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Market Analysis: Sep 27, 2002

posted on September 27, 2002


After a week of choppy trading, the price of the Chicago December wheat contract closed 2 and ¼ cents higher. December corn finished 2 cents lower. March corn 3 and ¼ lowers. November beans closed 3 and ¼ cents lower, January beans 4 and a1/4 lower. October meal finished down nearly five dollars a ton. December cotton closed 18 cents lower.

In livestock, October fed cattle futures lost $2.33 cents for the week. The nearby, now October feeder contract finished 73 cents lower. October hogs closed down $2.

In the financials, COMEX gold lost $2.50 an ounce. The EURO closed fractionally higher. And the CRB index lost 8-tenths of a point to close at 227.25.

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: Sep 27, 2002

Robinson: THANK YOU, MARK. NICE TO BE HERE.

Pearson: A CHOPPY WEEK INDEED. THE WHEAT MARKET HAS LED THE CHARGE ON A COUPLE OF DAYS. SAW HAD SOME DRAMATIC MOVES IN WHEAT. IT LOOKS JUST -- IT LOOKS, TO AN OUTSIDER, AS THOUGH IT'S TOPPY.

Robinson: MARK, DESPITE THE FACT THAT U.S. WHEAT PRICES ARE AT A FIVE-YEAR HIGH, LAST WEEK WE HAD THE BEST WEEK OF EXPORT SALES OF THE SEASON AND TO MANY OF OUR REGULAR CUSTOMERS, WHICH I THINK DOCUMENTS THE FACT, MARK, THAT COVERAGE AND/OR AVAILABILITY IS PRETTY SKINNY, AT LEAST AS MEASURED BY THE MAJOR EXPORTERS OF THE WORLD. IN THAT CONTEXT, MARK, MONDAY WILL END THE MONTH OF SEPTEMBER, AND IT'S CONCEIVABLE, SHOULD THE SPOT WHEAT FUTURES CONTRACT, WHICH IS THE DECEMBER -- I'M TALKING ABOUT CHICAGO NOW -- CLOSE ABOVE $4, IT WOULD BE THE BEST MONTHLY CLOSE DATING BACK TO 1997, SEVERAL MONTHS WORTH OF PRICE BEHAVIOR BELOW IT. CLEARLY THE TREND OF THIS MARKET IS UP, AND I THINK FUTURES ARE HEADED HIGHER OVER THE COURSE OF THE NEXT SEVERAL WEEKS. THE NEXT TARGET IS AROUND 460 BASIS THE SPOT FUTURES CONTRACT, WHICH COULD BE THE DECEMBER, IT COULD BE THE MARCH, IT COULD BE THE MAY. SO AT THIS POINT IN TIME, WE'RE SUPPORTING HIGHER FUTURES LEVELS WITH SOLID BUSINESS AND THE PROSPECT I THINK OF STRONGER MARKETS.

Pearson: NOT IN A BIG HURRY TO SELL, THEN, VIRG.

Robinson: MARK, I SOLD WHEAT EARLIER ON IN THE SEASON AND MADE THE EFFORT TO REPURCHASE WITH EITHER FUTURES OR OPTIONS. I MISSED THAT OPPORTUNITY, MARK. SO AT THIS POINT, I AM YET TRYING TO REPURCHASE WHEAT THAT'S BEEN SOLD. I WILL BECOME MUCH MORE AGGRESSIVE SHOULD, AS MENTIONED, WE CLOSE THE MONTH ABOVE $4 IN THIS SPOT FUTURES CONTRACT. ANYTHING AROUND 390 OR THEREABOUTS I THINK WOULD REPRESENT A GOOD REPURCHASE OPPORTUNITY.

Pearson: LET'S TALK ABOUT THE CORN MARKET. A FALLOFF, CERTAINLY, FROM OUR PREHARVEST HIGHS. IS THIS JUST SOME HARVEST PRESSURE HAPPENING IN THE CORN MARKET?

Robinson: WELL, I SAW THIS WEEK THE INTERNATIONAL GRAIN COUNCIL AGAIN LOWERED THEIR WORLD ESTIMATE OR WORLD COARSE GRAINS ANOTHER 7 MILLION METRIC TONS, MARK. IT COMES AT A TIME, IRONICALLY, WHERE A LOT OF PRIVATE FORECASTERS HERE IN THE CONFINES OF THE U.S. ARE SUGGESTING THAT OUR YIELDS WILL IN FACT AND OUR PRODUCTION IN FACT BE LARGER THAN WHAT WAS SUGGESTED LAST MONTH BY THE USDA. I THINK ONE THING FOR CERTAIN, I SAW THIS AFTERNOON'S CFTC COMMITMENT OF TRADERS REPORT WHICH INDICATES THE NET POSITION OF THE SPECULATIVE COMMUNITY AS WELL AS THE COMMERCIAL COMMUNITY. AND CLEARLY, THE SPECULATIVE ELEMENT OF THIS MARKET HAS LIQUIDATED A VERY LARGE NET LONG POSITION TO A SUBSTANTIALLY SMALLER LEVEL. I THINK THAT ACCOUNTS FOR A LOT OF THE DECLINE IN FUTURES, MARK. THE WORK THAT I KEEP, SUPPORTED BY, IN MY ARGUMENT, SOME PRETTY SOUND FUNDAMENTALS, WOULD SUGGEST THAT THE NEARBY FUTURES CONTRACT, WHICH IS THE DECEMBER, IN AND AROUND THIS 255, MARK, IS NOT OVERPRICED BUT IN FACT, IN MY OPINION, UNDERPRICED, MARK. SO I'M NOT INTERESTED IN MAKING ANY SALES BASED ON THAT KIND OF A FUTURES PRICE, BUT RATHER WILL WAIT PATIENTLY FOR A BETTER OPPORTUNITY.

Pearson: ALL RIGHT. WHAT ABOUT ON THE SOYBEANS?

Robinson: A COUPLE THINGS. YOU MENTIONED EARLIER EXPORT SALES TO THIS POINT IN THE SEASON EARLY ON ARE RUNNING AT A PACE AROUND 9 PERCENT ABOVE LAST YEAR, AND THAT'S GOOD NEWS, MARK. PROCESSING MARGINS HERE IN THE UNITED STATES ARE WEAK, WEAKER THAN THEY WERE A YEAR AGO. AND THAT'S PROBABLY HAVING SOME EFFECT ON THE DEMAND FROM DOMESTIC PROCESSORS. BUT HAVING SAID ALL OF THAT, THE FACT OF THE MATTER IS IN BOTH THE CASH AND THE FUTURES MARKET, THERE IS VERY LITTLE CARRY, MARK, FROM NEARBY PRICE TO DEFERRED, WHICH TRADITIONALLY SUGGESTS THAT DEMAND IS STRONG FOR IMMEDIATE DELIVERY AND IMMEDIATE SALE. AND I THINK TO SOME EXTENT, PRODUCERS ARE COGNIZANT OF THAT AND ARE MOVING SOME OF LAST YEAR'S 2001 CROP THAT HAD BEEN PLACED UNDER LOAN AND NOW MATURING IN COMBINATION WITH SOME OF THE NEW CROP OFF THE COMBINE. SO I THINK IT'S KEEPING THE PIPE RELATIVELY WELL SUPPLIED. BUT AS THE HARVEST PROGRESSES, MARK AND I THINK THAT AMOUNT OF GRAIN THAT IS SOLD TO GENERATE CASH IS CONCLUDED, IT'S GOING TO BE DIFFICULT TO SOURCE THAT PRODUCT. AND WITH THAT WILL COME AN IMPROVEMENT IN THE BASIS AND I BELIEVE THE FLAT PRICE AS WELL. SO BETWEEN NOW AND LET'S SAY THE MIDDLE OF MARCH 2003, I AM STILL OF THE OPINION AND WOULD ARGUE, I THINK WITH RELATIVELY GOOD INFORMATION, THAT ONE OF THE FUTURES CONTRACTS WILL TRADE ABOVE THE $6.40 MARK. THAT IS STILL MY TARGET AS WE VISIT TONIGHT.

Pearson: SO AT THIS STAGE OF THE GAME, HOW WOULD YOU MARKET FOR THAT? WHAT'S YOUR STRATEGY?

Robinson: WELL AGAIN, GIVEN THE FACT THERE IS NO CARRY AND NO INCENTIVE TO CARRY, MOVING GRAIN OFF THE COMBINE TO ACCOMMODATE THAT DEMAND I THINK IS FINE. BUT I WOULD CERTAINLY BE ANXIOUS AND IN POSITION TO REPURCHASE THAT INVENTORY, MARK, WITH EITHER A FUTURES CONTRACT OR SOME TYPE OF OPTION STRATEGY. SO AGAIN, MUCH MAY DEPEND ON SPACE. THERE IS A LITTLE CARRY IN THE FUTURES MARKET IN CORN AND OFFERING AN OPPORTUNITY TO IMPROVE RETURN, ASIDE FROM WHAT'S AVAILABLE TODAY. SO, YOU KNOW, IN CONTRAST TO WHAT MANY ARE SAYING, IT'S PROBABLY AN OPPORTUNITY TO MOVE THROUGH BEAN INVENTORY AND LOOK FOR REPURCHASE, STORE SHORT-HEDGED CORN, AND GATHER SOME OF THAT BASIS APPRECIATION POST THE HARVEST.

Pearson: ALL RIGHT. WHAT ABOUT ON THE COTTON, VIRGIL?

Robinson: MARK, I SAW THIS WEEK A WELL-RESPECTED FIRM OUT OF LIVERPOOL SUGGESTING THAT GLOBAL COTTON PRODUCTION -- RAW COTTON PRODUCTION WILL DECLINE A COUPLE MILLION METRIC TONS FROM WHAT WE FORECAST OR THEY FORECAST AS RECENTLY AS A COUPLE OF WEEKS AGO. WEATHER CONCERNS FOR THE LATE DEVELOPING CROP IN CENTRAL ASIA, TURKEY, GREECE, SPAIN, AND HERE IN THE UNITED STATES, IS PROMPTING THAT DECLINE IN PRODUCTION. THEY ARE SIMULTANEOUSLY SUGGESTING AN INCREASE IN DISAPPEARANCE. I THINK THAT LAYS THE GROUNDWORK FOR A STRONGER COTTON FUTURES MARKET AND CASH MARKET OVER THE COURSE OF THE NEXT SEVERAL MONTHS. IMPORTANTLY IN THE WORK I KEEP, MARK, FUTURES, ONE OF THE SPOT CONTRACTS, OCT., DEC., OR FORWARD, MUST TAKE OUT AND CLOSE ON A MONTHLY BASIS ABOVE 48 CENTS. ONCE THAT'S DONE, I THINK WE'RE HEADED TOWARD 60.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE LIVESTOCK MARKETS. I WANT TO GET TO THAT QUARTERLY HOGS AND PIGS REPORT. BUT LET'S TALK FIRST ABOUT CATTLE. THE FED-CATTLE MARKET HAS CERTAINLY SEEN SOME PRESSURE ACROSS THE BOARD IN ALL THE RED MEATS. WE CAN TAKE IT BACK TO THE RUSSIAN POULTRY DEAL, WHATEVER. THERE'S BEEN A LOT OF PROTEIN OUT THERE. ARE WE STARTING TO CLEAN SOME OF THAT UP? KIND OF GIVE US YOUR 90-DAY OUTLOOK ON THESE CATTLE.

Robinson: FED CATTLE PLACEMENTS, MARK, DURING THE MONTH OF AUGUST UP ONE PERCENT VERSUS 2001. MOST OF THOSE PLACEMENTS OR MUCH OF THOSE PLACEMENTS WERE LARGE, HEAVYWEIGHT YEARLING CATTLE, 800 POUNDS PLUS, 5 PERCENT ABOVE THE PREVIOUS YEAR. THAT, IN MY OPINION, DOES NOT BODE PARTICULARLY WELL FOR SIGNIFICANTLY HIGHER PRICES BETWEEN NOW AND FEBRUARY OF 2003. THE COMBINATION OF ADEQUATE FED SUPPLIES AT LARGE WEIGHTS -- I SAW THIS AFTERNOON 1,264 POUNDS, MARK, A COUPLE OF POUND INCREASE WEEK OVER WEEK -- COMBINED WITH THE TOTAL FROZEN INVENTORY OF BEEF, AS WELL AS TOTAL MEAT BEING 30 PERCENT LARGER THAN A YEAR AGO, THERE'S PLENTY OF MEAT AVAILABLE TO THIS MARKET, MARK. I THINK UPPER 60S, LOW 70S, BALANCE OF 2002 STRETCHING INTO THE FIRST QUARTER, PERHAPS THE SECOND QUARTER OF 2003. I DON'T THINK WE'RE ALIGNED FOR ANYTHING SIGNIFICANTLY BETTER RIGHT NOW, BECAUSE OF SUPPLY, THAN THAT KIND OF A PRICE WINDOW OR PARAMETERS.

Pearson: ALL RIGHT. LET'S TALK USDA HOGS AND PIGS REPORT OUT ON FRIDAY AFTERNOON. PEOPLE HAVE BEEN WATCHING THIS ONE VERY CLOSE BECAUSE OF THE ACTION WE'VE HAD SO FAR ON THE HOGS. WE'VE SEEN THIS -- WE HIT THIS TERRIBLE BOTTOM AND THEN PUSHED BACK UP AGAIN. THE CONCERN IS WE'RE GOING TO SEE THAT AGAIN. WHAT'S YOUR TAKE ON THAT HOGS AND PIGS REPORT?

Robinson: WELL, I THOUGHT THERE WERE SOME GOOD PIECES TO THAT REPORT TODAY, MARK. CLEARLY WE HAVE, IN FACT, PULLED SOME MARKETINGS FORWARD DURING JULY AND AUGUST, ALLEVIATING, I THINK, MUCH OF THE CONCERN ABOUT NOT HAVING SUFFICIENT CAPACITY HERE IN THE FOURTH QUARTER. IF THE NUMBERS ARE CORRECT THIS AFTERNOON FROM THE USDA, THE FOURTH QUARTER OF THIS YEAR'S SLAUGHTER SHOULD BE ABOUT ONE PERCENT LARGER THAN LAST YEAR, BARRING ANY UNFORESEEN CAPACITY LOSSES, PLANTS GOING DOWN, FOR EXAMPLE, OR OUT OF COMMISSION, WE SHOULD HAVE PLENTY OF CAPACITY. I THINK THAT WILL SUPPORT A CASH MARKET THE BALANCE OF THIS YEAR, MAYBE $2 OR $3 BETTER THAN TONIGHT'S MARKET, WHICH IS IN THE LOW 30S. SO LOW TO MID 30S THE BALANCE OF THIS YEAR I THINK IS LIKELY, MARK. AND I THINK WE'LL SUPPORT A MID 30 PERHAPS UPPER 30 MARKET FIRST AND SECOND QUARTER OF 2003.

Pearson: VIRGIL, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET."

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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