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Market Analysis: Mar 16, 2007: Virgil Robinson, Pioneer Hi-Bred International

posted on March 16, 2007


On Friday, Informa Economics released its Prospective Plantings report estimating corn acreage will be up 12 percent from 2006 – to more than 87 million acres. Cotton planting is expected to decrease by more than 15 percent. And both soybeans and wheat acres are projected to drop by 6.8 percent and six percent respectively.

As for the prices, March wheat finished the week down nearly 16 cents. The nearby corn contract also lost – down 18 cents from a week ago.

In soybeans, the nearby contract lost

6 1/4 and the May meal contract lost $3.80 per ton.

In the fiber market, Dec. cotton posted a 35-cent loss.

All livestock was down as well. The April live cattle contract lost $4.35. Nearby feeders lost 33 cents. And the April lean hog contract dropped $3.55 from last week's close.

In the financials, Comex gold gained $1.90 per ounce. Nearby crude oil prices fell $2.94 per barrel.

The Euro lost .019 basis points against the dollar. And the CRB Index lost 7 1/4 points to close at 304.50.

Here now to lend us his insight on these and other trends is one of our senior market analysts, Virgil Robinson. Virgil, welcome back.

Market Analysis: Mar 16, 2007: Virgil Robinson, Pioneer Hi-Bred International Pearson: Here now to lend us his insight on these and other trends one of our senior market analysts, Virgil Robinson. Virg, welcome back.

Robinson: Thank you, Mark. Happy St. Patrick's Day.

Pearson: Happy St. Patrick's Day to you and I forgot to wear green. I want to mention -- I've got a little Irish in me too -- I want to talk a little about something that's green out there and that's the winter wheat crop. And right now the market, we've felt kind of the air come out of this commodity market just a little bit this week, didn't we? And let's talk first about the wheat market where the crop conditions look fairly decent.

Robinson: Winter wheat conditions are good, Mark. There are questionable areas elsewhere but to answer your question, yeah, I think the winter wheat crop is encouraging. Informa's number much like the USDA so no real scoop there market wise. Export sales for the week, Mark, or at least the previous week were good in wheat. I think the market as you mentioned is of the opinion and has taken to the notion that world wheat production is likely to increase perhaps upwards of 30 million metric tons this year versus last with much of that being grown in wheat exporting countries. So, there is competition and at present I think the wheat market is relatively well priced. I would make this mention, Mark, we're about two weeks from the completion of the month of March. I like to watch those longer term charts and the Chicago wheat futures contract, at least in my opinion, is quickly approaching a technical crossroads of importance. Should the May wheat futures contract drop below $4.35 and close below $4.35 for the month of March I would be of the opinion the party's over there.

Pearson: Okay.

Robinson: And that would certainly have implications to other cereal grains, the likes of rice, for example, as well to some extent other feed grains, coarse grains, corn included. So, be vigilant of that end of month.

Pearson: Okay, something good for us to focus on. From a sales standpoint, Virgil, do you want to hedge your bets a little bit and step up some sales this point on wheat?

Robinson: Mark, I think in times past we've alluded to various strategies, let's just assume clean slate tonight. I would be willing personally at least for the next few weeks as mentioned to risk that 25 or 30 cents we just spoke about and should we encounter some type of spring planting trauma with respect to corn here in the U.S. that would certainly have an influence I believe on wheat as well. So, I'm kind of willing to risk that 25 or 30 cents to that $4.35 mark we aforementioned with the prospect of some type of trauma in the spring or early growing season for corn. So, no, I'm not willing to make a sale at this level.

Pearson: Alright, let's talk about the corn market, Virgil, that seems to be the one that drives everything these days. And a little softer this week on corn. Again, the USDA report is what everybody's looking at. The Informa number, the 12%, what is your reaction to that?

Robinson: Well, it was really kind of I think in the market, Mark, to the extent many acadamians as well as private consulting and forecasting entities, Mark, have forecast acreage to grow by ten or double digits year over year. So, this wasn't terribly surprising. Corn sales while they have, in fact, kind of waned of late still remain, I think, very strong given the fact that prices nearly $2 a bushel or 100% higher at this point than a year ago. The underpinnings in corn with the exception of the recent phase of liquidation that's gone on, Mark, remains pretty solid at least in my way of thinking.

Pearson: Are the funds, Virgil, still bullish? Is there still that totally bullish, as you say, underpinning to this market?

Robinson: Totally no, Mark, I think there's been some noticeable liquidation from both direction, primarily directional fund activity as moving averages in some instances have been violated so I think there's been some liquidation, noticeable liquidation go on particularly in the old crop contacts led by the May futures.

Pearson: What are you telling producers these days? Making sales here? Do we sell two years of crop? Do we wait and see what happens in the spring?

I'm a little reluctant to sell two year's crop, Mark, for fear of expenses. Land rents are on the rise, land prices on the rise, inputs on the rise. So, unless someone can really get a good read, make a very good calculation on expenses for 2008 and beyond I would be reluctant to finalize the price of anything that distant. Old crop corn, Mark, we've kind of talked in times past creating minimum price or price floors to ward off what could be a significant draw down in value should we plant all of these additional acres. They all yield at trend line or better then clearly the value of futures today are too high. But we have an entire growing season yet ahead of us so I'm reluctant, Mark, to finalize the price of those new crop contracts or new crop production.

Pearson: Let's talk about the soybean market. Obviously it's been bouncing off what's happened in corn. The Asian soybean rust was discovered in Iowa, again, we had it in Illinois last year, didn't seem to really have much of an impact in Chicago and from the agronomists we've visited with, Virgil, they don't seem to be too concerned about it either. So, kind of take that out of the equation. What do you see ahead for soybeans.?

Robinson: Well, take that out of the equation at least right now, Mark. Down the road we may revisit that.

Pearson: For the middle of March take it out of the equation.

Robinson: A couple of good things I think this week can be noted. The soybean meal sales a marketing year high in this last report, Mark. So, clearly higher values there and adequate supply have not curtailed sales by any means, they are very brisk. Oil futures are approaching contract highs, Mark, so it's very difficult for me in each of those two products to suggest the supply is overwhelming and the fundamentals are bearish, they're not, they're pretty solid. Processing margins remain profitable. That is to say buying beans here in the interior, breaking them into meal and oil creates profit. I don't sense those capacities are going to decline, most likely incline. Export sales given the fact that we're significantly higher and we are in the confines of a southern hemisphere harvest remain strong, Mark. So, I think the soybean market is well supported as we visit tonight in terms of product value and in terms of raw price value. We can maybe speak a little bit about Brazilian economics, the Brazilian real is at a multiple month high while simultaneously the U.S. dollar is at a multiple month low and that's not the correct combination for the Brazilian farmer, that's not creating a lot of incentive, Mark, for he or she to expand their sewn hectares in their next season so that's an issue that requires a lot of vigilance from this point forward. They have competition down there for acres as well. Sugar cane as they continue to ramp up their ethanol industry in Brazil, Mark, they're about E25 and growing as we visit.

Pearson: So, at this stage of the game you're not a big fan of selling soybeans?

Robinson: If I'm going to do anything I'm going to stay with the same defense I've had, Mark, for the last several weeks and that is I'll create minimum price but I am reluctant to finalize the price of new crop soybeans.

Pearson: Virgil, what about cotton? Obviously we're taking a lot, 15% of the cotton acres away.

Robinson: Or something in that vicinity, Mark. Is it possible we've got a correct price? Cotton has done very little for several weeks. As it approaches $60 it seems to attract a lot of selling. Mark, I think those of us continuing to maintain old crop cotton inventories -- I did note this week if I read correctly the basis firmed in several southern regions. I'm inclined to sell that cash product and then put on some type of a vertical call or bull call strategy or some type of call option strategy to replace that inventory through the balance of the spring and summer.

Pearson: Okay, good strategy. Let's talk about the fed cattle market, Virgil, just to flip on the other side. It's held in there pretty well, fed cattle prices. Obviously we have still a relatively small cow herd. We've backed off a little bit but the good cattle are selling well.

Robinson: Demand remains strong, Mark, domestically export business while it's nothing like it was a few short years ago has improved modestly. There are strong indications we're liquidating significant numbers of calves -- the herd is declining, Mark. I think that's underpinning those deferred futures and likely to do so. I think we can sustain upper 80's, low 90 live cattle value through the balance of this calendar year. I am more bullish than bearish on cattle prices as we visit tonight.

Pearson: Calf market, Virgil, as you look at that what do you see?

Robinson: Kind of the same, Mark, I think it's fairly strongly underpinned by those deferred cattle futures and the idea that we are liquidating the herd and those calves are becoming more precious. As we visit tonight now a lot of those feeder cattle futures in Chicago are either at or very near contract highs and they've gone up significantly since the turn of the calendar. I am inclined to believe they are yet worth more over the course of the next several months. If I were to do anything, Mark, here again I'd use some type of option strategy to create a price floor yet leave the opportunity for higher price in place because I think there's a good argument in that direction the balance of this calendar year.

Pearson: About 30 seconds, Virgil, talk about this hog market.

Robinson: Mark, I think we can sustain mid to upper $40 live hog prices through 2007. Traditionally we enter into an era now or a period of lighter slaughter. I think we're kind of making up here for the winter delayed and weather delayed hog marketings. Pork demand domestically and for export remains very, very impressive, Mark. Well underpinned by demand, mid to upper $40 cash values likely the balance of this calendar year.

Pearson: Very good, as usual we appreciate it, some great insights from Virgil Robinson. But that will wrap up this edition of Market to Market. Now, if you'd like to learn more market information from Virgil visit the Market Plus page at our Market to Market Website. Now, before we go we'd like to remind you that public television stations are in the midst of fundraising efforts. If you value programs like Market to Market please consider phoning in your pledge. Of course, be sure to join us again next week when we'll take a look at how some of corporate America is offsetting 100% of their energy needs with renewable sources. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices corn markets news