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Market Plus: Nov 17, 2006: Erin Golly and Darin Newsom

posted on November 17, 2006

Market Plus: Nov 17, 2006: Erin Golly and Darin Newsom Pearson: This is the Market Plus segment for Market to Market on Friday, November 17th, 2006. Thanks for joining us. I'm Mark Pearson and with me this week two of our best analysts in my mind, Darin Newsom and Erin Golly and what a day it's been, what a week it's been and what a fall it's been in agriculture. I want to focus on a couple of things and since Darin started earlier let's go over to Erin and get your take. We've talked about livestock. Obviously these feed costs are changing our picture, certainly changing the equations we might have had six weeks ago, eight weeks ago about what is ahead for livestock prices. You talked about $1 fats again for next year so obviously we're not expanding the herd. Consumers seem to have plenty of money, energy prices are dropping, we'll see some good beef demand. What is your thinking on this cattle market?

Golly: I do think because of the reduced placements that we did see in the cattle on feed report and we are seeing a liquidation of the breeding herd that that's what is going to really set the base for the dollar cattle next year. Of course, we're going to have higher corn costs, a lot of people are going to be instead of keeping their cows they're going to be sending them to slaughter, that is just sort of the trend that I see with the high corn prices, that's the way it's going to lend us down to the future of cattle prices.

Pearson: Early in the show we talked about, you know, a huge improvement in red meat export sales. And, of course, we've had strong pork sales throughout. But now we've got beef sales again, Japan, that's going to be a factor too.

Golly: There is and there's actually a lot of trade agreements going on right now that I'm not sure with the new administration if they're going to be pushed through or not, there are some questions on how far they're going to be pushed. But there's a lot of trade agreements out right there that could help the pork and the beef industry if we could get those passed.

Pearson: Alright, disease issues with pork, I'm going to touch on that real quick. You talked about it the last time you were on the show and I had a bunch of producers echo what you were saying. And maybe that's why we haven't seen the numbers that we would anticipate based on the sows we've got out there. We're not getting a super good handle on this disease, the circle virus, but I think we're trying to make some progress. What is it going to do to hog numbers as we go into 2007?

Golly: I think it is going to shorten up hog numbers significantly if it is a nationwide problem. Now, I'm not sure of that yet, I'm hearing it from a few large producers and some smaller ones but if it is a nationwide problem we are going to see a definite shortage once we come to the late spring and early summer. I think it could really take us by surprise.

Pearson: Okay, and buy cash corn.

Golly: Buy cash corn, buy hay.

Pearson: Alright, I like that. Okay, Darin, let's talk about those two markets, corn and soybeans which we focused a lot on, on the show. And you're from Kansas and we love to have you talk about wheat when you're on the show. We had a nice move in this wheat market, it's been huge. I've heard in some parts of the Corn Belt you couldn't rent a drill from somebody, you couldn't find one because wheat acres were jumping in parts of Iowa and certainly parts of Illinois, parts of Missouri and elsewhere. So, we've actually lost some corn acres to wheat already. How much of an impact is that going to have?

Newsom: You know, it's going to have an impact. I mean, we've seen the wheat acreage, we've seen the wheat acreage spike and the anticipation of it. We're looking at the new crop July Chicago contract, we'll throw that one out for the soft red winter belt, it hasn't really followed the rally that we've seen in the 2006 contracts, the 2006, early 2007 contracts due to the fact that they realize we're going to see this, we're going to see this change from a tight world situation to just about everybody in the world increasing their wheat acreage. And so we're going to see this little bit of disconnect between the two marketing years and it's causing some pressure, it's causing some pressure on next year's markets. Still riding the coat tails a little bit, just not to the degree that we've seen these 2006 contracts move.

Pearson: I'm going to ask you again what I asked you on the show, between now and the end of the year have we hit the high in corn?

Newsom: Hard to say, doesn't look like we have. I mean, this is one of the most, if we look at the structure of this market from the two sides of it, the non-commercial and the commercial side to this market, this is one of the most bullish structures of the market that I've seen in the last 15, 20 years. So, it's hard to imagine that we've put the high in. Now, generating fresh buying at these levels and I'm talking about non-commercial or speculative buying when we're at ten year highs that's going to be very difficult to do but as the market comes down we're going to see, you know, let's say it does work its way down a little bit we're going to see increased commercial buying. We've got very narrow spreads for the bulk of '06, '07 and for all of '07, '08, we've got some strong commercial demand out there. This is going to help provide support and keep this sell off that if it does occur from gaining momentum and becoming extended, also going to see continued non-commercial investment traders moving into this market. They've got a lot of money to put places. We're reading every day about new funds coming in. They like the look of corn and they like the look of its potential, again, as we head into not only this marketing year but the next.

Pearson: You've got $5 corn do you think?

Newsom: I hate picking prices.

Pearson: And I love asking them.

Newsom: You know, saying I like, the saying I like to put about that is picking a price is like nailing Jell-O to a wall, it's not only difficult but pointless.

Pearson: I have done it.

Newsom: Yes, I bet you have. Could we see $5? It's not out of the question. I mean, there's been so many years we've sat here and said oh $5 can't happen. It could happen. You get the right chain of events going, absolutely we could see $5. There's nothing on top to make this thing stop at this point.

Pearson: Alright, there you go, appreciate it very much. Erin Golly, Darin Newsom, thank you. That's going to wrap up Market Plus for this week. Thank you for joining us and don't forget to utilize our audio podcasts, it's a handy way to enjoy the show. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices livestock markets news