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Market Plus: Mar 05, 2004

posted on March 5, 2004

Market Plus: Mar 05, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. Boy, what a fortuitous occasion we have on the Market Plus Web site this week because our two analysts are Doug Jackson and Walt Hackney and great insights in the grain markets and the livestock markets. Doug, we've got to revisit what everybody is talking about, that is this bean market. There is excitement going forward with corn, as you talked about on the show, but this old crop bean market, I can't get from one coffee shop to the next without somebody knocking me down wondering what your thoughts are on beans. So, on the show tonight you said, you know, you'd sell a few of the old crop beans right now but you're not ruling out that this thing could get better.

Jackson: No, Mark, you've got the school people out there that are still in the twelve to fourteen dollar camp, of course. Whether or not that is really realistic in the bi-hemispheric supply situation we have today, we need to remember that there is over 50 million more tons of beans in the world today than there was the last time we had these kinds of prices. And you have other students of the market that think that if you'll carefully examine the slow down of demand in China, Japan, Mexico and Europe that they can start to see a glimmer of a light at the end of the tunnel where we can end up with some kind of small, historically tight but possibly tolerable carry out in the United States. And, of course, we walk such a fine line now with a two dollar inverse in these old crop, new crop futures, prices at fifteen year highs, you know, just the slightest nuance of a change in this supply/demand situation is going to have a dramatic impact on price. We saw twenty-five cent, thirty cent per day trading ranges just this week and that is even without a weather problem next summer. Mark, this weekend we have a tremendous difference of opinion just on South American crop prospects. Is it 61 million tons as the government estimated? Is it 58, 55 or something lower million tons? And that, of course, will start to be factored into the numbers when the USDA comes out with their supply/demand report next Wednesday. But, of course, even then they're not going to give us the full story. So, we really have a significant question here about old crop supply/demand in the US, a major question about South American production and it just keeps this thing on the edge of its seat all the way into summer. We're going to have the smallest stocks report at the end of the month of March in 22 years in the United States. We think the mid-March crush report will still show that demand is very strong. And yet we also know that we've had some of the slowest sales of beans and meal in history in the last few weeks. Mexico is buying beans for the first time in years, ever really in South America. And late this week, Mark, you could buy a cargo of beans in South America to go to Japan and even after paying the high ocean freight, you could buy them two and a half million dollars per cargo cheaper than loading them out of the US. So, that is the arithmetic we're facing, we're going to walk a fine line on supply/demand in the United States all year long. But we may not really be as optimistic as some have been projecting these double-digit prices when you look at some of this arithmetic more carefully.

Pearson: Alright, well, next time we're going to talk about the new crop corn outlook because that is an exciting area too but we're out of time. We need to go talk livestock. Walter, this fed cattle market, you said it is demand driven. Smallest cow herd, I think I read, since 1959. So, there aren't big numbers out there in the entire inventory.

Hackney: We're a minimum of one percent, I happen to believe, over two percent short in our national cow herd than we were two years ago. There has been zero growth, you may have thought they would have kept some heifers back last year. Well, that market for one thing was too good and those guys needed to increase their indebtedness so they sold their cattle. The other point being the drought, they didn't have the winter feed and they couldn't buy it so they sold the heifers out. This year we may see, out of this short cow herd, we may see some retention of heifers though this year. Well, if that is the case, if it occurs in October of this fall then what is going to happen to our numbers available for the buyers, for the cattle feeders? That is going to be from wherever it is, whatever less of the kept heifers who is going to be in there. So, there is an availability issue in this market today. We've got a bull trend and it probably is going to maintain that bull trend on feeder cattle, Mark, all summer. The western areas certainly did not have the moisture here in the last month and a half that we through the Midwest may have enjoyed. That country that was so droughted out last summer still is in desperate need of moisture for summer grass. Last year what was our issue, Mark? We didn't have enough summer grass to maintain the yearling herd on grass. They had to come off early. That, very simply, could be the case again this year. So, there is nothing in this trend that has changed really from a year ago except we may have fewer heifer cattle for sale this fall than we had last fall. What a bullish scenario for the cow/calf guy right now. It truly is.

Pearson: Give me some prices, what are you seeing out there?

Hackney: Well, right now keep in mind that these are local buyers. These buyers are of the order buyer group, for instance, in Montana there is a group in that area that have went on record and given $1.04 for 600 pound base weight steer cattle.

Pearson: Wow. Well, good news for cow/calf producers out there and of course, they need some good news too. That is all the time we have. I want to thank Doug Jackson and Walt Hackney for being with us this week. I thank all of you for checking in at our Market to Market Web site, be sure to tell your friends and neighbors and again, we'll check in with you next week. For all of us here on Market to Market, I'm Mark Pearson, have a great one.

Tags: agriculture commodity prices livestock markets news