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Market Plus: Nov 28, 2008: Jamey Kohake, Market analyst

posted on November 28, 2008

Market Plus: Nov 28, 2008: Jamey Kohake, Market analyst Pearson: This is the Friday, November 28th, 2008 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. Tell your friends and neighbors to join us here as well. And if you live in an area where Market to Market is not televised on your public television station be sure to contact your public television station locally to see about airing Market to Market on their local programs. Jamey Kohake is with us this week, one of our regular market analysts. Jamey, always good to have you with us. I want to talk about corn and cattle. You talk to a lot of feedlots, you're down in Kansas, a lot of cattle feeding going on down there so I want to hear that side of it. But first I want to come back to this corn market. A lot of concern out there with what's happening with ethanol. It seems like every time the ethanol people turn around somebody is out slapping them down. We had the oil patch first and then we had the governor of the oil patch, the governor of Texas taking them on and then we had big food interests taking them on and now the Indy racing league has said we're going to use Brazilian ethanol which brings up the whole WTO issue and everything else right in producer's backyards. So, producers are very concerned. The bankruptcy of VeraSun which was a big operation has many people afraid. It affected 5600 farmers just in Iowa. So, there's a lot of concern out there about where that industry is headed. As a guy who watches this all the time what are you hearing and what are you seeing?

Kohake: I'm hearing the same news that you are with VeraSun going pretty much broke. The key in here with the ethanol and with the acres is going to be the carryout. Part of that get the dollar pulled back, start moving more grain overseas and maybe have more room for a little bit of margin of error with the ethanol but I completely agree, it's going to be a very critical, tight, tight situation in here. What type of mandates are going to be in effect for next year from the government? There's speculation Obama is going to raise it by a half to one percent if that helps out or not but the demand is going to be the key and not having all this corn laying all over the country.

Pearson: That's right and also the other issue that you talked about on the show which I think is also important is we've got a lot more acres coming on next year too. We took about a million and a quarter acres out of the CRP in October.

Kohake: Yeah, that's right and just the last acreage report by Informa they're showing 900,000 more than last year. I don't agree with that but there is talk of more acres, another half a million to million with the CRP it's going to be a very, very tricky situation and it all goes back to demand and getting this carryout down to where there is a margin of error with the ethanol.

Pearson: I want to mention that we're taping our show, we're producing the show on Wednesday before Thanksgiving as opposed to Friday so we have been talking through Wednesday as far as commodity prices are concerned. The fed cattle market had a bump up this week. Good news. It's been on a down swing. You talked on the show about the relationship almost step for step between fed cattle and what happens with the Dow, that ties back to consumer confidence and so forth. You can get a seat at about any steakhouse you want to on about any night of the week because of where this economy has been and that is no doubt having an impact on fed cattle prices. But we are also talking about a very small cow herd. Jamey, we just keep reducing numbers.

Kohake: Right, pretty much the highest we've seen in the last six years. We look at a chart and it goes back to the Dow, another key area we look at too is retracements. The live cattle board has retraced 38% of its losses and 50% retracement would put us at just a little over 90 and that's right near I talked on the show about selling 92, 93 cent cattle in that area. The supplies are very, very tight in here. One bullish factor could be ice storms, snow blizzard out west and get it up to 95, 97 maybe right now but I just don't see the funds getting too active in here and too wild with it until the Dow would maybe go back and hold 8700 or hold 9000 on a close or we see a foot of snow for a week out west.

Pearson: So, maybe look for a weather bump maybe for an opportunity to move some cattle. But that's always usually a tough time to actually make things happen as you know but that may be the rally that we need. If the economy turns and we see things start to perk back up again, we see the Dow start to recover you'd feel a lot better about fed cattle?

Kohake: Oh yeah, then I think you go back into buying breaks instead of selling rallies where I'm at right now and you go back and you buy -- every time we break 90 cents you'd buy and get long kind of like the Dow, you break 8000 and you get long.

Pearson: So, producers out there they need to heed these things, keep these things in mind. Ethanol, again, that could be the wild card for 2009. Hopefully we'll be using 4 billion bushel of corn, at least keeping demand in there. If that goes away we could see a lot of pressure but big news, positive news if you're in the livestock front.

Kohake: Yeah, that is right. Tighter numbers and going back to your previous statement there you look at the usage number for ethanol, you look at the usage number for the cattle. If we had six, seven percent less cattle than we had last year there is another bearish area too if we don't get the exports picked up it's going to be hard to get a big, heavy rally in corn.

Pearson: But you think we've got enough of a chance here to move that '09 Dec. corn contract around $4.65 and make sales there.

Kohake: Exactly.

Pearson: Jamey, as usual some great insights, always good to have you with us. Jamey Kohake with us this week on Market to Market and, of course, right here on Market Plus. Again, this was produced on Wednesday before Thanksgiving, we have a holiday shortened week on Market to Market every year and that is the case this year again. If you enjoy Market to Market and you enjoy us on our Web site I think you'd really enjoy us on your local public television station so make sure you talk to your local public television station about airing Market to Market. From all of us here on Market to Market, I'm Mark Pearson. Have a great holiday weekend. See you next week.

Tags: agriculture commodity prices markets news