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Market Analysis: Apr 28, 2000

posted on April 28, 2000


THE NOTION THE NATION'S ECONOMY IS SLOWING WAS BROUGHT DOWN THIS WEEK BY A HAILSTORM OF STATISTICS.

LAST MONTH ORDERS FOR DURABLE GOODS ROSE SHARPLY, AS DID RETAIL SPENDING, AS DID WAGES AND BENEFITS PAID TO AMERICANS. THE ACTIVITY FUELED A DRAMATIC EXPANSION IN THE NATION'S GROSS DOMESTIC PRODUCT.

THE NUMBERS INCREASE THE PROSPECT NEXT MONTH THE FEDERAL RESERVE, TO THWART THE POTENTIAL OF INFLATION, WILL RAISE INTEREST RATES FOR THE SIXTH TIME IN LESS THAN A YEAR.

THE GRAIN MARKETS FINISHED THE WEEK LOWER ON CONTINUED OPTIMISM REGARDING PRODUCTION AND CONCERN OVER DEMAND. FOR THE WEEK, WHEAT PRICES WERE MORE THAN EIGHT CENTS LOWER. CORN FUTURES WERE DOWN MORE THAN THREE CENTS.

SOYBEAN FUTURES FINISHED MORE THAN NINE CENTS LOWER. SOYBEAN MEAL FINISHED $2.50 PER TON HIGHER.

COTTON FUTURES WERE 92-CENTS LOWER.

IN LIVESTOCK, FED CATTLE FUTURES FINISHED 73-CENTS HIGHER. FEEDER CATTLE GAINED 80-CENTS. THE LEAN HOG CONTRACT CLOSED THE WEEK A NICKEL LOWER.

IN THE FINANCIALS, COMEX GOLD FINISHED $5 LOWER AGAINST THE DOLLAR. THE EURO CLOSED MORE THAN TWO-AND-A-HALF POINTS LOWER. THE CRB FINISHED THE WEEK DOWN A POINT TO CLOSE AT 212.80.

Market Analysis: Apr 28, 2000

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

Hjort: THANK YOU, MARK.

Pearson: LET'S TALK ABOUT THIS SOFTER MARKET THAT WE'RE SEEING OUT THERE. STILL SOME CONCERN IN THE CORN BELT ABOUT MOISTURE, BUT IN THE WHEAT BELT, THERE'S SO MUCH OF IT AROUND, THEY'RE SELLING IT OFF.

Hjort: YEAH, THAT'S RIGHT. THE WHEAT MARKET IS CAUGHT BETWEEN THIS CROP HERE IN THE UNITED STATES BEING IN PRETTY GOOD SHAPE. THE TOTAL WINTER WHEAT CROP IS JUST SLIGHTLY BELOW AVERAGE, BUT THAT'S GOOD ENOUGH. WE'LL HAVE ENOUGH WHEAT TO GET US THROUGH, IF WE CAN DO THAT. THE PROBLEM WITH PRODUCTION IS IN CHINA. THE MAIN WHEAT GROWING AREA IN CHINA IS VERY, VERY DRY. AND THE FORECAST DOESN'T LOOK LIKE THEY'LL RESURRECT THAT MOISTURE PATTERN SOON. SO WHAT WE'RE LOOKING AT HERE IS THE POSSIBILITY, AND I STRESS POSSIBILITY SINCE WE'RE TALKING WEATHER HERE, THAT IT'S GOING TO STAY DRY IN CHINA. THEREFORE, WE PUT THEM INTO A SITUATION TO WHERE THEY WOULD PROBLEM HAVE TO INCREASE EXPORTS OR IMPORTS RATHER SHARPLY. THAT'S KIND OF A LONG SHOT, AND YET IT REALLY HAS BEEN VERY, VERY DRY IN THAT REGION. WE'VE SEEN THE RAPESEED PRODUCTION ON THEIR EARLY CROP DOWN SHARPLY BECAUSE OF THIS SAME DRYNESS, SAME AREA. THEIR BARLEY CROPS ARE BEING STRESSED NOW AND THEN WHEAT. AND THEN, OF COURSE, QUITE A BIT OF CORN WAS RAISED IN THAT AREA, TOO, SO IT'S A VERY IMPORTANT THING TO WATCH. BUT FOR THE WHEAT MARKET, WE'RE CAUGHT BETWEEN THAT -- THAT'S THE BULLISH SIDE OF MARKET -- AND THEN, OF COURSE, THE IMPENDING HARVEST IN THE UNITED STATES.

Pearson: AS WE LOOK ON DOWN THE ROAD, IF THE SCENARIO YOU'RE TALKING ABOUT IN CHINA CONTINUES, WE COULD SEE MAYBE AN INCREASE IN DEMAND AND HOPEFULLY A BETTER PRICE.

Hjort: WELL, WE COULD BUT THE NEGATIVE SIDE OF THAT IS THAT ON THE TECHNICAL, ON THE CHARTS, WE PUT IN NEW CONTRACT LOWS TODAY -- THIS WEEK RATHER. WHAT THAT MEANS, THEN, IT OPENS THE DOOR FOR ANOTHER 20 TO 25 CENTS DOWN TO THE NEXT MAJOR SUPPORT LEVEL. SO YOU'VE GOT A LOT OF NEGATIVE BAGGAGE AS WE ENDED THIS WEEK ON THIS WHEAT MARKET JUST ABOUT THE TIME THAT SOME IN THE TRADE WERE STARTING TO SAY THIS MARKET HAS GONE LOW ENOUGH, AND NOW WE CAN START TO BRING IT BACK UP HERE SLOWLY AND MOVE HIGHER, THEN, DURING THE SUMMER MONTHS AND INTO THE FALL.

Pearson: LET'S TALK A LITTLE BIT ABOUT THE CORN MARKET. AS I MENTIONED, CONTINUED DRYNESS IN LARGE PORTIONS OF THE CORN BELT, WHICH SEEM TO BE DRIVING THIS MARKET HIGHER, BUT WE STILL CONTINUE TO BE UNDER PRESSURE.

Hjort: THE PROBLEM WITH THE DRYNESS NOW IS THAT YOU REALLY CAN'T GET SERIOUS ABOUT A DOUGHT, REDUCING YIELDS -- THIS GOES FOR THE BEANS TOO -- UNTIL YOU GET TO MID JUNE OR INTO EARLY JULY. YOU CAN TALK ABOUT THE DRY SOILS AND SO ON AND SO FORTH, BUT AS LONG AS YOU HAVE SHOWERS THAT COME ACROSS THAT PROVIDE ENOUGH MOISTURE TO GET THE CROP PLANTED, GET IT OUT OF THE GROUND, GET IT ESTABLISHED, YOU'RE INTO EARLY JUNE AT LEAST, EVEN WITH THIS EARLY PLANTING DATE, AND MAYBE MID JUNE BEFORE THAT PLANT STARTS TO TAKE MORE MOISTURE OUT OF THE GROUND THAN WHAT NORMALLY FALLS. OBVIOUSLY, THE LONGER WE GO WITHOUT REPLENISHING THE SUBSOIL AMOUNTS, THE MORE TIMELY OUR RAINS HAVE TO BE THROUGHOUT THE SUMMERTIME, COOLER WEATHER, AND THAT SORT OF THING, IF WE WANT TO MAINTAIN NORMAL YIELDS OR HIGHER YIELDS. ONE FACTOR HERE THAT -- THERE'S A LOT OF TALK ABOUT THAT IF YOU PLANT THE CORN CROP EARLY, YOU'RE GOING TO HAVE HIGH YIELDS. THAT'S NOT NECESSARILY TRUE. I WENT BACK IN THE LAST TWENTY-EIGHT YEARS, AND THE THREE YEARS THAT YOU FINISHED PLANTING THE EARLIEST WERE 1987, '88, AND '97. IN '87 YOU HAD A RECORD HIGH YIELD FOR THAT TIME. IN '88, OF COURSE, TERRIBLE YIELDS, THE THIRD LOWEST IN THE LAST TWENTY-EIGHT YEARS. AND IN '97, YOU HAD JUST AN AVERAGE YIELD. SO IT'S ALL UP TO THE WEATHER FROM HERE ON OUT. AND TRYING TO PREDICT WHERE PRICES ARE GOING TO BE COME HARVESTTIME IS JUST DOUBLY DIFFICULT THIS YEAR, MUCH MORE SO THAN A NORMAL YEAR.

Pearson: WITH THIS DRYNESS, AN OPTION STRATEGY IS PROBABLY THE BEST FOR US.

Hjort: WELL, IT IS IF YOU'RE GOING TO BE DOING ANY SELLING, JUST TO PICK YOUR POINTS AND DO SOMETHING. ON THE OTHER SIDE, IF YOU WANT TO DO SOME PRICING IN THE CASH MARKET AND LOCK SOMETHING IN, IT MAY NOT BE A BAD IDEA. PRICES AREN'T THAT BAD FOR NEW CROP. BE READY, THOUGH, IN CASE THE DRYNESS CONTINUES, TO OFFSET THAT FOR THE FUTURES OR AN OPTION POSITION FROM THE LONG SIDE.

Pearson: YOU TALK ABOUT SOYBEANS BEING VERY SIMILAR AS FAR AS RAINFALL IS CONCERNED, AND CRITICAL POINTS ARE STILL SIX TO EIGHT WEEKS AWAY. AT THIS STAGE OF THE GAME, THE BRAZILIAN CROP IS BASICALLY IN. WHAT'S AHEAD?

Hjort: WELL, THE DIFFERENCE BETWEEN CORN AND BEANS RIGHT NOW IS THAT CORN DEMAND REMAINS VERY, VERY STRONG, WHEREAS THE SOYBEAN DEMAND IS WANING, LIKE YOU SAY, BECAUSE OF THE SOUTH AMERICAN CROP COMING ON. THE MARKET LOOKS TO BE IN PRETTY GOOD SHAPE YET THOUGH. STILL A LOT OF WEATHER SUPPORT. LATE THIS WEEK THE SOYBEAN FUTURES COLLAPSED, DROPPED REALLY HARD, THURSDAY AND FRIDAY. TOOK AWAY ALL THE GAINS, AND WE'VE BEEN WORKING VERY HARD FOR TWO WEEKS TO PUT IN THERE WITH SMALL GAINS. WE'RE STILL IN THAT BROAD TRADING RANGE OF 30 OR 35 CENTS A BUSHEL, AND WE'LL PROBABLY STAY IN THAT UNTIL WE CAN BETTER DEFINE JUST WHAT THIS WEATHER IS ALL ABOUT. THE MAIN REASON WE DROPPED ON THE SOYBEANS WAS THAT COMMODITY FUND SELLING TURNED OUT TO BE VERY HEAVY BECAUSE FORECASTS FOR NOT THIS COMING WEEKEND BUT THE FOLLOWING WEEKEND CALLED FOR A LOT OF RAIN. WELL, YOU KNOW, THAT'S A LONG WAYS OUT TO BET ON A WEATHER FORECAST, ESPECIALLY WHEN IN THE WESTERN CORN BELT, WE'VE HAD PLENTY OF THESE FORECASTS FOR NORMAL TO ABOVE NORMAL RAINFALL THAT HAVE REALLY FALLEN FLAT. SO WE DO NEED TO WATCH THIS MARKET CAREFULLY, BUT THE DEMAND -- THE SOFTENING OF DEMAND AND THE EXPORT MARKET FOR BEANS IS THE DRIVING FORCE THERE.

Pearson: LET'S TALK ABOUT THIS LIVESTOCK MARKET. FED CATTLE HAS BEEN STRONG, CONTINUES TO BE STRONG. BOTH ON THE BOARD AND CASH. AS YOU LOOK ON DOWN THE ROAD, WHERE ARE WE HEADED FOR FED CATTLE PRICES? CAN WE MAINTAIN THESE LEVELS?

Hjort: WELL, I THINK WE'RE GOING TO SLIP BACK A LITTLE BIT, BUT I THOUGHT THAT A MONTH AGO TOO. SO THE MARKET IS VERY, VERY STRONG, LIKE YOU SAY. BEEF DEMAND IS VERY STRONG. WE ARE GOING TO BE LOOKING AT THE INCREASED KILL COMING UP AHEAD OF US HERE. SO THAT'S GOING TO ADD A LITTLE BIT MORE TONNAGE TO THE MARKET. ON THE OTHER SIDE OF THAT, OUR CARCASS WEIGHTS ARE DROPPING VERY NICELY AND CONTINUE TO DO THAT. SO THE BEEF DEMAND IS GOING TO STAY STRONG FOR AT LEAST ANOTHER TWO MONTHS. SO THAT'S GOING TO KEEP PRICES PRETTY WELL SUPPORTED, BUT THE INCREASED TONNAGE WILL PROBABLY BRING PRICES DOWN A LITTLE BIT. I DON'T THINK THERE'S ENOUGH ROOM IN THAT JUNE FUTURES TO DO HEDGING BECAUSE IT -- YOU JUST CAN'T GET OVER $70 ON IT, AND I DON'T THINK I WOULD DO ANY HEDGING AT ANYTHING LESS THAN $70.

Pearson: LET'S TALK ABOUT THIS HOG MARKET, TOO, WHICH HAS ALSO STAYED STRONG FOR MOST OF 2000.

Hjort: WELL, IT HAS AND THAT WILL STAY STRONG, IN MY OPINION, FOR THE NEXT TWO OR THREE MONTHS, MAYBE RIGHT ON THROUGH THE SUMMER. THE PROBLEM THAT -- WELL, I DON'T KNOW IF IT'S A PROBLEM, BUT THE SITUATION THERE IS THAT THE JUNE FUTURES STILL LEAD THE CASH MARKET BY A GREAT MARGIN. THOSE TWO ARE GOING TO COME TOGETHER IN THE NEXT MONTH. I SUSPECT THEY'LL PROBABLY MEET SOMEWHERE IN THE MIDDLE, BUT FOR NOW THAT JUNE FUTURES JUST KEEPS PUTTING IN NEW CONTRACT HIGHS ALMOST EVERY WEEK. THE CASH MARKET WAS VERY STRONG THIS WEEK. IT SEEMED TO BE WEAKENING A LITTLE BIT AS THE WEEK CLOSED, BUT STILL PRETTY GOOD SHAPE.

Pearson: ALL RIGHT, DOUG HJORT. 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 GROWING SUCCESS OF A FARMER-OWNED VERTICALLY-INTEGRATED VENTURE. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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