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Market Analysis: Dec 28, 2001

posted on December 28, 2001


For the most part the grain and oilseed markets finished the holiday-shortened week quietly. Wheat prices did close a cent and half higher on the week, but the January and March corn contracts closed two to three cents lower. The January and March soybean contracts finished 11 and 9 cents lower. The meal contract lost $2.70 a ton on the week. Cotton futures closed 23 cents lower.

In livestock, fed cattle futures gained a dollar and a half. Feeder cattle were a dollar-43 higher. February hogs closed $1.65 higher.

In the financials, COMEX gold closed the week $1.20 lower per ounce. The Euro lost 9 basis points on the week. And, the CRB index closed the week nearly 85 basis points higher at 192.75.

Market Analysis: Dec 28, 2001 Sprecher: Here now to lend us her insight is one of our regular market analysts, Sue Martin. Welcom back.

Martin: THANK YOU, SID.

Sprecher: NOW, SUE, I'M ALMOST AFRAID TO TURN YOU LOOSE BECAUSE YOU'RE JUST A RAGING BILL THIS WEEK, SO LET'S JUST RUN THROUGH THE COMMODITIES. WHEAT, YOU'RE PRETTY FRIENDLY TO WHEAT.

Martin: WELL, I CERTAINLY AM. FIRST OF ALL, WE'VE HAD OUR STATUS COME OUT, STATISTICAL DATA I SHOULD SAY. ON THE KANSAS WHEAT CROP THIS PAST YEAR, ABANDONMENT OF ACRES WAS ABOUT 1.6 MILLION ACRES. AND ON A NORMAL-YEAR AVERAGE, MAYBE NO MORE THAN 500,000 ACRES WOULD BE ABANDONED YEAR IN, YEAR OUT. SO THAT'S A PHENOMENAL DECLINE THAT WE NORMALLY DON'T SEE. DEMAND HAS BEEN FAIRLY GOOD FOR SOFT RED WHEAT, SO WE CONTINUE TO SEE THE CHICAGO WHEAT GAIN ON THE KANSAS CITY AND THE MINNEAPOLIS. I THINK THAT WILL CONTINUE. THAT SEEMS TO BE THE WHEAT AT THIS TIME THAT CHINA IS MOST INTERESTED IN, AND OF COURSE EGYPT AS WELL. I BELIEVE THAT THOSE ARE TWO BUYERS THAT ARE GOING TO CONTINUE TO COME AT US IN SPURTS. AND OF COURSE, CHINA CONTINUES TO DENY WHEN THEY HAVE BOUGHT STUFF, AND THEN THEY TURN AROUND AND THE NEXT THING YOU KNOW, THEY'RE BACK AT US AGAIN. AND THAT'S JUST A BUYING PLOY. BUT WHAT I LIKE ABOUT THE WHEAT MARKET IS THAT WHEN YOU LOOK AT THAT MARKET, THE U.S. IS THE WORLD'S LARGEST GIFTER. AND THAT AMOUNT OF GRAIN THAT WE GIFT AWAY IS NOT INCLUDED IN OUR EXPORT SALES DATA AND SHIPMENTS EVERY WEEK. AND I THINK WE'RE GOING TO BE SURPRISED AT HOW MUCH GRAIN WE'VE ACTUALLY BEEN GIFTING AWAY IN THE LAST COUPLE YEARS. NOW, ON TOP OF ALL THAT, WHEN YOU LOOK AT THE TECHNICAL SIDE OF THE MARKET, THIS YEAR WE'VE HAD AN INSIDE RANGE YEAR INSIDE OF LAST YEAR, IN OTHER WORDS LOWER HIGH, HIGHER LOW. AND IT APPEARS THAT WE'RE GOING TO CLOSE THE YEAR OUT HIGHER. NOW, IF EVERYTHING IS SO NEGATIVE FOR THIS WHEAT MARKET, WHY ARE WE CLOSING THE YEAR OUT HIGHER? TO DO THAT, WE NEED TO CLOSE MONDAY OVER 279.5, AND IT CERTAINLY LOOKS LIKE WE'RE GOING TO GET THAT DONE. SO WE'RE CLOSING THE YEAR OUT HIGHER. I THINK SOMEONE KNOWS SOMETHING THAT THEY'RE JUST NOT ADMITTING TO. AND THE MARKET HAS BEEN SHIFTING OR PUSHING UP TOWARDS THE TOP END OF ITS RANGE THAT WE'VE BEEN IN FOR THREE YEARS, THREE AND A HALF YEARS. THE 297 LEVEL TO 295 HELD US AS RESISTANCE ALL YEAR LONG. WHEN YOU LOOK AT LAST YEAR'S RANGE, THAT YEAR WAS ALSO AN INSIDE RANGE YEAR OF 1999, THE LOW YEAR OF A 60-YEAR CYCLE. AND THE HIGHS FOR 1999 IS 297, WHICH HAPPENS TO BE THIS YEAR'S HIGH FOR THE MARCH CONTRACT.

Sprecher: WHAT'S THE UPSIDE IN ALL THIS?

Martin: WELL, I THINK ONCE YOU START TO TAKE OUT THESE HIGHS -- AND IT'S KIND OF LIKE A VOLCANO THAT JUST KINDA KEEPS PUSHING UP AND THEN IT FALLS BACK AND IT COMES UP AND IT FALLS BACK. AND ALL THIS RESISTANCE IS TABLE-TOP FLAT, SO WE'RE PUSHING UP AND WE'RE CLOSING YEAR OUT NEAR THE HIGH SIDE OF THIS OR RIGHT UNDERNEATH THE TOP OF THAT. I THINK THIS IS A MARKET THAT'S NOT TOO FAR AWAY FROM BLOWING. AND THE OLD MARKET DID IT THIS YEAR. WE'VE GOT CANADA VERY LOW IN SUBSOIL MOISTURE. WE HEAR REPORTS THAT THERE'S GOING TO BE LESS ACRES PLANTED IN CANADA TO WHEAT. IT'S GOING TO GO TO FLAK SEED BECAUSE OILSEEDS ARE GOING TO BE THE BIG THING THIS NEXT YEAR. SO WE CONTINUE TO BELIEVE THAT THE WHEAT MARKET IS THE NEXT MARKET THAT'S COMING. AND AS WE TAKE OUT 297, YOU'RE TAKING OUT YOUR 1999 HIGHS, THAT'S YOUR LOW YEAR, THAT CONFIRMS THE CYCLICAL MAJOR 60-YEAR LOW. THEN THE 334 AREA IS NEXT, AND THAT'S YOUR 200 MONTH MOVING AVERAGE ON THE MARCH CONTRACT. WE HAVE NOT SEEN THE 200 MONTH MOVING AVERAGE TESTED SINCE NOVEMBER OF 1997.

Sprecher: SO WE'RE THROUGH 334 --

Martin: I BELIEVE THE FORMATION YOU'VE GOT ON THIS CHART WILL TAKE YOU UP TO 380 TO 420.

Sprecher: BY WHEN?

Martin: WELL, IT'S HARD TO PUT A DATE ON IT, BECAUSE I THINK IT WILL EVOLVE THROUGH THE YEAR 2002. SEE, I THINK WE'RE ALSO GOING INTO -- FIRST, IT WILL BE STAGFLATION AND THEN EVOLVE INTO INFLATION. AND YOU KIND OF TOUCHED ON IT ON THE SHOW'S OPENING COMMENTS ABOUT HOW THE CONSUMER IS STARTING TO MOVE BACK BECAUSE OF CHEAP INTEREST RATES. WELL, IF YOU LOOK BACK, GREENSPAN SURPRISED US IN JANUARY OF THIS YEAR AND SURPRISED US WITH THE FIRST RATE CUT THAT WE'VE SEEN. IT USUALLY TAKES ABOUT 12 MONTHS TO WORK THROUGH ALL OF THESE RATE CUTS, SO I THINK WE'RE GOING TO START EXPERIENCING THAT AS WE ROLL THE YEAR OVER. CERTAINLY BY MAY TO JUNE WE'RE GOING TO BE EXPERIENCING IT REAL WELL. I THINK WE'RE GOING INTO INFLATION AND, OF COURSE, I THINK THE U.S. IS THE ONE MAJOR SOURCE THAT'S GOING TO LEAD THE REST OF THE WORLD OUT OF THEIR PROBLEMS, AND THE WAY YOU DO IT IS YOU INFLATE.

Sprecher: WELL, THERE ARE FOLKS IN THE SOUTHERN HEMISPHERE THAT MIGHT ARGUE WITH THAT. ARGENTINA HAS EXPERIENCED A SERIOUS INFLATION IN CURRENCY, AND THAT LEADS US INTO SOYBEANS. YOU HAD MENTIONED TO ME EARLIER THAT THE ARGENTINES ARE LIKELY TO HAVE A GOOD SOYBEAN CROP, BUT THEY MAY NOT BE SELLING IT BECAUSE THEIR CURRENCY IS IN SUCH SERIOUS STRAITS AT THE MOMENT.

Martin: WELL, IT CERTAINLY IS, SID. THEY'VE GONE THROUGH THEIR ECONOMIC CHAOS HERE, AS WE'VE ALL HEARD ON THE NEWS AND EVERYTHING THE PAST WEEK OR SO. BUT THEY ARE COMING OUT AT THE BEGINNING OF THE YEAR WITH A NEW CURRENCY CALLED THE ARGENTINO. NOW, THAT'S GOING TO FLOAT AND SINK ALONG WITH THE PESO AND THE DOLLAR. GRAIN THERE, ANYTHING, DEBT, WHATEVER, IS ALL GOING TO BE TIED TO THE DOLLAR. NOW, THE THING IS THIS COULD BECOME VERY INFLATIONARY FOR THEM, AND THEIR CONSUMERS ALREADY ARE HAVING TROUBLE PAYING FOR THINGS LIKE FOR FOOD STUFFS, THAT TYPE OF THING. BUT HERE'S THE KICKER. YOU KNOW, THE FARMER IS NOT SELLING GRAIN RIGHT NOW BECAUSE IT'S -- IN THE UNCERTAINTY THAT THEY'RE GOING THROUGH, IT'S HIS ONLY HEDGE AGAINST DEVALUING PRICES BECAUSE HIS GRAIN IS TIED TO THE DOLLAR. HOWEVER, HE'S ALSO GOING TO HAVE A PROBLEM OF BUYING BECAUSE THE BANKS ARE UNDER MORATORIUM, AND HE'S GOING TO HAVE TROUBLE GETTING MONEY TO BE ABLE TO BUY THE SEED, GET THE INPUTS THAT HE NEEDS IN ORDER TO PLANT THESE BEANS, THESE ADDED ACRES. WE MAY NOT SEE AS MANY ACRES IN THE END. WE'LL KNOW IN 30 DAYS.

Sprecher: ALL RIGHT. SO YOUR OUTLOOK FOR THIS SOYBEAN MARKET KIND OF BASED ON THAT, AMONG OTHER FACTORS, WOULD BE --

Martin: WELL, SID, I COULD COME UP WITH 14 REASONS WHY THIS MARKET --

Sprecher: NO, JUST A COUPLE. JUST ONE OR TWO. JUST SOME PRICE PARAMETERS.

Martin: WELL, I WOULD TELL YOU THIS. FIRST OF ALL, WE DO PRICE PROJECTION METHODS, AND WE'RE ON OUR THIRD WAVE COUNT. THERE IS A FOURTH COUNT BUT THAT IS SO EXTREMELY RARE. EVEN CATTLE ON THEIR DECLINE UNDER THE MOST EMOTIONAL NEGATIVE NEWS YOU COULD EVER HEAR COULDN'T GET TO A FOURTH COUNT. THEY STOPPED AT THEIR THIRD COUNT. WELL, THE THIRD COUNT ON MARCH BEANS IS 424 3/4. YOU HAVE THE MARGINS THE LOWEST THEY'VE BEEN IN THIRTY YEARS. THEY'RE AT $600 CONTRACT ON HEDGE MARGINS. THAT USUALLY COMES WHEN YOU'RE BOTTOMING MARKETS. THE OTHER THING IS YOU HAVE -- OF COURSE, YOU HAVE A VERY NEGATIVE ATTITUDE RIGHT NOW. AND SEASONALLY, GRAIN MARKETS DON'T GO UP THROUGH DECEMBER INTO JANUARY LIKE THEY DID THE LAST TWO YEARS. THAT'S COUNTERSEASONAL. NORMALLY THEY GO DOWN INTO CHRISTMAS FROM THANKSGIVING. AND THEN AROUND THE TURN OF THE YEAR, THEY START TO BOTTOM OUT AND THEY'LL GIVE YOU A BOUNCE INTO ABOUT AS EARLY AS THE 7TH OF JANUARY TO MAYBE AS LATE AS JANUARY 13, 14. AND THEN YOU'LL DECLINE IN TOWARDS THE END OF THE MONTH AROUND THE 27TH OF JANUARY, AND THEN YOU CAN TURN INTO A BULL MARKET IF YOU'RE GOING TO TURN.

Sprecher: SO WHAT COULD WE EXPECT TO SELL OLD-CROP BEANS FOR AND NEW-CROP BEANS FOR WITHIN THE NEXT 30, 60 DAYS?

Martin: FIRST OF ALL, I WOULD NOT BE SELLING ANYTHING RIGHT AT THE VERY NEAR-TERM. I WOULD HANG ON TO EVERYTHING YOU HAVE, BUT FARMERS ARE SELLING GRAINS BY THE YEAR END. FARMERS THIS YEAR, UNLIKE THE LAST FEW YEARS, NEED SOME INCOME, SO THEY'RE SELLING GRAIN. AND THAT'S ALSO BEEN HELPING THIS DECLINE IN PRICE. IT'S PROBABLY MORE ABUNDANT IN AREAS WHERE THE YIELDS WERE DOWN AND, THEREFORE, THE LDP MONEY WASN'T AS AGGRESSIVE AS NORMAL. SO WE'RE SEEING THAT COULD BE POSITIVE LATER ON, BECAUSE IT WILL TIGHTEN UP BASIS LATER ON QUICKER. I THINK THAT, FIRST OF ALL, WITH THIS THIRD WAVE COUNT HERE ALSO -- AND THAT NUMBER WAS 424 3/4 ON THE MARCH BEANS. WE HIT 425 THIS PAST WEEK. IF YOU LOOK AT MARCH BEANS YEAR IN, YEAR OUT, THE LOWEST LOW WE'VE HAD IN THE '90S ON A WEEKLY BASIS IS 423. SO I THINK WE'RE PUTTING IN A HIGHER DOUBLE BOTTOM. SO I THINK THAT USUALLY ON THESE WAVE COUNTS, YOU'LL GET A NICER BOUNCE. I THINK WE COULD TAKE THE MARCH BEANS BACK TO 440, 445. AND, OF COURSE, I'D BE REAL ENTHUSED IF THEY STARTED TO COME THROUGH 454. THAT WOULD BE A VERY GOOD SIGN. I THINK THAT THE OTHER THING WE'VE GOT TO WATCH -- AND THEY HAVEN'T HAD IT SINCE 1988, BUT WEATHER IS STARTING TO FORM IN SOUTH AMERICA. SOUTHERN REGIONS OF BRAZIL ARE VERY WARM AND DRY. ARGENTINA IS EXPERIENCING THE SAME THING. THERE'S FEARS THAT THIS PATTERN COULD START TO EDGE A LITTLE BIT NORTHWARD, AND IF IT DOES, IT WILL CATCH INTO RIO GRANDE DO SUL AND PARANA. THOSE ARE YOUR TWO LARGEST PRODUCERS. SO IT'S HARD, SINCE WE'VE BEEN SO DEPRESSED, TO PUT A TAG ON HOW HIGH WE CAN GO. BUT I THINK YOU'RE GOING TO RALLY THIS GRAIN MARKET. I REALLY LOOK AT MARCH, APRIL, AND MAY AS BEING VERY GOOD THIS YEAR.

Sprecher: ALL RIGHT. WE ONLY HAVE ABOUT A MINUTE LEFT. WE'LL TURN TO LIVESTOCK HERE. LESS FRIENDLY TO CATTLE. MORE FRIENDLY TO HOGS. WHAT'S YOUR UPSIDE FOR THE NEXT 90 DAYS?

Martin: WELL, WHEN I LOOK AT THE CATTLE MARKET, ALL THE TECHNICAL INDICATIONS SHOW THAT WE SHOULD HAVE A RALLY HERE, AND WE'RE GETTING ONE. I THINK WE DO THAT AS WE GO INTO JANUARY AS WELL, BUT THERE ARE CONCERNS. I THINK THAT BY THE 27TH OF JANUARY, WE'RE PROBABLY GOING TO PEAK THIS MARKET OUT AND START TO MOVE BACK DOWN. ONE THING WE SHOULD BE WATCHING AS PRODUCERS. FIRST OF ALL, IF YOU LOOK AT THE FEBRUARY CONTRACT, YOU'RE RUNNING AT LEAST $7 PREMIUM OVER THE CASH MARKET. THAT'S HOLDING CATTLE BACK. PRODUCERS ARE PUSHING OFF INTO A NEW YEAR.

Sprecher: QUICKLY, HOGS.

Martin: OKAY. ON THE HOGS, I THINK WE'RE GOING TO GO HIGHER. I THINK WE'VE GOT A TIGHT SUPPLY OF FEEDER PIGS. TIGHTER NUMBERS UP FRONT. WE'RE GOING TO MOVE HIGHER ON THERE NEAR-TERM.

Sprecher: WE'LL LOOK FORWARD TO THAT. ANYHOW, THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." THANKS, SUE. JOIN US AGAIN NEXT WEEK FOR OUR FIRST EDITION OF THE NEW YEAR. UNTIL THEN, FOR MARK PEARSON, I'M SID SPRECHER. HAVE A GOOD WEEK.

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