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Market Analysis: Apr 14, 2000

posted on April 14, 2000


FOR MONTHS, EVEN AS FINANCIAL MARKETS SOARED TO UNPRECEDENTED LEVELS, THE INFLATION HAWKS CIRCLED. THIS WEEK, THEY'VE APPARENTLY COME HOME TO ROOST.

THE MARKETS WERE ROCKED FRIDAY AS THE GOVERNMENT ANNOUNCED CONSUMER INFLATION JUMPED SEVEN-TENTHS OF A PERCENT IN MARCH, THE BIGGEST ADVANCE IN ALMOST A YEAR. SHARP INCREASES IN GASOLINE AND OTHER ENERGY COSTS LED THE SURGE. BUT EVEN OUTSIDE THE VOLATILE FOOD AND ENERGY SECTORS, THE SO-CALLED "CORE" RATE OF INFLATION ROSE BY FOUR-TENTHS OF A PERCENT, THE FASTEST PACE IN FIVE YEARS. PRICES AT THE WHOLESALE LEVEL ALSO SOARED IN MARCH, INDICATING RETAIL INFLATION MAY BE ONGOING.

THE GRAIN MARKETS FINISHED THE WEEK UNDER SOME PRESSURE AS THE TRADE'S CONCERNS REGARDING CROP DEVELOPMENT EASED. FOR THE WEEK, WHEAT PRICES WERE DOWN MORE THAN TWO CENTS, CORN FUTURES WERE TWO TO THREE CENTS LOWER.

SOYBEAN FUTURES WERE DOWN FOUR TO SIX CENTS. SOYBEAN MEAL FINISHED THE WEEK $2.80 LOWER PER TON.COTTON FUTURES WERE DOWN 46-CENTS.

IN LIVESTOCK, FED CATTLE FUTURES GAINED $1.60. FEEDER CATTLE FINISHED 53-CENTS HIGHER. THE LEAN HOG CONTRACT GAINED $3.20.

IN THE FINANCIALS, COMEX GOLD GAINED $2.80 AN OUNCE. THE EURO CLOSED FOUR BASIS POINTS LOWER THAN THE DOLLAR. AND THE CRB INDEX FINISHED THE WEEK MORE THAN A POINT HIGHER TO CLOSE AT 211.

Market Analysis: Apr 14, 2000

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

Robinson: HELLO, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT ABOUT THIS MARKET, A LITTLE SOFTER THIS WEEK. LET'S TALK ABOUT WHEAT FIRST. SOME FOLKS GOING THROUGH KANSAS LAST WEEK, SAID THERE WAS SOME STANDING WATER OUT THERE.

Robinson: MARK, I THINK A COUPLE OF THINGS. THE RECENT STOCKS AND ALL POSITIONS REPORT INDICATED A PRETTY HEALTHY INVENTORY OF WHEAT, PREDOMINANTLY IN KANSAS, MONTANA, NEBRASKA, AND OKLAHOMA. THEY HAVE A CROP APPROACHING THEM HERE IN THE NEAR FUTURE, AND SPACE WILL NEED TO BE MADE AVAILABLE. SO IT IS LIKELY THAT PRESSURE WILL CONTINUE OUT OF THAT REGION AND MOVEMENT CONTINUE ON ANY KIND OF SHORT-COVERING BOUNCE, ANY KIND OF WEATHER CONCERN. I THINK THAT MARKET IS KIND OF RANGE BOUND HERE FOR NEXT SEVERAL WEEKS. MAYBE THE $2.45 TO $2.80 AREA, MARK, BASIS THE JULY AND SEPTEMBER FUTURES CONTRACT.

Pearson: AND AGAIN, BARRING WEATHER PROBLEMS, MAYBE LOOK AT MAKING SOME SALES IN THE HIGHER END OF THAT RANGE?

Robinson: YEAH, I THINK SO, PARTICULARLY THE OLD CROP IN THOSE REGIONS WHERE STOCKS ARE YET RELATIVELY LARGE AND A NEW CROP APPROACHING.

Pearson: LET'S TALK A LITTLE BIT ABOUT WHAT'S HAPPENING IN THE CORN MARKET. AGAIN, THERE'S SOME CORN IN THE GROUND. THE BIG CHUNKS OF THE CORN BELT REALLY HAVEN'T STARTED PUTTING MUCH CORN IN THE GROUND YET, BUT OF COURSE, THERE'S ALREADY BEEN A DROUGHT AS FAR AS THE CROP IS CONCERNED. WHAT'S AHEAD, VIRGIL? WHAT DO YOU SEE HAPPENING?

Robinson: WELL, TOUGH TO ANSWER REGARDING YOUR DROUGHT INQUIRY, MARK. THERE ARE MORE THAN JUST A FEW LONG-TERM FORECASTS OF MAJOR CONCERN. THAT WILL CONTINUE TO BE A PRIMARY FORCE FOR THE NEXT SEVERAL WEEKS. THAT ASIDE, THERE'S CLEARLY AN ADEQUATE SUPPLY OF OLD-CROP CORN, AS WELL AS COARSE GRAIN, AVAILABLE TO THIS MARKET OVER THE COURSE OF THE NEXT SEVERAL WEEKS. WE ARE YET FORECASTING A CARRYOUT OF 1.7 BILLION PLUS CORN AND NEARLY A BILLION BUSHEL WHEAT. AND IT'S INTERESTING TO NOTE, MARK, THAT FOR THE FIRST TIME IN THE LAST SEVERAL YEARS, THE RELATIONSHIP BETWEEN WHEAT FUTURES AND CORN FUTURES IS AS CLOSE TOGETHER OR AS NARROW AS IT'S BEEN. AND THAT CLEARLY IS AN INDICATION THAT WHEAT IS TRYING TO FIND ITS WAY INTO FEEDING RATIONS IN AN EFFORT TO CONSUME THAT PRODUCT. I DON'T THINK THAT PRESSURE WILL SUBSIDE. AS A FUNCTION OF THAT, I CAN ENVISION THE OLD-CROP CORN CONTRACT, AS TRACKED BY JULY, BOUND HERE IN A RANGE MAYBE FROM THE 250 TO 260 AREA, AT WHICH POINT, MARK, I WOULD GO AHEAD AND MAKE OLD-CROP SALES, IF YOU HAD CARRYING OLD-CROP GRAIN. I HAVE A GREAT RESPECT FOR THE WEATHER. AND WHEN ASKED THIS QUESTION SEVERAL WEEKS AGO, I'M A PROPONENT OF MINIMUM PRICE. I THINK DECEMBER CORN FUTURES WILL AGAIN TRACK BACK TO THE 65-AND-ABOVE AREA, AT WHICH POINT I WOULD UTILIZE THAT MINIMUM PRICE CONCEPT, PARTICULARLY IF IT HAPPENS BETWEEN NOW AND THE END OF APRIL.

Pearson: 265 ON DEC. CORN.

Robinson: OR HIGHER, MARK. I WOULD EMPLOY THOSE MINIMUM-PRICE CONTRACTS.

Pearson: ALL RIGHT. LET'S TALK ABOUT COTTON PRESSURE -- COTTON MARKET UNDER A LITTLE PRESSURE THIS WEEK. AND, OF COURSE, SOYBEAN MARKET ALSO UNDER SOME PRESSURE. THE SOUTH AMERICAN HARVEST ROLLING ALONG. AND THAT CROP IS GOING TO BE COMING OUR WAY.

Robinson: MARK, I JUST SAW THIS AFTERNOON, THE ARGENTINEAN HARVEST IS PEGGED AT 15 PERCENT, WHICH IS A LITTLE ABOVE NORMAL. BRAZILIAN PROGRESS AT 60 PERCENT, WHICH IS ABOUT NORMAL. THE USDA CHOSE TO INCREASE ARGENTINEAN PRODUCTION A MILLION METRIC TONS HERE IN THEIR LAST SUPPLY AND DEMAND REPORT. IT'S INTERESTING TO NOTE THAT THEY ALSO INCREASED THE IMPORT QUOTA FOR CHINA TO 5.3 MILLION METRIC TONS, WHICH WOULD BE RECORD LARGE IMPORTS, ALL OF THAT BEING SOURCED IN EITHER THE U.S. OR ARGENTINA. AND YOU'RE CORRECT... IN THE FORESEEABLE FUTURE, THE COMPETITION OUT OF THE SOUTHERN HEMISPHERE FOR NOT ONLY BEANS BUT ALSO PRODUCTS, INCLUDING MEAL AND OIL, WILL INTENSIFY. THAT SHOULD SERVE TO KEEP A CHECK IN OLD-CROP PRICES. AND THEREFORE, I THINK JULY SOYBEAN FUTURES AT OR NEAR 575 REPRESENTS, I THINK, A PRETTY GOOD SELLING OPPORTUNITY. MINIMUM PRICE STRATEGIES AS THE NEW CROP APPROACHES $6.

Pearson: OKAY, THOSE WILL BE OUR PARAMETERS. COTTON FUTURES UNDER SOME PRESSURE THIS WEEK. STILL 60 CENTS ON THE DECEMBER CONTRACT.

Robinson: YEAH, I THINK THE STEP-TWO PROGRAM IN COMBINATION WITH WHETHER CONCERNS SERVED TO CREATE A GENERAL SHORT COVERING AND BUYING RALLY IN THAT MARKET. WE'RE CURRENTLY FORECASTING ABOUT A 15.6-MILLION ACRE COTTON TO BE SOWN THIS SPRING, MARK, WHICH IS 5 PERCENT LARGER THAN LAST YEAR, SECOND LARGEST ACREAGE SINCE 1962. IN COMBINATION WITH THAT, THE USDA CHOSE TO INCREASE STOCKS 9 PERCENT IN THIS LAST REPORT AND SUBSEQUENTLY INCREASE WORLD CARRYOUT TO 42.6 MILLION BAILS. THOSE FACTORS SEEM PROHIBITIVE TO ME. AND I THINK THIS IS AN OPPORTUNITY TO CONTINUE TO MOVE THROUGH AND PROBABLY FINALIZE SOME PRICES IN OLD-CROP COTTON AND LOOK TO MINIMUM PRICE SOME NEW, $65 OR BETTER.

Pearson: LET'S GO OVER TO THE LIVESTOCK. IT WAS A BIG WEEK ON THE BOARD, ESPECIALLY FOR CATTLE.

Robinson: CATTLE MARKET PERFORMED WELL. MARK, THE MARKET IS ANTICIPATING THE SECOND HALF OF THIS YEAR TO SEE A DECREASE IN THE FED-CATTLE SCHEDULE, AS WELL AS A DECREASE IN WEIGHTS AND, THEREFORE, TONNAGE. FUTURES ARE PRICED IN ACCORDANCE TO THAT ASSUMPTION. I STILL THINK IT'S IMPORTANT TO PROTECT $70. I GUESS MY FORECAST HERE CASH WISE, IOWA, SOUTHERN MINNESOTA MARKET, I THINK THE $69 TO $73 AREA WILL CONTAIN CASH VALUES FROM NOW THROUGH THE BALANCE OF THIS CALENDAR YEAR.

Pearson: STRONG CATTLE PRICES THROUGH THE YEAR, THEN?

Robinson: YES, I THINK WE CAN MAINTAIN STRONG PRICES THROUGH THE YEAR.

Pearson: A LOT OF PEOPLE BUYING THESE CALVES RIGHT NOW, SEEMS A LITTLE PRICEY, BUT YOU THINK THEY'LL WORK INTO 2001?

Robinson: MARK, I HAVE MY RESERVATIONS, GIVEN WHAT YOU'VE JUST MENTIONED. I'D ALSO ADD THAT INPUT COSTS HERE ARE A FACTOR. IF I WERE PLACING CATTLE, PARTICULARLY RELATIVELY HIGH PRICED REPLACEMENT CATTLE, I'D MAKE SURE I HAD MY FEED INGREDIENTS PRETTY WELL IN HAND. BUT AGAIN, I THINK WE CAN SUSTAIN THIS $70 MARK FOR THE NEXT SEVERAL MONTHS. AGAIN MUCH WILL DEPEND ON HOW THE HOG MARKET REACTS AND HOG PRODUCERS REACT TO THE INCENTIVE THAT'S BEEN PUMPED INTO THE MARKET, AS WELL AS THE POULTRY PRODUCERS.

Pearson: YOU MENTIONED THE INCENTIVE IN HOGS AND CERTAINLY IT'S THERE THIS WEEK, AT LEAST ON THE BOARD. PRETTY MUCH STRAIGHT ACROSS TILL THE END OF THE YEAR TOO.

Robinson:, YOU KNOW, FARROW-TO-FINISH OPERATIONS ARE PEGGED TO BREAK EVEN IN THE MID 30S, MARK. AS WE VISIT TONIGHT, GIVEN A NORMAL BASIS FOR SOUTHERN MINNESOTA, STATE OF IOWA, JULY HOG FUTURES EQUATE TO ABOUT A $50 CASH, AS DO AUGUST. OCTOBER AT AROUND 47 AND DECEMBER AROUND 42. I THINK THOSE ARE VERY ATTRACTIVE, GIVEN WHAT WE ARE FORECASTING IN TERMS OF DISAPPEARANCE AND SUPPLY. PEOPLE NEED TO REMEMBER THAT THIS IS A YEAR WHERE AGGREGATE RED MEAT AND POULTRY MEAT PRODUCTION, AS WELL AS ENDING STOCKS, ARE FORECAST TO INCREASE VERSUS A YEAR AGO. SO THERE WILL BE NO SHORTAGE OF EDIBLE PROTEINS. I'D LIKE TO PROTECT SOME OF THOSE LEVELS WE'VE MENTIONED TONIGHT. I THINK IT'S IMPORTANT OVER THE COURSE OF THE NEXT SEVERAL MONTHS TO DO THAT.

Pearson: DO THAT AS A HEDGE? OPTIONS? WHAT WOULD YOU USE?

Robinson: WELL, IN THIS INSTANCE, I'M A PROPONENT OF OPTIONS. I LIKE THE IDEA OF CREATING MINIMUM PRICE. IT'S PROBABLY NOT PRACTICAL IN SOME OF THE CATTLE CONTRACTS AS WE VISIT TONIGHT. THEREFORE, I WOULD, IN FACT, UTILIZE EITHER FORWARD CASH CONTRACTS, PROVIDED THE BASIS IS ACCEPTABLE, OR FUTURES IF THE BASIS IS NOT.

Pearson: VERY GOOD. VIRGIL ROBINSON, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK AS WE TRACK THE IMPACT OF INFLATIONARY PRESSURE ON FINANCIAL MARKETS, AS WELL AS CONGRESSIONAL RESPONSE TO FLAGGING COMMODITY PRICES. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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