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Market Analysis: Jan 17, 2003

posted on January 17, 2003


The grain markets finished the week on the downside as the trade continues to let prices sag as concerns over worldwide production increase. For the week, wheat prices were down more than two cents. Corn prices were down two to three cents.

Soybean futures were fractionally lower. Soybean meal gained $4.40 per ton.

Cotton futures were down 87-cents.

In livestock, fed cattle futures were down $1.80. Feeder cattle were $1.75 lower. The lean hog contract closed $2.13 lower for the week.

In the financials, Comex gold gained $1.90 per ounce. The euro finished more than a point higher against the dollar. The CRB index finished the week more than a point lower to close at 239.40.

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

Market Analysis: Jan 17, 2003

Pfitzenmaier: THANKS MARK.

Pearson: A LITTLE SOFTER WEEK THIS WEEK IN THE COMMODITIES. NOW, TOMM, YOU'VE BEEN A LITTLE NEGATIVE HERE ON PRICE OUTLOOK. AND, OF COURSE, THAT JANUARY CROP REPORT FROM THE USDA AND THAT PRODUCTION FIGURE KIND OF BACKED THAT UP, SO TAKE US DOWN THE ROAD. WHAT DO YOU THINK? LET'S TALK FIRST ABOUT THIS WHEAT MARKET WHICH, OF COURSE, HAS BEEN IN A FREE FALL.

Pfitzenmaier: YEAH, THE WHEAT MARKET PROBABLY FOUND SOME TEMPORARY SUPPORT HERE. IT RECOVERED A LITTLE BIT ON FRIDAY. IT HAS MAYBE A LITTLE MORE UP IN IT. MARCH WHEAT PROBABLY HAS THE POSSIBILITY OF WORKING UP INTO THAT 625, 628 AREA, AND THEN I THINK IT'S GOING TO FIND PRETTY GOOD RESISTANCE AND PROBABLY LANGUISH HERE UNTIL WE GET THROUGH THE WINTER AND START TO SEE HOW THE WHEAT CROP COMES OUT OF THE WINTER AND WHAT KIND OF SHAPE IT'S IN. THE PROBLEM WE'VE GOT IS INCREASED ACREAGE BOTH IN THE UNITED STATES, CANADA, AND AUSTRALIA AS THE MAIN ONES. AND, YOU KNOW, THAT DOESN'T BODE WELL FOR THE FUTURE OF WHEAT. I THINK WHEAT IS GOING TO BE ON THE DEFENSIVE, AND YOU HAVE TO USE THOSE KIND OF RALLIES, LIKE I TALKED ABOUT, TO GET SOME SALES MADE.

Pearson: ALL RIGHT. SO WE'RE LOOKING HERE FOR A WHILE HERE BEFORE WE'RE GOING TO SEE MUCH OF A RECOVERY IN WHEAT. LET'S TALK ABOUT THE CORN MARKET. NOW, CORN HAS BEEN -- THERE SEEMS TO BE A LOT OF FARMER HOLDING IN CORN. THERE'S SOME ANTICIPATION OUT THERE THAT THIS MARKET IS GOING TO GO HIGHER.

Pfitzenmaier: RIGHT.

Pearson: WHAT WOULD DRIVE THAT?

Pfitzenmaier: THAT'S A GOOD QUESTION. IT'S GOING TO HAVE TO BE SOME EXPORTS ARE GOING TO HAVE TO SHOW UP BECAUSE LIVESTOCK NUMBERS ARE DOWN. IN ALL LIKELIHOOD, SPARKS CONFIRMED THAT THIS AFTERNOON -- OR THIS MORNING. WE'RE PROBABLY GOING TO HAVE AN INCREASE IN ACREAGE FOR NEXT YEAR, WHICH TENDS TO MINIMIZE THE, YOU KNOW, THE URGENCY OF RUNNING OUT OF CORN. SO I MEAN IT'S ALMOST GOING TO HAVE TO BE AN EXPORT NUMBER. WE'VE GOT THE ETHANOL THING GOING, YOU KNOW, WHICH IS GOOD, AND IT'S GOING TO BE SUPPORTIVE. BUT I DON'T THINK IT'S SUPPORTIVE ENOUGH TO OFFSET THE OTHER. AND THEN YOU'RE GOING TO HAVE TO GET INTO THE SUMMER AND SEE HOW THE WEATHER SHAPES UP. IF YOU HAVE A BIG PROBLEM WITH WEATHER, THEN MAYBE WE'VE GOT SOME -- MAYBE WE CAN GO AS HIGH AS WE WENT LAST SUMMER, UP IN THE 290S. BUT BARRING THAT -- AND WITH THE HIGHER ACREAGE, IT'S GOING TO MINIMIZE WEATHER EFFECTS A LITTLE BIT. THE CORN MARKET IS GOING TO STRUGGLE. FARMER HOLDING IS, IN THE LONG RUN, PROBABLY NEGATIVE TOO, BECAUSE IT'S GOING TO TEND TO BACK UP CORN. IF YOU GET TO THE POINT THIS SUMMER WHERE IT LOOKS LIKE WE'RE GOING TO HAVE A GOOD CROP, PLUS YOU'VE GOT ALL THE FARMERS SITTING ON EVERYTHING, THEN ALL OF A SUDDEN THIS SUMMER, YOU'RE GOING TO SEE YOUR BASIS FALL APART AND NOBODY IS GOING TO WANT TO PAY UP FOR CORN WHEN THEY CAN SEE A BIG CROP COMING. SO THEY'RE KIND OF PLAYING A GAME OF CHICKEN HERE WITH THE MARKET GOING INTO THE SUMMER, BUT BY HOLDING EVERYTHING.

Pearson: ALL RIGHT. SO TALK ABOUT SELLING TARGETS. WHERE DO YOU WANT TO -- YOU TALKED IN DECEMBER, YOU SAID 250 PLUS ON THE '03 CORN WOULD BE A GREAT PLACE TO START. WE'VE SLIPPED NOW. WHAT DO WE DO NOW?

Pfitzenmaier: I GUESS I'M CLOSE TO THOSE. YOU GET IN THE 245 TO 250 AREA, I GUESS THOSE ARE STILL THE AREAS I'D BE LOOKING AT. I THINK THERE'S PROBABLY AN OPPORTUNITY TO MAYBE BUY SOME PUTS AND SELL CALLS AND GET THE FLOOR SOMEWHERE IN THAT LEVEL LOCKED IN. THAT'S A STRATEGY THAT I WOULD LOOK AT PRETTY CLOSELY. BUT, YOU KNOW, RALLIES IN THE CORN MARKET, IF YOU CAN GET A RALLY ON MARCH CORN UP INTO THAT 245 TO 246 AREA, YOU'RE GOING TO SEE BIG RESISTANCE. IF YOU BUST UP THROUGH THAT, THEN MAYBE YOU'VE GOT A RUN AT 255 OR SO. THAT'S PROBABLY AS GOOD AS YOU'RE GOING TO BE ABLE TO EXPECT THROUGH THE WINTER HERE.

Pearson: ALL RIGHT. WHAT ABOUT ON THE SOYBEANS?

Pfitzenmaier: WELL, THE SOYBEANS HAVE GOT THE BIG QUESTION MARK AS TO WHAT'S GOING TO HAPPEN IN SOUTH AMERICA. A LOT OF PEOPLE ARE BETTING ON THEM HAVING WEATHER PROBLEMS, AND THAT HASN'T WORKED OUT VERY WELL FOR THE LAST FEW YEARS. OTHER THAN THAT, YOU'VE GOT PHENOMENAL DEMAND. WE HAD HUGE EXPORTS THIS WEEK. IF THAT CONTINUES, OBVIOUSLY THAT'S GOING TO BE SUPPORTIVE. THE CONCERN THERE IS THAT YOU'RE GOING TO START TO SEE CANCELLATIONS, MAYBE SOME OF THESE CHINESE PURCHASES ARE GOING TO SWITCH TO BRAZIL. AND PURCHASES WHEN THEY GET THEIR GMO CONFLICTS WITH THEM WORKED OUT, AND THAT'S GOING TO BE A BIT OF A NEGATIVE. WE DO HAVE SUPPORT FROM THE FACT THAT PROBABLY ACREAGE IS GOING TO BE DOWN IN BEANS, SO THAT'S GOING TO MAKE THINGS A LITTLE TIGHTER, MAKE BEANS A LITTLE MORE SENSITIVE TO WEATHER. SO THERE'S CERTAINLY POTENTIAL FOR GREAT UPSIDE IN BEANS. NOVEMBER BEANS, FOR EXAMPLE, ON NEW CROP ARE TRADING AROUND 515. THEY'RE PROBABLY NOT GOING TO GO MUCH UNDER $5. I MEAN I THINK THERE'S PRETTY GOOD SUPPORT THERE, WITH THE POTENTIAL, IF THERE ARE PROBLEMS, ARE WORKING UP TO $6. I THINK THERE'S PLENTY OF ROOM ON THE UPSIDE, AND I CERTAINLY WOULDN'T GET IN ANY BIG TOOT ABOUT SELLING ANY NEW CROP BEANS, THAT'S FOR SURE.

Pearson: OKAY. SO WE'RE WAITING AND SEEING AS FAR AS WHAT HAPPENS IN THE BEAN MARKET.

Pfitzenmaier: RIGHT.

Pearson: WE TALKED EARLIER IN THE PROGRAM ABOUT ANALYSTS TALKING ABOUT A GOOD YEAR FOR COTTON, AND YOU'VE BEEN SAYING THAT FOR SOME TIME.

Pfitzenmaier: WELL, YOU KNOW, COTTON IS BOUNCING AROUND IN THAT 50 TO 52 RANGE AND IT TRIES TO BREAK UP AND IT CAN'T. MAYBE WE'RE GOING TO HAVE TO GET INTO THE END OF MARCH AND SEE HOW THE ACREAGE -- A LITTLE BETTER HANDLE ON HOW ACREAGE SWITCHING IS GOING TO HAPPEN TO BREAK UP THROUGH THAT. BUT, YEAH, IF YOU BREAK UP THROUGH 52 AND START GETTING CLOSES UP ABOVE THAT, THERE'S A LOT OF FREE SPACE UP ABOVE THERE FOR THAT COTTON MARKET TO RALLY.

Pearson: LET'S TALK ABOUT LIVESTOCK FOR A MINUTE. YOU WERE FRIENDLY TO THE CATTLE MARKET ALMOST ALL LAST YEAR. WE'VE GOTTEN UP. WE HIT 80 CENTS. CASH MARKET LOOKED PRETTY STRONG, AND NOW WE'RE KIND OF SEEING THINGS KIND OF SAG BACK. WHAT'S YOUR OUTLOOK NOW?

Pfitzenmaier: I THINK THIS IS JUST A CORRECTION. I THINK THEY'RE -- CERTAINLY IN THE FIRST QUARTER, THERE'S A POTENTIAL FOR US TO MOVE UP IN THAT 82 TO 84 RANGE IN THE FEBRUARY CATTLE. WE HAD A CATTLE-ON-FEED REPORT OUT THIS AFTERNOON. MARKETINGS WERE WELL AHEAD OF WHAT PEOPLE WERE THINKING. THAT'S GOING TO CONTINUE TO BE SUPPORTIVE TO THAT APRIL CONTRACT, AND YOU CERTAINLY COULD SEE IT UP IN THAT 80 TO 80 PLUS RANGE. SO AS LONG AS DEMAND CONTINUES TO BE GOOD, WHICH IT SEEMS TO, AND AS LONG AS THERE'S NO OUTSIDE INFLUENCES THAT CAN HURT THE MARKET, I THINK YOU CAN BE A LITTLE OPTIMISTIC ABOUT THE CATTLE MARKET HERE FOR A WHILE.

Pearson: ALL RIGHT. AND FROM A MARKETING STANDPOINT, HOW DO YOU WANT TO DO THAT? HOW DO YOU WANT TO MAKE THESE CATTLE WORK?

Pfitzenmaier: I GUESS I'M OPTIMISTIC ENOUGH THAT I'D PROBABLY JUST BE USING PUTS AND THEN JUST STAYING OPEN ON THE MARKET, BECAUSE I DON'T THINK THERE'S A REAL -- I MEAN OBVIOUSLY YOU GET UP IN THE 83 AND 84, YOU'D SELL THE FUTURES FORWARD CONTRACT AND DO WHATEVER YOU CAN TO LOCK THAT IN. GIVEN WHERE WE'RE AT RIGHT NOW, I THINK YOU'D BUY YOURSELF SOME DISASTER INSURANCE AND THEN WAIT IT OUT HERE.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT THE HOG MARKET. A TOUGH YEAR IN 2002. LOOKING BETTER FOR 2003.

Pfitzenmaier: YEAH. YOU'RE KIND OF IN A NICE UPTRENDING MARKET THERE IN HOGS. LIVESTOCK -- HOG NUMBERS ARE DOWN SO THAT'S GOING TO TEND TO BE SUPPORTIVE. AGAIN DEMAND IS GOOD THERE. YOU WALK THROUGH THE GROCERY STORE AND, YOU KNOW, PORK IS PRETTY COMPETITIVE WITH BEEF PRICES IN THERE. SO I THINK MAYBE FEBRUARY HOGS DIDN'T HAVE A VERY GOOD WEEK TO END THE WEEK THIS WEEK. MAYBE YOU SAGGED TO 50, 49.50 SOMEWHERE AROUND IN THAT RANGE. BUT I THINK YOU'VE GOT PRETTY GOOD SUPPORT AND YOU COULD EVEN SEE THE FRONT MONTH OF HOGS MOVE UP INTO THE UPPER $50, $60 AREA. SO I THINK THERE'S PRETTY GOOD UPWARD POTENTIAL IN THE HOG MARKET HERE.

Pearson: AS WE LOOK AT SOME OF THOSE DEFERRED CONTRACTS, DO YOU WANT TO DO ANYTHING NOW OR NOT?

Pfitzenmaier: NO. I THINK WHEN -- IF YOU'RE IN A UPTRENDING CHANNEL, YOU THINK THINGS ARE GOING TO GET BETTER. AS LONG AS THE LIVESTOCK NUMBER OR HOG NUMBERS ARE DECLINING, I THINK YOU CONTINUE TO KIND OF STAY OPEN. AGAIN, BUY YOURSELF A PUT IF YOU'RE WORRIED ABOUT OUTSIDE INFLUENCES COMING IN AND RUINING YOUR MARKET, BUT I THINK THAT MARKET IS IN FAIRLY GOOD SHAPE. YOU HAD A BIG DISPARITY HERE BETWEEN THE CASH INDEX AND THE FEBRUARY CONTRACT, AND THAT'S HAD PEOPLE A LITTLE NERVOUS. BUT PRICE ACTION IS STARTING TO CORRECT THAT A LITTLE BIT, AND I THINK YOU'RE GOING TO CONTINUE TO SEE THAT CASH MARKET WORK IT'S WAY UP TO WHERE THE FEBRUARY CONTRACT IS.

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

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA.

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