Soybean futures were more than six cents higher on the nearby contracts, while the deferred contracts posted more than 16-cents in losses. Soybean meal gained $2.20 per ton. Cotton futures closed 85-cents lower.
In livestock, fed cattle futures gained 52-cents. Feeder cattle gained $2.18. the lean hog contract closed the week 90-cents lower.
In the financials, COMEX gold gained $7.20 an ounce. The euro lost 179-basis points against the dollar. The crb index finished the week nearly a point-and-a-half higher to close at 211.65.
Here now to lend us their insight are two of our regular analysts, Doug Jackson and Walt Hackney. Welcome back.
Jackson: Thank you.
Hackney: Thank you, Mark.
Pearson: All right. Government reports coming out, Doug. Let's go to you first. What's your outlook: wheat, corn, and beans?
Jackson: Well, Mark, we do have the most important crop report coming up here in august now next week that we've probably seen since 1995. The market is loaded up, scared to death, wide range of trade ideas. If we have a 130 yield from the government, keeping in mind that we were 138 last year, for the final number about 133 in the August report, selling around 130, maybe we can sell off 10 or 15 cents. Something around 128, 129, probably be chopped sideways. Anything below that, then we move higher. The market is going to know that in short crop years we tend to reduce the yields, yet significantly, by later in the year. The government can only pick up some of the data here in the August report. In both '93 and '95, our most recent short crop years, of course, the final yield was down by as much as 15 bushels an acre. Something like that off of a 130 yield this year would be the difference between a carryout of 900 million and a situation of moderate to severe rationing. That would be the difference between prices on December corn at 245 and 325. So this thing is extremely delicately balanced. This trade has been debating to the extent of the drought damage for a long time, and we're just going to have to see it. But probably a limited downside type of a situation, even though the funds are loaded up. In the beans, same thing. Funds have probably the largest long combined position in beans and products have ever had. If you go back and look at history, they've seldom been rewarded with this kind of a long position. But if we have anything close to a 37, 38 yield, we're on the verge of running out of beans in the United States. Now, we're not talking about $10 beans, Mark. The collapse of South American currencies is giving those people in South America a tremendous incentive to plant more acres. We need those acres but we're getting them. We've got a major bull market in beans. We're at record highs in South American prices but, of course, not in dollar denominated futures. Again, a hair-trigger situation; a half bushel or a bushel now makes a huge difference. But the market is having trouble figuring out what beans are worth in general. We've learned the hard lesson the last few years that beans are a bihemispheric situation. Even in the U.S. would have a 36 yield and be on the verge of running out of beans next year, we'd still have 100 million tons of beans in the Western Hemisphere. It means big inverses, strong basis, changed market flows around the world. It means the threat of imports into the U.S. of everything this year, including wheat and beans and meal, and we're just going to have to get used to that. A very dangerous situation. On the wheat, of course, an interesting situation where we've had a parade of bullish developments this week: lower crops in Canada, lower crops in Australia, problems here in the U.S. expecting a tighter spring wheat crop, problems in china and elsewhere and India also. And yet we're at the threshold this weekend of importing wheat from Europe. In fact, the calculation would work into any number of ports. We're going to have to get used to this too. The lower acreage in the United States continues to marginalize U.S. agriculture. We need more acres in Russia. We need more acres in the Ukraine and the Black Sea, and we're going to have to learn that we're going to have to import grain from around the world as part of our situation. Maybe the funds are all loaded up in the wheat. We can move somewhat lower here if the row crops don't explode, but a situation that's still very interesting long term. If we don't see this western drought in the United States change this winter, we'll have another disaster scenario next year.
Pearson: All right. Very tight. It could be a very bullish situation. Monday will tell the tale when we get our first real look, at least, what the government is considering as far as this crop is concerned. Let's move over and talk about livestock. And, Walter, it's been a tough go for those western ranchers this year.
Hackney: It's been expressly tough. You've got a combination of grass droughted out. But more importantly, they haven't been able to get the water to adequately irrigate the meadows. Subsequently they don't have the needed hay for the winter to winter the cows on. Imported hay is costing between $200 and $300 a ton delivered in there. I'm speaking particularly of, oh, central western Colorado, south central Wyoming, possibly in the eastern Laramie plains areas. And those ranchers are in a huge dilemma of what to do. They don't believe they can afford to sell the cows. They've spent too much on genetics and herd improvement. They don't think they can stand the expense of bringing them to the state of Iowa or possibly Nebraska at some points, where there are adequate grasses. So their only alternative is to get rid of the calves somewhat early, maybe 50, 75 pounds light, gamble on being able to have enough hay on hand to only take care of the cow. So the huge question is a matter of economics and forage in those areas.
Pearson: What's that going to do to our beef supply, Walter?
Hackney: It isn't going to adversely affect our supply that much. Quite frankly, it probably wouldn't hurt to bring in some lighter calves into the feedlot mix this year. As you're well aware, we're at near all-time record weight on cattle as we speak. Possibly those lighter cattle coming in, fed properly, we can come out with a more nominal average weight on those cattle when they're finished. That may in time help the per capita usage of our beef. It may allow us to increase the kill without adding the extra tonnage. And all in all, it could be a good thing come next April, May, and June.
Pearson: Walter, with the situation that Doug is talking about, these feed prices could look pretty tough, and you're talking fed cattle in the mid 60s. Talk about what's ahead pricewise. What do you see happening? How are you making these work?
Hackney: Well, right as we speak, this 500-pound calf can cost somewhere around 85 to 87 cents laid into a feedlot in the corn belt. The 600-pound steer can cost somewhere around 83 laid in. 5.5 then, of course, would be somewhere in the middle. Heifers about 7 back. Now, given that drought that we've had in the corn belt and the huge destruction of good corn, because of the heat, we've seen a tremendous amount of acreage go to green chop and silage, because if it would have been kept for grain, it wouldn't have made it. So that's an excellent feed, of course, to take on these light calves that will be coming in this fall.
Pearson: All right. So you've got to kind of scratch things out just a little bit. Let's move over to the hogs, Walt. What do you see ahead now on this hog trade? Fourth quarter maybe not as bad as what people were thinking about?
Hackney: We've had all kinds of projections. We've got projections that next week we'll find a floor in the cash Market of hogs. We have projections that bellies and other primals may tend to steady out next week. I think the inevitable thing that's going to hit us is we're going to have too many hogs in the fourth quarter. Possibly I'm one of the few that would say that a two-million-head weekly kill from October 1 through November 15 is highly possible. I think it's in the count. I think the usage of the product will be good enough that it will in turn take that amount of product. The problem, of course, is going to be a 25-cent cash crop in the fourth quarter.
Pearson: Walt Hackney, Doug Jackson, Thank you so much. That will wrap up this edition of "Market to Market." To hear more of Doug and Walt's thoughts, you can turn to our web site. Join us again next week when we examine what could be a landmark environmental case. Until then, I'm Mark Pearson. Thanks for watching. Have a great week.
Captions by: Midwest Captioning Des Moines, Iowa