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Market Analysis: Jul 04, 2003

posted on July 4, 2003


Supply numbers pressured the corn and soybean futures markets this week, while wheat futures were stronger. For the week, wheat gained 8-cents on the nearby contract. Corn prices were four to seven cents lower.

Soybean futures were down more than four to ten cents. Soy meal finished the week $4.90 lower per ton.

Cotton futures closed 65-cents higher.

In livestock, fed cattle futures were down 97 cents. Feeder cattle gained a nickel, while the lean hog contract finished the week 68-cents higher.

In the financials, Comex gold gained $5.80 per ounce. The Euro gained 61- basis points against the dollar. And, the CRB Index finished the week three and three quarters points higher to close at 235.20

Here now to elaborate on these and other market trends is one of our regular analysts, Virgil Robinson. Welcome back.

Market Analysis: Jul 04, 2003

Robinson: THANK YOU, MARK. HAPPY FOURTH OF JULY.

Pearson: HAPPY WEEKEND TO YOU TOO. AND VIRGIL, LET'S TALK ABOUT -- LET'S SHIFT GEARS RIGHT AT THE START. LET'S TALK ABOUT THIS FED-CATTLE MARKET. THE LAST TIME YOU WERE ON, WE WERE TALKING ABOUT THE IMPACT OF CANADA COMING DOWN. NOW THE IMPACT POTENTIALLY OF THE INFECTED COW COMING FROM THE UNITED STATES. IT'S BEEN A WHILE BACK. WHAT IMPACT OR WHAT ARE YOU HEARING IN TERMS OF WHAT'S BEING DISCUSSED IN THE PITS?

Robinson: WELL, MOST OF THE CASH TRADE WAS COMPLETED BY TODAY, MARK. AND AGAIN, FED-CATTLE VALUES WERE, ON AVERAGE, ABOUT A DOLLAR HIGHER FOR THE WEEK. PACKER MARGINS IMPROVED AND LED TO STRONGER CASH VALUES. THE U.S. WAS QUICK, I THINK, TO REFUTE THE STATEMENT MADE BY THE CANADIAN OFFICIAL. I THINK THROUGH A LONG WEEKEND HERE, MARK, THERE WILL BE ADDITIONAL INFORMATION PROVIDED BY THE GOVERNMENT, OUR GOVERNMENT, TO DISPEL THE CONCERNS AND THE WORRY ABOUT THIS PROBLEM. PERSONALLY I DON'T FEEL IT TO BE A MAJOR FACTOR, AND I ANTICIPATE NEXT WEEK CASH CATTLE WILL RESUME AT THE $75 FED LEVEL MARKET THIS WEEK AND MOST LIKELY A LITTLE HIGHER, MARK. I THINK SHOW LISTS ARE CURRENT. LIVE AND DRESSED WEIGHTS HAVE DECLINED APPRECIABLY YEAR OVER YEAR. I THINK THE BEEF MARKET IS IN PRETTY DOGGONE SOLID CONDITION.

Pearson: ALL RIGHT. SO AS WE GO FORWARD, FOR A CATTLE FEEDER OUT THERE BUYING CALVES RIGHT NOW, YOU FEEL FAIRLY CONFIDENT. DO YOU WANT TO LOOK AT A HEDGE?

Robinson: MARK, I DON'T THINK THERE ARE ANY OPPORTUNITIES, GIVEN TODAY'S FUTURES MARKETS AND ATTACHING AN EXPECTED WESTERN CORN BELT BASIS TO THOSE VALUES. ALL ARE AT PRESENT NEAR 70 OR $72. AND I THINK, AGAIN, PROVIDED WE HAVEN'T A MAJOR WRECK HERE AS THE CANADIAN PROBLEM IS EVENTUALLY RESOLVED, I THINK WE CAN SUPPORT, MARK, THE BALANCE OF THIS YEAR INTO THE FIRST QUARTER OF 2004 A MID TO UPPER $70 LIVE CATTLE MARKET.

Pearson: WHILE WE'RE TALKING LIVESTOCK, LET'S TALK ABOUT HOGS TOO. HOGS HAVE BEEN THE BENEFICIARY. WE FINALLY HAVE SOME PROFITABLE PRICES IN THE PORK BUSINESS, BASED ON THE LAST HOGS AND PIGS REPORT THAT WE HAD TO TAKE A LOOK AT. GOING FORWARD, VIRGIL, WHAT'S YOUR OUTLOOK NOW FOR HOGS?

Robinson: WELL, PRETTY POSITIVE DEVELOPMENTS, I THINK, MARK. U.S. PORK DEMAND IS STRONG. THIS WEEK PORK VALUES ON AVERAGE WERE WEAKER, BUT DISAPPEARANCE, I THINK, WAS VERY SOLID, MARK. EXPORTS THROUGH MAY OF THIS CALENDAR YEAR RUNNING AT A PACE ABOUT 8 TO 9 PERCENT ABOVE LAST YEAR, LED BY NEW JAPANESE AND SOUTH KOREAN BUSINESS. I THINK THE PORK MARKET IS IN PRETTY SOLID CONDITION AS WE VISIT TONIGHT. OF CONCERN IN THE RECENT HOGS AND PIGS REPORT, FARROWING INTENTIONS, MARK, A REASON TO BE A BIT CONCERNED. AND FUTURES VALUES, I THINK, REFLECT THAT. AND SPEAKING OF FUTURES VALUES, MARK, AGAIN, I THINK THERE ARE SOME ATTRACTIVE HEDGES. THE BALANCE OF THIS QUARTER, BASED ON THE AUGUST FUTURE ATTACHING AN EXPECTED WESTERN CORN BELT BASIS, I THINK THERE WILL BE AN OPPORTUNITY NEXT WEEK WITH A DOLLAR STRONGER FUTURES TO LOCK IN $48 FOR THE LAST HALF OF THE THIRD, FIRST HALF OF THE FOURTH QUARTER $45 USING THE OCTOBER FUTURES, USING THE DECEMBER FUTURES LAST HALF OF THE FOURTH, FIRST HALF OF THE FIRST QUARTER OF 2004, SOMEWHERE IN THE VICINITY OF $41. I THINK THOSE ARE ATTRACTIVE HEDGING OPPORTUNITIES AS WE VISIT TONIGHT.

Pearson: ALL RIGHT. THAT'S A COMPELLING IDEA RIGHT THERE. LET'S MOVE OVER NOW TO THE GRAINS. SOME BIG GOVERNMENT NUMBERS OUT THIS WEEK, AND ALWAYS SOME PEOPLE WHO ARE REFUTING THOSE. BUT LET'S TALK FIRST ABOUT WHAT'S HAPPENING AS FAR AS THE WHEAT TRADE IS CONCERNED. WE SAW A BOUNCE IN THE WHEAT THIS WEEK.

Robinson: A COUPLE OF PRIMARY FACTORS. YEAR OVER YEAR, GLOBAL WHEAT PRODUCTION IS PROJECTED TO DECLINE ABOUT 20 TO 22 MILLION METRIC TONS, WILL BE ONE OF THE SMALLEST HISTORICAL NUMBERS ON RECORD, MARK. IN CONTRAST TO THAT, U.S. TOTAL WHEAT STOCKS ARE PROJECTED TO GROW. NOW, HAVING SAID THAT, IN EACH OF THE LAST FOUR OR FIVE WEEKS, THERE'S BEEN A NICE INCREASE IN WEEKLY EXPORT SALES AND SHIPMENTS OF WHEAT, MARK. SO I THINK THE COMBINATION OF DECLINING PRICE, GROWING GLOBAL DEMAND IS UNDERPINNING OUR MARKET PRETTY DOGGONE SOLIDLY HERE THROUGH WHAT IS A VERY GOOD HARVEST, A HARD RED WHEAT WINTER HARVEST. AND I THINK FUTURESWISE, BOTH THE KANSAS CITY AND CHICAGO FUTURES ARE FIRMLY SUPPORTED AT OR VERY NEAR $3, MARK. AND I BELIEVE SOMETIME IN THE FOURTH QUARTER OF THIS YEAR, THOSE FUTURES CONTRACTS WILL AGAIN PUSH BACK TOWARDS THE 330 TO 340 AREA.

Pearson: ALL RIGHT. LET'S TALK ABOUT CORN AND SOYBEANS. CORN FIRST. AGAIN, WE HAVEN'T TALKED MUCH ABOUT CORN. THERE HASN'T BEEN ANY EXCITEMENT ABOUT CORN. THE GOVERNMENT NUMBERS REALLY DIDN'T GIVE US THAT MUCH IN THE WAY OF NEW THINGS TO THINK ABOUT OR TALK ABOUT. ARE WE JUST MOVING FORWARD INTO A WEATHER MARKET NOW?

Robinson: I THINK SO, MARK. CROP CONDITIONS ARE GOOD. NEAR-TERM WEATHER FORECASTS ARE GENERALLY NONTHREATENING SO, AGAIN, THE TRADE IS OF THE OPINION THAT WE ARE LIKELY TO GROW A $10-BILLION-BUSHEL CROP THIS CROP YEAR, MARK, IN ADDITION TO A BILLION-BUSHEL CARRYOVER FROM THIS PRESENT CROP YEAR. SO SUPPLIES, EVEN THOUGH PROJECTED DISAPPEARANCE NEXT YEAR IS PROJECTED AT 9.8 BILLION BUSHELS, SUPPLIES IN THE UNITED STATES ARE PROJECTED TO GROW YEAR OVER YEAR. AND AS A RESULT OF THAT, FUTURES HAVE BEEN ON THE DEFENSIVE, MARK. NOW, IN DEFENSE OF THE CORN MARKET, WORLD CORN PRODUCTION AND STOCKS, LED PRIMARILY BY THE STOCK DEPLETION IN CHINA AND A SMALLER CROP, ARE SCHEDULED TO BE SMALLER YEAR OVER YEAR. SO I THINK NEW CROP CORN FUTURES, MARK, IN THIS 215 TO 225 AREA REPRESENT FAIR VALUE. I'M NOT INTERESTED IN MAKING ANY SALES IN THAT PRICE RANGE.

Pearson: WHAT ABOUT ON THE SOYBEANS?

Robinson: SOYBEANS, KIND OF THE SAME STORY. A YEAR-OVER-YEAR INCREASE IS PROJECTED IN U.S. PRODUCTION, PERHAPS DOUBLING OUR CARRYOUT A YEAR FROM NOW, MARK. THE TRADE, I BELIEVE, IS TRYING TO FACTOR THAT INTO ITS PRICE DISCOVERY PROCESS. NEW-CROP SOYBEAN FUTURES ARE CURRENTLY AROUND $5.50, LIKELY TO DECLINE, IF WE GROW THIS LARGE CROP THAT WE'RE CURRENTLY ASSUMING, MARK, TO SOMEWHERE IN THE 510 TO 520 AREA. SO THERE ARE SOME OPPORTUNITIES HERE, BUT IN MANY INSTANCES SELLING NEW CROP IS SELLING AT OR BELOW LOAN. SO WE MAY HAVE TO EMPLOY, AT SOME POINT IN TIME, THE OLD LDP STRATEGIES.

Pearson: LET'S -- FINALLY I WANT TO TALK ABOUT COTTON, WHICH ALSO IS A PART OF THE GOVERNMENT REPORT. FEWER ACRES -- THIS COTTON MARKET HAS BEEN STRONG. NOW, YOU WERE ONE OF THE FIRST PEOPLE WHO SAID, HEY, THIS COULD BE A GOOD YEAR FOR COTTON.

Robinson: WELL, THE USDA HAS DONE A GOOD JOB, I THINK, IN EACH OF THEIR LAST THREE OR FOUR QUARTERLY REPORTS -- EXCUSE ME, MONTHLY REPORTS, MARK, SUGGESTING THAT U.S. STOCKS WILL DECLINE DOWN TOWARDS ABOUT 4.5 MILLION BALES, WHICH WILL BE THE SMALLEST INVENTORY WE'VE HAD IN FIVE YEARS. THEY'RE ALSO, AT THE SAME TIME, PROJECTING GLOBAL OR WORLD STOCKS TO DECLINE TO ABOUT 34.5 MILLION BALES, THE SMALLEST SINCE '94-'95. U.S. EXPORTS, MARK, OF LATE, HAVE BEEN STRONG AND ON CUE, IT SEEMS, ARE PROJECTED TO GROW THIS YEAR ABOUT 5 PERCENT TO ABOUT 11.5 OR NEAR 12 MILLION BALES. FUTURES MARKETS IN THE MONTH OF JUNE WERE EXCEPTIONALLY IMPRESSIVE, VERY STRONG, AND SUGGEST TO ME, MARK, THAT EITHER THE OCTOBER OR DECEMBER COTTON FUTURES CONTRACT WILL TRADE TO $67 OR HIGHER. SO WE SUGGESTED, I THINK, THREE OR FOUR WEEKS AGO DOING SOME MINIMUM PRICE STRATEGIES IN THE NEW-CROP COTTON AS IT TRADED ABOVE $62, WHICH WAS MOST LIKELY DONE. IF NOT, NOW I'D WAIT UNTIL 67 TO EMPLOY THAT STRATEGY.

Pearson: BUT STILL GO WITH SOME KIND OF A MINIMUM PRICE STRATEGY, AND AT LEAST GET -- HOPEFULLY PEOPLE GOT STARTED THERE BECAUSE THOSE ARE STILL WORKING VALUES.

Robinson: YEAH, I THINK THEY'RE PROFITABLE, MARK. ALTHOUGH, AGAIN, THERE ARE WEATHER CONCERNS HERE IN THE UNITED STATES AND SCATTERED THROUGHOUT THE GLOBE, WHICH WE ALWAYS HAVE TO DEAL WITH YEAR IN AND YEAR OUT.

Pearson: AS USUAL, SOME GOOD POINTS, VIRGIL ROBINSON. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR MORE INSIGHT FROM VIRGIL ABOUT THESE MARKETS, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. UNTIL NEXT WEEK, 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 wheat