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Market Plus: Mar 25, 2011

posted on March 25, 2011


Market Plus: Mar 25, 2011 Pearson: This is the Friday, March 25, 2011 version of Market Plus. Thanks for joining us here at our Market to Market Web site. One of our, two of our long-time market analysts, Walt Hackney and Virgil Robinson with us this week. Wow, wild week in the cattle market, Walt, and I'll tell you what, they're eating beef overseas, they're eating pork overseas. You really got us excited on the show. I'm really to go put my port-a-huts back out and get about 50 bred gilts and get that thing going again.

Hackney: Well, I think it would be wise because our industry could really use your invested dollars and we would appreciate your doing that because we need money. And so at the prices this product is running us in the raw end of it, replacement heifers, feeder cattle, fat cattle out of the feedlot, it's been a runaway. Now, will it persist? It would be too easy to say I doubt it. I think that the idea we're approaching a different era could be right. I think the possibility is there. Is it going to be at this level? If it's going to be at this level then you can kiss expansion goodbye, you can kiss expansion in the cow herds goodbye because the cash flow ability at this level certainly is going to put the production sector in a tax issue that is going to be hard for them to handle. And a lot of them right now are looking at the possibility that maybe they could have, in fact, done as well by spreading their marketing over the last three years in difference to getting it all in one year. And that is an issue we're dealing with right now that very few people have been willing to talk about.

Pearson: Well, that is the case and you talk with a lot of ranchers out there, let me ask you this because I hear this question a lot. We've got a demographic problem in the cow business that we've got older ranchers, we had big dispersal auctions, you talked about this in December and why not, the calf prices where they were and with the killer cow market where it was you couldn't hardly miss. Do we have an issue out there with people not coming back out to the ranch?

Hackney: I don't think the issue is as personified today as it would have been even a year, and particularly two years ago. I think that the adjustments have been made rurally in ranch country. Granted, the old school, such as what I am involved with and am of one myself that group of individuals have made adjustments and we have walked into the new era with a backup. We've got either that localized good young individual that wanted in and couldn't get in because of the investment, because of the monies that we have put into escrow at this point we're willing to take a lot of those younger people on, cash roll them and put them into the business that we developed. And so I don't think we're going to see an attrition in that regard.

Pearson: But not much in the way of growth either?

Hackney: No.

Pearson: Okay. Real quick, sow herd?

Hackney: Sow herd, if export continues as it currently is and particularly off the I will say Asian bench, but the fact is if China, South Korea, Japan maintains the pace they particularly got involved with this last week there's every incentive in the world that the cash is going to respond on the hog industry to a level that extraordinary costs of production such as grain costs and the price of grain stuff, feedstuff is going to get overridden by the income factor from the cash market. That will create some expansion in the hog industry.

Pearson: All right. We'll be watching for that. You pointed out Virgil's eloquence during the program. I can only second that. Virgil, we want to get to that eloquence here. There's so many tumblers, so many factors that hit all of our markets. One that we haven't talked very much on the show lately is the fact that the U.S. dollar has continued to tumble, Virgil, I mean it just continued to tumble. Of course, we had the situation with the earthquake and repatriation of dollars for the yen. But this dollar has sure been wind at our back including, as Walt was pointing out, what was happening as far as the overseas demand for our protein products, beef and pork.

Robinson: Mark, a couple of things. I still think there are a number of uncertainties in the European communities, the sovereignty countries and I think the are likely to resurface. So, please understand should one of those countries again, or more than one, have issues, the likes of which Greece and Spain and others have had, the dollar is kind of that flight to quality situation and in that context I try and profess to be a bar chartists and I like to watch month over month behaviors and it's possible here, we've got three or four days left in the month of March that the U.S. dollar index could make a pretty good trade. If by end of this month it happens to trade above $76.90 I think there is a short covering rally shortly to ensue and it could coincide at a time where we perhaps have a surprise or two in the acreage numbers or a surprise or two in the stocks in all positions report. So, let's acknowledge a combination of events that might occur that could create some additional panic type or forced liquidation given the commodity trading fund positions and all of the net long positions in grain associated with that.

Robinson: In combination one other thing I think we need to mention is, and the show mentioned it earlier, crude oil futures could well make a 30-month high here by the end of this week, or the end of the up and coming week and, again, if it does that one of the systems I maintain as a bar chartist it would indicate a close above $104 and we're tonight at $105 or $106. We would likely move back to the all-time highs over the next several months.

Pearson: That would be $148.

Robinson: $145 to $147 I think was the high made several months ago. But please understand should that occur I'm not sure that's real bullish, Walt, because it comes at a time where energy, transportation and food prices are all on the rise and clearly with unemployment remaining at 9% and as delicate as some of these recoveries are there could be a sequence of events here that aren't particularly bullish. So, we at least need to acknowledge that possibility and plan accordingly.

Pearson: Virgil, every time you have had one of these watershed moments on this program, and I remember in August back in about 2004 and everyone was super bullish on the corn market and you said, oh everyone's getting to one side of the boat and that usually means we're due for some kind of corrective action otherwise the boat gets tipped over. And you think maybe we're getting to that point? Is this that watershed Virgil Robinson moment?

Robinson: You know, it's a day like today, Mark, that makes me question the logic of the markets. As mentioned, we all anxiously awaited these corn sales, assumedly Chinese corn sales, they come out today as unknown destination a million tons of old and the 250,000 tons of new and the market closes sharply lower, Walt, that is concerning to me.

Pearson: All right. That's a poor close. You talked about it on the show.

Robinson: It is a poor close and it's got to be concerning to those who are currently at or have established new long positions at recent levels.

Pearson: All right. Well, take note, this is a Virgil Robinson watershed moment. Walt, Virgil, thank you so much, appreciate both your insights very much and have, of course, over the years. That will wrap up this edition of Market Plus. Thanks for joining us here at our Market to Market Web site. Be sure to talk to your local public television programmer about carrying our program live on your local PBS station. For all of us on Market to Market, I'm Mark Pearson. Have a great week.


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