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Market Plus: Market Analyst Alan Brugler

posted on July 8, 2011

Market Plus: Market Analyst Alan Brugler

Pearson: Welcome to the Friday, July 8, 2011 version of Market Plus. Thanks for joining us here at our Market to Market website. With us this week is Alan Brugler a native of Ohio, based in Nebraska now, and I had a chance to talk to some of your fellow Ohioans who weren't happy about the fact on Market to Market we've been talking about the fact that they've had trouble getting their crop in and crops weren't looking very good. But that's what the reports have been telling us Alan.

Brugler: Well, they definitely got in late but what I am hearing is that things are looking up. The crop emerged very quickly because we had the moisture and we had the warmer temps. In some areas they now would like a nice little one inch rain. They are getting a quarter inch or a tenth of an inch and could really us a little more moisture which is a rather abrupt switch for them from the early problems, but what we're looking at is on a more national basis. We have a thing called the Brugler Five Hundred Index which takes USDA's poor, very poor, good, excellent ratings that allows us to compare year to year and over a five or ten year period and we're just coming into the main difference making period, if you will, for corn yields. That index this week was 374 is just slightly above the five year average for this date, but normally that index drops off in July and August. The crop just gets a few warts on it as you go through the growing season. The years where we had the record yield it didn't drop off in July and first part of August 2004 and 2009. So we are watching very closely here in Ohio, in Indiana, and Illinois. Eastern Iowa is pretty dry right now. West looks too good maybe even a little too wet along the river of course. But if that index continues to go up over the next couple weeks then we can start talking about a 160 or 161 national average yield and have a little more maneuvering room. If we can't get some rain in some of these drier areas or the temperatures stay high like they did last summer then we have pollination issues or ear fill issues and the corn price is too low.

Pearson: I'm fascinated by people like Owen Taylor a climatologist up at Iowa State. He reports that La Nina has decayed now and is now basically neutral. We're not El Nino but we're not La Nina anymore either. He says this year is very close to ‘74. We've got a lot of late planted corn, and that was an early frost year.

Brugler: Yes. We call this La Nada which is Spanish for nothing. But that same individual will tell you that a lot of draughts in the Midwest start in the Southeast and what we're noticing on the maps is there is a high pressure ridge over the Southeast for the next ten days or so. Right now that means rain in the Corn Belt because the cold fronts are going up around the ridge and it is raining here, but if that were to shift west or north or join up with the one down in Texas it could still be a pretty dry period. So again the crop is not made, of course that ties into our livestock friends, they need an ample supply of corn to feed those ethanol plants so they get enough DDGs etc.

Pearson: We talked on the show about your home state Ohio, the Andersons using wheat for ethanol, talked to a lot of cattle feeders out in Denver last week almost exclusively they have moved over to wheat. So we've seen that substitution. It has been occurring for some time. They are also using a lot of DDGs too in that part of the world. What is ahead for this fed cattle market? Like I said you were friendly last time you were on the show, seem to be pretty friendly near term although you are starting to get some puts out there and maybe figure on some kind of a back up which seasonally would be about right.

Brugler: Yes, we think that again the wholesale price is kind of the driver there and that's being driven more by the export market than anything else. You look at cattle numbers of course they've been above a year ago for eight or nine months in a row now. So we've got more supply, if you will, of domestically produced cattle. One thing that has probably been overlooked is imports. Beef imports are down and that's because the Australians and the New Zealand folks have been able to ship more of it to other places. But I saw one statistic that compared to five years ago that basically the U.S. Market has, excuse me, two billion pounds less beef supply to deal with this year between more exports, less imports, and the production level coming down.

Pearson: And maybe some lighter weights earlier in the year but they tell me weights are going up.

Brugler: Yes, they're crawling up. A part of that has to do with the price of the feeder cattle. When you are paying - you've got this much capital investment in those animals you need the extra pounds per animal to kind of spread out your fixed costs a little bit.

Pearson: And you are right on those numbers. We keep seeing bigger numbers and we know the cow herd really didn't grow any. Are we just pulling cattle early from Texas, Kansas, and some of the draught areas? Well part – yes, we definitely put some cattle in the lots early because there wasn't any pasture down there, but the other thing is that we've got a fairly big percentage of heifers in the lot right now. The cow/calf guy hasn't wanted to expand because he doesn't have the grass. Those heifers are going in the lot so that increases the number of cattle on feed.

Pearson: Good point. All right. Alan, so you're putting some puts out there. You think maybe we will be pulling back?

Brugler: Yes, we are just nibbling at it right now. I think we've got fifty percent of our markets covered for some of the months with puts. No short futures at the moment because again we're not sure we've got a top yet, but feeder cattle, you know, record high prices this week. So you've got to make sure you've got a profit margin before you put - be very aggressive about putting more in the lot.

Pearson: How aggressive are you about hedging out that feeder cattle price going forward?

Brugler: We bought some 142 puts this week for some of our guys down in Texas, Oklahoma area, but again we've convinced them not to go short futures and it has saved them twenty bucks a hundred on margin calls.

Pearson: Big time. Huge week this week too.

Brugler: Yes, it has worked so far.

Pearson: All right. Alan Brugler always great to have you with us. Alan Brugler joins us regularly here on Market to Market. I thank all of you for joining us here on our Market to Market website. Tell your friends and neighbors to join us here as well and of course always remind your local public television station to carry Market to Market on their weekly program so you can see the live version of the show. And from all of us on Market to Market, I'm Mark Pearson, thanks for being with us. Have a great week!


Tags: agriculture commodity prices economy markets news