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Market Analysis: Jun 28, 2002

posted on June 28, 2002


Despite the dampening effect of government acreage numbers the nearby corn contract closed the week 15 and ¾ cents higher, December corn 16 and ¾ cents higher. July wheat finished 16 and ¾ cents higher as well. At week's end the soybean pits where in the control of the bulls. The nearby contract gained 41 and half cents on the week, the new crop November contract picked up 36 cents from last Friday's close. July meal closed nearly 4 dollars a ton higher as well.

In livestock, fed cattle futures gave up 32 cents. The August feeder and the July lean hog contract closed 95 cents lower.

In the financials, COMEX gold lost $10,70 and ounce lower. The euro continued its gain against the dollar, closing at near parity with the dollar. And the CRB index, boosted by the grain and oilseed complex finished 275 basis points higher at 208.

Here now to lend us her insight is one of our regular market analysts, Sue Martin. Welcome back.

Market Analysis: Jun 28, 2002

Sprecher:WELL, LET'S TURN TO THE SOYBEAN PIT, WHERE IT WAS ON FIRE MUCH OF THE WEEK, AND ESPECIALLY ON FRIDAY. WHAT SORT OF PROSPECTS DO BEAN TRADERS LOOK TOWARD IN THE NEXT TWO, THREE WEEKS?

Martin: WELL, FIRST OF ALL, AFTER SEEING THE SURPRISE -- SEEING THE USDA TAKE THE ACRES NUMBERS AND PUT THEM BACK AND ADJUST THEM BACK TO THE END OF MARCH ON THE STOCKS REPORT THAT THEY LOOKED AT, IT REALLY SHOCKED THE TRADE. I THINK IT REALLY SURPRISED THEM. THEY DID NOT ANTICIPATE THAT. OF COURSE, NEARLY EVERYBODY WAS IN AGREEMENT THAT WE WOULD HAVE LESS CORN ACRES AND MORE BEAN ACRES. NOW WHAT IT DOES IS IT REALLY SETS THE STAGE FOR A VERY FRIENDLY BEAN MARKET. THE ONLY NEGATIVE THING YOU'VE GOT IS THE SOUTH AMERICAN CROP. AND ARGENTINA IS IN SUCH TURMOIL THAT THEY'RE NOT SELLING, AND I SUSPECT THEY DON'T GET IMF FUNDING UNTIL THE LATTER PART OF AUGUST AT THE EARLIEST. AND YOU'VE GOT THE BRAZILIAN FARMER USING OUR MARKET RALLY TO MARKET HIS BEANS ON AND, OF COURSE, THEY'RE MOVING A LOT OF BEANS OUT OF THE COUNTRY AS A PRODUCT OF SOY MEAL. WHAT'S GOING TO HAPPEN NOW, WE DON'T HAVE MUCH OLD CROP GRAIN LEFT IN THE FARMERS' HANDS AS FAR AS SOYBEANS. THEREFORE, IT MAKES THIS NEW CROP WITH THE SUPPLIES AND THE STOCKS EXTREMELY TIGHT. IT MAKES THIS NEW CROP VERY VULNERABLE TO ANY HINT OF A WEATHER SCARE. IT'S A LITTLE EARLY YET FOR SOYBEANS, NOT SO MUCH FOR CORN BUT FOR BEANS IT IS. BUT BECAUSE OF THESE STOCK NUMBERS, IT SAYS THAT, BOY, ANY HINT OF A SCARE AND YOU'VE GOT BEANS BALLISTIC. SO, YOU KNOW, I PROBABLY SHOULD HAVE WORN MY ROSE-COLORED GLASSES, BUT I THINK WE'VE GOT A BEAN MARKET. AUGUST BEANS NEAREST TARGET IS PROBABLY 5.59. ON THE NOVEMBER BEANS -- THAT WAS BASIS AUGUST. ON NOVEMBER BEANS, I WOULD SAY 5.17 IS A SECOND TARGET WE HAVE. WE COULD PROBABLY EVEN SEE NOVEMBER BEANS GET UP TO ABOUT 5.63, WHICH HAPPENS TO BE THE CONTRACT HIGHS FOR THIS YEAR'S CONTRACT OF NOVEMBER BEANS. WHEN YOU LOOK AT DEC. CORN -- AND IT'S AT 244.5 AREA, 244 -- THE OLD-TIME THEORY WAS THAT BEANS SHOULD BE 2.5 TIMES THE PRICE OF CORN. AND THAT EQUATES TO 6.10 ON A BEAN PRICE ON THE BOARD. AND WE'RE NOT FAR -- OR WE'RE FAR AWAY FROM THAT, AND I WOULD HAVE TO SAY THAT WE HAVE A VERY REAL POSSIBILITY YOU COULD SEE $6 BEANS THIS YEAR. WE'LL PROBABLY GET TO THAT -- I BELIEVE WE WILL GET TO THAT 5.59, 5.60 AREA --

Sprecher: BY WHEN?

Martin: I'M THINKING IF WE DON'T SEE MUCH RAIN IN THE FORECAST NEXT WEEK, YOU'LL PROBABLY SEE IT BY WEEK END OF NEXT WEEK. AND WE'VE KIND OF GOT AN OLD-FASHIONED FOURTH OF JULY GOING WHERE IT'S GOING TO BE REALLY HOT, AND WE HAVEN'T HAD THAT FOR ABOUT THREE, FOUR YEARS.

Sprecher: AND THE MARKET WON'T BE TRADING AT LEAST ONE DAY NEXT WEEK.

Martin: THAT'S RIGHT.

Sprecher: MAYBE LIGHTLY ON FRIDAY.

Martin: THEY'LL CUT IT SHORTER. THAT'S RIGHT. AND SO I LOOK AT SOYBEANS AND I THINK THE JULYS WILL GO TO 5.63. THE OLD CROP WILL KEEP THE PUSH BECAUSE THEY'LL HAVE TO BID OR RATION BEANS. ONE THING I LIKE IS, IN NEXT YEAR'S MARKETS, I THINK YOU CAN BULL SPREAD NEXT YEAR'S JULY/NOV BEANS, BECAUSE THAT'S GOING TO BE A VERY IMPORTANT TIME AND FARMERS WON'T SELL IF THERE'S ANY HINT OF A WEATHER SCARE. THEY'LL HANG ON TO WHAT CROP THEY HAVE INTO NEXT YEAR, FEARING WHAT IF WE HAVE ANOTHER ONE, AND SUPPLY IS GOING TO BE VERY TIGHT. YOU'RE GOING TO HAVE TO RATION BEANS AS YOU GO THROUGH NEXT YEAR. SO I BELIEVE WE'RE LOOKING AT A VERY BULLISH BEAN MARKET GOING INTO NEXT YEAR. AND OF COURSE, IF WE CONTINUE WITH PROBLEMS IN SOUTH AMERICA, IT JUST ADDS TO THE BULLISH UNDERLAYMENT OF THIS MARKET. WE PROBABLY HAVE THE TIGHTEST SUPPLIES OF BEANS WE'VE HAD IN FIFTEEN YEARS.

Sprecher: NOW, THE CORN MARKET, THAT WAS DAMPENED A BIT BY AN ADDITIONAL FOUR MILLION ACRES THAT NO ONE THOUGHT EXISTED IN CORN. YET THERE REMAIN QUESTIONS ABOUT THE QUALITY OF THAT CORN ACREAGE -- THE QUALITY OF CORN THAT'S PLANTED ON THOSE ADDITIONAL ACRES, THE LATENESS OF THE SPRING. AND THERE STILL SEEMS TO BE SOME UPSIDE IN THE CORN MARKET, AS WELL AS THE WHEAT MARKET WHICH GOT A HUGE BOOST THIS WEEK.

Martin: WELL, IT CERTAINLY DID. AND WHEN I LOOK AT THE CORN MARKET, I'M OF THE CONTENTION THAT CORN IS THE FOLLOWER. IT'S NOT THE REAL BULL MARKET. FARMERS HAVE A FAIR AMOUNT OF OLD CROP CORN IN THEIR HANDS. THEY'RE USING THIS RALLY TO MARKET ON AND THAT'S GOOD, BECAUSE IF YOU GET A RAIN, CORN IS JUST GOING TO EVAPORATE. YOU PROBABLY HAVE SEEN YOUR HIGHEST ACREAGE NUMBER THAT YOU'RE GOING TO SEE. AND SO NOW, IN ORDER TO KEEP CORN MOVING, YOU HAVE TO HAVE A WEATHER MARKET. AND OF COURSE, WHAT WILL HAPPEN IS BEANS WILL LEAD THE WAY, CORN WILL FOLLOW. IF WE HAVE A DRY WEEK NEXT WEEK, YOU WILL PROBABLY SEE DECEMBER CORN FUTURES GET TO 252.5. WE TOOK OUT THE HIGHS OF LAST YEAR ON THE CORN. AND IF YOU GET THE 252.5 AREA, YOU'LL PROBABLY GET A CORRECTION FROM THERE. THEN THE NEXT LAG WILL BE 274. BUT I WOULD SAY 274 IS GOING TO BE A TOUGH, TOUGH AREA FOR THE DEC. CORN IF IT MANAGES TO GET THAT HIGH.

Sprecher: SO YOU'D BE SELLING PRETTY MUCH ANYTIME OVER 250, 255.

Martin: ABSOLUTELY. I WOULD USE THE 252 TO THE 274 AREA AS A PLACE TO GET NEW CROP SALES MARKETED. BUY THE 240 PUTS ALSO. THAT'S ANOTHER WAY TO FLOOR THIS MARKET IF YOU'RE REALLY BULLISH AND THINK THIS MARKET IS GOING HIGHER. REMEMBER, BECAUSE OF THE FARM PROGRAM, WE'RE GOING TO HAVE BIG ACRES AGAIN NEXT YEAR. SO I THINK THE BEANS IS A PLACE TO BE. I THINK IF YOU WERE WANTING TO INVEST IN CORN, YOU GO OVER AND YOU DO IT IN BEANS INSTEAD AND MAKE DOUBLE THE MONEY TYPE THING. YOU KNOW, ANOTHER THING, TECHNICALLY ON BEANS, WE'VE TAKEN OUT LAST YEAR'S HIGHS AND LOWS. WE TOOK OUT THE LOWS ON THE FIRST TRADING DAY OF JANUARY, AND WE TOOK OUT THE HIGHS HERE TODAY. SO WE HAVE A NICE OUTSIDE YEAR GOING, AND THAT SHOULD BE BIASED TO THE POSITIVE SIDE AS WELL. SO ANY BREAKS, IF WE TAKE, SAY NEXT WEEK, AND WE MAKE HIGHER HIGHS OVER THIS MONTH OF JUNE, THAT TELLS ME WE'VE GOT A BULL MARKET ON OUR HANDS ALL THE WAY UNTIL THE LATTER PART OF AUGUST. IT DOESN'T MEAN YOU CAN'T HAVE 30-, 40-CENT BREAKS OR 20-CENT BREAKS IN THERE, BUT YOU BUY THEM.

Sprecher: RIGHT NOW THE WHEAT PRODUCERS PROBABLY HAD THEIR BEST NEWS THIS WEEK IN TERMS OF PRICES. THEY STILL DON'T HAVE MUCH OF A CROP BECAUSE OF THE DROUGHT. WHAT SORT OF UPSIDE CAN THEY EXPECT?

Martin: WELL, I THOUGHT IT WAS INTERESTING THAT THE USDA CAME OUT WITH -- ACTUALLY, I THINK AT THE END OF MARCH, THERE WERE AROUND 59.2 MILLION ACRES OF WHEAT PLANTED, AND TODAY THEY CAME OUT WITH 60 MILLION ACRES. THEY DON'T FEEL WE'VE HAD ABANDONMENT. AND THE PRODUCER I THINK HAS TILL, LIKE, AROUND THE 25TH OF JULY TO CLAIM HIS ACREAGE. AND SO I SUSPECT THAT THE USDA WILL REVISE THIS, BUT IT MIGHT COME IN YIELD REDUCTIONS AS WE GO DOWN THE ROAD THROUGH FURTHER REPORTS. PROBABLY THE FINAL CROP PRODUCTION REPORT IN JANUARY OF 2003 WILL BE A VERY FRIENDLY REPORT TO THE WHEAT MARKET. THE WHEAT MARKET AND SOYBEANS BOTH ARE MARKETS THAT WILL REACT TO A DECLINING DOLLAR MORE SO THAN CORN. SO I THINK WHEAT IS A BUY ON ANY SETBACKS THAT YOU GET. LONG-TERM, I THINK WHEAT IS A GOOD, POSITIVE MARKET. WE'VE GOT TIGHT SUPPLIES IN THE U.S. OF WHEAT. AND I THINK THAT WE'RE GOING TO SEE A MARKET THERE THAT'S GOING TO CERTAINLY TRY TO GRATIFY ITSELF HIGHER. WE'VE HAD A VERY COUNTERSEASONAL TREND. THE MARKET IS SAYING REWARD THE MARKET -- OR THE CASH MARKET WITH SOME SALES. AND I WOULD SAY, YES, DO SO THROUGH THE MONTH OF JULY HERE, START MAKING SOME SALES AND GET YOUR CASH MARKETED BECAUSE YOU CAN GO OUT AND OWN IT BACK ON THE BOARD CHEAPER AND STOP INTEREST AND STORAGE COSTS.

Sprecher: NOW, I HAVEN'T SAID TOO MUCH ABOUT LIVESTOCK BECAUSE MOST OF OUR ANALYSTS BELIEVE THAT THERE ISN'T MUCH UPSIDE ON LIVESTOCK RIGHT NOW, ESPECIALLY IN THE HOG COMPLEX, THAT THE FOURTH QUARTER LOOKS VERY DISMAL. AND GIVEN THE COST OF GRAIN, IT WOULD SEEM THAT -- IN JUST A MINUTE OR SO LEFT, YOU MIGHT GIVE COMMENT THAT THE THIRD AND FOURTH QUARTER, WHAT ARE THE PROSPECTS?

Martin: WELL, ON HOGS, WE HAD A HOGS AND PIG REPORT COME OUT HERE ON THE 28TH. IT WAS TERMED NEUTRAL/NEGATIVE. IT CERTAINLY SHOWED THAT WE'VE GOT GOOD STOCKS AND WILL HAVE GOOD STOCKS OF PORK. WE'VE GOT A FAIR AMOUNT -- A LARGE AMOUNT OF PORK CONTINUING TO MOVE IN AS OF JUNE 15, MOVING IN FROM CANADA, OR A NUMBER OF FEEDER PIGS COMING INTO OUR COUNTRY, NEARLY DOUBLE OF WHAT IT WAS IN 1999. I THINK YOU'RE NOT GOING TO HAVE ANY PROBLEM WITH PORK BELLY SUPPLIES IN STORAGE. I THINK THAT WHAT WE'RE SAYING IS, WE'RE GOING TO HAVE 2 PERCENT MORE HOGS IN JULY AND AUGUST. THE FOURTH QUARTER STILL APPEARS LIKE WE'RE GOING TO HAVE SOME FAIRLY GOOD NUMBERS. WE NEED GOOD DEMAND AND THAT'S WHERE WE'RE AT. WE NEED THAT DEMAND TO HIKE UP HERE SO THAT WE CAN START TO LOWER AND COMPETE AGAINST THESE INCREASING SUPPLIES, BECAUSE WE'RE CERTAINLY GOING TO HAVE THEM. THE HOG REPORT DIDN'T SHOW ANY LIQUIDATION.

Sprecher: AND MUCH THE SAME STORY FOR BEEF, WE MIGHT ADD.

Martin: WELL, THE CATTLE MARKET, AGAIN, WE'RE GOING TO HAVE HEAVY CARCASS WEIGHTS THROUGH THE SUMMER. I THINK WE'RE GOING TO HAVE A MARKET THAT COULD BE A LITTLE BIT TOUGHER. I LOOK FOR LOWER LOWS HERE IN CATTLE AS WE GO -- FROM THIS WEEK, AS WE GO THROUGH THE FIRST WEEK OR TWO OF JULY.

Sprecher: THANKS SUE. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." YOU CAN HEAR MORE OF SUE'S COMMENTS ON OUR WEBSITE: IPTV.ORG/MARKETTOMARKET. JOIN US AGAIN NEXT WEEK WHEN WE WRAP UP OUR LOOK AT COPING WITH URBAN SPRAWL. UNTIL THEN, FOR MARK PEARSON, I'M SID SPRECHER. HAVE A GOOD WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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