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Market Analysis: May 31, 2002

posted on May 31, 2002


The grain markets finished the week much stronger, as continued concerns about planting progress in the eastern cornbelt and continued drought in the western wheat belt weighed on traders.

For the week, wheat prices gained 13-cents. Corn futures were eight to more than nine cents higher.

Soybean futures were more than 17-cents higher. Soybean meal gained $5 per ton.

Cotton futures were $2.50 higher.

In livestock, fed cattle futures were down $1.60. Feeder cattle closed nearly two dollars lower. The lean hog contract finished the week $1.62 lower.

In the financials, Comex gold gained $5.80 per ounce. The Euro gained 115-basis points against the dollar. The CRB index finished the week more than two points higher to close at 204.75.

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

Market Analysis: May 31, 2002

Martin: THANK YOU, MARK.

Pearson: WELL, AS A BIG UPTICK IN THE GRAINS THIS WEEK, PROBABLY AS BIG A RALLY FOR A WEEKLY BASIS AS WE'VE SEEN IN A WHILE. WHAT SHOULD WE DO ABOUT IT? LET'S TALK ABOUT WHEAT FIRST.

Martin: WELL, ONE, I THINK THAT THERE'S A LITTLE BIT OF AN UNDERLYING FACTOR, I THINK, THAT'S WORKING INTO ALL THE GRAIN MARKETS. AND NOT EVEN GRAIN, BUT COTTON AS WELL. AND IT'S THE FACT THAT I THINK THERE'S A FEAR OF POSSIBILITY OF WAR. THE SITUATION THAT'S GOING ON BETWEEN PAKISTAN AND INDIA, THOSE ARE TWO MAJOR USERS AND PRODUCERS OF WHEAT AND I THINK THAT ALSO, OF COURSE, BIG USERS OF SOYBEAN OIL OR VEG OIL. AND THEY'RE GOING THROUGH SOME DRY TIMES IN INDIA. THE RAPE SEED CROP IS HAVING SOME PROBLEMS, SO THAT'S ENHANCING THE BEAN OIL MARKET, BUT ALSO THEIR WHEAT IS IN POOR QUALITY. THEY HAVE A LOT OF WHEAT IN STORAGE, BUT IT'S OF ALL POOR QUALITY. SO I THINK THAT WHEN WE LOOK AT THIS WHEAT MARKET AND YOU LOOK AT CHINA IN THE LAST COUPLE WEEKS HAS LOST ABOUT FIVE MILLION METRIC TONS OF PRODUCTION OUT OF WHEAT, CANADA IS EXPECTED TO LOSE -- OR ESTIMATED TO HAVE LOST AROUND MAYBE TWO TO THREE MILLION METRIC TONS. ARGENTINA IS LOSING ACRES TO BEANS AS WELL FROM WHEAT, AND I THINK THAT THE U.S. HAS GOT A GOOD SUPPLY OF -- A GOOD SUPPLY BUT A TIGHTER SUPPLY OF GOOD QUALITY WHEAT. AND SO I THINK THE WHEAT MARKET HAS GOT POTENTIAL HERE. THE OTHER THING I THINK IS THAT WE'RE LOOKING AT A LITTLE BIT MORE OF INFLATION IN THE MARKET. GOLD HAS BEEN A GOOD MARKET, YOU KNOW, MOVING HIGHER. AND THAT'S BEEN BECAUSE OF THIS INDIA AND PAKISTAN SITUATION. YOU KNOW, THE U.S. IS PULLING PEOPLE OUT, AND THEY WOULDN'T BE DOING THAT IF THERE WAS CONCERN. BOTH HAVE NUCLEAR. I THINK THERE'S A MAJOR CONCERN THAT THIS COULD LEAD TO SOMETHING MUCH BIGGER. I THINK THAT'S AN UNDERLYING ISSUE. AND THEN WHEN HE WE LOOK AT THE ISSUE OF WHAT WE'RE GOING TO SEE FOR WHEAT ACRES THIS NEXT YEAR, WE EXPECT SOME ACREAGE DROP. AND THEN YOU'VE GOT, LIKE WE TALKED ABOUT EARLIER IN THE SHOW, THE SEGMENTS THAT WERE ON THE WHEAT PRODUCTION OUT OF COLORADO AND KANSAS. WESTERN PARTS OF OKLAHOMA AND KANSAS AND COLORADO ARE ALL HAVING VERY DIFFICULT TIMES. THOSE WILL BE THE YIELDS YOU'LL HEAR FIRST, AND THEN WE'LL GET INTO THE BETTER YIELDS THAT WILL BE IN THE CENTRAL PARTS OF OKLAHOMA AND KANSAS.

Pearson: ALL RIGHT. A LITTLE OPPORTUNITY HERE TO PLAY A POTENTIAL WAR MARKET, AS WE TALKED ABOUT AND ALSO, OF COURSE, THE CONTINUED WEATHER PROBLEMS. ARE WE MAKING SALES IN HERE OR NOT ON WHEAT?

Martin: WELL, I THINK WE'RE STILL GOING TO PUSH A LITTLE BIT HIGHER. NOW, GRANTED, USUALLY WHEN YOU RALLY, MAYBE PUT A LOW IN APRIL AND YOU RALLY IN MAY INTO JUNE, A LOT OF TIMES THAT IS AN OPPORTUNITY TO MARKET SOME GRAIN. IF YOU'RE NEEDING TO MAKE HARVEST SALES, THIS IS YOUR OPPORTUNITY, THEN, TO DO SO. AS WE GO INTO JUNE, WE SHOULD SEE SOME HIGHER HIGHS HERE IN EARLY JUNE AND THEN TAKE ADVANTAGE OF THAT. HOWEVER, USE ANY NICE LITTLE BREAKS YOU GET AND REPLACE YOUR OWNERSHIP BACK ON THE BOARD IN THE DECEMBER TIME FRAME. I THINK THAT WE'VE GOT A NICER YEAR COMING IN WHEAT.

Pearson: ALL RIGHT. LET'S TALK ABOUT WHAT'S AHEAD NOW FOR CORN. THIS HAS BEEN A NICE MOVE. WE'RE IN KIND OF A ZONE. THIS IS WHEN WE SHOULD GET A GOOD PRICE FOR THE CORN, RIGHT?

Martin: WELL, IT IS. IT'S THE TIME OF THE YEAR WHEN YOU NORMALLY WILL START TO LIFT. THIS YEAR RELATES VERY SIMILAR IN PRICE MOVEMENT AND ALSO A FEW WEATHER FUNDAMENTALS. THIS YEAR RELATES A LOT TO THE YEAR OF 1980. THAT YEAR THE EASTERN CORN BELT HAD SOME WEATHER PROBLEMS BEING TOO WET, THAT TYPE OF THING. THE WEST WAS A LITTLE DRIER. THE EL NINO WOULD START TO SHOW UP AND BE PROGRESSIVE, AND THEN IT WOULD RETRACT. AND THEN YOUR CENTRAL PACIFIC WATERS WOULD HEAT UP, THAT TYPE OF THING. THERE'S SIMILARITIES. BUT ALSO, AGAIN, CORN SEEMS LIKE THERE'S A LITTLE SOMETHING UNDER IT BESIDES JUST WEATHER. IF IT WAS JUST WEATHER, THIS LAST WEEK, WITH GOOD WEATHER COMING IN SO THEY COULD PLANT SOMETHING, THE WEATHER WOULD HAVE TURNED TAIL -- OR THE MARKET, I SHOULD SAY, WOULD HAVE TURNED TAIL A LITTLE BIT, AND IT DIDN'T DO THAT. NOW, GRANTED, CROP CONDITIONS ARE WELL BEHIND. THE BEST PART IS THAT THIS WEATHER SITUATION, UNFORTUNATE FOR THE PEOPLE IN THE EASTERN CORN BELT BUT GOOD FOR PRICES, IS THAT IT'S IN THE BACK YARD OF THE CHICAGO BOARD OF TRADE TRADERS. THEY GET OUT AND LOOK AT -- DRIVE AROUND OVER THE WEEKEND. THEY SEE THE BAD-LOOKING CROPS. YOU KNOW, GOD FORBID IF WE TURN HOT AND DRY COMING TOWARDS THE LATTER PART OF JUNE, INTO JULY, YOU'RE GOING TO HAVE A MARKET ON A ROLL.

Pearson: THAT'S RIGHT. SO WE COULD -- THAT COULD BE THE CASE. SO WHAT DO YOU RECOMMEND? THERE'S STILL A LOT OF OLD CROP OUT THERE.

Martin: THAT'S PROBABLY ONE OF THE BIGGER NEGATIVES THAT YOU HAVE IN THIS CORN MARKET. THERE'S A COUPLE OF THEM. ONE IS THAT THE FARMER IS HOLDING MOST OF THE GRAIN. SO CAN THIS CORN MARKET REALLY RUN AWAY? PROBABLY NOT. IT'S GOING TO BE THE FOLLOWER. IT'S STILL GOING TO BE IN ITS THIRD STALL. IT'S THE FOLLOWER. THE OTHER THING THAT WE HAVE BEHIND US IS THE FACT THAT THE FARM BILL AS YOU -- OKAY, YOU HAVE AN OLD CROP ON SUPPLY. YOU'VE GOT A NEW CROP COMING, LESS ACRES THAN WHAT IT ORIGINALLY STARTED WITH, SO THAT'S THE FIRST START OF A PLUS. BUT THEN YOU'VE ALSO GOT THE EXPECTATION OF 2003 AND 2004 CROPS BEING MUCH BIGGER. SO THE ATTITUDE BY THE END USER IS GOING TO BE, WELL, WE CAN WAIT THIS ONE OUT. AND THEY'LL JUST GO HAND-TO-MOUTH AND FOLLOW THROUGH IT. OF COURSE, IF YOU GET A HOT, DRY SUMMER, AFTER YOU'VE DROPPED SOME ACRES -- AND WE KNOW WE'RE LOSING ACRES -- THEN THERE'S GOING TO BE THE SITUATION OF THE END USER HAVING GONE HAND-TO-MOUTH FOR YEARS AND GETTING USED TO IT AND LIKING IT. AND OF COURSE THAT'S -- HE'S MADE A LOT OF MONEY OFF OF HIS LIVESTOCK OFF OF THAT. HE COULD END UP -- WELL, HE'S ALREADY LOSING MONEY IN HIS LIVESTOCK BECAUSE OF END PRICES. YOU KNOW, IF FEED COSTS START TO GO UP, IT'S GOING TO PINCH HIM EVEN HARDER.

Pearson: ALL RIGHT. LET'S TALK ABOUT SOYBEANS AND WE'RE THROUGH THE HARVEST IN THE SOUTH, AND NOW THE FOCUS IS BACK ON THE UNITED STATES AGAIN. LATER PLANTINGS ARE A FACTOR, NOT QUITE SO MUCH AS FAR AS THE SOYBEANS ARE CONCERNED. BUT FUNDAMENTALLY, WHAT ARE WE LOOKING AT FOR THE SOYBEAN PICTURE FOR THIS YEAR?

Martin: WELL, BEANS IS THE ONE MARKET THAT HAS LOTS OF OF PLUSES. YOU KNOW, IN THE BEGINNING OF YEAR, NOBODY BELIEVED THERE WAS EVEN A POTENTIAL FOR BEANS, BUT THERE'S LOTS OF THEM. AND THE FACT THAT FARMERS SOLD OUT OF BEANS EARLY -- OVER 80 TO 85 PERCENT OF THE BEANS ARE GONE OUT OF THE FARMERS' HANDS, SO YOU DON'T HAVE AN OLD CROP. IN THE MEANTIME, YES, WE MIGHT PICK UP A FEW ACRES OFF OF CORN, BUT IT'S NOT GOING TO BE BURDENSOME. AND AGAIN, THE FLIP SIDE OF CORN, YOU'RE EXPECTING LESS ACRES NEXT YEAR AND THE YEAR AFTER THAT. SO THAT PUTS A BIG BURDEN OF PROOF OR A BIG EMPHASIS ON THE NEW CROP. AND THIS WEATHER -- WE'RE GOING TO HAVE TO HAVE GOOD WEATHER FOR BEANS, OR WE'RE GOING TO HAVE A VERY TIGHT SUPPLY OF BEANS. IN THE MEANTIME, THERE'S FUNGUS PROBLEMS. IT'S CALLED A SOYBEAN RUST. IT'S AN ASIAN-TYPE VARIETY AND IT'S VERY AGGRESSIVE OR THOUGHT TO BE VERY AGGRESSIVE. THAT'S IN THE SOUTH AMERICAN BEANS. AND IT'S EXPECTED THAT COULD CREATE THE U.S. TO PUT A BAN ON IMPORTATION OF SOYMEAL AND SOYBEANS OUT OF SOUTH AMERICA AND ALSO CREATE CHINESE DEMAND TO COME BACK TO US.

Pearson: THAT COULD BE A DRIVER FOR SURE. SO MAYBE HOLD OFF ON THOSE SALES FOR THE TIME BEING?

Martin: I WOULD GO HAND-TO-MOUTH. I THINK YOU'VE GOT HIGHER HIGHS YET COMING IN JUNE, THEN ANOTHER PULLBACK. NOW, OUR HIGHS HAVE BEEN COMING, AND OUR LOWS, RIGHT AT THE FIRST OF A NEW MONTH OR THE VERY LAST WEEK OF A PREVIOUS MONTH. SO WE'VE RALLIED RIGHT INTO THE TURN OF THE MONTH. WE COULD MAKE HIGHER HIGHS NEXT WEEK, PULL BACK, AND THEN RALLY INTO ABOUT THE 13TH, THE 18TH, MAYBE THE 21ST.

Pearson: ALL RIGHT. QUICKLY, THE NEGATIVE SIDE IS THIS LIVESTOCK SECTOR, CATTLE AND HOGS. WE JUST HAVE A LOT OF MEAT OUT THERE.

Martin: IT'S A TON OF MEAT. AND UNFORTUNATELY, THAT TON OF MEAT -- OR THAT AMOUNT OF MEAT IN THE COOLERS KEEPS GETTING BIGGER. CATTLE AND HOGS BOTH JUST CONTINUE TO GAIN WEIGHT VERY EASILY. WE HAD A BEAUTIFUL WINTER AND WE JUST CONTINUE TO SEE TONNAGE INCREASE. CARCASS WEIGHTS IN CATTLE ARE STARTING TO INCREASE AGAIN, AND THEY'RE COMING FROM HEAVY WEIGHTS, SO THEY'RE JUST GOING TO GET HEAVIER. AND THAT'S A BURDEN IN FRONT OF US. THE OTHER THING IS THAT THE COMPETITION BETWEEN CHEAP POULTRY AND PORK IS JUST WEIGHING ON THIS MARKET, SO WE'RE PLAYING TAG BETWEEN COMMODITIES. I THINK THE CATTLE MARKET IS GOING LOWER INTO JUNE. WE STARTED TO TURN BACK DOWN THIS WEEK AFTER AN EARLY WEEK RALLY. I LOOK FOR LOWER LOWS TO BE SEEN NEXT WEEK.

Pearson: ALL RIGHT. THE HOG MARKET?

Martin: WELL, UNFORTUNATELY, I HAD HOPED THAT WE WERE PUTTING A LOW IN. I HAVE A FUNNY FEELING THE HOG MARKET IS GOING TO MAKE LOWER LOWS IN JUNE AS WELL. AT FIRST I HAD THOUGHT MAYBE WE HAD THE LOWS IN THIS PAST WEEK, BUT ONCE I GOT TO LOOKING OVER PREVIOUS DATA, THIS MARKET RELATES VERY WELL TO THE YEAR OF 1974 AND 1994, WHICH IS, COINCIDENTALLY, VERY SIMILAR ON CATTLE IN FUNDAMENTALS AS WELL. SO WE HAVE A MARKET THAT'S PROBABLY GOING TO MAKE LOWER LOWS YET IN THE HOGS BEFORE WE TURN THIS THING AROUND.

Pearson: ALL RIGHT. SO MAYBE NOT THE BRIGHTEST NEWS. WE'VE GOT FIVE SECONDS, SUE. THE COTTON MARKET IS STRONGER.

Martin: I LIKE COTTON. I THINK COTTON IS KIND OF FALLING IN THE SAME PACE AS THE SOYBEANS. AND I THINK THAT THIS IS A MARKET THAT'S GOT HIGHER TO GO, MAYBE 45 CENTS ON OCTOBER FUTURES.

Pearson: VERY GOOD. SUE MARTIN, THANKS SO MUCH.

CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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