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Market Analysis: Virgil Robinson and Walt Hackney

posted on April 27, 2012


Market Analysis: Virgil Robinson and Walt Hackney

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. Walter, good to see you. Virg, good to see you. I want to start off with the grain markets. We've got a lot to talk about in the beef market after what happened this week with the mad cow situation out in California. But, Virgil, let's talk about what's happening out there. You know, we had an early bump on corn plantings. We've had a soybean crop that deteriorates in South America. We've got a wheat crop in the U.S. that actually is looking pretty good. Robinson: Hard red winter wheat crop is looking good, Mark. There will be a tour next week that will give us some insights beginning in Kansas, I think, next Tuesday. Crop conditions are significantly better this year than last, which is something that we've discussed in times past. Mark, there is some concern in parts of Europe, weather concerns, some disease concerns. So I think wheat futures, again, have a tendency to kind of follow corn and coarse grains. Mark, in the soft red wheat futures market this week, we put in a pretty good performance as we did in the hard red winter wheat futures in Kansas City. So I think both are in position to improve another 25-50 cents, particularly between now and may 10, the next WASDE Report, I'd use that price improvement to finish up old-crop sales and to, at a minimum, create some kind of price floor regarding new-crop wheat futures -- or wheat production. Pearson: All right. Perfect. Now, when it comes to the corn market, as you say, which is a big driver for virtually everything and wheat tends to be a follower. But as we look at this corn market, whether there's still life in this old-crop corn market, this has been quite a week. Robinson: China, Mark, duly noted this week, the combination of old-crop and new-crop corn sales, the largest in total dating back to, I believe, 1991 or 1994. So clearly that underpinned the market and provided a lift in futures and in cash. Now, interestingly, Mark, the inverse grew stronger. New crop corn futures week over week were up to two cents. So as you mentioned, this mid south, deep south corn prospect developing in mid to late August, early September continues to keep that in check. By way of less than -- maybe this is an appropriate time to inject this. The international grain council this week projected the South American soybean crop at, I believe, 116 million metric tons, Mark, not that long ago. We spoke about this, you, I, and Walt. In late fall of 2011, they were forecasting something near 140 million metric tons. The reality, of course, based upon weather concerns, changed the dynamic in the soybean market enormously. Is that a lesson that applies, perhaps, to our thoughts here with respect to corn this year? We've got a long season to go and a lot of weather to endure, so be advised things can change as quickly as three or four months. Pearson: And with this rally, do you want to add to sales or what's your thought, Virgil? Robinson: Old crop, Mark, if I still had old-crop corn in hand, and I do not, I'd use the next 15 to 25-cent bump in corn futures as my trigger mechanism. So in other words, July futures 640-650 tonight. Anything around 625, I'd use that as my trigger to, in fact, finish up old-crop corn sales. New crop, I'll still stay in the camp of minimum price for the aforementioned lesson we just visited about. Pearson: Let's go back to soybeans. The incredible shrinking soybean crop in South America continues really again this week. And then you've got China interest as well. You've got a reduction in acreage in our last USDA Report. Is that going to change some, Virgil? Do you think we could see some acres swapping out? Robinson: Well, the ration, you know, is our best barometer, Mark, in terms of new-crop corn price versus new-crop soybean price, and it changed significantly over the course of the last few weeks. I think it will attract some additional soybean acres. To what extent, I can't tell you. There've been some weather concerns in areas, Mark, that might in fact provide needed incentive to move towards soybeans. And the economics, new-crop soybean economics tonight versus new-crop corn have changed enormously. It's going to attract some additional soybean acres. Pearson: Virgil, this $15 level technically -- and you're the closest thing I've got to a technical analyst on our show -- this moving to that $15 level, is that technically significant or is it not that strong of a signal? Robinson: No, it's significant, Mark, to a technician -- a pure technician. We've had now four consecutive months higher monthly lows, higher monthly highs. There is no other high aside from the all-time high around $16. Is that a legitimate target? Certainly it is. If I were a buyer, I would have to acknowledge that possibility and that prospect and manage the risks associated with that. Pearson: All right. Okay. So it will be interesting to see where we go on the grains and on the soybeans and, of course, Walter, this was a wild week in the beef business. The report that came out on Tuesday, there were some rumors that came out that -- USDA came out right away and confirmed that there was a mad cow outbreak. They also confirmed it was not going into the human food chain, it was not headed for the human food chain. A cow in the central valley of California, a dairy cow, an atypical case. Amazing recovery, I think, in the beef business. Hackney: I think of full credit should be given to the USDA veterinarian services. I think the head of that did a phenomenal job of trying to cross body block any adversity that would've come from that report. He did an excellent job. He did the very best that could be done. The balance of the industry, the national cattlemen, California cattlemen, others in that category, also came front and center for one of the first times, Mark, and really went to bat for the industry. They let politics go by and by and they really did a good job. Now, it had a partial effect, the announcement. We lost the limit down on live cattle on the Merc on Tuesday. We gained back maybe not quite but nearly a third of that on Wednesday. It looked to people like myself that we were going to gradually recover. I thought by today we would have the balance of our losses on Wednesday recovered. It didn't quite happen. There's still a lot of animosity out there about meat itself, and there's every opportunity those that are pundits of hurting the meat industry are going to come out with information that's going to slow down recoveries. Mark, we had in ten days, including yesterday, we had over $13 a hundredweight improvement in the dressed beef, which is phenomenal in an era that we have complained of beef demand hasn't been good. Yet on Thursday the packer was able to take adverse psychology of that mad cow report, and they took 4-5 bucks a hundred out of our cash market slick as a whistle. Texas started selling cattle at $1.19. Kansas followed suit from 19-21. Nebraska came in at $1.22. We went from 204-5 dressed on cattle in the midlands down to 93 and -4 on the dressed sales, including today. So it has had its way of hurting the industry. Nothing to be compared to that 2003. Pearson: Walter, take us forward now. We're going right past that. You point out there were some people that got clubbed. You had cattle ready to go Tuesday, Wednesday. You got clubbed in that cash market. And pretty much unavoidable if you were ready to move the cattle and you blinked, because the 2003 was in everybody's head. Take us forward real quick. Fed cattle, where do you see us going from this point with maybe a little bit of consumer pullback? Although, as we pointed out earlier, consumer spending is on the rise and, as you pointed out, beef demand really has been zipping along domestically. Hackney: Phenomenal. Where are we going? We're 7 pounds lighter on our carcass weights coming out of the feedlots compared to the week prior. That's a direct turnaround from what we've been looking at with heavier cattle, consistently. That's a plus. We're looking at a very current inventory in the feedlots. We're looking at a high demand for the dressed beef. We're looking at a lot of packer interest as a result of that. Their margins are going to have the same recovery as we're hopefully are going to get in our live markets. So $1.24, $1.23 is very, very, possible for our markets within the next week, possibly ten days. Pearson: All right. Talk about the calf market, what impact this has had on it. Are you seeing any change out there on the fall calves you're trying to buy? Hackney: We have to recall that being in the ranch country, Mark, we're just finishing calving. The ranchers aren't that interested in selling for October delivery really. They'd take the historically high prices, but the point they're having is where are those prices. Is it $2 or is it $1.50 or where is it? They don't know how to price their cattle right now. So there isn't any effect on calves. Yearlings for immediate delivery, probably $3, maybe $4 a hundred weight. It knocked the market back on those. Pearson: Talk about the hog market because obviously there is a place where the consumer can certainly go and get a deal at the meat case. What do you see ahead for hogs? Hackney: Well, if we're not careful in the industry as a beef person, we've got to continue to promote this beef, and we've got to continue to promote the palatability of it compared. But pork is actually in the cat bird seat right now because of some of this anti-publicity going on with beef. Pork is cheaper. It's as consistent, probably more consistent. The consumer just may step up and make pork the meat of choice. Pearson: Give me a price, Walt. What do you see? Hackney: I don't know. I don't know. Everyone is disappointed in the pork, live end of the inventory. All of the gurus were estimating we'd be in a very, very limited supply as we speak. It didn't happen. There's an ample supply of pork in that feed bins out there to make 202 -- or 2.2 million hogs a week right now. Pearson: All right, Walt. We'll have to leave it there. We'll talk some more, I'm sure. Good to see you. Walt hackney, Virgil Robinson, that will wrap up this edition of “Market to Market.” If you’d like more information from Walt and Virgil on where these volatile markets are headed, why not visit the Market Plus page. It's right there at our website. We have expanded market analysis. There's audio podcasts. There's streaming video of our program and, of course, links to our twitter feed and our Facebook page exclusively at the "Market to Market" website. And of course, be sure to join us again next week when we'll examine the outlook for and progress of the next farm bill. Until then, thanks for watching. I'm Mark Pearson.


Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans Virgil Robinson Walt Hackney wheat