Pearson: Welcome to the Market Plus section of our Market to Market Web page. I'm Mark Pearson, glad you've joined us here and of course be sure to tell a friend about this great service from Market to Market. And be sure to turn in on your local PBS station every week and enjoy the program. Two analysts with us tonight, Wayne Newton and Doug Jackson. Wayne, talking livestock. We're talking about this cattle market in particular Wayne. It just seems like some of the blooms have come off the rose in this cattle market Wayne.
Newton: But Mark, if you look at the cattle crush, which is an indicator that we use as to profitability and you look at May feeders against July corn against August and October futures, there's an index there of $145 over and above feed and yardage cost. Those are extraordinary numbers. They'll run all the way from maybe 115 on the bottom side to 165 on the topside. So, if your producers were looking for opportunity they may want to buy feeders with a May delivery or buy cattle that would be yearling size, 750 and above in the May period to be sold in the August/October period, hedge them in those markets, put the corn in 2.30, 2.32 somewhere in that neighborhood and there's some very good outcomes.
Usually you don't get this thing within six dollars of one another and if you look at seventy-dollar cattle in the fall months and seventy-seven dollar feeders, those are good numbers.
Newton: Can you buy them at seventy-seven dollars, Wayne?
Newton: Yes, and we have been.
Pearson: Are you buying heifers there?
Newton: No, those would be good steers out of the south in Missouri and Kentucky and those areas.
Newton: And fairly readily, in good quality.
Pearson: Okay, so calf prices have softened up some.
Newton: Oh yes, yes they have.
Pearson: How do you explain it?
Newton: Well, there's a lot of cattle and there was a lot of equity lost, a lot of feedlots are worried about the environment so they're not filling them up. And so it's, right now I think it's a buyer's market and the thing that's, the only fear that can come in it is if we have a back to back drought and the corn market goes sky high but you can protect yourself there with a July call rather inexpensively and then use the options on the sale side and there's some money to be made.
Pearson: Let me just make sure I'm understanding your cattle crush barometer there. That's $145 net?
Newton: No, that's $145 above feed and yardage costs.
Newton: So, you've got to pay the interest and def and the shrink and all that out of that money. But that's at the high end of the $115 to $165 range. That's not profit, I need to make that clear.
Pearson: But we need to make sure that we do have profit opportunity there.
Newton: Absolutely, $25 to $50 in those cattle.
Pearson: Alright, some good news for some cattle feeders out there. Do we have any good news for these soybean producers? Doug, you talked maybe we might see six bucks on the outside. With this South American crop coming in a lot of U.S. producers are kind of wondering what the future holds.
Jackson: Well, the bean situation is fascinating Mark, you know, again for several years now we've had exploding demand and galloping supply. It's a fascinating situation where we've had almost identical or parallel simultaneous expansion in both demand and supply. South American production this year will be up ten million tons and yet world oil seed demand also has been going up nearly ten million tons.
The oil seed market, the soybean market in particular, does see the possibility that six months or a year from now, if the South American crops are up ten or twelve million tons and soft seed production, rape seed, sun seed, cotton seed, is up five to six to seven million tons, we could actually have an interesting situation where world oil seed production does go up fifteen to seventeen million tons and for a rare instance exceed the ten million ton growth rate of demand and so we could build oil seed stocks six months or a year from now.
That's the downside potential here. In the shorter run, however, we continue to have this huge supply and huge demand, we've got to have a seamless transition from North America to South America on this thing. The Chinese of course are buying huge quantities, total purchases out of the U.S. about seven million tons this year, total purchases in the world at fifteen million tons, up about five million tons from a year ago. So, that more than offsets a reduction in demand into Europe. So, again, big supply and big demand.
The outlook meeting in Washington a week or so ago projected the demand level for next year in the United States only down about fifty million bushels. That's incredible when you consider this big expansion of production and competition of South America. They may be overestimating that mark, the situation may be substantially different six months or a year from now in this world balance table and U.S. balance table.
But right now the market does not think it wants to pressure November beans near $5.25. This is an important lynch pin on our approach to this whole market. If you accept the idea that November beans aren't going down much and you accept our argument that July/November is going to go wider, then that's how we push July beans towards or above six dollars even with these large crops in South America.
An interesting situation of supply/demand still being in balance, even with the big crops in South America.
Pearson: Alright, it's going to be interesting to watch and see what happens as the world continues to change and we report it here on Market to Market. Doug, Wayne, thanks so much. Thanks for joining us here on the Market Plus section of our Market to Market Web page. I'm Mark Pearson.