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Market Plus: Aug 13, 2004

posted on August 13, 2004

Market Plus: Aug 13, 2004

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. I'm Mark Pearson, Alan Brugler with me this week. Boy Alan, I'll tell you what, it's been an amazing year. Soybeans continue to amaze and astound even as we get through this last crop marketing year basically. We head into 2004-2005. USDA number 2.877 billion bushels estimate for -- and people do take this August report seriously because USDA actually does go out and these are estimates, they're actually counting some pods and they're really looking at the crop. So, this one gets a lot of weight. But this soybean crop, a 2.877 billion bushels is one factor. The other factor is what is going on in South America? USDA is anticipating a huge crop down there. Can they do it?

Brugler: I think the USDA's numbers are realistic based on what we know today. They are basically -- they have been carrying Brazil at 52 million for last year, they're saying they might do 66 million this year. They've got Argentina going from 34 to 39. Now, what they're assuming there is, first of all, that those countries won't have a drought like they did this past year. That was kind of overlooked, I think, by a lot of US traders and that is that they had very wet weather in the north early in the season and then they had a fairly persistent dry spell down in Parana and Rio Grande de Sul late in the season.

So, the drop in production estimates this past year from 60 to 52 million tons was not all rust, it was not soybean rust. Part of it was rust but a lot of it was the weather conditions in Brazil and northern Argentina. So, USDA is saying okay, we don't think that is going to replicate. We think that they'll have a normal yield adjusted for 3-4 million tons of rust loss and they think that $6.00 or $6.50 beans, which was the signal we've been sending to all the Brazilian producers, they'll probably expand acreage by another 5-7%.

So, you put the better yields on existing acreage and an increase in acreage and it's very possible to come up with the numbers that USDA has come up with. Safaris, which is one of the Brazilian forecasting firms has matched USDA with the 66 million for Brazil. Solaris, which is another group down there, is a little smaller. But the big question is, of course, how does that weather play out. This far ahead USDA is forced to assume normal weather but that may or may not be the case. Just as with the US we don't know if there is going to be a frost, USDA doesn't count it until it happens.

Pearson: And, of course, the interesting thing is the focus is now going to shift from US production totally now and within 30 days we're going to shift totally to what's been happening in South America, what their planning rates are and what their acre numbers -- or what their hectare numbers look like and so forth.

Brugler: Yeah, we need to see a little bit on the demand side here. There has been a little interval there -- okay, we have a US crop of X, are we selling it? Then we're immediately going to say, and what is coming right behind it? Do we have to sell all of it by March because there is this whopper South American crop or can we kind of be still feeding beans into the world market in April and May and that determines the price level we've got to see.

Pearson: Good points. Now, let's talk livestock for a minute. The fed cattle market, we've been very strong prices. You mentioned just at the tail end of your commentary on the show as long as Canada remains closed -- there's a lot of calves up there, good cattlemen up in Canada watch this show on a regular basis, we hear from them. They're anxious to see their product back down here in the US. Who knows when that's going to happen? What kind of an impact would we see on this US market?

Brugler: Well, as we've talked about before the US feeder market is basically screaming that there aren't enough feeders out there. You can see that in several ways. You see we're pulling six weight calves into the feedlots at much higher numbers than we normally do. We're feeding them to longer weights because we don't have enough other cattle available to come in so we're trying to get a little more feed used up on the existing inventory. That is raising the carcass weights and creating some other issues. But, clearly, if the Canadian cow were available it's going to break the US market unless we've got an offsetting increase in demand and you spell that e-x-p-o-r-t-e, forget the e, export. Exporte, okay.

Pearson: Exporte, yeah.

Brugler: We need to -- many of the industry think that US won't open the border until we reach a deal with Japan for exports on beef. But it's possible we could, because of political pressure or lawsuit pressure even, there is a Canadian group that is now suing the US government for illegal restraint of trade because they claim that the beef has been proven safe and we're just being stubborn about not letting it in. If the US opens the border clearly that increases the supply, it's going to increase the liquidity in the system and we probably won't be able to sustain the types of prices that we've been looking at.

Pearson: Okay, some good points as usual. Alan Brugler joining us on the Market Plus segment. Glad you've joined us, be sure to tell your friends and neighbors and be sure to join us again next week. For all of us here on Market to Market, I'm Mark Pearson, have a great week.


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