Brugler: Well, Mark, we just put out a four-page report to our subscribers regarding the China situation and one of the things that we focused on was how they got to this point. One of the anomalous situations is they've got all these farmers that are unemployed because they're not making stuff for Wal-Mart right now, back in the major holidays they told them to go home and stay home. Well, you've got to improve farm prices to be able to support those extra residents and there's almost 10 million of them at home for a year. So, they've got a major price support program and they bought a bunch of corn, bunch of rice, a bunch of cotton and they're trying to buy 7.5 million tons of soybeans for the government reserves. They are paying above market prices and in soybean's case 3701 per ton, cash market is only 3500. So, this is different than the U.S. program where we have a loan program that ties up supplies below the market. Well, the point is this artificial demand therefore was requiring a lot of imports so that the local users, the crushers had something to crush because the government has taken all the beans off the market. That worked fine because of the price differential but it's artificial demand, it's a one-time program to fill up these reserves to give them a little buffer stocks so they don't have a food shortage like they experienced last year when world wheat and rice prices got so high. Beans are notoriously hard to store, it looks like to me it would be unlikely that they'd have an equivalent purchase program next year. So, that has implications for new crop soybean demand. It also looks like as you look at the purchases they have made from Brazil and a little bit from Argentina and from us that they probably got their ports about full or fully committed for the summer months, that is four or five million tons a month coming in to be unloaded and shipped to the processors. There's really not a whole lot of room there for them to buy more. We have had from the commerce secretary over there in China a warning to the crushers not to buy many more because they didn't have a place to put them.
Pearson: Whenever I hear you or any analyst talk about artificial demand anywhere in any market it kind of makes my hairs on the back of my neck just twitch a little bit. So, what you're saying is we've frontloaded this demand, tried to fill an artificial need, a reserve, that's going to blunt demand going into 2010 it would appear.
Brugler: Yes, it very possibly could. Getting hard numbers out of China is difficult, there may be something else going on there we don't know. But we do know that it's a one-time, it was done for political reasons internally to support prices, it has caused some complications for their crushers. We have to be nervous that they don't buy any more next year, that they're just rotating inventory if they're doing anything and there is a very real danger that if our prices continue to rise that they'd sell that reserve supply back into the market.
Pearson: Nothing would preclude them from doing that.
Brugler: Right, they've done that in the past with cotton. All of a sudden these millions of bales of cotton come out of government inventories. So, I'm very concerned that, again, we don't have good, hard intelligence that the Chinese are done buying but they're very close to it. Another reason they have been coming to us, of course, is the Argentine crop was smaller than they anticipated, they probably planned to buy more from them than they're getting. Conveniently if you've got a bunch of U.S. dollars that are earning almost zero percent interest it's nice to have something that you need to buy though.
Pearson: As we look at this thing the part that is making me think producers should they be more aggressive stepping up new crop sales do you think?
Brugler: I think your new crop sales ...
Pearson: It's been a good rally.
Brugler: New crop sales are being carried along by the old crop demand from China and if that slows down, if we're right about this being close to the end game here then your new crop is going to drop fairly hard, particularly given the weather scenario where we're expecting more soybean acres. The trade estimate for this report on Tuesday 77.5, 78 million acres, that's about two million more acres than we had back in March from the USDA report and you couple that increased supply, the extra acres with the likelihood of exports being smaller next year than what we're seeing this year that's a bad combination.
Pearson: Extra acres coming from wheat that wasn't planted, replants in the Wheat Belt plus corn may be shifting particularly on that eastern Corn Belt where they're so far behind.
Brugler: That's exactly what it's coming from.
Pearson: So, maybe time to step up those new crop sales at this point in the game, of course, barring a weather market which would take everything else off the table.
Brugler: We don't do everything all at once but it might be time to bump up the percentages, certainly within the next couple of weeks as we see how fast this game is ending.
Pearson: As usual, Alan, appreciate your insights on Market to Market and, of course, right here on Market Plus. For all of us on Market to Market, I'm Mark Pearson. If you'd like to see our show on your local public television station to help communicate what's happening in agriculture in the general population so you can catch the show in its full format on television simply contact your local PBS programmer and say we like Market to Market, we watch it on the Internet, we'd like to be able to get the whole show. Call your local public television programmer and tell them to get Market to Market in your area. For all of us on Market to Market, I'm Mark Pearson. Have a great week.