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Market Plus: Sep 05, 2008: Alan Brugler, Market Analyst

posted on September 5, 2008

Market Plus: Sep 05, 2008: Alan Brugler, Market Analyst Pearson: Welcome to the Friday, September 5th, 2008 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. With us this week Alan Brugler, one of our regular market analysts. Alan, we talked beans on the show, there were a couple of things that we left hanging that I wanted to ask you about. And, of course, it's going to be interesting to see -- you said winter wheat is going to play a part -- this acreage battle is going to start picking back up again and it's going to start with how late these beans are, how much of the winter wheat we're going to get harvested so there's a lot of variables out there. But cost of production is one thing we didn't get to on the show tonight that I want to talk about. And I've talked to some farmers in four different states and they have penciled in for me based on today's numbers that they're looking at a 470 to 475 break even on corn, they're looking at up to $5.06 on corn and close to $9 on soybeans for next year. Those are pretty scary input cost numbers for producers. And you've been really good about locking in profits out in 2009 and locking in some prices for next year. Should we be stepping that up on rallies to kind of get covered for those kinds of increases this year?

Brugler: I think you have to if you're committing to those inputs. If you're a supplier saying you've got to pre-pay for that fertilizer, that $1200 ...

Pearson: That's to get that price.

Brugler: Be sure and have it and you're committing to that you cannot afford to go totally naked on your selling price in this environment. Now, as prices come down for many of these commodities you might ultimately see a cheaper fertilizer price somewhere down the road but you don't know that today. And if you're committing today you've got to do some hedging. The biggest concern that I hear is just the total amount of money you've got to borrow to grow corn. You can still make money at $4.75 cost of production at current futures with a 50 cent basis but it's starting to get down towards zero. But the biggest concern is yeah maybe I can make a little more money with corn but I've got to borrow three times as much money and do I have that price locked in? And I think at some point the market is going to have to send a little stronger signal to produce corn if we're going to support these ethanol plants in the export program.

Pearson: The demand for next year, the acreage battle starts again. I want to talk about soybeans, same thing. Soybeans, '09 sales? I know you were pretty aggressive all the way along and have been throughout the summer on making some sales and including some for next year. What about people who haven't done that?

Brugler: I think you're now kind of looking for some kind of evidence of a harvest low or at least a reaction rally coming out of the USDA reports on the 12th maybe. We're starting to get oversold technically. As we come into that report that might give the market a chance to rally back a little bit. I don't want to get real heavily sold on '09 just from the standpoint of we know that ending stocks are tight and there is an acreage battle developing. But my concern is if you're taking the speculative premiums out and you have to base that rally in a market that doesn't have them you don't get a whole lot higher than where you're at. We like selling beans in the teens and in hindsight we probably could have sold 100% of 2009 and then just lift them later. I am definitely liking being in futures or options rather than cash because I'm not locked into a permanent sale. If the environment changes and we get a little more inflationary or whatever I'd get back out of it.

Pearson: That's the kind of scenario you'd look at if you're talking to producers. Is there much cash forward contracting for '09? Are you seeing or hearing much of that at all?

Brugler: Very little available. There's some first quarter of '09 but, of course, that's '08 crop plus carry. Ethanol plants in some cases are going a little further out on forward sales for corn. But it's very difficult to find a fall of '09 price. As the board drops it becomes a little easier because it frees up capital at the elevator end. But so far I'm not hearing of too many that are interested in doing those long-term bookings.

Pearson: On the show you talked about this dramatic drop we've had in crude oil prices and impacting soybean oil and really all the ag futures that are now seen as energy. Give me a forecast. I know you're not a crude oil guru but I know you're sitting there with a lot of producers who are concerned about what fuel costs are going to look like next year and we talked about those higher input costs. What do you see globally from production? Obviously so many things impacted, geopolitical issues and so forth. But what are you kind of targeting for crude oil for the coming year?

Brugler: Well, again, it's a very difficult scenario to project because a lot of that oil production is in unfriendly nations, in others like Georgia the pipelines are going through a contested area right now. I think left to its own devices i.e. the speculative elements coming out of it you could still see crude go down to $80. We've heard rumors the Saudis and so forth would like to keep it around $100 now that they've kind of gotten used to that price.

Pearson: I feel the same way about $16 beans.

Brugler: Let's keep those up too. From a hedging standpoint we're not doing anything substantial in heating oil or in fertilizer right now. We're kind of letting the market come down. I have recommended for guys who need diesel for combines on this last break we bought some. But the discretionary part, the fuel towards the end of harvest or part of spring we haven't done yet.

Pearson: Always some good ideas Alan, we appreciate it. Alan Brugler joining us this week on Market to Market and, of course, right here on Market Plus. Be sure to tell your friends and neighbors to come and visit our Web site here. From all of us here on Market to Market for Alan Brugler I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news