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Market Analysis: Jul 25, 2003

posted on July 25, 2003


Grain prices tracked higher this week on the news of tightening global wheat stocks, which in turn nudged corn futures higher.

For the week, nearby wheat futures were seven cents higher, while corn was up fractionally. Soybean futures, though, failed to sustain midweek rallies and finished 11 cents lower. Soybean meal closed nearly eight dollars lower per ton. Cotton futures were $1.02 lower.

In livestock, July cattle gained almost five dollars, August feeders were 63 cents higher, but the lean hog contract closed $2.32 lower.

In the financials, Comex gold soared more than 15 dollars an ounce higher, the Euro was 219 basis points higher against the dollar, and the CRB index was virtually unchanged for the second straight week, closing at 233.90.

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

Market Analysis: Jul 25, 2003

Pearson: WELL, LET'S TALK ABOUT, FIRST OF ALL, THE WHEAT MARKET. YOU WERE TALKING ABOUT SOME KIND OF BULL FORMATION WHEAT. AND REALLY FOR SOME TIME HERE, I THINK YOU'VE REALLY BEEN AHEAD OF THE PACK ON IT. SO WHAT'S AHEAD? IS THERE MORE TO COME, DOUG, OR HAVE WE SEEN MOST OF THE ACTION IN WHEAT?

Hjort: I THINK THERE'S MORE TO COME, BUT WE MIGHT HAVE RUN OUR COURSE FOR RIGHT NOW, ESPECIALLY ON THE SOFT RED WINTER WHEAT. THAT'S THE CHICAGO FUTURES. ON WEEKLY CHARTS, THEY'RE RIGHT UP AGAINST SOME MAJOR RESISTANCE THERE. IF THEY TAKE THAT OUT, THEN IT'S PROBABLY ANOTHER 30 OR 40 CENTS UP, AND THAT'S PROBABLY TOO MUCH TO ASK FOR RIGHT NOW. ALSO, THERE'S A LOT OF SOFT RED WINTER WHEAT PRODUCERS THAT LIKE TO SELL THAT WHEAT SHORTLY AFTER HARVEST, CERTAINLY BEFORE SOYBEAN OR CORN HARVEST. AND IF THEY GET INTO SOYBEAN AND CORN HARVEST, MERCHANDISERS THERE WON'T EVEN HANDLE WHEAT IN A LOT OF CASES. SO THERE'S GOING TO BE SOME SELLING OF THAT SOFT RED WINTER NOW HERE IN THE NEXT WEEK, TWO TO THREE, AND THAT WILL PROBABLY PUT A CAP ON THE CASH MARKET AS WELL. NOW, IN THE KANSAS CITY AND MINNEAPOLIS FUTURES, THEY'VE PROBABLY GOT SOME MORE TO GO THERE. THEY'RE NOT UP AGAINST ANY MAJOR TECHNICAL RESISTANCE RIGHT NOW. AND OF COURSE, IT'S THAT TIME WHEN THE WINTER WHEAT -- THE HARD RED WINTER WHEAT, KANSAS CITY MARKET, DOES TURN AND BOTTOM AND START MOVING UP. THE LONG-TERM FUNDAMENTALS AROUND THE WORLD, VERY TIGHT WORLD GRAIN SUPPLIES. AND IN THE CASE OF WHEAT, RICE STOCKS ARE PROJECTED TO BE DRAWN DOWN TO ALL-TIME RECORD LOW LEVELS. AND, OF COURSE, WHEAT WOULD BE THE FIRST SUBSTITUTE FOR RICE. SO GOOD, STRONG DEMAND OUTLOOK FOR WHEAT AS WE GO INTO THE NEXT TWO, THREE, FOUR MONTHS.

Pearson: THE CORN MARKET, WE MENTIONED LITTLE STRENGTH THIS WEEK. REALLY UNCHANGED FOR THE WEEK ON CORN. WE KEEP HEARING OF GOOD CROP PROGRESS, AND YET THEY DID NOT, AT LEAST FROM THE USDA STANDPOINT IN LAST WEEK'S OUTLOOK, REALLY WASN'T LOOKING FOR THAT MUCH OF AN IMPROVEMENT. IN FACT, THEY ACTUALLY DOWNGRADED THE CROP A LITTLE BIT.

Hjort: WELL, THAT'S RIGHT. AND HERE'S THE SITUATION. YOU GO THROUGH THE HEART OF THE CORN BELT, SOUTHWEST MINNESOTA, DOWN THROUGH IOWA, INTO CENTRAL ILLINOIS, AND BACK UP THROUGH NORTHWEST INDIANA. THOSE GROWING CONDITIONS HAVE BEEN ABOUT AS GOOD AS THEY COULD BE IN THE LAST THREE WEEKS OR SO, ESPECIALLY. A LITTLE DRYNESS HERE AND THERE EARLY ON, BUT FROM WHAT I HEAR FROM PRODUCERS THERE, THAT JUST ALLOWED THE CORN TO REALLY ROOT DOWN WELL. AND NOW SINCE THEN, THEY'VE HAD GOOD MOISTURE AND THE PLANT IS ABLE AND READY TO TAKE ADVANTAGE OF THAT. NOW, THAT CROP IS IN VERY GOOD SHAPE, BUT IT'S ALSO RATED VERY, VERY HIGH IN THE GOOD AND EXCELLENT CATEGORIES. IT'S HARD TO TAKE THAT UP MUCH MORE. AS A MATTER OF FACT, THIS PAST WEEK, MONDAY'S REPORT, WE DID SEE EVEN SOME OF THE KEY STATES STARTING TO COME DOWN A LITTLE BIT, BUT FROM VERY HIGH LEVELS AND THEY'RE STILL RATED VERY HIGH. THE REAL PROBLEM IS OUT IN THE PLAINS, AND THIS WOULD APPLY TO SOYBEANS TOO. THE EXTREME HEAT WE'VE HAD OUT THERE, NOT THIS WEEK BUT A WEEK AGO AND NOW RETURNING THE LATTER PART OF THIS WEEK AND THROUGH THE WEEKEND, THAT'S REALLY TAKEN A TOLL AND PULLING THE CROP CONDITION RATINGS DOWN ON CORN AND BEANS. I THINK THAT'S VERY SIGNIFICANT. ON CORN, THERE WERE ESTIMATES UP HERE OF 10.3, 10.4, MAYBE EVEN LARGER CORN PRODUCTION THIS YEAR, ALL-TIME RECORD HIGHS. WELL, I THINK THE RATINGS, AS WE SAW THEM COME IN AND WILL SEE AGAIN ON MONDAY, WOULD RELATE MORE TO ABOUT A 10 OR 10.1 CROP. NOW, THAT'S STILL A HUGE CROP. YOU HAVE TO REMEMBER THAT. AND IT'S NOT REAL BULLISH FOR CORN, BUT I DO THINK CORN PRICES HAVE GOTTEN AHEAD OF THEMSELVES ON THIS BREAK. THAT'S WHY WE MORE OR LESS CHOPPED SIDEWAYS THIS WEEK, JUST WAITING FOR NEW INFORMATION TO COME ALONG.

Pearson: SO SITTING TIGHT. WHAT ABOUT ON THE BEAN CROP? YOU MENTIONED THAT, AGAIN, SOME PROBLEMS OUT THERE. BUT OVERALL, AGAIN, LOOKING FOR A DECENT BEAN CROP.

Hjort: OH, YEAH, I THINK SO. NOW, OBVIOUSLY, WEATHER IN THE NEXT MONTH IS MORE IMPORTANT, MONTH AND A HALF PROBABLY, MORE IMPORTANT FOR BEANS THAN IT IS FOR CORN EVEN. BUT THERE AGAIN, OUT IN THE PLAINS, THAT'S A SIGNIFICANT BEAN GROWING AREA. AND MOST OF THAT CROP IS NOT IRRIGATED, WHEREAS, A LOT OF THE CORN IS IN NEBRASKA AND KANSAS. SO I THINK THE SOYBEAN MARKET COULD REALLY GO EITHER WAY FROM HERE. FIRST OF ALL, THE OLD CROP SOYBEAN PRICES HAVE BEEN COLLAPSING, NOT JUST FUTURES BUT BASIS LEVELS JUST TOTALLY COLLAPSING. WE'RE STARTING TO LOOK AT THIS WORLD -- ALL-TIME WORLD HIGH RECORD ENDING STOCK ON SOYBEANS. WELL, WE'VE BEEN SUPPORTED UP IN AN ARTIFICIALLY HIGH PRICE LEVEL HERE IN THE U.S. BECAUSE OF SPOT SHORTAGES HERE IN THE UNITED STATES. NOW IN THE LAST WEEK OR TWO, THAT PREMIUM IS COMING OUT OF THE OLD CROP AND IT'S FAST MOVING DOWN TOWARDS THE HARVESTTIME PRICE.

Pearson: ALL RIGHT. SO WITH THAT IN MIND, PRODUCERS AGAIN, WITH THIS BASIS DETERIORATION THAT WE'VE SEEN, NOT A TIME TO BE SELLING BEANS.

Hjort: NO, CERTAINLY NOT. IF YOU'VE GOT ANY OLD CROP LEFT, YOU'VE GOT TO KEEP LOOKING FOR A SPOT TO MOVE THEM. THOSE PRICES ARE STILL HIGHER THAN THE NEW CROP HARVEST PRICES ARE.

Pearson: ALL RIGHT,. LET'S TALK ABOUT, QUICKLY, DOUG, ON COTTON -- SELL-OFF THIS WEEK ON COTTON FUTURES BUT, AGAIN, FROM SOME PRETTY DECENT LEVELS.

Hjort: WELL, THAT'S RIGHT. AND CHANCES ARE PRETTY GOOD -- WE HAD A REAL GOOD EXPORT NUMBER THIS WEEK. THAT BOOSTED THE PRICE A LITTLE BIT LATE THIS WEEK, AND THAT SHOULD PUSH US UP INTO THAT TECHNICAL RESISTANCE AREA AROUND THE 60-CENT LEVEL.

Pearson: LET'S TALK LIVESTOCK. AGAIN, CANADA STILL OVERHANGS THIS DOMESTIC BEEF MARKET. THERE'S NO ANSWER THERE YET. WE'VE SEEN FUTURES IMPROVE. THIS WEEK CASH MARKET LOOKED PRETTY DECENT. WHAT'S AHEAD ON THIS CATTLE FRONT WITH THAT CANADA SITUATION LOOMING?

Hjort: WELL, AS LONG AS THE BAN IS ON THE CANADIAN BEEF AND CATTLE, THESE CATTLE PRICES HAVE TO GO HIGHER HERE IN THE UNITED STATES, EVEN AT A TIME WHEN DEMAND IS SOMEWHAT SLUGGISH DURING THE SUMMER MONTHS. BUT THE DEMAND IS A SURPRISING THING AS WELL. HERE WE HAD THIS WEEK'S $2 TO $3 HIGHER CASH CATTLE PRICE, PARTLY BECAUSE THE FUTURES HAD TAKEN SUCH A JUMP ON THE CANADIAN THING, BUT ALSO BECAUSE THE DEMAND FOR BEEF HAS STAYED VERY GOOD. AND THIS IS REALLY ASTOUNDING CONSIDERING THE RECORD HIGH RETAIL PRICES THAT WE'RE MOVING BEEF AT. NO SLUMP IN THE BEEF DEMAND REGARDLESS OF CATTLE DISEASES OR WHATEVER. IT STAYS RIGHT UP THERE. REALLY A TOUGH CALL HERE ON THESE CATTLE BECAUSE WHEN THAT BAN COMES OFF ON THE CANADIAN BEEF, THESE PRICES ARE GOING TO GO DOWN AND THEY'RE GOING TO GO DOWN HARD. BUT UNTIL THEN I THINK THIS WEEK WAS JUST AN EXAMPLE OF HOW MUCH STRENGTH THERE'S GOING TO BE IN THAT MARKET PULLING IT UP. SO JUST HAVE TO WATCH AS CAREFULLY AS WE CAN FOR SOME INDICATION THAT CANADIAN BAN IS GOING TO BE LIFTED. RIGHT NOW MOST IN THE TRADE DON'T BELIEVE IT'S GOING TO BE LIFTED PROBABLY UNTIL AFTER LABOR DAY AT LEAST.

Pearson: ALL RIGHT. SO IT WILL STILL BE A QUESTION MARK FOR US. HEY, ONE THING THAT'S NOT A QUESTION MARK FOR US, THE HOG MARKET THIS WEEK SUNK DRAMATICALLY. CASH HOGS WERE UNDER PRESSURE. FUTURES UNDER PRESSURE. WHAT'S GOING ON WITH HOGS? SHOULDN'T WE BE HOLDING OUR OWN IN HERE?

Hjort: WE SHOULD BE YET UNTIL -- FOR ANOTHER TWO, THREE WEEKS BEFORE WE START OUR NORMAL SLIDE. I THINK THIS WAS A WAKE-UP CALL IN THE HOG MARKET. I REALLY DO. AND I THINK FUTURES, OF COURSE, SOLD OFF REAL HARD AND THAT HELPED TO PRESSURE THE CASH. BUT TODAY THE CASH MARKET WAS TRYING TO FIRM AND COME BACK A LITTLE BIT. AND EARLY NEXT WEEK I THINK WE CAN PROBABLY SEE THAT MARKET COME BACK AGAIN. IN THE CASH HOGS, THOUGH, YOU'VE GOT TO START MOVING THOSE HOGS, JUST AT AS LIGHT OF WEIGHT AS POSSIBLE.

Pearson: GOOD POINTS AS USUAL, DOUG. WE APPRECIATE YOUR OPINIONS AND ANALYSIS. AND THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR MORE OF DOUG'S COMMENTS, BE SURE TO DIAL UP THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. AND BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE'LL LEARN HOW SOME PRODUCERS ARE USING A REGIONAL BRAND TO PLACE THEIR GOODS IN MAINSTREAM SUPERMARKETS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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