Robinson: Well, there is a relationship between the two and in terms of a little background, Dean, this week the EIA predicted that within the next two decades ...
Borg: The EIA is?
Robinson: Energy Information Administration, a division of the Department of Energy -- projected that energy demand would grow by 50% within the next two decades in combination with various other statements by people you alluded to earlier in the show regarding the price of crude oil. So, when you combine that with the reality that we do have a number of emerging economies growing in population, growing in affluence, the demand for fossil fuels as we know it today is just short of phenomenal and that, of course, is underpinning the rise in crude oil prices. Now, the relationship between crude and corn and/or ethanol, soybeans, soybean oil and biodiesel is one that's been talked about on the show a number of times. So, clearly it has been a factor in the rise of commodity prices.
Borg: Usually -- energy is a price of expense for growers -- usually the grower isn't reimbursed for increased production costs. But grain prices are high right now and so it seems that the energy is being factored in there.
Robinson: I think to some extent -- there are other derivatives of energy, natural gas, fertilizer, all of those components, of course, are rising in addition to the fuel base that you have alluded to. So, those variable costs have been escalating in unison and, of course, are contributing to the high costs of production looking forward.
Borg: And Walt Hackney, energy prices also have a relationship in livestock prices, hog production particularly with the units for heating and cooling those units and also in cattle production too?
Hackney: Absolutely, you have the proportionate increase in operational costs that relate to fuel and those fuel related implements and so forth in the cattle feeding industry. Our cost to gain on cattle a year ago today, if you will, as we speak was around 50 to 55 cents a pound for gain costs in cattle. Today as a result of corn increases and fuel cost increases it's near $1.10 a pound. So, that's the proportionate damage that's been done in the industry. What we're looking at in this whole scenario, what we're looking at is where is the cut off of the continued raises in corn value and the refusal of the cattle feeder or hog producer to buy feeder pigs or buy feeder cattle.
Borg: How is that affecting the cattle feeder market?
Hackney: It tended this week -- we were bumping $1 a pound for gain costs up until this week when corn made that roughly speaking but 33 I think Virgil said cent raise per bushel. That put cost of gain in cattle up to about $1.10. That caused a freeze to an extent of the interest in buying feeder cattle. The producer just simply can't afford that.
Borg: But going into the next few weeks, next few months do you foresee a continuation of the same?
Hackney: I think that as we related earlier in the show tonight I think the availability of feeder cattle is going to be somewhat limited. If we had a reversal of that and had an extraordinary amount of feeder cattle coming at us in the latter summer off grass and out of the cow herds as calves in October/November I think that then we would see a proportionate severe drop in the value of feeder cattle. But now the availability of those feeder cattle is so limited and will continue to be limited with the cow herd down probably two, possibly three percent as subsequently the amount of calves available will be down that much. So, what we have is the corporate feedlots who have to have these cattle to supply packing plants that they are partners with, they are going to become aggressive buyers of feeder cattle regardless of where corn values go.
Borg: Virgil, I have a final question for you. Volatility in the grain market for the foreseeable future or is there going to be some stabilization here as we get by the time that you can replant?
Robinson: I think with the potential inputs from Washington and the ground soil that's been created globally price volatility likely to remain exceptionally high, Dean, for the foreseeable future.
Borg: Thanks to Virgil Robinson and Walt Hackney. This is the Friday, June 27th edition of Market Plus.