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Market Plus: Oct 08, 2004

posted on October 8, 2004


Market Plus: Oct 08, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. This is always a good place to come to get some additional comment about what is going on in the grain and livestock markets. And we kind of gave short shrift to the pork producers tonight, we apologize for that, on the show that we taped Friday. We're going to make it up to them here in this segment. But before we do that, Alan Brugler, you said something very interesting off the air that certainly got my attention. We might be able to make a claim on our crop insurance depending on what the markets do in October, November for corn and October for beans.

Brugler: Yeah, there is a provision that the payment price, on a revenue insurance, not just straight crop insurance, but with the revenue insurance package is based on the average price in October for November beans or in November for December corn. And you'll recall that part of that is price, the other half is yield. Now, everybody is assuming, gee, there's no claims here because we're having such great yields this year but the price has dropped so far that in many cases you will, in fact, have a possibility of getting forty, fifty, sixty bucks an acre in some cases if the price stays down here during this October/November period. I'm starting to get calls from producers asking, well, if the board starts to turn up how do we hedge our crop insurance payments so we don't lose them? But a lot of folks haven't even thought about this and there is definitely some potential there for some payments even with the relatively high yields that we're seeing.

Pearson: So, it might be a way to earn back part of your expense there on the crop insurance.

Brugler: Yeah, so don't rule it out and make sure you talk to your agent and say, okay, is there something here?

Pearson: It's going to depend on your coverage, like I say, if you just had the basic it's -- but if you have revenue insurance...

Brugler: Yeah, if it's revenue, CPO with RA, there are several different flavors out there. But the ones that have revenue insurance as part of it are definitely still in the hunt for a possible payout.

Pearson: Excellent. Let's talk about the hog business. We gave them short shrift on the show tonight and we felt bad about it because it's October pork month for gosh sakes. And this pork market has been phenomenal. We softened up some this week. Is that kind of concerning you?

Brugler: I'm very concerned the size of the hit that the cash hog markets had here in Iowa and southern Minnesota in particular. The lean cutout has held up fairly well given that we're killing two million head a week, you know, 400,000 head a day in some cases. Typically that does cause pork to back up in the channel and put some pressure on the wholesale price. Wholesale price is down three or four dollars from where it had been but it's not dropping nearly as fast as I had anticipated that it might. That is the good news. The bad news is packers are losing money and they've, because they've got two million head kills they are able to put some pressure on the producers and get that price down a little bit. And I believe we're probably going to continue to see some pressure on the CME index that is used to settle the futures contracts, definitely it will be down on Monday, probably on Tuesday as well, based on the preliminary data and that does have some impact on futures. I think one point we need to make though is that the futures market is already discounting a huge drop in that index.

We're trading December at sixty-six dollars when the index is at seventy-seven dollars as we speak. That is an eleven dollar drop between now and December. February is also at a big discount. So, the market has already got that built in and so even if the cash is dropping that doesn't necessarily mean the futures market is going to drop any great deal here. I'm actually looking for places to sell put options for income on the premise that at those lower strike prices the market won't be able to get there before expiration.

Pearson: Alright, there's a good strategy right there. Real quick, take me into the spring for pork prices.

Brugler: We're seeing some expansion in the U.S., we're seeing pretty much continuous expansion in Canada. I think at some point we're going to overproduce. That is just the way that hog business works, the cyclical side of it. And I think you've got to sell rallies, basically at least put some floors on your prices. We've had pretty good discipline so far but the track record is not good. Sooner or later when prices are running 35% above a year ago, somebody decides to expand a little too far and that bites us.

Pearson: One extra incremental pig out there. Appreciate the comments, Alan, as usual. Thanks for joining us here on our Market Plus segment. For all of us here on Market to Market, have a great week.

 


Tags: agriculture commodity prices livestock markets meat news pork