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Market Analysis: Jun 27, 2003

posted on June 27, 2003


The grain markets finished the week under some pressure. Wheat closed 6 and a half cents lower. The nearby corn contract lost 5 cents on the week. The new crop December futures contract lost nearly a dime.

The nearby soybean futures contract gained 2 and a quarter cents, while the new crop November contract lost more than 10 cents. July meal posted a four dollar a ton gain. Cotton futures finished three and a half cents higher.

In livestock, fed cattle futures closed a $1.17 higher. Feeder cattle gained a dollar-60. The lean hog contract closed down a dollar-63.

In the financials, COMEX gold finished 10.80 an ounce lower. The euro was down 129 basis points against the dollar. And the CRB index finished the week down two and a half points at 231. 50.

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

Market Analysis: Jun 27, 2003

Pfitzenmaier: THANKS, SID.

Sprecher: THERE SEEMS TO BE -- EVERYONE SEEMS TO BE WAITING THIS WEEK WITH SOME APPREHENSION WHAT ACREAGE REPORTS AND STOCKS REPORTS WILL SHOW ON MONDAY. THERE WASN'T A LOT OF ACTIVITY. CAN YOU KIND OF BACKGROUND ON THAT ANGST?

Pfitzenmaier: IT'S PARTICULARLY CRITICAL IN THE SOYBEAN MARKET, SINCE YOU HAVE SUCH A TIGHT CARRYOUT ANYWAY. IF THERE'S ANY TWEAKING ONE WAY OR THE OTHER OF THAT STOCKS NUMBER -- AND PARTICULARLY IF IT SHOULD TIGHTEN THE STOCKS UP A LITTLE MORE THAN EXPECTED, THERE'S THE POTENTIAL FOR SOME PRETTY GOOD EXPLOSION ON THE UPSIDE, PARTICULARLY ON THE NEARBY JULY AND AUGUST BEANS. CORN IS PROBABLY NOT AS CRITICAL. THERE'S A LITTLE MORE CUSHION THERE. AND THEN WE'RE DOWN ON THE ACREAGE SIDE OF IT IS -- I THINK THERE'S A PERCEPTION THAT THERE WAS SOME BEAN ACRES SWITCHED TO CORN IN THE HEART OF THE CORN GROWING AREA, AND THEN ALL OF A SUDDEN WE HAD THIS WET AREA IN SOUTHERN ILLINOIS, INDIANA, AND OHIO THAT DIDN'T GET PLANTED. SO MAYBE SOME ACRES FROM CORN WENT BACK TO BEANS. SO THAT'S KIND OF THE BIG QUESTION MARK IS: DID WE ACTUALLY LOSE ACRES DOWN THERE; WAS THERE SWITCHING ONE WAY OR THE OTHER? THE TRADE IS GENERALLY LOOKING FOR A NUMBER ON CORN JUST SLIGHTLY LESS THAN WHAT THE MARCH REPORT SAID AND SLIGHTLY LARGER IN BEANS. SO IT'S ALL GOING TO BE VERY INTERESTING TO SEE HOW IT SHAKES OUT MONDAY MORNING.

Sprecher: WHAT COULD BE THE MOST BULLISH SCENARIO THAT COULD HAPPEN ON MONDAY?

Pfitzenmaier: WELL, I THINK THE MOST BULLISH SCENARIO PROBABLY IS A SMALLER STOCKS NUMBER IN BEANS BECAUSE THAT'S WHERE THE TIGHTNESS IS, THAT'S WHERE THE FARMER HOLDING IN BEANS HAS PRETTY WELL BEEN CLEARED OUT. SO IF WE CRANK THE CARRYOUTS RIGHT DOWN ON BARE BONES LEVELS ANYWAY -- SO IF ANYTHING HAPPENS, THAT'S THE ONE THAT PROBABLY HAS THE MOST EXPLOSIVENESS. HAVING SAID THAT, THE CORN NUMBER AS YOU INDICATED A LITTLE BIT AGO, CORN SOLD OFF PRETTY HARD THIS WEEK, HAS BEEN SELLING OFF NOW FOR A COUPLE WEEKS IN ANTICIPATION OF THIS REPORT. SO YOU'VE ALREADY GOT A LOT OF -- A FAIR AMOUNT OF BEARISHNESS. IF YOU DON'T COME OUT WITH A NUMBER THAT'S NEUTRAL OR SLIGHTLY BEARISH, THAT MAY BE A CATALYST TO MOVE THAT MARKET BACK UP A LITTLE BIT TOO.

Sprecher: NOW, THE FIGURE 10-BILLION-BUSHEL CORN CROP, IS THAT -- IS THAT THE FIGURE THAT'S STILL IN PLAY IN THE MARKETS?

Pfitzenmaier: I THINK THAT'S THE ONE THAT EVERYBODY IS BOUNCING AROUND WITH, YEAH, BECAUSE THE ACREAGE -- THE SHIFT IN ACREAGE, EVEN THE PREREPORT ESTIMATES AREN'T THAT FAR OFF THE NUMBER THAT CAME OUT IN MARCH. SO THE YIELD IS GOING TO BE THE BIG THING, AND 10 BILLION SEEMS TO BE THE EASY NUMBER THAT, YOU KNOW, SWINGS ONE WAY OR THE OTHER.

Sprecher: IS THAT LIKELY TO START CREEPING -- I MEAN TYPICALLY IN MOST YEARS, THERE'S A CERTAIN CREEP DOWNWARD. I MEAN THE YIELDS ARE LOST USUALLY IN SOME FASHION OR ANOTHER. THIS YEAR THE EXPECTATION IS BECAUSE OF THE EASTERN CORN BELT AND THEN SOME OF THE PERIPHERAL AREAS BEYOND THAT WILL PULL AWAY SOME OF THAT YIELD IN CORN.

Pfitzenmaier: THERE'S A HIGH PROBABILITY THAT THE CROP CONDITION RATING, AS YOU ALLUDED TO EARLIER, WAS ABOUT 73 PERCENT LAST WEEK. WITH THE RAIN WE HAD, MAYBE THAT BUMPS UP TO 75, 77 PERCENT. BUT THERE'S A LOT OF OPTIMISM GOING INTO THOSE CROP CONDITION RATINGS. SO ODDS ARE, IF ANYTHING GOES WRONG, THOSE CROP CONDITION RATINGS ARE GOING TO HAVE TO GRADUALLY MOVE LOWER FROM THESE LEVELS, IN ALL LIKELIHOOD. THAT'S WHY I THINK THAT TENDENCY IS THERE IF THE CROP LOOKS ITS BEST IN LATE JUNE, EARLY JULY, AND THEN THINGS GO WRONG THAT TEND TO HURT IT AND CAUSE THAT TO FALL AWAY A LITTLE BIT.

Sprecher: ARE THERE LIKELY TO BE OPPORTUNITIES HERE, AS WE COME INTO THE DOG DAYS OF SUMMER, FOR HEDGING?

Pfitzenmaier: WELL, I THINK SO. I MEAN A LOT OF TIMES -- THE CORN -- THERE'S A LITTLE MORE CUSHION IN THE CORN BUT THERE'S STILL -- IT'S A FAIRLY TIGHT SITUATION, PARTICULARLY RELATIVE TO LAST YEAR. SO IF YOU GET INTO THAT SECOND, THIRD, FOURTH WEEK OF JULY OR HAVE SOME HOT PREDICTIONS, MOISTURE IS PROBABLY NOT GOING TO BE THAT BIG OF PROBLEM THIS YEAR, SO THE BIG SENSITIVITY IS GOING TO BE TEMPERATURE. AND IF WE'RE PREDICTING, AS SOME ARE, HUNDRED-DEGREE TEMPERATURES IN LATE JULY, THEN THAT MARKET COULD CERTAINLY BOUNCE BACK UP AND YOU COULD SEE OPPORTUNITIES TO RESELL DECEMBER CORN UP IN THAT 245 TO 250 RANGE. WITHOUT ANYTHING SEVERE HAPPENING, I THINK 238 TO 240 IS PROBABLY GOING TO BE TOUGH TO GO BEYOND THAT WITHOUT SOME REAL CONCERNS ABOUT HEAT.

Sprecher: HOW ABOUT THE BEAN SCENARIO? LAST WEEK DOUG JACKSON WAS ON AND WAS TALKING ABOUT THE POTENTIAL DEMAND FOR CHINA. HE WAS TALKING OVER AN EXTENDED PERIOD OF TIME, BUT I THINK HIS TERM WAS "BOTTOMLESS PIT OF DEMAND." NOW, THAT WOULD SEEM TO CAUSE A LOT OF PRESSURE IN THE BEAN MARKET.

Pfitzenmaier: YEAH, WELL, YOU SEE SOME REAL DISPARITY THERE BECAUSE THE AUGUST CONTRACT AND THE JULY CONTRACT TOO, WHERE YOU'VE GOT THE TIGHT FARMER HOLDING, A LOT OF CONCERN ABOUT AVAILABILITY OF BEANS. AND THEN YOU'VE GOT THIS NEW CROP SITUATION WHERE YOU'VE GOT THE REST OF THE SOUTH AMERICAN CROP THAT HAS TO GET CLEANED UP AND SOLD ON TOP OF THE FACT THAT WE'RE GOING TO PRODUCE MORE BEANS, AND SO THAT KIND OF DAMPENS THINGS. THERE'S MAYBE A BOTTOMLESS PIT OF DEMAND BUT WHETHER THEY WANT TO BUY IT AND WHETHER THEY WILL BUY IT OR WHETHER THEY'RE GOING TO RESORT TO LIVING WITHIN THE MEANS OF THEIR OWN PRODUCTION, THERE'S A LOT OF -- I'VE LOST A LOT OF MONEY TRYING TO BET ON OPTIMISM OF CHINA. IT CONTINUALLY DISAPPOINTS. AND I THINK THIS IS A PERFECT CASE OF THAT. THE LAST REPORT THAT WE HAD OUT CAME OUT AND SAID THAT THEY CHOPPED -- U.S.D.A. CHOPPED THE U.S. -- CHINESE CORN CROP BY A THIRD, AND THE CORN MARKET GOT ALL EXCITED. THEN ALL OF A SUDDEN IT STARTS RAINING IN SOME OF THEIR DRY AREAS. PEOPLE LOSE THEIR ENTHUSIASM AND, BOOM, HERE THIS WEEK WE'RE MAKING NEW LOWS ALL OF A SUDDEN. SO THOSE CHINESE SCARES TEND TO BE GOOD SELLING OPPORTUNITIES, IN MY OPINION.

Sprecher: AND LET'S FOCUS REAL QUICKLY ON THE FIBER AND THE WHEAT MARKETS. COTTON CROP FAIRLY FLAT THIS WEEK. WHEAT MARKET IS RESPONDING TO A GOOD HARVEST.

Pfitzenmaier: THE COTTON CROP IS IN IT. WE'RE IN A TRADING RANGE REALLY, A PRETTY TIGHT ONE IN THAT 58- TO 60-CENT RANGE. IF IT GETS UP IN THE 62, 63, YOU SELL IT. IF IT GETS DOWN TO 55, 54, YOU BUY IT. AND WE'RE RIGHT IN MIDDLE OF THAT RANGE RIGHT NOW. WE'RE IN A PERIOD OF PRODUCTION RIGHT NOW WHERE THERE'S NOT A LOT OF NEWS AND NOT A LOT GOING ON. SO I ASSUME WE'RE GOING TO KIND OF STAY IN THAT RANGE. ON THE WHEAT SIDE, WE'VE BEEN SELLING OFF WHEAT. WE'RE IN THE MIDDLE OF HARVEST. WE BROKE THROUGH SOME PRETTY KEY SUPPORT AREAS THIS WEEK. THAT WOULD PROJECT, WHEAT HAS A POTENTIAL TO DROP ANOTHER 10 TO 15 CENTS. CHECK OUT THOSE OLD LOWS THAT WE PUT IN HERE A FEW WEEKS AGO, AND THEN I WOULD ASSUME WHEAT IS GOING TO FIND FAIRLY GOOD SUPPORT AS YOU START TO -- YOU KNOW, THE MAIN PRESSURE FROM HARVEST STARTS TO SUBSIDE AS WE GO INTO THE SUMMER HERE.

Sprecher: FAIRLY NORMAL HARVEST MARKET, THEN.

Pfitzenmaier: EXACTLY.

Sprecher: ALL RIGHT. TURNING TO THE LIVESTOCK. WE HAD A HOGS AND PIGS REPORT OUT TODAY, AND THE CATTLE MARKET SEEMS TO HAVE FOUND SOME RESILIENCY AFTER THE MAD COW FIASCO.

Pfitzenmaier: YEAH, THE HOG AND PIG REPORT OUT THIS AFTERNOON SHOWED A LITTLE BIT MORE KEPT FOR BREEDING NUMBERS, JUST A LITTLE BIT HIGHER, BUT THE MARKETING NUMBER WAS A LITTLE HIGHER TOO. I ASSUME THOSE ARE GOING TO OFFSET, AND NOW IT'S PROBABLY FAIRLY NEUTRAL. THE BIG THING THAT'S DRIVING REALLY THE WHOLE LIVESTOCK COMPLEX IS WHAT'S GOING TO HAPPEN WITH CANADA. THEY'RE BUILDING NUMBERS UP, UP THERE. WHEN ARE WE GOING TO LET THEM IN? ARE WE GOING TO LET A LITTLE BIT IN AND GRADUALLY WORK IT IN? WE KIND OF GOT THAT RESOLVED WITH THE JAPANESE NOW FOR SIXTY DAYS, SO THAT'S SORT OF OUT OF THE WAY. THAT HELPED BUOY THE MARKET THIS WEEK. AND I THINK YOU'VE GOT ANOTHER DOLLAR, DOLLAR AND A HALF UP ON THESE JULY AND AUGUST CATTLE. THEY GET UP INTO THOSE AREAS, YOU'RE UP INTO RESISTANCE, YOU'VE GOT THE FUTURES SORT OF BACK IN LINE WITH THE CASH MARKET, AND THEN YOU'RE GOING TO START TO STRUGGLE AGAIN AS WE SIT AND TRY TO TRIANGULATE, YOU KNOW, WHEN THOSE CATTLE ARE COMING. ONE THING THAT THE CATTLE HAVE GOING FOR THEM IS THE CATTLE PRODUCERS ARE SCARED. THEY'RE VERY CURRENT. WEIGHTS ARE DOWN 20 TO 25 POUNDS, AND THAT'S ALWAYS A GOOD THING. YOU TEND TO HAVE GOOD CATTLE MARKETS WHEN YOU'VE GOT THE PRODUCER VERY CURRENT, WEIGHTS ARE DOWN. IT'S A GOOD SITUATION. YOU KNOW, THE BIG FEAR IS, OBVIOUSLY, WHEN ARE THESE CANADIAN CATTLE COMING AND WHAT'S THE IMPACT THERE GOING TO HAVE. IN THE SHORT RUN, THEM NOT BRINGING CATTLE IN HERE IS FRIENDLY TO OUR MARKETS.

Sprecher: AND PRIOR TO THIS OUTBREAK -- OR IT WASN'T AN OUTBREAK, IT WAS DISCOVERY OF MAD COW IN ONE COW. BUT THE CATTLE IN THE CASH MARKETS WERE VERY, VERY GOOD AND WERE IN EXCESS OF THE FUTURES MARKET BY A CONSIDERABLE AMOUNT. GIVEN THESE CONDITIONS, IS IT LIKELY, YOU KNOW, MAYBE WITHIN THE NEXT EIGHT MONTHS THAT THIS IS GOING TO REVERT BACK TO THAT? IF KEEPING THEM --

Pfitzenmaier: I DON'T EVEN THINK -- I THINK IT WILL BE BY THE END OF THE YEAR I THINK IT'S GOING TO. I THINK THE FUNDAMENTALS ARE SOUND ON CATTLE, AND I THINK THEY'RE GOING TO STAY THAT WAY.

Sprecher: OKAY. WELL, THANKS, TOMM. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." IF YOU'D LIKE TO HEAR MORE OF TOMM'S COMMENTARY ON THE MARKETS, BE SURE AND VISIT OUR WEB SITE. FOR NOW, I'M SID SPRECHER. THANKS FOR WATCHING. HAVE A GOOD WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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