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Market Plus: Dec 31, 2004

posted on December 31, 2004

Market Plus: Dec 31, 2004

Mark Pearson: Welcome to the Market Plus segment here on our Market to Market Web site. I'm Mark Pearson. Glad you could join us for our last show of 2004. We pick our analysts with rhyming names, we had Erin and Darin on Friday. And Darin Newsom and of course, Erin Golly, new analysts, good to have you with us. Erin, you were sure excited about the hog market, you about jumped out of your chair when I asked you what this hog market was going to do and your reaction to this hogs and pigs report. Talk about this. What does this mean for pork producers going into 2005? Because we were expecting some expansion, cheap corn, decent hog prices. I mean, that is usually an automatic to see this market expand. Is it the vertical integration that we see in the hog market? What has happened?

Erin Golly: Well, Mark, the hog market is just full of so much bullish enthusiasm right now. Producers had a great year with larger turns and very cheap input cost. But I think we are in the beginning stages of the expansion phase though. I'd find it hard to believe that producers will hold back on expansion plans with these great profits in front of them. Looking forward though into next year I think that we'll probably have good opportunities within the next three quarters for the hog producers. I think that futures will continue to carry a premium to cash which is just great for producers to lock in profitability.

Golly: On the next major rally up though we look for producers to look at hedging up to 50% of their production at these higher levels by purchasing put options. The hog market is demand driven right now so that is why we recommend putting out puts so you don't put a top on your market strategy. But things look very positive.

Pearson: But let's not get overly enthused, you're saying, let's maybe lock something in if we can.

Golly: Right, capture some profitability while you can.

Pearson: Alrighty, about what level do you want to do that?

Golly: Well, we think cash will rally up to the sixty dollar level and I think, you know, you've got to look right around that area to lock some profitability in.

Pearson: Sixty bucks should work with the cheap corn that we're talking about and cheap soybean meal. Darin Newsom is with us too. And, Darin, we talked about soybeans and it seems like that is all I hear people talking about is soybeans. Now, you had some insights on the soybean market and what you thought might occur. There is some concern about what acreage might amount to with soybeans. But there also is a lot of producers out there, they're watching the South America crop, they're really plugged into what is happening down there and that looks awfully good.

Darin Newsom: They really are and this week we got word that the harvest, early harvest had started in Matto Grasso there in Brazil. So, I mean, I was visiting with one of the guys on the floor and he said, our window of opportunity for a rally may be slamming quickly. The U.S. producer is very interested in what is going on down there. They watch the South American weather forecast. We're seeing -- we're getting more headlines of rust coming out of Argentina now. So, this rust issue is not going to go away. You know, Argentina really didn't have to battle it that hard last year. It was more of a Brazilian problem now, both cases have popped up in both Brazil and Argentina. So, this is going to be something that is very interesting next year. How many acres is it going to switch? Right now we're talking -- we're hearing talk about one and a half to two million acres possibly. Again, basically due to the cost and just not wanting to fight the problem. It's going to be very -- it's going to be a very interesting discussion as we head through the spring and as we set our sights on the prospective planning report at the end of March.

Pearson: Mm-hmm, that is going to be an indicator. Of course, by then this Brazilian crop will be just about close to being in the bin.

Newsom: We'll have a good idea of what it is. You know, last year we continued to see for both weather and disease problems. We saw the South American crop just continue to decrease in the projections of its size. A situation like that this year could, you know, it could spark another bullish -- another bull run. I'm not going to say it's going to be similar to what we saw last year but all the fuel is there. Yes, we've got a huge supply domestically but there is an enormous demand. And if we can continue to see exports stay at a solid pace and if we continue to see the U.S. dollar and ocean freights coming down we could have another good export year.

Pearson: Okay, so don't get a hurry on moving those, at least those '05 beans?

Newsom: Probably not yet, no.

Pearson: Excellent, alright Darin, thank you so much. Erin, thank you so much. That will wrap up the 2004 edition of Market to Market. Thanks for being here at our Market Plus page. For all of us here on Market to Market have a great new year.

Tags: agriculture commodity prices markets news