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Market Analysis: Nov 10, 2000

posted on November 10, 2000


The grain markets finished the week on the downside following the USDA's stocks and production report on Thursday. For the week wheat prices were down more than seven cents. Corn prices were more than a penny lower. Soybean futures were down more than a dime. Soybean meal closed $6.90 lower per ton. Cotton futures gained $1.65.

In livestock, fed cattle futures finished 80-cents lower. Feeder cattle were down 27-cents. The lean hog contract gained 20-cents.

In the financials, comex gold finished the week 60-cents lower. The Euro was down 41-basis points against the dollar, and the CRB index finished the week nearly two points higher to close at 225.40.

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

Market Analysis: Nov 10, 2000

Pearson: WE SEEM TO HAVE BEEN RALLYING INTO THURSDAY'S REPORT ON IDEAS OF A SMALLER CROP. REALLY, THE USDA DIDN'T DISAPPOINT ON THAT SIDE, BUT THERE IS SOME CONCERN ABOUT WHAT'S GOING TO BE LEFT OVER ONCE THIS CROP YEAR IS COMPLETE. TAKE US THROUGH IT RIGHT NOW, WAYNE, THE WHEAT MARKET IN PARTICULAR. THAT WAS A BIG PART OF THIS RALLY THAT WE'VE SEEN. HAVE THINGS COOLED FOR THE SHORT-TERM? Newton: MARK, I THINK THIS WAS ONE OF THOSE "BUY THE RUMOR, SELL THE FACT" KIND OF THING. THE MARKET WAS ANTICIPATING LOWER STOCKS, AND THEY GOT THEM. ONCE IT WAS HERE, THE MARKET WAS OVERBOUGHT AND IT REACTED A LITTLE BIT TO THE NEGATIVE. BUT I REALLY THINK THIS WHOLE GRAIN COMPLEX IS REALLY CHANGING WORLDWIDE. WHEN YOU LOOK AT THE U.S. AND THE WORLD SUPPLIES, WE'RE GETTING TO A POINT WHERE THE END-USER IS STARTING TO SAY "JUST-IN-TIME INVENTORIES WON'T WORK. THE MARKET IS GOING HIGHER. I NEED TO OWN SOMETHING." SO I THINK THEY'RE COMING BACK AND INCREASING THE DEMAND THAT'S BEING HELD IN OTHER HANDS, SO THE PRODUCER IS GOING TO BENEFIT FROM THAT. SO I REALLY THINK THERE'S A REASON TO FEEL VERY POSITIVE ABOUT WHEAT AND CORN IN PARTICULAR. THAT WILL TEND TO BRING SOYBEANS UP. WE HAD WHEAT LOWERED IN WORLD STOCKS, AND THAT'S GOOD. THE KEY IN ALL THIS NOW IS WHETHER OR NOT THIS ECONOMY WILL STAY STRONG. BUT THE WHEAT FOLKS HAVE HAD SOME GOOD RAINS. THEY'LL GET SOME MORE HARD RED WINTER WHEAT IN. ANOTHER INDICATOR OF THE DEVELOPMENT OF THE WHEAT WAS THE SPIKE IN THE LIGHTWEIGHT FEEDER CATTLE. THOSE WHEAT GRAZERS WERE REALLY HOT IN THAT MARKET THIS WEEK. SO I THINK WE HAVE A GOOD CROP COMING ON AND DEMAND IS STRONG. WHEN WE'VE GOT KANSAS CITY TRADING AT ABOVE 3 AND CHICAGO TRADING AT 275, I THINK THOSE ARE GOOD MARKETS. IF THE CASH FLOW NEEDS MONEY HERE, THESE ARE RALLIES THAT PERHAPS CAN SATISFY THAT. ON THE OTHER HAND, IF YOU CAN STAY, THE BASIS IS GOOD IN THOSE BACK MONTHS. THERE'S PLENTY OF CARRY IN THE MARKET, AND I WOULDN'T BE IN ANY HURRY TO SELL ANYTHING I DIDN'T HAVE TO FOR CASH-FLOW REASONS. Pearson: SO AT THIS STAGE OF THE GAME, UNLESS WE NEED IT FOR CASH FLOW, STILL HOLD ON. WE'RE LOOKING FOR BETTER TIMES AHEAD IN THE WHEAT MARKET. Newton: MAYBE IF YOU DO NEED TO SELL THE CASH FOR CASH-FLOW REASONS, REOWN IT ON THE BOARD. Pearson: OKAY, LET'S TALK ABOUT CORN. CORN ALSO RALLIED INTO -- WE HAVE SEEN DRAMATIC IMPROVEMENT IN MANY PARTS OF THE CORN BELT ON BASIS. ALSO, OF COURSE, STRENGTH ON THE BOARD. ARE WE SETTING OURSELVES UP FOR SOME BETTER TIMES AHEAD, OR SHOULD WE BE TAKING ADVANTAGE OF THESE MARKETS IN CORN. Newton: WELL, MARK, WE LOWERED THE CROP TO 10.05, AS YOU REPORTED EARLIER IN THE SHOW. AND DEMAND IS STRONGER AND STRONGER AROUND THE WORLD, AND THOSE ARE NEW NUMBERS. FROM THE STANDPOINT OF THE WORLD SUPPLY, WE'RE NEARLY A BILLION BUSHELS LOWER CARRYOUT PROJECTED IN THIS REPORT ON THE U.S. WORLD SUPPLIES. SO I THINK HERE AGAIN, THE CORN MARKET HAS GOT SOME REAL POTENTIAL. IF YOU LOOK AT THE DECEMBER 2001, THE RED DECEMBER CONTRACT TRADING AT 253, PEOPLE MAY WANT TO LOOK FORWARD TO THAT MARKET AND MAYBE BEGIN SELLING SOME CROP. MOISTURES ARE PRETTY GOOD THROUGHOUT THE CORN BELT NOW. WE'RE PREDICTED TO HAVE PRETTY GOOD MOISTURE THROUGHOUT THE WINTER, SO MAYBE THAT MARKET IS PROVIDING SOME OPPORTUNITIES. NOW, INSOFAR AS THE 2000 CROP IS CONCERNED, WE'RE KIND OF AT THE PEAK OF OUR GAME RIGHT NOW. IT'S GOTTEN ITSELF OVERBOUGHT. IF THE PRODUCERS NEED TO SELL GRAIN FOR CASH FLOW AGAIN, THIS RALLY HAS BEEN A VERY NICE ONE GOING INTO THIS REPORT. I WOULD EXPECT TO SEE IT SETTLE BACK FROM NOW ON INTO THE END OF THE YEAR. SO THIS RALLY MAY BE ONE TO BE SOLD, BUT I THINK AT ANY DIP, 15 CENTS, IT NEEDS TO BE REOWNED. FEED NEEDS NEED TO BE PURCHASED ON ANY DIPS BECAUSE I THINK THE MARKET IS IN STRONG HANDS. THE BASIS GOING OUT INTO JULY, THERE'S PLENTY OF CARRY THERE. SO I THINK THE GRAIN FARMERS HAVE GOT SOME OPPORTUNITY OUT IN FRONT OF THEM. Pearson: OKAY, YOU SAID THE GRAIN FARMERS. WHAT ABOUT ON THE SOYBEAN SIDE? Newton: WELL, THE SOYBEANS IS JUST A LITTLE BIT DIFFERENT BECAUSE WE DIDN'T -- WE'RE NOT REDUCING THAT CARRYOUT. I THINK WORLDWIDE WE'RE LOOKING AT LIKE 900 MILLION BUSHELS. THE USDA PEOPLE ARE AT 350, AND THAT'S ALL OVER THE BOARD INSOFAR AS THE PRIVATE FORECASTERS ARE CONCERNED. SO THAT'S SOMETHING TO STAY TUNED TO. IF THE LIVESTOCK NUMBERS STAY UP AND THE EXPORT MARKETS STAY GOOD, MEAL STAYS IN GOOD DEMAND, THEN THAT BEAN MARKET IS GOING TO RALLY TOO. BUT ONCE AGAIN, THAT'S KIND OF IN A TRADING RANGE FROM 450 TO 550. WHEN IT'S AT THE TOP OF THAT GAME, HOPEFULLY YOU'VE LDP'D AT THE BOTTOM AND SELL AT THE TOP OF THAT PROGRAM. BUT I SURE WOULD REWARD THAT MARKET ANY TIME IT'S TRADING 5.25 AT THE LOCAL LEVEL. PEARSON: ALL RIGHT, LET'S TALK A LITTLE BIT ABOUT THE COTTON MARKET WHICH EXPERIENCED A BUMP THIS WEEK. IT SEEMS LIKE THE CONCERNS ABOUT COTTON SUPPLY HAVE BEEN SOMEWHAT ALLEVIATED, BUT DEMAND AGAIN IS STRONG. NEWTON: MARK, THE COTTON WAS CALLED BY THE GOVERNMENT AT 17.5 MILLION BAILS. THAT'S A LOT OF COTTON. I THINK WITH THE WAY THE BOARD HAS KIND OF REWARDED THE PRODUCER, IT REALLY NEEDS TO SCALE INTO THAT AND SELL SOME MORE COTTON. THE THING THAT WOULD BOTHER ME THERE IS JUST HOW LONG WE CAN KEEP THIS ECONOMY GOING. OBVIOUSLY YOU KNOW THAT COTTON SHIRT CAN BE WORN LONGER IF THOSE PRICES GET TOO HIGH AND/OR THE ECONOMY GETS A LITTLE SOUR. SO I THINK THE COTTON GROWERS NEED TO TAKE ADVANTAGE OF THESE COTTON MARKETS IN THESE MID 60S TO HIGH 60S. THERE'S CARRY IN THAT AND THE JULY CONTRACT OFFERS SOME PRETTY PROFITABLE LEVELS FOR THE COTTON GROWER. AT 17.5 MILLION BAILS, WE'RE A LITTLE LESS THAN THE OCTOBER REPORT BUT WE'RE 3 PERCENT MORE THAN LAST YEAR AND SO WE'VE GOT PLENTY OF COTTON AROUND, AND WE'RE GOING TO NEED THAT EXPORT MARKET TO SUSTAIN THIS MARKET OVER TIME. PEARSON: IN THIS SELL-OFF OF THE GRAIN PRODUCTION POURED OUT ANOTHER EXACERBATING FACTOR -- WE TALKED ABOUT IT EARLIER IN THE SHOW -- WAS THE CONFUSION OVER THE PRESIDENTIAL ELECTION. IS THAT MUCH OF A FACTOR RIGHT NOW? NEWTON: OH, I'M SURE IT IS. YOU KNOW, OUR WHOLE WORLD IS GOING TO WATCH TO SEE WHAT THE MOST POPULAR NATION IN THE COUNTRY IS GOING TO HAVE FOR A GOVERNING STYLE. IN ONE CASE THE PARTY IS VERY MUCH AN OPEN FREE-TRADE KIND OF PROGRAM. ANOTHER IT'S SOMEWHAT SUPPLY CONTROLLED. SO, YES, IT'S GOING TO HAVE A BEARING ON IT, SO IT'S A CASE OF STAYING TUNED IN THAT REGARD. THAT'S WHY I SAY ABOUT THE U.S. ECONOMY, I THINK IT'S CRITICAL THAT WE KEEP OUR EYE ON THAT BECAUSE THAT'S GOING TO AFFECT THINGS THAT PEOPLE DON'T HAVE TO HAVE EVERY DAY. PEARSON: AND IT'S A PARTICULAR FACTOR IN BEEF, WHICH IS OUR NEXT TOPIC. WE'VE SEEN THIS MEAT MARKET COME BACK. CATTLE HELD TOGETHER PRETTY MUCH INTO THE LOW 70S HERE THIS WEEK. YOU WERE THINKING WE'D SEE SOME $70 CATTLE. YOU WERE A LITTLE MORE OPTIMISTIC LAST TIME WE TALKED ABOUT NEXT SPRING. WHAT'S YOUR OUTLOOK NOW? NEWTON: WELL, MARK, I THINK WE'VE GOT THE POTENTIAL FOR A REALLY GOOD MARKET IN THE SPRING IF THE ECONOMY STAYS STRONG. THE FOLKS, IN THEIR SPENDABLE INCOME, IT'S COME OUT OF WHAT THEY'VE MADE ON THE STOCK MARKET IN THIS REALLY, REALLY STRONG RALLY THAT WE'VE HAD OVER THE LAST SEVERAL MONTHS, THE LONGEST IN OUR ECONOMIC HISTORY. BUT AS FAR AS THE CATTLE ARE CONCERNED, THE HUGE PLACEMENTS THAT WE SAW IN SEPTEMBER AND OCTOBER, WHEN YOU LOOK AT THE WEIGHT BREAKDOWN, THAT'S A LOT OF LIGHT CATTLE THAT CAME OUT OF THE DROUGHT AREAS OF THE COUNTRY, AND THERE WERE NOT A LOT OF YEARLING CATTLE PUT IN PLACE. AND I THINK THE MARKET IS VERY CURRENT AT THIS POINT. NOW, WE'VE BOUGHT A LOT OF CATTLE. WE'VE GOT A LOT OF EXTRA TONNAGE. WE NEED TO KEEP THE GATE SWINGING, BUT THE FACT IS THAT WE'VE GOT ABOUT 70.50 TO $71 CASH AT THIS POINT. I THINK IT WILL TRADE STEADY TO SLIGHTLY LOWER GOING SLOUGH THE THANKSGIVING HOLIDAYS BECAUSE OF THE DEMAND FOR THE OTHER POULTRY. BUT THEN GOING ON INTO DECEMBER, WE GET A LITTLE WEATHER INTO THIS THING, WE BACK CATTLE UP IN THE FEED LOTS, WE COULD SEE SOME VERY STRONG MARKETS, SO IT'S SOMETHING TO BE WATCHED. WE'VE GOT A REPORT COMING OUT FRIDAY. THE ESTIMATES ARE BY SOME OF THE ANALYSTS IS THAT WE'D HAVE 104 ON FEED, 104 MARKETED, AND ONLY 88 PERCENT PLACED. BASED ON THE HIGH PLACEMENTS LAST YEAR, THAT'S NOT A SHOCKING NUMBER, BUT IT WOULD BE MORE IMPORTANT TO LOOK ONCE AGAIN AT THE WEIGHT BREAKDOWNS JUST TO SEE IF THESE CATTLE ARE LIGHTER WEIGHTS IN THE FEED YARD AND WHEN THEY MIGHT COME OUT. SO I WOULDN'T BE IN ANY HURRY TO SELL THE FEBRUARY CONTRACT. WE'RE LOOKING TO SCALE UP THE HEDGING PROGRAM IN APRIL, PROBABLY IN THE 76.5 AREA AND ABOVE. IT CRACKED THROUGH 75 AND, AT THIS TIME OF YEAR, THAT'S A PRETTY GOOD BENCH MARK THAT WE'VE GOT A STRONG MARKET GOING. DEMAND HAS BEEN EXCELLENT. EXPORTS HAVE BEEN GOOD. LOTS OF NEW PRODUCTS COMING ON LINE, SO THERE'S A LOT OF FUNDAMENTALS THAT CAN CONTRIBUTE TO THAT. IF WE CAN KEEP THE SUPPLIES MOVING LIKE WE HAVE BEEN AND HARVESTING THE NUMBER OF CATTLE THAT WE HAVE PER WEEK, I THINK THERE'S SOME EXCELLENT FUTURE OUT IN FRONT. PEARSON: ALL RIGHT. OF COURSE, GETTING THOSE CALVES BOUGHT COULD BE TOUGH. YOU MENTIONED A MITIGATING CIRCUMSTANCE. WE HAD THE DRY WEATHER. THE CALVES CAME INTO THE FEEDLOTS. CAN THE CALVES GO BACK OUT? NEWTON: NO, I DON'T THINK SO. THEY MAY HAVE A SMALL AMOUNT, BUT THEN WE SEE A LITTLE BIT OF THAT EVERY YEAR. SO I DON'T THINK THAT WILL BE THE CASE. I THINK THEY'RE STILL THERE. PEARSON: OKAY, LET'S TALK ABOUT THE OTHER COMPETING RED MEAT, THE HOG BUSINESS. WHAT'S AHEAD THERE, WAYNE? OBVIOUSLY, THERE'S ALWAYS CONCERN ABOUT WEIGHTS THERE AND ALSO CONCERN ABOUT NUMBERS. NEWTON: THE WEATHER AND THE CORN CROP AND ALL OF THE RECIPES OF MARKETING HAVE BEEN CONDUCIVE HIGHER WEIGHTS AND HOLDING HOGS BACK. I THINK THAT PORK PRODUCERS GOT THEMSELVES IN A LITTLE BIT OF A DILEMMA BECAUSE THE HAMS HAVE GOTTEN A LITTLE BIT TOO BIG TO BE IN DEMAND TO COMPETE WITH POULTRY INTO THE HOLIDAY SEASON. SO THE HAMS AREN'T MOVING, AND THAT'S WIDENED THE BASIS. BUT I THINK $58 FEBRUARY HOGS NEED TO BE SOLD, AND I THINK THOSE SUMMER MONTHS THAT ARE TRADING IN THE MID 60S, OR WHEN THEY GET TO THE MID 60S, DEFINITELY NEED TO BE LOOKED AT AS A PLACE TO HEDGE. PEARSON: TEN SECONDS LEFT, WAYNE. WOULD YOU BE COVERING FOR THE FEED NEEDS AT THIS POINT? NEWTON: I THINK SO. ON ANY DIP WHEN A MARKET IS OVERBOUGHT, IF IT DIPS BACK 4 TO 5 TO 8, 10 CENTS, I'D BE BUYING AND PROTECT MYSELF FOR THIRTY DAYS AT A TIME. PEARSON: VERY GOOD. WAYNE NEWTON, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE PROGRESS OF A FARM-DRIVEN EFFORT TO PROTECT THE ENVIRONMENT. UNTIL THEN, I'M MARK PEARSON. THANKS FOR WATCHING. HAVE A GREAT WEEK.


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