10/11 – Sorting It Out

By Karen Ballhagen –
Thinking about the upcoming week?
What factors will likely have the biggest impact or what hidden surprises could sneak up and surprise the markets this week? Grab a cup of coffee, let’s dig in and take a look…
Grain Talk
Corn: Grain traders this week are under the influence of the big dance on Tuesday – USDA’s Crop Production Report. So much energy has already gone into crop predictions – as higher yield reports have driven prices lower. It’s easy to get wrapped up in emotional price pressure and lose sight of the big picture – demand.

Yes, we have a record crop being harvested – there should be no big surprise in a number north of 11 billion. Traders have now plugged in an average pre-report guess of 11.208 billion bushels. The biggest caution I see with corn (other than the number USDA puts out this week) is when will we see a “real” surge in demand surface for corn export sales? Since harvest isn’t yet to 50% on a national level – that could be the trigger foreign buyers are waiting for. In fact, last week’s “sluggish” export sales pace is typical for this time period, with sales normally accelerating as October progresses. This year should follow that pattern and I believe we’re set up for a strong demand base to build into winter. That’s also exactly what we need to being chewing through this anticipated “big” crop. My focus: Implementing marketing steps to finish off 2004 crop and begin 2005 plans as we move toward winter. I’m hearing from many producers who failed to take advantage of the higher prices this spring with forward cash sales and am now looking for strategies.
Soybeans: A lot of beans have been harvested in the last 10 days. Crop estimates are now upwards of 3 billion bushels. Even if USDA doesn’t confirm a crop that big in the Oct. 12 Crop Production Report, traders will assume an upward revision will arrive later to get the crop past the 3 billion bu. level. Looking past Tuesday’s report: The weekly crop progress data should confirm we’re now in the final stages of harvest. This also means we have quite possibly factored in most of the negative “news” to be expected during harvest pressure. That could signal a turning point, which may catch bears by surprise. One reason I caution getting overly bearish at this stage of harvest is due to the commodity trading funds holding near record level short positions. Funds may begin to look for the exits soon, as historical seasonal price patterns begin to favor bulls from late October into Thanksgiving. The trigger for a seasonal bounce in beans could easily come from the export market, as last week’s sales pace clearly demonstrates that world buyers see “value” in U.S. beans at these price levels. In fact, one boat load of beans was sold for 2005-06 delivery. Another factor that could begin to spook bears: Early weather concerns are already popping up in South America. This market has a history of jumping ahead, factoring in bullish or bearish news very early – a seasoned trader once told me, “perception means more than reality.” Even if the reality is that it is too early to be worried about South American weather, the perception of any weather threats could still have a market impact.
Wheat: Last week I focused on how lower wheat prices “should” spur export business from countries looking for a bargain. Well, that is exactly what happened in recent export sales data. Wheat demand recovered very nicely – something that goes against USDA’s export forecast. Most importantly, this strong export demand was not concentrated in one country, but was spread out among a group of buyers. That suggests this demand pace could last longer than the market is currently anticipating. Keep in mind: Wheat prices are quite attractive down here for long-term importer coverage — especially with the lower U.S. dollar. Winter wheat planting is in full swing (with some moisture) which tends to pressure prices. But we’ve still got a long way to go and a lot more rain needed before this crop is made. That sets up the potential for a demand-led price recovery. I’m not a “wild” wheat bull. But wheat does look “cheap” if this demand pace persists.
Livestock Talk
Cattle/Feeders: Demand is not as robust as it was a year ago. Take a glance at boxed beef prices and that fact becomes immediately clear. That’s why I don’t see a repeat of last year’s amazing rally – especially since so many details have yet to be worked out with Japan on the potential resumption of trade. The market appears to have built in optimism on the trade front, meaning any delays into 2005 (which now looks likely) could easily pull futures lower. Plus, we have the “other” threat to keep in mind on cattle – the threat of a bearish surprise from an unexpected round of disease news. As we approach the one-year anniversary of the first U.S. BSE case I will be especially on guard for any bearish surprises. History has shown rumors have a way of popping up at this time of year. Don’t let these prices pass you by without locking in a price floor. Call me at 1-800-262-4643 if you need help with strategies.
Hogs: The wild ride higher appears to have come to an end as the market deals with the reality of big pork supplies. This past week’s activity in the cash market showcased that packers will trim hog runs and back up animals to force margins back into the black. That means unless pork cutout prices can post a contra-seasonal move higher, the trend for cash hog bids will follow the seasonal slide lower into December. While the drop in futures has taken some of the “cream” off this market, there are still attractive prices available for winter hog marketings. Use any price bounce to get coverage in place.
You may contact Karen for details of trading and hedging plans. Contact her at AG Edwards at 800-262-4643, or e-mail Karen.
Source: Ag Web