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Market Analysis: Nov 15, 2002

posted on November 15, 2002


The grain and oilseed markets finished the week on the upside following the USDA's crop report. For the week, wheat prices gained more than seven cents. Corn futures gained three to six cents. Soybean futures were more than four cents higher for the week. Soybean meal closed the week 95-cents lower per ton.

Cotton futures were 61-cents higher.

In livestock, fed cattle futures were 32-cents higher. Feeder cattle were down $1.20. the lean hog contract finished the week 15-cents lower.

In the financials, COMEX gold closed the week 80-cents lower per ounce. The euro finished 52-basis points lower against the dollar. And, the CRB index finished the week three-quarters of a point lower to close at 226.90.

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

Market Analysis: Nov 15, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, FIRST LET'S TALK ABOUT THE REVIEW OF WHAT HAPPENED IN THE USDA REPORT THAT WAS RELEASED EARLIER IN THE WEEK. THE GOVERNMENT NUMBERS REALLY, KIND OF, CAME IN WITH WHAT THE TRADE WAS EXPECTING.

Pfitzenmaier: IN TERMS OF PRODUCTION NUMBERS, THEY WERE VIRTUALLY DEAD ON. THE CARRYOUTS WERE SIMILAR. I THINK ONE OF THE THINGS THAT WAS A LITTLE BIT SURPRISING WAS THEY FOUND A LOT OF WHEAT IN CHINA THAT WE DIDN'T KNOW WE HAD. THAT BUMPED THE CHINESE -- JUMPED THE CHINESE CARRYOUT NUMBER, JUMPED THE WORLD NUMBER ACTUALLY ABOUT 31 PERCENT. SO A BIG JUMP THERE. THE AVAILABILITY OF THAT TO THE WORLD MARKET, I GUESS, IS A QUESTION, BUT THAT WAS THE MOST SIGNIFICANT CHANGE. WE ALSO HAD AN INCREASE WORLDWIDE IN BOTH CORN AND BEANS: 7, 8 PERCENT ON CORN, ABOUT 13 PERCENT OF BEANS. SO YOU'RE STARTING TO SEE THAT WORLD SUPPLY BUILD UP HERE A LITTLE BIT, WHICH IS GOOD NEWS. ON YOUR INTERVIEW WITH DOUG JACKSON EARLIER IN THE SHOW, HE TALKED ABOUT THE FACT THAT THE SHIFTING OF PRODUCTION FROM THE UNITED STATES TO OTHER AREAS, PARTICULARLY SOUTH AMERICA, WAS SORT OF VERIFIED IN THAT REPORT ALSO.

Pearson: WELL, AS WE LOOK AHEAD ALSO, LET'S TALK ABOUT WHEAT FIRST. FOLLOWING THIS REPORT, NOW WE SEEM TO HAVE A BETTER HANDLE, REALLY, ON WHAT'S AHEAD GRAIN WISE. FROM A SALES STANDPOINT, WHAT ARE YOU TELLING THE WHEAT PRODUCER RIGHT NOW?

Pfitzenmaier: WELL, WE'RE IN A SIMILAR SITUATION THAT WE ARE IN CORN IN THAT THERE'S NO CARRYING CHARGE IN THE MARKET, SO THERE'S NOT A WHOLE LOT OF INCENTIVE TO STORE IT. IF YOU WANT TO DO ANYTHING, I GUESS YOU'D PROBABLY WANT TO SELL IT AND REOWN IT OR TAKE ADVANTAGE OF ANY BASIS SITUATIONS THAT MIGHT EXIST. BUT THERE'S -- YOU'RE DOWN ON SUPPORT. YOU HAD A PRETTY GOOD PULLBACK OFF THE HIGHS. I TALKED BEFORE WE WERE IN A TRADING RANGE PROBABLY WITH 410 TO 420 AS A CEILING ON THE TOPSIDE, 460 TO 480 AS SUPPORT. WE KIND OF WERE ON THAT SUPPORT LEVEL -- THE TOP END OF THAT SUPPORT LEVEL ANYWAY THIS WEEK, SO THERE'S SOME UPSIDE. IF YOU HAVE A 20-, 30-CENT RALLY, NO MATTER WHAT, I'D BE SELLING SOME WHEAT.

Pearson: OKAY. THE SAME STRATEGY FOR CORN. WHAT'S AHEAD NOW?

Pfitzenmaier: AGAIN, WE HAVE NO CARRY -- WE HAVE NO CARRY -- OR VERY LITTLE CARRY IN THE MARKET. THE BASIS HAS BEEN RELATIVELY TIGHT, ALTHOUGH IT HAS BEEN SLIPPING SOME IN THE LAST FEW DAYS. I THINK YOU'RE GOING TO START TO SEE THAT SORT OF CONTINUE. I THINK THERE'S SOME UPSIDE POTENTIAL IN THE FUTURES. NOW MAYBE THE CASH MARKET IS GOING TO LAG. TECHNICALLY WE'VE GOT A LOT OF THE FUNDS ARE OUT OF THE MARKET. YOU'VE GOT THE TECHNICAL INDICATORS DOWN ON THE BOTTOM END OF THE RANGE. THE MARKET HAS STARTED TO TURN. IN ALL LIKELIHOOD, THE LOW WAS PUT IN HERE IN THE LAST FEW DAYS. SO I THINK THERE'S A PRETTY GOOD HISTORY FOR CORN TO MOVE HIGHER OVER THE NEXT SIX WEEKS, AND I EXPECT THAT TO HAPPEN, ANYWHERE FROM 15 TO, POSSIBLY AT THE MOST, 30 CENTS ON THE UPSIDE. SO IF THERE'S SOME UPSIDE POTENTIAL, YOU WANT TO MAINTAIN CONTROL OF THAT CORN, I GUESS DEPENDING THAT THE FUTURES ARE PROBABLY GOING TO RESPOND A LITTLE BETTER THAN THE CASH MARKET DOES. BUT EITHER WAY, THERE IS SOME UPSIDE POTENTIAL. HAVING SAID THAT, IF YOU GET THAT 15 TO 30 CENTS, YOU NEED TO MAKE SOME SALES AND NOT THINK IT'S GOING TO DO ANOTHER 30 CENTS ON TOP OF THAT.

Pearson: TOMM, WE TALKED EARLIER IN THE SHOW ALSO ABOUT THIS COMPETITION FROM FOREIGN SOIL FOR BOTH CORN AND SOYBEAN PRODUCTION. WHAT ABOUT THE PRICE ON SOME OF THAT 2003 CROP AT THIS POINT?

Pfitzenmaier: THAT'S A STRATEGY, I THINK, THAT'S GOING TO BECOME VERY IMPORTANT. THERE'S AN EXPECTATION THAT WE'RE GOING TO SEE AT LEAST A 2- TO 3-MILLION ACRE INCREASE IN CORN ACRES NEXT YEAR. YOU KNOW, YOU DO TRENDLINE YIELDS ON THAT, AND ALL OF A SUDDEN THE CARRYOUT POPS BACK UP AGAIN. SO THIS TIGHT SITUATION WE'VE GOT IS KIND OF A SHORT TERM ONE. I THINK YOU SORT OF HAVE TO BLANK OUT LAST YEAR AND THE PROBLEMS WE HAD THERE; GO BACK TO WHAT'S BEEN WORKING FOR THE LAST FEW YEARS. AND YOU GET DECEMBER CORN IN THAT 247 TO 250 AREA, AND THAT'S A GOOD PLACE TO START MAKING SALES. NOW, IF YOU'RE NOT COMFORTABLE USING THE FUTURES OR FORWARD CONTRACTING OR WHATEVER, YOU KNOW, THE OLD BUY THE 250 PUT, SELL A COUPLE 280 CALLS TO PAY FOR IT, LOCK YOURSELF IN A TRADING RANGE AND A FLOOR, I THINK IS PROBABLY ONE THAT'S GOING TO GO BACK TO WORKING AGAIN THIS YEAR.

Pearson: OKAY. LET'S GO BACK TO SOYBEANS. WE ALSO TALKED EARLIER ABOUT THAT. THE SEED CHANGE HAS OCCURRED. I MEAN SOUTH AMERICA IS SUCH A TREMENDOUS FACTOR IN THIS SOYBEAN MARKET GOING FORWARD. PRODUCERS RIGHT NOW LOOKING AT THESE PRICES, WHAT ARE YOU TELLING THEM?

Pfitzenmaier: WELL, IT'S -- WE ARE HAVING THAT SHIFT BUT WE'VE ALSO GOT A VERY TIGHT CARRYOUT. WE'VE GOT VERY GOOD DEMAND AND IT'S VERY IMPORTANT THAT THEY PRODUCE A CROP. SO THE DOWNSIDE POTENTIAL THERE IS PROBABLY NOT ALL THAT GREAT; HOWEVER, THE FUNDS ARE STILL LONG THAT MARKET. TECHNICALLY IT'S SORT OF ROLLED OVER AND LOOKS A LITTLE SLOPPY. SO MAYBE YOU COULD GET A 15-, 20-CENT BREAK. BUT YOU GET BEANS DOWN IN THAT 540, 550 AREA, IT'S PROBABLY GOING TO BE FAIRLY WELL SUPPORTED. ON THE UPSIDE, IF YOU GET A RALLY UP IN THE 590 TO $6 AREA, IT'S PROBABLY GOING TO START TO RUN OUT OF STEAM. HISTORICALLY SOUTH AMERICA HAS BEEN A FAIRLY RELIABLE PRODUCER, SO BETTING ON THEM HAVING BIG PROBLEMS, THE STATISTICS PART REALLY AREN'T WITH YOU.

Pearson: OKAY. LET'S TALK ABOUT COTTON, WHICH WE HAVE SEEN A RUN IN COTTON. YOU TALKED ABOUT BETTER COTTON PRICES A WHILE BACK, BUT WE'RE SEEING THEM RIGHT NOW. SHOULD WE BE PULLING THE TRIGGER?

Pfitzenmaier: WE'VE BEEN TALKING FOREVER, IT SEEMS LIKE, ABOUT COTTON BEING IN THAT RANGE OF 42 TO TO 50. WE'RE AT THE TOP END OF THAT, IN THAT 48, 49 AREA. YOU GET UP IN THERE AND UNLESS SOMETHING REALLY SIGNIFICANT HAPPENS TO BREAK US OUT ON THE TOPSIDE OF THAT, I THINK YOU HAVE TO START MAKING SALES UP AGAINST THAT BIG RESISTANCE AREA.

Pearson: LET'S TALK LIVESTOCK. CATTLE-ON-FEED REPORT TODAY, ANY SURPRISES THERE?

Pfitzenmaier: YOU KNOW, THEY WERE LOOKING FOR FRIENDLY NUMBERS. THEY WERE LOOKING FOR 93 ON FEED, 93 PLACEMENT, AND 105 MARKETING. IT CAME OUT EVEN MORE FRIENDLIER THAN THAT. THE ON-FEED NUMBER WAS A PERCENT LESS. THE PLACEMENT NUMBER WAS ACTUALLY 6 PERCENT LESS THAN THAT. SO YOU'D HAVE TO SAY THAT SHOULD GENERATE SOME POSITIVE ACTION ON THE MARKETS WHEN WE WALK IN ON MONDAY MORNING. OBVIOUSLY THE MARKETING NUMBER A LITTLE BIT DISAPPOINTING BUT PROBABLY NOT THAT BIG OF DEAL.

Pearson: TOMM, AS YOU LOOK FORWARD, LOOKING AT THE FIRST QUARTER OF NEXT YEAR AND SOME OF THOSE LATE WINTER FUTURES UP AROUND THE HIGH, MID 70S, BOY, THAT LOOKS PRETTY ATTRACTIVE.

Pfitzenmaier: IT LOOKS VERY ATTRACTIVE. YOU DO HAVE THE POTENTIAL FOR WINTER WEATHER TO PUT $2 OR $3 ON THAT. SO THIS MAY BE THE YEAR YOU'VE GOT A SHOT AT $80 CATTLE ON THE FEBRUARY AND APRIL CONTRACTS. BUT IT'S GOING TO TAKE THAT WEATHER TO DO THAT, IN ALL LIKELIHOOD. YOU ALSO HAVE OUTSIDE INFLUENCES ON THIS: THE WAR WITH IRAQ AND THE IMPACT THAT'S GOING TO HAVE IF THERE'S ANY KIND OF RETALIATION FROM WHOEVER. THOSE ARE HAZARDS THAT EXIST TO THE CATTLEMEN, AND THE HOG PRODUCER FOR THAT MATTER, THAT I THINK JUSTIFY HAVING SOME KIND OF A PUT OPTION UNDERNEATH YOU. THE UPSIDE POTENTIAL IS GREAT ENOUGH THAT I'M NOT SURE YOU'D WANT TO STEP IN THERE AND SELL THE FUTURES QUITE YET. BUT CERTAINLY HAVING A PUT UNDER YOU I THINK IS A PRETTY PRUDENT BUSINESS DECISION, GIVEN THE POTENTIAL FOR SOME OF THESE OUTSIDE INFLUENCES TO WREAK HAVOC ON YOUR LIVESTOCK OPERATION. YOU KNOW, THESE GUYS THAT RAISE CATTLE AND HOGS HAVE A HECK OF A LOT OF MONEY ON THE LINE AND A LOT AT RISK, AND I THINK SOME PROTECTION ON THAT WOULD BE CERTAINLY PRUDENT.

Pearson: BETWEEN NOW AND THE END OF THE YEAR, BASED ON THIS REPORT, WHERE DO YOU THINK CATTLE PRICES ARE GOING TO HEAD?

Pfitzenmaier: WELL, CATTLE WILL STILL HAVE THIS CONTINUING PROBLEM. LIKE WE ALLUDED TO, EVERYTHING LOOKS BETTER -- THE FARTHER OUT YOU LOOK, THE BETTER THINGS LOOK. AND THAT'S GENERALLY NOT A GOOD SITUATION. IT TENDS TO PUT WEIGHT ON. YOU KNOW, YOU'VE HAD CORN DROP 50, 60 CENTS HERE, SO YOU DON'T HAVE THAT HIGH-PRICED FEED SLOWING ANYBODY UP. YOU'VE GOT DECEMBER CATTLE 3, MAYBE $4 ABOVE THE CASH MARKET, SO I GUESS I'M NOT THAT OPTIMISTIC ABOUT THAT DECEMBER CONTRACT. I THINK IF YOU NEED TO MAKE SOME SALES AND BE AGGRESSIVE ON IT, THE DECEMBER IS WHERE YOU WANT TO BE THE MOST AGGRESSIVE HERE.

Pearson: ALL RIGHT. LET'S TALK ABOUT HOGS AND WHAT'S BEEN HAPPENING THERE. THIS CASH SETTLED HOG MARKET HAS JUST BEEN ONE DEPRESSING DAY AFTER ANOTHER. WE'RE TALKING CASH PRICES IN THE MID 20S. WE'RE TALKING LEAN CARCASS BASIS IN THE MID 30S. WHAT'S AHEAD FOR SOMEBODY OUT THERE PRODUCING HOGS?

Pfitzenmaier: WELL, OBVIOUSLY, THE PRICES ARE BETTER THAN ANYBODY THOUGHT THEY WERE GOING TO BE. HAVING SAID THAT, IF YOU'RE A PRODUCER THAT HAD HOGS HEDGED AND THEY'RE GOING TO TOWN NOW AND THAT DISPARITY EXISTS BETWEEN THE CASH AND THE FUTURES, IT HASN'T WORKED VERY WELL FOR YOU. AND I THINK IT'S GENERATED A LOT OF FRUSTRATION. I THINK THERE'S A LOT OF QUESTIONING GOING ON ABOUT THAT SWITCH TO THE LEAN CONTRACT AND HOW DO WE GET THAT THING BACK FARTHER IN LINE TO WHERE THE CASH MARKET IS ACTUALLY TRADING, BECAUSE THOSE HEDGES WILL WORK GREAT ON THE LAST DAY OF THE CONTRACT, BUT THEY AREN'T WORKING THAT GREAT RIGHT NOW.

Pearson: THAT'S RIGHT. A LOT OF FRUSTRATION OUT THERE IN THE PORK WORLD.

Pfitzenmaier: ABSOLUTELY.

Pearson: ALL RIGHT. TOMM, AS USUAL, YOU'VE BROUGHT SOME GREAT INSIGHTS, AND WE REALLY APPRECIATE IT. TOMM PFITZENMAIER, THANKS SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM TOMM, BE SURE TO DIAL UP THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEB SITE. AND BE SURE TO TUNE IN AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE EFFORTS TO EXTEND WIRELESS COMMUNICATIONS TO RURAL AMERICA. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA


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