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Market Plus: Alan Brugler

posted on July 5, 2013


Pearson: This is the Friday, July 5, 2013 version of the Market Plus segment.  Joining us now is Alan Brugler.  Alan, welcome back.

Brugler: Hey, great to be here.

Pearson: We've had a lot of questions throughout the week, a lot of questions.  People are talking about corn.  They're curious what is corn looking like?  We've had a ton of variability in planting dates throughout the spring.  In your opinion and all of your travels, what are you seeing?  What does the corn market -- the corn crop, how is it shaping up this year?

Brugler: Well, there's obviously a lot of variability because of the wet spring and the delays in planting.  The most afflicted areas in northern Iowa or southern Minnesota, you know, you're ankle high or mid-calf.  I would say just coming over here, Des Moines to Omaha, it's mostly about knee high to waist high.  Now, you go into Ohio and Indiana where they got it in early and they've got above normal heat units there's some chest high corn out there already.  So it varies quite a bit depending on the geography.  In general the crop is probably two weeks behind normal development, if you just look at the whole country.  It needs more heat units.  It's probably not going to get them initially.  The forecast for the next fourteen days is cooler than normal for the Corn Belt.  But on the other hand we've got good agronomic research that corn likes cool and wet conditions as long as there's some sunlight involved.

Pearson: Right, they prefer it over cooking in the field.

Brugler: So I think it's a wait and see situation on corn.  You can't rule out 160 bushel yield because, again, the cool, wet years like 2004, 2009 came out very well on yield.  But they also managed to have late falls where the crop could fully develop.  That is probably the biggest danger is that --

Pearson: That early frost --

Brugler: You get an early frost or even a normal frost when the crop is still running behind and you lose bushels.  I don't want to discount the heat during pollination either.

Pearson: Right, because that could still be a big issue even though it's not on the forecast yet --

Brugler: We can't forecast first August temperature right now.

Pearson: Not yet.  And I did just see that they've got the El Nino, southern oscillation index, they're predicting that to stay in neutral now through September so no threat of El Nino, La Nina, even harder to predict out beyond that ten day window.  Curt in Iowa has a question.  Last time you were on you mentioned that in 33 of the past 37 years we did see Dec corn take out the January high in the summer.  Now, I know you've been doing a lot of calculations and pushing some pencils around.  What does your -- how is that going to shake out this year do you think?

Brugler: Well, again, just to remind you there were four years in that 37 that it didn't happen.  We did just run our December corn price and probability forecast, which is a service for our paying customers, and what we showed there was that the most likely high for the fall, based on where we started out July 1 here, would be $5.87.  Statistically that would be the most likely high for that five month period.  The most likely low is $3.84 just in the fair disclosure.  So the point is, getting back to $6.05 will be a little difficult.  It is within the standard deviation meaning that two-thirds of the years it could happen but a third of the years just would not.  So we were at 33 out of 37 odds, now we're down to 67% or less.  So I wouldn't rule it out.  I'd be comfortable selling $6.20 or $6.40 Dec calls just figuring we're probably not going to get there, use that as a light hedge.  But, again, $5.87 isn't that far away so you can't just give up totally and say, we're never going there.

Pearson: Certainly, we're sub-$5.00 so I'm throwing in the towel. There's opportunities ahead potentially for selling.

Brugler: This is a volatile time period for prices.

Pearson: Certainly.  Now, as we look at -- as the July corn and beans rolling off the board, you touched on this on the show, maybe you could elaborate a little bit the direction you see August beans and Sept corn headed in.  Are we going to continue the downward trend in corn, you mentioned on the show, how about August beans?

Brugler: Well, August beans have got a better commercial case for buying the futures, holding for delivery because you can get load out by the middle or the 20th of the month and you can use them in your crush plant late August.  So you've got, should have more of the behavior that we had in the May and now in the July contract where we're rallying because of a short squeeze, no deliverable stocks, the commercial long wants those stocks, basically making the spec short or the commercial short come up with the bushels.  So I think that is supportive for the August beans.  As I alluded to on the show, the problem with corn is September corn, by the time you get load out, it's the 20th of September and will have probably a billion bushels harvested by then, even with the late crop.  So it's not a very good strategy as a commercial end user to buy the September futures to try and acquire the physical bushels.  So I think you have to buy the old crop cash corn but it's going to be the basis probably that does the bulk of the work rather than the Sept board.  We're technically oversold on Sept corn and Dec corn, we'll get a bounce here somewhere just because of that.  But they're different animals, the August beans and Sept corn.

Pearson: Certainly.  Certainly.  And don't be expecting a sustained rally in Sept corn prices.  Keep an eye out for that little bounce maybe in the next couple of weeks as we correct the oversold --

Brugler: Yeah, yeah, potentially into the August crop report depending on how the weather is developing.

Pearson: Might spook a little, prices higher.  Now, Robert in Columbus Junction is asking a question that I'm sure a lot of people are curious about.  Maybe you can shed some light.  Why couldn't the USDA have just waited until after July 15th, after the acreage certification, to give its crop estimate?

Brugler: Well, the fact of the matter is the certification ends there but their data won't be any good until September.  FSA will come up with a very preliminary number in August.  Usually there's a better number in September.  But that number doesn't synchronize with the USDA data set.  They have what they call data frames, so many acres per frame, and to match up the USDA forecast with the FSA acreage they have to match up the frames which is a whole other computer operation.  So, yes, the acreage will be certified but then it will be being revised and the guy says, well wait a minute I measured wrong or I've got this number, that field is in the wrong place.  Yeah, there would have been a rather interminable wait.

Pearson: If they'd waited until July 15th it would have been the same numbers that they put out last week basically.

Brugler: Quite possibly.

Pearson: Okay.  That kind of probably helps clear that up for a lot of people who --

Brugler: And just a reminder, they are going to resurvey for soybean acreage because they knew that some of that, a significant piece, about 4 million acres, was not yet planted when the acreage survey was taken.  And the survey is always planted or intended to be planted but some of the intended may not have actually been planted because it got past the crop insurance dates and so forth.  So USDA is going to resurvey for beans.  For corn, 98% of it was already planted so they can't justify that.

Pearson: Okay.  And with that in mind, Phil in Ontario is asking, how much or if or how much do you expect the corn acreage to change as we roll into October?

Brugler: Well, that is a million dollar question or maybe two or three million dollar question.  I'm going to say that I think we will lose some acreage just based on my conversations with clients and particularly in the Illinois, Iowa, Minnesota corridor over into Wisconsin, I think we got more prevent plant acreage, you know, when USDA wrapped up their survey on June 14th, June 15th, some of those guys were still thinking they could get it in, it didn't all happen. So we'll probably lose some acreage but unlikely that it would be a million acres off of the existing estimate.

Pearson: It will be acres at the margin --

Brugler: Yeah, you lose a million -- and the sad fact is, I mean, if you want to be bullish, if you're a feed user this is fine, the sad fact is if you lose even two million acres that's still only 300 and some million bushels and you still end up with a 1.8 billion bushel carryout which is more than sufficient.

Pearson: Right, we're looking at some big numbers this year potentially.

Brugler: Yeah.

Pearson: Thank you so much, Alan, appreciate you being with us tonight.

Brugler: You're welcome.

Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter.  Please continue to do so and we'll continue to get expert answers for you.  Have a great week.


Tags: acreage agriculture Alan Brugler analysis basis commodity prices corn economy markets midwest new crop grain soybeans USDA weather wheat