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Market Plus: Feb 25, 2005

posted on February 25, 2005

Market Plus: Feb 25, 2005

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. I'm Mark Pearson. Glad you've joined us joining thousands of your friends and neighbors who join us here each week. Always great to get some extra comments from our analysts, this week especially Alan Brugler joins us. And Alan we were talking about this soybean market, talking about the potential dryness of Mada Graso. I mean, we're back to watching this soybean market as close as we watched the soybean crop developing here in the soybean belt in July and August. Dryness over the weekend, a lot of short covering, big market moves in Chicago. It's like we've got that bihemispheric market going. What are you telling producers?

Brugler: Well, again, it is like a weather market and it's basically late August down there in terms of their growing cycle. So, we're getting to the tail end of the period where you're going to yield development much. Basically I'm telling producers that that Brazilian weather is the story but it's not necessarily what is driving the rally. A lot of that fund buying is not tied to Brazil, it's tied to other things. It's tied to short covering, it's tied to wanting to get flat or maybe a little long going into the US growing season. There are other things behind it. So, number one is don't get too distracted by the Brazilian production. They are going to be down, the market knows the pattern. We had the same pattern last year where every estimate was lower than the estimate before and the market likes to think that we're going to repeat the same pattern and drop the production eight or ten million tons from the initial estimate and be bulled up. The crucial difference is USDA is saying we have 61 million tons of ending stocks that we don't need this year. Last year we were at 33 million when we were doing the same spiral. So, it's not the same situation. It's certainly friendly to the market. It is reflective that all the bad news is probably in for now. I don't think we can probably go back to the old lows but the market is very frothy here and I'm encouraging producers to be looking to make some more cash sales and certainly to put some floors under the market with put spreads of some type.

Pearson: When you said some time ago that you were having a target price of $6.25 I thought you were about half nuts. $5.95 up over $6 and $6.25 isn't that far away. If we're dry this week then we could hit it. That would be your next target?

Brugler: That would be my next target. There is a fairly well worn rule of thumb in the industry that beans -- November beans almost always trade $6.25 some time between January and harvest. And we're close enough now that this could be it. If we're down hard on Monday I'm not going to hold my breath waiting for it. I'm probably going to sell something. But that is a workable target. I've got a new price and probability forecast coming out on July beans next week that is going to show on the upside potential for $6.50 based on where we're at today. So, we can't rule out those kind of numbers. We have to remember that the average trading range in a year in beans is $2.18 cents a bushel.

Pearson: Right.

Brugler: And we don't want to sell the first fifty cents up.

Pearson: That's right. Alright, I want to talk about livestock. We touched on it on the show. It's been such a contentious issue, this reopening of the Canadian border to beef imports into the US. And it's coming up March 7th. A lot of producers out there are very concerned, a lot of viewers out in Montana. We talked about our Canadian viewers wanting to know just what is going to happen. You made an interesting comment. You thought the Canadian prices would probably come up to the US price. And probably not going to see this wall of cattle coming across the border on March 7th.

Brugler: No, I don't think so. USDA has lowered their estimate from what it had originally put out. Part of that is because we've discovered the Canadians have more internal packing capacity than they had a year ago. But part of it is also just an understanding that it's getting all the processes realigned and making sure everybody is complying with the new rules that are in the USDA packet. Okay, the stuff that is in the federal register has very stringent controls on feeder cattle and a lot more documentation requirements for the fat cattle coming into the plants. So, it's going to -- while we'll probably have some people bring some loads across pretty quickly to just test the system out, assuming again that there is no last minute stays out of the court system, I think that if I'm a Canadian producer and I've got cattle to sell I'm going to very quickly mark those cattle up to US prices once I know the demand is there, that they are actually going to move across the border. It's not a demand vacuum situation. When you can't move them across they're not worth much if you can't get them but once they are able to move to the higher priced US market I think you see that leveling out fairly quickly. It will have some kind of an impact on US prices. It's going to make it difficult to go back to $95 or $100 because there is more cattle. You've got more to kill and you've got more coming into the feedlots on the feeder side.

Pearson: Of course, we'll see what happens with Japan and Asia and what happens on our export side.

Brugler: Yeah, it's entirely possible we have a sell the rumor by the fact, the market declines into March 7th and then everything is okay and prices rebound.

Pearson: It's going to be interesting to see. Alan, thanks so much for your insights. We appreciate it. Of course, we appreciate all of you joining us here at our Market Plus Web site. For Market to Market, I'm Mark Pearson, have a great week.


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