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Market Plus: Oct 15, 2004

posted on October 15, 2004


Market Plus: Oct 15, 2004

Pearson:This is Mark Pearson with Market to Market. Thanks so much for joining us here at Market Plus at our lovely Market to Market Web site. With us this week, one of our senior analysts, Doug Hjort. And Doug, we've been talking about the grain markets for some time. You were bringing up something that is kind of interesting. This wheat has really kind of held its own in here despite big yields. You brought up the question of quality. And, of course, that is an issue this year. We've got a lot of wheat but the quality, the milling quality may not be there. What is that going to mean for price?

Hjort: Well, it's going to distort price is what it's going to do. Hard red spring wheat is the one that's got the real quality issue and that is because of some in the United States and quite a bit in Canada. Durham wheat, by the way, too is in the same situation. On Friday afternoon after a couple of weeks of kind of sloppy basis level, protein premiums if you want to call them that, for the hard red spring wheat, we had some classes, 15% pro and higher up 50 cents a bushel. That is telling us right there where the quality issue is. We don't have a whole lot of high protein wheat this year and when the total volume of milling quality wheat is down, this is hard red spring wheat now I'm talking about, and that is usually the high protein stuff that Japan wants and it's the premium bread wheat is what it amounts to. Total supply of that is down in milling quality and now you're seeing a switch too, not a switch, but a vast difference between the lower proteins and the higher proteins. Now, we've seen this protein thing jump all over the place for those spring wheats and we'll probably see that continue. But I think that is where the game is going to be played, the difference in quality because of -- the difference in price because of difference in quality of this wheat. Just a comment about the Durham market too. Durham tonnage is high in the United States and Canada, just the same as the hard red spring wheat was. But Durham is more touchy when you come to quality issues than the hard red spring is. So, there you really start getting docked on price, big time, and in a hurry if the falling numbers come down too much and the quality is distorted. So, even though we've got larger Durham tonnage in Canada, or in the United States, we may not be having a larger amount of the good quality Durham there. So, any Durham producers out there, check your sources very carefully before you start merchandising your Durham.

Pearson: Absolutely, protein issues going to be a big one in a year like this one, which ironically it seems like in the years with better weather we seem to suffer protein issues. So, yeah, this is going to be one of those years, no question about it. Doug, real quick, we ran out of time on the show when we were talking about hogs. This has happened a couple of weeks in a row. You pointed out the fact that if you look out in the futures months this hog picture is not very pretty and you made the comment you think the cash is probably going to follow that.

Hjort: Well, I think it will and the -- October futures went off the board this week on Thursday and when I was taking my chart down for this year I just looked at, well, replaced it as I do with the October of 2005. Twenty dollars a hundred weight difference between those two, twenty dollars. Now, it's a gradual decline, December, February, April so on and so forth. But yeah, I think we're going to have cash prices suffering. Now, we have been running a slaughter here on the hogs well over 2000 head per week for quite some time -- two million, two million head, yeah. And this is, it's partly because of the Canadian situation so maybe this announcement by the commerce department might have something to do with shutting some of that off but that's long-term stuff, that is not going to happen by Monday morning. That might be by the first of the year or six months down the road. So, cash prices I think are under some pressure in the long-term. Sure, we'll have our bounces up and down but down over the long-term.

Pearson: You get an up hit and you've got to take advantage of it.

Hjort: You do and you've got to be careful with the hedges because the speculator crowd pretty much dominates the futures market and just like on Friday, boom, as soon as they got that announcement from the commerce department it's limit up so your hedge doesn't look nearly as nice.

Pearson: Absolutely, Doug Hjort, as usual, some great insights. Doug Hjort with us on the Market Plus segment here on Market to Market. For all of us here on Market to Market, have a great week.


Tags: agriculture commodity prices markets news