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Market Plus: Nov 21, 2008: Alan Brugler

posted on November 21, 2008


Market Plus: Nov 21, 2008: Alan Brugler Pearson: This is the Friday, November 21st, 2008 version of Market Plus. Mark Pearson here, glad you've joined us. Alan Brugler, one of our regular market analysts, joining us this week. It's always good to get Alan's insight. Alan, there's so many negatives right now. We've got people arguing about biofuels out in Washington, D.C., we've got the Indy racing league now has picked Brazilian ethanol to power their racecars. Producers I have talked to this week are just kind of down. Corn is down in the $3 zone. What is happening out there as a producer that maybe we should be thinking about in terms of big picture and a little bit longer term particularly with trade and overseas, China for instance?

Brugler: Well, I think that's a good one to focus on. The soybean export program has actually been pretty good. In fact, as a percentage of a year ago we're running ahead on soybean export sales. China is a big part of that, perhaps a little too big of a piece of it. But Chinese demand for soybeans continues to be pretty good. I think as we look at China we need to look at what's going on over there. They are buying soybeans from the farmers at above market prices to encourage production, to make sure farmers are getting enough income from soybeans because otherwise they're all going to plant corn next year or cotton or something else. They're buying at above market rates but what that's done is it's created a huge gap between the local price and the U.S. prices for imported beans. So, they have come to the U.S. with a very large import program, over 700,000 tons last week. Three weeks ago they had one that was even larger than that. So, that is one of the positives. Ocean freight has dropped considerably that makes us very competitive in China for soybean exports. We've got the market pretty much to ourselves still. March you're seeing some competition out of South America but I think that's one of the positives. The negative, of course, is crush has slowed down a little bit, we're not using as much here, we need to use up more of that soybean oil for biodiesel, which is happening by the way.

Pearson: They're coming back on ...

Brugler: Right, soybean oil has come down even though diesel has even come down somewhat. Soybean oil is competitive again for biofuels. So, that is a positive as well. I think that we've just got to maintain a little focus and keep it in perspective what that price level is. Can you make money at $8 or $9 soybeans? Most of the budgets I look at they still look pretty good at that price. Make your plans, say okay I'm going to lock in my inputs, I'm going to lock in my selling price to the degree that I can and hope that the Chinese just absorb all of it and they get a much higher price. We don't want to lose track of the fact that the crop revenue insurance type products have really paid off too here because of the big price decline. That makes that bottom line look a little better than what people are assuming if they're just looking at the board price.

Pearson: Alan, the other thing you talked about on the show that I wanted you to expand on a little bit is we were talking about the strengthening dollar and the impact that has but the dollar is coming up from some extreme lows here too so some of our trading partners still we don't look all that out of whack and you mentioned ocean freight and some of these other things that are kind of helping keep us competitive. What about on the livestock front? These cattle and hog people could sure use a dose of good news.

Brugler: Well, we got a nice combination of things last summer, kind of a perfect storm, if you will, in that you had the Chinese building up for the Olympics, you had the Sichuan earthquake which damaged some of their hog production, you had the very weak dollar not so much against the Chinese won because that is a controlled exchange rate but we saw tremendous increases and all-time record exports for pork. That is still a success story, it's still growing every year, it's just that we have some seasonal drop offs. Actually beef exports are pretty good right now. While the dollar has gone up it's still historically, as you mentioned, fairly cheap and we've got the South Korean market opened up now and that is helping. So, while the weaker dollar would help it's really better if you could compete without having to rely on a discounted currency to do it because you pay a price for that. In theory it's inflationary although if you're in a recession it's not. So, something else to consider.

Pearson: So, as we look out there, as we look going forward and you mentioned the cattle on feed report which came out Friday was fairly friendly to the cattle market, that might be a catalyst here.

Brugler: Yeah, it could help us a little bit. Again, tighter numbers on feed partly because of credit, partly because of feed, partly because of whatever. But that is supportive if we can maintain the demand. What we really need now is we need the U.S. consumer to pick up their end of the deal, per capita consumption estimates are down but with the gasoline price dropping there should be a little more jingle in the pocket and food is an easy expenditure if you have that extra $10 or $20.

Pearson: Absolutely and certainly lower crude oil. You mentioned input costs on the show as well, higher input costs. Crude oil is breaking, are we going to start to see some of the particularly nitrogen products start to drop off some?

Brugler: Yeah, actually at the wholesale level you're seeing it. Anhydrous is down almost 50% at the wholesale level. What we've got is a little problem where the dealers, the intermediaries bought a bunch of product at higher prices, the farmer because the corn price has come down and so forth hasn't bought all the material. We need to come up with some kind of blended average price to get everybody happy here but that takes a market share assumption and some people aren't willing to do that yet.

Pearson: Pot ash phosphate relatively strong still, right?

Brugler: Yeah, a little bit of weakness there but not nearly as much, you get the threats that it's going to be shipped to China and India but then when you talk to those guys they say, well, we're not going to use as much this year.

Pearson: At least some good news on the input side too. Appreciate it, Alan, as usual great insights. Alan Brugler joining us here on Market Plus. Thank you for joining us. Tell your friends and neighbors to be a part of this right here at our Market to Market Web site. From all of us at Market to Market, I'm Mark Pearson. Have a great week.


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