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Market Analysis: Oct 25, 2002

posted on October 25, 2002


The grain markets finished the week on the downside as harvest sales continue. For the week, wheat prices were down more than two cents. Corn prices were four to six cents lower. Soybean futures were eight to seventeen cents higher. Soybean meal was down eighty cents per ton. Cotton futures were down more than two dollars.

In livestock, fed cattle futures were $1.10 higher. Feeder cattle gained 95-cents. The lean hog contract gained 52-cents.

In the financials, COMEX gold gained 70-cents per ounce. The euro gained 53-cents against the dollar. The CRB index finished the week two-tenths of a point lower to close at 228.50.

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: Oct 25, 2002 TOMM, WELCOME BACK.

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, WE'RE CERTAINLY PAST THE TEETH OF HARVEST AS FAR AS THE CORN IS CONCERNED. AND YET THE WHEAT MARKET, THE HARVEST THERE HAS BEEN OVER FOR SOME TIME. WE'VE BEEN WHIPSAWED UP AND DOWN THIS WEEK. LET'S START FIRST WITH WHEAT. WHAT'S AHEAD?

Pfitzenmaier: WELL, I GUESS YOU HAVE TO TALK A LITTLE BIT ABOUT WHAT'S BEEN BEHIND, AND THAT'S THAT BIG EGYPT PURCHASE IS THE THING THAT'S GOT THAT MARKET REALLY EXCITED AND NERVOUS AND EVERYTHING ELSE. AND THEN YOU'VE GOT THE AUSTRALIAN WHEAT CROP BEEN CUT BACK, FEARFUL THAT THERE MIGHT BE ADDITIONAL CUTS ON THAT. ON THE OTHER SIDE OF THE COIN, WE HAD WINTER WHEAT PLANTING WENT FAIRLY WELL, ACREAGE IS PROBABLY UP. IT GOT EMERGED AND UP AND GOING PRETTY WELL, SO THAT SORT OF COUNTERS THINGS ON THE TOPSIDE. SO I THINK THE MARKET IS GOING TO SIT HERE AND CHOP AROUND, PROBABLY BE VOLATILE FOR THE ENTIRE WINTER, AND CHOP AROUND IN A WIDE TRADING RANGE AS WE SORT OF DECIDE HOW DEMAND SHAPES UP. I THINK THE PERCEPTION OR FEELING IN THE TRADE IS THAT EGYPTIAN TRADE WAS PROBABLY THE LAST WE'RE GOING TO SEE FOR A LITTLE WHILE, SO IT'S GOING TO BE HARD TO FIND ANY BIG NUMBERS TO JOLT US LIKE THAT HAS. BUT YOU GET, YOU KNOW, UP IN THAT 325 RANGE -- EXCUSE ME, 425 RANGE, AND IT'S PROBABLY GOING TO RUN OUT OF GAS. YOU GET DOWN IN THE 380 RANGE, AND IT'S PROBABLY GOING TO FIND SOME PRETTY GOOD SUPPORT AND PROBABLY A LOT OF VOLATILITY WITHIN THOSE RANGES.

Pearson: THERE WAS SOME DISAPPOINTMENT FROM CORN GROWERS WHEN WE SAW THAT WHEAT MARKET START TO RALLY ON THURSDAY, AND THEN CORN REALLY DIDN'T DO MUCH. IT HASN'T DONE MUCH ALL WEEK. WHAT'S AHEAD ON CORN? OBVIOUSLY, I MEAN, HARVEST, WE'RE STARTING TO MOVE A LOT OF CROP NOW.

Pfitzenmaier: WELL, CORN GOT CAUGHT UP IN THAT ENTHUSIASM THE FIRST WEEK AFTER THAT EGYPTIAN WHEAT SALE AND PROBABLY GOT OVERDONE A LITTLE BIT AND IS NOW GOING BACK TO WHERE WE PROBABLY SHOULD HAVE BEEN BEFORE THAT HAPPENED, WHERE WE'RE LANGUISHING AROUND HERE. EXPORT SALES WERE NOT THAT GREAT THIS WEEK. WE STILL -- I MEAN, YOU'RE RIGHT. WE'RE PROBABLY OVER HALFWAY DONE BUT STILL WE'RE PROBABLY ONLY 60- TO 65-PERCENT HARVESTED. SO, YOU KNOW, THAT LAST BIT OF HARVEST IS WHEN THE BINS GET FULL AND THAT CORN GOES TO TOWN. SO YOU'VE GOT KIND OF AN INTERESTING THING GOING ON HERE WHERE YOU'VE GOT TIGHT FARMER HOLDING, YOU'VE GOT VERY STRONG BASIS, VERY STRONG CASH MARKET, AND YET WE PROBABLY HAVE ADEQUATE SUPPLIES TO MAKE IT THROUGH. WE'VE GOT PROSPECTS OF A HUGE ACREAGE NEXT YEAR. EXPORT SALES ARE NOT ALL THAT GREAT, CATTLE NUMBERS ARE DOWN, HOG NUMBERS ARE DOWN, CHICK SETS DOWN. SO WE'LL PROBABLY SIT HERE. YOU'VE GOT A SUPPORT IN THE MID 240S ON DECEMBER CORN. PROBABLY IF YOU NEED TO BUY CORN, WANT TO BUY CORN, WANT TO REPLACE CORN YOU SOLD, YOU'RE A LIVESTOCK PRODUCER, WHATEVER, THAT'S THE PLACE TO BUY CORN IS IN THE MID 240s. YOU GET A 15-, 20-, 25-CENT RALLY AT THE MOST OFF THAT, I THINK YOU RUN OUT OF YOUR ENTHUSIASM FOR BEING LONG CORN. SAY THANK YOU VERY MUCH AND GET RID OF IT. SO THE BASIS IS STRONG. THAT IS ALWAYS A STRONG SIGNAL TO MAKE SALES. THE BULL SPREADS ARE WORKING AGAIN, ANOTHER REASON NOT TO STORE. BUT MAYBE IF YOU WANT TO MAKE SOME SALES, MOVE THAT OUT, AND REPLACE IT WITH SOME FUTURES, THIS IS PROBABLY A GOOD SITUATION TO DO THAT.

Pearson: AND YOU PROBABLY DO THAT WITH SOME KIND OF AN OPTION STRATEGY?

Pfitzenmaier: YEAH. OR I THINK THERE'S STRONG ENOUGH SUPPORT THAT YOU COULD EVEN STEP IN AND BUY THE FUTURES AND NOT HAVE HUGE AMOUNTS OF RISK ON THE DOWNSIDE.

Pearson: BUT MOVE THE CASH PRODUCT NOW WHILE THAT BASIS IS STRONG?

Pfitzenmaier: YEAH, ABSOLUTELY. I MEAN, THAT'S -- EVERYBODY -- NOBODY WANTS TO DO THAT BECAUSE THEY DON'T WANT TO TAKE INCOME THIS YEAR OR WHATEVER, BUT THEIR STRATEGY IS DEFER AND GET THAT INCOME DEFERRED TO NEXT YEAR, BUT IT'S A STRONG BASIS. THE MARKET IS TELLING YOU WE WANT IT NOW AND WE DON'T CARE, NECESSARILY, FARTHER ON DOWN THE ROAD.

Pearson: WHAT ABOUT ON THE SOYBEANS?

Pfitzenmaier: SOYBEANS ARE A LITTLE BIT DIFFERENT IN THAT YOU'VE GOT THAT SOUTHERN CROP PRODUCTION. WE'VE GOT VERY TIGHT CARRYOUT. YOU SAID EARLIER ON THE SHOW WE HAD A GREAT EXPORT SALES NUMBER THIS WEEK. BRAZIL IS DRY IN THE NORTH, WET IN THE SOUTH. GRANTED THEY'RE ONLY 2 TO 5 PERCENT PLANTED, BUT WE'RE RIGHT INTO THAT PLANTING PERIOD AND EVERYBODY IS GOING TO BE WATCHING THAT PRETTY CLOSE. I THINK THAT'S PROBABLY THE MAIN REASON WE'RE STRONGER IN THE BEANS THIS WEEK, BECAUSE OF CONCERN ABOUT THEIR PLANTING CONDITION. SO, YOU KNOW, HARVEST IS WRAPPED UP. THE BEANS ARE GOING TO GET LOCKED AWAY HERE. IT'S PROBABLY WORTH STORING TO SEE -- AT LEAST STORING INTO JANUARY TO SEE HOW THEIR CROP GETS PLANTED AND HOW IT GETS UP AND GOING.

Pearson: ALL RIGHT. SO AGAIN, YOU'D HOLD ON TO THE PRODUCT HERE?

Pfitzenmaier: I MEAN AGAIN, THE BASIS IS TIGHT THERE. THERE'S NO CARRYING CHARGE IN THE MARKET. SO IF YOU NEED CASH, YOU CAN CERTAINLY MOVE THAT PRODUCT ON A GOOD BASIS LEVEL, GO BACK AND BUY THE FUTURES, AND RETAIN OWNERSHIP IF YOU NEED THE INCOME. I CERTAINLY WOULDN'T PAY COMMERCIAL STORAGE TO STORE THE CROP. BUT, YOU KNOW, THERE'S A LOT DEALS THERE WERE AT 30, 60, WHATEVER DAYS FREE STORAGE, SO TAKE ADVANTAGE OF THOSE. TAKE ADVANTAGE OF YOUR HOME STORAGE. BUT, YOU KNOW, BE MINDFUL THAT THE UPSIDE POTENTIAL PROBABLY ISN'T HUGE IF THERE'S A GOOD SOUTH AMERICAN CROP. IF THEY STUB THEIR TOE OR SOMETHING GOES WRONG THERE, THEN WHO KNOWS WHERE WE'RE GOING TO GO.

Pearson: REAL QUICK, COTTON FUTURES; WE'VE SEEN A NICE RALLY THERE.

Pfitzenmaier: YOU KNOW, COTTON HAS BEEN IN A DOWNTREND HERE FOR SEVERAL WEEKS, MONTHS. IT BROKE THAT DOWNTREND PRETTY DECISIVELY THIS WEEK ON THE UPSIDE. IT'S HARD TO BELIEVE THAT COTTON CAN GO MUCH ABOVE 50, BUT IT CERTAINLY COULD WORK UP THERE. AND YOU'D HAVE TO THINK IF YOU'RE TRADING THE MARKET TECHNICALLY, THIS IS A GOOD PLACE TO BUY IT.

Pearson: ALL RIGHT. NOW LET'S TALK LIVESTOCK. THE FED CATTLE MARKET... YOU KIND OF MENTIONED WHAT THE LONG-TERM TREND HAS BEEN THERE, AS FAR AS FED CATTLE ARE CONCERNED. IT'S STARTING TO LOOK A LITTLE BIT BETTER. A LOT OF CONCERN ABOUT WEIGHTS, SO TAKE US THROUGH THE END OF THE YEAR.

Pfitzenmaier: WELL, YOU'VE GOT AN INTERESTING SITUATION. THE REALITY IS CATTLE HAVE BEEN IN AN UPTREND SINCE MAY. THEY'VE BEEN IN A REALLY NICE UPTREND. EVERYBODY IS CONCERNED ABOUT CAN THEY TAKE OUT 72.50 ON THE DECEMBER CONTRACT, AND WE DID THAT FRIDAY. SO TECHNICALLY THIS MARKET IS IN AN UPTREND. IT JUST BROKE THROUGH SOME RESISTANCE AREAS. BUT AS YOU ALLUDE TO, THAT'S THE ONE CONCERN IS YOU GET CATTLEMEN OPTIMISTIC, THEY'RE LOOKING AHEAD. THE FUTURES ARE $6 PREMIUM TO THE CASH, WHICH BOTHERS YOU A LOT. EVERYBODY IS KIND OF OPTIMISTIC AND THAT'S THE TIME PEOPLE TEND TO START PUTTING ON WEIGHT, BECAUSE THEY FIGURE, YOU KNOW, THE CASH MARKET IS LOW, THE FUTURES ARE HIGH, IT'S PROBABLY GOING TO GET BETTER, I WON'T SELL THEM NOW, I'LL WAIT, I'LL PUT A LITTLE WEIGHT ON THEM. THEN ALL OF A SUDDEN YOU'VE GOT TOO MUCH TONNAGE AROUND. SO IT DOES LOOK OPTIMISTIC. JUST LOOKING AT THE FUTURES AND THE WAY THAT MARKET IS REACTING, YOU'D HAVE TO GO HOME FEELING PRETTY POSITIVE AND FEEL PRETTY POSITIVE GOING IN ON MONDAY MORNING. THAT $6 DISPARITY BETWEEN THE FUTURES AND THE CASH IS A REASON TO BE A LITTLE NERVOUS, THOUGH.

Pearson: WHAT'S YOUR STRATEGY, THEN, IN GETTING CATTLE SOLD?

Pfitzenmaier: IT'S A GREAT TIME TO HEDGE. IF YOU SELL CATTLE AT $6 OVER THE CASH MARKET, SOME CORRECTION IS GOING TO HAVE TO TAKE PLACE SOMEPLACE. EITHER THAT CASH IS GOING TO HAVE TO COME UP OR YOUR FUTURES ARE GOING TO DROP. OBVIOUSLY, EVERYBODY IS GOING TO BE CAUTIOUS ABOUT DOING THAT SIMPLY BECAUSE OF THE TECHNICAL SITUATION, WHICH CAN EVAPORATE PRETTY QUICKLY. AS YOU KNOW, I'M A BIG BELIEVER IN USING OPTIONS IN CATTLE AND IN HOGS, SO I GUESS THAT'S THE APPROACH I'D GO WITH, PROBABLY A $70 OR A $72 PUT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THESE HOGS. AGAIN, THERE WAS A BIG CONCERN ABOUT WHAT THIS FALL WAS GOING TO LOOK LIKE FOR HOGS. MAYBE WE PUT THAT BOTTOM IN EARLY?

Pfitzenmaier: THAT'S A MARKET THAT LOOKS REALLY PRETTY GOOD, AND THE HOG AND PIG REPORT WAS FAIRLY FRIENDLY. I THINK PEOPLE ARE LOOKING AT THAT, LOOKING AT ACTUALLY WHAT'S HAPPENING TO MAKE SURE THAT THE NUMBERS THAT COME THROUGH KIND OF MATCH UP WITH WHAT THE REPORT SAID THEY WERE SUPPOSED TO, AND THEY HAVE. THOSE DECEMBER HOGS ARE GOING TO HAVE A TOUGH TIME ABOVE 42 TO 42.50. THEY HIT THAT THIS WEEK AND IT IMMEDIATELY FELL BACK DOWN TO THE LOW 40S, AND I THINK YOU'RE GOING TO SEE THAT. YOU'RE GOING TO SEE ATTEMPTS AT RALLIES AND THEN FALLING BACK. I THINK THE NEGATIVITY EVERYBODY ANTICIPATED PROBABLY ISN'T GOING TO HAPPEN, BUT WE'RE IN A TRADING RANGE AND NOT GOING TO CHANGE TOO MUCH PROBABLY.

Pearson: TOMM, WE APPRECIATE YOUR COMMENTS VERY MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." I'M MARK PEARSON. HAVE A GREAT WEEK.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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