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Market Plus: Alan Brugler

posted on November 2, 2012

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Pearson: This is the Friday, November 2, 2012 version of the Market Plus segment.  Joining us now is Alan Brugler.  Alan, welcome back.

Brugler: Great to be here.

Pearson: Great to have you back.  One thing we didn't get a chance to talk about on the show and it is on everybody's mind is the upcoming election.  Do you see the election, whether it goes one way or the other, having an effect on the markets in the short-term or medium-term?

Brugler: Well, the uncertainty of the election is built into the market.  We know that there's multiple potential outcomes, I think people have placed their bets, if you will, but it's really not going to be clear even a day or two after the election I don't think.  I mean, you've got multiple scenarios not only as to how the presidential election falls but who is in control of Congress.  Do the republicans take over the Senate?  Do they lose ground in the House?  The balance there is going to be perceived as having a big impact on what can get done, how much gridlock are we going to have.  So I don't see any major impacts in terms of the market waking up on Wednesday morning and selling off.  If it does it will be because somebody is pulling their money out.

Pearson: All right.  Let's talk -- we've got a lot of questions here from Twitter.  We'll go through a couple of these.  John in Sioux City is asking with the early harvest why is the USDA going to wait until the January report to adjust harvested acres?

Brugler: Well, discuss that with some USDA officials and the main reason for waiting until January is they don't have any data.  The surveys that they do for September, October and November crop reports are focused on yield.  They don't have a specific question that says, did you harvest more for silage or did you abandon more than usual?  So they get some voluntary information that way but they don't have a consistent data set to say, okay, we chopped three million more acres than a year ago.  They indicated on their December survey, which is what is used for the final production report in January, that question is specifically asked.  So they'll have much better data in January than they do now.  So they basically said, yes, we think there was some more acreage harvested for silage than usual because, number one, the yields, number two, if you really are the user of the silage in a drought year it takes more acres just to get the same amount of tonnage and the bulk isn't there.  But yeah, they said we have a suspicion but we can't really lower the harvested acres until we have the data to say how much we have to lower it.  I've been very careful on that issue just because everyone wants to go to 1988 and say this many acres went to silage.  But two things are different.  Our base of consumption was a million and a half acres higher in '88 than it is today.  We have more livestock to feed the stuff to.  And number two, we were talking 20 and 30 bushel yields and national average in the 80s whereas this year even with the drought the national average is much higher so there's less incentive I think to have that scale of abandonment or conversion to silage.

Pearson: All right.  So that is just we're going to have to wait until the numbers get firmed up in December as to why they're --

Brugler: Yeah, it'll be January before we hear.

Pearson: All right.  Kind of a carryover question -- Tim in Crookston is asking when will harvest pressure be over and demand take over the market?

Brugler: Well, I think we're already past harvest as a market factor here, certainly U.S. harvest.  Demand is what we're looking at.  We're looking at these poor weekly export sales and saying, okay, the customer has got to come first here.  If we're going to run the price up we've got to have some evidence that we're at least meeting USDA's forecast for the year or a little ahead of that and we don't have it today.  So I think we're already shifted into the demand side.  And the question is do you lower the price to spur the demand and then risk going too far, which of course would make for an interesting bull market?  Or do we sit here and kind of parse it out over the course of several months and then shift into more of a South American or a spring acreage?

Pearson: And as of now we're in the parsing it out period.

Brugler: Right, yeah, and the University of Illinois made a pretty nice little article this week that basically said, yeah, we could just hold prices here for a while and get the job done.

Pearson: All right.  So we're just going to have to wait and see where things go.  All right.  Dale in Bloomington, Illinois is asking, what are your thoughts on the per capita decline in red meat/poultry consumption since 2007?  220 pounds in 2007 to less than 200 pounds today.

Brugler: There is a lot of different variables there, a lot of things going on.  First of all, our exports are much larger for both pork and beef.  We had record exports of both last year.  Pork exports are strong again this year.  Beef will be second to last year.  So there is less availability, there's just more meat out of the country.  Imports are down.  The net result is the price is higher and so you do lose some consumption per capita when prices are higher.  I think three's probably a little bit of demographic in there too, an aging population maybe eats a little bit less meat.  The doctor is telling them to eat four ounce portions instead of the full steak and that type of thing.  But, again, the big thing is just there's less meat available and it is at a higher price level.  As we mentioned on the show we're talking about $200 choice and that is record high or very close to record high.  That is going to slow some consumption.  It's supposed to.  And so it is a concern if you're in the livestock business.  You don't want to see that as an ongoing trend that people are just buying less of your product and less of your product.  But I am encouraged that the export market has absorbed quite a bit of production and in pork as much as 24% of U.S. pork production is now being exported.  So even if U.S. per capita consumption is going down we're okay as long as we're able to export.

Pearson: And from what you've seen is it projected that American consumption of meats, red meat, poultry, going to continue to decline?

Brugler: You get different answers depending on which variables you're looking at.  If you're looking at population or if you're looking at what price scenario do you get expansion in pork production in 2014 because corn prices go down to $5 or less, if you get that kind of a scenario and prices go down per capita will go back up.

Pearson: Okay, so that is just there's no firm answer for we'll continue to see --

Brugler: No, we understand why we've seen the drop but it's not as clear whether it will continue other than perhaps the demographic side of it.

Pearson: We've got one more question here.  Rodney in Edgar, Wisconsin has a long question but he's asking, where do you think corn prices will be this spring?  And do you think corn could hit $4 or less for new crop 2013?

Brugler: I tend not to be in the $4 or less category.  I think there is potential that if you had a 95 or 97 milli8on acre plantings this year and got a 160 something yield that we could flood the market with corn.  But, again, the world market would take a lot of that corn if it was available and the price was a little lower than it is today.  To get down into the $4 or $3.50 range I think you'd have to have aggressive spec funds selling, not just no one buying but actually saying we think it's going zero and betting on it that way.  That could happen but we know that that community is much happier trading the long side than the short side.  So yes, would I plan on $6 forever?  No, for corn.  But it's a good idea to kind of keep that $4, $4.50, $5 risk in your head if you're a producer.  But I don't see the real train wreck based on what we know today.

Pearson: All right.  Well, thanks you so much for coming, Alan.  We really appreciate you being on and have a great week.  Thanks.

Tags: agriculture Alan Brugler commodity prices economy markets Mike Pearson news