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Market Plus: Feb 11, 2005

posted on February 11, 2005

Market Plus: Feb 11, 2005 Pearson: Welcome to the Market Plus segment here at our Market to Market Web page, glad you've joined us here on the Web. I'm Mark Pearson and with me two of our top analysts, senior analysts, Walt Hackney and Doug Jackson. Walt is going to talk about this calf market. Doug, we're going to talk next week on the show about ethanol. We didn't really elude much to the ethanol demand and what it means to this corn market. And, of course, there are a lot of producers out there making investments in ethanol plants right now. What is your take on that? We need a good corn crop obviously to keep those plants going, right?

Jackson: Well, that's right, Mark. The ethanol story is certainly incredible. Demand goes up 250-275 million bushels a year right now. It's going to continue to expand at that rate for the foreseeable future. The renewable fuels legislation suggests that ethanol production will double from this level by 2014. Of course, about a third of that corn that is used for ethanol comes back in as a feed substitute at a rate of about 30%. We don't want to miscalculate that when we consider the feed competition and this certainly continues to ramp demand up to ever higher levels. You know, there is nothing wrong with the demand picture, we're probably going to have a 10.9 billion bushel demand base next year that will, in fact, require 146 bushel per acre record yield to keep supply/demand in balance. But after this incredible demonstrative year of productivity with 160 bushel yield in the United States that whole issue seems to be on the back burner as we've had this overwhelming surge in productivity. But we must have a big crop, a record crop. We must have good weather all the time. And that demand base is going to be stable and growing. Any time we have a problem of any magnitude with the weather then of course the price picture will turn around significantly and dramatically. But, of course, even that said if you would have an above trend yield, dare I say a repeat of last year's yield, which of course is unlikely, of course then stocks would continue to build in the United States. What we really have here is an interesting parallel situation where demand growth of about 250 million bushels annually is actually almost parallel to the average annual increase in productivity of about 1.5%. So, in a perfect world, if we have cooperative weather, the two should expand parallel and really interestingly keep the supply/demand in balance. We need the ethanol demand to absorb this increased productivity.

Pearson: Excellent point, so ethanol plants, again, looks like a good opportunity out there and a good way to add value in your own local area. We'll talk about that on next week's show. Walt Hackney, we talked a lot about Canada. I wanted to talk about this calf market. This cow market has been very strong all spring. As you know, I've been trying to buy some but I haven't been able to because everybody is too proud of them. We still have a small herd in this country. Talk about this calf market. You talked about feeders here on the show briefly and we got off on the Canada situation on the program. What do you see this calf price doing?

Hackney: Well, that is an interesting point, Mark. Last week 450 pound one iron black calves in Montana were sold for October delivery at $1.30. They've also sold calves this week at 700 pounds for October delivery and a big string of them by the way and they got $1.05 at 700 pounds. So, obviously the buyer sector are alive and well in regard to the price that we look forward to on these calves. We're not going to see as many calves this year for market for feedlot purposes as we did last year. Now, we probably dropped as many, we probably are going to put as many on the ground here in the next six weeks but there will be more heifer calves retained this year. The ranchers have by and large gotten themselves to some degree of solvency over the last three years of extraordinarily high calf markets. So, the point they have made this year is we feel we can afford to keep a few of those heifer calves now for the next year and a half or two, breed them and insert them into our cow herds. Calf prices, I don't think that $1.30 is going to be the norm but I would suggest that your calves at the 500 pounds are going to be somewhere in that $1.20 range this year weighing five. You got to remember with the genetics as they are there are relatively few 450 pound northwest northern type calves being dropped these days anyway. So, the point is a five weight is more of an applicable animal to the market. A lot of the calves with a decent spring, with as much rainfall as we got last year we'll see heavier calves again this year. So, the slides will kick in. A lot of the slides will be six cents, a lot of them will be eight cents, a few of them ten cents but the point is I suspect calves by next October will be weighing even to 25 pounds heavier than last October given a decent summer. The price, I would suggest, will be very comparable with this last year's calf market, Mark.

Pearson: Alright, Walter thank you so much. Doug Jackson, thank you. That will wrap up this edition of Market Plus. Thanks for joining us here and be sure to tell your friends to stop by our point in cyberspace and say hello. For all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news