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Market Analysis: Feb 23, 2003

posted on February 28, 2003


The grain markets finished the week mixed as the trade continues to digest the changing supply and demand outlook. For the week, wheat prices were down seven cents. Corn futures were unchanged to a penny lower. Soybean futures were two to three cents higher. Soybean meal finished the week $2.30 higher per ton. Cotton futures were down $1.58.

In livestock, fed cattle futures were $1.95 higher. Feeder cattle were down $1.07. The lean hog contract closed the week 63-cents higher.

In the financials, COMEX gold gained $1.50. The euro finished 39-basis points higher against the dollar. The CRB index finished the week two and three-quarter points lower to finish at 241.75.

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

Market Analysis: Feb 23, 2003

Newton: THANK YOU, MARK.

Jackson: THANK YOU.

Pearson: ALL RIGHT. WELL, DOUG, LET'S TALK ABOUT THIS GRAIN MARKET. FIRST OF ALL, WHEAT MARKET. A LITTLE BIT SOFTER THIS WEEK. A LITTLE BIT OF A RALLY ON FRIDAY, BUT NOT ENOUGH TO MAKE UP THE DIFFERENTIAL FOR EARLIER IN THE WEEK.

Jackson: MARK, THE WHEAT MARKET IS ALREADY STARTING. THEY REALLY REACT TO WEATHER FORECASTS OR PERCEPTION OF WEATHER. THE MARKET UNDERSTANDS WE'VE GOT RELATIVELY GOOD PRODUCTION POTENTIAL. WE HAVE A VERY GOOD RATED CROP IN TEXAS, VERY GOOD CROP IN OKLAHOMA BUT, OF COURSE, DRYNESS PLAGUING KANSAS AND COLORADO. IN FEBRUARY, THOUGH, WE SAW MORE NORMAL MOISTURE FLOW. AND THE MARKET IS REDUCING RISK PREMIUM NOW IN ANTICIPATION THAT WE'RE GOING TO CONTINUE TO GET A MORE NORMAL WEATHER PATTERN AND HAVE MUCH BETTER PROSPECTS FOR A KANSAS CROP AND A TOTAL HARD RED WINTER WHEAT CROP THAN WE DID A YEAR AGO. THE QUESTION, OF COURSE, IS JUST HOW GOOD COULD THE CROP BE OVER LAST YEAR'S DROUGHT-REDUCED LEVELS, AND WE'RE GOING TO BE GOING FOR THAT FOR A LONG PERIOD OF TIME HERE. IF WE HAVE A 39-TYPE YIELD, A 40-TYPE YIELD NATIONALLY, OF COURSE, FAR, FAR ABOVE LAST YEAR'S DROUGHT-REDUCED LEVELS, WE CAN TAKE THE CHICAGO JULY WHEAT DOWN 35 CENTS FROM HERE TOWARD 275, PUSH IT BACK INTO THE FEED RATIONS AS A FEED GRAIN. SOMETHING AROUND A 36-, 37-TYPE YIELD, OF COURSE, THE DOWNSIDE POTENTIAL MIGHT BE RELATIVELY LIMITED. WE'RE STILL STRUGGLING, OF COURSE, WITH LARGE, CHEAPER PRICED INVENTORIES AROUND THE WORLD THAT ARE UNDERCUTTING OUR EXPORT DEMAND. THE TRADE IS AFRAID THE EXPORT NUMBER THIS YEAR IS STILL OVERESTIMATED AND, OF COURSE, COULD STILL BE OVERESTIMATED NEXT YEAR, VERSUS THE OUTLOOK MEETING IN WASHINGTON'S PROJECTION A COUPLE OF WEEKS AGO. KIND OF A SIDEWAYS TO LOWER KIND OF A TRADEMARK, ASSUMING THAT WE HAVE NORMAL WEATHER. MAYBE NOT A GREAT DEAL OF DOWNSIDE VERSUS THE PARAMETERS WE'VE JUST TALKED ABOUT, BUT PROBABLY NOT A LOT OF UPSIDE EITHER, UNLESS WE GET INTO A REAL ADVERSE WEATHER PATTERN, WHICH MAY NOT BE WHAT THE SITUATION IS. WE DID HAVE THE ANNOUNCEMENT FRIDAY THAT THE UKRAINE CROP, HOWEVER, COULD BE CUT BY NEARLY 50 PERCENT. THAT WOULD BE AN ALMOST UNPRECEDENTED YEAR-TO-YEAR DECLINE, DUE TO WINTER KILL AND A COLD WEATHER PROBLEM THIS WINTER, WHICH WOULD BE A DRAMATIC CHANGE IN THE SITUATION. THE RUSSIAN/UKRAINE EXPORT SITUATION, WHERE THEY EXPORTED NEARLY 18 MILLION TONS OF WHEAT THIS PAST YEAR MIGHT BE DOWN TO JUST A FEW MILLION TONS. IF WE HAVE A BIG CROP, THOUGH, IN AUSTRALIA AND CANADA AND OTHER PLACES AROUND THE WORLD, THOUGH, IT COULD OFFSET THAT. SO AN INTERESTING SITUATION AS WE GO FORWARD, BUT PROBABLY A SIDEWAYS TO LOWER KIND OF A PRICE TREND IN THE IMMEDIATE FUTURE.

Pearson: HOW MUCH OF A WEATHER PREMIUM IS IT IN THIS CORN MARKET RIGHT NOW? I KNOW IT'S EARLY IN THE GAME, BUT THERE STILL IS CONCERN ABOUT THE DROUGHT PATTERN THAT WE SEE IN THE WESTERN CORN BELT.

Jackson: NOT A LOT OF DROUGHT PREMIUM IN THE DECEMBER CORN FUTURES, MARK. YOU KNOW, WE'LL GO SIDEWAYS TO LOWER IF WE HAVE 135 YIELD NEXT YEAR, WHICH IS 5 BUSHELS BETTER THAN THIS PAST YEAR, BUT 5 BUSHELS BELOW TREND YIELD. IF WE HAVE SOMETHING LESS THAN THAT, WE'LL GO HIGHER. ANYTHING TOWARDS THE TREND YIELD NEXT YEAR, AND WE CAN DRIFT LOWER. THE CORN MARKET IS PLAGUED BY BAD EXPORTS, THE POTENTIAL FOR DISAPPOINTING FEED DISAPPEARANCE TO BE DISCOVERED LATER IN THE YEAR TOO, AND STRONG INDUSTRIAL OR ETHANOL USAGE. WE'RE GOING TO HAVE A CARRYOUT A LITTLE ABOVE A BILLION BUSHELS, A LOT HIGHER THAN WE THOUGHT SOME MONTHS AGO, BUT STILL RELATIVELY TIGHT BY HISTORICAL STANDARDS. FRANKLY, WE SEE THE CORN MARKET JUST KIND OF GOING SIDEWAYS FOR WEEKS, IF NOT MONTHS TO COME. WE'LL DECIDE WHAT THE ACRES LOOK LIKE ON MARCH 31. THERE'S SOME DEBATE ABOUT THAT. PEOPLE ARE THINKING MAYBE A LITTLE LESS ACREAGE EXPANSION THAN WHAT WE THOUGHT EARLIER IN THE WINTER. KIND OF A SIDEWAYS SITUATION PLAGUED BY GOOD DOMESTIC USE, INDUSTRIAL USE, BUT POOR EXPORTS AND POTENTIALLY POOR FEED USAGE TOO. ONE OF THE THINGS THAT'S BOTHERING THE CORN MARKET IS WE'VE NOW SEEN FOUR MONTHS OF VERY DISAPPOINTING SOYBEAN MEAL DISAPPEARANCE FIGURES DOMESTICALLY, PERHAPS SUGGESTING THAT THE FEED NUMBERS ARE LOWER YET AFTER A DISAPPOINTING FEED NUMBER IN THE FIRST QUARTER.

Pearson: ALL RIGHT. THE SOYBEAN MARKET, AGAIN WE'RE HEARING SOME MINOR PROBLEMS DOWN IN BRAZIL, BUT IT LOOKS LIKE THE SOUTH AMERICAN CROP IS GOING TO BE SUBSTANTIAL.

Jackson: WELL, A FASCINATING SITUATION IN THE SOY COMPLEX, MARK. YOU KNOW, OF COURSE, SOUTH AMERICAN CROPS COULD BE RECORD. THEY COULD BE UP 10-, 11 MILLION TONS FROM A YEAR AGO. ALL THE CROPS ARE BEING REVISED HIGHER AS THE WEATHER HAS BEEN NEARLY PERFECT. AND YET THE BEAN MARKET IS CONTINUING TO REALLY BE IN ABOUT A 30- TO 40-CENT TRADING RANGE SINCE LAST AUGUST, ATTEMPTING TO BALANCE TWO OFFSETTING INPUTS. AND THAT IS A RECORD TIGHTNESS IN THE UNITED STATES SITUATION AND RECORD LARGE SUPPLIES IN SOUTH AMERICA. WE'LL HAVE POTENTIALLY SIX OR SEVEN MILLION MORE TONS OF BEANS IN THE WESTERN HEMISPHERE IN MARCH THIS YEAR THAN A YEAR AGO, AND YET WE'RE MORE THAN A DOLLAR A BUSHEL HIGHER. WHY? BECAUSE THE U.S. CARRYOUT IS HURDLING TOWARDS AN ENDING STOCK SITUATION THAT COULD BE THE TIGHTEST, IN FACT, WILL BE -- INDEED BE THE TIGHTEST EVER IN HISTORY. EVERY KIND OF SITUATION TOLERATED AT THE END OF ANY CROP YEAR. THE LAST SITUATION LIKE THIS WAS 1997 WHEN WE HAD 850 BEANS. ARE WE GOING TO HAVE 850 BEANS AGAIN THIS YEAR? OF COURSE NOT, MARK. WE HAVE NEARLY 60 MILLION MORE TONS OF BEANS IN THE WESTERN HEMISPHERE TODAY THAN WE DID IN '97. SO THE SUPPLY SITUATION IN THE UNITED STATES IS RECORD TIGHT; THE SUPPLY SITUATION IN THE WESTERN HEMISPHERE IS JUST KIND OF A MEDIUM LEVEL HISTORICALLY. AND AGAIN, IT SHOWS YOU THAT THE U.S. CONTINUES TO LOSE MARKET SHARE. WE'RE UNCOMPETITIVE IN TERMS OF COST OF PRODUCTION. WE HAVE NO MORE ACRES TO EXPAND. THE CROPS WILL EXCEED THE U.S. LEVELS IN SOUTH AMERICA THIS YEAR FOR THE FIRST TIME EVER. I LOOK FOR A SIDEWAYS KIND OF A MARKET MAYBE FOR ANOTHER FEW MONTHS AS WE CONTINUE TO BALANCE THESE TWO INFLUENCES. A BIGGER OLD-CROP/NEW-CROP INVERSE CAN TAKE JULY BEANS TOWARDS $6. THAT MIGHT BE ABOUT IT.

Pearson: ALL RIGHT. WELL, THAT MIGHT BE A GOOD SALES OPPORTUNITY. WAYNE, YOU'RE FEEDING CATTLE. YOU'RE BUYING CORN MEAL. WHAT'S YOUR OUTLOOK NOW ON CORN AND BEANS?

Newton: WELL, I THINK -- I AGREE WITH DOUG THAT SIDEWAYS IS THE BEST ON THE CORN SIDE. AND IN THE BEAN THING, YOU KNOW, WE'RE USING OTHER SOURCES OF PROTEIN, SO IT REALLY DOESN'T AFFECT THE COST OF FEEDING CATTLE. BUT I THINK THAT IF WE SEE DECEMBER CORN GET BACK UP IN THAT 242, 245 RANGE, I'D BEGIN A SCALE-UP HEDGING PROGRAM BASED ON JUST HOW THE WEATHER PERFORMS AND THAT SORT OF THING, BECAUSE THOSE ARE GOOD NUMBERS IF WE HAVE A MILLION TO A MILLION AND A HALF MORE ACRES.

Pearson: ALL RIGHT. SPEAKING OF NUMBERS, WE TOOK A DOLLAR OFF THIS CATTLE MARKET THIS WEEK, AND WE KIND OF THOUGHT WE MIGHT SEE MID EIGHTIES IN THIS MARKET. HAVE WE MISSED THAT OPPORTUNITY, WAYNE?

Newton: I THINK WE PROBABLY HAVE, MARK. BUT TODAY WAS KIND OF A -- REALLY KIND OF A GOOFY DAY. IT STARTED OUT MUCH LOWER. BUT WE WENT INTO THE DAY WITH ABOUT, I THINK, 21 CONTRACTS IN OPEN INTEREST YET, AND THIS IS THE CLOSING DATE FOR FEBRUARY, AND SO THERE'S A LOT OF FUND SHUFFLING AROUND AND PEOPLE ROLLING INTO APRIL. SO I WOULDN'T PUT A LOT OF FAITH IN IT. THE POSITIVE THING ABOUT TODAY'S MOVE IS THAT THE BACK MONTHS WERE UP ABOUT SIX BITS, AND THAT'S GOOD. I REALLY THINK THAT IF WE SEE JUNE TRADE 71, 71.5 NEXT WEEK, I'D LOOK AT SOME OPTION POSSIBILITIES BECAUSE THAT MARKET HAS HAD A TOUGH TIME GETTING THROUGH THE 72 RANGE. WE'VE GOT PLENTY OF CATTLE AROUND, BUT THE FEEDLOTS ARE VERY CURRENT. YOU COULD SEE TODAY THAT THE PACKERS WERE TRYING TO BUY CATTLE AND DIDN'T IN THE 79 TO 80 RANGE. AND SO I THINK THAT TELLS US THE FEEDLOTS ARE VERY CURRENT. AS DOUG SUGGESTED, I THINK THE NUMBERS COULD BE LOWER THAN WHAT THE REPORTS HAVE SUGGESTED. THE HOGS AND PIGS REPORT TODAY FOR CLOSE OF JANUARY KIND OF SUGGESTED THAT AS WELL.

Pearson: ALL RIGHT. WE ARE LOOKING AT LOWER BEEF NUMBERS OVERALL. WE'VE DROPPED THIS COW HERD AGAIN THIS LAST YEAR.

Newton: YES. AND THE DEMAND HAS BEEN GOOD, BUT THE CATTLE PERFORMED SO WELL AND WE'VE HAD EXTRA TONNAGE. BUT NOW WITH ALL THE OUTMONTHS BEING LOWER, CLEAR INTO AUGUST, THERE ISN'T ANYTHING IN THE MARKET THAT SAYS FEED THEM TOO LONG BECAUSE THE MARKET IS GOING TO GET HIGHER. SO THE BOARD WILL WORK FOR US. IN FACT, WITH APRIL TRADING 75 AND THE CASH BEING BID IN THE HIGH 70S, TO STAY CURRENT IS GOING TO BE THE ORDER OF THE DAY. I THINK THAT YOU'LL SEE THAT. AND I THINK THE PACKERS ARE WORKING ON VERY THIN MARGINS, SO THEY DON'T HAVE A LOT OF WIGGLE ROOM TO TAKE IT HIGHER. HAVING SAID ALL THAT, IF THE WAR/NO-WAR THING COMES INTO PLAY, THE ENERGY COST AND ALL THAT COMES INTO PRODUCTION COSTS, SO WE COULD SEE A VERY GOOD MARKET IF PEOPLE STAY WORKING AND WE GET A SIMILAR MARKET AS WE HAD IN 1993. AND THAT WOULD TAKE JUNE CATTLE MUCH HIGHER THAN WHAT THE BOARD HAS BEEN TO, IN MY VIEW.

Pearson: ALL RIGHT. YOU MENTIONED THE HOG MARKET AND THE HOGS AND PIGS REPORT. A FAIRLY FRIENDLY REPORT, THEN.

Newton: WELL, IT WAS TO THE EXTENT THAT WE HAVE 2 PERCENT FEWER HOGS AT THE END OF JANUARY THAN WE DID A YEAR AGO AND WE GOT 3 PERCENT LESS FARROWINGS PROJECTED. BUT THOSE WERE ON THE LOW END OF THE RANGE. AND SO I WOULD THINK THAT MONDAY MORNING WE COULD SEE A LITTLE DIP IN THIS THING. WE HAD A REALLY GOOD DAY TODAY. I REALLY THINK WHEN YOU LOOK AT $63 JUNE HOGS AND $69 TO $70 JUNE CATTLE, THERE'S A REASON THERE TO WANT TO PUT SOME HEDGES AROUND THOSE SUMMER MONTHS. AND I THINK IN THE SECOND QUARTER, 25 PERCENT; THIRD QUARTER, 40-PERCENT HEDGE WOULD BE A GOOD PLACE TO BE.

Pearson: ALL RIGHT. SOME GOOD ADVICE. WAYNE, WE APPRECIATE IT. WAYNE NEWTON, DOUG JACKSON, THANK YOU SO MUCH. NOW, IF YOU'D LIKE TO HEAR MORE OF WAYNE AND DOUG'S THOUGHTS, YOU CAN SIMPLY TUNE INTO THE "MARKET PLUS" SECTION OF OUR WEB SITE. SO BE SURE TO JOIN US THERE, AND JOIN US AGAIN NEXT WEEK WHEN WE COMPLETE OUR EXAMINATION OF HOW EFFORTS TO BUY LOCAL COULD CHANGE RURAL ECONOMIES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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