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Market Plus: Oct 13, 2006: Walt Hackney and Doug Jackson

posted on October 13, 2006

Market Plus: Oct 13, 2006: Walt Hackney and Doug Jackson Pearson: This is the Market Plus segment for Friday, October 13th, 2006. I'm Mark Pearson, glad you've joined us here at Market Plus. With us this week Walt Hackney and Doug Jackson, another explosive program with them both. Let's go talk with -- let's talk with Walt first. Walt, this feeder cattle market took a big hit this week on the board, it's taken a big hit in the cash market. It's the first real hit we've had in the feeder cattle market in what, three years? It's been a good run.

Hackney: The attitude has changed and the circumstances that were driving the feeder market have changed within the last ten days, two weeks. You had a very optimistic group of buyer on the feeder cattle. We had a real vacancy out there on yearling cattle. We had a real need to buy yearling cattle that weren't there. We had people optimistically tying into these feeder calves, these stalker calves, these unweaned calves. We had a good market running. All of a sudden the corn market changed that entire process. We've got a really negative attitude among the buyers now toward feeder cattle. Yearling cattle have still got some degree of acceptance in the marketplace and have not taken the hit that the calves have taken and you're going to see calves take more of a hit probably due to production costs. You can't grow them on $130 a ton delivered hay, you can't grow them on the potential of $3.50 as Doug had indicated corn. So, these calves are going to have to cheapen up and it has happened unexpectedly I think among most of us in the last two weeks, maybe three.

Pearson: Alright, you were talking about the cow herd expanding at the beginning of the year that we'd hopefully see a three percent expansion. This drought has continued, last time you were on I think you were saying maybe one percent, still hold with that?

Hackney: I'll stay with the one but due to the liquidation off of the drought country I'm not even sure we're going to have a one percent expansion on the cow herd.

Pearson: Alright, real quick your feeder price outlook Walter, what do you think it's going to be?

Hackney: Well, what was $1.15 to $1.20 eight weight steers could become a dollar a pound. What was $1.40 weight price on five weight calves could become $1.10 and so we're looking at something that dramatic.

Pearson: Alright, on that note let's move over to Doug Jackson and Doug, you've been talking about running out of corn based on ethanol demand, based on the outlook for the plants that are online to come into production over the next two years and you've put it on the equation table and you say that's what is going to happen. There is a lot of talk about increased productivity, additional acres and increased productivity. Can that do it?

Jackson: Well, Mark, the spasms of price action that we saw this week is just the beginning of the manifestation that the marketplace is starting to understand, that this whistling past the graveyard attitude that we're seeing from politicians, policymakers, economists, the productivity can bail us out of this situation, in my opinion, is really ridiculous. Yes, productivity in the past has been very impressive in American agriculture. We like to say that America feeds the world. But the stark arithmetic is that trend yields on corn goes up about three, maybe four bushels per acre a year. Now, that is incredible in and of itself. But on 70 million acres, Mark, that's only about 200 million bushels of extra production that we get from increasing productivity. Ethanol usage may be going up 800, 900 or a billion bushels per year in these coming years as we simply build these plants in an out of control manner. Obviously productivity is defined by yield simply can not begin to cover that. So, then you need acreage. We need to include this expanded acreage in this idea of productivity. Yes, we had about 2 million acres drop out of the CRP program this year, the single, biggest, largest amount of acres to be renewed that we've had in history but that is a drop in the bucket. You see, the difference between 1996 when we went to $5 corn and then backed off quickly when we opened up the set aside and rebuilt inventories for the next decade this ethanol thing never stops. We have more and more plants every year, we need more and more acres every year and the problem is this is not happening in a vacuum. We also need more wheat acres with wheat at ten year highs and longer-term we need more oil seed acres too as that acreage switches into corn. And you've got to go get that acreage in northern Brazil where the cost of production is $7 a bushel. So, the problem is you can't get enough acres fast enough to cover all of this demand and I'm afraid we're going to learn the hard lesson, the short run that we're probably not going to get this unprecedented acreage expansion and if not we simply run out as the arithmetic of demand catches up unless we go to a price and keep it there that chokes off the ethanol or the feeding industry.

Pearson: Alright, quite an outlook from Doug Jackson. Doug, we appreciate it. Walt Hackney, thank you so much. That is going to wrap up our Market Plus segment for today. Thanks for joining us. Make sure you join us here each week on Market Plus. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.

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