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Market Analysis: Apr 18, 2003

posted on April 18, 2003


Futures and equities markets took Good Friday off. For the market week, wheat finished a cent and ¾ higher. The nearby and new corn futures contracts picked up a cent to a cent and ¾.

The May soybean futures contract closed nearly 22 cents higher. The new crop November contract gained 9 and ¾ cents. May meal closed a dollar 90 a ton higher. Cotton finished 87 cents higher.

In livestock, fed cattle futures finished the week down 47 cents. April feeders closed a nickel lower, while the April hog contract soared more than 6 dollars on the week

In the financials, COMEX gold lost 70 cents an ounce. The EURO gained 121 basis points against the dollar. The CRB index finished the week a full 3.29 points higher to close at 233.75.

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

Market Analysis: Apr 18, 2003

Robinson: THANKS, MARK. NICE TO BE WITH YOU.

Pearson: GOOD TO HAVE YOU HERE. LET'S TALK ABOUT THE HOT ONE; THAT'S BEEN THE SOYBEAN MARKET. FOR ALL THE TALK ABOUT A BIGGER CROP COMING IN THIS YEAR AND BIG CROP IN SOUTH AMERICA, THIS SOYBEAN MARKET JUST CAN SEEM TO DO NO WRONG. 622 NEARBY ON THE BOARD AS WE FINISHED OUT THE WEEK. WHERE ARE WE HEADED, VIRG?

Robinson: MARK, YOU JUST TOUCHED A NERVE. TONIGHT'S CLOSES -- THIS WEEK'S CLOSES -- WEEKLY CLOSES THE BEST SINCE THE INCEPTION OF THE CONCEPT, MAY, JULY, SEPT., EVEN NOVEMBER. SO CLEARLY THERE'S A LOT OF SPECULATIVE ENTHUSIASM IN THOSE CONTRACTS. AND I THINK THE MARKET REALIZES, NUMBER ONE, U.S. SUPPLIES ARE CURRENTLY PROJECTED TO BE A LITTLE LESS THAN THREE WEEKS WORTH OF USAGE, MARK. AND CLEARLY THERE'S AN ARGUMENT HERE THAT IT COULD EVEN BE TIGHTER THAN THAT. ON THE OTHER HAND, THE PROSPECT OF WHAT COULD BE AND IS LIKELY TO BE THE LARGEST PRODUCTION EVER OUT OF BRAZIL, ARGENTINA, AND PARAGUAY IS ON THE OTHER END OF THE SPECTRUM HERE. AND WE'RE TRYING PRICE DISCOVERY WISE TO FIND THAT IDEAL PRICE. THERE'S SOME CONGESTION IN THE PORTS OF BRAZIL, MARK. THERE'S ALSO SOME HARVEST DELAYS. I THINK IT'S INEVITABLE THAT THERE WILL BE A MAJOR INFUSION OF SUPPLY THAT WILL CLEARLY COMPETE WITH OUR EXPORT SCHEDULES STARTING VERY SOON. AS A RESULT, MARK, I HAVE BEEN OF THE OPINION THE LAST SEVERAL WEEKS, QUITE FRANKLY, THAT MOVING OLD CROP BEANS, WHICH I HAVE ADVISED DOING, BUT REPLACING WITH SOME TYPE OF REPURCHASE STRATEGY, WAS THE CORRECT WAY TO MANAGE THIS SPECTRUM BETWEEN HISTORICALLY SMALL SUPPLY IN THE U.S. AND LARGE SUPPLY IN THE SOUTHERN HEMISPHERE. THE COMBINATION OF THE TWO, AT LEAST AS OF MARCH DATA, INDICATES ABOUT AN 8- TO 10-MILLION METRIC TON INCREASE IN AVAILABLE WORLD SUPPLY VERSUS ONE YEAR AGO, YET PRICES AS MEASURED BY CHICAGO, AT LEAST, ARE ABOUT $1.50 HIGHER. SO I THINK THAT'S GOING TO BE RESOLVED OVER THE COURSE OF TIME. I STILL LIKE THE IDEA OF MOVING OLD CROP INVENTORY AND, OUT OF RESPECT FOR THE FACT TIGHT INVENTORIES HERE IN THE U.S., REPURCHASE WITH MOST LIKELY SOME TYPE OF OPTION STRATEGY, MARK.

Pearson: VIRGIL, I MEAN YOU SET UP A GOOD FUNDAMENTAL STORY HERE, BUT ALSO THERE ARE OTHER FACTORS HERE. THERE'S NO SECRET. I MEAN THE FUNDS ARE IN THE BEAN PIT LONG BIG TIME HERE.

Robinson: AND I THINK THEY'RE LONG MEAL, IF NOT AT, MOST LIKELY, IN RECORD PROPOSITIONS, MARK. SO GOOD POINT. HAVING SAID THAT, THAT'S NOT TO SAY THEY'RE WRONG, BECAUSE THEY'VE BEEN LONG CONSISTENTLY HERE THE LAST FEW WEEKS. BUT IT CERTAINLY DOES BRING TO OUR ATTENTION THAT SHOULD THERE BE ANY TYPE OF CATALYST TRIGGERING A PROFIT TAKING SPREE ON BEHALF OF THAT ENTITY, THE REACTION IN FUTURES COULD BE VERY ABRUPT AND VERY SWIFT. HAVING SAID THAT, MARK, SOME OF THE TECHNICAL WORK THAT I TRY AND KEEP AND MAINTAIN INDICATES TO ME THAT THE JULY SOYBEAN FUTURES CONTRACT IS LIKELY TO PULL BACK TOWARDS AROUND 590, AND I THINK AS QUICKLY AS WITHIN THE NEXT COUPLE OF WEEKS.

Pearson: ALL RIGHT, VIRGIL, LET'S SHIFT OVER TO CORN. GOING FORWARD, AGAIN DEMAND SLACKED OFF FOR CORN. IT'S KIND OF BEEN SOFT. WE'VE BEEN WAITING FOR THIS CORN DEMAND TO KIND OF PICK UP. IN TERMS OF PRICE, IT'S BEEN RIDING A LITTLE BIT WITH THE BEANS. WHAT'S AHEAD FOR CORN?

Robinson: WELL, A COUPLE THINGS, MARK. THE MARCH STOCKS IN ALL POSITIONS AND INTENTIONS REPORT HAS REALLY UNDERPINNED, I THINK, CORN. NO SIGNIFICANT INCREASE IN ACREAGE AT LEAST AS INDICATED IN THE INTENTIONS REPORT. WEATHER TO THIS POINT AND TIME, WE STILL HAVE SOME DROUGHTY CONDITIONS WE'RE CONCERNED ABOUT IN THE WESTERN -- NORTHWESTERN CORN BELT. WE HAVE SOME MOISTURE AND EXCESSIVE MOISTURE IN PARTS OF THE SOUTH, SOUTHEAST. SO IT REMAINS TO BE SEEN HOW WE GET THIS CROP PLANTED AND AT WHAT SIZE WE GET IT PLANTED. I THINK THAT'S UNDERPINNING VALUES, MARK. CORN HAS ACTUALLY, FOR THE LAST SIX MONTHS' CASH VALUES, MAINTAINED A RANGE OF ABOUT 25 CENTS. I THINK CORN, AS WE VISIT TONIGHT, IS FAIRLY PRICED, MARK. AND I'VE BEEN OF THE OPINION HERE AGAIN, MOVING OLD CROP INVENTORY, STOPPING ACCRUED COSTS OF HANDLING AND MAINTAINING AND USING THAT CASH, PERHAPS FOR OTHER OPPORTUNITIES, IS STILL A PRETTY GOOD MERCHANDISING TACTIC, AND I WOULD CONTINUE IN THAT VEIN. 245 TO 250, I'M GOING TO BEGIN TO DO SOME MINIMUM PRICE STRATEGIES IN NEW CROP CORN.

Pearson: ALL RIGHT. WHILE THAT CORN WAS OUT IN THE COUNTRYSIDE, VIRGIL, IT'S GOING TO BE JUST A SHORT WHILE HERE AND A LOT OF THESE PRODUCERS IN THE CORN BELT ARE GOING TO BE IN THE TRACTOR SEAT. HAS MUCH OF THIS CORN MOVED TO TOWN HERE IN THE LAST FEW WEEKS?

Robinson: I THINK THERE'S BEEN A MOVEMENT, MARK. I STILL THINK THERE'S SIGNIFICANTLY SIZABLE QUANTITIES THAT WILL MOVE TO MARKET. NOW, WHETHER IT DOES DURING PLANTING SEASON, WHICH TRADITIONALLY IT DOES NOT, I CAN'T TELL MARK. IT SHOULD SERVE TO UNDERPIN BASIS LEVELS. I'M NOT SURE IT'S GOING TO PROP OR PUSH FUTURES SIGNIFICANTLY HIGHER. RIGHT NOW I'D BE OF THE OPINION IT PROBABLY WILL NOT, BUT SHOULD UNDERPIN BASIS PREMIUMS.

Pearson: LET'S TALK QUICKLY ABOUT THE WHEAT MARKET. AGAIN, I MEAN WEATHER PRODUCTION HAS NOT BEEN IDEAL. PRODUCTION CIRCUMSTANCES HAVE NOT BEEN IDEAL. WE CONTINUE TO HAVE A HARD TIME GETTING A FIRE LIT UNDER THE WHEAT MARKET.

Robinson: YEAH. YOU KNOW, U.S. SUPPLIES AREN'T PARTICULARLY LARGE BY HISTORIC STANDARDS, MARK, BUT WE ONTINUE TO COMPETE VERY VIGOROUSLY WITH OTHER SOURCES OF ORIGIN, THE BALTICS, THE BLACK SEA AREA. NOW WE ARE PROJECTING THIS YEAR AN INCREASE IN U.S. PRODUCTION, CANADIAN AND AUSTRALIAN PRODUCTION. IT'S LIKELY THERE WILL BE ADDITIONAL SUPPLY IN THE TRADITIONAL EXPORTERS' HANDS IN THE UP AND COMING SEASON. HAVING SAID THAT, I THINK CHICAGO FUTURES REMAIN CAPPED AT AND NEAR $3, MARK. AND ANY RECOVERY, JULY HEAT, SEPTEMBER WHEAT FUTURES IN THAT 295 TO 305 AREA, I WOULD BE INCLINED TO MAKE SALES OF OLD AND MINIMUM PRICE -- AT LEAST MINIMUM PRICE IN THE NEW.

Pearson: A COUPLE MONTHS AGO YOU TURNED FRIENDLY TO THIS COTTON MARKET, AND IT HAS BEEN ON A BULL RUN. NOW, WE'RE LOOKING AT DECEMBER UP AROUND 62.25. SHOULD WE START SELLING?

Robinson: DECEMBER WOULD TRACK NEW CROP VALUE, MARK. HERE AGAIN, WE HAVE A GROWING SEASON, WE HAVE A LOT OF VARIABLE FACTORS YET TO BE ENCOUNTERED OVER THE COURSE OF THE NEXT SEVERAL MONTHS. I LIKE MINIMUM PRICE STRATEGIES WITH REGARD TO NEW CROP COTTON AND NEW CROP COTTON FUTURES AT PREVAILING LEVELS. OLD CROP COTTON, MARK, I THINK $60 AND HIGHER, I'D SELL IT, BECAUSE I AM YET OF THE OPINION EITHER THE MAY OR JULY CONTRACT WILL PULL BACK IN AND AROUND $55 BEFORE THEIR EXPIRATIONS.

Pearson: ALL RIGHT. REAL QUICK, VIRGIL, LET'S TALK ABOUT THE LIVESTOCK SIDE. THE FED-CATTLE MARKET, AS YOU LOOK AHEAD THERE, WE HAD THIS DISPARITY BETWEEN CASH AND FUTURES. WE'RE 81 CENTS DOWN IN TEXAS AND, YOU KNOW, WE'RE 71 IN THE JUNE FUTURES. ARE THEY GOING TO MEET IN THE MIDDLE? WHAT'S GOING TO HAPPEN?

Robinson: WELL, LIVE CATTLE THIS WEEK OFF A COUPLE OF DOLLARS, MARK, AROUND $78, 79 CENTS LIVE PRICES. WHEN I PENCIL HEDGES, POTENTIAL HEDGES, FOR EXAMPLE, INTERIOR IOWA, SOUTHERN MINNESOTA BASIS -- USING THAT BASIS, YOU'RE TALKING ABOUT MAYBE 66 TO 67 CENTS FOR MAY AND JUNE, AND LESS THAN THAT FOR JULY, AUGUST, AND SEPTEMBER. I THINK WHILE THERE MAY BE SOME CONVERGENCE BETWEEN THE TWO, I STILL THINK OVER THE COURSE OF TIME, WE CAN MAINTAIN A CASH MARKET IN THAT MID $70 LEVEL. SO I'M NOT, AT LEAST TONIGHT, INTERESTED IN MAKING ANY SHORT HEDGES IN THE FUTURES MARKET.

Pearson: REAL QUICK, NICE FUTURES IMPROVEMENT ON THE HOGS THIS WEEK.

Robinson: YEAH. MARK, HERE AGAIN, BENCHMARK TONIGHT, CASH VALUES 32 TO 34. THE WAY I CALCULATE THE VALUE OF JUNE, JULY, AUGUST, OCT., AND DEC. FUTURES, LESS A BASIS, INTERIOR IOWA, SOUTHERN MINNESOTA, WE CAN LOCK IN $40 FOR MAY, $42 FOR JUNE, $44 FOR JULY, AND AROUND $40 FOR OCTOBER, AND $36 FOR DECEMBER.

Pearson: SOME GOOD POINTS, VIRGIL. MAYBE SOME GOOD SALES OPPORTUNITIES OUT THERE. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM VIRG, BE SURE TO CHECK OUT THE "MARKET PLUS" PAGE ON THE "MARKET TO MARKET" WEB SITE. UNTIL NEXT TIME, THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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