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Market Plus: Jan 02, 2004

posted on January 2, 2004

Market Plus: Jan 02, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web page, I'm Mark Pearson. From all of us here at Market to Market, Happy New Year. Doug Hjort, our first guest of 2004, one of our regular market analysts, one of our long-time analysts. You know, Doug, you were friendly to wheat and I kind of thought maybe you'd overstate it, but boy we've popped right back up. Corn market, you've been friendly there and you're talking about a spike in beans. I want to talk about the beans in just a moment. But what's on everyone's mind right now, if you're in the cattle business, you'll see a sixteen percent decline in the price of your product in 10 trading days, that's a lot more than a lot of these people want to deal with. Have we stabilized? Where are beef prices headed Doug?

Hjort: I think we probably have stabilized. Obviously there's a lot more to be learned about this mad cow thing. So, trying to say anything right here is just kind of a gut feel. But unless there's more to the story, in other words, a cow that was born in the United States that is found with mad cow, I think we have kind of stabilized this price. If we have, I think we could rally back three, four, five dollars maybe on, well, probably both futures and cash prices. The real key though to getting prices above that level would be the export market. We have to get some sort of break through there and get some beef moving out even if it isn't everybody coming back to the market. I don't expect that. Taiwan, just this week, for example, you know, put a seven year ban on, I think that had more politics involved in that than it did supply/demand relationships or fear of beef. But the cattle market, it would bounce up partly because of this demand we have for beef here in the United States. And for the most part it doesn't seem that it has been hurt very much. So, as long as, you know, you get into after the holidays to where there's a whole mix of meat and fish and so on. Beef is a pretty strong demand item at the retail level the first part of the year. So, as we see that starting to develop I think there's going to be a good pull here and that could pull cattle prices up some. I definitely, though, would suggest being extremely current on your marketings when you get that. I think in the next two weeks you might be able to see prices do that, we're firm a little bit here. And if we do and you've got cattle that are done or close to being done, try to get them sold or protect them off with a futures hedge even as risky as that could be trading the cattle futures.

Pearson: Speaking of risk, Doug, soybeans, you've been talking about this potential spike for some time now we could see in beans coming later this spring, late winter/early spring. Producers out there, I've talked to a lot of producers, you've talked to a lot of them, they're sold out. I mean, a lot of cash beans are gone. What kind of strategies, obviously there's people that have carried them over to the beginning of the year here, what should people be doing in terms of beans that are left to get sold? And what should a producer do once he's capitalized on potentially a major uptake in the bean market?

Hjort: Well, remember, I'm not a broker so I don't put out brokerage advice. But a reownership program of some method and work with your broker on that to figure which works the best for you. The soybean market, the volatility in, well all the markets really, has become quite severe. And going straight futures position has a lot of risk with it. And yet, with the volatility here it's not cheap to buy a call or something like that either. So, you need to work that out to see where you're going. One thing I'd point out, if this supply/demand relationship really plays out as tight as it appears it's going to be right now, we could see an explosive market, much, much higher than where we're at, a dollar, two dollars, who knows where it might go. So, don't get boxed into a straddle or a strangle or a fence or something like that, which I don't know really what I'm talking about here, but that boxes you into a certain price area. If you do that make sure you've got plenty of room. But then I understand that gets a little costly too. So, reownership, I think, is alright and a way to recover some of those prices. Obviously trying to buy something on a good sized break is fairly, probably as certain as it could be, to be risk free. But look for that opportunity. If we stay here, above this breakout point, where we finished on Friday, then you'd be buying on, trying to come down to that and if it doesn't go down below that again, try to look for buying. As far as cash soybeans, depends on how many you have. If you've got just a few left I'd put them in the Las Vegas category and just kind of ride it out at least through January and into February. By that time we'll have a much better handle on what the size of the South American crop is and what their ability to deliver is and also looking at our supply/demand balances to see if we are slowing things down. One thing is certain, China is not going to buy very many more soybeans from us. I don't think they're going to cancel out on very much either so it's going to be a good solid market. They'll start buying more and more from South America. You take that huge impact out of the United States market that China has been in soybeans and we're back down to our regular customers. So, instead of thirty, forty or fifty million bushels of beans sold per week, we're going to be down there at five, ten or fifteen, maybe twenty, but still factoring all that in, we're on a pace to run out of soybeans by spring, you see.

Pearson: Yeah, and things should be nuts. That's what producers are looking at, saying why aren't we there. And you're right, Brazil in the background is a big part of it.

Hjort: And I think one of the reasons we're not there is the futures trade itself. The futures trade, yes they do, they deal in the future but they have been burned as well as other people coming in here and trying to buy this thing. You remember a year ago, soybean price outlook was fairly good, it didn't go any place. So, they're still nervous. Right now I think it's coming down to crunch time though and they're really going to have to pay close attention and if the funds want to ride this thing, they can take it wherever they want to go with it.

Pearson: On that note Doug, thank you so much, Happy New Year again. Doug Hjort with us here on Market Plus. Thank you for joining us. Be sure to tell your friends about the Market Plus segment here at our Market to Market Web site. From all of us here at Market to Market, Happy New Year everybody.

Tags: agriculture commodity prices Mad Cow markets news