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Market Analysis: May 24, 2002

posted on May 24, 2002


The grain markets finished the week under pressure due to ideas of big supplies and weak demand. For the week, wheat and corn prices were three to four cents lower.

Soybeans finished the week a fraction to three cents higher. Soybean meal closed $1.40 per ton. Cotton futures gained $1.05.

In livestock, fed cattle futures gained 32-cents. Feeder cattle were three cents higher. The lean hog contract closed the week $4.80 lower.

In the financials, COMEX gold gained $9.80 per ounce. The euro finished 12-basis points lower against the dollar. And the CRB index finished the week nearly two points lower to close at 202.35.

Here now to lend us his insight is one of our regular market analysts, Doug Hjort. Welcome back.

Market Analysis: May 24, 2002 DOUG, WELCOME BACK.

Hjort: THANK YOU, MARK.

Pearson: YEAH, HOW ARE WE DOING? LET'S START WITH THIS WHEAT MARKET. I KNOW THERE'S PEOPLE SITTING OUT THERE IN MONTANA AND KANSAS AND COLORADO, SOME OF THESE REAL DRY SPOTS, THAT ARE TYPICAL GROWERS AND LOOKING AT CONDITIONS AND WONDERING HOW THIS MARKET CAN CONTINUE TO WORK ITS WAY LOWER. WHAT'S THE ANSWER?

Hjort: WELL, IT'S A PERCEPTION THAT DEMAND IS WEAK, AND DEMAND IS NOT AS ROBUST AS IT PROBABLY COULD BE. AND THE OTHER THING IS THAT MORE OF THE WORLD USERS OF WHEAT ARE RAISING A LITTLE BIT MORE WHEAT, NOT JUST THIS YEAR BUT THIS HAS BEEN A TREND OVER THE LAST SEVERAL YEARS. SO THE WORLD TRADE STAYS FAIRLY STAGNANT YEAR AFTER YEAR, THE AMOUNT OF BUSHELS ACTUALLY TRADED BETWEEN COUNTRIES. NOW, THAT'S NOT GOOD BECAUSE OF OUR COMPETITION WE HAVE, A VERY KEEN COMPETITION IN WHEAT. AND REMEMBER, THE UNITED STATES IS ALWAYS THE RESIDUAL SUPPLIER, ESPECIALLY IN THE WHEAT MARKET. SO WHATEVER PRICE WE HAVE POSTED, THE OTHER EXPORTING NATIONS WILL JUST SLIP A PRICE UNDER OURS, A DOLLAR A TON OR TWO, AND THEY'VE GOT THE SALE. NOW, I DON'T THINK THE MARKET IS TAKING INTO CONSIDERATION SOME OF THE WORLD PROBLEMS. IT'S EARLY ON IN THE GROWING SEASON SO THAT CAN CHANGE. WEATHER IS VERY FICKLE, OF COURSE. BUT YOU'VE GOT RUSSIA, SIBERIA, THE UKRAINE, YOU HAVE CHINA, YOU HAVE CANADA, THE UNITED STATES ALL HAVING SOME PROBLEMS WITH PRODUCTION RIGHT NOW. AND THEN YOU HAVE AUSTRALIA THAT ALWAYS GETS A LITTLE BIT LOWER WHEAT PRODUCTION IN AN EL NINO YEAR, IF THIS IS AN EL NINO YEAR. AND THEN, OF COURSE, YOU HAVE ARGENTINA; THEY'RE WORRIED ABOUT GETTING ENOUGH MONEY TO THE FARMERS TO PLANT ANOTHER WHEAT CROP RIGHT NOW. SO ALL THE BALLS ARE IN THE AIR ON THE SUPPLY SIDE RIGHT NOW, BUT THE TRADE JUST KEEPS SELLING THIS MARKET OFF, JUST LIKE THEY HAVE DONE ON THE CORN FOR A LONG TIME. TRYING TO GET A RALLY NOW GOING INTO THE HARVEST PERIOD, THE HARVEST IS STARTING DOWN IN THE SOUTHERN PLAINS NOW AND THE DEEP SOUTH. IT'S GOING TO BE PRETTY TOUGH TO GET SOMETHING, EVEN THOUGH I THINK DEMAND IS GOING TO BE MUCH BETTER, PARTICULARLY FOR U.S. WHEAT, IN THE COMING YEAR.

Pearson: ALL RIGHT. SO WHAT'S OUR STRATEGY AT THIS POINT FOR THE WHEAT GROWERS, DOUG?

Hjort: WELL, I THINK ON NEW CROP, YOU DON'T DO ANYTHING BUT JUST PUT IT IN THE BIN AGAIN. THAT MIGHT CHANGE A LITTLE BIT BY CLASS OF WHEAT, BUT CERTAINLY NOT FOR THE SOFT RED WINTER OR THE HARD RED WINTER. SOFT RED WINTER SUPPLIES WILL CRUNCH DOWN MORE. IN OTHER WORDS, ENDING STOCKS A YEAR FROM NOW WILL BE SMALLER THAN THEY ARE NOW, AND THEY'RE ALREADY QUITE TIGHT.

Pearson: WELL, LET'S TALK ABOUT THE CORN MARKET. AND OF COURSE, THEY'RE ALL KIND OF INTERRELATED. CORN ALSO SOFTER THIS WEEK. AND WE HAVE CONCERNS ABOUT THE EASTERN CORN BELT AND THE TIMELINESS OF PLANTING. WE'VE GOTTEN SOME OF THAT CAUGHT UP NOW. IDEAS ARE THAT WE'RE GOING TO HAVE AN AWFUL LOT OF CORN COME OCTOBER. WHAT'S THE TAKE NOW ON CORN PRICES. WE'VE GOT A LOT OF WEATHER BETWEEN NOW AND THEN.

Hjort: WE CERTAINLY DO AND WEATHER HAS TO BE VERY, VERY GOOD IF WE'RE GOING TO HAVE THIS LARGE SUPPLY THAT THE TRADE IS TALKING ABOUT. ON USDA PLUG ESTIMATES FOR THE MONTH OF MAY -- THAT THE FIRST OFFICIAL ESTIMATE FOR THE NEW YEAR -- THEY CAME OUT WITH JUST UNDER A 9.9-BILLION-BUSHEL CROP. BUT THE INTERESTING THING WAS THAT DEMAND IS JUST OVER TEN BILLION BUSHEL NOW. IT'S A VERY KEY THING TO KEEP YOUR EYE ON. NOW, OBVIOUSLY, IF THE SUPPLY ISN'T THERE, YOU'RE NOT GOING TO USE THAT MUCH. YOU KNOW, PRICE WOULD RATION THAT BACK A LITTLE BIT, AND IT WOULD START FAIRLY QUICKLY. BUT I THINK AS WE SAW IN SOYBEANS, MONTH AFTER MONTH AFTER MONTH DURING THE WINTER, EVERYBODY IN THE TRADE WAS SAYING THAT DEMAND IS TERRIBLE, SUPPLY IS TOO HUGE, AND SO ON. AND NOW WE'RE SITTING HERE 85 CENTS OFF OF THE LOW FROM LAST FALL IN THE CASH PRICE, AND THIS PRICE MAY NOT BE DONE GOING UP YET ON THE SOYBEANS. THE SAME THING IS STARTING TO BUILD ON THE CORN. IT MAY NOT HAPPEN NEXT WEEK OR EVEN NEXT MONTH, BUT THROUGH THIS YEAR WE'RE GOING TO HAVE TO HAVE EXCELLENT WEATHER, MUCH BETTER WEATHER THAN WE'VE HAD SO FAR, IN ORDER TO HAVE TRENDLINE YIELDS AND, THEREFORE, KEEP ENDING STOCKS FROM DROPPING OFF TOO MUCH. A 3-BUSHEL-PER-ACRE DROP FROM TRENDLINE YIELD IN THE UNITED STATES AND A 1-MILLION-ACRE REDUCTION IN PLANTED ACREAGE... NOW, I DON'T KNOW IF WE'LL GET THAT OR NOT, BUT IF YOU DO, THAT WOULD LOWER THE ENDING STOCK DOWN TO AROUND 1.1 TO 1.2 BILLION BUSHEL AND SHOULD CAUSE PRICES TO RALLY. THAT'S AVERAGE PRICE FOR THE WHOLE YEAR SHOULD RALLY ANYWHERE FROM 20 TO 40 CENTS A BUSHEL. NOW, THAT'S A PRETTY STARTLING STATEMENT FOR A CROP THAT JUST CAN'T GET AWAY FROM CONTRACT LOWS. BUT THERE'S GOING TO BE SOME BIG CHANGES COMING IN THAT CORN MARKET IN THE COMING YEAR.

Pearson: OKAY. SO YOUR ADVICE IS STAY FLEXIBLE IF YOU'RE A CORN PRODUCER?

Hjort: THAT'S RIGHT.

Pearson: OKAY. QUICKLY, ON THE BEANS, DOUG. A SIMILAR SITUATION?

Hjort: SIMILAR SITUATION, ALTHOUGH IT'S EVEN TIGHTER. OUR DEMAND IS SO STRONG FOR BEANS, BOTH ON THE EXPORT MARKET -- WE'RE JUST AT THAT -- WE'VE COMPLETED THE USDA TARGET NOW ON EXPORT SALES. THE CRUSH, 5.3 PERCENT ABOVE A YEAR AGO FOR THE FIRST SEVEN MONTHS OF THE YEAR. USDA IS PREDICTING A LITTLE LESS THAN 2-PERCENT INCREASE IN THE CRUSH THIS YEAR. NOW, DEMAND IS GOING TO BE SO STRONG, ENDING STOCKS WILL DROP FROM THE 255 LEVEL THAT'S PROJECTED RIGHT NOW TO 240 OR MAYBE EVEN SOMETHING LOWER. THAT'S SUPPORTIVE FOR PRICES THIS YEAR, NOT BULLISH. BUT AS YOU GO TO THE NEXT YEAR, YOU ALSO HAVE TO CUT YOUR STOCKS DOWN THAT MUCH BECAUSE YOU HAVE TO RAISE DEMAND AN EQUAL AMOUNT, AS YOU'RE DOING THIS YEAR. SO IT BECOMES A DOUBLE WHAMMY THERE. SO WE'VE SEEN THAT START TO PLAY OUT IN PRICE ON SOYBEANS ALREADY, AND PRICES ARE AT A VERY CRITICAL POINT RIGHT NOW ON SOYBEANS. THEY'RE GOING TO HAVE TO BREAK THROUGH THIS MAGICAL $5 LEVEL IN THE FUTURES TO KEEP GOING HIGHER, AND THEY'RE RIGHT THERE AT THIS TIME.

Pearson: ALL RIGHT. LET'S GO OVER TO LIVESTOCK. WE'VE JUST HAD SOME TERRIBLE RED MEAT MARKETS HERE FOR THE LAST SIX WEEKS. WHAT'S YOUR OUTLOOK NOW? ON THIS CATTLE MARKET, HAVE WE BOTTOMED IN HERE?

Hjort: WELL, I THOUGHT WE HAD BACK WHEN WE WERE AT THIS PRICE A COUPLE, THREE WEEKS AGO. WE BOUNCED IT UP QUICKLY ONE WEEK. BACK DOWN AGAIN THIS WEEK. TOO MUCH BEEF AROUND. RATHER UNCERTAIN AS TO WHAT THE DEMAND WILL BE NOW AFTER THE MEMORIAL DAY WEEKEND, ALTHOUGH RETAILERS SUGGESTED THIS WEEK THEY WOULD CONTINUE TO PUSH BEEF AT THE RETAIL LEVEL QUITE STRONG. I WOULD LOOK FOR A PRETTY CHOPPY CASH MARKET IN THE CATTLE FOR SOME TIME NOW. WE HAVE MORE CATTLE COMING AT US. CARCASSES ARE STILL EXTREMELY HEAVY, SO I WOULDN'T LOOK FOR MUCH IMPROVEMENT ON PRICE FOR SOME TIME.

Pearson: QUICKLY, OVER ON THE HOGS, DOUG. AGAIN, A REALLY BAD WEEK ON THE FUTURES, AND THE CASH TOOK A BIG SLIDE TOO. ANY CONCERN ABOUT THE FOURTH QUARTER?

Hjort: WELL, THERE IS THAT CONCERN OUT THERE. ALTHOUGH, WHEN YOU SEE SUCH A VIVID CONCERN OUT THERE, A LOT OF TIMES A MARKET WORKS ITSELF OUT BEFORE YOU GET THERE. AND I THINK THAT COULD EASILY HAPPEN THIS YEAR. PORK DEMAND IS VERY GOOD, AND IT IS HELPING TO TAKE PRODUCT OFF THE MARKET, EVEN THOUGH THE COLD STORAGE NUMBERS SHOWED HUGE AMOUNTS OF PORK IN STORAGE. THAT WAS PARTLY DUE TO THE RUSSIAN SITUATION THAT YOU ALLUDED TO EARLIER IN THE SHOW. AND NOW THEY ARE SUPPOSEDLY GOING TO START TAKING SOME OF THAT CHICKEN AGAIN, RUSSIA, THAT IS. SO THAT COULD ALLEVIATE THE PRESSURE ON THE HOGS.

Pearson: ALL RIGHT. WELL, IT REMAINS TO BE SEEN, DOUG. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET."

CLOSED CAPTIONING BY: MIDWEST CAPTIONING

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