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Market Plus: Oct 11, 2002

posted on October 11, 2002


Market Plus: Oct 11, 2002

Pearson: Welcome to Market Plus on our Market to Market Web page. I'm your host, Mark Pearson, glad that you've joined us here on our Web site. We enjoy this and glad that you're clicking on. Let's bring in our two analysts this week. We had Doug Jackson and Virgil Robinson here, a special treat. Let's go with Doug first. Doug, you're our greens guy tonight. Soybeans, Virgil had a question about bean meal, about the product usage. Is it running counter to what futures are running to on the actual product?

Jackson: Well, there is an interesting story Mark. The government in Friday's supply/demand projections is still forecasting a small percentage increase in domestic meal usage next year and yet at the same time we're projecting total feed grain usage to be down five percent. The market knows about three months in a row now census bureau statistics have shown a decline in year to year meal disappearance.

This underscores a basic situation that is developing in the meats, Mark, which is that the U.S. is starting to understand that it is no longer a competitive meat exporter. Beef exports are still strong but poultry is running into a brick wall of competition around the world and will continue to do so. This, for the first time this coming year, will be the first year when we've seen year to year meat exports decline in the United States. This is why the government is forecasting about a one and a half percent decline in grain consuming animal units this year. My point is that the strength that has driven this feed usage thing of both meal and corn for a number of years may now be coming to an end, a permanent possible end as this export meat market comes to an end.

So, this may be for the first time the possibility of lower crush, lower domestic meal usage and a slowdown in this feed usage of corn. So, the meal market has been under pressure, the meal basis has been under pressure and some people think this is going to mean lower crush and will mean an oil share gain, oil will gain on meal and it's kind of a long-term negative backdrop to the whole soybean market. Typically bull markets are lead by meal, not by vegetable oil but the oil thing could gain sharply, lower rapeseed and sun seed supplies around the world. So, maybe oil will carry a bigger share of the bean price. But this is a problem in the background on the soybean market.

Pearson: Not too positive on the meat export outlook and of course we just had the situation with the labor strike out there in the port and we've certainly seen the problems of getting meat backed up.

Jackson: We are finding out that you can grow chickens in Brazil at forty cents a pound, sixty cents a pound in the U.S. We know that Brazil has captured a large portion of the Canadian poultry market. they can grow it there, take it to the port, ship it to Canada, unload it and distribute it cheaper than we can truck it from the U.S. to Canada. We're going to face now perpetual strong export competition from South American and Russia and eastern Europe on this meat production thing. So, now all of a sudden agriculture understands that we're no longer the cheapest producer of soybeans and now we're also an uncompetitive meat producer too.

Pearson: Virgil...

Robinson: I was just going to ask Doug or visit with Doug here briefly. I know that board processing margins, Doug, tonight are about half of what they were a year ago. What implications do you sense that that might have to basis values for our domestic producers?

Jackson: Well, we have a real problem here that we're running out of acres here in the United States. Bean acres are going into corn and wheat and all the bean acres have to shift to South America. That leaves these people with crushing plants in the United States with a limited fixed topped out supply of beans and that's going to mean pressure on crushing margins that are based on U.S. futures. the U.S. is going to be this bizarre island of tightness with strong basis, strong spreads but maybe not high flat price.

Pearson: About thirty seconds left, Virgil I just wanted to touch upon that hog opportunity out there for producers.

Robinson: Yeah, again Mark, I'm assuming here that recent USDA data is accurate. We need to see the pace of hog slaughter pick up and pick up pretty quickly here if we are to, in fact, attain the numbers the USDA forecast. So, I'm thinking here something $30 or fractionally above that appears to be a pretty attractive hedging opportunity for fourth quarter. Near $35 for the first quarter I think is also an hedging opportunity.

Pearson: Very good. Virgil Robinson, Doug Jackson, thanks so much. That's Market Plus for this week.


Tags: agriculture commodity prices markets news