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Market Analysis: May 26, 2000

posted on May 26, 2000


IS THE FED DONE RAISING INTEREST RATES OR IS THERE MORE TO COME? GOVERNMENT NUMBERS THIS WEEK INDICATE THE FED'S SIX RATE HIKES IN LESS THAN A YEAR MIGHT FINALLY BE TAKING EFFECT.

FOR THE SECOND STRAIGHT MONTH, THE INCOME GROWTH OF AMERICANS IN APRIL OUTPACED CONSUMER SPENDING INCREASES. IN ADDITION, THE PERSONAL SAVINGS RATE ROSE IN APRIL, ANOTHER SIGN THAT FREEWHEELING SPENDING IS ON THE DECLINE. EVEN SO, THE JANUARY-THROUGH-MARCH NUMBERS ON ECONOMIC GROWTH ARE STAGGERING. THE U.S. ECONOMY GREW AT A ROBUST 5.4 PERCENT ANNUAL RATE DURING THE FIRST QUARTER. THAT'S A LOT HIGHER THAN THE 3.5 TO 4 PERCENT GROWTH RATE PREFERRED BY THE INFLATION-WARY FED.

THE GRAIN MARKETS WERE MIXED THIS WEEK AS THE TRADE CONTINUES TO WATCH CROP-GROWING CONDITIONS IN KEY REGIONS. FOR THE WEEK, WHEAT PRICES GAINED FOUR CENTS. CORN FUTURES WERE DOWN MORE THAN SIX CENTS.

SOYBEAN PRICES WERE DOWN MORE THAN 20-CENTS. SOYBEAN MEAL CLOSED $5.20 LOWER PER TON.

COTTON FUTURES WERE $2.64 HIGHER FOR THE WEEK.

IN LIVESTOCK, FED CATTLE FUTURES FINISHED $1.20 LOWER. FEEDER CATTLE GAINED 38-CENTS. THE LEAN HOG CONTRACT FINISHED THE WEEK A DIME LOWER.

IN THE FINANCIALS, COMEX GOLD FINISHED $2.40 LOWER PER OUNCE. THE EURO CLOSED MORE THAN 320-BASIS POINTS HIGHER AGAINST THE DOLLAR. THE CRB INDEX FINISHED THE WEEK AT ANOTHER TWO-YEAR HIGH, TO CLOSE AT 226.

Market Analysis: May 26, 2000 HERE NOW TO LEND US HER INSIGHT IS ONE OF OUR REGULAR MARKET TO MARKET ANALYSTS, SUE MARTIN. WELCOME BACK.

Martin: THANK YOU, MARK.

Pearson: WELL, LET'S TALK ABOUT THIS GRAIN MARKET. WE'VE GOT A MIXED REPORT, CONCERN DOWN IN TEXAS ABOUT THE WHEAT CROP DOWN THERE, WHICH, AS WE MENTIONED EARLIER, 88 PERCENT IN THE POOR CATEGORY. THAT'S GOING TO START TO MOVE NORTH. WHAT'S YOUR OUTLOOK FOR WHEAT PRICE?

Martin: WELL, I'M VERY FRIENDLY TO WHEAT. I THINK THE WHEAT MARKET HAS SEEN ITS LOWS. I'VE FELT THAT WAY FOR A LONG TIME, WITH THE MAJOR LONG-TERM LOWS HAVING BEEN MADE LAST YEAR IN DECEMBER. AND THEN, VERY POSSIBLY, WE'VE SEEN THE HARVEST LOWS HAVING BEEN MADE HERE TOWARDS THE END OF APRIL. NOW, WHEAT IS IN THE PROCESS OF WORKING UP THROUGH MAY. AND NORMALLY THE MONTH OF MAY, YOU RALLY MAYBE THE FIRST WEEK OR SO AND THEN YOU DECLINE INTO JUNE. THIS YEAR IT SEEMS LIKE WE'VE RALLIED MOST OF THE MONTH OF MAY. IT'S STARTING TO FEEL LIKE IT COULD BE A LITTLE CONTRASEASONAL. IF THAT IS THE CASE, THEN WE'VE GOT A NICE RALLY ON OUR HANDS. WHEN WE LOOK AT WORLD SUPPLIES, THEY'RE TIGHTENING VERY AGGRESSIVELY. WE'VE GOT TWO MAJOR COUNTRIES WITH VERY LOW ACREAGE THIS YEAR. THE U.S. HAVING BEEN AT ABOUT 27-YEAR LOWS FOR ACRES PLANTED ON WHEAT, AND NOW WE'VE GOT CHINA LOOKING AT, I THINK, THE LOWEST ACREAGE THEY'VE HAD IN LIKE 23 OR 26 YEARS. SO YOU'VE GOT SOME MAJOR SITUATIONS GOING ON ALONG WITH SOME WEATHER THAT'S OCCURRING IN BOTH COUNTRIES IN WHEAT COUNTRY, AND THAT'S CREATING SOME POOR QUALITY AND MAYBE LOWER YIELDS. SO THAT JUST TIGHTENS THE SUPPLIES A LITTLE FURTHER DOWN THE ROAD. AND DEMAND SEEMS TO BE VERY GOOD AND, OF COURSE, CHINA IS BUYING WHEAT FOR THE FIRST TIME IN A LONG, LONG TIME. SO THOSE ARE ALL POSITIVES AND I THINK THAT AS WE EBB ON INTO DECEMBER TOWARDS NEXT YEAR, WE'RE GOING TO SEE PRICES WORKING THEIR WAY HIGHER IN A TREND, SO I RECOMMEND TO PRODUCERS -- FIRST OF ALL, WE'VE GOT WHEAT PRICES THAT ARE SITTING MAYBE 30, 40 CENTS ON LDPs. AND, YOU KNOW, GRANTED THEY'RE GOING INTO HARVEST, BUT PRODUCES WILL BE MORE APT TO TAKE THE LDP AND PROBABLY STORE THEIR WHEAT THIS TIME. AND I THINK THAT IT'S MY RECOMMENDATION WHEN THEY GO BACK TO PLANT THIS YEAR AS TO WHAT THEY DECIDE TO PLANT, THEY PLANT EVERYTHING THEY CAN TO WHEAT. I THINK WHEAT PRICES ARE GOING TO BE A NICE SURPRISE THIS NEXT YEAR. ALSO, WE ARE LOOKING AT OTHER DEMAND COMING IN. WHEAT HAS TO COMPETE WITH CORN AS FOR A FEED ADDITIVE OR FEED USAGE, AND I JUST DON'T SEE WHEAT GETTING MUCH CHEAPER. AND OF COURSE, CORN FALLING BACK A LITTLE BIT, THEY'RE KIND OF GETTING MORE IN LINE. THE SPREADS, I THINK ARE STARTING TO CHANGE A LITTLE BIT TOO. THAT'S AN INDICATION, TOO, THAT WHEAT MIGHT HAVE SEEN ITS LOWS AND MAYBE FOR SOME BETTER TIMES. SO I'D BE BUYING THE BREAKS HERE. MAYBE WHATEVER BREAK WE GET HERE INTO EARLY JUNE, LIKE, SAY, BY THE 9TH OF JUNE, NO LATER THAN THE 12TH, ANY PULLBACK IN WHEAT WILL PROBABLY BE ABOUT ALL YOU'LL SEE.

Pearson: ARE YOU AS FRIENDLY TO THE CORN MARKET?

Martin: OH, YES, I'M VERY FRIENDLY TO THE GRAINS. EVEN THOUGH WE'VE HAD A TOUGH MONTH HERE, I'VE NOT CHANGED MY ATTITUDE AT ALL. I'M VERY FRIENDLY TO THE GRAIN MARKET. I THINK WE HAVE TO PUT OURSELVES IN PERSPECTIVE ON THE CORN AND SOYBEANS. FIRST OF ALL, I'VE BEEN IN THE BUSINESS 28 YEARS. AND I'M NOT SURE I CAN EVER RECALL A TIME THAT WE'VE TALKED DROUGHT STARTING IN FEBRUARY. AND THEN WE'VE GOT THE CROPS PLANTED THE EARLIEST. IT DOESN'T MATTER WHAT IT IS, WHETHER IT'S COTTON, SORGHUM, SOYBEANS, CORN, YOU NAME IT. ANYTHING THAT HAS BEEN PLANTED IS WAY AHEAD OF SCHEDULE. AND THIS IS VERY ABNORMAL AND PROBABLY EVEN THE MOST AGGRESSIVELY EARLY PLANTED CROP THAT WE'VE HAD IN HISTORY. SO IT'S THAT WAY BECAUSE OF THE FACT THAT EVERYTHING WAS DRY, WARMER TEMPERATURES, THAT KIND OF THING. NOW, WHEN YOU START COMING INTO THE TWO WETTEST MONTHS OF YEAR, APRIL AND MAY, AND YOU HAVE EARLY PLANTED CROPS AND YOU HAVE A FAIR AMOUNT OF THE CROPS IN GOOD TO EXCELLENT CATEGORIES AND CONDITION REPORTS -- AND OF COURSE, BEANS COME OUT FOR A FIRST TIME ON TUESDAY, AND THE TRADE IS TALKING 60 TO 70 PERCENT OF THE CROP IN GOOD TO EXCELLENT CATEGORY... WELL, THE ATTITUDE IS GOING TO BE THEY'RE GETTING TIRED OF LISTENING TO DROUGHT BECAUSE THE CROP DOESN'T LOOK THAT WAY. AND ON TOP OF IT, IT'S OFF TO A GOOD START, EVERYTHING GERMINATED, THAT TYPE OF THING. SO THEY'RE GOING TO SAY AND HAVE THE ATTITUDE ON THE TRADING FLOOR, "PROVE IT TO ME THAT WE HAVE A DROUGHT." SO WHEN THEY START TALKING RAIN AND, OF COURSE, WHEN WE HAVE THE WONDERFUL GOVERNMENTAL AGENCY OF NOAH COMING OUT AND SAYING THAT IOWA, BY THE 3RD OF JUNE, IS GOING TO BE RELIEVED OF DROUGHT, THEY'RE GOING TO REACT TO IT, AND THAT'S WHAT'S GOING ON AT THIS TIME. BUT CONVERSELY, WHAT WE'RE SEEING -- AND THIS IS GOOD FOR CORN AND IT'S GOOD FOR MEAL AND IT'S GOOD FOR SOYBEANS, WHAT WE'RE SEEING IS THAT THE EUROPEAN CURRENCIES THIS WEEK HAVE PROBABLY ESCALATED IN PRICE AND TAKEN OUT THE LAST THREE, FOUR WEEKS HIGHS. IN THE MEANTIME, THE DOLLAR HAS SOFTENED AGAINST THAT, ALONG WITH A PRICE DECLINE, CERTAINLY SHOULD BRING IN JUST A NICE LOAD OF DEMAND FROM FOREIGN COUNTRIES, ESPECIALLY EUROPE. BUT CHINA -- CHINA HAS BEEN IN THIS WEEK, VERY AGGRESSIVE HAVING BOUGHT A FAIR AMOUNT OF BEANS FROM THE U.S. STILL HAS MORE TO BUY. I'M UNDERSTANDING THAT BETWEEN JUNE AND JULY, WE HAVE ABOUT A MILLION METRIC TONS THAT THEY WILL PROBABLY BUY. THEY'RE UP AROUND 300,000 METRIC TONS NOW, SO I THINK WE'VE GOT SOME BETTER TIMES COMING. BUT I DON'T WANT TO UNDERESTIMATE THIS MARKET. WE COULD HAVE SOFT MARKETS OR CHOPPY SOFT MARKETS INTO ABOUT THE 6TH OF JUNE, MAYBE AS LONG AS THE 23RD OF JUNE BEFORE IT TURNS.

Pearson: ALL RIGHT. QUICKLY, SUE, BOTH CORN AND BEANS YOU FEEL THAT WAY?

Martin: YES, I DO. I'M VERY FRIENDLY. I STILL THINK THAT WHEN WE GET INTO JULY, I THINK -- YOU KNOW, BACK IN DECEMBER, JANUARY, WHEN I FIRST BECAME BULLISH AND I MENTIONED ABOUT HOW THE MARKET COULD RALLY INTO MAY, THEN AROUND THE 10TH, 11TH, 12TH, WE WOULD HIT A DECLINE AND IT WOULD DECLINE INTO JUNE, PEOPLE WOULD GIVE UP THE HOPE OF GOOD PRICES AND FARMERS WOULD SELL GRAIN, I THINK WE ARE RIGHT ON THAT TRACK. I KIND OF STARTED TO GIVE UP THE SHIP ON THAT THINKING BECAUSE WE HAD A LOW FLOOR AT THE END OF APRIL AND THEN MADE THOSE HIGHS IN EARLY MAY, THEN I THOUGHT, WELL, MAYBE I'M OFF-KEY HERE A LITTLE BIT BUT, UNFORTUNATELY, IT'S STARTING TO PROVE ME RIGHT ON THAT. I DO THINK THAT WHAT'S GOING TO HAPPEN IS FARMERS ARE GOING TO SELL GRAIN AND THEY'RE GOING TO KIND OF JUMP SHIP HERE ON LONG POSITIONS IN THE FUTURES MARKETS AND THEN WE'RE GOING TO TURN THE THING RIGHT AROUND AND EXPLODE TO THE TOPSIDE IN JULY.

Pearson: OKAY, LET'S GO OVER TO THE COTTON MARKET... SPEAKING OF BULL MARKETS, UP SHARPLY THIS WEEK.

Martin: YES, IT IS. IN FACT, COTTON AND EVEN RICE ARE TWO MARKETS THAT I THINK ARE PROBABLY -- FIRST OF ALL, THEY'VE BEEN IN DENIAL. VERY LOW PRICES FOR RICE AND EVEN IN COTTON. I THINK THOSE ARE TWO MARKETS THAT ARE PROBABLY GOOD ONES IN THE OFFING. SO THOSE ARE MARKETS I WOULD BE BUYING ON BREAKS, BUT I WOULD ALSO BE WATCHING TO TRADE HERE. IT MAY BE THAT JULY COTTON COULD BE A VERY GOOD TRADE HERE ON ANY FURTHER PULLBACKS IN JUNE.

Pearson: LET'S MOVE OVER TO THE CATTLE MARKET. WHAT'S YOUR ATTITUDE THERE? ANY KIND OF A STOPPING POINT ON THE FED CATTLE MARKET?

Martin: WELL, I THINK WE HAVE. THE CASH MARKET MIGHT DECLINE A LITTLE BIT MORE, BUT I DON'T THINK WE'RE HORRIBLY FAR FROM PUTTING SOME LOWS IN, IN THE CASH MARKET. MAYBE ABOUT ANOTHER WEEK AND THEN WE'LL GET SOME BOUNCE IN THE MARKET AND THEN EVOLVE BACK DOWN TOWARDS JUNE AND THEN WE'LL SEE WHAT WE CAN DO WITH IT. BUT THE CATTLE MARKET TO ME -- FIRST OF ALL, THE ONE GOOD THING UNDER THIS CATTLE MARKET IS WE'VE GOT TREMENDOUS RETAIL DEMAND.

Pearson: THAT'S A GOOD POINT. WHAT ABOUT OVER ON THE PORK SIDE, SUE. AS YOU LOOK AHEAD THROUGH THE SUMMER, WE'VE HAD A BIG PULLBACK IN FUTURES. WHAT'S AHEAD FOR HOGS?

Martin: WELL, YOU KNOW, I ALWAYS THOUGHT THAT OUR HIGHS WOULD COME IN MAY FOR HOGS, AND IT SIDESTEPPED ME AND WE CAME EARLY IN APRIL. A LOT OF TIMES THAT'S NOT ABNORMAL FOR HOGS TO PEAK IN APRIL BECAUSE JAPAN HAS A TENDENCY TO END THEIR BUYING BY THE END OF APRIL. I THINK THAT WHAT WE'RE GOING TO GET HERE IS A MARKET THAT DECLINES MORE SO INTO JUNE. THEN WHEN WE GET CLOSER TO THE MIDDLE OR LATTER PART OF JUNE, WE RALLY IN JULY. IT'S EVEN POSSIBLE WE COULD PUT NEW-CONTRACT HIGHS IN JULY HOGS IN THE MONTH OF JULY. IT'S VERY DIFFICULT TO HEDGE HOGS IN THE DEFERRED MONTHS BECAUSE THERE'S SO MUCH DISCOUNT TO THE FRONT MONTHS. SO I WOULD HAVE A TENDENCY TO KEEP YOUR MARKETINGS VERY CURRENT. I DO THAT BOTH IN CATTLE AND IN HOGS. AND I THINK THAT IF YOU GET THAT RALLY IN THE MONTH OF JULY, I WOULD UTILIZE THAT RALLY TO GET YOUR FALL MARKETINGS HEDGED.

Pearson: WITH THE CONCERN YOU HAVE ABOUT WHAT GRAIN PRICES COULD DO FOR THAT LIVESTOCK PRODUCER, WOULD YOU BE COVERING SOME FEED NEEDS FOR 60, 90 DAYS?

Martin: ABSOLUTELY. I THINK WHAT WE'RE GETTING HERE IS AN OPPORTUNITY FOR THE PRODUCER TO GET SOME THINGS LOCKED UP, BUT I DON'T WANT TO UNDERESTIMATE THIS MARKET. I WANT TO REPEAT, IT COULD STILL TAKE US INTO THE MIDDLE OF JUNE OR EVEN TILL AROUND THE EXPIRATION OF OPTIONS FOR JULY OPTIONS BEFORE THIS THING WILL TURN AND THEN REALLY START TO BE AGGRESSIVE ON THE TOPSIDE.

Pearson: SUE MARTIN, THANK YOU SO MUCH. THAT'S GOING TO WRAP UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE AN ENTERPRISE THAT MANY VIEW AS EITHER THE FUTURE OR THE LAST GASP OF LARGE-SCALE LIVESTOCK PRODUCTION. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


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