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Market Analysis: Jan 10, 2003

posted on January 10, 2003


The grain markets finished the week sharply lower due to a sell off following the government crop production report's release on Friday. For the week, wheat prices were down more than eleven cents. Corn prices were more than a penny lower. Soybean futures were down seventeen to 21-cents. Soybean meal finished 9.21 lower per ton. Cotton futures were down 22-cents.

In livestock, fed cattle futures gained 62-cents. Feeder cattle closed $2.13 lower. The lean hog contract finished the week thirty two cents lower.

In the financials, COMEX gold gained $3.30 per ounce. The euro gained 173-basis points against the dollar. And the CRB index finished the week a tenth of a point lower to close at 240.40.

Here now to lend us their insight are two of our regular market analysts, Doug Hjort and Walt Hackney. Welcome back.

Market Analysis: Jan 10, 2003

Hjort: THANK YOU, MARK.

Pearson: WELL, DOUG, LET'S TALK ABOUT THE BIG REPORT. IT CAME OUT FRIDAY MORNING. OBVIOUSLY, A VERY NEGATIVE IMPACT SHORT TERM HERE ON THESE BEANS.

Hjort: SURE WAS. IT JUST KNOCKED THE BULLISH PROPS OUT FROM UNDERNEATH IT. AND ONE OF THE MAIN REASONS WE DID THAT IS THAT NOT ONLY WERE THE NUMBERS NEGATIVE, MORE NEGATIVE THAN WAS THOUGHT, BUT THE WHOLE TRADE, ESPECIALLY THE SPECULATIVE CROWD, WAS LEANING TO THE BULLISH SIDE. WE HAD VERY GOOD PRICE ACTION OVER THE LAST TWO OR THREE WEEKS, BUT ESPECIALLY IN THE LAST WEEK, BREAKING THROUGH MAJOR RESISTANCE LEVELS ON THE BEANS AND THEN HOLDING ABOVE THAT FOR FOUR TRADING DAYS. AND SO TODAY JUST TOTALLY SURPRISING EVERYBODY AND TAKING THE PRICES DOWN 20 SOME CENTS. IN MY OPINION, WE WERE UP THIS WEEK VERY CLOSE TO THE CONTRACT HIGHS. IN CASH PRICES, PROBABLY THE BEST CASH PRICES WE'VE SEEN AT SOME ELEVATORS, AND NOW WE'RE 20 CENTS DOWN FROM THAT. I THINK IT'S GOING TO BE VERY DIFFICULT TO GET BACK UP THERE AND TAKE THOSE LEVELS OUT ON THE BEANS. WE'LL SPEND A LOT OF EFFORT AND A LOT OF TIME TRYING TO GET BACK TO THE LEVEL THAT WE LEFT THIS MORNING. SO I THINK THIS REPORT IN THAT REGARD IS JUST A WATERSHED REPORT, ONE THAT WE VERY SELDOM SEE TO WHERE YOU TAKE A VERY PRICE-FRIENDLY SITUATION AND TURN IT VERY PRICE NEGATIVE. NOW, WE'LL HAVE SOME REBOUNDS ALONG THE WAY, BUT THOSE REBOUNDS PROBABLY SHOULD BE USED FOR PRICING SOME SOYBEANS NOW.

Pearson: THE IMPACT ON WHEAT NOT QUITE AS DETRIMENTAL. AT THE SAME TIME, THE WHEAT MARKET HAS BEEN IN SUCH A FREE FALL FOR THE LAST SIXTY DAYS ANYWAY.

Hjort: WELL, THAT'S RIGHT. AND BY CLASS, OF COURSE, THE HARD RED WINTER WHEAT CROP REALLY GOT HIT BACK BAD. THEY WERE DOWN, 15, 16 POINTS, PRIMARILY BECAUSE THE USDA REDUCED FEED USE AND EXPORTS, AND A GOOD SHARE OF BOTH CAME OUT OF THE HARD RED WINTER WHEAT CLASS. NOW, THE FRIENDLY PART OF THE REPORTS CAME ON WHEAT. IT WAS FOR THE SOFT RED WINTER WHEAT. ACREAGE WAS UP IN OHIO, INDIANA, ILLINOIS, AND SO ON, THE TRADITIONAL STATES THAT RAISE HARD RED WINTER -- OR SOFT RED WINTER. BUT IN THE FRINGE STATES, DOWN SOUTH AND ON THE EAST COAST AND SO ON, ACREAGE WAS DOWN SHARPLY BECAUSE OF THE WET FALL. SO ON BALANCE, THAT SOFT RED PLANTED ACREAGE WAS DOWN 1 PERCENT INSTEAD OF BEING UP 9 PERCENT AS THE PRE-REPORT ESTIMATES HAD CALLED FOR. SO THAT NEW CROP CHICAGO WHEAT WAS ON THE PLUS SIDE TODAY. AND THAT WILL HELP SUPPORT OLD CROP WHEAT A LITTLE BIT. BUT YOU'RE RIGHT, OLD CROP WHEAT PRICES HAVE BEEN DOWN HARD. IT'S GOING TO BE VERY DIFFICULT TO GET THEM TO RALLY MUCH AT ALL.

Pearson: CORN HAS NOT RALLIED MUCH. WE HAVEN'T SEEN MUCH ON THE UPSIDE THERE AT ALL. AND AS YOU LOOK DOWN THE ROAD, DOUG, WHAT'S IT GOING TO TAKE TO MOVE THAT MARKET?

Hjort: WELL, YOU'RE PROBABLY GOING TO HAVE TO GET ON INTO OUR PLANTING SEASON. SOME CONCERN ABOUT THAT. MAYBE NOT ENOUGH ACREAGE, WHATEVER, BUT SOMETHING OF NEW CROP TO GENERATE MORE DEMAND HERE. I THINK USDA MIGHT BE A LITTLE BIT TOO NEGATIVE ON THEIR EXPORT PROJECTIONS, MAYBE EVEN ON THEIR FEED USE FIGURES. THEY CUT BOTH BACK ON THE CORN ON THIS REPORT, BUT IT'S THE RIGHT TREND. WE DO NEED TO SCALE THEM BACK A LITTLE BIT, AND WE'RE RUNNING WAY BEHIND ON THE EXPORTS. BUT ON THE CORN PRICE, THE ONE THING THAT I'M VERY CONCERNED ABOUT, WE HAD PUT IN A DOUBLE BOTTOM IN THE MARCH CORN FUTURES FROM ABOUT A MONTH AGO UNTIL LAST WEEK, AND THEN WE RALLIED UP A DIME OR SO FROM THAT. ON FRIDAY'S CLOSE, WE WERE DOWN AT THAT BOTTOM AGAIN, ACTUALLY TAKING IT DOWN OUT BY A HALF A CENT. THAT'S A VERY NEGATIVE SIGN, ESPECIALLY FOR THE SHORT TERM. I THINK CORN PRICE IS GOING TO STRUGGLE EARLY NEXT WEEK AS WELL.

Pearson: LET'S GO OVER AND TAKE A LOOK AT WHAT HAPPENED WITH THE LIVESTOCK SIDE OF THE BUSINESS. A BIG WEEK IN CATTLE, BACK OVER 80 CENTS. WALTER, NOW, IS THIS ALL GOING TO HOLD?

Hackney: IT WILL HOLD. WE'VE GOT OURSELVES IN GREAT SHAPE FOR INVENTORY AT THE FEEDLOT LEVEL. WE HAVE, IN FACT, REDUCED THE AVERAGE WEIGHT OF THE MARKET CATTLE COMING OFF OF THE OCTOBER PERIOD WHERE WE WERE IN A LOT OF TROUBLE. THE PROBLEM, AS I SEE IT, POSSIBLY IS IN THE FACT THAT WE DO IN FACT HAVE AN OVERLOAD OF HOGS GOING INTO THIS MARKET. WE HAVE AN OVERLOAD OF PORK HITTING THE RETAIL AT A VERY REDUCED LEVEL. WE HAVE AN ENORMOUS APPRECIATING MARKET IN THE BEEF. NOW, THE QUESTION IN MY MIND IS CAN BEEF CONTINUE TO COMPETE ON THE PRIMAL LEVEL WITH THE HIGH-QUALITY PORK THAT'S GOING IN IN BIG NUMBERS AT LOWER PRICES. THE FEEDLOTS ARE DOING AN EXCELLENT JOB OF MARKETING. I AM A LITTLE BIT CONCERNED THAT THERE'S MORE OF A BULLISH ATTITUDE OUT THERE POSSIBLY THAN WE SHOULD BE LIVING WITH RIGHT NOW. AS THIS OPEN WINTER IS SHOWING US, THESE CATTLE ARE DOING A PHENOMENAL JOB IN THE FEEDLOTS. AND ANY RESISTANCE TO THIS PRICE LEVEL THAT YOU MENTIONED, MARK, IS SIMPLY GOING TO ADD TONNAGE AT A TIME WHEN THE RETAIL SEEMS TO BE BOGGED DOWN A LITTLE BIT HERE AT THE END OF THIS WEEK COMPARED TO ANY TIME IN THE LAST TWO WEEKS. NOW, THE ARGUMENT, OF COURSE, IS WE'VE HAD DRESSED BEEF VALUES CUT OUT, VALUES GOING UP $1.50 TO $2.50 A DAY ON THAT CHOICE CUTOUT AND SELECTS ALSO. BUT ON THE SAME TOKEN, I HAVE TO HAVE A FEELING THAT WE'RE GOING TO LEVEL OUT HERE ON THE BEEF. I HAVE A FEELING THAT PORK IS GOING TO BECOME MORE POPULAR IN RETAIL, POSSIBLY STARTING AS EARLY AS THIS NEXT WEEK. I DON'T LOOK FOR ANY HUGE REBOUNDS BUT I DO FEEL THAT WE ARE GOING TO SEE A BOTTOMING EFFECT IN THE PORK AS A RESULT OF ITS COMPETITIVENESS AT THE RETAIL LEVEL.

Pearson: SO GOING ON DOWN THE ROAD, WALTER, WE'RE LOOKING AT 80 CENTS HERE AND ALSO SOME OF THESE FURTHER DEFERRED CONTRACTS BEING UP AT THAT LEVEL. IS THIS A HEDGE OPPORTUNITY?

Hackney: IT'S A HEDGE OPPORTUNITY; IT MOST DEFINITELY IS. I THINK A HEDGE IS THE PROPER COMMENT, MARK. I DON'T LIKE SOME OF THE BASIS CONTRACTS ON FORWARD DELIVERY THAT SOME OF THE PACKERS ARE QUOTING THE CATTLE FEEDER. I WOULD MUCH RATHER THEM SEE GO TO A BROKERAGE SUCH AS DOUG AND GET INVOLVED WITH AN ACTUAL FUTURES CONTRACT ON A HEDGE, YES.

Pearson: WHAT ABOUT ON THE -- NOW, YOU MENTIONED THESE HOGS AND THIS INCREASED DEMAND. LIKE YOU SAID, IT'S COMING AT THE EXPENSE OF THESE LOW PRICES. WHAT DOES THIS MEAN FOR A PORK PRODUCER GOING OUT SIXTY TO NINETY DAYS?

Hackney: WELL, SIXTY, NINETY DAYS, I TRULY BELIEVE THAT WE WILL IN FACT SEE A SHORTAGE OF MARKET HOGS START TO DEVELOP. NOW, THEY HAVEN'T DONE THAT YET. PACKERS HAVE BEEN VERY, VERY EASILY BOUGHT AT TWO MILLION HEAD A WEEK. THEY'VE BEEN ABLE TO DO THAT, WITH THE EXCEPTION OF THE LAST TWO WEEKS WHEN WE HAD THE HOLIDAY IN THE MIDDLE OF THE WEEKS. BUT BEYOND THAT, WE'VE BEEN ABLE TO COME UP WITH TWO MILLION HEAD OF HOGS A WEEK VERY CONSISTENTLY. I THINK THAT IS GOING TO START GOING DOWN INTO THIS NEXT WEEK. I THINK WE'RE GOING TO START SEEING FEWER HOGS AVAILABLE.

Pearson: FIFTEEN SECONDS, WALTER. HOPEFULLY THAT MEANS HIGHER PRICES.

Hackney: I THINK YOU'LL SEE HOGS RESPOND SOMEWHAT ON CASH.

Pearson: ALL RIGHT. NOTHING THAT EXCITING. DOUG, THANK YOU. AND, WALTER, THANK YOU. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, YOU CAN HEAR MORE OF THE THOUGHTS OF DOUG AND WALT SIMPLY 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


Tags: agriculture commodity prices markets news