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Market Analysis: Nov 08, 2002

posted on November 8, 2002


The grain and oilseed markets were feeling the pressure of harvests. December wheat lost 31 cents on the week. The December corn contract closed 11 and ¾ cents lower. March corn closed down 10 and ¾ cents.

The nearby soybean contract held up to the harvest pressure, but still lost five cent son the week. January beans closed 10 and a quarter cents lower. Soybean meal lost five dollars, 15 a ton. Cotton futures closed a dollar 48 higher higher.

In livestock, the nearby cattle futures contract lost 40 cents a hundred weight on the week. November feeders finished a dollar-23 higher. December lean hogs closed $2.73 higher.

In the financials, COMEX gold gained $2.50 an ounce. The Euro climbed more 165 basis points on news of the the U.S. interest rate cut that weakens the dollar. And the CRB index finished the week 84 basis points higher at 227.66.

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

Market Analysis: Nov 08, 2002 LET'S START FIRST WITH THIS WHEAT MARKET. WE DID SOFTEN UP SOME IN CHICAGO.

Hjort: WE SURE DID AND HALF OF THE LOSSES CAME ON FRIDAY. WHO KNOWS WHY; PROBABLY A LOT OF DIFFERENT REASONS. BUT ONE OF THEM WAS PROBABLY THAT THE BOARD OF TRADE INCREASED THE MARGIN REQUIREMENTS FOR AT LEAST THE DECEMBER CONTRACT, MAYBE ALL OF THEM ON THE WHEAT, I DON'T KNOW. BUT IT CAUGHT THE MARKET AT A VULNERABLE TIME AND SELLING STARTED -- SELL STOPS WERE HIT AND JUST NO RECOVERY ALL DAY LONG. AS A MATTER OF FACT, CLOSING NEAR THE LOWS OR ON THE LOWS OF THE DAY. NOTHING MUCH HAS CHANGED ON THE FUNDAMENTALS EXCEPT THAT NEXT TUESDAY'S REPORT, USDA IS GOING TO REVISE UPWARD THE WHEAT STOCKS IN CHINA. PART OF THAT IS DUE TO JUST FINDING OUT THAT THEY PROBABLY HAD MORE GRAIN AROUND ALL THE TIME THAT THEY HAVEN'T ACCOUNTED FOR, BUT THERE'S ANOTHER PART THAT SAYS MAYBE THEIR CONSUMPTION HAS NOT BEEN AS GREAT AS USDA HAD BEEN -- AND OTHERS HAVE BEEN PROJECTING. SO THERE'S GOING TO BE AN INCREASE IN WORLD WHEAT STOCKS. PROBABLY NOT ALL OF THE INCREASE IN CHINA WILL STAND, BECAUSE YOU'VE GOT COUNTRIES, MAYBE CANADA AND AUSTRALIA, FOR EXAMPLE, MIGHT SEE SOME REDUCTION. BUT THE TOTAL WORLD WHEAT STOCKS WILL INCREASE. WELL, THAT'S BEEN TALKED ABOUT FOR A WHILE, SO IT DIDN'T TAKE MUCH TO SPOOK THE MARKET ON FRIDAY. I STILL THINK THERE'S RECOVERY. IF YOU LOOK AT WEEKLY CONTINUATION CHARTS, WE'VE BASICALLY GONE SIDEWAYS IN A BIG, WIDE TRADING RANGE IN CHICAGO. NOW, THE KANSAS CITY MARKET LOOKS -- THE CHART PATTERN LOOKS WORSE. I'M A LITTLE NERVOUS ABOUT THAT, CERTAINLY AS TO WHETHER WE CAN COME BACK TO CONTRACT HIGHS. WE'RE A LONG WAYS AWAY FROM THEM NOW. SO WE WAIT FOR THE REPORT ON TUESDAY TO SEE WHAT STOCK ESTIMATES ARE AND WHAT WORLD NUMBERS ARE AND SEE HOW THE TRADE ABSORBS ALL OF THAT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS CORN NUMBER. THERE HAVE BEEN A LOT OF OF PRIVATE FORECASTS THAT HAVE LOOKED LIKE THE CORN PRODUCTION FOR 2002 LOOKS LIKE IT'S UP. MOST OF THE PRIVATE ANALYSTS HAVE PUT A NINE NOW IN FRONT OF THAT BILLION BUSHEL NUMBER FOR CORN. TUESDAY IS GOING TO BE HERE PRETTY QUICK, DOUG. TAKE US AHEAD. WHAT DO YOU SEE IN THIS CORN MARKET?

Hjort: NOT ONLY A PRODUCTION INCREASE BUT THERE'S A POSSIBILITY THAT USDA COULD LOWER THEIR EXPORT PROJECTION FOR THE YEAR, CURRENTLY A TWO-BILLION BUSHEL, AND WE'RE OFF TO A VERY SLOW START ON THE EXPORTS. NOW, IN THE LAST TWO WEEKLY EXPORT REPORTS, WE'VE HAD VERY GOOD NUMBERS. BUT WE'D HAVE TO MAINTAIN THOSE FOR TWO OR THREE MONTHS AT THAT LEVEL TO GET CAUGHT UP WITH THE PACE THAT USDA HAS PROJECTED. AND ON TOP OF THAT, LOOKING ON OUT INTO THE NEW YEAR, WE'VE BEEN SETTING LESS BROILER EGGS AND WE'VE GOT -- WE'RE GOING TO HAVE FEWER HOGS IN THE MARKET OVER THE NEXT YEAR AND FEWER CATTLE. SO THE FEED -- USDA HAS ALREADY PULLED THAT DOWN, THE FEED USE ESTIMATE DOWN FOR THE YEAR, BUT IT MIGHT COME DOWN A LITTLE BIT MORE. STILL, THOUGH, WHEN YOU LOOK AT THE TOTAL WORLD GRAIN PICTURE, EVEN TAKE THAT INCREASE IN STOCK IN WHEAT FROM CHINA, WE'RE STILL GOING TO BE AT AN EXTREMELY TIGHT SUPPLY/DEMAND RELATIONSHIP. NOW, THE QUESTION IS WHETHER YOU CAN COME BACK TO CONTRACT HIGHS. I DON'T CARE IF YOU'RE TALKING ABOUT WHEAT, CORN, OR SOYBEANS. SOYBEANS JUST TESTED THOSE HIGHS THIS PAST WEEK. BUT ON THE CORN AND THE WHEAT, IT'S REALLY IMPORTANT TO TRY TO WATCH THIS MARKET CAREFULLY AFTER THE NUMBERS COME OUT TUESDAY TO SEE WHAT SORT OF RECOVERY POWER WE REALLY DO HAVE. WE'RE AT A POINT HERE WHERE EVEN THOUGH THE FUNDAMENTALS ARE VERY BULLISH, THE TECHNICAL IS DRIVING THIS MARKET RIGHT NOW. IF WE CAN'T DRIVE -- CAN'T CHANGE THAT AND GET ANOTHER RALLY STARTED FAIRLY QUICKLY, IT'S GOING TO BE A DIFFICULT PERIOD HERE ON INTO DECEMBER.

Pearson: ALL RIGHT. LET'S MOVE OVER TO THE SOYBEAN MARKET. OF COURSE, WE'VE GOT TWO WEATHER MARKETS ANYMORE WITH THE SOYBEANS. WE HAVE OUR OWN AND THEN SOUTH AMERICA'S. AND THERE'S BEEN SOME CONCERN ABOUT SOUTH AMERICA. SOME OF THAT HAS BEEN ALLEVIATED. YOU TALKED ABOUT RETESTING THE HIGHS IN THE BEANS. WHAT'S YOUR TAKE -- WHAT'S YOUR STRATEGY ON GETTING BEANS SOLD THIS YEAR, DOUG?

Hjort: WELL, I DON'T WANT TO SELL THEM JUST YET, BUT TUESDAY, AGAIN, IS GOING TO BE A VERY IMPORTANT NUMBER ON THE SOYBEANS. USDA WILL MOST LIKELY INCREASE AUSTRALIA'S -- EXCUSE ME, ARGENTINA'S SOYBEAN PRODUCTION. I DON'T THINK THEY'LL INCREASE BRAZIL'S, BECAUSE THEY'VE ALREADY GOT A VERY, VERY HIGH NUMBER OUT THERE. AND AS YOU SAY, WITH THE WEATHER CONCERNS THAT THEY HAVE HAD, YOU MIGHT AS WELL LEAVE IT ALONE FOR NOW. ON THE U.S., THE DEMAND IS JUST ABSOLUTELY OUTSTANDING. EXPORT SALES ON THURSDAY'S REPORT WAS DOWN A LITTLE BIT, BUT IT WAS DOWN FROM TWO BACK-TO-BACK RECORD-BREAKING WEEKS. SO OUR DEMAND FOR SOYBEANS HERE IN THE UNITED STATES IS TREMENDOUS. IT'S A POSSIBILITY THAT USDA SHOULD RAISE THEIR EXPORT PROJECTION FROM THE UNITED STATES. SO EVEN THOUGH EVERYBODY IN THE TRADE IS LOOKING FOR AN INCREASE IN PRODUCTION, YOU MIGHT SEE USDA OFFSET THAT, OR A GOOD SHARE OF IT, WITH A SMALL INCREASE IN EXPORTS AS WELL. SO DEMAND BEING VERY, VERY STRONG. I DON'T THINK WE'VE SEEN THE TOP OF THIS SOYBEAN MARKET YET. OBVIOUSLY, TUESDAY COULD CONFIRM THAT OR NEGATE IT, ONE OR THE OTHER. BUT I DO THINK WE CAN SEE SOYBEAN PRICES MOVE ON HIGHER. AGAIN, THOUGH, LIKE THE CORN AND THE WHEAT, WE'RE AT SOME VERY SERIOUS DECISION-MAKING TIMES HERE ON MARKETING OF THE 2000 CROP.

Pearson: ALL RIGHT. BUT YOU'RE SAYING HOLD ONTO BEANS FOR THE TIME BEING?

Hjort: RIGHT.

Pearson: ALL RIGHT. THE COTTON MARKET HAD A NICE RECOVERY HERE. NOW, WHAT'S AHEAD?

Hjort: WELL, IN THE COTTON MARKET, WE'RE STILL DEALING WITH PLENTIFUL SUPPLIES HERE IN THE UNITED STATES, ALTHOUGH THE WEATHER DOWN SOUTH HAS REALLY BEEN PRETTY TOUGH. THERE'S A LOT OF DAMAGE DONE DOWN THERE, BUT IT'S MOSTLY IN THE LESSER PRODUCING AREAS OF THE DEEP SOUTH. SO I THINK THE COTTON MARKET, OBVIOUSLY AGAIN, DEPENDING ON WHERE THE NUMBERS COME ON TUESDAY, BUT DEMAND FOR COTTON IS PRETTY GOOD. IT'S JUST THAT WE'RE PRODUCING A LITTLE TOO MUCH OF IT, SO THAT'S BEEN WHAT'S KEEPING PRICES ON THE NEGATIVE SIDE.

Pearson: LIVESTOCK. THIS FED-CATTLE MARKET -- DOUG, YOU'VE BEEN FAIRLY FRIENDLY. WE'VE SEEN A LITTLE RECOVERY HERE, AND REALLY THE CATTLE MARKET HAS PERFORMED OKAY, ESPECIALLY WHEN YOU LOOK AT THE WEIGHTS AND EVERYTHING ELSE THAT WE'VE BEEN DEALING WITH. AS WE CLOSE OUT THE YEAR, WHAT'S YOUR TAKE ON FED CATTLE?

Hjort: ONE OF THE THINGS WE SAW THIS WEEK -- WE GET PRODUCTION NUMBERS EACH WEEK, EACH FRIDAY, AND THEN TWO WEEKS LATER ON A THURSDAY THEY'LL GIVE A REVISION OF THOSE NUMBERS. ON THURSDAY'S REPORT THIS WEEK, WE SAW THE CARCASS WEIGHT DROP 8 POUNDS. NOW, IT'S STILL AT 772 POUNDS. THAT'S 11 POUNDS OVER A YEAR AGO, WHICH WAS A PREVIOUS RECORD HIGH FOR THAT WEEK. THAT TELLS US THAT BACK ABOUT TWO OR THREE WEEKS AGO WHEN WE WERE REALLY CONCERNED ABOUT THESE HEAVY CATTLE, THEY WERE COMING TO MARKET. WE HAD SEVERE DISCOUNTS ON THERE. IF YOU REMEMBER THE LAST TIME I WAS ON WITH WALT HACKNEY, HE TALKED ABOUT THAT SEVERE DISCOUNT. WE FINALLY MADE SOME BREAKTHROUGH THERE, AND WE'RE MOVING THOSE HEAVY CATTLE TO MARKET. THAT'S A VERY GOOD POSITIVE. THE NEGATIVE SIDE IS THE BEEF DEMAND OVER THE NEXT SIX WEEKS. AS WE GO ON THROUGH THE HOLIDAY SEASON NOW, RED MEAT DEMAND IS KIND OF A "HERE THIS WEEK, GONE NEXT WEEK" TYPE OF THING. BEEF PRICES AND CATTLE PRICES SHOULD STAY FAIRLY STRONG AND MOVER HIGHER IN JANUARY, FEBRUARY, AND MARCH, MAYBE SIGNIFICANTLY UP FROM WHERE WE'RE AT. BUT OVER THE NEXT SIX WEEKS, I WOULD LOOK FOR A PRETTY CHOPPY MARKET GOING MORE SIDEWAYS.

Pearson: DOUG, YOU WERE TALKING ABOUT MAYBE SOME ATTRACTIVE OPPORTUNITIES TO GET SOME HEDGES ON NEXT SPRING. WE'RE HEADING INTO THOSE AREAS.

Hjort: WE CERTAINLY ARE. AND THERE AGAIN, WATCHING THOSE DISTANT FUTURES, THE SPRING FUTURES, THEY'RE UP THERE AT VERY NICE LEVELS NOW. AND YET ONE USDA REPORT SAYS THAT WE COULD SEE PRICES UP SIGNIFICANTLY FROM THAT FUTURES PRICE. SO LET'S HOLD OFF JUST A LITTLE BIT ON PUTTING THOSE HEDGES ON.

Pearson: REAL QUICK, DOUG, YOUR OUTLOOK FOR HOGS?

Hjort: THE HOG PRICES GOING SIDEWAYS, UP AND DOWN JUST A LITTLE BIT. PORK DEMAND WILL FACE THE SAME PROBLEMS BEEF WILL OVER THE HOLIDAY PERIOD. SO DON'T EXPECT ANY BIG RALLIES IN THE CASH HOGS. THE HOG FUTURES THIS WEEK, PUSHING UP TO NEW CONTRACT HIGHS IN SOME OF THE BACK MONTHS. THAT'S VERY EXCITING AND, YET, I DON'T THINK IT'S TIME TO HEDGE THOSE EITHER. YOU CAN ONLY LOCK IN ABOUT A $40 HOG RIGHT NOW, AND I DON'T THINK THAT'S GOOD ENOUGH FOR NEXT, WELL, LET'S SAY FEBRUARY, MARCH, APRIL, AND MAY.

Pearson: ALL RIGHT. SO WE'RE GOING TO SEE SOME BETTER PRICES AHEAD THERE. DOUG, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM DOUG, BE SURE AND DIAL UP THE "MARKET PLUS" PAGE ON OUR "MARKET TO MARKET" WEBSITE. AND BE SURE TO TUNE IN AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE SUCCESS OF A DIRECT FARM-TO-CONSUMER VENTURE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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