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Market Analysis: Apr 19, 2002

posted on April 19, 2002


The grain markets were down this week on continued concerns about what crop production in 2002 could look like. For the week, wheat prices were down more than a nickel. Corn futures were a fraction to more than a penny lower. Soybean prices gained more than a dime. Soybean meal gained more than six dollars per ton. Cotton futures were down $2.55.

In livestock, fed cattle futures were $1.77 lower. Feeder cattle were $1.15 higher. The lean hog contract finished the week unchanged.

In the financials, COMEX gained 20-cents an ounce. The Euro finished more than 29 basis points higher against the dollar. And, the CRB index finished the week 13-hundredths of a point lower to finish at 195.27.

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

Robinson: THANK YOU, MARK. IT'S NICE TO BE HERE.

Pearson: BEFORE WE TALK ABOUT THE GRAINS, LET'S TALK ABOUT THIS LIVESTOCK SECTOR, AND THIS CATTLE MARKET IN PARTICULAR. WE'VE SEEN THIS BOARD JUST PLUNGE IN THE LAST TWO AND A HALF, THREE WEEKS. WHAT'S AHEAD, VIRGIL? WE HAD A NEWS SCARE AS FAR AS CATTLE WAS CONCERNED ON FRIDAY REGARDING A POTENTIAL PROBLEM DOWN IN FLORIDA. BUT LONGER TERM, WHAT ARE YOU SEEING? THE CATTLE-ON-FEED REPORT WAS OUT. WHAT'S YOUR REACTION TO THAT?

Robinson: WELL, FIRST OF ALL, THE CATTLE-ON-FEED REPORT WAS ACCOMPANIED BY A COLD STORAGE REPORT, MARK. SO TWO DIFFERENT REPORTS. THE CATTLE-ON-FEED I FELT WAS BASICALLY NEUTRAL. PERHAPS A LITTLE BIT CONSTRUCTIVE, IN AS MUCH AS TOTAL ON FEED DID NOT EXCEED EXPECTATIONS. PLACEMENTS WERE PRETTY MUCH AS PREDICTED, AND MARKETINGS WERE ABOVE WHAT MOST ANALYSTS HAD PREDICTED PRIOR TO THE RELEASE OF THIS REPORT, MARK. SO IT WOULD IMPLY, THEN, THAT WE ARE CURRENT AND THAT WE'RE NOT BACKLOGGING OR HOLDING CATTLE BACK IN HOPES OF PRICE RECOVERY. SO THAT'S POSITIVE, MARK, AND WOULD LEND SOME SUPPORT, I THINK, TO WHAT YOU MENTIONED A MOMENT AGO, A COLLAPSING MARKET OF LATE. COLD STORAGE REPORT, ON THE OTHER HAND, SOME GOOD PARTS, SOME BAD PARTS. THE CUMULATIVE RED MEAT SUPPLY MONTH OVER MONTH, FEBRUARY TO MARCH, ABOUT UNCHANGED, WHICH I THINK IS GOOD, MARK. HOWEVER, THOSE SUPPLIES REMAIN SIGNIFICANTLY LARGER THAN ONE YEAR AGO. SO WE'VE PLENTY OF EDIBLE PROTEINS IN THE FORM OF RED MEAT AND POULTRY MEAT TO DISPOSE OF OVER THE COURSE OF THE NEXT SEVERAL WEEKS. IN THAT CONTEXT, I THINK WE ARE YET TO SEE THE SIGNIFICANT DROP IN RETAIL PRICE BOTH BEEF AND PORK TO ACCOMPANY THE PLUNGE IN WHOLESALE VALUES. NOW, THERE ARE, I THINK, PROMOTIONS BEGINNING TO TAKE SHAPE HERE IN THE U.S. AND BEGINNING TO BE PROMOTED THAT WILL ASSIST US, I THINK, IN THE PROCESS OF CONSUMING THESE SUPPLIES. NOW, LOOKING FORWARD A LITTLE BIT, MARK, I STILL HAPPEN TO BELIEVE IN THE HOG CYCLE HERE. AND I'M STILL OF THE OPINION, GIVEN THE RECENT DEBACLE IN THE HOG AND CATTLE MARKET, THERE WILL BE SOME RECOVERY IN THE LATE SPRING, EARLY SUMMER. I'M IN HOPES, MARK, THAT WE'LL HAVE AN OPPORTUNITY AT HEDGING BOTH OF THOSE COMMODITIES, CATTLE AND HOGS, AT BETTER LEVELS SOMETIME IN LATE MAY OR JUNE. AND CERTAINLY GIVEN THE IDEA OR THE PROSPECT OF IMPROVEMENT IN THAT TIME WINDOW, I THINK IT'S IMPERATIVE, PARTICULARLY IN HOGS, IF WE ARE IN FACT FOLLOWING THE CYCLE -- I AND BELIEVE WE ARE -- WHICH WOULD SUGGEST, THEN, THAT FALL AND WINTER OF THIS YEAR, PRICES WILL IN FACT BE LOWER AND PERHAPS AT OR NEAR LEVELS WE'VE JUST EXPERIENCED. AND THEN 2003 WOULD SUGGEST LOWER PRICES AS WELL, MARK. SO I'M PLACING A LOT OF EMPHASIS HERE ON TWO THINGS: THE RETAILERS' WILLINGNESS TO PASS ON SOME OF THE SAVINGS HERE TO THE CONSUMER AND DISPOSE OF SOME OF THIS SUPPLY, AND THEN CYCLICALLY SEEING SOME PRICE IMPROVEMENT HERE IN THE SPRING, EARLY SUMMER OF THIS YEAR.

Pearson: BOTH HOGS AND CATTLE, USE THOSE AS HEDGING OPPORTUNITIES?

Robinson: YES, I WOULD. AT THIS POINT, YES, I WOULD.

Pearson: ALL RIGHT. LET'S GO OVER AND TALK ABOUT THE GRAIN MARKET. AGAIN, NOT EXACTLY A STELLAR WEEK OVER THERE. A BETTER WEEK FOR BEANS. LET'S TALK ABOUT WHEAT FIRST. WE KEEP HEARING ABOUT POOR CONDITIONS FOR WHEAT, AND THE MARKET KEEPS GOING LOWER.

Robinson: YEAH, MARK, EVEN THOSE SUPPLIES YEAR OVER YEAR ARE SMALLER, WE JUST CONTINUE TO COMPETE VERY INTENSELY WITH OTHER EXPORTERS AND OTHER SOURCES OF WHEAT SUPPLY ACROSS THE GLOBE. JUST THIS WEEK, TO MY AMAZEMENT, I NOTED INDIA, IN FACT, ORIGINATED AND SOLD WHEAT. AND THAT SELLER OF WHEAT, VERY UNUSUAL. SO THERE'S A LOT OF COMPETITION, MARK. I NOTED BEFORE I CAME THE CFTC, A REGULARLY RELEASED REPORT, SUGGESTING AND INDICATING THE DEGREE BY WHICH COMMERCIAL AND NONCOMMERCIAL ENTITIES ARE SHORT OR LONG A GIVEN COMMODITY. THE SPECULATIVE COMMUNITY IS SHORT WHEAT IN PRETTY SIGNIFICANT MANNER. IT WOULD SUGGEST TO ME WE ARE RIGHT FOR SOME TYPE OF RECOVERY. HAVING SAID THAT, I THINK MAY AND/OR JULY FUTURES BACK IN THE 80 TO 85 AREA, MARK, IS A PRETTY GOOD OPPORTUNITY TO PART WITH REMAINING OLD-CROP STOCKS.

Pearson: ALL RIGHT. NOW, WHAT'S YOUR TAKE ON THE CORN MARKET, THEN?

Robinson: INTERIOR ILLINOIS RIVER BASIS LEVELS JUST CONTINUE TO FIRM, MARK. TIGHT FARMER HOLDING, CHEAP BARGE FREIGHT ALL SUGGESTING THAT THE DEMAND FOR CORN REMAIN STRONG. THE PROBLEM IS, IN MY OPINION, THE DISTRIBUTION OF THAT COMMODITY. IT'S ALL BASICALLY STORED ON FARMS OR MUCH OF IT, MARK. WE NEED TO MOVE THROUGH THAT INVENTORY, GET OVER THAT HURDLE BEFORE THE MARKET CAN SENSE ANY URGENCY ON BEHALF OF SOURCING PRODUCT. UNTIL THAT TIME, I THINK MARKETS ARE DESTINED TO CONTINUE SIDEWAYS HERE.

Pearson: A LITTLE BIT OF NERVOUSNESS ABOUT THE SOYBEAN MARKET THIS WEEK. WE DID SEE A LITTLE BIT OF AN UPDRAFT. AND AGAIN, I MEAN IT'S REARRANGING DECK CHAIRS ON THE TITANIC TO SOME EXTENT. BUT WHAT'S AHEAD, VIRGIL, ON THESE BEANS? WE KEEP HEARING THAT THERE IS SOME OPPORTUNITY OUT THERE FOR SOME STRONGER PRICES.

Robinson: WELL, U.S. DISAPPEARANCE IS JUST PHENOMENAL, MARK, AS DOCUMENTED IN THE RECENT NOPA -- EXCUSE ME, MONTHLY STATISTICS. WE'RE CRUSHING A LOT OF BEANS, USING A LOT OF BEANS. THE SITUATION IN ARGENTINA, I WISH I COULD HELP AND LEND SOME INSIGHT DOWN THERE. I THINK CONDITIONS ARE BASICALLY CHAOTIC, AND AT PRESENT FARMERS AND EXPORTERS ALIKE ARE DOING NOTHING. THERE IS NO COMPETITION THERE AT PRESENT, BUT WE DO KNOW THEY ARE PROJECTED TO HAVE A CROP OF UPWARDS OF 30 MILLION METRIC TONS THAT AT SOME POINT WILL HAVE TO FIND ITS WAY TO THE MARKET, MARK. I THINK THERE'S YET A WINDOW OF OPPORTUNITY HERE IN THE UNITED STATES AS MEASURED BY LOCAL BASIS VALUES AND FUTURES PRICE FOR FARMERS TO EXTRACT A LITTLE EXTRA HERE WITH REMAINING OLD-CROP STOCKS. OLD-CROP STOCKS ARE PRIMARILY IN THE HANDS OF FARMERS, AND THOSE ARE TIGHT HOLDERS AT PRESENT. PLANTING SEASON, OTHER PRIORITIES GOING ON. SO I WOULD NOT BE SURPRISED IN THE NEXT TWO OR THREE WEEKS TO SEE FUTURES IN COMBINATION WITH PREVAILING BASIS LEVELS PUSH UP TOWARD THAT $5 MARK IN OLD-CROP VALUE AND SOMETHING NEAR THAT IN NEW, AT WHICH POINT, MARK, I WOULD BECOME VERY DEFENSIVE IN MARKETING BOTH.

Pearson: OKAY. SO YOU WOULD GET AGGRESSIVE AT THAT POINT?

Robinson: YEAH, I SURE WOULD.

Pearson: ALL RIGHT. VIRGIL, LET'S TALK ABOUT THE COTTON MARKET. IT SOFTENED UP SOME THIS WEEK. WE WERE KIND OF IN AN UPSWING ON THE COTTON MARKET, AND THEN WE SAW PRESSURE AGAIN DEVELOP. JUST ANOTHER BIG CROP AROUND THE WORLD?

Robinson: WELL, WE'RE PROJECTED TO END THE YEAR WITH, I THINK, 8.3 MILLION BALES OF COTTON IN THE UNITED STATES AND 44.5 MILLION BALES OF COTTON GLOBALLY, MARK. I MEAN SUPPLY, AT LEAST AS MEASURED BY THOSE TWO NUMBERS HERE IN THE UNITED STATES AND GLOBALLY, IS JUST NOT A CONCERN. CLEARLY FEWER ACRES THIS YEAR IN THE UNITED STATES AND PERHAPS IN OTHER AREAS. IF WE SHOULD ENCOUNTER AND EXPERIENCE SOME GROWING PROBLEMS -- AND, OF COURSE, WE HAVE THAT ENTIRE SEASON YET AHEAD OF US, MARK -- THERE'S HOPE FOR SOME PRICE RECOVERY. BUT SHORT OF THAT, I THINK THE MARKET IS WELL SUPPLIED. NOT CONCERNED ABOUT SOURCING INVENTORY, AND PRICE PROSPECTS AS A RESULT VERY MEASURED. ANY $3 TO $5 RALLY OLD-CROP, NEW-CROP COTTON, I THINK YOU HAVE TO BECOME A DEFENSIVE PLAYER.

Pearson: VERY GOOD, VIRGIL ROBINSON. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, YOU CAN FIND MORE ANALYSIS OF THE MARKETS ON OUR WEB SITE AT IPTV.ORG/MARKETTOMARKET. AGAIN, THAT'S IT FOR THIS WEEK'S "MARKET TO MARKET." BE SURE TO JOIN US NEXT WEEK WHEN WE TAKE A LOOK AT A RURAL SCHOOL THAT HAS UNDERTAKEN AN AMBITIOUS ENDEAVOR TO EDUCATE STUDENTS OUTSIDE THE CLASSROOM. UNTIL THEN, I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

Market Analysis: Apr 19, 2002 Thanks, Virgil. You can find more analysis of the markets on our Website at I-P-T-V dot o-r-g slash market to market. That wraps up this edition of Market to Market. Join us next week when we take a look at a rural school that has undertaken an ambitious endeavor to educate students outside the classroom. Until then, thanks for watching. I'm Mark Pearson, have a good week.


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