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Market Analysis: May 02, 2003

posted on May 2, 2003


The grain markets finished the week under pressure, while the soy complex rallied. For the week, wheat prices lost 15 cents. New and old corn futures contracts finished virtually unchanged. But May and November Soybean futures contracts gained 27 and 46 cents respectively. Soybean meal finished $1.30 per ton higher. Cotton futures lost a couple of cents on the week.

In livestock, fed cattle futures gained a dollar-63. Feeder cattle gained 88-cents. The lean hog contract gained 68 cents.

In the financials, COMEX gained $7.90 per ounce. The euro gained 216-basis points against the dollar. And the CRB index finished the week 1.2 points lower at 232.00

Here now to lend us their insights are two of our regular market analysts, Doug Jackson and Walt Hackney. Welcome back.

Market Analysis: May 02, 2003 Pearson: WALT, DOUG... WELL, DOUG, LET'S TALK A LITTLE BIT ABOUT WHAT'S HAPPENING HERE IN THE GRAIN AND SOYBEAN FUTURES. AS WE LOOK AT THE -- WHAT'S HAPPENED WITH SOYBEANS, IT'S BEEN PRETTY AMAZING OVER THE LAST FEW WEEKS. YET WE STILL HEAR ABOUT SOYBEANS COMING INTO THE U.S. FROM BRAZIL. SORT THINGS OUT FOR US. WHAT'S AHEAD FOR THE BEAN MARKET?

Jackson: MARK, WE DO HAVE AN INTERESTING SITUATION. THE UNITED STATES IS ON TRACK, VERY REASONABLY, TO BE THE TIGHTEST CARRYOUT-TO-USE RATIO EVER IN HISTORY. WE THINK THE CARRYOUT IS GOING TO BE DOWN AROUND 100 MILLION BUSHELS. THIS IS TIGHTER THAN ANYTHING THAT'S EVER BEEN TOLERATED AT THE END OF ANY YEAR. TO FIND SOMETHING COMPARABLE, WE ONLY HAVE TO GO BACK TO 1997 WHEN THE CARRYOUT WAS 132 MILLION AND THE FUTURES WERE AT $9. NOW, THE ONE SIGNIFICANT DIFFERENCE, OF COURSE, BETWEEN NOW AND THEN IS THAT WE HAVE 55 MILLION MORE TONS OF BEANS IN THE WESTERN HEMISPHERE TODAY THAN WE DID THEN. WE HAVE RECORD CROPS IN SOUTH AMERICA, RECORD TIGHTNESS IN THE UNITED STATES. THE FUNDS ARE LONG, OVER 150,000 CONTRACTS OF BEANS AND PRODUCTS. AND THOSE ARE THE THREE FUNDAMENTAL PIECES THAT THE MARKET IS TRYING TO WORK WITH HERE. ANOTHER SIGNIFICANT FACTOR IS THE BRAZILIAN CURRENCY, THE REAL, HAS BEEN VERY STRONG LATELY, RECOVERING SHARPLY FROM THE LOWS OF SIX MONTHS AGO. AND IT'S THAT HIGHER REAL THAT'S LOWERING THE PRICE TO THE PRODUCER IN SOUTH AMERICA. SO DESPITE THE FACT THAT WE'RE AT MULTIYEAR HIGHS ON U.S. FUTURES, BRAZILIAN PRICES IN REALS ARE LOWER THAN THEY WERE LAST JULY. SO THE SOUTH AMERICAN FARMER HAS VERY LITTLE INCENTIVE TO SELL. THE MARKET KNOWS THOSE BEANS ARE THERE, BUT WE CANNOT WIDEN THE SPREAD BETWEEN SOUTH AMERICA AND THE U.S. ENOUGH YET, BECAUSE OF NO FARMER SELLING IN SOUTH AMERICA, TO TURN DEMAND COMPLETELY AWAY FROM THE UNITED STATES. SO WE'RE STILL SELLING BEANS AT A RATE FASTER THAN WE CAN TOLERATE. WE HAVE THE POTENTIAL HERE TO STILL TRADE OLD-CROP BEANS HIGHER, MAYBE MUCH HIGHER. THE OLD-CROP/NEW-CROP SPREAD, THE JULY/NOVEMBER SPREAD CAN WIDEN OUT FROM HERE. BUT IT'S GOING TO BE VERY VOLATILE; 10- OR 20-CENT MOVES IN A WEEK ARE NOT GOING TO BE ANYTHING UNUSUAL NOW AS WE TRY TO WORK OUT THIS PROBLEM OF EXTREME SCARCITY AMID PLENTY IN THE WESTERN HEMISPHERE. BUT WE'VE GOT TO GET THE DEMAND SHUT OFF IN THE UNITED STATES AND, OF COURSE, THE DEMAND IS LED PRIMARILY BY THE HUGE DEMAND IN CHINA THIS YEAR. SO THIS IS GOING TO BE A VERY DELICATE SITUATION. TYPICALLY THESE THINGS DON'T TOP OUT TILL LATE JUNE OR JULY.

Pearson: ALL RIGHT. REAL QUICK, DOUG, THE SITUATION WITH BRAZILIAN BEANS COMING INTO THE U.S. -- OR THAT HAVE COME INTO THE U.S. HAS CAUSED CONCERN WITH A LOT OF PRODUCERS OUT THERE.

Jackson: WELL, REMEMBER THAT THE WELLINGTON FACILITY THAT FEEDS LIVESTOCK ON THE EAST COAST HAS IMPORTED, YOU KNOW, 30- TO 50- TO 60,000 TON OF MEAL EVERY YEAR FOR THE LAST SEVERAL YEARS. THAT'S NOT REALLY THAT BIG OF A DEAL. IT'S A DROP IN THE BUCKET. AND WE'RE STILL A LONG WAYS AWAY FROM EVER BEING ABLE TO IMPORT BEANS INTO THE UNITED STATES THIS YEAR. SO, YOU KNOW, THAT'S SOMETHING WE'RE GOING TO LIVE WITH. WE'RE GOING TO HAVE TO SEE MORE AND MORE OF THAT. AND, MARK, IN THE BIGGER PICTURE, WITH U.S. ACREAGE TOPPED OUT NOW, ALL THE WORLD PRODUCTION EXPANSION AND ALL THE DEMAND GROWTH WILL ALL TAKE PLACE OVERSEAS. IT'S NOT GOING TO TAKE PLACE HERE. SO IMPORTING PRODUCTS MAY BECOME A WAY OF LIFE IN THE FUTURE BUT, AGAIN, THE AMOUNTS ARE INCONSEQUENTIAL.

Pearson: ALL RIGHT. DOES CORN SHARE ANY OF THE FUNDAMENTALS THAT SOYBEANS HAVE AT THIS POINT?

Jackson: NO, IN FACT, WE JUST HAVE SORT OF THE OPPOSITE SITUATION. OF COURSE, TO SOME DEGREE, MARK, IT'S THE CHINA EFFECT. CHINA, OF COURSE, WITH RECORD DEMAND FOR SOYBEANS, ABSORBING THE WORLD'S INVENTORIES, WHILE AT THE SAME TIME U.S. CORN DEMAND CONTINUES TO BE VERY WEAK. MARK, DO YOU REALIZE THAT CORN EXPORTS THIS YEAR ARE GOING TO END UP 500 MILLION BUSHELS SMALLER THAN THEY WERE FORECAST TO BE LAST MAY WITH THE FIRST NEW CROP SUPPLY/DEMAND REPORT. WHAT A MISCALCULATION AND WHAT A DIFFERENCE IT'S MADE ON OUR PRICE. AND PARTIALLY THIS IS BECAUSE CHINA CONTINUES TO EXPORT CORN. THEY'LL HAVE NEARLY -- OR THEY WILL HAVE RECORD EXPORTS OF CORN THIS YEAR, SO THAT CHINA IMPACT IS HAVING A DRAMATIC IMPACT ON THE OTHER GRAINS. THE CORN SITUATION, WE HAVE A BILLION CARRYOUT, A 1.5 BILLION CARRYOUT. THAT'S STILL THE THIRD TIGHTEST CARRYOUT-TO-USE RATIO EVER, MARK. BUT IT'S NOT A TIGHT SITUATION, IT'S NOT A RATIONING SITUATION, AND REALLY A SITUATION HERE WHERE WE'RE JUST GOING TO MOVE SIDEWAYS AND REACT TO THE WEATHER. THE BOTTOM LINE ON CORN IS WE NEED A 134 YIELD NEXT YEAR, WHICH IS 4 BUSHELS BETTER THAN LAST YEAR AND 4 BUSHELS LESS THAN TREND, TO STAY AT THESE KIND OF PRICES. A BETTER YIELD THAN THAT WILL GO DOWN. A SMALLER YIELD THAN THAT WILL GO HIGHER. PLANTINGS GOING ALONG VERY WELL. WE WERE RESTORING MOISTURE IN MANY AREAS. UNLESS WE GET INTO A TOO-WET SITUATION HERE OR REVERSE THE WEATHER THIS SUMMER, WE'RE JUST GOING TO GO SIDEWAYS FOR A PERIOD OF TIME. THAT'S WHY WE'RE AT THIS PRICE RIGHT NOW. WE'RE DISCOUNTING THE SITUATION A LITTLE BETTER THAN LAST YEAR BUT BELOW AVERAGE WITH THE WEATHER SITUATION SUCH AS IT IS.

Pearson: FARMER SALES, CLEAN UP OLD CROP? PRICE ANY NEW CROP YET?

Jackson: WE DON'T SEE ANY REAL OPPORTUNITY HERE ONE WAY OR THE OTHER. IN THE OLD CROP, IT ALL BOILS DOWN TO YOUR PERCEPTION OF WHETHER. NOW REMEMBER, WE HAD A SITUATION SOMEWHAT LIKE THIS LAST YEAR: WET EARLY IN THE SEASON AND THEN IT STOPPED RAINING AND THE SITUATION CHANGED DRAMATICALLY. YOU'VE GOT TO JUST MAKE YOUR MIND UP ON WHAT YOU THINK THE NEW-CROP WEATHER IS, OF COURSE, AS ALWAYS. BUT REALLY AT THIS POINT WITH SOME FORECASTERS STILL LOOKING FOR A DROUGHT SITUATION MOVING FROM EL NINO TO LA NINA, WE'D WAIT AND EVALUATE THE WEATHER BEFORE WE MAKE ANY SALES.

Pearson: ALL RIGHT. THE WHEAT MARKET, AS WE MOVE CLOSER TO THAT CROP MATURING IN JULY, WHAT'S AHEAD NOW FOR THIS WHEAT MARKET?

Jackson: THIS WEATHER SITUATION THIS YEAR IS CLEARLY NOT THE DROUGHT OF LAST YEAR. WE'RE GETTING BETTER WEATHER, BETTER MOISTURE. WE HAD A PRIVATE ESTIMATE OF WINTER WHEAT PRODUCTION ON FRIDAY THAT SHOWED A CROP UP SEVERAL HUNDRED MILLION BUSHELS FROM A YEAR AGO, A TOTAL CROP THAT WILL SLIGHTLY REBUILD STOCKS IN THE UNITED STATES NEXT YEAR TO MAYBE 500- OR 600 MILLION COMPARED TO 450 THIS YEAR. A SITUATION OVER THE WORLD WHERE WORLD TRADE FLOWS WILL CHANGE DRAMATICALLY. EASTERN EUROPE, RUSSIAN, UKRAINE PRODUCTION WILL BE DOWN 15 MILLION TONS, BUT CANADA, AUSTRALIA, AND U.S. PRODUCTION WILL BE UP 30 MILLION TONS. UNLESS THAT CHANGES, THERE'S NOT MUCH POTENTIAL IN THE WHEAT MARKET.

Pearson: ALL RIGHT. LET'S TALK ABOUT POTENTIAL FOR LIVESTOCK. AND, WALTER, PRETTY STEADY AS FAR AS THE CASH CATTLE MARKET IS CONCERNED. ARE WE FAIRLY CURRENT?

Hackney: WE'RE EXTREMELY CURRENT. THE MARKET WILL SHOW YOU THAT THERE'S AN $18 SPREAD RIGHT NOW BETWEEN CHOICE AND SELECT CARCASSES, FOR INSTANCE. THAT SIMPLY INDICATES A VERY CURRENT CONDITION IN OUR FEEDLOT HERD. IT ALSO WILL TELL YOU THAT WE'RE IN A HEAVY AREA OF MARKETING CALF-FED CATTLE. THE IMMATURITY OF THOSE CATTLE DISALLOWS GRADE TO CHOICE. SO INSTEAD OF A 70-, 75-PERCENT CHOICE GRADE, WE'RE GETTING MORE LIKE A 50-, 55-PERCENT CHOICE GRADE OUT HERE. AS A RESULT, WE'VE GOT AN $18 SPREAD. BUT WITH THAT HAVING BEEN SAID, THE PEOPLE ARE CONTINUING TO MARKET HEAVY. THE KILLS HAVE BEEN EXTRAORDINARILY HEAVY THIS PAST WEEK OR TEN DAYS. IT LOOKS LIKE THEY'VE GOT EVERY REASON TO CONTINUE 132- TO 134,000 HEAD A DAY. CATTLE ARE MAKING GOOD MONEY. AND AS LONG AS THAT WILL CONTINUE, WHY, THE PRODUCER IS VERY CONTENT TO GO AHEAD AND SELL THESE CATTLE AT A LESSER GRADE. WE'VE GOT LIGHTER WEIGHT CARCASSES. SO ALL OTHER BAROMETERS POINT TOWARD A GOOD, STEADY, ACTIVE TRADE.

Pearson: ALL RIGHT. WITH THAT IN MIND, WALTER, ARE WE GOING TO HOLD PRICES HERE ABOUT STEADY THE NEXT THIRTY DAYS?

Hackney: YES. WE SHOULD BE ABLE TO HOLD THIS MARKET IN THE RANGE OF $78 TO $80 OVER THE NEXT THIRTY TO FORTY-FIVE DAYS, MARK. WE'VE GOT EVERY GOOD REASON TO BELIEVE THAT THE CATTLEMAN IS GOING TO BE IN VERY GOOD SHAPE UNTIL POSSIBLY WE GET MORE TOWARD THE FOURTH QUARTER OF THIS YEAR. YOU'RE GOING TO HAVE EXTRA COMPETITION FROM THE PORK, AND WE'RE GOING TO HAVE HIGH PRICED FEEDER CATTLE THAT HAVE A MUCH HIGHER BREAK-EVEN.

Pearson: QUICKLY, LET'S TALK ABOUT THE PORK MARKET AND WHAT'S AHEAD THERE. ARE THESE NUMBERS STARTING TO COME DOWN, WALT?

Hackney: THE NUMBERS ARE VERY WELL IN LINE IN THE COUNTRY AS FAR AS BEING CURRENT. THE RAINS HAVE PUT EXTRA HOGS INTO THE MARKET THAT MIGHT NOT HAVE GONE. ON THE SAME TOKEN, WE'RE NOT IN ANY TROUBLE WITH THE HOGS AS WE SPEAK.

Pearson: ALL RIGHT. AN OUTLOOK THERE OF CITY PRICES?

Hackney: YES.

Pearson: VERY GOOD. WALT HACKNEY AND DOUG JACKSON, GENTLEMEN, THANK YOU SO MUCH. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM THESE GUYS, BE SURE TO CHECK OUT THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. SO UNTIL NEXT WEEK, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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