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Market Analysis: Mar 24, 2000

posted on March 24, 2000


IF THERE'S ANY DOUBT, WHICH THE NATION'S BUSINESS COMMUNITY FEARS MOST, INFLATION OR HIGHER INTEREST RATES, THAT DOUBT WAS REMOVED THIS WEEK. THE FED RAISED INTEREST RATES TO SLOW WHAT IT WORRIES IS UNSUSTAINABLE ECONOMIC GROWTH. STOCK MARKETS, SWADDLED IN THE COMFORT OF SUCH MONETARY PATERNALISM, SOARED. SOME INDICES BROKE THROUGH RECORD LEVELS.

THE GRAIN MARKETS FINISHED THE WEEK ON THE DOWNSIDE FOLLOWING SOME RAINFALL IN THE CORNBELT. FOR THE WEEK, WHEAT PRICES FINISHED THE WEEK MORE THAN 19-CENTS LOWER. CORN PRICES WERE DOWN MORE THAN EIGHT CENTS.

SOYBEAN FUTURES WERE DOWN SIX TO EIGHT CENTS. SOYBEAN MEAL CLOSED THE WEEK $1.70 LOWER PER TON. COTTON FUTURES WERE DOWN $2.75.

IN LIVESTOCK, FED CATTLE FUTURES GAINED $1.10. FEEDER CATTLE GAINED $1.27. THE LEAN HOG CONTRACT GAINED A NICKEL.

IN THE FINANCIALS, COMEX GOLD FINISHED A DIME HIGHER PER WEEK. THE EURO GAINED MORE THAN A POINT AGAINST THE DOLLAR, AND THE CRB INDEX FINISHED THE WEEK NEARLY THREE-AND-A-QUARTER POINTS LOWER TO CLOSE AT 211.55.

Market Analysis: Mar 24, 2000

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, ONE OTHER BIG MARKET MOVING FACTOR THIS WEEK WAS THE USDA'S HOGS AND PIGS REPORT FRIDAY AFTERNOON. THE PEOPLE WERE LOOKING FOR A REDUCTION. WAS IT ALL THAT EVERYONE WAS EXPECTING?

Pfitzenmaier: WELL, IT WAS A REDUCTION. IT WAS WITHIN A PERCENT IN EVERY CATEGORY. ALL MARKET HOGS WAS ABOUT A PERCENT HIGHER THAN WHAT PEOPLE WERE EXPECTING, SO PERCEPTION IS THAT MAYBE THAT'S GOING TO BE A LITTLE BEARISH ON MONDAY MORNING ON THE FRONT END. THE BACK END, THE KEPT-FOR-BREEDING NUMBER, WAS A LITTLE LOWER THAN PEOPLE EXPECTED FEELING THAT MAYBE THAT'S GOING TO BE A LITTLE SUPPORTED TO THE BACK END OF THE MARKET. PROBABLY AN HOUR AFTER THE OPENING ON MONDAY MORNING, IT WON'T MATTER TOO MUCH AND WE'LL BE BACK TO FUNDAMENTALS OF THE MARKET, BUT AT LEAST WE'VE GOT THAT BEHIND US, WE KIND OF KNOW WHERE WE'RE AT, WE KNOW THAT THE ESTIMATES WERE NOT THAT FAR OFF. WE RALLIED BASICALLY PRETTY HARD INTO THAT MARKET OVER THE LAST FEW MONTHS AND PARTICULARLY ON FRIDAY, SO YOU'VE GOT TO FIGURE THAT ANY FRIENDLINESS THAT WAS COMING IS PROBABLY FACTORED IN. SO I THINK WE'RE BACK TO DEMAND AND HOW THE NUMBERS SHAPE UP HERE.

Pearson: AND LIKE I SAY, DOWN THE ROAD, IT MAY PRETEND FOR BETTER PRICES. RIGHT NOW IN THE NEXT 60 DAYS, TOMM, YOU'VE BEEN VERY FRIENDLY TO THE HOGS. IS THAT STILL THE CASE?

Pfitzenmaier: WELL, WE'RE IN A SOLID UPTREND. DEMAND IS GOOD. EVERYTHING ABOUT THE MARKET IS SHAPING UP PRETTY WELL HERE, SO I DON'T KNOW THAT YOU NEED TO GET IN ANY HUGE HURRY. OBVIOUSLY THESE ARE GOOD PRICES, PARTICULARLY RELATIVE TO WHERE WE'VE BEEN. EVEN RELATIVE TO WHERE IT LOOKS LIKE WE'RE GOING TO BE, IF YOU LOOK OUT INTO THE DISTANT FUTURE SO MAYBE TAKE A LITTLE PIECE OF THAT BY VIRTUE OF BUYING A PUT OR SOME STRATEGY ISN'T ALL THAT BAD. BUT THE TREND IS UP AND I GUESS YOU STAY WITH THAT UNTIL THE MARKET TELLS YOU THAT IT'S READY TO CHANGE.

Pearson: ANOTHER TREND THAT HAS BEEN UP HAS BEEN ON THE CATTLE SIZE, CERTAINLY THE BEEF MARKET HAS BEEN GOOD. AGAIN, YOU'VE BEEN FRIENDLY ON BEEF. ARE WE GOING TO CONTINUE THAT?

Pfitzenmaier: PROBABLY ON THE BEEF MARKET, WE'VE BEEN IN A NICE UPTREND. WE'VE PROBABLY SWITCHED TO MORE OF A SIDEWAYS PATTERN, AND I THINK THAT'S GOING TO CONTINUE. WE'VE GOT A FAIRLY GOOD CHUNK OF BEEF WE HAVE TO CHEW THROUGH HERE -- PARDON THE PUN -- OVER THE NEXT FEW MONTHS. AND I THINK ONCE THAT'S DONE, THEN WE'VE GOT THE POTENTIAL FOR DECENT CATTLE PRICES AGAIN. JUNE IS IN A RANGE OF -- THE LOW END IS 68; THE HIGH END IS 72. YOU KNOW, THE ECONOMY FOR ALL THE MEATS HAS BEEN VERY POSITIVE. DEMAND SHOULD CONTINUE TO BE VERY GOOD AND SHOULD BE WELL SUPPORTED.

Pearson: YOU'RE NOT IN A HURRY TO LOCK HEDGES IN OR ANYTHING LIKE THAT?

Pfitzenmaier: NO, I WOULDN'T HEDGE IT, PER SE, IN TERMS OF FUTURES HEDGING. I'M A BIG BELIEVER IN BUYING PUTS BECAUSE THINGS CAN HAPPEN THAT YOU DON'T EXPECT, AND HAVING A LITTLE SAFETY NET THERE NEVER HURTS, BUT I'D BE REAL HESITANT TO ACTUALLY JUST FLAT OUT SELL THE FUTURES.

Pearson: LET'S GO OVER TO THE GRAINS. THIS WEEK WE DID HAVE A LITTLE BIT OF RAIN. IT SEEMS ODD TO BE TALKING ABOUT A DROUGHT IN MARCH. REALLY, THAT'S WHAT WE'VE BEEN DOING. THE MARKET HAS BEEN TRADING -- ARE WE KIND OF BEYOND THAT NOW?

Pfitzenmaier: WE CERTAINLY AREN'T BEYOND IT; WE'RE HEADING INTO IT. I THINK THAT'S ALL WE'RE GOING TO TALK ABOUT THE NEXT 90 DAYS. I THINK A FACTOR THAT WE PROBABLY SHOULD PUT MORE EMPHASIS ON THAN THE DROUGHT IS THE DEMAND HAS BEEN GOOD. BEAN DEMAND HAS BEEN GOOD AND CORN DEMAND HAS BEEN GOOD, AND THAT'S REALLY BEEN HELPFUL. ON THE OTHER SIDE OF THE COIN, A WHEAT DEMAND HAS BEEN TERRIBLE. THE CROP IS IMPROVING. THAT'S GOING TO BE A DRAG ON THE CORN MARKET.

Pearson: WITH WHEAT PRICES, LIKE YOU SAY -- WITH THE MOISTURE THAT WE HAD, IT HAS IMPROVED CROP PROSPECTS AND THERE'S PLENTY OF WHEAT OUT THERE.

Pfitzenmaier: YEAH, THERE IS. AND IT'S TO THE POINT WHERE IT'S COMPETITIVE WITH CORN IN TERMS OF FEED USAGE, AND THAT'S REALLY GOING TO BE A PROBLEM. MAYBE A LITTLE BENEFICIAL TO WHEAT, MAY SUPPORT IT, BUT WE HAD A NICE LITTLE UPTREND GOING, AND THAT'S BEEN BASICALLY DESTROYED IN WHEAT. THE FUNDS HAVE ESTABLISHED BIG SHORT POSITIONS. IF WE TAKE THIS WHEAT TOO MUCH LOWER, WE'RE GOING TO RESUME THE DOWNTREND IN WHEAT, WHICH IS NOT REALLY GOOD NEWS FOR THE WHOLE GRAIN COMPLEX.

Pearson: LIKE YOU SAY, THE DEMAND HAS BEEN ON THE POSITIVE SIDE. TALK A LITTLE BIT ABOUT THE CORN MARKET. IN PARTICULAR, WE'VE HAD A NICE RALLY IN HERE. YOU'VE ALWAYS TALKED ABOUT 250 AND DECEMBER CORN AS BEING A PLACE TO MAKE SOME SALES.

Pfitzenmaier: WE REALLY RALLIED UP TO -- THAT 262 AREA WAS THE NEXT SORT OF LEVEL OF RESISTANCE. WE WENT OUT AND TESTED THAT. SORT OF TOOK IT OUT A LITTLE BIT. THAT PROBABLY WASN'T A BAD PLACE, IF WE CAN GO RETEST THAT, TO START MAKING A FEW SALES. NOW, EVERYBODY IS APPREHENSIVE ABOUT DOING THAT BECAUSE, LIKE YOU SAY, WE'VE GOT THIS WEATHER CONCERN AND A WEATHER SCARE. YOU HAVE TO BE A LITTLE CAUTIOUS ABOUT IT. A LOT OF THE PEOPLE THAT YOU TALK TO THAT ARE EXPERTS IN WEATHER SAY, WELL, YOU KNOW, THE ODDS OF A DROUGHT ARE DOUBLE. WELL, THAT STILL MAKES THEM FROM 15 PERCENT TO 30 PERCENT. IT STILL MEANS 70 PERCENT CHANCE WE'RE NOT GOING TO HAVE A DROUGHT. AND I THINK THE POTENTIAL THIS YEAR FOR FARMERS TO MAKE MONEY IS REALLY PHENOMENAL. WE COULD VERY EASILY HAVE A NICE RALLY IN THE SPRING BEFORE THE CROP IS PLANTED, FACTOR IN THE WORST-CASE SCENARIO, GO IN WITH A RELATIVELY DRY SPRING WHERE YOU GET EVERYTHING PLANTED REALLY NICE, AND THEN GO AHEAD AND START HAVING SOME RAIN COME THROUGH. A LOT OF THESE DROUGHTS ARE BROKEN ON THE EAST AND TEND TO WORK THEIR WAY PACK. IT'S RAINING OUT ON THE EAST COAST. IF THAT MOVES ITS WAY BACK, WE COULD HAVE THE POTENTIAL FOR JUST A FABULOUS INCOME YEAR IN AGRICULTURE, I THINK.

Pearson: BUT TO TAKE ADVANTAGE OF THAT, WE'D HAVE TO BE DOING SOMETHING RIGHT NOW IN THE NEXT 30 TO 60 DAYS.

Pfitzenmaier: EXACTLY. YOU'VE GOT TO USE THESE OPPORTUNITIES, AND YOU CAN DO THAT. THERE'S GOING TO BE, I THINK, EXCELLENT PUT OPPORTUNITIES WHERE THE -- BUY A 250 DECEMBER CORN PUT, SELL A $3 CALL TO PAY FOR IT, OR JUST FLAT OUT BUY THE PUT. THERE'S GOING TO BE SOME REALLY GOOD OPPORTUNITIES IN THE OPTIONS THAT STILL GIVE YOU THE UPSIDE POTENTIAL IF THERE IS A BIT OF A PROBLEM OR IF THERE IS AN UPSIDE. IF THERE'S A HUGE DROUGHT THIS SUMMER, THERE IS UPSIDE. I'M NOT DENYING THAT FACT. I'M JUST SAYING THAT ODDS ARE AGAINST IT. IF YOU'RE PLAYING THE ODDS AND TRYING TO ESTABLISH MARKETING PLANS, STATISTICALLY, YOU'RE PROBABLY BETTER OFF MAKING SALES THAN TRYING TO BET ON SOME HUGE RALLY.

Pearson: ABSOLUTELY. SAME THING IS TRUE ON THE BEANS?

Pfitzenmaier: OH, ABSOLUTELY, ABSOLUTELY. AND THE OTHER PROBLEM BEANS ARE GOING TO HAVE IS RELATIVELY SOON, BUT IMMEDIATELY, BUT RELATIVELY SOON, YOU'RE GOING TO SEE COMPETITION FROM SOUTH AMERICA AND THAT CROP IS GOING TO START TO MOVE. YOU KNOW THAT DROUGHT WE THOUGHT WE HAD DOWN THERE IN JANUARY TURNED OUT TO BE -- IT'S TURNING OUT TO BE AN EXCELLENT CROP DOWN THERE, AND THAT'S GOING TO MOVE OUT INTO THE MARKET TO TOO.

Pearson: THAT'S GOING TO BE A FACTOR HERE IN THE SHORT-TERM. AND THEN LONGER TERM, LIKE YOU SAY, TYPICALLY THIS IS USUALLY WHEN WE GET OUR BEST OPPORTUNITY TO GET THE CROPS --

Pfitzenmaier: LOTS AND LOTS OF TIMES, YOU FACTOR IN THE WORST-CASE SCENARIO BEFORE YOU EVER PLANT THE CROP. ALWAYS THERE'S SOME COMPELLING REASON NOT TO MAKE A SALE: THERE'S LA NINA; THERE'S EL NINO; THERE'S THIS, THAT, AND THE OTHER. THERE'S ALWAYS SOMETHING THAT MAKES YOU GO, "MAN, I CAN'T SELL ANYTHING ON THAT RALLY." AND INVARIABLY, WHEN THE FALL ROLLS AROUND, NINE YEARS OUT OF TEN, YOU GO, "MAN, I WISH I WOULD HAVE SOLD MORE BACK THEN." AND I THINK THIS IS GOING TO BE ANOTHER ONE OF THOSE YEARS WHERE, YES, THAT POTENTIAL FOR A DROUGHT EXISTS; BUT I DON'T THINK YOU SHOULD NECESSARILY BASE YOUR WHOLE MARKETING PLAN ON THAT.

Pearson: WHAT KIND OF PRICE DO YOU WANT TO GET THOSE PUTS IN?

Pfitzenmaier: IF YOU CAN GET THE DECEMBER 250 PUT SOMEWHERE DOWN IN THAT 15-CENT AREA, I THINK THAT WOULD BE A GOOD PLACE TO START TYING INTO SOMETHING. I WOULD BE A SELLER OF CALLS TO COUNTERBALANCE THAT, BUT IF YOU'RE NOT COMFORTABLE WITH THAT, JUST FLAT BUYING THE PUT IS PROBABLY ALL RIGHT TOO.

Pearson: REALLY QUICKLY OVER ON THE COTTON, TOMM, BIG SELLOUT THIS WEEK.

Pfitzenmaier: THIS MOISTURE THAT'S STARTED IN TEXAS AND MOVING THIS WAY ACROSS THE SOUTH HAS REALLY BEEN BENEFICIAL, AND THAT'S REALLY PRECIPITATED THIS WHOLE DROP IN THE COTTON MARKET. AND YOU GET COTTON -- IT COULD RECOVER. YOU GET COTTON UP IN THAT 64-, 65-CENT AREA, YOU NEED TO BE A SELLER.

Pearson: ALL RIGHT, SOME GOOD POINTS, AS USUAL, TO PONDER. WE APPRECIATE IT VERY MUCH, TOMM PFITZENMAIER. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE TAKE A VERY HARD LOOK AT PUBLIC RELATIONS. THE CORE OF THE DEBATE OVER GENETICALLY MODIFIED FOOD. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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