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Market Plus: Oct 20, 2006: Doug Hjort, Independent Analyst

posted on October 20, 2006

Market Plus: Oct 20, 2006: Doug Hjort, Independent Analyst Pearson: Welcome to the Market Plus segment on Market to Market for Friday, October 20th, 2006. I'm Mark Pearson. Our guest this week Doug Hjort, Doug good to have you with us. Let's talk about the two exciting products out there at least in terms of supply and demand and that is wheat and corn. We talked a little bit about wheat and the three classes on the show. Obviously a wild week for Durham you said.

Hjort: It really was, Durham prices up 40 cents or so. That is the average price, national average price, varies locally of course. And this was quite predictable because acreage was cut so dramatically in both the United States and Canada and then on top of that the further west you go into North Dakota and Northeastern Montana the drier it was and yields cut rather dramatically. Durham wheat is a commodity that prices can explode there just extreme and I think we're in one of those years. I'm not recommending Durham wheat sales yet but in a market that can jump and rally as fast as Durham can it can come down just as fast. But we're in this situation to where we have a very limited supply now and we're not going to get any more Durham until towards next spring. There is very little Durham raised in the southern hemisphere. It's just about all in the northern. So, I think the Durham producer has kind of a captive market here and I think this is one of those years when you should hold on as long as you can or set some of your price targets and so on. But, you know, don't settle for $4.50 or whatever that price is locally right now. I think prices will go considerably higher.

Pearson: Interesting situation for Durham. I also wanted you to talk about the corn market. I keep hearing this -- has the board bought enough corn acres? Has the board bought enough corn acres? Have they bought enough corn acres with this price move that we've had?

Hjort: Well, that is an interesting thing and I was just looking at that this week. If you look at -- and there's lots of assumptions that have to be made that may or may not be true -- but if you look at a shift of acres so that we could raise as much corn as we would like to use next year there is probably six to eight million acres more that has to be planted to corn next year. As I look at the soybean thing you might be able to shift out half of that acreage out of soybeans but that is going to be tough. An awful lot of producers, regardless of price, like that rotation they are in and they're going to stay there. So, it's people that are outside that boundary that are going to make the shifts and changes or out in the fringe areas perhaps. So, where are you going to pick up another three million acres, let's just use that figure for corn. Well, wheat -- wheat acres are going to be increased this year because remember wheat acres in the last two years in the United States have been at historically low levels. So, you're going to pick up acres there, you're not going to have any wheat acres going to corn, maybe not even in North Dakota, for example, where there has been a significant shift from spring wheat and Durham acres into corn and soybeans. So, I think it's going to be very difficult to try to buy those acres. So, in that regard even though the December of '07 corn futures carry a premium to December '06 I don't think that is enough to buy those acres yet. Now, we're talking about it now in the fall of the year. Well, that's important if you're putting fertilizer down and making those sorts of plans for corn but the real decision, the final decision doesn't have to be made until February, March period and so we'll see what those price relationships are between corn and beans, wheat, whatever at that time. The price relationship between corn and beans I think will probably tighten some because I think soybean prices have a chance of going up if for no other reason from a fundamental standpoint of saying hey folks, we've got to keep this price somewhere in relationship to corn. I think corn prices will go higher than where we're at today but I think soybean prices might narrow that spread a little bit. Whether that is enough to hold acres into soybeans I don't know. You'd have to take probably five million acres away from soybeans given normal yields, all of this is considering normal yields.

Pearson: And depending on what fertilizer prices are doing in the spring and where oil is.

Hjort: Right, but you'd have to have probably four million, five million acres of soybeans taken out of production next year to really create a wildly bullish situation for soybean prices. Well, you can see the numbers there, you know, you need another three million after taking three million out of -- three million for corn after taking three million out for the beans. So, it's really going to be an interesting winter here as the marketplace factors out where these prices have to be for next year.

Pearson: Excellent, some great insights, appreciate it very much. Doug Hjort, with us this week on Market Plus. Thank you for joining us and for all of us on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news