Pearson: This is the Friday, April 27, 2012 version of the Market Plus. Thanks for joining us here at our Market to Market web site. Just before we did the show a couple of things came across the news wire that are insignificant and yet I am concerned about what they might do to the cattle market come Monday. Fortunately Walt Hackney is with us this week and Walt the story came across from NBC that processors are using a product they call meat glue. It sounds a lot like pink slime which we just went through which is lean finely textured beef and we talk about meat glue, I mean we have been trying to reconstitute different parts of the beef animal to make it into appealing steaks at a very low cost for a long time. Is that really what we are talking about here when they are calling this meat glue?
Hackney: According to the information actually that I got from your own staff, Mark, it looks like an attempt to be discredited the beef industry. And it looks like we will have another battle on our hands because for instance as it said instead of using a toothpick to hold a piece of bacon to a fillet, now they coat it with this meat glue, beef glue and stick itself and it sounds terribly unpalatable, and the people that are prone to believe in that information will come out strongly again against beef. Now they do say in that article that it was intended to put cheap scraps of low quality beef together into a good steak that would fool the most conscientious eater. I doubt that and so that is about all I can say about it, Mark. It will be another attempt to discredit the beef industry.
Pearson: No, I didn't think it was worth our time on the show because most people are familiar with this. This has been something that has been going on in beef research for years and years, very safe product as far as that goes, but I did want you to touch on here at Market Plus just so we could see what kind of market commentaries. I think you are right and I also the comments that you made on the show relative to the mad cow situation we had in California which fortunately for the beef industry we have been hit by a lot of things of late in the beef industry. I know a lot of cattlemen are up there getting a little frustrated and frustrated with the media and - and frustrated with what is happening in the industry and - and these attacks that seem to almost come on a regular basis. Almost as soon as we get a rally in the beef market, it seems like something else pops up.
Hackney: Well and too often and there is not a thing you can do about that. We must have the same cooperation that we got on the BSE Cow in California from the USDA Veterinarian Service. We have got to have that kind of immediate response to these kind of critical issues that are coming out in beef. That's the only defense we have.
Pearson: Virgil just between our breaks here mentioned the fact that wheat is cheap, corn is not, the economics are certainly there and the supply is certainly there to increase wheat feeding and nowhere is that more prevalent than in these feedlots right now. What are you hearing from your feeders out there as far as rations and the shifting that they are doing?
Hackney: Well, there is a lot of merit to feeding wheat. It has to be done with good judgment in regard to the - the protein content in wheat. But and the problem with it being too aggressive fit, it will create a -- position in the cattle and burn them up, if you will, the liver and so forth, but handled properly with the right kind of a nutritional dieting a ration, wheat is a good additive in a ration and if it does come in economically feasible it is a welcome addition to the feeding ration. Corn is the premier product in a good ration but if cost dictates you go to a higher percent of wheat, so be it.
Pearson: Well, you talked maybe a $1.24 on these cattle. I think we should get back to that.
Hackney: Yes, I feel like the potential is there. I felt like the potential was a $1.45 to $6.00 this week and then the mad cow deal occurred. There is a little psychological battle going on out in the feedlots. The feedlots -- to some degree. So cattle possibly a little bit premature but actually, Mark, a lot of that were hedged cattle that took a proper basis and went ahead and sold the cattle and still made an excellent profit on the cattle.
Pearson: All right. You talked about hogs and again like the meat case this could be another beneficiary of what happens in beef has been less expensive pork. And it has been just that. What is your outlook? You know we should be looking at some midsummer rallies, I would think in the hog business. But you predicted numbers were going to be bigger last fall, those numbers have hit. What do you see for numbers going forward?
Hackney: I don't see a lot of change. I think our summer marketing months are going to be probably subject to weekly kills of around 2.1 to 2.2 million hogs a week. And the one thing we have got to watch in there is your average market weight is fluctuating within one half of one pound for several months now. Granted hogs are four pounds heavier this year than they were a year ago, but the fact is they're only fluctuating within one half of one pound for months. So, you have got a huge control over the marketing process coming off of feeding floors right now.
Pearson: All right. Virgil Robinson is with us this week and Virg, always good to hear from you. A couple things I want to ask you. What were the rallying points this week not only has been potential China business but obviously this shrinking crop down in South America. You know we talked to a lot of people. I know you talk to people all over South America. It didn't seem like we had much of a problem with the soybeans until we got to harvest. What was the issue down there?
Robinson: Well really, Mark, the department in their monthly WASDE Reports did begin to reduce that crop size; you know dating back to January. So, they did acknowledge the concern and it has grown progressively from the turn of the calendar and it is likely that the May 10th report will be lower or smaller as well, Mark. Now much of that is in the market place and has been factored into the market place but as long as China continues to source and originate beans and products out of the U.S. it is going to be difficult to break this market at least in the near term.
Pearson: All right. And as we look at soybeans relative to corn right now, beans have an edge.
Robinson: Oh, the new crop economics, Mark, have -- dramatically in favor of soybeans and there will be some people trying to take advantage of that. I have a seen a modest increase in new crop soybean sales through the local elevator, the terminal elevator, and I am sure in select markets in select regions that is precisely what is underway.
Pearson: Virgil, coming into the studio today I had a call from a farmer, I wanted to ask you about this on the show and I forgot. He called me and he said oh, it is the big money again. It is just - the big money is lining up now behind soybeans. There you go. They were - they were long cattle before it and then they went long corn and now they are long beans. Is that a factor? Do we see that yet?
Robinson: I think there is some truth in that.
Pearson: This farmer wasn't complaining I also might add.
Robinson: I think there is some truth in that, Mark. All trend following systems are clearly are trending upward in beans and in meal and that has a tendency to attract the speculate of element or the liquidity in various commodity funds or various hedge funds or various managed money funds and there is truth in that. I will stop short of talking about open interest and the change in open interest and volume, Mark, for fear of misleading people but there is some truth in that.
Pearson: Virgil, I have only got about a minute left. I just want to talk about new crop corn. We have had a huge - you look at Illinois, Indiana, Ohio, the percentage of corn that is already in the ground, a big acreage increase, and a lot of people out there early. We had a tremendous early spring with warm weather and people saw an opportunity perhaps get 114 day hybrid in the ground, get that hybrid harvested maybe September 1/Labor Day weekend in there, and still hit this old crop market. Could that change? There are a lot of people out there waiting with some gambling bushels waiting to have what we have had for the previous two years which is that big transition rally. Could these - could this corn coming out of those fields off-set that?
Robinson: Mark, I think I followed - followed the question. I think those that are trying to partake or who are in position to partake in the early delivery of corn have probably already contracted that, Mark. Perhaps it is insured should it come up short due to a production issue. But again as mentioned we went through kind of a brief lesson with respect to what developed this year in the Southern Hemisphere. We have a got a long season to go here. There are any number of things that can yet occur. It is suppose to be cold this weekend. Should that become a problem or should we enter into an extended period of hot and dry? Dynamics can change very significantly, speaks to the issue of insurance in my mind, Mark, and proper risk management tactics.
Pearson: Going to wrap it up. Virgil, thank you. Walt, thank you. Thank all of you for joining us here on Market Plus and for all of us here on Market to Market thanks for being with us. We will be with you again next week. Have a great week.