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Market Analysis: Dec 20, 2002

posted on December 20, 2002


The grain markets were under pressure this week with end of the year evening-up one factor. For the week, wheat prices were down more than a penny. Corn prices were fractionally lower.Soybean futures were unchanged to a penny lower. Soybean meal gained thirty cents.

Cotton futures were $1.87 higher.

In livestock, fed cattle futures gained $2.08. Feeder cattle gained 32-cents. The lean hog contract closed 45-cents lower.

In the financials, COMEX gold gained $14.20 an ounce. The euro gained 143-basis points against the dollar. The CRB index finished the week nearly four points higher to close at 235.40.

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

Market Analysis: Dec 20, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: ALL RIGHT. LET'S TALK FIRST ABOUT THIS GRAIN MARKET. END OF THE YEAR, IT'S ALWAYS KIND OF A DIFFICULT TIME TO TRY TO FACTOR JUST WHAT'S GOING TO HAPPEN WITH THESE MARKETS. YOU GET THIN TRADE, HOLIDAY TRADING, AND SO FORTH. ANY THOUGHTS HERE AT THE END OF THE YEAR?

Pfitzenmaier: YOU'RE RIGHT, THINGS ARE RELATIVELY SLOW. THE FARMERS HAVE GOT EVERYTHING HARVESTED AND PUT AWAY. WE'RE JUST KIND OF SITTING HERE WAITING TO SEE. THERE'S A COUPLE BIG THINGS THAT HAPPEN AFTER THE FIRST OF THE YEAR. NUMBER ONE, YOU'RE GOING TO SEE WHAT THE FARMER'S SELLING PATTERN IS GOING TO BE. AND, NUMBER TWO, YOU'VE GOT THAT FINAL PRODUCTION NUMBER THAT COMES OUT IN JANUARY, AND THAT KIND OF SETTLES THIS FOR WHATEVER 2002 WAS. SO THE MARKET KIND OF SITS AROUND AND IS PROBABLY GOING TO SIT AROUND AND WAIT AND SEE HOW THAT SHAKES OUT.

Pearson: THE USDA HAS BEEN INCREASING THIS CORN CROP, AND WE'VE SEEN PRICES BACK OFF SOME. YOU WERE AN EARLY ADVOCATE OF, YOU KNOW, GET SOME SALES IN AT 250 OR BETTER BASIS DECEMBER. THAT LOOKS PRETTY GOOD RIGHT NOW. IF WE DIDN'T GET THAT DONE, WHAT'S OUR NEXT CHOICE?

Pfitzenmaier: ARE YOU TALKING ABOUT THE 2002 CROP?

Pearson: AND THE 2003 WHILE WE'RE AT IT.

Pfitzenmaier: WELL, 2003 I STILL THINK 250 IS AN OBJECTIVE AND I WOULD STILL BEGIN TO SELL THERE. IT'S KIND OF AN INTERESTING SITUATION IN THE 2002 CROP. YOU'VE GOT DOMESTICALLY DECLINING LIVESTOCK NUMBERS, BUT YOU'VE GOT ETHANOL PRODUCTION UP PRETTY SUBSTANTIALLY, SORT OF OFFSETTING ONE ANOTHER A BIT -- SO THAT'S KIND OF A WASH THERE -- WHICH BRINGS YOU BACK TO EXPORTS, AND THEY'VE BEEN LAGGING. WE'VE BEEN LOSING SALES TO CHINA, WHICH HAS NOT BEEN BENEFICIAL. ON THE OTHER SIDE OF THE COIN, EVERYBODY SAYS, "WELL, WE HAVE AN 850-MILLION CARRYOUT. THAT'S TIGHT. THE MARKET NEEDS TO STAY SUPPORTED." AND THAT'S TRUE. IT IS TIGHT BUT IT'S ALSO ADEQUATE. AND IF, YOU KNOW -- SO THEN YOU'RE DOWN TO WHAT'S ACREAGE GOING TO BE NEXT YEAR. AND THE GENERAL PERCEPTION IS THAT WE'RE GOING TO HAVE A FAIRLY LARGE INCREASE IN ACREAGE. THE LARGER THE ACREAGE IS FOR NEXT YEAR, THE LESS SIGNIFICANT THAT TIGHTER CARRYOUT IS FOR 2002. AND ALSO, THE LESS CONSEQUENTIAL WEATHER IS FOR NEXT YEAR, THE BIGGER THE ACREAGE IS. SO I GUESS I'M IN THE CAMP THAT THINKS WE'RE PROBABLY GOING TO HAVE SOME SORT OF A RALLY HERE ON THE MARCH CORN, BIG RESISTANCE IN THE 247, 248 RANGE. YOU BUST UP THROUGH THAT, MAYBE WE CAN MAKE A RUN AT 260. BUT EITHER WAY, NOT A BIG RUNUP. I THINK YOU'D WANT TO MAKE SALES UP AGAINST THAT INITIAL RESISTANCE AT 246 TO 249, UPPER 40S. WAIT ON SOME TO SEE IF IT BREAKS THROUGH THAT. AND THEN IF IT DOES, USE THAT AS THE OPPORTUNITY TO GET SOME MORE CLEANED UP.

Pearson: ALL RIGHT. FOR THOSE FOLKS OUT THERE WHO HAVE BEEN MAYBE WATCHING THIS WHEAT MARKET AS IT SLID BACKWARDS HERE, BACK IN THE MID 350S BASIS WHAT'S HAPPENING IN CHICAGO, WHAT KIND OF A STRATEGY IS LEFT FOR THE WHEAT PRODUCER?

Pfitzenmaier: WELL, WE'VE LOST ABOUT $1.10, $1.07, SOMETHING LIKE THAT, OFF THE HIGHS. SO WE'VE ALREADY HAD A HUGE PULLBACK. WE TOOK OUT SOME VERY IMPORTANT, KEY SUPPORT POINTS THIS WEEK. I GUESS I STILL DON'T THINK THEY'RE HUGE AMOUNTS OF DOWNSIDE POTENTIAL, BUT THAT WHEAT MARKET IS TRYING TO FIND SOMEPLACE WHERE THEY CAN FIND SOMEBODY WILLING TO STEP IN AND BUY THE STUFF, AND APPARENTLY WE HAVEN'T FOUND THAT SPOT YET. WE HAD A LITTLE BOUNCE THERE MIDWEEK WHEN THERE WAS SOME CONCERN ABOUT COLD WEATHER AND RUSSIA AND THE UKRAINE. THEY HAD A REALLY GOOD SNOWSTORM, WHICH COVERED MOST OF THE RUSSIAN WHEAT AREA AND ALL BUT THE SOUTHERN PART OF THE UKRAINIAN WHEAT AREA, SO THAT SORT OF TOOK THAT LITTLE REASON FOR OPTIMISM OUT OF THE MARKET, AND WE'RE GOING TO SAG. I THINK WE'RE JUST GOING TO SIT HERE AND SAG UNTIL WE FIND A PLACE WHERE PEOPLE WANT TO BUY WHEAT, AND I GUESS I'M NOT SURE HOW MUCH LOWER THAT IS. IT'S HARD TO BELIEVE IT'S MUCH LOWER THAN WHERE WE'RE AT NOW, BUT IT'S A MARKET THAT'S GOING TO STRUGGLE.

Pearson: AT THIS STAGE OF THE GAME, WITH THE WORLD SUPPLY SITUATION THE WAY IT IS, THE CHANCE TO RETEST THOSE OLD HIGHS IS LOOKING PRETTY SLIM.

Pfitzenmaier: YEAH. IT'S GOING TO TAKE SOME REAL SEVERE WEATHER PROBLEM NEXT SUMMER IN ORDER FOR THAT TO HAPPEN.

Pearson: SOYBEANS HAVE BEEN A QUESTION MARK, REALLY TIGHT SUPPLIES IN THE U.S. STILL LOOKS RELATIVELY GOOD DOWN IN SOUTH AMERICA. THEY HAVEN'T HAD THAT MANY CROP FAILURES, REALLY, IN THE LAST DECADE.

Pfitzenmaier: YOU KIND OF HAVE TO SMILE A LITTLE BIT, BUT WHEN SOMEBODY TELLS YOU PART OF THEIR MARKETING PLAN IS BETTING ON THEM HAVING WEATHER PROBLEMS DOWN THERE -- BECAUSE HISTORICALLY THAT HASN'T WORKED ALL THAT WELL. THAT'S PROBABLY LOCKED IN A TRADING RANGE TOO. IF THEY DON'T HAVE EXTREME WEATHER PROBLEMS, WE MAYBE CAN GO UP AND BOUNCE AGAINST $6. IF THEY DO STUB THEIR TOES AT SOME POINT, MAYBE YOU CAN HIT $6.40, $6.50. IF THEY DON'T, THEN WE'RE PROBABLY GOING TO BE LOCKED IN A TRADING RANGE WHERE THERE'S FAIRLY GOOD SUPPORT ON THE MARKET, DOWN IN THE 5.40 AREA, FAIRLY BIG RESISTANCE IN THE $5.80 TO $6 AREA. YOU HAVE TO BE -- YOU HAVE TO BE IMPRESSED WITH THE DEMAND WE'VE HAD UP TO THIS POINT, BUT YOU ALSO HAVE TO KEEP IN MIND THAT'S FRONT-END LOADED, BECAUSE WE TEND TO GET DEMAND NOW. AND AFTER THEIR CROP IS UP, IT TENDS TO SHIFT TO THEM. SO THAT TENDS TO -- I MEAN YOU CAN'T TAKE WHAT WE'RE DOING NOW AND TRANSLATE THAT THROUGH THE REST OF THE YEAR. IT JUST DOESN'T QUITE WORK THAT WAY.

Pearson: IT SEEMS LIKE WE HAVE AN AWFUL LOT OF CORN AND AN AWFUL LOT OF SOYBEANS THAT ARE STILL IN FARMER HANDS.

Pfitzenmaier: YEAH, THAT'S THE OTHER ISSUE. HOW IS THE FARMER GOING TO HANDLE THIS? ARE THEY GOING TO PUT EVERYTHING ON LOAN AND WAIT IT OUT AND HOPE THAT THEY GET A BOUNCE LIKE WE GOT LAST YEAR? YOU CAN MAKE THAT CASE. YOU CAN CERTAINLY SEE WHY PEOPLE HAVE THAT SORT OF STRATEGY WITH AS TIGHT OF A CARRYOUT AS WE HAVE IN BOTH CORN AND BEANS. IF THERE IS A WEATHER PROBLEM ANYWHERE, THERE'S CERTAINLY ROOM FOR SOME BIG EXPLOSION ON THE UPSIDE.

Pearson: LET'S TALK QUICKLY ABOUT THE COTTON MARKET. AGAIN, TALK ABOUT A MARKET THAT BLASTED UP, THAT ONE DID IT.

Pfitzenmaier: YOU KNOW, THE COTTON MARKET HAS BEEN IN AN UPTREND EVER SINCE BASICALLY A YEAR AGO NOW. SO IT'S GONE FROM 30 CENTS UP TO 50. IT'S BANGING ON 52. IF IT BREAKS THROUGH THAT, THERE'S NOT A WHOLE LOT ON THAT COTTON CHART BETWEEN 52 AND 60. SO THAT'S GOING TO BE A MARKET THAT'S GOING TO BEAR WATCHING HERE OVER THE SHORT RUN. IF WE CAN'T -- YOU KNOW, IF YOU DON'T THINK YOU'RE IN THE CAMP THAT THINKS WE CAN'T BREAK THROUGH THAT, THEN OBVIOUSLY WE'RE AT A GREAT SELLING OPPORTUNITY. IF YOU THINK WE'RE GOING TO BANG THROUGH THAT, THEN YOU MIGHT AS WELL BE PATIENT, BECAUSE YOU'RE PROBABLY GOING TO GET A SHOT AT 60.

Pearson: LET'S TALK LIVESTOCK. CATTLE-ON-FEED REPORT OUT FRIDAY AFTERNOON. WHAT'S YOUR TAKE ON THAT?

Pfitzenmaier: WELL, YOU KNOW, WE RALLIED THAT CATTLE MARKET QUITE A BIT IN ANTICIPATION OF THIS REPORT. IT DID COME OUT A BIT BEARISH WITH A PLACEMENT NUMBER THERE. THEY WERE LOOKING FOR 97 PERCENT. IT CAME IN ABOUT 105. OBVIOUSLY A BIGGER NUMBER THAN EVERYBODY THOUGHT. THE ON-FEED NUMBER WAS A PERCENT OR SO HIGHER THAN THEY THOUGHT. MARKETING DOWN ABOUT A PERCENT. SO I ASSUME THAT MEANS WE'RE GOING TO BE OFF A LITTLE BIT COME MONDAY MORNING WHEN WE WALK INTO THE MARKETS. YOU ALSO HAVE A SITUATION WHERE THAT FEBRUARY MARKET IS REALLY QUITE HIGH, ESPECIALLY SINCE YOU'VE GOT DECEMBER GOING OFF THE BOARD IN A WEEK. AND THAT REALLY MAKES FEBRUARY, LIKE, $6 TO $7 HIGHER THAN WHERE THE CASH IS TRADING. YOU'D HAVE TO THINK THAT MAYBE WE'VE GOT SOME WEATHER PREMIUM FACTORED IN, BECAUSE THAT'S ALL WE'VE BEEN HEARING ABOUT FOR THE LAST MONTH IS, BOY, IF WE HAVE WEATHER PROBLEMS, THEN THIS CATTLE MARKET CAN REALLY GO. WELL, YOU KNOW, IT'S GOING TO TAKE A FAIRLY SUSTAINED, SERIOUS WEATHER PROBLEM. I THINK A LITTLE SNOWSTORM PROBABLY ISN'T GOING TO GIVE US THAT KIND OF A RALLY, GIVEN AS MUCH AS ALREADY IS FACTORED INTO THAT MARKET.

Pearson: STRONGER MARKET IN 2003, YOU THINK, FOR THE CATTLE MARKET?

Pfitzenmaier: CERTAINLY THERE'S SOME UPSIDE POTENTIAL HERE. $80 IS VERY DIFFICULT AREA TO GET UP ABOVE AND STAY UP ABOVE. SO I GUESS IF IT WAS ME AND YOU COULD GET APRIL CATTLE UP IN THAT $78, $78.50, $80 AREA, YOU'D CERTAINLY HAVE TO LOOK PRETTY HARD AT BUYING PUTS OR DOING SOMETHING TO PROTECT YOURSELF, BECAUSE YOU HAVE TO KEEP IN MIND THERE'S PROBABLY A GOOD CHANCE WE'RE GOING TO HAVE SOME KIND OF A PROBLEM WITH IRAQ. AND THERE'S ALSO SOME CHANCES OF TERRORIST RETALIATION, AND THAT'S GOING TO HURT UNEMPLOYMENT, IT'S GOING TO HURT THE CONSUMER CONFIDENCE, AND IT'S PROBABLY GOING TO HURT THE MEAT INDUSTRY.

Pearson: AND BEEF USUALLY FEELS IT FIRST. FIFTEEN SECONDS, TOMM. WHAT'S YOUR OUTLOOK NOW ON THE HOG MARKET? IT'S BEEN AN AWFUL YEAR IN 2002.

Pfitzenmaier: FEBRUARY HOGS CAN COULD SAG BACK FROM THAT $48 TO $50 AREA. I WOULDN'T SELL THEM UNLESS THEY GOT UP INTO THE UPPER 50S, AND I THINK THAT'S CERTAINLY A POSSIBILITY IN THE FIRST QUARTER OF 2003.

Pearson: ALL RIGHT. FURTHER OUT, THE SECOND QUARTER LOOKS STRONG.

Pfitzenmaier: WELL, THAT'S ALREADY -- I MEAN WE'RE ALREADY ABOVE 60 ON THOSE DEFERRED, SO EVERYBODY IS ALREADY ASSUMING THAT'S GOING TO BE PRETTY DECENT.

Pearson: TOMM, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL REMARKS FROM TOMM 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 GREAT WEEK.

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