Pearson: This is the Friday, October 6, 2017 version of the Market Plus segment. Joining us now are Elaine Kub and Walt Hackney. Folks, welcome back.

Hackney: Thank you.

Pearson: We're excited to have you. And Elaine, we're going to kick this question off to you first. This is, it's from Gary in Wilton, Iowa on Twitter @garybruns1. And it's a question that I think kind of underpins where we're at in the ag world today. It's very big picture, you’re going to love it. Gary wants to know, he says, we lost 500,000 acres of production ground a year and world population is increasing 83 million people per year. Why do we always have a carryover of crop and low prices? Are farmers too good?

Kub: Hey, farmers and the seed companies, right? This is honestly something -- and Walt and I were talking about this before the show -- it's amazing. Up in South Dakota we had a terrible drought and people are still up there harvesting 40 some bushel beans. I probably shouldn't say that on TV or the markets are going to drop 40 cents.

Pearson: She meant 4, 4 bushel beans.

Kub: But no, it's really amazing how resilient our seed technology is these days. So that's part of it certainly and good farming practices and lots of acres coming into production in South America and almost unlimited potential for more of that to continue. And so it's just sort of, you have to picture two different mathematical graphs going on. One of them is that population growth and eventually that will probably catch up and supersede the slower yield growth but we're just in this period now, maybe the next 10, 20 years where our technology and our production of the grain is faster than the demand.

Pearson: Yes. And it kind of plays into another comment I hear quite a bit in agriculture is you look at corn prices today, real today's prices versus today's prices in 1970 and on a per bushel basis we're maybe, well in the '70s we're maybe even but then you have to take a step back, right inflation adjusted of course we're less, but on a dollars per acre when you figure yield from the 1970s versus yield today it's amazing the number of growers who are pushing 300 bushel corn today.

Kub: I know.

Pearson: Same symptom of what you mentioned in the beans. Now, while we've got you, Elaine, drought country, how are corn yields looking?

Kub: Not as bad as you would think and I hesitate to say that because there was worse drought in other areas than just my back yard.

Pearson: Because you were kind of on the eastern edge of the drought territory.

Kub: But also sort of on the western edge of corn territory. So I think it won't be as bad as it could have been because we did get some rain there at the end of summer. The bigger problem at this point is too much rain in other areas at this point. That's the harvest scenario. But everything was late this year, there was late planting, late heat units, so it's not too surprising that harvest is going a little bit late.

Pearson: Makes sense. Now, Walt, next question to you. This is from Greg on Twitter. He's on Twitter @koinzangreg. He wants to know, has carry in the cattle market ever worked for a cash to cash cattle feeder? Sell them cash, go out and buy feeder cattle with cash, sell those animals negotiated cash at the end?

Hackney: Well, I think the answer to that is what was the purpose of using the cash because there were other financial abilities that would help offset the cost of that money if they would have used it and they could have salvaged the cash asset that they may have had. I don't know that there's any real correlation to buying calves or buying yearlings, very few people today can afford to buy yearlings in cash, maybe a few calves, but if they're serious and they're in a major production program they're going to have to have a friendly line of credit that is going to support their industry and it isn't a cash basis, very seldom.

Pearson: Right, because it's not just cash, you're also carrying interest, you're carrying other opportunity costs. With every dollar that you spend on a yearling, what else could you have done with that money.

Hackney: Well, you're certainly eroding your asset base by doing that with the cash and you are also exposed to eroding some of your asset base by borrowing the money. But the fact is it isn't as direct and it isn't as constant.

Pearson: Now, when you're looking at pricing for yearlings, and we've got feeders, the eight weight steers at a buck 55 today, yearlings typically going to be 20 cents under. Is that kind of what you'd expect to pay if you're buying a 9 plus steer calf today, buck 30, buck 20?

Hackney: I bought, for instance, this week I have bought fall delivery, this month and into early November delivery, six weight calves coming straight off the cows, I have bought those cattle at a buck 62, 61, in that regard. Now, keep in mind they're $7 away from home too because of the freight factor so that's a fact and that's something you've got to expect. But in regard there's no set spread basis between a yearling and a calf. The point is it's the value of that calf, it's the value that you can go to for the deferred months of marketing that's going to determine your ability to buy him compared to a yearling. People in our country, that would be the Corn Belt, people in our country plan to buy yearlings maybe even up to 9 weights in the spring after they have moved this year's calves out as finished cattle, then they've got a gap in their feeding program and they'll buy a 9 weight yearling and feed him until mid-September and then after mid-September he needs to be gone where they can make room then in regard to their normal calf purchasing and feeding programs.

Pearson: You bet. So it's kind of a stop gap guy, the guy buying that 9 weight steer, he's filling a couple of months of open lot.

Hackney: The onset of that has been personified by these -- buildings and like that because the investment, they really need to keep those pens pretty well filled.

Pearson: That’s true. Our next question goes to you, Walt, this is from Adam in Harper, Iowa. He's on Twitter @ adam_bouslog. He's noting, with these 500,000 plus kills over the past few weeks, is there still going to be that big wall of cattle we've been worried about coming in November and December? Or are we pulling enough head forward that we're not going to be facing that steep drop off come November, December?

Hackney: There is to a larger degree more of that wall of cattle have been pulled ahead with the onset of those 1,500 and 1,600 pound cattle that were feared to have really upset our market programs going into this fall. It happened to a limited extent. Where it happened was it failed to let us appreciate the cash. It didn't necessarily drive the cash down to under a lot of prediction under $1 a pound. And so $1.06 to $1.10 seemed to hold that cash market on those cattle. Now there is anticipation that that market could, could, the potential may be there, for $1.20 fat cattle as we get more toward December.

Pearson: It makes sense given the fact that we have pulled them forward, we're not putting, like you mentioned, 1,650 pounds on them. I was at a sale barn and I won't say where but it was in the Corn Belt, this would have been late summer, fall 2015, a pen of Holstein steers came through, 1,820 pounds. They're Holsteins so of course they can carry that weight on their twelve foot legs but --

Hackney: But the beef is still there and the Holstein within themselves, you've gone away from what we normally would have looked at as a "Holstein steer" compared to a choice Angus calf out of the West. The thing I'm getting at is due to the nutritional programs that we've got for Holstein feeding you have seen cattle feeders create a cycle, a histology in the cattle and you have changed their confirmation from what was an L shaped Holstein hanging in the cooler, you've got a steer hanging there now that sometimes it's difficult to identify versus a beef bred steer.

Pearson: And so it all comes back to what you were talking about on the show, it's the quality of the beef that is being presented to the consumer.

Hackney: A hundred percent.

Pearson: That's what matters. And they're still willing to pay a premium, not like they were in 2014, but they're still out there bidding up for beef in the meat case.

Hackney: I have enough city friends that ask me, what's the best beef you can buy? The best beef you can buy is what tastes the best to you when you put it on the grill. That's what you want to buy.

Kub: And the stock market is rocking and rolling so people have money to go buy the best thing they can buy.

Pearson: Right, stock market is up, home values are up, houses are selling like they haven't sold in 15 years. Yeah, unemployment is at 15 year lows.

Kub: Go treat yourself to a steak.

Pearson: Right, go out and grill a ribeye, just grill a bigger one, ladies and gentlemen, that's what we need to be doing.

Hackney: That's exactly what they're doing too. This last week, to hurry it, but this last week I saw three cases, 60 pound cases of ribeyes, standing rib roast, delivered to a wedding up in Denver and their idea of that was rather than cook prime rib and make a wonderful meal out of it they took that, they trimmed it down and they cut it into about a pound, a little over a pound steaks and that's what they served.

Pearson: You bet. You bet. We actually made a trip into town and bought steaks retail because they were doing that same deal, butcher will cut it up for you, we got two inch thick ribeyes. But we could sit here and talk beef all day long without thinking, we absolutely could. But Elaine, before we let you go we've got a question here from Aurea in Dayton, Ohio. Aurea wants to know, in an era of ubiquitous data access from satellites to drones, how important is it for USDA to evolve its crop condition and yield reporting? Do they need to make some methodological changes?

Kub: And I appreciate this question and I know that Aurea is big on big data, right, that’s a big buzz word these days. But I will caution that there is no amount of drone photographs that could do better than going into a field and counting kernels, honestly. You could have a very healthy plant that for whatever reason was perhaps stressed earlier in the season and won't have the kernels there or the kernels might be small and I think that is a scenario this year in particular in some of these droughty areas or droughty pockets, especially late in the summer here in Iowa, Illinois, the kernels probably did not fill as well as they would in other previous years. So that's the kind of thing you'd never get in satellite data no matter how much of it you had.

Pearson: Okay. So their methodology, you're content with it as a market observer, as a market participant. You think it's the best they've got today?

Kub: I think it's the best you'll ever have unless you send a robot out, unless you could have a drone go out and actually count your kernels for you. But aerial photography is fantastic and I love it, you know, I have my Part 107 drone license, I love taking these photographs, but there's only so much they can tell you.

Pearson: Alright. Well, Elaine Kub and Walt Hackney, thanks for joining us today.

Kub: It's been a pleasure.

Hackney: You're very welcome.

Pearson: And, ladies and gentlemen, we're are experiencing a drought of our own here when it comes to questions about the basics of trading or trends in the marketplace. And we'd love to get a few more questions in video so we can use them here on Market Plus. So direct message us on Twitter or send an email to MarkettoMarket@iptv.org for the details. Once again guys, thanks for taking the time to join us, always appreciate your insight. We do just need to have a beef conversation, just talk about the best cuts of steak. But until then folks, join us next week when we'll examine the debate over antibiotic free labeling and Angie Setzer will sit across from me at the Market to Market table. So thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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