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Market Plus: Jan 07, 2011: Market Analysts Walt Hackney and Virgil Robinson

posted on January 7, 2011

Market Plus: Jan 07, 2011: Market Analysts  Walt Hackney and Virgil Robinson

Pearson: This is the Friday, January 7, 2011 version of Market Plus. Thanks for joining us here at our Market to Market Website. Tell your friends and neighbors to join us here as well. On the show this week Walt Hackney and Virgil Robinson. Two of our most esteemed market analysts and all they want to talk about how everything was and we should have mentioned this in the show. We had life of contract highs out on preferred pork futures this week Walt, and as Virgil pointed out a little bit lower on corn. Virgil how much of this lower corn market was kind of evening up. People kind of pulling in their horns before this big USDA report next week.

Robinson: I think there was some of that in the futures market. But the point I wanted to emphasize, Mark, is that historically, traditionally, the month of January there always seems to be a pretty good infusion of cash grain for various reasons tax purposes, cash flow needs, and alike. And given the behavior of the spot basis in corn and in beans as well as the behavior of the deferred carry and the future carry that seems to be what's happening again this year even though prices run usually high, Mark. So, the point I was trying to make and Walt assisted in this discussion is that the cost of gain being a big- big factor here, please be advised I think the cash corn, the cash protein market is providing an opportunity here for those who are in need and have in fact already placed cattle, Walt, are already in the process of producing some additional pigs down the road. Their opportunity to guard against over the next many months what could be significantly higher prices. So, I think it's a great opportunity.

Pearson: All right. You mentioned some price levels. Let's just repeat those. I want to say around $5.40 on the National Cash Grain Index on corn.

Robinson: Mark, I watch that as it - it's a great transparency, everybody can watch it and it applies more or less to all local cash markets. If one is coming down most follow in the same direction. And, I think, I'm trying to think tonight, I think the cash index settled at like $5.55 or something like that and I'm hopeful that in the next couple of weeks that cash index will drop another $.25 to $.30 and provide some opportunity for those who need to buy and procure supply here for the up and coming season.

Pearson: All right. Of course we're talking about number two yellow corn and Walt made a point on the show the fact that we did have a lot of condition corn with this wet season and that did provide some opportunity. Some of that flooded corn that was ok-ed by USDA could get fed to livestock and that's helping to drive some profitability in there. You didn't seem all that excited when Virgil was talking about this cash corn index, you know, get it locked up under $5.40, Walt, because you're still talking some high gain costs and with where - is too.

Hackney: Well, at $5.40 you're still looking at $.80 plus cost to gain cost on feed lot cattle and those are commercial feed lots granted. It may not be the farmer feeder out there that can have certain control on his cost but one thing that we have overlooked, Mark, is as we went into harvest and the world was in shock with the rise in the corn values, one thing that you didn't hear too much of was the commercial feed lots railing about high price gain costs. The reason being, most of those feed lots anticipated somewhat of a raise as we went toward fall and they bought a lot of corn in that $3.25 to $3.75 range and were carrying it on inventory and averaged it in when corn hit $5.00 and $5.25 and $5.50. In the feed lot they averaged it which deal gave us $.80 gain costs. Now we get rid of that $3.25 to $3.75 maybe $4.00 corn, it's gone. It's not there to be averaged anymore. We've got to go at the real market on the value of the corn. Where is that going to take gain cost? They can't keep up at the level fat cattle at a $1.05, $1.06, $1.07 gain cost, they simply - the live market can't keep up and hold the return or the revenue factor for the cattle feeder. He's going red as they get up to over $.80 gain cost. He's going to go red and the price of feeders in the last six months have went up about $10.00 a hundred.

Pearson: It's been a heck of a move and it's surprising. I'm about out of time. Virgil, final thought here from you. You were talking about this breakdown to $5.40 on the cash market but what you're telling me is you think this thing could still catch on fire, this corn market, demand wise both corn and soybeans, we could still have an explosion to the upside.

Robinson: I think that risk still exists, Mark, yes.

Pearson: All right. Virgil good to have you with us. Walter, as usual, thank you sir very much. That will wrap up Market Plus. For all of us here on Market to Market, I'm Mark Pearson thanks for joining us and have a great week.

Tags: agriculture commodity prices markets news