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Market Analysis: Sep 12, 2003

posted on September 12, 2003


The USDA midweek crop report shocked the bean trade into contract highs, but was fairly bearish for feed grains.

For the week, wheat futures prices were down more than six cents. Nearby corn futures were more than ten-cents lower. Soybean futures, however, gained 35-40 cents for the week. Soybean meal was $5.70 higher per ton.

Cotton futures were 6.13-higher.

In livestock, the September live cattle contract soared by $3.23. Nearby feeders jumped by $3.35. And the October lean hog contract improved by 60-cents.

In the financials, Comex gold was $1.80-lower per ounce. The Euro gained 185- basis points against the dollar. And the CRB Index gained nearly three-and-a-half points to finish the week at 241.10.

Here now to lend us his insight on these very active markets is one of our regular market analysts, Tomm Pfitzenmaier. Welcome back.

Market Analysis: Sep 12, 2003 TOMM, WELCOME BACK.

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, LET'S TALK -- WE WANT TO TALK ABOUT THIS BEAN MARKET, BUT LET'S FIRST TALK ABOUT WHAT'S HAPPENING WITH THE WHEAT. AND THE WHEAT MARKET HAD THE BIG RALLY, BUT IT'S BEEN BACKING OFF EVER SINCE.

Pfitzenmaier: YEAH, WHEAT HAD A PRETTY GOOD RUN UP. YOU KNOW, A LOT OF THAT WAS RELATED TO DEMAND NUMBER THAT THE USDA PLUGGED INTO THEIR REPORT. AND I THINK AS THE MARKET SORT OF ASSIMILATED THOSE NUMBERS AND SAT AND THOUGHT ABOUT THEM, I THINK THEY BECAME MORE AND MORE APPREHENSIVE ABOUT WHETHER WE COULD ACTUALLY ACHIEVE THOSE KIND OF EXPORT NUMBERS. AND AS A RESULT, WE SORT OF BACKED THE WHEAT MARKET OFF. I THINK WE'RE PROBABLY GOING TO TRADE AROUND HERE FOR QUITE A WHILE IN THIS 340 TO 360 RANGE. IF WE CAN, IN FACT, MEET THOSE EXPORT NUMBERS AS THE MARKETING YEAR GOES ALONG, THEN MAYBE WE HAVE THE POTENTIAL TO RUN UP INTO THAT 380 AREA.

Pearson: ALL RIGHT. SO TO A WHEAT PRODUCER RIGHT NOW, YOU'D SAY LET'S HOLD OFF AND LET'S SEE IF THIS THING BOUNCES BACK.

Pfitzenmaier: YEAH, I THINK IT'S WORTH -- IF YOU'VE GOT THE ABILITY -- THE FINANCIAL ABILITY TO WAIT, I THINK THERE'S SOME POTENTIAL FOR IT TO BE A LITTLE BETTER HERE.

Pearson: LET'S TALK ABOUT CORN. THE CORN MARKET THIS WEEK UNDER SOME PRESSURE. USDA NUMBER, A 9.94 WAS NOT AS LOW AS WHAT THE TRADE WAS EXPECTING.

Pfitzenmaier: RIGHT. AND IT ALSO TRANSLATED TO SLIGHTLY OVER A BILLION BUSHEL CARRYOUT. AND THAT -- YOU KNOW, I THINK MOST PEOPLE, THAT'S SORT OF PSYCHOLOGICALLY THAT'S THE BARRIER BETWEEN BULLISH AND A BEARISH MARKET. SO WE SOLD OFF PRETTY SHARPLY. ALL WE'VE EVER HEARD HISTORICALLY IS THAT JULY WEATHER MAKES CORN AND AUGUST WEATHER MAKES BEANS. WE HAD FAIRLY GOOD WEATHER THROUGH THE MONTH OF JULY, AND I THINK A LOT OF THAT MARKET CORN DEVELOPMENT WAS ESTABLISHED BEFORE THE DROUGHT SORT OF TOOK HOLD IN AUGUST. SO THERE'S STILL GOING TO BE SOME FAIRLY GOOD CORN YIELDS OUT THERE. AND THE USDA DIDN'T ADJUST THEIR EXPORT NUMBERS ALL THAT MUCH, SO I THINK THERE'S A LITTLE APPREHENSION THERE ABOUT WHETHER WE CAN MEET THOSE NUMBERS TOO, ESPECIALLY WITH THE HIGHER PRICES WE HAD. SO, YEAH, CORN SOLD OFF A LITTLE. IT MAYBE HAS A LITTLE MORE DOWN SIDE TO IT. PROBABLY NOT MUCH MORE THAN 8 TO 10 CENTS.

Pearson: ALL RIGHT. PRODUCERS OUT THERE ARE WONDERING: DO WE PUT IT IN THE BIN; DO WE PUT GO TO THE BOARD; WHAT'S THE BEST WAY TO TAKE ADVANTAGE OF WHAT IMPROVEMENT WE'VE HAD?

Pfitzenmaier: WELL, AS USUAL, THE ANSWER IS IT DEPENDS. I THINK IF YOU'VE GOT ON-FARM STORAGE, I THINK YOU NEED TO FILL THAT UP. I THINK YOU'RE GOING TO BE REWARDED, AS YOU FREQUENTLY ARE, BY BASIS IMPROVEMENT, BY THE ABILITY TO DRIVE DOWN ON IT A LITTLE CHEAPER THAN GOING TO THE ELEVATOR. IF YOU HAVE TO GO TO COMMERCIAL STORAGE, I'M NOT SURE THAT THE RALLY IS GOING TO BE JUSTIFIED TO OFFSET THE COST OF DOING THAT. SO I GUESS, IF YOU HAD TO GO TO TOWN, I'D SELL IT. IF YOU HAD THE ABILITY TO STORE IT, I'D DO THAT.

Pearson: ALL RIGHT. SO PRODUCERS OUT THERE -- AGAIN, AS WE LOOK AT THAT CORN MARKET AND THIS WHOLE FEED SITUATION, THERE SEEMS TO BE A WORLDWIDE TIGHTENING, BUT YOU DON'T THINK IT'S GOING TO BE THAT DRAMATIC.

Pfitzenmaier: NO. I MEAN IT'S TIGHT BUT IT'S ADEQUATE, SO I THINK WE'RE PRICED ABOUT RIGHT FOR THAT. I MEAN WORLDWIDE THINGS ARE TIGHT AND EVERYBODY IMMEDIATELY SAYS, WELL, THEY'RE GOING TO HAVE TO COME TO US. WELL, MAYBE THEY WILL AND MAYBE THEY WON'T. MAYBE THEY'RE JUST GOING TO GET BY AND DO WITHOUT OR SUBSTITUTE OR DO SOMETHING DIFFERENT, SO THAT REMAINS TO BE SEEN AS WE GO THROUGH THE WINTER. BUT FOR THE DOMESTIC SIDE, A BILLION BUSHEL CARRYOUT IN CORN IS -- IT DOESN'T JUSTIFY HUGELY HIGHER PRICES.

Pearson: LET'S TALK ABOUT THE ONE THAT HAS JUMPED -- IT'S JUMPED DRAMATICALLY -- AND WHERE THE REAL CONCERN IS. YOU TALKED ABOUT IT: JULY MAKES THE CORN CROP; AUGUST MAKES THE BEAN CROP. THERE WAS NO RAIN IN LARGE PORTIONS OF THE CORN BELT FOR THE MONTH OF AUGUST. RECORD REDUCTION BETWEEN AUGUST AND SEPTEMBER FROM THE USDA. STILL WE COULDN'T RALLY LIMIT HIGHER ON THE NEWS OF THAT. WHAT'S AHEAD FOR SOYBEANS?

Pfitzenmaier: WELL, OF COURSE, THE LIMIT IS PRETTY BIG NOW, SO THAT'S TOUGHER TO DO. BUT -- WELL, ONE OF THE THINGS THAT'S A BIG PROBLEM IS THAT BRAZILIANS -- OR SOUTH AMERICANS PRODUCE MORE BEANS THAN WE DO, AND THEY'VE GOT SOME TO SELL. SO THEY'VE BEEN FEEDING BEANS INTO THE MARKET. THEY'VE BEEN STARTING TO PRICE SOME OF THEIR NEW CROP. THEY'RE PROBABLY GOING TO HAVE A BIG INCREASE NEXT YEAR, AS THEY HISTORICALLY HAVE BEEN. YOU KNOW, EVERYBODY SAYS, WELL, A 10-PERCENT INCREASE, BUT EVERY YEAR THEY GET BIGGER, SO 10 PERCENT OF A BIGGER NUMBER EVERY YEAR MOUNTS UP. SO THAT, I THINK, IS KEEPING A LID ON OUR MARKETS AND KEEPING BEANS FROM RALLYING. NOW, HAVING SAID THAT, THERE WAS NOTHING NEGATIVE ABOUT THE WAY THIS WEEK CLOSED. WE GAPPED HIGHER. WE MADE NEW CONTRACT HIGHS. WE CLOSED VERY WELL ON THE WEEK. THERE WAS NOTHING NEGATIVE ABOUT WHAT HAPPENED THIS WEEK, SO I THINK THERE'S MORE UPSIDE IN STORE FOR THAT SOYBEAN MARKET AND I CERTAINLY WOULDN'T BE SELLING IT FOR A WHILE HERE.

Pearson: ALL RIGHT. SO WHAT IS OUR STRATEGY?

Pfitzenmaier: I GUESS THE STRATEGY IS TO PROBABLY NOT DO ANYTHING AND WATCH AND SEE HOW HIGH THIS THING CAN GO. I THINK THERE'S A GOOD CHANCE OF AT LEAST MOVING UP INTO THAT 635 TO 650 AREA BASIS THE NOVEMBER CONTRACT AND THEN SEE HOW IT ACTS THERE. IF YOU START BANGING UP AGAINST RESISTANCE AND YOU CAN'T GO ANYMORE, THEN MAYBE YOU MAKE SOME SALES, BUT I WOULDN'T BE IN ANY BIG HURRY.

Pearson: ALL RIGHT. SOYBEAN PRODUCER OUT THERE, WHAT ABOUT IF HE HAS ON-FARM STORAGE, IS THAT GOING TO BE A FACTOR? WHAT ARE YOUR THOUGHTS?

Pfitzenmaier: WELL, I THINK THAT BEAN MARKET IS GOING TO BE WORTH STORING UP TO A POINT. AGAIN, YOU'RE GOING TO BANG UP AGAINST THAT SOUTH AMERICAN CROP AT SOME POINT HERE THROUGH THE WINTER, AND THAT'S GOING TO KEEP US FROM GOING TOO FAR. BUT I THINK IT REMAINS TO BE SEEN HOW BAD THIS CROP IS. I MEAN YOU HEAR SOME PRETTY BAD STORIES ABOUT HOW THESE -- THE BEANS LOOK OUT THERE. AND I'M THE FIRST TO ADMIT THAT LOOKING AT BEANS IS A WHOLE LOT DIFFERENT THAN DRIVING A COMBINE THROUGH THE BEANS AND SEEING HOW THEY LOOK. BUT I THINK THERE'S ENOUGH CONCERN THERE THAT I WOULD BE CAUTIOUS ABOUT DOING MUCH OF ANYTHING IN SOYBEANS.

Pearson: OKAY. SO WE'VE GOT KIND OF A LOOKERS MARKET AT THIS STAGE OF THE GAME. LET'S SEE WHAT HAPPENS. ALL RIGHT. LET'S TALK ABOUT ANOTHER MARKET THAT WAS -- WENT WENT WILD THIS WEEK. THAT WAS THE COTTON MARKET, A DRAMATIC MOVE HIGHER. BIG CONCERNS ABOUT THAT CROP OVERSEAS.

Pfitzenmaier: YEAH. WELL, YOU KNOW, CHINA -- SOME OF THE PRIVATE ESTIMATORS REALLY DROPPED THE CHINESE CROP. THE USDA DIDN'T DROP IT QUITE AS MUCH AS THEY DID, BUT I THINK SOME PEOPLE THINK THAT THE USDA IS GOING TO GIVE IT TO US A LITTLE MORE GRADUALLY. SO THAT REALLY -- YOU KNOW, THAT'S A KEY COMPONENT OF THE COTTON MARKET WORLDWIDE, AND SO YOU SAW AN AWFUL NICE JUMP THERE. SOME OF THE AFRICAN NATIONS AND OTHERS THAT RAISE COTTON ARE HAVING PROBLEMS TOO. DEMAND UP HERE IS TO BE FAIRLY GOOD FOR THAT CROP, SO THAT NICE JUMP UP -- BUT AGAIN, YOU GET UP IN THAT 66- TO 70-CENT AREA AND THE COTTON MARKET IS PROBABLY GOING TO START TO RUN OUT OF STEAM TOO. THEY HAD A PRETTY GOOD JUMP AND NOW WE'RE GOING TO SEE IF EXPORTS HOLD UP AND JUST SEE WHAT HAPPENS HERE.

Pearson: THE LIVESTOCK MARKET... AGAIN, THESE ARE REALLY RECORD BREAKING MOMENTS THAT WE'RE LIVING THROUGH RIGHT NOW IN LIVESTOCK. IN THIS FED CATTLE MARKET, TREMENDOUS MOVES HERE IN THE LAST TWO WEEKS. I MEAN PEOPLE ARE JUST STUNNED AT WHAT WE'RE SEEING PRICE-WISE: 93-CENT FAT CATTLE; WE'RE SEEING TREMENDOUS OPPORTUNITIES OUT THERE FOR FED CATTLE. WELL, OF COURSE, A LOT OF IT IS WE DON'T HAVE A LOT OF IT TO SELL, SO IT'S THE OLD SUPPLY/DEMAND THING. BUT AS YOU LOOK AT THIS CATTLE MARKET, TOMM, AND WHAT'S BEEN HAPPENING, LET'S GO FORWARD HERE. HOW LONG WILL THIS THING LAST?

Pfitzenmaier: WELL, THIS HAS BEEN A CONVERGENCE OF THREE OR FOUR DIFFERENT FACTORS. ONE, YOU OBVIOUSLY HAD THE CANADIAN BEEF PROBLEM. I THINK YOU'VE HAD A PRETTY GOOD ECONOMY, IN COMBINATION WITH A CHANGE IN ATTITUDE WITH THE ATKINS DIET AND ALL OF A SUDDEN BEEF IS A LITTLE MORE THE IN THING TO EAT. YOU'VE GOT THE DROUGHT OUT IN THE WESTERN PART OF THE UNITED STATES, AND I THINK ALL THESE FACTORS HAVE COME TOGETHER TO FORM A UNIQUE SITUATION THAT HAVE GIVEN BEEF A POP UP. HAVING SAID THAT, IT'S HARD TO HOLD ALL THOSE TOGETHER. I MEAN, ULTIMATELY, EVEN THIS WEEK WE STARTED GETTING A LITTLE BEEF IN FROM CANADA, SO THAT PART IS GOING TO START TO ERODE. THE BUYER OF BEEF AT THE RETAIL LEVEL IS NOT GOING TO WALK BY THAT CHEAP PORK AND CHEAP CHICKEN FOR TOO LONG WITHOUT TAKING A SECOND LOOK AT IT, AS EXPENSIVE AS BEEF IS GETTING AT THE RETAIL LEVEL. SO THAT PART IS GOING TO CRACK A LITTLE BIT, AND I THINK IT'S GOING TO BE HARD TO SUSTAIN THESE KIND OF PRICES. I MEAN, YOU'RE AT THE $12 BEANS SORT OF LEVEL HERE, AND IT'S GOING TO BE HARD TO HOLD IT.

Pearson: YOU MENTIONED $12 BEANS. AND, OF COURSE, A LOT OF WHAT DROVE THOSE PRICES WERE EXPORT DEMAND. ARE WE GOING TO SEE THAT EXPORT DEMAND FOR U.S. BEEF?

Pfitzenmaier: WELL, I THINK IT'S GOING TO HANG TOGETHER FAIRLY WELL. THEY SEEM TO HAVE BEEN ABLE TO SATISFY THE JAPANESE CONCERNS OVER WHAT KIND OF BEEF THEY'RE GOING TO GET, SO I THINK YOU'RE GOING TO BE ALL RIGHT EXPORT-WISE, YEAH.

Pearson: OUR RISK IS GREATEST WHEN THE PRICE IS HIGHEST. SO STRATEGY-WISE, WHAT ARE YOU TELLING PEOPLE?

Pfitzenmaier: STRATEGY-WISE -- YOU KNOW, I'M A BIG BELIEVER IN PUTS NORMALLY, BUT I THINK THE PUTS ARE THE BEST STRATEGY WHEN YOU HAVE A LOT OF UPSIDE POTENTIAL IN A MARKET. WHEN YOU'RE AT THE TOP END OF A MARKET, I THINK YOU NEED TO SELL IT. NOW, THAT MEANS EITHER FORWARD CONTRACTING, IF YOU CAN WORK SOMETHING OUT THERE OR SELLING THE FUTURES OR SOMETHING, BUT YOU'VE GOT TO GET SALES MADE UP HERE. NOW, IF YOU'RE IN THE CAMP THAT THINKS, WELL, YEAH, WE'RE HIGH BUT, BOY, WE'RE GOING A LOT HIGHER, THEN GO BUY YOURSELF A CALL TO PROTECT AGAINST THAT. BUT I DON'T THINK THIS IS THE SORT OF MARKET WHERE YOU BUY A PUT BECAUSE THE UPSIDE POTENTIAL PROBABLY FROM THESE LEVELS IS NOT THAT GREAT.

Pearson: IF YOU'RE BUYING THESE $100 FEEDERS, HOW ARE YOU MAKING THEM WORK?

Pfitzenmaier: WELL, THAT'S A GOOD QUESTION. YOU HAVE TO BE VERY CAREFUL ON HOW YOU PUSH THE PENCIL ON MAKING THAT HAPPEN; THAT'S FOR SURE. BUT, YOU KNOW, THERE'S A MARKET THAT IF YOU'RE BUYING THEM, YOU PROBABLY NEED TO GO OUT AND PROTECT YOURSELF SOMEHOW. AND IF YOU CAN LOCK SOMETHING IN, YOU PROBABLY NEED TO BE DOING IT.

Pearson: NO QUESTION ABOUT IT. ALL RIGHT. LET'S TALK ABOUT HOGS. THAT BUSINESS HAS NOT HAD THE RECOVERY THAT WE'VE SEEN IN THE CATTLE MARKET, BUT WE HAVE SEEN THINGS GET A LITTLE BIT BETTER. WHAT'S YOUR OUTLOOK NOW ON HOGS? WE HAD ALL THOSE CANADIAN HOGS STREAMING DOWN. YOU'VE TALKED ABOUT THAT ON THE SHOW. YOU WERE ONE OF THE FIRST PEOPLE TO TALK ABOUT THAT LAST JUNE WHEN THIS THING STARTED TO GO DOWNHILL, AND YOU SAID HOGS ARE GOING TO STRUGGLE BECAUSE OF IT. 20,000 HEAD A DAY COMING DOWN FROM CANADA. WHAT'S YOUR OUTLOOK NOW? MAYBE WE'LL SEE THAT SLOW DOWN.

Pfitzenmaier: WELL, TWO WEEKS AGO WE HAD A PRETTY LIGHT SLAUGHTER, AND THAT GAVE US SOME OPTIMISM. IT BROKE US UP THROUGH THOSE HIGHS, AND WE PUT ABOUT $10 OVERALL ON THE HOG FUTURES. THE CASH MARKET, HOWEVER, DID NOT FOLLOW ALONG, AND THE FUTURES FOUND THEMSELVES UP THERE IN SORT OF THIN AIR WITHOUT A CASH MARKET TO BACK IT UP. AND YOU SAW REVERSALS IN THE MARKET ON THURSDAY AND FRIDAY. THAT IS A BIG AREA OF CONCERN. WE COULD POTENTIALLY BE SEEING -- STARTING TO SEE A LITTLE BIGGER NUMBERS COMING IN AS WE GO INTO THE FALL, AND I THINK PORK IS GOING TO STRUGGLE. NOW, AS I ALLUDED TO EARLIER, I THINK AT THE RETAIL LEVEL YOU'RE GOING TO START TO SEE THE DEMAND HELP OUT. THE CASH MARKET IS PROBABLY GOING TO STAY FIRM, ALTHOUGH PROBABLY NOT GO UP TO THE LEVELS THAT THE FUTURES WERE PROJECTING HERE THIS WEEK. I THINK THE PORK MARKET IS GOING TO BE ALL RIGHT. I DON'T SEE IT GETTING TERRIBLE, BUT IT'S PROBABLY NOT GOING TO GO SHOOTING UP OUT OF HERE EITHER.

Pearson: TAKE US OUT TO SPRING/SUMMER. AS WE HEAR FROM THE USDA HOG REPORT, WE SHOULD BE LOOKING AT REDUCED NUMBERS BY --

Pfitzenmaier: YEAH, YEAH, WE SHOULD BE. AND THAT'S WHY I -- YOU KNOW, MY NEGATIVITY DOESN'T GO MUCH PAST THE FIRST OF THE YEAR. I THINK BEYOND THAT, I THINK WE'RE GOING TO BE FINE. YOU KNOW, THE POPULATION IS GROWING. DEMAND IS GOING TO GROW AT A FASTER RATE THAN HOGS ARE BEING LIQUIDATED.

Pearson: EXCELLENT. THANKS SO MUCH, TOMM. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT HERE'S OUR WEEKLY REMINDER THAT IF YOU'D LIKE TO GATHER MORE OF TOMM'S INSIGHT ON CURRENT MARKET STRATEGIES, JUST VISIT THE MARKET PLUS PAGE AT OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE HARVEST PROGRESS AND MARKET RESPONSE. 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 USDA