Robinson: Hello, Dean.
Borg: I want to, Virgil, first talk with you about grains. Let's start out with wheat, if you will. People are watching the skies. Is that wheat market at all weather driven?
Robinson: Well, some geographies are, Dean. The winter wheat harvest is in progress and progressing rapidly which leads me to a point. I think the seasonal low in hard red winter wheat futures represented by the Kansas City futures market are likely to occur a little earlier this year than in years past. And that is traditionally around the end of June, the first couple of weeks of July. So, in that context, at this point I would be less willing to make sales of hard red winter wheat at this point. I think deferring those sales provided you have the storage and the wherewithal to retain that inventory deeper in the calendar will provide a better selling opportunity.
Borg: And would you at all predict how much deeper into the calendar?
Robinson: I'm guessing sometime in the fourth quarter, that Sept., Oct., Nov. period is traditionally a pretty good period where the market recovers from harvest lows and advances in value.
Borg: What is driving demand right now?
Robinson: Well, price is a strong driving force, Dean. And in that context wheat futures have pulled down now the last three or four weeks by as much as 60 to 75 cents. In the most recent net export weekly sales report wheat sales boomed, bounced nicely and I think that clearly is a result of lower prices. So, lower prices attracted new business, we're competitive globally, global wheat stocks are projected to decline this year about 11% year over year. Rice, another primary food grain, stocks are projected to decline about 12% year over year.
Borg: And that supports wheat?
Robinson: I believe it does. So, in both instances I think given the recent collapse in price there will be better selling opportunities in hard red, soft red winter wheat as well as spring wheat deeper into the calendar year.
Borg: What about the supply?
Robinson: Again, U.S. supplies are forecast to decline, all wheat varieties, about 25% year over year.
Borg: And the world supply down too?
Robinson: Yes, ending stocks will be the lowest they've been in the last 25 years.
Borg: Corn. What is the outlook there?
Robinson: Well, weather there is also a primary factor, Dean. But I'd like to address, if I might for a couple of seconds, some basic demand observations.
Borg: What should producers be aware of?
Robinson: Well, they need to be aware of the fact that demand for corn in each of the last six or seven weeks has increased pretty significantly. Within that net export sales mix I have noticed countries, the likes of South Korea, Thailand, Taiwan, all countries that traditionally have been sourcing their corn out of China, have shifted to the U.S.. A lot of messages there, Dean.
Robinson: But one in particular is the fact that Chinese corn stocks are declining and declining significantly as they ramp up their pork production, their poultry production, their aquaculture. Corn stocks globally are as tight as they've been in the last 30 years. So, while the U.S. futures market has declined of late I think we're quickly approaching areas of pretty dog gone solid support. New crop corn futures in particular, around that $2.50 mark, I don't think at this point in time we're going to spend any appreciable amount of time below that. As a matter of fact I think there will be another opportunity in this crop cycle to see new crop futures back towards that 75 to 80, $2.80 mark.
Borg: Is that causing volatility, those factors, and maybe some others that you might mention in the corn market?
Robinson: You've mentioned most of them, weather creates a great deal of volatility. We have the presence of commodity trading funds, Dean, that have a tendency to accentuate price behavior both higher and lower. So, yes, the market is laden with underlying volatility and that is not likely to change for the next several months.
Borg: In soybeans, any new demand factors at all in that soybean market?
Robinson: I think there are. Year over year the Department of Agriculture is projecting that protein meal consumption will increase about four or five percent led by China as, again, they continue to grow their livestock industry. Vegetable oil consumption projected to grow about five percent year over year led by the EU as they continue to ramp up their biodiesel industry, India and China. So, those demand factors I think have kind of been pushed to the background as we've all concentrated on this big supply of beans here in the northern hemisphere as well in the southern hemisphere. But I think demand is growing, not proportionally, but disproportionally and it's important now, we grow a crop of beans here in the U.S. this crop cycle.
Borg: Looking at cotton, is that trending lower, that is the December contract? I know it went down this past week.
Robinson: It's kind of consolidated in value the last several weeks. And there again cotton is an interesting study. U.S. cotton ending inventories are projected to decline year over year as are global inventories projected to decline year over year. I think that will underpin both the cash and the futures market and provide better selling opportunities in the fourth and first quarter of 2006, '07 respectively.
Borg: Walt, ready to talk about livestock? Let's go to feedlot cattle, fat cattle. What is the market there?
Hackney: Well, we've come out of a $78 level recently to more like an $80 to $82 cash level. Unfortunately those levels aren't supporting profit for the producers. These cattle that are coming out of the feedlots as we speak, Dean, are losing still somewhere in that $50-$100 range. Now, that is compared to $100-$200 range when we were in fact at $78.
Borg: What is the inventory?
Hackney: It's somewhat more current than it was six weeks ago. We have come from cattle that were in fact shorter fed, less mature, calf fed type cattle and in that regard we've got a better grading animal but yet the inventory is more current than it was.
Borg: What is the trend on weights?
Hackney: Well, we're actually heavier. That is usually indicative that the inventory is starting to back up a little bit. I think probably it's more due to people staying with these calf fed calves and bringing more maturity that will ground the grade.
Borg: You just mentioned calf fed, there is a term called calf fed syndrome. What is that? How does that affect the market?
Hackney: Well, in the fall of the year we bring these ranch calves in possibly weighing six to seven hundred pounds. Those calves go in the feedlots and everyone tries to crowd those cattle into an April and May type marketing position. They do, in regard to weight, they make the weight okay at the feedlot but the maturity of the calf isn't allowing him to marble correctly and they go into the packing plant in an immature position and they don't take the ink.
Borg: Lower grade?
Hackney: Lower grade.
Borg: Feeder supply, now what is the availability there? Any indication that the feeders are being forced off the range early?
Hackney: Well, we had a drought related exodus of cattle off of the winter wheat pastures in the southwest back in January and February created an abnormal movement of wheat cattle into feedlot position. That caused a lot of concern on the federal cattle on feed reports. But that has all been basically resolved now and it had shown that those cattle that went into a grow yard then went into the feedlot and are going to come out in an orderly manner out of the feedlots. They were formerly feared to cause an avalanche of cattle that come in June, that isn't going to happen.
Borg: Walter, are you seeing any regional demand for feeders strong in any certain areas?
Hackney: Well, particularly throughout the Corn Belt we'll have an excellent demand this year for feeder cattle as a result of the ethanol issue and so forth, increase in cheaper feed possibly and...
Borg: You mean the gluten?
Hackney: The gluten, yeah, and distiller grain and that type thing coming off of the ethanol facilities. The feeding facilities in Iowa should have a real opportunity for cheap feed.
Borg: Now, skip to some demand on beef. Now closing of some markets to U.S. beef, has that been compensated by greater demand elsewhere?
Hackney: It appears the packing companies have done a wonderful job with our domestic demand for beef. We've had a wonderful support to our beef industry and it came at a time when we could have had a real problem because of our foreign markets were shut off by those beef bans.
Borg: Switch, right now, to hogs. What is the outlook there?
Hackney: Well, hogs have absolutely flabbergasted the analytical community. We're sitting here with a very current hog inventory. We're looking at hogs two and a half pounds per head lighter than they were a year ago. We're looking at phenomenal export demand, phenomenal domestic demand for the product and the packer is actually caught in the middle. Cash prices keep rising faster than the dress prices. So, the packer is in a Catch 22 and he is struggling to compensate his bottom line, if you will, to that Catch 22 position.
Borg: Thanks, Walt and Virgil. Well, that wraps up this edition of Market to Market. But if you'd like more information from our analysts on just where these markets might be headed visit the Market Plus page at our Market to Market Website. And be sure to join us again next week when we'll examine one company's efforts to recapture the lucrative beef export market in Japan that we were just talking about. Until then, thanks for watching. I'm Dean Borg. Have a great week.