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Market Analysis: Feb 04, 2000

posted on February 4, 2000


FROM ALL APPEARANCES THE NATION'S ECONOMY IS SURGING AHEAD. AS EXPECTED THE INFLATION WARY FEDERAL RESERVE IS TRYING TO CONTAIN THE PACE OF EXPANSION BY RAISING INTEREST RATES. THE ACT SEEMED TO ASSURE THE FINANCIAL COMMUNITY. STOCK INDICES ROSE ON THE HEELS OF THE FED'S RATE HIKE AND DIDN'T COOL WHEN THE LABOR DEPARTMENT ANNOUNCED THE U.S. UNEMPLOYMENT RATE HAD FALLEN TO THE LOWEST LEVEL. UNDETERRED BY THE REALITY OF HIGHER INTEREST RATES OR THE PROSPECT OF WAGE INFLATION, SHARE PRICES REMAINED STRONG.

THE GRAIN MARKETS WERE PRESSURED THIS WEEK AS MOISTURE ARRIVED IN KEY GROWING AREAS OF BRAZIL, AND MOUNTING CONCERN OVER POTENTIAL CHINESE EXPORTS. FOR THE WEEK, WHEAT PRICES WERE MORE THAN TWO CENTS LOWER. CORN PRICES WERE MORE THAN THREE CENTS LOWER. SOYBEAN FUTURES PLUMMETED 17 TO 18-CENTS. THIS WEEK. SOYBEAN MEAL CLOSED $2.70 LOWER FOR THE WEEK. COTTON FUTURES FINISHED $1.37 LOWER FOR THE WEEK.

IN LIVESTOCK, FED CATTLE FUTURES GAINED $1.23. FEEDER CATTLE GAINED EIGHT CENTS. THE LEAN HOG CONTRACT GAINED 75-CENTS.

IN THE FINANCIALS, COMEX GOLD GAINED $27 AN OUNCE. THE EURO FINISHED NEARLY HALF A POINT HIGHER AGAINST THE DOLLAR. AND, THE CRB INDEX CLOSED MORE THAN THREE AND-A-HALF POINTS HIGHER TO CLOSE AT 212.95.

Market Analysis: Feb 04, 2000

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

Pfitzenmaier: THANKS, MARK.

Pearson: WELL, LET'S TALK FIRST AGAINST THE BAD NEWS. THE SOYBEAN MARKET BACKING OFF, MOISTURE IN BRAZIL. IS THERE STILL SOME CONCERN ABOUT WHAT'S HAPPENING IN SOUTH AMERICA AT THIS STAGE?

Pfitzenmaier: OH, I THINK ABSOLUTELY. THAT'S SITTING OUT THERE BUT YOU HAVE TO HAVE THE FEELING THAT AS YOU WATCH THE WEATHER PATTERNS AND WATCH WHAT'S GOING ON DOWN THERE, THAT DRY AREA IN SOUTHERN BRAZIL JUST CONTINUES TO SHRINK AND SHRINK AND BE LESS IMPORTANT. THERE ARE SOME PEOPLE EVEN CAME OUT THIS WEEK SAYING THAT THERE WAS A POSSIBILITY OF RECORD CROPS DOWN IN BRAZIL. EVERYBODY HAS GOTTEN SORT OF HUNG UP ON THIS SMALL DRY AREA, FORGETTING THAT THERE'S A HUGE COUNTRY THAT THE MAJORITY OF IT HAS BEEN GETTING DECENT RAIN. SO IT'S BECOMING LESS OF A FACTOR. NOW, WE'RE IN WHAT WOULD BE COMPARABLE UP HERE TO THE FIRST PART OF AUGUST, AND WE ALL KNOW HOW IMPORTANT AUGUST IS FOR OUR SOYBEAN PRODUCTION. SO IT'S REALLY GOING TO BE WATCHED REALLY VERY CLOSELY HERE THROUGH THE MONTH OF FEBRUARY.

Pearson: LET'S TALK ABOUT SOYBEAN PRICES. TECHNICALLY, DOES THIS TELL US ANYTHING? WE DID PUT IN SOME STRONGER MARKETS.

Pfitzenmaier: I GUESS IT HASN'T TOLD US ANYTHING YET. ON FRIDAY THE MARKET STARTED TO BREAK BACK, BROKE BACK TO SUPPORT, AND THEN CAME ROARING BACK AGAIN. OBVIOUSLY, THERE'S A LOT OF PEOPLE IN THERE WILLING TO SUPPORT THE MARKET. THE BIG QUESTION IS, OKAY, IS THIS A PULLBACK AND A CORRECTION, WHICH EVERY HEALTHY, BULLISH-TYPE MARKET NEEDS TO HAVE THOSE BACKFILLS, THOSE CORRECTIONS, TO REALLY HAVE A HEALTHY MARKET; OR IS THIS THE BEGINNING OF THE END WHERE YOU'RE GOING TO JUST SORT OF GRADUALLY TAIL OFF. A BULLISH MARKET NEEDS TO CONSTANTLY BE FED BULLISH NEWS. IF WE START TO RUN OUT OF THAT, FUNDS HAVE HUGE POSITIONS AND THEY START TO LOSE SOME OF THEIR ENTHUSIASM, AND THEN THE MARKET COULD KIND OF STRUGGLE HERE. YOU HAVE A BIG CROP IN SOUTH AMERICA. YOU HAVE THE POTENTIAL FOR BIGGER ACREAGE UP HERE. AND IF YOU HAVE A DECENT CROP UP HERE, WE BUILD CARRYOUT AGAIN. SO, YOU KNOW, WE'RE IN KIND OF A FINE LINE HERE WHERE IT WOULD SEEM LIKE MAYBE YOU BETTER TAKE A LITTLE PIECE OF THIS IF IT POPS BACK UP HERE A LITTLE.

Pearson: LET'S TALK ABOUT THE CORN MARKET. YOU HAD TARGETED THERE FOR A STARTING SCALE-UP OF ABOUT $2.50. WE HAD THAT. HOPEFULLY PEOPLE TOOK ADVANTAGE OF IT.

Pfitzenmaier: YEAH, AGAIN, I THINK YOU SCALE UP, ALL THE WAY UP TO 2.55, 2.60, 2.62, UP IN THAT AREA. I THINK YOU HAVE TO USE THAT AS A SELLING OPPORTUNITY.

Pearson: AND BASICALLY THE SAME STORY ON CORN? IT'S STARTING TO BE A WEATHER PHENOMENON.

Pfitzenmaier: RIGHT. AND IT'S KINDS OF INTERESTING, IF YOU LOOK BACK OVER THE PAST TWO YEARS, THERE'S INVARIABLY A GOOD PRICING OPPORTUNITY FOR THE COMING YEAR'S CROP IN THIS FEBRUARY THROUGH APRIL -- EARLY APRIL TIME PERIOD. AND EVERY YEAR THERE'S A VERY COMPELLING REASON WHY YOU SHOULDN'T SELL ANYTHING. THERE'S LA NINA, THERE'S EL NINO, THERE'S INCREASED DROUGHT -- THERE'S ALWAYS SOMETHING THAT SAYS, BOY, YOU BETTER NOT SELL ANYTHING HERE. AND THEN FALL ROLLS AROUND AND YOU GO, WHY DIDN'T I SELL MORE BACK THERE. IT TAKES SOME GUTS TO KIND OF STAND IN THERE AND SELL STUFF. BUT I THINK YOU HAVE TO USE THESE KIND OF RALLIES, AT LEAST TO GET A PERCENTAGE OF STUFF SOLD FOR THE COMING SUMMER.

Pearson: DIDN'T WE MOVE A LOT OF CASH IN CORN AND BEANS HERE IN THE LAST COUPLE WEEKS?

Pfitzenmaier: WELL, INITIALLY WHEN THE MARKET FIRST STARTED TO TAKE OFF, THERE WAS A LOT OF MOVEMENT OF CORN AND BEANS, BECAUSE I THINK PEOPLE WERE SITTING ON IT AND IT WAS KIND OF DROPPING. THEY WERE SAYING, BOY, IF IT GETS UP, I'M GOING TO MOVE SOME OF THIS. AND THEN ALL OF A SUDDEN, YOU GOT THAT INITIAL ROUND OF SELLING DONE THEN IT JUST FLAT DRIED UP. SO IT MAKES YOU WONDER IF WE'RE EITHER GOING TO HAVE TO RALLY SOME MORE TO REWARD PEOPLE TO SELL OR WE'RE GOING TO HAVE TO SCARE SOME GRAIN OUT OF THEM BY DROPPING. IT'S GOING TO BE INTERESTING TO WATCH OVER THE NEXT 30 DAYS TO SEE WHICH SCENARIO, SORT OF, PLAYS OUT HERE.

Pearson: I MENTIONED CHINA AT THE OPEN OF THE SHOW. THEY'RE OUT IN THE WORLD MARKET. ARE THEY A FACTOR OF NOT? THEY SEEM TO BE PRICING THEIR PRODUCT HIGHER.

Pfitzenmaier: THEY'RE A DOUBLE-EDGED SWORD IN THE CORN MARKET. EVERY TIME YOU RALLY, THEY'RE THERE, ALONG WITH THE U.S. FARMER UP TO THIS POINT HAVE BOTH BEEN THERE TO SORT OF CAP THESE RALLIES. YOU'VE GOT THE FUNDS WITH HUGE POSITIONS TRYING TO SUPPORT THE MARKET, AND ON THE OTHER SIDE, YOU'VE GOT THE FARMER MAKING SALES AND CHINA MAKING SALES. ON THE OTHER SIDE OF THE COIN, THERE WERE SOME RUMORS GOING THROUGH THE MARKET THAT THEY WERE ACTUALLY GOING TO BE PURCHASERS OF U.S. BEANS. SO YOU KNOW, YOU DON'T KNOW WHETHER TO HATE THEM OR LOVE THEM, DEPENDING ON THE WHICH SIDE YOUR LOOKING AT.

Pearson: WHEAT MARKET AT THIS STAGE OF THE GAME. WHAT'S YOUR FEELING? THERE'S SOME CONCERN ABOUT THIS CROP TOO.

Pfitzenmaier: WELL, THERE IS -- AND THAT'S PART OF THE REASON YOU DON'T SEE WHEAT BREAKING. WE'RE IN THAT KIND OF 250-270 PRICE RANGE, AND THAT'S PART OF THE REASON. YOU'VE GOT REDUCED ACREAGE. YOU'VE GOT A WINTER WHEAT CROP CONDITION REPORT THAT'S REALLY NOT VERY GOOD, AND EVERYBODY IS WATCHING IT REAL CLOSELY. ON THE OTHER SIDE OF THE COIN, ALL OF OUR COMPETITORS HAVE PLENTY OF WHEAT. THE WHEAT WORLD SUPPLY SITUATION IS VERY GOOD, AND SO WE'RE GOING TO KIND OF SIT HERE BOUNCING AROUND TRYING TO PLAY OFF THAT VERSUS HOW OUR CROP SORT OF DEVELOPS WITH RAINS AND STUFF AS WE GO INTO THE SPRINGTIME HERE.

Pearson: LET'S TALK ABOUT THE COTTON MARKET WHICH DID SELL OFF THIS WEEK AFTER, AGAIN, A PRETTY DECENT RUN.

Pfitzenmaier: A VERY DECENT RUN. YOU KNOW, AGAIN, WE'RE BACK INTO THAT IF THEY COULD PULL COTTON -- IT KIND OF HAD A BIG CONSOLIDATION UP AT THESE HIGHER LEVELS. WE BROKE DOWN THROUGH THAT THIS WEEK. COULD GO BACK AND TEST MARCH COTTON BACK IN THAT 53.80, 54 RANGE. IF THAT HOLDS, THEN THE COTTON MARKET IS PROBABLY ALL RIGHT AND IS GOING TO CONTINUE AT SORT OF ITS UPWARD RATCHET HERE. IF WE BREAK DOWN THROUGH THAT, THEN THAT MARKET DOESN'T LOOK VERY GOOD AGAIN.

Pearson: OKAY. YOU WOULDN'T BE EMBARRASSED AT ALL AT MAKING SOME SALES IN HERE?

Pfitzenmaier: NO, YOU GET UP IN THAT 58, 59 AREA, I THINK YOU HAVE TO EASE OUT OF A LITTLE THERE.

Pearson: YOU'VE BEEN THE FRIENDLIEST TO CATTLE OF ABOUT ANYBODY. IS THAT HOLDING UP NOW? WE'VE HAD A CATTLE-ON-FEED REPORT. IT'S A LITTLE BIT NEGATIVE. WHAT DO YOU FEEL GOING INTO THIS NEXT QUARTER?

Pfitzenmaier: YOU KNOW THE THING THAT BOTHERS ME THE MOST ABOUT THE CATTLE MARKET ARE THESE WEIGHTS. THE OLD SAYING GOES THAT "IF THE NUMBERS DON'T KILL YOU, THE TONNAGE WILL." AND THAT REALLY BOTHERS ME. THE CATTLEMAN IS STARTING TO GET TO BE CONFIDENT. THE PRICES ARE GOING TO BE GOOD. AND THAT'S USUALLY THE KISS OF DEATH FOR THE CATTLEMEN. EVERY TIME YOU CATTLE GUYS ARE SCARED, WE SEEM TO DO ALL RIGHT. BUT, BOY, THEY GET CONFIDENT, THEY START PUTTING WEIGHT ON THOSE CATTLE, AND THEY'RE THEIR OWN WORST ENEMY. AND YOU'RE STARTING TO SEE THESE WEIGHTS CREEP UP WEEK AFTER WEEK AFTER WEEK. AND YOU SEE FEB CATTLE -- EXCUSE ME -- GET UP ABOVE 70. APRIL IS ABOVE 72. AND THEY JUST CAN'T GO ANY FURTHER. AND IF THESE WEIGHTS CONTINUE TO COME ALONG AND WE DON'T SEE MUCH OF A DROP IN SUPPLY, THE CATTLE MARKET IS GOING TO STRUGGLE. NOW, WE'VE GOT A TWO- TO THREE-WEEK PERIOD WHERE HISTORICALLY YOU TEND TO HAVE DEMAND SORT OF SOFTEN A LITTLE BIT AND THEN STARTS TO COME BACK IN FOR THE SPRING GRILLING SEASON AND ALL THAT. BUT DEMAND IS KIND OF HARD TO GET A HANDLE ON; THE NUMBERS AND THE TONNAGE ARE EASIER. AND I THINK YOU NEED TO BE A LITTLE CAUTIOUS UP HERE IN THESE LEVELS.

Pearson: MAKE SOME SALES?

Pfitzenmaier: I THINK SO. I THINK AT THE VERY LEAST, BUY YOURSELF SOME PUTS. AND I'M NOT WILDLY BEARISH OR ANYTHING LIKE THAT; I JUST THINK THAT MARKET IS GOING TO KIND OF STRUGGLE HERE.

Pearson: WELL, LET'S TALK ABOUT THE HOG MARKET, WHICH HAS BEEN A PLEASANT SURPRISE CERTAINLY THE LAST QUARTER OF '99. AND REALLY SO FAR THIS YEAR, WE'VE SEEN STRENGTH. WHAT'S YOUR ATTITUDE NOW AS WE HEAD INTO SUMMER?

Pfitzenmaier: WELL, THE NUMBERS HAVEN'T SHOWN UP YET LIKE USDA WAS PROJECTING. THE USDA SEPTEMBER NUMBERS AND THEIR DECEMBER NUMBERS WERE PRETTY SIMILAR, WHICH SHOULD INDICATE THE NUMBERS SHOULD BE BIGGER RIGHT NOW THAN WE'RE HAVING. AND IF YOU ASSUME THAT THEY SORT OF AVERAGE OUT, MAYBE YOU NEED TO BE A LITTLE CAUTIOUS THAT WE'RE STARTING TO TOP THAT THING OUT HERE A LITTLE BIT TOO. IT'S HAD A HECK OF A RUN AND I THINK IT'S TIME TO BE A LITTLE CAUTIOUS ABOUT THAT HOG INDUSTRY.

Pearson: MAYBE GET A LITTLE AGGRESSIVE ON THOSE SUMMER CONTRACTS?

Pfitzenmaier: THROUGH APRIL AND JUNE, PROBABLY NOT MUCH PAST THAT.

Pearson: ALL RIGHT. TOMM PFITZENMAIER, THANK YOU SO MUCH. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." JOIN US AGAIN NEXT WEEK WHEN WE EXAMINE AN EFFORT THAT HELPS FARMERS MAKE AN IMPORTANT LIFE TRANSITION. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

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