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Market Analysis: Aug 08, 2003

posted on August 8, 2003


Optimism over export sales combined with worsening conditions in the Western Corn Belt to push grain prices higher ahead of next week's big crop report.

For the week, nearby wheat futures prices jumped 6 and 1/2 cents. September corn futures were up by six cents. Nearby beans failed to break through resistance levels but still gained 11 cents for the week. Soybean meal fell another $3.30 per ton. Cotton futures were up marginally.

In livestock, live cattle prices were down $1.80, August feeders were up 60 cents, and the lean hog contract enjoyed a nice increase of $4.75.

In the financials, Comex gold continued its wild swings and finished $10.20 higher per ounce. The Euro was up fractionally against the dollar. And the CRB Index gained just over a point to close the week at 236.90

Here now to shed some light on these and other market trends are two of our regular market analysts, Walt Hackney and Virgil Robinson.

Market Analysis: Aug 08, 2003 VIRGIL, WALT, GOOD TO HAVE YOU HERE.

Robinson:HI, MARK.

Pearson: WELL, LET'S START WITH -- WE'VE BEEN TALKING ABOUT THIS CANADIAN CATTLE SITUATION THROUGHOUT THE SHOW. AND, WALT, LET'S TALK ABOUT THIS. YOU'RE UP THERE LOOKING AT THIS CANADIAN SITUATION. WE DON'T KNOW WHERE THE -- OR WHEN THE BORDER IS GOING TO REOPEN AND FOR SURE WHAT'S GOING TO HAPPEN TO THE MARKETS. THERE'S AN AWFUL LOT OF CONCERN OUT THERE.

Hackney: MARK, THERE'S MORE UNFOUNDED CONCERN THAN THERE IS REAL CONCERN. YOU'VE GOT TO RECALL THE FIRST OF JUNE WE HAD A RECORD ALL-TIME DRESSED BEEF CUT-OUT VALUE OF 153.30 A POUND. SIX WEEKS LATER, FOR NO FUNDAMENTAL REASON WHATSOEVER, OTHER THAN THE ANNOUNCEMENT OF CLOSING THE CANADIAN BORDER AND STOPPING 8 OR 10 PERCENT OF ADD-ON BEEF THROUGH IMPORTS, WE HAD FALLEN $27 A HUNDREDWEIGHT IN THE U.S. MARKET. THE U.S. CATTLEMEN HAVE LOST MORE MONEY TOTALLY THAN THE CANADIANS HAVE IN THIS ISSUE AT NO FAULT, PERIOD, OF THE U.S. CATTLEMEN. IT'S A HUNDRED PERCENT -- A PSYCHOLOGICAL TOOL CREATED BY THE INDUSTRY TO BEAT THE CATTLEMEN TO THAT LOW LEVEL. WE WENT FROM $82 AROUND THE FIRST OF JUNE TO NEARLY 70 CENTS IN SIX WEEKS. NOW GRANTED WE'VE COME BACK TO ABOUT 80, $82. THE POINT BEING THERE AREN'T ENOUGH CATTLE ON FEED IN CANADA WHEN THEY LIFT THE BORDER OR LOWER IT TO CAUSE AN ADVERSE FUNDAMENTAL REACTION IN THE UNITED STATES. BUT THE PSYCHOLOGY OF THE ACT OF LOWERING THE BORDER IS IN FACT PROBABLY GOING TO COST THE U.S. CATTLEMEN ANOTHER THREE OR FOUR BUCKS A HUNDREDWEIGHT. THE DRESSED PRODUCT WILL BE PART OF THAT, OBVIOUSLY; THAT'S COMING IN FROM U.S. PACKERS THAT ARE CURRENTLY IN CANADA IN OPERATION. THAT BEEF WILL COME BACK IN THE UNITED STATES PROBABLY. JAPAN, AS FAR AS WHAT THEY'RE DOING TO INSIST ON CERTIFICATION OF U.S.-ORIGINATED BEEF OR, MORE IMPORTANTLY, NON-CANADIAN BEEF, IS PROBABLY THE ONLY COUNTRY IN THE WORLD THAT'S ACTUALLY DOING IT CORRECTLY. THE UNITED STATES, OUR USDA ACTIVITIES AND SO FORTH HAVE NOT BEEN PROACTIVE TO CAUSE THIS THING TO LESSEN THE PAIN FOR THE U.S. CATTLEMEN. CANADIANS CLAIM THEY'RE LOSING FIVE HUNDRED BUCKS A HEAD OF FEEDLOT CATTLE. THE PERCENT OF CATTLE THEY HAVE ON FEED AT THAT LOSS COMPARED TO THE AMOUNT OF CATTLE WE HAVE ON FEED IN THE U.S., OUR LOSSES ON THE PREMISE OF $27 A HUNDREDWEIGHT DRESSED THAT WE LOST IS MUCH MORE OF A LOSS. WE'RE NOT GOING TO GET ASSISTANCE ON THAT. THE CANADIAN GOVERNMENT IS ASSISTING THOSE CATTLEMEN ON THEIR LOSS. SO IT'S A PSYCHOLOGICAL TOOL THAT PROBABLY WILL BE MORE OF A WHIP ON THE U.S. CATTLEMEN, AND THE CANADIANS PROBABLY ARE GOING TO COME THROUGH THIS THING WITH THEIR SKIRTS FAIRLY CLEAN DUE TO THE ASSISTANCE THEY'RE GOING TO GET FROM THEIR OWN GOVERNMENT.

Pearson: OKAY. BUT THAT STILL LEAVES A QUESTION MARK OUT THERE. NO ONE KNOWS FOR SURE, BUT YOU'RE TALKING MAYBE THREE OR FOUR BUCKS WHEN THIS THING FINAL ENDS.

Hackney: WHEN IT FINALLY ENDS. AND THAT WON'T LAST LONG -- WHEN THE REALISM SETS IN -- THAT THERE ISN'T GOING TO BE A FLOOD OF CANADIAN PRODUCT COMING INTO THE UNITED STATES BECAUSE THEY'RE DOWN TO LIKE 20 PERCENT OF THEIR FEEDLOT CAPACITY UP THERE. THERE'S NO WAY OF KNOWING, BUT THERE PROBABLY ISN'T MORE THAN ABOUT A HUNDRED THOUSAND HEAD OF CATTLE UP THERE THAT ARE OVER MARKET WEIGHT. THOSE WOULD NOT AFFECT OUR MARKET FOR MORE THAN THREE OR FOUR DAYS.

Pearson: REAL QUICK, WALTER, I ALSO WANT TO TALK ABOUT THIS COMING CALF CROP AND TRYING TO PUT THOSE IN THE FEEDLOT AND MAKING THEM WORK. HAVE YOU FIGURED THAT ONE OUT?

Hackney: WELL, TO MAKE HIM WORK, MARK, IS DETERMINED BY WHAT THE DEFERRED CONTRACTS DO ON THE MERCANTILE. IT'S DETERMINED BY WHAT THIS CORN CROP DOES TO THE CASH VALUE GOING INTO THE RATIONS. OBVIOUSLY THOSE WOULD TEND TO ELECTRIFY OR KILL THIS CALF MARKET. BUT IT'S STILL A BETTER VALUE TO THE CATTLEMEN TO BUY THE CALVES AS WE SPEAK THAN TO PAY THESE HUGE PRICES THAT HAVE BEEN CREATED ON YEARLING CATTLE. THESE YEARLING CATTLE HAVE GONE TO STRATOSPHERE AS FAR AS PRICE IS CONCERNED, AND TO BREAK THEM EVEN, YOU MAY NEED TO GIVE AWAY A CORN CROP ON SOME OF THESE CATTLE JUST TO GET THEM TO BREAK EVEN.

Pearson: ALL RIGHT. REAL QUICK OVER ON THE HOGS. WE'VE HAD ALL THESE CANADIAN HOGS. I THINK THE LAST TIME YOU WERE ON, WE WERE TALKING ABOUT THAT -- CLOSE TO 20,000 HEAD A DAY COMING IN HERE. AND THAT'S AFFECTING OUR TOTAL SLAUGHTER HERE IN THE U.S. HAVE WE GOT OUR ACT TOGETHER NOW?

Hackney: WELL, IT WOULD APPEAR THIS WEEK WE HAVE SEEN FEWER OF THOSE IMPORTS THAN WE HAVE PREVIOUSLY FOR THE LAST EIGHT WEEKS. YOU'RE CORRECT ON THE NUMBERS. IF WE WERE TO ONLY HAVE DOMESTIC SLAUGHTER AND EXCLUDE THE CANADIAN IMPORTER TO LIVE HOG, WE PROBABLY WOULD HAVE BEEN KILLING AROUND A MILLION SIX, A MILLION SIX FIFTY A WEEK. THAT WOULD BE VERY, VERY PROACTIVE TO THE PORK TRADE. AS IT IS, A MILLION EIGHT, A MILLION EIGHT FIVE, THAT'S A LITTLE BIT OF AN OVERLOAD AND IT TENDS TO RESTRICT OUR CASH.

Pearson: ABSOLUTELY. LET'S GO TALK ABOUT WHAT'S HAPPENED IN THE GRAIN MARKETS. AND, VIRGIL, IT'S REPORT TIME NEXT WEEK, BIG TIME, FROM THE USDA.

Robinson: NEXT TUESDAY, MARK, AND THEY ARE ANXIOUSLY AWAITED. KIND OF AN INTERESTING MIX OF FACTORS TO LOOK FORWARD TO NEXT WEEK, HIGHLIGHTED BY THIS AFTERNOON CFTC REPORT, MARK, WHICH IS A REPORT INDICATING THE POSITION IN THIS INSTANCE OF THE NONCOMMERCIAL ENTITIES, THE SPECULATIVE COMMUNITIES. AND IN ESSENCE, THE SPECULATIVE CAPITAL IS SHORT CORN FUTURES AND SOYBEAN FUTURES VERY NEAR RECORD PROPORTIONS. SO WE HAVE THAT IN COMBINATION WITH THE REPORTS OF TUESDAY IN COMBINATION WITH WHAT APPEARS TO ME TO BE A CONSENSUS NOW OF SHORT-TERM WEATHER FORECASTERS TALKING ABOUT THE PROSPECTS OF WHAT COULD WELL BE THE HOTTEST PERIOD OF THE SUMMER APPROACHING US MID NEXT WEEK, WITH TEMPERATURES IN THE MIDDLE PART OF THE COUNTRY AT OR NEAR A HUNDRED DEGREES. SO WE'VE GOT A MIX HERE OF FACTORS THAT COULD CREATE ADDITIONAL SHORT COVERING IN THE FUTURES MARKETS, MARK, ONLY AGAIN BECAUSE THE SPECULATIVE COMMUNITY HAS POSITIONED THEMSELVES EXPECTING -- FULLY EXPECTING RECORD PRODUCTION NUMBERS OUT OF THE USDA COME TUESDAY MORNING. SHOULD THAT NOT BE THE CASE, THEN IT COULD IGNITE ADDITIONAL SHORT COVERING IN BOTH OF THOSE FUTURES MARKETS.

Pearson: SO WE COULD LOOK FOR A SHORT COVERING RALLY. IS IT A PLACE TO MAKE SALES?

Robinson: I THINK IT'S GOING TO CONTINUE, MARK, THE SHORT COVERING RALLY. AND IF I HAD TO PICK A SPOT TONIGHT, NOT KNOWING THE DATA ON TUESDAY WHERE DECEMBER FUTURES, FOR EXAMPLE, MIGHT TRADE TO IN THE NEXT FEW DAYS, I WOULD SUGGEST WE'RE GOING TO TAKE A SWING AT SOMETHING NEAR 230, WHICH IS ABOUT 7 OR 8 CENTS ABOVE TONIGHT'S CLOSE, MARK. I THINK NOVEMBER BEANS ARE POSITIONED HERE, JUST SOLELY BASED ON THIS SPECULATIVE CAPITAL AND MIX OF EVENTS APPROACHING US, TO MAKE A RUN UP TOWARDS THE 530 MARK OR BETTER. MAKING SALES AT THOSE LEVELS, MARK, AGAIN CASH SALES PARTICULARLY IN BEANS IN MANY GEOGRAPHIES, WOULD BE BELOW LOAN. SO THAT CLEARLY IS A CONSIDERATION FOR SOME. HAVING SAID THAT, IT'S LIKELY THAT WE'RE GOING TO NEED TO POLISH UP OUR LDP MARKETING TACTICS, INCLUDING THE CARRYING CHARGE STRUCTURES THAT ARE CURRENTLY PRESENT IN CORN FUTURES FOR THE PURPOSE OF EXTRACTING A LITTLE BETTER PRICE IN CORN THAN WHAT WILL LIKELY BE OFFERED HERE THIS FALL AT HARVEST.

Pearson: SO UNDER THE LDP STRATEGY -- YOU ONLY HAVE ABOUT THIRTY SECONDS, VIRGIL -- I WANT YOU TO JUST ADDRESS WHAT'S BEEN HAPPENING IN THIS WHEAT MARKET. IT'S BEEN VERY BULLISH. IT'S HUNG IN THERE PRETTY WELL. IS IT TIME TO MAKE WHEAT SALES?

Robinson: WEATHER CONCERNS, MARK, GLOBALLY, AS WELL AS THE SPRING CROP HERE IN THE UNITED STATES. THE E.U. ANNOUNCED JUST RECENTLY THEY WOULD SUSPEND THEIR WEEKLY EXPORT TENDERS. THAT COMBINATION OF EVENTS CREATED ADDITIONAL SHORTED COVERING IN FUTURES. NOW, IN CONTRAST TO WHAT WE MENTIONED IN CORN AND SOYBEANS, THE SPECULATIVE CAPITAL IN WHEAT IS ALL LONG. I DO THINK FUTURES, HOWEVER, CHICAGO FUTURES HAVE THE OPPORTUNITY -- YOUR BASIS UP -- TO RUN TO 70 OR HIGHER, KANSAS CITY FUTURES 60 OR HIGHER WHERE I WOULD AT LEAST MAKE A MINIMUM PRICE SALE.

Pearson: EXCELLENT. THANK YOU, VIRGIL, AND THANK YOU, WALT.

That wraps up this edition of Market To Market. But remember: You can find more insight from Walt and Virgil by simply going to the Market Plus page on the Market To Market Web site.

And be sure to join us again next week when we'll conclude our look at the safety of the nation's meat supply.

Until then, thanks for watching. I'm Mark Pearson. Have a great week.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


Tags: agriculture commodity prices corn markets news