Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. I'm Mark Pearson, glad you've joined us with our newest market analyst, Alan Brugler, from the Omaha area. Alan, it's so good to have you with us. Let's talk about this market. One thing we haven't talked about in a while, when it comes to soybeans, are the byproducts. We haven't talked about meal and oil for a while and you're particularly interested in watching the soil market.
Brugler: Yeah, I think we've got a real interesting situation going there that's driving the bean market. Not only do we have a reduced crush because we just don't have the beans this year but USDA told us this week that the estimated oil yields are down. They're only going to be about 11.22 pounds per bushel, which means that we're basically creating a shortage of bean oil and drawing down the inventory. Once you start to get down below a billion pounds of ending stocks it starts to be really, to really have a high leverage on the price. Our model says that the bean oil cash price should go over twenty-nine cents, maybe even twenty-nine and a half, which opens the door for maybe thirty-one or thirty-two cent futures, at least briefly. If we get that kind of a number then the bean market has got to go higher because the value of the beans will be higher.
Pearson: This low oil situation, we have competitive oils out there but most industries are reluctant to switch, isn't that correct?
Brugler: That's right, we do have, we have had increased supplies. We've got record large palm oil production around the world this year and also record large cottonseed oil. And we've seen some improvement in canola and in sunflowers. But the story is the world demand has just been excellent for bean oil. It's fairly well known that China's economy is booming and one of the things that they've been buying a lot more of is vegetable oil. But, yeah, there's not a lot of willingness to switch because it does change the flavor. If you take your French fries and you change from peanut oil or soybean oil to palm oil, everybody is going to know because they taste different. And, of course, you've heard all of the things about tropical oils and fats and so forth. So, there are certain applications that are kind of locked into a particular variety of oil. But the main story is that as long as bean oil is a little short and the pile is going down there's some price leverage there and that should translate over into the soybean market as long as soybean meal, which is the other main byproduct, will let it.
Pearson: Absolutely. Okay, let's move over to livestock. And I apologize because in the show we ran a little bit short. The hog market, you said, obviously too many hogs. We're still there with too many hogs. We'll have a final hogs and pigs report at the end of the year.
Pearson: Has this hog business become so inelastic with these integrators that we just, we're not going to see the flexibility in production?
Brugler: We're taking the bumps out, I think, within the domestic market. We're not getting the big swings. Now, the problem is that means that when we have too many it's very hard to get those numbers back down. And I think one thing that's been underappreciated is the impact the imported hogs have had. I'm not saying we should stop importing necessarily but I think we need to look at, perhaps, the hog supply as a North American hog supply rather than just a US hog supply. We've seen some interesting statistics on the number of hogs coming across, the number of feeder pigs coming across.
Pearson: Specifically Canada here...
Brugler: From Canada specifically and, you know, they ebb and flow, those numbers can have a big impact on an industry where even a one percent variance in the supply and demand balance sheet causes a big swing in the price. You know, historically we've had to sell it or smell it. We don't have a lot of freezer capacity, a little bit of an increase in export sales helps the price quite a bit, a little decrease in export sales the same thing. Consumer per capita consumption doesn't change that dramatically. But where you've got the big swings, it used to be on the US production, now I think it's, there's still some of that but you're also, you've also got to factor in this import factor where all of a sudden an Iowa packing plant doesn't need very many US hogs because they've got 20 loads of Canadian hogs coming in. Next week those Canadians are gone and they need the US hogs and they're bidding up for them. So, it's probably underappreciated and I think could have an impact on our prices in '04.
Pearson: Excellent point, thank you so much. Alan Brugler joining us here on Market Plus. Be sure to tell your friends to join us here at the Market to Market Web site. And thank you for being a part of this week's show, I'm Mark Pearson. For all of us here on Market to Market, have a great week.