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Market Plus: Apr 03, 2009: Alan Brugler, Market Analyst

posted on April 3, 2009

Market Plus: Apr 03, 2009: Alan Brugler, Market Analyst Pearson: Welcome to the Friday, April 3rd, 2009 version of Market Plus here at our Market to Market Web site. We're glad you've joined us. Invite your friends and neighbors to join us here as well. And if you're just joining us on the Internet and you'd like to catch Market to Market on your local public television station just call your local public television programmer and say could we get Market to Market and I'm sure they'll work to make that happen. With us this week Alan Brugler, one of our regular market analysts. Alan, you alluded to it and I want to talk more in this segment about what you talked about on the show about financial markets starting to improve, getting a little bit of a move up, almost a 25% recovery in the Dow this last week. There's a lot of people wondering about some other factors though, a lot of government spending, a lot of concern about -- a lot of us remember the 70s and the early 80s and we remember what inflation was like and the thought of it rearing its ugly head again going forward.

Brugler: Well, we're definitely getting a subtheme or an undercurrent of that because the numbers are boggling, the trillion dollar type spending programs and you hear the hyperinflation talk but what we have to remember is the reason we're doing it is we had a massive slowdown, we had a very deflationary scenario developing with the collapsing in housing prices, the deleveraging, a lot of these banking instruments were leveraged which creates money essentially and as those are unwound we're shrinking the pile. So, first of all, I don't think it's probably as inflationary as is being spun but the other thing we have to remember is that we do have the mechanism to eliminate inflation and that is raising interest rates, it's drawing up liquidity, the fed learned in the 80s how to do that. Mr. Volker was the chairman of the fed at the time, he's an advisor to Obama right now, I think he's probably whispering in his ear it's okay to inflate now because we know how to slow it down. In my opinion it has some potential bullish aspects for the ag industry because when you have a little inflation prices of commodities or price in dollar terms go up and I think the fed and the other powers will probably allow the inflation to run for a few months to make sure that they have killed this deflationary dragon.

Pearson: That's right and the deflation is what they fear the most. That's what we had in the Depression and we don't want to go through that again.

Brugler: That's a depression scenario.

Pearson: So, all this money that's being pumped in, the longer term scenarios about where they're going to make the savings and make the cuts are also I suppose going to come into play but at this stage of the game when I talk to a lot of agricultural producers I haven't talked to one of them who has had a problem getting credit. It seems like in the agricultural countryside, the agricultural sector at this point -- tell me if this is not correct -- there seems to be plenty of liquidity for these ag banks.

Brugler: I think we're generally in pretty good shape. The banks are in pretty good shape. The only problems I've heard are producers that were so large that they were borrowing from the big money center banks and their problems are well documented and in some cases they have had to restructure and go back to a regional bank to get some money. But our balance sheets are the best they've been in 20 some years in agriculture as a whole so there's less borrowing that needs to be done, we do appear to have the credit available.

Pearson: In the 70s when we had that runaway inflation before the fed, like you pointed out, did figure out how to beat it and we saw strengthening land prices, we saw agricultural commodities that were in very high demand. Could we see a short-term scenario like this? You also talked briefly on fed cattle, what you see for the second half of the year as this market recovers and hopefully people start eating out more, maybe those credit card lines go back up, whatever it takes to see that business start to pick back up, that would be one small part of where this could all play into the positive side for producers.

Brugler: Again, in an inflationary scenario you've got too much money chasing too few goods. In the livestock sector in particular we've cut down the production of goods, our chick placements, our broiler placements are down six to eight to ten percent by week, your hogs and pigs report showed your inventories down about three percent, your farrowing intentions which is your future production are currently down about three percent and as I alluded on the show the cattle numbers are down also. So, we've got less supply in the pipeline of all these meats. If the demand is improved via inflation or a better economy, one or the other, you probably are going to see a price push because the production won't be there and it takes a while to build a steer.

Pearson: That's true. You mentioned the cheap dollar being a factor and that is the big summit over in London they were talking about that issue. But as we look at the cheap dollar, which has really been wind in our sails in agriculture in the last couple of years, we kept hearing about how the dollar was strengthening and how that's a long-term move. Maybe it is going to start to weaken, maybe we won't see much added strength. What is your take on that?

Brugler: Well, the dollar is a very trending instrument. When it goes somewhere it tends to keep going for a while. I think what we're doing policy wise should weaken the dollar. The reason it hasn't really to this point is that other countries have had worse problems and the dollar is so safe haven. Return of principal is more important than return on principal. So, people parked money in the dollar. The Chinese are a good example. They have complained about what we're doing policy wise that could potentially weaken the dollar but they have chosen to keep their investments in dollars. They haven't moved it to rubles or some other currency.

Pearson: All right, so going forward some very positive things I think underpinning our agricultural markets, not just the fundamentals as we look at it in terms of production and supply but some other things. I really appreciate you bringing them out, Alan, thank you so much.

Brugler: My pleasure.

Pearson: That's going to wrap up this edition of Market Plus. We're so glad you've joined us. Again, if you'd like to see us on your local public television station, not just here on the Internet, by all means contact your local public television programmer. And for Alan Brugler and for all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news