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Market Plus: Aug 20, 2010: Market Analysts Virgil Robinson and Walt Hackney

posted on August 20, 2010

Market Plus: Aug 20, 2010: Market Analysts Virgil Robinson and Walt Hackney Pearson: Welcome to the Friday, August 20, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. With me this week two of our regular market analysts for a long time, Virgil Robinson joins us as well as Walt Hackney, great to have both of you here. Let's talk about a couple of the big things. Walter, I want to start with you because of the feeder market. I always try to end the show on a positive note and, of course, you killed that but we haven't grown this cow herd in years, smallest herd since '50 now they're saying, 1950 and I know we've got bigger genetics and we've got bigger livestock and we're producing a lot more wheat but it's been kind of a negative. You don't see it changing.

Hackney: I don't know why it would change just because the American economy would indicate that we're at a 50 year low on the cow herd doesn't relate back to a P&L that is positive for that rancher in Wyoming and Montana and Iowa, it doesn't really affect him. The fact is those cattle today that are being dropped on the ground in this spring and are being sold for October this fall delivery bringing from 120 to 125 a hundred weight weighing 550 to 625 pounds the net cash flow on those cattle is more lucrative than it was at any other time I know of in the past. And there's no incentive to increase.

Hackney: Now, there are some that have wanted to replace cow herds, liquidate and come back with bred heifers and that sort of thing. That has happened and that is what drove that heifer market sky high this year. As you're well aware, Mark, bred heifers were up around $1400 to $1600 a head. Pairs, two year old heifers with a calf, were bringing $1600 to $1750 a pair. And that was that market drive to replace cold cows with young strong cows but not to expand the cow herds.

Pearson: So, a repopulation but not an expansion?

Hackney: That's the word I was looking for. You always come up with the right terms.

Pearson: Repop or depop, depop and repop is what they're doing in the cattle business. All right, well that's going to be interesting to see. Are you seeing those contracts at a buck and a quarter on these fall calves?

Hackney: It's pretty simple arithmetic. You take an Iowa calf today, a native calf in the local auction system when 600 pounds will bring $1.25 a pound, $125 a hundred weight. In Montana for October delivery that 625 pound calf will bring around 18 a hundred weight. You bring her back here, you put $6 to $7 freight on it you've got the same market.

Pearson: There you go. That's what we're looking at. And fed cattle market you're feeling pretty good about it for the next couple of months, cash market too.

Hackney: I'm a little reluctant to think we can entertain $1.00 a pound and better going into next week. A lot of the cattle feeders are going to price cattle at $1.00 a pound next week.

Pearson: All right. Good feeling, good feeling in the feedlots for a change. Virgil Robinson, cotton market we didn't get to on the show, we ran out of time. We're getting some pretty lofty levels in cotton.

Robinson: We are, Mark, we have to quantify the loss in Pakistan but be advised world demand continues to grow year over year. This year is forecast in the same direction, Mark, so we have I think relatively large production assuming no catastrophes in other countries, big consumption and declining ending inventories, world stocks to use ratio at about 35%, tightest it's been in 20 years. Price of cotton in my opinion, while there will be pullbacks in value, I think we'll trend higher, Mark. I think we'll see $90 plus before the year has ended.

Pearson: We were down 25 cents on the board on the wheat this week, we were down also on soybeans. The corn market was a dime higher. You are reluctant to get real aggressive on sales, additional sales right now. What about 2011 and 2012? Are you equally reluctant there? You see a fairly tight market for corn for the next at least twelve months.

Robinson: I do, Mark. We didn't speak to the issue of acres in 2011 but clearly there is going to be a battle for acres, corn, soybeans, cotton, wheat and other coarse grains will be in the mix, Mark, so we'll need to increase production in corn in my mind as a result of increased acres and to this point I think there's a battle looming there. So, I am reluctant unless 201 or 2012 cash values meet the strictest of crop budget criterias. I would be reluctant to finalize the price in either of those two crops.

Pearson: I was down near Walter's alma mater, actually I was in Oklahoma City come to think of it, but he was, of course, Oklahoma State, a distinguished animal science graduate. But I'm down there and I'm talking to your wheat buddies down there and they're saying, yeah, you keep blowing on about these high wheat prices, our cash market is $1.25, $1.50 underneath it, there's like no correlation, Virgil. Is that going to improve?

Robinson: Well, I think the geography you have identified there, Mark, crops in general are going to be pretty good I think this year so space is a premium, Mark, and there comes a point in the calendar year where vendors, where elevators and terminals say, really not interested in handling wheat because we have other crops now to take care of. So, that's probably a portion of the basis distortion but certainly the variable storage rate issue looms large. I don't think that's been fully resolved, Mark, but be advised basis values moving forward given the higher flat price are likely to be historically wide.

Pearson: All right. As usual, Virgil Robinson, Walt Hackney, great to have you with us. Virgil, good to see you and Walt, great to see you, what a great job you folks have done for us tonight. You know what, they do a great job week in and week out and if you enjoy watching Market to Market, you pick us up on the Internet off our Web site, if you'd like to see the live version of our show as it comes out to our PBS member stations all you need to do is pick up the phone and call your local public television programmer and say, we really enjoy Market to Market, I watch it on the Internet, I'd love to see the live version so I can see just what these folks are talking about on the program in addition to all the other news and information and insight that our programs brings. Call your local public television programmer today and say hey, let's put Market to Market on our local public television station. So, for Virgil Robinson and for Walt Hackney and all of us at Market to Market, I'm Mark Pearson. Thanks for watching and have a great week.

Tags: agriculture commodity prices markets news