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Market Plus: Market Analysts Walt Hackney and Virgil Robinson

posted on September 9, 2011

Market Plus: Market Analysts Walt Hackney and Virgil Robinson

Pearson:  This is the Friday, September 9, 2011 version of Market Plus.  Thanks for joining us here at our Market to Market website.  Well, a wild show.  Walt Hackney was going off the charts when it comes to the outlook for pork prices.  More hogs out there than what most people are anticipating and maybe heading in the next four weeks some big kill numbers on a weekly basis, but you also talked about something I think is of equal if not more importance and that is this beef market where this calf market could be. 

Pearson:  You put a lot of light weight calves in the lots this year.  Last time you were on you were talking about two/three hundred pound calves going into the lots and couldn't go on to wheat.  They couldn't - they had nowhere to go and then the fact that those cows are not going to be there.  So we are not going to have calves next year and then the yearlings that the feeders are looking for they are going to be hard to find.  We could see a real strong market.  What do we do to protect ourselves if we are feeding cattle?

Hackney:   What a lot of the, I call them the major influence cattle feeding groups are doing as we speak, Mark, you can take a feeder steer at the current market which sounds extremely over priced and you can take that steer and put seven dollar corn into him and you can get a plus basis on him going to a packer on cash contract and you can sell that calf today, for instance going into June of 2012, you can mark that calf at a buck twenty-six or seven dollars and sell him flat out cash, money in your pocket.

Hackney:  Now no one is willing to bet hard money that we are going to see a dollar twenty-five to a dollar thirty fat cattle going into the spring for those reasons you just mentioned.  We're going to have a basic shortage of feeder cattle.  We're going to have a basic extreme price according to what I have heard Virgil talk about today.  We're going to see feed costs go even higher, but if you want to sell your corn through cattle at seven to seven and a quarter a bushel, you can do it and you can pay the current feeder cattle market, and you can make those cattle make money for you come next April, May, and June. 

Hackney:  Now the question is how interested should you get in that hedge program?  I call it a hedge.  It is really cash sold program is what it is.  How interested should you get because there is another on the other hand group of people out there that are insistent that we're going to see a dollar twenty-five to thirty cent cash cattle come next spring.  I am not a believer in that.  I think that that is going to be too much for our consuming group to absorb in the retail end of it and I will think they will have a severe over pricing affect on the primals going into the supermarkets.

Pearson:  All right.  It is a fascinating scenario but if you were in that cap where you were a cattle feeder, we've got a lot of them that watch this show and want your advice for just that reason; you would take advantage of that cash program?

Hackney:  Absolutely and why not Mark?  You know it is money in your pocket.  No one has ever seen a cash market like that in their lives and what we are dealing with is an interim public of consumers that may not be prepared to pay the price for those primal cuts at those levels.

Pearson:  Well, the packers saying they think they will and are willing to pay up for them.  Take advantage of that.

 Hackney:  Well, the packer is protecting his risk exposure by going to the Mercantile and taking his options out there to cover his own basis.

Pearson:  Something to consider.  Very interesting.  And real quick, just to paraphrase, you're talking about pressure on hogs if there is bigger numbers out there than what people have been anticipating?  Maybe a hundred/two hundred thousand head more a week?

Hackney:  I think there is a very real potential for within the next six weeks to see our weekly hog slaughter go to 2.3 to 2.5 million hogs a week.  That's going to put a tremendous pressure on the primal cut because our exports have not responded like we wanted them to on the pork.

 Pearson:  Well, let's turn to Virgil Robinson on that very topic.  We had a huge move this week and some would say, Virgil, you are a technician.  You are about as good as technician as we got on the show.  This would be a critical turnaround week for the U.S. dollar, would it not, versus the euro in the foreign exchange markets?

 Robinson:  We have had a couple of real strong weeks, Mark.  So yeah, there will be trend followers that begin to think that the trend of the U.S. dollar has changed.  Now most will place an emphasis on the monthly behavior, month over month Mark, so we are a couple of weeks away from that factor.   But certainly to sustain beef and pork exports we've depended on a pretty weak dollar to do exactly that.  So should that change or the perception change, Mark, that could certainly have an immediate affect on maybe pumping up some new export sales but the long term affect would be more concerning.

Pearson:  That's right.  A little on the bearish side but this was a huge move this week versus the euro.

 Robinson:  Yes.

Pearson:  And we know there is certainly problems in Europe that need to be overcome.

 Robinson:  Well, apparently one of the Board Members of the Central European Bank resigned this week, Mark, and it is assumed, and again you can let your imagination kind of run wild here, that it is the forerunner of some bad news.  So, a couple of folks or one in particular taking the exit door and not willing to stand the heat is kind of the thought there.  That entire region remains, I think, kind of a ticking time-bomb, Mark, and should there be a financial crisis default in one country or multiple countries, it would clearly have an affect on price discovery and equity markets, financial markets, and most likely commodity markets.  Investors are not rational for the most part.  So if something of that nature would occur there would probably be a flight away from risk bearing assets to risk aversion.

 Pearson:  Virgil, I am just going to - we don't have much time.  I wanted you to comment on this.  I talked to so many farmers a week ago at the Farm Progress Show.  They were saying what is the market doing?  What is the market doing?  And, you know, the market it was rallying in a huge way two weeks ago.  And gosh, could we go to eight dollars?  Could we go to ten dollars?  And as many of those farmers would say oh, I hope not. 

 Pearson:  It is a strange position that we find ourselves in today, but they are so concerned about this rationing, the impact on ethanol, and of course on our export business which we kind of already seen.

 Robinson:  On Walter's business.  Yeah, you know, on all users it would have an affect or at some point it will have an affect and I think we are beginning to see signs of that.  There have been fewer broilers, fewer layers placed on feed if that is the correct term in the last few months, Mark, beginning to see a little more stress in the dairy industry because of high inputs.  A little more stress in the hog industry because of higher inputs.  So clearly there are signs that demand is adjusting because of high prices Mark.

 Pearson:  All right.  Virgil Robinson, appreciate the insights.  Walt Hackney, appreciate your insights as well.  Thanks for being with us on the show and here on Market Plus and from all of us here on Market to Market, I'm Mark Pearson thanks for watching.  Have a great week!

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