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Market Plus: Mar 24, 2006

posted on March 24, 2006

Market Plus: Mar 24, 2006

Borg: Hello, I'm Dean Borg. This is Market Plus and our guest this week is Alan Brugler, our market analyst. Alan, planting intentions report from the government coming out this coming week. What is it going to take in that planting intentions report to make any shift in the markets?

Brugler: Well, I think to some degree we'll get a reaction just because we've been waiting on the report. If you look at the chart formation in soybeans it is a triangle, it's a narrower and narrower trading ranges every day. We're waiting for that piece of information to decide where value should go. I think if we were to see a planting intentions figure for soybeans under 73 million acres we'd probably get a little bullish reaction, particularly with the risk of Asian rust somewhere out there or a drought. If you see something over 74, 74.5 million I think the market is going to go on down, most of our technical indicators are pointing towards a gradually lower market. But that would be the trigger mechanism.

Borg: The planting intentions report, how do you merge that with the weather that we've had in the Midwest and expect now in the next month or so? How is that going to correlate? Is the planting intentions report going to be more important in determining prices than weather?

Brugler: No, the intentions report is really designed to give the farmer a last chance to change his mind. It's like hey, here is what everybody is thinking, are you sure you still want to do this? And once that comes out you make some immediate adjustments, price signals. We need more corn, we need less corn, we need more beans, we need less beans. Now, the other aspect of that is the actual weather during planting. I may plan on planting 81 million acres of corn but if it is wet in the spring and I can't run my planter at the optimum time I may miss by 200,000, 300,000 acres. Typically that will end up adding to the soybean side of the equation.

Borg: What are you just personally thinking about the planting intentions report? What do you think?

Brugler: Well, I'm thinking that the soybean number is around 73.5 million acres which is probably a little conservative. Many of the other estimates that are floating around are higher. I think we're all expecting that there will be a little bit of a shift because of the increased cost of fertilizer and fuel this year, corn tends to be a little more energy intensive that way. But the price signals that we've seen in corn lately have kind of slowed that and producers are fairly well married to their rotations.

Borg: If the speculators have been so strong buying grains, why are those prices going down? Why?

Brugler: Well, the index funds, the New York investment types for the most part are still holding their positions. But what has happened is we've had some more speculative developments, the hedge funds and some of the managed funds that have, particularly in corn, a very large, long position, a very bullish position and with the break in the weather, with the increased precip in the Midwest they're getting a little nervous about the size of their exposure and they are cutting back ahead of this planting intentions report and ahead of the actual start of the growing season.

Borg: What is going to have to happen to increase livestock prices, meat prices? Or isn't that going to be in the cards?

Brugler: You don't always -- the old saying is the tree doesn't grow to the sky, okay. We will turn those markets around. I think in cattle the key is the box beef market, the wholesale market, if we turn the boxes around the packers can pay more for the cash cattle. The cash cattle are already a premium to the futures market. If they continue to maintain that premium futures will have to rally.

Borg: And anything about exports there or bird flu that could be an unknown factor?

Brugler: Well, it would be helpful if we had more beef exports, if South Korea and Taiwan opened their -- or Japan opened their borders back up. I don't see the Japanese situation changing for several months. I think there is a saving face issue there, there is a need to show the U.S. who's boss relative to food safety.

Borg: And aren't we sort of walking a little tight rope here now if bird flu were to be found in the United States? Might there be a reaction that would affect meat prices?

Brugler: Definitely a wild card, very difficult to predict because of the fact that this is a different environment than we've seen in some of the other countries that had it. But yes, it could be a very volatile factor. I'd encourage those that are hedgers and those who are unprotected on their cash commodities to be very careful about that.

Borg: Thank you, Alan, for your insights. I'm Dean Borg, for Mark Pearson. Thanks for listening. Mark Pearson will be back next week. For all of us here at Market to Market, have a good week.

Tags: agriculture commodity prices markets news