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Market Analysis: May 17, 2002

posted on May 17, 2002


Uncertainty about the weather was the key factor in markets this week. The July wheat contract finished 8 and ¾ cents higher. July corn gave back some of the gains made earlier in the week, finishing 3 cents higher. July beans though closed 16 and ¾ cents higher. July meal finished 6 dollars 70 cents. July cotton gained 64 cents a hundred weight.

In the livestock sector June cattle gave up a dollar thirty, while May feeders gained 78 cents. The nearby hog contract, now June, gained more than 7 dollars on the week.

In the metals and financials Gold closed 40 cents lower. The euro finished 92 basis points higher and the CRB index closed nearly two points higher at 204.

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

Market Analysis: May 17, 2002 WELCOME BACK, WAYNE.

Newton: HI, SID.

Sprecher: WELL, THE DROUGHT IN THE WESTERN STATES, OR ESPECIALLY IN THE WESTERN -- IN THE PLAINS, SEEMS TO BE RIPPLING ACROSS A NUMBER OF AREAS. OF COURSE, WE TALKED ABOUT THE WHEAT GROWERS EARLIER, BUT THAT IS HAVING AN EFFECT ON LIVESTOCK PRODUCERS.

Newton: YEAH, IT IS. IN FACT, WE COULD SEE SOME OF IT TODAY IN THE VIDEO SALE. COLORADO AND ON FARTHER WEST, THERE'S AN AWFUL LOT OF CATTLE BEING OFFERED. IT'S A LITTLER EARLY FOR A MASSIVE MOVEMENT, BUT IT'S ALSO GOING TO DEPRESS THE FEEDER MARKET FOR SOME TIME BECAUSE THOSE STOCKERS ARE GOING TO COME EARLY AND ADDITIONAL NUMBERS AVAILABLE TO THE FEED LOTS. AND THE FEED LOTS ARE FAIRLY FULL. I'D GO NOW THIRTY DAYS OUT AND THEY'LL BE REPLACING A LOT OF THOSE JUNE CATTLE AND PERHAPS THAT DEMAND WILL COME BACK INTO THE MARKET.

Sprecher: SO WHAT'S IT DOING FARTHER OUT TO SLAUGHTER CATTLE? IT SEEMS LIKE IT'S LIMITING YOUR HEDGING ABILITY.

Newton: WELL, I THINK SO, SID, BUT WE HAD A CATTLE-ON-FEED REPORT TODAY, AND IT HAD A LITTLE GOOD NEWS IN IT. IT WAS 98, 93 AND 111, WHICH WAS A HALF LOWER THAN ON-FEED GUESSES AND A HALF LOWER ON THE PLACEMENTS AND THEN ONE BETTER ON THE MARKETING. SO THERE MAY BE A LITTLE GOOD NEWS IN THERE FOR MONDAY, WHICH SHOWED BODE WELL FOR THE SPOT MONTHS. AND THE PLACEMENT NUMBER, OBVIOUSLY, WILL HELP THE AUGUST AND OCTOBER AND ON BACK. BUT THERE'S PLENTY OF MEAT AROUND OF ALL SORTS, SO ANY RALLY IS PROBABLY A PLACE TO LOOK FOR AN OPTION STRATEGY.

Sprecher: THE LIVESTOCK MARKET OR THE CATTLE MARKET IS ALSO WEIGHING ON THE HOG MARKET. IS THERE MUCH UPSIDE ON THAT?

Newton: WELL, AS YOU NOTED EARLIER, WE HAD A NICE RALLY IN THE SUMMER CONTRACTS, AND I THINK PEOPLE DIDN'T TAKE NOTE OF THAT. BUT WE HAVE A HOGS AND PIGS REPORT ON THE 31ST, AND I'D WAIT FOR THE THIRD AND FOURTH QUARTER TO SEE WHAT THOSE NUMBERS LOOK LIKE TO DO ANYTHING THERE. THOSE MARKETS ARE OBVIOUSLY VERY DISCOUNTED TO THE CURRENT MARKETS, AND SO I'D SIT TIGHT AND SEE WHAT THOSE NUMBERS LOOK LIKE AND THEN MAKE A DECISION ON THE THIRD AND FOURTH QUARTER ON THE HOGS. BUT WE'VE GOT PLENTY OF PORK AROUND. WE'RE HARVESTING ABOUT 1,800,000 HEAD A WEEK. THAT GATE NEEDS TO KEEP SWINGING TO KEEP THOSE NUMBERS IN CHECK. WE'LL LOSE A LITTLE BIT OF DEMAND AS WE GET DEEPER INTO SUMMER, THAT NORMALLY THAT'S NOT THE REAL HIGH TIME FOR PORK DEMAND. AND SO FARMERS JUST NEED TO STAY CURRENT AND WATCH THOSE MARKETS ON A DAILY BASIS.

Sprecher: ALL RIGHT. NOW, WE'VE TALKED A LITTLE BIT ABOUT GRAIN FARMERS, OIL SEED FARMERS, THE FOLKS WHO GROW FOOD FOR FOOD. SO FAR, THIS IS THE TIME OF YEAR THAT ANALYSTS LIKE YOURSELF ENCOURAGE FARMERS TO START LOCKING IN SOME HEDGES ON A NEW-CROP CORN, AND TYPICALLY FARMERS DON'T WANT TO DO THAT. BUT NEVERTHELESS, IT WOULD SEEM LIKE THIS MIGHT HAVE BEEN A GOOD WEEK TO START THINKING ABOUT THAT.

Newton: YOU'RE ABSOLUTELY RIGHT, SID. THE CONTEST IS BETWEEN MOTHER NATURE AND THE FARMERS, AND MY BET IS ON THE FARMERS GET THIS CROP IN THE GROUND IN THE EASTERN CORN BELT. AND THESE RALLIES REALLY NEED TO BE LOOKED VERY CLOSELY AT. I WOULD SAY THAT THE JULY CORN WHERE IT'S AT IS TRYING TO TELL US TO CLEAN UP OLD-CROP SALES. DECEMBER GOT INTO THE 230, 231 THIS WEEK, AND I THINK THAT WAS AN EXCELLENT OPPORTUNITY TO GET SOME NEW SALES MADE, IF THERE AREN'T, OR ADD TO THEM. WE'RE PROBABLY GOING TO END UP WITH 78.5 TO 79 MILLION ACRES PLANTED. IN NORMAL KINDS OF YIELDS, THAT'S A REAL BURDENSOME SUPPLY. SO I THINK FARMERS NEED TO TAKE A REALLY GOOD LOOK AT THIS RALLY AS A PLACE TO GET SOME OLD CROP FINISHED UP AND SOME NEW CROP HEDGED.

Sprecher: AND SOYBEAN PRODUCERS AS WELL?

Newton: WELL, SOYBEANS GOT A LITTLE HELP BECAUSE OF THE FINANCIAL CONDITIONS IN ARGENTINA THIS WEEK, AND THAT JULY CONTRACT AT 488 IS DEFINITELY A SELL. OUR POSITION HAS BEEN THAT ANYTIME THAT NOVEMBER IS TRADING IN THE 465, 475 RANGE, IT'S THE TIME TO SCALE UP A HEDGING PROGRAM FOR NEW CROP. WE COULD SEE SOME INCREASE IN THE BEAN PLANTINGS BECAUSE OF THE EASTERN CORN BELT IF IT STAYS WET AGAIN NEXT WEEK, WHICH COULD BRING ANOTHER MILLION ACRES INTO THE PROGRAM. AND THEN WITH NORMAL KINDS OF CONDITIONS ONCE AGAIN, THAT CROP IS NOT GOING TO STAY AT THESE LEVELS.

Sprecher: NOW, ON THE OTHER HAND, IT ISN'T LIKELY THAT MANY COTTON PRODUCERS WILL BE DROPPING OFF THEIR ACREAGE TO PLANT SOYBEANS.

Newton: NO. AS A MATTER OF FACT, AS YOU SHOWED EARLIER IN THE SHOW, THEY'RE 55 PERCENT, WHICH IS AHEAD OF NORMAL IN PLANTINGS. IT LOOKS LIKE WE COULD HAVE AS MUCH AS 15 MILLION ACRES IN COTTON. AND THE DEMAND THERE, WHILE THE EXPORTS HAVE BEEN FAIRLY STRONG, IS JUST KIND OF RESPONDING TO THE U.S. ECONOMY. AND SO THERE'S PLENTY OF COTTON AROUND. I THINK IF THE DEC. CONTRACT AT THESE 40 CENTS A POUND OR $40 A HUNDRED IS PROBABLY SOMETHING TO TAKE A GOOD LOOK AT. IF WE SHOULD GET A LITTLE RALLY IN THE 42, 43, I THINK I'D GET 100 PERCENT SOLD.

Sprecher: WHAT WOULD YOU TARGET AS AN UPSIDE FOR COTTON? IS THERE MUCH OF ONE AT ALL?

Newton: WELL, DEPENDING ON WHAT HAPPENS WITH WORLD MONEYS, WE'RE REALLY AT THE MERCY OF THE HIGH DOLLAR; AND I KNOW THERE'S A LOT OF ARGUMENTS ABOUT WHETHER THAT SHOULD BE DEVALUED OR NOT. BUT COTTON EXPORTS ARE REALLY SUBJECT TO WHAT HAPPENS IN THE REST OF THE WORLD. WITH OUR MONEY BEING RELATIVELY HIGH PRICED, IT'S DIFFICULT FOR COUNTRIES TO COME IN AND BUY UP THIS SUPPLY. OUR COTTON PRODUCERS HAVE THE ABILITY TO PRODUCER ENORMOUS AMOUNTS OF COTTON, AND THE FARM PROGRAM DOESN'T DO ANYTHING TO LIMIT SUPPLY. SO THE PRICE IS PROBABLY CAUGHT IN THIS 35 TO 50 CENT A POUND OR DOLLARS PER HUNDREDWEIGHT FOR THE FORESEEABLE FUTURE AT LEAST, I THINK, FOR THREE YEARS OF THE FARM BILL. SO STAY TUNED. USE BOTH THOSE PROGRAMS. BUT I WOULDN'T HESITATE PUTTING SOME OPTIONS AROUND NEW-CROP COTTON IN THE 40-, 43-CENT RANGE.

Sprecher: AND WHEAT PRODUCERS, WE STARTED OFF TALKING ABOUT THEM IN TERMS OF THE DROUGHT AND IN TERMS OF WHAT IT MIGHT BE DOING TO OUR LIVESTOCK PRODUCING NEIGHBORS. WHEAT REMAINS INORDINATELY CHEAP, CONSIDERING THE AMOUNT OF WHEAT THAT'S BEING PRODUCED OR IS EVEN LIKELY TO BE PRODUCED THIS YEAR.

Newton: YEAH, I THINK THE LAST NUMBERS I SAW, THERE WAS 60-SOME PERCENT OF THE CROP WAS IN FAIR TO POOR CONDITION, AND YET THAT MARKET JUST CAN'T GET OUT OF THE 270, 280 RANGE. I REALLY THINK THAT WE COULD BE THE SCAPEGOAT AS YOU TALKED EARLIER ABOUT SOME OF OUR EUROPEAN FRIENDS AND WHAT THEY THINK OF OUR EXPORT DIVISIONS OF THIS NEW FARM BILL. UNFORTUNATELY, THE WORLD'S AWASH IN WHEAT. AND SO HERE THESE PEOPLE ARE HAVING THE SHORT CROP IN AVERAGE TO LOW PRICES, AND SO IT'S REALLY A CASE OF COVER YOUR BASES AND LOOK FOR RALLIES TO SELL.

Sprecher: IS WHEAT APPROACHING THE PRICE WHERE, AS A LIVESTOCK PRODUCER, YOU START CONSIDERING WORKING THAT INTO RATIONS?

Newton: I DON'T THINK AT THIS LEVEL, SID, WITH CORN $1.75 TO $2 AND WHEAT PROBABLY 2.40 TO 2.50 ON THE LOCAL BASIS, IT PROBABLY NEEDS TO COME A LITTLE BIT TIGHTER YET BEFORE IT'S -- BUT IT WOULD BE THE MARGINAL WHEAT OFF OF THE STANDS THAT ARE POOR OR THE WHEAT THAT WAS DAMAGED BY WEATHER THAT WILL ALWAYS BE IN THE FEED BIN AS OPPOSED TO THE BREADBASKET, SO WE'LL PROBABLY HAVE MORE OF THAT THIS YEAR. SO IT COULD BE COMPETITIVE WITH CORN, BUT RIGHT NOW THE ECONOMICS WOULDN'T SUGGEST SO.

Sprecher: AND JUST BRIEFLY, THE CORN MARKET UPSIDE?

Newton: ONCE AGAIN, MOTHER NATURE AND OUR PEOPLE'S ABILITY TO GET THE CORN IN THE GROUND IN THE OHIO RIVER VALLEY IS GOING TO MAKE THAT DECISION, AND THE NEXT TEN DAYS IS GOING TO BE THE DETERMINING FACTOR. I THINK ANYBODY IN THE WESTERN CORN BELT HAS TO LOOK AT THIS AS A SELLING OPPORTUNITY. ONCE AGAIN, WE TEND TO GET THE NEWS OF THE WETNESS, AND YET THE FARMERS HAVE COME THROUGH EVERY YEAR AND WE USUALLY GET AN AVERAGE OR BETTER CROP.

Sprecher: ALL RIGHT. WELL, THANK YOU, WAYNE. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." BUT YOU CAN FIND ANALYSIS FROM WAYNE ON OUR WEB SITE, AT IPTV.ORG/MARKETTOMARKET. JOIN US AGAIN NEXT WEEK WHEN WE TAKE A LOOK AT A VENTURE THAT MARKETS LOCALLY-GROWN PRODUCE THROUGH THE WEB. FOR MARK PEARSON, I'M SID SPRECHER. THANKS FOR WATCHING. HAVE A GOOD WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOW

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