September 13th, 2002 Volume 7, Number 9 How to Handle Your Emotions in a Bull Market By: Ida Hurley It has been several years since we have seen prices this high for corn, wheat, and soybeans. It is a good feeling for row crop producers to see profitable prices for their crops, unless crop yields are down considerably. Hopefully, price improvement will make up for some or all of the yield losses. Emotions are high during these time periods. Corn, for instance, has come from below $2.00 per bushel, to nearly $3.00. Every time the market goes up, we wonder if this is where the next sale should be – or is there a little more left in this rally? The emotions begin to take control. How should we keep the emotions from being in control? Here are some guidelines: 1. Start with realizing that we never – ever – know what the market might do. Thinking that someone somewhere knows, keeps us hoping that we will meet the right person with the right answers, and that will assure us of selling in the top 20 to 30 percent of the market. There is no such person. There are people who have educated guesses of where the markets are going, but they can’t predict the world’s weather, or the politics that drive these markets. 2. Realize that farming is a business, and we are in business to earn a profit. If records are kept for tax purposes only, we have no basis for recognizing a profitable price when the market offers it. We have to keep management records as well as tax records, and they are different. 3. Set some realistic goals. For instance, at the beginning of this marketing year it did not seem possible for corn, soybeans, or wheat, to get much above loan. When we got opportunities slightly over loan on corn, we sold corn and bought calls. Our goal was to obtain prices at least twenty In This Issue: “How to Handle Your Emotions in a Bull Market” - Pgs. 1-3 Market Update - Pgs. 3-7 percent above loan. If the futures market had gone down, we would have gotten $2.30 for the corn, plus LDP, direct, and counter cyclical payments. If it were to go up – which it did – we would, (and did), roll the calls up. We have rolled up from $2.30 to $2.60, and put the profits in our pocket. We still own the calls, which will give us the benefit from any farther moves up. This strategy cost 12 cents. Our goal has changed from getting prices just above loan, to substantially above loan. This has been possible through the purchase of the options. The purchase of calls gave us the benefit of participating when the market went up, the sale protected us if prices turned down. Most people judge options by "how much money they made ou of them". If the market had gone down, we would have made nothing on the options, but would have had substantial government payments. We would have simply gotten 12 cents less because of the cost of the option. OPTIONS GIVE US THE SECURITY OF TURNING AN UNKNOWN RISK INTO A KNOWN RISK, AND THUS TAKE THE EMOTION OUT. When you do not give your consultant the -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Continued on Pg. 2 Page 1 How to Handle... Cont’d. freedom to take the risk out of the market with options, you are putting the marketing consultant, (and yourself), in the position of having to "outguess" the market and thus --live by the seat of your emotions. 4. A good many people thought that after four years the market was never going up, so they sold grain at prices that were at or below loan, thinking they were going to "double dip" the LDP payments -- this is insanity at its best. The only way one could gain is if the market did go down. When the market goes up, we would be sold below loan, with no government payments, except for the direct payment. We are not guaranteed the counter cyclical payment this year. The double AMTA pay ment last year was not based on market price. This year there will be no double AMTA, as the second AMTA has been replaced by the counter cyclical payments. If prices stay above the "target prices" we will not receive government benefits except the direct pay ment. For many, this year will not be as good as last. The reason people made such a danger ous move was because they believed they could "outguess" the market. This puts our emotions in charge. Someone said that five percent of the people think, fifteen percent of the people think they think, and the balance don’t think at all. Strategies that let you participate whichever direction the market goes, take a lot of thought – but once we understand them, they are really quite simple. We are then free to make methodical and logical moves and the emotions are gone. SIMPLE IS HARD. Once we break the cycle of rational moves and get into an emotional mindset, it takes a lot of time to regain our perspective, and also to regain our losses. 5. There is not much carry in these markets right now. In other words the consumer wants the grain now. Basis is good and the difference between December corn and March corn is only six cents. Soybeans are the same -- we can’t store for that. We should sell the grain and buy calls back. The calls will be cheaper than storage and handling costs, and the sale will give us downside protection if the market falls apart. These basis plays and storage decisions can add as much as 5 to 10 percent to our bottom line. In some cases that is one third of our net profit. Learning these merchandising techniques is as important to our overall management as any production job we have. When these profits are added to our bottom line year after year, emotions come into line. 6. Hurley Consultants have to handle emotions in a bull market. We best handle our emotions by always doing the right thing, no matter who is questioning our decisions. Sometimes when I am dealing with a client who is emotional, and I too become emotional, I back away and call one of our consultants outside of the company that is not involved in the emotions of the day-to-day decisions. Usually, that consultant can help me clarify my thoughts. I am much more firm with clients about doing the right thing than I used to be. This doesn’t mean that I don’t make mistakes. A mistake I don’t make, however, is trying to please a client in order to keep from losing that client, by doing something that I know is not in that client’s best interest. If your consultant is not trying to help you understand the reasons behind the decisions he or she is making on your behalf, take it upon yourself to ask questions until you are sure you understand. 7. GOALS, GOALS, GOALS. No one gets anywhere without a goal. As you have heard me say: "All I can get is not a goal". Most people are emotional because they don’t really know what they want out of life. These people don’t recognize an opportunity when they see one. Setting goals is not an easy task. A satisfying goal is not "I want three new green or red tractors". A satisfying goal is a life free of tension, strife, and fear of failure. When an entire family sets down and determines their goals based on the good of everyone – and shares the responsibility of reaching that goal – then the chance of reaching and maintaining Continued on Pg. 3 -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 2 How to Handle... Cont’d. a satisfactory lifestyle is more realistic. I see over and over that we as a society are spending more and enjoying it less. We have become a society that is materialistic and expect instant gratification. When we know what we want – we are more likely to get it. That is, of course, if we are willing to make the sacrifices and do the "home work" to reach our goals. Goals take emotion out of decisions, as we reach new plateaus and feel the sense of accomplishment and satisfaction. We have some wonderful opportunities in front of us in the row crop industry. Take advantage, and don’t be scared to use the tools necessary to keep the risk at a minimum – we will then keep our emotions under control. Success comes from logical planning and not impulsive decisions. We pray that you have a good year. Market Update Hogs and Pork For the weeks of 9/16 thru 10/13 By: Joe Kropf Hog prices broke from the average of $53-54 carcass level in July to the low $40s carcass level in August. Pork production increased substantially as weekly hog slaughter increased from 1.83 mil in July to near 1.9 mil in August. Consecutive weeks just ahead of the Labor Day weekend totaled 1.96 and 2.01 mil and set a new weekly record for August. Prices began to recover from the mid $20s carcass level by the second week of September. Producers may have been marketing some hogs earlier than scheduled to avoid lower prices later on. However, slaughter weights did not decrease as would be expected with early marketing, but in fact were increasing. Sow slaughter was increasing as producers appeared to start some modest liquidation due to extremely unprofitable hog prices and rising corn prices. But increased sow slaughter did not fully account for the rapid increase in weekly slaughter. It is doubtful that imports from Canada increased enough from July to August to fully explain the increase either. It is possible the quarterly June report underestimated the inventory as was the case with the December and March reports. 2000 2001 2002 Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb 80 70 60 50 40 30 20 Jan $/cwt IA Barrows & Gilts, Carcass, September 2002 Forward Forecast The price trend for hogs is lower into the fourth quarter. The early September recovery is expected to stall around the low/mid $30s, carcass basis, then trade down to mid $20s or lower in Nov/Dec. Risk remains high that hog supply will equal or exceed slaughter capacity, which could cause hog prices to test the lows of the fourth quarter 1998. Imports of slaughter hogs from Canada are expected to continue well above last year through the rest of this year. An increase in pork exports vs. last year would be nice but does not look likely. Competition from a large supply of low priced chicken will be strong through at least the first quarter 2003. USDAwill release the quarterly Hogs and Pigs report September 27. It is estimated to show All Hog Inventory up 1%; Breeding Hogs, down 1%; and Market Hogs, up 2%. Sow farrowing intentions for Sep/Nov are estimated up 1%; for Dec/Feb, down 2%. Herd liquidation is expected the next 3-6 months. Bullish Market Factors: 1. Pork demand is fairly good. 2. Increasing sow slaughter likely means herds are being reduced which can impact late spring/summer hog market next year. 3. Pork prices are competitive with other meat prices. 4. Pork exports were generally a little better than expected first six months. 5. Decreasing beef production may encourage increased retailer featuring of pork cuts this fall. Bearish Market Factors: 1. Slaughter weights are averaging equal to slightly above year ago weights and are increasing seasonally. 2. Imports of slaughter hogs and feeder pigs from Canada expected larger than year ago rest of this year. 3. Competition from plentiful chicken supplies will continue strong. 4. Risk of fourth quarter hog supply equaling or exceeding slaughter capacity is 75% or greater. 2003 -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 3 Market Update continued Soybeans By: Sid Love Old crop crush was 1,700 mil bu, down 5 mil bu from August, compared to the previous record 1,641 mil in 2000-01. Exports were projected at a record 1,065 mil bu, up 5 mil bu from July, and 996 mil in 2000-01. Total demand was projected at 2,946 mil bu vs. 2,804 mil last year, indicating a 195 mil bu carryover, compared to 248 mil bu in 2000-01. In May, 2001, when USDAfirst projected the 2001-02 carryover, it was 500 mil bu, and so USDA has underestimated demand for soybeans the last three years. NASS reduced acres for harvest to 71.8 mil vs. 72.0 mil in August, and 73.0 mil in 2001. Yield was up to 37.0 bu vs. 36.5 bu/acre in August, and the 2002 crop was 2,656 mil bu vs. 2,628 mil bu in August, and 2,891 mil in 2001. Crush for 2002-03 was projected at 1,675 mil bu vs. 1,680 mil bu in August, and exports were back up to 850 mil bu vs. 820 mil bu in August. Total demand was 2,696 mil bu vs. 2,674 mil bu in August, and the 2002-03 carryover at 160 mil bu vs. 155 mil bu last month. Final acres will change. In 200102, final acres fell 1.2 mil from November to January. USDAprojected the 2002-03 Brazilian crop at a huge 48.0 mil tonnes, and the Argentine at 31.0 mil tonnes. Total South American production can be over 3,100 mil bu, weather permitting, and above the US for the first time in history! The Chinese crop for 2002-03 was projected at 15.6 mil tonnes vs. 15.41 mil in 2001-02, but Chinese sources place the crop at 16.5-17.0 mil tonnes. China's soybean imports for 2002-03 were Wheat projected at 14.0 mil tonnes vs. 10.3 mil in 2001-02. China's crop is usually about 15.5 mil tonnes, about half their crush capacity. Western companies have built many joint venture crushing plants in recent years, expecting large soybean imports. The current lifting of the ban on imports of GM beans ends December 20. China may use this as a smokescreen to slow imports and use their domestic crop. World meal demand is expected at record levels in 2001-02, up 4.0%. Meat and bone meal use is being phased out worldwide. One offset will be the sharp increase in ethanol production and increases in production of corn byproduct feeds and corn oil. World oil demand is also expected to reach record levels, up 4.6%. US soybean oil carryover for 2002-03 was projected at 1,730 mil pounds in September vs. 1,990 mil pounds in August, and 2,435 mil in 2001-02. Longer term, the new farm bill sets the soybean/corn ratio below historic levels, which favors corn unless soybean prices rise. USDA projected the 2002-03 farm price at $5.15 to $6.05 vs. $4.35 in 2001-02. We are never more than six months from a major soybean harvest either here or in South America. South America is holding record stocks for this time of year, but must sell to plant their new crop in November-December. Look for a "short crop, long tail" in soybeans also if the South American crop is as expected. With reasonably good weather, look for a 2,900 mil bu US crop in 2003 on 74.0 mil planted acres. Double crop will be popular with high wheat prices. month. By: Sid Love USDA left the 2002 all wheat crop unchanged from August at 1,686-mil bu, down 14% from 1,958 mil bu in 2001. The annual Small Grains report will be released on September 30. We expect other spring production down 16 mil bu, and durums down 4 mil bu. Recent rains have reduced quantity and quality, but better weather is now expected. USDAincreased exports for 2002-03 by 50 mil bu, and total demand to 2,136 mil bu vs. to 2,096 mil bu in August, and 2,169 mil in 2001-02. Imports were down 20 mil bu to 85 mil bu vs. 108 mil in 2001-02. Carryover for 2002-03 was 407 mil bu vs. 467 mil bu in August. HRW carryover for 2002-03 was 192 mil bu vs. 217 mil in August, and 365 in 2001-02, soft red 43 mil bu vs. 51 mil last month, and 75 mil last year. Durums were 28 mil vs. 28 mil vs. 33 mil. Hard red spring will be 85 mil vs. 112 mil last month vs. 226 mil in 2001-02. For 2002-03, world wheat production was projected at 572.56 in September vs. 572.27 mil tonnes in August, and 578.85 mil in 2001-02. World wheat demand will be 598.60 mil tonnes vs. 594.86 mil tonnes in August, and 586.11 mil tonnes in 2001-02. USDA made some changes in major producer's output for 2002-03. Canada was 15.4 vs. 18.0 mil tonnes last month, and Australia at 15.0 vs. 20.0 mil tonnes. China stayed the same at 92.0 mil, and the EU at 104.4 mil tonnes vs. 107.66 mil tonnes in August. The Former Soviet Union was up to 93.21 mil tonnes from 82.29 mil in August, while Russia was 48.0 mil vs. 41.0 mil last World wheat exports in 2002-03 are projected at 99.89 mil tonnes vs. 102.67 mil tonnes last month, and 106.47 mil in 2001-02. There will be a major shift in export patterns, with a large crop in France, and a record crop in the UK. Russia, Ukraine, Eastern Europe, and India will all attempt to sell wheat for export, and have been selling wheat recently at prices more than 50 cents per bu below US. World ending stocks were projected at 135.45 mil tonnes vs. 138.75 mil tonnes last month, and 161.49 mil in 2001-02. World rice supply-demand has an impact on world wheat. World rice carryover for 2002-03 is expected to fall to 105.14 mil tonnes vs. 113.56 mil tonnes in August, compared to 131.36 mil tonnes in 2001-02, and 145.30 mil in 2000-01. Seasonals are up into December. The new target price, and higher cash prices, will encourage about 1.5-1.75 mil acres more wheat planted in 2003, weather permitting. The US crop can rebound to 2,100-mil bu in 2003, and the world crop to 590 mil tonnes. Prospects for a larger crop in 2003 will pressure prices in late winter into spring if normal weather is experienced. USDA projected the farm price at $3.45 to $4.05 vs. $3.20 to $3.80 in August and $2.78 in 2001-02. NOAAofficially declared a weak El Nino, which usually results in good moisture in the southern plains during the winter, but the US Midwest was not supposed to have a drought this summer. Long-range weather forecasting has a low level of accuracy. -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 4 Market Update continued Rice By: John A. Johnson Light activity and low prices continue to characterize the long grain rough rice market. This week’s 11 cents/cwt. reduction in LDP rates by USDAprovided an added impediment to activity. There is not much trading in any area. In Texas, after the reduction in LDP, buyers this week dropped bids for No 1 and 2 Cocodrie from 10 to 20 cents/cwt. over the USDA world price estimate, and selling dried up. In South Louisiana, bids for long grain dropped to $3.24/cwt. under loan for December delivery; and to $3.54/cwt under loan for nearby delivery. There was very little sell ing reported. In the upper delta, high bids for long grain this week, with LDP added, were at 20 to 30 cents/cwt. under loan price — light selling includes forfeited rice resold by CCC. In the lower delta, exporters were bidding about $3.09/cwt., fob farm, basis No 2/55/70 — with light selling of new crop rice by farmers who lack storage space. The long grain harvest is about over in Texas and South Louisiana. It was in full swing this week in Northeast Louisiana and Mississippi under ideal weather conditions; and was picking up steam in Northeast Arkansas. Field yields for Cocodrie were said to be outstanding. The medium grain harvest is just beginning in Arkansas and California. Bidding in Arkansas for new crop medium grain was Cotton By: Sid Love USDA reduced acres for harvest to 12.89 mil in September vs. 13.11 mil in August, and 13.83 mil in 2001. Yield was unchanged from August at 675 lbs/acre, and 705 lbs./acre in 2001. As a result, the 2002 crop was projected at 18.13 mil bales vs. 18.44 mil bales in August, and 20.3 mil in 2001. USDAprojected acres for harvest at 90% vs. 88% in 2001, and 84% in 2000, so acres for harvest can still change by the final. Total demand for US cotton for 2001-02 was projected at 18.72 mil bales vs. 15.62 mil for 2000-01. Exports for 2001-02 were projected at 11.0 mil bales, unchanged from August, but the largest since the record 11.3 mil in 1926! Domestic mill use was 7.72 mil bales, down from 8.86 mil in 2000-01. Carryover was indicated at 7.6 mil bales, unchanged from August, vs. 6.0 mil in 2000-01. There has been some misunderstanding over Census stocks reported at the end of July at 6.8 mil bales, well below USDA's estimate. Last year, Census end July stocks were 5.8 mil bales vs. carryover at 6.0 mil bales. There is always some cotton in the pipeline, but this year's numbers are much lower. Census is checking to see if there is an error. "Unaccounted", or residual, was a negative 510,000 bales in 2000-01, and it appears that unaccounted for 2001-02 could be a positive 500,000 bales. It is almost as if some 2001 cotton was counted in 2000-01 carryover. This could be a factor for old crop carryover in later supply-demand estimates. For 2002-03, USDAprojected total demand unchanged from August at 19.1 mil bales. Carryover for 2002-03 was set at 6.7 mil bales, down 300,000 bales from last month. This could change if reported at $4.70 to $4.80/cwt., fob farm, basis No 2/58/69, for immediate delivery at harvest — with no sellers. The market in California was inactive, as the harvest of Calrose is just beginning. California trade expects a period of standoff between buyers and independent farmers — with very little trading until the large Japanese buying begins. There is little or no buying or selling interest at present. Although there is nothing in the world rice picture to indicate the need for change, USDAthis week raised its estimate of world market prices for rice by 11 cents/cwt. for all types of rice, and lowered loan deficiency (LDP) rates by the same amount. Motivation apparently was either political or administrative. Some speculate that it was in reaction to Senate approval of $5.9 billion in farm drought relief—which the Bush Administration opposed. One official said the drought spending will likely be taken out of other farm programs. On a more positive note, net export sales of rice reported to USDAfor the two- week period ending Sept 5, totaled a healthy 222,300 metric tons. One of the most significant sales reported was an unusually large, 84,700 metric ton sale to Mexico, 76,900 tons for the one week ending Sept. 5. Rumor has it that ADM Rice has made an unreported sale of Calrose brown rice, of 14,000 metric tons. 2001-02 carryover is reduced as outlined above. Weekly export sales were a marketing year high 364,600 bales. World production for 2001-02 was 98.06 mil bales, compared to 88.74 mil in 2000-01. World demand was 94.42 mil bales vs. 92.02 mil last year. Ending stocks were 46.64 mil bales vs. 42.70 mil bales in 2000-01. US stocks will be 16% of the world total in 2001-02, compared to 14% in 2000-01. For 2002-03, USDAprojected world production at 88.57 mil bales, demand at 96.71 mil, and ending stocks at 39.16 mil bales. US stocks will be 17.1% of the world total vs. 16.2% in 2001-02. China's 2002-03 crop was projected at 20.5 mil bales, unchanged from August, vs. 24.4 mil in 2001-02. India was projected at 10.7 mil bales vs. 10.5 mil bales in August, and 12.3 mil last year. Australia was 2.2 bales vs. 2.6 mil bales in August, and 3.2 mil last year. The A Index has recently been near $49.10. The International Cotton Advisory Committee projects the A Index for 2003-04 at $57.00 vs. 2002-03 at $53.00 vs. $41.80 for 2001-02, but down from $57.20 in 2000-01. The A Index must be watched closely as it is a major component in the LDP. The final crop will not be known until the final ginnings report in late winter. In the long run, negative sentiment will remain as the trade expects the new farm bill will encourage crops between 18.0 and 20.0 mil bales annually in future years, with reasonably average weather. For now, we expect 15.5 mil acres to be planted in 2003 vs. 14.38 mil in 2002. Record world demand, and record or near record US exports, will remain a support to prices in the future. -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 5 Market Update continued Grain Sorghum By: John Miller In this month’s USDAreport, the expected acres planted and harvested remained at 9.3 and 7.5 million acres, respectively. Kansas, the state with the most sorghum acreage, saw its acreage estimate fall by 650,000 from last year's level to 3.1 million. The second largest producer, Texas, saw the acreage estimate stay the same at 2.6 million. Arkansas posted the only significant increase in acres as the estimate changed from 170,000 to 230,000 acres. Other states in the sorghum belt saw only small reductions in last month’s estimates. There is a possibility that the crop could reduce some in size. Dryland sorghum in the Western portions of Texas, Oklahoma, and Kansas have been hurt severely, with many planted acres that will not be harvested. In fact, all but only small spots of dryland sorghum in the Texas Panhandle have already been zeroed-out for insurance purposes. There are some bright spots out there, however, such as Eastern Kansas and Southeastern Nebraska, where some timely rain has kept the crop going. With yields increasing only slightly from 50.3 to 51 bushels per acre, the domestic production estimate rose only 4 million bushels to 384 million. This is far below the 2001 production of 515 million, and falls well below the past 5-year average of 546.8 million bushels. With all uses remaining at 400 million bushels, the remaining carryout rose by 5 million bushels to 41 million. With the corn crop conditions in the Midwest still uncertain, the uncertain prospects for the remaining sorghum kept the season-average price estimate to a nickel increase from last month at $2.35 to $2.75 per bushel, or $4.19 to $4.91 per hundredweight. Corn By: Sid Love USDA projected the 2002 corn crop at 8,849-mil bu, on an average yield of 125.4 bu/acre vs. 8,886 mil bu on an average yield of 125.2 bu/acre in August. Acres for harvest were down another 500,000. Trade expectations were 8,829-mil bu. The 2001 crop was 9,507-mil bu. Total demand was projected at 9,770-mil bu vs. 9,780 mil in 2001-02. Carryover for 2002-03 was projected at 729-mil bu vs. 767 mil in August, and 1,636 mil in 2001-02. Sorghum was projected at 384-mil bu vs. 380 mil in August, but well below 515 mil in 2001. Carryover was 41mil bu vs. 35 mil in August, and 56 mil in 2001-02. Corn food/seed/industrial use will set a record in 2002-03 at 2,170-mil bu vs. 2,055 mil in 2001-02, but sharply higher prices may slow demand somewhat. US demand for feed was unchanged from August at 5,600mil bu vs. 5,825 mil 2001-02. World corn production is expected to fall to 585.78 mil tonnes vs. 586.49 mil tonnes in August, and 593.39 mil in 2001-02. The Argentine crop was up to 12.5 mil tonnes vs. 11.0 mil tonnes in August, and 14.4 mil this year. South Africa's 2002-03 crop is projected at 9.5 mil tonnes vs. 9.1 mil in 2001-02, but droughts in other Southern African countries will take all the surplus and more. White corn has been strong as a result. China's crop was projected at 125.0 mil tonnes vs. 125.0 mil in August, and 114.0 mil in 2001. Local estimates are closer to 128.0 While Mexico and Japan have remained active export markets, the cash trade has slowed a bit over the past few weeks. Basis levels, however, have remained fairly firm at most terminal locations. With the spread remaining consistent, Mid-Bridge has been trading at about 45 cents over the December corn futures contract. The ports of Corpus Christi and Houston have been trading at 30 and 20 over, respectively, for several weeks now. Cattle feeder markets in the Texas High Plains have been bidding roughly 10 over the December, while further north in Kansas have seen end-user bids even with December corn futures. Given the shortage to come in sorghum this year, there is virtually no carry in the basis market at this time. Cash pricing decisions, then, will likely follow the futures market ability to out-pace accruing storage and interest charges. With the sorghum harvest moving into the lower Texas Panhandle this week, thoughts are already turning to next year down south. The recent tropical storm that gently swept across South Texas last week will help the moisture profile going into next year. With the experience of this last year's drought, a little moisture at this time is a welcome sight. A decent moisture profile coupled with the new and higher loan rate levels could provide the setting for a jump in sorghum acres not only in South Texas, but across the sorghum belt. With a loan rate roughly equal to that of corn, planting decisions will likely generate more from agronomic issues rather than from loan rate levels. And with the recent experience of high aflatoxin in South Texas corn, sorghum may look even more attractive there. In addition, the current futures price increases should allow profitable sorghum prices for 2003 to be locked in. mil tonnes. China's exports for 2002-03 were projected at 9.5 mil tonnes vs. 8.0 mil tonnes August, and 8.0 mil in 2001-02, up 1.0 mil tonnes from August. World corn demand will be 621.22 mil tonnes vs. 621.17 mil tonnes in August, and 618.79 mil tonnes in 2001-02. Carryover was down to 89.83 mil tonnes vs. 91.84 mil tonnes in August, and 125.27 mil tonnes in 2001-02. Last year, the August yield was 133.9 bu/acre, but the preliminary final was 138.2 bu/acre. We remain convinced that the new seed varieties are more drought tolerant than in the past. The 2002 crop will not be certain until at least the November crop report, and perhaps as late as December 1 Stocks in All Positions due out in mid January. Last year, the preliminary final was 9,507 mil bu vs. 9,266 mil in August. Weather permitting, look for at least 81.0 mil acres planted in 2003. A crop over 10,000 mil bu is likely, rebuilding stocks for 2003-04. Only bad weather will prevent producers from increasing production in the future, and surpluses will result, as the 2002 farm bill encourages corn production. A "short crop has a long tail ". Unless there are major problems with the South American crop, or the US crop next summer, a top is more likely to be reached in the first half of the crop year. In past years, the top came between Labor Day and December. USDA's prices for 2002-03 were $2.35 to $2.75 at the farm vs. $2.30 to $2.70 in August, and $1.97 in 2001-02. -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 6 continued Cattle and Beef For the weeks of 9/16 through 10/13: By: Joe Kropf Supply of fed cattle continues to be adequate to restrict price strength. Feedlots placed over one half mil fewer cattle on feed than earlier during Apr-Jul. During the same four months, feedlots marketed 232,000 more than last year. As a result, on feed inventory August 1 was 632,000, or 7%, fewer than last year. The impact of a smaller on feed inventory has not yet been seen. But, within the next 30 days, marketings of ready cattle will decrease and prices will increase. However, heavier than a year ago slaughter weights will be a partial offset to declining numbers. And, competition for beef will be strong from low priced chicken and pork, effectively limiting the increase in fed cattle prices. Marketings of fed cattle continued large in August. Even though August ’02 had one less slaughter day than August ’01, marketings are estimated equal to last year. Marketings on a daily basis would have been equivalent of 4.5-5.0% larger than last year. Placements on feed during August are estimated up 3%. In spite of rising corn prices/feed costs during August, demand for feeder cattle was good. Increased numbers of empty pens, as well as a breakeven or better hedge available when feeders were bought, likely resulted in a modest increase in placements. The on feed inventory for September 1 is estimated down 6%. USDA will release the report September 20. Texas Steer Prices, August 2002 Forward Forecast $/Cwt 85 80 2000 75 2001 70 2002 65 2003 60 Jan Apr Jul Oct Trend for fed cattle prices is higher for the next 90 days. Prices are projected to increase from low/mid $60s and high $90/low $100s to upper $60 and $107-113 ranges by early October. Consumer demand for beef will be critical in determining how high prices can reach this fall. Retail featuring in October is expected to focus more strongly on pork since October is pork month and it is low priced. If consumer beef buying holds at least steady with the past couple months, prices should reach projected areas or slightly higher. Reduced beef buying by consumers could stop the uptrend in the mid/upper $60s and mid $100s. Beef export demand was good through the first six months of the year. Exported beef and by-product tonnage shipped was up 8%. Shipments to Japan were down as consumer beef buying, although slowly recovering, remained below the level prior to discovery of Mad Cow disease last August. Recently, more cows have tested positive for the disease. Fortunately, beef shipments to Mexico, South Korea and Hong Kong were much larger than last year to offset the reduced tonnage to Japan. Demand for feeder cattle has been strong. In spite of rising corn prices/feed costs, feedlot buyers continued to buy aggressively. Live cattle futures premiums encouraged buying, offering a breakeven to profitable hedge when feeders were bought during the spring/summer months. And, cattle feeder attitudes have been bullish. Four months of less than a year earlier placements, Apr-Jul, supported a bullish price outlook for fed cattle this fall and winter. While feedlot buyers may or may not have hedged when placing feeders, they have held to their bullish price expectations. Oklahoma City, Feeder Steers, 7-800 lbs, September 2002 Forward Forecast 95 $/Cwt Market Update 85 75 Jan Apr Avg 97-01 Jul 2001 Oct 2002 2003 Bullish Market Factors: 1. Consumer beef demand is still strong. 2. Marketings were large in May/August and feedlots were more current coming into September. 3. Spreading of the drought affected area of the northern and central plains did not force large numbers of feeders into feedlots. 4. Breakeven costs on feeders were hedgeable at breakeven or with modest profit. Bearish Market Factors: 1.Slaughter weights remain heavier than year ago and are expected to be heavier through year end. 2. Supply of competing meats will continue large. 3. Beef exports may be less than last year through year end. 4. Placements on feed may be larger than year ago in Aug-Sep due to drought conditions and bullish expectations. 5. U.S. unemployment is still relatively high. 6.Threat of renewed terrorist acts continues to hang over the market. -© 2002 Hurley & Associates Agri-Marketing Centers of Charleston- Page 7 Hurley And Associates Agri-Marketing Centers P.O. Box 471 - 415 East Marshall - Charleston, MO 63834 Phone: (573) 683-3371 - 1-800-524-0342 - Fax: (573)-683-4407 e-mail: [email protected] www.hurleyandassociates.com Caruthersville, MO 1-800-597-3628 Dennis E. Hurley Chairman of the Board Ida V. Hurley Founder Marketing Director Consultants: John P. Stewart, Bill Hudson, Sid Love, & Joe Kropf The following are additional Agri-Marketing Centers available to assist you in your area. Each of these centers are independently owned and operated, licensed to use the name “Hurley & Associates,” and using the consulting services of Hurley & Associates to meet the needs of their respective clients. 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