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Market Analysis: Nov 17, 2000

posted on November 17, 2000


The grain markets finished the week, basically unchanged on offsetting trade information. For the week, wheat and corn futures were fractionally lower.

Soybean futures posted some dramatic gains of more than 15-cents. Soybean meal gained $10.50 per ton. Cotton futures gained 70-cents.

In livestock, fed cattle futures gained $1.23. feeder cattle gained 82-cents. The lean hog contract gained $1.55.

In the financials, comex gold gained 70-cents. The euro closed 141-points lower than the dollar. And the crb index gained a half point to close at 225.90.

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

Market Analysis: Nov 17, 2000

Pearson: WELL, DOUG, LET'S GET OVER ON THIS GRAIN MARKET. QUICKLY, THE WHEAT MARKET, AGAIN, NOT A LOT HAPPENING THIS WEEK, BUT THERE CERTAINLY HAS BEEN KIND OF A BUILD GOING INTO THIS WHEAT MARKET. WHAT'S YOUR OUTLOOK? Jackson: WELL, THE PRICE ACTUALLY HAS BEEN RELATIVELY STABLE. WE'VE BEEN IN A CHOPPY SIDEWAYS AFFAIR, MARK, BUT WE HAD A PRIVATE ANALYST LATE IN THE WEEK ESTIMATE WINTER WHEAT ACREAGE DOWN 1.7 MILLION ACRES. THAT WASN'T A COMPLETE SURPRISE, BUT IT CONTINUES TO SHOW THE CONTINUAL REDUCTION THAT WE HAVE IN WHEAT ACRES IN THE UNITED STATES. SO WITH ALL THE PROBLEMS WE HAVE WITH PLANTING, WE HAD NEARLY 3.5 MILLION ACRES UNPLANTED IN WINTER WHEAT AS OF LAST MONDAY, PROBLEMS WITH GETTING THE REST OF IT PLANTED, COLD WEATHER, GERMINATION, EMERGENCE PROBLEMS, AND REDUCED TOTAL ACREAGE. THE WHEAT MARKET IS CERTAINLY FACING THE LIKELIHOOD OF A DECLINE IN SUPPLIES NEXT YEAR. THE QUESTION IS HOW MUCH. THE MARKET IS TRYING TO FACTOR THAT IN. WE'VE ALREADY GOT VERY WIDE CARRYING CHARGES INTO NEXT SUMMER. BUT RIGHT NOW THE WAY THE SITUATION LOOKS, WE'RE GOING TO BE ON NEEDLES AND PINS EVALUATING THIS PROBLEM. WE SEE KIND OF A SIDEWAYS PRICE ACTION, BUT, MARK, IF WE JUST TRADE SIDEWAYS AND KEEP THE DEFERREDS WHERE THEY ARE TODAY, THE NEW JULY, NEXT SUMMER PRICES, THAT WILL STILL BE ACCOMPLISHING QUITE A BIT. WORLD SUPPLIES WILL BE TIGHTENING UP. SO REALLY AN INTERESTING SITUATION THAT CAN'T TOLERATE ANY WEATHER PROBLEMS AND YET SOME OF THOSE ARE ALREADY FACTORED IN. LOOK FOR KIND OF A SIDEWAYS TRADE AND STAY TUNED FOR MORE WEATHER DEVELOPMENTS. Pearson: A SIMILAR SITUATION, REALLY, FOR CORN. Jackson: WE DO, MARK. THE REST OF THIS MARKET BROKE A LITTLE BIT THIS WEEK ON SOME TECHNICAL SELLING AND BOUNCED RIGHT BACK. OF COURSE, THE MARKET HAS BEEN WORRIED ABOUT THE STARLINK PROBLEM DELAYING EXPORTS. LATE IN THE WEEK, THOUGH, WE STARTED TO SEE JAPAN BUYING AGAIN. THERE WAS A BIT OF A PREMIUM BEING PAID FOR STARLINK-FREE INVENTORIES, BUT STILL BUSINESS WAS BEING DONE. AND WE MAY HAVE BROKEN THAT LOGJAM, AND NOW WE'LL START TO SEE SOME PICK UP IN THE EXPORT BUSINESS. LONGER TERM, THOUGH, PEOPLE DO NOT WANT TO PRESS NEW DECEMBER FUTURES MUCH BELOW 250. WE SAW THEM BRIEFLY BELOW THAT LEVEL THIS WEEK. THE MARKET RECOGNIZES THAT WE NEED TO MAINTAIN OR ENCOURAGE MORE CORN ACRES NEXT YEAR. THE FAILURE TO DO THAT WILL LEAVE THE CORN IN A RELATIVELY TIGHT SITUATION. EVEN IF ACREAGE IS UNCHANGED AND WE HAVE AVERAGE WEATHER NEXT YEAR, SUPPLIES OF CORN AND CARRYOUT WILL DROP NEXT YEAR SEVERAL HUNDRED MILLION BUSHELS. AND, OF COURSE, IT'D DROPPED SHARPLY IF WE HIT ANY KIND OF A WEATHER PROBLEM. THERE'S VERY LITTLE DOWN SIDE IN THE CORN MARKET, MARK. WE MAY NOT DO MUCH FOR THE NEXT THREE OR FOUR WEEKS AS WE GO THROUGH DELIVERIES AND SEASONAL WEAKNESS. BUT AS WE MOVE INTO JANUARY AND EXPECT A BIG FEED NUMBER, A LOW STOCKS NUMBER, A LOWER PRODUCTION NUMBER, AND THEN EVENTUALLY IN MARCH, THE ACREAGE REPORT, WE WOULD INFLATE RISK PREMIUM JUST LIKE WE DID LAST YEAR. Pearson: SO DON'T BE IN A HURRY ON SELLING. Jackson: WE'RE NOT IN A HURRY TO SELL ANY OF THE CORN AT THIS TIME AT ALL. Pearson: ALL RIGHT. NOW, WHAT ABOUT ON THE SOYBEANS AND, PARTICULARLY, THE ACTION LATE THIS WEEK? Jackson: WE HAVE A VERY INTERESTING SITUATION IN THE SOY, MARK. WE'RE TORN HERE, OF COURSE, BETWEEN THE PROSPECTS OF HUGE SOUTH AMERICAN PRODUCTION. IN FACT, IF ARGENTINA, WITH 13 PERCENT MORE ACRES, WOULD HAVE A RECORD YIELD, WHICH SOME PEOPLE THINK THEY COULD, THEIR CROP COULD STILL BE THREE OR FOUR MILLION TONS ABOVE THE RECORD CROP ALREADY FORECAST BY THE GOVERNMENT. TOTAL SUPPLIES DOWN THERE COULD BE UP TO SIX MILLION TONS OR MORE FROM A YEAR AGO. BUT ON THE OTHER HAND WE MAY BE FACING A PHENOMENAL, SIGNIFICANT, PERMANENT STRUCTURAL CHANGE IN THE SUPPLY/DEMAND SITUATION WITH THE THREAT OF CUTTING OFF ALL MEAT AND BONE MEAL IN EUROPE BECAUSE OF THE MAD COW DISEASE PROBLEM. THIS COULD ADD TWO OR THREE MILLION TONS OF MEAL DEMAND IN THE WORLD CALCULATION, AND THIS WOULD BE A PHENOMENAL SURPRISE TO THE MARKET. AND ONLY LATE IN THE WEEK WAS THE MARKET TAKING THIS SERIOUSLY. WE WEREN'T SURE WHAT WAS GOING TO HAPPEN OR NOT. WE'RE STILL NOT SURE BUT IT LOOKS LIKE IT VERY WELL MAY. SO THIS COULD INCREASE DEMAND FOR MEAL, INCREASE CRUSH MARGINS, LEAVE US WITH A MUCH TIGHTER SITUATION ON BEANS, LET ALONE CONSIDERING THE GOVERNMENT MAY BE UNDERESTIMATING CHINESE BEAN DEMAND ALSO. SO WE COULD HAVE A DRAMATICALLY TIGHTER SITUATION ON BEANS THAN ANYBODY IMAGINES TODAY. THE CARRYOUT COULD BE 275, NOT 350. THAT'S THE DIFFERENCE BETWEEN PRICES WHERE THEY ARE TODAY AND SOMETHING 50 CENTS HIGHER DOWN THE ROAD. ALL OF THIS HAS GOT TO DEVELOP. WE'VE STILL GOT THE PROSPECT OF BIG CROPS IN SOUTH AMERICA, AND THAT COULD MEAN LOWER PRICES A YEAR FROM NOW. BUT IN THE SHORT AND INTERMEDIATE RUN, WE THINK WE GO UP HERE TO DISCOUNT ALL THE THINGS I'VE JUST DISCUSSED. A VERY INTERESTING SITUATION. AND PEOPLE ARE JUST CATCHING UP TO THE SIGNIFICANCE OF THIS IN THE LATTER PART OF THE WEEK. Pearson: WITH A REASONABLE BUMP IN PRICES, IF WE GET THAT 50-CENT BUMP, WOULD YOU GO AHEAD AND MOVE SOME -- Jackson: WELL, THAT, OF COURSE, WOULD BE A BIG MOVE, AND THE ANSWER WOULD BE YES TO THAT. THAT'S GOING TO TAKE TIME TO HAPPEN. WE DON'T WANT TO GO COMPLETELY ASLEEP AT THE SWITCH BECAUSE, EVEN WITH ALL THE THINGS WE'VE SAID ABOUT DEMAND, IF WE DON'T HAVE A WEATHER PROBLEM IN SOUTH AMERICA, WE COULD STILL, BELIEVE IT OR NOT, BUILD SUPPLIES IN THE UNITED STATES NEXT YEAR AND TAKE PRICES BACK DOWN. BUT LOTS OF OPPORTUNITY TO WAIT AND SEE HOW THIS EUROPEAN THING WORKS OUT FIRST. Pearson: OKAY, AND JUST REAL QUICK, YOU MENTIONED THE STARLINK SITUATION. DO YOU FEEL LIKE WE'RE GETTING SOME -- THAT IS GETTING RESOLVED AS FAR AS THE INTERNATIONAL MARKET IS CONCERNED? Jackson: WELL, THERE'S A LOT OF CASH OPERATORS THAT SAY, NO, WE'RE NOT GETTING IT RESOLVED. THE KOREANS DON'T WANT IT. THE JAPANESE DON'T WANT IT. ALL WE'RE DOING HERE IS SAYING THAT WE MAY GET THE SYSTEM WORKING WITH GOVERNMENT INSPECTIONS TO SEPARATE IT OUT AND GET WHAT THEY WANT MOVED TO THEM. BUT, NO, IT'S GOING TO BE A PROBLEM THAT'S GOING TO PLAGUE US FOR A MONTH, IF NOT YEARS. Pearson: ALL RIGHT, LET'S GO OVER TO THE LIVESTOCK SIDE OF THE AGRICULTURAL BUSINESS. IT'S GOOD TO HAVE WALT HACKNEY BACK. AND WALTER, YOU'VE BEEN OUT LOOKING AT THIS CALVES OUT WEST. CATTLE-ON-FEED REPORT OUT ON FRIDAY AFTERNOON... WHAT'S YOUR REACTION? Hackney WELL, THE BEEF COMPLEX IS PROBABLY MORE OPTIMISTIC RIGHT NOW THAN WE'VE SEEN FOR PROBABLE A COUPLE YEARS AT A MINIMUM. TODAY'S CATTLE-ON-FEED REPORT GIVE US PROBABLY AN INSIGHT ON THE DEFERREDS. IT'S GOING TO GIVE THESE GUYS A REAL GOOD OPPORTUNITY TO DO SOME GOOD HEDGING GOING INTO THE NEXT YEAR FROM JULY ON. WE WOULD EXPECT THE RESULT OF THE CATTLE ON FEED THAT THOSE DEFERREDS WILL SHOW SOME PRETTY GOOD STRENGTH, NOTHING BIG. BUT IF THEY WOULD RESPOND $2 AND $3 OVER THE NEXT SIX TO EIGHT WEEKS, THAT WOULD BE A SIGNIFICANT RESPONSE FOR US. WE NEED THAT ON REGARD TO SOME OF THE PRICE SOME OF THESE CALVES HAVE COST. BUT WITH PRODUCTION COSTS AS LOW AS THEY ARE AND THE HEALTH AS EXCELLENT AS IT IS, THESE PRODUCERS ARE GOING TO HAVE AN OPPORTUNITY TO MAKE SOME VERY GOOD MONEY ON THE BEEF SIDE THIS COMING YEAR. NOW, THE CATTLE ON FEED, WE HAVE 4 PERCENT MORE. THE PLACEMENTS IS WAY DOWN AROUND 92. MARKETING IS WAY UP AROUND 105 PERCENT. THE ON-FEED SHOULD NOT BE AN ALARMING THING TO ANYONE BECAUSE ALL THAT IS ARE THOSE LIGHT CATTLE THAT COULDN'T BE SUSTAINED ON GRASS BACK IN THE SUMMER DURING THE DROUGHT TIME AND HAD TO MOVE INTO THE FEED LOTS. SO THEY ACCOUNT FOR A HUGE PART OF THAT 4 PERCENT IN THE ON-FEED EVEN. AND THEY'RE NOT GOING TO COME TO MARKET FOR A MINIMUM OF ANOTHER TWO MONTHS AND POSSIBLY THREE IN SOME CASES. Pearson: LET'S TALK A LITTLE BIT ABOUT WHAT'S AHEAD. YOU TALKED ABOUT BETTER PRICES NEXT SPRING. BETWEEN NOW AND DECEMBER -- WE'RE GOING INTO THANKSGIVING NEXT WEEK AND YOUR DEMAND HAS BEEN PRETTY GOOD. END OF THE YEAR, ARE WE GOING TO BE HOLDING INTO THE 70S OR BETTER? Hackney: I CERTAINLY BELIEVE WE'LL HAVE $70 TO $72 CATTLE ALL THE WAY THROUGH THE BALANCE OF NOVEMBER. AS WE APPROACH THE FIRST PART OF DECEMBER, THERE'S NO REASON TO SEE ANY KIND OF DEPRECIATION IN THIS CASH MARKET. WE'VE GOT A SHORTAGE OF GOOD HARD FED CATTLE IN THE YARDS, AND THE FEED LOTS ARE DOING AN EXCELLENT JOB CONTROLLING THAT INVENTORY AND FEEDING IT INTO THE PACKER COMPLEX. THE PACKER NEEDS THE CATTLE. THE BEEF DEMAND IS SKY HIGH. AS THIS WEEK SHOWED, WE'RE $3 HIGHER IN THE DRESSED TRADE JUST THIS WEEK. Pearson: YOU'RE LOOKING FOR A BETTER WEEK NEXT WEEK? Hackney: NOT REALLY. I DON'T THINK SO. IF WE CAN SUSTAIN A STEADY MARKET THROUGH THANKSGIVING, THAT WILL BE GOOD. Pearson: REAL QUICK, OVER ON THE HOGS, WALT. WHAT'S YOUR OUTLOOK? Hackney: WELL, THE HOGS, IT'S A MIXED BAG. THERE ARE SOME OF US, INCLUDING MYSELF, THAT BELIEVE THAT WE HAVE COUNTRY NUMBERS THAT COULD SUPPORT A TWO-MILLION-HEAD-A-WEEK KILL THROUGH DECEMBER. A LOT OF THE ANALYSTS, HOWEVER, DO NOT BELIEVE THAT IT WILL BE THERE. THEY'RE THINKING MORE IN TERMS OF 1.8 MILLION. IF THAT'S THE CASE, WITH THE EXPORT AND THE DOMESTIC DEMAND AS IS IN PORT, WE PROBABLY ARE GOING TO SEE AN APPRECIATION IN THE CASH HOG MARKET. Pearson: VERY GOOD, WALT, DOUG. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE POLITICS THAT WILL COLOR THE NEXT FARM BILL. UNTIL THEN, I'M MARK PEARSON. THANKS FOR WATCHING. HAVE A GREAT THANKSGIVING.


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