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Market Plus: Oct 12, 2007: Alan Brugler

posted on October 12, 2007


Market Plus: Oct 12, 2007: Alan Brugler Pearson: This is the Friday, October 12th, 2007 version of market plus. We're so glad you've joined us here. With us this week is Alan Brugler talking markets, particularly corn and soybeans, we're in the thick of that harvest. We talked about wheat at length on the show because, of course, the volatility that we've seen in wheat and the impact it could have on acreage for 2008. But, Alan, let's get back to the corn market. Let's get back to USDA's report, sub 155 for an average yield, caught some people by surprise. Some people were looking for a little bit bigger number from the USDA.

Brugler: Yeah, I think you had a lot of people, individual producers talking about their 200 bushel yields and their 220 bushel yields and the trade had started to raise the estimate of yield. The average trade guess for this report was over 157 bushels. But as you look through the state by state data what you find is a combination of two things. You see a six bushel per acre reduction in Nebraska which is one of the three largest production states that had a tremendous impact on the weighted average yield for the U.S. You saw some smaller reductions in the three I states, Illinois, Indiana and Iowa, which also lowered the average yield. And then you saw an expansion in acreage when they incorporated the FSA data for some of the lower yielding states like Kansas picked up a couple hundred thousand acres, North Dakota picked up a little bit and that also lowered the average yield. So, it made some sense when you got done with it. It's interesting that we had a 700,000 acre increase over the record increase, record acreage since World War II that we had in the June estimates and still only saw a 10 million increase in total production.

Pearson: That's right, with that lower yield, of course, I've heard people say well, we have a lot of areas growing corn that haven't grown corn so that's helping to bring the overall average down. But you're still talking decent yields, like you say, in Nebraska and the three I states, even after those corrections.

Brugler: Yeah, very high yields, 178 bushel type yields, 168 in Nebraska after the correction. Those are excellent numbers and that's how you get a 13.3 billion bushel crop.

Pearson: I guess, of course, I get all those calls with the guys with the 200 bushel corn so I'm hearing that one a lot. You begin to think it's happening everywhere. Now, soybeans, prior to the report, what I want to ask you about, prior to the report I'm getting all these calls and we're interviewing all these people and we're hearing the following, they're saying oh, that soybean number is going to get corrected, the soybean number is coming down. That was a big chatter before the report and kind of a rally into it, didn't happen in USDA's number.

Brugler: Yeah, I think what you were hearing was because of the drought in the south, in the mid-south that a lot of abandonment was going to be shown in the report. USDA did, in fact, cut the acreage, the harvested acres were cut about 500,000. But the largest adjustment they've ever made in the October report was 900,000 acres so we were discounting the 2 million acre talk right from the beginning. But, again, the 500,000 when you go through the state by state numbers looks very defensible, very realistic. This is why USDA started using the FSA farm program data to adjust their sampling for corn and beans because it does allow them to find these areas that suddenly weren't growing things or where you double cropped and it failed or it's an excellent statistically measure. So, again, it's mainly the folks assumed a lot more abandonment than they got. I think a lot of that has to do with $9 soybeans. When you've got prices at this level and a marginal crop you don't abandon it, you go out and run the combine and that also tends to lower the yield just a little bit.

Pearson: Alright, when this is all said and done, the October report usually is a pretty good one but usually the November report and the January report are still going to show us some changes. What do you think those will look like?

Brugler: I think you'll still see some changes, if you'd had a larger increase in corn the trade would adopt the philosophy the big crops get bigger. Because it was only a 10 million acre adjustment or a 10 million bushel adjustment, excuse me, I think we may not see a whole lot of adjustment in the November report. The main thing that USDA will be tweaking will be test weights as they dry down the rest of their samples. On the soybean side I think there is a potential for a slightly smaller total number, particularly if we get weather delays that leave some of the beans that are clearly in the field there instead of in the bin.

Pearson: Alright, so that will be the two big things. Let me just ask you internationally, we talked for a moment on the show about South America, they're hearing the siren call, we're going to see a substantial increase in bean numbers in South America.

Brugler: We're definitely going to see increased acreage. Now, they're not seeing the full price impact of our futures rallies. The $10 beans here are, after you allow for the increase in the Brazilian real basically they're seeing the highest prices since 2005 but that's not the same as what we're seeing which is prices pushing the 2004 level. So, you'll see an increase, I think the weather will have a little bit to do with it but I think USDA's estimate of 62 million ton production for Brazil and 47, 48 for Argentina is probably pretty good based on what we know today.

Pearson: And that will be enough, you think, to see us through and keep the board from panicking and giving us a huge upshot, barring a weather issue?

Brugler: Right, if that's on track and it being planted and the weather is adequate I think the board's probably got a comfort level here and it may even back off a little bit once the acreage is planted because now you can't influence it until later.

Pearson: Good point. Alan Brugler, thanks so much for being with us. That's it for market plus this week. Thank you for joining us here at our Market to Market website. Be sure to tell your friends and neighbors. We'll be back with more next week. From all of us here on Market to Market, I'm Mark Pearson. Have a great week.


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