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Market Analysis: Jan 11, 2002

posted on January 11, 2002


The grain markets completed a week of stronger prices based on reduced usda crop totals for the 2001 harvest, and dry conditions in Brazil. For the week, wheat prices gained more than a penny. Corn prices were two to three cents higher. Soybean futures were 18 to 21-cents higher. Soybean meal gained $13.80 per ton. Cotton futures were 42-cents higher. In livestock, fed cattle futures were down 20-cents. Feeder cattle were a dollar lower. The lean hog contract closed the week 60-cents higher. In the financials, comex gold gained $8.50 an ounce. The euro finished the week thirty basis points lower against the dollar. And, the CRB Index finished the week nearly one-and-a-half points higher to close at 194.75.

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

Market Analysis: Jan 11, 2002

Robinson: THANK YOU, COMMANDER. IT'S GOOD TO BE HERE.

Pearson: GOOD TO HAVE YOU. LET'S TALK ABOUT THIS SOYBEAN AND WHEAT AND GRAIN MARKET. LET'S START FIRST WITH WHEAT. WE TALKED ABOUT IT EARLIER IN THE SHOW. ACRES DEFINITELY ARE DOWN. THE WHEAT MARKET HAS BEEN JUMPING A LITTLE BIT HERE THE LAST WEEK OR TWO.

Robinson: YEAH, THIS WEEK, MARK, NEW-CROP WHEAT FUTURES, AS A RESULT OF THE, I THINK, NEW-CROP ACREAGE FORECAST, WERE STRONGER THAN THE OLD. SO WE'VE GOT TWO CROPS HERE, I THINK, TAKING SHAPE. THE OLD-CROP WHEAT MARKET AS DEFINED BY THE MARCH FUTURES CONTRACT, AND LET'S DEFINE NEW BY THE JULY OF 2002, MARK. I CAN ENVISION THE SPREAD BETWEEN THOSE TWO CONTRACTS WIDENING, SIMPLY BECAUSE THERE IS AN ADEQUATE SUPPLY OF OLD-CROP WHEAT, EVEN THOUGH IN EACH OF THE LAST SEVERAL SUPPLY AND DEMAND REPORTS, INVENTORIES -- ENDING STOCKS HAVE BEEN TRIMMED. NOW, TO THE EXTENT THAT THEY'RE NOT DANGEROUSLY LOW, MARK, THEY'RE FULLY ADEQUATE AND FULLY AMPLE TO MEET PROJECTED DEMAND. THE CONCERN EVOLVES AROUND, I THINK, THE NEW AS A RESULT OF ACREAGE AND THEN WEATHER UNCERTAINTIES THAT ARE BEGINNING TO DEVELOP THROUGH PARTS OF THE SOUTHWEST, AS WELL AS OTHER REGIONS IN THE WORLD. WHEAT IS KIND OF SEPARATING ITSELF FROM CORN, INASMUCH AS IT'S GAINED PRETTY SIGNIFICANTLY PRICEWISE. IT LOOKS TO ME TO BE PUSHING ITS WAY OUT OF THE FEED RATIONING MARKET AND BACK INTO EXCLUSIVELY THE FOOD MARKET. AND IN THAT CONTEXT, MARK, I ALSO NOTED THIS WEEK IN REPORTS THAT RICE SUPPLIES HERE IN THE UNITED STATES ARE VERY LARGE, PRODUCED 213 MILLION HUNDREDWEIGHTS OF RICE. WE'RE PROJECTED TO CARRY 42.5 MILLION HUNDREDWEIGHTS OF RICE OVER INTO THE NEXT CROP YEAR. THAT'S UP 49 PERCENT FROM LAST YEAR. SO THERE IS NO SHORTAGE OF FOOD-TYPE SUPPLIES, WHEAT AND/OR RICE, IN THE IMMEDIATE FUTURE. THE CONCERN EVOLVES AROUND NEW. I'D LIKE TO BUY SOME NEW-CROP JULY PUTS WHEN NEW-CROP JULY FUTURES CHICAGO TRADE ABOVE 320.

Pearson: OKAY. ALL RIGHT, SOME GOOD ADVICE THERE. WHAT ABOUT ON THIS CORN MARKET, VIRGIL? YOU MENTIONED WHEAT HAS KIND OF DIVORCED ITSELF. IT SEEMS LIKE SOYBEANS HAVE ALSO DIVORCED THEMSELVES. THE CORN MARKET HAS BEEN RELATIVELY FLAT. WHAT'S AHEAD? WILL THERE BE AN IMPACT ON CORN?

Robinson: WELL, THE REPORTS WERE IMPRESSIVE, MARK, IN THAT WE DID, AGAIN, TRIM ENDING INVENTORIES, OLD-CROP ENDING INVENTORIES. WE ALSO TRIMMED WORLD COARSE AND/OR FEED GRAIN INVENTORIES, MARK, IN EACH OF THE LAST THREE OR FOUR REPORTS. SO THAT SUGGESTS TO ME SUPPLIES ARE NOT NEARLY AS BURDENSOME AS WE ASSUMED HERE THREE, FOUR -- EXCUSE ME, THREE, FOUR MONTHS AGO, BUT YET REMAIN ADEQUATE AND AMPLE TO MEET PROJECTED SUPPLIES. HAVING SAID THAT AND KNOWING THAT, AT LEAST GIVEN THE STOCKS REPORT HERE FROM THIS LAST WEEK, WE'VE GOT QUITE A BIT OF CORN YET TO MERCHANDISE BETWEEN NOW AND THE AVAILABILITY OF NEW. I THINK THERE AGAIN, WHAT WILL DEVELOP, THE FUTURES SPREADS WILL LIKELY WIDEN. THE ADEQUATE SUPPLY OF OLD, THE UNCERTAINTY EVOLVING AROUND ACREAGE AND CROP PROSPECTS AND SO ON IN THE NEW, I THINK THOSE SPREADS WILL WIDEN, MARK. MARCH CORN FUTURES, AS THEY APPROACH THE 220 MARK, I THINK WILL ATTRACT SOME SELLING, SOME PRODUCER SELLING. NEW-CROP FUTURES, IN EACH OF THE LAST TEN YEARS, DECEMBER FUTURES HAVE TRADED ABOVE 250 IN NINE OF THOSE TEN YEARS, MARK. AT PRESENT, I DON'T SEE ANY REASON WHY WE SHOULDN'T DO THAT AGAIN. SOMETIME MOST LIKELY DURING THE HARSHEST PART OF WHATEVER WINTER WE HAVE, AT THAT POINT FORWARD CONTRACT. IF YOU'RE INSURED, HEDGE TO ARRIVE COMES INTO PLAY. BUYING PUTS IS ALSO A VIABLE STRATEGY.

Pearson: ALL RIGHT. BUT AROUND 250 NEW CROP?

Robinson: I THINK WE HAVE THAT PROSPECT AS WE VISIT TONIGHT.

Pearson: ALL RIGHT. NOW, THE SOYBEAN MARKET, DRAMATIC UPMOVE THIS WEEK. A COUPLE OF FACTORS: DRYNESS IN BRAZIL, WHICH BRAZIL IS USUALLY WET, SO I DON'T KNOW THAT DRYNESS IS ALL THAT BAD, BUT IT'S ONE OF THE THINGS THAT WAS WORRYING CHICAGO. BUT IT'S A WET JULY TIME PERIOD IN SOUTH AMERICA AT THIS TIME OF THE YEAR, SO THEY'RE IN THE THROES OF THEIR WEATHER MARKET. IS THIS GOING TO BE A SELLING OPPORTUNITY? ARE WE GOING TO LOOK BACK ON THIS AS THEY'RE SELLING OPPORTUNITY FOR THE WINTER?

Robinson: I THINK TWO PARTS TO YOUR QUESTION, MARK. THE FIRST, IN TODAY'S DATA, THE USDA INCREASED BRAZILIAN PRODUCTION A MILLION METRIC TONS AND KEPT ARGENTINIAN PRODUCTION UNCHANGED. SO HAVING KNOWLEDGE OF WEATHER DEVELOPMENTS, THEY APPARENTLY ARE NOT CONCERNED TO THIS POINT IN TIME OR REDUCING THOSE PROJECTIONS. THEY'RE PROJECTED TO PRODUCE A RECORD LARGE CROP BETWEEN THE TWO OF THEM, AND THAT COMES ON LINE PROBABLY LATE FEBRUARY AND/OR MARCH. TODAY'S DATA, BEST USAGE IN THE LAST QUARTER OF THE YEAR OR CERTAINLY NEAR THE BEST USAGE EVER IN BEANS. MARK, WE CONTINUE TO USE BEANS AT A RAPID CLIP AND WILL LIKELY DO SO UNTIL WE BANG INTO THAT SOUTH AMERICAN PRODUCTION. SO I THINK THERE'S A LITTLE WINDOW OF OPPORTUNITY HERE. CATALYST BEING THIS DECK OF REPORTS GIVEN FROM THE USDA AND THE IDEA THAT WE ARE REALLY THE SUPPLIER OF RESIDUAL NATURE FROM NOW UNTIL FEBRUARY OR MARCH. I THINK THE OLD-CROP CONTRACTS OR THE OLD-CROP MARKET MARCH FUTURES, I THINK HAVE THE ABILITY TO TRADE ABOVE $4.50, MAYBE AS GOOD AS $4.75, AT WHICH POINT AND TIME, MARK, I THINK THOSE WHO ARE LUGGING INVENTORY NEED TO MAKE A DECISION, MOST LIKELY GET THEIR SELLING SHOES ON. NEW-CROP FUTURES, A LOT OF UNCERTAINTIES: ACREAGE, LOAN LEVEL, A WHOLE HOST OF THINGS. I'D LIKE TO BUY SOME PUTS, MARK -- I KNOW THIS IS SOMETHING WE'VE USED IN YEARS PAST -- AS THAT NEW CROP CONTRACT APPROACHES 480 TO 490.

Pearson: ALL RIGHT. LET'S TALK ABOUT LIVESTOCK. CATTLE AND HOGS, VIRGIL... CATTLE MARKET, IT'S BEEN UNDER SOME PRESSURE. IT'S COME BACK A LITTLE BIT. CUTOUTS SEEM TO BE LOOKING STRONG. WHAT'S AHEAD NOW FOR THE BEEF QUARTER? IS THE WORST BEHIND US NOW?

Robinson: I DON'T THINK THERE'S ANY QUESTION DEMAND HAS IMPROVED POST THE SEPTEMBER DEVELOPMENTS, MARK, AND THERE'S DOCUMENTATION TO THAT EFFECT. I DID NOTE HERE THIS WEEK AGAIN, LIVE WEIGHTS BALLOONED TO RECORD LEVELS AS DID DRESSED WEIGHTS. WE JUST HAVEN'T HAD MUCH OF A WINTER. FEEDYARD CONDITIONS ARE ABSOLUTELY IDEAL, AND THESE CATTLE ARE GAINING REMARKABLY WELL. THERE'S AN ADEQUATE SUPPLY OF TONNAGE OR BEEF IN THE PIPE AND APPROACHING THE PIPE, MARK. I THINK THE BEST THAT WE CAN MUSTER THE BALANCE OF THIS QUARTER IS PROBABLY THIS MID, MAYBE AT A SHOT AT UPPER, SIXTIES. SECOND AND THIRD QUARTER OF 2002, HOWEVER, I ANTICIPATE PRICE IMPROVEMENT. MID SEVENTIES IN THE SECOND QUARTER. A CHANCE AT $80 IN THE THIRD QUARTER OF 2000 -- 2002, BASED SOLELY ON SUPPLY AND, I THINK, IMPROVED DEMAND.

Pearson: ALL RIGHT. ABOUT FIFTEEN SECONDS, VIRGIL. HOG MARKET, WHAT'S YOUR OUTLOOK THERE?

Robinson: I DON'T SEE ANY EXPANSION UNDERWAY. FARROWING INTENTIONS SEPT. THROUGH NOV., DEC. THROUGH FEB., WARNED THAT THIRD AND FOURTH QUARTER OF 2002 IS THE AREA TO BE MOST CONCERNED ABOUT. I WOULD SUGGEST SOMETHING IN THE LOW FORTIES DURING THE THIRD QUARTER, MOST LIKELY THE UPPER THIRTIES IN THE FOURTH QUARTER OF 2002 IS ABOUT THE BEST AT PRESENT WE CAN PROJECT FOR CASH PRICES.

Pearson: VERY GOOD. VIRGIL ROBINSON, THANK YOU SO MUCH.

Tags: agriculture commodity prices markets news USDA