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Market Plus: Apr 08, 2011

posted on April 8, 2011


Market Plus: Apr 08, 2011 Pearson: This is the Friday, April 8, 2011 version of Market Plus. Hey, thanks for joining us on our Market to Market website.

Pearson: Wow, what a week it has been. Waseda Report comes out, largely ignored by the trade, they think the government is cooking the books which never really turns out.

Kub: Well -

Pearson: Well, I mean, everything is --

Kub: Turns out the past two years the USDA - by the time they come around to their January report they've been wildly wrong the last two years in a row.

Pearson: You're right. I've never seen so many corrections and re-dos of USDA Reports as we have had in the last couple of years. It does make me wonder what is happening.

Kub: Yes, but as far as this corn ending stocks go, I mean, there is certainly opportunities in the May, June, and July reports for them to tighten those up.

Pearson: Ok, let's talk corn. Let's say we have and I have huge respect for him Owen Taylor says less than trend line yield on corn. If that happens and this demand moves forward like it has been we're going to be running at the same kinds of levels we are right now.

Kub: Yes.

Pearson: Let's say that doesn't happen. Let's say we have ninety-three and a half million acres planted of corn and we go over the trend line yield. One has to wonder what a billion bushel carry out might mean to corn prices. Bottom line right now these are awfully strong prices. Should be looking at 2012 sales?

Kub: Yes, I think so just because if you look through history it's rare for these kinds of prices spikes to last more than a couple of years and the problem is that there is no good way to do it. Probably your elevator won't give you a hedge - and you really don't want to buying 2012 options. So really the only good way to do it is to just sell futures and be prepared to pay the margin calls and I don't anticipate that the 2012 margins will be that bad because I don't think they're going to follow 2010 and probably not even 2011 if it spikes up really high this summer. So I think that would be a manageable decision and I think it would be a good way to tell your buddies that you sold five dollar corn in 2012 even if the rest of the market goes to three fifty by then.

Pearson: All right. Make sure you have a sympathetic lender and understands what you're trying to do.

Kub: Yes.

Pearson: Ok and so - obviously and margin rates aren't that expensive. So if you're going to do it that might not be a bad strategy.

Kub: They did recently raise those but it is still for a hedger it is seventeen fifty per contract for five thousand bushels. So it is not -

Pearson: It's not huge. All right. Tell me this let's look at the cattle market again. Again not a lot of action this week but there is this undercurrent out there and you touched on it. We've had increase slaughter cow sales, increase slaughter bull sales and why not with these prices? At the same time there has been zero evidence of any cattle herd building.

Kub: Right.

Pearson: Now the current ranchers are in phenomenal shape here to move forward and to book cattle into the fall the spring calves and get those sales made. Give us a longer term outlook. Can we sustain these prices?

Kub: Well I think we have to sustain these prices, like you say, if you want to continue to have production take place. Otherwise you'd get an incredibly inefficiency in the market and it would spike up the same way corn spikes up when you have a supply shortage. But you mentioned the lenders, you know, if you wanted to get into starting building a cattle herd right now who is going to lend you the money for that?

Pearson: You're probably going to find a sympathetic ear.

Kub: Right because there is a lot of risk in there as far as feed prices. There is huge risk. If you haven't hedged your summer feed prices, you know, as I've been advocating someone do aggressively. If you haven't done that already you might get a chance to catch a break here if the dollar comes up or if some other strange tsunami hits or something like that but I wouldn't be greedy. This definitely a very risky time to be feeing cattle.

Pearson: All right. Well, the calf market, feeder market with these kinds of conditions and this demand, I talked to some feedlot operators in Texas, they're having a damn hard time finding calves.

Kub: Yeah.

Pearson: Four week cattle are really expensive. Six week cattle won't be there for awhile.

Kub: Right. Well, we saw some six week cattle coming across Nebraska this past week and they got really hot bids. That was really about the only bid that really had a strong basis this past week. Generally the northern cattle had a weaker basis than you would expect to see this time of year and the cash cattle index was one thirty six which was a new high - a new record high, but like you mentioned it's hard for someone to find northern cattle to bring down.

Pearson: That's right at this stage in the game. We will see what happens as the year progresses but it's money in the ranchers' pocket and they need it because they've had some tough years here especially with these reduced numbers. No herd building. We will see what happens and the consumer is stepping up and buying product. They are buying beef and they are buying pork.

Kub: Yeah and we've seen the economy grow and we've seen consumers, like you say, staying in the market there and so I'm really looking forward to seeing how that summer grilling season how the seasonal beef demand and pork demand turns out here in the next few months.

Pearson: All right. It's going to be interesting to see. Maybe some hedging opportunities for pork producers? Should we be looking at getting a little aggressive here with the growth that we've seen or is there just more to come?

Kub: I'd be more aggressive on cattle than I would be on hogs just because I think hogs still have more of an opportunity to see that cash market bring it up higher in relation to beef.

Pearson: All right. Elaine Kub, appreciate you being on the show this week. Thanks for joining us here on Market Plus. For all of us on Market to Market I want to say a bit thank you. Have a great week. I'm Mark Pearson, take care everybody.


Tags: agriculture commodity prices markets news