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Market Plus: Nov 09, 2007: Walt Hackney and Doug Jackson discuss the markets.

posted on November 9, 2007

Market Plus: Nov 09, 2007: Walt Hackney and Doug Jackson discuss the markets. Pearson: This is our Friday, November 9, 2007 version of Market Plus. We're so glad you joined us here at our Market to Market web site. Be sure to tell your friends and neighbors. With us tonight are two of our senior market analysts Doug Jackson and Walt Hackney. We started off with Doug on the show so Walt I'm going to start with you on MarketPlus. I want to come back to this cattle market and I want you to talk about some hedging opportunities. Also, I want you to address, what are seeing for this heifer-steer ratio. Are we continuing to eat the factory in the cattle business? Do you think we'll continue to see any expansion this year?

Hackney: I think one possibly two percent expansion is sure possible. There's one prohibitor in that and that is the extremely dry condition of the Western states. They're going to try to liquidate. They cannot sustain the price of production out there on those dried out, droughty areas of the western range. So that will be a factor that will enter in as to how much liquidation we've had of the cattle heard. However, there has been a pick-up, if you will, of the replacement quality heifer calves this year, possibly compared to a year ago. And in that regard, there are many of those ranchers that are gonna support a reduction in their older cows by brining in and sustaining extra heifer calves in their count.

Pearson: Alright. So, maybe 1 percent maybe 2. Alright. Walter, right now, when you look at what you can do on paper and you're feeding cattle right now, do you think there are some opportunities right now?

Hackney: Well, there certainly are. We've had a real reduction in the price of calves. Not so much of a proportionate reduction in yearling cattle. As a result, some of these heavier six-weight calves have got a real opportunity for a spring hedge, maybe a late winter hedge, maybe a buck eight, somewhere in there and that will, at the current price of the feeder calf, that is going to allow some nice profits in there, if the producer would choose to take advantage of that market. He hasn't had the opportunity for probably two or three years. This year, for possibly the first time, we've had enough of a drop in the price in the calf market to allow those calves to come off those growing yards at a nice hedge and maybe a lower break even than what they expected.

Pearson: Alright, so a good one to take advantage of. Do you see anything else out there for the cattle feeder? What about the cow-calf guy?

Hackney: Well, the cow-calf guy has had a real run for the past four to five years in regard to his cash flow. This year, he got hit just a little. Not because of the calves but because of the weaning weights. They were light enough, compared to a year ago, 30, 40 50 pounds, in some extreme cases up to 80 pounds lighter than a year ago, due to the bad, droughty condition of the summer. But in regard to that then, the cow-calf operator is gonna pretty well sustain what he's doing, he's working hard to improve genetics and that's probably going to give him more dividends than the market.

Pearson: Alright, good points as usual Walter. Doug Jackson, you talked a lot about the acreage battle we're going into this winter. It's going to be another winter of discontent; another winter of great volatility in agricultural futures.

Jackson: That's right, Mark. In the aftermath of this market report, we will immediately turn and focus on nothing but this acreage issue all winter. And the market could be very explosive as we approach the January, and particularly February, private acreage estimates, of course, ahead of the government report in March. And this debate about whether or not we have enough acres, on how we allocate these acres next year, will be a hotly debated issue all winter. How much acreage is going to switch back to beans after we've had a fifteen million acre increase in corn acreage last year? The bean-corn ratio has realigned back to normal levels but not at excessive levels in relation to beans. Fertilizer costs are a lot higher. And so the trade has all kinds of wide ranging ideas on this acreage switch idea. But right now, the market pricing in something like maybe a four or five or six million acres switch, which is simply not enough, Mark.

My fears are that you could come into some of these private reports, or the March acreage report from the government, and only have maybe have only five, six, seven million acres indicated into a switch to beans, and the market, the bean market, would just all of a sudden wake up to the fact that your dealing with a zero carry-out and must desperately move then, in a last minute effort to buy several million more bean acres.

Now, we don't want to overlook the fact that we have more soft-red winter wheat acres being planted and those are subject to being double cropped. We could add about three million more acres of beans with double cropped wheat acres and not be outside of historical normal patterns, going back to the 90s, so we will be able to do that.

The question is, though, Mark, ultimately, as we see Washington policy looking to increase mandated ethanol use, and at the same time, the Senators are pushing for an expanded conservation reserve program, with more funding and expanded acreage, and those forces are diametrically opposed, or at least it looks unlikely that both can be achieved. If you are going to expand the CRP program, and certainly not open it, and yet mandate greater ethanol use, I don't think it takes a rocket scientist to figure out you need more acres from some other source. Those acres either have to come from the hundreds of millions of acres that are available in Brazil, pasture ground or untouched cerrado ground, or it must be pulled out of the hundreds million of acres of pasture and hay that are in typically what we would consider grain states in the United States. It also probably means the complete demise of the U.S. cotton industry. We could take cotton acreage down 50 percent from the reduced levels it is today and just produce enough for domestic use. But what price does it take to increase these acres and pull them out of hay and pasture and that's gonna be the question all winter on beans.

Pearson: It's gonna be a wild winter. You're not in a big hurray to price anything until we hit that time period, is that right?

Jackson: I think we've got a dollar and a half up in beans unless we can just thread the needle perfectly on acreage allocation.

Pearson: Alright, it's going to be interesting. Walter, thank you. Doug Jackson, thank you. That'll wrap up Market Plus. Thank you for joining us here on our Market to Market Web site. Be sure to tell your friends and neighbors. And from all of us here on Market to Market, have a great week.

Tags: agriculture commodity prices markets news