'S MOVE OVER QUICKLY AND TALK ABOUT COTTON. A LITTLE BIT STRONGER MARKET THERE AGAIN. FUNDAMENTALS REMAIN FAIRLY GOOD THERE.

ROBINSON: YEAH, FUNDAMENTALS ARE GOOD, MARK. U.S. ENDING STOCKS HAVE BEEN AGAIN REDUCED, THE SMALLEST THEY'VE BEEN IN THE LAST SEVERAL YEARS. EXPORT PROSPECTS HAVE BRIGHTENED AS A RESULT OF WEATHER PROBLEMS IN EASTERN CHINA, PARAGUAY, ARGENTINA, AND PAKISTAN. SO GLOBAL WORLD ENDING STOCKS ARE FORECAST TO BE THE SMALLEST SINCE '94-'95. HERE AGAIN, I THINK FUTURES, WHILE THERE MAY BE SOME HARVEST OSCILLATION, I THINK YOUR POSITION TO TRADE THE $70 OR ABOVE AT WHICH POINT, MARK, IF YOU'VE MADE NO SALE, CERTAINLY MAKE ONE THERE.

PEARSON: EXCELLENT. VIRGIL, LET'S TALK ABOUT THIS CATTLE MARKET. IT'S BEEN ON FIRE. WE HAVEN'T SEEN -- WE TALKED EARLIER WITH JOHN LAWRENCE. I THINK YOU'LL AGREE WITH WHAT JOHN AND THE FOLKS UP AT IOWA STATE ARE SAYING, BUT TAKE US DOWN THE ROAD ON THIS FED-CATTLE MARKET. NEAR-TERM, WHAT DO YOU SEE?

ROBINSON: MARK, I THINK IT'S GOING TO BE VERY DIFFICULT TO SUSTAIN LIVE PRICES ABOVE $90 FOR ANY LENGTH OF TIME. ONE OF THE REASONS I SAY THAT, AS WE TALK THIS EVENING, THE RETAIL SPREAD BETWEEN BEEF AND PORK, FOR EXAMPLE, IS EITHER AT OR VERY NEAR A RECORD WIDTH, WHICH WOULD SUGGEST AND HAS, IN YEARS PAST, WILL ENCOURAGE SOME MORE PORK CONSUMPTION. AND I THINK THAT CLEARLY WILL DEVELOP HERE IN THE VERY NEAR FUTURE. AS JOHN MENTIONED, HOWEVER, IT IS UNLIKELY THAT SUPPLIES -- FED SUPPLIES ARE GOING TO INCREASE DRAMATICALLY OVER THE COURSE OF THE NEXT SEVERAL MONTHS. AND THE MORE INCENTIVE WE HAVE PUMPED INTO THE CATTLE INDUSTRY -- BY THAT I MEAN FEEDER CATTLE AT $100 PLUS AND SO ON -- IT'S LIKELY THAT FEMALE SPECIES IS GOING TO BE RETAINED, BRED, MAKING FOR EVEN A TIGHTER FED SUPPLY DOWN THE ROAD, MARK. SO, YOU KNOW, THE LOW TO MID $80 PRICE RANGE SEEMS VERY LIKELY TO ME FOR THE NEXT SEVERAL MONTHS.

PEARSON: ALL RIGHT. SO PLAN ACCORDINGLY. DO YOU WANT TO STEP UP AND HEDGE SOMEWHERE DOWN THE ROAD, VIRGIL?

ROBINSON: MARK, AT PRESENT, I DON'T SENSE THAT THERE'S ANY OPPORTUNITY TO MAKE MUCH OF A HEDGE. IF LIVE CATTLE FUTURES -- THOSE DEFERRED CATTLE FUTURES -- AND TONIGHT WE HAD PLACEMENTS IN THE CATTLE-ON-FEED REPORT, SURPRISINGLY, A LITTLE BIT LARGER THAN HAD BEEN EXPECTED. MARK, IF THEY WOULD PUSH BACK INTO THE 85 OR UPPER 80S, THEN I THINK THERE ARE SOME OPPORTUNITIES THERE. BUT AT PRESENT, NO, I DON'T THINK THERE ARE ANY OPPORTUNITIES.

PEARSON: VIRGIL, YOU JUST MENTIONED THE SPREAD BETWEEN BEEF AND PORK AT THE RETAIL COUNTER. THAT'S STARTING NOW TO PICK UP. ARE WE STARTING TO SEE THAT NOW IN THIS CASH HOG MARKET AND FUTURES?

ROBINSON: YEAH, I THINK THAT'S BEEN THE UNDERLYING FORCE IN THE HOG MARKET, MARK. THERE'S REALLY NO SHORTAGE OF PORK. AND HAVING SAID THAT, I LOOKED AT THE COLD STORAGE REPORT THIS AFTERNOON, A DRAW DOWN IN PORK INVENTORY -- TOTAL PORK INVENTORY MONTH OVER MONTH AND VERSUS LAST YEAR. TOTAL RED MEAT INVENTORY IS DOWN MONTH OVER MONTH AND DOWN FROM A YEAR AGO. THE MEAT MARKET IS IN PRETTY DOGGONE GOOD SHAPE. AND AS DR. LAWRENCE MENTIONED, DEMAND REMAINS VERY STRONG. I DON'T SENSE THAT THAT'S GOING TO CHANGE. MARK, MY STRATEGY, AS OF TONIGHT, I THINK THE FEBRUARY, APRIL, AND JUNE 2004 HOG FUTURES CONTRACTS PROBABLY HAVE ANOTHER COUPLE OF DOLLARS IN THEM, AT WHICH POINT I WOULD LIKE TO MAKE SOME SHORT HEDGES, ASSURING MYSELF OF SOMETHING NEAR $43 LIVE.

PEARSON: VERY GOOD. VIRGIL ROBINSON, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM VIRGIL ON THESE ACTIVE MARKETS, BE SURE AND VISIT THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK. WE'LL VISIT A FARMER WHO USES ROTATIONAL GRAZING TO IMPROVE BOTH THE BOTTOM LINE AND THE ENVIRONMENT. 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