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Market Analysis: Market Analysts Walt Hackney and Virgil Robinson

posted on September 9, 2011

Market Analysis: Market Analysts Walt Hackney and Virgil Robinson

Pearson: Here now to lend us their insight on these and other trends are two of our regular market analysts, Walt Hackney and Virgil Robinson. Gentlemen, welcome back.

Pearson: Gentleman, good to have you back with us. Good to see you. Let's get into it. We are going to talk about the grains first. We have a big report coming out on Monday, Walt. Virgil, this is a tough time to be on the show because it is the Friday before the big USDA Report and we are all wondering what the report is going to show. What kind of things do you think we will see come Monday? Let's start with wheat.

Robinson: I don't think we will see significant changes, Mark, in the U.S. balance sheet. I think where the changes may occur in wheat is globally. It is likely that several countries will see a small increase in wheat production, Mark. That shouldn't surprise anyone. But in terms of comparing one balance sheet to the other, I think the changes will most likely be global.

Pearson: And the U.S. wheat situation as we look into the hard red winter wheat crop going forward, you just saw the pictures down in Texas. Kansas is not much better and Oklahoma is about as bad. What is your outlook for getting that crop in the ground?

Robinson: The good news is there is a chance next week of rain throughout the Southwest, Mark, so let's hope those do in fact develop. Soon they will be thinking seriously now about sowing a winter wheat crop, Mark, and many, I think because of insurance incentive, will likely dust that crop in. There may be others who choose not to. There remains to be seen. Addressing all three varieties of U.S. wheat, it would be my best opinion over the course of the next several weeks there will be opportunities better than tonight's levels.
I base that primarily on the coarse grain outlook, not just wheat alone.

Pearson: What kind of prices are you -- do you think would be a good place to make some sales or take advantage of this market?

Robinson: I don't have any target zones to Mark that tonight, but I do know from August’s price behavior, which was very strong in all three varieties of the wheat market, we’d pull back maybe 50 or 60 cents. So at a minimum I think we will again revisit those August highs, and that is like 50 to 60 cents above tonight –

Pearson: Where we are right now.

Robinson: Yeah.

Pearson: Pull the trigger. Let's talk about corn because that is going to be the big number on Monday. What are you expecting? It is impossible to know what USDA is going to do. Were you on the trend in terms of what the field is going to look like?

Robinson: Well, popular opinion is that yields will be smaller. I saw the composite of trade guesses here before coming to the studio and most have gravitated toward and many below 150. I suspect the USDA will reduce their yield number, but I don't think significantly, Mark. By that I mean in the vicinity of 5 or 6 bushel. I think it will be a more gradual decline. We have yet, I think, to acquire a good database here regarding the crop this harvest season. What I have seen has been very -- highly variable.

Pearson: And very early numbers -- the scorcher victims or whatever
the problems with yield.

Robinson: Some have been surprisingly good, Mark. So I guess I will leave it at this, highly variable. It's going to require some time before we quantify the size of this corn crop.

Pearson: How much is USDA going to tweak supply and demand?

Robinson: I think they are likely to reduce carryout, Mark, a small portion. But I don't think it will be in the vicinity of 250 or 350 million bushels, as many have suggested. I think the report that will be equally as anxiously awaited is the stocks in all positions report at the end of the month. Remember back in June we had kind of a shocker.

Pearson: Yeah, we did. That was the catalyst to a big move in the market.

Robinson: Yeah, it really was. Was the crop underestimated last year, or was the quality of last year's corn crop so good that conversions in livestock feeding as well as in ethanol production improved enormously? That could well surface again in September.

Pearson: Sales target for selling corn, Virgil? You've been selling on these rallies. What’s your thoughts today?

Robinson: Mark, now, we are addressing 2011, 2012, correct? First I would like to see Monday's data before making a statement. But I think there are opportunities, Mark, ahead of us that will be equally as good as tonight, so I'm not overly anxious. Most of the folks I visit with are reluctant to spend the premium for a put option, so I am going to table that for a minute. That's not too popular amongst our viewers. And having said that, I think I would defer sales, Mark, deeper into the harvest season. If you have on-farm storage,
there are likely to be some opportunities there, inasmuch as there is a little carry in select cash markets as well as in some of the futures contracts. So there could be opportunities to improve return versus harvest price.

Pearson: I always hate to ask you this question. Very few people do it, but what about selling 2012, 2013? Where are you on that?

Robinson: If you can put together a crop budget that you feel comfortable with, Mark, and then determine them some objective, what metric do you use to measure success in your marketing program: is it picking the high of the market or is it return per acre? Most commonly used is return per acre. And there are a number of opportunities right now available I think quite handsome in that regard. Given the concern about supply this year and the unknown regarding acreage in the U.S. next season, I think there will be opportunities as good as tonight's market, if not better in the next several weeks. So I am not overly anxious, Mark, unless your objectives are met here, by return per acre, that metric. Some people have in fact captured that with 15 to 20 percent of their intended production.

Pearson: Maybe not be a bad plan. Let's talk about soybeans, Virgil. Again, we will know a lot more after Monday. But at this stage of the game, what are your thoughts as far as where we can see as far as soybeans are concerned? What do you think for soybean production?

Robinson: Again, I'm not sure there will be big changes, Mark, in the big numbers, the USDA numbers Monday morning. Again, I'd look globally. I think there could be a surprise or two there. We had one really early in the week from Canada. Their canola stocks were a lot larger than most of us had anticipated which would imply their crop last year was bigger or demand has clearly slowed as a result of higher price. Speaking of price, Mark, the dollar had an unbelievably strong week, and that is a factor moving forward.
Normally when the dollar spikes like it has in the last two weeks, it is kind of the forerunner of an issue in Europe. And there is a lot of concern about default with one, perhaps more than one of the sovereignty countries in Europe. Should that come to fruition, then you change the landscape of price discovery?
So let's note that and acknowledge that for our viewers.

Pearson: A huge move this week for the dollar. We are going to shift gears and talk livestock. Walt Hackney is with us. Walter, you sell the pictures, Texas. You know a lot of those ranchers down there. It is a very frustrating at a time two hundred million head of cattle, every eighth cow is in Texas, very frustrating. How is this going to affect how this is?

Hackney: Well, it is obviously going to have a tremendous impact on replacement cattle if and when they get good, dependable rain in Texas. Those individuals that are sitting and owning replacement quality stock, bred heifers up to three or four year olds, they’re going to be in a cat bird’s sea in a hurry because the Texas and the Oklahoma ranches have been forced because of this drought to liquidate 650,000 head of cows out of that herd down there. They will replace a large amount of those cattle. And the market is going to escalate to unbelievable figures, I'm sure. There is a lot of money in the hands of the ranchers that were forced to liquidate because the market itself was very good at the time most of them were liquidating. They were selling pairs, they were splitting the pairs, and they were getting good prices for the calves than a cow. And a lot of those cows came back here to the Corn Belt. A lot of those cows came back to Missouri. A lot of them came to the foothills of Kansas. A lot of them into Iowa. Some into Nebraska. Now, that is going to have a great solid effect on the price of replacement cattle. On the other hand, the feed lot relying on in the wheat pasture country out in Texas and Oklahoma to buy his yearling replacement yearlings come March and April and May of this coming year, they are going to be primarily nonexistent. He is going to have to go elsewhere. By going elsewhere, he will come to the north and to the Midwest to buy his yearling needs, and that is going to drive that market higher than we probably are looking at now on feeder cattle.

Pearson: So good demand. About a minute or so, Walter. Where are we going? Where are we going to start to see some expansion? You mentioned the liquidation out there. We’ve seen zero heifer retention, at least the last time you were on. What is your outlook now?

Hackney: You are not seeing that much. There is some limited heifer retention, but at the price these feeder cattle are at, calves, heifers, it’s just too good to turn down and they are selling them. And the majority of the heifer cattle are going to the feed lots.

Pearson: What about the hog trade, Walter? What do you see happening on that front?

Hackney: I may be taking the devil's advocate here, but I sense that instead of 2.1 million head of hogs a week that we have seen the last -- recently, I think that we are potentially looking at 2.4, two-point maybe even five hogs coming within the next month on a weekly basis. The large hog operations, Mark, are loaded up with hogs. Very few people will be willing to admit that at this point time, but they are. And they're going to have to start liquidating hogs. And they will be selling heavier hogs regardless of the gain and cost and so forth. They are going to be selling a lot more hogs in the next month, I think starting next week. And I would suggest to you that the primals, the product market, instead of showing a little recovery here in the last two weeks, I think you're going to see the product market roll over and probably take a dip within the next two weeks.

Pearson: Really. What is causing all the hogs to calm down? We really weren't expecting that. What is the deal?

Hackney: You’re right. They weren't expecting them. They were pretty well kept under wraps. We spent most of our time talking about high cost of gain, lighter feeding periods, stress from the summer, lighter hogs, a lot of consumption rates were cut into. But what we failed to – we’ve overlooked the fact of the litter size in these hogs. We could kill a lot of hogs like Smithfield was getting ready to do, a lot of sows, but they are not really looking at any fewer market hogs because of the size of their litters.

Pearson: Interesting. Well, you heard it here first. Walt, you always have your finger on the post of what is happening in the hog business, so we are going to leave it right there. But be on the lookout; maybe it will buy some cheaper pork and prices could be under some pressures as we go forward.

Pearson: Walt Hackney and Virgil Robinson, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from Walt and Virg on where these volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page-- all FREE -- at the Market to Market Web site. And be sure to join us next week when we'll examine the market impact of USDA's much-anticipated production and supply and demand reports. Until then, thanks for watching. I'm Mark Pearson. Have a good week...

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