Roach: We reached higher levels here because of the demand on bioenergy and also from food.
Borg: Ethanol is driving it all?
Roach: Ethanol is driving the corn, soy diesel is somewhat driving the bean market. But we must remember that the world economy is really growing at a fast pace and that's really creating additional demand that has to be satisfied. I mean, we're familiar with the Chinese and their large population, their economy is growing at a 12% annual rate. There are more people in the world moving into middle class than we have ever seen before. So, that together with the bioenergy demand is driving food prices worldwide. And from our standpoint we don't see that that demand is slowing at all. The stock market had a little bit of a hiccup here this week but by and large the stock market would say in this country and around the world that economies are good, they're healthy, that means demand will probably continue for agricultural products. The question becomes what crops will producers plant. Are they going to shift more toward beans, away from the corn that they planted this year? Are they going to shift away from cotton? And the whole marketplace has to get those prices right.
Borg: Is there volatility do you see in those decisions? What causes that volatility? I mean, what causes a producer to decide which to plant?
Roach: Well, that's an interesting question. First of all, of course, the profit motive. What crop can I raise that will make the most money? But then secondly there's a lot of husbandry items, if you will, farmers like to rotate, there's a lot of value in rotating their crops so that's important. Some farmers who went to second year corn this year found that, oh, maybe I don't like doing that so much any more. It takes a lot more time to bring all the corn in, it takes more storage to handle it, it takes a lot more money and this upcoming spring will take a lot more money to plant corn than it does soybeans. So, money and time and just general desire all kind of fit together in a farmer's decision.
Borg: And you know the unknown is the weather isn't it? That influences, at this time of the year, drives just about everything in the grain market.
Roach: Absolutely, this time of the year the weather is going to drive and then as we move just probably about the time we're finishing up harvest or maybe just before that then these decisions about what am I going to plant next year are really going to drive the issue. And the situation is that we're tight on stocks of wheat, corn and soybeans. So, we really don't have any crop that is in such surplus supply that we can easily switch acreage.
Borg: Do you see these new market plateaus influencing livestock production?
Roach: Absolutely, I think that the livestock producers were probably the first people to start to react to these higher prices levels. We've seen the livestock, the cattle producer on this last cattle inventory report, we saw the number of heifers kept back for breeding is down 6% in the beef herd. So, they are already deciding not to expand the beef herd for fear of cheap prices because of high priced corn.
Borg: What about hogs?
Roach: In the hog business we've seen just moderate expansion, moving up slightly one to two percent when the demand is actually increasing by more than that.
Borg: Thanks so much, John. For John Roach, I'm Dean Borg. This is market plus for July 27th, 2007.