Brugler: The inflation adjusted, CPI adjusted value of the $12.90 from actually 1973 on the beans was $60.70.
Pearson: That's what beans should be worth today ...
Brugler: If we had the equivalent level of scarcity. Now, remember, we actually got to a negative carry out situation and embargoed exports because we were going to have less than zero beans left. So, that was an unusually tight year. And, again, of course, we don't necessarily have the same supply and demand scenarios that we did back then.
Pearson: That's right partially because of that embargo, Alan, because I'll tell you I was just a child when this happened but you remember what happened because of the fact we embargoed beans particularly to Japan what they did?
Brugler: They funded a lot of development in Brazil and created a secondary source of supply.
Pearson: That's right.
Brugler: And that's a key point, it's not the same scenario. But I'm just saying $11 beans today are not extremely cheap in that context. We've been, relative to the money of the times, we've been a lot higher than this. I'm not saying we have to go to $12 even but we're relatively cheap compared to that historical record.
Pearson: That's an interesting point. That was '73, '74 were those big rally years, really starting in late '72 if I remember right with the sales to the Soviet Union. When you go back and you look at the ethanol demand and this increased middle class worldwide that now has dollars and wants to be fed it's really more of a demand driven market globally, isn't it, today?
Brugler: Yeah, I think Jim Rogers says it best, he argues that we haven't really increased the production capacity for most commodities in the last 20 years. But what we've created is a new class of consumers numbering in the billions if you look at China and India particularly who have got more money to spend on those commodities and so there's a wide range of commodities that we're basically seeing shortages of.
Pearson: We're hearing about the farm bill being debated, we talked about it on the show in Washington and our farm bills have really been about managing over supply in most of my lifetime, most of your lifetime it's about managing over supply. It's interesting to see what kind of a farm bill we come up with in a demand driven era.
Brugler: Yeah and I think that's a very key question. We did some calculations the other day that in 2004 the cash corn revenue breaker including a 43 cent LDP, government support, was in the $325 range. This past year it was $535.
Brugler: So, we're a lot better off without the farm support program, without the government handouts. I think there's a lot of concern in the farming community, though, that if the good times don't last typically we find a way to over produce when we have these high prices or we kill off demand. The point is we go from boom to bust fairly quickly. The concern is if we totally overhaul the farm bill to reflect the current boom then we lose all the support that we need when things are bad.
Pearson: That's right and always a concern when they write a farm bill during good times. Talk about -- so you're not anticipating selling beans at $60 in the coming year but you think we are still too cheap on beans?
Brugler: I think we -- our models say that even using the metric over the last four or five years we could easily see March soybeans at $11.60. Our actual target is $11.94 based on where we were on the first of November and normal seasonal behavior over the winter. Again, there's no guarantees in this business. If the dollar rallies sharply, if crude oil drops $15 and kills the soybean oil market that's not going to happen. But at the present time we think it's a good chance.
Pearson: With these prices for wheat, the spring wheat, are we going to go back to grow a lot of wheat in 2007 at the expense of corn or beans in some of those areas?
Brugler: Well, we're not hearing that. Certainly the wheat market is trying to buy more acres but the Canadian wheat board, for example, indicated that they are thinking a lot more Durham next year, a lot more canola but not a lot more spring wheat. Even at $10 they don't see a real strong balance sheet for growing spring wheat, it's just not as lucrative per acre as some of the other crops that you've got out there. By the way, the 1974 equivalent of $6.45 wheat is $27.34.
Pearson: We've got a long ways to go. Have you got the corn market in your head?
Brugler: $4 corn in 1974 is $16.95 today. This is using CPI.
Pearson: Using CPI going forward.
Brugler: You can get a little bit lower numbers using GDP. But, still, the point is compared to what was going on during that boom time, which we remember as a boom time, we're fairly cheap right now.
Pearson: That's right. Interesting as usual. Alan Brugler, we appreciate your insights on what you see ahead in these markets. I want to thank all of you for joining us here at our market plus Web site. From all of us here on Market to Market, I'm Mark Pearson, thanks for joining us and have a great week.