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Market Plus: Aug 11, 2006: Market Analyst Alan Brugler

posted on August 11, 2006

Market Plus: Aug 11, 2006: Market Analyst Alan Brugler Pearson: This is the August 11th, 2006 edition of Market Plus. For those of you who are joining us via podcast we're glad you've taken advantage of this, it's a free service, tell your friends and neighbors, love to have them join us here too. This week our guest is Alan Brugler. And Alan brings a lot of perspective to what is happening in the commodity markets these days. And Alan, a couple of things. We got you just at the tail end of the show and wanted you to expand just a little bit further, you mentioned the December '09 corn is now trading and the ethanol plants are out there getting positions covered.

Brugler: Yeah, they are in some cases being required. They're showing the business plan, hey I can make this very nice return on investment on this plant at these assumed corn prices and the lenders are saying, okay, let's guarantee that those corn prices are actually what we pay when we're operating the plant. So, they petitioned the CBOT to begin trading that 2009 contract much earlier than we normally would have traded it. And there's been some volume in it.

Pearson: So, we've got '07, '08 and '09 all look pretty pricey and historically pretty good prices on the board right now.

Brugler: Yeah, we're above the long-term average prices, certainly not as high as we were in '96 or '88 or some of the other peak years. But the market is basically sending signals that it needs some more acreage next year, it needs some continued expansion because we're getting this domestic demand expansion. And, of course, the export market and the livestock markets aren't going to want to give up their share of that market very readily.

Pearson: So, as a producer, we've talked about this in the past about how to handle these stronger prices and those deferred contracts, we've had analysts on this show say hey, there's two dollars in that '07, '08 December corn crop. You know, this is not a place to get in a big hurry. What would you tell people?

Brugler: I think where I'm at right now is I'm looking for some kind of a decline into a harvest low in the 2006 simply because we've got more than a 10 billion bushel crop and regardless of any problems or tightness you see down the road you've still got to find a place to put the current crop. And we don't need all those ten billion until some time next year. But at the same time assuming we get that kind of a harvest low I think it's going to be a time when those 2007, 2008 contracts are also relatively or comparatively lower prices than they have been. That will be a good time to extend some forward coverage whether it's forward contracts or actual long futures or call option position, certainly would not do a basis contract in that scenario. I think you have to look at soybean meal too. The soybean meal market has been sitting, setting life of contract lows nearly every day but we're getting very close to what is major chart support at $154 and I think it may be time to start looking at at least three or four months worth of meal as well.

Pearson: Alright, fairly potential longer term outlook for corn. What about for soybeans? I'm getting all these reports from South America about farmers leaving ground fallow down there and not replanting beans again, spraying for the Asian Rust makes them uncompetitive in terms of cost. Obviously they've had currency problems, internal infrastructure problems, if they're going to go away from soybeans. What is that going to mean for the soybean market down the road? Soy biodiesel, you know, it's running 60 cents a gallon less than regular diesel in some places. So, there is going to be some opportunities out there for that product.

Brugler: Yeah, I think what you've got to look at is the resilient farmers have been stressed pretty hard financially over the last two years. They are making some adjustments. In the areas that have got sugar cane processing and the appropriate weather they are expanding their sugar cane production because of the ethanol demand down there and the export demand for any excess ethanol they produce. We're also hearing of increased cotton planting intentions for the north, up in Manaus and Bahia and places like that. The issue there is it's not because of the sprays because a cotton producer has to spray even more times than a soybean producer does down there. But it looks like we're going to see a seven or eight percent cut in Brazilian acreage. Now, the Argentines have increased their soybean acres to offset part of that. But the long-term implication would be that we'd reduce their share of the world market, we'd probably initially draw down the stocks. World stocks are still projected to be close to 50 million tons for next year. That's got to come down before the bean price can really go up. But if the Brazilians have the smaller acreage and have some crop production problems then we're probably going to see the U.S. soybean market next spring fighting to maintain its acreage and not willingly give it up to corn.

Pearson: Exactly and so some things are going to have to happen there economically that could call for higher prices potentially for both.

Brugler: That's correct.

Pearson: Alan, great to have you with us. Alan Brugler, thanks for being a part of Market Plus for this week. Again, this is the August 11th, 2006 version. Glad you've joined us. I'm Mark Pearson. From all of us on Market to Market have a great week.

Tags: agriculture commodity prices livestock markets news