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Market Plus: Mar 23, 2007: Alan Brugler

posted on March 23, 2007

Market Plus: Mar 23, 2007: Alan Brugler Pearson This is the Friday, March 23rd, 2007 edition of Market Plus. Glad you've joined us here at our Market to Market Website. I'm Mark Pearson. With us this week Alan Brugler. And Alan, we always seem to have you on before these big reports because you always have a good analysis for us. So, you have good pre-guess estimates and everything else. Let's talk about USDA, this planting intentions report. I heard a fellow analyst of yours comment that this may be the most important report in terms of the broad market looking at what's going to happen in 2007 that we may see this year. But as you pointed out on the show it's just that, it's an intentions report. A lot of things can happen like weather and everything else. But if the swings are big you think you'll have a big impact.

Brugler: Well, I think they key here is that there's a lot of uncertainty, there's a huge range of estimates for most of the crops. The corn number is somewhere between 86 and 90 million acres. The soybeans are between 67 and 71. Big uncertainty. Now, usually a normal uncertainty would be 1.5 to 2 million acres. We're doubling that this time. On top of that you've got record large open interest because speculators have come into these markets in a big way and index funds and the other folks we've talked about and that money is looking for something to do, it's looking for a move to jump on top of. So, I would argue that this is not the biggest report of the year but because of the uncertainty it will probably get a big market reaction to it. I'd also remind people that there's another report the same morning which is the grain stocks report. That one is getting almost no press and if there's a surprise in there it'll catch the market cold, flat footed.

Pearson And, again, the grain stocks report is based on a pretty hard set of evidence as opposed to the planting intentions report which, as you pointed out on the show also, was done with the first week of March.

Brugler: Yeah, it was done the first week of March. The grain stocks is actually the first week of March also but the key there is it's used to determine how much of this corn and wheat is actually being used, how much has been fed in the last quarter, how much DDG's out of the ethanol industry have substituted for corn, USDA really can't make feed usage estimates without this data and that's the second part of the equation. We're worried about the acreage but we also have to monitor feed use which is still more than double next year, almost triple this year the amount of corn we're using for ethanol.

Pearson With the ethanol demand out there and as you talked about with the strength in oil prices the impact on ethanol prices is positive so if we see that swing, if we see 90 million acres to corn what's going to be the reaction?

Brugler: I think the market would have to take that big of a number as a bearish number, it would suddenly say okay, we got it done, we got the acreage we need for this year, we may rally soybeans in that case or wheat or cotton because to get that large of a number we've probably undershot some of the other field crops. But I think the corn number would relax and say okay, as long as the weather's good we're happy. I've been, in my stump speeches I've been saying there's basically three more innings in this game, this is the seventh inning, eighth inning is still the actual planting season and the ninth inning is the pollination and yield development period. So, we've got a couple more hoops to jump through before it's over.

Pearson Good points as usual, Alan, going into this report what do you tell producers?

Brugler: I think you have to have some protection to the down side because you're looking at excellent revenues. If you're a cash only seller you don't use the risk management tools, you have to be fairly conservative because there are these other big potential price developing periods to come. But nobody is going to go wrong here by locking in some sales here on either cash or for new crop.

Pearson Some good points as usual. Alan Brugler with us this week. Thanks, Alan, for being with us. And from all of us here on Market to Market, I'm Mark Pearson. Thanks for watching. Have a great week.

Tags: agriculture commodity prices markets news