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Market Analysis: Jun 06, 2003

posted on June 6, 2003


The grain markets finished on the downside this week due to weak demand. For the week, wheat prices were down more than three cents. Corn prices were down four to five cents. Soybean prices gained seven to 15-cents. Soybean meal gained $3.60 per ton. Cotton futures were down 73-cents.

In livestock, fed cattle futures were down $1.05. Feeder cattle were down 48-cents. The lean hog contract gained $1.32.

In the financials, COMEX gold closed one dollar lower. The euro finished the week 85-basis points lower against the dollar. The CRB index finished the week one-and-a-half points higher to close at 236.25.

Here now to lend us their insight are two of our regular analysts, Virgil Robinson and Walt Hackney. Welcome back.

Market Analysis: Jun 06, 2003

Hackney: THANK YOU, MARK.

Pearson: WALT, VIRG, NICE TO SEE YOU.

Robinson: THANK YOU, MARK.

Pearson: VIRG, LET'S TALK QUICKLY ABOUT THIS GRAIN MARKET, FIRST ABOUT THE WHEAT. THE WHEAT MARKET IS SOFTENING UPSOME. WE'VE GOT HARVEST PROBLEMS AS WE'RE TRYING TO GETTHIS WHEAT HARVEST UNDERWAY, AND YET THE MARKET IS SLIDING ON US.

Robinson: WELL, WE HAD A PRIVATE FORECASTER SUGGEST U.S. PRODUCTION, MARK, WOULD GROW PRETTY HEALTHFULLY MONTH OVER MONTH HERE MAY VERSUS JUNE. SO ASSUMING THERE'S PLENTY OF U.S. PRODUCT -- AND I THINK THAT'S KIND OF THE THEME DATING BACK TO MAY 12, AN INCREASE IN U.S. PROTECTION; A MODEST INCREASE IN U.S. SUPPLY YEAR OVER YEAR; BUT MAYBE MORE IMPORTANTLY, A DECLINE IN WORLD WHEAT INVENTORIES AND WORLD WHEAT STOCKS, MARK. SO AS MENTIONED THE LAST TIME WE VISITED, AT LEAST AS MEASURED BY CHICAGO FUTURES, I THINK IN AND AROUND $3 -- $3 TO $3.10 PRETTY DOGGONE STRONG SUPPORT FOR CHICAGO WHEAT FUTURES NOW, WE CLEARLY CAN TEST THAT AND MOST LIKELY WILL DO SO. BUT I'M NOT A WILLING SELLER AT THIS POINT IN TIME BELOW THAT $3.10 MARK.

Pearson: ALL RIGHT. THE CORN MARKET, IT'S MOVEMENT THIS WEEK, WHAT DO YOU THINK OF THAT?

Robinson: MARK, BEFORE I FORGET, WEDNESDAY -- THIS COMING WEDNESDAY, THE USDA WILL FRESHEN U.S. PRODUCTION AND WORLD PRODUCTION NUMBERS, SO THAT'S IMPORTANT. I THINK THE TRADE LOOKING FOR SOME CHANGES IN VARIOUS COMMODITIES, ONE OF WHICH WILL BE IN CORN WHERE MOST ANTICIPATE, AGAIN, THE USDA WILL REDUCE YEARLY EXPORT PROJECTIONS, WHICH WILL MOST LIKELY MEAN A LITTLE LARGER CARRYOUT THAN HAS BEEN THE CASE HERE FOR THE LAST FEW WEEKS. PLENTY OF OLD CROP CORN, MARK, WITH A LOT OF CORN YET UNDER LOAN TO MATURE IN AUGUST, SEPTEMBER, AND OCTOBER. SO FOR THOSE STILL CARRYING OLD CROP GRAIN, BE ADVISED YOU'RE IN THE BREACH HERE NOW OF SOME REAL BASIS DETERIORATION -- SEASONAL DETERIORATION, AS WELL AS PRICE EXPOSURE AS WELL. FUTURES WISE, MARK, I THINK THIS $2.30 MARK IS REAL STRONG SUPPORT IN CHICAGO FUTURES. BREACHING THAT LEVEL, CLOSING BELOW WOULD SUGGEST TO ME WE'RE HEADED DOWN TOWARD $2.10. SO BE BULLISH BUT BE ADVISED A BREAK BELOW THE 230 MARK IS, IN MY OPINION, VERY POOR BEHAVIOR AND INDICATES WEAKER FUTURES FORTHCOMING.

Pearson: ALL RIGHT. YOU MENTIONED A CRITICAL WEEK COMING UP TOO, WITH A KEY GOVERNMENT REPORT COMING. DO WE GET SOME OF THIS DEC. CORN PRICED THEN?

Robinson: MARK, I HAVEN'T FINALIZED ANYTHING IN THE NEW CROP. AS MENTIONED EARLIER, I'M AN ADVOCATE OF MINIMUM PRICE, SIMPLY OUT OF RESPECT FOR A LONG GROWING SEASON HERE. AND THERE IS, AT LEAST THIS WEEK, CONCERN -- GROWING CONCERN ABOUT DRY CONDITIONS IN SEVERAL REGIONS OF THE WORLD TO INCLUDE CHINA, WHICH PRODUCES WHEAT, CORN, AND SOYBEANS; AUSTRALIA; AND CONCERN ABOUT THE LATENESS IN THE INDIAN MONSOON SEASON. SO WE HAVE ALL OF THOSE UNCERTAINTIES, HIGHLY VARIABLE FACTORS, MINIMUM PRICE 245 TO -50, WHICH I THINK THERE WILL BE ANOTHER OPPORTUNITY. I'D MINIMUM PRICE SOME NEW CROP GRAIN.

Pearson: ALL RIGHT. NOW ABOUT ON THE BEANS?

Robinson: BEAN FUTURES THIS WEEK, I THINK SEVERAL THINGS COMBINED HERE, MARK. CONCERN ABOUT THE LATENESS OF PLANTING IN SELECT AREAS. THAT WILL BE UPDATED MONDAY BY THE USDA. THE TRADE, I THINK, IS ANTICIPATING AN INCREASE IN CHINESE IMPORT – THE IMPORT FORECAST FROM 16.5 UPWARDS TOWARD 18 MILLION METRIC TONS, WHICH AGAIN I THINK UNDERSCORES THE FACT THAT U.S. SUPPLIES ARE TIGHT. OLD CROP SUPPLIES ARE TIGHT, MARK. AND UNTIL WE CAN BE MORE ASSURED OF A NORMAL OR BETTER THAN NORMAL NEW CROP, IT'S GOING TO BE DIFFICULT TO BREAK OLD CROP SOYBEAN VALUES APPRECIABLY.

Pearson: OKAY. PRICING NEW CROP AT THIS STAGE?

Robinson: I LIKE THE MINIMUM PRICE IDEA. THIS WEEK'S PRICE BEHAVIOR VERY IMPRESSIVE IN NEW CROP FUTURES SUGGESTS TO ME ANOTHER SWING AT 585 OR HIGHER, AT WHICH POINT, IF YOU HAVEN'T DONE ANYTHING, I WOULD CERTAINLY BEGIN TO AT LEAST ENTERTAIN THE IDEA OF MINIMUM PRICE AT THAT PRICE, 585 TO $6.

Pearson: SOME GOOD POINTS AS USUAL, VIRGIL. LET'S SWITCH OVER TO THE LIVESTOCK MARKET. WALTER, LET'S TALK A LITTLE BIT ABOUT WHAT'S HAPPENING IN THE CATTLE MARKET. BIG SLAUGHTER THIS WEEK ON THE FED-CATTLE NUMBERS. A LOT OF CONCERN ABOUT WHAT'S HAPPENING NORTH OF THE BORDER. UP IN CANADA, A LOT OF OUR CANADIAN FRIENDS ARE WATCHING THE SHOW. WHAT'S YOUR TAKE? ARE WE BACK UP -- A LOT OF FED CATTLE UP THERE? WHAT'S GOING ON?

Hackney: WELL, I THINK THE NATURAL RESULT OF THE BSE PROGRAM UP THERE, AS IT'S BEEN FONDLY CALLED HERE IN THE UNITED STATES, HAS CAUSED PROBABLY AN 80- TO CLOSE TO 100,000-HEAD BACKUP OR BACKLOG OF FED CATTLE IN CANADA. THE PACKING PLANTS UP THERE, OF WHICH SOME ARE OWNED BY U.S. INTERESTS, WERE KILLING TWO SHIFTS PRIOR TO THE OUTBREAK. THEN THEY WENT TO ONE SHIFT. NOW THEY'RE AT A HALF A SHIFT, AND IT JUST KEEPS BACKING THAT BEEF UP. WHAT WE'LL DO WHEN THEY OPEN THE BORDER, I DON'T KNOW. NO INDICATION AS WE SPEAK. I DO KNOW THIS: THEY'VE TALKED ABOUT 7 TO 9 PERCENT OF OUR BEEF PRODUCTION IN THE UNITED STATES IS CANADIAN ORIGIN. IF WE CAN PUT SOME KIND OF CONTROL SIMILAR ON THE IMPORT OF THIS EXCESS OF CATTLE UP THERE, IT MIGHT HELP US TO NOT CREATE AN OVERLOAD HERE IN THE UNITED STATES. ONE THING FOR SURE, WHEN THEY DROP THE BARRIER UP THERE, THE U.S. PACKER IS, IN FACT, GOING TO USE THE PSYCHOLOGY OF IT, WHETHER IT BE REAL OR WHETHER IT NOT, TO BREAK THE CASH MARKET BY AS MUCH AS FIVE BUCKS A HUNDREDWEIGHT. NOW, HE'S ALREADY BROKE IT $2 THIS WEEK GOING INTO NEXT WEEK IN ANTICIPATION OR AT LEAST RIDING THE RUMOR. IF THEY WOULD PUT THIS COUNTRY-OF-ORIGIN LABELING ON THAT BEEF, EVEN, HERE IN THE UNITED STATES, I THINK THAT WOULD HELP CURTAIL SOME OF THE MASSIVE IMPORTS OF THAT BEEF HERE. IT WILL BE A PROBLEM. IT WILL EITHER BE A REAL PROBLEM OR A PSYCHOLOGICAL PROBLEM. BUT EITHER WAY, IT'S GOING TO DEFINITELY CAUSE A REAL BREAK IN OUR CASH MARKET.

Pearson: SO WHAT CAN WE DO, WALTER?

Hackney: KEEP SELLING CATTLE. WE HAVE NO BUSINESS ANTICIPATING ANYTHING MORE THAN WHAT THE MARKET IS GIVING US AS WE SPEAK. WE HAD $80, $81, $-2 CATTLE. SOME OF THE PREMIUM CATTLE WERE BRINGING 84. TODAY THEY WERE OUT AND THEY'RE BIDDING 78, 70 -- MAYBE -9 IN SELECTED CATTLE. NEXT WEEK WE SHOULD BE PREPARED FOR $76, $-7 CASH BIDS. AND ALL OF THIS IS A PSYCHOLOGICAL DEAL CONNECTED WITH THIS NEAR RECORD SLAUGHTER THIS WEEK. WE KILLED 790,000 CATTLE. THEY ACTUALLY ANTICIPATED 800,000 CATTLE THIS WEEK. WELL, THAT WAS AN EXCELLENT THING FOR THE FEEDLOTS BECAUSE WE'RE CURRENT ANYWAY. BUT THE POINT IS IT'S GOING TO PUT A MASSIVE AMOUNT OF BEEF INTO THE TRADE NEXT WEEK. THE TRADE ALREADY -- THE RETAIL TRADE ALREADY STARTED BACKING OFF OF BEEF BY THE MIDDLE OF THIS WEEK. AND WE'VE LOST, OH, FROM $2 TO $3 A HUNDRED IN THE DRESSED BEEF THIS WEEK. NOW THE FEAR IS THE BEEF, EVEN AT THE LEVEL, IS GOING TO BE PROBABLY OVERRUN BY CHEAPER PORK AT THE RETAIL. SO THE POINT THERE BEING, BEEF IS GOING TO HAVE A TOUGH TIME SURVIVING THIS PSYCHOLOGICAL PROBLEM, PLUS THE BIG KILL THIS WEEK.

Pearson: WE HAVE ABOUT A MINUTE LEFT, WALTER. I WANT TO TALK -- YOU MENTIONED IT, PORK IS GOING TO PLAY A PART IN THIS WHOLE THING TOO.

Hackney: PORK IS PROBABLY THE CINDERELLA OF OUR ENTIRE LIVESTOCK INDUSTRY AS WE SPEAK, MARK. YOU'VE GOT KILLS THAT ARE STRUGGLING TO MAKE 370,000 HEAD A DAY. YOU'VE GOT AN EXCELLENT RETAIL ACCEPTANCE ANTICIPATING A BIGGER CONSUMER BITE OF THE PORK IN THE RETAIL COUNTER OVER HIGHER PRICE BEEF. THEY CAN'T SEEM TO GET ENOUGH OF THE PORK. NOW BILLIES TOOK A HIT THIS WEEK. BUT LOINS AND THE OTHER PRIMALS WERE DEFINITELY ON A GOOD MOVE, A GOOD STABLE MARKET.

Pearson: SO NEAR TERM ANYWAY, WE'RE LOOKING GOOD FOR AUGUST.

Hackney: STEADY TO HIGHER.

Pearson: ALL RIGHT. SO STEADY TO HIGHER ON THE HOGS. AGAIN, PRODUCERS NEED TO BE ON TOP AND STAY CURRENT IN THE BEEF.

Hackney: ABSOLUTELY.

Pearson: ALL RIGHT. AS USUAL, VIRGIL AND WALTER, SOME EXCELLENT INSIGHTS. WE THANK YOU SO MUCH. NOW, IF YOU'D LIKE TO HEAR MORE OF VIRGIL AND WALTER'S THOUGHTS, WHY NOT CLICK ONTO THE "MARKET PLUS" ICON? IT'S RIGHT THERE AT OUR "MARKET TO MARKET" WEB SITE. TELL YOUR FRIENDS TOO. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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