Pearson: Welcome to the Market Plus page on our Market to Market Web site. I'm Mark Pearson, the host of Market to Market and great guests this week, some great commentary, Virgil Robinson with us and Doug Jackson and well I'll tell you what Virgil, we wanted to get to one thing in the show and didn't have time. Doug mentioned the concern about, you know, what our feed usage is going to look like. I keep hearing that we're bringing down this sow herd. We'll find out Tuesday, USDA hogs and pigs report. What is your outlook?
Robinson: Trade expectations, Mark, of 4% reduction in the breeding herd, a 2% reduction in the market herd and a 2% reduction in total herd. So, those expectations I think are currently built into the structure of the lean hog futures market, Mark. So anything beneath that would probably be considered disappointing. In that same context I think the department is projecting the first quarter of 2003 live hog prices to average something near the mid thirty-dollar level, so thirty-five dollars for the purpose of illustration.
And second and third quarter prices something in the mid approaching forty-dollar level. I count, using Iowa State basis -- expected basis values, Mark, the Feb/April and June live hog futures contracts from all of Feb through the first half of June and based on those calculations producers at present can lock in anywhere from forty-one to forty-five dollars live.
I think that's attractive, Mark, when you consider tonight's market, generally twenty-nine to thirty dollars live. So, you know, we're talking what could be a ten to near fifteen dollar improvement in the next three to four months and I don't think that's an opportunity you want to let slip by. I'd take advantage of some of that.
Pearson: All right, good point. Doug Jackson... you're concerned. We're seeing competitors now, you mentioned the Black Sea, the old Russian breadbasket over there, South America, we're bi-hemispheric, I think that was your term the last time you were on. And those folks are doing it cheaper than we are?
Jackson: Yes Mark, you know the lessons we've learned in the last several years here is that, you know, maybe it's difficult to make the computer chips but anybody can grow grain. And the United States, the American agriculture is learning the hard way that we are now uncompetitive. In fact, by several industry standards nearly two dollars a bushel uncompetitive on the cost of producing beans and now the cost of producing wheat.
We have statistics from the state universities that show it costs maybe $3.50 to $3.63 to grow wheat in Kansas and actually it's estimated to cost only a $1.15 cents a bushel to grow wheat in Russia or the entire Eastern European Black Sea area. Now, the thing that keeps us semi-competitive is that we have higher transportation costs there just as we've struggled with in South America. But now we see South America solving those problems and the same thing will happen with rail and export improvements in the Black Sea. Remember, the Eastern Europeans, the Ukraine area in particular, fed a hungry Europe 150 years ago and the situation is now really back to where that was. All of a sudden Russian and Ukraine and other areas are net exporters the last couple of years. They're ramping up their capacity, their export elevator capacity and all of a sudden we find out again in the United States that we are really uncompetitive with our high land prices in terms of being able to compete overseas.
So, this is a major long-term problem that really will probably set the stage for the U.S. to continue to be marginalized. We'll continue to lose export share on beans and wheat and perhaps ultimately feed grains and if we don't replace that demand with something artificially supported and subsidized like ethanol we'll continue to just see U.S. demand slip away.
Now world demand is growing, we need more production worldwide but everything will take place, production expansion and demand expansion overseas, not in the U.S.
Pearson: Interesting comments, Doug. Thank you very much, Doug Jackson, Virgil Robinson, our guests this week on Market Plus. Thanks for checking our Web page, I'm Mark Pearson, have a great week.