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Market Analysis: Aug 15, 2003

posted on August 15, 2003


As reported earlier, the crop report was the big market mover this week. For the week, nearby wheat futures were 21 cents higher. The nearby corn contract finished more than seven cents higher.

Soybeans came on strong at week's end and finished more than 28 cents higher on the nearby contract. Soybean meal was up more than 13 dollars per ton.

Cotton futures were down slightly.

In livestock, August fed cattle were fractionally higher. August feeders continued their run and closed more than a dollar higher. The lean hog contract, however, lost nearly three dollars.

In financials, Comex gold was almost seven dollars higher, the Euro finished fractionally lower against the dollar, and the CRB Index failed to trade on Friday because of the big East Coast blackout. It closed Thursday at 238-even, up about a point.

Here now to share his insight on these and other market trends is an analyst new to Market To Market, but someone with 25 years of experience in commodity analysis, Alan Brugler. Welcome to the program, Alan.

Market Analysis: Aug 15, 2003

Brugler: GOOD TO BE HERE, MARK.

Pearson: HEY, GOOD TO HAVE YOU WITH US. AND WHAT A WEEK TO START HERE ON "MARKET TO MARKET" AS AN ANALYST. WHAT IS WEEK IT WAS. LET'S FIRST TALK ABOUT THE WHEAT MARKET. WE'VE BEEN IN A BULL MARKET IN WHEAT NOW FOR THE LAST THIRTY DAYS. IS THE END IN SIGHT?

Brugler: WELL, WE'RE GETTING A LITTLE OVERBOUGHT TECHNICALLY, BUT I DON'T SEE ANYTHING IN THE TREND FOLLOWING SYSTEMS THAT SAYS IT'S OVER YET. WE'VE GOT GOOD FUNDAMENTAL REASONS FOR THE RALLY. WE'VE GOT THE EUROPEAN UNION DROUGHT ISSUE, WHERE THEY'VE DECIDED TO SLOW DOWN THEIR EXPORTS DRAMATICALLY. CANADA HAS GOT SOME PROBLEMS, YOU KNOW. SO WE'VE GOT AN OPPORTUNITY TO SELL SOME WHEAT INTO THE WORLD MARKET AND, ACTUALLY, WE'RE SEEING THAT SALES YEAR OVER YEAR ARE ABOVE WHAT WE WERE DOING A YEAR AGO. SO THE MARKET IS DEMANDING SOME PROOF THAT WE'RE MAKING THE EXPORTS. AND WHILE WE'RE NOT DESTROYING THOSE RECORDS, WE ARE MAKING SOME SALES.

Pearson: ALL RIGHT. SO OUTLOOK, WHAT WOULD YOU SEE THIS THING TOPPING OUT AT?

Brugler: WELL, YOU KNOW, IT'S DIFFICULT TO PICK AN EXACT NUMBER. I THINK THERE ARE SOME CHART COUNTS THAT WOULD TAKE YOU UP TO 396 IN CHICAGO. ON THE NEARBY CONTRACT, THE DECEMBER POSSIBLY AS HIGH AS 430. THAT'S GOING TO REQUIRE, PROBABLY, A LITTLE MORE TIGHTNESS FUNDAMENTALLY, THOUGH.

Pearson: ALL RIGHT. LET'S TALK ABOUT ANOTHER ISSUE. THE WEATHER HAS BECOME AN ISSUE SINCE THE USDA CROP REPORT CAME OUT. YOU KNOW, TEN BILLION IN CHANGE FROM THE USDA, MUCH LOWER THAN WHAT THE PRIVATE ANALYSTS HAD BEEN ANTICIPATING BEFOREHAND. BIG REACTION AND THEN KIND OF A SOFTENING IN THE CORN MARKET. WHAT DO YOU THINK IS AHEAD NOW FOR CORN?

Brugler: I THINK WE SPENT MOST OF THE LAST HALF OF THE WEEK JUST KIND OF POSITIONING FOR NEXT MONDAY. TRADERS WERE RELUCTANT TO TAKE A BIGGER LONG POSITION OVER THE WEEKEND WITH THE WEATHER FORECAST. WE'RE SEEING A LITTLE BIT OF A HINT OF WETTER AND COOLER WEATHER IN THE FORECAST THURSDAY NIGHT AND FRIDAY, SO WE KIND OF SAT ON THE SIDELINES. NOW, YOU SAW A LATE PICK-UP IN THE MARKET ON FRIDAY BECAUSE THE MIDDAY RUNS WERE A LITTLE DRIER AND A LITTLE BIT MORE STATUS QUO. SO THE CROP MODELS THAT I FOLLOW WILL DROP FURTHER ON MONDAY IF WE DON'T GET SOME KIND OF A QUICK CHANGE IN THE WEATHER.

Pearson: ALL RIGHT. AS FAR AS MAKING CORN SALES AT THIS STAGE OF THE GAME, SHOULD WE -- IS THIS -- AGAIN, NO ONE KNOWS WHAT THE WEATHER IS GOING TO DO FOR SURE. BUT FROM A MANAGEMENT STANDPOINT, ARE YOU MAKING CORN SALES RIGHT NOW?

Brugler: WE HAVEN'T MADE ANY SINCE MAY. WE'VE MADE PRETTY HEAVY SALES EARLY. WE'VE BASICALLY BEEN WAITING ON THE TOP IN THE RALLY, IF YOU WILL. OBVIOUSLY, WE'D LIKE TO MAKE A FEW MORE CASH SALES GOING INTO WINTER. WE'LL PROBABLY DO STORAGE HEDGES RATHER THAN CASH SALES, BECAUSE THERE ARE SOME NICE CARRIES IN THE MARKET THAT YOU CAN PICK UP IN CORN.

Pearson: THAT'S A GOOD POINT. LET'S TALK ABOUT SOYBEANS, ALSO A BIG MARKET FACTOR HERE. A BIG WEATHER FACTOR AS FAR AS THE SOYBEANS ARE CONCERNED AS WELL. WHAT'S AHEAD FOR SOYBEANS AND WHAT DO YOU SEE FOR THOSE NUMBERS?

Brugler: WELL, THE PROBLEM WITH SOYBEANS, OF COURSE, IS THAT WE'VE STILL GOT BRAZIL HANGING OVER OUR HEAD. THEY HAVE BEANS TO SELL CLEAR OUT INTO OCTOBER, NOVEMBER, WHEN NORMALLY THEY'D BE KIND OF OUT OF THE WORLD MARKET BY NOW. BUT THE CROP, AS YOU MENTIONED, BASICALLY THE YIELD IS SET -- IS MADE IN AUGUST, AND WE'RE NOT DONE WITH THAT PROCESS YET. THE REPORTS I'M GETTING OUT IN THE COUNTRY IS THAT THE CROP IS LOOKING A LITTLE TOUGH IN THE WESTERN CORN BELT. YOU GO FURTHER EAST, FURTHER NORTH, EVERYBODY SAYS THINGS LOOK PRETTY GOOD. BUT WE'RE STILL ON PINS AND NEEDLES AS TO WHETHER THAT'S A 2.85-MILLION-BUSHEL CROP OR SOMETHING UNDER A 2.8. WE DON'T HAVE ENOUGH SURPLUS STOCKS PROJECTED TO MAKE THE EXPORTS THAT HAVE BEEN PROJECTED IF, IN FACT, WE HAVE A SMALLER CROP.

Pearson: WHAT DO YOU MAKE OF -- IN TERMS OF A STRATEGY ON SOYBEANS, WHAT ARE YOU LOOKING FOR?

Brugler: BASICALLY WHAT WE'VE DONE IS WE'VE GOT A FEW PUT SPREADS UNDER THE MARKET. WE'RE ROLLING THOSE STRIKES HIGHER AS THE MARKET ALLOWS US TO DO THAT, ON THE PREMISE THAT WHEN IT BREAKS, IT'S PROBABLY GOING TO BREAK PRETTY HARD. BUT WE'RE STILL THINKING WE COULD POTENTIALLY SEE 580 OR SO IN THE NOV. BEANS IF THE DRYNESS CONTINUES FOR ANOTHER WEEK OR TWO.

Pearson: I'M HEARING ABOUT BOTH CASH CORN AND SOYBEANS MOVING TO TOWN THESE DAYS IN PRETTY HEAVY NUMBERS. ARE YOU PICKING UP ON MUCH WEAKNESS ON THESE CASH MARKETS?

Brugler: ACTUALLY, NO. IN FACT, I JUST TALKED TO A PRODUCER THIS MORNING THAT HAD DONE A BASIS CONTRACT, EXPECTING THE BASIS TO WEAKEN IN HIS LOCAL MARKET, AND IT DIDN'T. THE PROCESSORS WERE STILL HAVING DIFFICULTY ROUNDING UP ANY GRAIN, SO THEY WERE KEEPING THE BIDS PRETTY FIRM. NOW, I THINK THERE ARE ISOLATED AREAS WHERE THE LOAN GRAIN IS COMING OUT, LOAN CORN IN PARTICULAR, AND THAT'S CAUSED A WEAKNESS IN THE BASIS. BUT IN OTHER AREAS, PARTICULARLY WITH THE DRYNESS CONCERNS, THEY'RE MAINTAINING FAIRLY FIRM BIDS TO MAKE SURE THAT THEY GET THEIR SHARE OF THE GRAIN.

Pearson: NOT IN A BIG HURRY, THEN, TO GET BEANS SOLD AT THIS STAGE?

Brugler: NOT IN A BIG HURRY BUT, AGAIN, A LITTLE DEFENSIVE. I LIKE TO HAVE A LITTLE BIT OF A FLOOR UNDER THE PRICE WITH THE PUTS SO THAT IF WE WAKE UP ONE MORNING AND THE WEATHER FORECAST HAS BEEN DECREED BY SOMEONE TO BE WET THAT WE DON'T GIVE UP THE FIRST 20 CENTS OF THE MOVE.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE COTTON MARKET. IT'S BEEN A VERY POSITIVE STORY FOR MOST OF THE SUMMER NOW. WHAT'S AHEAD FOR COTTON?

Brugler: BASICALLY WE WERE WORKING A REALLY TIGHT WORLD STOCKS NUMBER. WE WERE LOOKING AT LOSING ALMOST A MILLION ACRES OUT IN THE TEXAS CROP. THE USDA KIND OF LOOSENED UP THE PICTURE A LITTLE BIT IN THIS LAST REPORT. THEY BUMPED UP THEIR WORLD STOCKS NUMBER. THEY'RE STILL PROJECTING VERY STRONG WORLD DEMAND THOUGH. AND I THINK THE TRADERS HAVE A LITTLE BIT OF CONCERN ABOUT WHAT'S GOING ON WITH CHINA AND THE TEXTILE CONTRACTS. YOU'VE GOT SOME INDUSTRY GROUPS THAT ARE ASKING FOR RESTRICTIONS ON CHINESE IMPORTS OF TEXTILES, THAT IS, IMPORTS INTO THE UNITED STATES. THE OTHER QUESTION TO BE ASKED THERE IS IF IN FACT WE WERE TO PUT SUCH RESTRICTIONS ON, WOULD THEY RESTRICT COTTON PURCHASES BECAUSE THEY DIDN'T NEED THE COTTON.

Pearson: SO IT'S -- CHINA REMAINS A BIG CARD ON THE COTTON FRONT. DO YOU WANT TO MAKE SALES NOW?

Brugler: AGAIN, I'M ALREADY HEDGED UP PRETTY WELL IN COTTON. I THINK BASICALLY WHAT'S BEEN WORKING THERE IS THE MARKET DOESN'T GET MORE THAN 5 OR 6 CENTS AWAY FROM THE "A" INDEX, AND THE "A" INDEX IS JUST A LITTLE OVER 60 CENTS. SO AS LONG AS WE CAN KEEP THE "A" INDEX UP THERE AT 60 OR HIGHER, I THINK THERE'S GOOD SUPPORT FOR OCTOBER AND DECEMBER COTTON IN THAT 54- OR EVEN 55-CENT AREA. AND BECAUSE OF THE TIGHT WORLD SUPPLIES, WE CAN BOUNCE BACK FROM THAT.

Pearson: ALL RIGHT. LET'S TALK ABOUT LIVESTOCK AND FED CATTLE MARKET. FIRST UP, OBVIOUSLY THE CANADA QUESTION HAS BEEN THERE FOR A WHILE. WE'VE GOTTEN A LITTLE BIT OF AN ANSWER. WE'RE STARTING TO SEE THE DOOR MAYBE CRACK OPEN A LITTLE BIT ON THESE CANADIAN CATTLE. NOT MUCH OF AN IMPACT ON THE MARKET, REALLY. WHAT'S AHEAD? IS THIS CANADIAN THING PRETTY MUCH DONE AS FAR AS THE MARKET IS CONCERNED?

Brugler: WELL, I'M NOT SURE IT'S DONE, BUT I WAS VERY ENCOURAGED TO SEE THAT WE BASICALLY ONLY HAD A ONE-DAY REACTION TO IT. THAT TELLS ME THAT THE MARKET HAD ALREADY BUILT IN THAT NEWS INTO THE PRICING STRUCTURE. I THINK IT HELPED THAT THERE WERE SIGNALS SENT OUT THAT THE PERMITS WERE GOING TO BE SLOWLY APPROVED; THAT IS, WE WOULDN'T SEE MUCH CANADIAN BEEF INTO THE MARKET UNTIL AFTER LABOR DAY. SO THERE WAS NO RUSH. YOU DID SEE A LITTLE WEAKNESS IN BOXED BEEF AS WE WENT THROUGH THE WEEK AND CASH CATTLE TRADE IN THE SOUTH WAS DOWN ABOUT A DOLLAR. BUT USDA HAS BASICALLY GOT A FAIRLY STEADY PICTURE FOR CASH TRADE THROUGH THE END OF THE YEAR. IT HELPS THAT WE'VE GOT 35 POUNDS PER ANIMAL LESS BEEF COMING OFF THE AVERAGE CARCASS WEIGHT, SO THAT'S ALLOWING US TO HAVE A LITTLE SLACK FOR EITHER A SLOWDOWN OF DEMAND OR THE RESUMPTION OF THE CANADIAN TRADE.

Pearson: ALL RIGHT. IS THAT PRICE TARGETS FOR CASH CATTLE?

Brugler: I THINK IT'S GOING TO BE REAL TOUGH TO GET CASH CATTLE MUCH ABOVE 80 BUCKS. YOU KNOW, THE VALUES RANGE IS PROBABLY IN THAT $75 TO $80 RANGE FOR QUITE SOME TIME.

Pearson: ALL RIGHT. LET'S TALK QUICKLY ABOUT THE HOGS. THE HOG MARKET, AGAIN, REALLY MORE THE CANADIAN QUESTION HAS BEEN -- FOR THE U.S., HAS BEEN MORE ON THE U.S. PORK PRODUCERS, WHICH HAS REALLY KIND OF TAKEN THE BRUNT AS THOSE FINISHED CANADIAN HOGS ARE COMING DOWN HERE. WHAT'S AHEAD NOW? IS THAT GOING TO START TO SLACK OFF?

Brugler: WELL, I THINK THE ASSUMPTION IS THAT AS THE CANADIAN BEEF MARKET RECOVERS -- AND THEY REALLY TOOK A BATH ON THE PRICES UP THERE. AS THAT MARKET RECOVERS, THE HOGS WILL BE MORE COMPETITIVE IN CANADA. THERE IS A FAIRLY SUBSTANTIAL LOGISTICAL COST TO SHIP THOSE HOGS DOWN HERE, SO IF WE START TO SEE SOME IMPROVEMENT IN THE CANADIAN BEEF MARKET, MAYBE WE'LL SLOW DOWN THOSE PORK IMPORTS.

Pearson: MAYBE STRENGTHEN PORK PRICES. HAVE YOU GOT A TARGET FOR PORK?

Brugler: BASICALLY WE'RE THINKING THAT WE'VE ALREADY SEEN THE HIGH FOR THE YEAR IN THE HOGS. I DON'T AGREE WITH THE GLOOM AND DOOMERS THAT ARE CALLING FOR ANOTHER 28- OR 30-CENT LOW LIKE WE HAD A YEAR AGO, BUT I THINK WE COULD SEE SOME WEAKNESS INTO THE LOW TO MID 40S.

Pearson: OKAY. VERY GOOD. AL BRUGLER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR MORE OF ALAN'S INSIGHTS INTO THE MARKET, BE SURE TO CLICK ON TO OUR WEB SITE. HE'LL TALK ABOUT THE BIG CROP REPORT, AS WELL AS OTHER MARKET NEWS. SO VISIT OUR "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. AND UNTIL NEXT WEEK, THANKS FOR JOINING US. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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