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Market Analysis: Nov 01, 2002

posted on November 1, 2002


Markets were feeling the pressure of harvests, but generally holding up well. December wheat gained three cents from last week's close, while corn finished nearly three cents lower.

The nearby soybean contract recovered some of last week's losses and gained 17-and-a-half cents. Soybean meal gained just 60 cents per ton. Cotton futures closed fractionally higher.

In livestock, the nearby cattle futures contract gained four-and-a-half dollars. November feeders finished 50 cents higher. December lean hogs closed $2.57 higher.

In the financials, COMEX gold gained $6.20 an ounce. The Euro climbed more than two basis points against the dollar. And the CRB index finished the week virtually unchanged at 228.50.

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

Market Analysis: Nov 01, 2002

Robinson: THANKS, MARK. NICE TO BE HERE.

Pearson: WELL, LET'S TALK FIRST. WE'VE BEEN TALKING ABOUT THE WHEAT MARKET, WHICH HAS SEEN SOME VOLATILITY IN THE LAST FEW WEEKS. AT THIS STAGE OF THE GAME, CHICAGO WHEAT IN PARTICULAR HAS BEEN EXCITING WITH THE EGYPTIAN SALE ANNOUNCED A FEW WEEKS AGO AND THE DISAPPOINTMENT WHEN ANOTHER ORDERER CAME IN THAT THEY DIDN'T GET. WHAT'S YOUR TAKE ON WHEAT?

Robinson: WELL, WORD THIS WEEK, MARK, IS THE BRAZILIANS MAY AGAIN SOON RESUME U.S. IMPORTS, WHICH I THINK WAS A SUPPORTIVE FACTOR AND, AS YOU MENTIONED, VARIOUS SUBCLASSES. HERE IN THE UNITED STATES, INVENTORIES ARE UNUSUALLY TIGHT. DOMESTIC MILLER INTEREST REMAINS PRETTY STRONG FOR SELECT- AND QUALITY-TYPE WHEAT, AND THAT HAS SERVED TO UNDERPIN VALUES AS WELL, MARK. SO WE SHOULD PROBABLY DIFFERENTIATE OLD CROP VALUE FROM NEW, AS OLD CROP VALUES ARE ABOUT A DOLLAR A BUSHEL ABOVE NEW CROP VALUES, MARK. MY OPINION HERE, AGAIN, THERE ARE SUPPLIES OF WHEAT GLOBALLY. NOT AUSTRALIA THIS YEAR. THEY HAVE REALLY STRUGGLED, MARK, AND THEIR CROP IS UNUSUALLY SMALL. BUT OTHER ORIGINS HAVE WHEAT FOR SALE AT VALUES LESS THAN U.S. SO OLD CROP VALUES I THINK ARE REALLY STRUGGLING HERE AND LABORING WITH THIS $4-PLUS AREA. IF I WERE AN OLD CROP OWNER OF WHEAT -- IF I OWNED OLD CROP WHEAT, I'D BE INCLINED TO SELL IT HERE AND SHIFT MY RISK INTO SOMETHING A LITTLE MORE MANAGEABLE LIKE SOME TYPE OF OPTION STRATEGY, MARK. AND THAT'S PRECISELY WHAT I HAVE SUGGESTED. NEW CROP WHEAT, I THINK WE'VE GOT THE OPPORTUNITY BECAUSE OF DRYNESS OR CONCERNS ABOUT DRYNESS THROUGH PARTS OF THE PLAINS AND NORTHERN PLAINS, WHERE WE GOT AN OPPORTUNITY TO SEE SOMETHING NEAR OR ABOVE 350, AND I'LL WAIT PATIENTLY FOR THAT OPPORTUNITY.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS CORN MARKET. AGAIN, A LITTLE SOFTER THIS WEEK ON THE BOARD. BUT AGAIN, THERE'S -- WE STILL HAVE A LOT OF CORN YET TO HARVEST.

Robinson: THAT LAST 25 OR 30 PERCENT OF THE CROP IS OFTENTIMES WHAT FINDS ITS WAY INTO THE PIPE, MARK, AND I BEGAN TO SEE SOME OF THAT LATE THIS WEEK, PARTICULARLY IN THE STATE OF IOWA WHERE I SAW FOR THE FIRST TIME SOME BASIS WEAKNESS DEVELOP HERE LATE IN THE WEEK. NOW, I HAVEN'T SEEN THAT ACROSS ALL REGIONS OF THE CORN BELT. BUT AS YOU MENTIONED, THIS LAST PORTION OF THE HARVEST I THINK IS PRESSURING THE BASIS IN SELECT AREAS AS WELL AS FUTURES. AND HAVING SAID THAT, I THINK FUTURES ARE KIND OF POSITIONED NOW TO PULL BACK DOWN TOWARDS ABOUT THIS 240 MARK IN BOTH THE DECEMBER AS WELL AS THE MARCH FUTURES CONTRACT.

Pearson: ALL RIGHT. VIRGIL, LOOK OUT TO NEXT YEAR. AGAIN, WE COULD LOOK AT SUBSTANTIAL CORN PLANTINGS. ARE THERE MARKETING OPPORTUNITIES OR SHOULD WE BE THINKING ABOUT 2003 RIGHT NOW?

Robinson: I THINK WE NEED TO THINK ABOUT IT PRETTY SERIOUSLY, MARK. AND AGAIN, I'M RELUCTANT TO SUGGEST OUR BEST OPPORTUNITY HAS PASSED US BY, BUT CERTAINLY AS WE WALLOW AROUND HERE NEAR 240 AND THE MARKET BEGINS NOW TO THINK ABOUT A BIGGER CROP IN THE U.S. THAN WHAT WE HAD THOUGHT AS RECENTLY AS A COUPLE OR THREE SHORT WEEKS AGO, I SEE THIS WEEK THE INTERNATIONAL GRAIN COUNCIL INCREASING THEIR FORECAST OF GLOBAL FEED GRAIN PRODUCTION ANOTHER TEN MILLION METRIC TONS. THAT'S PRESSURING NOT ONLY OLD VALUES BUT NEW AS WELL. SO THAT MAGICAL MARK, 250 OR THEREABOUTS, I THINK SPRINGS TO MIND. AND GIVEN THAT OPPORTUNITY, FROM WHAT WE KNOW TONIGHT, MARK, I WOULD BEGIN SOME TYPE OF DEFENSIVE STRATEGY IN THAT NEW CROP CORN OPTION CONTRACT.

Pearson: VIRGIL, THE VOLATILITY HAS ALSO BEEN OVER THE SOYBEAN PIT. AND AGAIN, SOYBEANS SEEMS TO BE OPERATING IN A WORLD OF THEIR OWN. WE OBVIOUSLY -- THE SITUATION IN BRAZIL NOW, THERE'S MOISTURE. WE'RE GOING TO BE WATCHING THAT ONE CLOSER THAN WE EVER HAVE. WHAT'S YOUR ADVICE TO SOYBEAN FARMERS OUT THERE WHO MAYBE FILLED THEIR ON-FARM STORAGE, MAYBE ALSO LOOKING AT WHAT TO DO WITH THIS CROP?

Robinson: WELL, I UNDERSTAND THEIR OPTIMISM, MARK. SHOULD THERE BE ANY KIND OF SERIOUS CROP SHORTFALL IN THE SOUTHERN HEMISPHERE, THEN CLEARLY SUPPLIES ARE TIGHT AND PRICES WOULD SPIKE HIGHER. HAVING SAID THAT, HOWEVER, THERE ARE SOME CONCERNS I THINK WE SHOULD ADDRESS. THE FIRST IS U.S. PROCESSING MARGINS, THE ABILITY TO PROCURE BEANS AND BREAK THEM INTO MEAL AND OIL AS WE VISIT TONIGHT, MARK, IS ABOUT HALF OF WHAT IT WAS A YEAR AGO, AT IF NOT IN INSTANCES BELOW BREAK-EVEN LEVELS. IT'S VERY DIFFICULT FOR THE DOMESTIC PROCESSOR HERE TO BE AGGRESSIVE IN SOURCING BEANS WHEN THERE'S NO PROFITABILITY IN THE COMBINED SALE OF PRODUCTS. THAT'S CONCERNING TO ME. I THINK WHAT I WOULD DO TO MANAGE THIS SITUATION, PROSPECT OF HIGHER PRICES, SHOULD THERE BE CROP SHORTFALL IN SOUTH AMERICA, KIND OF A STAGGERING DOMESTIC INDUSTRY WHERE CAPACITIES ARE GEARING DOWN, MARK, BECAUSE THERE'S NO PROFITABILITY. I'VE USED THIS MANY TIMES BEFORE, BUT SOME TYPE OF SIMPLE OPTION STRATEGY GIVES YOU THE OPPORTUNITY FOR SOME TYPE OF INSURANCE PREMIUM TO PARTICIPATE IN A SIGNIFICANTLY HIGHER MARKET, SHOULD IT DEVELOP AND PROTECT YOURSELF, SHOULD WE PEAK -- TOP OUT HERE AND BEGIN TO DESCEND. AS MENTIONED EARLIER, LAST WEEK SOME GOOD NEWS. MARKETING YEAR HIGH SALES IN BOTH BEANS AND IN MEAL. THAT'S ENCOURAGING NEWS, MARK. AND WITH THAT, MARKETS CLOSED 6 OR 7 CENTS HIGHER THIS WEEK. THAT'S NOT PARTICULARLY IMPRESSIVE, IN MY OPINION. SO AS THE OLD CROP CONTRACT APPROACHES THAT $6 MARK, I WOULD BE QUICK TO PUT TOGETHER SOME TYPE OF DEFENSIVE MECHANISM.

Pearson: ALL RIGHT. VIRGIL, WE ALSO WANT TO TALK ABOUT THIS COTTON MARKET. NOT MUCH ACTIVITY THIS WEEK ON THE DECEMBER CONTRACT, BUT CERTAINLY THERE'S SOME POTENTIAL THERE. WHAT DO YOU SEE AHEAD FOR COTTON?

Robinson: WELL, SUPPLY WISE, PROJECTIONS ARE A YEAR-OVER-YEAR DECREASE IN U.S. STOCKS OF ABOUT A MILLION BALES. THE SAME COULD BE SAID GLOBALLY OF ABOUT EIGHT OR NINE MILLION BALES, MARK. SO SUPPLIES HAVE CLEARLY DIMINISHED. DEMAND REMAINS RATHER LETHARGIC, ALTHOUGH I DID NOTE JUST THIS WEEK, SOME INTERIOR BASIS IMPROVEMENT IN MARKETS THE LIKES OF MEMPHIS, WHICH WOULD INDICATE SOME ADDITIONAL DEMAND OR NEW DEMAND, MARK. SO I THINK DECEMBER FUTURES ARE IN POSITION NOW TO APPROACH THAT $48 TO $49 AREA. AND AS MENTIONED A FEW SHOWS BACK, THOSE WHO ARE TECHNICIANS, IT WOULD BE MY BEST OPINION, SHOULD WE GET A MONTHLY SETTLEMENT OF, FOR EXAMPLE, THE DECEMBER COTTON FUTURES ABOVE 49 CENTS, I THINK IT SETS THE STAGE FOR ANOTHER $5 TO $10 RUN IN FUTURES.

Pearson: OKAY. SPEAKING OF FUTURES, THE LIVESTOCK MARKET THIS WEEK, CATTLE FUTURES MADE QUITE A JUMP. THE LAST TIME YOU WERE ON, YOU SAID I THINK WE CAN SEE THIS CATTLE MARKET -- YOU THOUGHT IT LOOKED PRETTY SOLID. YOU THOUGHT WE'D SEE A JUMP HERE. IS THIS ABOUT IT?

Robinson: WELL, FUTURES HAVE BEEN IMPRESSIVE, MARK. CASH MARKETS HAVE BEEN KIND OF TUGGED ALONG SO, AGAIN, AS HAS BEEN DISCUSSED HERE IN PREVIOUS SHOWS, THERE'S A PRETTY SIGNIFICANT SPREAD BETWEEN FUTURES AND CASH. NOW, HAVING SAID THAT, I THINK THERE'S AN OPPORTUNITY HERE WE COULD ADDRESS AND ILLUSTRATE THAT'S PROBABLY WORTH OUR TIME, AND THAT IS FEBRUARY LIVE CATTLE FUTURES AROUND $76. IF WE USE A BASIS BASED ON IOWA STATE DATA, FOR SOUTHERN MINNESOTA, IOWA VALUES, OF A DOLLAR FOR FIRST-HALF JANUARY DELIVERY, MARK, WE'RE TALKING ABOUT LOCKING IN A $75 CATTLE PRICE. SECOND HALF JANUARY, A BUCK AND A HALF BASIS FIRST HALF FEB., A BUCK AND A HALF BASIS $74.50, WHICH WOULD BE AS MEASURED TONIGHT ABOUT $6 TO $7 ABOVE PREVAILING CASH. I THINK IT'S AN ATTRACTIVE HEDGING OPPORTUNITY, MARK.

Pearson: ALL RIGHT. WHAT ABOUT ON THE HOG FRONT, VIRGIL? THIS CASH MARKET HAS BEEN SICK. WE SAW THE CASH MARKET IMPROVE A LITTLE BIT THURSDAY AND FRIDAY. FUTURES IMPROVED A LITTLE BIT. HAVE WE PUT THE SECOND BOTTOM IN, DO YOU THINK?

Robinson: MARK, ESTIMATED SLAUGHTER THIS WEEK, THE LARGEST OF THE YEAR, 2 MILLION 150 THOUSAND, WHICH WOULD SUGGEST NO SHORTAGE OF SUPPLIES, CERTAINLY. WITHIN THAT MIX, A PRETTY SIGNIFICANT SHARE OF GILT SLAUGHTER, WHICH WOULD INDICATE PRODUCERS ARE STILL LIQUIDATING BREEDING STOCK. AND PERHAPS THAT'S ADDING TO THIS INCREASE IN SLAUGHTER. AND IF THAT'S THE CASE, MARK, WE MAY HAVE CREATED HERE A NEAR-TERM PROBLEM SUPPLY WISE, BUT WITH BETTER PROSPECTS DOWN THE ROAD. SO HAVING SAID THAT AGAIN, FEBRUARY LIVE HOG FUTURES AROUND 50 CENTS OR BETTER, CONVERT THAT TO A LIVE WEIGHT OF ABOUT $37. SOUTHERN MINNESOTA, STATE OF IOWA, YOU HAVE SOME OPPORTUNITIES HERE. FIRST HALF JANUARY BASIS OF $5. THAT'S $32 LIVE. SECOND HALF JANUARY BASIS OF ABOUT $3 IS $34. FIRST HALF FEB. OF A $2 BASIS, YOU'RE TALKING $35. I THINK, MARK, THAT'S PROBABLY GOING TO CAP OR BE PRETTY CLOSE TO THE HIGHS THAT WE SEE THE ENTIRE FIRST QUARTER, MAYBE AT ALL OF THE FIRST QUARTER. I THINK IT'S AN ATTRACTIVE HEDGING OPPORTUNITY FOR THOSE INDIVIDUALS.

Pearson: ALL RIGHT, VIRGIL. WE HAVE BEEN TEN SECONDS LEFT. JUST REAL QUICK, MIDSUMMER HOGS NEXT YEAR, ANY OPPORTUNITIES THERE?

Robinson: HEDGING WISE, MARK? YEAH. APRIL FUTURES AT $57 TO $59, I THINK, OFFERS AN OPPORTUNITY TO LOCK IN ABOUT $36.

Pearson: VIRGIL, VERY GOOD. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." IF YOU'D LIKE TO HEAR ADDITIONAL ANALYSIS FROM VIRGIL, 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 SEE HOW RURAL COMMUNITIES ARE AVAILING THEMSELVES OF THE LATEST DIGITAL TECHNOLOGY. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA.

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