Pearson: This is the Friday, October 28, 2011 version of Market Plus. Thanks for joining us here at our Market to Market web site. Elaine Kub our analyst this week. Always good to have her with us. Elaine, I want to talk about a couple things we didn't get a chance to explore much during the program because of time, and I hate that we missed it, but we have got a lot of farmers and ranchers that listen to this program and we talked about how they are not retaining heifers apparently. And we have seen tremendous cow slaughter coming out of The Plains because of all the challenges down there inTexasandOklahomaandSouthern Kansaswhere we have had one problem after another with this on-going drought. Still no relief on that front. Where is this cow going to come from and what is this calf market going to look like in six months?
Kub: Well, the March prices right now are sort of lingering between one forty-six and one forty-eight and a half. Let's say and honestly I like the idea of selling March or April calves above one forty-eight just because there is too much risk of something going wrong in the widespread markets between now and March. You know the dollar could go up. Any number of things could go wrong.
Pearson: Corn could go up.
Kub: Corn could go up. Any of that. So, I like - I do actually like hedging them there especially because the chart itself looks kind of -. I don't particularly think there is a big risk of that market coming down, but I don't think there is a great potential for it going up either. One thing I did want to mention is that I did see a sale report out ofSouth Dakotathis week. Three hundred pound calves going for two hundred dollars. I mean they are three hundred pound calves but two hundred dollars is just a fun thing to think about as a cattle producer, as a calf producer, that that has just happened.
Pearson: Well, we are definitely seeing some demand and there is this feeling that we are so short on beef cattle there is on going concern the U.S. Economy may slip, but now with the reports that we had in the third quarter, we referenced in the show, two and a half percent growth in the third quarter things are looking pretty good for the general economy. That usually spells well for strong beef demand.
Kub: Yes and like I mentioned on the show that beef demand at the retail level really has held up fine even through the recession. It was ok because some people were still willing to pay for it, but if we had a better economy, better unemployment, you would have more people able to afford it and that would increase your demand. Obviously, we are also looking for increased demand fromJapan. They are talking about letting our beef in. Increased demand fromSouth Korea. Now that we have the free trade agreement they are going to cut off their forty percent tariff that they had previously had. So these are obviously modern developed Asian economies but it is sign of things that could come fromAsia. People in their best case scenario they would love to buy our beef.
Pearson: Well and again we are just looking just from the supply side it just seems so bullish and then you talk about the demand side, some potentials out there that could sure - sure could heat things up And of course Mr. and Mrs. Consumer in the U.S. are going to be critical as well. The other thing I want to talk about is the corn market. These are good corn prices especially when you factor in what basis is doing right now. -- sell them off the combine.
Kub: Well yes, I mean, - Absolutely. There is no good motivation in the market itself.
Pearson: There is no carry.
Kub: Yes, the market is not telling you to do anything other than that. If you are going to hold on to corn past the first of the year and, I will be honest I have kept some gambling bushels for this reason, but basically by doing that you are expressing the opinion that corn prices are going to go back to their previous highs and that's far from certain given the total uncertainty of the overall markets. Or you are expressing the opinion that bas- you could hedge it now and you are expressing to not sell it with the opinion that basis is so strong now that it will continue to get stronger in the summer. These are both reasonable things to assume but they are far from certain. That is not a risk management strategy.
Pearson: Now I want to address the third thing with you and that was the fact you seem to have a bias toward lower energy prices going into next year. Is that - Did I misinterpret something?
Kub: No you didn't and I wouldn't. I mean I wouldn't argue with these energy prices today. I think the economy is getting by and consumers are able to do that, and probably even able, you know, they could get squeezed more in and still get by. However I saw that OPEC Countries are hedging and what do they know that we don't know? A lot about oil production. So, if they are turning bearish on 2012 that might be a reflection of their concerns aboutChina's growth. That would be the big driver of a bearish oil market is ifChinastopped growing. So, if they are turning bearish that makes me want to look at it.
Pearson: Good point. Elaine as usual great to have you with us, great insights, appreciate you being with us here on Market to Market, of course right here on Market Plus as well. And for all of you out there that enjoy Market Plus make sure you contact your local public television programmer if they are not running Market to Market in your community, call and ask them why, and get our live version every week. And from all of us here on Market to Market I'm Mark Pearson thanks for joining us. Have a great week!