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Market Plus: Apr 30, 2004

posted on April 30, 2004

Market Plus: Apr 30, 2004

Pearson: Thanks for joining us here at our Market to Market Web site and our Market Plus segment. I'm Mark Pearson, what a week it's been, what about a ten month period it's been for these commodity markets. Doug Jackson, a lot of what has been driving this market for both soybeans and for corn has been a situation in China. You mentioned it on the show, China is the number two corn producer in the world behind the US and they're actually fairly darn close. You just returned from China, fill us in, what is going on over there?

Jackson: Well, as we mentioned with the corn, Mark, the corn market does face the same problems in both the US and China, which is a lack of acreage or in the fact of China a contraction of acreage, abnormal weather problems that are giving us some below trend yields and a growing demand base. You know, the Chinese recognize they do have a problem. They've got a demographic problem, they've got a significant loss of acreage taking place, the acreage reported by the government down about 20% in ten years. Reforestation and urbanization are the two forces driving that. They recognize it, they're trying to restimulate production with changes in ag policy, direct subsidies or reduced taxes. But the problem is the arithmetic of their population and this reduction of acres is something that is irreversible. They may be able to slow down the trend, they may be able to increase yield per acre but probably we face the prospects now that China will exit the corn export business permanently as their supply/demand contracts. Chinese grain stocks have collapsed by hundreds of millions of tons from the peak of a few years ago. They recognize they've got a problem but it may be too little too late to significantly turn that around. So, it means less corn export competition for the US and more demand longer term. Imports of wheat this year, the wheat thing being a little tighter right now than the feed grain situation, and the only gray cloud in the scene is we're starting to see more and more clear evidence here of a possible significant contraction in their economy. In fact, even late this week we had people talking about a meltdown, a significant rise on interest rates, a significant change in economic policy, 40% of bank loans non-performing and of course, this is reminiscent of the Asian contraction of a few years ago. And this could start to be a major market factor as we go forward here slowing down feed demand, bean imports, they're choking on bean supplies right now, crush margins have collapsed, their crush industry is running at a 50% of capacity rate. So, this is kind of a change and already we're seeing ocean freight collapse, metal prices collapse, this has effected West Coast corn basis and other things. So, this could be a moderately significant thing in the intermediate run but the long-term factor of Chinese demand growing and lack of exports is still a long-term influence here particularly on the corn. Pearson: Positive for US producers. Jackson: Right. Pearson: Big time, Doug Jackson. Thanks for the report. Walt Hackney, Doug is talking about these high prices for corn and soybeans, are you seeing this reflected in these feeder calves? Hackney: We're seeing some concern from the cattle feeder in regard to a cost of production but the overriding influence on the cattle feeder is the reduction in the cow herd, the potential of a drought ridden area, Montana, Wyoming, Colorado, this year again similar to a year ago. Fewer calves, in fact, coming out of the range country combined with that same grass range for summer pasture restricting the amount of yearling cattle that we'd have on summer pasture. So, the availability of feeder cattle per say is creating great override in regard to fear of cost of production. We're near or beyond all-time record highs in the price of these feeder cattle coming in. So, the optimism on the deferred months of marketing is sky high. These people are in fact looking at a potential of a mirror image of last year. I think that's a little over aggressive, I think it's a little over optimistic to think that we could take cash in excess of a dollar a pound for cash cattle. But as you're aware last year we had $1.15 market. We'll need probably 90 or better in our cash market as we get into the next six month marketing simply due to the cost of production plus the extreme high cost of these replacement cattle going in. They're already contracting calves now out of Montana, which is probably three weeks early because the people are feeling the crunch on availability and they're out there wanting to get a hold of as many of that calf crop as they can even though it's three weeks early in regard to contracting. Pearson: What kind of prices are you seeing up there? Hackney: Six and a half weight calves around $1.00, $1.02, 600 pound calves $1.05 to $1.08, five and a half weight calves up around $1.10 to $1.12. Keep in mind you've got to put four to five dollars freight on top of that to get them back to the cornbelt. Pearson: Good points, Walter. Alright, so as really about as good as we've seen for both the grain producer and the livestock producer as we've certainly seen in terms of outlook and in terms of price and that is some good news out there. Thanks all of you for checking in. I want to thank Walt Hackney and Doug Jackson for being with us on the show and of course, here on our Market Plus segment. And just a reminder be sure to tell your friends about our Market Plus segment, we'd love to have as many people as possible join us here. Thanks again, for all of us here at Market to Market, have a great week.

Tags: agriculture China commodity prices corn markets news soybeans