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Market Plus: Feb 02, 2007: Erin Golly and Darin Newsom

posted on February 2, 2007


Market Plus: Feb 02, 2007: Erin Golly and Darin Newsom Pearson: This is the Friday, February 2nd version of Market Plus. Thank you for joining us here at our Market to Market Website. With us this week Erin Golly and Darin Newsom. Want to thank both of you for being here, some great ideas, some great thoughts. On the show we couldn't seem to get Erin to stop because she had a lot to say, a lot about the corn market and what you see ahead. Erin, I want to talk particularly about beef and cattle prices and also about DDG's what you're hearing and seeing on that. But let's talk first about at this point you don't think there's been much liquidation in the hog sector?

Golly: No, we're not seeing any of it at all. And now there's a few buildings and finishers still going up this year but anything beyond that I'm not seeing any future expands.

Pearson: Okay, what about we're hearing a lot about DDG's and feeding and I know there's cost issues. You mentioned prices are all over the place on DDG's. Are you seeing that being used very effectively on any of these hog operations?

Golly: No, I'm not and every test I'm hearing there's some reports out that we're having some sloppy bellies in hogs that were fed DDG's. Quality is consistently a huge problem within the ethanol plants. We're not having the same specifications plant to plant and pricing is all over the board as well depending on qualities. And trying to attain the DDG sometimes is very hard to do as well, it's hard to get your hands on them.

Pearson: So, let's talk here, obviously in the hog side of it we've got margin pressure. On the cattle side we've got margin pressure. But as you pointed out on the show some of those deferred contracts are hanging in there pretty good.

Golly: Yeah, they're hanging in there real good and it's giving producers profitability that we could absolutely take, you know, with the high prices of corn and such that we'll actually take and put in the pocket because it is so important that we have that in lack of that profitability. That's why you need to be purchasing puts out there.

Pearson: alright, what about the idea of bringing corn into the United States? When we left you on the show you were talking about we continue to have very strong export demand for corn. You're saying we may be importing it?

Golly: Well, and I guess the thing I'm talking about with importing corn is there is a significant cost to it because as long as we are exporting corn our pricing is well priced minus transportation. But if we have to import corn our price will price plus transportation and that's fine for a North Carolina pork producer because he's right on the coast but if you have to take that to an Iowa pork producer it will be disastrous, those costs because basically the cost of moving corn is about equal to the cost of growing corn.

Pearson: And cash is kind in terms of grain, you want to own the actual product?

Golly: Have cash on hand, be purchasing puts underneath your corn and get as much bean meal booked as you can and anything you can't get take some ownership on the board.

Pearson: Alright, let's go over and let's talk about the grains. Darin Newsom, a lot of comments about the wheat market and, again, I didn't mean to keep bringing this up on the show but like I say I'm 50 years old, we haven't had very many opportunities to sell $4 corn, $7 plus soybeans. We've got a wheat market that's been over $5. This just looks like sell, sell, sell, sell, sell to me. Are farmers doing it? Are they making a lot of sales?

Newsom: I think they're making some. You know, with the customers that we visit with they are making some along the way but everyone, you know, the environment right now is so bullish and if you just follow a few simple rules of risk management, number one just to simply follow the trend, you know, the trend right now is higher particularly in the corn and the soybean markets so it's hard to take the other side of that and say, you know, we're going to be the ones that completely short or completely sold out of this market. It's probably better to stay in step with this type of trend, with this type of market and allow it to continue to run up but not to get caught up in the fact that it can never go down again because we've seen it in other markets, we've seen it in crude oil and we've seen it in natural gas, we've seen it in some of the livestock markets. These things when they look about as bullish as they can possibly be is when they start to turn and so we don't want to lose the opportunities. We grow these things, we grow these crops for cash. Sell a little bit along the way.

Pearson: Alright, so don't be sitting here waiting for, obviously you talked about it on the show, we turn into a wet spring, I mean, the bets are off on what could happen to the corn market. If things turn hot and dry in July during pollination things, again, could go crazy. Don't we have to figure for normalcy when it comes to making marketing decisions?

Newsom: We have to figure for normalcy but in this type of environment in the markets I guess the question that I get asked a lot, what is normal any more? When you compare it back to the last five years, to the last ten years we really haven't seen this type of market environment so I think it's giving us something entirely new to deal with. We have to treat it like we normally would but as you said, you know, normally volatility increases during the spring planting season. If that is any indication at all then all we have to do is think back a couple of weeks ago to when we had 20-30% increase in volatility following USDA report, limit up two to three days in a row. These things are going to become the norm and we're going to have to know how to deal with it. We're going to have to know what we're dealing with and who is pushing this market at any particular time before we actually make our decisions. And so it's going to make it much more interesting.

Pearson: Alright, just want to ask you a scenario here. Let's say oil drops sub $50 a barrel, sub $40 a barrel, what's going to happen to all this stuff?

Newsom: Well, I tell you, that's going to certainly make the ethanol industry look a whole lot different. I mean, just this move from $75 $80 down to near $50 to $55 plus corn going up over $4 has certainly made the balance sheets on many of these ethanol plants just coming on certainly look different. The corn market, that will be a great question. What will its response be? I think the investment side of the corn market might grow tired of this situation, look at some markets that may be undervalued at that point. Crude oil might be one of them. Something that holds a little bit more value, a little bit more promise for higher prices to come. I think it could certainly change the landscape.

Pearson: Well, I agree with you, make some sales and move along here. Real quick, wheat sales, we talked about it on the show. We should be seeing a spring rally in here, we usually have to kill that wheat crop five times. We should be getting it underway shouldn't we?

Newsom: And we still have that in front of us. These sub zero temperatures already have some people, a little bit of interest in those areas where the snow cover is gone. I think we've still got some time this spring to see a little bit of a rally. I wouldn't want to be in a huge hurry. We've seen some nice prices in the past, should have some on the books if we can get another 10, 15, 20 cent rally, start to feed it into the market again.

Pearson: Excellent. Erin Golly, Darin, thank you so much, appreciate it, some great insights as usual. I hope you'll join us again next week for another version of market plus. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.


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