Pearson: This is the Friday, March 30, 2012 version of Market Plus. Thanks for joining us here at our Market to Market website with us this week one of our regular market analysts Alan Brugler. Alan, we saved you for a key day an Analysis of the USDA Report. We have had some great comments come in through our social media Facebook and Twitter. I want to get to some great questions from our viewers. Really appreciate people participating and sending them in, and it kind of helps make this more three dimensional. But the big thing is the tale of two crops old crop exceeding tight, big acreage anyway, ideas the big crop going into 2012, talked to another long time analyst today and he said no way we will have three bad crop years in a row. It is not going to happen. So, we could be minimum trendline at say 156, you would be looking a billion and a half bushels of corn left over next year and you would see corn at 450 or so. What is your take first on old crop and like you did on the show the reaction to the report and this concept that we have been paid to hold bushels until the bitter end of the crop market? The last couple of years that has been the way to go. Is that going to be the way to go in 2012?
Brugler: Well, it certainly looks that way now. We have got a tight old crop scenario. I would caution people though that USDA doesn't always cut their estimated ending stocks based on a little surprise in the March report. In other words it doesn't - the fact that we are 200 million bushels surprised doesn't mean they are going to cut the ending stocks by 200 million. The whole purpose of a rally like this is to discourage consumption so you end up with more ending stocks by the time you get to the end of August. So, it is a moving target. I do think that it was already tight and I am very encouraged that the feed and residual use held up as well as it did. I think the new crop story is - you certainly can have a third bad crop year in a row yield wise.
Pearson: It is not unprecedented.
Brugler: University of Illinois did some nice work on that. There has been up to four sub par yields in a row. Yes, in recent history we haven't had three in a row but it has happened before. I don't think it is a good marketing plan to assume that it is just going to be a record yield. That being said trendline is a 160 bushel per acre, and a conservative trendline using a different time frame is a 156 to 158. So, I am using a 160 right now and that does suggest a billion bushel carry out or more, but so I think you have to - as long as the crop is getting planted you are coming up, you have got to be careful to not get too carried away with what the old crop is doing and forget to sell the new crop.
Pearson: Yes absolutely. And selling new crop you are 20/25 percent sold on new crop corn and you would recommend anybody who hasn't made those sales maybe to get up to that point?
Brugler: Well, I think between here and the 590s you need to - some sales. Our technical fundamental market is 591. That is our conservative target. We do have a scenario where corn could actually go to seven bucks but that involves quite a bit of weather risk.
Pearson: That is right, Al, and who knows? Tim up in Crookston, Minnesota sent us a note and appreciated it Tim. In fact he has got super question. The great questions - ones I have heard several times today from farmers and that is this acreage report was done a couple of weeks ago, this intentions report was done a couple of weeks ago, we have had a nice bean rally since then. It rallied again on Friday and obviously we have got a very bullish scenario happening in soybeans as you talked about on the show. Could we see this acreage number shift quite a bit between now and June?
Brugler: Well what I am hearing from producers is most of them are planning on playing corn if the weather stays nice in the spring here they are just going to plant corn.
Pearson: The anhydrous is on.
Brugler: And they are committed fertility-wise. Now that being said we - I suspect we are attracting some additional bean acreage on the margin. A lot of it boils down to what is your relative yield advantage. If you have got 220 bushel corn ground, it only does 60 bushel beans, you are still planting corn. If it is 150 bushel corn ground versus 45 bushel beans the math looks a little better towards planting beans. And so I think you will see some but here is the key; a million acre shift from corn to beans only buys you 40 million bushels of beans or 45 million at the max. All right and the hole that we are trying to fill here is 800 million bushels year over year from the loss of South American production. So, you have got to have a fairly big shift to placate the market.
Pearson: Second part to Doug's question is, and I have heard this one a lot, corn in China is close to 10 dollars a bushel, they have nosed into our market some, they also bought some Australian feed wheat recently too, will they be in this corn market?
Brugler: We think they will buy dips. They were buying a little bit here on this break right ahead of the crop report. Those were the lowest export prices that we had had since January and they were stepping up and buying. Yes, I don't think they are going to let the price go below 55.25 without buying more for their reserves or allowing some of their private entities to buy. Most of what we saw this week was going into South China and it was private buyers. There was a little bit of a problem in that. They have to get - they have almost used up the private buyer import quota, but again they clearly exhausted a lot of their government inventories last year and they need to replenish those. If they can't buy them from the domestic farmers because there is not enough there, they will import it.
Pearson: All right. Doug down in Washington, Iowa wanted to know about pricing that '13 crop at this point.
Brugler: I think it is a little premature to do that if we have got the tightness that we have in the old crop and the uncertainties you had about new crop production. But certainly if we are coming off a - year high, if this rally fails to get back to where we have already been, that is a warning that '13 might be lower and you ought to be selling some.
Pearson: Our friend Phil up in Canada, a friend of yours, sent a note wanting to know about the direction the dollar is going to take and what impact that could have in this market.
Brugler: Well, clearly the dollar does have an impact on the price of commodities in dollar terms. So a weaker dollar translates to the higher dollars per bushel. Everything else being equal. Right now we are actually being driven by some fundamentals within the commodities so the dollar impact is being ignored on some days. Whether the dollar gets weaker or stronger that is a wrestling match. Have we had another crisis in Europe this week? Is it - something new happen on the budget negotiations in Congress? We haven't had an official budget passed in three years. So, those things affect the dollar.
Pearson: Absolutely. What the -- does regarding Obama Care is going to be an impact. There is a lot of factors out there. Final question Argentine and Brazilian crops, we knew there were problems in Argentina with the corn crop, You talked about it as early as December on this program. We did not talk much about problems down in South America as far as the soybean crop is concerned. Now we watched the estimates come down slightly, but these numbers are kind of - quite a surprise really. We talked to some folks in Monterosa in fact who a month ago they thought they were going to have outstanding bean yields.
Brugler: Yes. The crop got hurt more in that December and January dryness than what was thought. I think it was a combination of temperature and heat and the fact that those soils typically are very fast raining soils. They are tropical soils. Yes, I think a lot of people are surprised that when it started raining that the yield - didn't come back up a little bit. That we didn't get a late finish to the crop. But they are fairly consistent now. Brazil is in that 66 to 67 million ton range versus 75 million last year. Argentina is somewhere between 43 and 46 depending on who you talk to but those are significant swings. Paraguay is down too and it is just not there. So you either have to draw down stocks down there or the beans have to come out of the U.S., big exports for next year, or you have got to delay the buyer until March of '13 when you can get the next South American crop.
Pearson: And we will see what happens then. Alan as usual thank you so much. Been a long session here on Market Plus, great session on Market to Market, a great quote on gold “you don't need to buy more of it but you don't necessarily sell what you have,” Alan Brugler, March 30, 2012. Thanks for being with us. For all of us here on Market to Market, I am Mark Pearson, be sure to join us again, and of course mention to your local public television programmer that more people would be able to see the show if you were on your local public television station. So if we are not there call your local public television programmer and ask them to carry Market to Market. For all of us here on Market to Market and here on Market Plus, for Alan Brugler, I am Mark Pearson have a great week.