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Market Analysis: Sep 06, 2002

posted on September 6, 2002


The wheat market is finally responding to low production and better demand, and corn is following suit. For the week, wheat prices gained more than forty cents. Corn prices were thirteen to fifteen cents higher. Soybean futures prices were six to fifteen cents higher. Soybean meal gained $1.20. Cotton futures were $1.35 lower.

In livestock, fed cattle futures gained 95-cents. Feeder cattle futures were 45-cents lower. The lean hog contract gained $2.83.

In the financials, COMEX gold gained $7.60 per ounce. The EURO climbed four basis points against the dollar. The CRB index gained 4.50 points to close at 226.50.

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

Market Analysis: Sep 06, 2002

Hjort: THANK YOU, MARK.

Pearson: YOU'VE BEEN TALKING ABOUT THE BULL MARKET WHEAT NOW FOR WEEKS, MONTHS IN FACT. AND SOME PEOPLE HAD LOST FAITH, DOUG. BUT FOR THOSE WHO HELD ON, IT PAID OFF THIS WEEK. NOW, WHAT'S AHEAD?

Hjort: WELL, IT WOULDN'T SURPRISE ME IF WE SEE SOME HIGHER PRICES ON THE WHEAT YET. YET, WITH 40 CENTS, AS YOU SAY, IN CHICAGO MARKET, AS MUCH AS 53 CENTS HIGHER IN THE MINNEAPOLIS MARKET, AND EVEN AT THAT, BASIS LEVELS WERE IMPROVING IN SOME OF THESE AREAS. SO I THINK THIS IS A TIME TO SELL SOME WHEAT; THERE'S NO DOUBT ABOUT THAT. YOU ALWAYS TAKE ADVANTAGE OF A RUN LIKE THAT. MOST LIKELY THERE'S GOING TO BE SOME SORT OF A PULLBACK, PROFIT TAKING, WHATEVER, WHEN YOU SEE THAT. BUT THE RALLY IS BASED ON SOLID FUNDAMENTALS. THESE ARE FUNDAMENTALS THAT HAVE BEEN IN PLACE FOR A LONG, LONG TIME. WE KNOW THAT THE DEMAND IS STRONG FOR ALL GRAINS WORLDWIDE, BUT SO FAR, IN THE LAST TWO, THREE, FOUR YEARS, WE'VE HAD ENOUGH GRAIN, PRODUCTION HAS BEEN HIGH ENOUGH TO OFFSET THAT INCREASING DEMAND. THIS YEAR, WITH PRODUCTION DOWN IN SEVERAL MAJOR COUNTRIES, WE'RE SEEING THE PRICE RALLY SHARPLY. THIS WEEK, TOO, THE CANADIAN WHEAT BOARD SUSPENDED EXPORTS OF WHEAT. NOT ONLY WERE THEY HIT WITH A DEVASTATING DROUGHT THIS YEAR, IN MOST OF THEIR BREAD WHEAT COUNTRY ESPECIALLY, BUT THEN THEY HAD A FROST UP THERE A MONTH OR SO AGO, AFFECTING QUALITY. NOW IT'S RAINING ON THE CROP WHEN IT'S READY TO HARVEST. SO APPARENTLY WHAT THEY DID -- IT'S NOT REALLY CLEAR HOW LONG THIS WILL LAST -- BUT THEY SHUT OFF EXPORT SALES UNTIL THEY FIND OUT QUANTITY AND QUALITY OF THEIR EXPORT MARKET. THAT'S WHAT REALLY DROVE THE MINNEAPOLIS MARKET SHARPLY HIGHER ON THURSDAY AND FRIDAY. SO AT THIS LEVEL, I THINK YOU HAVE TO LET SOME OF THE OLD CROP GO OF YOUR INVENTORY. BUT YET THE -- REMEMBER THIS ISN'T JUST WHEAT; THIS IS A TOTAL WORLD GRAIN TIGHTNESS THAT WE'RE SEEING DEVELOP THIS YEAR. A SIMILAR THING COULD BE HAPPENING PRICEWISE TO CORN AFTER THE HARVEST PRESSURES ARE OFF, ALTHOUGH MAYBE NOT THIS EXPLOSIVE.

Pearson: ALL RIGHT. LET'S TALK ABOUT THAT. THE CORN MARKET AGAIN UP A LITTLE BIT THIS WEEK. AS WE LOOK AT SOME OF THESE PRICES RIGHT NOW, THIS CORN MARKET IS VERY ATTRACTIVE.

Hjort: WELL, IT CERTAINLY IS AND BASIS LEVELS ARE VERY GOOD EVEN FOR HARVEST DELIVERY. ELEVATOR MANAGERS IN SEVERAL LOCATIONS TELL ME THEY'VE ALREADY BOOKED A GREAT DEAL OF THE NEW CROP, MUCH, MUCH MORE THAN THEY HAVE IN RECENT YEARS. OF COURSE, THAT'S UNDERSTANDABLE. THERE WON'T BE AN LDP THIS YEAR AS THERE WAS BEFORE, SO THAT ALLOWED PRODUCERS TO DELAY THE SALE. BUT WHEN YOU LOOK AT THE TOTAL WORLD GRAIN SITUATION, THE FEED-GRAIN PICTURE BECOMES VERY BRIGHT, VERY BULLISH. HOW THAT PLAYS OUT, I DON'T KNOW. BUT THINK ABOUT HOW THE WHEAT PRICE ACTED. IT SOLD OFF IN THE BEGINNING OF THE MAIN WINTER WHEAT HARVEST, AND THEN IT STARTED TO GO SIDEWAYS TO A LITTLE HIGHER, A LITTLE HIGHER, A LITTLE HIGHER. AND NOW THIS WEEK JUST AN EXPLOSIVE-TYPE THING. WHEN YOU LOOK AT THAT, THE CORN MARKET COULD DO THE SAME THING EXCEPT THAT CORN PRICES, IN RELATIVE TERMS, WILL BE STARTING FROM A HIGHER LEVEL THAN WHEAT DID. SO I WOULDN'T LOOK FOR SUCH AN EXPLOSIVE SITUATION. BUT REMEMBER THIS: TOTAL WORLD GRAIN SUPPLIES AT THE END OF THE -- AT THE END OF NEXT YEAR, A YEAR FROM THIS FALL, WERE PROJECTED TO BE SMALLER THAN THEY WERE AT THE END OF THE '95-'96 SEASON, AND PRICES EXPLODED TO OVER $5 THAT YEAR. NOW, I'M NOT SAYING THAT CORN PRICES ARE GOING TO GO TO $5 THIS YEAR, BUT I DO THINK THIS PRICE LEVEL IS TOO LOW IN THE LONG RUN. HOWEVER, ESPECIALLY FOR PRODUCERS THAT DON'T HAVE ON-FARM STORAGE, THERE'S SOME EXCELLENT OPPORTUNITIES TO MAKE SOME SALES, BOOK SOME STUFF FOR HARVEST DELIVERY, OR DECEMBER DELIVERY, WHATEVER. BUT VERY GOOD POSSIBILITY -- OR VERY GOOD OPPORTUNITIES THERE TO DO THAT.

Pearson: HOW MUCH WOULD YOU SUGGEST DOING? I MEAN CAN WE PUT A PERCENTAGE ON IT? SHOULD WE GO 50 PERCENT AT THIS STAGE OF THE GAME?

Hjort: FIFTY PERCENT OF TOTAL SALES I THINK IS TOO HIGH, UNLESS YOU PLAN ON COMING BACK WITH A REOWNERSHIP PROGRAM AT SOME POINT. AGAIN, IF YOU HAVE TO PAY 15 CENTS, FOR EXAMPLE, FOR STORAGE RIGHT OFF THE BAT TO PUT IT IN STORAGE COMMERCIALLY, THEN I WOULD SAY LET'S TAKE SOME MORE CASH HERE AT HARVESTTIME. BUT I THINK YOU WANT TO BE VERY COGNIZANT OF THE FACT THAT THESE PRICES COULD GO SHARPLY HIGHER. SO MAYBE -- AND THAT'S NOT RIGHT NOW; DON'T DO IT NEXT WEEK. BUT MAYBE AROUND THE HARVEST -- THE GLUT OF HARVEST, LOOK AT REOWNERSHIP OF SOME THINGS THAT YOU MIGHT HAVE SOLD AT HARVESTTIME.

Pearson: ALL RIGHT. DOUG, WHEN YOU TALK ABOUT SOYBEANS TOO, THEY HAVE NOT BENEFITTED AS MUCH FROM THE PRICE RISES AS THE FEED GRAINS HAVE. WHAT'S THE SOY CONDITION AT THIS STAGE OF THE GAME?

Hjort: SOYBEAN PRICE ACTION IN THE LAST MONTH HAS JUST BEEN TERRIBLY SURPRISING TO ME. WHEN YOU LOOK AT THE AUGUST CROP PRODUCTION REPORT, USDA SAID WE'D HAVE 40 MILLION BUSHELS LESS IN ENDING STOCK A YEAR FROM THIS FALL THAN NOW, AND THAT INCLUDED A 16-PERCENT INCREASE IN THE BRAZILIAN CROP, THE ONE THEY'RE GOING TO PLANT NOW PRETTY SOON, AND IT ALSO SAID WE HAVE TO RATION OUT USAGE HERE IN THE UNITED STATES 170 MILLION BUSHELS. NOW, WHY ARE PRICES SITTING HERE WHERE THEY'RE AT, 575, 580, AND SO ON? THAT MEANS -- THAT SUGGESTS PRICES SHOULD BE AT LEAST A DOLLAR HIGHER. WELL, OF COURSE, WE HAVE HARVEST COMING ON. THERE'S STILL A FAIR AMOUNT OF STUFF COMING OUT OF SOUTH AMERICA RIGHT NOW. BUT SOONER OR LATER, THOSE SOYBEAN PRICES ARE GOING TO HAVE TO RALLY TOO, AND I THINK RALLY SUBSTANTIALLY UNLESS, ON THE 12TH OF SEPTEMBER, USDA FINDS THAT OUR SOYBEAN CROP IS MUCH LARGER THAN WHAT THEY SAID IN AUGUST. MOST ANALYSTS -- PRIVATE ANALYSTS ARE SAYING IT SHOULD BE UP A LITTLE BIT, AND THAT'S WHAT THE WEEKLY CROP CONDITION REPORT WOULD SUGGEST TOO. BUT EVEN IF YOU HAD A BUSHEL PER ACRE, THAT WOULD BE 72 MILLION ACRES. YOU STILL HAVE TO RATION OUT A HUNDRED MILLION BUSHELS OF USAGE TO WIND UP WITH A VERY LOWBALL ENDING STOCK NUMBER A YEAR FROM NOW. SO ON SOYBEANS, I'D RATHER NOT BE SELLING ANYTHING NOW. I'D RATHER CARRY ALL NEW CROP INTO THE NEW YEAR.

Pearson: ALL RIGHT. NOW, THIS IS ALL POSITIVE ON THE GRAIN FRONT. FOR THAT LIVESTOCK FEEDER OUT THERE, THEY'RE FACED WITH SOME VERY TOUGH CHOICES. TALK ABOUT WHAT ARE WE CAN EXPECT FOR PRICE ACTION FOURTH QUARTER ON THESE CATTLE.

Hjort: WELL, ON THE CATTLE -- FIRST OF ALL, JUST BACKING OFF ONE WEEK AGO, I THINK THE REAL PRESSURE ON THE CATTLE MARKET CAME FROM THE PANIC IN THE HOG MARKET. THIS WEEK CATTLE PRICES KIND OF STABILIZED, MAYBE UP 50 CENTS OR A DOLLAR BY THE END OF BUSINESS ON FRIDAY IN SOME MARKETS. SO AS WE LOOK AHEAD, IF THE HOG MARKET CAN STABILIZE HERE, WHICH WE'LL TALK ABOUT IN JUST A MINUTE, THEN I THINK THE CATTLE PRICE CAN SLOWLY MOVE HIGHER. ONE OF THE BIG PROBLEMS WE HAVE WITH THE CATTLE MARKET, THOUGH, ARE THESE TREMENDOUSLY HEAVY CARCASS WEIGHTS WE STILL HAVE. THEY'LL COME DOWN MAYBE. BUT, SEE, WE'RE AT THE TIME OF YEAR NOW WHEN CARCASS WEIGHTS NORMALLY INCREASE. SO IF WE COULD HOLD THEM STEADY, WE'RE PROBABLY DOING A PRETTY GOOD JOB OF MARKETING. BUT WE'D REALLY LIKE TO SEE THEM DOWN A LITTLE BIT MORE, AND I THINK THEY HAVE TO COME DOWN A LITTLE BEFORE THESE PRICES CAN RALLY SHARPLY. NOW, LOOK AT DECEMBER FUTURES UP AROUND THE $70 MARK, A LITTLE OVER THAT NOW. I THINK THAT'S IN GOOD SHAPE. WE SHOULD SEE CASH PRICES AT THAT LEVEL COME DECEMBER.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE DISASTER IN HOGS. NOW, THERE'S BEEN TALK THAT MAYBE WE BOTTOMED THIS MARKET A LITTLE BIT EARLIER. DO YOU THINK THAT'S FOR REAL, OR HOW MUCH PRESSURE ARE WE GOING TO SEE HERE?

Hjort: I THINK WE BOTTOMED THE MARKET EARLY THIS WEEK, BUT I ALSO THINK THAT IT'S VERY RARE YOU JUST SPIKE A BOTTOM IN AND THEN COME RIGHT BACK UP AND KEEP MOVING. I THINK WE'LL GO BACK AND TEST THAT NEXT WEEK. WE HAVE, ODDLY ENOUGH, MAYBE, SEPTEMBER 11 WE HAVE TO LOOK AT HERE, AND I THINK THAT'S GOING TO BE UNNERVING. SO I THINK WE TEST THE LOW AGAIN, AND THEN WE COME BACK AND GO SIDEWAYS ALL THROUGH THE FALL IS WHAT I LOOK FOR. NOT ANY MAJOR IMPROVEMENT, BUT PROBABLY NOT THAT MAJOR PRICE WASHOUT IN DECEMBER THAT SO MANY PEOPLE ARE FEARING AS WELL.

Pearson: VERY GOOD. DOUG HJORT, THANK YOU SO MUCH. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET," BUT IF YOU'D LIKE TO HEAR ADDITIONAL COMMENTARY FROM DOUG ON THIS WEEK'S MARKETS, BE SURE TO CHECK THE MARKET PLUS SEGMENT ON OUR WEB PAGE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


Tags: agriculture commodity prices corn markets news wheat