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Market Analysis: Jun 09, 2000

posted on June 9, 2000


LIKE ANXIOUS JUNE BRIDES WAITING FOR THE VOWS TO BEGIN, INFLATION HAWKS THIS WEEK WERE EYEING PRICKLY GOVERNMENT NUMBERS. THE RESULTS DIDN'T GIVE THEM MUCH TO GO ON.

PRICES AT THE WHOLESALE LEVEL IN MAY REMAINED UNCHANGED. AND A KEY MEASURE OF WORKER PRODUCTIVITY POSTED ITS SMALLEST GAIN IN NINE MONTHS IN APRIL. THE REPORTS INDICATE THE FAST PACE OF INCREASED LIVING STANDARDS HAS COOLED A BIT. EVEN SO, THE FINANCIAL COMMUNITY IS WAITING FOR NEXT WEEK'S RELEASE OF RETAIL INFLATION NUMBERS. THOSE NUMBERS LIKELY WILL DETERMINE WHETHER THE FEDERAL RESERVE RAISES INTEREST RATES FOR THE SEVENTH TIME IN A YEAR WHEN IT MEETS LATER THIS MONTH.

THE GRAIN MARKETS THIS WEEK WERE DOWN ON CONTINUED CONFIDENCE IN YEAR TWO THOUSAND GRAIN PRODUCTION. FOR THE WEEK, WHEAT PRICES WERE DOWN MORE THAN A PENNY. CORN PRICES FINISHED MORE THAN NINE CENTS LOWER.

SOYBEANS FINISHED THE WEEK MORE THAN 13-CENTS LOWER. SOYBEAN MEAL CLOSED THE WEEK UNCHANGED.

COTTON FUTURES WERE 68-CENTS HIGHER.

IN LIVESTOCK, FED CATTLE FUTURES GAINED 55-CENTS. FEEDER CATTLE GAINED 30-CENTS. THE LEAN HOG CONTRACT FINISHED THE WEEK $2.42 HIGHER.

IN THE FINANCIALS, COMEX GOLD GAINED $2.20. THE EURO FINISHED UP 112 POINTS AGAINST THE DOLLAR, AND THE CRB INDEX CLOSED THE WEEK THREE QUARTERS OF A POINT LOWER, TO CLOSE AT 224.90.

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

Market Analysis: Jun 09, 2000 Hjort: THANK YOU, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT ABOUT THIS MARKET. WE'RE ROLLING ALONG ON THIS WHEAT HARVEST DOWN SOUTH. WHAT'S YOUR OUTLOOK NOW FOR PRICE? ARE WE GOING TO START TO GET A LITTLE BIT WEAKER AS WE GET MORE OF THE HARVEST?

Hjort: WELL, WE MIGHT. I THINK WE'LL CHOP AROUND AN AWFUL LOT HERE AND PROBABLY SEE PRICES DIP ON DOWN A LITTLE BIT UNDER NORMAL HARVEST PRESSURE. THE WHEAT SITUATION IS AN UNUSUAL ONE BECAUSE HERE WE ARE, PRICES ARE PRESSURED NOT ONLY BY HARVEST PRESSURE ON THE WHEAT ITSELF, BUT BY THE CORN AND THE BEANS AS WELL. THOSE PRICES CONTINUING TO MOVE ON A LITTLE BIT LOWER. WHEN YOU LOOK AT THE WORLD PICTURE, THOUGH, WE HAVE THE TIGHTEST SUPPLY/DEMAND RELATIONSHIP IN HISTORY, AT LEAST MODERN HISTORY. YOU WOULD LOOK AT THAT AND YOU WOULD SAY, "WHY AREN'T WHEAT PRICES HIGHER. THE LAST TIME WE HAD NUMBERS ANYTHING LIKE THIS, WHEAT PRICES WERE $6 A BUSHEL." WELL, THE REASON IS TIMING, LIKE WE SAY, THE HARVEST, NUMBER ONE, AND THE PRESSURE FROM THE CORN AND THE BEANS. WEATHER IS GOING TO BE VERY IMPORTANT FOR WHEAT, NOT SO MUCH AS HOW IT'S GOING TO IMPACT ON WINTER WHEAT ANYMORE, BECAUSE THAT'S CLOSE TO BEING DONE NOW. BUT ON SPRING WHEAT AND THEN ON THE CORN AND THE BEANS, IF THE CORN AND THE BEANS ARE NOT GOING TO RALLY, WHEAT IS GOING TO HAVE A TOUGH TIME DRIVING HIGHER ALL BY ITSELF. I DO THINK, THOUGH, THAT ANY DECLINES IN THE NEXT -- IN THE SHORT-TERM HERE, NEXT TWO OR THREE WEEKS, WILL BE LIMITED. AND THEN I THINK WE WILL HAVE A GOOD RALLY. IT COULD AMOUNT TO A VERY SUBSTANTIAL RALLY GOING INTO THIS FALL IF CORN AND BEAN PRICES STABILIZE.

Pearson: ALL RIGHT. WELL, LET'S TALK ABOUT THE CORN MARKET FIRST. WHAT'S YOUR FEELING ON THAT? WE'RE PAST SOME KEY WEATHER TIMES BUT, OF COURSE, THERE'S STILL THE HEAT OF SUMMER APPROACHING.

Hjort: WELL, IT CERTAINLY IS AND, AGAIN, IT'S ALL WEATHER, 95 PERCENT WEATHER, ANYWAY. DEMAND IS VERY, VERY GOOD. WE KNOW THAT. TOTAL WORLD GRAIN DEMAND IS EXCEEDING PRODUCTION ONCE AGAIN THIS YEAR. AND PRODUCTION IS VERY HIGH, ESPECIALLY FOR THE COURSE GRAINS AROUND THE WORLD. SO HERE WE ARE, WE'RE SITUATED NOW ALL WEEK LONG, AS WE SAID JUST EARLIER ON THE SHOW HERE, THIS MARKET WAS DOWN THIS WEEK BECAUSE OF THE FORECAST OF HEAVY RAINS NEXT WEEK. IF THEY DON'T COME -- IF WE DON'T GET THOSE HEAVY SOAKING RAINS AS FORECAST, THEN THIS MARKET HAS A CHANCE TO REBOUND. I AM NOT IN THE CAMP THAT SAYS THAT THIS CROP IS AUTOMATICALLY IN THE BIN OF RECORD YIELDS AND SO ON AND SO FORTH AS SOME ARE, BUT THE YIELD POTENTIAL IS VERY GOOD. YOU HAVE TO AGREE TO THAT. BUT WEATHER HERE IN THE NEXT TWO TO THREE WEEKS IS GOING TO BE CRITICAL. IF THIS HOT, WINDY, DRY PATTERN THAT HAS BEEN MOVING SLOWLY NORTH AND EASTWARD FROM TEXAS ALL SPRING, IF THAT COMES INTO THE WESTERN CORN BELT, THESE CORN AND BEAN PRICES WILL HOLD STEADY HERE AND THEN START TO MOVE HIGHER. THE NEXT WEEK OR TWO ARE ABSOLUTELY CRUCIAL TO PRICING CORN AND BEANS, IN MY OPINION.

Pearson: IT SOUNDS LIKE YOU MAY BE FAVORING OPTION STRATEGIES WHEN IT COMES TO ACTUALLY IMPLEMENTING THEM.

Hjort: WELL, THAT MIGHT BE ALL RIGHT BECAUSE YOU'RE TYING YOURSELF IN TO SOMETHING THAT YOU GET OUT OF IT IF THINGS DO CHANGE. ALSO UNDERSTAND THAT AS FAR AS FORWARD PRICING FOR NEW CROP, YOU'RE GETTING DOWN CLOSE TO OR BELOW THE LOAN RATE, AND NO REASON TO DO ANY CASH PRICE CONTRACTING AT ANYTHING BELOW LOAN RATE.

Pearson: AND YOU TALK ABOUT THE SOYBEANS AS WELL. YOU THINK, OBVIOUSLY, WEATHER IS THE KEY HERE. BUT IF THERE ARE WEATHER PROBLEMS, CERTAINLY SOYBEANS PRICES WOULD ALSO BE EXTREMELY VOLATILE.

Hjort: WELL, THAT'S RIGHT AND VOLATILITY, I THINK, IS THE KEY WORD HERE. LOOK FOR A LOT OF VOLATILITY ON THE BEANS... NUMBER ONE, BECAUSE WE HAVE A LOT MORE THAN THE NEXT TWO TO THREE WEEKS THAT WILL AFFECT THE FINAL OUTCOME ON THE BEANS. THE NEGATIVE, AS WE ALL KNOW, IS THE LARGE ACREAGE THAT WE HAVE HERE. THE POSITIVE IS THE VERY, VERY STRONG DEMAND THAT WE HAVE FOR PROTEIN. CHINA HAS BEEN THE POSTER BOY, SO TO SPEAK, FOR THE PROTEIN DEMAND LATELY, BUYING HEAVILY INTO WORLD SOYBEAN AND SOYBEAN MEAL MARKET. THAT'S GOING TO CONTINUE. THEY'RE NOT THE ONLY STRONG DEMAND MARKET OUT THERE. IF YOU LOOK BACK AT USDA DEMAND PROJECTIONS ON SOYBEANS IN THE LAST TWO YEARS, THEY STARTED OFF WAY TOO LOW AND HAD TO KEEP RAISING THOSE AND RAISING THEM AND RAISING THEM. AND I THINK THE SAME THING IS HAPPENING THIS YEAR. THEY HAVE A 495-MILLION-BUSHEL CARRYOUT PROJECTED NOW FOR THE NEW YEAR. I THINK THAT WILL COME DOWN, OBVIOUSLY, TO SUPPLY SIDE FACTORS INTO IT, BUT ASSUMING PRODUCTION WHERE THEY HAVE IT NOW, THE STOCKS WILL NOT BE NEARLY THAT LARGE COME A YEAR FROM NOW.

Pearson: LET'S MOVE OVER TO THE COTTON MARKET... EXPERIENCING A GOOD WEEK AND, AGAIN, WEATHER SENSITIVE.

Hjort: WELL, IT CERTAINLY IS. A LOT OF WEATHER CONCERNS HERE ARE SENSITIVE. WORLDWIDE, NUMBERS OUT ON FRIDAY MORNING'S REPORT WERE JUST A LITTLE BIT ON THE NEGATIVE SIDE, BUT HERE AGAIN, WEATHER IS THE DRIVING FORCE FOR THE NEXT THREE TO FOUR WEEKS ON COTTON.

Pearson: LET'S MOVE OVER TO THE LIVESTOCK SIDE OF THINGS. THERE'S BEEN A WHOLE LOT OF CONCERN ABOUT WHAT'S GOING TO HAPPEN IN THE NEXT FEW WEEKS AS FAR AS THIS FED CATTLE TRADE IS CONCERNED. CATTLE HAS BEEN MOVING. THE BEEF HAS BEEN MOVING. THE PRODUCT HAS BEEN MOVING, BUT WE COULD BE LOOKING MAYBE AT SOME BIGGER NUMBERS, CORRECT?

Hjort: WELL, THEY'RE CERTAINLY GOING TO STAY THE SAME ANYWAY. THEY'RE NOT GOING TO GET ANY SMALLER AND PROBABLY WILL, KILL NUMBERS MIGHT INCREASE A LITTLE BIT. THE DEMAND FOR BEEF IS VERY STRONG, HOWEVER, WE ARE ONLY A MONTH AWAY FROM THE SUMMER DOLDRUM, SO TO SPEAK, AFTER THE FOURTH OF JULY AND GOING ON THROUGH AUGUST TO WHERE BEEF DEMAND TAILS OFF A BIT. AND STILL AT THAT TIME, WE'RE GOING TO HAVE VERY LARGE BEEF PRODUCTION. WE HAD A NICE BOUNCE IN THE CASH MARKET THIS WEEK, A DOLLAR IN ALL MARKETS, MAYBE A LITTLE BETTER IN SOME. BUT I DON'T THINK THIS IS THE BOTTOM OF THE MARKET, AND EVEN IF IT IS THE BOTTOM OF THE MARKET, WHICH IS CLOSE -- I'M NOT SAYING WE'VE GOT A LONG WAYS DOWN, WE'RE WITHIN A DOLLAR OR TWO. BUT EVEN IF THIS IS THE BOTTOM, WE'RE GOING TO BOUNCE THIS MARKET UP JUST A LITTLE BIT AND THEN JUST BOUNCE ALONG THE BOTTOM HERE FOR SEVERAL MORE WEEKS.

Pearson: FOURTH QUARTER FOR CATTLE, WHAT DO YOU SEE?

Hjort: PRETTY GOOD. BUT THE PLACEMENTS CONTINUE TO BE VERY HEAVY. WE'RE PULLING FEEDER CATTLE AHEAD, PUTTING THEM IN THE LOT, HAVE BEEN FOR A LONG TIME, AND CONTINUING TO DO THAT. IT'S GOING TO LIMIT THE RALLIES, BUT THERE WILL BE SOME PRETTY SOLID RALLIES BY THE FOURTH QUARTER.

Pearson: ALL RIGHT, NOW, WHERE ARE YOU FALLING OUT ON THIS OLD HOG THING NOW? THERE'S CONCERN ABOUT NEXT YEAR AGAIN ABOUT BIG HOG NUMBERS, CERTAINLY RUNS HAVE BEEN A LITTLE BIT LESS THAN ANTICIPATED. 30, 90 DAYS OUT, WHAT DO YOU SEE?

Hjort: IN THE 30- TO 90-DAY OUTLOOK, I LOOK FOR A PRETTY SOLID MARKET. PRETTY GOOD STRENGTH FROM THE RETAIL SIDE AS WELL AS FROM A LITTLE BIT SMALLER KILLS. AS YOU POINT OUT, THE QUESTION MARK IS ARE WE EXPANDING AT THE PRESENT TIME OR NOT. THE END OF JUNE, OF COURSE, WE GET -- WELL, IN TWO WEEKS, WE GET THE HOGS AND PIGS REPORT OUT AND THAT WILL GIVE US A PRETTY SOLID CLUE THERE. I THINK THE DISTANT FUTURES ARE PRICED VERY FAIRLY RIGHT NOW. AND WHEN PRICES RISE UP TOWARDS THOSE HIGHS, I WOULD TAKE ADVANTAGE OF THAT AND PUT SOME HEDGES ON.

Pearson: DOUG HJORT, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE HOW A COUPLE OF FAMILIES HAVE EXPANDED THE PROFIT POTENTIAL OF THEIR FARM BY CAPTURING MORE VALUE FROM WHAT THEY PRODUCE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


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