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Market Analysis: May 23, 2003

posted on May 23, 2003


The grain markets finished the week sharply lower -- a breather after a strong bullish run. For the week, wheat prices were down more than 15-cents. Corn prices were six to ten cents lower. Soybean futures were not immune from the decline, posting losses of seven to 13-cents. Soybean meal close $1.80 lower per ton. Cotton futures were down $1.02.

In livestock, fed cattle futures down 65-cents. Feeder cattle finished 82-cents lower. The lean hog contract closed $3.45 lower for the week.

In the financials, COMEX gold gained $13.90 per ounce. The euro gained 223 basis points against the dollar. And the CRB index finished the week nearly two points lower to close at 239.20.

Here now to lend us his insight is one of our regular market analysts, Virgil Robinson. Welcome back.

Market Analysis: May 23, 2003

Robinson: THANK YOU, MARK. HAPPY HOLIDAY.

Pearson: HAPPY HOLIDAY INDEED. KIND OF GOING INTO IT IN A LITTLE BIT NEGATIVE TONE IN TERMS OF THE GRAIN MARKETS, VIRGIL. FIRST OF ALL, WHEAT MARKET; WE'VE HAD A BIG RUN IN WHEAT. WE'VE HAD A BIG RUN IN ALL THE COMMODITIES, SO WE PULLED OFF. WE SAW THAT IN THE CRB THE WAY IT CAME DOWN. BUT AS WE GO FORWARD, THERE'S STILL SOME QUESTION MARKS OUT THERE ABOUT HOW TIGHT THE SUPPLY IS GOING TO BE, BUT IT DOESN'T LOOK LIKE THAT THERE'S THAT BIG OF A QUESTION MARK ABOUT WHEAT, VIRGIL.

Robinson:: WELL, ON MAY 12, MARK, THE USDA MADE THEIR FIRST 2003/2004 PROJECTIONS. AND THERE WERE SOME INTERESTING THINGS IN THERE, AT LEAST IN MY OPINION. THE U.S. IS PROJECTED TO INCREASE PRODUCTION THIS YEAR, MARK, AND INCREASE ENDING STOCKS MODESTLY. BUT THERE ARE SEVERAL REGIONS OF THE WORLD PROJECTED TO DO JUST THE OPPOSITE, TO INCLUDE COUNTRIES OF THE FORMER SOVIET UNION, THE UKRAINE, INDIA, CHINA. THE GLOBAL SUPPLY AND DEMAND SITUATION IS PRETTY DOGGONE TIGHT, MARK. A PRETTY SIGNIFICANT YEAR-OVER-YEAR DECREASE IN ENDING STOCKS IS NOW, AGAIN, THE ARRANGEMENT HERE OR THE DISTRIBUTION IN THE EXPORTING COUNTRIES-- U.S., CANADA, AUSTRALIA, ARGENTINA -- LIKELY TO INCREASE SUPPLY WHILE THE AFOREMENTIONED DECREASE SUPPLY. SO THAT'S KIND OF GOOD NEWS IN THAT U.S. EXPORTS ARE LIKELY TO GROW AND ARE PROJECTED TO DO SO. LONG STORY SHORT HERE, I THINK THE COMPOSITION OF THE WHEAT MARKET CHANGED PRETTY SIGNIFICANTLY IN THIS LAST REPORT, AND $3 CHICAGO FUTURES HAD BEEN PRETTY SIGNIFICANT RESISTANCE AND ACTED AS A BARRIER FOR SEVERAL MONTHS. AND WE'VE BLOWN THROUGH THAT AND DONE SO CONVINCINGLY BASED ON THE AFOREMENTIONED CATALYST IN TERMS OF PRODUCTION AND DISAPPEARANCE. I THINK $3 NOW IS GOING TO SERVE AS A VERY SOLID FLOOR, MARK, AND I WOULD NOT BE INCLINED TO MAKE ANY FINAL SALES OF WHEAT AT OR NEAR THAT LEVEL. BUT RATHER, IF I'M A ONSUMER, DOMESTIC OR IMPORTER, I WOULD BE INCLINED TO MAKE ARANGEMENTS TO BEGIN BUYING SUPPLIES AS CLOSE AS I COULD TO THAT $3 MARK, CHICAGO FUTURES WISE. Pearson:: ALL RIGHT. LET'S TALK ABOUT THE CORN MARKET. OBVIOUSLY WE'VE GOT OLD CROP AND NEW CROP, AND IT SEEMS TO HAVE FLATTENED OUT SOME. WE'RE ABOUT EVEN ON BOTH -- THERE IS NO REASON TO CARRY CORN AT THIS STAGE OF THE GAME IF YOU LOOK AT THE DECEMBER CONTRACT. BUT, VIRGIL, SHOULD WE CLEAN OUT THE OLD CROP NOW AND SHALL WE START SCALING UP SALES IN THE NEW CROP?

Robinson:: MARK, I THINK IT'S TIME TO DO SO IN OLD CROP CORN. AGAIN, I'M ALWAYS ONE AND HAVE BEEN A PROPONENT IN SHOWS OF MINIMUM PRICE OR REPURCHASING INVENTORY AS ECONOMICALLY AS POSSIBLE AND SO ON. I STILL LIKE THAT IDEA, MARK, BECAUSE OF THE VARIABLE FACTORS THAT WE YET FACE HERE IN TERMS OF WHAT KIND OF ACREAGE ARE WE GOING TO HAVE THIS SPRING, HOW WILL IT DEVELOP, WHAT WILL IT PRODUCE, WILL DEMAND BE AFFECTED BY THE RECENT BSE SITUATION, ALL KINDS OF VARIABLE FACTORS HERE. I'M JUST RELUCTANT TO FINAL PRICE, PARTICULARLY ANYTHING IN THE NEW CROP. SO CLEARLY, A DECEMBER CORN FUTURES CONTRACT AT OR NEAR 248, IN MY OPINION, REPRESENTS, FOR THOSE WHO HAVE DONE NOTHING TO THIS POINT IN TIME, AN OPPORTUNITY TO BEGIN. AND AGAIN, I'D BEGIN WITH SOME TYPE OF MINIMUM PRICE STRATEGY. OLD CROP, MARK, THE GOOD NEWS IS INTERIOR DEMAND REMAINS VERY STRONG. ETHANOL PRODUCTION AGAIN IN APRIL, A RECORD. THAT DEMAND PULL IS KEEPING AN UNDERPINNING OLD CROP BASIS VALUES, AND I THINK WILL CONTINUE TO DO SO. I CAN ENVISION THE OLD CROP FUTURES CONTRACTS -- NOW WE'RE TALKING JULY AND SEPTEMBER -- KIND OF RANGE BOUND HERE FROM ABOUT 235 TO ABOUT 250. ANYTHING APPROACHING 250, MARK, I'D FINALIZE AND SELL THE REMAINING OLD CROP BALANCE.

Pearson:: ALL RIGHT. THE SOYBEAN MARKET HAS ALWAYS BEEN AN INTERESTING ONE THIS TIME OF THE YEAR. IT SEEMS TO BE YOUR BEST OPPORTUNITY TO SELL TYPICALLY DURING THE PLANTING SEASON, AND WE'RE STILL IN THAT. SO SHOULD WE MAKE OLD CROP SALES? SHOULD WE BEGIN TO SCALE UP ON THAT NOVEMBER AND SOME OF THOSE DEFERRED CONTRACTS?

Robinson:: MARK, OLD CROP, ACTUALLY, WEEKS AGO I DID, IN FACT, FINALIZE SALES AND MISSED MUCH OF THE SURGE HIGHER BUT DID SUGGEST SIMULTANEOUSLY REPURCHASING WITH SOME TYPE OF OPTION STRATEGY. THOSE REMAIN IN PLACE; HOWEVER, THIS WEEK'S PRICE BEHAVIOR IN THE FUTURE'S MARKET AS MEASURED BY THE OLD CROP CONTRACT, SPECIFICALLY JULY, AUGUST, AND TO A LESSEREXTENT THE SEPTEMBER, CONCERNING TO ME AS A TECHNICAL TRADER OR AS A CHART TRADER. WE DID HAVE SOME CLASSIC OUTSIDE REVERSAL-TYPE PRICE ACTION IN THOSE CONTRACTS. WE DO KNOW THAT THE SPECULATIVE COMMUNITY REMAINS A PRETTY SIGNIFICANT LONG POSITION IN THOSE CONTRACTS, MARK. I CAN SENSE A LITTLE CHANGE OF BEHAVIOR, AS MEASURED BY THE OLD CROP/NEW CROP INVERSE, A WEAKENING OF THE BASIS IN SELECT AREAS. I THINK OLD CROP BEANS, MARK, ARE VULNERABLE HERE AS MEASURED BY FUTURES TO A DECLINE BELOW $6 IN THE NEXT COUPLE OF WEEKS.

Pearson:: OKAY. MAYBE HUSTLE UP THOSE SALES. LET'S TALK ABOUT THE LIVESTOCK BUSINESS, VIRGIL. THE CATTLE MARKET, OBVIOUSLY A SHOT OUT OF THE BLUE HERE. LAST WEEK TOMM PFITZENMAIER WAS ON, AND HE SAID EVERYTHING IS JUST GOING GREAT IN THIS CATTLE MARKET. BOOM... AND THEN WHAT HAPPENS? THE MAD COW SITUATION IN CANADA DEVELOPS. TALK ABOUT THE CATTLEMEN RIGHT NOW. WHAT WOULD YOU TELL THEM TO DO? LET'S TALK ABOUT THE FED CATTLE MARKET FIRST.

Robinson:: WELL, I THINK THEY'VE DONE A PRETTY GOOD JOB OF REMAINING CURRENT, ALTHOUGH THIS WEEK, MARK, I THINK THERE'S GOING TO BE SOME CARRYOVER IN THE SHOW LISTS FROM THIS WEEK INTO NEXT AS A RELUCTANCE TO MAKE ANY DECISION BASED ON THIS NEW DEVELOPMENT IN CANADA. LIVE TRADE WAS PROBABLY A DOLLAR WEAKER, MAYBE A LITTLE WEAKER THAN THAT VERSUS LAST WEEK. MARK, I'D REMAIN CURRENT, KEEP CURRENT. WE'VE GOT RECORD BEEF PRICES AS WE VISIT TONIGHT. WE'RE GOING TO BE POST THE MEMORIAL DAY HOLIDAY. DEMAND IS PERHAPS VULNERABLE HERE AS A FUNCTION OF THAT AND COMPETING SUPPLY. THE CONSUMERS' REACTION TO THIS SITUATION IN CANADA IS YET UNCLEAR, IN MY OPINION, MARK. AND WE'LL NEED ADDITIONAL TIME TO MEASURE THE FALLOUT, IF ANY REGARDING THAT SCARE. AUGUST CATTLE FUTURES AROUND $65 TO $66, I DON'T SENSE ANY NEED TO DO ANY HEDGING AT THAT PRICE LEVEL.

Pearson:: ALL RIGHT. QUICKLY, OVER ON TO THE HOGS, VIRGIL. AS YOU TAKE A LOOK AT WHAT'S HAPPENED IN THIS LEAN-HOG MARKET. THE NUMBERS CAME DOWN. THE HOG MARKET IS FINALLY STARTING TO DO WHAT WE HOPED IT WOULD DO FOR SOME TIME.

Robinson:: FOURTH CONSECUTIVE WEEK OF SMALLER SLAUGHTER AND SMALLER PORK PRODUCTION, MARK. THAT IS A TREND NOW IN PLACE. WEIGHTS HAVE YET TO COME DOWN APPRECIABLY. BUT THE MARKET IS IN RELATIVELY GOOD SHAPE. THERE'S STILL A HALF BILLION POUNDS OF PORK IN COLD STORAGE. I WOULD TRY MY BEST TO PROTECT $40 FROM THIS POINT IN THE CALENDAR TO THE END OF THE YEAR. JULY/AUGUST HOG FUTURES, I THINK, ARE HEADED DOWN A COUPLE MORE DOLLARS HERE IN THE NEXT COUPLE OF WEEKS.

Pearson:: VERY GOOD. VIRGIL ROBINSON, THANKS SO MUCH FOR BEING WITH US. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM VIRGIL, BE SURE TO CHECK OUT THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. UNTIL NEXT TIME, THANKS FOR WATCHING. I'M MARK PEARSON HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices Mad Cow markets news