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Market Analysis: Dec 06, 2002

posted on December 6, 2002


The grain markets finished the week on the downside following numerous reports increased production and slowed demand. For the week, wheat prices posted declines of 31-cents, while corn prices were seven cents lower.

Soybean futures were also pressured this week, declining eleven to fourteen cents. Soybean meal closed the week $4.50 lower per ton.

Cotton futures were down $1.07.

In livestock, fed cattle futures were twelve cents lower. Feeder cattle futures were down $1.12. The lean hog contract finished the week $1.08 lower.

In the financials, comex gold gained $9.30 per ounce. The euro gained 178-basis points against the dollar. The crb index closed the week a quarter point higher to finish at 231.50.

Here now to lend us his expert opinion on the commodities this week, is one of our regular market analysts Doug Hyort. Welcome back Doug.

Market Analysis: Dec 06, 2002

Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S TALK ABOUT IT. A STEEP SELL-OFF IN WHEAT. YOU'VE BEEN FRIENDLY TO WHEAT, BUT YOU ALSO SAID IT'S NOT A BAD IDEA TO START PULLING THE TRIGGER IN HERE. SO HOPEFULLY PEOPLE TOOK HEED. WHAT'S AHEAD?

Hjort: WELL, OBVIOUSLY, AFTER A WEEK LIKE THIS, YOU JUST SIT BACK AND WONDER WHAT'S AHEAD. DOWN 30 SOME CENTS. AND THAT ON TOP OF A BREAK THAT WE'D ALREADY SEEN EARLIER. THE PRESSURE ON THE WHEAT MARKET, I THINK, IS PROBABLY BEING OVERDONE RIGHT NOW. BUT ALSO, WHEN YOU LOOK AT PRICE ACTION, WHEAT PRICES RALLIED VERY STRONGLY DURING THE SUMMER MONTHS. SO, YOU KNOW, THEY COULDN'T HARDLY HOLD UP AT THAT LEVEL EVEN THOUGH WE CONTINUE TO TIGHTEN DOWN WORLD THE SUPPLY/DEMAND RELATIONSHIP. NOW, WHEN I SAY THAT, I MEAN THE EFFECTIVE WORLD SUPPLY/DEMAND RELATIONSHIP, BECAUSE THE CHINESE WHEAT STOCKS WERE RAISED SO DRAMATICALLY, SOME 42 MILLION TONS, IN FACT, HERE A MONTH AGO. THE TRADE IS STILL NOT USED TO THESE NEW HIGH WORLD NUMBERS THAT THAT CAUSED, AS THE CHINESE STOCK PUSHED UP THE WORLD STOCK. WE STILL HAVE AN EXTREMELY TIGHT SUPPLY/DEMAND RELATIONSHIP WORLDWIDE, BUT BECAUSE NOW WE'RE TALKING ABOUT A STOCK LEVEL SOME -- NEARLY A HUNDRED MILLION BUSHELS HIGHER THAN WHERE IT WAS AT ONE TIME, THE TRADE IS RELUCTANT TO LOOK AT THAT. SO IN THE MEANTIME THEY KEEP LOOKING AT THE TECHNICAL SIDE. WELL, THAT'S NOTHING BUT BEARISH AND THEN THE EXPORT SALES WERE LIGHT AND SO ON. I THINK THERE WILL BE SOME RECOVERY, BUT I THINK RECOVERY PRICES NEED TO BE USED AS SELLING OPPORTUNITIES AS WELL.

Pearson: HAVE WE PICKED UP WHEAT PRODUCTION IN HERE?

Hjort: WELL, THE IDEA IS THAT OUR PRODUCTION WILL BE BETTER NEXT YEAR. OUR WINTER WHEAT WENT INTO THE WINTER IN GOOD SHAPE, ABOUT AVERAGE CONDITION. MUCH BETTER THAN LAST YEAR, OF COURSE. SO MAYBE, IF NEXT SPRING WEATHER IS REAL GOOD, WE COULD GO BACK ON TRACK AND HAVE A GOOD CROP. THE CANADIANS HAD A TERRIBLE CROP THIS YEAR. THE AUSTRALIANS DID AND SO ON. THEY'LL MOST LIKELY COME BACK SOME. SO MAYBE OUR PRODUCTION WILL BE PICKING UP, BUT AS OF NOW, FOR THIS YEAR WE'RE IN NOW, THE PRODUCTION LEVEL WILL KEEP INCHING DOWN JUST A LITTLE BIT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS CORN MARKET, ALSO A SELL-OFF THIS WEEK. WE'RE ALSO IN KIND OF THAT END-OF-THE-YEAR TIME PERIOD, WHERE, YOU KNOW, MARKETS ARE GOING TO DO THESE KINDS OF THINGS. SO WHAT'S YOUR OUTLOOK NOW FOR CORN?

Hjort: WELL, ONE OF THE PROBLEMS IN CORN, BEANS -- AND WHEAT, AS FAR AS THAT GOES -- BUT ESPECIALLY CORN AND WHEAT, AND DURING DECEMBER, THERE'S REALLY NO NEW INFORMATION TO TRADE ON. IT'S HARD TO GET ENOUGH INFORMATION OUT OF THE SOUTH AMERICAN OR SOUTHERN HEMISPHERE PRODUCTION AREA TO MAKE MUCH DIFFERENCE. ON THE DEMAND SIDE FOR CORN, ON THE WEEKLY EXPORT SALE REPORT THIS WEEK, THE NUMBER WAS QUITE LOW. NOW, THOSE PEOPLE THAT PUT OUT ESTIMATES HAPPENED TO FORGET THAT THIS WAS FOR A WEEK AGO LAST THURSDAY, WHICH WAS THANKSGIVING, AND IT'S STILL A PRETTY GOOD NUMBER. I WENT BACK AND LOOKED AT ALL THANKSGIVING WEEK EXPORT SALES, AND THIS IS A VERY SOLID NUMBER. IF THAT HISTORY PANS OUT, NEXT WEEK WILL BE VERY STRONG AGAIN. IF YOU TAKE OUT THE LAST EXPORT SALE, THE SALES FOR EIGHT WEEKS IN A ROW NOW HAVE BEEN VERY, VERY GOOD. I EXPECT THEY'LL COME BACK AND CONTINUE TO BE GOOD AS WELL. SO AFTER THIS TECHNICAL CORRECTION, WHICH I THINK WAS PUSHED LOWER, PRICES WERE PUSHED LOWER ON CORN BECAUSE OF THE WASHOUT IN THE WHEAT, I THINK WE'RE AT A POINT HERE WHERE WE CAN START TO BUILD OUR WAY BACK. NOW, THE NEXT CROP REPORT -- OR SUPPLY/DEMAND REVISION RATHER, COMES OUT TUESDAY MORNING. YOU SHOULDN'T LOOK FOR VERY MANY CHANGES THERE ON CORN. BUT THERE MIGHT BE SOME CONFIRMATION THAT WE DO HAVE THIS TIGHT WORLD GRAIN SITUATION STILL OUT THERE, AND MAYBE THAT WILL BE ENOUGH TO TURN THE PRICE BACK UP AGAIN.

Pearson: ALL RIGHT. SO AGAIN, YOU'RE NOT URGING ANY CORN SALES AT THIS POINT.

Hjort: NO, NOT NOW.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. AGAIN A TOUGH WEEK FOR SOYBEANS. SOME BACK-TO-BACK TOUGH WEEKS. SOUTH AMERICAN CROP IS COMING ALONG. IT'S GOING TO BE A BIG FOCUS THIS YEAR.

Hjort: WELL, IT IS AND THERE'S STILL A CONCERN ABOUT THAT IN SOME CASES. WEATHER PATTERNS ARE STILL PRETTY MUCH THE SAME. ONE OF THE REASONS THE MARKET BROKE OFF AT 13, 14 CENTS HERE ONE DAY THIS WEEK, A PRIVATE WEATHER FORECASTER CAME OUT AND POINTED OUT THE WEATHER MODEL, ONE OF THEM ANYWAY THAT THEY USE FOR BRAZIL, SHOWS QUITE A BIT OF RAIN FOR NEXT WEEK. WELL, ANOTHER WEATHER SOURCE SAID, YEAH, THAT'S TRUE BUT THAT MODEL HAD PREDICTED THAT SEVERAL TIMES SO FAR IN THE LAST TWO MONTHS AND IT HASN'T REALLY PANNED OUT, SO IT'S A WAIT-AND-SEE ATTITUDE. ON THE SOYBEAN PRICE, WE BROKE IT BACK RATHER SIGNIFICANTLY AND VERY DISAPPOINTEDLY, BECAUSE WE HAD BROKEN ABOVE A MAJOR RESISTANCE AREA AND READY TO ATTACK THE CONTRACT HIGHS. AND THEN, BOOM, WE CAME RIGHT BACK AND GAVE THAT UP, PLUS MORE. WE STILL ARE HOLDING AT THE THIRD SUPPORT LEVEL, THOUGH. AND IF WE CAN BUILD A LITTLE SUPPORT NEXT WEEK, THEN THESE SOYBEAN PRICES CAN GRIND BACK. BUT THE DAMAGE DONE THIS WEEK JUST MEANS WE HAVE TO SPEND A LOT OF ENERGY TO GET BACK UP TO WHERE WE WERE.

Pearson: ALL RIGHT. AGAIN, HOLD OFF ON SALES UNTIL WE SEE THAT.

Hjort: THAT'S RIGHT. I DO THINK WE WILL DO THAT, BUT IT MIGHT TAKE MORE TIME TO BUILD THAT STRENGTH.

Pearson: ALL RIGHT. REAL QUICK, DOUG, OVER ON THE COTTON. SELL-OFF THIS WEEK. OF COURSE, A LOT OF CONCERNS DOWN SOUTH WITH WEATHER.

Hjort: WELL, THAT'S TRUE. HERE IN THE UNITED STATES, NOBODY CAN UNDERSTAND, WITH ALL THE WEATHER PROBLEMS, WHY PRICES ARE GOING DOWN. BUT IT'S A WORLD SITUATION AND A DEMAND SITUATION HERE. NEXT TUESDAY MORNING WE GET A PRODUCTION REPORT ON COTTON AND ALL -- FOR THE U.S. AND ALSO A WORLD SUPPLY/DEMAND BALANCE. THAT MIGHT GIVE US A CLUE AS TO WHAT THE PRICES CAN DO FOR THE REST OF THIS MONTH.

Pearson: LET'S SWITCH OVER TO LIVESTOCK. FED CATTLE MARKET. YOU'VE BEEN FRIENDLY TO FED CATTLE HERE FOR A WHILE. THE LAST TIME YOU WERE ON, YOU WERE TALKING MAYBE 80 CENTS FIRST QUARTER OF NEXT YEAR, AND THAT LOOKS ENCOURAGING.

Hjort: WELL, IT DOES AND, OF COURSE, WE'VE STILL GOT QUITE A WAYS TO GO FOR THAT. THE FUTURES MARKET IN THE LAST TWO WEEKS HAS PUNCHED UP INTO THAT 79 AREA FOR APRIL, I BELIEVE IT WAS. AND I THINK IT CAN GO HIGHER. WHAT WE DID, THOUGH, ON THE RALLIES IN BOTH HOGS AND CATTLE IN THE FUTURES MARKET, WE RAN RIGHT UP AGAINST A MAJOR RESISTANCE LEVEL ON WEEKLY CHARTS. SETTING BACK SOME ON FRIDAY OF THIS WEEK PROBABLY IS GOOD FOR THAT MARKET, BECAUSE WE REALLY HAVE BEEN RUNNING HEAD LONG INTO THAT RESISTANCE AREA. WE NEED TO HOLD THAT TOGETHER AND PUT SOME SUPPORT UNDERNEATH THESE PRICES FAIRLY QUICKLY, BUT I THINK WE CAN BECAUSE THE CASH MARKET LOOKS GOOD. NOW, CASH MARKETING ON THE CATTLE AND HOGS, BOTH, THROUGH THE HARVEST PERIOD -- OR HOLIDAY PERIOD IS GOING TO SLACK OFF A LITTLE BIT. BUT PRICES VERY STRONG NOW AND THEY WILL COME BACK AFTER THE FIRST OF THE YEAR.

Pearson: ALL RIGHT. REAL QUICK, OVER ON THESE HOGS. IT'S BEEN A LOUSY YEAR FOR PORK PRODUCERS, DOUG. AND THE ONES THAT I'VE BEEN OUT SPEAKING TO GROUPS ARE ASKING, "WHAT'S '03 GOING TO BE LIKE?" BETTER?

Hjort: YES, BETTER. BUT UNTIL WE GET INTO JANUARY, WE'RE PROBABLY NOT GOING TO DO MUCH, JUST SHOP AROUND SIDEWAYS AS WE HAVE BEEN DOING. WELL, ONCE WE GET TO JANUARY, FEBRUARY, AND MARCH, THOUGH, THE FUTURES SUGGEST WE'VE GOT A NICE RALLY IN THE CASH MARKET. I THINK WE WILL. BUT AGAIN, BECAUSE WE RAN UP AGAINST SOME RESISTANCE LEVELS ON THE HOGS THIS WEEK IN THE FUTURES, MAYBE TAKE A LOOK AT SOME HEDGING OPPORTUNITIES IF WE RUN OUT OF STEAM.

Pearson: VERY GOOD. DOUG, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE TAKE A LOOK AT HOW ONE LOCAL FOOD MOVEMENT IS ENCOURAGING A GROWING NUMBER OF INSTITUTIONS AND RESTAURANTS TO BUY THEIR FOOD FROM AREA FARMERS IN AN ATTEMPT TO BOOST THE LOCAL ECONOMY. AND FOR ADDITIONAL ANALYSIS FROM DOUG, BE SURE TO VISIT THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEBSITE. 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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