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Market Plus: Jun 26, 2009: Alan Brugler, market analyst

posted on June 26, 2009

Market Plus: Jun 26, 2009: Alan Brugler, market analyst

Pearson: This is a Friday, June 26, 2009 version of a Market Plus. We're glad you've joined us here at our Market to Market website. Quick reminder if you'd like to catch our show live on your local public television station, call you're local public television Program Director and say "Hey, we want to see Market to Market every week," and I'll bet you they'll get it for you.

Alan Brugler with us this week. One of the regular Market Analysts and Al there's several things-- we've got a big report in acreage which we talked about in depth during the show. You gave us your numbers and hopefully those numbers are where the trade is going to go, but if the number could be, like you say, there was some controversy and I hate to use that word because I think the media overuses it, of that 7.5 billion acres that we had in the planting intentions report in March and that caused a lot of confusion. So, a lot of people are wondering just how this thing is going to shake out. So, that's going to be interesting.

But there's another big report and that's the grain stock report which will also come out the same time. This could be critical. What's your take and what's your outlook for the grain stocks report?

Brugler:: Well, the key thing we're watching in that grain stocks report is soybean stocks as of June 1 because as you know USDA is projecting only a hundred and ten million bushels for the year and in soybeans which will be September 1, but we'll be able to tell how close we're coming to that track with this June 1 number. You know essentially we're looking for 586 to 600 million bushels as of June 1, and if it's a little bigger number than that, that suggest that residual use is not as big as USDA has got in their hopper or that we're getting a little better crush yield or various other implications. If on the other hand it's only say 570 million bushels then we still have more rationing to do. Prices will probably have to go higher because we really have to put the breaks on in the fourth quarter.

Pearson: And this whole concept of potentially running out of soybeans with this crop here. We've been through this one before. It doesn't ever happen but it's a cause for concern especially if the beans aren't in the right place.

Brugler:: Right. In theory that 110 million bushels is pipeline supply and that's just the beans that are moving around the country in trains and barges and in the bottom of people's bins. Just not where they need to be. So, you really can't go much below that and the way you solve it is you cause crushers to shut down, take early maintenance in August, you cause the Chinese to decide not to ship some of their beans which by the way is happening. They've cancelled half a dozen cargos now or deferred them to new crop. You basically have to send signals to slow down the demand side. The other thing is you want to send signals to southern producers who happen to be close to the Gulf that if they have any beans that are mature in August get them on a barge, load them on a truck, we want them right now because that becomes new supply. And so the market is doing its job of making sure we get to that point where the new crop hits.

Pearson: So, soybean numbers are very critical because the tightness of supply. What about corn?

Brugler:: Well, corn is a little different situation in that we think it's probably going to be 4.19/4.2 billion bushels give or take on June 1, but that one drives two major calculations for USDA. It drives their feed use estimate and to a degree it can modify their food, seed industrial side, and they basically don't make a change in their feed use number in the June report until they get this grain stocks number. Right now with so much byproduct being taken out of the ethanol plants DDGs, Corn Gluten Feed, Corn Gluten Meal -- a lot of that works back into the ration instead of corn. So, USDA is having a difficult time measuring exactly how much whole corn is being fed to livestock, and this report by telling us what's left, what wasn't fed, helps us narrow down that calculation. We know margins aren't very good for livestock producers. We know they're cutting back on numbers. Chick placement is down six percent and so forth, but this puts a hard number on how much feed use we've actually cut.

Pearson: Alright and of course the hog number was also an interesting one. The hogs and pigs number reductions there are also going curve. That's going to play into the USDA's feed usage number. We got some big issues coming up in that next report which are going to be critical because and I want you to comment on this and everyone that's been on the show here lately -- all the analysts are saying you know what we're setting ourselves up here for a protein shortage when we get into the end of 2010. Reduce cattle numbers, reduce calf numbers, breeding herd shrinking on hogs. You mentioned the poultry number which can ramp up fairly quick thanks to bio-logics of poultry, but maybe even class three milk could see quite a bounce with the dairy herd liquidation.

Brugler:: That's the key really is if you have the reductions which we're getting and you have the economy recover and demand starts to pick back up we can't expand particularly the cattle and hogs that quickly just because of the biology involved. So, you do create an opportunity for a big price surge there in 2010 we'll say or perhaps 2011. If you're in the business you're trying to hold on until we get to that magical point. The problem is of course that some guys will need it to happen faster than it happens and that becomes the real tricky part of the equation is not loosing too many of the sows. Not loosing too many of the cows out in the -- that are producing all of our next round of feeder cows. So, the market has to give you some price signals and we've seen that on occasion here where the hog features of April 2010, the June 2010 have tried to rally here on occasion because people betting on the need for more hogs in that time period.

Pearson: Alan as usual we appreciate your insights. Thanks for being with us. Alan Brugler our Market Analyst this week on Market to Market of course here on Market Plus.

For 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