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Market Analysis: Jul 19, 2002

posted on July 19, 2002


It was a bullish week in the pits of the Chicago Board of Trade on concerns about the weather's impact on 2002 production. For the week, wheat and corn prices gained more than twelve cents. Soybean futures were more than 15-cents higher for the week. Soybean meal gained a modest 70-cents. Cotton futures posted a $2.50 gain.

In livestock, fed cattle futures were thirty cents higher. Feeder cattle were down 50-cents. The lean hog contract closed 68-cents lower.

In the financials, COMEX gold gained $8 per ounce. The EURO closed 232 basis points higher against the dollar. The CRB index gained nearly three points to close at 214.75.

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

Market Analysis: Jul 19, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: ALL RIGHT. LET'S TALK ABOUT IT. WE'RE IN THE THROES OF A WEATHER MARKET HERE. IT'S NEAR THE END OF JULY. IT'S BEEN HOT AND THERE'S SOME SPOTS WHERE THE CROP WAS LATE, SOME PLACES WHERE THE CROP DIDN'T GET IN, ANEMIC WHEAT YIELDS. LET'S START THERE. A BIG MOVE UP IN WHEAT THIS WEEK.

Pfitzenmaier: YEAH, WHEAT HAS HAD A VERY NICE MOVE. I MEAN FOR YEARS NOW, BASICALLY, WE'VE HAD DEMAND HAS -- SUPPLY HAS OUTPACED DEMAND, AND WE'RE STARTING TO FINALLY GET THAT SITUATION RECTIFIED IN A BIG WAY PROBABLY HERE. SO YOU'VE GOT A COMBINATION OF LOWER ACRES, POORER YIELD. I WOULD GUESS THAT MEANS THEY'RE GOING TO HAVE TO BID UP WHEAT IN ORDER TO MAKE SURE WE HAVE ACRES THAT GO INTO WHEAT NEXT YEAR. SO I THINK THE DECEMBER WHEAT CONTRACT, YOU KNOW, WOULD CLOSE AROUND 2 -- 340, EXCUSE ME. MAYBE GET UPWARDS AROUND 350, YOU'RE PROBABLY GOING TO FIND VERY BIG RESISTANCE. DOWN AT 315, YOU'RE GOING TO FIND VERY GOOD SUPPORT. UNLESS THE WEATHER GETS EVEN MORE SEVERE, YOU'RE GOING TO HAVE TROUBLE BREAKING OUT OF THAT PARTICULAR RANGE.

Pearson: BUT THAT'S PROBABLY A GOOD PLACE TO BE MAKING SOME SALES, THEN, UP CLOSE TO 350?

Pfitzenmaier: YEAH, I THINK YOU MAKE SALES UP CLOSE TO 350. IF IT POPS UP OVER THAT, THEN YOU TAKE SOME KIND OF A DEFENSIVE STRATEGY, BUYING CALLS OR USING STOPS OR WHATEVER YOU'RE COMFORTABLE WITH. BUT YOU SELL UP AGAINST RESISTANCE AND SEE WHAT HAPPENS THEN.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE CORN MARKET. OF COURSE, ALSO A NICE BOUNCE THIS WEEK. AGAIN CONCERNS ABOUT, YOU KNOW, WHAT'S AHEAD. FUNDAMENTALLY ARE WE AS TIGHT ON CORN?

Pfitzenmaier: WELL, IT DEPENDS ON HOW THE WEATHER SHAPES UP. WE HAVE THE POTENTIAL FOR GREAT SHORTNESS AND GREAT TIGHTNESS IF, IN FACT, YOU KNOW, WE HAVE -- ALMOST TWO-THIRDS OF THE CORN BELT HAS YET TO POLLINATE, AND YOU'RE HEADING INTO SOME FAIRLY DRY PERIODS THERE. EXPECTATIONS ARE YOU'RE PROBABLY GOING TO SEE ANOTHER LITTLE DETERIORATION IN THE CROP CONDITION REPORT OUT MONDAY. SO, YEAH, I MEAN THE MARKET DIDN'T MOVE A WHOLE LOT THIS WEEK. SO APPARENTLY, EVERYBODY IS KIND OF COMFORTABLE THAT WE'RE GOING TO HAVE ADEQUATE SUPPLIES AND WE'RE FAIRLY PRICED HERE AROUND DECEMBER, AROUND 240. YOU KNOW, WE ONLY HAD TWO DAYS THAT WE WERE ABOVE 247 ON THE DECEMBER CONTRACT, SO YOU'D HAVE TO THINK THAT THERE'S BIG RESISTANCE AT 247. YOU SELL AGAINST THAT; YOU SELL AGAIN UP AGAINST THE HIGH UP AROUND 254. AND THEN IF IT TAKES THAT OUT, AGAIN YOU GET OUT OF THE WAY. SO WE DO HAVE RESISTANCE POINTS TO SELL UP AGAINST. I THINK MOST PEOPLE RECOGNIZE THAT THIS IS PROBABLY THE BEST SELLING OPPORTUNITY -- THE SELLING OPPORTUNITY OF THE SUMMER, AND THEY WANT TO TAKE ADVANTAGE OF IT. BUT WITH THE WEATHER AROUND -- YOU KNOW, YOU READ ALL WINTER, WELL, IF FARMERS JUST WOULD HAVE DONE THIS OR WOULD HAVE DONE THAT, EVERYTHING COULD HAVE BEEN SO MUCH BETTER. WELL, YOU KNOW, WHEN YOU'RE IN THE HEAT OF THE BATTLE, THAT'S EASIER SAID THAN DONE. SO YOU HAVE TO TAKE SOME DEFENSIVE MECHANISM, WHETHER YOU BUY CALLS AS PROTECTION AGAINST THAT SALE, WHETHER YOU USE PUTS INSTEAD OF USING FUTURES, SELL CASH AND THEN BUY CALLS. I MEAN THERE'S A WHOLE COMBINATION OF THINGS YOU CAN DO TO SORT OF BUILD IN SOME DEFENSE MECHANISMS THERE. BUT CERTAINLY THESE ARE PRICES WORTH TAKING ADVANTAGE OF, GIVEN WHAT WE KNOW TODAY.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS. AGAIN, THE SAME STORY. A LOT OF CONCERN THERE. A LONGER TIME PERIOD TO GO ON THESE BEANS TOO.

Pfitzenmaier: WELL, THE BEANS HAVE A LITTLE MORE TO THEM THAN THE CORN DOES IN THAT CORN IS PRETTY MUCH PURELY A WEATHER MARKET. BEANS HAVE GOT OTHER THINGS. YOU'VE GOT THE TIGHTNESS, REAL TIGHTNESS. I MEAN THERE AREN'T A LOT OF BEANS OUT IN THE COUNTRY. THAT'S WHY YOU'VE SEEN THE FRONT MONTHS OF THE BEANS BE SO STRONG. YOU ALSO HAVE THIS RARE COMBINATION WHERE SOUTH AMERICA IS NOT SELLING ANYTHING. HISTORICALLY THEY TEND TO MOVE SOME BEANS, AND THAT SORT OF SOFTENS THE BLOW AND CARRIES US THROUGH, WHERE THEY'RE NOT PARTING WITH THEIR BEANS. SO YOU'VE GOT A DOUBLE WHAMMY HERE, IN COMBINATION WITH THE DOLLAR THAT'S CONTINUING TO MAKE NEW LOWS. SO, YEAH, THERE'S SOME PRETTY INTERESTING THINGS GOING ON WITH BEANS, MOST OF WHICH ARE APPLICABLE TO THE FRONT MONTH OR TWO OF THE SOYBEAN CONTRACT. IT'S GOING TO SUCK NOVEMBER ALONG WITH IT SOME, BUT IT'S GOING TO BE A RELUCTANT HANGER ON, SO TO SPEAK.

Pearson: ALL RIGHT. YOU MENTIONED WE CLEANED UP A LOT OF THE BEANS OUT IN THE COUNTRYSIDE, SO LET'S PRICE THE NEW CROP. WHAT'S YOUR STRATEGY?

Pfitzenmaier: WELL, THE CEILING RATE UP AT AROUND 580 IS THE ONE THAT A LOT OF PEOPLE HAVE THEIR MIND ON. AUGUST CONTRACT HAS A GOOD SHOT OF GOING UP TO THE JULY HIGHS, WHICH WAS $6. IF THAT HAPPENS, IT'S PROBABLY GOING TO PULL THE NOVEMBER UP INTO THAT 550, MAYBE 560 RANGE. I THINK IF YOU GET UP IN THAT AREA, YOU'D HAVE TO BE A SELLER. IF YOU'RE NOT COMFORTABLE WITH THAT, LIKE I SAID EARLIER, BUY A 520 PUT, BUY A 540 PUT. BUT I THINK YOU NEED TO DO SOMETHING BECAUSE IF YOU GO -- AS YOU GET INTO HARVEST, THE MAIN REASON THE SOUTH AMERICANS AREN'T SELLING IS BECAUSE THEY WANT TO TIME THE SALE OF THEIR BEANS WITH THE TIME THEY BUY THEIR INPUTS. WELL, THAT JUST HAPPENS TO BE ABOUT THE SAME TIME WE'RE GOING TO HAVE A NEW CROP COMING IN. SO WE DO HAVE THE POTENTIAL FOR AT HARVEST BEANS TO TAKE A PRETTY GOOD SHOT DOWN HERE. SO TAKING SOME DEFENSIVE MEASURES GOING INTO HARVEST, PROBABLY ISN'T TOO BAD AN IDEA.

Pearson: NOW, WHAT ABOUT COTTON? A NICE JUMP-UP THIS WEEK. ANOTHER A WEATHER ISSUE THERE.

Pfitzenmaier: DECEMBER -- YOUR CROP CONDITION RATINGS EARLIER IN THE SHOW JUST KIND OF TOLD THE STORY IN COTTON. IT'S THE REASON EVERYBODY IS CONCERNED. AGAIN, YOU'VE GOT THE DOLLAR IN THE MIX. DECEMBER COTTON HAS GOT BIG RESISTANCE THERE AT $50. IF IT BREAKS THROUGH THAT, PROBABLY NOT A LOT TO STOP IT ALL THE WAY UP TO 56. SO YOU CAN EITHER MAKE SALES AGAINST 50 AND SEE IF THAT RESISTANCE HOLDS OR YOU WAIT AND SEE. GENERALLY SPEAKING, IF YOU'RE GOING TO GET GOOD PRICES ON COTTON BEANS, CORN, WHATEVER, YOU HAVE TO SELL A LITTLE EARLY AND YOU HAVE TO TAKE A LITTLE HEAT BECAUSE IT'S PRETTY IMPOSSIBLE -- AND A LOT OF PEOPLE TRY IT EVERY TIME -- TO WAIT, MAKE SURE YOU'RE SURE THE HIGH IS IN, AND THEN SELL STUFF, BECAUSE IT TAKES TOO LONG TO RECOGNIZE THAT. SO IN ORDER TO GET GOOD PRICES, YOU HAVE TO BE A LITTLE EARLY, YOU HAVE TO DO SOME SCALE-UP SELLING, AND YOU HAVE TO BE A WILLING TO TAKE A LITTLE HEAT ON THE POSITION.

Pearson: COME EARLY TO THE PARTY BUT DON'T STAY TOO LATE.

Pfitzenmaier: EXACTLY.

Pearson: ALL RIGHT. LET'S GO OVER TO THE LIVESTOCK, TOMM. THE CATTLE MARKET, AGAIN WE HAD SOME NEGATIVE NEWS THIS WEEK AS FAR AS THE PROBLEMS WITH CONAGRA AND THE OTHER BEEF SCARE. THAT'S GOING TO WEIGH SHORT TERM. LONGER TERM, FED CATTLE, WHERE ARE WE HEADED?

Pfitzenmaier: YOU KNOW, ON THE SAME TOKEN -- HAVING SAID THAT, THAT WAS NEGATIVE NEWS THAT DIDN'T CAUSE THE MARKET TO GO DOWN VERY MUCH. SO YOU HAVE TO VIEW THAT AS BEING KIND OF A POSITIVE, OR AT LEAST I DO. FINALLY WE'RE TO THE POINT WHERE PEOPLE ARE SAYING, YOU KNOW, I'M GOING TO COOK MY MEAT LONGER, I'M GOING TO CONTINUE TO EAT IT OR WHATEVER. I THOUGHT THAT WAS KIND OF A POSITIVE IN THE CATTLE MARKET. BOXED BEEF MOVEMENT HAS BEEN VERY, VERY GOOD. WE'VE REALLY CLEANED UP THE BOXED BEEF. GRANTED, WE HAD TO CUT PRICE TO DO IT, BUT STILL WE'RE GETTING THE STUFF MOVED THROUGH. WE'RE GOING TO BE WATCHING NUMBERS REAL CLOSELY, WATCHING WEIGHTS. THE UPSIDE POTENTIAL IS PROBABLY A LITTLE LIMITED TO CATTLE ON FEED REPORT OUT FRIDAY AFTERNOON. IT WAS JUST NEUTRALED AND MAYBE A LITTLE BIT BEARISH, AND WE'D FACTORED BULLISH NUMBERS IN. SO WE'RE PROBABLY GOING TO STRUGGLE NEXT WEEK. HOWEVER, I THINK YOU GET A $1 OR $2, MAYBE $3 RALLY AT THE MOST, YOU HAVE TO BE A SELLER OF CATTLE.

Pearson: REALLY QUICK, TOMM, ABOUT THIRTY SECONDS OR SO, YOUR OUTLOOK ON THE HOGS? STILL CONCERNED ABOUT FOURTH QUARTER?

Pfitzenmaier: STILL SOME CONCERN. I DON'T THINK THERE'S THE CONCERN THAT THERE WAS A MONTH OR A MONTH AND A HALF AGO. BUT I STILL THINK YOU GET DECEMBER HOGS UP IN THAT $42 TO $44 RANGE. I THINK YOU HAVE TO RUN AND BUY YOURSELF A PUT AS A "JUST IN CASE" SORT OF SECURITY BLANKET KIND OF A STRATEGY.

Pearson: AND TEN SECONDS -- ONE THING WE HAVEN'T TALKED ABOUT IS COVERING ANY FEED NEEDS WITH THESE POTENTIAL TIGHTNESS. ARE YOU DOING ANYTHING ON THAT FRONT?

Pfitzenmaier: WELL, I THINK YOU HAVE TO BE. I GUESS I'D DO IT WITH CALLS. BUT THERE'S CERTAINLY THE POTENTIAL FOR THESE MARKETS TO REALLY SKYROCKET IF IT STAYS DRY, AND YOU COULD BE PRETTY VULNERABLE IF YOU'RE A LIVESTOCK PRODUCER.

Pearson: GOOD POINT, TOMM. WE APPRECIATE IT, TOMM PFITZENMAIER. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, IF YOU'D LIKE TO HEAR MORE OF TOMM'S COMMENTARY, BY ALL MEANS, TUNE IN AT IPTV.ORG. THAT'S OUR WEB SITE. HE'LL GIVE YOU SOME MORE INFORMATION AND SOME MORE "MARKET TO MARKET" ANALYSIS. IPTV.ORG/MARKETTOMARKET. BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL TRACK THE PROGRESS OF SUDDENLY HOT COMMODITY MARKETS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA .

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