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Market Analysis: Jan 31, 2003

posted on January 31, 2003


The grain markets finished the week on the upside as the trade continues to assess crop supply prospects for the balance of 2003. For the week, wheat prices were up two cents. Corn prices were one to two cents higher. Soybean futures were down a nickel. Soybean meal, however, gained $2.50. Cotton futures gained $2.05.

In livestock, fed cattle futures gained $3.20. Feeder cattle gained $1.18. The lean hog contract gained a nickel.

In the financials, COMEX gold finished a dime lower per ounce. The euro finished 79-basis points lower against the dollar. And the CRB index finished the week 4.5 points higher to close at 247.

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

Market Analysis: Jan 31, 2003

Robinson: THANK YOU, MARK. IT'S NICE TO BE WITH YOU.

Pearson: WELL, LET'S LIVESTOCK HERE. A BIG WEEK ON THE FED CATTLE MARKET ON THE BOARD. FUTURES LOOKED AWFULLY GOOD. WE HAD SOME 80-CENT CASH CATTLE, 80-PLUS CASH CATTLE. AND WE HAD A CATTLE INVENTORY REPORT OUT THIS WEEK. AS YOU LOOK AT THOSE NUMBERS, VIRG, WHAT DOES IT TELL YOU ABOUT THE PROSPECTS AHEAD.

Robinson: MARK, THERE WEREN'T MAJOR SURPRISES IN THE INVENTORY REPORT. TOTAL INVENTORY DOWN 6/10 OF ONE PERCENT. CALF CROP OFF 2/10 OF ONE PERCENT. SO THAT IS THE SIXTH OR SEVENTH CONSECUTIVE YEAR OF SMALLER CALF CROP, MARK. OBVIOUSLY UNDERPINNING FEEDER CATTLE VALUES AND WILL PROBABLY CONTINUE TO DO SO, IN UNISON WITH RELATIVELY STRONG DEFERRED CATTLE FUTURES. AS YOU MENTIONED, LIVE CATTLE PRICES AVERAGED THROUGH THE WEEK PRETTY CLOSE TO $80, MARK. AN AWFULLY STRONG MARKET. I THINK SUPPORTED BY RELATIVELY GOOD BEEF MOVEMENT, GOOD PACKER DEMAND. AND I THINK THE THREAT NEXT WEEK, MARK, OF WHAT COULD BE SOME FAIRLY INCLEMENT WEATHER, IF THE NATIONAL WEATHER SERVICE IS ACCURATE HERE. THE ENTIRE WEEK GROWING CONDITIONS HAVE BEEN AWFULLY GOOD, AND THIS MAY SLOW THINGS DOWN A LITTLE BIT. SO I THINK THERE'S A LOT OF ENTHUSIASM BUILT AROUND THAT AND SOME IMPROVED BEEF TRADE. NOW, HAVING SAID ALL OF THAT, MARK, I'M CONCERNED PERSONALLY ABOUT THE VALUE OF THE LIVE -- THE APRIL LIVE CATTLE FUTURES CONTRACT. IF IN FACT NEXT WEEK WE WALK INTO SOME POORER WEATHER THROUGH THE PLAINS AND THE SOUTHWEST, IT'S LIKELY THAT APRIL CATTLE FUTURES ARE GOING TO PUSH UP TOWARDS $81 OR STRONGER. IF THEY DO THAT NEXT WEEK, I WOULD BE INCLINED TO DO ONE OF TWO THINGS, EITHER PLACE SOME HEDGES, SHORT HEDGES SELLING FUTURES AGAINST INTENDED PRODUCTION IN THAT MARCH/APRIL TIME FRAME, OR SOME TYPE OF PUT STRATEGY CREATING A FLOOR, MARK, BECAUSE I THINK THE COMBINATION OF BIGGER BEEF TONNAGE IN FEBRUARY AND APRIL COMBINED WITH CONTINUED PORK SUPPLY -- PRETTY GOOD PORK SUPPLY AND POULTRY SUPPLY LEADS ME TO BELIEVE THAT $80-PLUS CATTLE FUTURES, I THINK, PRETTY SHORT LIVED BETWEEN NOW AND APRIL AND/OR MAY. SO I'D LIKE TO TAKE ADVANTAGE OF NEXT WEEK'S WEATHER ENTHUSIASM IN THAT REGARD.

Pearson: ALL RIGHT. NOW, HOW DOES THIS PORTEND FOR THE PORK BUSINESS? 2002 WAS SUCH A LOUSY YEAR. WE'VE GOTTEN OFF TO A BETTER START IN '03. THE CATTLE -- THE HOGS AND PIGS INVENTORY WAS FAIRLY FRIENDLY THE LAST GO-AROUND. WHAT'S AHEAD THERE?

Robinson: MARK, A LOT MAY DEMAND ON THE GROWING CONDITIONS THE BALANCE OF THE WINTER. BOTH BEEF AND PORK EXPORTS ARE PROJECTED TO INCREASE YEAR OVER YEAR. I HAVEN'T, TO THIS POINT, SEEN ANY SIGNIFICANT DECREASE IN REALLY CARCASS OR LIVE WEIGHTS IN EITHER OF THOSE TWO SPECIES. I THINK THERE'S PLENTY OF EDIBLE PROTEINS AND PLENTY OF MEAT AVAILABLE IN THE MARKET, MARK. LIVE HOG PRICES HAVE IMPROVED NOW. WE'RE TRADING PRETTY ROUTINELY IN THE $34 TO $35 AREA. THE BEST PRICES FOR HOGS, LIVE HOGS, GIVEN THE RECENT PIG AND HOG CROP REPORT WOULD PROJECT INTO LATE SPRING, EARLY SUMMER, WHICH WOULD EVOLVE AROUND THAT JUNE LIVE HOG FUTURES CONTRACT. I THINK, MARK, ABOVE $64, WHEN AGAIN YOU CONVERT THAT TO A LIVE WEIGHT LESS A BASIS IN SOUTHERN MINNESOTA AND THE STATE OF IOWA SPECIFICALLY NOW, BASIS SPECIFIC, YOU'RE TALKING ABOUT THE ABILITY TO LOCK IN SOMETHING IN THE $41 TO $44 AREA LIVE, AND THAT WOULD BE ABOUT $10 BETTER THAN TONIGHT'S MARKET. I WANT TO CONCENTRATE ON THAT WINDOW OF TIME, USING JUNE LIVE HOG FUTURES, $64 OR BETTER, TO PLACE SOME HEDGES AND/OR PRICE FLOORS WITH PUT OPTIONS.

Pearson: LET'S QUICKLY MOVE OVER TO THE GRAIN MARKETS. THE GRAIN MARKET GAINED A LITTLE BIT OF GROUND THIS WEEK. WE'VE HAD THIS HUGE SELL-OFF IN WHEAT. WE SHOWED EARLIER THE DROUGHT MONITOR OF THE USDA ALL ACROSS THE WHEAT BELT AND MOVING DOWN ON THE WESTERN CORN BELT. HOW MUCH OF A FACTOR IS THAT IN THESE MARKETS, VIRG?

Robinson: I THINK IT IS A FACTOR, MARK, IN UNISON WITH WHAT WAS REPORTED TO BE A PRETTY SIGNIFICANT DECLINE IN CANADIAN WHEAT STOCKS, LED TO SOME SHORT COVERING AND SOME SPECULATIVE ENTHUSIASM IN WHEAT FUTURES. BUT ALL THINGS CONSIDERED, WHEAT PRODUCTION GLOBALLY, NOT KNOWING WHETHER WE HAVE A DROUGHT OR NOT THIS YEAR, MARK, IS PROJECTED TO GROW PRETTY SIGNIFICANTLY. I RESPECT THAT. MARCH WHEAT FUTURES, CHICAGO WHEAT FUTURES NEAR 335, I THINK THEY NEED TO BE SOLD. NEW CROP WHEAT FUTURES ABOVE 320, I WOULD SELL THEM AS WELL.

Pearson: OKAY. LET'S TALK ABOUT THIS CORN MARKET. BASIS HAS BEEN FAIRLY STRONG, VIRG. IT'S TEMPTING TO LET SOME OF THIS CORN AND SOME OF THESE BEANS GO.

Robinson: CARRYING CHARGES HAVE FIRMED, MARK, THE DEMAND FOR CORN IS STRONG. DOMESTICALLY THE EXPORT BUSINESS HASN'T BEEN UP TO SNUFF OR AS LARGE AS WE'D LIKE TO SEE IT. PROBABLY NOT GOING TO IMPROVE APPRECIABLY, ALTHOUGH IT REMAINS CONSISTENT. ALL THINGS SAID, MARK, I THINK MARCH CORN FUTURES ARE IN POSITION NOW TO TRADE BACK TOWARDS 245, WHICH IS ABOUT 7 OR 8 CENTS ABOVE TONIGHT'S SETTLEMENT. AND I THINK NEW CROP CORN FUTURES WILL PUSH ABOVE 250. HAVING SAID THAT REGARDING NEW CROP, I'M GOING TO EMPLOY THE SAME STRATEGY I'VE EMPLOYED FOR YEARS. ABOVE 250 I'M GOING TO BUY THE AT OR NEAR DECEMBER PUT, MARK, OR I'M GOING TO GO AHEAD AND FORWARD CONTRACT CASH THAT I'M COMFORTABLE WITH PRODUCING AND REPURCHASE WITH A CALL, MINIMUM PRICE IN THE NEW CROP.

Pearson: MINIMUM PRICING STRATEGY. QUICKLY, LET'S TALK ABOUT THE SOYBEANS, VIRGIL. IT LOOKS PRETTY GOOD DOWN IN SOUTH AMERICA, VIRG.

Robinson: PROSPECT OF RAINS IF PARTS OF ARGENTINA THIS WEEKEND, MARK, AND EARLY NEXT WEEK. IF THEY MATERIALIZE, IT WILL TAKE A TOLL ON BEANS. IF NOT, BEAN PRICES WILL PUSH RIGHT BACK ABOVE 570 BASIS MARCH. HOWEVER, HAVING SAID THAT, I NOTED THROUGH THE MONTH OF JANUARY, CARRYING CHARGES BOTH IN CASH AND FUTURES, MARK, DECREASED OR LOST MOMENTUM. PRODUCERS HAVE MOVED BEANS TO THIS MARKET. WITH ALL DUE RESPECT TO THE ONCOMING SOUTH AMERICAN CROP, I THINK THAT'S WISE. YOU CAN ALWAYS REPURCHASE BEANS WITH SOME TYPE OF OPTION STRATEGY, SOME TYPE OF VERTICAL CALL SPREAD. KEEP YOURSELF IN POSITION, SHOULD THE CROP NOT BE AS LARGE IN THE SOUTHERN HEMISPHERE OR DEMAND NOT DIMINISH AS WE'RE EXPECTING IN MARCH AND BEYOND AND CAPITALIZE ON PRICE IMPROVEMENT. I THINK PRODUCERS HAVE DONE A GOOD JOB THIS MONTH, AND I WOULD CONTINUE TO PUSH OLD CROP BEANS INTO THE MARKET WITH SOME TYPE OF REPURCHASE STRATEGY BEHIND IT.

Pearson: ABOUT A MINUTE LEFT, VIRGIL. I WANT TO TALK ABOUT COTTON AGAIN. NICE RALLY THERE. NOW, YOU KNOW, YOU'RE GETTING CLOSE TO SOME OF YOUR SALES TARGETS IN COTTON.

Robinson: MARK, AS A MATTER OF FACT, I LOOKED TONIGHT BEFORE I CAME. I LIKE TO LOOK AT THE LONGER TERM CHARTS JUST FOR THE PURPOSE OF TRYING TO MAKE PROJECTIONS IN FUTURES PRICES. TONIGHT'S MONTHLY CLOSE WAS THE BEST WE'VE HAD IN TWENTY SOME ODD MONTHS. IT PROJECTS TO ME NOW, OVER THE COURSE OF EITHER THE MAY OR JULY COTTON FUTURES CONTRACT LIFE, A PRICE IMPROVEMENT TOWARD $60. NOW, NOT MONDAY MORNING MARK, BUT $60. REVISIONS IN CHINESE INVENTORY BASED ON CONSUMPTION -- GREATER CONSUMPTION I THINK IN THE YEAR 2000 OR 2001 DREW THEIR INVENTORIES DOWN PRETTY SIGNIFICANTLY. THERE'S BEEN A LITTLE INCREASE IN COTTON EXPORT BUSINESS, AND A PROMISE FOR MORE. COTTON IS POSITIONED TO MOVE HIGHER OVER THE COURSE OF THE NEXT SEVERAL WEEKS.

Pearson: VIRGIL, THAT'S VERY GOOD. THAT WILL WRAP UP THIS EDITION OF "MARKETS TO MARKET." NOW, YOU CAN HEAR MORE OF VIRGIL'S THOUGHTS BY TURNING TO THE "MARKET PLUS" SECTION OF OUR WEB SITE. UNTIL NEXT WEEK, I'M MARK PEARSON. THANKS SO MUCH FOR WATCHING. HAVE A FANTASTIC WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices markets news