Brugler: Well, again, we're very tight on old crop stocks. You're seeing that in the July futures with the delivery process. We're basically pulling all the cert stocks out of town and shipping them out of the country. So, old crop is tight but old crop marketing year ends on July 31st. So, the window is pretty much closing here. The market didn't like the acreage report at 10.9 million acres even though it was just a smidge above what the trade guess was. They were hoping for something a little more bullish. Basically it says there's plenty of cotton. ICAC, the international body is looking for production to be within one million bales of what consumption is for the world.
Brugler: So, a nice tight supply and demand balance hard to justify 80 cent cotton which is where December was trading a little bit ago if you're going to have that balance. To justify that level of price you need something to happen to the U.S. crop whether it's hurricanes or drought or something that threatens the yield. Right now the percentage of good to excellent in cotton is pretty high. I think it's 72% or so of the crop rated that way. If it stays there then we'll have plenty of cotton once harvest starts.
Pearson: All right, well, we'll keep watching cotton. Talk about this, Alan, Elwynn Taylor, a very well respected climatologist, I've learned you always want to pay attention to what Elwynn is saying and in the last couple of weeks he's been talking that are headed towards La Nina which means a more volatile weather pattern, either hot and dry or wet and cool or whatever, we just know that it's going to make a shift. That SOI index got up to 8 which is one of the critical factors, one of the critical indexes he tracks and then it dropped sub-8 by a little bit this week. What are you hearing? What is your take on the weather for the Corn Belt for the balance of 2010?
Brugler: Well, My rule of thumb is you can get any weather forecast you want to pay for. So, you can cover all the bases. But I think from a producer's standpoint, a hedger's standpoint what we have to consider is what is the worst case scenario. In terms of a bull market the most likely scenario would be that we have a number of crops in the western Corn Belt particularly that don't have much root development because there's been, in Iowa's case, the second most rainfall ever in the month of June ...
Pearson: 32, 33 inches southeast and south central Iowa.
Brugler: Yeah, the point is the crop just doesn't need to root down very deeply. If it suddenly turns dry because of La Nina you're going to see tremendous stress on the crop. It just can't translocate enough moisture without that root system. The eastern Corn Belt is in a little better shape. I think if you go north into Minnesota they're in better shape because they planted really early and weren't wet until later on. But, yeah, if you were to have that transition, that wet to dry transition then it could be a 1983 kind of scenario where you have a fall drought and yields drop ten bushels below trend or something like that.
Brugler: I would say at the moment the market thinks that it's a wet year but last year was a wet year and we had record yields. If it's a cool year, well that's kind of like last year and we're good. But I would mention that crop condition ratings have dropped the last couple of weeks. I've been out driving around mostly Minnesota and Iowa, the western Corn Belt, Missouri, Nebraska, there's a lot of variability in the crop, a lot of really ugly corn in western Iowa, eastern Nebraska but at the same time you go in some other places it's shoulder high and going to start pollinating next week. So, it looks more to me like an average crop in those states. So, the real question -- except possibly Minnesota is better than average. So, you look around that's kind of the key is do we get that threat to the crop in the fall or do we just kind of have another mild, adequately watered year like we had in 2009 in which case the genetics are there for another 160 plus corn yield and 44 bushel beans.
Pearson: All right. Having said that, with the USDA's recent report, with the million fewer acres of corn and as you pointed out, 300 million bushel fewer stocks obviously this becomes the market perception could be the big thing here.
Brugler: Yeah, perception of what that weather is doing. And, again, that's going to boil down to which forecast gets the emphasis which to a degree comes back to technical analysis and what the charts are telling people, which side to bet on. And for now we're thinking that the market wants to be sure, it needs to build a little risk premium in, particularly on the corn side. Soybeans are probably more vulnerable because they're more of a crop of August in terms of yield development but at the same time we're looking at a much bigger potential carryout -- surplus if the weather is anywhere close to normal. So, beans won't rally a lot I don't' think until we threaten them a lot worse than they are. Corn is going to be on pins and needles for most of July.
Pearson: All right, Alan, we're going to leave it there. Thank you very much. Alan Brugler with us this week. Thank all of you for joining us. We appreciate it. Join us here every week for Market Plus. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.