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Market Analysis: Jan 25, 2002

posted on January 25, 2002


The grain markets turned in a mixed week as the trade continues to focus on worldwide production. For the week, wheat prices gained a penny, while corn prices were more than two cents lower.

Soybeans turned in a negative week. Futures prices were fourteen to fifteen cents lower. Soybean meal closed $6.50 lower per ton.

Cotton futures were 65-cents lower.

In livestock, fed cattle futures were 87-cents higher. Feeder cattle futures were seven cents lower. The lean hog contract finished the week 60-cents higher.

In the financials, Comex gold closed $4.30 lower per ounce. The Euro closed 190-basis points lower against the dollar. The CRB Index closed nearly a point lower to finish at 190-even.

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

Market Analysis: Jan 25, 2002

Newton: HI, MARK.

Pearson: ALL RIGHT. LET'S TALK ABOUT THESE GRAINS FIRST. WE HAD THIS THING, I THINK THEY CALL IT A RALLY GOING THERE, WAYNE, FOR A WEEK OR TWO, AND NOW WE'VE BACKED OFF THE LAST COUPLE WEEKS. ARE WE DONE FOR THE TIME BEING? ARE WE GOING TO SEE BETTER PRICES? WHAT'S YOUR TAKE? WHEAT FIRST.

Newton: MARK, I THINK ALL OF THE GRAINS ARE PROBABLY BEING INFLUENCED BY THINGS MORE PREVALENT SOUTH OF THE EQUATOR THAN IN THIS COUNTRY. SOUTH AMERICA IS STRUGGLING WITH THE ARGENTINE PESO AND WHAT TO DO WITH THAT AND THEN THE RAINFALL IN BRAZIL. SO I THINK ALL OF THOSE MARKETS ARE A LITTLE NERVOUS BASED ON WEATHER. INSOFAR AS THE WHEAT IS CONCERNED, I THINK WE'VE COME UP PROBABLY A QUARTER SINCE I WAS HERE LAST, AND THERE'S PROBABLY SOME SELLING OPPORTUNITIES THERE. IN FACT, SOME OF OUR ADVISERS ARE SAYING THAT THE OLD CROP OUGHT TO BE AT LEAST 75 PERCENT SOLD AND MAYBE CARRY THE BALANCE OF IT ON OUT TO SEE IF THIS WINTER WEATHER, THE DRY WEATHER AFFECTS THE WINTER WHEAT PRODUCTION IN THE SPRING. SO I THINK FOR FARMERS WHO NEED CASH FLOW, THIS IS AN OPPORTUNITY TO SELL. WE'VE GOT ALL THE WHEATS -- CHICAGO, KANSAS CITY, MINNEAPOLIS -- ALL IN THAT $3 RANGE. ANYTIME $3, $3.05, IF YOU NEED THE MONEY TO MEET SPRING PAYMENTS, I THINK THIS IS A PLACE TO SELL. ON THE OTHER HAND, THE BALANCE OF THAT, THE OTHER 25 PERCENT MAY BE KEPT BACK JUST TO SEE IF THIS OPEN WEATHER, THE WARM WEATHER WILL CAUSE EARLY GERMINATION OR SOMETHING TO THAT -- THOSE KIND OF PROBLEMS, BECAUSE THE POTENTIAL IS THERE.

Pearson: ABSOLUTELY. OF COURSE, THE CORN AND SOYBEANS, THERE'S A LOT OF TALK ABOUT WHAT THIS YEAR'S CROP MIX COULD BE FOR BOTH CORN AND SOYBEANS AND, AGAIN, POTENTIAL SIZE. AS YOU LOOK OUT THERE, DECEMBER CORN UP IN THAT 230, MID 230s AND HIGHER AREA, DO YOU START MAKING SALES, WAYNE, OR DO YOU WAIT AND SEE WHAT HAPPENS?

Newton: MARK, I REALLY THINK SO. 234 DECEMBER WITH THE POTENTIAL OF MAYBE 3 OR 4 MILLION MORE ACRES -- I THINK SPARKS CAME OUT TODAY AT 78 PLUS SOME ACRES, 78 MILLION ACRES. YOU'VE GOT TO DEAL WITH AVERAGES. AND EVEN THOUGH IT'S DRY AND THAT WILL COME INTO THE MIX, I THINK WE BUILD A PREMIUM INTO THAT DECEMBER CORN. IT'S 22, -3 CENTS BETTER THAN THE CURRENT MARKET. ADD THAT UP AT 150 BUSHEL CORN, THAT'S QUITE A SIZABLE AMOUNT OF INCREASE IN INCOME. SO I THINK PEOPLE NEED TO LOOK AT THAT, AT LEAST ON A PERCENT OF THEIR SALES. AND MAYBE RATHER THAN TO LOCK IT INTO THE FUTURES, DO IT WITH OPTIONS. I KNOW THAT'S A TOUGH THING TO DO WAY OUT IN THOSE MONTHS, BUT MAYBE DO IT IN THE EARLIER MONTHS WHEN THOSE OPTIONS ARE TRADED. BUT I THINK IT'S SOMETHING THAT YOU DEFINITELY LOOK AT OR YOU GO TO THE COUNTRY ELEVATOR AND SELL IT THERE IF THE BASIS ISN'T TOO WIDE.

Pearson: AND SO WATCH THE BASIS IN YOUR NEIGHBORHOOD. IF IT TIDES UP TO THE POINT TO MAKE IT WORTH YOUR WHILE TO GET SOMETHING PRICED IN THERE, AND THEN WORRY ABOUT THE LDP COME FALL. TALK ABOUT SOYBEANS, THEN, WAYNE. OBVIOUSLY THERE'S THIS CONCERN ABOUT DRY WEATHER IN BRAZIL. IF YOU TALK TO SOME CLIMATOLOGISTS, THEY'LL TELL YOU THE DRY WEATHER IN BRAZIL IS ACTUALLY GOOD. THEY'RE USUALLY TOO WET DOWN THERE. AND YET, WE'VE KIND OF GOT THIS RALLY THAT HAPPENED AND NOW WE'VE BACKED OFF FROM IS BASED ON DRY WEATHER IN BRAZIL.

Newton: I REALLY THINK THAT THE SPARK THAT WAS IN CORN A MONTH OR TWO AGO HAS KIND OF COME BACK INTO THE BEANS, PARTICULARLY AS WE TALK ABOUT REDUCED -- OR INCREASED ACRES IN CORN. THAT WILL BE AT THE EXPENSE OF BEANS. WE COULD BE LESS THAN 75 MILLION ACRES, AND THEN ADD A LITTLE WEATHER INTO THAT AND IT COULD HELP. BUT ONCE AGAIN, THE SOUTH AMERICAN CROP IS COMING ON NICELY. AND YOU'LL NOTICE THAT EVERY TIME A LITTLE SHOWER IS FORECAST, THE BEANS DROP A NICKEL. AND IF THEY TALK DRY A COUPLE DAYS, IT'S UP A NICKEL. SO I THINK YOU NEED TO MAKE SALES. IF YOU HAVEN'T LDP'd, TAKE ADVANTAGE OF THAT ON THE SAME DAY, BECAUSE LEVERAGING THAT IS KIND OF FUN AND GAMES IF YOU HAPPEN TO BE LEANING THE WRONG WAY.

Pearson: ABSOLUTELY, AND THAT CAN HAPPEN. THE COTTON MARKET STILL UNDER SOME PRESSURE, BUT REALLY WE'VE HAD KIND OF A MARKED RETURN ON COTTON PRICES.

Newton: AS A MATTER OF FACT, IT'S COME UP $5 A HUNDRED SINCE I WAS HERE LAST. THERE'S A GAP LEFT ON THE CHARTS AT ABOUT 45. AND AS YOU KNOW, WE TRADED UP TO 40 CENTS HERE A MONTH OR SO AGO. I WOULD SAY THAT IF IT GETS BACK UP INTO THAT CATEGORY, TAKE ADVANTAGE OF IT. THE FORECAST OF 770,000 FEWER ACRES THIS COMING PLANTING SEASON. BUT THE ALTERNATIVE CROPS, I.E., SOYBEANS, AREN'T THAT ATTRACTIVE, SO I WOULD EXPECT WE'LL SEE FAIRLY NORMAL COTTON PLANTINGS. AND WORLD DEMAND JUST ISN'T THERE. SO ON THESE RALLIES, IF YOU'VE GOT COTTON TO SELL -- AND THEN, OF COURSE, THE GOVERNMENT PROGRAM IS SOMETHING ELSE THAT YOU NEED TO MANAGE VERY CAREFULLY, BUT I THINK WHEN IT GETS UP TOWARD THAT $40 OR 40-CENT RANGE, IT'S A MARKET TO BE SOLD.

Pearson: ALL RIGHT. NOW, LET'S TALK ABOUT THIS LIVESTOCK MARKET. AND, WAYNE, THIS HAS BEEN ONE OF THE MILDEST WINTERS IN THE KEY FEEDING AREAS IN HISTORY. WE'RE PROBABLY GOING TO SEE RECORD BREAKING WARM TEMPERATURES THROUGH THE WEEKEND HERE. AND WE'VE SEEN THESE CATTLE HAVE DONE AWFULLY WELL. YOU'RE GOING TO TALK ABOUT THE HOGS IN A MINUTE; THEY'VE DONE AWFULLY WELL. WHAT'S THIS PERTAIN TO FOR THIS CATTLE MARKET? ARE WE GOING TO KIND OF PUSH THINGS UP JUST A LITTLE BIT?

Newton: WELL, MARK, I THINK A SNOWSTORM OF ANY SIGNIFICANCE COULD REALLY PUT SOME EXCITEMENT IN THIS MARKET. THE NUMBERS WOULD SHOW THAT WE'RE FEEDING CATTLE NO MORE THAN THREE TO FOUR DAYS LONGER THAN AVERAGE, AND YET WE'RE COMING UP WITH 24 TO 32 POUNDS OF EXTRA CARCASS WEIGHT, SO IT'S IN PERFORMANCE, IT'S NOT IN CATTLE HELD TOO LONG. AND SHOULD WE BACK THAT OFF OR REDUCE THOSE GAINS, THIS MARKET COULD GET EXCITING. THE DEMAND HAS BEEN GOOD. I THINK WE'RE VERY CURRENT. I THINK THE REPORT LAST WEEK GAVE US FEWER PLACEMENTS. WE NOW HAVE FEWER CATTLE ON FEED THAN THE PREVIOUS YEAR, WHICH IS KIND OF NEW TO US, SINCE IN THE '90S. SO I THINK THIS MARKET HAS SOME POTENTIAL. BUT HAVING SAID ALL OF THAT, APRIL IS UP AGAINST RESISTANCE AT ABOUT $75. I THINK BEFORE THAT CONTRACT EXPIRES, IT SHOULD GET TO AT LEAST 78, 77.50, ALONG IN THOSE AREAS. BUT I REALLY THINK TO THE PERSON WHO IS HIGHLY LEVERAGED AND THE BANKER WHO IS NERVOUS, TO PUT OPTIONS AROUND IT AT THIS POINT, IT WOULD BE JUST GOOD SOUND BUSINESS. WE TRADED CATTLE AT 68.50 THIS WEEK TO GO EARLY NEXT WEEK. AND WE'VE PUT IN A LOT OF FEEDERS THIS WEEK AT GOOD PRICES, AND SO THERE'S A LOT OF ACTIVITY GOING ON. AND THE CATTLE WILL NOW PENCIL OUT.

Pearson: YOU CAN MAKE IT WORK NOW, AND SO WE ARE STARTING TO SEE THAT EXCITEMENT. AND AGAIN IF THE WEATHER HOLDS, THIS SHOULD, IN TERMS OF A FEEDING YEAR, BE A DARN GOOD ONE. HOGS AND PIGS REPORT. THEY'RE NOW MONTHLY, SO WE HAD ANOTHER MONTHLY HOGS AND PIGS REPORT FRIDAY AFTERNOON. WHAT DO YOU MAKE OUT OF THAT?

Newton: WELL, MARK, I THINK MONDAY MORNING IT WILL SHOW KIND OF A HO-HUM PROGRAM. IT WAS ABOUT AS EXPECTED. WE'RE 102, 102 AND 100 PERCENT ON THE NUMBERS FROM TOTAL PIGS, FARROWINGS NUMBERS. AND SO I DON'T SEE A LOT ABOUT THAT. BUT YOU LOOK OUT IN THAT JUNE AND JULY PERIOD, AND WE'VE GOT LEAN HOGS TRADING AT 67. THAT'S A PRETTY ATTRACTIVE PRICE. AND I THINK THE PORK FARMERS NEED TO TAKE ADVANTAGE OF THAT. BUT ONCE AGAIN, THE ECONOMY CHANGES AND THE DEMAND PICKS UP, EXPORTS INCREASE, THAT MARKET COULD GO HIGHER. SO THERE'S WHERE I WOULD SAY THAT OPTIONS WOULD REALLY COME INTO PLAY FOR ME. THOSE ARE NICE PROFITABLE LEVELS, AND YOU NEED TO TAKE ADVANTAGE OF IT.

Pearson: VERY GOOD,. WAYNE NEWTON, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK AS WE CONTINUE TO FOLLOW THE EFFORTS OF CONGRESS TO DRAFT A NEW FARM BILL. UNTIL THEN, THANKS FOR JOINING US. I'M MARK PEARSON. HAVE A GREAT WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA

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