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Market Analysis: Aug 29, 2003

posted on August 29, 2003


Pearson: The grain markets moved in a narrow range this week before closing higher. For the week, nearby wheat futures prices were almost five cents higher. September corn was up more than six cents.

Steady fund buying helped push the nearby soybean contract nearly nine cents higher. Soybean meal finished $10.20 higher per ton.

Cotton futures were almost two dollars a hundredweight higher.

In livestock, live cattle futures were more than a dollar higher. September feeders jumped more than two dollars. The lean hog contract finished $1.42 higher.

In the financials, Comex gold enjoyed an increase of $12.70 an ounce. The Euro was 78 basis points higher against the dollar. And the CRB Index gained three-quarters of a point to close at 243.25.

Here now to lend us his insight on these and other market trends is our senior market analyst, John Roach. Welcome back.

Market Analysis: Aug 29, 2003 AND, JOHN, WHAT A WEEK IT HAS BEEN -- THE LAST TEN DAYS HAS BEEN. I WANT TO TALK FIRST OFF ABOUT THE CORN AND SOYBEAN MARKETS, ALTHOUGH THIS CATTLE MARKET COULD EASILY BE THE HEADLINE MARKET AS WELL. LET'S TALK CORN AND SOYBEANS. SINCE THE USDA'S REPORT WAS RELEASED, CALLING FOR A 10-BILLION-BUSHEL CORN CROP, WE HAVE HAD NOTHING BUT TERRIBLE CONDITIONS, DROUGHT AND EXTREME HOT WEATHER. THE CORN CROP, THEY'RE SAYING MAYBE THE IMPACT HASN'T BEEN THAT GREAT. SOYBEANS CERTAINLY ARE FEELING THE IMPACT. THE MARKETS SEEM TO BE PICKING UP ON IT, BUT NOT AS MUCH AS WE WOULD THINK BASED ON THE VERY TIGHT SUPPLY THAT WE HAVE. WHAT'S AHEAD? LET'S TALK ABOUT THE CORN MARKET FIRST.

Roach: WELL, YOU HIT THE NAIL ON THE HEAD WHEN YOU SAID THE MARKET DOESN'T SEEM TO BE PICKING UP ON IT. THERE'S NO QUESTION THAT WE HAVE HAD REDUCTION OUT THERE IN THE FIELD SINCE THE JULY REPORT. BUT IF YOU RECALL, THE JULY REPORT WAS A SMALLER NUMBER THAN THE TRADE REALLY HAD ANTICIPATED, AND SO AS SOON AS THE REPORT WAS RELEASED, THE TRADE STARTED ADDING NUMBERS TO WHAT THE GOVERNMENT'S NUMBER WAS IN JULY. WELL, NOW THEY'VE TAKEN ALL THAT ADDITION AWAY AND THE TRADE IS GOING TO LOOK AT SMALLER NUMBERS, BUT WE'RE JUST UNCERTAIN AS TO HOW MUCH LOSS HAS OCCURRED. NOW, THE CROP WAS IN SUCH EXCELLENT SHAPE AND, ACTUALLY, THE RATINGS CONTINUED TO INCREASE INTO THE FIRST WEEK IN AUGUST, AND IN SOME AREAS, EVEN BEYOND THAT. SO THE DRASTIC DECLINE IN RATINGS THIS PAST WEEK AND THE SOMEWHAT DECLINE THE WEEK BEFORE HAS REALLY CONFUSED TRADERS. THEY DON'T KNOW FOR SURE. AS THE COMMENTARY SAID IN THE SHOW, THERE'S NOT A DIRECT CORRELATION BETWEEN RATINGS AND YIELD. SO THE MARKET IS IN A VERY UNCERTAIN STAGE, AND WE REALLY NEED TO SEE MORE INFORMATION FROM THE GOVERNMENT. WE NEED TO SEE SOME MORE HARVEST KIND OF RESULTS TO SEE WHAT WE'RE GOING TO HAVE FOR A CROP.

Pearson: ALL RIGHT. IF THIS CROP GOES BELOW 10 BILLION BUSHELS, WHAT COULD WE BE TALKING ABOUT IN TERMS OF PRICE BASED ON THAT?

Roach: WELL, WE HAVE TO LOOK AROUND THE WORLD AS WELL AS THIS COUNTRY. THE WORLD IS GOING TO BE TIGHT ON FEED GRAINS THIS YEAR. THE WORLD IS ALREADY TIGHT ON WHEAT. AND AS A CONSEQUENCE, WE EXPECT TO SEE FAIRLY GOOD LEVELS OF DEMAND ON FEED GRAIN AND WE THOUGHT WE WOULD HAVE ADEQUATE SUPPLY, BURDENSOME SUPPLY, PERHAPS, TO SUPPLY IT. NOW IT LOOKS LIKE WE MIGHT HAVE JUST ENOUGH TO SUPPLY IT. WE MIGHT GROW OUR STOCKS BIT, BUT WE'RE NOT GOING TO GROW THEM VERY MUCH. SO PRICE LEVELS AS WE MOVE THROUGH THIS YEAR ARE GOING TO BE VERY SENSITIVE TO THE DEMAND COMING AT THE MARKET. NOW, A YEAR AGO AT THIS TIME, THE CORN DEMAND WAS HIGHER THAN WHAT IT TURNED OUT TO REALLY BE. IT WAS ESTIMATED TO BE HIGHER THAN WHAT IT ACTUALLY TURNED OUT TO BE. THIS YEAR THE DEMAND IS RUNNING ACTUALLY A BIT BETTER THAN IT WAS A YEAR AGO, SO I THINK WE'VE GOT 250 FRONT-MONTH CORN AHEAD OF US. AND WE MAY GET IT HERE AHEAD OF HARVEST. IF NOT, I THINK WE WILL AFTERWARDS. SO I THINK FROM A PRODUCER STANDPOINT, IF YOU'VE GOT ENOUGH STORAGE TO STORE THE I'D BE WILLING TO GO AHEAD AND STORE IT RATHER THAN SELL AT TODAY'S PRICE LEVEL. IF YOU DON'T HAVE ENOUGH STORAGE, THAN I THINK YOU'RE GOING TO HAVE TO TAKE THE STRENGTH IF THE MARKET HERE OVER THE NEXT FEW TRADING DAYS AND GET A LITTLE MORE OF THAT CORN SOLD. IN FOURTEEN OUT OF THE LAST FIFTEEN YEARS, CORN HAS GONE DOWN FROM THE 24TH OF AUGUST UNTIL THE 19TH OF SEPTEMBER, SO YOU HAVE TO RECOGNIZE THE LIKELIHOOD IS PRICES WILL GET CHEAPER UNLESS WE'RE REALLY SURPRISED ABOUT THE SIZE OF THE CROP.

Pearson: WE DID HEAR SOME BASIS STORIES FROM BASIS IN SOME KEY CORN BYYING AREAS. IT WAS AS MUCH AS A NICKEL OVER IN SOME PARTS OF THE CORN BELT.

Roach: NOW, REMEMBER WE'RE A TIGHTER SUPPLY THIS FALL BECAUSE OF LAST YEAR'S REDUCED CROP, PARTICULARLY IN THE WESTERN, SOUTHWESTERN REGIONS AND EVEN IN SOME OF THE EASTERN REGIONS THAT DIDN'T HAVE THE GOOD YIELDS LAST YEAR. SO THOSE STOCKS ARE RUNNING VERY TIGHT. THEY WOULD HAVE BEEN EVEN TIGHTER EXCEPT THIS CROP WITH THIS HEAT HAS REALLY COME ON FAST, SO HARVEST WILL BEGIN EARLIER THAN NORMAL RATHER THAN LATER THAN NORMAL AS WE THOUGHT JUST A MONTH AGO.

Pearson: OKAY. STRATEGY-WISE, THOUGH, YOU WOULD SAY STORE IT?

Roach: I'D BE A STORER OF GRAIN IF I HAD THE BIN SPACE, AND ANTICIPATE SOME STRENGTH AS WE MOVE POST HARVEST. I THIN WHEN WE FINALLY COUNT ALL THE BUSHELS, WE'RE GOING TO LOOK AT A TIGHT U.S. SITUATION TOGETHER WITH A TIGHT WORLD SITUATION, AND I THINK IT'S HIGHER PRICES.

Pearson: I SPOKE TO A NATIONAL CONFERENCE THIS MORNING. THERE WERE SOME FOLKS THERE FROM ALL OVER THE MIDWEST -- INDIANA; SOME FOLKS FROM DECATUR, ILLINOIS; SOME FOLKS FROM WESTERN IOWA -- ALL TALKING ABOUT THE IMPACT ON SOYBEANS HERE IN TERMS OF POD FILL AND HOT WEATHER. NO RAIN IN MANY PLACES -- NO MEASURABLE RAIN SINCE THE 2ND OF AUGUST. THOSE FOLKS ARE VERY CONCERNED ABOUT WHAT YIELDS ARE GOING TO LOOK LIKE. ARE WE GOING TO SEE A PRICE COMPENSATION, PERHAPS?

Roach: WELL, THE SOYBEAN MARKET STARTED THIS WEEK ON A STRONG NOTE AND JUST RAN SMACK INTO SOUTH AMERICAN HEDGING. IF YOU RECALL LAST YEAR, THE SOUTH AMERICAN CROP WAS ABOUT 40 PERCENT -- AT LEAST THE BRAZILIAN CROP WAS ABOUT 40 PERCENT SOLD DURING OUR STRONG LATE SUMMER, EARLY FALL TIME FRAME, AND THEY'RE BACK DOING IT AGAIN THIS YEAR. ANTICIPATION IS THAT THE BRAZILIAN CROP WILL BE INCREASED. WE'VE HEARD SOME ESTIMATES, AS MUCH AS 11 PERCENT INCREASED ACREAGE OUT OF BRAZIL. AND THOSE PRODUCERS ARE MORE THAN WILLING TO SELL THAT EARLY, AS THEY HAVE BEEN INCREASINGLY OVER THE PAST THREE YEARS. SO THAT'S WHAT'S STOPPING THE MARKET. IT'S NOT THAT WE HAVE ANYBODY CONFIDENT ABOUT THIS CROP IN THE UNITED STATES. THERE'S NOBODY THAT HAS ANY CONFIDENCE THAT WE'RE GOING TO HAVE A DECENT CROP HERE IN THIS COUNTRY, BUT THE ATTITUDE IS WE'RE GOING TO HAVE A BIG ENOUGH CROP THAT TOGETHER WITH THE SOUTH AMERICAN INVENTORY ON SEPTEMBER 1 IS STILL LARGE ENOUGH TO SUPPLY THE WORLD WITHOUT ANYBODY GETTING TOO CONCERNED.

Pearson: OKAY. SO BRAZILIAN HEDGING COMING IN, ACTING AS A GOVERNOR ON THIS BEAN MARKET FOR THE TIME BEING. JOHN, AS WE LOOK FORWARD, YOU TALKED ABOUT A BIGGER BRAZILIAN CROP NEXT YEAR. BUT AGAIN, IT SEEMS LIKE USAGE CONTINUES TO KEEP PACE WITH WHATEVER IT IS WE PRODUCE.

Roach: USAGE HAS BEEN JUST INCREDIBLE. WE'LL SEE ON THE NEXT GOVERNMENT REPORT THAT THE OLD CROP STOCKS ARE TIGHTER THAN WE THOUGHT THEY WERE JUST A MONTH AGO. WE SEE OUT FORWARD, A GOOD ECONOMIC GROWTH ACROSS THE WORLD AND THE UNITED STATES. WE SEE DEMAND INCREASING. SO THERE'S NO QUESTION WE NEED TO HAVE BIG SUPPLIES IN THE WORLD OR WE'LL RUN INTO A SHORT SITUATION. BUT SO FAR, WE'VE NOT HAD TO WORRY TOO MUCH ABOUT SOUTH AMERICA. I DO THINK IT STILL GIVES US SOME HIGHER PRICES AS WE MOVE ALONG. I DON'T THINK WE'RE GOING TO GET A CONTINUED INCREASED AMOUNT OF SELLING AT THIS $6 AREA. I THINK WE'LL BE ABLE TO CLEAR THAT, DEPENDING, OF COURSE, ON WEATHER AND CROP SIZE. I THINK WE'LL BE ABLE TO CLEAR THAT, AND THE NEXT TARGET IS 6.25. BUT AGAIN, EVERY NOTCH UP WE GO, WE RUN INTO ANOTHER ROUND OF PEOPLE WILLING TO SELL OUT OF SOUTH AMERICA.

Pearson: ALL RIGHT. SO AT THIS STAGE OF THE GAME, YOUR STRATEGY WOULD BE, AGAIN, STORE? HOLD? WHAT WOULD YOU RECOMMEND?

Roach: I'D BE A SELLER IN THE SOYBEANS ON STRENGTH. AS LONG AS THE MARKET WANTS TO KEEP NOTCHING HIGHER, I'M WILLING TO STEP UP AND SELL SMALL INCREASES IN THE CROP. I DON'T WANT TO SELL AGGRESSIVELY. I DON'T LOOK AT THE MARKET AS BEING ONE THAT'S GOING TO FALL APART IMMEDIATELY. THIS WEATHER IS CAUSING SOME SERIOUS PROBLEM. WE JUST DON'T REALLY KNOW HOW SERIOUS YET.

Pearson: ALL RIGHT. ONE CROP IS OUT OF THE GROUND. THAT'S THE WHEAT CROP. AND AGAIN, THAT HAS BEEN A SURPRISE BULL MARKET HERE, JOHN. YOU MENTIONED THE FACT THAT FEED GRAINS, AS A RULE, ARE TIGHT AROUND THE WORLD. WE TALKED ABOUT THE WHEAT MARKET TIGHTENING UP WORLDWIDE. HAVE WE TOPPED OUT FOR THE TIME BEING IN THIS MARKET?

Roach: WELL, THE WHEAT MARKET MOVED UP FROM THE HARVEST LOWS IN THIS COUNTRY. AND OUR HARVEST, OF COURSE, WAS VERY LARGE IN THIS COUNTRY. AND THE SPRING WHEAT HARVEST IS LARGER THAN PEOPLE ANTICIPATED, FROM WHAT WE'RE HEARING. THE HEAT MARKET MOVED UP, BUT IT WASN'T BASED ON THIS COUNTRY; IT WAS BASED ON STIMULATION OUT OF EUROPE. THE EUROPEAN DROUGHT AND HEAT -- RECORD HEAT TEMPERATURES IN EUROPE AND WIDESPREAD AREAS ACROSS EUROPE REALLY SHORTENED THEIR CROP, AND THE WHEAT MARKET RAN UP ON A REAL FULL-FLEDGED DROUGHT MARKET. AND WHEN THOSE KIND OF MARKETS DIE, THEY TEND TO JUST DIE, AND THAT'S WHAT HAPPENED TO THIS MARKET. AND SO THE HIGHS LOOK LIKE THEY MAY WELL BE IN ON WHEAT. WE HAD BIG EXPORT NUMBER ANNOUNCED THIS WEEK, AND YET THE MARKET CLOSED LOWER YESTERDAY. NOW, WE'RE BACK AGAIN TODAY BUT THIS MARKET IS REALLY STRUGGLING IN HERE. AND THERE'S A TECHNICAL TOP ON THE MARKET, AN ISLAND REVERSAL -- A KEY REVERSAL. SO WE'VE GOT TO BE CAREFUL HERE THINKING THAT THE WHEAT MARKET IS GOING TO DO, AT THE BEST, TRADE SIDEWAYS AND LIKELY STRUGGLE TO MAINTAIN THESE LEVELS.

Pearson: ALL RIGHT. OUR SOUTHERN VIEWERS ARE INTO COTTON PRODUCTION. A BIG WEEK THERE AND, AGAIN, THE COTTON MARKET HAS HELD UP REALLY PRETTY WELL ALL YEAR.

Roach: THE COTTON MARKET HAS HELD UP WELL, BUT THE CROP SIZE, REDUCED SLIGHTLY ON THE LAST GOVERNMENT REPORT. BUT THE MARKET REALLY DIDN'T RESPOND TO IT. PROBLEM THERE IS THE DEMAND. THE MILL DEMAND IS ANTICIPATED TO BE THE LOWEST IT'S BEEN, I THINK, ON RECORD. AND AS A CONSEQUENCE, THE LITTLE BIT SMALLER CROP, IT'S STILL NOT ENOUGH TO GET THE MARKET TO GO VERY FAR. WE THINK THIS 60-, 61-CENT AREA ON COTTON IS GOING TO BE A TOUGH AREA FOR NOW.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE LIVESTOCK BUSINESS. THIS FED-CATTLE MARKET HAS BEEN WILD. BEEF DEMAND HAS BEEN WILD. I WATCHED THOSE CUTOUT NUMBERS ON A DAILY BASIS, AND YOU DON'T SEE THESE $1 TO $3 UP MOVES AT THE END OF AUGUST IN THIS FED-CATTLE MARKET. WHAT'S AHEAD, JOHN, ON CATTLE?

Roach: THE MARKET HAS BEEN MUCH STRONGER THAN ANYBODY ANTICIPATED. WE WERE ALL SCARED TO DEATH THAT WHEN THE BORDER OPENED, THE CANADIAN BORDER OPENED, THAT WE WERE GOING TO BE DELUGED, AND WE HAVEN'T SEEN ANY OF THAT BEEF YET. AND THE TALK IS THAT WE'LL START TO SEE, MAYBE IN ANOTHER WEEK, MOVEMENT OF BEEF ACROSS. BUT MEANWHILE, PRODUCERS IN THIS COUNTRY HAVE MARKETED THEIR CATTLE AT VERY LIGHT WEIGHTS FOR FEAR OF THE COMPETITION COMING OUT OF CANADA. AND WE HAVEN'T HAD THE CANADIAN BEEF TO MARKET IN THIS COUNTRY, AND WE'VE GOTTEN EXTRA OVERSEAS BUSINESS BECAUSE OF THE PROBLEMS THAT THE CANADIANS HAVE HAD. SO EVERYTHING HAS WORKED TO THE BENEFIT OF THIS MARKET. OUR MARKETINGS IN THE MONTH OF JULY WERE A NEW RECORD FOR MARKETINGS FOR A MONTH, AND THE MONTH OF MAY WAS A RECORD PRIOR TO THAT. SO STRONG ECONOMIC RECOVERY IN THIS COUNTRY AS WELL AS THE -- US GETTING THE BENEFIT OF THE PROBLEMS THAT THEY HAD IN CANADA. THIS MARKET, HOWEVER, IS NOW REACHING INTO PRICE AREAS THAT WE ANTICIPATE TO SEE SOME RESISTANCE AT THE RETAIL LEVEL. WE DO ANTICIPATE SEEING BEEF COMING ACROSS THE BORDER. WE WILL LIKELY LOSE SOME OF THE FOREIGN BUSINESS AS A CONSEQUENCE, AND SO THIS MARKET IS REACHING A PEAK OR CLOSE TO REACHING A PEAK. AND I KNOW I SAID LAST TIME WHEN I WAS ON, "BE CAREFUL OF THIS MARKET WHEN IT COMES APART, IT WILL COME APART FAST." AND SEE, I THINK WE'RE IN THAT STAGE. THIS 84-CENT AREA IS GOING TO BE A TOUGH SPOT. SO IT'S A TIME TO BE GETTING PUTS BOUGHT. IF YOU'RE A CATTLE PRODUCER, IT'S TIME TO BE GOING AHEAD AND MAKING SALES AND BATTENING DOWN THE HATCH AND DO GOOD BUSINESS. IT ALWAYS IS SMART TO DO GOOD BUSINESS AT HIGH PRICES.

Pearson: ALL RIGHT. JOHN, WE HAVE ABOUT THIRTY SECONDS. THE HOG MARKET HAS BEEN THE ONE THAT STRUGGLED THIS SUMMER DESPITE BETTER NUMBERS IN THE U.S., THE CANADIAN HOGS COMING DOWN. WHAT'S AHEAD NOW FOR THE HOG MARKET? ARE WE GOING TO START TO RIGHT ITSELF A LITTLE BIT?

Roach: WELL, THE HOG MARKET ACTUALLY HAD AN UP AUGUST, WHICH IS UNUSUAL. ABOUT 90 PERCENT OF THE TIME, IT ACTUALLY GOES LOWER DURING THE MONTH OF AUGUST. SO IT ACTUALLY RECEIVED SOME OF THE HELP FROM IMPROVED ECONOMIC CONDITIONS HERE IN THIS COUNTRY AS WELL, SO -- BUT THAT MARKET IS LIKELY PEAKED. WE THINK THE MARKET IS GOING TO SLIDE DOWN AS WE MOVE OUT HERE IN THIS NEXT MONTH. BUT NEXT YEAR IS THE RIGHT CYCLICAL PATTERN FOR THE HOG MARKET. WE'LL HAVE BETTER PRICES NEXT YEAR THAN WE HAD THIS PAST YEAR, AND WE'RE NOT WILLING TO HEDGE ANY HOGS FOR INTO THE SPRING BECAUSE OF THAT.

Pearson: VERY GOOD. JOHN ROACH, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM JOHN, JUST GO ONLINE AND CLICK ON THE "MARKET PLUS" PAGE AT OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL PREVIEW THE BIG WORLD TRADE MEETING IN MEXICO. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING \E DES MOINES, IOWA

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