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Market Analysis: Mar 03, 2000

posted on March 3, 2000


GOVERNMENT NUMBERS THIS WEEK INDICATE THE ECONOMY IS SLOWING TO WHAT MANY ECONOMISTS VIEW AS A SUSTAINABLE PACE. SHARPLY LOWER HOME SALES, A SLIGHTLY HIGHER UNEMPLOYMENT RATE, AND NUMBERS SHOWING WAGES ARE NOT INCREASING, BUTTRESSED THAT VIEW. STOCK INDICES SOARED ON THE NOTION THE GOOD TIMES ARE GOING TO LAST A BIT LONGER.

THE GRAIN MARKETS FINISHED THE WEEK MIXED AS THE TRADE CONTINUES TO MONITOR PRODUCTION AND DEMAND. FOR THE WEEK IN CHICAGO, WHEAT PRICES WERE FRACTIONALLY LOWER. CORN PRICES GAINED MORE THAN A NICJEL.

SOYBEAN PRICES WERE MORE THAN SEVEN CENTS HIGHER. SOYBEAN MEAL FINISHED THE WEEK $360 HIGHER PER TON.

COTTON FUTURES POSTED GAINS OF MORE THAN TWO DOLLARS.

IN LIVESTOCK, FED CATTLE FUTURES FINISHED THE WEEK $1.65 HIGHER. FEEDER CATTLE GAINED $1.10. THE LEAN HOG CONTRACT GAINED $1.70.

IN THE FINANCIALS, COMEX GOLD FINISHED $2.70 LOWER. THE EURO FINISHED MORE THAN A POINT LOWER AGAINST THE DOLLAR. AND THE CRB INDEX FINISHED THE WEEK MORE THAN FOUR POINTS HIGHER TO CLOSE AT 211.20.

Market Analysis: Mar 03, 2000

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

Robinson:, THANK YOU, MARK. GOOD TO BE HERE.

Pearson: WELL, LET'S TALK A LITTLE BIT. THE WHEAT MARKET, NOT MUCH ACTIVITY THIS WEEK. APPARENTLY 247.5 ON THAT MARCH CONTRACT. WHAT'S AHEAD? WHAT'S DOWN THE ROAD? IT WON'T BE LONG AND WE'LL BE HARVESTING WHEAT.

Robinson: MARK, I THINK EXPORTS CONTINUE TO RUN AT A SLOWER PACE THAN 98-99 AND BELOW THE FIVE-YEAR AVERAGE; AND, OF COURSE, THAT CONTINUES TO BE A REAL PROBLEM FOR WHEAT. WE DID HAVE, LAST WEEK, PRETTY GOOD MOISTURE MOVE THROUGH MUCH OF THE WINTER PRODUCING AREAS. AND AS A RESULT, CROP PROSPECTS, I THINK, HAVE IMPROVED, MARK. SO A LONG STORY SHORT HERE, THERE'S AN ADEQUATE SUPPLY OF OLD. WE'RE TALKING ABOUT DRAGGING ABOUT A BILLION BUSHELS OF LAST YEAR'S CROP INTO THE BREACH OF NEW. COMPETITION, PARTICULARLY FROM AUSTRALIA AS WELL AS VARIOUS COUNTRIES IN EUROPE, REMAINS VERY INTENSE. PROSPECTS ARE NOT PARTICULARLY BRIGHT. I THINK 10- TO 14-CENT RALLIES IN OLD CROP AS WELL AS NEW SHOULD BE USED, MARK, FOR CREATING SALES AND/OR AT A MINIMUM PRICE.

Pearson: ALL RIGHT, WHAT ABOUT ON THE CORN SIDE? A LITTLE BIT STRONGER WEEK THIS WEEK. THERE SEEMS TO BE SOME OPTIMISM BREWING OUT THERE IN CORN. CAN YOU PUT THE WORDS ON THAT, VIRGIL?

Robinson: WELL, I THINK DISAPPEARANCE HAS BEEN RELATIVELY GOOD, MARK. WE'LL HAVE A NEW PRODUCTION SUPPLY AND DEMAND UPDATE NEXT FRIDAY. I'M IN HOPES THEY'LL LEAVE EXPORT PROJECTIONS UNCHANGED, AS RIGHT NOW CUMULATIVE EXPORTS ARE RUNNING ABOUT 4 TO 5 PERCENT AHEAD OF LAST YEAR. DOMESTIC USAGE REMAINS SOMETHING OF A PUZZLE IN THAT THERE'S A LOT OF COMPETITION, MARK. ONE OTHER FACTOR THAT'S MAYBE SUPPORTING AN UNDERPINNING CORN FUTURES IS THE FACT THAT SEASONALLY, AT LEAST AS MEASURED BY THE LAST 20 YEARS, IN 13 OF THOSE LAST 20 YEARS, MARK, PRICES HAVE HAD A TENDENCY TO IMPROVE, ALBEIT MODESTLY, FROM ABOUT THE END OF FEBRUARY TO ABOUT MID, LATE APRIL. THIS YEAR PROBABLY ALIGNING MUCH THE SAME WAY. HOWEVER, THAT BEING THE CASE, THERE'S STILL A LOT OF OLD CROP CORN AND/OR GRAIN IN THE FORM OF WHEAT, SORGHUM, BARLEY, AND SO ON TO BE MERCHANDISED. SO I DON'T THINK WE HAVE ANY KIND OF A MAJOR RUN IN FRONT OF US. MARCH AND MAY FUTURES, 5- TO 10-CENT RALLIES FROM TONIGHT'S CLOSES, MARK, I THINK SHOULD BE USED FOR MERCHANDISING AND SELLING OLD-CROP GRAIN. NEW CROP, WE HAVE THE UNCERTAINTY OF THE WEATHER. WE'LL HAVE ACREAGE INTENTIONS, PLANTING INTENTIONS, 31ST OF MARCH, WHERE NOW IT IS ASSUMED WE'LL SOW AN ACREAGE VERY SIMILAR TO LAST YEAR. IF IT GROWS AND PRODUCES A TRENDLINE, ANOTHER LARGE CROP WOULD BE CLEARLY ON TAP. SO GIVEN THAT SCENARIO, I THINK NEW-CROP FUTURES AT A MINIMUM, MARK, 255 TO -60, SOMEWHERE IN THAT VICINITY, I WOULD BE CREATING SOME MINIMUM PRICE OR PRICE FLOORS.

Pearson: LET'S TALK ABOUT THE SOYBEANS, ALSO A LITTLE BIT STRONGER WEEK THIS WEEK. AS YOU LOOK DOWN THE ROAD, IT SEEMS LIKE THE SOUTH AMERICAN CROP IS MUCH LESS OF A QUESTION NOW THAN IT WAS A COUPLE OF WEEKS AGO AND IT LOOKS LIKE THERE'S GOING TO BE PLENTY OF BEANS PLANTED HERE IN THE U.S. BASED ON PROJECTIONS AND WHAT WE'RE HEARING. SO WHAT'S YOUR OUTLOOK NOW IN THE BEANS?

Robinson: MARK, MUCH THE SAME. WE'VE GOT AN OLD-CROP SUPPLY IN THE UNITED STATES AND GLOBALLY THAT'S CERTAINLY ADEQUATE TO MEET PROJECTED DEMAND, WITH THE UNCERTAINTY, OF COURSE, OF THE GROWING SEASON IN FRONT OF US REGARDING NEW CROP. SUPPORTING FACTORS, I THINK, THERE'S BEEN SOME INCLEMENT POOR WEATHER IN PARTS OF NORTHERN BRAZIL. IT'S BEEN VERY WET. AS A RESULT, HARVEST IS RUNNING AT A PACE MUCH BEHIND THE PREVIOUS YEAR AND FIVE-YEAR AVERAGE. AS A FUNCTION OF THAT, SOME OF THE BUSINESS THAT PERHAPS WOULD HAVE ORIGINATED THERE HAS SWUNG BACK TO THE U.S. THAT HAS UNDERPINNED OUR MARKET. COMBINED, I THINK WITH THAT IS THE FACT THAT EXPORT SALES, MARK, AND TOTAL COMMITMENTS ARE RUNNING AT A PACE OF ABOUT 17 PERCENT ABOVE LAST YEAR. IT WOULD NOT SURPRISE ME TO SEE IN THE NEXT S AND P, A MODEST DECREASE AGAIN IN U.S. SOYBEAN CARRYOUT. SO WE'VE HAD SOME SUPPORTIVE FACTORS. IN ADDITION TO THAT, AS MENTIONED, THE SEASONALITY, IT IS NOT UNCOMMON. AS A MATTER OF FACT, IN 14 OF THE LAST 20 YEARS, FROM AROUND THE END OF FEBRUARY TO AROUND THE END OF APRIL, WE'VE SEEN SOME MODEST PRICE INCREASES. SO THERE ARE SOME SUPPORTIVE FACTORS HERE, MARK, AND I THINK IT WILL KEEP OLD-CROP VALUES RELATIVELY FIRM. TO EXPECT A SIGNIFICANT RUN HIGHER IN PRICE, I DON'T THINK IS LIKELY, BARRING A WEATHER CATASTROPHE IN THE SOUTHERN HEMISPHERE OR SIGNIFICANT DELAYS IN LOSS. SO AGAIN, I WOULD USE, AT THIS POINT, ANY 15- TO 30-CENT BOUNCE IN OLD-CROP SOYBEAN VALUES TO MARKET, REMAINING OLD CROP OR AT LEAST A GOOD PORTION OF THEM. AND I WOULD BE USING THAT SAME KIND OF RALLY TO CREATE MINIMUM PRICE OR PUT STRATEGIES BELOW THE NEW, MARK.

Pearson: HOW MUCH OF THE NEW CROP DO YOU WANT TO GET SOLD? I THINK I MENTIONED IT ONE TIME PREVIOUSLY, 15 TO 20 PERCENT. I'D ADD ANOTHER 15 TO 20 PERCENT. I WOULDN'T BE OVER 35 OR 40 BY THE END OF APRIL. ONE OTHER THING HERE, MARK, CRUSHING MARGINS HAVE BEEN POOR OF LATE AND AS A RESULT, CAPACITIES HAVE DECLINED. GOODS NEWS - BAD NEWS, I THINK WE'RE CREATING LESS PRODUCT, LESS MEAL, LESS OIL. BASIS HAS STRENGTHENED IN BOTH OF THOSE PRODUCTS. MEAL BASIS WILL PROBABLY CONTINUE TO STRENGTHEN. IF I WERE LOOKING TO BUY MORE AGGRESSIVELY IN THE SOY COMPLEX, I WOULD PROBABLY DESIGNATE MEAL AS THAT VEHICLE.

Pearson: QUICKLY, VIRGIL, OVER ON THE COTTON; A BIG WEEK OVER ON COTTON THIS WEEK. THE MARCH CONTRACT UP AROUND 59 OR BETTER. IS THIS A PLACE TO MAKE SALES?

Robinson: YEAH, I THINK IT IS, MARK. STEP TWO HAS KICKED IN AND EXPORTS HAVE IMPROVED OF LATE. NOW, THERE IS GLOBAL COMPETITION. THE LAST GLOBAL S AND D, WORLD SUPPLIES WERE INCREASED 1 PERCENT, SO THERE'S PLENTY OF COMPETITION. I THINK I'D USE THIS 60-CENT BARRIER IN OLD-CROP COTTON FUTURES AND NEW TO CREATE SALES AND AT LEAST MINIMUM PRICE SALES IN THE NEW CROP.

Pearson: ALL RIGHT, LET'S TALK LIVESTOCK. YOU'VE BEEN FRIENDLY TO CATTLE FOR MORE THAN A YEAR NOW. AGAIN, A GOOD WEEK ON THE BOARD AS FAR AS THE CATTLE MARKET IS CONCERNED. A GOOD WEEK IN THE CASH. WHAT'S AHEAD NOW? WE'VE KIND OF HAVE BEEN STALLING OUT SOME IN HERE.

Robinson: I THINK THE MARKET PERCEIVES A SLOWING OF SHOW LISTS, AND THAT SOON WILL DEVELOP, I THINK, MARK. IT DIDN'T THIS WEEK. SLAUGHTER AND PRODUCTION WAS ACTUALLY LARGER THIS WEEK THAN LAST, BUT IN THE NEAR FUTURE, I THINK THAT, IN FACT, WILL BE THE CASE. BEEF PRODUCTION IS FORECAST TO DECLINE ABOUT 3 PERCENT THIS YEAR VERSUS LAST. ENDING STOCKS DOWN ABOUT 11 PERCENT VERSUS LAST. SO FROM A SUPPLY PERSPECTIVE, THERE'S REASON HERE TO BE OPTIMISTIC AND/OR BULLISH. THE CAUTIONARY NOTES, AT LEAST IN MY OPINION, MARK, THE AGGREGATE OF RED-MEAT PRODUCTION AND POULTRY PRODUCTION IS FORECAST TO BE ABOUT UNCHANGED THIS YEAR VERSUS LAST. SO THERE IS NO SHORTAGE -- AT LEAST PERCEIVED SHORTAGE OF EDIBLE PROTEINS. DEMAND IS THE UNKNOWN HERE. THE DEMAND BASE IN BEEF HAS GROWN IN THE LAST SEVERAL MONTHS. CAN WE MAINTAIN IT AND SUSTAIN IT OVER THE COURSE OF THE NEXT SEVERAL MONTHS, PARTICULARLY AT HIGHER PRICES. I WISH I HAD THE ANSWER. HERE AGAIN, PROTECT $70. I THINK CASH VALUES WILL HOVER THE BALANCE OF THIS YEAR IN THE HIGH 60S, LOW 70S, FOR THOSE WHO CHOOSE TO DO NOTHING BUT REMAIN LONG IN THE CASH.

Pearson: ALL RIGHT. LET'S TALK HOGS REAL QUICK. AGAIN, THE HOG MARKET, SOME STRENGTH AGAIN ON THE BOARD. CERTAINLY THAT'S BEEN A MARKET THAT HAS BEEN ON THE IMPROVEMENT SIDE. WHAT'S AHEAD? WHAT'S THIS NEXT QUARTER GOING TO LOOK LIKE?

Robinson: WELL, I THINK THE DEMAND BASE THERE HAS ALSO GROWN, MARK. AGAIN, CAN WE SUSTAIN IT AT HIGHER PRICE LEVELS, PARTICULARLY IN LIEU OF THE COMPETITIVE FACTORS I JUST MENTIONED. I WOULD BE INCLINED TO BELIEVE CASH WILL HANG IN THE UPPER 30S TO THE LOW 40S FROM THIS POINT THROUGH THE BALANCE OF THE YEAR. MINIMUM PRICES, PROTECTING $40, I THINK, IS IMPORTANT. FUTURES MARKETS ARE OFFERING THAT OPPORTUNITY SECOND AND THIRD QUARTER. I'D TAKE ADVANTAGE OF IT.

Pearson: VERY GOOD, VIRGIL. THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE THE SUCCESS OF ONE OF THE LEADERS OF RURAL AMERICA'S FASTER GROWING ECONOMIC SECTOR. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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