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Market Analysis: Mar 29, 2002

posted on March 29, 2002


The nearby grain contracts traded in a narrow range this week. The nearby wheat contract closed down 3 and 1/4 cents. The April corn contract finished down 2 and 1/4 cents. But the May soybean contract jumped 11 3/4 cents higher. The May meal contract finished 80 cents a ton higher. May cotton closed 1.06 lower.

In livestock, fed cattle futures closed 68-cents higher. May feeders finished 37 cents lower. The lean hog contract finished the week $1.10 lower.

In the financials, COMEX gold closed five dollars higher, breaking through the 300-dollar level. The Euro finished 56 basis points lower and the CRB index closed the week a full point higher at 204. Here now to lend us his insight is one of our regular market analysts, Tomm Pfitzenmaier. Welcome back.

Market Analysis: Mar 29, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: ALL RIGHT. WELL, LET'S TALK FIRST ABOUT A COUPLE OF KEY REPORTS OUT FROM THE USDA THIS WEEK. THE ACREAGE REPORT WAS ONE OF THEM. WHAT'S YOUR TAKE ON THAT? WHAT'S THIS REPORT TELLING US?

Pfitzenmaier: WELL, OBVIOUSLY THAT WAS THE BIG ONE, REALLY, THIS WEEK, A 3.4-MILLION-ACRE INCREASE IN CORN ACRES. REAL BIG. A LITTLE BIGGER THAN WHAT THE TRADE WAS THINKING. I'D GUESS THAT IT WAS VERY -- HAD A NEGATIVE REACTION ON THURSDAY WHEN THE MARKET OPENED UP. I WOULD GUESS BY THE MIDDLE OF NEXT WEEK, WE'LL HAVE STOPPED TALKING ABOUT THAT A WHOLE LOT AND WE'RE GOING TO START TO CONCENTRATE ON ACREAGE -- OR I MEAN EXCUSE ME, ON WEATHER AND EVERYBODY IS GOING TO USE THEIR OWN ACRE'S NUMBER. AND IF THEY AGREE WITH THE USDA, THAT'S FINE. IF THEY DON'T, THAT'S FINE. AND WE'RE GOING TO GO TO SEE HOW THE CROP GETS PLANTED AND HOW IT GETS EMERGED AND UP AND RUNNING HERE.

Pearson: WELL, THERE WAS SOME PRESSURE CERTAINLY, WHEAT AND CORN. WHEAT IN PARTICULAR, A BIG SELLOFF ON THURSDAY.

Pfitzenmaier: HUGE RALLY AND THEN A HUGE SELLOFF. IT HAD A 17-CENT RANGE ACTUALLY IN THE MAY CONTRACT. THE INITIAL NUMBERS ON THE WHEAT WERE DOWN -- ACREAGE WAS DOWN A LITTLE BIT. EVERYBODY GOT ALL EXCITED AND IT JUST ABSOLUTELY RAN OUT OF STEAM. FUNDS STARTED TAKING HUGE PROFITS AND THE MARKET JUST PLUMMETED. IT ENDED UP DOWN 9, 10 CENTS, A REVERSAL ACTION ON THE WHEAT. NOT A VERY GOOD WEEK IN THE WHEAT. WHEAT'S BIG PROBLEM IS THAT EVERYBODY IN THE WORLD GROWS THE STUFF AND HAS BEEN GROWING IT WELL. SO I THINK ANY RALLIES YOU GET IN THAT WHEAT UP IN THAT 290 TO $3 RANGE PROBABLY IS A SELLING OPPORTUNITY.

Pearson: THOSE 240-PLUS CORN SALES ON DECEMBER CORN A WHILE BACK THAT YOU RECOMMENDED LOOK PRETTY GOOD RIGHT NOW. ARE WE GOING TO GET ANOTHER SHOT AT THAT, TOMM.

Pfitzenmaier: WE'RE PROBABLY GOING TO GET A SHOT AT SOMETHING BETTER THAN WHERE WE ARE TODAY. I THINK 240 IS GOING TO BE VERY HARD TO COME BY WITHOUT SOME MAJOR PROBLEMS WITH THIS CROP. I'M NOT SAYING IT'S NOT POSSIBLE, BUT WITH THIS KIND OF ACREAGE, IT'S GOING TO TAKE SOME REAL PROBLEMS. WE ALSO HAVE PROBLEMS WITH EXPORTS, CONTINUE TO LAG, CONTINUE TO BE KIND OF BE DISAPPOINTING, ALTHOUGH THEY HAVE BEEN CATCHING UP. SO, YOU KNOW, THE CORN IS GOING TO STRUGGLE HERE, I THINK. AND OBVIOUSLY, IT MAKING NEW LOWS LAST WEEK WAS NOT A POSITIVE THING. OLD CROP, EVERYBODY IS GOING TO START TO MOVE BEYOND THAT. IT'S DOWN AT FAIRLY LOW LEVELS. PROBABLY GOING TO STAY THERE. THE FARMER HAS NOT SOLD A LOT OF CORN, SO ANY RALLY THAT COMES ALONG IS GOING TO RUN RIGHT SMACK INTO FARMER SELLING AND IT'S GOING TO KEEP RALLIES PRETTY LIMITED IN THE OLD CROP. WHAT'S GOING TO HAPPEN WITH THE NEW CROP, I DON'T KNOW. YOU GET DECEMBER CORN BACK UP IN THAT 230 RANGE, PROBABLY A SALE. YOU GET AN OPPORTUNITY TO BUY 230 PUTS, SELL 250 CALLS TO PAY FOR IT, I THINK THAT'S AN OPPORTUNITY. SAME THING IN MARCH. IF YOU CAN BUY A 240 PUT, SELL THE 260 CALLS, THAT'S PROBABLY AN OPPORTUNITY TO START GETTING SOME KIND OF A FLOOR ESTABLISHED ON THIS NEW-CROP CORN.

Pearson: ALL RIGHT. NOW, WHAT ABOUT ON SOYBEANS. WE'VE BEEN TALKING ABOUT THIS BIG CROP DOWN IN SOUTH AMERICA, AND THEN THE ARGENTINIAN PESO RUNS INTO THE PROBLEM, CONCERN ABOUT THE BRAZILIAN REAL, AND NOW ALL OF A SUDDEN BEANS ARE HIGHER AND LESS ACREAGE. SO HAVE WE GOT SOME UPSIDE THERE?

Pfitzenmaier: WE'VE HAD A LOT OF UPSIDE. BEANS HAVE BEEN RALLYING FOR SEVEN WEEKS IN A ROW HERE. THE FUNDS ARE HEAVILY LONG IN THE BEANS. AGAIN, WE HAD A DROP IN ACREAGE ON BEANS. IT WAS ACTUALLY QUITE A BIT MORE THAN WHAT PEOPLE WERE EXPECTING. IT GAVE BEANS A NICE RUN UP ON THURSDAY. WHETHER THEY CAN SUSTAIN THAT, I DON'T KNOW. BUT YOU'VE GOT GOOD EXPORTS, YOU'VE GOT DECLINING CARRYOUTS PROJECTED, PROBABLY, BECAUSE OF THE ACREAGE AND BECAUSE OF THE STOCKS NUMBERS. I GUESS I DON'T GET TOO EXCITED ABOUT THE ARGENTINE PROBLEM, UNLESS THEY'RE ACTUALLY GOING TO GO OUT AND DESTROY SOYBEANS AS A RESULT OF IT. THE BEANS ARE STILL THERE AND ARE ULTIMATELY GOING TO FIND THEIR WAY TO MARKET ONE WAY OR ANOTHER. BUT WE'VE HAD A NICE RUN IN BEANS. I THINK RALLIES PROBABLY SHOULD BE SOLD. I BELIEVE THAT NEW-CROP BEANS ON THE 480 PUTS FOR THE NOVEMBER SHOULD BE PURCHASED. IF YOU WANT TO FINANCE THEM, SELL 540S OR 560 CALLS TO PAY FOR THEM.

Pearson: OKAY. ALL RIGHT. SO AN OPTION STRATEGY AGAIN. WHAT ABOUT ON COTTON?

Pfitzenmaier: COTTON, YOU KNOW, IT'S KIND OF IN A TRADING RANGE. ACREAGE WAS DOWN SOME BUT THAT WAS ANTICIPATED. THAT'S ALL ANYBODY HAS TALKED ABOUT FOR THE LAST MONTH IS HOW MUCH ACREAGE IS GOING TO BE DOWN IN COTTON. IT WASN'T DOWN QUITE AS MUCH AS THEY THOUGHT. AS A RESULT, COTTON WAS DOWN A LITTLE BIT ON THURSDAY. I THINK IT'S IN THIS TRADING RANGE HERE, HAS BEEN FOR A WHILE ON THE 35 ON THE LOW END AND 40 ON THE TOP END. AND I DON'T SEE A WHOLE LOT HAPPENING TO BREAK US OUT OF THAT.

Pearson: ALL RIGHT. LET'S MOVE OVER TO LIVESTOCK. THE FED-CATTLE MARKET HAS BEEN TREADING SOME TOUGH WATER. I THINK YOU HAVE TO GO OUT TO ABOUT DECEMBER TO FIND A SEVEN IN FRONT OF THESE CATTLE CONTRACTS. WHAT DO WE DO HERE IN WE'VE GOT A BUNCH OF CATTLE GETTING READY TO GO?

Pfitzenmaier: I THINK THERE'S STILL DOWNSIDE POTENTIAL IN THE CATTLE. JUNE CATTLE COULD DROP AS MUCH AS ANOTHER $3, DOWN INTO THE $72 AREA. THEY WERE AT $65 PLUS ON THURSDAY. SO THERE IS SOME DOWNSIDE POTENTIAL. YOU'VE GOT TOTAL MEAT SUPPLIES CONTINUING TO BACK UP HERE. WE STILL ARE SUFFERING THE EFFECTS OF THIS STEEL TARIFF AND THE PROBLEMS THAT THAT'S GENERATED WITH RUSSIA AND THE POULTRY -- BACKING POULTRY UP. ALL OF A SUDDEN IT STARTS TO AFFECT PORK, STARTS TO AFFECT BEEF. AND I THINK WE'RE GOING TO CONTINUE TO SUFFER FROM THAT. WE'VE GET HEAVY CATTLE. THE CONSUMER -- OR THE PRODUCER IS A LITTLE RESISTANT ABOUT MAKING SALES. SO I THINK THE CATTLE ARE GOING TO SUFFER HERE FOR A WHILE. YOU HAVE THIS FEAR THAT CATTLEMEN START TO LOSE MONEY, AND WE'RE ABOUT BORDER LINE WHERE THAT'S GOING TO START TO HAPPEN IF WE GO MUCH LOWER. AND THEN THEY REALLY TEND TO PLANT THEIR FEET, AND THEN YOU START DEALING WITH MORE WEIGHT AND MORE TONNAGE. AND IT CAN KIND OF FALL ON ITSELF, SO I'M VERY NERVOUS ABOUT THE CATTLE MARKET FROM HERE ON OUT OVER THE NEXT THIRTY DAYS AT LEAST.

Pearson: ALL RIGHT. TAKE US OUT INTO THE FINAL QUARTER OF THE YEAR. ARE WE GOING TO SEE THINGS START TO COME BACK A LITTLE BIT?

Pfitzenmaier: I GUESS THE QUESTION WOULD BE FROM WHERE. MORE THAN LIKELY I THINK THE ECONOMIC NEWS YOU REPORTED EARLIER, WHERE THE GENERAL ECONOMY IS STARTING TO COME BACK, PEOPLE ARE STARTING TO WORK, FEEL MORE CONFIDENT ABOUT THE JOB THEY'VE GOTTEN, THAT THEY'RE GOING TO KEEP IT. I THINK THAT'S ALL GOING TO PLAY INTO BRINGING DEMAND BACK, BUT IT HASN'T HAPPENED YET. YOU'VE GOT PROBLEMS WITH JAPAN; EXPORTS ARE GOING TO BE DOWN 20 PERCENT. WELL, THE HIGH-PRICED BEEF CUTS GOING TO JAPAN. THE BUSINESS TRAVELER, HE'S NOT TRAVELING. HE'S STAYING AT HOME. BOOKINGS FOR MOTELS DURING THE WEEK ARE DOWN. THAT'S BUSINESS TRAVELERS. THEY'RE THE ONES THAT EAT THE HIGH-PRICED STEAKS, AND THEY'RE NOT DOING ANYTHING. SO YOU'VE GOT TO GET THOSE GUYS BACK ON THE ROAD, GET SOME DEMAND GOING BEFORE THIS BEEF IS GOING TO STABILIZE HERE, I BELIEVE.

Pearson: ALL RIGHT. WE HAD A USDA HOGS REPORT OUT YESTERDAY. WHAT WAS YOUR TAKE ON THAT?

Pfitzenmaier: A LITTLE BEARISH AGAIN. NUMBERS BIGGER THAN WE THOUGHT. LAST FALL'S PIG CROP WAS REVISED UPWARDS. THAT HAS EVERYBODY A LITTLE CONCERN. EXPECTATIONS ARE THAT ON MONDAY, HOGS ARE GOING TO BE DOWN 30 TO $1, DEPENDING ON WHO YOU TALK TO. OBVIOUSLY WE'VE HAD A BIG DROP IN HOGS. I THINK RALLIES THERE NEED TO BE SOLD. YOU'VE GOT SUMMER MONTHS STILL OVER $60. PROBABLY NOT THAT BAD A SALE. THE BIG CONCERN IS FOURTH QUARTER. OBVIOUSLY HEAVILY DISCOUNTED ALREADY IN THE DECEMBER CONTRACT, BUT IF YOU GET A RALLY THERE, IT PROBABLY NEEDS TO BE SOLD TOO.

Pearson: ALL RIGHT, TOMM. WELL, IF WE GO AHEAD IN THIS MEAT COMPLEX UNDER THE IMPRESSION THAT YOU'VE BEEN TALKING ABOUT, SHORT-TERM IS THERE ANYTHING A PRODUCER SHOULD BE DOING?

Pfitzenmaier: WELL, I GUESS SHORT-TERM LOOK FOR RALLIES. I MEAN IT'S PROBABLY GOING TO GET A LITTLE OVERDONE. IT IS OVERSOLD IN BOTH THE PORK AND THE BEEF. IF YOU GET CORRECTION RALLIES FROM THAT OVERSOLD, USE THOSE AS OPPORTUNITIES TO BUY PUTS OR GET SOME SALES MADE.

Pearson: ALL RIGHTY. TOMM, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE TRENDS IN PROSPECTS FOR GENETICALLY MODIFIED CROPS. UNTIL THEN, I'M MARK PEARSON. THANKS FOR WATCHING. HAVE A GREAT WEEK.

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