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Market Plus: Nov 03, 2006: Alan Brugler

posted on November 3, 2006

Market Plus: Nov 03, 2006: Alan Brugler Pearson: This is the Friday, November 3rd, 2006 version of Market Plus here on Market to Market. I'm Mark Pearson, glad you've joined us. With us this week is Alan Brugler. Alan, we're talking about these commodities and all the volatility. I mean, obviously we've had a dollar move in the corn market, close to that in soybeans. You pointed out on the show the relationship between soybean meal and corn. I mean, we're talking protein is protein here. Just so volatile, I mean, people are kind of getting their heads spun around. What is driving all this? Are these these funds? Is this all the new money that came in at the beginning of 2006?

Brugler: Well, I think you're seeing some fresh allocations. You're seeing some people who are refugees from the energy market now that that's not going straight up any more. Maybe some people, we know Amaranth lost 6 billion dollars in natural gas but we forget that somebody else made 6 billion dollars and that cash has got to be recirculated. We're also, we think there is some, the way interest rates are structured there is some excess cash laying around not only in the U.S. but around the world right now that is looking for an investment to go into. It's a little afraid to go into the stock market because it is at all time highs, above twelve thousand on the Dow. And so some of that is sloshing over into what could be the big story of 2007 which is the grain market.

Pearson: Absolutely and corn in particular, we got a little bit surprised by what happened with the wheat situation with the problems in Australia and worldwide. But let's kind of go beyond some of that and talk to me a little bit about, as you look at these markets and you look at 2007 there was a point that you wanted to make that we didn't make on the show and it was regarding, it wasn't corn, it wasn't soybeans, it was certain in the volatility but the whole concept of buying these acres. You know, I asked at the beginning of the show, have we bought enough corn acres, is the price high enough? And you think not, you think $3.90, $4.00 will probably do it. But then throughout the show you said but wait a minute, of course, as we buy U.S. soybean acres right now we're sending a big signal down to South America, as you pointed out about half planted now, to add more soybean acres. So, where are we going to wind up in this whole thing?

Brugler: Well, I think the market is trying to generate acreage anywhere it can get it. We did see the Ukraine increase their winter plantings by more than a million hectares this year, some of that is wheat, some of it is barley. But they've got the price signal. The Russians have certainly got the price signal. South Africa might have missed the price signal but it was there. But we do perceive that there is a shortage of overall acres, that there's too many crops that need more acreage all at the same time. The rice market is responding thinking that it's going to lose ground to soybeans in the spring. Cotton market for a day or two here was acting like it thought it might lose some acreage, then the lousy demand kind of kicked back in and it went back down. But the acreage battle is not over yet but it's a moving target because of the international picture. We know that soybean supplies in general are ample, you know, world stocks are high, U.S. stocks are high but the market wants to make sure there is enough in the pipeline and if South America isn't going to deliver then the battle gets a little more intense next spring for the U.S. plantings. If South America plants an extra million hectares here because of the higher prices and the improvement then I think you maybe see corn winning by default and there is definite risk of a gotcha next spring that once that seed is in the ground the market says okay, we got what we need and we don't have to be here any more.

Pearson: That's right and we don't have to be as excited. So, it's a real matrix and it's worldwide, not just domestic. So, when we start hearing these expected plantings reports again in the spring that's not all you want to consider because we do have the factors of South America that could come into production. You mentioned wheat, all of a sudden we have a ton of wheat in the world, we're feeding wheat.

Brugler: Well, and we've got somewhere in the world is harvesting wheat 11 months out of the year. It's a continuous supply and we know that the U.S. acreage is up. We know that El Nino typically helps the plains over the winter, we get additional moisture. So, we've got some potential for an increase in wheat that, again, flows back against corn in feed rations.

Pearson: Alright, well you gave us some great price ideas on the show. We appreciate it. Some great insights as usual. Alan Brugler with us this week on Market Plus. Hey, glad you joined us. Hope you'll watch Market to Market on your local public television station and thanks for being here with us on our Market Plus segment. For all of us on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news