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Market Plus: Mar 12, 2004

posted on March 12, 2004

Market Plus: Mar 12, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. Glad you've joined us, I'm Mark Pearson. With me this week, Doug Hjort. And Doug, I'll tell you what, everybody has been talking soybeans, you think people should be looking at this corn market.

Hjort: Yeah, I do. The corn market is situated in a place where the supply/demand numbers in the United States are comfortable. But boy, you go outside the United States and it's really tight. Now, the reason prices aren't higher than they are is because we have enough here in the United States and we can afford to use it as we will. Outside the United States, a lot of the shortages are in countries that don't have any money to buy anything anyway. So, they're not driving prices up at all. But, as you look at this demand, you know, you have to be struck with what USDA said at their ag conference back a month or so ago, three weeks ago. And that is that for next year they put out an acreage increase of nearly 2 million acres, used last year's record high yield, 142.2 bushel per acre, coming out with a 10.41 billion bushel corn crop. The surprising thing was they had demand at 10.5 billion bushel. This year our demand right now, demand estimate is 200 million bushels over what our record size crop was on corn. You go to the world numbers and they are extremely tight on corn, total beans, even wheat and rice, for example, very, very low stocks on rice. So, there is very little wiggle room in this whole grain complex as we go into next year. Now, with soybeans last year we had a poor crop here. And the South American crop is being pulled back, still a record because of increased acreage but, you see, in the corn we had record high yields here last year, record production. Worldwide we had a fairly decent corn crop last year, China was down a little bit but not that bad. So, here we are, we're in a position to where we have to plant every acre we can get our hands on to the corn worldwide and maintain these record high yields just in order to stay up with that demand. If there is any, any sort of a weather problem in China, the United States, Europe or the Former Soviet Union, these grain prices are just going to have to go higher. And depending on the severity of the problem we'll tell you how high they might go. So, even though new crop corn prices are priced roughly the same as the spot month in the futures, I don't know if I want to be a seller yet. A lot of people, a lot of farmers are telling me that I'm not going to price too much of that new crop until I'm pretty well assured that the United States has got a good crop coming on line. So, you know, probably will be but we've got three or four months yet before that can be proven or we can really say okay, this crop really does look pretty good.

Pearson: And you're right, there's something psychological about the fact we're going to use, according to USDA, 10.5 billion bushels and top line we're going to produce 10.4 and that is hitting on all eight cylinders. So, interesting scenario for corn. That acreage report comes up at the end of the month, you mentioned on the show, that is going to be a real critical piece of information in trying to figure out the puzzle of the 2004 crop season. I want to talk to you about cattle real quick. We talked about cattle on the show, this beef market, Mexico, Canada might be opening up so we might be seeing some cattle coming down from Mexico. Mexico is buying our beef. Domestic demand continues to be really strong. You weren't recommending hedges. I've talked to a lot of cattlemen, you have too, there is a concern out there about another event, maybe we would see another BSE outbreak or something.

Hjort: Yeah, obviously you can't rule it out. I guess I'm not sure how you protect yourself against that sort of thing. Not being a broker I don't get into the puts and all this sort of stuff that much and not even futures activity or spreading activity or something. But as you look at overall demand factors on the beef, I just think you should stay away from doing the hedging right now. Within a couple of months I think that picture will become more clear. We'll have an idea as to, you know, the placements in the feedlots have been very, very low here lately. We'll have an idea how long that is going to be continuing, that will give us a better look on the distant future for the cattle.

Pearson: Alright, Doug Hjort, as usual, appreciate your insight. Doug Hjort joining us this week on our show and on our Market Plus Web site. For all of us here on Market to Market, thanks very much for joining us.

Tags: agriculture commodity prices corn markets news soybeans