Borg: This is the Friday, June 22, 2012 Market Plus segment. Joining us now Virgil Robinson and Walt Hackney. And Virgil it - past week weather market in grains.
Robinson: No question, Dean, as you mentioned new crop corn futures responded to that concern and were sharply higher. And it appeared to me like they are poised to move yet higher. So, it should provide some opportunities for those who wish to either minimum price, finalize price, get something on the books regarding new crop sales.
Borg: Same thing for soybeans?
Robison: Well, again the soybean fundamentals, I think are significantly different, Dean, much, much tighter here in the U.S. as well as throughout the world and as a result of that I am reluctant to finalize the price of new crop beans. Minimum price would be my choice.
Borg: You wouldn't advise people to run out and contract for what is in the field right now then?
Robinson: In regards to the soybean market? You know if it meets their marketing plan objective, I certainly wouldn't argue that. If they are trying to time their sale, I think the market will provide yet a better opportunity.
Borg: Walt, I heard you say you have never seen markets like this. What are you meaning when you said that?
Hackney: The volatility of these markets of livestock I have never personally experienced this. I have been involved in the Corn Belt and in the general marketing of livestock across our nation since 1959. And the worst the market fluctuation might have been one dollar, a hundred weight, on cattle in a week. Today, yesterday being an example, our markets fluctuate five/six dollars per day now and it is that kind of imbalance that is keeping the producer sector off balance.
Borg: What is causing it?
Hackney: I don't know. The vulnerability of a producer's cash flow exposure probably makes him highly susceptible to the first bid he receives rather than becoming a trader of his own product. He probably is running a certain amount of concern to satisfy his lenders. And as an example, if there is any daylight in the bids that they are getting under this current condition, he is probably taking it and running like a rabbit.
Borg: Here are some viewer comments. Virgil, this is on corn on the USDA reports and so on. Grady in Wisconsin says has corn seen its bottom for the year?
Robinson: Well reports, that reminds me there are two major reports a week from tonight. There is a stocks in all positions report and an acreage report. Do I think corn has seen its lows for the year? Weather will obviously be a major factor there, Dean, but that question which is so difficult to answer, it does, I think speak volumes about perhaps the use of a simple option strategy creating a price floor and leaving the opportunity should weather continue to be an issue for higher prices.
Borg: Out of Ohio, Michelle asks this question, it is about drought and they are dry in Indiana, Ohio, and into Illinois. She says is the drought enough yet to push grains up out of the range that they are currently in?
Robinson: Well, as mentioned new crop corn futures this week spiked higher. New crop soybeans right at the life of contract highs. So, if that addresses her question; yes, the weather has in fact created that kind of price behavior.
Borg: And still more to go?
Robinson: Well, again Dean difficult question to answer but my gut would tell me at least tonight yes, I think there is some additional price gains to be seen.
Borg: Walt, the beef question comes from Rick in Southwest Kansas. Beef cut out near highs. Why? This is what he - experts can't talk it -- is the demand there?
Hackney: I think you got a two pronged demand issue on beef. There is an unpublished more or less an unknown demand factor and that is export. There isn't enough factual actual information out about the amount of export that is going on in the beef industry. We pretty well know what is happening domestically and that is being - that is kind of a status quo kind of a market. It doesn't really move a lot. But all of the sudden we get these spikes in the beef values and you have to make an assumption there is an unreported market out there in our export trade.
Borg: I talked with you earlier that you have never seen markets like this and you said I don't know why. But is weather volatility influencing Virgil's grains influencing your cattle and hog markets?
Hackney: Well, weather being a drought and weather being a historic liquidation of the breeding herd in the southwest states of Oklahoma, Texas, New Mexico, Southeast Colorado, yes. That had a dramatic effect on the availability. We are at the lowest number, Dean, in our national cow herd, beef cow herd, since 1952. So you can imagine the amount of liquidation due to drought and bad weather has taken place.
Borg: You know in crops we were talking about weather there and drought, but weather also influences a heat in how long you can keep cattle and hogs on feed.
Hackney: You are 100 percent correct and I should have mentioned that. Feed lot open air, feed lot environment, you take finished cattle weighing say 12 to 1500 pounds and are market ready, those cattle can't stand and take 100 degree heat and sun beating down on their back much over a day or two before you start actually loosing cattle from heat loss.
Borg: What about the European financial situation. Is that at all weighing on these markets and adding to the volatility, Virgil?
Robinson: Yes, I think it is.
Borg: In what way? Export possibilities?
Robinson: Well, agriculturally Europe is not a particularly large importer from the U.S. but it has ramifications in other segments of industry. Manufacturing data of late, Dean, has probably documented that. It has been relatively slow in Europe, in the U.S. for that matter, as well as other large economic powers. So, the ramifications of the European issue have yet to be reconciled and as long as they remain an uncertainty regarding the financial well being of the globe, it is going to create this risk on/risk off attitude from day to day.
Borg: I notice you listening pretty intently there Walt.
Hackney: Well, we've - we feel that the livestock industry is somewhat absolved of the economic issues in Europe, Spain, and Greece and etc. Yet, every day that there is a huge fluctuation in the Chicago Mercantile on commodities like live cattle or hogs, every day that occurs there is also a disclaimer coming in behind that indicating that it was due to outside markets. Now outside markets is exactly what Virgil was referring to. The economic condition of some foreign country and they have had a heavy influence on the markets on livestock.
Robinson: Dean, excuse me - we have spent a lot of time and resources trying to address the European situation. Let's not loose track of the fact that U.S. is facing what is known as this fiscal cliff here at the end of the year and that is not going to disappear either. So, please understand as we move closer and closer to year end, issues the likes of which Europe has created will likely also surface here in the U.S. with regards to our physical state.
Borg: And is the market anticipating that, either one of you gentlemen, and what you are referring to here is the drastic cuts that have to be made because Congress a year ago could not enact the cuts that had been recommended by the committee? And so that is the fiscal cliff you are talking?
Robinson: We really have an unsustainable debt or we cannot sustain this debt moving forward. It must be addressed. Austerity measures, the likes of which we saw in parts of Europe, pretty drastic. Could it happen here? It is conceivable.
Hackney: We have a player in the livestock industry that is kind of a hidden example of what causes market fluctuations for livestock and it is the funds. The funds come into the Mercantile and the Chicago Board of Trade and they take enormous positions but it has no correlation to the fundamentals of our industry. We could have the shortest supply of hogs or cattle on record and those funds could plunge that market, the limit, for a week. But the fact is they are only in it for the cash flow opportunity that the fluctuation will cause when they create it.
Borg: And that circles back to what you said initially on the volatility in the market that you can't explain.
Borg: Thank you very much for your comments. Virgil Robinson. Walt Hackney. And that is our June 22, 2012 market analysis segment.