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Market Analysis: Mar 31, 2000

posted on March 31, 2000


GOVERNMENT NUMBERS THIS WEEK SHOWED THE FIRST SIGNS THE GRADUAL RATCHETING UP OF INTEREST RATES IS HAVING AN IMPACT ON THE ECONOMY.

HOME SALES FELL IN FEBRUARY AND CONSUMER CONFIDENCE IN MARCH DIPPED FOR THE SECOND STRAIGHT MONTH. BUT THE REVISED GROSS DOMESTIC PRODUCT FOR THE FINAL QUARTER OF 1999 WAS UP SHARPLY, LEADING ANALYSTS TO PREDICT THE FEDERAL RESERVE WILL CONTINUE ITS POLICY OF INCREMENTAL INTEREST RATE HIKES.

THE GRAIN MARKETS FINISHED THE WEEK ON THE UPSIDE FOLLOWING THE RELEASE OF THE USDA PROSPECTIVE PLANTINGS REPORT. FOR THE WEEK, WHEAT PRICES GAINED MORE THAN NINE CENTS, WHILE CORN PRICES WERE UP THREE TO FOUR CENTS.

SOYBEAN FUTURES GAINED 14-CENTS. SOYBEAN MEAL GAINED $2.10 PER TON. COTTON FUTURES WERE $1.32 LOWER.

IN LIVESTOCK, FED CATTLE FUTURES FINISHED THE WEEK 85-CENTS LOWER. FEEDER CATTLE FINISHED 30-CENTS LOWER. THE LEAN HOG CONTRACT FINISHED THE WEEK $1.63 HIGHER.

IN THE FINANCIALS, COMEX GOLD FINISHED THE WEEK DOWN $6.70 AN OUNCE. THE EURO CLOSED TWO-HUNDRED BASIS POINTS LOWER AGAINST THE DOLLAR. AND THE CRB INDEX CLOSED THE WEEK MORE THAN ONE-AND-A-HALF POINTS HIGHER TO CLOSE AT 213.15.

Market Analysis: Mar 31, 2000

HERE NOW TO LEND US THEIR INSIGHT ARE TWO OF OUR REGULAR MARKET TO MARKET ANALYSTS, WALT HACKNEY AND DOUG JACKSON. WELCOME BACK.

THANK YOU, MARK.

Pearson: BIG NEWS FRIDAY, OF COURSE, LONG AWAITED, THE PROSPECTIVE PLANTINGS REPORT, DOUG. POSITIVE REACTION IN THE PITS OF CHICAGO.

Jackson: THERE WAS NO BIG SURPRISES, MARK. WHAT WE'RE TRADING IS WEATHER PRIMARILY. IN THE CASE OF THE CORN, OF COURSE, ACREAGE WAS UP ABOUT 500,000. THAT WAS JUST SLIGHTLY ABOVE EXPECTATIONS. PERHAPS THE ONE SURPRISE, IF THERE WAS A SURPRISE, MAYBE IT WAS A LACK OF SURPRISE, IS THE FEED NUMBER WAS UNCHANGED, BASICALLY. THE STOCKS NUMBER IMPLIED NO UNUSUALLY LARGE FEED DEMAND. SOME OF THE INDUSTRY HAD BEEN LOOKING FOR THAT. SO WHAT WE'RE LEFT WITH NOW IN THE CORN MARKET IS REALLY NOTHING MORE OR LESS THAN A WEATHER MARKET. THERE'S 30 OR 40 CENTS DOWNSIDE IF WE HAVE GOOD WEATHER, BUT THERE IS, OF COURSE, EXPLOSIVE POTENTIAL TO THE UPSIDE IF WE HAVE ANY KIND OF BAD WEATHER AT ALL. WE'RE BASICALLY BALANCED ON SUPPLY DEMAND IN THE CORN WITH AVERAGE WEATHER. BUT WITH THE DRY WEATHER IN THE WESTERN BELT IN PARTICULAR, THIS MARKET IS GOING TO HOLD THESE VALUES, AND IF THINGS DON'T CHANGE IN THE WEST, WE'LL SLOWLY CONTINUE TO WORK HIGHER UNTIL WE CAN GET SOME REPLENISHING RAINS.

Pearson: WHAT ABOUT OVER ON THE WHEAT SIDE, DOUG? A LITTLE BIT BETTER RESPONSE, ANYWAY, ON FRIDAY.

Jackson: THE WHEAT MARKET IS LARGELY JUST FOLLOWING THE CORN, MARK. WE'RE STILL GOING TO HAVE BURDENSOME SUPPLIES. THE WHEAT STOCKS FIGURE IMPLIED A LITTLE BIGGER WHEAT FEEDING, WHICH MAKES SENSE WITH EXTREMELY NARROW WHEAT -- WE'VE GOT TODAY. ACREAGE CONTINUES TO DROP HERE SEVERAL YEARS IN A ROW NOW WITH ACREAGE DOWN ABOUT A MILLION BUT, AGAIN, NO MAJOR SURPRISES THERE. WE'RE STILL GOING TO HAVE RELATIVELY BURDENSOME WORLD SUPPLIES OF WHEAT, PARTICULARLY MAJOR EXPORTER SUPPLIES. U.S. CARRYOUT IS STILL GOING TO BE 7-, 800 MILLION NEXT YEAR. WITH THE WONDERFUL RAINS WE'VE HAD IN THE WHEAT BELT IN THE LAST FEW WEEKS, THE SITUATION HAS CHANGED DRAMATICALLY. PRODUCTION IS LOOKING BETTER AND THAT'S SIMPLY GOING TO BE A FEED GRAIN ALTERNATIVE. IT'S GOING TO FOLLOW CORN PRICE ACTION.

Pearson: LET'S TALK ABOUT THE SOYBEANS. AGAIN, THE SITUATION FOR SOYBEANS, YOU'VE GOT A FEW MORE ACRES OUT THERE BUT NOT AS MANY AS EXPECTED.

Jackson: WELL, WE HAD A MILLION MORE ACRES, A LITTLE MORE THAN THAT, MARK. THAT WAS NEAR TRADE EXPECTATION. FOR US THE REAL SURPRISE WAS THE STOCKS FIGURE, WHICH ONCE AGAIN IMPLIES A VERY UNUSUALLY LARGE RESIDUAL DISAPPEARANCE. WE HAVE A RESIDUAL DISAPPEARANCE NOW IN THE FIRST HALF OF THE YEAR. IT'S ACTUALLY LARGER THAN A YEAR AGO. THE GOVERNMENT IS FORECASTING A MUCH SMALLER ANNUAL RESIDUAL DISAPPEARANCE, AND THE STATISTICS SO FAR SUGGEST THAT THEY'RE SIGNIFICANTLY WAY BELOW WHAT EVENTUALLY IS GOING TO HAPPEN. MARK, THE BOTTOM LINE IS EVEN THOUGH CRUSH MAY BE DOWN A LITTLE BIT, EXPORTS ARE GOING TO BE UP. RESIDUAL LOSS IS BIGGER, WHICH IMPLIES A CROP OVERESTIMATION. CARRYOUT OF BEANS THIS YEAR IS GOING TO BE WELL BELOW 300 MILLION. REMEMBER A FEW MONTHS AGO WHEN WE THOUGHT IT WAS 600 OR 500, EVEN 400. NOW, TO US, IT LOOKS LIKE IT'S DOWN AROUND 270 MILLION. SO A SIGNIFICANTLY DIFFERENT SITUATION THAN WHAT WE THOUGHT JUST A FEW MONTHS AGO. IT DOESN'T MAKE IT REALLY BULLISH, BUT REALLY WE THINK OLD-CROP BEAN PRICES ARE FULLY JUSTIFIED WHERE THEY ARE. THIS JUST MAKES THE NEW-CROP SITUATION THAT MUCH MORE DELICATELY BALANCED. IF WE HAVE ANY KIND OF WEATHER PROBLEMS, WE'LL SEE STOCKS DECLINE NEXT YEAR AND BEAN PRICES MOVE UP. VERY DELICATELY BALANCED SITUATION. WE LOOK FOR A REAL VOLATILE BEAN MARKET. IT COULD GO BIG EITHER WAY, DEPENDING ON WHAT FINAL ACREAGE IS. WE HAVE A TENDENCY TO FIND MORE ACRES IN JUNE, SO WE'LL HAVE TO WATCH THAT. BUT RIGHT NOW WE DON'T SEE MUCH DOWNSIDE IN THE BEAN MARKET UNTIL WE CAN SHOW THAT WE'RE GOING TO GET MORE MOISTURE IN THIS CORN BELT.

Pearson: NOT IN A HURRY TO MAKE SALES ON CORN?

Jackson: WE'RE NOT IN A HURRY TO MAKE SALES ON EVERYTHING. LOTS OF POTENTIAL, LOTS OF SUMMER WEATHER SCARES TO GO IN THE FUTURE. WE'RE JUST GOING TO HANG ON AND WATCH.

Pearson: ALL RIGHT. WELL, OF COURSE, A LOT OF PEOPLE WILL BE WATCHING THIS VERY CLOSELY, PARTICULARLY THOSE IN THE LIVESTOCK SECTOR, WALTER. AND LOOK AT THIS CATTLE MARKET THIS WEEK. WE SAW SOME BIG CASH TOPS. WE SAW SOME PACKER CONCERN ABOUT SUPPLIES. WHAT'S AHEAD IN THE MEAT MARKET?

Hackney: WELL, I WOULD HAVE TO SUGGEST THAT PART OF OUR SLOWER MARKET, IF YOU WILL, THIS WEEK MAY BE A KNEE-JERK REACTION TO SOME OF THE HOOF-AND-MOUTH PROBLEMS INTERNATIONALLY, MAYBE AN E-COLI SCARE THAT MAY OR MAY NOT HAVE BEEN FACTUAL. THE MERCANTILE SEEMED TO DRIVE THAT ATTITUDE INTO THE EARLY PART OF THIS WEEK. WE LOST SOME GROUND. WE LOST ABOUT A DOLLAR, DOLLAR AND A QUARTER, MAYBE A HALF IN THE LIVE CATTLE THIS WEEK, BUT WE'RE FAIRLY OPTIMISTIC. WE KNOW THE INVENTORY IS VERY CURRENT. WE KNOW THE PACKER HIMSELF IS NEEDING CATTLE. THE THING WE'RE NOT AWARE OF AT THIS POINT IS HOW MUCH PERCENTAGE HAS HE GOT IN FORMULA CATTLE. WE DO KNOW THEY PULLED SOME EARLY APRIL CATTLE THIS WEEK IN ORDER TO COVER SOME HOLES IN THEIR KILL. THEY WEREN'T ABLE TO GET BOUGHT. WE DON'T KNOW GOING INTO NEXT WEEK IF THEY'RE AMPLY COVERED FOR SURE OR NOT. IF THEY'RE NOT, WE'LL SEE THE DRESS TRADE GO UP, PROBABLY, A GOOD DOLLAR A HUNDREDWEIGHT.

Pearson: ALL RIGHT, TALKING ABOUT THAT FORMULA OF PRICING AGAIN, AND THAT'S ALWAYS A CONFUSION OUT THERE FOR INDEPENDENT PRODUCERS.

Hackney: IT'S A CONFUSION FOR THE ENTIRE INDUSTRY. THE PROBLEM WITH IT AS YOU SAW THE PACKER AGGRESSIVELY LOWER THAT CASH PRICE THIS WEEK, THAT'S VERY INDICATIVE THAT NEXT WEEK HE'LL HAVE AN AMPLE SUPPLY OF FORMULA CATTLE SCHEDULED SIMPLY BECAUSE THOSE CATTLE ARE PRICED OFF OF THE PREVIOUS WEEK'S CASH FORMULA.

Pearson: TAKE US ON OUT TO PAST JUNE, WALT. CERTAINLY WE'RE MOVING SOME BEEF AT THE BARBECUE LEVEL RIGHT NOW, WITH THE GRILLING SEASON COMING ABOUT FOUR WEEKS EARLY FOR A BIG PART OF THE MIDWEST.

Hackney: WELL, THIS ENTIRE AREA IS COVERED WITH ONE OF THE MORE OPEN SPRINGS WE'VE HAD FOR A LONG TIME, AND YOU'RE TOTALLY CORRECT. WE DON'T KNOW HOW THE RAMIFICATION OF THAT IS REALLY GOING TO AFFECT BEEF CONSUMPTION, BUT WE ANTICIPATE EXCELLENT CONSUMPTION, WE ANTICIPATE A GOOD AGGRESSIVE BEEF TRADE, PROGRESSIVELY NOW AS WE GO TO JUNE. MANY OF US WOULD HAVE TO INDICATE $73, $74 FAT CATTLE.

Pearson: ALL RIGHTY. NOW, THE CONCERN STARTS AFTER LABOR DAY THIS YEAR. WHAT'S GOING TO HAPPEN THEN, WALT? TAKE US INTO THE FOURTH QUARTER.

Hackney: WELL, GOING INTO THE FOURTH QUARTER, WE'RE NOT AT ALL PESSIMISTIC ABOUT THE CATTLE MARKET. WE THINK THE GENERAL SUPPLY OF CATTLE IS RESTRICTED ENOUGH, MARK, THAT IF OUR USAGE IS AMPLE, IF WE CAN KEEP THE CONSUMPTION COMING AS IT HAS BEEN, WE DON'T HAVE A GREAT DEAL OF FEAR OF THAT FOURTH-QUARTER MARKET IN THE BEEF INDUSTRY.

Pearson: LET'S GO OVER TO THE HOG MARKET. STRONG WEEK ON THE BOARD FOR HOGS. $50 CASH HOGS OUT THERE IN THE COUNTRY THIS WEEK. WHAT'S AHEAD FOR PORK? ARE WE PEAKING HERE?

Hackney: I THINK WE'RE PROBABLY A MONTH, MAYBE SIX WEEKS PREMATURE HERE WITH THIS 45 TO 50-CENT CASH MARKET. I WOULD NOT SUBSCRIBE THAT THAT PIG CROP REPORT IS TOTALLY ACCURATE. I WOULD HAVE TO BELIEVE THAT WE DID, IN FACT, RETAIN MORE SOWS FOR BREEDING AND POSSIBLY KEPT MORE GILTS FOR BREEDING THAN THE REPORT REFLECTS. I DON'T SUBSCRIBE THAT BY EARLY SUMMER WE'LL HAVE A FEDERAL INSPECTED SLAUGHTER DOWN AROUND 1.7. I BELIEVE IT WILL BE HIGHER THAN THAT, PROBABLY MORE LIKE 1.885. ALL THOSE THINGS MIGHT MAKE YOUR POINT VERY ACCURATE THAT WE COULD BE PEAKING IN THE CASH TRADE SOMEWHERE IN THIS AREA. I THINK THE ONE THING TO STRESS ON THE PORK SIDE, MARK, IS REGARDLESS OF WHERE CASH REALLY GOES, THIS MARKET IS GIVING A PORK PRODUCER AN UNBELIEVABLE ACCESS TO PROFITS THROUGH A GOOD, AGGRESSIVE HEDGE PROGRAM. THEY ABSOLUTELY SHOULD BE TAKING ADVANTAGE OF THAT, PARTICULARLY WITH THESE CHEAP RATIONS THAT THEY CAN LOCK IN RIGHT NOW.

Pearson: ALL RIGHT, WOULD YOU GO OUT AND LOOK TO HEDGE MAYBE THOSE SUMMER HOGS?

Hackney: OH, ABSOLUTELY, MAYBE CASH WILL GO TO 55, BUT YOU CAN LOCK IN NEARLY 50 FOR MIDSUMMER, ON A GUARANTEED CASH FLOW FORMULA, ON A CONTRACT PROGRAM. YOU CAN LOCK IN A FULL YEAR FOR NEARLY 45 CENTS A POUND, MARK, THAT DOESN'T INCLUDE ADDED VALUE IN THESE HOGS. THAT'S SIMPLY BASE PRICE. WITH A 35-CENT FARROW-TO-FINISH COST OF PRODUCTION, I CAN'T REALLY BELIEVE THAT A LOT OF THESE PRODUCERS SHOULD NOT BE DOING THAT.

Pearson: GOOD POINT. WALTER, THANK YOU VERY MUCH. DOUG, THANK YOU. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK AS WE TRACK THE IMPACT OF SPRING PLANTING PROGRESS AND VOLATILE WEATHER DRIVEN MARKETS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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