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Market Analysis: Feb 07, 2003

posted on February 7, 2003


The grain and oilseed markets finished the week in a mixed fashion. Wheat prices made a strong move to the upside, closing 11 cents higher. The nearby corn futures contract gained a cent and a half, the deferred gained 2 and a ΒΌ.

The soy complex was hammered. March beans lost more than 8 cents, May beans gave up 6 cents. March meal lost $4.50 cents a ton. March cotton lost two cents.

In livestock, fed cattle futures lost two dollars. Feeder cattle lost nearly $4. The lean hog contract lost $2.47 a hundred weight.

In the financials, COMEX gold finished a dollar 60 an ounce higher. The euro finished 94-basis points higher. And the CRB index continued its climb, closing a point and a half higher at 248.50.

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

Market Analysis: Feb 07, 2003

Hjort: THANK YOU, SID.

Sprecher: WELL, LET'S TAKE UP WHEAT. WE DON'T TALK A GREAT DEAL ABOUT THAT BECAUSE IT'S BEEN SOMEWHAT OF A LETHARGIC MARKET REALLY IN THE LAST SEVERAL YEARS, BUT IT HAD A GOOD RUNUP THIS WEEK, AND IT APPEARS THAT IT MAY HAVE SOME PROSPECTS FOR THE FUTURE.

Hjort: WELL, I THINK IT DOES A COUPLE THINGS. NUMBER ONE, AFTER THE BIG RUNUP IN PRICE LAST SUMMER, PRICES HAVE BEEN GOING DOWN EVER SINCE MOST OF THE WINTER AND HAVE NOW COME DOWN TO -- I DON'T KNOW IF YOU CALL IT A BASING POINT OR WHAT, BUT ABOUT FROM THE POINT TO WHERE THEY LEFT WAY BACK LAST JUNE OR SO. NOW WE'RE STARTING TO FOCUS MORE AND MORE ON THE NEW CROP, AND WE FIND DRY SOILS IN MANY PARTS OF THE WORLD, AS WE FIND HERE IN THE CENTRAL PLAINS. KANSAS, EVEN NEBRASKA, WESTERN OKLAHOMA, AND SO ON HAVE TURNED OFF ON THE DRIER SIDE FOR A GOOD SHARE OF THE WINTER. NOW, CROPS ARE IN PRETTY GOOD SHAPE HERE, IN OKLAHOMA AND TEXAS, AND MOST OF THE SOFT RED WINTER WHEAT IS IN PRETTY GOOD SHAPE AS FAR AS WINTER CONDITIONS GO. BUT IN KANSAS, NEBRASKA, COLORADO, WE SAW THESE CONDITION RATINGS DROP OFF SHARPLY THROUGHOUT THE WINTER. CANADA... SOILS ARE STILL DRY THERE. THEY'RE STILL DRY IN CHINA. RUSSIA HAS GOT SOME DRYNESS. AFTER TWO YEARS OF BUMPER CROPS THROUGHOUT MOST OF THE FORMER SOVIET UNION, NOW THEY HAVE SOME DRYNESS, MAYBE GETTING BACK MORE ON A NORMAL PATTERN. INDIA, OF COURSE, HAS BEEN DRY, AND THAT'S SORT OF PROBABLY THE MOST IMPORTANT THING IS BECAUSE THEY'RE ABOUT READY TO START HARVESTING THEIR WHEAT AND THEIR YIELDS ARE DOWN, OR EXPECTED TO BE. AND AUSTRALIA REMAINS DRY AFTER A TERRIBLE YEAR LAST YEAR. THEIR GROUND MOISTURE IS ALMOST NIL, SO THEY'RE GOING TO HAVE TO DEPEND ON EXTREMELY GOOD MOISTURE. SO NOW WE'RE STARTING THE YEAR WITH VERY LOW CARRYOUTS ON WORLD WHEAT CONDITIONS -- OR BALANCE SHEETS. BUT HOW FAR CAN YOU GO WITH THAT? WE'RE GOING TO HAVE TO HAVE SOME ABSOLUTE LOSSES REPORTED BEFORE WE START TAKING THIS PRICE MUCH HIGHER THAN WHERE WE'RE AT. I SUPPOSE WHERE WE'RE AT NOW OR SMALL RALLIES FROM HERE, ON THE CHARTS IT PROBABLY LOOKS LIKE 15, 20 CENTS COULD COME YET BEFORE WE RUN INTO OUR NEXT MAJOR RESISTANCE AREA. AND IF WE GET THAT, I CERTAINLY THINK ANY MORE OLD CROP SHOULD BE SOLD. I'M NOT SO SURE THAT NEW CROP SHOULD BE SOLD AT THESE PRICES, THOUGH.

Sprecher: WHAT SORT OF UPSIDE DO YOU SEE ON THIS?

Hjort: WELL, AGAIN, IF THE WEATHER CONDITIONS STAY STRESSFUL AND WORLD PRODUCTION, WHICH IS NOW PREDICTED TO BE UP CLOSE TO 600 MILLION TONS, IF IT COMES BACK DOWN AROUND THE -575, -80 AREA, THESE WHEAT PRICES WOULD HAVE TO GO SHARPLY HIGHER AGAIN THIS YEAR. SO I WOULD LEAVE THAT TOPSIDE OPEN FOR NOW BUT CERTAINLY DON'T MAKE ANY NEW CROP SALES NOW.

Sprecher: YOU DON'T THINK THERE'S MUCH OF A DROUGHT PREMIUM PRICED INTO THE CURRENT MARKET VALUES?

Hjort: NO, I DON'T THINK SO. I THINK THE MARKET IS FAIRLY PRICED BECAUSE I THINK WHEN IT CAME DOWN, IT FOUND SOME SOLID SUPPORT LEVELS TECHNICALLY, AS WELL AS FUNDAMENTALLY, FINALLY STARTING TO SEE SOME REASON FOR PRICES TO STOP DROPPING, THAT REASON BEING MORE CONCERN ABOUT THE NEW CROP THAN THE OLD.

Sprecher: HOW ABOUT THE CORN AND THE SOY COMPLEX? IS THERE A DROUGHT PREMIUM STARTING TO EDGE BACK INTO THIS NOW? THERE WAS MAYBE A COUPLE MONTHS AGO, AND THEN IT SORT OF DISAPPEARED FOR A WHILE.

Hjort: YEAH, THERE IS, TO A CERTAIN DEGREE, TWO ENTIRELY DIFFERENT MARKETS HERE RIGHT NOW ON THE CORN AND THE BEANS. COMMODITY FUNDS WERE NET SHORT, PROBABLY STILL ARE AS OF FRIDAY, THE CORN. NET LONG THE SOYBEANS, QUITE HEAVILY SO. WELL, IN THE CORN MARKET, THE FIFTY-DAY MOVING AVERAGE IS ONE OF THE MEASUREMENTS THAT THE COMMODITY FUNDS USE AS LONG-TERM INVESTING STRATEGY AND GUIDELINES. THURSDAY AND FRIDAY OF THIS WEEK, WE CLOSED ABOVE THAT FIFTY-DAY MOVING AVERAGE TWO DAYS IN A ROW. NOW, WE'VE DONE THAT BEFORE AND IT DIDN'T HOLD. BUT THIS IS PRETTY IMPORTANT STUFF I THINK, BECAUSE IF WE CAN HOLD ABOVE THE 239, 240 LEVEL MARCH FUTURES, WE STILL HAVE A LOT OF RESISTANCE, 242, 246, 249, 250 AREA. BUT IF WE COULD CHEW OUR WAY THROUGH ALL OF THAT STUFF, THEN THERE'S POTENTIAL TO GO TO 265 ON THAT MARCH FUTURES. NOW, MAYBE THAT ALL WON'T GET DONE DURING THE MARCH -- BEFORE MARCH EXPIRATION, BUT THAT'S THE KIND OF POTENTIAL YOU HAVE ON THE CORN. ON THE BEANS -- WELL, ON THE CORN, ONE OF THE REASONS THAT WE COULD SEE THAT IS THE COMMODITY FUNDS CONTINUING TO CLEAN OUT THOSE SHORT POSITIONS, BUYING THEM BACK. ON THE BEANS IT'S THE OTHER WAY AROUND. WITH THE FUNDS HEAVILY LONG, THEY HAVE TO BE BUYING -- EXCUSE ME, SELLING THOSE CONTRACTS NOW AS PRICES MOVE LOWER, OR THE DISAPPOINTMENT STARTS TO SET IN. THE REALIZATION MAY BE THAT BEAN PRICES WON'T GO A LOT HIGHER.

Sprecher: THIS MAY BE A GOOD TIME TO CLEAN UP BEAN SALES.

Hjort: WELL, I THINK SO. MAYBE NOT RIGHT ON THE PRICES AS THEY WERE FRIDAY, BUT WE SHOULD SEE SOME REBOUNDS. REMEMBER THAT MARCH, 572 TO 574 BAND, IT'S BEEN A RESISTANCE POINT ACROSS THERE EVER SINCE LAST AUGUST WHEN WE FIRST HIT IT. AND WE'VE BEEN ABOVE IT A LITTLE BIT, BUT NOT VERY LONG. AND WE'VE TRADED UP TO THAT MANY, MANY TIMES, 13 OR 14 TIMES I THINK SINCE LAST AUGUST. A FEW TIMES WE'D GO ABOVE IT BUT THEN VERY QUICKLY DROP BELOW IT AGAIN. SO THAT'S A TARGET AREA TO USE AS SELLING OLD CROP. AS FAR AS NEW CROP, THE NEW CROP PRICES ARE FAR TOO DISCOUNTED RIGHT NOW, IN MY OPINION, TO BE SELLING ANY NEW CROP.

Sprecher: TURNING TO LIVESTOCK, CATTLE PRICES HAD A WONDERFUL RUNUP HERE. THEY CAME BACK A LITTLE BIT THIS WEEK, BUT THE NUMBERS WOULD SEEM TO INDICATE THAT WE CAN EXPECT CATTLE PRICES IN THIS RANGE FOR A WHILE LONGER.

Hjort: WELL, I THINK SO. I THINK SO. THE CASH PRICE HIT $82 THIS WEEK. UP $2 TO $3 FROM THE WEEK BEFORE. VERY, VERY STRONG. I THINK ONE OF THE REASONS THAT IT CAME BACK SO STRONG AND PROBABLY WILL BE STRONG FOR A WHILE YET, SEVERAL MORE WEEKS, AND THAT IS THAT THE WHOLESALE BEEF PRICE BACK ABOUT THREE WEEKS AGO HIT VERY, VERY CLOSE TO A RECORD HIGH LEVEL. AND THEN IN TEN DAYS WE DROPPED OFF $8 A HUNDREDWEIGHT. NOW, THAT GAVE THE RETAILER JUST AN EXCELLENT OPPORTUNITY TO BUY BEEF AND STILL HAVE SOME LEEWAY ON PRICE TO WHERE HE COULD SPECIAL SOME CUTS OF BEEF. PRICES ONLY REBOUNDED ABOUT $2 OFF FROM THAT BREAK. SO EVEN YET AS OF THIS WEEKEND, RETAILERS COULD STEP IN AND BUY WHOLESALE BEEF AT A PRICE -- SURE IT'S HIGH PRICED -- BUT AT A PRICE THAT THEY CAN STILL MAKE IT WORK AND THEY CAN STILL FEATURE BEEF IN THEIR COUNTERS. I THINK THAT'S A VERY STRONG STATEMENT HERE AND THAT'S WHAT'S KEEPING BEEF DEMAND VERY, VERY STRONG. SO I LOOK FOR CASH PRICES TO STAY ABOVE THE THE $80 MARK OR, YOU KNOW, HOW FAR UP THEY GO, I DON'T KNOW. $82, $83, $84 -- I'M NOT SURE -- BUT ABOVE $80 FOR SEVERAL MORE WEEKS. NOW, THE FUTURES -- CATTLE FUTURES HAVE HIT THAT $80 MARK -- APRIL FUTURES, FOR EXAMPLE. THEY'VE HIT THAT SEVERAL TIMES AND BOUNDED BACK EVERY TIME. SO THERE'S SOME RESISTANCE THERE, VERY STRONG RESISTANCE. AND YET WHEN YOU GO TO THE JUNE CONTRACT, THERE'S SUCH A DISCOUNT IN PRICE OUT THERE THAT IT'S MAYBE NOT REALLY WISE TO DO MUCH HEDGING OUT THERE EITHER.

Sprecher: JUST QUICKLY, HOGS. THEY SEEM TO BE IN A BIT OF A TROUGH, TRADING IN A NARROW RANGE.

Hjort: I THINK CASH PRICES CAN INCH UP SOME, BUT I'M NOT AS BULLISH ON THE HOGS NOW AS I WAS PROBABLY TWO MONTHS AGO, FOR THE REST OF THE WINTER AND INTO THE SPRING. THE FUTURES PRICE IS STILL SHOWING THAT LEAD OUT THERE, BUT THE CASH PRICES ARE HAVING A LOT OF TROUBLE TRYING TO GET TO THAT. AND THOSE FUTURES, LIKE CATTLE, HAVE TOPPED OUT AND SEEM TO BE SELLING DOWN SOMEWHAT, HAVING A LOT OF TROUBLE TRYING TO REBOUND.

Sprecher: THANKS, DOUG. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." YOU CAN HEAR MORE OF DOUG'S THOUGHTS BY TURNING TO THE "MARKET PLUS" SECTION OF OUR WEB SITE. JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE PHENOMENAL GROWTH OF A WISCONSIN-BASED FARMER-OWNED CO-OP. UNTIL THEN, I'M SID SPRECHER FOR MARK PEARSON. THANKS FOR WATCHING. HAVE A GOOD WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices markets news