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Market Plus: Mar 26, 2010: Darin Newsom and Walt Hackney

posted on March 26, 2010

Market Plus: Mar 26, 2010: Darin Newsom and Walt Hackney Pearson: This is the Friday, March 26, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. With us this week two of our regular market analysts, Walt Hackney and Darin Newsom. Gentlemen, appreciate your comments on the show. We had the longest market segment we've ever had on Market to Market with the two of you, so congratulations on that. And we still didn't get to talk about feeder cattle, Walt. What are you going to tell these ranchers out there about where this fat cattle market is going and how is it going to affect this feeder market? Walt, what's got to be a factor is Darin was talking about all this cheap corn that's running around out there.

Hackney: I don't know that cheap rations on this go around is going to be a counter in regard to the way the feeder cattle markets go. If you put a lot of stock in the USDA reports, as an example, they are quick to tell you that we're looking at the lowest number of cow herd in 52 years. For instance, that means somewhere in the vicinity of six to eight, maybe more percent fewer fall delivery calves coming off this year. On the same token, we've got yearling cattle out on grass. That number is going to be really low this year. The availability of yearlings is going to be very hard to come by and then on the same token the cattle yearlings that come off of the southwest wheat pasture country is way low because the availability of wheat pasture was not down there as it has been in the past. So, all in all it's a matter of supply and demand. Regardless of $3 corn or $3.50 corn or $4 it would appear that the mindset of finally making some money on fat cattle is going to produce an energetic group of feeder cattle purchasers and they are going to run into an availability problem on what they want to purchase. So, as an example, we could easily be looking at a price level on fall delivery October, November calves out of the western ranches possibly higher than they were a year ago, fifteen cents, $1.15 or higher. On the same token, the yearling cattle today are bringing $1.10 or better on a 750 pounder. Those possibly could break through that $1.10 on immediate delivery cattle. They are hard to find. So, the cattle feeder on the demand side is going to way overshadow the supply side of the rancher.

Pearson: And you thought the fed cattle market would hold on and it could pick back up again in the fourth quarter so those fall calves, are you getting some of those calves contracted at this point?

Hackney: Just starting, personally, but I bought a string of Montana calves. They were roughly 700 or 800 of those calves, 650 weight calves at $1.11 50, heifers back $7. That was the first that I have traded this year. A lot of interesting inquiry coming from the rancher community wanting to know what we think the market will be, a lot of cattle feeders calling and wanting to know with the reduction in the cow herd and availability if they should step in and start buying now instead of May and June.

Pearson: Are you telling them to do that, Walt? Is that kind of your feeling?

Hackney: I always tell them to buy.

Pearson: That's going to be good advice this year. We've been talking about the shrinking cow herd, you've been talking about this for years now and now we're at an amazing low, 52 year low. Some say you can even go back to a 1950 number.

Hackney: That's true.

Pearson: So, yeah, it's an amazing story out there right now, getting to be a rare type out there to find those calves. And those big feeders, those big yearlings anyway are really a trick to find.

Hackney: They are desperately hard to find with the orders we've got to simply go buy them and we can't find them. I don't know if you've noticed what the bred cow industry has done, went from $1000 a head for March and April calvers, went to $1600 in the last month, five weeks. It's unbelievable.

Pearson: Okay, so a big blue nosed calf out there at 750 this weekend you could buy it, where would it be?

Hackney: $1.10, $1.08 to $1.10 at 750. It takes a deep seat and a four way hook.

Pearson: All right, Darin Newsom, let's talk about the grain market. I want to come back to soybeans. You talked about the South American crop. I'm 52 years old, okay, so I was around the last time the cow herd was this small. That's when I came in. Now, the question, Darin, for you though, is every year we get these big estimates and we see a big pressure on our commodities here in the U.S. because South America is going to produce another massive crop, every year there is an entanglement, every year there is an issue, every year there is a problem. This year you mentioned the rains in the northern portions of Brazil. Is this big crop going to happen?

Newsom: I still think so. What we're hearing coming not only from our correspondents down in South America but from other sources as well is that once this weather moves through that the idea of still seeing a 67 million metric ton crop in Brazil and 53 million metric tons plus, 53 million metric is what USDA is saying right now -- those are still very strong possibilities if not even a bit light in the Argentine situation. So, I think it is such a case where these big crops are going to continue to get bigger, that total world supplies of soybeans for '09-'10 could climb over that 300 million metric tons mark. This is going to be something the market is going to have watch very closely. Once we get the weather moved out and we do get these harvests in and pork problems clear up and so on there's this possibility that we are going to see some replacement, China is going to start looking towards South America rather than these tightening U.S. supply situations. So, not right away but I think the near future this is going to become an issue in that these crops could be as big as advertised.

Pearson: We get another shot over $10 you want to take it?

Newsom: I think so. What we're going to have to rely on is the old crop staying tight and problems persisting in South America for the next few weeks. This could drive the old crop market back over $10, say get the July up in that $10.20, $10.30 mark, maybe a bit higher. I think we do that, we would clean up any old crop sales that we might have and if it can pull the November contract higher I think there's going to be some bearish problems with the new crop market, it certainly needs to be sold as well.

Pearson: All right, Darin, appreciate it, appreciate your thoughts and ideas. Walt, as usual, appreciate it. Thank you both. That is going to wrap up our Market Plus segment for this week. Make sure you tell your friends and neighbors to join us here at our Web site. And, of course, call your local public television affiliate and say we want to watch the live version of Market to Market on public television and I bet they'll run it for you. From all of us here on Market to Market, I'm Mark Pearson. Thanks for joining us. Have a great week.

Tags: agriculture commodity prices markets news