Brugler: Well, basically we're paying a price in terms of high price for the consumer of the losses that the livestock industry sustained in 2008, 2009. Part of that was driven by high grain prices and what happened with crude oil at $140 and so forth. But what we know is we lost money, we lost some hog producers, feeder pig production dropped way off, the specialists that do farrowing and sell pigs just aren't there. It's extremely hard to find a feeder pig to buy right now.
Brugler: The consumer has picked up their interest, exports have picked up. We're looking at the best exports for beef since 2003. We think pork exports will be back to where they were two years ago or very close to that. So, you've got less availability and you can't replace it quickly because the producers of the baby animals aren't there anymore. You just don't have the feeder pig operations, you don't have the cow calf guy. He's saying, wow, look at the price I can get for this call cow as walking hamburger, she's marginal or she didn't get bred right away, I'm just going to send her to market.
Brugler: Well, basically we only had two years of increase on the cattle cycle out of a normal eight to twelve year cycle and now we're already starting to go down. We're shrinking the total number of animals at a time when the demand is there. We've aggravated that a little bit by light carcass weights because of last winter, particularly in the cattle business, the weather was just so bad that we didn't put the gains on the animals, some of them were a month to two months behind and finally the feedlot just said, we're going to sell them because they're getting old regardless of the weight.
Brugler: But that has reduced the supply of the beef as well. So, we're in a situation where the market has got to rally to distribute the supply, to keep enough home while at the same time meeting this world demand and also to track more production from the livestock guys. They're actually in a pretty good position right now because they've got leverage on the pricing side and feed costs are going down. Corn is cheaper than it was a year ago now, soybean meal is a little cheaper and so they've got a chance to repair those balance sheets.
Pearson: Well, all those are all true. Also, as you mentioned, there's a parallel relationship with these stronger calf prices too. You always have that cattle crush. What is that telling you? Are we making some money?
Brugler: Well, we had a couple of opportunities back in the first part of March, last time I was on the show the cattle crush was in the $145 range, that's a $15 to $20 profit that you could lock in at that time. Those cattle crushes dropped to $110, $115 here recently. So, we made a lot of money on the hedges but what they're telling you is the market's not paying you to place cattle in the lot right now and that's true all the way out through November, December, even January of 2011. The margin that's being offered is negative right now despite the fact that we're trading $100 cash cattle.
Brugler: So, there's no incentive right now. That tends to be seasonal. It'll probably drop into May or June and then when we get into July that will be the crunch time. That crush spread should start to improve at that point. If it doesn't the consumer's just not going to get the beef.
Pearson: USDA report Tuesday. Any surprises predicted?
Brugler: Well, there's a wide variety of expectations. The USDA particularly for 2010-2011, this is going to be USDA's first go around since the outlook forum back in February of putting actual numbers for the world for 2010-2011. One of the surveys I saw today, the soybean ending stocks range of estimates went from 250 to 530 million bushels. That's a huge range. So, somebody is going to be surprised on Tuesday and frankly our numbers are on the extremes of the trade guesses in different directions depending on which commodity you're looking at. So, I think there's some potential for surprises. It will be difficult to surprise everybody but one thing that's kind of a wild card and under the radar is USDA's resurveying the Dakotas for their corn acreage and production for last year so we could even get a change in the production numbers that really nobody is paying attention to anymore. We're worried about 2010 crop.
Pearson: We're onto the New Year. Alan Brugler, as usual we appreciate your insights. I want to thank you for joining us on Market to Market and, of course, here on Market Plus. From all of us on Market to Market, I'm Mark Pearson. Have a great week.