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Market Analysis: Aug 01, 2003

posted on August 1, 2003


Supply and demand fundamentals and the continuing prospect of huge crops dominated the markets again this week.

Wheat continues its rally with the nearby futures rising another 8-and-a-half cents, while corn traded in a narrow range and posted fractional gains.

A variety of factors, including weakening basis levels, pushed soybean futures another 12 cents lower. Soybean meal closed $1.60 lower per ton.

Cotton futures were down $2.23.

In livestock, declining inventory helped push nearby live cattle futures $2.65 higher. August feeders were 60 cents higher for the week. The lean hog contract sank another $3.38.

In the financials, Comex gold plunged nearly $17 an ounce, the Euro gave back last week's gains and fell 244 basis points against the dollar.

And the CRB Index gained nearly two full points to finish the week at 235.75.

Here now to share his insight on these and other market trends is one of our regular market analysts, Tomm Pfitzenmaier. Welcome back.

Market Analysis: Aug 01, 2003 Pearson:LET'S TALK ABOUT THE UP MARKET. LET'S TALK ABOUT WHEAT PRICES FIRST. A BIG WEEK AGAIN FOR WHEAT.

Pfitzenmaier: YEAH, A VERY BIG WEEK. IT'S KIND OF INTERESTING, WE'VE GOT A FAIRLY GOOD CROP HERE. OUR EXPORT DEMAND -- I MEAN WE HAD AN OKAY WEEK THIS PAST WEEK, BUT UP TO THEN IT HASN'T BEEN THAT GREAT. BUT THIS IS ALL SORT OF HAPPENING BASED ON WEATHER PROBLEMS IN THE E.U. AND WEATHER PROBLEMS IN THE UKRAINE. WELL, IT KIND OF SEEMS LIKE RUSSIA HAS MADE OVERTURES TO MOVE SOME GRAIN FROM -- SOME WHEAT THERE INTO THE UKRAINE. THE E.U., IT'S A QUESTION OF WHETHER THEY'RE GOING TO SELL IT OR NOT, WHERE, HOW HIGH. AND SO THERE'S A LOT OF SPECULATION IN THAT WHEAT MARKET, BUT NOT MUCH HAS REALLY HAPPENED TO IMPROVE THINGS. SO WITH A GOOD CROP IN A GOOD PART OF THE UNITED STATES, I THINK PRICE IS ON WHEAT WHERE MAYBE YOU SHOULD BE LOOKING AT MAKING SOME SALES. WHEAT UP IN THAT 355 TO 360 AREA IS PROBABLY A PRETTY GOOD LEVEL.

Pearson: SOME HANDSOME YIELDS WERE REPORTED -- I WAS IN SOUTHEAST KANSAS NEAR GIRARD THIS LAST WEEK, AND THERE WERE SOME 73-BUSHEL WHEAT YIELDS AND SOME PRETTY EXCITED FOLKS DOWN THERE.

Pfitzenmaier: YEAH, I MEAN THAT'S A PRETTY GOOD -- THAT GROSSES UP PRETTY GOOD AT THESE KIND OF PRICES.

Pearson: YOU BET. THAT'S PICKUP BUYING MONEY. LET'S TALK ABOUT THE CORN MARKET. AGAIN, PRETTY MUCH UNCHANGED THIS WEEK. THERE WAS SOME CONCERN ABOUT THIS FORECAST COMING UP. MOST THE CORN CROP LOOKS AWFULLY GOOD OUT THERE, SO THERE IS SOME CONCERN ABOUT POTENTIAL FOR WHEAT -- FOR HEAT GOING IN IT NEXT WEEK. WHAT'S YOUR TAKE ON THE CORN MARKET AT THIS POINT, TOMM?

Pfitzenmaier: THE CORN MARKET -- I MEAN THE CORN CROP LOOKS GREAT. I MEAN YOU CAN TALK ABOUT A LITTLE HEAT THERE AND A LITTLE DRYNESS OF THE EAR, BUT OTHER THAN THAT, THE CORN CROP LOOKS PRETTY DARN GOOD. WE TRIED TO RALLY THE MARKET BASED ON THIS FORECAST OF HEAT NEXT WEEK OR DRY WEATHER, BUT THE VAST MAJORITY OF THE CROP IS POLLINATED AND THAT'S THE KEY THING. THAT'S THE KEY HEAT ISSUE FOR CORN. SO, YOU KNOW, WE'RE GOING TO -- WE'RE PROBABLY GOING TO HAVE LITTLE RALLIES, MAY HAVE ONE NEXT WEEK. BUT I THINK THAT'S GOING TO BE A MARKET TO SELL -- AN OPPORTUNITY TO SELL. IF YOU DON'T LIKE THE IDEA OF JUST FLAT SELLING IT, THEN, YOU KNOW, BUY YOURSELF A $2.20 PUT FOR 10, 11, 12 CENTS, BECAUSE I THINK THERE'S A FAIR AMOUNT OF DOWNSIDE POTENTIAL HERE IN THIS CORN MARKET BEFORE EXPORTS START TO KICK IN OR DEMAND STARTS TO KICK IN AND SUPPORT THE MARKET.

Pearson: SOYBEAN MARKET WAS THE BIGGEST BENEFICIARY OF THE HEAT TALK. RIGHTFULLY SO. SO TO MAKE THAT CROP -- BUT AGAIN, FROM WHAT WE'RE HEARING, BEANS LOOK AWFULLY GOOD OUT HERE TOO.

Pfitzenmaier: YEAH, THEY LOOK GOOD BUT THE TRADE FOCUSES ON THE FACT THAT AUGUST IS THE IMPORTANT MONTH FOR PRODUCTION OF SOYBEANS. SO ANYTHING THAT KIND OF MESSES WITH THAT OR SPOOKS THEM A LITTLE, AND THEY'RE GOING TO PUT SOME PREMIUM BACK ON THE SOYBEANS. YOU COULD PUT 15, MAYBE 20 CENTS BACK ON THE BEAN MARKET. BUT YOU'RE RIGHT: OVERALL, WE'VE GOT FAIRLY GOOD SUBSOIL MOISTURE; YOU'VE GOT A PLANT THAT HAS A TAPROOT AND LIKES DRY CONDITIONS. SO I MEAN, HOW BAD CAN IT REALLY GET OVER THE NEXT TWO OR THREE WEEKS?

Pearson: WHAT ABOUT ON THE DEMAND SIDE? WE'RE HEARING ABOUT CHINA. WE'RE HEARING ABOUT OTHER PARTS OF THE WORLD. ALL THIS BEAN USAGE. WE ALSO HEAR ABOUT A LOT OF BEANS STILL FOR SALE OUT OF SOUTH AMERICA.

Pfitzenmaier: YEAH, I MEAN YOU REFERRED TO -- A LITTLE BIT EARLIER TO THE BASIS STARTING TO FALL APART A BIT. THAT'S PARTIALLY BECAUSE OF THE SOUTH AMERICAN SITUATION. THOSE FARMERS ARE HOLDING BEANS DOWN THERE FOR TWO REASONS. ONE IS TO HOLD THEIR MONEY TOGETHER SO THEY'VE GOT VALUE TO PLANT THEIR NEXT CROP, BUT THEY ALSO DO A LITTLE SPECULATING ON HOW OUR CROP IS GOING TO LOOK. AND, YOU KNOW, THEY CAN LOOK UP HERE AND SEE THAT WE'VE GOT A GOOD CROP COMING ON. THEY CAN -- AND STARTING TO MOVE SOME CROP TO GET AHEAD OF OURS COMING IN HERE. SO I THINK THE DEMAND SIDE OF IT IS GOING TO FLOAT AWAY FROM US A LITTLE BIT IF THEY START MOVING BEANS HERE.

Pearson: AT THIS STAGE OF THE GAME, WHAT WOULD YOU RECOMMEND THE SOY PRODUCER DO?

Pfitzenmaier: WELL, IF IN FACT YOU GET THAT RALLY UP INTO THAT 535 TO 545 AREA, I THINK YOU HAVE TO USE THAT AS A SELLING OPPORTUNITY. I DON'T KNOW ON A BREAK THAT I'D BE THAT EXCITED ABOUT IT. I MEAN WE'RE NOT ALL 10, 12 CENTS OFF THE LOWS HERE, SO I DON'T KNOW THAT I'D GET REAL AGGRESSIVE SELLING IT ON A BREAK. BUT IF YOU CAN CATCH THAT KIND OF A RALLY, I THINK YOU SHOULD START MAKING SOME SALES.

Pearson: WE ALSO HAD A BIG BREAK, TOMM, ON THIS COTTON MARKET THIS WEEK.

Pfitzenmaier: YEAH, THE COTTON MARKET EXPORTS THIS -- WERE THE LOWEST WE'VE HAD IN QUITE SOME TIME. PRODUCTION APPEARS TO BE FAIRLY GOOD. THERE'S A LITTLE DRY POCKET IN WESTERN TEXAS THAT THEY'RE KIND OF WATCHING. BUT UNLESS SOME DEMAND SHOWS UP, WE'RE PROBABLY GOING TO GO DOWN AND TEST THE BOTTOM END OF THAT RECENT TRADING RANGE, WHICH WE'VE TALKED ABOUT FOR MONTHS HERE, WHICH IS, YOU KNOW, LOW AROUND 56, HIGH AROUND 62. WE COULD BREAK BACK DOWN IN THAT 56.50 AREA. AND THEN WE'LL PROBABLY FIND SOME SUPPORT IN THAT COTTON MARKET.

Pearson: WE GET UP NEAR THE TOP OF THAT RANGE, YOU'D BE A SELLER?

Pfitzenmaier: YEAH, ABSOLUTELY.

Pearson: LET'S TALK LIVESTOCK. BEEF MARKET -- THIS U.S. BEEF MARKET IS AS CURRENT AS IT'S EVER BEEN. DEMAND SEEMS TO BE HOLDING IN THERE PRETTY GOOD, BUT 10 PERCENT OF THE SUPPLY IS GONE WITH THE CANADIAN SITUATION. WE DON'T KNOW WHEN THAT'S GOING TO GET FIXED. WHAT DO YOU TELL A CATTLE PRODUCER OR A CATTLE FEEDER RIGHT NOW?

Pfitzenmaier: I MEAN I'M IN THE CAMP THAT THINKS THINGS ARE GOING TO BE OKAY HERE, BUT I'M ALSO -- IF THEY EVER OPEN THE GATES TO BRING THOSE CANADIAN CATTLE IN HERE, WE'RE GOING TO -- WE'RE GOING TO HAVE A DROP. SO THAT WOULD SEEM TO ME THE IDEAL SITUATION TO BUY A PUT. I MEAN YOU JUST BUY A PUT, BUY SOME INSURANCE, FIGURE THAT PROBABLY PRICES ARE GOING TO STAY UP. BUT IF THEY OPEN THE GATES AND CATTLE COME POURING IN HERE, THEN YOU'RE GOING TO HAVE YOURSELF SOME PROTECTIONS. SO I'D THINK THAT'S A PERFECT OPPORTUNITY. NOW, IF YOU GET CATTLE UP IN THAT $81, $82 RANGE, THEN YOU MIGHT WANT TO JUST FLAT OUT SELL THEM BECAUSE THAT'S A PRETTY GOOD PRICE. GOING ABOVE THAT IS GOING TO BE DIFFICULT. BUT YOU'RE RIGHT; I MEAN EVERYBODY THOUGHT THE RETAILER WAS GOING TO BACK AWAY, AND YET BOXED BEEF MOVED REALLY WELL AT A PRETTY GOOD PRICE THIS WEEK. SO THAT WAS VERY ENCOURAGING. YOU JUST THINK THAT AT SOME POINT HERE YOU'RE GOING TO START TO SEE FEATURING MOVE AWAY FROM THE BEEF AND TOWARD THE PORK, BUT IT HASN'T HAPPENED THAT MUCH YET.

Pearson: AND IF WE LOOK AT NUMBERS, I MEAN GOING FORWARD, FROM A U.S. PRODUCTION SIDE, WE'RE IN GREAT SHAPE.

Pfitzenmaier: OH, BOY, WE'RE CURRENT AND WE'RE MOVING THE CATTLE. THE CATTLEMEN ARE STILL, YOU KNOW, UNEASY ABOUT THIS CANADIAN THING HANGING OVER THEIR HEAD. THEY'RE STAYING CURRENT. IT'S REALLY A GOOD SITUATION AND PROJECTS TO BE A GOOD SITUATION FOR A WHILE HERE. I MEAN THERE ARE SOME TRADERS THAT BELIEVE THAT THIS CANADIAN THING ISN'T GOING TO GET OPENED UP FOR A REALLY, REALLY LONG TIME. AND IF THAT'S THE CASE, THEN THE CATTLE MARKET IS GOING TO STAY GOOD FOR A WHILE AND PROBABLY SUPPORT THAT FEEDER MARKET TOO BECAUSE THE CATTLEMEN ARE GOING TO SEE CHEAP CORN, GOOD FAT PRICES, THEY'RE GOING TO KEEP THOSE FEEDERS BID UP PRETTY WELL.

Pearson: LET'S TALK ABOUT HOW THAT'S ALL -- THE WHOLE PICTURE IS AFFECTING THE HOG MARKET, BECAUSE THAT'S A FACTOR HERE. CANADIAN PORK HASN'T BEEN BANNED.

Pfitzenmaier: RIGHT. AND IT'S POURING IN HERE. I MEAN THE BEEF IS CHEAP AS CHEAP CAN BE UP IN CANADA, SO THEY'RE MOVING PORK DOWN HERE AS FAST AS THEY CAN. AND THAT'S THE MAIN CONTRIBUTING FACTOR TO THE DECLINE IN THE PORK MARKET. YOU KNOW, THE USDA IS PROJECTING 1 TO 2 PERCENT REDUCTION FROM A YEAR AGO, AND WE'VE BEEN RUNNING, YOU KNOW, EVENED UP A LITTLE BIT. AND THAT'S JUST CONTINUALLY BEATING UP OUR HOG MARKET. I DON'T KNOW THAT THERE'S A WHOLE LOT MORE DOWN TO IT AND I CERTAINLY WOULDN'T JUMP IN THERE AND HEDGE ANYTHING AT THESE LEVELS BUT IT DOES BOTHER YOU A BIT. YOU KNOW, IF THEY OPEN UP THE CATTLE, THEN MAYBE ALL THAT COULD REVERSE AND PORK COULD POP BACK UP HERE. BUT IN THE MEANTIME, THEY'RE GOING TO STRUGGLE.

Pearson: STRATEGY-WISE, IS THERE ANYTHING A PORK PRODUCER SHOULD BE DOING?

Pfitzenmaier: I MEAN IF YOU HAVEN'T DONE IT ALREADY, THERE'S PROBABLY NOT A LOT TO DO NOW. YOU'VE KIND OF MISSED THE VAST MAJORITY OF THE DOWN MOVE. I GUESS I'D JUST SIT TIGHT AND SEE HOW -- HOPEFULLY WE'RE GOING TO START TO SEE SOME FEATURING, START TO SEE DEMAND POUR IN HERE, AND START TO SHORE UP THAT PRICE A LITTLE BIT.

Pearson: YOU MENTIONED THE USDA AND THEIR NUMBERS. I MEAN WE ARE LOOKING FOR BACKED UP PORK NUMBERS, SO MAYBE FOURTH QUARTER, IF THINGS EVEN OUT, WE MIGHT SEE THAT --

Pfitzenmaier: RIGHT.

Pearson: KIND OF A CONTRASEASONAL MOVE THERE IN HOGS.

Pfitzenmaier: YEAH.

Pearson: REAL QUICK, TOMM. THEY'VE PASSED THIS NEW ENERGY BILL AND, AGAIN, A VERY FAVORABLE DEAL FOR ETHANOL FOR CONTINUED CORN PRODUCTION. WHAT'S GOING TO BE THE IMPACT FOR THAT? I MEAN WE'RE STILL PRODUCING THESE 10-PLUS BILLION BUSHEL CORN CROPS. WE'RE NOT USING ALL THAT. IS THIS GOING TO HELP?

Pfitzenmaier: WELL, YEAH. EVERYTHING THAT USES UP SOME CORN IS GOING TO HELP. I DON'T THINK THERE'S ANY QUESTION ABOUT -- YOU KNOW, THERE'S MORE PLANTS TO COME ON LINE. THEY'RE REALLY GEARING UP. I JUST THINK IT'S A POSITIVE THING FOR THAT CORN MARKET, AND IT'S ONE OF THE FACTORS THAT'S GOING TO KEEP IT -- YOU KNOW, THERE'S SOME DOWNSIDE POTENTIAL FROM CORN -- FOR CORN, BUT IT'S NOT GOING TO TOTALLY FALL OUT THE BOTTOM JUST BECAUSE OF FACTORS LIKE THAT, THAT ARE GOING TO COME IN AND SUPPORT THAT MARKET.

Pearson: AS WE GO FORWARD, OBVIOUSLY WE NEED MORE PLACES TO PUT THESE BIG CROPS.

Pfitzenmaier: YEAH, ABSOLUTELY. I MEAN WE SEEM TO JUST GET BETTER AND BETTER. THE TECHNOLOGY SEEMS TO IMPROVE. THE HYBRIDS THAT WE'RE PLANTING; WE JUST HAVE THE ABILITY TO PLANT AND PRODUCE A BIG CROP UNDER A WIDE VARIETY OF PLANTING CONDITIONS AND GROWING CONDITIONS.

Pearson: ABSOLUTELY. TOMM, THANKS SO MUCH. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA.

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