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Market Analysis: Mar 08, 2002

posted on March 8, 2002


The grain markets finished the week mixed due to conflicting export news. For the week, wheat prices gained a penny. Corn prices were mixed. The excitement was in the soybean pit where prices were eleven to fifteen cents higher. Soybean meal gained $3.80 per ton. Cotton futures posted gains of $1.77.

In livestock, fed cattle futures gained $1.20. Feeder cattle gained $1.08. The lean hog contract closed $1.75 lower.

In the financials, COMEX gold closed $8.10 per ounce lower. The Euro gained 86-basis points higher against the dollar. The CRB index finished the week more than five points higher to close at 199.50.

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

Market Analysis: Mar 08, 2002

Pfitzenmaier: THANKS, MARK.

Pearson: WE NEVER TALK ABOUT THIS, BUT WE ALWAYS RUN THE COMMODITY RESEARCH BUREAU'S INDEX. A FIVE-POINT MOVE THIS WEEK. THAT'S OFF THE CHARTS IN THE HISTORY THAT WE'VE BEEN CARRYING IT.

Pfitzenmaier: THIS WAS KIND OF A WATERSHED WEEK IN A LOT OF RESPECTS. WE HAD THE CRB, WHICH WAS OBVIOUSLY A VERY GOOD MOVE. YOU ALLUDED TO IT EARLIER, THE YEN AND THE EURO BOTH BROKE UP INTO SOME PRETTY SIGNIFICANT AREAS. IT LOOKS LIKE YOU'VE GOT SOME SORT OF BOTTOM PUT IN, IN THE EQUITY MARKET. IT LOOKS AS THOUGH INTEREST RATES ARE PROBABLY BOTTOMED OUT AND MAYBE GOING TO START TO WORK UP A LITTLE BIT. SO THERE'S A LOT OF CHANGES IT LOOKS LIKE HAVE TAKEN PLACE OVER THE LAST WEEK OR TWO THAT HAVE VERY, VERY IMPORTANT IMPACTS ON WHAT WE DO IN THE WORLD OF GRAIN TRADING AND FARM COMMODITIES. ONE OF THE THINGS THAT WAS VERY IMPORTANT THAT HAPPENED THIS WEEK, I THINK, WAS THIS STEEL PROBLEM THAT THE PRESIDENT SIGNED PUTTING IMPORT QUOTAS ON STEEL. IT RUNS THE RISK OF HAVING RETALIATORY RAMIFICATIONS IN A LOT OF AREAS THAT ARE IMPORTANT TO FARMERS. RUSSIA ALREADY PUT IMPORT QUOTAS -- NOT QUOTAS BUT TAX ON POULTRY. THEY'RE A HUGE BUYER OF OUR POULTRY. THAT'S IMPORTANT. JAPAN IS TALKING ABOUT DOING THE SAME THING. IT COULD HAVE IMPLICATIONS TO CHINA, WHICH WE'RE TRYING TO DEVELOP RELATIONS WITH. SO VERY IMPORTANT PIECE OF LEGISLATION AND VERY IMPORTANT MOVES IN A LOT OF DIFFERENT MARKETS THAT COULD REALLY IMPACT OUR GRAIN AND LIVESTOCK.

Pearson: ALL RIGHT. IT'S REALLY KIND OF A MIXED PICTURE, BUT TALK A LITTLE ABOUT -- LET'S TALK ABOUT, FUNDAMENTALLY, SOYBEANS. A BIG MOVE UP ON A WEEKLY BASIS, ONE OF THE BIGGER MOVES WE'VE HAD IN THE LAST FIVE YEARS.

Pfitzenmaier: WE HAD HUGE FUND BUYING. THE FUNDS WENT FROM SLIGHTLY LONG THIS WEEK TO -- ACCORDING TO OUR CALCULATIONS, ALONG 180 TO 185 MILLION BUSHEL BY THE END OF THE WEEK. THAT'S A HUGE BUILDUP IN POSITION. IT'S ALSO A VERY LARGE POSITION FOR THE FUNDS, WHICH MAKES YOU WONDER WHO'S LEFT TO COME IN AND BUY THE THING. YOU'VE GOT THE MARKETS TECHNICALLY VERY OVERBOUGHT. YOU'RE FACING THE POTENTIAL FOR SOUTH AMERICAN COMPETITION AS THEIR HARVEST GETS GEARED UP HERE. THE CHINA THING WAS ONE OF THE -- THAT AGREEMENT TO REEVALUATE WHETHER WE CAN SEND GMO PRODUCTS OVER THERE WAS THE THING THAT SORT OF PROPELLED THAT UP THIS WEEK. AND IT WILL BE INTERESTING TO SEE IF WE SUSTAIN THAT, BECAUSE JUST AGREEING TO ACCEPT GMO PRODUCTS DOESN'T NECESSARILY MEAN THEY'RE GOING TO BUY. LAST WEEK WE HAD CANCELLATIONS. THIS WEEK, ARE WE GOING TO CANCEL LAST WEEK AND BUY THIS WEEK? PROBABLY NOT. TALK THAT THEY'RE PROBABLY LOOKING AT BUYING SOME SOUTH AMERICAN PRODUCT. SO A VERY GOOD WEEK UP. TECHNICALLY LOOKS VERY STRONG. MAY CLOSING ABOVE THAT 461 AREA. VERY SIGNIFICANT TECHNICALLY. YOU JUST HAVE TO WONDER, FUNDAMENTALLY, HOW MUCH MORE OF A RALLY WE CAN REALLY SUPPORT HERE. PLUS THE FUNDS HAVE BUILT THEMSELVES UP A PRETTY GOOD LONG POSITION.

Pearson: ALL RIGHT. IS THIS A SELLING OPPORTUNITY OUT THERE FOR PRODUCERS?

Pfitzenmaier: I BELIEVE IT IS. A CHANCE TO CLEAN UP. THOSE GUYS THAT TOOK LDP AND SAT ON IT, THIS IS SORT OF THEIR REWARD FOR HAVING BEEN PATIENT HERE. AND I DON'T KNOW HOW YOU -- IT DEPENDS ON YOUR STRATEGY WHETHER YOU SCALE-UP SELL, WHETHER YOU PUT A STOP UNDERNEATH ON A -- IT TRIGGERS, IF IT FALLS APART, OR WHATEVER STRATEGY YOU HAPPEN TO USE, I THINK IT'S TIME TO BE WATCHING THIS BEAN MARKET VERY, VERY CLOSELY. AND FOR NEW CROP, YOU'VE GOT A CHANCE HERE TO MAYBE BUY A 460 PUT OUT ON THE NOVEMBER FOR A QUARTER, SOMETHING LIKE THAT. GO OUT AND SELL SOME 560, 580 CALLS TO PAY FOR IT. IT MAY BE AN OPPORTUNITY TO PUT A NICE FLOOR UNDER THAT NEW CROP TOO ON THIS RALLY.

Pearson: ALL RIGHT. A GOOD STARTING POINT FOR SOME NEW-CROP OPTION STRATEGIES. ALL RIGHT. LET'S TALK ABOUT CORN AND WHEAT, WHICH DID NOT HAVE MUCH OF A WEEK NET.

Pfitzenmaier: WHEAT HAS GOT ONE THING AND ONE THING ONLY, AND THAT'S WEATHER PROBLEMS GOING INTO THE SPRING ON THE WINTER WHEAT. THAT'S IT. IF YOU DON'T HAVE THAT, YOU'VE GOT PROBLEMS WITH WHEAT FROM A DEMAND STANDPOINT. YOU'VE GOT ALL KINDS OF ROAD COUNTRIES ALL OVER THE PLACE ALL OF A SUDDEN COMING UP WITH WHEAT TO SELL. WHEAT, WE HAD MEDIOCRE EXPORTS AGAIN THIS WEEK. WHEAT IS GOING TO STRUGGLE HERE. IT'S ON A DOWNTREND. FUND POSITION IS SHORT BUT NOT HUGE. I THINK YOU'RE GOING TO SEE WHEAT JUST KIND OF SIT HERE AND CHOP AROUND. AND MAYBE THE BUOYANCY IN THE BEANS CAN HELP A LITTLE BIT. BUT, BOY, THAT WAS A HECK OF A GOOD WEEK THIS WEEK IN BEANS, AND WHEAT CONTINUED TO WORK LOWER IN THE FACE OF THAT. SO WHEAT HAS DEFINITELY GOT PROBLEMS. ANY RALLIES THERE WOULD PROBABLY NEED TO BE SOLD, BARRING SOME REAL WEATHER PROBLEMS ON THE WINTER WHEAT CROP INTO THE SPRING.

Pearson: ALL RIGHT. YOU TALKED SOME TIME BACK ABOUT GETTING SOME -- THAT DECEMBER NEW-CROP CORN SOLD, 240 OR BETTER. ARE WE GOING TO SEE THAT AS A POSSIBILITY?

Pfitzenmaier: THAT WOULD BE THE UPSIDE, I GUESS. THAT'S THE PROBLEM IN THIS CORN MARKET IS YOU'VE GOT THE CROWD THAT THINKS WE'RE ONLY GOING TO SWITCH A MILLION TO A MILLION AND A HALF ACRES IN THE CORN NEXT YEAR, AND YOU'VE GOT THE CROWD THAT THINKS FOUR MILLION. WE'VE GOT A REPORT OUT MARCH 28 THAT'S GOING TO DETERMINE, AT LEAST INITIALLY, THE NUMBER WE HAVE TO WORK WITH THERE. SO, YOU KNOW, YOU CAN PAINT YOURSELF A PRETTY GOOD SCENARIO ONE WAY OR THE OTHER, DEPENDING ON WHAT KIND OF NUMBER YOU WANT TO USE, WHAT KIND OF A YIELD YOU WANT TO ATTACH TO THAT, WHETHER YOU THINK ETHANOL IS GOING TO BE A WONDERFUL BIG BOON NEXT YEAR, WHETHER YOU THINK EXPORTS HAVING BEEN A DOG -- A LITTLE DOGGED THIS YEAR ARE GOING TO BE BETTER NEXT YEAR. BUT, YEAH, IF YOU GET A RALLY UP INTO THAT 240 AREA OR A CHANCE TO BUY A 240 PUT FOR AROUND 18 TO 21 CENTS, I THINK YOU HAVE TO DO IT.

Pearson: ALL RIGHT. REAL QUICK TOMM, COTTON. A BIG MOVE THIS WEEK.

Pfitzenmaier: WELL, COTTON DEMAND, YOU KNOW, HAS BEEN PRETTY GOOD. WE'RE RUNNING ABOUT 7 PERCENT AHEAD OF WHAT THE USDA WOULD PROJECT NORMALLY FOR THIS TIME OF THE YEAR, AND I THINK PEOPLE ARE A LITTLE OPTIMISTIC BECAUSE OF THAT. BUT DON'T LET YOURSELF GET TOO EXCITED. I THINK THERE'S A PRETTY GOOD LIMIT ON COTTON. WHEN YOU GET UP AROUND 40, MAYBE 41, PROBABLY PRETTY GOOD SUPPORT WHEN YOU GET DOWN TO 36. I'D SEE COTTON JUST CHOPPING AROUND IN THAT AREA.

Pearson: ALL RIGHT. THE FED-CATTLE MARKET, THEY'RE TALKING STRONGER CASH MARKET NEXT WEEK. WHAT'S AHEAD?

Pfitzenmaier: WELL, WE'VE GOT THE CATTLE CLEANED UP PRETTY WELL. THAT'S GOING TO BE DICTATED BY -- ULTIMATELY, IT'S GOING TO BE DICTATED BY WHAT HAPPENS WITH THESE WEIGHTS. WEIGHTS HAVE BEEN FAIRLY HEFTY. IF THEY START TO BACK OFF A LITTLE BIT, MAYBE THAT WILL BE HELPFUL. EITHER WAY, I THINK OVER THE NEXT THIRTY DAYS, THE CATTLE MARKET HAS SOME UP IN IT, MAYBE TWO BUCKS, MAYBE THREE, BUT CERTAINLY SOME GOOD STRENGTH. I THINK YOU USE THAT STRENGTH INTO EARLY APRIL AS AN OPPORTUNITY TO GET SALES MADE FOR ON OUT INTO THE SUMMER AND FALL MONTHS.

Pearson: ALL RIGHT. THIRTY SECONDS, TOMM. WHAT'S YOUR TAKE ON THE HOG MARKET NOW?

Pfitzenmaier: THE HOG MARKET IN A NICE, SOLID UPTREND. I DON'T KNOW WHAT THE HIGH IS GOING TO BE. I SUSPECT THERE'S DEMAND PROBLEMS FACING US HERE. BUT AS LONG AS IT STAYS UP, I THINK YOU KEEP GOING WITH THAT. MAYBE IF YOU'RE SCARED, BUY SOME PUTS BUT LET THAT UPTREND GO AND RIDE IT AS LONG AS YOU CAN. IF IT STARTS TO BREAK THROUGH THAT, WATCH IT VERY CLOSELY. THEN START TRIGGERING SOME SALES AND BEING A LITTLE MORE AGGRESSIVE ON GETTING HOGS SOLD.

Pearson: ALL RIGHT, TOMM. THANK YOU SO MUCH, TOMM PFITZENMAIER. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET."

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