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Market Analysis: Mar 22, 2002

posted on March 22, 2002


The nearby grain contracts traded in a narrow range this week. The nearby wheat contract closed down a half cent on the week. The nearby corn contract finished down a cent from last week. The July Soybean contract gave up almost 8 cents on the week. May meal gained 80 cents a ton. Cotton futures gained 50-cents. In livestock, fed cattle futures closed $2.58 lower. Feeder cattle were down $1.03. The lean hog contract finished the week $1.80 lower. In the financials, COMEX gold closed seven dollars an ounce higher. The Euro finished the week at 87.38, 84-basis points lower against the dollar. The CRB index finished the week a half point higher to close at 203.00 Here now to lend us his insight is one of our regular market analysts, Doug Hjort. Welcome back.
Market Analysis: Mar 22, 2002

Hjort: THANK YOU.

Sprecher: WELL, LET'S JUST START WITH WHEAT. THERE SEEMS TO BE A FAIR AMOUNT OF SPECULATION, BUT IT REALLY HASN'T LED TO ANY REALLY DRAMATICALLY HIGHER MOVE.

Hjort: NO, IT HASN'T. THE WHEAT MARKET HAS A PUSH ONCE IN A WHILE, KIND OF LIKE THE CORN AND THE BEANS TOO, BUT WE JUST CAN'T SEEM TO HOLD IT. ON ONE HAND, WE'RE TALKING ABOUT WEATHER FOR THE NEW CROP, AND IT'S JUST PLAIN TOO EARLY TO REALLY WORRY SERIOUSLY ABOUT THAT. THE CROP RATING FOR THE HARD RED WINTER WHEAT CROP IS PROBABLY AS LOW AS IT'S BEEN IN MANY, MANY YEARS. AND SOME OF THE SOFT RED WINTER WHEAT IN THE DELTA AND SOUTHERN CORN BELT AREA IS JUST TOO WET RIGHT NOW. BUT A GOOD RAIN IN THE PLAINS AND A WEEK OF DRY WEATHER IN THE CORN BELT WILL PUT THE NEW-CROP WINTER WHEAT PROSPECTS IN PRETTY GOOD SHAPE.

Sprecher: AND DEMAND IS SOMEWHAT ANEMIC STILL.

Hjort: WELL, IT IS. IT'S LESS THAN A YEAR AGO, AND THAT SEEMS TO BE WHAT THE TRADE FOCUSES ON. ACTUALLY THE EXPORT SALES THAT WE'VE BEEN SEEING HERE RECENTLY HAVE BEEN RUNNING A LITTLE BIT AHEAD OF THE PACE NEEDED TO MATCH USDA'S TARGETS. SO IN THAT REGARD, THAT'S KIND OF WHAT GIVES THE MARKET A LITTLE BOOST ONCE IN A WHILE, BUT THERE'S NO FOLLOW-THROUGH TO IT. IT'S NOT A BULLISH SITUATION. IT'S JUST A LITTLE BIT OF FRIENDLY NEWS. AND WHEN THAT MARKET PRICE CAN'T CARRY ON THROUGH, THERE'S PLENTY OF SELLERS STANDING THERE READY TO TAKE ADVANTAGE, PUSHING IT BACK DOWN.

Sprecher: YOU SEE A PRETTY NARROW RANGE THROUGH HARVEST THEN?

Hjort: WELL, I THINK MAYBE WHEN WE GET ON INTO THE MAIN GROWING SEASON FOR THE HARD RED WINTER WHEAT, I THINK WE'LL SEE THAT WE'VE REALLY GOT A PRETTY PUNK CROP OUT THERE. IT WILL TAKE A LOT OF GOOD GROWING WEATHER, VERY PERFECT GROWING WEATHER FOR THE NEXT MONTH OR SO TO BRING THIS CROP ON TO GIVE IT ANY REASONABLE YIELD POTENTIAL. ALREADY THERE'S BEEN SOME OF THE ACREAGE IN TEXAS TAKEN OUT TO BE PLANTED IN SOME OTHER CROP. AND YOU'LL SEE MORE OF THAT AS YOU MOVE UP INTO KANSAS, COLORADO, AND WESTERN NEBRASKA IF WE DON'T HAVE A REAL GOOD GROWING CONDITION DURING APRIL.

Sprecher: SO STRATEGICALLY, YOU'D SIMPLY SIT BACK AND WAIT?

Hjort: YEAH, I WOULD RIGHT NOW. ALTHOUGH, IF THERE'S ANY OLD CROP LEFT, I CERTAINLY WOULD USE WHATEVER RALLIES ARE ALONG TO GET THAT SOLD. BUT ON THE NEW CROP, I WOULD NOT MAKE SALES, NO.

Sprecher: IN THE CORN AND BEANS, THERE'S PLENTY OF SPECULATION ABOUT THE SIZE OF THAT CROP BASED ON PLANTING INTENTIONS, WHICH SEEM TO BE ALL OVER THE MAP IN TERMS OF ESTIMATES.

Hjort: WELL, THEY REALLY ARE, AND A GOOD SHARE OF THE REASON FOR THAT IS THAT WE'RE NOT SURE WHAT KIND OF A FARM PROGRAM WE'RE GOING TO BE OPERATING UNDER FOR THIS COMING YEAR. WE MADE A LITTLE PROGRESS ON THE FARM BILL THIS PAST WEEK, BUT STILL A LOT -- THE MOST CONTENTIOUS ITEMS ARE STILL NOT BEING DEALT WITH. IF WE STAY WITH THE SAME KIND OF A PROGRAM THAT WE'VE HAD, THE FREEDOM TO FARM ACT, THEN CORN ACRES WILL BE UP A LITTLE BIT FROM LAST YEAR, BUT JUST THOSE ACRES THAT DIDN'T GET PLANTED LAST YEAR BECAUSE IT WAS TOO WET. AND ON THE SOYBEANS, YOU'LL PROBABLY SEE A BIT OF AN INCREASE THERE TOO, AGAIN PARTLY BECAUSE SOME OF THOSE ACRES DIDN'T EVEN GET PLANTED IN THE NORTHWESTERN CORN BELT. SO YOU'VE GOT A PUSH THERE. IF EITHER THE HOUSE BILL OR THE SENATE BILL COMES THROUGH, THEN, OF COURSE, THE LOAN-PRICE SPREAD BETWEEN CORN AND BEANS NARROWS IN SOME, WHICH WOULD FAVOR A FEW MORE ACRES GOING TO CORN, MAYBE A FEW LESS, OR AT LEAST A STABLE ACREAGE ON THE SOYBEANS.

Sprecher: SO THERE WILL BE SOME ENCOURAGEMENT TO PRODUCE MORE CORN, AND THAT'S ASSUMING THAT WORLD DEMAND CONTINUES AS IT HAS. IT HAS BEEN FAIRLY GOOD.

Hjort: WELL, THAT'S RIGHT. THERE'S BEEN A LOT OF TALK HERE REPEATEDLY ABOUT A 10-BILLION BUSHEL CORN CROP. WELL, YOU GET THAT BY INCREASING ACRES THREE OR FOUR MILLION AND THEN USING A RECORD HIGH YIELD. I DON'T KNOW WHY THEY CONTINUE TO DO THIS. WE GET THOSE ESTIMATES OUT AT THIS TIME OF YEAR EVERY YEAR, AND THEN THEY HAVE TO SCALE THEM BACK SOME, EVEN IN GOOD YIELDING YEARS. BUT THE INTERESTING THING IS THAT YOU PRODUCE TEN BILLION BUSHEL... THAT'S WHAT USDA IS PROJECTING DEMAND WILL BE FOR NEXT YEAR, EVEN WITH THE REDUCED EXPORT PACE THAT WE'RE SEEING FOR THE OLD CROP HERE. AND BY THE WAY, THE OLD-CROP EXPORT PACE IS STARTING TO PICK UP. AND WE'RE VERY CLOSE, JUST A FEW MILLION BUSHELS NOW, BELOW LAST YEAR'S PACE, AND USDA IS PROJECTING WE WILL COME IN BELOW LAST YEAR'S PACE OR LAST YEAR'S TOTAL.

Sprecher: IT SEEMS THAT PRODUCERS ARE WILLING TO GROW THAT MUCH CORN, GROW THAT MUCH SOYBEAN. SO IN TERMS OF MARKETING, THOUGH, WHAT CAN THEY LOOK AT AS A PRICE RANGE, AND HOW WILL THEY MARKET THIS IN WHAT WOULD APPEAR TO BE A VERY NARROW RANGE FOR THE NEXT FORESEEABLE FUTURE?

Hjort: WELL, FIRST OF ALL, ON THE CORN, IF YOU'RE LOOKING AT DECEMBER FUTURES, TRADING AROUND 230 RIGHT NOW, IN ALMOST EVERY YEAR WE'LL SEE SOME SORT OF A WEATHER CONCERN THAT WILL TAKE US UP TO THE 250 AREA. I THINK WE COULD DO THAT EVEN WITH A PROJECTION THAT WE MIGHT RAISE A 10-BILLION-BUSHEL CROP, PRIMARILY WHEN PEOPLE ARE LOOKING AT THE DEMAND SIDE. ON THE SOYBEANS, OF COURSE, NEW-CROP PRICES ARE STILL WELL BELOW LOAN RATE, SO THERE'S REALLY NO REASON TO BE PRICING ANYTHING THERE. THE ONLY REASON YOU WOULD DO SO IS A PURE SPECULATIVE POSITION TO WHERE YOU'RE BELIEVING THAT WE'RE GOING TO HAVE A GOOD SIZED CROP AGAIN AND YOU'RE GOING TO SEE PRICES DROPPING OFF. BUT THAT WOULD BE JUST PURELY A SPECULATIVE POSITION AND NOT A TRUE MARKETING POSITION AT THIS TIME.

Sprecher: IN RECENT WEEKS COTTON HAS HAD SOME ENERGY. IT'S A CROP THAT'S BEEN PRETTY MUCH BEATEN UP BY THE MARKETS. WHAT'S THE UPSIDE ON THAT?

Hjort: WELL, I DON'T THINK THERE'S VERY MUCH UP THERE AT ALL. IT'S PRETTY MUCH THE SAME PICTURE WE'VE BEEN LOOKING AT. THE ENDING STOCK BALANCE HAS JUST CONTINUED TO INCREASE EVERY YEAR. WE'RE UP AT VERY LARGE STOCK LEVELS NOW AND TRYING TO GET THE COTTON PRICES TO COME UP. WE'VE JUST GOT TO REDUCE THE ACREAGE, THAT'S ALL THERE IS TO IT. OTHERWISE WE'RE GOING TO BE STUCK IN A PRETTY NARROW TRADING RANGE THERE.

Sprecher: SOME OF THOSE ACRES MAY BE DEVOTED TO BEANS.

Hjort: WELL, THEY COULD BE, AND ESPECIALLY IF WE GET A NEW FARM BILL. AND OF COURSE, THE MAIN THING FOR COTTON PRODUCERS, THE MAIN CONCERN THERE IS THE ACREAGE -- OR EXCUSE ME, THE PAYMENT LIMITATION. IT LOOKS LIKE THERE'S GOING TO HAVE TO BE SOME SORT OF ADJUSTMENT THERE FOR COTTON AND RICE PRODUCERS AT LEAST IF THERE'S GOING TO BE PASSAGE OF ANY SORT OF A FARM BILL.

Sprecher: THIS WEEK THE RED MEAT SECTOR HAS KIND OF TUMBLED A BIT. BOTH BEEF AND PORK WERE DOWN SHARPLY FROM LAST WEEK. WHAT'S THE RATIONALE ON THAT?

Hjort: WELL, IT'S REALLY GOTTEN BEAT UP MUCH MORE SO THAN WHAT YOU WOULD THINK. IT'S A SERIES OF THINGS. IT'S NOT ONE MAJOR ITEM. IT'S THE HOOF-AND-MOUTH SCARE AND JUST A GENERAL BEARISHNESS IN THE FUTURES MARKET STARTED BEFORE THAT, BECAUSE PRICES HAVE RALLIED UP TO SOME PRETTY SIGNIFICANT RESISTANCES LEVELS. TRADERS DIDN'T THINK THEY COULD GO ANY HIGHER, SO THEY STARTED SELLING BOTH ON THE FAT CATTLE AND THE HOGS.

Sprecher: FINDING REASONS TO SELL.

Hjort: THAT'S RIGHT. YEAH, A PRETTY EASY SELL FIGURE THERE, YOU KNOW, AND THE PRICES STARTED TO GO DOWN. THEN THE HOOF-AND-MOUTH THING CAME. THEN THE CATTLE-ON-FEED REPORT CAME, SHOWING FEBRUARY PLACEMENTS UP 16 PERCENT INSTEAD OF THE 6 PERCENT THAT THEY WERE LOOKING FOR. AND EVEN THOUGH THAT COMPARES WITH A VERY LOW NUMBER LAST YEAR, IT'S STILL NOT THAT FAR BELOW THE RECORD PACE OF TWO YEARS AGO ON PLACEMENTS. SO PLENTY OF BEEF AHEAD OF US. I THINK THE OTHER THING IS THE EARLY TIMING OF EASTER THIS YEAR. WE'VE SEEN RED MEAT CONSUMPTION SLOW DOWN. YOU ALWAYS DO THAT, SEE IT SLOW DOWN A LITTLE BIT AS WE GO INTO THE EASTER WEEKS. BUT THE GOOD THING IS THAT ALL DURING THE MONTH OF APRIL NOW, WE'LL HAVE POST-EASTER DEMAND COMING IN. AND THAT'S USUALLY A GOOD PERIOD FOR RED MEAT DEMAND. WE'VE REALLY BEAT THIS MARKET UP, CASH PRICES AS WELL AS FUTURES. WE'VE GOT TO PUT A FLOOR UNDERNEATH THIS THING NEXT WEEK, AND I THINK WE WILL. AND THEN AS PRICES DO START TO MOVE A LITTLE HIGHER, DON'T SHOOT FOR THE MOON THERE ON YOUR PRICING. TAKE ADVANTAGE OF SMALL GAINS AND KEEP THESE WEIGHTS DOWN AS LIGHT AS POSSIBLE ON BOTH THE CATTLE AND THE HOGS.

Sprecher: JUST BRIEFLY, COULD YOU GIVE US SOME PRICE PARAMETERS?

Hjort: WELL, ON THE CATTLE, I THINK WE COULD -- 71 CENTS THIS WEEK, DOWN FROM 74 TO 74.5 LAST WEEK. WE'LL GET BACK INTO THAT MID SEVENTIES WITHIN THE NEXT MONTH IF THE INDUSTRY DOES A GOOD JOB OF MARKETING THE CATTLE.

Sprecher: WELL, THANK YOU, DOUG. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE A FARMER- AND INVESTOR-OWNED COMPANY THAT IS REVOLUTIONIZING THE CHICKEN INDUSTRY. UNTIL THEN, FOR MARK PEARSON, I'M SID SPRECHER. THANKS FOR WATCHING. HAVE A GOOD WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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