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Market Analysis: Dec 13, 2002

posted on December 13, 2002


The grain markets finished the week with mixed numbers. Wheat prices posted a 4 and 3/4 cent decline. December corn futures contract gained 2 and a quarter cents. Soybean futures were up nearly 9 cents. Soy meal gained 4-40 a ton. Cotton futures lost 47 cents on the week.

In livestock, fed cattle futures fell a dollar-83. January feeders lost 75 cents. And the lean hog contract finished the week $1.82 lower.

In the financials, Comex gold gained $6.90 per ounce. The EURO gained 125-basis points against the dollar. The CRB index closed the week a nearly 3 and a half points higher to finish at 234.95.

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

Market Analysis: Dec 13, 2002

Roach: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT WHERE THINGS ARE GOING HERE. PEOPLE HAVE BEEN WATCHING THIS CORN MARKET IN PARTICULAR. A LITTLE BIT OF A GAIN THIS WEEK, BASED ON THE GOVERNMENT SUPPLY AND DEMAND NUMBERS. TAKE US OUT DOWN THE ROAD. WHAT DO YOU SEE HAPPENING? THERE'S A LOT OF CORN BEING HELD OUT IN THE COUNTRY.

Roach: THE CORN IS STRUGGLING RIGHT NOW. WE'RE NOT ABLE TO GET THE EXPORT VOLUME HAPPENING, THE EXPORT PURCHASES HAPPENING THAT WE NEED TO HAVE IN ORDER TO REACH THE GOVERNMENT'S FORECAST. SO PEOPLE ARE PULLING DOWN THOSE EXPORT ESTIMATES, WHICH WE SAW THE GOVERNMENT DO IN THIS WEEK'S REPORT. BUT PEOPLE ARE NOW ANTICIPATING THOSE EXPORTS ARE GOING TO SLIP AS WE MOVE FORWARD. IN ADDITION, WE'RE WORRIED ABOUT THE FEED DEMAND SLIPPING, THE EXPORTS SLIPPING BECAUSE OF CHINESE COMPETITION, THE FEED DEMAND SLIPPING BECAUSE OF BROILER PRODUCTION COMING DOWN. AND ON THE FLIP SIDE OF THAT, WE HAVE THE ETHANOL INDUSTRY, WHICH IS GROWING, AND WE SAW AN INCREASE IN THE INDUSTRIAL CONSUMPTION IN THIS WEEK'S REPORT. OUR ENDING STOCKS ARE RELATIVELY TIGHT AS WE LOOK OUT FORWARD, BUT THEY'RE NOT TIGHT ENOUGH THAT WE HAVE TO RATION THOSE SUPPLIES WITH HIGHER PRICES RIGHT NOW. ALL WE NEED TO DO IS TO KEEP THE MARKET HIGH ENOUGH TO KEEP INVENTORY MOVING INTO THE PIPELINE. TRADITIONALLY, THAT PICKUP IN INVENTORY MOVEMENT OCCURS AFTER THE FIRST OF THE YEAR. SO THE MARKET IS REALLY SCARED OF INCREASED MOVEMENT AND POOR EXPORT DEMAND, AND THAT'S PUTTING THE PRESSURE ON THE MARKET. YET WE DON'T HAVE ANY BURDENSOME SUPPLIES OR BIG SUPPLIES, AND SO PRICES HAVE TO STAY HIGH ENOUGH TO KEEP INVENTORY MOVING. SO THAT'S THE BALANCING ACT, AND MY GUESS IS WE'RE GOING TO CONTINUE TO PLAY THAT BALANCING ACT REALLY FOR SEVERAL WEEKS TO COME, THAT WE JUST MOVE BACK AND FORTH BETWEEN MAYBE 230, 235 ON THE LOWER SIDE OF MARCH CORN UP TO PERHAPS 250 OR 255 ON THE UPPER SIDE.

Pearson: THIS COMES AT A TIME WHEN WE KNOW PRETTY MUCH WHAT THIS 2002 CROP WAS, AND NOW WE'RE DEPENDING ON OTHER THINGS TO KIND OF GIVE US NEWS. WHAT KIND OF NEWS IS IT GOING TO TAKE NOW TO GET THIS MARKET OUT OF THIS TRADING RANGE?

Roach: WELL, THE NEWS THAT'S HURTING US, THAT'S BEEN PUSHING US DOWN, IS THE NEWS THAT THE CHINESE ARE GOING AHEAD AND SUBSIDIZING THEIR EXPORTS. THE TALK AROUND THIS WEEK IS THEY'RE SUBSIDIZING TO THE TUNE OF $20 PER TON, WHICH THEY AGREED NOT TO DO IN THEIR RECENT TRADE TARIFFS THAT WE'VE ESTABLISHED WITH THEM. THEY'VE TAKEN OVER ONE OF OUR CUSTOMERS. THE TAIWANESE ARE BUYING NOW FROM THE CHINESE. THEY HAD NOT DONE THAT FOR FIFTY YEARS. BUT THANKS TO THE WEST COAST STOCK WORKERS' STRIKE, WE WERE UNABLE TO SHIP TO THE TAIWANESE. THEY WENT TO CHINA AND PURCHASED SOME CORN, AND NOW THEY'RE CONTINUING TO PURCHASE CORN, SO WE'RE LOSING SOME BUSINESS. SO THAT'S THE KIND OF NEWS WE'VE BEEN GETTING. THE NEWS WE NEED IS THAT OUR TRADITIONAL BUYERS ARE BACK IN BUYING IN QUANTITIES LARGE ENOUGH TO MAKE US FEEL LIKE PERHAPS THE STOCKS ARE GOING TO BE THREATENED A LITTLE BIT, THAT WE'LL ACTUALLY HAVE MORE DEMAND RATHER THAN LESS DEMAND.

Pearson: DO YOU WANT TO MAKE ANY SALES NOW?

Roach: WELL, I THINK IT'S THE WRONG TIME OF YEAR. THE MARKET IS AT THE LOWER EBB. I WOULD BE A PATIENT WAITER HERE IF I COULD BE. BUT I THINK THAT YOU HAVE TO MAKE SALES ON BOUNCES IN THIS MARKET. WE SHOULD HAVE A MUCH BETTER MARKET AS WE GET INTO THE SPRING OF THE YEAR, AS WE TRADITIONALLY DO. BUT I THINK THESE NEXT FEW WEEKS ARE GOING TO BE JUST CHOPPY MARKETS. SO SELL ON RALLIES WITHOUT EXPECTING MUCH REAL PRICE IMPROVEMENT.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. OBVIOUSLY THE SITUATION IN SOUTH AMERICA SEEMS TO BE DICTATING WHAT'S GOING TO HAPPEN TO OUR OWN VERY TIGHT BEAN SUPPLY.

Roach: WELL, THE SITUATION IN SOUTH AMERICA IS PART OF THE EQUATION. AND WE KNOW THAT CROP IS GOING TO BE A LARGE CROP, ALTHOUGH IT HAS BEEN REDUCED IN RECENT ESTIMATES. THEY HAD A DRY PERIOD IN THE NORTHERN PART OF THE COUNTRY, EXTREMELY WET IN THE SOUTHERN PART OF THE COUNTRY. THAT WEATHER HAS CHANGED. IT'S MODERATED, CONSIDERABLY IMPROVED RAINFALL IN THE DRY AREAS. SO WE'VE SEEN SOME NEGATIVE PRESSURE COMING OUT OF SOUTH AMERICA, BUT WE'VE SEEN VERY POSITIVE NEWS COMING VIA CHINA. CHINA CONTINUES TO STEP IN AND BUY THE SOYBEANS. THEY'RE A REAL PROBLEM IN OUR MARKETPLACE ON CORN AND ON WHEAT, BUT THEY ARE A SAVIOR IN OUR MARKETPLACE AS FAR AS SOYBEANS ARE CONCERNED. THE CRUSHING MARGINS IN CHINA ARE VERY STRONG. PEOPLE ARE UPPING THE NUMBER OF TONS THAT THE CHINESE WILL BUY ULTIMATELY THIS YEAR. WE CONTINUE TO HAVE SURPRISINGLY LARGE EXPORT SALES REPORTS THIS WEEK, 1.3 MILLION TONS OF BEANS, A VERY LARGE NUMBER FOR THIS TIME OF YEAR. SO WE HAVE SOME POSITIVE DEMAND NEWS, COUPLED TOGETHER WITH WORRISOME COMPETITION NEWS ONCE THAT CROP BECOMES AVAILABLE NEXT SPRING.

Pearson: ALL RIGHT. DO WE SELL ANY BEANS HERE?

Roach: WELL, THE BEAN MARKET HAS GOT A LOT OF, AS I SAID, GOOD NEWS IN IT WITH THE CHINESE, AND WE'VE HAD RECENTLY GOOD NEWS WITH WEATHER WORRIES DOWN IN BRAZIL. THAT'S PUTTING SOMEWHAT OF A TOP ON THE MARKET I THINK, SO I AM A SELLER OF SOYBEANS. I AM OPTIMISTIC THAT THE MARKET WILL HOLD TOGETHER WELL BECAUSE WE ARE TIGHTENING OUR SUPPLIES. SOME PEOPLE HAVE THE CARRYOVER ESTIMATES CLEAR DOWN UNDER 100 MILLION BUSHELS. BUT ON STRENGTH, I'M A SELLER OF SOYBEANS BECAUSE I DON'T WANT TO BE MERCHANDISING BEANS IN THE SPRING OF THE YEAR WITH THE COMPETITION OUT OF SOUTH AMERICA.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. THERE'S STILL PLENTIFUL SUPPLIES WORLDWIDE. WE HAD THE BIG RALLY IN WHEAT. IS THAT IT?

Roach: I THINK SO. IN AN ANSWER, YES, THAT WAS THE BIG RALLY. THE BIG RALLY CAME WHEN WE WERE VERY WORRIED ABOUT OUR SUPPLIES, THE CANADIAN SUPPLIES. AND NOW WE'VE QUANTIFIED THOSE SUPPLIES, AND INDEED THEY'RE TIGHT. BUT WHAT WE'VE ALSO FOUND IS THAT THE FORMER SOVIET UNION HAS BIGGER SUPPLIES THAN WE ANTICIPATED. THE CHINESE HAVE BIGGER SUPPLIES THAN WE ANTICIPATED. AS A CONSEQUENCE, THE COMPETITION FROM BOTH OF THOSE AREAS, THEY'RE JUST EATING OUR LUNCH, QUITE FRANKLY. WE ARE WAY OVERPRICED ON WHEAT IN THE WORLD, AND SO WE ONLY GET SOME OCCASIONAL BUSINESS COMING OUR WAY, SOME AID KIND OF BUSINESS THAT GIVES US A SPARK BUT, OTHERWISE, WE STRUGGLE TO FIND THE DEMAND.

Pearson: JOHN, WE'VE HAD A NICE RALLY IN THE COTTON MARKET. LOOK AT MARCH IN THE HIGH 40S, CLOSE TO 50. IS THIS A SELLING POINT FOR COTTON?

Roach: THE COTTON MARKET HAS DEVELOPED A TRADING RANGE FROM 48 TO 52. AS WE MOVE TOWARD THE UPPER SIDE OF THAT RANGE, THE MARKET RUNS OUT OF BUYERS IN THE FOREIGN MARKET. AND AS WE BREAK DOWN TOWARD THE LOWER -- TOWARD THAT 48 CENTS, WE SEE A GOOD ROUND OF BUYING. AN EXCELLENT WEEK OF EXPORT SALES THIS WEEK. THE BUYERS ARE PRINCIPALLY MEXICO, CANADA, CHINA, AND THEN QUITE A FEW OTHER SMALLER BUYERS. WE THINK THE DEMAND WILL STAY STRONG AS THE MARKET BACKS OFF TOWARD THOSE LOWER LEVELS, BUT WE THINK THE DEMAND JUST DRIES UP AS WE GET TO THE UPPER LEVELS. WE THINK THAT TRADING RANGE WILL STAY IN PLACE FOR QUITE A WHILE.

Pearson: THE HIGH END OF THAT TRADING RANGE?

Roach: 52. 52 CENTS.

Pearson: ALL RIGHT. JOHN, LET'S TALK ABOUT LIVESTOCK. THE FED-CATTLE MARKET, WE'VE REALLY HAD A NICE RUN, REALLY, SINCE MAY. IT DOESN'T SEEM LIKE THE UPS AND DOWNS WE'VE HAD IN THE CASH MARKET AND THE DISCOUNTS IN THE HEAVYWEIGHT CATTLE, BUT ACTUALLY IT'S BEEN PRETTY DECENT. SAW FUTURES FALL OFF A LITTLE BIT THIS WEEK. ARE WE GOING TO SOFTEN UP THROUGH THE HOLIDAYS?

Roach: THE MARKET PROBABLY WILL GET SOFTER AS WE GO INTO THE HOLIDAYS. WE THINK THAT THIS CHRISTMAS WEEK, OR THEREABOUTS, SHOULD BE ABOUT THE LOW EBB OF THE MARKET. WE'VE GOT WEAK ENOUGH THIS WEEK -- OR CHEAP ENOUGH THIS WEEK TO WHERE MAYBE THE MARKET WILL STABILIZE HERE. BUT WE REALLY THINK THERE'S A LITTLE BIT MORE WEAKNESS YET TO OCCUR. BUT WE THINK THE MARKET WILL STABILIZE AND WE'LL COME UP AND SEE STRONGER MARKETS AS WE MOVE INTO, PARTICULARLY, THE LATTER PART OF JANUARY.

Pearson: ALL RIGHT. TAKE ME OUT FURTHER INTO NEXT YEAR ON THIS BEEF MARKET. WE'VE SEEN CLOSE TO 80 CENTS ON THE BOARD. DO YOU THINK WE'LL SEE 80-CENT FED CATTLE THE FIRST, SECOND QUARTER?

Roach: THE MARKET SURE ACTS THAT WAY. I THINK THAT THE DEMAND HAS COME AROUND. IF WE DON'T HAVE ANYTHING TO COME ALONG TO DISRUPT THE DEMAND, I THINK WE'LL PUSH UP TO THOSE LEVELS THIS SPRING. I THINK WE COULD HAVE LAST YEAR, BUT WE JUST -- WE JUST HAD THE DEMAND WRINKLED SO BADLY FROM 9/11. SO I THINK WE HAVE THAT DEMAND SITUATION IN MUCH BETTER SHAPE.

Pearson: ALL RIGHT. WHAT ARE YOU TELLING CATTLE PRODUCERS RIGHT NOW TO DO?

Roach: AT THE MOMENT, WITH THE MARKET DOWN WHERE IT IS, IT'S NOT A MARKET TO SELL. SELL ON STRENGTH ONLY. SELL ONLY IF YOU'RE WILLING TO ACCEPT THOSE PRICE LEVELS. AND THERE'S SURE NOTHING WRONG WITH TAKING PROFITABLE SALES TO THE BANK. THERE'S SURE NOTHING WRONG WITH DOING THAT, BUT DON'T SELL OUT OF FEAR THAT THE MARKET IS GOING TO FALL APART, BECAUSE I DON'T THINK THAT'S GOING TO HAPPEN.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET. WE'VE BEEN TRIMMING BACK PRODUCTION IN THE HOG BUSINESS. WE TALKED ABOUT IT EARLIER IN TERMS OF WHAT IT MEANS AS FAR AS THE FEED GRAINS ARE CONCERNED. SO TAKE US ON THROUGH. OBVIOUSLY WE'RE INTO THE -- THE CHRISTMAS HAM THING IS ABOUT DONE, PROBABLY, FOR THIS YEAR. TAKE US INTO NEXT YEAR. WHAT DO YOU SEE AHEAD FOR THE HOG MARKET?

Roach: WELL, WE THINK WE'VE PEAKED THE PRODUCTION NUMBER MAYBE THIS WEEK, MAYBE LAST WEEK, THE PORK PRODUCTION HAS PEAKED. AND THE NUMBERS WERE BIG. SURPRISINGLY, THE MARKET WAS A BETTER MARKET THROUGH THIS FALL THAN I THINK A LOT OF PEOPLE REALLY ANTICIPATED. AGAIN, DEMAND FOR MEAT WAS BETTER. AND NOW WE HAVE SMALLER NUMBERS AS WE MOVE OUT FORWARD. I THINK THE MARKET IS GOING TO COME BACK, AND WE'LL HAVE A SEASONAL UPWARD MOVE FROM THIS FALL'S LOW AS WE MOVE ON INTO THE SPRING OF THE YEAR. SO I THINK AT THE MOMENT WHERE WE ARE, I THINK YOU ONLY HEDGE HOGS, AGAIN, BECAUSE YOU LIKE THE PRICE LEVEL AND YOU'RE WILLING TO ACCEPT THAT AND MARK THEM SOLD. BUT DON'T SELL OUT OF FEAR. I THINK WE'LL HAVE A BETTER HOG MARKET AS TIME MOVES ALONG.

Pearson: SO AS YOU LOOK INTO THOSE EARLY MID 60 PRICES DOWN THERE, NOT QUITE READY TO LATCH ONTO THOSE IN A BIG WAY, ARE YOU?

Roach: NO, I REALLY AM NOT. I'M NOT MUCH OF A HEDGER IN THIS MARKET. I THINK THIS IS AN UPWARD TRENDING MARKET, AND I DON'T THINK WE'VE SEEN THE PEAK OF IT YET.

Roach: WE'VE ONLY GOT ABOUT TEN SECONDS, JOHN. ONE THING WE DIDN'T TALK ABOUT IS COVERING ANY FEED NEEDS. ARE YOU CONCERNED ABOUT DOING THAT?

Roach: IF YOU'RE A CATTLE PRODUCER, IF YOU'RE A FEED PRODUCER, YOU'D NEED TO BE BUYING CORN ON THIS WEAKNESS. CORN IS GOING TO BE HARD TO ACCUMULATE AS WE MOVE THROUGH THE SPRING. IT'S GOING TO HAVE TO BE HIGHER PRICES TO KEEP IT MOVING.

Pearson: VERY GOOD. JOHN ROACH, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM JOHN ON THIS WEEK'S MARKETS, 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 GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Tags: agriculture commodity prices markets news