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Market Analysis: Jan 28, 2000

posted on January 28, 2000


FEBRUARY MARKS THE POINT AT WHICH THE CURRENT ECONOMIC EXPANSION BECOMES THE LONGEST ON RECORD -- 107 MONTHS. IT ALSO MAY MARK THE LONGEST CASE OF THE JITTERS ON RECORD. PERPETUAL FRETTING OVER INFLATION HAS FREAKED THE MARKETS, WITH THE DOW DROPPING SOME 500 POINTS IN THE PAST WEEK.

COMMENTS BY FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN THIS WEEK - THAT HE WOULD SUPPORT EXPANSION BY KEEPING INFLATION IN CHECK -- BACKED THE BELIEF THE FED WILL RAISE INTEREST RATES NEXT WEEK. IT WOULD BE THE FOURTH RATE HIKE IN A YEAR.

BUT IT'S DEBATABLE HOW MUCH THE INCREASES HAVE COOLED THE ECONOMY, WHICH GREW AT A SIZZLING ANNUAL RATE OF 5.8 PERCENT DURING THE LAST QUARTER OF 1999. ORDERS FOR BIG TICKET ITEMS JUMPED BY MORE THAN 4 PERCENT LAST MONTH. AND, CONSUMER CONFIDENCE HAS SOARED TO ITS HIGHEST LEVEL SINCE 1967.

THE GRAIN MARKETS FINISHED THE WEEK MIXED AS THE TRADE CONTINUES TO DIGEST SUPPLY AND WEATHER ISSUES. FOR THE WEEK, WHEAT PRICES FINISHED MORE THAN FOUR CENTS LOWER, WHILE CORN PRICES WERE FRACTIONALLY HIGHER.

SOYBEAN FUTURES WERE MORE THAN 18-CENTS HIGHER. SOYBEAN MEAL GAINED $3.10 PER TON.

COTTON FUTURES FINISHED $1.30 HIGHER.

IN LIVESTOCK, FED CATTLE FUTURES FINISHED A DIME LOWER. FEEDER CATTLE FINISHED 8-CENTS LOWER. THE LEAN HOG CONTRACT FINISHED SEVEN CENTS LOWER.

IN THE FINANCIALS, COMEX GOLD CLOSED $6.70 LOWER FOR THE WEEK. THE EURO CLOSED MORE THAN THREE POINTS LOWER AGAINST THE DOLLAR. AND, THE CRB IDEX FINISHED MORE THAN A POINT-AND-A-HALF LOWER TO CLOSE AT 209.30.

Market Analysis: Jan 28, 2000

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

HI, MARK.

Pearson: DOUG, LET'S TALK ABOUT THE HOT MARKET, THIS SOYBEAN MARKET. WHAT'S HAPPENING? WHAT'S AHEAD?

Jackson: WELL, MARK, THE PRIMARY INFLUENCE THIS WEEK FUNDAMENTALLY WAS A CONCERN ABOUT SOUTH AMERICAN WEATHER, ALTHOUGH THE SITUATION THERE IS NOT PARTICULARLY CLEAR, BUT THE REAL CATALYST IS SIMPLY LARGE-FUND BUYING. FUNDS HAVE BUILT A HUGE POSITION IN CORN AND NOW THEY'RE IN THE PROCESS OF BUILDING A LARGE, LONG POSITION IN BEANS. SO LONG ABOUT 43,000 CONTRACTS OF BEANS AS WE GO INTO THE WEEKEND. THAT'S NOT CLOSE TO A RECORD AMOUNT, BUT THERE'S CERTAINLY BUYERS IN THIS MARKET RIGHT NOW.

Pearson: AND THEIR BASIC CONCERN IS WEATHER IN SOUTH AMERICA?

Jackson: IN THE NEXT TWO OR THREE WEEKS, SOUTH AMERICAN WEATHER IS GOING TO BE THE PRIMARY DRIVER HERE, MARK. WHAT WE HAVE ARE SOME PEOPLE THAT THINK THE WEATHER IS GENERALLY ADEQUATE. WE HAVE OTHER PEOPLE WHO THINK THEY'RE IN A SLOWLY DETERIORATING, LESS-THAN-NORMAL MOISTURE SITUATION, AND MAYBE THE TRUTH LIES SOMEWHERE IN BETWEEN. BUT THE MARKET UNDERSTANDS THAT WE CAN'T REALLY AFFORD TO LOSE MANY MORE BUSHELS THERE. THE MARKET THINK THERE'S BEEN SOME IRREVERSIBLE DAMAGE. AND AGAIN, THE NEXT TWO OR THREE WEEKS IS THE CRITICAL PHASE DOWN THERE WHERE WE'LL BE PUTTING ON PODS AND BLOOMING AND IN THE KEY DEVELOPMENT STAGE. AFTER THAT, I THINK WE CAN START TO DIVORCE OURSELVES FROM THAT WEATHER AND START TO THINK SERIOUSLY ABOUT THE FEBRUARY 24 OUTLOOK MEETING IN WASHINGTON WHERE WE'LL GET OUR FIRST INFORMAL LOOK AT A NEW-CROP BALANCE TABLE. MARK, THERE'S SOME HUGE DIFFERENCES OF OPINION IN THIS MARKETPLACE ABOUT BEAN PRICE POSSIBILITIES. SOME PRIVATE ANALYSTS THINK WE'RE STILL HEADED FOR 500-MILLION-PLUS CARRY-OUTS NEXT YEAR. WE THINK THAT THE SITUATION IS MORE OF A 350-, 400-TYPE CARRYOUT SITUATION. PROBABLY STILL ADEQUATE STOCKS. WE SEE A RELATIVELY VOLATILE MARKET WITH SOME WIDE SWINGS IN HERE, MARK. IF THE WEATHER TURNS OFF NORMAL IN SOUTH AMERICA, I THINK WE CAN SELL OFF INTO THAT LATE FEBRUARY REPORT, START TO EVALUATE ACREAGE, AND SOME PEOPLE THINK WE'LL HAVE MORE BEAN ACRES. BUT A LONGER TERM, I THINK WE CAN STILL IRREGULARLY WORK HIGHER, BECAUSE THE BEAN SUPPLY DEMAND SITUATION ULTIMATELY IS NOT GOING TO BE NEARLY AS BAD AS SOME PEOPLE THINK IT IS TODAY.

Pearson: ALL RIGHT, FOR THOSE WHO TOOK THE LDP LAST FALL AND HELD THE BEANS, THIS HAS TURNED UP TO WORK IN THEIR FAVOR.

Jackson: WELL, IN THE INTERMEDIATE TERM, IF YOU GET A RALLY HERE IN THE NEXT TWO OR THREE WEEKS OFF OF SOUTH AMERICAN WEATHER, THAT MIGHT BE A CHANCE TO LIGHTEN UP AS WE HEAD TOWARDS THESE OTHER REPORTS COMING DOWN THE ROAD IN LATE FEBRUARY AND LATE MARCH. WE CAN SEE BEANS BREAK 50 CENTS INTO THOSE REPORTS AND THEN RALLY BACK AGAIN NEXT SUMMER. THE MARKET IS STILL SENSITIVE TO THIS DRY WEATHER IN THE MIDWEST, MARK.

Pearson: ARE YOU IN ANY HURRY AT ALL TO SELL THE NEW CROP?

Jackson: NO, NOT REALLY, MARK. THERE ARE THOSE THAT SEE SIGNIFICANT DOWNSIDE LONGER TERM, BUT I THINK THE BEANS ARE GOING TO BE INFLUENCED BY CORN AND THAT'S ANOTHER FUNDAMENTAL STORY TOO WITH THE WEATHER STILL THE KEY DETERMINATE LONG TERM.

Pearson: ALL RIGHT, LET'S TALK ABOUT CORN. WHAT ABOUT THAT? CLEAN UP OLD-CROP SALES IN HERE. HAS THIS THING MOVED HIGHER?

Jackson: WELL, WE REALLY THINK THE CORN MARKET, MARK, IS A DOWN 10 CENTS, UP WHO KNOWS HOW MUCH OVER A LONG PERIOD OF TIME. NOW, THE FUNDS HAVE BUILT 115,000 CONTRACT LONG POSITIONS. THE LARGEST LONG POSITION THEY EVER HAD IN HISTORY WAS IN 1995 WHEN WE HAD THE $5 CORN. THEY GOT LONG ABOUT 148,000 CONTRACT. SO THEY'VE BUILT A HUGE POSITION HERE. INTO THIS RALLY, CHINA HAS BEEN LIQUIDATING CORN. THEY MAY DUMP A HUGE AMOUNT OF CORN BEFORE THEY ACCEDE INTO THE WTO EVENTUALLY. THEY MAY SELL UP 8 OR 9 MILLION TONS THIS YEAR. THE GOVERNMENT IS ESTIMATING 4.7 MILLION TONS. SO THEY ARE TAKING ADVANTAGE OF THIS RALLY. THAT'S GOING TO CUT OUR EXPORT PICTURE A LITTLE BIT. BUT THE MARKET IS STILL AFRAID OF LESS ACRES NEXT YEAR. IT'S AFRAID OF THE DRY WEATHER IN THE MIDWEST. IT'S AFRAID THAT WE HAVE A VERY DELICATELY BALANCED SITUATION, AND THAT'S LARGELY TRUE. WE MAY BE A LITTLE OVERLOADED HERE. WE MAY BE TEMPORARILY IN A SIDEWAYS MARKET, BUT WE'RE NOT REALLY INTERESTED IN MAKING SALES AT THIS POINT, MARK, AGAIN WITH THAT LIMITED DOWNSIDE POTENTIAL, UNTIL WE KNOW A LOT MORE THAN WE KNOW TODAY.

Pearson: WE KNOW A LOT ABOUT THE WHEAT PRODUCTION FOR LAST YEAR AND WORLDWIDE WHEAT PRODUCTION, WHICH HAS BEEN HUGE. THAT MARKET WAS OFF THIS WEEK ON THE BOARD. ANYTHING AHEAD FOR WHEAT PRODUCERS?

Jackson: WELL, THE WHEAT STORY IS BEST TOLD BY LOOKING AT THE FUND POSITION. THE FUNDS HAVE ACCUMULATED A HUGE, LONG POSITION OF 115,000 IN CORN. THEY'RE LONG 80,000 MEAL AND BEANS, AND THEY'RE STILL SHORT WHEAT, MARK. SO THE SITUATION IS, EVEN THOUGH WE'RE GOING TO HAVE A MUCH SMALLER CROP HERE IN THE U.S. WITH THE POORLY RATED CROP, WE GOT SOME MOISTURE THIS WEEK. PEOPLE THAT WILL RECOVER THIS CROP POTENTIAL SOME, BUT THE PROBLEM IS WE STILL HAVE MORE ACRES BEING PLANTED AROUND THE WORLD. WE'RE GOING TO HAVE EXCESSIVELY LARGE STOCKS IN EXPORTER HANDS AND OTHER PLACES BESIDES THE UNITED STATES. AND WE'VE GOT THIS HUGE AMOUNT OF SOFT-RED WHEAT THAT'S A PROBLEM. THE WHEAT MARKET, I'M AFRAID, IS JUST GOING TO MIMIC THE CORN, AND CONTINUE TO LOSE VERSUS CORN AS A FEED GRAIN.

Pearson: ALL RIGHTY. LET'S GO OVER TO THE LIVESTOCK SIDE OF THE PICTURE. WALTER, IT'S BEEN AN OPTIMISTIC CATTLE MARKET FOR SOMETIME NOW SINCE LABOR DAY. WE'VE BEEN STRONGER. ARE WE GOING TO STAY GOOD THIS SPRING? THIS LAST CATTLE-ON-FEED REPORT WAS THOUGHT TO BE -- REALLY DIDN'T HAVE MUCH MARKET IMPACT.

Hackney: THE CATTLE-ON-FEED REPORT, MARK, WAS EASILY MISUNDERSTOOD FOR ONE THING. THERE'S A LOT OF LIGHT WHEAT PASTURE READY KIND OF CALVES THAT WENT TO THE FEED LOT DUE TO THE DROUGHT IN THE SOUTHWEST THIS FALL. WELL, THEY'VE BEEN IN THAT FEED LOT COUNT EVER SINCE, AND THEY WON'T LEAVE THE FEED LOTS, BUT THEY ALSO WON'T COME MARKET READY UNTIL PROBABLY JULY. SOME OF THEM EVEN INTO AUGUST. SO THAT'S A LITTLE BIT MISLEADING. ONE OF THE BIGGEST PROBLEMS WE HAVE RIGHT NOW IS OBVIOUSLY THIS BLIZZARD ON THE EAST COAST. THAT'S GOING TO SLOW UP USAGE OF THE PRODUCT, BUT THE DEMAND HAS BEEN EXTRAORDINARY GOOD. WE HAD A BIG KILL ON THURSDAY. SURPRISED MOST OF THE INDUSTRY... 128,000. OUR CATTLE ARE RUNNING A LITTLE HEAVIER THAN THEY WERE A YEAR AGO, WHICH IS INDICATIVE OF CHEAP RATIONS AND OPTIMISM. GUYS THINK THE MARKET IS GOING TO GET HIGHER. WE PROBABLY ARE GOING TO SUSTAIN A 68- TO 72-CENT LEVEL ON INTO SPRING AND EARLY SUMMER.

Pearson: LET'S TALK A LITTLE BIT ABOUT -- RIGHT NOW THIS CALF MARKET HAS BEEN EXTREMELY HOT. IS THAT GOING TO CONTINUE? ARE WE MAKING THEM WORK?

Hackney: IT'S GOING TO PROBABLY CONTINUE, BUT WE CAN'T MAKE THEM WORK. WE'VE GOT AN ENTHUSIASM OUT THERE FOR THESE CALVES THAT DOESN'T SEEM TO END. THIS $1.50 TO -70 CORN IS A MAGNET TO THESE HIGH PRICED CALVES. I HOPE, AND OBVIOUSLY WE ARE ALL GAMBLING, THAT THESE $1 TO $1.05 CALVES ARE GOING TO MAKE A BUNDLE OF MONEY FOR SOMEWHERE. BUT THE ODDS ARE AGAIN THOSE CATTLE EVEN APPRECIATING OR ENHANCING THAT INVENTORY VALUE OF THE FARMERS' CORN. IT ISN'T GOING TO STOP BECAUSE THE AVAILABILITY, THE ACTUAL SUPPLY OF THE CATTLE, JUST DOESN'T SEEM TO BE THERE. THE INVENTORY REPORT THAT CAME OUT TODAY, MARK, IS SHOWING JUST BARELY EVEN WITH THE YEAR AGO, AND IN SOME CASES LESS, IT'S SHOWING ABOUT 2.5, 3 PERCENT FEWER HEIFERS IN THE FEED LOT GOING INTO THE COW HERD. SO YOU SEE, WE'VE GOT A BUILDUP, MARK.

Pearson: ALL RIGHTY. LET'S TALK ABOUT THIS HOG MARKET. LET'S TALK ABOUT KIND OF A UNIQUE PART OF THE HOG MARKET RIGHT NOW; THAT'S THIS SOW MARKET. WE'RE HOTTER THAN A PISTOL IN THERE.

Hackney: WE ARE. THAT'S SUCH AN INTERESTING SCENARIO. WE'RE OBVIOUSLY IN AN OPTIMISTIC MARKET. THERE'S A LOT OF SOWS BEING KEPT FOR BREEDING THAT HISTORICALLY WOULD HAVE COME TO MARKET. WE ALSO HAVE GOT A PHENOMENON ON THE LACK OF FAT FROM THE SAUSAGE PEOPLE... IN THE BLEND, IN THE MIX OF THE PRODUCT. AND THESE HEAVYWEIGHT SOWS AT 45 CENTS IS A PHENOMENON.

Pearson: REAL QUICK, THE BUTCHER MARKET, AHEAD FOR THE NEXT THREE MONTHS? WHAT DO YOU THINK?

Hackney: I EXPECT IN THE NEXT THREE MONTHS, WE'LL PROBABLY SEE 45- TO 50-CENT MARKET HOGS.

Pearson: ALL RIGHT. THAT SOUNDS FAIRLY DECENT. AND WE'RE LOCKING IN SOME OF THESE CHEAPER COSTS RIGHT NOW. HAS THAT BECOME A CONCERN OF YOURS, IN THE TEN SECONDS OR SO WE HAVE LEFT?

Hackney: THERE'S AN EXCELLENT HEDGE IN THESE HOGS. $25 TO $28 A HEAD NET. I DON'T CARE IF THE MARKET GOES TO 50; THEY OUGHT TO TAKE A THIRD OF THAT PROFIT RIGHT NOW.

Pearson: ALL RIGHT. WALTER, THANK YOU SO MUCH. DOUG, THANK YOU. THAT WILL WRAP UP THIS EDITION OF "MARKET TO MARKET." NOW, BE SURE TO JOIN US AGAIN NEXT WEEK WHEN WE'LL EXAMINE THE EFFORTS OF FARMERS TO ADD VALUE TO A WIDE RANGE OF CROPS. UNTIL THEN, THANKS FOR WATCHING. I'M MARK PEARSON. HAVE A GREAT WEEK.

Tags: agriculture business commodity prices markets news