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Market Analysis: May 05, 2000

posted on May 5, 2000


THERE IS LITTLE DOUBT THE NATION'S ECONOMIC GROWTH IS ROBUST. HOWEVER, THE INFLATION-WARY FEDERAL RESERVE'S PARANOIA OF "WAGE PRESSURE" WAS GIVEN ANOTHER TWEAK THIS WEEK. THE APRIL U.S. UNEMPLOYMENT RATE FELL TO 3.9 PERCENT, THE LOWEST LEVEL IN 30 YEARS.

WHILE WORKER PRODUCTIVITY ALSO ROSE IN THE FIRST QUARTER, THE PACE OF PRODUCTIVE EXPANSION WAS LESS THAN MANY ECONOMISTS WERE EXPECTING. THE QUESTION IS NO LONGER WHETHER THE FED WILL RAISE INTEREST RATES AGAIN, BUT RATHER BY HOW MUCH.

THE GRAIN MARKETS SHOT HIGHER THIS WEEK AS THE TRADE CONTINUES TO FOCUS ON DRY CONDITIONS IN KEY GROWING AREAS OF THE GRAIN BELT. FOR THE WEEK, WHEAT PRICES GAINED MORE THAN 19-CENTS. CORN FUTURES GAINED MORE THAN 16-CENTS. SOYBEAN FUTURES FINISHED THE WEEK MORE THAN 28-CENTS HIGHER. SOYBEAN MEAL GAINED $13.40 PER TON. COTTON FUTURES GAINED $1.47.

IN LIVESTOCK, FED CATTLE CLOSED 65-CENTS LOWER. FEEDER CATTLE POSTED A $1.50 LOSS, AND THE LEAN HOG CONTRACT FINISHED THE WEEK TWO DOLLARS LOWER.

IN THE FINANCIALS, COMEX GOLD GAINED $5.40 AN OUNCE. THE EURO FADED AGAIN AGAINST THE DOLLAR-DROPPING MORE THAN A POINT. AND THE CRB INDEX REFLECTED THIS WEEK'S RALLY WITH A GAIN OF MORE THAN THREE POINTS TO CLOSE AT 216.45.

Market Analysis: May 05, 2000

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

Pearson: WELL, WE'RE INTO A WEATHER MARKET. THE CROP IS GETTING IN THE GROUND QUICK. LET'S TALK ABOUT WHEAT FIRST. AS YOU LOOK AT THIS LAST WEEK AND SEE A 20-CENT BUMP, IS THIS WEATHER?

Pfitzenmaier: IT'S WEATHER BUT IT'S NOT NECESSARILY OUR WEATHER. THERE'S A LOT OF TALK IN THE MARKET THIS WEEK ABOUT SOME DRY CONDITIONS OVER IN CHINA AND THE EFFECT THAT'S GOING TO HAVE. I THINK THAT HAD AS MUCH EFFECT AS THE WEATHER HERE BECAUSE, YOU KNOW, THE WEATHER FOR OUR WHEAT BELT REALLY HASN'T BEEN ALL THAT BAD. IT HAS BEEN ACTUALLY RELATIVELY BENEFICIAL, SO I THINK THAT WHEAT IN CHINA PROBLEM IS REALLY WHAT GAVE IT ITS LITTLE POP HERE.

Pearson: TAKE US ON DOWN THE ROAD. AS THE CHINA WEATHER MARKET HEATS UP AND OTHER FACTORS, WE STILL HAVE PLENTY OF WHEAT OUT THERE.

Pfitzenmaier: YEAH, YOUR LITTLE BLURB EARLIER IN THE SHOW ABOUT THAT PROBLEM WITH WHEAT DEMAND AND EXPORT DEMAND IS JUST GOING TO CONTINUE TO PLAGUE US HERE. EVERYBODY IS TRYING TO MAYBE PIN A LITTLE BIT ON CHINA; MAYBE IT WILL, MAYBE IT WON'T. WHO KNOWS? WE MAY GET SUCKED TIGHTER IN WHEAT IF THE CORN AND BEAN BELT CONTINUES TO BE DRY. THAT'S GOING TO PULL IT UP SOME. BARRING THAT, IT'S GOING TO BE VERY DIFFICULT FOR WHEAT TO GO ANYWHERE. IT KIND OF FELL APART TOWARD THE END OF THE WEEK, AND RALLIES PROBABLY NEED TO BE SOLD HERE. YOU GET 10 TO 15 CENTS HIGHER THAN WHERE WE'RE AT RIGHT NOW, AND YOU PROBABLY NEED TO BE LOOKING AT MAKING SALES.

Pearson: ALL RIGHT. SAME THING -- IS THAT TRUE ON CORN, AGAIN A RALLY THIS WEEK IN CORN?

Pfitzenmaier: CORN, WE COULD MAKE THIS SEGMENT PRETTY DARN QUICK, BASICALLY, BECAUSE IF IT RAINS, CORN IS GOING TO HAVE PROBLEMS HERE. IF IT DOESN'T, IT'S GOING UP. YOU'VE GOT THE CROP PLANTED AND REALLY EXCELLENT SHAPE, GOOD CONDITIONS. EVERYBODY YOU TALK TO, EVEN IN THE DRY AREAS, SAY, MAN, IT LOOKS GOOD NOW. IF WE CONTINUE TO GET RAIN, WE'VE GOT THE PROSPECTS FOR A VERY, VERY GOOD CROP HERE AND SOME BIG DOWNSIDE POTENTIAL. ON THE OTHER SIDE OF THE COIN, IF WE CONTINUE TO BE DRY AND WE DON'T GET THAT GOOD RAIN COMING THROUGH HERE, WE'VE GOT 30 CENTS PROBABLY UP IN THE CORN MARKET FROM HERE.

Pearson: BEST STRATEGY USING OPTIONS?

Pfitzenmaier: YEAH, AND THIS KIND OF VOLATILITY, UNLESS YOU'RE REALLY PRETTY STOUT, MOST PEOPLE ARE GOING TO WANT TO STICK WITH SOME KIND OF AN OPTION STRATEGY. IF YOU CAN SPEND 25 CENTS ON A BEAN PUT OR 10 TO 15 CENTS ON A CORN PUT, GIVE YOURSELF SOME KIND OF FLOOR; AND IF THERE'S A PROBLEM, LET IT GO.

Pearson: WHAT'S GOING TO HAPPEN NOW? THE SOYBEAN MARKET HAS HAD A RALLY IN HERE AND, AGAIN, NOW WE'RE REALLY GETTING INTO THE PUSH FOR GETTING THAT CROP PLANTED. AGAIN, THERE'S PROSPECT FOR SOME WIDESPREAD RAINS. BARRING THAT, THE SOYBEANS HAVE THE SAME UPSIDE THAT THE CORN DOES?

Pfitzenmaier: SOYBEANS, CORN, AND BEANS, BASICALLY, IN THIS TYPE OF YEAR PUT THEIR HIGH IN SOMEWHERE IN THAT MAY 1 / EARLY JULY TIME PERIOD SO WE'RE ENTERING IN THE TIME PERIOD. GENERALLY SPEAKING, THAT HIGH IS PUT IN BY DRY CONCERNS, AND IT'S ENDED BY RAIN. SO THAT'S WHY YOU NEED TO KEEP AN EYE ON IT. WE HAVE THE POTENTIAL FOR A RALLY ON THE JULY BEANS UP IN THAT 630 AREA, WHICH IS 60 CENTS ABOVE WHERE WE'RE AT RIGHT NOW. ON YEARS WHERE IT STARTED TO RAIN EARLY, WE COULD POTENTIALLY HAVE ALREADY PUT THE HIGH IN. SO THAT DRY WEATHER IS REALLY GOING TO DICTATE, BUT IT ALSO TELLS YOU THAT WE'RE IN THE TIME PERIOD WHERE YOU NEED TO WATCH IT REALLY CLOSELY. WHEN WE START TAKING OUT WEEKLY LOWS BY SOME SUBSTANTIAL MARGIN, THEN YOU NEED TO CHANGE YOUR ATTITUDE AND START MAKING SALES. UP TO THIS POINT, STAYING FRIENDLY TO THE MARKET IS THE RIGHT THING AND PROBABLY WILL BE FOR A BIT HERE.

Pearson: WHAT'S GOING TO HAPPEN ON THE CASH SIDE OF THE COMMODITIES BUSINESS?

Pfitzenmaier: WELL, THERE'S JUST ENOUGH MOVEMENT TAKING PLACE THAT ANYTIME YOU HAVE THESE RALLIES, THE GUY WHO'S SELLING CASH REALLY HASN'T PARTICIPATED ALL THAT MUCH. WE'VE JUST CONTINUED TO WIDEN THE BASIS SIMPLY BECAUSE THE FARMER IS JUST FEARFUL ENOUGH AND IS JUST FEEDING ENOUGH INTO THE MARKET THAT THEY DON'T REALLY NEED TO BID UP, RECOGNIZING THAT IF WE DO HAVE A BIG CROP, THERE'S STILL A LOT OF OLD CROP SITTING OUT THERE TO MOVE AND THEY'RE GOING TO TRY TO BUY IT CHEAP. SO EVERYBODY IS KIND OF PLAYING A LITTLE DANCE HERE TO SEE -- TRY TO BUY AS MUCH AS THEY CAN AS CHEAP AS THEY CAN HERE.

Pearson: ALL RIGHT, SO LOOK AT SOME KIND OF A PUT STRATEGY FOR THE BEANS, GET SOME COVERAGE. IF IT TAKES OFF, YOU'RE THERE.

Pfitzenmaier: YEAH, ABSOLUTELY. I THINK THAT'S THE ONLY WAY TO APPROACH IT IN THIS KIND OF A VOLATILE MARKET.

Pearson: FOR THOSE THAT TOOK THE LDP LAST FALL AND ALL IN THE CASH BEANS, ARE THEY GOING TO MOVE TO TOWN?

Pfitzenmaier: YEAH, I THINK SO. YOU HAVE TO USE THESE RALLIES AS SELLING OPPORTUNITIES. LIKE I SAID, THE BASIS ISN'T GREAT BUT IT'S ABOUT AS GOOD AS IT'S BEEN AND IT'S PROBABLY NOT GOING TO GET A LOT BETTER. SO I WOULD THINK YOU'D WANT TO USE THIS AS A SELLING OPPORTUNITY AND SCALEUP OF SOME SORT.

Pearson: COTTON FUTURES THIS WEEK, A STRONG WEEK. WE'RE UP IN THAT RANGE, THAT SALES RANGE.

Pfitzenmaier: YEAH, YOU GET UP IN THAT 59 TO 64 RANGE -- WE'RE JUST SORT OF AT THE BOTTOM END OF THAT. THEY'VE HAD FAIRLY GOOD MOISTURE CONDITIONS DOWN THERE, MAYBE A LITTLE WET IN SOME AREAS. I THINK THAT YOU AREN'T GOING TO BE ABLE TO EXPECT HUGE RALLIES OUT OF THAT COTTON MARKET. THEY HAD A GOOD WEEK THIS WEEK, BUT I WOULDN'T EXPECT MUCH MORE THAN A COUPLE MORE DOLLARS OUT OF THAT MARKET.

Pearson: SO MAKE SOME SALES?

Pfitzenmaier: YEAH.

Pearson: LET'S TALK ABOUT WHAT'S HAPPENING IN LIVESTOCK. THE OPPOSITE EFFECT, WE WERE DOWN ON FED CATTLE. WE WERE DOWN ON THE HOGS SHARPLY. THIS FED-CATTLE MARKET, YOU WERE A LITTLE CONCERNED. YOU THOUGHT THE TONNAGE MIGHT BE THERE, MIGHT SEE DEMAND SLACK OFF, BECAUSE THAT'S WHAT'S OCCURRING RIGHT NOW.

Pfitzenmaier: I DON'T KNOW IF IT'S OCCURRING, BUT THE PERCEPTION AND THE FEAR OF IT IS. IF YOU'VE WATCHED THE STOCK MARKET OVER THE LAST MONTH OR SO, THAT'S SORT OF SHAKEN PEOPLE'S CONFIDENCE IN THE BEEF. WHEN THINGS ARE GOING WELL, PEOPLE LIKE TO EAT RED MEAT. MAYBE IF THERE'S SOME CONCERN IN THE ECONOMY, IS THAT GOING TO HURT DEMAND? I'M NOT SAYING IT HAS YET, I'M JUST SAYING THAT'S A FEAR THAT THE MARKET HAS. WE HAD ALL THESE HEAVY PLACEMENTS LAST FALL AND AGAIN THIS WINTER, SO WE'RE GOING TO HAVE NUMBERS SHOWING UP HERE OVER THE SUMMER. I THINK EXPECTATIONS OF MUCH RALLYING IN THAT FAT CATTLE MARKET ARE PROBABLY NOT GOING TO AMOUNT TO VERY MUCH. IF YOU CAN BUY A PUT UNDERNEATH THE AUGUST -- A $70 PUT, I'D BE LOOKING PRETTY HARD AT DOING THAT.

Pearson: OKAY, END OF AUGUST. TAKE US INTO THE FOURTH QUARTER FOR THE BEEF MARKET. HAVE WE GOT SOME OPPORTUNITIES OUT THERE?

Pfitzenmaier: YEAH, THERE'S OPPORTUNITIES OUT THERE ALSO. I GUESS I WOULDN'T BE QUITE AS AGGRESSIVE THERE AS I WOULD BE ON THE JUNE/AUGUST TIME PERIOD. BUT, CERTAINLY, IF YOU GET ANY $1, $2 RALLIES OUT THERE, YOU NEED TO BE A SELLER TOO. I THINK THE CATTLE MARKET IS GOING TO KIND OF STRUGGLE HERE, BECAUSE WE'VE GOT SOME NUMBERS TO WORK THROUGH.

Pearson: ALL RIGHT. WHAT'S THAT IMPACT ON HOGS? THIS HOG MARKET HAS BEEN SO STRONG. THE FUTURES HAVE BEEN SO STRONG AND $2 DROP THIS WEEK. ARE WE GOING TO START TO SEE THAT FUTURES COME DOWN TO MEET THE CASH.

Pfitzenmaier: THAT MARKET HAS HAD A TREMENDOUS MOVE. IT'S BEEN COMPOUNDED BY GOOD DEMAND, 4-PERCENT DROP. AND THE NUMBERS, WHICH I THINK SURPRISED -- BECAUSE THE USDA WAS ONLY PROJECTING ABOUT 2 PERCENT, SO WE'VE HAD A LITTLE BACK-OFF THERE. SEASONALLY THAT CASH MARKETS TENDS TO TOP OUT HERE IN THIS SECOND TO THIRD WEEK PERIOD OF MAY, SO THEY'RE GOING TO BE WATCHING THAT. BUT I THINK THIS MARKET IS ONE THAT'S VERY VULNERABLE, COULD VERY EASILY HAVE SOME DOWNSIDE POTENTIALS FROM HERE, AND I THINK YOU NEED TO WATCH IT VERY CAREFULLY.

Pearson: TAKE US IN MIDSUMMER, WHAT'S THIS HOG MARKET GOING TO LOOK LIKE?

Pfitzenmaier: I SUSPECT WE'RE GOING TO BE IN A TRADING RANGE IN THAT 65 TO 75 BASIS THE LEAN FUTURES BOUNCING AROUND IN THERE, BUT I THINK IT'S GOING TO BE VERY DIFFICULT TO GO ANY HIGHER THAN THAT. THERE'S GOING TO BE -- ASSUMING THE ECONOMY STAYS TOGETHER, WHICH I PERSONALLY THINK IT'S GOING TO, I THINK DEMAND IS GOING TO UNDERPIN THAT MARKET AS WE GO THROUGH THE SUMMER.

Pearson: REAL QUICK, FLIP SIDE FOR THESE LIVESTOCK PRODUCERS. WITH THE CONCERN OUT THERE, WITH THE DRY WEATHER, WOULD YOU BE STEPPING UP COVERAGE ON FEED NEEDS?

Pfitzenmaier: OH, I THINK YOU NEED TO HAVE THAT IN THE BACK OF YOUR MIND AND BE WATCHING IT PRETTY CLOSE. IT'S DEFINITELY A PLACE YOU'RE VULNERABLE. AND THOSE GUYS BUYING THESE EXPENSIVE FEEDER CATTLE ARE REALLY VULNERABLE. NUMBER ONE, THE FEED COST IS GETTING AWAY FROM THEM. THE NUMBER TWO, THE PASTURE IS DRYING UP ON THEM. SO THEY'VE GOT KIND OF A DOUBLE-EDGED PROBLEM THERE, I THINK.

Pearson: ALL RIGHT. SO A GOOD IDEA, MAYBE, TO GET SOME COVERAGE AT THIS STAGE OF THE GAME?

Pfitzenmaier: CERTAINLY.

Pearson: PART OF YOUR RISK AT THIS POINT. TOMM PFITZENMAIER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE POTENTIAL OF BUSINESS-TO-BUSINESS E-COMMERCE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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