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Market Analysis: Dec 08, 2000

posted on December 8, 2000


The grain markets finished the week in sluggish fashion. Wheat prices closed nearly three cents lower. Corn prices were down a cent to three cents. Soybean futures finished more than three cents higher after last week's strong gains. But Soybean meal closed nearly five dollars a ton lower after last week's strong run-up. Cotton futures finished nearly 3 cents higher. In livestock, fed cattle futures closed four dollars higher. Feeder cattle were a dollar-68 higher. And the lean hog contract gained a dollar-70. In the financials, COMEX gold gained 3.50 an ounce. The Euro gained a half a point against the dollar. And the CRB index finished the week more than 55 basis points higher to close at 229.25. Here now to lend us his insight is one of our regular market analysts, Tomm Pfitzenmaier.
Market Analysis: Dec 08, 2000

WELCOME BACK, TOMM. Pfitzenmaier: THANKS, SID. Sprecher:: WELL, IT WOULD SEEM THAT THERE WILL BE A WHEAT CROP NEXT YEAR. THERE WERE SOME WORRIES ABOUT THAT, AND THE MARKET APPARENTLY HASN'T LIKED THOSE PROSPECTS. Pfitzenmaier: WELL, WE'VE GOT A COUPLE OF THINGS GOING ON THERE IN WHEAT, NUMBER ONE, THE DEMAND IS NOT VERY GOOD. EVERY WEEK WE JUST FALL FURTHER AND FURTHER BEHIND ON THE EXPORT NUMBERS, AND THAT CONTINUES TO BE DISAPPOINTING. YOU'VE GOT SOME OTHER MAJOR COUNTRIES THAT ARE DUMPING THEIR EXCESS WHEAT, SO THAT MAKES IT EVEN HARDER FOR US TO SELL WHEAT. SO THAT'S A DEPRESSANT. THE ONLY THING THAT WAS REALLY POSITIVE -- AND IT AFFECTED SEVERAL MARKETS THIS WEEK -- IS THIS CONCERN ABOUT THIS BIG, COLD WEATHER FRONT THAT'S SUPPOSED TO HIT THE HIGH PLAINS IN THE MIDDLE OF NEXT WEEK, AND THAT KIND OF GOT THE WHEAT A LITTLE BIT EXCITED AT VARIOUS TIMES DURING THE WEEK. SO I THINK YOU'RE IN A TRADING RANGE IN THE WHEAT, AND YOU GET MARCH WHEAT DOWN IN THE 68, 69 AREA, YOU BUY IT. YOU GET IT UP IN THAT 80, 82 AREA, YOU SELL IT. IT'S PROBABLY JUST GOING TO BOUNCE AROUND IN THAT TRADING RANGE UNTIL SOMETHING HAPPENS TO BREAK US OUT OF THAT, AND I DON'T SEE MUCH ON THE HORIZON THAT'S PROBABLY GOING TO MAKE THAT HAPPEN. Sprecher:: NOTHING FROM THE DEMAND SIDE THAT WOULD JUICE THAT UP A LITTLE? Pfitzenmaier: NOT THAT I SEE. NOT WITH ALL THE COMPETITORS AROUND THE WORLD THAT ARE DUMPING THEIR WHEAT. THERE'S SOME THINGS TO TALK ABOUT, BUT YOU RUN SMACK UP AGAINST THE FACT THAT THERE'S JUST A HECK OF A LOT OF WHEAT SITTING AROUND EVERY TIME YOU TRY TO RALLY THE MARKET. Sprecher:: WELL, AND AS I KNOW, A LOT OF WHEAT PRODUCERS ARE HEADING INTO ANY OTHER ---- THEY CAN GROW, WHICH DOESN'T HELP OTHER GRAINS AND OIL SEEDS AND CORN AND BEANS. Pfitzenmaier: HOPEFULLY, IN THE THE LONG-RUN, THAT WILL HELP THE WHEAT MARKET BUT, YOU'RE RIGHT, IT'S NOT HELPING PARTICULARLY THE BEANS THAT TEND TO SLIDE OVER INTO THOSE AREAS, AND IT'S NOT HELPING THAT MARKET. IS THE MARKET NOW GOING TO ABSORB A TEN-BILLION BUSHEL CORN CROP WITH ANYMORE EASE THAN IN THE WHEAT CROP. Pfitzenmaier: YOU ALLUDED TO IT A LITTLE EARLIER IN THE SHOW; THIS STARLINK CONCERN IS REALLY A PROBLEM. THERE'S SOME PEOPLE THAT THINK USDA IS ULTIMATELY GOING TO HAVE TO REDUCE THEIR EXPORT NUMBERS TWO TO THREE HUNDRED MILLION BUSHELS BECAUSE OF THIS. IF THAT HAPPENS, THEN YOU'VE GOT A CARRYOUT THAT'S ALMOST UP TO TWO BILLION AGAIN, AND THAT DOESN'T SPEAK VERY WELL FOR VERY HIGH PRICES OF CORN. THE FARMERS ALL ALONG, HE'S PRETTY OPTIMISTIC THAT THINGS ARE GOING TO GO UP. THE FUNDS HAVE GOT A FAIRLY LONG POSITION. SO THE CORN MARKET IS GOING TO STRUGGLE HERE. AGAIN, WE HAD A LITTLE CONCERN ABOUT WHETHER OR NOT AND ARGENTINA -- MAY BE A LITTLE DRY FRONT SETTING UP IN ARGENTINA, BUT THAT'S JUST WHITE NOISE. THE REALITY IS CORN IS GOING TO HAVE TROUBLE RALLYING. IF YOU GET MARCH CORN UP IN THAT 227 TO 230 AREA, IT PROBABLY NEEDS TO BE SOLD. Sprecher:: WELL, TYPICALLY CORN BASIS CAN BE VERY WIDE AND AUTUMN HARVEST AND NARROWS TOWARD SPRING PLANTING. IS THE STARLINK CONTROVERSY GOING TO MESS UP THAT HISTORICAL PATTERN? Pfitzenmaier: I DON'T THINK SO. WE'VE ALREADY SEEN A GREAT DEAL OF THE BASIS IMPROVEMENT THAT WE'RE GOING TO SEE. WE'VE ALREADY SEEN FROM HARVEST UNTIL NOW. I THINK THAT THERE'S A FEAR THAT AFTER THE FIRST OF THE YEAR, THE LDP PAYMENTS ARE GOING TO HAVE TO SORT OF SUSTAIN PEOPLE FOR AWHILE AND MAYBE SOME OTHER LITTLE PAYMENTS WILL GET AFTER THE FIRST OF THE YEAR, BUT ULTIMATELY YOU'RE GOING TO HAVE TO SEE GRAIN MOVE. WHEN THAT HAPPENS, I THINK YOU'RE GOING TO SEE THAT WHOLE BASIS WIDEN BACK OUT AGAIN. Sprecher:: GREAT, HOW ABOUT THE SOY COMPLEX? FOR THE LAST SEVERAL WEEKS, IT'S BEEN SUPPORTED IN GREAT PART OF THE BECAUSE OF THE SCARE IN EUROPE. Pfitzenmaier: THAT EUROPEAN BONE MEAL, THERE'S A FEELING THAT POSSIBLY THAT COULD AMOUNT TO AS MUCH AS 75 MILLION BUSHEL OF BEANS. THAT'S PROBABLY THE HIGH END OF THE RANGE. WE ARE FINDING THAT A LOT OF THAT IS TURNING OUT -- IT SEEMS LIKE THEY'RE GOING TO ACTUALLY BUY THE BEANS AND NOT THE MEAL. THEY WANT TO BUY THE BEANS, CRUSH THEMSELVES. SO THAT'S GOING TO BE SUPPORTIVE TO THE BEANS. AND YOU'VE SEEN BEANS -- I THINK YOU SAW JUST THE INTRODUCTION OF THIS SEGMENT THAT BEANS HAVE GAINED RELATIVE TO MEAL THIS WEEK, AND I THINK THAT'S WHY YOU'RE SEEING THAT THE EUROPEANS ARE BUYING THE BEANS AND NOT THE MEAL. THEY'RE ALSO BUYING SOUTH AMERICAN BEANS AND NOT U.S. BEANS UP TO THIS POINT. I THINK FAIRLY RAPIDLY, YOU'RE GOING TO SEE THE POINT WHERE BRAZIL ISN'T GOING TO HAVE THAT MANY. THEIR STOCKS ARE GETTING DRAWN DOWN. THEY'RE NOT GOING TO HAVE THAT MANY BEANS TO SELL, AND YOU'RE GOING TO START TO SEE THAT BUSINESS COME TO US AT LEAST UNTIL THEIR HARVEST COMES TO COMPLETED. Sprecher:: NOW, THE CHINESE SEEM TO BE A PLAYER THIS WEEK IN BOTH THE SOY FRONT, ESPECIALLY THE CORN FRONT. IS THAT SOMETHING LIKELY TO CONTINUE HERE OVER THE NEXT YEAR? Pfitzenmaier: IT COMES AND GOES ALL THE TIME, IT SEEMS LIKE. FOR A WHILE, THE CHINA THING WAS KIND OF SUPPORTED BECAUSE EVERYBODY THOUGHT, WELL, THEY'RE GOING TO GET WTO MEMBERSHIP. THEY'RE GOING TO STOP EXPORTING, START MAYBE IMPORTING A LITTLE BIT. AS YOU ALLUDED TO, THEY DID DO THAT. THEY DID DO SOME IMPORTING ON SOYBEANS OR TALK OF IT THIS WEEK. THE PROBLEM IS THEY ALSO SAID THEY WERE GOING TO BE EXPORTING A FAIRLY LARGE AMOUNT OF CORN. AND I THINK THE FEELING IS U.S. IS TRYING TO EXPORT STARLINK CORN. THEY'VE GOT NON-STARLINK CORN SO THEY'RE GOING TO BE THE SORT OF SOURCE BEFORE US, CERTAINLY TO JAPAN AND SOME OF THOSE AREAS. THERE ARE POSITIVE AND NEGATIVE DEPENDING ON WHAT WEEK YOU WANT TO LOOK AND WHAT PARTICULAR SITUATION CROPS UP HERE. Sprecher:: NOW, TURNING TO THE MEAT SIDE, IT WOULD SEEM THESE MIGHT BE VERY GOOD TIMES FOR ESPECIALLY LIVESTOCK PRODUCERS. BEEF HAD A GOOD RUN-UP THIS WEEK AND ENJOYED THE LAST SEVERAL WEEKS. Pfitzenmaier: WELL, THE BEEF MARKET HAS FOUND -- THE UNDERLYING SUPPORT TO THIS BEEF MARKET -- I MEAN, THE NUMBERS HAVE BEEN GOOD BUT THE WEIGHTS HAVE BEEN UP, HAS BEEN DEMAND. WE JUST REALLY HAVE BEEN SELLING A LOT OF BEEF. BEEF DEMAND HAS BEEN OUTSTANDING. YOU MIX THAT IN THIS PAST WEEK WITH SOME CONCERNS ABOUT PRODUCTION WITH THIS -- AGAIN THIS COLD FRONT THAT'S SUPPOSED TO MOVE INTO THE PLAINS WHERE A LOT OF THE CATTLE ARE FED, AND THAT'S REALLY GIVEN THE BEEF A NICE POP. THE LAST TWO OR THREE YEARS WE HAVEN'T REALLY HAD ANY BEEF WEATHER MARKETS. IT'S LOOKING LIKE MAYBE THAT'S GOING TO HAPPEN A LITTLE BIT. I THINK THAT'S PROBABLY A RALLY TO BE SOLD INTO. I HAVE A LOT OF CONCERNS ABOUT AFTER THE FIRST OF THE YEAR IF YOU BUY THE FACT THAT A LOT OF THIS HAS BEEN BUILT ON DEMAND AND YOU GET INTO THE FIRST OF THE YEAR AND YOU SEE PEOPLE START TO GET THEIR HUGE HOME HEATING OIL BILL AFTER THE FIRST OF THE YEAR, THEY SEE THEIR GAS BILL, THEY SEE THEIR COST OF THEIR CHRISTMAS PRESENTS. AND THEN ON TOP OF THAT, THEY GET THEIR STOCK MARKET PORTFOLIO STATEMENTS, AND IT CAN SEND PEOPLE INTO A BIT OF A TAILSPIN. IF THAT'S THE CASE, MAYBE SOME OF THAT EXPENSIVE BEEF IS GOING TO GO BY THE WAYSIDE. THAT'S MY BIG CONCERN HERE, THAT WE'VE HAD A NICE RUNUP BECAUSE OF DEMAND AND BECAUSE OF WEATHER, AND I THINK IT'S GOING TO BE VERY DIFFICULT TO SUSTAIN THAT. WE'RE PROBABLY GOING TO HAVE A 75 TRADE IN THE CASH SIDE, AND I SUSPECT THAT'S GOING TO BE THE TOP FOR A WHILE ON THE BEEF. Sprecher:: OKAY, AND PORK SIDE? Pfitzenmaier: PORK, AGAIN, SAME DEAL. THE BEEF IS ON THE UPTREND IN TERMS OF CATTLE CYCLES; HOWEVER THE PORK IS ON THE DOWNTROD. I THINK THAT $78 HIGH WE HAD EARLIER THIS YEAR IS PROBABLY GOING TO MARK THE HIGH FOR PORK, AND WE'RE GOING TO FALL OFF FROM THERE. I THINK, AGAIN, ANY RALLIES THAT COME ALONG ON PORK BECAUSE OF CONCERNS OF THE WEATHER, WHICH IS REALLY NOT THAT MUCH OF A CONCERN SINCE MOST OF THE PORK IS RAISED INDOORS THESE DAYS. ANY SYMPATHY WITH BEEF IN THAT REGARD I THINK, AGAIN, NEEDS TO BE SOLD -- I MEAN, THEY'RE SUBJECT TO THE SAME DEMAND CONCERNS THAT BEEF IS AND I THINK YOU NEED TO USE IT AS A SELLING OPPORTUNITY. Sprecher:: VERY WELL. THANKS, TOMM. THAT WRAPS UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE COST OF ONE OF THE FARM ECONOMY'S MOST CONCENTRATED SECTORS. UNTIL THEN, I'M SID SPRECHER FOR MARK PEARSON. HAVE A GOOD WEEK. CAPTIONS BY: MIDWEST CAPTIONING DES MOINES, IOWA.


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