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Market Analysis: Oct 04, 2002

posted on October 4, 2002


The grain markets finished the week on the downside due to harvest pressure and bigger supplies. For the week, wheat prices were down 26-cents. Corn prices were down a penny.

Soybean futures were more than 20-cents lower. Soybean meal closed the week $8.30 lower per ton.

Cotton futures were 14-cents higher.

In livestock, fed cattle futures were 55-cents lower. Feeder cattle were down 77-cents. The lean hog contract gained $3.63.

In the financials, Comex gold gained $2.40 per ounce. The Euro gained three basis points against the dollar. The CRB index finished the week more than two-and-a-half points lower to close at 224.60.

Here now to lend us their insight on these and other trends are two of our regular market analysts, Walt Hackney and Doug Hjort. Welcome back.

Market Analysis: Oct 04, 2002

Hjort: THANK YOU, MARK.

Hackney: THANK YOU, MARK.

Pearson: ALL RIGHT, DOUG. LET'S START FIRST, THE MOST DRAMATIC MOVE THIS WEEK WAS IN THE WHEAT MARKET. LAST TIME YOU WERE ON, YOU SAID WE'D PROBABLY PUT A TOP IN, WE'D PROBABLY BACK OFF. NOW, ARE THERE BETTER TIMES AHEAD?

Hjort: WELL, I THINK THERE COULD BE, BUT WHEAT ISN'T WHEAT IN THIS DISCUSSION. THE DIFFERENT CLASSES OF WHEAT HAVE FAR DIFFERENT FUNDAMENTALS BEHIND THEM. THE HARD WHEAT -- HARD RED WINTER AND HARD RED SPRING, THEY'RE STILL HOLDING IN VERY WELL. YES, THEY WERE DOWN A FEW CENTS THIS WEEK, BUT THEY ALSO TESTED THE CONTRACT HIGHS; WHEREAS, THE CHICAGO WHEAT, THAT'S DOWN, AS YOU SAY, RATHER DRAMATICALLY THIS WEEK AND WELL OFF THE HIGHS THAT WERE PUT IN A MONTH AGO OR SO. THE SOFT RED WINTER IS IN ABUNDANT SUPPLY, AND IT ALSO HAS QUITE A BIT OF COMPETITION FROM FRENCH WHEAT. FRANCE HAD A REAL GOOD CROP THIS YEAR. ALL OF EUROPE DID, AS FAR AS THAT GOES. SO THAT CLASS OF WHEAT WILL HAVE TROUBLE TRYING TO RALLY VERY MUCH. BUT THERE'S ALMOST A DOLLAR A BUSHEL DIFFERENCE, YOU SEE, BETWEEN CHICAGO WHEAT AND MINNEAPOLIS WHEAT. NOW, THIS WEEK, AS YOU ALLUDED TO EARLIER IN THE SHOW, THE DOCK WORKER LOCKOUT ON THE WEST COAST CAUSED A LOT OF THE PANIC IN THE WHEAT MARKET. ALSO, ON FRIDAY THE CANADIANS CAME OUT WITH THEIR UPDATED WHEAT CROP REPORT, ALL GRAIN CROP REPORT, AND IT SHOWS NO CHANGE, VIRTUALLY, ON THE WHEAT PRODUCTION. AND THE TRADE WAS LOOKING FOR AS MUCH AS TWO MILLION TONS DOWN, IN OTHER WORDS, ABOUT 20 PERCENT DOWN. SO THAT MADE A LOT OF DIFFERENCE BUT, AGAIN, YOU'RE TALKING WHAT THE TRADE WAS LOOKING FOR VERSUS WHAT ACTUALLY HAPPENED. THE PRODUCTION IS DOWN DRAMATICALLY IN CANADA, SO MUCH THAT THE CANADIAN WHEAT BOARD HAS SUSPENDED EXPORT SHIPMENTS. SO I THINK THERE'S SOME MORE FOR THE WHEAT MARKET TO TRY TO RALLY AGAIN. BUT EVEN KANSAS CITY AND MINNEAPOLIS, AS WE COME UP, IF WE DON'T TAKE OUT THOSE HIGHS IN THE NEXT WEEK OR TWO, THAT WILL GIVE US A VERY STRONG SELLING SIGNAL.

Pearson: OKAY. SO SELLERS BEWARE. WHAT ABOUT ON THE CORN AND THE SOYBEANS, DOUG, AS YOU LOOK AT WHAT HAPPENED THERE THIS WEEK? AGAIN, WE'RE GETTING SOME HARVEST PRESSURE IN HERE. WE'VE SEEN SOME OF THESE PRIVATE ANALYSTS WITH THEIR ESTIMATES OUT IMPACTING THE MARKET. WHAT'S AHEAD ON CORN?

Hjort: WELL, I THINK ON THE CORN, EVERYBODY WAS LOOKING FOR THE SPARKS GROUP TO COME OUT WITH SOMETHING IN EXCESS OF NINE-BILLION-BUSHEL ESTIMATE. IT CAME JUST FRACTIONALLY BELOW 8.9, SO THAT GAVE THE SUPPORT TO THE MARKET ON FRIDAY. I THINK THIS YEAR, WITH THE VARIABLE CROP CONDITIONS WE'VE HAD ALL OVER, IT DOESN'T MAKE MUCH DIFFERENCE WHAT ONE PERSON SAYS OR WHAT ONE FARM OR ONE FIELD IS AVERAGING. WE'RE GOING TO HAVE TO WAIT FOR THE FINAL. NOW, ON OCTOBER 11, WE GET THE NEXT USDA PRODUCTION REPORT, BUT THAT WILL NOT INCLUDE VERY MANY ACTUAL HARVEST RESULTS YET. THAT WILL COME ON THE NOVEMBER REPORT AND THEN BE COMPLETED ON THE JANUARY REPORT. SO I WOULD LOOK FOR A SMALL INCREASE IN YIELD, PERHAPS, GOING BACK TO THE CROP RATINGS, THE WEEKLY CROP RATINGS. THEY IMPROVED EVER SO SLIGHTLY DURING THE MONTH OF SEPTEMBER, BUT REALLY NOT MUCH CHANGE IS WHAT WOULD BE EXPECTED. THE TRADE WAS LOOKING FOR A RATHER SIZABLE INCREASE, UP TO THREE BUSHEL PER ACRE ON THE CORN. I WOULD DOUBT THAT WOULD HAPPEN BUT, AGAIN, YOU'RE DEALING WITH WHAT THE ACTUAL COMBINE RESULTS ARE. DEMAND IS STILL FAIRLY GOOD FOR THE CORN, ALTHOUGH IT'S BEEN KIND OF COME AND GO ON THE EXPORT MARKET. BUT WE'RE NOT DOING ALL THAT BAD RIGHT NOW. WE NEED TO PICK THE PACE UP, BUT THERE'S PLENTY OF TIME TO DO THAT.

Pearson: ALL RIGHT. SO AT THIS STAGE OF THE GAME FOR PRODUCERS, WHAT DO YOU RECOMMEND?

Hjort: WELL, I'M RECOMMENDING JUST HOLDING ON TO THE CROP. IF YOU DON'T HAVE FARM STORAGE, YOU MIGHT WANT TO CONSIDER SELLING SOMETHING, BUT IN THAT CASE -- IN WHATEVER CASE, IF YOU SELL IT NOW, I'D WANT TO COME BACK WITH SOME SORT OF REOWNERSHIP PROGRAM AFTERWARD. THE WORLD WHEAT -- OR THE WORLD TOTAL GRAIN PICTURE, WE'RE NOT DOING ANY RATIONING THERE, AND THAT'S WHAT WE HAVE TO GET DONE. AND THESE PRICES WILL NOT DO THAT. SO PRICES ARE GOING TO HAVE TO GO HIGHER, UNLESS WE FIND THE CROP SIZE IS MUCH LARGER THAN WHAT IS EXPECTED NOW.

Pearson: SIMILAR SCENARIO FOR SOYBEANS?

Hjort: PRETTY MUCH THE SAME ON THE SOYBEANS. IT MIGHT TAKE A LITTLE LONGER FOR THE SOYBEANS TO GET GOING, AND THE RALLY WON'T BE AS STRONG BECAUSE OF THE ANTICIPATION OF A VERY LARGE CROP COMING IN SOUTH AMERICA ONCE AGAIN.

Pearson: ALL RIGHT. DOUG HJORT ON THE GRAINS. NOW, WALTER, OVER ON THIS LIVESTOCK FRONT. FED CATTLE MARKET, WE'VE BEEN SEEING THESE BIG WEIGHTS COMING THROUGH. NOW, WE WERE KIND OF CLEARING THINGS UP. ARE WE BACK UP AGAIN ON THESE HEAVYWEIGHT CATTLE?

Hackney: WE'VE GOT A SERIOUS PROBLEM IN BEEF VERSUS PORK, AS WE SPEAK, MARK. YOU'RE A HUNDRED PERCENT CORRECT. WE THOUGHT THREE WEEKS AGO THAT WE WERE SEEING AN END TO THESE ELEPHANT-SIZED CATTLE THAT ARE IN THESE FEEDLOTS. WE FELT WEST TEXAS, THE WESTERN REGION FEEDLOTS WERE PRIMARILY GETTING INTO A CURRENT POSITION, LEAVING THE CORN BELT, PARTICULARLY IOWA, WITH A LOT OF THESE MONSTER-SIZED CATTLE WEIGHING 1,400 TO 1,600 POUNDS, THOUSAND-POUND CARCASSES, AND SO FORTH. WELL, WHAT WE LEARNED WAS WE WERE BEING MISLED, TO A CERTAIN DEGREE, BY THE FEEDLOTS. THE FEEDLOTS IN FACT DROPPED THEIR MARKETING WEIGHTS DOWN TO 1,250-, 1,300-POUND CATTLE AND WERE GETTING ALONG PRETTY GOOD. AND WE WERE STILL GETTING CLOBBERED IN THE MIDWEST WITH THESE BIG CATTLE MORE IN THE FARMER/FEEDER HANDS. WHAT WE LEARNED WAS THE FEEDLOTS, GRANTED, WERE SELLING 1,250- TO 1,300-POUND CATTLE, BUT THE DISCOUNT ELEPHANT-SIZED CATTLE WERE STILL STANDING BEHIND THEM IN THE FEEDLOT THEY WEREN'T OFFERING, BECAUSE THE DISCOUNTS ARE SIMPLY TOO SEVERE. SO WE'VE GOT 180-DEGREE DIFFERENTIAL IN MARKET ATTITUDE BETWEEN BEEF AND PORK. AND THE PROBLEM WITH THE BEEF, AS WE SPEAK, IS TONNAGE. WE MUST GET RID OF THIS EXTRAORDINARY TONNAGE. WE KILLED -- LAST WEEK OUR AVERAGE CARCASS WEIGHT, MARK, WAS 840 POUNDS. HIGHEST BY FAR IN HISTORY. THIS WEEK IT ISN'T GOING TO MISS THAT MARK VERY MUCH. ONE REASON IT WON'T IS A LOT OF THE PACKERS, EVEN THOUGH THEY'RE DISCOUNTING 950 CARCASSES $10, $12 A HUNDRED, THOUSAND-POUND CARCASSES $25 A HUNDRED, EVEN THOUGH THEY'RE DOING THAT, THAT MARKET IS NOT THAT SEVERE AND THEY'RE MAKING A FORTUNE ON THOSE HEAVYWEIGHT CATTLE. THE CATTLE FEEDER HAS NO CHOICE. HE MUST TAKE THE BULLET. HE MUST GET RID OF THOSE BIG CATTLE BEFORE WE CAN SEE ANY KIND OF A MEASURABLE RESPONSE IN THE CASH.

Pearson: ALL RIGHT. SO WHAT ARE YOU LOOKING? WHAT'S YOUR PROJECTION, WALTER? TAKE US OUT TOWARDS THE END OF THE YEAR.

Hackney: SIX MONTHS, FIVE MONTHS AGO I WOULD HAVE BEEN SUBSCRIBING TO A $68 TO $72 CASH MARKET IN THE FOURTH QUARTER. TODAY, BECAUSE OF THESE REASONINGS OF EXTREME TONNAGE, I SUGGEST THAT WE WILL BE EXTREMELY LUCKY TO GET ABOVE $65 OR $66 CATTLE AS WE GO THROUGH NOVEMBER. NOW, BY THEN WE WOULD HOPE THAT WE'VE CLEANED UP THE BIG CATTLE, SO DECEMBER SHOULD START SHOWING SOME MEASURABLE RESPONSE ON THE CASH. MAYBE WE'LL GET UP TO $68, $69 CATTLE. I STILL DOUBT THAT WE'LL HIT $70 OR BETTER.

Pearson: ALL RIGHT. YOU MENTIONED -- 180 DEGREES OVER IN THE PORK. LET'S TALK ABOUT THIS HOG MARKET. NOW, WE'VE PULL THE FALL LOW IN. THERE WAS A FEELING BEFORE THIS DOCK SITUATION HIT THAT WE PUT THE LOW IN ON THESE HOGS.

Hackney: WELL, AUGUST CAME AROUND MUCH PREMATURE TO ANYONE'S PREDICTION ABOUT THE EXTRAORDINARY AMOUNT OF HOGS THAT WE WOULD HAVE IN OUR KILLS GOING INTO THE FOURTH QUARTER. WE THOUGHT THE TWO-MILLION-HEAD KILLS IN EXCESS OF TWO MILLION PER WEEK WOULD OCCUR FROM OCTOBER THROUGH DECEMBER. WHAT HAPPENED WAS THEY STARTED COMING SIX TO EIGHT WEEKS EARLY AND PROBABLY EXTRAORDINARY PERFORMANCE AND SO FORTH IN THE FEEDING PENS. BUT IN AUGUST WE IN THE INDUSTRY CREATED A PANIC. PRODUCERS FELT THAT CASH MARKET WAS GOING TO GO TO 15 OR LESS CENTS A POUND. THEY STARTED LIQUIDATING SOWS. THEY HAD BRED GILTS, BREEDING HERDS LITERALLY COMING TO TOWN ALONG WITH THE BUTCHER HOGS, WHICH MADE A TWO-MILLION-HEAD KILL AT THAT TIME. AS A RESULT OF ALL THAT, IT DOES APPEAR THERE WAS AN EXTREME OVERREACTION ON THE DOWNSIDE. AND WE'VE RECOVERED, IN SEPTEMBER, MORE THAN $15 A HUNDREDWEIGHT. WE MAY HAVE USED UP A PART OF THE BIG GLUT THAT WAS INTENDED FOR THE FOURTH QUARTER. SO OUR PREDICTION IS WE'LL HAVE THE TWO-MILLION-HEAD KILLS INTO MID NOVEMBER. BUT WE DON'T KNOW THAT THE CASH IS GOING TO TAKE THE TUMBLE THAT EVERYONE PREDICTED BACK IN, SAY, JUNE OR JULY.

Pearson: THAT ECHO EFFECT IS WHERE THE CONCERN IS. WALTER, WE APPRECIATE IT. DOUG, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET."


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