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Market Plus: Jul 24, 2009: Virgil Robinson and Walt Hackney

posted on July 24, 2009


Market Plus: Jul 24, 2009: Virgil Robinson and Walt Hackney Pearson: Welcome to the July 24, 2009 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. If you enjoy our presentation on the Internet you'll really like seeing our show live every week on your local public television station. Take the time this week if you find this information worthwhile to contact your local program director and tell them to please run Market to Market on your local PBS station. Time is of the essence. It's always true in the livestock business. With us this week is Walt Hackney. Virgil Robinson is here too. We didn't get to talk about feeder cattle on the show.

Hackney: It's true but we didn't have necessarily time but the feeder industry very possibly is the most active cattle industry that we've got today in operation. We are just now breaking into the cow calf units in the western states for October/November delivery off of the cows. Keep in mind a year ago we were looking at $7 or $8 corn, we were looking at $4 a gallon fuel in these trucks to transport the cattle. This year as a comparison we're looking at potential $3 on-farm corn, we're looking at $2.50 to $2.75 a gallon on the freight, we're looking at substantial savings in respect for the cattle buying public that are say here in the Midwest or in the feeding areas. The point that is being suffered most as we speak but still on the brink of making money is the rancher. A year ago he was taking calves that were bought at $1.15 to $1.18 a hundred weight weighing 600 pounds, today $1.25 or $1.50 is the market on those calves. There's been a substantial cash flow drop for the rancher but the fact is those cattle have got a very good workable term in front of them with a 60 cent gain cost in the Corn Belt with the corn price as it is and the savings on fuel and so forth. So, it's very obvious that the feeder industry today is actually in the best liquidity shape of any of our livestock markets.

Pearson: We've got very small numbers. You think they're smaller than what USDA's cattle inventory report reported?

Hackney: I think the cattle inventory report missed the base a country mile and I don't know that that will be supported until this calf crop is taken away in October/November which in fact then will be too late for the rancher but I think that the liquidation in the culling process of cows last fall and the ranch country was more like four to five percent in the worst, possibly as high as ten percent in the Virginia country where the severe drought was, in south Texas where the severe drought was, is, I think that combination is going to give us a four to five percent fewer cattle in the inventory.

Pearson: We keep eating this factory, Walt. Are we going to start holding the heifers back at any point again and building the cow herd?

Hackney: You'll see some of that now. As we speak I have some people who make a profession out of replacement heifers. They're asking me to save for them --out of the highest genetic herds in the western area that I buy from -- they're asking me to save for them a percentage of these heifer calves that they can bring on as replacements and AI, grow them at home and then market them bred probably weighing 1200 pounds a year from now.

Pearson: As a bred heifer.

Hackney: Yes.

Pearson: Okay, so with that maybe we will start to finally see some rebuild to this cattle herd. It's going to be a smaller herd than what we think the USDA is reporting which is not uncommon for them to miss that. And as you pointed out on the show a lot of dairy cows aren't around any more.

Hackney: That's exactly right and the dairy liquidation has been severe, nearly like our hog industry is and many of the mega-dairies are in fact vacant today as a result of bankruptcy and total liquidation of the cows. They're not saving the young cows and culling the old cows and so forth, they are liquidating the whole dairy cow herd. There will come a time in the beef industry, it will probably take three years before we'll get back to any degree of satisfying the feeding capacity that we have for cattle. In the dairy it will recover somewhat quicker but it will still take two years at a minimum and there's so many of the independent dairymen that won't be here because of bankruptcies and that sort of thing.

Pearson: Actually exiting the business, throwing in the towel. All right, let's talk on the other side, Virgil Robinson, Walt alluded to the fact the input costs are a lot better on the grain side than what we were dealing with in 2008 with those phenomenal corn and bean prices. You talk about delivering $3 corn or less, a lot of producers looking at the input costs that we're still dealing with this year and aren't making any money.

Robinson: No, prices have dropped below cost of production in most geographies so as we spoke too briefly earlier in the program this will be a year where storage demands a premium and for those that do have on-farm space there will be opportunities for those people to improve upon prevailing cash prices if they understand the mechanics of how to use that space. You must capture that carry by traditionally establishing a short hedge, in this instance, for example, either the May or July 2010 futures contracts and there wherewithal and the ability to retain that inventory, keep it in quality and then await the narrowing of the basis which is a local phenomenon and traditionally occurs during planting time or thereabouts before attaching a basis in price on that grain. That will enhance cash prices by significant amounts versus what is available for fall delivery provided you have that space and working capital.

Pearson: Virgil, help me out here, we've got a crop that is late and we've got a season that's been cool. I've heard from a lot of producers they're really concerned this year what that frost time is going to look like, it might not come until October and that is typically a frost date for a big portion of the Corn Belt. Will we see that as an opportunity maybe to get some additional sales? Could that be something, a premium of some kind that's going to be sitting in there?

Robinson: It could and the circumstances you have defined there while not in general there will be select areas that fall under those circumstances and clearly it's going to require an elongated growing season much like we experienced last year to optimize yields. So, that's a factor that the market has addressed but because to this point things have been so ideal, particularly in the western part of the Corn Belt, I think it's just trumped that concern. Will it surface? Well, certainly it could as we're about to historically have one of the coolest July's on record here in the state of Iowa, very unusual, begs the question, what will August bring down the pipe and right now extended forecasts are talking about much the same type of pattern. So, clearly any perception or threat of an early frost would be capable of spiking prices higher for prevailing values.

Pearson: Real quick, what kind of a number do you think, a national average yield are you pegging at this point?

Robinson: Well, I'll refrain from using my model because it is assumedly proprietary but the University of Illinois released some data just this week addressing that very subject and they did peg both corn and soybean yield, national yields I believe at 161 and a fraction and 44.5 or something of that nature in soybeans. So, again, if you pencil those numbers into USDA's last harvested acre factor you're talking about big numbers.

Pearson: No question about it. Virgil, thank you so much, Virgil Robinson. Walt Hackney, good to have you with us again. Thank all of you for joining us here on the Internet on Market to Market's Market Plus space here. Call your local public television director and say you want Market to Market on your local public television station. For all of us on Market to Market, I'm Mark Pearson, have a great week.


Tags: agriculture commodity prices markets news