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Market Analysis: Jun 16, 2000

posted on June 16, 2000


BY MOST STATISTICAL ACCOUNTS, IT WOULD APPEAR THE FEDERAL RESERVE'S EFFORT TO COOL THE U.S. ECONOMY IS SUCCEEDING. CONSUMER INFLATION ROSE A MODEST ONE-TENTH OF A PERCENT LAST MONTH – HALF THE RISE EXPECTED BY ECONOMISTS.

MOREOVER, INTEREST RATE-SENSITIVE SECTORS OF THE ECONOMY -- RETAIL SALES, HOME CONSTRUCTION, AND FACTORY ORDERS FOR DURABLE GOODS -- ALL FELL SHARPLY.

THE FEDERAL RESERVE REPORTS SOME INFLATIONARY PRESSURE PERSISTS IN THE FORM OF HIGHER PRICES FOR SOME RAW PRODUCTS – NOTABLY PETROLEUM.

THE GRAIN MARKETS WERE DOWN SHARPLY AGAIN THIS WEEK AS THE TRADERS IN CHICAGO BEGAN TO FEEL MORE COMFORTABLE WITH YEAR 2000 CROP PROSPECTS. FOR THE WEEK, WHEAT PRICES WERE MORE THAN SIX CENTS LOWER. CORN PRICES WERE DOWN 12-CENTS. SOYBEAN FUTURES WERE 16 TO 27-CENTS LOWER. SOYBEAN MEAL FINISHED $8.80 LOWER PER TON. COTTON FUTURES CLOSED THE WEEK $1.21 LOWER.

IN LIVESTOCK, FED CATTLE PRICES WERE DOWN 37-CENTS. FEEDER CATTLE GAINED 58-CENTS. THE LEAN HOG CONTRACT FINISHED THE WEEK $1.27-LOWER.

IN THE FINANCIALS, COMEX GOLD FUTURES GAINED $5.10 AN OUNCE. THE EURO FINISHED 113 BASIS POINTS HIGHER AGAINST THE DOLLAR. AND, THE CRB INDEX CLOSED THE WEEK MORE THAN TWO POINTS LOWER TO FINISH AT 222.80.

Market Analysis: Jun 16, 2000

HERE NOW TO LEND US HIS INSIGHT IS ONE OF OUR REGULAR MARKET TO MARKET ANALYSTS, TOMM PFITZENMAIER. WELCOME BACK.

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT THIS SLIDE HERE. WE'RE DOWN ACROSS THE BOARD, AS FAR AS THE GRAINS ARE CONCERNED. WHEAT HARVEST, WE'RE HEARING ABOUT PROBLEMS DOWN IN TEXAS AND PORK ADDITIONS IN THE CROP IN MANY PLACES IN THE PLAINS, YET THE MARKET IS SHARPLY LOWER. WHAT'S HAPPENING OUT THERE?

Pfitzenmaier: WELL, I THINK THE WHEAT MARKET GOT SORT OF DRUG LOWER, AS YOU ALLUDED TO EARLIER IN THE SHOW, BY THE NEGATIVITY IN THE CORN AND BEANS. AND I THINK THAT'S GOING TO BE A CONTINUING PROBLEM. IF WE CONTINUALLY IMPROVE THOSE CROPS, THAT WHEAT IS REALLY GOING TO HAVE PROBLEMS STRUGGLING. I THINK THE OTHER THING IS THE BUYERS CAN SEE THAT. THEY KNOW THERE'S PROBLEMS DEMAND WISE. EVERYBODY STAYS HAND-TO-MOUTH AND SEES NO REASON NOT TO BE THAT WAY, SO IT FALLS FOR BASICALLY LACK OF BUYERS. NOW, ULTIMATELY, THEY'RE GOING TO COME IN AND SHORE THAT UP AND IT'S GOING TO FIND SOME SUPPORT. BUT AS LONG AS CORN AND BEANS ARE UNDER PRESSURE, WHEAT IS GOING TO STRUGGLE.

Pearson: AS YOU LOOK ON DOWN THE ROAD, OF COURSE, WE GET CLOSER INTO HARVEST, BASIS AND SO FORTH, THE PRICE PRESSURE PROBABLY WILL CONTINUE.

Pfitzenmaier: RIGHT. AND I THINK ANY 15- TO 20-CENT RALLY IN WHEAT, YOU'VE GOT TO BE A SELLER. WHEAT HAS GOT PROBLEMS. THERE'S A LOT OF IT AROUND. GRANTED THERE'S A LITTLE PROBLEM WITH THE WINTER WHEAT CROP, AND IT'S BEEN REDUCED SOME. BUT STILL, THERE'S A LOT OF WHEAT AROUND. THERE'S A LOT OF PRODUCT AROUND, AND I THINK YOU HAVE TO BE A WILLING SELLER ON RALLIES. AND I THINK, GENERALLY, THE WHEAT PRODUCERS HAVE BEEN.

Pearson: HOPEFULLY THE CORN PRODUCERS WERE FOLLOWING YOUR ADVICE. YOU WERE TALKING ABOUT SCALING UP STARTING AT 250 BASIS DECEMBER AND, OF COURSE, WE'RE BACK BELOW 230 NOW AT THIS STAGE OF THE GAME. AND AGAIN, WE'RE STILL WEATHER SENSITIVE. CERTAINLY THE CROP IS NOT MADE YET, BUT THESE RAINS HAVE CERTAINLY BEEN HEARTENING.

Pfitzenmaier: IT WOULD BE A LOT EASIER TO BE BEARISH ABOUT THIS CORN AND BEAN MARKET IF WE'RE IN THE 15TH OF JULY RATHER THAN THE 15TH OF JUNE. BUT YOU'RE RIGHT, THERE HAS BEEN A LOT OF RAIN. EVERYBODY FEELS A LITTLE BETTER ABOUT -- WELL, THE CROP LOOKS FABULOUS. THERE'S NO QUESTION ABOUT THAT. EVERYBODY YOU TALK TO SAYS THEIR CROP LOOKS FABULOUS. THAT'S FOLLOWED BY THE STATEMENT, "BUT IF IT GETS DRY AND HOT, IT'S GOING TO DETERIORATE PRETTY RAPIDLY." IN THE MARKET, EVERY STEP -- WE'VE SAID TIME AND TIME AGAIN, THEY PUT THE BIG WEATHER PREMIUM IN THE SPRING, EVERY STEP YOU GET THROUGH WITHOUT PROBLEMS, THEY TAKE SOME OF THAT WEATHER PREMIUM OUT, AND THAT'S WHAT WE DID. WE HAD GOOD RAINS, PROBABLY RAINS THAT ARE GOING TO TAKE THE CROP INTO POLLINATION FOR THE CORN. AND A COUPLE MORE RAINS TO GET US THROUGH POLLINATION, AND YOU'VE GOT THE POTENTIAL FOR PRETTY DARN GOOD CORN CROP. SO THAT'S KIND OF WHAT HAPPENED HERE. NOW, WE'RE GOING TO SIT -- THE 60, 90-DAY FORECAST CAME OUT WITH A LITTLE DRIER AND A LITTLE WARMER, AND THAT GAVE US A LITTLE SUPPORT THERE AT THE END OF THE WEEK. AND IF THAT TURNS OUT TO BE THE CASE, THAT'S GOING TO BE SUPPORTIVE. THEY WERE SO WRONG THIS SPRING ON THAT, THAT THE TRADERS HAVE A TENDENCY TO DISCOUNT IT AND SAY, WELL, YOU KNOW, IT'S A LONG WAY OFF, THEY'RE OFF THIS SPRING, WE'RE NOT GOING TO PAY THAT MUCH ATTENTION TO THAT. WE'RE LOOKING AT THE NEARBY FORECAST CALLING FOR MOISTURE AND MODERATE TEMPERATURES, AND THAT'S KIND OF WHAT THEY'RE PAYING ATTENTION TO SHORT TERM.

Pearson: OKAY, LET'S TALK ABOUT THAT. IF WE DO CONTINUE TO SEE THE RAIN -- IF THE RAINS CONTINUE TO COME -- LIKE I SAY, THE CROP AT THIS STAGE LOOKS AS GOOD AS IT'S BEEN. A WEEK AGO SUBSTANTIALLY LOWER BASIS DECEMBER THAN THE 227, SO IF WE HAVEN'T DONE ANYTHING YET, SHOULD WE BE LOOKING AT DOING SOMETHING?

Pfitzenmaier: WELL, I THINK WE'VE SWITCHED THIS MARKET NOW FROM A BUY-THE-BREAKS KIND OF A MARKET TO A SELL-THE-RALLIES KIND OF A MARKET. THAT'S GOING TO PROBABLY DOWNTREND. SO, CERTAINLY, IF YOU CAN GET DECEMBER CORN UP IN THAT 238 TO 242 RESISTANCE AREA, MAYBE A LITTLE HIGHER THAN THAT IF THEY GET ALL EXCITED, I THINK YOU CERTAINLY HAVE TO LOOK AT BEING A SELLER WHETHER THAT'S SELLING FUTURES, BUYING PUTS, WHATEVER YOU'RE MOST COMFORTABLE WITH, MAKING CASH SALES. PROBABLY THE GREATER URGENCY, IN MY MIND, IS IF YOU'RE -- THE PROBLEM WAS YOU HAD EVERYBODY SIT ALL WINTER AND ALL SPRING WAITING BECAUSE OF THE DRY SUBSOIL. THEY'RE JUST ABSOLUTELY SURE THE MARKET HAD TO GO UP. THEY SAT ON THEIR OLD CROP AND NOW WE'VE GOT ALL THAT THAT'S GOT TO MOVE. AND AS EVERYBODY SORT OF COMES TO THE REALIZATION THAT, "HEY, I'VE GOT A CROP COMING OUT IN THE FIELD, WHAT AM I GOING TO DO WITH ALL THIS THAT I'VE STORED," YOU'RE GOING TO HAVE SOME BASIS PROBLEMS. SO RALLIES THAT COME ALONG PROBABLY ARE GOING TO COME IN THE FUTURES, AND IT'S GOING TO BE VERY DIFFICULT TO DRAG THAT CASH MARKET UP, PARTICULARLY IN THE CORN.

Pearson: ALL RIGHT, LET'S SWITCH OVER TO THE SOYBEANS NOW. PRETTY MUCH THE SAME SCENARIO IN TERMS OF THE WEATHER OBVIOUSLY. SO AT THIS STAGE OF THE GAME HERE, YOU WERE TALKING ABOUT SCALING UP ON BEAN SALES QUITE A WHILE AGO. IF YOU MISSED THAT OPPORTUNITY, AGAIN, THESE COULD TURN OUT TO BE DECENT PRICES BASED ON A GOOD CROP.

Pfitzenmaier: THAT'S RIGHT, NOVEMBER BEANS UP IN THAT 538 TO TO 550 AREA PROBABLY NEED TO BE SOLD. NOW, THE FARMER HAS BEEN A FAIRLY STINGY SELLER. THEY'VE REALLY HELD TIGHT ONTO THE BEANS. THEY HAVE MOVED SOME CORN BUT BEANS -- AND THE BASIS REFLECTS THAT. WE'VE GOT A PRETTY STRONG BASIS. THE DEMAND HAS BEEN GOOD UP FRONT FOR THE BEANS. AND SO IF YOU'RE GOING TO MOVE SOME THINGS, IT'S PROBABLY ON THIS NARROW BASIS IS PROBABLY THE TIME TO DO THAT ALSO.

Pearson: AND AGAIN, ALL BETS ARE OFF SHOULD THE WEATHER CHANGE, IF WE GO HOT AND DRY.

Pfitzenmaier: YEAH, THAT'S THE CAVEAT, YOU KNOW. YOU'RE RIGHT, IF IT TURNS OFF, WE STILL HAVEN'T TOTALLY REPLENISHED OUR SUBSOIL. YOU DON'T WANT US TO GET TOTALLY COMFORTABLE IF THINGS CAN'T -- DETERIORATE PRETTY RAPIDLY IF THE RAIN SHUT OFF AND WE HEAT UP.

Pearson: AND, OF COURSE, PRICE CAN DETERIORATE RAPIDLY IF WE GET THE RAIN. THAT'S THE CONCERN WITH COTTON TOO.

Pfitzenmaier: AND THE COTTON MARKET IS IN THIS TRADING RANGE FROM, BASICALLY, 60 TO 65. AS YOU REACT TO THAT WEATHER, YOU MOVE UP TOWARD THE UPPER END OF THAT RANGE, AND AS IT LOOKS BETTER, YOU MOVE DOWN. NOW, AS WE ALL KNOW, COTTON, UNTIL IT'S ACTUALLY BEEN PROCESSED, IS STILL VULNERABLE. SO THERE'S A LOT OF THE PRODUCTION PROCESS THERE TOO. BUT I THINK IF YOU GET UP IN THAT 65-, 66-CENT AREA, YOU'VE GOT TO BE WILLING TO PART WITH THAT CROP TOO.

Pearson: MOVE OVER TO LIVESTOCK. THERE'S BEEN SOME CONCERN. YOU WERE REALLY FRIENDLY TO CATTLE, REALLY, MOST OF THE WINTER AND SPRING, AND THEN YOU TURNED A LITTLE CAUTIOUS NOW. ARE YOU STILL CONCERNED ABOUT WHAT MIGHT HAPPEN AS FAR AS PRICE?

Pfitzenmaier: MAINLY BECAUSE OF DEMAND. I THINK DEMAND IS A BIG PROBLEM HERE. WE'VE HAD INTEREST RATES -- YOU KNOW, DEMAND IS WHAT SUPPORTED THAT THE WHOLE RED MEAT COMPLEX, REALLY. AND IF YOU SEE INTEREST RATES RISING UP, YOU SEE GAS PRICES ALMOST DOUBLING. IF YOU HAVE A CHOICE OF DO I PAY FOR GAS TO GET TO WORK OR DO I BUY THAT EXTRA WHATEVER RED MEAT PRODUCT, THAT'S ULTIMATELY -- EVEN THOUGH MAYBE IT'S NOT A BIG DEAL IN A FAMILY'S BUDGET, IT STILL IS A PSYCHOLOGICAL PROBLEM, I THINK. AND IT'S GOING TO WEIGH ON THESE RED MEATS. I DON'T MEAN THAT TO BE TOTALLY BEARISH OR ANYTHING, BUT I JUST THINK THEY'RE GOING TO STRUGGLE. YOU GOING TO GET THE CATTLE MARKET, THE AUGUST CATTLE UP IN THAT 68.50 TO 69 AREA, AND THEY'RE GOING TO HAVE A TOUGH TIME GOING BEYOND THAT. WE HAD A CATTLE-ON-FEED REPORT THIS AFTERNOON THAT SHOWED PLACEMENTS UP ABOUT 115 PERCENT, WAY ABOVE WHAT EVERYBODY WAS EXPECTING. THAT'S GOING TO CONTINUE TO WEIGH ON THE MARKET A LITTLE BIT ALSO.

Pearson: LET'S GO ON DOWN THE ROAD, SAY, FOURTH QUARTER OF THIS YEAR. LIKE YOU SAY WITH THE STRONGER GAS PRICES, CHANGING CONSUMER SITUATION REALLY FOR BEEF, ARE YOU CONCERNED WHEN WE START TO PICK UP NUMBERS? LIKE I SAY, THE CATTLE-ON-FEED REPORT CERTAINLY SHOWS THAT.

Pfitzenmaier: YEAH, I THINK THE CATTLE MARKET IS GOING TO STRUGGLE RIGHT OUT THROUGH -- IT MAY BE INTO THE FIRST QUARTER EVEN NEXT YEAR. I THINK THAT DEMAND BASE -- EVERYBODY IS A LITTLE UNCOMFORTABLE WITH HOW THE ECONOMY IS GOING, AND THAT'S A BIG FACTOR. SO I'M A LITTLE UNCOMFORTABLE ABOUT -- AGAIN, I'M NOT WILDLY BEARISH OR ANYTHING LIKE THAT, BUT I JUST THINK THE CATTLE MARKET IS GOING TO STRUGGLE AND IN PORK ALSO.

Pearson: AND THE STRATEGY WOULD BE TO WORK AN OPTION STRATEGY?

Pfitzenmaier: YEAH, I THINK SO. YOU BUY SOME KIND OF A PUT UP IN THAT AREA THAT ALLOWS YOU TO AT LEAST BREAK EVEN OR MAKE A LITTLE MONEY, AND THEN JUST SIT AND SEE WHAT HAPPENS HERE.

Pearson: THERE'S ALSO CONCERN ABOUT HOGS. EVENTUALLY THAT CONCERN NEXT YEAR, CERTAINLY, AND WE MAY START TO SEE THAT HEAT UP WITH A BIT OF A MARKETING HOLD THIS SUMMER. DO YOU ANTICIPATE THAT, TOMM, OR WHAT'S YOUR THINKING ON THAT?

Pfitzenmaier: WELL, YOU KNOW, TIME AFTER TIME, FARMERS' NATURAL OPTIMISM GETS THEM IN TROUBLE. THEY SORT OF TAKE THAT NATURAL OPTIMISM AND BEAT THEM OVER THE HEAD WITH IT WHENEVER HE TRIES TO -- THAT'S SORTS OF WHAT'S HAPPENING IN THE HOG MARKET. PEOPLE ARE STARTING TO EXPAND AGAIN. YOU LOOK OUT AND SEE NUMBERS STARTING TO COME BACK AGAIN. YOU COMBINE THAT WITH A LITTLE GLITCH IN DEMAND, AND THE HOG MARKET IS GOING TO STRUGGLE. I THINK YOU GET THE SUMMER MONTHS UP TO $70, YOU'VE GOT TO SELL THEM. IF YOU GET THOSE FALL AND OUT FARTHER MONTHS UP IN THE 60-PLUS AREA, YOU PROBABLY NEED TO BE A SELLER THERE TOO, OR A BUYER OF PUTS, AT THE VERY LEAST.

Pearson: AT THE VERY LEAST, ALL RIGHT. WELL, TOMM PFITZENMAIER, YOU'VE HAD THE LAST WORD ON IT TONIGHT. THANK YOU, SIR. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK AS WE TRACK THE DEBATE OVER RISING FUEL PRICES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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