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Market Analysis: May 19, 2000

posted on May 19, 2000


AS EXPECTED THE INFLATION-WARY FEDERAL RESERVE THIS WEEK RAISED INTEREST RATES, THIS TIME BY A HALF A POINT. THE HIKES WERE THE 6TH IN LESS THAN A YEAR. THE FEDERAL RESERVE REMAINS FEARFUL THE ECONOMY IS RUNNING AT A PACE THAT WILL RESURRECT INFLATION.

HARDEST HIT BY THE ACTION ARE LOW GROWTH CAPITAL INTENSIVE INDUSTRIES, LIKE AGRICULTURE. NOT SURPRISING FARM BANKERS AND FARM STATE LAWMAKERS ARE MORE THAN A LITTLE UNHAPPY WITH THE FED'S APPROACH TO MONETARY POLICY. THE GRAIN MARKETS FINISHED THE WEEK DOWN SHARPLY AS THE RAIN FINALLY FELL IN THE MIDWEST AND RELIEVED THE TRADE'S CONCERNS ABOUT THIS YEAR'S CROP. FOR THE WEEK, WHEAT PRICES WERE DOWN 8-CENTS. CORN PRICES WERE DOWN MORE THAN A NICKEL.

SOYBEAN FUTURES WERE DOWN ELEVEN TO

15-CENTS. SOYBEAN MEAL CLOSED DOWN $3.90 PER TON.COTTON FUTURES WERE DOWN 72-CENTS.

IN LIVESTOCK, FED CATTLE FUTURES GAINED 20-CENTS. FEEDER CATTLE GAINED 38-CENTS. THE LEAN HOG CONTRACT FINISHED THE WEEK $4 LOWER.

IN THE FINANCIALS, COMEX GOLD FINISHED THE WEEK $2.30 LOWER PER OUNCE. THE EURO FINISHED TWO POINTS LOWER THAN THE DOLLAR. THE CRB INDEX FINISHED THE WEEK AT A TWO-YEAR HIGH, CLOSING THREE POINTS HIGHER AT 224.30.

Market Analysis: May 19, 2000

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

Newton: HI, MARK.

Pearson: WELL, QUITE A WEEK IN THE MARKET. CERTAINLY SOME RAINFALL IN THE MIDWEST BEING BLAMED FOR SOME OF THE MARKET FALLOFF. BUT AS I POINTED OUT EARLIER IN THE SHOW, STILL A MARKET PREMIUM IN HERE FOR THE WEATHER.

Newton: YES, THERE IS, MARK. THE GRAINS ARE GOING TO DANCE WITH THE WEATHER MAN AS LONG AS THE SUBSOIL MOISTURES ARE AS LOW AS THEY ARE. WE'RE GOING TO BE WATCHING THE FORECAST ALL SUMMER LONG.

Pearson: THE WHEAT HARVEST, GETTING OUR WAY DOWN TO TEXAS WHERE CROP IS VERY POOR... IT WILL START HEADING UP HERE. ARE WE GOING TO START SEEING THE WHEAT MARKET START TO FADE SOME?

Newton: WELL, IT LOOKS LIKE AFTER THIS WEEK THAT WE MAY HAVE PUT IN A SECOND BOTTOM IN THE OLD-CROP WHEAT. THERE MAY BE A CHANCE THAT WE'VE KIND OF PUT IN OUR LONG-TERM BOTTOM DOWN IN HERE. WE'VE GOT A CORN WHEAT SPREAD THAT'S BEEN VERY CLOSE, AND THAT'S KIND OF UNUSUAL AND IT'S CREATED A LITTLE MORE DEMAND. I THINK THE WHEAT FARMER NEEDS TO STAY TUNED. ORDINARILY, WE'D SEE WHEAT FALL AT THIS TIME OF YEAR WHEN IT STARTS TO GET INTO HARVEST, BUT IT'S A COUNTERCYCLICAL KIND OF A MARKET ACTIVITY. SO I DON'T THINK I'D PRICE ANY WHEAT DOWN IN HERE, AND THEN WATCH THE WEATHER AS THE HARVEST MOVES FARTHER NORTH. THE PLANTINGS HAVE GONE IN PRETTY GOOD SHAPE. THEIR MOISTURE IS ADEQUATE IN THE UPPER WHEAT BELTS, BUT IT ISN'T ANYTHING TO BRAG ABOUT. SO IT'S A CASE OF STAY IN TUNE. IF THE CROP IS A LITTLE SHORT IN THE SOUTH, THE MARKET COMES UNDER SOME THREAT AS WE MOVE FARTHER NORTH, THAT MARKET COULD RALLY VERY NICELY, PARTICULARLY WHEN IT'S SO CLOSELY PRICED TO CORN BECAUSE THERE'S A DIRECT RELATIONSHIP THERE. CHINA CAME INTO THE MARKET THIS WEEK FOR A LITTLE BIT OF WHEAT, SO I THINK THERE'S GOOD DEMAND AT THESE LEVELS AND IT WILL CLEAR AND THE WORLD IS GOING TO START TO WONDER IF WE'VE GOT A LARGE ENOUGH SUPPLY.

Pearson: THE WEATHER CONCERNS SEEM TO BE CENTERED REALLY ON WHAT'S HAPPENING IN THE CORN AND SOYBEANS. AGAIN, THERE WERE SOME LIGHT RAINFALLS IN KEY PARTS OF THE CORN BELT, BUT STILL SOME AREAS WHERE MOISTURE IS WHOLLY INADEQUATE.

Newton: WELL, MARK, THIS IS GOING TO BE ONE OF THOSE SEASONS WHEN IT'S GOING TO TAKE 1/2 TO 3/4 OF AN INCH EVERY WEEK TO SUSTAIN THIS CROP. IT WENT IN, IN RECORD TIME, PROBABLY ONE OF THE EARLIER SEASONS. AS YOU REPORTED EARLIER, 91-PERCENT COMPLETED AT THE START OF THE WEEK. THE EMERGENCE IS GOOD ON IT, SO IT'S GOT A LOT OF POTENTIAL, AND SPARKS INCREASED THE ACRES TODAY BY 220,000 ACRES, AND IT GETS IT UP TO NEARLY 78.1 MILLION. SO WE'VE GOT A POTENTIAL FOR A LOT OF CORN. AS FORECAST IN THE NUMBERS HERE, A WEEK OR SO AGO, WE LOOK FOR ALMOST A TWO-BILLION-BUSHEL CARRYOUT AT THE END OF THIS GROWING AND MARKETING SEASON. SO WE'VE GOT LOTS AND LOTS OF CORN AROUND. AND I REALLY THINK, AS I'VE SAID BEFORE ON YOUR SHOW, THAT 245 IN JULY, 255, 265 IN DECEMBER, ARE MARKETS WHERE WE JUST NEED TO DO SOME PRICING, IF THERE'S STILL SOME OLD CROP LEFT IN THE JULY MARKET, AND BEGIN SOME KIND OF A MARKETING PLAN FOR THE NEW CROP BECAUSE THERE'S AT LEAST A 30-CENT PREMIUM BUILT IN HERE IF WE SHOULD HAVE EVEN AVERAGE YIELDS. I THINK YOU NEED TO LOOK AT THAT VERY CLOSELY. ON THE OTHER HAND, LOOK TO THE SKY. IF THE RAINS CONTINUE TO COME OR DON'T CONTINUE TO COME, THAT'S GOING TO DETERMINE WHERE THIS MARKET CAN GO.

Pearson: THAT'S REALLY WHAT'S GOING TO BE DRIVING THIS MARKET FOR THE TIME BEING. THE SOYBEAN CROP, ALSO, IS PLANTED IN RECORD TIME.

Newton: YES, AND YET HERE'S SPARKS AGAIN REDUCED THOSE ACRES BY HALF A MILLION, SO I THINK THAT SOYBEAN MARKET HAS SOME POTENTIAL. THERE'S GOOD DEMAND FOR IT. THE MEAL IS IN GOOD DEMAND, AND I THINK THAT PEOPLE NEED TO THINK FROM 5.85 ON NEW CROP UP TO $6, THEY OUGHT TO START TO SELL SOME OF THE NEW CROP IF THE CROP DEVELOPS THE WAY WE THINK EMERGENCE HAS BEEN, FAIRLY GOOD. I KNOW THERE'S BEEN SOME PROBLEMS WITH GETTING SOME OF THE BEANS THROUGH THE GROUND THAT WERE PLANTED EARLIER, BUT THAT HAPPENS EVERY YEAR. WITH TIMELY RAINS, THIS BEAN CROP COULD BE VERY, VERY GOOD, AND I THINK AT LEAST SOME OF THE BEANS NEED TO BE PRICED IN THE 5.85 TO $6 RANGE BASIS NOVEMBER.

Pearson: LET'S TALK A LITTLE BIT ABOUT THE COTTON MARKET THIS WEEK. IT WAS UNDER SOME PRESSURE BUT IT WAS A BIG WEEK THIS PAST WEEK.

Newton: THE COTTON MARKET IS ONE -- I'VE THOUGHT WITH THE SIZE OF THE CARRYOVER AND THE AMOUNT OF ACRES PLANTED TO COTTON -- AND THAT'S DOWN A LITTLE BIT, TOO, ACCORDING SPARKS -- BUT WE HAVE COTTON IN THE 60S ON THE OLD CROP AND 63.5 IN THE NEW-CROP, BUT I THINK THOSE ARE MARKETS TO CLEAN UP THE OLD-CROP SALES AND BEGIN TO DO SOME NEW-CROP SALES. COTTON IS ABOUT A LITTLE AHEAD OF NORMAL FOR PLANTING. ONCE AGAIN, THAT WILL BE A WEATHER MARKET, AND WE JUST NEED TO STAY TUNED. I JUST THINK THAT THIS IS ONE OF THOSE CROP YEARS WHEN SUPPLY AND THE POTENTIAL FOR A NEW CROP BASED ON THE WEATHER FORECASTS ARE GOING TO HAVE A MARKET BE VERY, VERY VOLATILE, AND PEOPLE NEED TO KEEP A VERY CLOSE EYE ON IT.

Pearson: NO QUESTION ABOUT IT. OVER ON THE LIVESTOCK SIDE, THE CATTLE MARKET WAS KIND OF TRADING SOMEWHAT EVEN FRIDAY, WAITING FOR THAT CATTLE-ON-FEED REPORT TO COME OUT FROM THE USDA. WHAT'S YOUR REACTION TO THAT REPORT?

Newton: WELL, THE REPORT WAS A LITTLE DISAPPOINTING. THE MARKET NUMBERS WERE ABOUT A PERCENT OVER THAT ESTIMATE. THE PLACEMENTS WERE 2.5 PERCENT OVER THE ESTIMATES, AND THE MARKETINGS WERE 1.5 PERCENT UNDER THE AVERAGE GUESS. I REALLY THINK AS FAR AS THE MARKETING IS CONCERNED, WE'RE PROBABLY -- WE'VE PROBABLY CLEANED THAT UP SINCE THE FIRST OF MAY. I KNOW OUR NUMBERS ARE VERY, VERY CURRENT, AND I THINK THE FUTURES MARKET IS KEEPING PEOPLE FROM HOLDING CATTLE. THE HUGE DISCOUNTS BETWEEN CHOICE AND SELECT CATTLE, THE MARKET ABOUT $15 TODAY ON THE BOXES, IS PROBABLY A TEMPTATION TO FEED CATTLE LONGER TO AVOID THOSE DISCOUNTS, PARTICULARLY THOSE CATTLE THAT ARE GOING IN ON A GRID, AND THAT'S GOING TO MAKE A LITTLE MORE TONNAGE. SO I REALLY THINK THE REPORT IS TELLING US THAT THE 800 AND UP IS MUCH HIGHER THAN LAST YEAR, AND I THINK WE JUST NEED TO KEEP THE GATE SWINGING. IF WE DON'T, WE'RE GOING TO DROP THROUGH 68 IN THE JUNE/JULY PERIOD.

Pearson: ALL RIGHT. SO BE DEFENSIVE AS FAR AS THAT GOES DOWN THE ROAD. TALKING ABOUT GOING DOWN, TALKING ABOUT DROPPING, THESE HOG FUTURES HAS REALLY COLLAPSED THIS LAST WEEK. ARE WE GOING TO SEE MORE NEXT WEEK?

Newton: WELL, I DON'T KNOW, MARK. $70 REALLY NEEDS TO BE A BENCHMARK ON THE JUNE CONTRACT, AND I THINK THAT PRODUCERS REALLY NEED TO USE THAT AS A PLACE TO JUMP OFF WITH HEDGES. IF IT DROPS THROUGH THAT, THAT'S GOT TO BE THE BEST SUPPORT THAT IT CAN GET. IF IT GOES THROUGH THERE, THEY NEED TO LOOK AT HEDGES. IF NOT, IF IT CAN HOLD THERE, THEN ANY RETRACEMENT BACK TO 72 OR 73 IS PROBABLY SOME PLACE TO TAKE ANOTHER GOOD LOOK AT IT. THE PRODUCT ISN'T MOVING VERY WELL. WE'RE HARVESTING ABOUT A MILLION, 700,000 HEAD A WEEK. THAT'S A LOT OF PORK, AND WE'RE COMING KIND OF INTO MEMORIAL DAY WEEKEND, WHEN THE BEEF IS REALLY THE FEATURE AND GOING OUT ON THE GRILLS. THE DEMAND IS GOING TO BE A LITTLE BIT SOFT, SO I REALLY THINK THE PRODUCER IS GOING TO TAKE ADVANTAGE OF ANY RALLIES.

Pearson: ALL RIGHT. KEEP THAT IN MIND. WAYNE NEWTON, THANK YOU VERY MUCH FOR JOINING US. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE STRATEGY OF A YOUNG FARM FAMILY TO GET ITS START IN AGRICULTURE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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