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Market Analysis: Sep 17, 2010: Rural Economic Summit in Grand Island, Nebraska

posted on September 17, 2010

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Pearson: For more than 35 years, if you've been we've been watching Market to Market, we've been reporting on issues and trends affecting rural America. And the cornerstone of our coverage has always been insightful commodity market analysis. Now, we're taping our program Wednesday this week in order to hold the rural economic summit here at husker harvest days. So rather than quote commodity closing numbers, we're going to talk about trends.
Pearson: Darin Newsom is with us to talk about this corn market. Boy, I'll tell you what, I'm hearing some pretty fantastic numbers talking to some of these producers here in Nebraska about what they think prices could potentially do. Yields seem to be decent here. Over towards the southern half of Iowa, not so great. Central southern Illinois, early numbers are not so great. Obviously USDA has shrunk the number. What's ahead for this corn market? Continuing to be long or be wrong?

Newsom: Well, Mark, it's interesting that you mentioned September 2006, because that was when we really changed the dynamics of the corn market. and what we're looking at now is the potential, as we get deep into the 2010-11 marketing year, to not only have this bullish market that's still in existence, but now throwing a short supply situation on top of it. If we look at the deferred contracts -- deferred corn contracts, it's indicating the market is already concerned about sourcing supplies to meet the demand. Does that mean we're going to have a shorter crop? Possibly. Does it mean we're going to have more demand? Possibly as well. Whatever the case might be, it certainly looks like we have a scenario building where we could see the market return to where we were in 2008, or at least partially up to where we were in 2008. And then the question is going to be what happens to demand. We saw what it did in 2008. We saw the ethanol shut down the feed yards, so it will be interesting to watch what happens. But it certainly has a bullish structure heading into the marketing year.

Pearson: All right. You've got a bunch of farmers here. Should they be selling that big crop they've got here in Nebraska?

Newsom: Right now we would be selling for income only because, as I've talked about to many different groups, corn is going to be -- it looks to be a very strong investment, not just from supply and demand point of view but from actual investment point of view. It looks like money is going to continue to pour into the corn market. So I would say, you know, we're going to want to sell for what we need for income and then possibly sit back and see what the next, you know, spring and summer might bring.

Pearson: You're not making Walt Hackney's day at all with that prediction. Real quick, wheat market, your take there?

Newsom: The wheat market -- the biggest thing in the wheat is the continued disruption or breakdown in the basis market. that's not going to improve anytime soon, until we get into the next year and see if Russia and the former Soviet Union still doesn't get any wheat in the ground, and then we might see a more localized press for supplies -- hedge supplies, which could start to improve the basis.

Pearson: Real quick, soybean market. Obviously you're going to buy some acres. Corn went up. Beans have to go up, right?

Newsom: Well, that's the key. Later on this year, probably starting as this harvest starts to come to an end, we're going to see an acreage fight probably like we haven't seen before: cotton, wheat, soybeans and corn. Soybeans right now a little sluggish. Chinese demand is slow and it's going to come back. It's probably going to be bigger than what's anticipated. It wouldn't surprise me to see the soybean market ease. But, yeah, once we head into the winter and looking towards the spring, it's going to be a fight for acres and it's going to do its part.

Pearson: All right. Darin Newsom, appreciate it. Let's bring in Walt Hackney now. Walter, what do you think about this high corn market? I know you were buying calves last week. I talked to a guy who sold you a bunch. What's your outlook?

Hackney: We continue to talk about the economy. I happen to represent one economy that is in pretty good shape financially over the past year. Prior to that we had monumental losses in the hog industry. We've had severe losses in the cattle industry, with one possible exception. That might be the rancher who got along in better shape of getting a cost to production on his cattle as he sold them off the cow herd. Where we're going, it doesn't appear that there are too many strikes. again, the hog and the cattle industry right now, unless Darin runs the price of corn up -- now, if Darin runs his cost of feeding up from 65 to 75, the break-even on these feeder cattle is going to be slow coming to a level that we can make any money on. Yearling cattle today at $1.05, -6, -7 on an 8 weight above 18, 19, some of them 20 on a 7 weight, you couldn't make those cattle work with a prayer book if you've got $75 gain costs. So we will beg Darin to go easy on us. And the point I guess I'm making is the livestock sector looks very good. The hog industry, we haven't broke even from the losses we took over the last three years. We've done real well this year. But we've had three years prior that were monumental losses, mark. It drove a lot of good production out of the industry. The cattle industry lost from 150 to 200 a head last year. This year we've made that back. The corn, it looks like if it were held at 3.5 a bushel, it looked like that the feeder market was going to show some extreme prices. Now I don't know with the corn market. It looks like we may level out here now on the feeder cattle industry. Fat cattle, we've got a 7- to 9-percent lower inventory in the feed lots than we've had for the last three years. It does appear the cow herd is fifty-year low as we speak.

Pearson: Walt Hackney, always great insights. Great to have you out here at Husker Harvest Days. Darin Newsom. That's going to wrap up our final rural economic summit. I want to thank all of our panelists and our terrific audience here at husker harvest days! Give yourselves a nice round of applause. And of course, the staff at management farm progress companies that put on such a great show. We really enjoyed visiting with you folks here in Grand Island, Nebraska. We value your opinions and we'd like you to share your comments and interact with us at the Market to Market website. Of course, be sure to join us again next week when we'll return to our regular format. So until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture crops markets news rural Rural Economic Summit