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Market Analysis: May 10, 2002

posted on May 10, 2002


The grain markets finished the week on the upside following some positive supply and production numbers from the government. For the week, wheat prices gained more than four cents. Corn prices gained five to six cents.

Soybean futures were more than nine cents higher. Soybean meal, however closed the week more than a dollar lower per ton.

Cotton futures were a $1.69 higher.

In livestock, fed cattle futures were 93-cents higher. Feeder cattle gained 75-cents. The lean hog contract finished the week more than a dollar lower.

In the financials, comex gold closed $1.20 lower per ounce. The euro finished 28-basis points lower against the dollar. The CRB index finished the week more than two points higher to finish at 202.25.

Market Analysis: May 10, 2002 HERE NOW TO LEND US HIS INSIGHT IS ONE OF OUR REGULAR "MARKET TO MARKET" ANALYSTS, VIRGIL ROBINSON. VIRGIL, WELL, WELCOME BACK.

Robinson: THANK YOU, MARK.

Pearson: WELL, WE HAD SOME NUMBERS OUT THIS WEEK FROM THE GOVERNMENT: PRODUCTION, SUPPLY/DEMAND, AND KIND OF AN OUTLOOK FOR NEXT YEAR. GIVE US AN OVERVIEW, VIRG. WHAT'S YOUR TAKE ON THESE REPORTS?

Robinson: WELL, I THINK ADDITIONALLY, MARK, SEVERAL THINGS ARE OF IMPORTANCE TO US. THE USDA IS FORECASTING YEAR-OVER-YEAR DECLINES IN THE UNITED STATES IN CORN, SOYBEANS, MEAL, OIL, WHEAT, COTTON, RICE, TOTAL MEAT PRODUCTION. SO THAT'S POSITIVE NEWS, MARK, SOME OF WHICH IS BEING DRIVEN BY SMALLER PRODUCTION, BUT ON AVERAGE, BETTER DEMAND IS FORECAST IN A NUMBER OF COMMODITIES, BASED ON ECONOMIC MODELS AND INDICATIONS AT THIS POINT IN TIME. NOW, THESE ARE HIGHLY TENTATIVE. IT IS SUBJECT TO CHANGE, BUT NONETHELESS, THE FIRST REAL SOLID, POSITIVE NEWS WE'VE HAD ON THE HOST OF COMMODITIES IN QUITE SOME TIME.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE IMPACT IT'S GOING TO HAVE. THE WHEAT MARKET, WE TALKED ABOUT THAT. YOU WERE TALKING ABOUT A SMALL CROP HERE IN THE UNITED STATES AND REDUCED PRODUCTION, AND YET WORLDWIDE THERE SEEMS TO BE PLENTY OF IT AND WE JUST CAN'T SEEM TO MAKE THAT THING JUMP.

Robinson: IN TODAY'S PROJECTIONS, MARK, USDA FORECASTING NEXT YEAR, WE'LL ONLY EXPORT 875 MILLION BUSHELS OF WHEAT -- TOTAL WHEAT EXPORTS, THE SMALLEST, AS YOU MENTIONED, IN THIRTY YEARS. THE PROBLEM REMAINS, OUR COMPETITORS, SPECIFICALLY PRODUCTION INCREASES FORECAST FOR ARGENTINA, AUSTRALIA, CANADA, THE EUROPEAN COMMUNITIES, AND EVEN INDIA. VERY FORMIDABLE EXPORT COMPETITION, MARK. SO EVEN THOUGH YEAR OVER YEAR INVENTORIES ARE FORECAST TO DECLINE IN THE UNITED STATES, PRICE PROSPECTS REMAIN VERY, VERY LIMITED AS A RESULT OF WORLD COMPETITION. SO THAT BEING SAID, JULY/SEPTEMBER CHICAGO FUTURES, ANY RALLY TOWARDS 2.90 OR HIGHER I THINK REPRESENTS A SELLING OPPORTUNITY FOR BOTH OLD REMAINING INVENTORIES. AND I WOULD BEGIN, IF I HAD DONE NOTHING, ON NEW AT THAT SAME MARK.

Pearson: IF YOU JUST LOOKED AT THE STOCKS NUMBER, IT WOULD APPEAR THAT ANY SPARK COULD SET THE CORN MARKET OFF. I MEAN THAT LOOKS TO BE PRETTY DARN TIGHT.

Robinson: INVENTORIES ARE FORECAST TO DECLINE IN THE UNITED STATES, FORECAST TO DECLINE GLOBALLY IN CORN, AS WELL AS IN COARSE GRAINS. SO THE QUESTION REALLY IS HAVE WE THE OPPORTUNITY NOW OR WILL WE IN FACT PLANT THESE 79 MILLION ACRES THAT ARE CURRENTLY FORECAST. YOU ALLUDED TO, EARLIER IN THE SHOW, THE TROUBLE WE'RE EXPERIENCING IN THE EASTERN PART OF THE CORN BELT. I DON'T SENSE THAT THIS WEEK OFFERED MUCH RELIEF, MARK. NEAR-TERM FORECASTS REMAIN WET, SO CLEARLY THAT BECOMES MORE CONCERNING. HAVING SAID THAT, $2.20 DECEMBER CORN FUTURES, 2002 CORN FUTURES SEEMS TO BE UNDERPRICED, AT LEAST AS MEASURED BY HISTORICAL STANDARD. I THINK THERE'S AN OPPORTUNITY HERE AND A WINDOW OF OPPORTUNITY FOR SOME PRICE IMPROVEMENT AS MEASURED BY FUTURES, ALBEIT, RELATIVELY MODEST, MARK. I THINK THE 2.35 TO 2.45 AREA, GIVEN THAT OPPORTUNITY BETWEEN NOW AND THE END OF THE MONTH OR THE FIRST PART OF JUNE, I WOULD CERTAINLY PUT TOGETHER SOMETHING, EVEN IF IT'S JUST MINIMUM PRICE IN THAT PRICE RANGE TO PROTECT THIS FALL'S PRODUCTION.

Pearson: SOYBEAN NUMBER IS A LITTLE SURPRISING, BUT SOYBEAN DEMAND SEEMS TO HAVE BEEN ABSOLUTELY PHENOMENAL THIS YEAR. WE SEEM TO BE DRAWING STOCKS DOWN. WE'VE GOT BIG PRODUCTION BUT WE'RE USING IT UP.

Robinson: YOU ARE CORRECT. U.S. CONSUMPTION IS ON RECORD PACE, MARK. TODAY'S PROJECTIONS SUGGESTING THAT NEXT YEAR, GLOBALLY WE'LL PRODUCE 330 SOME MILLION METRIC TONS OF OIL SEEDS, WHICH WOULD REPRESENT A 7-MILLION-METRIC-TON INCREASE FROM THIS YEAR. SO AGAIN, STOCKS, WHILE WE HAVE DRAWN THEM DOWN FROM WHERE THEY WERE PROJECTED A YEAR AT THIS TIME, THEY STILL REMAIN ADEQUATE. THEY STILL REMAIN AMPLE TO SATISFY DEMAND HERE IN THE UNITED STATES AND GLOBALLY, PROVIDED WE CONTINUE TO PRODUCE ON TREND OR BETTER IN BOTH HEMISPHERES NORTH AND SOUTH. SO WE MUST ASSUME THAT TO BE THE CASE. GIVEN THAT SCENARIO AND THAT THOUGHT PROCESS, MARK, I THINK OLD-CROP SOYBEAN FUTURES -- AND THAT WOULD BE DEFINED BY THE JULY AND AUGUST -- $4.90 TO $5, VERY STIFF RESISTANCE, AND I THINK WILL ATTRACT PRODUCER SELLING. NEW-CROP FUTURES $5 OR NEAR $5 I THINK WILL ALSO ATTRACT SOME NEW SELLING.

Pearson: A LITTLE BIT OF A BOUNCE IN COTTON. IT'S, I GUESS, WORTH NOTING BECAUSE WE HAVEN'T HAD MUCH OF A BOUNCE. WHAT'S AHEAD THERE? A BIG CROP COMING, IT SOUNDS LIKE.

Robinson: WELL, THE NEWS IN COTTON, U.S. AND GLOBALLY, SMALLER PRODUCTION IS FORECAST, INCREASED DISAPPEARANCE, AND SMALLER ENDING STOCKS. NOW, SMALLER ENDING STOCKS CAN BE SOMEWHAT MISLEADING, INASMUCH AS ENDING STOCKS HAVE BEEN AWFULLY LARGE OF LATE. SO I THINK WE HAVE THE OPPORTUNITY HERE, MARK, TO SEE FUTURES RECOVER. IT APPEARS TO ME IN THE WORK THAT I DO, OLD-CROP COTTON FUTURES, JULY, HAVE THE OPPORTUNITY TO TRADE BACK TOWARDS THE $41 TO $42 AREA. AND I KNOW THAT'S NOT MUCH RELIEF FROM CURRENT PRICE LEVELS, BUT I THINK THERE'S AN OPPORTUNITY THERE. I'D SELL OLD-CROP COTTON BASED ON THAT KIND OF A FUTURES PRICE. AND NOW-CROP COTTON FUTURES AROUND $40 TO $42 MINIMUM PRICE IS WHAT I WOULD SUGGEST, MARK, BECAUSE OF THE SMALLER ACREAGE AND UNCERTAINTY OF CROP PRODUCTION THIS YEAR.

Pearson: WELL, LET'S TALK QUICKLY OVER ON THE LIVESTOCK, VIRGIL. THE CATTLE MARKET, A LITTLE BIT OF AN UPTICK ON THE BOARD THIS WEEK. CASH HAS KIND OF HELD IN THERE. WHAT'S AHEAD FOR CATTLE? WE'RE INTO THE GRILLING SEASON, BEEF MONTH.

Robinson: WELL, WEATHER HASN'T BEEN PARTICULARLY GOOD OF LATE, MARK, ALTHOUGH IT IS IMPROVING. I THINK THAT'S BEGINNING TO SURFACE AT THE RETAIL LEVEL. A LITTLE BETTER DISAPPEARANCE -- I THINK GOOD DISAPPEARANCE THIS WEEK. ONE OF THE QUESTIONS HERE THAT I THINK NEEDS TO BE ADDRESSED IS GRAZING CONDITIONS. WE'RE KIND OF ALL ASSUMING THAT GRAZING CONDITIONS WILL IMPROVE YEAR OVER YEAR AND GIVE PRODUCERS THE OPPORTUNITY TO REBUILD OR THE CHOICE TO REBUILD THEIR HERD SIZE. AND TO THIS POINT IN THE WESTERN UNITED STATES, THAT HASN'T TAKEN SHAPE. SO IF GRAZING CONDITIONS DO NOT IMPROVE, THOSE CATTLE ARE LIKELY TO FIND THEIR WAY IN THE FEED LOTS, MARK, SO SOME REAL UNCERTAINTY BASED ON THAT WEATHER TRAUMA. BUT MY PROJECTIONS AS OF TONIGHT, I THINK THE BALANCE OF THIS QUARTER, $65 TO $67; THIRD QUARTER $67, $68; FOURTH QUARTER AND FIRST OF 2003, I THINK, BASED ON WHAT WE'RE LOOKING AT NOW IN TERMS OF SUPPLY AND PROJECTED DISAPPEARANCE, 70, MAYBE LOW 70S.

Pearson: ALL RIGHT. SOMETHING A LITTLE MORE ENCOURAGING THAN WHAT WE'RE SEEING IN HOGS RIGHT NOW, VIRGIL. THERE STILL SEEMS TO BE THIS CONCERN BUILDING ABOUT WHAT'S HAPPENING RIGHT NOW, AND ALSO FOURTH QUARTER, WHAT THAT COULD LOOK LIKE FOR THE PORK PRODUCERS OUT THERE. WHAT'S YOUR OUTLOOK?

Robinson: MARK, IF THE PIG-AND-HOG-CROP REPORT FOR MARCH IS ACCURATE, WE SHOULD BEGIN TO SEE A SMALLER WEEKLY KILL THAN WHAT WE'VE BEEN SEEING TO DATE. AND I NOTED THIS AFTERNOON BEFORE COMING, WEEK OVER WEEK OUR SLAUGHTER WAS DOWN A COUPLE OF PERCENT. LET'S JUST ASSUME NOW WE'RE INTO THAT MODE AND WE DO, IN FACT, SEE A LITTLE SMALLER SLAUGHTER THAN WHAT WE SAW IN MARCH AND APRIL. I THINK THAT WOULD PERMIT SOME SEASONAL RECOVERY HERE, MARK, INASMUCH AS DEMAND HAS BEEN GOOD OF LATE AND, AS YOU MENTIONED, BETTER WEATHER AND GRILLING SEASON. SO PROJECTIONS-WISE: MID 30S; THE THIRD QUARTER, LOW 30S; MAYBE $30 THE FOURTH QUARTER; AND ABOUT THE SAME IN THE FIRST OF 2003.

Pearson: VERY GOOD, VIRGIL. THANK YOU SO MUCH. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE A LEGAL CASE ARISING FROM ONE OF THE MOST CONTENTIOUS ISSUES IN RURAL AMERICA. UNTIL THEN, I'M MARK PEARSON. THANKS FOR WATCHING. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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