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Market Plus: Jun 11, 2004

posted on June 11, 2004


Market Plus: Jun 11, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site, thanks for joining us here on the Web. Alan Brugler is with me this week. I'm Mark Pearson and we're talking soybeans, soybeans, soybeans. Walt Hackney said if we talk about soybeans anymore he's going to, I don't know, jump into the Missouri River or something. But I've been out at the World Pork Expo and I've been talking to people, it's the first thing people talk about are soybeans, soybeans, soybeans. We had some bad news this week for the bulls as far as this soybean market is concerned and frankly a lot of it is coming from overseas, huge, huge increases being guessed by the US Department of Agriculture about South American production. Now, how do they justify that?

Brugler: Well, they said they're expecting a 66 million ton crop from Brazil. You've got to remember this is a June estimate, Brazil doesn't even start planning until October for the most part. But USDA is trying to give us a long lead time on this. Normally they wouldn't make that estimate until July. They're doing it in June because of the intense interest in soybeans as you eluded to. And I think what's going on is they had estimated a 60 million ton crop for Brazil for this past year prior to first the rust outbreaks and secondly the drought in the southern part of the country that trimmed the production in Rio Grande Do Sul and Paranoa quite a bit. And, of course, that drought also effected the Argentine production. So, they're returning to the same acreage base from a year ago and saying this time that yield will be normal and then they're looking at that trend line expansion in Brazilian acreage and saying okay, if they keep expanding at six or eight percent a year they're going to have a 66 million ton crop with normal yield this year. So, it's pretty easy to see where they got the number but the raw change between 52 million this year and 66 million next year got the trader's attention in a very bearish fashion because it is a lot of beans. You figure 36 million, roughly 36 million bushels per million metric tons. So, you've got this huge increase and at the same time we currently think the US is going to have a 2.8 or 2.9 billion bushel production that we've got to get rid of. And we basically have got to get rid of it in that six months before the Brazilian stuff comes out of the field. So, it was kind of a warning shot to the US market that there could be a lot of competition coming and the current price levels would probably drive that kind of expansion in Brazil.

Pearson: Absolutely, and the comment that I heard the most this last week was, I missed it, this bean market thing, it's gone.

Brugler: Well, I think there is some justification for that, particularly from the new crop standpoint. Now, if we can come up with a bull's argument, a squeeze, if you will, on old crop beans they'll probably drag the new crop higher. But that is an if as well. Export shipments were less than a million bushels last week in beans out of the US and there are some questions about crush demand as well depending on how much inventory of meal the producers have. We'll get a little bit of input on that from NOPA on Monday and then we'll look around and say okay, should July beans be higher? If so, maybe we get a second chance on the Novembers. But technically neither chart looks very good.

Pearson: And also it could be an issue of we may have the meal, it may be not where we need it to be.

Brugler: That's true, you could have misallocations around the country. Obviously the plants that are going to get new crop beans the quickest are down in the South but it's going to be a while before you get many beans up in the upper Midwest and there are very few beans available for sale out there. We're hearing basis bids as much as a dollar over the July or a dollar over the August trying to attract beans into the plants.

Pearson: Good hint there that they're looking for some at many points. I want to talk about hogs real quick, we kind of had to rush through hogs in the show and this hog market has been a positive, certainly the demand side, we didn't have BSE in pork so our export friends are definitely buying the other white protein. Are we seeing much expansion out there in hog numbers at this stage of the game?

Brugler: That's always a little difficult to measure. Empirically, the expansion, if there is any, is probably in Canada rather than in the US, at least based on the statistics I've seen. However, I did hear that certain categories of boars are becoming a little scarce from PIC and other folks. So, it may be that there is a little expansion going on, people are trying to upgrade their breeding stock and that is an early warning sign. Certainly we'd expect that expansion given where prices are at. But one negative would be that, in terms of countering expansion is high feed costs. We do have fairly high corn and meal expenses right now and that is probably making it not as attractive to expand as it might have been if we were just looking at the price levels.

Pearson: Absolutely, we needed a price improvement in the pork industry, no question about it. So, we're glad it's happened but maybe not get too attached to it.

Brugler: Yeah, I think the proper approach is thank you for the high prices. If I'm going to expand make sure I lock in those high prices while I still can, futures, options, whatever. That's a little difficult because of the discounts in back months.

Pearson: That's right, not that many opportunities right now. Alan Brugler, as usual, we appreciate your insights. Alan Brugler with me this week on Market Plus. Thank you for joining us, be sure to watch Market to Market on your nearby public television station. Hey, and be sure to tell your friends about the Market to Market Web site and have them join us here at Market Plus. For all of us here on Market to Market, have a great week.


Tags: agriculture commodity prices markets news soybeans