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Market Analysis: May 09, 2003

posted on May 9, 2003


The grain markets finished the week on a bullish note ahead of the USDA's monthly crop report on Monday. For the week, wheat prices gained a whopping 39-cents. Corn prices were up 20-cents. Soybean prices were four to ten cents higher. Soybean meal closed 70-cents lower per ton. Cotton futures were down $1.78.

In livestock, fed cattle futures gained 55-cents. Feeder cattle gained 17-cents. The lean hog contract gained $1.25.

In the financials, comex gold gained $7.60 per ounce. The euro closed 254-basis points higher against the dollar. The crb index gained a full five points to close at 237 even.

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

Market Analysis: May 09, 2003

Hjort: THANK YOU, MARK.

Pearson: ESPECIALLY WITH THE BOOM IN THE WHEAT MARKET. WHAT DO YOU MAKE OF ALL THIS? DID IT CATCH YOU BY SURPRISE?

Hjort: WELL, I WISH IT WAS FOR REAL. I GUESS THAT'S ABOUT THE COMMENT ONE HAS TO MAKE. THE RALLY IN THE CORN AND THE BEANS BOTH -- OR CORN AND WHEAT BOTH CAME LATE ON FRIDAY, HITTING BUY STOPS ALONG THE WAY AND JUST PROPELLING PRICES HIGHER AND HIGHER RIGHT INTO THE CLOSE. NOT FINDING ANY SELLERS IN THERE, THE FUNDS PRETTY MUCH HAD THEIR WAY, AND WINDING UP THE DAY WITH NET LONG POSITIONS IN BOTH THE WHEAT AND THE CORN. IT'S HARD TO SAY HOW MUCH THEY BOUGHT. SOME ESTIMATES 15,000 CONTRACTS IN EACH OF THE COMMODITIES. THAT'S A PRETTY GOOD SIZED DAY FOR ANYBODY. NOW, IT'S REAL INTERESTING TO SEE THIS, AND I'LL TALK BOTH CORN AND WHEAT HERE BECAUSE THEY'RE BOTH THE SAME THING AS FAR AS THE ACTION ON FRIDAY. YOU'RE GOING INTO MONDAY MORNING, 7:30 IN THE MORNING. YOU'RE GOING TO SEE THE MONTHLY CROP PRODUCTION REPORT. THAT'S JUST ON WINTER WHEAT BUT THEN MORE IMPORTANTLY, YOU'LL SEE NEW CROP SUPPLY/DEMAND ESTIMATES COMING FROM USDA FOR ALL COMMODITIES. AND THOSE REPORTS WILL MOST LIKELY BE A LITTLE BIT ON THE NEGATIVE SIDE FOR THE GRAINS. EXPORT PROJECTIONS COULD BE DOWN JUST A LITTLE BIT, CERTAINLY, ON THE CORN. AND THEN WHEN YOU LOOK TO THE NEW CROP, THE CHANCES ARE VERY GOOD, BECAUSE USDA USES THE MARCH PROSPECTIVE PLANTED ACREAGE NUMBERS ALONG WITH TRENDLINE YIELDS. YOU'LL PROBABLY SEE A CORN CROP ESTIMATE SOMEWHERE AROUND 10 MILLION, USAGE AROUND 9.7, SO WE'D INCREASE STOCKS THE NEXT YEAR. ON THE WHEAT THE SAME THING. WE'VE GOT A PRETTY GOOD WINTER WHEAT CROP OUT THERE. IT'S NOT ROBUST BUT IT'S ABOUT AN AVERAGE CROP, MUCH, MUCH BETTER THAN THE POOR CROPS WE'VE HAD IN THE LAST TWO YEARS. SO THERE AGAIN, YOU'RE GOING TO SEE WHEAT SUPPLY/DEMAND NUMBERS FOR THE NEW YEAR LOOKING A LITTLE MORE NEGATIVE. THIS RALLY ON BOTH THE CORN AND THE WHEAT ON FRIDAY WAS A FUTURES MARKET RALLY. I CHECKED A LITTLE BIT FRIDAY AFTERNOON AND FINDING THAT CASH MARKETS DID NOT GO UP EVEN HALF OF WHAT THE FUTURES DID. MOST LIKELY, ELEVATORS MANAGERS VERY, VERY NERVOUS HERE WITH THE FUTURES UP THAT MUCH. THEY MOST LIKELY HAVE NO PROTECTION IN THE MARKET. SO THEY'RE NOT REALLY ABLE TO BUY VERY MUCH IN THE CASH MARKET, EXCEPT IF THEY CAN BUY IT AT A SHARP DISCOUNT THROUGH THE FUTURES.

Pearson: WELL, YOU KNOW, YOU'VE BEEN TALKING ABOUT, YOU KNOW, AS WE GET THOSE RALLIES TO MAKE THOSE SALES. SO THIS WOULD BE ONE OF THOSE OPPORTUNITIES. LIKE YOU SAY, WE DIDN'T SEE IT IN THE CASH. AND AGAIN, ODD BEFORE A MAJOR USDA SPRING PLANTINGS REPORT.

Hjort: WELL, THAT'S RIGHT. AND IN MAKING THOSE CASH SALES, I THINK PEOPLE SHOULD LOOK AT THE MARKET FRIDAY AFTERNOON WHICH, OF COURSE, IS TOO LATE FOR THIS SHOW. BUT EVEN SATURDAY, GET AHOLD OF THE MERCHANDISER AND SEE. BUT IF THEY'RE ONLY GIVING YOU A PENNY OR TWO MORE IN THE CORN, I WOULD NOT MAKE THAT SALE BEFORE I SEE THE REPORT MONDAY MORNING.

Pearson: WHAT ABOUT ON NEW CROP, DOUG? I MEAN WE'RE GETTING UP NOW IN KIND OF THAT RANGE WHERE YOU'D LIKE TO GET SOME PRICES IN.

Hjort: WELL, WE REALLY ARE ALL THE WAY AROUND, CORN, BEANS, AND WHEAT, ALL THREE. I THINK THE REPORT MONDAY MORNING WILL BE VERY IMPORTANT IN DETERMINING WHETHER YOU START TO SELL THE NEW CROP OR NOT. CASH PRICES ARE SHARPLY DISCOUNTED, NEW CROP FROM THE OLD. BASIS LEVELS ARE VERY STRONG FOR WHEAT, CORN, AND BEANS, AND FOR THE OLD CROP. BUT NEW CROP, IT LOOKS LIKE THEY'RE PROBABLY TAKING EVEN A LITTLE MORE THAN NORMAL HARVESTTIME PRICES. IN SOME PLACES SOYBEAN PRICES, FOR EXAMPLE, ARE A DOLLAR A BUSHEL CHEAPER FOR NEW CROP THAN THEY ARE FOR SPOT. AND SIMILAR DISCOUNTS FOR THE CORN AND THE WHEAT. SO I WOULDN'T GET TOO EXCITED ABOUT MAKING THAT NEW CROP SALE WITHOUT LOOKING VERY CLOSELY AT THOSE BASIS LEVELS.

Pearson: OKAY. WITH THAT SAID, YOU MENTIONED THE SOYBEANS. IT WAS ALSO INTERESTING TO SEE PRODUCT. WE SAW MEAL ACTUALLY DROP THIS WEEK.

Hjort: YEAH, IT DID. IT CAME BACK ON FRIDAY A LITTLE BIT BUT STILL WAS THE WEAK SISTER THERE. THIS SOYBEAN MARKET IS REALLY AN INTERESTING ONE. WE'VE GOT TWO VERY DISTINCT DIFFERENT MARKETS. HERE IN THE UNITED STATES, WE'RE GOING TO WIND UP THIS YEAR WITH MOST LIKELY A RECORD TIGHT SUPPLY/DEMAND RELATIONSHIP JUST ON THE U.S. NUMBERS. BUT IN THE WORLD, WE'RE GOING TO HAVE VERY CLOSE TO LAST YEAR'S RECORD HIGH ENDING STOCK FOR SOYBEANS. AND AS WE POINTED OUT EARLIER IN THE SHOW, THE REASON IS, OF COURSE, THE HUGE CROP COMING OUT OF SOUTH AMERICA, UP 17 TO 20 PERCENT, DEPENDING ON HOW MUCH LOSS YOU WANT TO TIE IN THERE TO RUST AND WEATHER DAMAGE AND SO ON IN BRAZIL. BUT THAT'S -- IT'S REALLY A MARKET -- IF YOU LOOK JUST AT THE U.S. NUMBERS ALONE FOR SOYBEANS, WE SHOULD BE TRADING AT LEAST $1 HIGHER AND MAYBE $2 OR $2.50 HIGHER. BUT WHEN YOU LOOK AT THE WORLD NUMBERS, WE SHOULD BE MAYBE 50 CENTS TO $1 LOWER. IT'S REALLY GOING TO BE AN INTERESTING BATTLE AS WE SEE THIS THING PLAY OUT. OUR SUPPLY AND DEMAND RELATIONSHIP IS GOING TO BE SO TIGHT IN THE U.S. THAT WE ARE GOING TO HAVE TO IMPORT SOME SOYBEANS THIS YEAR OR ELSE JUST CUT OFF DEMAND. NOW, YOU GET INTO THIS RUST PROBLEM AND WHETHER THOSE BEANS FROM BRAZIL SHOULD COME IN HERE OR NOT, IT'S GOING TO BE A BATTLE. BUT I WOULD SAY RIGHT NOW THAT I EXPECT TO SEE SOME SIZABLE IMPORTS OF SOYBEANS THIS YEAR.

Pearson: ALL RIGHT. OF COURSE, WE'VE GOT PLANTING ISSUES: LATE PLANTING, MANY PARTS OF THE MIDWEST WET. THAT'S ALSO KIND OF BOILING IN HERE IN ADDITION TO THE RUST, THE OTHER ISSUES TO TALK ABOUT. WE'LL SHIFT GEARS AND TALK ABOUT LIVESTOCK. THIS FED CATTLE MARKET, THE CASH MARKET TRADED PRETTY DECENT THIS WEEK. THERE'S BEEN PRETTY GOOD CLEANUP. WHAT'S YOUR OUTLOOK?

Hjort: THE MARKET DID PERFORM VERY WELL. AND IN THE LAST THREE WEEKS, WE'VE BEEN STEADY, EVEN A LITTLE BIT STRONGER ON THE CASH PRICE. I STILL THINK WE'RE GOING TO SEE THOSE CASH PRICES FOR FED CATTLE DROPPING OFF AS WE GO INTO JUNE, JULY, AND SO ON. BUT THOSE SUMMER FUTURES HAVE BEEN COMING UP VERY NICELY, WITHIN $1, $1.50 OF CONTRACT HIGHS. THOSE SHOULD BE LOOKED AT PRETTY CAREFULLY FOR SOME HEDGING OPPORTUNITIES. IF YOU CAN GET THE JUNE OR AUGUST UP INTO THAT, WELL, DIFFERENT PRICES, BUT THE JUNE UP TO THE 75 LEVEL, THAT PROBABLY WOULD BE A FAIRLY DECENT HEDGE, BECAUSE CASH PRICES PROBABLY COULD BE DOWN IN THE MID TO LOW 70s COME THAT TIME, AND THAT'S IF NOTHING UNUSUAL HAPPENS TO THE MARKETPLACE. IN THE AUGUST, PRICES ARE A COUPLE DOLLARS CHEAPER, SO JUST ADJUST YOUR PRICES ACCORDINGLY. IN THE LONG TERM, THOUGH, I THINK THE CASH PRICES SHOULD BE GOOD GOING INTO NEXT FALL AND WINTER, SO I WOULDN'T DO ANY HEDGING OUT THERE.

Pearson: NUMBERS WISE, WE KEEP HEARING THAT WE'RE CURRENT. AS WE GO FORWARD, TOTAL MEAT SUPPLIES, IF THIS HOG NUMBER IS CORRECT AND WE START PULLING BACK, IS THAT GOING TO HELP SUSTAIN THINGS?

Hjort: YES, IT WILL. WE'RE LOOKING AT A SUBSTANTIAL INCREASE IN PRICES OVER ON -- ON BUTCHER PRICES OVER THE LAST MONTH, $10, $11 A HUNDREDWEIGHT. WE'RE NOT GOING TO SEE THAT MUCH GAIN IN THE NEXT MONTH, BUT WE SHOULD SEE PRICES MOVING HIGHER. PORK DEMAND IS VERY STRONG. THAT WAS REFLECTED AGAIN THIS WEEK, NOT IN SHARPLY HIGHER CUTOUT VALUES BUT GOOD, SOLID GAINS AND AT REASONABLE PRICES. PORK IS MOVING VERY WELL. THAT WILL CONTINUE, EVEN ACCELERATE, AS WE GO INTO THE SUMMER AS FAR AS PRICE IS CONCERNED, BECAUSE THE SUPPLY, THE PORK PRODUCTION IS GOING TO BE COMING DOWN JUST A LITTLE BIT. SO OVERALL, I THINK THAT HOG MARKET LOOKS QUITE SOLID. SHOULD SEE SLIGHTLY HIGHER CASH PRICES GOING INTO THE SUMMER.

Pearson: VERY GOOD. DOUG, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM DOUG, BE SURE TO CHECK OUT 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 markets news USDA