Pearson: This is the Friday, November 9, 2012 version of the Market Plus segment. Joining us now are Elaine Kub and Walt Hackney. Guys, welcome back.
Hackney: Thank you.
Pearson: Glad to have you here. We've got a lot of questions here from our Twitter and Facebook pages. Walt, this one is to you. Robert in Oklahoma is asking what is your price outlook for feeder cattle in the spring? He says, wheat pasture in Oklahoma is very limited.
Hackney: It is. That is a fact. Plus the fact a lot of wheat producers are reluctant because of the fear of damage to their crop with wheat worth somewhere in the $8 a bushel range. So that is logic. The other thing being the price of feeder cattle in the spring is going to be very aggressive due to limitation of numbers. We have got the lowest cow herd in near history in the beef cow herd. We got totally decimated with the 2011 drought and the 2010 drought. This year the drought worked its way through the Midwest and the western states. As a result of all of that the availability of feeder cattle will probably be more so than it was this past spring and we had a highly aggressive market at that time.
Pearson: All right. So things to look forward to there if you're a feeder cattleman?
Hackney: If I was a cow-calf operator I would be extremely optimistic. As a buyer I'm reluctant because I don't know what the projected outcome of these high price feeders this next spring is going to be and we don't know where the deferreds are going to lead us and we need to know those things.
Pearson: All right. And here is kind of a follow up to that. What -- looking into your crystal ball, do you have any expectations for next week's cattle on feed report? What do you think we're going to see?
Hackney: Oh, it won't be anything. It'll be nearly a non-event. It can't show any excessive amount of cattle on feed, it can't show any excessive placements. It may show a reduction in marketing. That would not be bullish. As a result of that some people are asking me, as we speak Mike, what do you think about the fat cattle market? I say I think if you had cattle for sale last week was the time to have sold them.
Pearson: All right. So get your time machine ready and get back there. Elaine, this one is to you. Todd in Rice Lake, Wisconsin is looking into your crystal ball for next year, corn or soybeans? What do you see being more profitable?
Kub: Well, that is going to be highly dependent on South America I would say. But at this poet in time if you look at the stocks to use ratio, what does the world need more? What is the world more short on? You’re still looking at corn being the winner which is just as well because we have a dry fall and I think a lot of guys are putting down fertilizer and planning ahead on a big corn planting for 2013.
Pearson: So with that in mind do you have any advice for producers as to selling and of next year's crop? Do you see wait and see what happens there?
Kub: Well, there is a huge potential that if things don't go bad in South America and we grow 15 billion bushels of corn here in the U.S. in 2013 that it could be drastically bearish at some point in time and move quickly. So yes, even though this is not really the timeframe seasonally when you would want to start making forward sales for 2013, I think maybe once we get through the end of this year, once we get all the fund stuff taken care of and the general economic uncertainty of this fiscal cliff, once that is out of the way and you want to start making 2013 forward sales in 2013, January, February timeframe I would say above $6.50 on that December contract. I don't see anything wrong with selling $6.50 corn. You can probably make money on that.
Pearson: All right. Looking at -- this one, Elaine, I'm going to address it to you but it's Walt -- looking at the market as we go forward we had some good news today on the broader market, exports up, consumer confidence is up, folks are feeling a little bit better about the economy. Walt, you mentioned we were seeing all-time highs ten days ago, choice beef cutout values and all of that. Where do you see that headed as we roll past this fiscal cliff into 2013? Is the strong economy, if the economy continues to strengthen do you think consumers are going to be better able to pay these prices that cattle producers are going to need?
Kub: In the U.S. maybe but when you talk about the economy you're really talking about the U.S. economy. But the global economy, and maybe there is some hopefulness there, it seems like Europe has done what they needed to do and it cost them a bunch of money and we had to price it into the price of the dollar but they have taken care of it. China is still a big wild card though. When you talk about a global economy they tend to sound like they're not as robust or they're not growing as robustly as they were before and they have even made noises saying they don't intend to import as many soybeans from us as they did previously. So I would look at the U.S., at signs of a U.S. economy being a huge driver of our agriculture market futures prices yet. But perhaps certainly with the retail meat demand that might be a more direct link there.
Hackney: Well, I think common sense would indicate this country is used to luxury beef.
Hackney: And you can use all the negatives in the world about that term being compared to pork, the predictability of pork versus beef, the cheaper of the all three is the poultry. But if people have got extra money and recovery through the economy they're going to pick up more beef. That is the solution to the dilemma that we have as we speak in the beef industry is the sluggish market we have endured nearly all fall of this beef market. The people simply can't continue giving these prices.
Kub: And it's a direct cause and effect in the U.S. consumer dollars.
Pearson: Final question, Walt. This is from Brent in northwest Oklahoma. He is asking how is the continuing drought in central and the southern regions of the United States, we know we're still 12 to 16 inches of rain below what is needed in South Dakota and as we get through the Plains, how is that going to affect cow numbers as we roll through this next year if we get another drought here in those regions?
Hackney: Well, I think that logic would indicate that if they can't get more moisture than they currently have in the southwest, that is western Oklahoma, west Texas, southeast Colorado, if they can't get enough to produce spring grass there is no need to worry about the cow herd down there. They can't afford to put $200 a ton in the hay, you can't support a cow with $200 a ton and winter her. So you're better off not having her. We had a huge liquidation in 2010 and in 2011. We have had more liquidation in the Midwest in 2012 due to the same factors. So if we don't have spring grass and it is all dependent on the moisture.
Kub: Yeah, at this point in time, like 84% of the high plains is in a severe drought.
Hackney: They certainly are.
Pearson: And not a lot of good news on long-term forecasts. You guys seeing any relief out there as we look forward?
Kub: Well, I don't know what they're looking for in the winter but it's certainly not unprecedented to have many years of drought. We have to think about that. We would think you're never going to have this many years in a row of a poor harvest or poor yields but there's nothing that says we can't. The 50s were like that, the Dust Bowl years. If we had several more years of this drought things get --
Hackney: Mike, to indicate how hard it is down there they can get a rain today but it's so dry that rain is only 50% moisture.
Pearson: Wow, all right. Well, that kind of wraps up this edition unless you guys have anything else to add? Not leaving on a terribly upbeat note.
Kub: I'll just -- just to add to this of the dry weather and al little bit of rain, like the winter wheat crop, I look at this from the winter wheat crop standpoint in that it had the worst condition ratings that the National Agriculture Statistics Service have ever released this early in November. But that doesn't necessarily mean that it's not going to make it through the winter. If we get -- if it gets rain wheat is a tough crop. It's green. I was just in Kansas earlier this week and it looks nicely green so far because it's so tough and it could make it through the winter. So you're right to look at the forecast, the long-term winter forecast to be the deciding factor in a lot of these things.
Hackney: Fall rains -- and doesn't have to be continual or that consistent -- fall rains can make a wheat pasture crop. Will it make grain crop? I don't know. But no one really cares as long as they can pasture cattle on it.
Pearson: That's right. So keep an eye on the skies, watch for some rain. Thank you so much Elaine Kub and Walt Hackney, appreciate having you both here.
Kub: Thanks, Mike.
Pearson: Take care.