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Market Analysis: Feb 18, 2000

posted on February 18, 2000


HELLO, I'M MARK PEARSON. THE LONGEST PERIOD OF ECONOMIC EXPANSION IN U.S. HISTORY CONTINUES TO ROLL ON. FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN TOLD CONGRESS CURRENT CONDITIONS ARE "UNPRECEDENTED IN HIS HALF-CENTURY OF OBSERVING THE AMERICAN ECONOMY." AS USUAL THOUGH, GREENSPAN WAS CAUTIOUS.

WITH UNEMPLOYMENT AT A 30-YEAR LOW, THE FED CHAIRMAN EXPRESSED CONCERN THAT TIGHT LABOR MARKETS COULD SPARK HIGHER WAGES AND INFLATION.

DESPITE RAISING INTEREST RATES FOUR TIMES SINCE LAST SUMMER, IT APPEARS THE FED WILL HIKE RATES AGAIN NEXT MONTH. THAT WOULD BE A BLOW TO THE RURAL ECONOMY, ALREADY SMARTING FROM SLUMPING COMMODITY PRICES AND DECLINING GOVERNMENT SUBSIDIES.

THE GRAIN MARKETS SLID THIS WEEK ON IDEAS OF PLENTY OF WHEAT AND CORN AVAILABLE IN THE NEAR TERM. FOR THE WEEK WHEAT PRICES WERE DOWN FOUR CENTS, WHILE CORN PRICES CLOSED A FRACTION TO MORE THAN A PENNY LOWER.

SOYBEAN FUTURES RALLIED MORE THAN NINE CENTS FOR THE WEEK. SOYBEAN MEAL GAINED $4.40 PER TON. COTTON FUTURES WERE UP 12 CENTS.

IN LIVESTOCK, FED CATTLE FUTURES WERE 27-CENTS LOWER. FEEDER CATTLE CLOSED 42-CENTS LOWER. THE LEAN HOG CONTRACT FINISHED THE WEEK $2.18 LOWER.

IN THE FINANCIALS, COMEX GOLD CLOSED $5.90 LOWER PER OUNCE. THE EURO FINISHED 28-POINTS LOWER AGAINST THE DOLLAR, AND THE CRB INDEX CLOSED NEARLY TWO-AND-A-HALF POINTS LOWER TO CLOSE AT 212.10.

Market Analysis: Feb 18, 2000

HERE NOW TO LEND US HER INSIGHT IS ONE OF OUR REGULAR MARKET TO MARKET ANALYSTS, SUE MARTIN. WELCOME BACK.

Martin: THANK YOU, MARK.

Pearson: WELL, LET'S TALK A LITTLE BIT HERE. THIS MARKET HAS BEEN AN UP-AND-DOWN AFFAIR SINCE THE FIRST OF THE YEAR. WHAT'S AHEAD AS WE GO THROUGH FEBRUARY? LET'S TALK ABOUT THE WHEAT MARKET FIRST. THAT KIND OF LED THE RALLY, AND NOW THE WHEAT MARKET SOFTENED UP. WHAT'S AHEAD? WELL, I THINK IN THE WHEAT, IT'S JUST A TEMPORARY PULLBACK, KIND OF RELIEVING THE CHARTS FROM A TECHNICAL OVERBOUGHT CONDITION. EXPORTS MAYBE HAVE SOFTENED A LITTLE BIT IN THE NEAR TERM, BUT I DON'T LOOK AT THE WHEAT MARKET AS BEING NEGATIVE. I THINK THAT IN DECEMBER WHEN WE PUT THOSE CONTRACT LOWS IN, THOSE WERE YOUR 30- AND 60-YEAR CYCLE LOWS, AND I WOULDN'T SELL WHEAT WITH WOODEN NICKELS. I THINK THIS MARKET IS HEADED HIGHER. I THINK THE PRODUCER SHOULD NOT BE SELLING THEIR CASH AT THIS TIME. IF THEY HAVEN'T DONE SO, HANG ON TO IT. I THINK WE'VE GOT SOMETHING BETTER COMING APRIL AND MAY AND PROBABLY INTO THE MAY EXPIRATION.

Pearson: WILL WE HAVE SOMETHING BETTER IN APRIL AND MAY FOR CORN TOO?

Martin: OH, I THINK EVERYTHING. MARK, I DON'T KNOW IF IT'S THE FULL-MOON EFFECT OR WHAT THIS IS, BUT I FEEL VERY POSITIVE ABOUT THE GRAINS. I LIKE WHAT WE'RE SEEING. THE MARKET IS PROCEEDING VERY NICELY. THERE'S A LITTLE FEAR THAT WE'VE LOST SOME DEMAND BECAUSE OF CHINA SELLING CORN, BUT I THINK THAT'S TEMPORARY. AND I THINK THAT, REMEMBER, WE'VE GOT A WEATHER PROBLEM THAT EVERYBODY IS WATCHING IN THE U.S., A BIG AREA THAT'S DRY. YES, WE'VE GOT SOME MOISTURE COMING THROUGH AND ANOTHER STORM TALKED ABOUT COMING THROUGH AGAIN THIS NEXT WEEK, BUT IT'S SPRING RAINS THAT ARE GOING TO MAKE IT OR BREAK IT. AND THE 6- TO 10-DAY -- NOT THE 6- TO 10-DAY, BUT THE 30-, 60-, AND 90-DAY FORECASTS ALL TALKED ABOUT DRY WEATHER. I KNOW IN THE PAST, WHENEVER WE'VE HAD -- NINE OUT OF TEN TIMES, WHENEVER WE'VE HAD DRY OCTOBER THROUGH JANUARY PERIODS, BELOW NORMAL PRECIP AND WARMER TEMPS, WE'VE HAD, IN THE NEXT YEAR, BELOW-NORMAL TRENDLINE YIELDS IN CORN. ONLY ONE YEAR DID WE HAVE ABOVE TRENDLINE, AND IT WAS BY 10 PERCENT. OKAY, SO POTENTIAL TRENDLINE YIELDS, WHAT WOULD YOU LOOK FOR PRICE, THEN, FOR MAKING SALES?

Martin: WELL, I THINK THAT WHEN I LOOK AT THE CORN MARKET, NOW, I THINK THIS FEBRUARY AND MARCH TIME FRAME IS VERY IMPORTANT AS TO HOW WE UNFOLD THE YEAR. IF WE CONTINUE TO MOVE IN SOMEWHAT OF A SIDEWAYS FASHION, WHICH I'M NOT SURE WE WILL, BUT IF WE DO, THEN, TO ME, THE LONGER YOU TWIST THIS RUBBER BAND, THE MORE EXPLOSIVE IT'S GOING TO BE. I LOOK FOR DEC. CORN FUTURES TO GET UP TO 2.80. THEY MIGHT POSSIBLY GO TO 2.90 TO $3. BUT I CERTAINLY LOOK FOR A 2.80 TICKET. I THINK THAT WE'RE GOING TO HAVE TO WATCH BECAUSE IF WE START MOVING UP AND WE MOVE AGGRESSIVELY IN THROUGH MARCH AND APRIL, I LOOK FOR APRIL AND MAY TO BE VERY AGGRESSIVE ON THE UPSIDE. SO IF THAT HAPPENS, WE'RE GOING TO NEED TO WATCH TIMING. IT MAY BE THAT THE SECOND WEEK OF MAY IS THE TIME TO UNLOAD OLD-CROP GRAIN AND MAYBE DO A LITTLE BIT OF PRICING ON THE NEW CROP. WE'LL JUST HAVE TO ADDRESS THAT AS IT COMES. BUT THE CATTLE-ON-FEED REPORT WAS VERY POSITIVE FOR CORN, SO THAT SHOULD HELP US OUT ON TUESDAY. NO MARKETS MONDAY SO THAT SHOULD HELP US ON TUESDAY. BUT I LIKE THE GRAIN MARKETS, AND I THINK THAT ONLY FEARING THAT WE'VE LOST SOME DEMAND BECAUSE OF CHINA, WE'VE GOT TO REMEMBER, CHINA EXPORTS GRAIN OUT OF ONE SIDE OF ITS COUNTRY AND IMPORTS ON THE OTHER. I JUST THINK THAT THE DEMAND -- THE DEMAND IN CHINA IS PHENOMENAL. THE MEAL PRICES IN THE LAST TWO WEEKS HAVE GONE 20 PERCENT UP. THEY'RE IMPORTING BEANS. WE'VE HAD 13, I THINK IT IS -- NOT EVEN 13, 15 CARGOES OF BEANS SOLD IN THE PAST WEEK TO CHINA, AND THEY'VE ALSO BOUGHT SOME BEANS OUT OF SOUTH AMERICA. WE'RE LOOKING AT A GOOD MARKET, AND NOBODY WANTS TO BELIEVE IT.

Pearson: OKAY, YOU'RE TALKING 2.80 DEC. CORN AND BETTER. WHAT ABOUT -- LET'S TALK SOYBEANS NOW. YOU MENTIONED SOYBEANS. WE'VE GOT A NICE MOVE THIS WEEK IN SOYBEANS.

Martin: IT'S A WONDERFUL MOVE. YOU KNOW, THE BEARS KEPT SAYING WE WERE GOING TO HAVE THIS FEBRUARY BREAK. AND WHEN WE WENT THROUGH THE RALLY IN JANUARY -- THIS IS THE PSYCHOLOGY OF THE MARKET -- WHEN WE RALLIED THROUGH JANUARY, WE HAD A LOT OF PEOPLE WHO WERE END USERS THAT HAD GOTTEN SO USED TO JUST BUYING HAND-TO-MOUTH WERE CAUGHT OFF GUARD AND WEREN'T PROTECTED. NOW THEY'VE GOT TO FEBRUARY AND THEY BOUGHT THIS FEBRUARY BREAK SCENARIO, SO THEY DIDN'T BUY AGAIN. AND THEN YOU'VE GOT PEOPLE WHO WANT TO BE BULLISH, FEARING THAT THEY SHOULD BE LONG, SO THEY DIDN'T DO IT. AND THEN YOU'VE GOT THE BEARS THAT HAVE BEEN SO WILLING TO STEP IN AND SELL EVERY LITTLE BOUNCE YOU CAN GET, AND YET THE MARKET IS NOT GRATIFYING THEM. I THINK IF THIS MARKET IS LOADED TO TAKE THE MARKET HIGHER AND HAVE PEOPLE CHASING IT, IT'S BECAUSE WE'VE GOT PEOPLE SHORT. I DON'T CARE THAT THEY TALK ABOUT THE FUNDS BEING TOO LONG. WHO KNOWS WHAT TOO LONG IS THESE DAYS.

Pearson: SUE, THIS IS THE MOST BULLISH YOU'VE BEEN IN FIVE YEARS. SO WHAT'S YOUR TARGET ON BEANS THEN? LET'S TAKE NOVEMBER.

Martin: WELL, I THINK THE NOV. BEANS, FIRST OF ALL, LAST THREE YEARS WE'VE HAD THE NOVEMBER CONTRACT OF BEANS FAIL TO TAKE ON ITS FIRST-QUARTER HIGHS. IT USED TO BE SINCE 1969 THAT WE NEVER DID THAT MORE THAN A YEAR. YOU KNOW, NEVER TWO YEARS IN A ROW, AND WE'VE HAD THREE. DO WE HAVE LOWS AGAIN THIS YEAR IN JULY? I DON'T THINK SO. I THINK WE'RE GOING TO BE MORE HIGHER IN JULY THAN LOWER. I THINK THIS IS A YEAR WHERE WHATEVER THIS FIRST-QUARTER HIGH IS IN NOVEMBER BEANS, LOOK FOR IT TO BE EXCEEDED. I THINK IT GETS EXCEEDED IN THE APRIL TO MAY TIME FRAME. I THINK THAT $6 BEANS IS VERY EASY TO OBTAIN, AND I WOULD NOT BE SURPRISED IF YOU SEE $7.50 TO $8 BEANS SOMETIME THIS YEAR.

Pearson: ALL RIGHT, WE HAVE TO MOVE ON. QUICKLY, THE COTTON MARKET ALSO HAD A STRONGER WEEK THIS WEEK.

Martin: YES, IT DID. IN FACT, TODAY WAS VERY NICE AND STRONG. I THINK THAT WHEN YOU LOOK AT COTTON -- OF COURSE, IT'S EVEN BEEN ALMOST LEADING EVERYTHING ELSE. I LOOK AT THE CHARTS AND, TECHNICALLY, CHARTS LOOK TO ME LIKE WE COULD TAKE COTTON UP TO 68 CENTS PROBABLY IN THE NEXT THREE TO FOUR MONTHS. I THINK THAT WHEN I LOOK AT COTTON, AGAIN, YOU'RE LOOKING AT ALL SORTS OF COMPETITION FOR ACRES. AND I THINK THAT COTTON IS ALSO GOING TO FLOW THE SAME DIRECTION. IT'S RAW COMMODITIES, I THINK, IS GOING TO BE THE NAME OF THE GAME IN THE FUTURE.

Pearson: ALL RIGHT. THE FED-CATTLE MARKET, YOU'VE BEEN FRIENDLY TO THE CATTLE MARKET HERE FOR THE LAST YEAR. IS THAT CONTINUING?

Martin: WELL, I THINK IT IS. WE'VE HAD A CORRECTION HERE IN FEBRUARY. I LOOK FOR THAT CORRECTION ABOUT TO BE DONE. AND MAYBE INTO ABOUT THE 24TH OF THIS NEXT WEEK, THURSDAY, IF THE MARKET BREAKS DOWN INTO THAT, THAT SHOULD BE ABOUT A LOW TIME. COULD STRETCH INTO THE FIRST WEEK OF MARCH, BUT I WOULDN'T HOLD MY BREATH ON IT. WE HAD THE CUTOUT PRICES DROP $2 THIS WEEK, AND I THINK WHAT WE'RE LOOKING AT HERE IS A CATTLE MARKET THAT MOVES UP THROUGH THE MONTH OF MARCH INTO ABOUT THE FIRST WEEK OR TWO OF APRIL. AND THEN I THINK YOU MIGHT PUT A HIGH IN, IN THE CATTLE. IT MIGHT BE THAT YOU ONLY DOUBLE TOP THE CATTLE MARKET ON THE APRIL CONTRACT. BUT I CERTAINLY THINK THAT IF YOU HAD NOT HEDGED, I WOULD NOT DO SO NOW. AND ON FEEDERS, I THINK YOU BRING THE FEEDER CATTLE BACK UP TO ABOUT 86 CENTS, MAYBE 86.5. AND THEN WE HAVE TO TAKE A LOOK AFTER THAT SECOND WEEK OF APRIL, MAYBE WE START TO SLIP BACKWARDS AT THAT TIME. AND THEN THE MARKET IS HELD AT BAY IN RESISTANCE UNTIL YOU GET PAST THE JUNE/JULY TIME FRAME.

Pearson: WE HOLD THE 66 -- OR $68, $70 RANGE?

Martin: I THINK AT THE LOWEST, I COULD SEE CASH CATTLE GOING, WOULD BE 66 CENTS. 68-CENT CASH WAS THIS PAST WEEK. I THINK YOU SEE CASH TRADE AT THAT NEXT WEEK AND MAYBE 67 TO 7.5, BUT I DON'T KNOW AS IF YOU'LL SEE IT MUCH LOWER THAN THAT. WE'RE CERTAINLY GOING TO NEED HELP OUT OF THE CHOICE CUTOUT.

Pearson: ALL RIGHT. LET'S TALK HOGS HERE. JUST A LITTLE BIT OF TIME LEFT, SUE. THE HOG MARKET SOLD OFF ON THE BOARD THIS WEEK. WHAT'S AHEAD FOR HOGS?

Martin: WELL, I LIKE THE HOG MARKET. I'M ABOUT AS ENTHUSED ABOUT HOGS AS I AM ON CORN AND SOYBEANS AND EVERYTHING ELSE. I THINK THAT WHAT'S HAPPENING HERE IS JUST WHAT WE SHOULD BE DOING... CORRECTING. WE GOT THAT MARKET A LITTLE OVERBOUGHT. YOU KNOW, WE'VE HAD FAIRLY GOOD KILLS IN HOGS, AND I THINK WE HAD A LITTLE HURTFUL MOMENTS BECAUSE OF BACKING SOME NUMBERS UP BECAUSE OF THE EAST COAST WEATHER. BUT I THINK WHAT'S HAPPENING IS IF YOU TAKE YEARS IN THE PAST SINCE LIKE 1976 WHEN YOU'VE HAD PER CAPITA SUPPLY DECREASE BY A PERCENT OR MORE, YOU HAVE A TENDENCY TO TAKE HOGS IN THE SUMMER MONTHS UP THROUGH APRIL MAY. I LOOK FOR NEW-CONTRACT HIGHS INTO MAY.

Pearson: ALL RIGHT. SUE MARTIN, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL FOLLOW UP ON A SMALL-TOWN SHARED INVESTMENT IN A MAIN STREET INSTITUTION. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.


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