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Market Analysis: Jun 02, 2000

posted on June 2, 2000


WALL STREET REJOICED THIS WEEK ON EVIDENCE THE SERIES OF RATE HIKES BY THE STREET'S SPIRITUAL LEADER, ALAN GREENSPAN, ARE INDEED SLOWING THE ECONOMY AND VENTING INFLATIONARY PRESSURE.

INTEREST-SENSITIVE CONSTRUCTION SPENDING WAS DOWN SHARPLY LAST MONTH. THE UNEMPLOYMENT RATE EDGED FRACTIONALLY HIGHER, REASSURING THE FINANCIAL COMMUNITY THAT EVER-DANGEROUS "WAGE PRESSURE" WAS EASING, FORGETTING FOR THE MOMENT THAT MOST OF THE UNEMPLOYED ARE AT THE LOWER END OF THE WAGE SCALE. GOLDEN PARACHUTES, CORPORATE JETS, AND TAX-DEDUCTIBLE EXPENSE ACCOUNTS MAY WELL SIPHON MORE PRODUCTIVITY FROM AND EXERT GREATER INFLATIONARY PRESSURE ON THE ECONOMY THAN A LEGION OF MINIMUM WAGE WORKERS. BUT ASIDE FROM THE FED CHAIRMAN'S DAMNATION OF "IRRATIONAL EXUBERANCE", BOARDROOM EXCESS HAS HARDLY BEEN A CONCERN OF THE NATION'S MONETARY POLICY.

THE GRAIN MARKETS FINISHED THE WEEK ON THE DOWNSIDE AS THE TRADE CONTINUES TO DISCOUNT THE DROUGHT. FOR THE WEEK, WHEAT PRICES WERE DOWN MORE THAN NINE CENTS. CORN PRICES WERE DOWN THREE TO FOUR CENTS.

SOYBEAN FUTURES FINISHED THE WEEK VIRTUALLY UNCHANGED. SOYBEAN MEAL FINISHED THE WEEK $1.30 HIGHER. COTTON FUTURES FINISHED $3.96 LOWER.

IN LIVESTOCK, FED CATTLE FUTURES WERE $1.50 HIGHER. FEEDER CATTLE GAINED 77-CENTS. THE LEAN HOG CONTRACT FINISHED 15-CENTS LOWER.

IN THE FINANCIALS, COMEX GOLD GAINED $9.20 AN OUNCE. THE EURO FINISHED MORE THAN A POINT HIGHER AGAINST THE DOLLAR. AND THE CRB INDEX FINISHED THE WEEK ABOUT A THIRD OF A POINT LOWER TO CLOSE AT 225.65.

Market Analysis: Jun 02, 2000 HERE NOW TO LEND US HIS INSIGHT IS ONE OF OUR REGULAR MARKET TO MARKET ANALYSTS, JOHN ROACH. WELCOME BACK.

Roach: THANKS, MARK.

Pearson: WELL, LET'S TALK ABOUT IT. THE DROUGHT... THE RALLY... HAVE WE'VE SEEN ALL THAT WE'RE GOING TO SEE AS FAR AS THE CORN PRICE IS CONCERNED?

Roach: WE DON'T KNOW. THE FACT IS THAT WE HAVE A CROP THAT ON LAST WEEK'S RATING WAS RATED 70 PERCENT GOOD TO EXCELLENT WITH SOME IMPROVEMENT BEING SEEN IN SOME AREAS AND A LITTLE BIT OF SLIPPAGE SEEN IN THE STATE OF IOWA. AND THEN WE'VE HAD PRETTY GOOD RAIN SINCE. SO THE EXPECTATION IS THE CROP WILL SHOW SOME IMPROVEMENT IN THIS PARTICULAR REPORT. BUT MOST PEOPLE, WHEN I TALK TO THEM, TELL ME THEY STILL HAVE THE POTENTIAL TO RAISE A VERY GOOD CROP. I TALKED WITH A VERY GOOD FRIEND OF MINE TODAY WHO THOUGHT HE HAD THE POTENTIAL TO RAISE A RECORD CROP, AND HE'S IN A DRY AREA. SO IT ALL DEPENDS ON WHAT THE WEATHER DOES FROM HERE ON THROUGH. A LOT OF AREAS IN THIS LAST TWO-WEEK PERIOD OF TIME WENT FROM HAVING A DROUGHT TO HAVING EXCESS MOISTURE. THEY'RE LOOKING FORWARD TO DRY WEATHER AND WARMER TEMPERATURES, SO WE REALLY HAVE A MARKET THAT'S GOING TO CONTINUE TO LIVE AND DIE BASED ON WHAT THE WEATHER FORECASTS ARE AND WHAT THE REALITY OF THE WEATHER IS.

Pearson: ALL RIGHT. SO AT THIS STAGE OF THE GAME, WHAT DOES A PRODUCER DO? DO YOU GAMBLE THAT THERE MAY BE A PROBLEM? NOT DO ANYTHING? PRICE THE CROP IN THE FALL? DO WE GO AHEAD AND GET SOME OF THE CROP SOLD NOW?

Roach: WELL, CERTAINLY THAT'S WHAT I THINK MOST PRODUCERS ARE DOING. MOST PRODUCERS SAW THE VERY STRONG PRICE, FEARFUL ABOUT ALL OF THE FORECASTS FOR A DROUGHT AND JUST DIDN'T GET VERY MUCH DONE. THE MARKET JUST MOVED AWAY FROM THEM TOO QUICKLY. I THINK IF YOU CONTINUE TO DO NOTHING, YOU MAY WELL PUT YOURSELF INTO A REAL DIFFICULT POSITION. REMEMBER LAST YEAR IN THE FIRST WEEK IN JUNE, DECEMBER CORN WAS AT $2.40 A BUSHEL... A LITTLE LOWER THAN IT IS TODAY, NOT MUCH. BUT BEFORE WE GOT TO THE END OF THE FIRST WEEK OF JULY, WE WERE AT $1.97. NOW, WHAT HAPPENED, OF COURSE, WAS WEATHER WAS VERY GOOD. IT WAS VERY BENEFICIAL DURING THAT PERIOD OF TIME, AND IF IT'S BENEFICIAL THIS YEAR, WE COULD HAVE A SIMILAR DECLINE. I DON'T THINK IT WILL BE THAT BAD, BUT A SIMILAR DECLINE. IF IT'S NOT BENEFICIAL, WITH THE LEVEL OF DEMAND THAT WITH HAVE IN THIS COUNTRY, WE CAN GO ALL THE WAY BACK TO THE HIGHS AND PERHAPS EVEN HIGHER IF WE HAVE PROBLEM WEATHER. TO ME THERE'S REALLY ONLY ONE THING TO DO IN THAT SCENARIO AND THAT IS THAT YOU NEED TO DO WHAT WE LEARN THROUGH UNIVERSITY RESEARCH AT THE UNIVERSITY OF NEBRASKA AND IOWA STATE UNIVERSITY: BUY PUTS ON DECEMBER CORN. BY THE SAME TOKEN, YOU SHOULD BE DOING IT ON NOVEMBER BEANS, BUT WE'LL TALK ABOUT THAT IN A SECOND. BUY PUTS, 250 DECEMBER CORN PUTS ARE AROUND 20 CENTS PER BUSHEL. WE HAD ORDERS IN AT 15 CENTS A BUSHEL BACK WHEN THE MARKET MADE ITS HIGH AND WE COULDN'T GET THEM FILLED AT 15. SO YOU'RE WITHIN LESS THAN 5 CENTS OF WHAT THE LOW PRICE WAS ON THAT INSURANCE OPTION, AND THAT'S EXACTLY WHAT A PRODUCER SHOULD DO. THEY SHOULD COVER ALL OF THEIR NEW-CROP CORN INVENTORY WITH THOSE 250 PUTS AND THEN HOLD THAT INSURANCE UNTIL WE SEE WHAT THE WEATHER DEVELOPS. IF THE MARKET HAS A GOOD RUN-UP BECAUSE OF WEATHER PROBLEMS, WE CAN DO SOME PRICING OF NEW-CROP CORN AND REMOVE SOME OF THE INSURANCE COVERAGE AND IT WON'T COST NEARLY AS MUCH AS WHAT THE INITIAL COST WAS ON THE INITIAL PREMIUM.

Pearson: OKAY. WHAT ABOUT ON THE SOYBEANS?

Roach: SOYBEANS, YOU HAVE AN INSURANCE POLICY. THE GOVERNMENT IS GIVING IT TO YOU FREE. ALL YOU HAVE TO DO IS NOTHING, AND YOU WILL BE GUARANTEED YOUR COUNTY LOAN RATE COME FALL. MOST PEOPLE CAN'T SELL BEANS TODAY ABOVE COUNTY LOAN RATE, SO DOING ANYTHING ON BEANS DOESN'T SEEM TO MAKE MUCH SENSE. AND REMEMBER, WE HAVE VERY STRONG LEVELS OF DEMAND HERE ON BEANS AND PARTICULARLY ON SOYBEAN MEAL, SO WE DO HAVE SOME OPPORTUNITY THERE FROM THE DEMAND SIDE, AS WELL AS THE LONG GROWING SEASON THAT'S AHEAD OF US.

Pearson: LET'S TALK ABOUT THE WHEAT MARKET. WHEAT HAD A BIG SELL-OFF IN CHICAGO FOR THE WHEAT AND, OF COURSE, THERE WAS TALK OF BIG PROBLEMS WITH THE SPRING CROP DOWN IN TEXAS AND SO FORTH. BUT THE SOFT RED CROP IN CHICAGO IS UNDER A LOT OF PRESSURE.

Roach: YEAH, WE'RE ACTUALLY MOVING INTO HARVEST. THAT'S REALLY WHAT'S HAPPENING WITH WHEAT. THE CHICAGO MARKET WAS DOWN. THE KANSAS CITY MARKET WAS DOWN. THE SPRING WHEAT CROP LOOKS GOOD. BUT THE WORLD SUPPLY OF WHEAT, IF YOU TAKE A LOOK AT THE ENDING STOCKS AS A PERCENTAGE OF USAGE, IS AT RECORD LOW LEVELS. CERTAINLY THIS COUNTRY IS THE MAJOR SUPPLIER, THE NUMBER ONE EXPORTER, OF WHEAT INTO THE WORLD. OUR CROPS AREN'T SO BAD, BUT THEY HAVE DETERIORATED SINCE WHAT THE RATINGS WERE SIX WEEKS AGO. AND WHAT WE THINK IS THAT THE WHEAT MARKET IS VERY WELL UNDERPINNED, AND WE DON'T THINK THE MARKET IS GOING TO SLIDE VERY FAR ON WHEAT. WE THINK THAT THE HARVEST PRESSURE IS DIRECTLY AHEAD OF US. WE'RE INTO IT BUT ONCE WE GET PAST THAT WHEAT MARKET, THAT WHEAT MARKET WILL STRENGTHEN.

Pearson: LET'S TALK A LITTLE BIT ABOUT WHAT HAPPENED THIS WEEK IN COTTON. A BIG SELL-OFF THERE ON THE NEW CROP.

Roach: YEAH, BIG SELL-OFF IN COTTON. WE'VE REACHED SOME TECHNICAL LEVELS THAT ARE JUST GOING TO BE VERY DIFFICULT; AND WE THINK ANY LITTLE PRICE RECOVERY HERE, YOU NEED TO BE A SELLER OF COTTON. LOOK AT THE CALENDAR, IT'S THE TIME OF YEAR YOU'RE SUPPOSED TO SELL STRENGTH IN THAT MARKET.

Pearson: ALL RIGHT. AND LET'S GO ONTO WHAT'S HAPPENING OVER IN THE LIVESTOCK AREA AT THIS POINT. PRETTY GOOD CLEARANCE ON BEEF. WE'RE HOLDING THAT $69, $70 LEVEL IN THE CASH. FUTURES ARE SAYING THAT'S NOT GOING TO CONTINUE. WHAT'S YOUR OUTLOOK RIGHT NOW, JOHN?

Roach: WELL, THE MARKET HAS KNOWN FOR SOME TIME THAT WHEN WE MOVED INTO JUNE, WE WERE GOING TO HAVE A LOT OF CATTLE THAT WE NEEDED TO MARKET. AND WE NEEDED TO HAVE GOOD, STRONG CONSUMER DEMAND, WE NEEDED TO MARKET QUICKLY, AND THE PRODUCER HAS DONE A WONDERFUL JOB OF BEING A VERY QUICK MARKETER, AFRAID OF LOWER PRICES, SO AS SOON AS THE CATTLE WOULD REACH MARKETABLE GRADES, THEY WERE MOVED AND WE PREVENTED ADDING ANY EXTRA TONNAGE. BUT WE STILL HAVE BIG NUMBERS TO GO THROUGH. WE HAVE SEEN A LITTLE SLOW-DOWN AS FAR AS THE DEMAND IS CONCERNED. ALTHOUGH THIS WEEK WE MOVED VERY BIG QUANTITIES, WE HAD TO DO IT AT A LOWER PRICE LEVEL AS FAR AS THE DRESSED BEEF WAS CONCERNED. SO WE'RE REACHING KIND OF THAT SATURATION STAGE RIGHT NOW. WE ALSO HAD VERY LOUSY WEATHER OVER THE MEMORIAL DAY WEEKEND IN THE EAST COAST WHERE CONSUMPTION JUST WASN'T AS GOOD AS IT SHOULD HAVE BEEN. WE THINK THAT THE MARKET IS ABOUT AS GOOD AS WE COULD EXPECT, GIVEN THE NUMBERS OF CATTLE COMING, AND WE THINK THAT THE MARKET IS GOING TO MAINTAIN THIS PRICE LEVEL TO SLIGHTLY LOWER. WE THINK THE MARKET HAS GOT IT DISCOUNTED ABOUT RIGHT. AS LONG AS THE PRODUCERS CONTINUE TO MARKET, WE THINK THE CATTLE BUSINESS WILL BE FINE AND WILL COME BACK ROARING THIS FALL.

Pearson: OKAY, SO POST FOURTH QUARTER, YOU THINK, IS GOING PRETTY DECENT.

Roach: I THINK IT'S GOING TO BE VERY GOOD, AND YOU USE THE DOWNS IN THE MARKET TO GET YOUR FEEDER CATTLE PURCHASES MADE.

Pearson: ALL RIGHT. LET'S TALK ABOUT THE HOG MARKET... SO STRONG ON THE BOARD. IT'S HAD A PULL-BACK, BOUNCED SOME FRIDAY. WHAT'S YOU'RE OUTLOOK ON HOGS FOR THE SUMMER?

Roach: WELL, THE HOG MARKET STARTED OFF THIS LAST WINTER AND BECAME A DARLING TO A LOT OF TRADERS. THE MARKET MOVED UP AND UP AND UP AND UP AND EXCEEDED, REALLY, I THINK EVERYBODY'S EXPECTATIONS AND THEN TOOK A TERRIBLE CRASH WHEN WE FOUND WE COULDN'T MOVE THE PORK AT THOSE HIGHER PRICE LEVELS. THE PORK MARKET HAD TO SAG BACK. THE LIVE MARKET SAGGED BACK. WE TOOK A LOT OF STARCH OUT OF THE FUTURES MARKET. THE JUNE MARKET FUTURES REALLY GOT HAMMERED HARD IN THIS PROCESS, BUT THIS WEEK WE BOTTOMED EVERYTHING. THE DRESSED PORK MOVED BACK UP A LITTLE BIT. THE BACK MONTHS FROM EVERYTHING BEYOND JUNE HAD A VERY STRONG PERFORMANCE THIS WEEK. THE HOG MARKET IS ALIVE AND WELL. WE'RE NOT EXPANDING THE HOG INDUSTRY OUT THERE. WE'RE GOING TO HAVE VERY STRONG PRICE LEVELS ON HOGS AS WE MOVE THROUGH THE YEAR. BUT LOOK OUT FOR THE SEPTEMBER/OCTOBER/NOVEMBER TIME FRAME. THOSE THREE MONTHS CAN BE TROUBLESOME.

Pearson: ALL RIGHT, KEEP THAT IN MIND. JOHN ROACH, 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 PROGRESS OF A GROUP OF FARMERS SEEKING TO MARKET WHAT THEY GROW UNDER THEIR OWN BRAND. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


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