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Market Plus: Apr 06, 2007: Walt Hackney and Doug Jackson

posted on April 6, 2007

Market Plus: Apr 06, 2007: Walt Hackney and Doug Jackson Pearson: This is the Thursday, April 5th shortened week edition of Market to Market's 2007 program. We're glad you've joined us. This is Market Plus. Two of our senior analysts are with us this week, Walt Hackney talking about livestock, Doug Jackson is going to talk about the grain markets in some more detail particularly, Doug, about South America. Still a question mark down there as to what the total crop is going to be but all the reports are it looks awful good down there.

Jackson: This has been a fascinating year in South America, Mark. You know, it does show us that you can, this is also true of course any place else including North America, you can have occasionally a threatless growing season and that's exactly what we have in South America this year. Everything went virtually perfect. And so now as we come to harvest down there we're finding that yields are simply off the meter. We have people experiencing bean yields in Argentina 40% bigger than anything ever seen before. Both the corn crops in Brazil turned out to be record. As I said during our show tonight we have estimates today in the private sector that are six million tons larger than the already record levels on both corn and bean production in South America and this is despite the fact that we just got through with an incredible 250 year flood situation in Argentina this past week where we had 15-20 inches of rain that may have taken one or two or three million tons off the top of the crop there but still a record situation. So, it does show the kind of productivity that we can have in the world and agriculture if the weather cooperates. So, this is going to create additional export competition for the United States and we may see the USDA lower some export forecasts in coming reports. But it's also interesting, Mark, as we said that in northern Brazil where we have 1500 miles of transportation costs, high input costs up 30-40%, the cost of controlling Asian Rust in the soybean crop there adding $1 bushel to the cost of production and the extremely high currency there that is reducing on-farm prices of local currency that the producer there in northern Brazil is not making much money. He has accumulated three years of debt, he's not able to pay that back really at this point even with this record crop and these relatively high Chicago futures. And, of course, we need to expand acres nearly six million acres per year in the western hemisphere to keep supply-demand in balance and if we're going to lose acres in North America then, Mark, we may need to increase acres by 10 million acres a year in Brazil to keep supply-demand in balance and you're not going to do it at these prices. Longer term you've got to have Chicago futures at a level that creates permanent, incredible profitability for the South American bean producer to not only make money but expand acres at a record rate year after year after year to compensate for this biofuels demand in the world. And you're not going to do it at this price so longer term, Mark, we might say that even with a good crop in the U.S. this year longer term we may need to have prices at eight dollars or higher to stimulate the kind of acreage expansion we need in South America and that, of course, at a place where you have no infrastructure, poor road systems and the question is how is the world going to shift production down there and satisfy world demand, it's going to be very interesting to see.

Pearson: Doug Jackson, some great comments and insights, a whole other spectrum of the biofuels evolution and revolution. Walt Hackney, we didn't get to talk much on the show about the feeder cattle market. You moved right from fat cattle right over into hogs. So, what about this calf market? What do you see ahead? Are the ranchers getting some of these calves priced for this fall?

Hackney: Not as we speak. Earlier when the initial blow of the potential of corn going over $4 the rancher looked like he was going to be the person holding the short end of the stick this year. It looked like there would not be a very aggressive market for his product come next October, November. You know, Mark, that doesn't seem to be the case now. The rancher himself is very willing to talk about the extraordinary moisture he's got for spring and summer pasture, the extra weight he's going to put on compared to the last four or five years of his calves. He is anticipating 50 pounds a head heavier calves this next fall due to those things. The corn producers are calling asking about have they started pricing the calves yet. Well, originally we wondered if a 600 pound calf would be priced at $1 a pound compared to $1.15 or $1.20 last year. Now they are buying nine weight August delivery cattle off grass in Montana at $1.03 already. Now, that is up there and they're 6, 7 bucks a hundred weight freight away from destination. So, where does that put the guy with the five and a half, six weight calf? Well, he's feeling pretty good again. So, the whole corn thing really did not have the financial per hundred weight effect on the price of feeder cattle that everyone really including myself thought it would happen.

Pearson: It has hung in there Walter. And so real quick, Walter, we've got about 30 seconds, you talk about the green grass out there, we've got some moisture out in the west, do you think we will see some expansion in the cow herd this year?

Hackney: No.

Pearson: Still not?

Hackney: No, I do not. Maybe, you know, someone with a real thin ruler might say it might go up a percent like the hog deal. Well, maybe. It isn't going to affect anything.

Pearson: Alright, Walter Hackney, thank you so much. Doug Jackson, thank you. That's going to wrap up Market Plus for this holiday shortened week, we're so glad you've joined us. From all of us here on Market to Market, have a great weekend.

Tags: agriculture commodity prices markets news