Pearson: Welcome to the Market Plus page here at our Market to Market Web site. I'm Mark Pearson, glad you've joined us. With us this week Doug Jackson and Walt Hackney. And Walt and Doug, a lot of doom and gloom on tonight's show. I don't know. I'm going to try to stay away from any sharp objects this weekend. Doug, talk about South America. You alluded to it on the show. We've heard this rumbling, South American producers, a lot of them did not pay back operating loans from 2005, they didn't make money, they're not making money now. This is a whole new, you know, kind of a pioneer effort down in South America. What is ahead down there? What is your take on what's happening?
Jackson: Well, Mark, this has been one of the most spectacular implosions and reversals of fortune that we've seen just in the last several years. You know, that was the great threshold and frontier of agriculture and ultimately it still is. You had land prices going up, people expanding into the north and just in the last few years a unique perfect storm of a combination of higher production costs has dramatically reversed their situation there to where they have now lost their edge as a cheaper competitive source of production. First of all, of course, the currency has rallied sharply which has had a dramatic impact across the board but other factors, higher fuel costs, diesel fuel, truck freight has gone up more than $1.25 per bushel just in the last two years to move beans from those northern expanding frontiers to the ports in the south, about a 1300-1500 mile run. And then, of course, most spectacularly the cost of controlling Asian soy rust, we've seen some estimates that it costs $75 an acre extra to control rust. Everybody sprays multiple times, everybody has to do it and, again, they've lost their competitive edge on soy. So, we see multiple years now of losses, people trying to defer and roll debts forward, we saw this week the lowest combine sales in the last three months since the mid-70's and everybody seems to be losing money, bids as much as 50 cents to $1 per bushel below the perceived cost of production in the northern areas. As an extreme example we had reports this week that land prices have gone from $1500 an acre to $500 an acre in parts of Mato Grasso. So, you're going to see a whole probably new batch of producers replace bankruptcies here and whether or not acreage actually contracts in the coming years is yet to be seen. Long-term, as I said on the show, we still need to expand acres to keep supply/demand in balance but we could actually tolerate a reduction in production down there in the next cycle with this slower demand led by bird flu reducing demand around the world. And another year of large crops from North America, we'd have a 700 carry out on beans next year and a situation where really we have no prospect of prices being above the U.S. loan. And, of course, in a marketing loan environment that program is virtually bottomless. How low you can go versus this cost of production factor in South America is still an unknown but what an incredible change in their circumstances down there and that, of course, imputes additional value to North American crop land which has the infrastructure and at the moment is not fighting the Asian rust production cost problem.
Pearson: Alright, interesting what's going on in South America. Walt, up here in North America we've got an awful lot of chickens. And I know that's impacting this beef market. You mentioned it, we had an open winter, we got a good jump on getting these cattle fat and calf crop is looking pretty good.
Hackney: We've had an excellent spring for dropping calves, Mark. And that is good for Montana and Wyoming, Iowa. It really didn't make any difference. It was dry and climatically it was just perfect for dropping calves. A wonderful success rate for kept alive out there in the pasture. One of the things that is concerning some of us is they are calling a herd increase of two percent or thereabouts. And, you know, last fall here on Market to Market we talked about the heifers that were being kept and we commented that, well, that is probably true, in my case I saw it happening considerable over the western states. But those cattle were two years away from being productive as far as adding to the head count. All of a sudden we've started seeing an enormous amount of coming two year old heifers that were being bred and that were being sold as replacement cattle partially because the market itself was phenomenal. And many of those heifers, two year olds bred, were bringing $2000, $2200, $2400 a head. So, we've got an enormous capital cost in those herds in many areas in order to rebuild the herd. If this market does as some of the better analysts are predicting for this year we could see calves at least $10 a hundred, possibly $15 a hundred cheaper in October of 2006 than they were 2005. So, that man sitting there with a real obligation into his asset base is going to be under some pressure, Mark.
Pearson: Alright, well, on that note, Walter, Doug, thank you so much. Thanks for being a part of Market Plus. And thank you for joining us. Be sure to join us again next week. For all of us here on Market to Market, I'm Mark Pearson, have a great week.