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Market Analysis: Apr 21, 2000

posted on April 21, 2000


AFTER LAST WEEK'S BEDLAM, WALL STREET ENDED THE HOLIDAY-SHORTENED WEEK CALMLY. REPORTS INDICATING HOUSING STARTS HAVE FALLEN SHARPLY GIVE CREDENCE TO THE NOTION THE FEDERAL RESERVE'S SERIES OF RATE HIKES IS CURBING CONSUMER BEHAVIOR. AND IT WOULD APPEAR THE FICKLE FINANCIAL COMMUNITY HAS JILTED THE GLITZY DOT-COM STOCKS, RETURNING TO THE EMBRACE OF DOWDIER COMPANIES THAT ACTUALLY HAVE EARNINGS.

THE GRAIN MARKETS FINISHED THE WEEK MIXED AS THE RAINS FELL IN KEY PARTS OF THE CORNBELT. FOR THE WEEK, WHEAT PRICES WERE DOWN MORE THAN FOUR CENTS, WHILE CORN WAS A FRACTION TO A PENNY HIGHER.

SOYBEAN FUTURES GAINED MORE THAN THREE CENTS. SOYBEAN MEAL GAINED $1.10 PER TON.

COTTON FUTURES POSTED A 76-CENT DECLINE.IN LIVESTOCK, FED CATTLE FUTURES FINISHED 15-CENTS LOWER. FEEDER CATTLE WERE DOWN 58-CENTS. THE LEAN HOG CONTRACT GAINED $1.53.

IN THE FINANCIALS, COMEX GOLD FINISHED $2.90 LOWER PER OUNCE. THE EURO CLOSED MORE THAN TWO POINTS LOWER AGAINST THE DOLLAR, AND THE CRB INDEX FINISHED THE WEEK NEARLY THREE POINTS HIGHER TO CLOSE AT 213.80.

Market Analysis: Apr 21, 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, THERE WERE SOME RAINS OVER IN KEY GROWING AREAS, AND IT HASN'T EXACTLY EASED THE TRADE'S CONCERN ABOUT A DROUGHT THIS SUMMER. WHAT'S YOUR OUTLOOK? WHEAT COUNTRY IS LOOKING PRETTY GOOD.

Newton: YEAH, MARK, BUT THE SUBSOIL MOISTURES ARE A LITTLE BIT PERILOUS, AND I THINK IT BEARS WATCHING.

Pearson: WHAT DO YOU SEE AHEAD? WHEAT PRICES HAVE BEEN IN A BIT OF A SLIDE HERE. FOR PRODUCERS OUT THERE, ARE THERE ANY OPTIONS?

Newton: WELL, I REALLY THINK THAT THE WHEAT MARKET IS REALLY SHORED UP BY THE CORN AND ITS TRYING TO GET COMPETITIVE AS A FEED, USE UP THE LAST OF LAST YEAR'S CROP. BUT THERE'S SOME THAT WOULD SAY THAT JULY WHEAT MAY HAVE A 30-CENT PREMIUM IN IT FROM NOW UNTIL HARVEST. I THINK THE GROWERS NEED TO TAKE A LOOK AT THAT, MAYBE FOR SOME ADDITIONAL PROFIT OPPORTUNITIES, THEN LDP THAT AT SOME LATER POINT. NOW, ALL OF THAT HINGES ON HOW WELL THE CROP DEVELOPS. WE GET SOME HOT, DRY WINDS, AND THAT MARKET IS GOING TO START TO RESPOND AGAIN. THAT CROP HAS COME ALONG RATHER NICELY. AS IT MOVES FARTHER NORTH, PLANTING IN PROGRESS IS NORMAL. SO I THINK IT'S A MARKET TO WATCH VERY CAREFULLY. IT'S REALLY KIND OF AT THE BOTTOM OF ITS GAME AS WE'D SEE IT COMPARED TO OTHER CROPS. BUT THERE'S AN AWFUL LOT OF WHEAT AROUND, LITERALLY ALL OVER THE WORLD. IT HAS MORE DOWNSIDE POTENTIAL BUT THERE'S SOME DROUGHT BUILT IN IT, AND I THINK THE PRODUCER NEEDS TO WATCH THAT.

Pearson: OKAY, YOU MENTIONED CORN -- OR WHEAT BEING LITERALLY THE SAME WITH CORN. RIGHT NOW, AS WE LOOK AT THE CORN MARKET, A LITTLE BIT STRONGER THIS WEEK. AND AGAIN, PEOPLE ARE CONCERNED ABOUT WHAT'S GOING TO HAPPEN THIS SUMMER.

Newton: WELL, I FELT ALL ALONG THAT WE'VE HAD A 30-CENT DROUGHT PREMIUM, PARTICULARLY IN THE NEW-CROP CORN IN THE DECEMBER OPTION. IN SPITE OF THE FAIRLY GENERAL RAINS, PARTICULARLY IN THE CENTRAL AND EASTERN CORN BELT, NOT SO MUCH IN THE WESTERN CORN BELT, THE MARKET HELD UP. NOW, WE HAD AN EXCELLENT EXPORT NUMBER YESTERDAY, WHICH I THINK BORE WITH THAT STEADY BETTER PRICE. I REALLY THINK THAT WE HAVE TO THINK NORMAL CROPS WITH 1.7 BILLION CARRYOUT PROJECTED, I THINK WE NEED TO THINK NORMAL. AND SO IT'S BEEN MY VIEW THAT WE NEED TO SELL CROP ON THESE RALLIES, AND WE'VE BEEN A SELLER OF DECEMBER CORN AT 260 WITH OPTIONS IN ORDER TO PROTECT OURSELVES BECAUSE, IF WE DO NORMAL, THAT'S GOING TO LOOK LIKE AN AWFUL HIGH PRICE THIS FALL.

Pearson: THAT'S FOR SURE. AS WE GET AHEAD, YOU'VE BEEN TALKING ABOUT THE DECEMBER CONTRACT. SHOULD WE BE LOOKING AT MAYBE, IN CASE THINGS DO GO MORE TOWARDS NORMAL SIZE, WILL YOU BE LOOKING AT PRICING IN THAT ONE?

Newton: I WOULD SELL AT ANY TIME IT'S IN THE HIGH 50S AND AT 260. IT SEEMS TO HAVE SUPPORT AT 248, 250. IT'S TRADING, I THINK, 253, AS WE SPEAK, AND THEY'RE KIND OF AT THE BOTTOM END OF THAT RANGE. I DON'T KNOW THAT I'D SELL IT HERE. I WOULDN'T BE BASHFUL ABOUT BUYING 250 PUTS AT THIS POINT, IF THAT'S THE APPROACH THAT THE VIEWERS WANT TO TAKE. THESE ARE GOOD MARKETS. THEY HAVE WEATHER PREMIUMS BUILT IN THEM AND, IF THE CROP UNFOLDS, OBVIOUSLY, THE PLANTING CONDITIONS, THEY AREN'T GOING TO DEAL WITH MUD UNLESS IT JUST RAINS, RAINS, RAINS. AND SO THE CROP SHOULD GO IN PRETTY DECENT SOILS, AND THE MARKET WILL BE WATCHING THAT AND SEE HOW IT DEVELOPS. BUT THE SUBSOIL MOISTURE IS LOW ALL OVER. THE WEATHER PEOPLE ARE GOING TO HAVE A COMMAND ON THIS MARKET ON A DAILY BASIS.

Pearson: AND OF COURSE, LONG-TERM FORECAST BEING DRIER AND WARMER THAN NORMAL, SORT OF FACTORS THE TRADE IS WATCHING. WHAT ABOUT OVER ON THE SOYBEAN FRONT?

Newton: WELL, THE SOYBEAN PROGRAM IS REALLY SOMEWHAT OF A MYSTERY TO THE EXTENT THAT IT'S HELD UP VERY WELL IN SPITE OF THE SOUTH AMERICAN COMPETITION. I THINK THAT I WOULDN'T MAKE ANY NEW-CROP SALES. IF WE SHOULD SEE ANOTHER 10- OR 15-CENT RALLY IN JULY, I BELIEVE I'D REWARD THAT MARKET IF IT WAS STILL HOLDING SOME DROUGHT BEANS OF THE OLD CROP. I WOULD START TO SCALE-UP NEW-CROP SALES IF NOVEMBER HIT OVER $6. THAT MARKET JUST SEEMS TO HAVE A LITTLE MORE LUSTER TO IT. WE'VE GOT A LOT OF LIVESTOCK AROUND, SO IT'S BEEN GOOD TO ME, AND THERE'S BEEN SOME GOOD EXPORTS IN THAT REGARD. THAT'S ONE THAT I THINK YOU CAN AFFORD TO SIT ON THE SIDELINES AND WATCH. I DON'T THINK THE DOWNSIDE POTENTIAL IS ALL THAT GREAT, BUT I THINK $6 WOULD BE A TEMPTATION TO AT LEAST BEGIN TO SELL SOME OF THE NEW CROP. AND THERE AGAIN, THE VIEWERS MAY WANT TO USE OPTIONS TO DO THAT IN CASE WE DO GET A DRY SEASON. THEN YOU DON'T HAVE THE WHOLE STORE HANGING OUT.

Pearson: THAT'S A GOOD POINT. THE COTTON MARKET FELL BACK A LITTLE BIT THIS WEEK.

Newton: YEAH, THE COTTON MARKET IS REALLY ANOTHER ONE THAT ON OLD CROP, I THINK RALLIES NEED TO BE SOLD. WE'RE LOOKING AT SOMETHING LIKE 42.6 MILLION BAILS WORLDWIDE IN THE 4/11 REPORT. THAT'S AN AWFUL LOT OF COTTON. DECEMBER, OVER 60 CENTS OR 60 DOLLARS A HUNDRED IS A SALE, IN MY VIEW.

Pearson: ALL RIGHT, LET'S MOVE OVER TO THE LIVESTOCK SIDE, WAYNE. THE CATTLE MARKET BACKED OFF A LITTLE BIT ON THE BOARD THIS WEEK, BUT THE DEMAND SEEMS TO BE HOLDING UP. WHAT'S YOUR OUTLOOK ON FED CATTLE.

Newton: WELL, THE CATTLE MARKET HAS BEEN A REAL TREASURE TO WORK IN FOR THE LAST THREE OR FOUR WEEKS. PACKERS ARE INTERESTED IN YOUR STOCK AND THE MARKET HAS BEEN ON THE UPSIDE AND THE CATTLE HAVE BEEN FAIRLY EASY TO MOVE. CATTLE ARE MOVING IN THE 118 TO 120 RANGE IN THE MEAT, IN 74, 75 IN THE CASH. MAYBE A LITTLE BIT STRONGER ON SOME REALLY TOP CUTTING CATTLE. BUT I THINK AS WE FINISH THE WEEK, WE'RE PROBABLY GOING TO LOOK AT ABOUT 685,000 HARVESTED THIS WEEK. THAT SHOULD PICK UP GOING INTO MID MAY, TO ABOUT 725-, 730,000. AND WE NEED TO HAVE INCREASED DEMAND AS THAT HAPPENS, OR WE'RE PROBABLY DESTINED TO GO INTO THE 60S WITH THIS MARKET. JUNE'S TRADING AT A $6 DISCOUNT TO CASH RIGHT NOW. THAT TRIED TO GET THROUGH 70 CENTS THIS WEEK. COULDN'T MAKE IT. IF IT SHOULD CHALLENGE THAT AGAIN IN THE NEXT 10 DAYS, BECAUSE IT BECOMES THE SPOT MONTH HERE NOW AT THE END OF APRIL, THAT MAY BE A MARKET TO WATCH. I THINK WE'LL SEE SOME ADJUSTMENTS IN THE CASH TO THE DOWNSIDE AND PROBABLY SOME UPSIDE POTENTIAL IN THE JUNE. IF IT GETS NEAR 70, I'D SERIOUSLY CONSIDER SELLING MY INVENTORY THAT WAY FOR JUNE AND JULY DELIVERABLE CATTLE.

Pearson: TAKE US ON OUT, WAYNE,. LET'S GO THROUGH LABOR DAY. WHAT'S GOING TO BE AHEAD IN THAT FOURTH QUARTER FOR CATTLE?

Newton: WELL, I THINK WE'RE GOING TO START TO SEE FEWER PLACEMENTS. THERE'S A LOT OF DEMAND, BUT THE MARGINS ARE VERY THIN. IF CORN SHOULD SHOW ANY STRENGTH AT ALL, THAT WILL INFLUENCE PLACEMENTS. YET, THOSE FALL MONTHS ARE PRETTY WELL PRICED, DECEMBER 73, 74, THOSE ARE GOOD PRICES, GOOD NUMBERS. BUT I DON'T SEE US PLACING CATTLE TO MAKE THAT BURDENSOME AND, OBVIOUSLY, WE'VE HAD EXCELLENT DEMAND THROUGHOUT ALL THE PRODUCT LINES... AND TO THE CREDIT OF THE CATTLEMEN; THEY'RE BUILDING NEW PRODUCTS ALL THE TIME, AND THE CONSUMER HAS TAKEN TO THAT VERY WELL.

Pearson: LET'S TALK A LITTLE BIT ABOUT THIS CALF MARKET, WHICH HAS BEEN EXCEPTIONALLY STRONG. LIKE YOU SAY, ANYTHING HAPPENS TO CORN ON THE UPSIDE IS GOING TO HURT THAT MARKET TOO.

Newton: YEAH, I REALLY THINK THAT MOST FEEDERS ARE BEING BOUGHT ON THE COME AND THE OWNERS ARE GOING TO LOOK FOR RALLIES IN THIS MARKET TO GET THEM HEDGED. WHEN THEY DO THAT, I THINK THEY NEED TO HEDGE NOT ONLY LIVE CATTLE BUT THE CORN PRICES AS WELL. IF WE SHOULD EXPERIENCE SOME KIND OF A WEATHER PROBLEM IN THE GRAINS AND THEY HAVEN'T PROTECTED THEIR FEED NEEDS, THIS COULD BE A REAL DISASTER WHEN THEY'RE GIVEN THESE HIGH FIVES, $100 A HEAD FOR SOME OF THESE CALVES.

Pearson: ABSOLUTELY. LET'S MOVE OVER TO THE HOG MARKET, WHICH ALSO HAS BEEN A REAL BRIGHT SPOT. WHAT'S AHEAD? THIS MARKET JUST SEEMS TO KEEP GOING.

Newton: WELL, THESE HOGS SEEM TO BE ON A MISSION, AND THE TECHNICIANS WOULD SAY THAT THE NEXT RESISTANCE POINT IS 80 BUCKS, BASED THE JUNE LEAN HOG CONTRACT. I WOULDN'T DOUBT THAT WE'LL SEE THAT, BARRING SOME KIND OF A PROBLEM. BUT THE BASIS IS AWFUL WIDE, AND THE CASH MARKET HASN'T COME TO THAT LEVEL YET. I CAN'T BELIEVE THAT WE'RE NOT BUILDING NUMBERS WHEN WE SEE THAT KIND OF A FUTURES PRICE WITH THE CORN PRICE DOWN AROUND TWO BUCKS AND THE LEAN-HOG CONTRACT APPROACHING 80, WHICH TELLS ME THAT WE COULD SEE MORE AND MORE HOGS IN THE FALL, AND THE MARKET IS KIND OF SUGGESTING THAT. ON THESE KIND OF RALLIES WHEN WE'VE GOT THIS KIND OF DEMAND AND EXCITEMENT IN THIS MARKET, THE PRODUCERS SURE NEED TO TAKE ADVANTAGE OF THAT AND LOOK ALL THE WAY OUT, TO BEGIN TO AT LEAST SCALE-UP SOME KIND OF A RISK MANAGEMENT PROGRAM.

Pearson: ALL RIGHT. WAYNE, AS USUAL, SOME EXCELLENT POINTS. GLAD YOU JOINED US TODAY. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE HOW, THROUGH DIRECT MARKETING, AN OKLAHOMA CATTLEMAN HAS MANAGED TO NEARLY DOUBLE HIS PROFITS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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