Iowa Public Television


Market Plus: Aug 25, 2006: Erin Golly and Darin Newsom

posted on August 25, 2006

Market Plus: Aug 25, 2006: Erin Golly and Darin Newsom Pearson: This is the podcast for Market Plus for August 25th, 2006. And with us this week two of our regular analysts, Erin Golly and Darin Newsom. And Erin, you had livestock so you had to start second on the show, you're going to start first on our Market Plus today. You're fairly friendly the hogs, like you say, we had a rally this summer that -- you talked about it this spring -- we were running into some disease issues and we certainly had some hot weather in a big part of the Pork Belt. So, all those factors kind of combined to make for some lighter pigs and maybe pull some things forward. What is going to happen this fall now in this hog market? That futures contract that's up there on the shelf, that's pretty scary.

Golly: Mm-hmm, it is and actually all the disease problems and breeding problems that we had have created a lot of opportunities for producers that we might not usually have had. But as we look into the fall we're going to see enormous weekly kills, they could range around or near 2.3 million head weekly ranging all the way from November to January. So, we expect a lot of hogs but that is what I was talking about on the show. You need to be careful about selling futures because we don't want to get in the way if a demand market would happen to come in. We would rather purchase put options, just get a bottom underneath your markets and hopefully some demand comes in.

Pearson: Okay, so you want to use an options strategy, get a put in place, at least have your seller door covered and then if things are driven up, which who knows what could drive that, problems with Japan with beef I suppose could be one.

Golly: And the bird flu has seemed to be less and less of an issue so that is always positive for the pork too.

Pearson: Absolutely, so take us on out through January you think we may see the headaches and then as we head into the first quarter and second quarter of 2007 what do you think we're going to see?

Golly: I think we're still going to see a lot of numbers. I would suggest that producers still stay hedged up and buying put options all the way through April we're going to see an enormous amount of hogs.

Pearson: And, again, we're kind of making up for the problems we had in the summer. We're going to come back and expand out so we've got some good markets and some profitability.

Golly: Sure. And we're in the cycle of the hogs that we're going to see that and, you know, it's a good opportunity people don't understand that you have to take advantage of these high prices and get some options on.

Pearson: About the time we think those cycles aren't real any more is when they come back...

Golly: They remind you of it.

Pearson: Exactly, okay. So, as we get into '07 that is what you're checking out. Real quick, you're real friendly on the beef.

Golly: Mm-hmm. I feel good about the beef yet. Just need to get some more export news. These Japanese people want to start buying beef but they have to have adequate supplies and we're not able to produce that right now. So, hopefully in another year we'll be able to do that and start seeing some positive news out of that.

Pearson: Alright, like you say, we've been eating the factory here lately too, a lot of cows have been going to slaughter. You mentioned that number as well and that is certainly going to impact us maybe on the positive in the next year or so.

Golly: Hopefully so.

Pearson: Erin, excellent. Darin, let's talk a little bit more about corn because everybody seems to be wanting to talk about corn these days. And, of course, the big question it's not '06, it's '07 and '08. That is what I keep hearing people talk about. What should we be doing?

Newsom: Well, yeah, and that's kind of an interesting point. Everyone is talking about how bullish this corn market could be and they all focus on '06, '07. But that is not where the problem lies. It's if we go further out in '07, '08 and if we look at the structure of the market itself we can see that at play. We've had the December 2006 contract moving down, you know, setting new contract lows here over the last couple of weeks while on the other hand the 2007 and 2008 December corn contracts continue to stay right up around $3 or higher. So, what we're seeing is, you know, who is supporting this market? Well, right now it's the non-commercial, the investment traders. They are in this thing for the long-term, they are in this market for the long-term which is unusual and does again go back to the changing nature of these commodity markets themselves. But they're going to continue to hold and what it's creating is a stalemate in the overall market because seasonally we're hitting lower at this time of year, seasonally we're bearish as we head towards harvest. We've got a bearish short-term or I should say 2006, 2007 supply and demand situation as we look at the, again, if we look at the way the futures contracts relate to each other price wise in the 2006, 2007 marketing year. So, we've established a stalemate at this level and now we're going to see how long we can hold here. If yields actually come in better than anticipated and we actually wind up with a little more supply we could possibly drop this market another 10, 15, 20 cents December corn contract, nothing calamitous but just enough in a seasonal trend. The interesting thing will be to see how the '06, 07 -- the '07 and '08 contracts react to this. If they continue to hold in these levels and we only get maybe a 5, 10 cent pull back while the rest of the market is backing off or the nearby market is backing off I think it's going to indicate possibly some pretty big things to come in the coming years.

Pearson: Okay, this will be one to watch, not to get in a big hurry and sell those '07, '08 futures then.

Newsom: No, you may want to -- if you just look at the historical price range of this thing you might want to have a little bit on the books, you know, $3 to $3.10, $3.15 is very attractive and we've been up there in the '07, '08. Don't overload, we don't know where we might be.

Pearson: Very good. Darin, thank you so much. Darin Newsom, Erin Golly, thank you both for being here. Thanks to you for joining us here on Market Plus. And, of course, tell your friends and neighbors to join us right here on the Web at Market to Market and Market Plus. Thanks so much for being with us. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news