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Market Analysis: Sep 13, 2002

posted on September 13, 2002


The grain markets finished the week under pressure following the release of the USDA'S crop production report. For the week, wheat prices were down eight cents. Corn prices were down six to seven cents.

Soybean futures were mixed. The nearby contract was penny lower, but the deferred contracts were a nickel higher. Soybean meal gained seventy cents higher per ton. Cotton futures were down $1.95.

In livestock, fed cattle futures were $2.10 higher. Feeder cattle were $1.40 higher. The lean hog contract gained $1.82.

In the financials, COMEX gold closed $3.40 lower per ounce. The euro finished 82-basis points lower against the dollar. The CRB index gained more than two points this week to close at 228.60.

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

Market Analysis: Sep 13, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, A BIG PIECE OF THE PUZZLE IS NOW IN PLACE. WE HAVE THE SEPTEMBER CROP REPORT, WHAT CAME AS AN APPARENT DISAPPOINTMENT TO THE TRADE WITHIN EXPECTATIONS. WHAT'S THIS GOING TO MEAN, TOMM, FOR THE NEXT THIRTY DAYS AS WE LOOK FORWARD TO HARVEST?

Pfitzenmaier: A LOT OF BULLISHNESS WAS ANTICIPATED BEFORE THIS REPORT. EVERYBODY HAD HUGE POSITIONS -- FUND POSITIONS IN CORN, BEANS, AND WHEAT. SO YOU GET EVERYBODY LEANING PRETTY HARD ONE WAY, AND YOU CAME OUT WITH A REPORT THAT BASICALLY SAID WHAT EVERYBODY WAS EXPECTING, SO YOU NEEDED AN ADDITIONAL AMOUNT OF BULLISHNESS TO SUSTAIN THAT STRENGTH. SO THAT'S PART OF THE REASON FOR THE PULLBACK. I THINK YOU'RE ALSO HEADING INTO HARVEST, AND IT'S KIND OF HARD TO RALLY A MARKET THAT'S ALREADY HAD AS MUCH STRENGTH AS IT'S HAD IN ALL THREE OF THE MAIN PRODUCTS. SO A LITTLE SETBACK HERE IS PROBABLY NOT UNEXPECTED. AND I WOULD GUESS AS YOU GO INTO HARVEST, WE'RE GOING TO CONTINUE TO SEE FURTHER WEAKNESS. I'M NOT SAYING IT'S GOING TO FALL OUT OF BED OR ANYTHING, BUT YOU'RE GOING TO STRUGGLE TO DO MUCH HERE FOR A WHILE.

Pearson: OKAY. WE'RE HEADING INTO THE CORN HARVEST, BUT WHAT ABOUT ON THIS WHEAT MARKET? WE TALKED ABOUT IT LAST WEEK. AGAIN, SURPRISING STRENGTH THERE IN ALL THE THREE MAJOR WHEAT MARKETS. WE TALKED ABOUT THIS REDUCED SUPPLY HERE FOR SOME TIME. FINALLY IT LOOKS LIKE WE'RE GETTING CAUGHT UP. WHAT'S YOUR ADVICE OUT THERE TO A WHEAT PRODUCER?

Pfitzenmaier: WELL, I THINK IF YOU CAN GO BACK AND RETEST THOSE HIGHS OR GET ANYWHERE NEAR THOSE HIGHS, YOU DEFINITELY HAVE TO USE THAT AS A SELLING OPPORTUNITY. I THINK THE MARKET IS GOING TO HAVE A TOUGH TIME GOING UP MUCH BEYOND THAT. I THINK AT SOME POINT IN THE NEXT 90 TO 120 DAYS, YOU'RE PROBABLY GOING TO HAVE THAT KIND OF A RETEST, AND I THINK YOU NEED TO USE IT AS A SELLING OPPORTUNITY. THE DOWNSIDE HERE, YOU KNOW, IF YOU HAVE SOME FUND LIQUIDATION, IT MIGHT GET OVERDONE A LITTLE BIT ON THE DOWNSIDE, BUT I GUESS I WOULDN'T GET TOO CONCERNED ABOUT THAT. AT SOME POINT THROUGH THE WINTER, WE'RE GOING TO START TO FOCUS ON WHAT YOU ALLUDED TO EARLIER, AN INCREASE IN PLANTED ACRES IN THE WINTER WHEAT AND HOW THAT'S GOING TO BE OFFSET BY PROBABLY AN INCREASE IN ACREAGE AROUND THE WORLD.

Pearson: LET'S TALK ABOUT THE CORN MARKET. HARVEST IS COMING. YOU KNOW, WE'RE GETTING SOME FAIRLY POSITIVE REPORTS REGARDING HARVEST SO FAR. AND SOME OF THOSE IN THE WESTERN CORN BELT AND PARTS OF THE EASTERN CORN BELT, THERE'S BIG DISAPPOINTMENTS, WHICH PRETTY MUCH HAS BEEN EXPECTED. WHAT -- STRATEGY WISE, WHAT ARE YOU TELLING PRODUCERS RIGHT NOW?

Pfitzenmaier: WELL, I THINK YOU'RE GOING TO HAVE WHAT WE'VE BEEN HAVING. I THINK YOU'RE GOING TO HEAR SOME REALLY, REALLY GOOD YIELDS AND YOU'RE GOING TO HEAR SOME REALLY, REALLY BAD YIELDS. AND IT'S GOING TO BE HARD TO KNOW WHERE THAT SHAKES OUT. I THINK THE TOP IS PROBABLY IN FOR CORN. WHETHER IT CAN GO BACK AND TAKE THAT OUT IS GOING TO DEPEND UPON HOW DEMAND SHAPES UP THROUGH THE WINTER AND HOW THE ACTUAL YIELD COMES OUT. I THINK YOU HAVE TO USE THIS NOW AS A SELLING OPPORTUNITY TO BUY. AND IF YOU'RE THE BULLISH TYPE AND THINK IT HAS TO GO A LOT HIGHER, THEN MAYBE BUY YOURSELF SOME PUTS. BUT IF YOU LOOK AT THE CARRYING CHARTS THAT'S OFFERED IN THAT MARKET, THERE'S NONE. THERE'S NO INCENTIVE TO STORE CORN, WHICH TELLS ME, YOU KNOW, ON -- WHEN YOU HAVE HIGH PRICES IN THESE KIND OF MARKETS, IT DOESN'T PAY YOU TO STORE IT; MOVE IT. A YEAR AGO WHEN THE PRICE IS LOW, SURE, THERE'S A BIG CARRYING CHARGE, USE YOUR BIN, MAKE IT MAKE MONEY FOR YOU. BUT THERE'S NOTHING FOR THAT BIN TO DO FOR YOU IN THIS KIND OF A MARKET, SO YOU'VE GOT TO MAKE THE SALE. NOW, IF YOU THINK WE'RE GOING TO SAG INTO HARVEST AND DEMAND IS GOING TO COME ROARING IN HERE AND THINGS ARE GOING TO LOOK A LOT BETTER IN THE WINTER, THEN, GREAT, GO BUY YOURSELF A CALL, BUY THE FUTURES, BUT REOWN IT IN WHATEVER WAY YOU WANT TO. BUT THE MARKET IS TELLING YOU SELL THE CORN NOW.

Pearson: PRETTY STRAIGHTFORWARD, TOMM. WHAT ABOUT IN THE SOYBEANS?

Pfitzenmaier: SAME THING THERE. THERE'S NO CARRYING CHARGE BEING OFFERED. THE MARKET HAS HAD A NICE JUMP UP. IF YOU LOOKED AT THE WORLD REPORT ON NUMBERS ON BEANS, THEY JUMPED THE CARRYOUT ON WORLD ABOUT 11 PERCENT, SO THAT WAS A PRETTY BIG JUMP IN WORLD CARRYOUT ON BEANS. NOW, WE'RE PROBABLY GOING TO SAG HERE A LITTLE BIT. FUNDS HAVE A BIG POSITION IN CORN AND BEANS. IT PROBABLY IS GOING TO GET SOME OF IT LIQUIDATED ANYWAY. HAVE A PULL BACK. BUT AGAIN, GOING BACK TO THE CASH MARKETING, THERE'S NO INCENTIVE TO STORE THE CROP. IF YOU'RE BULLISH, AGAIN, BUY A CALL, BUY THE FUTURES, BUY WHATEVER YOU WANT. BUT THERE'S NO INCENTIVE TO STORE THIS CROP. THERE'S NO CARRYING CHARGE TO CAPTURE. THERE'S NONE OF THAT. THE BEAN MARKET, IF YOU WANTED JUSTIFICATION FOR REOWNING IT, IS GOING TO BE EXTREMELY EXPLOSIVE IF ANYTHING GOES WRONG IN SOUTH AMERICA. SO WE NEED TO WATCH THAT REALLY CLOSELY. EVERYBODY IS SORT OF ASSUMING EVERYTHING IS GOING TO BE FINE, IT HAS BEEN FINE, THEY ALWAYS GROW A GOOD CROP, ET CETERA, ET CETERA. BUT WE'RE GOING TO BE HYPED -- WITH THE LOW CARRYOUT WE'VE GOT, WE'RE GOING TO BE HYPERSENSITIVE TO PROBLEMS DOWN THERE. AND THERE IS THE POTENTIAL FOR SOME PRETTY GOOD UP THROUGH THE WINTER, SO I THINK YOU COULD JUSTIFY REOWNING IT, YOU KNOW, WITH CALLS AT THE VERY LEAST.

Pearson: ALL RIGHT. BUT DEFINITELY -- WE DIDN'T TALK ABOUT IT, BUT BASIS LEVELS IN GRAIN VARY THROUGHOUT OUR VIEWING AREA, BUT FOR THE MOST PART, THEY'RE REALLY TIGHT RIGHT NOW.

Pfitzenmaier: WELL, UNTIL WE GET INTO THE GLUT OF HARVEST, THEY'RE PROBABLY GOING TO STAY -- THEY'RE GOING TO ERODE RAPIDLY, I WOULD GUESS. BUT IF YOU CAN GET OUT THERE AND GET SOME CROP HARVESTED AND GET IT TO TOWN, THERE'S SOME PRETTY GOOD REWARDS FOR DOING THAT.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE LIVESTOCK SECTOR, CATTLE MARKET IN PARTICULAR. WE'VE BEEN TALKING ABOUT THE PRESSURE THIS WEEK WE'VE BEEN SEEING IN HOGS. THIS CATTLE MARKET, WE'RE STRENGTHENING SOME ON THE BOARD THIS WEEK. ARE WE STARTING TO CLEAR THINGS UP? STARTING TO LOOK LIKE A LITTLE BIT BETTER PICTURE?

Pfitzenmaier: YEAH, YOU HAVE TO BE A LITTLE OPTIMISTIC ON THE CATTLE MARKET. IT JUST KEEPS MARCHING HIGHER. THAT FEEDER MARKET GOES UP A LITTLE BIT WHEN CORN IS EXPENSIVE, AND IT GOES UP A LOT WHEN CORN GETS CHEAPER. SO I MEAN, THAT'S A VERY STRONG MARKET. THERE'S A LOT OF OPTIMISM IN THERE. EVERYBODY IS PRETTY CURRENT. THE WEIGHTS AREN'T TOO BAD. DEMAND -- YOU KNOW, THE ECONOMY IS DOING PRETTY WELL. AS LONG AS PEOPLE ARE WORKING, THEY'RE GOING TO LIKE TO REWARD THEMSELVES AND EAT SOME BEEF, SO I THINK THERE'S A REASON TO BE SLIGHTLY OPTIMISTIC HERE. I'M NOT SAYING A RUNAWAY BULL MARKET, BUT THERE'S PROBABLY SOME UPSIDE POTENTIAL HERE. NOW, WHEN WE ALWAYS HAVE THESE LURKING WAR CONCERNS OR TERRORISM CONCERNS, IT PROBABLY IS A FAIRLY PRUDENT THING TO RUN OUT AND BUY YOURSELF A DECEMBER $70 PUT FOR A BUCK AND HAVE SOME SECURITY UNDERNEATH YOU. AND I THINK JUST AS A PRUDENT BUSINESS DECISION, THAT PROBABLY IS A GOOD IDEA. BUT I THINK AS FAR AS CATTLE PRICES THEMSELVES GO, WE'RE PROBABLY GOING TO BE ALL RIGHT HERE FOR A WHILE.

Pearson: LET'S TALK ABOUT THE HOGS. WE'VE TALKED ABOUT THE PROBLEMS THIS FOURTH QUARTER, YOU'VE TALKED ABOUT FOR SOME TIME NOW. HAVE WE SEEN THE LOWS IN HOGS? HAVE WE HIT THE BREAKING POINT THERE?

Pfitzenmaier: I SUSPECT WE HAVE. NOW THE BIG DISCUSSION IS WHETHER WE'RE GOING TO RETEST THOSE LOWS OR NOT, AND THAT'S GOING TO DEPEND ON HOW THE PORK MOVES, OBVIOUSLY. I THINK YOU'RE GOING TO TEND TO SEE MORE FEATURING OF PORK VERSUS THE -- VERSUS THE BEEF, JUST BECAUSE IT'S GOTTEN SO CHEAP. BUT THAT MARKET ACTS LIKE IT'S PRETTY MUCH PUT A LOW IN. YOU'VE GOT -- THE NEXT HOG REPORT I SUPPOSE WILL CONFIRM THAT, BUT I THINK WE'RE GOING TO BE ALL RIGHT ON THE HOGS. AGAIN, IF YOU'RE NERVOUS ABOUT THAT, BUY YOURSELF A $32 DECEMBER PUT FOR A BUCK. THAT'S PROBABLY NOT A BAD IDEA. BUT IT SEEMS LIKE A MARKET THAT, YOU KNOW, TECHNICALLY BROKE THE 50-DAY MOVING AVERAGE ON THE DECEMBER CONTRACT, ONE OF THE TECHNICAL INDICATORS PEOPLE WATCH A LOT. SO I THINK THERE'S A LITTLE REASON TO BE A BIT OPTIMISTIC ON THE PORK SIDE TOO.

Pearson: ALL RIGHT. NEXT SPRING WOULD YOU LOOK INTO DOING ANYTHING ON THESE HOGS?

Pfitzenmaier: WELL, I THINK YOU KEEP AN EYE ON IT AND WAIT FOR SOME TYPE OF TOPPING ACTION, BUT I GUESS I'D HOLD OFF A LITTLE BIT AND JUST SEE HOW FAR THAT CAN GO. YOU'VE GOT THE JUNE HOGS UP ABOVE $60. YOU KNOW, IF THEY GET UP IN THE MID 60S OR HIGHER OR SOMEPLACE WHERE YOU CAN LOCK IN A $50 CASH SIDE, IT'S PROBABLY SOMETHING TO LOOK AT.

Pearson: GOOD POINTS. TOMM PFITZENMAIER, THANK YOU SO MUCH. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM TOMM ON THIS WEEK'S MARKETS, BE SURE TO CHECK 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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