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Market Plus: Sep 17, 2004

posted on September 17, 2004

Market Plus: Sep 17, 2004

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. We're so glad that you've joined us, touched in fact. With us this week, Virgil Robinson, one of our senior analysts. And Virgil, what a year it's been, what a week it's been. I want to talk about this wild hog market in a minute. We touched on it briefly on the show Friday night. I want you to talk first though about soybeans. Soybeans have still got some legs. A lot of people, you kind of mentioned on the show tonight, it wouldn't take much to get us back to six bucks and that might be a place where you lock in some profit.

Robinson: Yeah, Mark, I don't disagree with that because, again, I have a genuine concern about this global forecast production-wise, bean and oilseed- wise, and I think one has to kind of manage his or her business with that perspective in mind. It could sure happen and if it does come March or April of 2005 from a supply perspective we could certainly be at or below loan values here in the United States. So, I think you have to duly respect that forecast and manage your business accordingly. This week, Mark, I think you mentioned earlier in your program, the Chinese have re-entered the market and bought some U.S. beans. Processing or crushing margins have improved in China of late and that seems to be the catalyst to increased import activity.

However, having said that, most private analysts are of the opinion, Mark, the USDA's forecast yearly export projection is too aggressive and likely we'll not attain that because Chinese imports won't be 22 or 23 million metric tons, they'll be something below 20. So, there again, I understand why they're saying that and that is something that I think producers need to keep in mind, the perspective of how big soybean and oilseed supplies could be in the spring of 2005 and manage your business accordingly.

Pearson: Alright, think global, act local. Now, this hog market, we talked about it on the show. We're looking at record slaughters in terms of our week numbers, 400,000 hogs a day, Virgil. That doesn't happen very much in the history of man. It has happened in '98, it was ugly, we were looking at nine cent hogs, I mean, eight and nine cent hogs. Explain this phenomenon that we've got going right now, Virgil, and where are these hogs coming from?

Robinson: Well, I think it's a classic illustration of a demand driven market, Mark, in as much as supply is really not an issue here, at least supply as we've known it historically speaking. I noted the average price of pork in the month of August here in the U.S. at a record $2.89 a pound with the trend in terms of consumption clearly pointing upward both domestically and for export, Mark. So, you know, we're slaughtering hogs at a rate that exceeds the last USDA quarterly projection. With that in mind they'll update that number on the 24th of September. There will be a quarterly hog and pig crop report. The Canadian issue remains one that is hard to quantify in terms of number but certainly there remains a flow of pork out of Canada into the United States. But, again, to this point trying to handicap a demand drive market, in my opinion Mark, is extremely difficult to do.

I don't know how high live hogs can go but I do believe, Mark, at or near $50 and when I pencil the basis, the Western Corn Belt basis, given the lean hog value of both the December and the February contract, attach a basis to that I can lock in, if I so choose, high $40s and in instances $50 and I'm inclined for producers to do that, Mark, just out of respect for the numbers involved, the seasonal -- it's not uncommon the fourth quarter of the year to see hog prices decline and we are rapidly approaching that period of time.

Pearson: And, of course, things have changed. I'm old school, October is always cheap pork month. But you're right, we could be looking at one of those years where that is not going to be the case, we could be counter-cyclical almost.

Robinson: And certainly could, which speaks volumes about the use of options and creating floors and permitting, you know, the market should it go significantly higher to do so, yet creating a price floor should the market, suddenly the demand for pork suddenly stop or shift abruptly, the market would probably decline very, very rapidly under those circumstances.

Pearson: Alright, heads up out there to producers. Want to thank Virgil Robinson and thank you for checking in with us here on the Market Plus segment on our Market to Market Web page. I'm Mark Pearson and for all of us here on Market to Market, have a great week.


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