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Market Plus: May 06, 2011: Walt Hackney, Virgil Robinson, market analysts

posted on May 6, 2011

Market Plus: May 06, 2011: Walt Hackney, Virgil Robinson, market analysts Pearson: This is the Friday, May 6, 2011 version of Market Plus. Glad you could join us this week. Two of our great market analysts Walt Hackney and Virgil Robinson are with us this week. I am going to start with Virgil in Market Plus excuse me with Walt on Market Plus because Virgil got to start the show. So Walter, you're up. You went right from fat cattle into hogs in the show and we skipped a very important sector near and dear to both of our hearts and that is that rancher, that cow/calf man out there, and this feeder cattle market which got clubbed pretty good in the head this week too.

Hackney: The feeder cattle operator, the rancher per sea, has had a real ride. He's had a very enjoyable stretch for the last six months and right up and including the last week or two. Now the problem now is the willingness of the Midwest buyers to step into the western states' markets for those fall calves out of those cow herds for next October/November delivery. One of the issues have been the freight costs. A year ago maybe seven/seven and a quarter/half a hundred weight fuel freight cost to bring the cattle back to the Midwest. This year we are going to be bumping ten dollars a hundred. The price the rancher wants to get a price proportionate to what he has been hearing they're bringing in the Midwest on the current delivery auction markets. The problem with that is he is forgetting the freight factor between Montana, for an example, and the state of Iowa. He is forgetting the fact. I mentioned to a rancher today. I said you know what you ought to do? You ought to load your cattle, you ought to pay that four dollars a mile to get the cattle back to the Midwest, let us feed that steer or heifer corn at seven or seven and a quarter a bushel and let's see how that works for you, and he didn't want to do that.

Pearson: He didn't want to take you up on that deal?

Hackney: He didn't want to take me up on that. But the price of feeders have not proportionately dropped as far and drastic as the fed cattle market has, Mark. And we've got a market right now where an eight-weight steer two weeks ago would bring a buck thirty-five, today it will bring about twenty-eight, but the dollars per head loss in cash flow isn't as severe on the feeder cattle right now.

Pearson: As it is in the fats.

Hackney: As it is the fat cattle.

Pearson: What about calves coming out of Texas and Virgil talked about the wheat situation in Kansas. We're not getting a lot of wheat ground to graze calves on. Are you seeing any deals coming out of that part of the world?

Hackney: Well, there's hard to make a deal when you haven't got anything to deal with. They don't have the wheat in many, many of those Southwest Oklahoma and West Texas areas. The wheat is about shoe top high and it is within a few weeks of being able to cut wheat down there. They're going to plow a lot of that country under. They haven't been able to go to what is termed a graze out because there simply is not enough nutrition in that dried out wheat to cause a good gain in the cattle. So, they moved them. They moved them light. They moved them under-nourished.

Pearson: At good prices.

Hackney: At good prices. They either went into the auction system or they went into the feed lots and are on feed in the feedlots now but so light that so many of them had to be considered in growing programs than in formal finishing programs.

Pearson: All right. One question Virgil had which was we've had this huge break this week on meal in particular and also break on corn prices. Are you covering any feed - right now with this break?

Hackney: I don't know that anyone is doing too much of that as Virgil indicated it might be wise but I don't know that anyone really is. A lot of the feedlot, commercial feedlots are on an average feeding program where they blend that high priced inventory with some of this cheaper corn possible today and they're blending it but they are not protecting that as much as they ought to be. The farmer feeder - a lot of the farmer feeders in the Corn Belt have still got some 210 inventory of corn that had been set aside in respect to cattle feeding and a lot of them are still feeding that up. The problem with it is that they put an inventory value of October of 210 on the corn. They didn't appreciate the inventory value of the corn that they've got on storage which they should have. And that's a fallacy usually that is created with a lot, you know, it didn't cost me anything to feed my cattle. I raised the corn.

Pearson: Yeah, I know. All right. Really good points Walter.

Robinson: Mark, can I ask Walt a question?

Pearson: Sure but we are running out of time.

Robinson: If I had corn on hand, Walt, and knew that placing and replacing cattle offered me no hedge wouldn't I be money ahead to sell that corn and pass on placing those cattle?

Hackney: Virgil, I'm a poor person for you to ask that question.

Pearson: Virgil lives in a - world Walt. I just - he is just not into livestock.

Robinson: I mean it's economics I guess.

Pearson: Yes Virgil. You close your eyes. You just do it Virgil.

Robinson: Well, let me ask this question. Are you seeing the folks retain heifers to rebuilt and restock the cattle?

Hackney: Very, very limited.

Robinson: Limited?

Hackney: There is some but it is very limited.

Pearson: Almost statistically insignificant. Less numbers - Walt and the last time you were on the show you confirmed that too.

Pearson: All right. If a - Virgil is our new host. Ok, let's turn to Virgil if we have time. Corn to soybeans. The tightness is still there, Virgil, and we are not exactly timely getting the corn in the ground. Hopefully we will be more timely getting the soybeans in the ground but that remains to be seen with what is in the weeks ahead. You mentioned the Dakotas have seen a little activity up there. Some of the private crop forecasters coming out saying we're going to be down, what did you say, three hundred thousand acres on corn?

Robinson: That was Sparks or Informa, Mark. There will be others that will follow in that track. Couple things I neglected to mention, I mentioned the cotton basis, corn and soybean basis is well above the three year average as well Mark. So if we use that as just a simple indicator when the basis is that strong it still suggests to me there is demand for that product both corn and soybeans. Now as mentioned there will be a new crop S&D released this coming Wednesday. I think post that, Mark, everyone will begin then to make projections in terms of if we do loose five hundred thousand acres or a million acres and trend line yield is attained or is not attained that will all pencil in to price discovery. My take on all of those combinations of variables, Mark, is that we have not to this point eliminated the statistical tight corn and soybean situation facing this country and the world in the next several months. We are way, way away from dong that. `

Pearson: You bring up something that I find really interesting and that is we have seen this expansion of players in the commodity world and they kind of treat corn and beans, cotton, cattle, hogs, the same way they treat gold, silver, and in the more typically volatile - when the fundamentals of gold really are unchanged. Whereas the fundamentals in our business are exceptionally tight going forward. So we will start trading fundamentals more. Do you think that will draw back in these funds? Any idea where these funds are going to go next? They seem to have a big impact on our lives.

Robinson: I can't speak on behalf on what they will do Mark. But certainly I think there will be opportunities for them and they are constantly in search of opportunity. Particularly opportunity that rolls out quickly and returns quickly and commodities obviously fit that bill very, very well.

Pearson: We will see. It is going to be an interesting summer. I promise you that.

Pearson: Walt Hackney thank you. Virgil Robinson, thank you. Thank all of you for joining us here at our Market to Market website. Join us again next week when we will be talking more about what Virg mentioned that WASDE Report and some other issues as well. From all of us on Market to Market I'm Mark Pearson. Have a great week!

Tags: agriculture commodity prices markets news