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Market Plus: Nov 22, 2002

posted on November 22, 2002

Market Plus: Nov 22, 2002

Pearson: Welcome to the Market Plus page on our Market to Market Web site. I'm Mark Pearson, host of Market to Market and our analyst this week is Sue Martin. Boy Sue, I'll tell you what, let's cut right to it, I mean, you kind of let loose on these beans. You've got the horns on, you're getting bullish.

Martin: Well, I really am and we have to realize, yes, we're going to have a lot of acres and so if we get into February and we're noticing -- or even January and we notice the weather has straightened up and things are looking good, then we're going to have a problem. But I don't think that's going to be the case, they're not off to a good start. Even parts of Northern Brazil is having some problems, showing stress on beans and then of course, as I mentioned in the show, the problems that we're finding already in Parana and Paraguay where the rust is starting to show up. Too much moisture just is not good for beans. But the bear has beat this drum all year long. First it was, well we were going to lose demand, export was going to go elsewhere. You know, if China keeps buying at us, Chinese buyers are not dumb, they're buying because there's nowhere else to go to get beans between now and March 1st and the later these beans get planted, the later it is before they can grab a hold of them.

So, I think they're buying because they're concerned they're going to put up three more crushing plants and they intend down the road to compete against soy meal in exports into Europe. But they're buying these beans because they have the attitude that if something goes awry in South America after a short crop in the U.S. and less acres expected next year they're fearing the price of beans is going to go ballistic and I think they're right.

When I look at the market, okay, if a person wants to sell how does a farmer approach this? I would recommend one, taking basis contracts out at your elevator. All you're doing is locking up the basis and you can roll those. Two, I would take and buy puts and floor it under the market and I would do the puts in the March time frame. That way you're not paying an awful lot of time value and by February when those expire you're going to know if they've got that crop going or not. And that way if the market drops back you're protected and then the third thing I would do is I would lock up those beans and take out the loan because that way it gives you some cash but you don't want the -- where else are they going to go to get these beans and to take care of China? How are they going to supply them if they -- make them bid up for these beans.

Pearson: All right, now you brought up another issue on the livestock front. This cattle market, we've seen these futures have been under a big premium to cash, it improved some this week. We're still a couple of bucks away on this cattle market. What's going to happen between now and the end of December on these futures for fed cattle?

Martin: Well, I think that we know that we're going to have production, beef production drop, we know that and carcass weights of course are dropping under a year ago's levels and all this. But my concern is as overbought as the market is and it raced way too fast this past week I'm -- the producer's found out he can hold out now and he's kind of got the packer on the run, he needs to bid up. But because we have such aggressive basis going that says we're going to have heavy deliveries unless something changes.

Well, the only way that changes, either the cash moves higher or else the futures drop back, it's one way or the other. So, you're going to have these larger traders selling the futures with the thought that they're going to deliver the cattle on the board.

Pearson: Okay, so be ready for heavy deliveries then in December.

Martin: Absolutely.

Pearson: All right, Sue, as usual we appreciate your commentary. Sue Martin, thanks for joining us this week on Market to Market, our Market Plus page. For all of us here at Market to Market, have a great week. I'm Mark Pearson.

Tags: agriculture commodity prices markets news