Pearson: This is the Friday, September 30, 2011 version of Market Plus. Thanks for joining us here on our Market to Market web site. With us this week one of our regular market analysts Alan Brugler.
Pearson: Alan big pull backs in both corn and soybeans. You talked about it in depth on the show. I do want to come back to this stocks report. We didn't cover it in as much detail as we would like but - this was a blow in terms of finding additional bushels. Particularly I am looking at corn but at the same time that's not unexpected. We sure have seen this before and we have a long way to get to January.
Brugler: Yes, we have had very erratic numbers out of these grain stocks reports going back even to June of 2010. USDA is chasing some statistical issues here related to the ethanol production and how much corn it is actually using, DDG production, and whether it was exported or kept internally. We think part of the problem here was the fact with the slow down in exports of DDGs to China that we had to feed more DDGs here and that backed up in place of some corn. So it - these are statistical issues that basically we created what we call a negative residual which I explain as we found it, we don't know where it came from.
Brugler: But one of the other interesting aspects of this has to do with new crop corn. It was harvested before September 1 and then was probably fed right away. If you think about the Southern Plains and the feed issues they were having and we may have fed more new crop corn then it would appear from this stocks report. What that means is that when we come to the December Grains Stocks Report there maybe corn missing.
Brugler: All right. We found extra here but we made - but we may actually be light in the next report because some of that was pulled ahead, showed as old crop usage, when in fact it was new crop. So that's one reason to be a little bullish coming out of this decline we are currently in.
Pearson: Well it has been a big pull back but it has also been, you know, this is a normal harvest pull back too isn't it?
Brugler: Yes. I don't think it is typical in terms of what we used to call harvest pressure where you just have so much hedge pressure from the commercials that it goes down. Funds buy against hedge pressure. Well - but we are not actually getting a lot of fresh hedging right here. Most of the grain moving across the scale was already hedged. It was - contracted months ago. Farmers are clamming up and saying with this kind of a price break I don’t want to sell anything I haven't already committed to. So even if the speculators wanted to buy right here they don't have that much liquidity in the market to do so in terms of new contracts.
Brugler: So we are kind of in a vacuum. I can't say that it is over yet. There is chart objectives down another fifty cents to a dollar yet if we want to keep liquidating. But if we go there we will know it is too far, too fast and we will get a more violent bounce back. We have seen that in the past and I think as long as you have got enough grain sold to cash flow and keep your operation running for a few months you probably, try not to panic here, wait for the rebound.
Pearson: It won't be long that we will start looking towards South America and you are right we are not really doing much to encourage their expansion at this stage of these prices.
Brugler: Right. They were looking at an expansion in corn acreage in Brazil up to fifteen percent in some of the states there and I think that is still happening because they have already made the commitments, they have already bought the seed and so forth. But this is basically saying don't break your neck trying to get double or triple crop beans in which they do do down there, and it is also encouraging the end users, not just China but the rest of the global crush industry to start buying some beans here. And Brazil and Argentina have shipped enough of their old crop now that we are competitive. Right? So, we are seeing China buying a hundred and twenty/a hundred and thirty thousand ton lots every couple of days here and I don't think they are - price is not an object to them right now because their internal price. Their futures for next May are still above eighteen dollars a bushel.
Pearson: I want to switch you just for one last second. We did talk about hogs on the show but that has been one industry that's really in some tremendous export potential and we are seeing it. It is not just potential. It is being realized. Is that going to hold up with this change that we have seen with the strengthening dollar?
Brugler: Well, the strengthening dollar could hurt us but remember it only applies to countries that float their currencies against the dollar. China would not be one of those. Ok? China buys pork from us. They don't buy beef from us for health reasons. So, I don't see it affecting the Chinese purchases. The bigger concern with China would be if their GDP growth slows down and at the same time Europe is slowing down and the U.S. is putzing along at a point and a half percent we could see a little weakness in demand. But right now there is enough growth in Asia to continue these exports. We have had weeks where exports were twenty or thirty percent of the U.S. production of pork.
Pearson: Oh yeah. That has been huge. We will see what happens. We will see what happens going forward. You are right demand is demand and like I say with the way China's currency - the dollar can still strengthen and may not have as big of an impact as we'd feared on pork. Could issue some of the other countries that are big pork buyers.
Brugler: Bigger issues to the ones that are floating it.
Pearson: Absolutely. Well anyway Alan we appreciate it.
Pearson: Alan Brugler joins us this week. He is a regular here on Market to Market. I want to thank him and all of you for joining us and for all of us on Market to Market have a great week!