Hackney: You were commenting we've got a two, possibly three percent fewer cattle herd out there on the beef cows which is correct. We're going to be delivering two or three percent fewer calves this fall at a minimum. The thing that has happened is as we have persisted in a busted fed cattle market the lower corn prices that Virgil has been indicating has led cattle feeders down the path actually in regard to buying feeder cattle. He has persisted in letting cheaper gain costs guide his mentality on what he's paying for these feeder cattle thinking the cheap feed cost is going to substantially reduce his break even on those feeder cattle and as a result they have got a chance of showing some decent profit potential into 2010. Right now we're low enough on the corn market. We don't necessarily need Virgil's higher corn market next week that he suggested but the fact is we don't need it any lower, we don't need any cheaper cost of gains. What we need is a break even at the current level of cost that is going to allow us a possibility of some form of hedge going into 2010. It isn't there today. On the other hand, last week we've seen a substantial break in the calf market compared to where it was three weeks ago. $105 at 600 pounds in Montana was catching a lot of good black calves, steer calves. Today 97 to 98 is catching the same calf. They are getting closer, when you also add the freight, they are getting closer to a workable number than they were two weeks ago. So, the cattle feeder has got some ability to control his own destiny if he's careful on his input costs.
Pearson: So, 97, 98 you'd be buying some of these calves?
Hackney: I think at 95 I would be a good buyer. I think I would be an aggressive buyer at 95. You've got to understand that a week ago that calf would bring $103, today 97, Monday there were some auctioned calves in the northwest that sold as low as 94. They were minimal so we can't call that a fixed trade but 96 and 97 is and that will buy a lot of cattle and I would be a good aggressive buyer at 95.
Pearson: That's on the calf market but explain this yearling market to me. What is happening there?
Hackney: Anticipation of a viable futures market as we go into the second quarter of 2010, anticipation of that futures market given those $93, $94, $95 eight weight steers an opportunity to hedge. And actually they wouldn't do it then and they won't do it now. So, that market has in fact lowered itself two or three dollars a hundred in the past week.
Pearson: Last time you were on you were talking about the stronger yearling market with the expense of these calves and it sure has happened. You think that's done? Obviously the board didn't do us anything.
Hackney: The board gave us no opportunity that was anticipated.
Pearson: Real quick on the hogs we had to wrap up the show, I asked you sow liquidation at the get-go, is it happening or not? It was kind of hard to tell from that last USDA report.
Hackney: I believe as we get more into the fourth quarter there will be a forced liquidation from the lenders. I believe that the average market weight of the hog is going to now start gradually disseminating. I believe that in the first quarter of 2010 we're going to see fewer available market hogs to the market as a result of some extra liquidation going on this fourth quarter.
Pearson: Explaining the bigger numbers now.
Pearson: Walt Hackney, as usual, we appreciate it. Virgil Robinson, I want to ask you again about the corn market. You said something I think is really significant on the show this week and I'm not going to hold you to it but you talk about the fact that we could be in or close to a harvest low for corn at this stage of the game. Obviously we've had a weather challenge so far this harvest so it's not going to be maybe a classic low but maybe technically you think we could be seeing $3.21 as a key point?
Robinson: Mark, that is my cash index viewpoint and, again, we're fifteen or so cents away from that. But should it occur within the next few days then I would be of the opinion I think there's justification in arguing that the futures market has put together a very viable bottom, one that we can identify. The cash market remains the other part of the equation and I'm not sure we've done that there. But as mentioned in the show it would be my best opinion should this cash index trade back to 21 or higher then I think we'd have both components, futures and cash in alignment and the market would be in position to move higher.
Pearson: So, we would expect that typically when we wrap the harvest up and we get the crop put away but you're thinking we could be maybe short circuiting that.
Robinson: I know it flies in the face of conventional wisdom, it does but hasn't the market for the last several years? These are just signals that I pay attention to and I have to relay those messages as best I can given the experience I've had with these indicators over the last thirty some years and that's what I'm seeing.
Pearson: A wake up call to Walt's feeders maybe to get some corn covered.
Robinson: I'm assuming in Walt's discussion he talked about the variables, that they are probably locking in all of those at that point when there's a viable hedge for them or do you think they are speculating on feed costs?
Hackney: I think they're living in hope and dying in despair. I don't think there is near enough of the astute business plans in the cattle feeding industry to say that they are locking in as they buy these feeder cattle, I don't believe they're doing it.
Pearson: Historically that has not been the case. It's been the case that we don't do it and we plan on feed getting cheaper and a big crop.
Robinson: I'm wondering if lenders might be more influential these days than in times past. I've got to believe some of these livestock people, Walt, have committed a lot of their personal equities to these additional cycles they're in here, these production cycles to the point where they might well be close to exhausting that as well so lenders may be a bit more instrumental.
Pearson: I think at every cattleman's event and everyone that I've talked to that's about what I hear, we're beyond the operational equity, we're working off personal equity and keeping things going.
Hackney: We mustn't forget that it is illegal for a lender to dictate what you do with his borrowed money. Now, he may be strongly suggesting but he can't dictate how you use that money.
Pearson: Well said, Walt, on that we've got to wrap up. Thank you Virgil. That wraps up Market Plus for this week. Thanks for joining us here at our Market to Market Web site. Don't forget October 22 we'll be in Shenandoah Iowa with our special Rural Economic Summit, hope you can join us down there, 6:30 or so we'll do our taping so thanks for joining us. For Walt Hackney and for Virgil Robinson, I'm Mark Pearson. Have a great week.