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Market Plus: Aug 09, 2002

posted on August 9, 2002

Market Plus: Aug 09, 2002

Pearson: Welcome to Market Plus on our Market to Market Web-Site. I am Mark Pearson. Glad you joined us. Two of our regular analysts are with us tonight. Walt Hackney on livestock and Doug Jackson on the grains. People are worried about what this government report is going to mean come Monday Doug. Talk us through that a little bit, I mean, if we get good prices according to what you are saying, at least as far as the beans are concerned, the concern about yields, we are going to see stepped-up production in Brazil. People are wondering about this Brazilian, this South American, or as you refer to it, bi-hemospheric market place that we have.

Jackson: Well, that's right Mark. The only thing that keeps beans from exploding back to the levels that we might have imagined a few years ago, of course are the large supplies in South America. There are projections already that acreage will be up at record levels in South America this year. You know, the Brazilian currency is collapsed, giving those people record profit margins, record prices in currency terms. This is the beginning of the great golden area of South American agriculture. You know, this really touches on the key point, which is... it is interesting to see what the crop will be this year, but Mark, I am really more interested in the situation next year, because we do not have enough acres in the United States to rebuild ourselves out the hole that we are digging this year. Remember that in 1996, we brought 16 million acres into production in the U.S. after the $5 situation on corn in '95. We can't do that this year. That was a set-aside program that year, this year, we are already fully planted. We have already got about 294 million acres of the top 5 crops in the U.S. and that is only within 2-3 million of the maximum we have ever had. What we have in the U.S. is a multi year problem that really is almost unsolvable. The way we have to solve it, it is to get increased production around the world in Russia, Ukraine, Europe and South America, there is unlimited acres there, but we have got to stimulate those acres and it is going to continue to marginalize U.S. agriculture in the United States. We can no longer be U.S. centric in our view of the grain markets. We are going to become a smaller part of a growing picture in the world agriculture, but we have got to get those acres over seas. We can either do it in an orderly or disorderly fashion with either a mild price increase or a price spike and that is what we have to see in the next year or so.

Pearson: Alright, we will find out a lot after Monday when those reports come out. Walt Hackney, fed cattle market. Where are we headed price wise, we have an awful lot of big cattle out there.

Hackney: We have got way too many big cattle Mark. Way too many, 1,350, 1,400 lb. cattle. We have got an average market weight of 28 lbs. over a year ago, probably a historic high. We have packers today, killing 132 thousand head a day. There is enough in the inventory as we speak through September to take it up to 136-7 and you add the 28 lbs. per head to that, and we have got an over production of beef. The producer sector is losing a lot of money at the .62-.63 level on these fat cattle. Most of those cattle went in the feed lot predicated on $1.80-$2.00 corn. Those rations are in fact letting those cattle come out with a $45 gain cost which would probably include interest. Now, if Doug and the rest of us have got an opinion about corn going any higher than it is as we speak, we are talking 50-60 cent gain cost for one thing. Now, that in its self the economics there are not conducive to feeding cattle except, I am sure that it will allow us to lighten these cattle up. I am sure that cattle feeder isn't going to stay with those cattle any longer than he absolutely has to, so instead of marketing at $13.25 to $13.50, he is going to back his marketing to $12.50 to $12.75. So, in that, higher priced corn might be the blessing that we have needed in this cattle industry.

Pearson: All right. Well, we'll see what happens. Monday will tell all, as far as a government report is concerned. Thank you both, Walt Hackney and Doug Jackson, our guest on Market Plus this week. I am Mark Pearson. Thanks for joining us.


Tags: agriculture commodity prices livestock markets news