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Market Analysis: Oct 18, 2002

posted on October 18, 2002


Markets were stronger on Friday. Wheat gained nearly 37 cents on the week due to expected export demand. Slow demand and harvest pressure kept corn in check. Futures prices finished the week 3 and a half cents lower. But, the nearby bean contract closed the week six and a half higher while the January contract closed 4 and a half higher. October meal gained three-dollars 60 a ton. Cotton futures closed 4 cents higher.

In livestock, fed cattle futures gained a dollar –20. Feeders also gained a dollar-20. October hogs lost 1.58 on the week.

In the financials, COMEX gold lost $9.40 per ounce. The EURO fell 65 basis points against the dollar. And the CRB index gained nearly a five points and a half to close at 228.70

Here now to lend us her insight on these and other market trends is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Oct 18, 2002

Martin: THANK YOU, MARK.

Pearson: LET'S TALK ABOUT THE EXCITEMENT WE HAD IN THE WHEAT MARKET IN CHICAGO. THEY REALLY TOOK THE LEAD THIS WEEK.

Martin: WELL, IT CERTAINLY DID. OF COURSE, IT WAS ONLY HEELS OF NEWS THAT EGYPT HAD BOUGHT 420,000 METRIC TONS OF -- WELL, IT WAS 300,000 METRIC TONS OF SOFT WHITE WHEAT AND 120,000 METRIC TONS OF SOFT RED. SO IT WAS A VERY NICE SURPRISE. TRADERS HAD NOT EXPECTED THAT, AND THEY ALSO PAID MORE FOR IT. OUR PRICES ARE BEING MAYBE ABOUT $30 A METRIC TON HIGHER THAN THE WORLD PRICE. SO IT WAS KIND OF A SURPRISE TO THE TRADE, AND IT WAS JUST WHAT THE MARKET NEEDED BECAUSE IT WAS EXTREMELY OVERSOLD. AND PRICE AND TIME ON TECHNICALS WAS SQUARING. IT WAS RIGHT THAT THE MARKET SHOULD TURN HIGHER. SO THE WEAK SISTER OF THE MINNEAPOLIS AND THE KANSAS CITY WHEAT TURNED HIGHER, AND THAT BROUGHT THE K.C. AND THE MINNEAPOLIS OUT OF THEIR PENNANT FORMATION. SO I THINK WE'VE GOT THE MARKET TRYING TO HEAD HIGHER, AND I THINK YOU'LL TAKE CHICAGO WHEAT ON THE DECEMBER FUTURES BACK TO THE 440 HIGHS AND TEST THAT. WE MAY EVEN SEE NEW HIGHS.

Pearson: ALL RIGHT. SO THE BULL MARKET CONTINUES, AS FAR AS YOU'RE CONCERNED, IN THIS WHEAT MARKET.

Martin: WELL, I THINK SO. I THINK THAT WE HAVE A MARKET THAT'S TRYING TO LEAD, AND IT WILL BE LED BY WHEAT AT FIRST. THEN I THINK THE FOCUS WILL SHIFT OVER TO BEANS, AND THE BEAN MARKET WILL THEN TAKE LEADERSHIP AS TIME GOES ON. IT'S ACTUALLY THE BEAN MARKET THAT I THINK IS GOING TO BE THE NEXT BULL MARKET FOR THE NEXT YEAR. LAST YEAR WAS OATS. THIS YEAR WAS WHEAT. NEXT YEAR I THINK IT'S SOYBEANS. SO WHEAT WILL HAVE ITS DAY AND LIMELIGHT FOR A LITTLE BIT LONGER, AND THEN I THINK THE SOYBEANS ARE GOING TO PICK UP THE PACE.

Pearson: WHAT'S GOING TO DRIVE SOYBEAN MARKET UP?

Martin: WELL, YOU KNOW, WE HAVE AN ATTITUDE OR A THEORY THIS YEAR THAT WE CALL IT THE DOMINO EFFECT. WE HAVE TO HAVE CERTAIN THINGS THAT HAVE TO HAPPEN. SO YOU HAVE TO SET THESE DOMINOES UP BEFORE YOU CAN FLIP THEM OVER OR MAKE THEM FALL TO SEND THIS MARKET RUNNING HIGHER. AND THE FIRST ONE IS, OF COURSE, WEATHER IN SOUTH AMERICA BECAUSE, YOU KNOW, SOUTH AMERICA IS GOING TO BE OUTPRODUCING THE U.S. FOR THE FIRST TIME IN HISTORY. BUT WE'RE PRICING IN A 48-MILLION-METRIC-TON CROP, AND THAT'S PART OF HANGING THESE PRICES DOWN HERE. BUT I THINK WE HAVE A CHANCE WITH THE HOT, DRY WEATHER, TEMPS IN THE MID 90S TO LOW 100S EVERY DAY IN THE CENTRAL TO NORTHERN PARTS OF BRAZIL, AND THEN WAY TOO MUCH RAIN IN ARGENTINA AND SOUTHERN BRAZIL. THE WEATHER CONDITIONS JUST AREN'T REAL GREAT. OF COURSE, SOME OF THOSE CONDITIONS ARE IDEAL FOR RUST, WHICH WE'VE ALREADY HEARD TALK ABOUT. THAT COULD EXPAND A LITTLE MORE THIS YEAR. WE EXPECT IT TO. BUT WE THINK THAT THEY HAVE TO EXPECT THE BIGGEST CROP FIRST, AND THEN WE'RE GOING TO SHOW THAT WE WHITTLE IT DOWN.

Pearson: ALL RIGHT. THE BRAZILIAN SITUATION IS AN INTERESTING ONE. LIKE YOU SAY, THEY'RE OUTPRODUCING THE UNITED STATES FOR THE FIRST TIME IF EVERYTHING FALLS INTO PLACE. IF IT DOESN'T FALL INTO PLACE, YOU'RE THINKING WE COULD HAVE AN EXPLOSIVE SITUATION IN TERMS OF BEAN PRICES.

Martin: ABSOLUTELY. I THINK, FIRST OF ALL, THAT THE DEMAND FOR THE U.S. IS GOING TO CONTINUE TO GROW AS WE GO INTO THE FIRST QUARTER OF NEXT YEAR. YOU'VE GOT AUSTRALIA WITH THEIR CANOLA CROP OR RAPE SEED CROP HAVING PROBLEMS, AND JAPAN IS THEIR LARGEST IMPORTER FROM AUSTRALIA. SO, YOU KNOW, THE U.S. LOOKS TO BE THE ALTERNATIVE FOR THE ECONOMICAL COMMODITY SOYBEAN OIL. AND THAT WILL BE BETWEEN NOW AND THE FIRST OF MARCH, AS THE U.S. IS THE ONLY GAME LEFT IN TOWN TO GO TO. WE'VE GOT MEXICO CONSTANTLY COMING AT US AND BUYING. EUROPE IS ALSO COMING TO US AND BUYING. SO I THINK WE HAVE A MARKET THAT IS GOING TO STICK WITH US FOR DEMAND. I THINK THAT WE DIDN'T -- YOU KNOW, WE HAD A VERY TIGHT SUPPLY COMING INTO THIS YEAR, AND THAT CROP SOLD OUT EARLY. THERE'S NOTHING REALLY BEHIND US GOING INTO THE NEW CROP. FOR THIS NEXT YEAR WE'LL HAVE LESS ACRES. AND THEN YOU'VE GOT SOUTH AMERICA, NOT ONLY WITH THE POTENTIAL OF BAD WEATHER DOWN THERE TO CUT THEIR YIELDS BUT I THINK WE'VE GOT, MAYBE EVEN MORE IMPORTANT, AN ECONOMICAL PROBLEM THAT COUNTRY IS FACING AND WE'LL PROBABLY JUST CONTINUE TO GROW AS THE YEAR WORKS ON.

Pearson: ALL RIGHT. THE CORN MARKET, HOW IS THAT GOING TO PLAY INTO ALL OF THIS?

Martin: WELL, CORN IS GOING TO BE THE FOLLOWER. I THINK THAT -- I'M NOT THE MAJOR BULL IN CORN AS I AM IN BEANS AND WHEAT, YOU KNOW, FOR NOW. BUT CORN CERTAINLY ISN'T GOING TO PLAY DEAD. IT WILL FOLLOW ALONG. THE ONE THING THAT WE ARE CONCERNED ABOUT IS THAT, OF COURSE, THE YIELDS, PLEASANT FOR THE FARMER, IT SOUNDS LIKE YIELDS AS A CROP FOR CORN IS COMING ALONG BETTER THAN THEY REALLY ARE IN BEANS. SO THAT'S A PLEASANT SURPRISE FOR THE FARMER WITH THE HIGHER PRICES. BUT I THINK YOU COULD BRING CORN BACK, AND WE COULD MAYBE POSSIBLY SEE DEC. CORN COME BACK UP. THE FIRST TEST IS 267. ONCE WE GET THROUGH THE 262 AREA, THERE'S A LITTLE RESISTANCE THERE. AND THE MARKET IS TESTING IT THIS PAST WEEK, BUT I LOOK FOR IT TO GO THROUGH. 267 IS THE FIRST TARGET ON DEC. CORN. THEN 280, -85. AND EVENTUALLY WE MIGHT POSSIBLY, IN DECEMBER, MAKE NEW HIGHS. AND IF WE DO, IT WILL BE IN THE MONTH OF DECEMBER THAT WE DO IT.

Pearson: LET'S TALK ABOUT STRATEGIES. TO TAKE ADVANTAGE OF THIS SOYBEAN PHENOMENON, WHAT WOULD YOU RECOMMEND A PRODUCER DO?

Martin: LOCK YOUR BEANS UP. DON'T SELL THEM. I THINK YOU TAKE THE LOAN AND YOU LOCK THOSE BEANS UP AND YOU DON'T SELL THEM A BEAN. LET THEM BID FOR THEM. THEY'RE ALREADY -- BASIS IS IMPROVING IN BEANS AND IN CORN ALREADY. THEY FEAR THAT AS THESE BEANS ARE HARVESTED -- AND WE THINK THAT 85 PERCENT OF THE CROP IS PROBABLY OUT -- THEY'RE GOING TO START TO HAVE TO TRY TO BID THIS PRICE UP TO PULL THE BEANS FROM THE FARMER'S HANDS. I'M NOT SURE I'D EVEN ENTERTAIN TAKING THE LDP IF YOU HAVE A CHANCE FOR ONE. I THINK YOU'RE BETTER OFF WITH THE LOAN AND JUST LOCK THEM UP AND PUT THEM AWAY. IT MAY TAKE US ALL THE WAY INTO JULY TO GET EVERYTHING WE WANT, BUT YOU'RE LOOKING AT A MARKET THAT COULD SEE 7.80 EASILY, TO $8 ON THE BEANS. POSSIBLY IF THE RIGHT DOMINOES FALL, IF WE GET THEM ALL GOING LIKE WHEAT HAD THIS YEAR, YOU COULD SEND BEANS UP TO $10.

Martin: SUE, LET'S TALK ABOUT LIVESTOCK HERE FOR A MINUTE. THIS IS NOT GOOD NEWS FOR LIVESTOCK PRODUCERS. IT'S BEEN A LITTLE BIT ENCOURAGING THIS WEEK AS FAR AS CASH CATTLE. WE SAW A DOLLAR IMPROVEMENT. BUT THIS CATTLE MARKET GOING FORWARD, WHAT'S YOUR OUTLOOK?

Martin: WELL, I THINK THAT THE CATTLE MARKET -- FIRST OF ALL, THE ONLY TWO THINGS IT'S GOT GOING AGAINST IT IS, FIRST OF ALL, THE LARGE SUPPLIES THAT WE HAVE IN THE FREEZER. AND THEN THE OTHER THING IS THAT YOU'VE GOT HEAVY WEIGHTS YET. WE'RE RUNNING ABOUT 15 POUNDS OVER A YEAR AGO IN CARCASS. SO THAT'S THE TWO THINGS THAT ARE AGAINST US. BUT I THINK THE BASIS LEVELS ARE GOING TO START TO FIRM AND TIGHTEN UP A LITTLE BIT. I LOOK FOR AFTER THIS WEEK HERE, WE HAD A VERY BULLISH CATTLE-ON-FEED REPORT THIS WEEK. PLACEMENTS DOWN COMPARED TO -- TRADE WAS LOOKING FOR 111 PERCENT. WE CAME IN AROUND 94 PERCENT, 93. SO I THINK THAT'S VERY POSITIVE FOR THE FEB., APRIL, AND JUNE CATTLE. BUT THE MARKETINGS NUMBER AT 102, TRADE WAS LOOKING FOR 101. MAYBE THAT'S NOT BULLISH ENOUGH, BUT I THINK THAT WE'VE HAD A LITTLE BIT OF A SETBACK IN HERE. I THINK CATTLE PRICES WILL TRY TO GO HIGHER. WE MAY HAVE SOMEWHAT OF A SOFT TONE BETWEEN NOW AND THE FIRST OF NOVEMBER. THEN I LOOK FOR PRICES TO START TO MOVE UP INTO THANKSGIVING.

Pearson: ALL RIGHT. NOW, LET'S TALK ABOUT THE HOGS TOO. YOU WERE RIGHT ON WHEN YOU SAID WE'D BOTTOM THESE HOGS EARLY. THAT SEEMS TO HAVE BEEN WHAT'S HAPPENED, UNLESS THERE'S ANOTHER SURPRISE WAITING FOR US.

Martin: WELL, SOME THINK THERE IS. I DON'T THINK SO. I THINK THAT THE DECEMBER HOG FUTURES, WE'VE HAD A RECENT LITTLE PULLBACK FROM THE 43.10 AREA BASIS DECEMBER, AND WE'RE NOW INTO ABOUT THE 41.10 TO 48 AREA AS WE CLOSE THE WEEK OUT. THAT'S A GOOD SUPPORT AREA SO MAYBE WE CAN HOLD THE HOGS TOGETHER HERE. A DIP SHOULD BE FOR BUYING OPPORTUNITY. I THINK THAT AT A MINIMUM, DECEMBER HOG FUTURES SHOULD GO TO 43.87 AND WE MIGHT POSSIBLY GET THEM UP TO AROUND 45 CENTS. I'M NOT NEGATIVE HOGS. I STILL LOOK FOR A HIGHER HIGH AGAIN IN THE MONTH OF NOVEMBER. THE ONE THING THAT WE'VE SEEN IS THAT THE BELLY STOCKS IN THIS COLD STORAGE REPORT DID SHOW THAT SLICER DEMAND HAS BEEN EXCELLENT FOR BACON, SO THAT'S THE GOOD SIDE. THE DOWN SIDE IS THAT WE HAVE A TON OF HAMS THAT WE'RE GOING TO HAVE TO DO SOMETHING WITH. EITHER WE DISCOUNT THE PRICE TO MOVE THEM WITHIN THE U.S. OR WE BETTER HOPE FOR SOME DEMAND TO STEP UP. AND THIS USUALLY ISN'T THE TIME OF YEAR YOU GET GOOD DEMAND FOR HAMS.

Pearson: THIS IS TRUE. NOW, THE FIRST QUARTER OF NEXT YEAR, YOUR OUTLOOK FOR HOGS. WE'VE GOT ABOUT FIFTEEN SECONDS.

Martin: WELL, I THINK WE'RE GOING TO STILL MOVE HIGHER INTO THE MONTH OF FEBRUARY OVERALL, AND THEN WE'LL SEE. FROM THERE IT COULD BE A SOFT MARKET INTO JUNE. WE'LL JUST HAVE TO TAKE A LOOK AT THAT. BUT I LIKE THE HOG MARKET BETWEEN NOW AND DECEMBER, AND THEN WE'LL WANT TO SEE WHAT WE DO WITH IT. BUT I THINK YOU'LL MAYBE TAKE ON A LITTLE BIT OF A SOFTER TONE AS YOU GO TOWARDS JUNE.

Pearson: VERY GOOD. SUE MARTIN, THANK YOU SO MUCH. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." BUT IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM SUE, CLICK ONTO THE "MARKET PLUS" SEGMENT ON OUR WEB PAGE. UNTIL NEXT WEEKEND, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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