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Market Plus: Oct 07, 2005

posted on October 7, 2005

Market Plus: Oct 07, 2005

Pearson: Welcome to the Market Plus segment here on our Market to Market Web site. I'm Mark Pearson. So glad you've joined us. It's always a special time when Walt Hackney and Doug Jackson join us on the show. We get two insights from our senior analysts. And Walter, I want to come back and talk just real quick on this cattle market. I mean, we talked about, and you mentioned it three times, ninety cents, ninety cents, ninety cents. We don't know that we actually traded at ninety cents or not and your concern is this market has had a big jump here and it's looking a little toppy.

Hackney: The feedlot industry put so much emphasis on $90 fat cattle this week that it prolonged the market up through today. If by the time we went to air, Mark, there wasn't a bunch of $90 fat cattle sold nationally from West Texas to Illinois, we're going to carry an abnormal supply off of this week's show list into next week. That may or may not be all bad; the point being there, though, by the week here in the last three weeks our beef average weight carcass has gotten heavier. And even though they're only killing 610,000, 615,000 cattle a week, that extraordinary extra tonnage carried over to next week is going to come back to haunt us. And the psychology of the packer not having to give ninety this week, if he did not today, is going to come back and hurt us next week in our cash market programs.

Pearson: Alright, what about the Canadian situation, cattle coming (down) from (up) there. There were a lot of yearling cattle up there that are going to impact us.

Hackney: Well, no question that the impact is that 11,000 head of slaughter cattle that came in this week on top of our cash market. Now, they can talk about Tyson potentially going on strike in their Canadian plant but that is kind of like, so what? That beef is either going to come down in the truck and walk off or it's going to come down in the truck and be carried off in a box; either or, it isn't going to affect our trade that much. People are living in fear of the Canadian imports as we speak, not to worry the shortage in the United States is no more than being offset by the Canadian imports anyway. So, we don't have that much to worry about.

Pearson: Alright, let's go over and talk about soybeans and Doug Jackson, you said something interesting, you talked about we need six million new acres of soybeans a year. We were seeing that coming straight out of South America, out of Brazil, out of Argentina, and now again the talk down there, the economic issues down there are becoming quite strong. We could see a contraction?

Jackson: Yes, Mark, this is a very interesting situation here. The South American bean producer has really been hit by a triple whammy. He is having to now effectively spray twice at least to control Asian Rust. He's dealing with a currency move of over 27% this year as the Real is appreciated, and he's dealing with higher fertilizer costs where they have to fertilize beans dramatically. You can imagine that Mato Grosso at the far end of a 1500-mile truck run with fertilizer higher priced at the port being, needing to be trucked into Mato Grosso with higher, albeit government-controlled diesel prices there, and then soybeans trucked 1500 miles back to the port for export, similar to moving from Minneapolis to New Orleans, may now actually be seeing a situation where all these influences are coming together to actually put Mato Grosso at a perhaps permanent or semi-permanent disadvantage and its cost of production after, of course, we have talked about Brazil being a least-cost producer and undercutting the U.S. for so long. We're seeing land prices dropping in South America. The domestic economics of producing soybeans there has collapsed to the point where we've seen producers simply refusing to rent land, turning land back to landlords and talking about a contraction of acres of one, two or maybe even four or five percent from last year's level, which is of course amazing, reversing the expansion, the clearing of land trend that we've seen for a number of years.

Jackson: And as we said earlier the Western Hemisphere bean demand goes up seven to eight million tons a year, Mark, year in and year out, led of course by Chinese demand. And that requires effectively six or so million acres of bean expansion every year and this has to come primarily from South America and again primarily from Brazil since U.S. acreage, at least in the past, has been largely capped with the CRP program and the corn and bean rotation. So, in the very short run if we'd have extraordinary good weather and yields rebound as they could, maybe we can get by one year but we need to expand acres in Brazil. That means you can't drop below that cost of production long-term.

Pearson: Okay, so American producers shouldn't be too discouraged at this stage of the game, maybe not get in too big of a hurry on making sales.

Jackson: That's right.

Pearson: Excellent, Doug Jackson, thank you. Walt Hackney, thank you. It's always such a pleasure to have the two of you with us on the show. Walt Hackney and Doug Jackson, two of our senior analysts. For all of us here on Market to Market I'm Mark Pearson for Market Plus. Have a great week.


Tags: agriculture commodity prices markets news