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Market Analysis: Feb 08, 2002

posted on February 8, 2002


The grain markets finished the week mixed due to ideas the winter crop is in better shape than earlier believed. For the week, wheat prices were down more than a nickel. Corn prices were a quarter cent higher. Soybean futures were more than two cents higher. Soybean meal closed $1.50 lower per ton. Cotton futures gained 81-cents.

In livestock, fed cattle futures were 90-cents higher. Feeder cattle closed 32-cents lower. The lean hog contract closed $1.12 lower.

In the financials, COMEX gold gained $17.50 per ounce. The Euro closed 119 basis points higher against the dollar. The CRB index gained two-and-three-quarters points higher to finish at 191.75.

Here now to lend us their insight are two of our regular market analysts, Doug Jackson, and Walt Hackney.

Market Analysis: Feb 08, 2002 GENTLEMEN, WELCOME BACK, WALT, DOUG.

MARK.

Pearson: LET'S TALK ABOUT THIS GRAIN MARKET. A LITTLE SOFTER ON WHEAT THIS WEEK. YOU HAVEN'T BEEN OVERLY BULLISH ON ANY OF THESE GRAINS, DOUG. WHAT, IF ANYTHING, HAS CHANGED?

Jackson: MARK, WE'VE BEEN REALLY IN THE DOLDRUMS IN THE WHOLE GRAIN COMPLEX HERE NOW, REALLY THROUGHOUT MUCH OF THE WINTER. WE HAVE A LARGE CROP DEVELOPING IN SOUTH AMERICA AGAIN. VIRTUALLY THE THIRD YEAR IN A ROW NOW WITHOUT A MAJOR WEATHER PROBLEM. EXPORT DEMAND REMAINS RELATIVELY ANEMIC, PARTICULARLY IN THE WHEAT, ALTHOUGH DEMAND REMAINS STRONG IN THE BEANS. AND THE MARKET REALLY HAD A BIT OF A CLOUD OVER IT, MARK, IN TERMS OF CONCERNS ABOUT CURRENCIES, CONCERNS ABOUT WORLD ECONOMICS. A MAJOR MAGAZINE THIS WEEK RAN AN ARTICLE DESCRIBING THE POTENTIAL FOR THE JAPANESE ECONOMY TO PULL THE WORLD ECONOMY INTO A DEPRESSION. THE JAPANESE ECONOMY BEING THE SECOND LARGEST IN THE WORLD, HAVING A HUGE AMOUNT OF OUTSTANDING BAD DEBTS, BANKING PROBLEMS. SO THE MARKET STARTED TO RECOGNIZE -- THE COMMODITY MARKETS IN GENERAL ARE STARTING TO RECOGNIZE THAT WE MAY FACE VERY WEAK CURRENCIES, A VERY STRONG DOLLAR, WEAK FOREIGN CURRENCIES IN EGYPT, CANADA, ARGENTINA, CHINA, JAPAN, AND OTHERS. AND THIS MAY GIVE US A POOL OF EXTREMELY CHEAP COMPETITIVE LABOR, A VERY CHEAP COMPETITIVE EXPORTABLE SURPLUSES OF GRAIN PRODUCTION THAT MAY PLAGUE THE MARKET FOR A NUMBER OF YEARS TO COME.

Pearson: OKAY. WITH THAT BUOYANT OUTLOOK, WHAT ABOUT -- ARE WE MAKING ANY SALES AT THIS POINT, DOUG? LET'S TALK WHEAT FIRST.

Jackson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

Pearson: IS CHINA GOING TO AMOUNT TO A BIG BUYER OR NOT, DOUG?

Jackson: WELL, THEY ARE A BIG BUYER, MARK, BUT THE QUESTION IS WHETHER WE'RE GOING TO SEE SIMULTANEOUSLY A SLOWDOWN NOW IN BOTH EUROPE, WITH THE BONE MEAL THING BEHIND US, AND NOW A SLOWDOWN WITH AT LEAST SOME IMPEDIMENT TO IMPORTS THROUGH THESE GMO RULES IN CHINA. WE'RE NOT SURE WHETHER THAT'S GOING TO BE A LONG-TERM PROBLEM OR NOT, ALTHOUGH WE SUSPECT THAT THEY DO WANT TO SLOW THIS DEMAND GROWTH RATE TO STIMULATE INCREASED BEAN ACRES THERE. AND THAT COULD LEAVE THIS BEAN MARKET A LITTLE BIT MORE OF A SIDEWAYS DEMAND PICTURE, SOMETHING WE HAVEN'T SEEN IN A LONG TIME.

Pearson: NOW, YOU MENTIONED BRAZIL. HARVEST IS UNDERWAY DOWN THERE. ARE WE GOING TO START TO SEE SOME OF THAT HARVEST PRESSURE?

Jackson: WE ALREADY HAVE HARVEST GOING FULL-BORE IN SOME OF THOSE PROVINCES. WE'RE IN EXCEPTIONAL, POSSIBLY RECORD YIELDS AGAIN. THE NEW-CROP HARVEST THERE, MARK, WILL BE ABOUT 20 MILLION BUSHELS BIGGER THAN THE HARVEST A YEAR AGO.

Pearson: BUT YOU'D STILL RECOMMEND NOT MAKING SALES.

Jackson: WELL, WE'RE NOT EXCITED ABOUT NOVEMBER BEANS AT THIS PRICE BUT, MARK, IF WE DON'T HAVE WEATHER PROBLEMS IN THE U.S., WE COULD DRIFT DOWN TO NEW CONTRACT LOWS, MAYBE 30, 40 CENTS DOWN. PEOPLE DON'T KNOW WHAT ANYTHING IS WORTH IN THIS MARKETING LOAN ENVIRONMENT, MARK, AS WE CONTINUE TO CREATE THIS NEW PRICE SUPPLY CURVE. WHAT INDEED IS THE EXTRA UNWANTED BUSHEL WORTH IN A MARKETING LOAN PROGRAM?

Pearson: ALL RIGHT. SOME GOOD QUESTIONS. SO OVER ON THE LIVESTOCK SIDE. WALTER, AS YOU'VE SURVEYED THIS CATTLE MARKET, YOU WERE TALKING ABOUT YOU WERE SEEING KIND OF A BOUNCE HERE AS WE HEADED TOWARD SPRING. ARE WE STARTING TO SEE SOME OF THAT NOW?

Hackney: WE DEFINITELY HAVE SEEN A MAJOR TURNAROUND IN THE CASH MARKETS ON THESE LIVE CATTLE. IN A FEW SHORT WEEKS, ABOUT A MONTH OR LESS, WE'VE COME FROM SIGNIFICANT LOSSES TO CATTLE THAT ARE BREAKING EVEN OR SHOWING A MINOR PROFIT AS WE SPEAK. WE'VE GOT AN INVENTORY OUT THERE THAT IS VERY CURRENT IN THE FEEDLOTS. THE PROBLEM WE HAVE IS THAT THE PACKER IS HOLDING THAT KILL RATE BACK TO A LEVEL THAT WILL ENCOURAGE RETAIL TO BUY AT HIGHER PRICES, AND HE'S ACCOMPLISHED THAT. THE PROBLEM IS HE ISN'T PASSING AS MUCH OF THAT RISE IN THE BEEF PRICES BACK TO THE CATTLE FEEDER, FOR INSTANCE, AS PROBABLY HE DESERVES. ON THE SAME TOKEN, WE'VE HAD CATTLE THIS WEEK UP TO 73 CENTS A POUND, WHICH IS A FAR CRY FROM THAT 61 AND -2 A MONTH AGO. WE'VE GOT DRESSED BEEF FLAT VALUE ON THE CATTLE IN THE CORN BELT AT $1.14, POSSIBILITY OF IT GOING TO 15 NEXT WEEK. ON THE SAME TOKEN, IT MAY BE A LITTLE BIT TOPPY AS WE SPEAK. WE MAY HAVE HAD A SIGNIFICANT RISE, ENOUGH THAT IT'S GOING TO HOLD THIS RATE OF INCREASE ABOUT AT THE LEVEL WE SAW THIS WEEK. THERE IS TALK THAT THE DRESSED BEEF MAY NOT SHOW THE ADVANCES NEXT WEEK AND THE SUBSEQUENT WEEK AS WE'VE HAD. THAT WOULD MAYBE BE OKAY. THAT WOULD PROBABLY ALLOW THE CATTLE FEEDER TO GO AHEAD, LIQUIDATE THIS INVENTORY WE HAVE ON HAND AT, AT LEAST, SOME KIND OF A PROFITABLE POSITION. SO THERE IS A LOT OF OPTIMISM TODAY, VERSUS WHAT WE HAD A MONTH AGO.

Pearson: ALL RIGHTY. WALTER, AT THIS STAGE OF THE GAME, WE HAD THAT CATTLE INVENTORY REPORT OUT A COUPLE WEEKS AGO AND SHOWED AGAIN A SMALLER CALF CROP. SO FROM THE FEEDER STANDPOINT, DECENT PRICES THROUGH 2002?

Hackney: OH, I THINK THAT THE FACT OF YOUR POINT ABOUT HEIFER CALVES GOING TO THE FEEDLOT VERSUS BEING KEPT BACK FOR REPLACEMENT, 14 PERCENT IS A HUGE NUMBER. THAT'S VERY INDICATIVE OF A BETTER DEMAND AND A LESSER AMOUNT OF AVAILABLE INVENTORY OF THESE CALF CATTLE WHEN WE GO TO THIS FALL OF 2002. SO THE OPTIMISM IS FAIRLY HIGH. IF DOUG'S PROGNOSTICATION ABOUT THE CORN AND THE VALUES AS WE APPROACH HARVEST THIS YEAR, IF THOSE THINGS ARE CORRECT, THAT WILL BECOME SUCH A CHEAP ITEM GOING INTO LIVESTOCK THAT I EXPECT WE'LL SEE QUITE AN EVOLUTION GOING OVER A MORE FEEDING OF LIVESTOCK WITH THE GRAINS.

Pearson: ALL RIGHT. CALF PRICES AND FED CATTLE PRICES, THIS COMING FALL, WHAT'S YOUR OUTLOOK?

Hackney: WELL, RIGHT NOW, FROM ALL APPEARANCES, WE'LL HAVE A MARKET SIMILAR TO THIS PAST FALL. WE HAD NEAR RECORD PRICES AS WE WENT INTO THIS PAST FALL. I WOULD SUGGEST THAT THOSE CATTLE WILL START BEING CONTRACTED IN ANOTHER SIXTY DAYS FOR OCTOBER DELIVERY. OFF THE RANCHES, I EXPECT TO SEE CALVES BRINGING A BUCK A POUND OR BETTER.

Pearson: ALL RIGHTY. LET'S MOVE OVER TO THIS HOG MARKET. WE'VE SEEN SOME PRESSURE HERE SHORT TERM ON THIS HOG MARKET. AND THERE'S SOME CONCERN IN THESE HOG REPORTS THAT MAYBE WE'RE BUILDING A LITTLE BIT OF INVENTORY HERE THAT MAYBE WASN'T REFLECTED IN THE LAST USDA REPORT. WHAT'S YOUR TAKE, WALTER, ON EXPANSION, AS FAR AS THESE HOGS ARE CONCERNED.

Hackney: I DON'T KNOW HOW MUCH CREDENCE THE INVENTORY REPORT HAS TO WHAT WAS PROJECTED BY USDA NUMBERS. BUT I DO KNOW THAT WE'VE GOT AN INVENTORY OUT HERE ON FEED, AS WE SPEAK, IN THE CONFINEMENT THAT WOULD SUPPORT A 275,000 -- OR EXCUSE ME, A KILL THAT WOULD BE PROPORTIONATE TO 375,000 HEAD OF HOGS A DAY. AS WE SPEAK, THE PACKER IS INTENTIONALLY HOLDING THAT KILL DOWN INTO AROUND THE MID 360S. WELL, THERE'S ONE REASON FOR THAT, AND THAT'S TRYING TO STARVE OUT THE RETAILER TO INCREASE THE DRESSED VALUE OF THE PORK PRODUCT. AT THAT RATE, YOU'RE CORRECT. WE WILL BUILD A CERTAIN AMOUNT OF UNNEEDED INVENTORY OUT THERE BECAUSE THE SIMPLE FACT THEY CAN'T GET THEM INTO THE MARKET; THE MARKET IS NOT THERE. THE AVAILABLE PACKER CHAIN IS NOT AVAILABLE TO THEM. THEY SLOWED THEIR CHAINS DOWN.

Pearson: IS IT WORTHWHILE TO GO OUT AND LOOK AT SOME OF THOSE SUMMER CONTRACTS AND PUT SOME HEDGES ON?

Hackney: I SUSPECT THAT IT WOULD BE WISE. YES, I DO, MARK. ANYTHING CAN HAPPEN. YOU GET A CHEAPER RATION GOING INTO HOGS, YOU GET A MARKET THAT'S SOMEWHAT DEPRESSED, THE ATTITUDE WILL BE TO FEED THEM BIGGER, TO FEED THEM LONGER, TO GET MORE WEIGHT TO COMPENSATE FOR LOST DOLLARS. SO IF IT WAS MINE, I'D HEDGE IN A PROFIT TODAY.

Pearson: THANKS, WALT, AND THANKS, DOUG. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK, WHEN WE COMPLETE OUR EXAMINATION OF HOW RURAL COMMUNITIES MIGHT COPE WITH URBAN SPRAWL. UNTIL THEN, I'M MARK PEARSON. THANKS FOR WATCHING. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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