Brugler: Well, I'm always a little skeptical about weather forecasts three weeks or four weeks out.
Pearson: I'm concerned about them when they're three days out, Alan.
Brugler: My philosophy is you can get any weather forecast you want to pay for. But having paid for a few we'll dig into that. I think the crop is behind, growing degree a day accumulations since May 1 are anywhere from 50 to 300 units behind so that is anywhere from a couple of days to two weeks late on the corn crop. Now, soybeans aren't in the same situation because they are light sensitive more than temperature. They might be a little on the short side but they're going to come in about on time. But corn is definitely late, what we've got to look at is where the major concentrations are and where the early frost is. For example, there is an area in west central Nebraska that usually gets hit earlier than the rest of the state, it's not a major problem, there's some pivots of corn that will get hit out there but it's not the bulk of the production in the state. The other thing, of course, is the eastern Corn Belt where out in the cities like Dayton, Ohio and Indianapolis where I've been are even further behind. Their fortunate tendency is they usually don't get a frost until October 10th, October 15th. From a statistical standpoint we think there is about 1.2 billion bushels of production that won't be mature by its normal frost free date for those locations. That doesn't mean you're going to lose all of it, it means it would be standing there getting some kind of cold temps. The other question is how cold it gets. 32 degrees will singe some leaves but for corn it takes about 28 degrees to really kill it off. So, you could have a near miss the second week of September, fourth week of September and not really affect the final production. Historically we know from some of the big freezes we talked about on the show that unless you get a sweeping cold front that covers the whole farm belt all the way to northern Illinois you don't lose that many bushels. You might lose 200 million, 300 million. Now, having said that, 300 million this year would have a price impact. We're not all that big on our ending stocks, 1.5, 1.6, 1.7 billion bushels for next year and you lose 300 or 400 million off of that and all of a sudden it starts to get a call for $3.58, $3.75 corn instead of $3.25 corn. So, our view is we are running a cooler temperature pattern, there are going to be cold air incursions coming out of that polar air mass, we've got one Monday night I believe, we've got another one around Labor Day or slightly thereafter, forecasts suggest there is another one coming in later in September. Each one will probably be progressively colder but upper air flow makes a lot of difference as to who gets hit and whether there's a big production impact. I don't see that you can just hold back all your production waiting on some kind of a freeze or frost but certainly if we were to get an event like that, that got down to 28 degrees I think you'd see a market reaction to it.
Pearson: You're not selling now, you want to get the crop put away and wait for the market to have its seasonal post-harvest rally. You think it's going to be fairly normal barring an early frost.
Brugler: Yes, if we dodge a frost we'll probably see prices grind a little lower, maybe even into the $2.80s on the nearby contracts on the corn side but right now we're sitting there at 50%, 60% sold for forward contract for fall delivery anyway so we're going to put that into the elevator system, the rest of it goes in the bin, there is tremendous carrying charges, premiums December to July right now so the market is telling you it doesn't need any more corn right now from what it has already bought. Soybeans, as we mentioned on the show, are a little different, they are inverted, they'd really like you to just haul it straight out of the field and take it to the elevator.
Pearson: You had a couple of bright spots on the show that you talked about and one was maybe some sow liquidation is occurring now, we're starting to see some numbers that are backing that up so that's some good news price wise later on. The second thing you talked about we can make money feeding cattle now.
Brugler: Yes, it's a little spotty, the cattle crush spread is positive for September and November but not for October and January at the present time. Those would be the placement months for the cow but clearly the market is trying to buy some cattle, trying to make sure there's some in the pipeline and if you're willing to use that hedging technique you can lock in the profit on those cattle. Those are volatile spreads, it's not for everybody but we're starting to see some hope there. Again, if the economy continues to improve then you're going to see more demand for those cuts, particularly the higher end cuts that have been depressed and kind of weighing down on the cattle price.
Pearson: You're one of the few analysts we've got who has a hands on dairyman background. This class 3 milk price, you know what a debacle it's been out there for producers. We've had a lot of the CWT, we've had a lot of cow liquidation that has occurred. When are we going to see this class 3 milk price start to see some kind of sustained rally and where would you expect it to wind up based on what's going on right now?
Brugler: Well, it's hard to put a number on it until you know where it's going to start. I think CWT is going to help, you are taking some cows out of circulation, the government is doing a little bit in terms of commodity buying. Typically your milk production is going to drop off a little bit here. I think, again, it's tied into the general economy too. If you start to see the consumer have a little more jingle, maybe we sell a little bit more ice cream, a little more cheese, butter, those products are going to help drive the recovery. That is not happening yet. I have to be optimistic and think that we're doing things to clean it up but it's probably not time to go out and expand a whole bunch yet.
Pearson: Three to six months do you think?
Brugler: That would be my best bet right now, yes.
Pearson: Alan Brugler, always a pleasure, thank you so much for being with us, we appreciate your insight joining us on Market to Market this week and right here on Market Plus. From all of us here on Market to Market, I'm Mark Pearson. Thanks for being with us. We'll see you next week.