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Market Analysis: Dec 27, 2002

posted on December 27, 2002


The grain markets traded unenthusiastically heading into the close of the year. For the week, wheat prices were down nearly ten cents. Corn prices were fractionally higher. Soybean futures were two and half to a quarter cent lower. Soybean meal gained a dollar-20.

Cotton futures closed 26 cents higher.

In livestock, fed cattle futures gained 5 cents on the week. Feeder cattle gained 55-cents. The lean hog contract closed sharply lower, losing $4.30 on the week.

In the financials, COMEX gold gained $8.70 an ounce. The euro gained 206-basis points against the dollar. And the CRB index finished the week 135 basis points higher to close at 236.75

Here now to lend us their insight are two of our regular market analysts, Virgil Robinson and Doug Jackson. Welcome back.

GENTLEMEN, WELCOME BACK.

Jackson: HI, MARK.

Robinson: HI, MARK.

Pearson: WELL, DOUG, LET'S START WITH THIS GRAIN MARKET. LET'S START FIRST WITH WHAT APPEAR TO BE POSITIVE NEWS, ESPECIALLY FOR BEANS, AND THAT WAS THAT EXPORT REPORT FROM THE USDA THAT CAME OUT FRIDAY MORNING. THE RESPONSE WAS ANYTHING BUT POSITIVE IN THE BEAN PIT.

Jackson: IT WAS REALLY INTERESTING, MARK. IT UNDERSCORES THAT THIS BEAN MARKET REALLY DOESN'T KNOW EXACTLY WHAT IT WANTS TO DO. THE BEAN MARKET IS A VERY DIFFICULT SITUATION. INTERESTINGLY, MARCH BEANS TODAY ARE WITHIN PENNIES OF WHERE WE WERE SINCE MONTHS AGO. WE'VE REALLY BEEN IN JUST A SIDEWAYS 50-CENT RANGE MARKET FOR SIX MONTHS. AND AGAIN, THE FUNDS ARE LOADED UP HERE. THE MARKET IS TRYING TO DECIDE WHICH WAY TO GO. INDEED THE EXPORT SALES REPORT FRIDAY WAS INCREDIBLY STRONG. WE SOLD TWICE AS MANY BEANS THIS WEEK AS WE DID THIS SAME WEEK A YEAR AGO. WE SOLD TWICE AS MANY BEANS TO THE CHINESE THIS WEEK AS WE DID A YEAR AGO. CHINESE SALES ARE TWO MILLION TONS ABOVE A YEAR AGO, MARK, AND UNSHIPPED SALES ARE ABOUT 1.5 MILLION TONS AHEAD OF LAST YEAR. THE CHINESE ARE GOING TO BUY ABOUT 14 OR 15 MILLION TONS OF BEANS WORLDWIDE THIS YEAR, VERSUS ABOUT 10.5 LAST YEAR. THE BEAN MARKET IS CONFRONTED WITH THREE MAJOR INPUTS AND HAS BEEN FOR QUITE A WHILE, THE FIRST BEING THAT THE FUNDS ARE LOADED UP WITH VERY LARGE, LONG POSITIONS IN OIL AND BEANS. THE SECOND IS THAT U.S. SALES SCREAMING AT THIS UNPROJECTED LEVEL, WE'RE GOING TO VIRTUALLY RUN OUT OF BEANS IN THE UNITED STATES AT THE END OF THE YEAR. WE MAY CERTAINLY BE LOOKING AT A CARRYOUT WELL BELOW 150 MILLION, POSSIBLY EVEN BELOW 100 MILLION, WHICH WOULD BE ARGUABLY SORT OF AN UNACCEPTABLY TIGHT LEVEL. AND YET BALANCING THAT AND MAYBE OVERRIDING ALL OF THAT IS THE FACT THAT WE, OF COURSE, ARE GOING TO HAVE RECORD CROPS AGAIN IN SOUTH AMERICA. ON MARCH 1 THIS YEAR, THERE WILL BE ABOUT FIVE MILLION TONS MORE BEANS IN THE WESTERN HEMISPHERE THAN THERE WAS A YEAR AGO WHEN PRICES WERE 75 CENTS LOWER. SO HERE WE ARE AT A HIGHER LEVEL, FUNDS LOADED UP, THE U.S. IS GOING TO BE UNACCEPTABLY TIGHT, AND YET WE HAVE THESE LARGE STOCKS IN SOUTH AMERICA. HOW DO YOU PUT THAT TOGETHER? DO WE HAVE TO SELL OFF SEASONALLY AS WE OFTENTIMES DO, ABOUT 90 PERCENT OF THE TIME IN FACT FROM LATE JANUARY INTO FEBRUARY ON THE SEASONAL PRESSURE THE SOUTH AMERICAN HARVEST CREATES, OR IS THE U.S. GOING TO BE SO TIGHT THAT WE STILL HAVE TO HAVE HUGE INVERSIONS IN THE FUTURES THAT WILL STILL SUPPORT THE FUTURES LEVEL. THE NEARBY SPREADS ARE ALREADY UNPRECEDENTEDLY TIGHT, SO A VERY UNUSUAL SITUATION AND I REALLY DON'T KNOW WHAT TO SAY HERE. WE BELIEVE LONG TERM, THOUGH, THE DOWN SIDE IS VERY LIMITED. WE MIGHT HAVE SOME PRESSURE SEASONALLY IN THE SPRING, BUT NEW NOVEMBER BEANS WITH LESS ACRES COULD BE A DOWN 10- UP 50-CENT ITEM VERY QUICKLY, PARTICULARLY IF THE DRY WEATHER CONTINUES IN THE WEST. IN GENERAL, WE DON'T WANT TO MAKE SALES, EVEN THOUGH FARMER SELLING HAS BEEN VERY ACTIVE INTO THIS RALLY. WE STILL THINK THERE'S A LOT OF POSSIBILITY. THIS BEAN THING IS A HAIR-TRIGGER SITUATION IF WE HAVE ANY WEATHER PROBLEMS AT ALL NEXT YEAR.

Pearson: OKAY. WEATHER IS GOING TO CONTINUE TO BE THE BIG ISSUE. THE CORN EXPORT NUMBER NOT AS POSITIVE WITHIN TRADE EXPECTATIONS, BUT THERE STILL SEEMS TO BE A LOT OF HOLDING IN CORN OUT THERE IN THE COUNTRYSIDE.

Jackson: WELL, YES, MARK. WHILE PRODUCERS ARE ABLE TO SELL THE BEAN MARKET TOWARDS ITS HIGHS, OF COURSE THE CORN MARKETS CONTINUE TO COLLAPSE. LATE IN THE WEEK WE HAD THE INFLUENCE THAT STARLINK HAD BEEN FOUND AGAIN IN U.S. CORN SHIPMENTS TO JAPAN, CLEARLY DEMONSTRATING THAT THE UNITED STATES CANNOT MAINTAIN IDENTITY PRESERVATION OF SUBLOTS IN THE UNITED STATES. AND IT JUST TENDS TO POISON OUR EXPORT MARKETS WHEN BUYERS REALIZE THAT WE CAN'T CONTROL THESE SPECIALTY GRAINS. THAT MAY ONLY AFFECT DEMAND A FEW MILLION BUSHELS, MAYBE A MILLION TONS, BUT IT'S THE PSYCHOLOGY OF THE THING. THE CORN MARKET, YOU KNOW, IS A FUNCTION OF THE JANUARY 10 STOCKS AND FINAL PRODUCTION REPORT. THE FEED NUMBER IN THAT REPORT WOULD BE CRITICAL. DO WE HAVE A 750 CARRYOUT, WHICH IS LESS THAN A MONTH'S USAGE, OR WILL WE FIND OUT IN THAT REPORT THAT FEED USE IS DOWN SOME, EXPORTS ARE DOWN SOME, AND THE CARRYOUT IS CLOSER TO 950, WHICH IS PERCEIVED TO BE MORE OF AN ADEQUATE LEVEL? I THINK THE DOWNSIDE IS RELATIVELY LIMITED ON CORN, BOTH OLD CROP AND NEW CROP. I THINK WE NEED TO HAVE A LITTLE BIGGER INVERSION IN THE JULY-DEC. SPREAD OVER TIME. BUT MARK, AGAIN, WE'RE NOT GOING TO DO MUCH. THE FUNDS ARE FLAT IN THE CORN MARKET. THEY'RE NEARLY RECORD LONG IN THE BEANS, AND THEY'VE COMPLETELY ABANDONED THE CORN MARKET. WE NEED NEW INFORMATION IN THE CORN MARKET. IT MAY LANGUISH HERE IN A SIDEWAYS TRADE ALL THE WAY INTO SPRING.

Pearson: VIRGIL, STRATEGIES FOR CORN GROWERS?

Robinson: MARK, I'M STILL OF THE OPINION THAT MINIMUM PRICE IS AN ATTRACTIVE ALTERNATIVE. AS DOUG MENTIONED EARLIER, BASIS LEVELS HAVE BEEN UNSEASONABLY STRONG, SHORTLY AFTER THE HARVEST. I'M NOT AT ALL AGAINST SELLING THE BASIS, MARK, AND SPECULATING ON THE FUTURES PRICE IMPROVING SOMETIME POST THE TURN OF THE YEAR. I THINK THAT'S A VIABLE STRATEGY. AGAIN $2.40 THE DECEMBER NEW CROP CORN FUTURE, 2003 CORN FUTURE TO MY WAY OF THINKING IS NOT A PARTICULARLY ATTRACTIVE HEDGE. AS MENTIONED EARLIER, DROUGHT-TYPE CONDITIONS PERSIST IN THE WESTERN PART OF THE UNITED STATES AND HAVE ACTUALLY NOW CREPT A LITTLE MORE INLAND INTO PARTS OF THE WESTERN FRINGES OF THE CORN BELT. SO I THINK THAT'S A FACTOR THAT NEEDS TO BE CONTENDED WITH AS TIME GOES FORWARD AS WELL, MARK.

Pearson: BUT NOT IN A HURRY TO MAKE SALES AT THIS STAGE OF THE GAME?

Robinson: NOT AS OF TONIGHT, I'M NOT, NO.

Pearson: ALL RIGHT. DOUG, LET'S TALK ABOUT THE OTHER PART OF THE GRAIN, AND THAT'S THE WHEAT MARKET. HUGE SELLOFF HAS OCCURRED IN THAT MARKET DRAMATICALLY. WE KEPT THINKING THIS WAS WHEAT'S YEAR AND SO FORTH. HAS IT HAD ITS YEAR?

Jackson: MARK, BELIEVE IT OR NOT, EVEN AT THESE LEVELS OVER THE WEEKEND, KAZAKHSTAN AND RUSSIAN WHEAT IS OVER A DOLLAR A BUSHEL CHEAPER THAN U.S. HARD RED WINTER WHEAT AT THE GULF. THIS IS BASICALLY THE PROBLEM. BLACK SEA SHIPMENTS, RUSSIAN, UKRAINIAN SHIPMENTS HAVE SURPASSED EARLIER IDEAS. THEY'VE HAD TWO LARGE CROPS BACK TO BACK. THOSE COUNTRIES, THOSE AREAS, FILLED IN THE VOID OF THE REDUCED PRODUCTION IN CANADA AND AUSTRALIA THIS YEAR. THEY HELPED OFFSET THE LOSS OF THE U.S. CROP, AND IT'S BEEN A DRAMATIC REALIZATION. IT REALLY BRINGS HOME THAT WE CAN ORIGINATE WHEAT FROM A NUMBER OF SOURCES AROUND THE WORLD, AND THAT'S BEEN AN INCREDIBLE DOSE OF REALITY FOR THIS WHEAT MARKET. RIGHT NOW THE MARKET THINKS THAT WE'RE STILL OVERPRICED IN THE UNITED STATES EVEN TONIGHT. U.S. CROP CONDITIONS LOOK MUCH BETTER, MUCH DIFFERENT THAN A YEAR AGO, WITH THE SOUTHERN JET BRINGING BIG MOISTURE TO THE WHEAT BELT. JULY WHEAT CORN SPREAD AT 50 CENTS SHOULD START TO SUPPORT THE NEW CROP WHEAT VALUES VERSUS CORN, EVEN THOUGH IT COULD GO A LITTLE NARROWER LONGER TERM. THAT CAN START TO SUPPORT THE BACK END. BUT THE FRONT END THAT IS STILL INVERTED, OLD CROP PRICES STILL ABOVE NEW CROP, STILL MAY BE VULNERABLE AND MAYBE MORE THAN ANY OF US SUSPECT. EVEN THOUGH WE HAVE SOME OF THE TIGHTEST SUBCLASS STOCKS OF HARD RED AND SPRING WHEAT IN HISTORY, MARK, THE WORLD SITUATION IS WHAT DICTATES OUR PRICES. THE U.S. IS GOING TO CONTINUE TO BE MARGINALIZED LOSING OUR EXPORT DEMAND EVEN MORE THAN WE HAVE. WE'VE LOST HALF OF OUR EXPORT BUSINESS SINCE 1981. EXPORTS COULD BE DOWN AGAIN NEXT YEAR. IF WORLD PRODUCTION REBOUNDS LIKE WE THINK IT CAN WITH TREND WEATHER AND TREND YIELDS, WE'LL GO BACK BELOW LOAN ON THE NEW CROP. PROBABLY TIME TO DUMP THE OLD CROP. THE GAME IS OVER.

Pearson: LET'S MOVE OVER TO THE LIVESTOCK FRONT. VIRGIL, WE'VE SEEN THIS CATTLE MARKET BE FAIRLY FRIENDLY FROM MAY ON. CATTLE-ON-FEED REPORT WAS A LITTLE SHAKY. YOU LOOK AT THE FIRST QUARTER AND SOME OF THOSE SECOND-QUARTER PRICES FOR 2003, IT LOOKS LIKE THE BOARD IS PRETTY OPTIMISTIC ON WHERE PRICES ARE HEADED. WHAT'S YOUR TAKE ON THESE DAYS IN THIS CATTLE MARKET?

Robinson: MARK, I DON'T THINK THERE'S ANY SHORTAGE OF BEEF AT PRESENT, NOR DO I FEEL THERE'S ANY SHORTAGE OF MEAT AT PRESENT. HOWEVER, WE ARE FORECASTING A YEAR-OVER-YEAR DECLINE IN BEEF, PORK, AND POULTRY SUPPLIES, WHICH HAS CERTAINLY BEEN, IN MY OPINION, THE FACTOR PROMOTING HIGHER FUTURES PRICES. YOU NOTED THE CATTLE-ON-FEED REPORT OF LAST WEEK. I DID NOTE IN THERE, MARK, PLACEMENT OF UNUSUALLY HEAVY CATTLE, PRETTY LARGE, WHICH WOULD SUGGEST THERE'S PROBABLY A SUPPLY OF CATTLE HEADED TOWARDS THE MARKET IN FEBRUARY AND/OR MARCH THAT WE HADN'T ANTICIPATED AS RECENTLY AS THIS REPORT. SO I WOULD BE OF THE OPINION, THIS $79 MARK BASIS FEBRUARY FUTURES, WHEN YOU ATTACH AN EXPECTED BASIS -- AND I'M TALKING AGAIN ABOUT IOWA, SOUTHERN MINNESOTA, BASED ON IOWA STATE DATA -- YOU'RE TALKING ABOUT A $77 TO $78 CATTLE RETURN, AND I THINK THAT'S ATTRACTIVE, MARK. SO FROM THIS POINT FORWARD, MAYBE WE'LL PUSH A LITTLE HIGHER IN FUTURES IF WEATHER PROBLEMS PERSIST, LIKE LAST WEEK IN THE SOUTHERN PLAINS, AND THAT'S A PROSPECT THIS WEEK, WITH CLEARLY $79 TO $80 BASIS FEBRUARY FUTURES IS AN ATTRACTIVE HEDGE.

Pearson: LET'S TALK ABOUT THE HOGS, VIRGIL. WE'VE GOT ABOUT THIRTY SECONDS. BIG SELLOFF THIS WEEK ON THE BOARD.

Robinson: MARK, FUTURES ACTUALLY CLOSED A LITTLE HIGHER THIS WEEK, IF I'M NOT MISTAKEN. CASH HOGS WERE GENERALLY STEADY STRONGER. IN INSTANCES, $3 HIGHER. PROJECTIONS FIRST QUARTER OF THE YEAR, I WOULD NOT BE SURPRISED TO SEE SOMETHING NEAR $35, WHICH MEANS FEBRUARY HOG FUTURES AT 55 CENTS CONVERTED TO LIVE LESS A BASIS IS A GOOD HEDGE.

Pearson: ALL RIGHT, VIRGIL. THANK YOU SO MUCH, VIRGIL AND DOUG. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL REMARKS FROM VIRGIL AND DOUG, ON THIS WEEK'S COMMODITIES OUTLOOK, BE SURE TO CHECK THE "MARKET PLUS" SEGMENT ON OUR WEB PAGE. UNTIL NEXT WEEK, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GOOD WEEK.

Market Analysis: Dec 27, 2002 Thanks Virgil, Doug. That wraps up this edition of Market To Market. But if you'd like to hear additional remarks from Virgil and Doug on this week's commodities outlook, be sure to check the "Market Plus" segment on our Web page.

Until next week then, thanks for watching. I'm Mark Pearson. Have a good week. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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