Pearson: This is the Friday, February 28, 2014 version of the Market Plus segment. Joining us now are Virgil Robinson and Walt Hackney. Gentlemen, welcome back.
Robinson: Thank you, Mike.
Hackney: Thank you, Mike.
Pearson: Alright. Virgil, let's talk to you first. We've got a number of questions on soybeans. Shocker of this week. People are excited by that big rally. We've got Brandon in Iowa and Ernest in Dunbar, Nebraska are curious, you mentioned the reason for the rally on the show, the different factors you talked about, what is going to be the limit? What is going to cause this rally to top out? Is it Chinese cancellations? What is going to stop us from going higher?
Robinson: That would be one of them, Mike. Another would be if processing margins turn south and are no longer profitable. There could be the resurgence in deliveries out of South America at some point in time. But probably the underlying reason will be driven by economics, maybe the Chinese crushing capacities decline because there's no profitability or little profitability and you lose part or all of that market which could well lead to some cancellations business wise. To date that hasn't occurred. So those are probably some of the reasons, Mike, why it ends. And we'll have a prospective plantings report on the 31st and at present most are of the opinion that there will be a pretty significant year over year increase in soybean acres, which would stand to reason given the current economics in beans versus corn. If it stays dry and continues dry that could be a factor as well. Or if it stays unusually cold through much of March into the early part of spring or near spring, if you can't get in, in a timely manner, and plant corn then you have little alternative but to go to beans. So there are a lot of variables that come into play here. But certainly I think we have touched on a few of them.
Robinson: The other thing is, at least with the few customers that I have talked to about soybeans, the number of those folks that own old crop beans, very few. I mean, this has been an inverted market for quite some time and one of the cardinal rules in grain marketing is you don't store an inverted market, right, so we know that old crop soybean supplies are relatively small. And the stocks in all positions report the 31st could verify that. There could be a change in disappearance that could increase disappearance, that supply could even be smaller. So trying to time when that inverse begins to lose its momentum and steam is a very difficult task. But over the course of time, at least in my experience, doesn't make any difference what commodity you're talking about, when you sustain an inverse for an extended period of time it ultimately gives way to an increase in supply to the point where you have more supply than demand and you go from invert to carry. And that will ultimately happen, at least from my experience.
Pearson: Alright. And we saw with the 2012 corn crop roll in 2012-2013.
Pearson: Now, Eric in Beaver Creek is just curious, Chinese cancellations, we assume they will come eventually. When that happens what have you heard out of Brazil? We know we have a lot of transport issues there, we have in the past. Should we expect similar troubles this year in getting the beans out of South America?
Robinson: Well, we know there is a vessel line up at present in both Santos and Paranagua. Now, remember last year during this same window of time surprisingly they were able to fob more soybeans on a monthly basis than at any time in the history of record keeping. So when you have an economic incentive it's the old saying, show me the money, you perform. So I think that will occur as time moves forward here.
Pearson: Alright. Once the harvest really gets underway, the beans get to port they'll get them out.
Robinson: Well, beans are, you know, they're lined up to deliver beans, Mike. It's just that the capacity can only handle so much unless you're willing to work 24/7, which I think is happening, provided the laborers don't become unsettled and go on strike and that is always an issue as well.
Pearson: Certainly. Certainly. Alright, well things to keep an eye on, keep a watch on the news as this spring rolls into summer.
Robinson: Yes. Just remember now, an inverted market inevitably gives way to one that is oversupplied and the mechanics change 180 so at some point in time that is likely, most likely to occur in this market.
Pearson: Might pay to maybe put a little protection on. Alright. Now, Walt, we've had a number of questions for you and people are curious about cattle. We're watching these fat cattle prices. We've got Cody in Remsen, Iowa is curious, as we look out to the future, as we look into this fall, where do you think fat cattle might top out in the fall? What are your thoughts?
Hackney: I wish I knew Cody better because he has probably got a better opinion. Who thought we would have $1.50. I certainly did not. And I'm supposed to be close enough to the loop to have a better opinion than that as some kind of a so-called authority in marketing. I never dreamed we'd have $1.50 cattle. Last October when we were delivering those cattle that were higher than a kid on a ferris wheel out of Montana in here to these Iowa cattle feeders we wondered if they could hold their chips together on them feeding $4.00 corn. Today at $1.50 many of those cattle are actually making $250, some of them more, of those very cattle. Now, for me to be able with any kind of authority say where this thing could top out, it could happen overnight and it will happen when the consumer quits spending her luxury cut budget for beef and starts spending for more economy cuts out of the retail sector.
Pearson: And that, Chad in Dunbar, we talked about it a little bit on the show, but he's curious, can retail beef, all cuts, continue to rise and keep up both in America and internationally? Can our exports maintain this pace at this price of cattle?
Hackney: It might even be more possible for exports than it is for the domestic trade simply because the availability of liquid cash is there in those countries more so possibly than here. We've got a phenomenal drain on consumer budgets here in the United States as we speak on utilities as we were talking a moment ago. You would not be able to believe the price of the utilities for the consumer on the East Coast, as an example. They cannot afford to take a huge chunk out of their budgets to go buy a T-bone or a fillet or something in that regard. What they will do is buy hamburger and they are buying hamburger and hamburger is fast becoming the meat of choice in the beef counter as we speak. And it is only because of the economics of owning it versus the $17 or $18 or $20 a pound T-bone steak.
Pearson: So, now looking at that if we watch hamburger to continue to grow in popularity, what is that going to do on the choice and select box beef values? Are we just going to see them to continue to slide as we just add more and more to the grind?
Hackney: Well it would be logical to think that that could be the case. Now, Mike, it hasn't happened as we speak though and people have been very willing to continue stepping up to the meat counter and buying these high priced, high grading, palatable, luxury cuts of beef. But, as that has been taking place, hamburger has been phenomenally rising in the demand sector. Now, the best question on that hamburger is how long can we continue to support hamburger at the price because we are fast running out of cull cattle, bulls, culled dairy cows, culled beef cows, it's hard to -- we've got packers, cattle packers physically closing their doors because they can't buy enough of that quality beef.
Pearson: So we're going to see hamburger prices go way up when we run out.
Hackney: I think you will.
Pearson: Alright. Well, Walt, again it's great to have you back with us. Appreciate your input on a week like this.
Hackney: Well, thank you.
Pearson: And Virgil, always appreciate having you here. It's great for your insight as we negotiate these interesting old crop commodity markets this spring. Thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and next week we'll make sure we get expert analysis right to you. Thanks for watching and have a great week.