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Market Analysis: Aug 23, 2002

posted on August 23, 2002


The grain markets finished the week on the downside after much needed rains re-invigorated parts of the parched Grain Belt. For the week, wheat prices were unchanged, while corn prices were eight to nine cents lower.

Soybean futures were hammered twenty-three to thirty one cents. Soybean meal posted an $8.50 loss.

Cotton futures were 24-cents lower.

In livestock, fed cattle futures were 92-cents lower. Feeder cattle were 57-cents higher. The lean hog contract finished more than two dollars lower.

In the financials, Comex gold closed seven dollars lower per ounce. The Euro finished 114-basis points lower against the dollar. The CRB index finished the week nearly three-quarters of a point higher to close at 220.

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: Aug 23, 2002

Martin: THANK YOU.

Pearson: HEY, LET'S TALK ABOUT THE GRAIN MARKET. LET'S START FIRST ON THE WHEAT MARKET. NOW, UNCHANGED FOR THE WEEK, BUT THAT KIND OF BELIES KIND OF A PULLBACK AND A RALLY TOWARDS THE END OF THE WEEK. WHAT'S YOUR OUTLOOK FOR THE WEEK? WE TALKED EARLIER IN THE SHOW ABOUT TIGHT SUPPLIES.

Martin: WELL, THERE ARE TIGHT SUPPLIES IN WHEAT AND, OF COURSE, ONE THING THAT REALLY STOKED THE MARKET LATE IN THE WEEK THIS WEEK, AND OF COURSE IT WAS THE K.C. WHEAT THAT REACTED THE BEST, MINNEAPOLIS SECOND, AND CHICAGO LAST. BUT ALL THREE WERE IN GOOD HANDS BY THE END OF THE WEEK. AND I THINK IT WAS BECAUSE OF THE FACT THAT, ONE, WHEAT IS A BULL MARKET. IT'S IN A DIFFERENT TIME FRAME OF ITS CROP YEAR THAN CORN AND SOYBEANS, AND YOU HAD STATS CANADA COME OUT AND SHOW SPRING WHEAT REDUCTIONS FROM ABOUT 16 MILLION METRIC TONS OF A YEAR AGO DOWN TO ABOUT 10.2 MILLION METRIC TONS FOR THIS CROP YEAR. IT'S VERY VIVID. CANADA HAS HAD A LOT OF WEATHER PROBLEMS. IT SHOWS UP IN THEIR BARLEY. IT'S SHOWING UP IN THE RAPE SEED CANOLA CROP. THEY'RE DROPPING IN PRODUCTION IN NEARLY EVERYTHING, WHICH IS GOING TO CERTAINLY AFFECT THEIR BUYERS, WHICH IS JAPAN, MEXICO, WHICH IS PROBABLY GOING TO SEND THOSE BUYERS BACK TO US.

Pearson: ALL RIGHT. SO SOME GOOD NEWS OUT THERE FROM A MERCHANDISING STANDPOINT. PRICEWISE, SUE, HAVE WE DONE ALL THAT WE'RE GOING TO DO? WE GENERALLY TALK ABOUT CHICAGO WHEAT, YOU'RE RIGHT. BUT KANSAS CITY, MINNEAPOLIS?

Martin: WELL, I THINK WE'RE LOOKING AT A MARKET THERE THAT IS STILL GOING TO EVOLVE HIGHER WITH TIME. BUT I THINK WHEN YOU -- LIKE, BASIS THE DECEMBER CHICAGO WHEAT, 375 WAS A PRETTY TOUGH AREA. I THINK THAT WE'RE SPENDING SOME TIME AND I THINK WE COULD BE INTO A TRADING RANGE OF FAIR THAT WILL ULTIMATELY SEND US HIGHER. I LOOK AT THE OCTOBER FUTURES -- NOT OCTOBER FUTURES BUT OCTOBER TIME FRAME AS A GOOD TIME, AND I ALSO THINK THAT MARCH OF NEXT YEAR IS GOING TO BE BETTER STILL.

Pearson: ALL RIGHT. LET'S TALK ABOUT THIS CORN MARKET AND WHAT IT'S BEEN DOING. OBVIOUSLY, WE'VE HAD A TREMENDOUS PUSH UP FROM THE LEVELS WE WERE, CERTAINLY END OF JUNE. TAKE US FORWARD. WHAT ARE WE GOING TO SEE BETWEEN NOW -- WE'RE GOING TO HAVE -- THE HARVEST WILL BE UNDERWAY BEFORE WE KNOW IT.

Martin: WELL, IT CERTAINLY WILL BE. AND, OF COURSE, THE AREAS THAT WE'LL HEAR FIRST WILL BE YOUR POOR AREAS BECAUSE OF THE AWFUL STRESS THEY'VE BEEN THROUGH, AND THE KEY IS GOING TO BE HOW MANY ACRES DO WE REALLY HAVE OUT THERE. THE USDA DID NOT SHOW NEAR THE DROP IN ACRES OF CORN THAT SOME ANALYSTS THINK HAS HAPPENED. AND WE'RE GOING TO SEE AN ABANDONMENT OF ACRES THAT JUST HAD TO BE PLOWED UNDER OR TURNED TO SILAGE OR WHATEVER. I THINK YOU'RE GOING TO SEE A MARKET HERE THAT -- WE HAVE A LOT OF, I WOULD SAY, MAYBE, LONGS IN THAT MARKET, PEOPLE THAT ARE VERY BULLISH. BUT ONE THING THAT'S INTERESTING IS, IS WHILE THE FUNDS HAVE BEEN HEAVILY LONG IN THE CORN MARKET, THEY HAVEN'T REACHED RECORD LEVELS YET. NEARLY EVERY OTHER GRAIN MARKET THEY HAVE, BUT NOT CORN. AND THE RECORD LEVEL FOR THE LAST SEVEN YEARS IS 110,000 CONTRACTS, AND THEY'VE NOT DONE THAT. I THINK PRESENTLY WE'RE RUNNING AROUND 76,000 CONTRACTS, SO THERE'S ROOM FOR GROWTH IN THAT MARKET. DOES THAT MEAN WE COME BACK AND TAKE OUT THE HIGHS? WELL, NORMALLY IN YEARS OF STRESSED OR DROUGHT-TYPE YEARS FOR CORN, YOUR MAJOR YEARS HAVE PEAKED OUT IN AUGUST AND THEN DECLINED INTO DECEMBER. YOU'VE PRICED IN THE MARKET WAY SO QUICKLY. NOW, DID 289 BASIS DECEMBER FUTURES DO THIS? IT'S POSSIBLE BUT AT A CARRYOUT THAT'S AROUND 775 MILLION BUSHELS, WHICH IS ALMOST HALF OF WHAT WE LOOKED AT IN JULY, I THINK WE'RE SAYING TO OURSELVES, YOU KNOW, OVER THE NEXT SIX MONTHS TO EIGHT MONTHS, WE'RE GOING TO PROBABLY HAVE TO RATION THIS CROP. AND YOU DO THAT WITH HIGHER PRICES.

Pearson: SAME SITUATION IN SOYBEANS, OR THE SOUTH AMERICAN POTENTIAL IS KIND OF A LID, ISN'T IT?

Martin: WELL, THERE'S THE PROBLEM. AND ALL YEAR WE'VE LISTENED TO THE BEAR TALK ABOUT SOUTH AMERICA AND FOCUS ON IT, AND HE WAS WRONG. AND I THINK HE'S STILL WRONG. WHEN I LOOK AT THE BEAN MARKET, I'M VERY FRIENDLY TO SOYBEANS FOR THE WHOLE NEXT YEAR. TO ME IT'S AN EVOLVING MARKET. I WAS RATHER SURPRISED THAT BEANS, WHILE THEY HAD TECHNICAL RESISTANCE AT THAT 579 AREA, I WAS KIND OF SURPRISED THAT WE REALLY DIDN'T TAKE NOVEMBER BEANS UP TO 591, WHICH IS A 200-MONTH MOVING AVERAGE YEAR-IN, YEAR-OUT, NOTHING BUT NO FUTURES. I THOUGHT THAT, AT A MINIMUM, SHOULD HAVE BEEN A TARGET. AND I THINK WE'RE STILL GOING TO TEST THAT. IN YEARS WHEN YOU HAVE SHORTFALLS OF SUPPLY, WHERE YOUR NEW CROP SUPPLY IS TIGHTER THAN WHAT THE PREVIOUS YEAR'S USAGE WAS, IT TELLS YOU THAT THE MARKET HAS A TENDENCY TO MOVE HIGHER, AND YOUR HIGHS HAVE NEVER SHOWED UP IN PREVIOUS YEARS IN THE MONTH OF AUGUST. NOW, OF COURSE, IN THE FUTURES MARKET NEVER SAY NEVER, BUT I DON'T THINK WE'RE DONE YET. AND I THINK WE HAVE TOO MANY PEOPLE FOCUSING ON A 48.2-MILLION METRIC TON CROP COMING OUT OF BRAZIL FOR THE NEW CROP. AND BRAZIL IS BEING VERY PROLIFIC IN SELLING THEIR CROP AHEAD BECAUSE THE REAL HAS DROPPED 70 PERCENT AGAINST THE DOLLAR AND, OF COURSE, THE DOLLAR IS SOFT. THEN IN THE MEANTIME THEY'RE WORRIED THEY'RE GOING TO LOSE THE PRICE, SO THEY'RE BEING VERY AGGRESSIVE AT SELLING AHEAD BECAUSE THEY TOO BELIEVE THEY'RE GOING TO HAVE A BIG CROP. BRAZILIAN CORN ACRES ARE EXPECTED TO DROP ABOUT, MAYBE, 10 PERCENT. ARGENTINA IS GOING TO BE DOWN 15 PERCENT, SO THAT MEANS MORE BEAN ACRES. BUT IN THE MEANTIME, THEIR ECONOMIES ARE QUAKING. THEY'RE MOVING BACK AND FORTH, AND BRAZIL IS KIND OF TREMORING A LITTLE BIT AND TRIPPING ON THE THRESHOLD OF WHAT ARGENTINA HAS BEEN THROUGH. I LOOK FOR BRAZIL TO HAVE MORE ECONOMICAL PROBLEMS AS WE GO THROUGH THE NEXT YEAR. AND I THINK THAT IS GOING TO HELP KEEP THEM SELLING AGGRESSIVELY. BY THE TIME THEY START TO PLANT IN OCTOBER, I'LL BET WE'LL HAVE 50 PERCENT OF THEIR NEW CROP SOLD AHEAD. WHAT HAPPENS IF THEY HAVE A WEATHER PROBLEM? I THINK YOU'LL BE LOOKING AT A BALLISTIC MARKET. TECHNICALLY YOU HAVE A FUTURES MARKET THAT IS BASED OUT FOR THE LAST FOUR TO FIVE YEARS. AND THE RULE OF THUMB IS WHEN YOU START COMING THROUGH THAT BASE THAT THE WALL-TO-WALL THEORY PROJECTS YOU MUCH HIGHER. SO MINOR IDEAS BETWEEN NOW AND NOVEMBER WOULD BE PROBABLY 591 ON NOVEMBER BEANS TO 609. EVENTUALLY I WOULD NOT BE SURPRISED THAT MARCH BEANS OF NEXT YEAR TO EVEN THE JULY FUTURES OF NEXT YEAR GO MUCH HIGHER, BECAUSE THERE'S NO OLD CROP BEHIND US. THERE'S VERY LITTLE OLD CROP IN FARMERS' HANDS ANYMORE, AND THE NEW CROP IS NOT GOING TO GET SOLD. FARMERS WILL TAKE THE LOAN OUT AND THAT WILL BE THEIR FLOOR AND THEY'LL LOCK IT UP. SO WHERE IS ANYBODY GOING TO GO FOR BEANS BETWEEN NOW AND THE END OF MARCH FOR WHEN THEY CAN REACH SOUTH AMERICAN SUPPLIES? AND OBVIOUSLY, THE CHINESE FEEL VERY GOOD ABOUT SOYBEANS BECAUSE THEY'VE BEEN AGGRESSIVE BUYERS ON THIS BREAK AND ALSO IN SOUTH AMERICA, AND THEY HAVEN'T EVEN STARTED INTO THEIR HARVEST YET, WHICH IS JUST AROUND THE CORNER. NORMALLY THEY WOULD BE LATE FOURTH-QUARTER BUYERS RATHER THAN NOW. THEY MUST BE THINKING OUR PRICE IS GOOD.

Pearson: ALL RIGHT. NOW, SPEAKING OF PRICES THAT AREN'T THAT GOOD, THIS FED-CATTLE MARKET HAS TAKEN A BIG SLIDE. YOU HAVEN'T BEEN TOO FRIENDLY TO THE CATTLE MARKET FOR SOME TIME. WE'VE HAD BIG WEIGHTS AND YOU WERE CONCERNED ABOUT THAT. WHAT'S -- TAKE US THROUGH THE FOURTH QUARTER, BOTH CATTLE AND HOGS. LET'S START WITH CATTLE.

Martin: WELL, FOR ONE THING, IN THE WEIGHTS, THE WEIGHTS ARE STILL RUNNING RECORD LARGE. WE'RE RUNNING ABOUT 38, 39 POUNDS OVER A YEAR AGO. WE'RE RUNNING AT LEAST 33 POUNDS, I THINK IT IS, OVER THE FIVE-YEAR AVERAGE, SO WE HAVE PLENTIFUL SUPPLIES. AND WHILE WE HAVE LESS NUMBERS COMING, WE'VE GOT GOOD SUPPLIES. OUR STORAGE -- COLD STORAGE FOR THE MONTH OF JULY SHOWED A RECORD OR A HISTORIC RECORD INCREASE IN THE AMOUNT OF SUPPLIES GOING INTO STORAGE. THAT'S UNUSUAL BECAUSE 60 PERCENT OF THE TIME YOU DECREASE IN SUPPLIES IN STORAGE IN THE MONTH OF JULY FOR BEEF. SO IT TELLS US WHILE DEMAND IS GOOD FOR BEEF, IT'S TELLING US WE'RE OVERPRODUCING. AND BECAUSE OF THAT, WE HAVE PLENTIFUL SUPPLIES THAT ARE GOING TO WEIGH ON US. YOU GET PAST THE LABOR DAY HOLIDAY, WHEN YOUR LAST HORRAH FOR DEMAND STARTS TO WANE, AND THEN WE SEE THE MARKET I THINK IS GOING TO SOFTEN. I THINK THAT WE HAVE A MARKET HERE THAT'S GOING TO BE SOFT IN NATURE ALL THE WAY INTO OCTOBER. I DON'T EXPECT WEIGHTS TO START DROPPING UNTIL THE FIRST WEEK OR TWO OF OCTOBER. SO I HAVE A FEELING THAT WHILE I'M FRIENDLY ON A LONGER TERM BASIS FOR CATTLE, I THINK THAT WE'RE GOING TO HAVE SOFT UNDERTONES TO THIS MARKET -- OR OVERTONES, I GUESS I SHOULD SAY, IN THIS MARKET, ALL THE WAY IN THROUGH AT LEAST THE MIDDLE OF OCTOBER. MAYBE THAT FIRST WEEK OF OCTOBER WE'LL HAVE TO TAKE A GOOD LOOK AT IT, BUT I'M CONCERNED ABOUT CATTLE AT THIS POINT. LONG TERM, A VERY FRIENDLY MARKET.

Pearson: ALL RIGHT, SHORT-TERM FOURTH-QUARTER HOGS, REAL QUICK.

Martin: WELL, I THINK HOGS ARE GOING TO PUT IN AN EARLIER LOW THAN NORMAL. WE'VE TOUTED THE BEARISH SIDE OF THIS MARKET FOR SOME TIME. PART OF THE REASON WE'RE BREAKING SO HARD: ONE, SEASONALITY; WHEN FAIRS GET OVER WITH, WE BREAK. BUT YOU'RE GETTING LIQUIDATION GOING ON, AND I THINK BY THE MIDDLE OF OCTOBER WE COULD BE DONE.

Pearson: SO WE COULD SEE THIS MARKET BOTTOMING OUT MAYBE MID OCTOBER. MAYBE THE END OF THE FOURTH QUARTER MAY NOT BE THAT BAD.

Martin: THAT'S RIGHT.

Pearson: ALL RIGHT. SUE MARTIN, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." IF YOU WANT TO HEAR MORE OF SUE'S THOUGHTS ON THE MARKETS, JUST PAY A VISIT TO THE "MARKET PLUS" PAGE ON OUR WEB SITE. NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE A MARKET RESPONSE TO THE APPROACH OF AUTUMN. UNTIL THEN, THANKING FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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