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Market Plus: May 14, 2004

posted on May 14, 2004

Market Plus: May 14, 2004

Pearson:Welcome to the Market Plus segment here at our Market to Market website. We're so glad that you have joined us. Mark Pearson here - and joined by Alan Brugler and Alan, the soybean market's what everyone's talking about, I mean, I go anywhere and people ask about soybeans. Always kind of a frightening sign when I here High School math teachers telling me about shorting the soybean market. We've been up to ten bucks and when you take your longer view at this market, that's always been a tough thing to follow up on.

Alan Brugler: Yah Mark, there's basically only been three times prior to this year that we were above 10 dollars and that was 1973, 1977, and 1988. '73 & '88 everybody remembers pretty clearly. I went back and looked at what happened in those years after the top was in, okay. When the dance was over, what happened? And basically what happens is we have a very sharp sell off in a very short period of time. In those 3 years, the average price drop for July futures was 4 dollars and 22 cents within 28 days. So, I think we have to be, while we can sit here and hope for 12 dollar beans or 14 dollars beans, or all the numbers that you hear on the street, what's it gonna do this summer cause we're running our? I think we need to realize that once this thing really breaks and the funds want out and the commercials, who are already short, choose to just stand aside and let it come down, we need to realize that it can drop fairly substantially in a short period of time. As a producer, we can't allow that to happen. The market's giving us a windfall opportunity to pay off alot of bank debt and really fix up the balance sheet and we've got to be aggressive at selling that remaining old crop or at least hedging it if we want to play it for bases later on, and recognize that this doesn't have to stay sunny and fuzzy and high priced all summer.

Just thinking back, at our professional lifetimes to have had really things run this well for this many commodities as we've had, should automatically make you a little nervous.

And we have to realize that part of it's systemic, it's due to the low inflation, the adequate money supply, low interest rates, the weak dollar that we had for awhile, all those things contributed to this surge in commodity prices. And all of them may be changing over the next month or two as the Fed starts to raise rates and the dollar changes, etc.

Mark Pearson:The perfect storm in the commodities. Let's talk about the hog market, which we haven't talked as much about the last couple months, seems like we've been on the meats that we've focused on has been cattle. We talked about on the show, it's just an interesting phenomenon, I don't know how significant it is but the fact that near by hogs closed higher than near by feed cattle. You're right, when it has happened before it's been cattle were in the high 50's and hogs were hovering around in there but to have it happen in this stage of the game is very interesting. And I would think it's making some pork producers nervous.

Alan Brugler:The pork producers are nervous because they remember that it wasn't that many years ago when they were just losing their equity in great gobs and big chunks. And they know that whenever there's profits in hogs, we tend to expand the hog herd. And that's kind of the million-dollar question here. We've got the demand at the moment but what are we doing on the supply side? If we start to cut back on sow liquidation, we start to give the Canadians excuses to expand, or we just expand here domestically. You've got relatively low interest rates, there's money to be made in agriculture, you may be able to borrow more money. We're attracting to see some signs or at least hints, that maybe there is a little expansion going on in terms of breeding stock availability and I think we need to be cautious about projecting these high prices that we're currently seeing too far out into the future.

Mark Pearson:Enough said. Maybe look at some kind of strategy right now to protect the profits that we have.

Alan Brugler:Again, we've been 18 to 20 dollars off the lows, while those deferred contracts like the October December and the '05 contracts are at a discount to the current market, that doesn't mean they won't go down once the situation balances it's self out. Consumers may get tired of pork, the Japanese may put the rate-caps back on, or we may find out that we've got four or five percent expansion somewhere down the road in intentions certainly. And that can kill the market as well.

Mark Pearson:Good point as usual. Alan Bruger joining us this week on our Market to Market website. Glad you've joined us on Market Plus. Be sure to join us again here next week and be sure to tell your friends and neighbors. From all of us here at Market to Market, I'm Mark Pearson, have a great week.


Tags: agriculture commodity prices markets news soybeans