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Market Plus: Market Analyst Virgil Robinson and Walt Hackney

posted on December 9, 2011


Market Plus: Market Analyst Virgil Robinson and Walt Hackney

Pearson:  Welcome to the Friday, December 9, 2011 version of Market Plus.  Thanks for joining us here at our Market to Market web site, and it is great to have Walt Hackney and Virgil Robinson with us.  They just are just giving us some great insights and right in front of Virgil, of course, is the famous Mark Pearson Bobble Head which is a collector’s item.  Yes, there he is and I say that bobble head - it always says yes.  All right.  We want to get back and talk about some market stuff. 

Pearson:  I want to start with Walter and talk a little bit about, Walter, what do you see going forward with the calf market?  And I didn't ask it on the show because I think I know the response because you hinted at it.  We are not just seeing half a retention in a big way yet? 

Hackney:  Well, it is a price thing.  As has been mentioned by yourself and others these two year old bred heifers for January -, black, good as --, Midwestern origin or Northern,  Mark, 2000/21/2200 bucks a head, now that is a real reach.  I don't care if calf market is two dollars a pound at five hundred pounds when you get ready to market that product.  It is still a real stretch for a producer particularly if these production costs are anywhere near similar to what they are right now.  And so as a result there is a general resistance and I think well put that the - they would just as soon sell that heifer into the feeder cattle industry, let somebody put it in a feedlot, and fatten it out rather than breed it and put it in a pasture. 

Pearson:  Yes, for that long pay out. 

Hackney:  Yes.  You know it takes two years, Mark, any way you cut it, it takes two years to put that calf out.  

Pearson:  With liquidations - last time you were on you talked about the liquidations down in Texas and Oklahoma, very short supplies, is that where the demand is going to come from?  Virgil mentioned the weather issue down there which is still a concern in terms of getting pastures rebuilt and of course having some winter wheat to run calves on.  So are we going to see that part of the world coming up here and trying to replenish herds? 

Hackney:  Not until they got more and a lot more moisture generally speaking from Amarillo to Oklahoma City than they have got right now and then you can drop down into North Texas, Wichita Falls and through that country, Guymon, Oklahoma and through that country.  They don't have enough subsoil moisture to water a shotgun.  And as a result of that you are not going to have anyone very optimistic about spring grass when you got nothing to feed them and hay costing whatever it is 150 a ton and to some reports 200.  

Pearson:  It is in the higher quality more than that. 

Hackney:  Yes and you are not going to step out and invest like that.  So, yes they will be a player in the replacement heifer and cow industry but not necessarily this winter and early spring. 

Pearson:  All right.  Well, not a real upbeat report on the beef business with these tight supplies.  So we are going to be pulling in more beef from Mexico and Canada?  Where is it going to come from? 

Hackney:  I don't know that we will need to.  We've got to improve our domestic and exporting of beef usage way more than we are at right now.  We're going to get run by like a NASCAR race in the beef industry by pork in the consumer end of it.  The budget side she/he is going to be able to pick up way more pork at less money out of their budget than they will luxury cuts of beef.  We have got to improve that before we can start talking about tonnage.

Pearson:  All right.  Ok let's tie into this Virgil.  Ok you bought that five hundred pound calf for two bucks.  How is that going to work?  What are you going to do to price inputs these days?  We have had a good break.  Should we be doing it? 

Robinson:  Mark, if there are economics in doing it yes, clearly I would do that.  Now if you are market timer probably a little different story.  As mentioned earlier I think it is going to be difficult to source cash corn.  Everyone expects, I think, a significant movement of corn at the turn of the calendar and there will be some deferred payment type corn deliveries for cash purposes.  But I am of the opinion that the producer for the most part, there are obviously exceptions, is as financially solid as he or she has been in many, many years.  And I don't think they are in need of cash, Mark, I think they are going to keep those bin sides pretty well locked up until deeper into the spring perhaps even early summer as they assess whether developments through the Southwest, through the Southeast, get a better read on acres or potential acres, Mark.  So with that in mind, Walt, if there were economics then clearly I would buy the corn.  If you are a market timer I would be on guard that first couple of weeks in January for any opportunity here or lower and then I would in fact procure those supplies if I had cattle in the lot. 

Pearson:  Absolutely and you did on a cash basis. 

Robinson:  Yes sir, I would buy the cash product.  Now beyond that if they want to create some kind of a price ceiling they can do that with an option strategy, Mark, just to prevent for example a frenzied market place because of draught conditions.  A call option would at least cushion the cost of that cash article in the March, April, May time frame and forward. 

Pearson:  Virgil quick comment.  Walter wandered over in the grains area which he does periodically on the show today and he predicted four and a half dollar corn.  Is that in your scope? 

Robinson:  I understand his argument but at this point in time I would argue to the contrary.  I using as my defense, Walter, a couple of very simple things.  I have a great deal of faith in the stock to use ratios.  I have always used those as kind of a measurement in terms of price behaviors, and while they have in fact improved here or grown modestly with the last couple of reports they are still historically quite tight.  So as long as the ethanol industry remains profitable and I think that will be the case even with the ending of the blender's credit, I think the demand for corn particularly cash corn is going to remain very strong. 

Pearson:  All right.  We have run out of time and I wanted to get back to Virgil on sheep but we do not have time.  We will do that on another show.  Walter, Virgil, thank you so much.  Thank you for joining us here on Market Plus and from all of us here on Market to Market including the bobble head thanks for joining us.        


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