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Market Plus: Virgil Robinson

posted on November 27, 2013


Pearson: This is the Friday, November 29, 2013 version of the Market Plus segment.  Joining us is Virgil Robinson.  Virgil, welcome back.

Robinson: Thank you, Mike, nice to be with you.

Pearson: Well, we're glad to have you back.  We didn't get in -- we weren’t able to get into everything we usually talk about on the show so I was kind of hoping you could kind of pick us up on the dairy market.  You mentioned growing world demand, the future looks bright for dairy do you think?

Robinson: A couple of warning signals I think, Mike, that we need to acknowledge, when you have rising dairy prices and declining feed costs that normally spells more production and clearly that will be the case in the immediate future here in the U.S.  So there is likely to be more milk on the market in the immediate future than has been the case.  And there has been a pretty good supply of milk for that matter.

Pearson: Last year didn't we see production increase throughout last year as well, or this year, 2013?

Robinson: We did, you know, particularly as grain prices and protein prices began to recede.  The other concern, and I can't speak to this in great detail, I only am aware of it, but it is seasonally the time for the Australian, New Zealand flush, which in essence means more milk product moving to the world marketplace.  So there are those two concerns for the immediate future.  So there is a risk factor here and I think there is clearly some risk to the down side.  So please acknowledge that and manage your operation accordingly.

Pearson: Certainly.  Now, as we take a look over at the cotton market, another market we didn't get a chance to discuss on the show, we have been talking about how week after week cotton really has been rather moribund.  We've seen little drops each week, we talk about the situation China holding the cotton.  A little rally this week.  What changed?

Robinson: Well, I think a couple of things.  One, we have discounted the value of cotton by $20 or thereabouts in the last few weeks so certainly the market has acknowledged that supply, excuse me, that supply increase here in the U.S. and globally.  Now, interestingly enough I also looked at the seasonals there, Mike, and at about this time of year, from about this time of year into that February, early March period there has been consistently a rise in cotton futures prices.  So with that in mind and, again, I think there has been a modest increase in demand, both in the U.S. as consumer attitudes have improved from recently concerning behaviors to better, I think the rise in the equity markets have also lent some support psychologically to the market.  So I think that market is in position for a modest price move higher.  March and May futures should they trade $82 or higher I think I would use that to add to my sales or certainly make a new sale if I'm lugging old crop cotton.  New crop cotton I'm more inclined to put some type of floor below it and I would do that with some type of option strategy.

Pearson: Okay.  Alright.  And now we'll see how the numbers come in from Black Friday.  Maybe there will be a run on jeans and we'll see some real cotton demand take off.  Now we do have a number of questions from our followers on Facebook and Twitter.  Bob in Columbus Junction is curious, as you mentioned on the show we're expecting to see an increase in soybean acres currently.  He's curious what do corn prices need to do on the down side to get farmers to plant even more beans?  Or are farmers looking at the current ratio and going ahead to plant more?

Robinson: I think that ratio is a pretty good barometer but the truest and best barometer is your local cash markets, Mike, because demand pulls are different throughout the middle part of the country.  I would certainly take that to heart, new crop corn values versus new crop bean values and make my decisions based on that, not entirely on the futures ratio but rather those local cash price ratios.

Pearson: Alright.  Now, is the market anticipating several million acres?  Five?  Ten?  Fifteen?  A slug of new soybean acres swapped over from corn?

Robinson: From reputable sources the year over year increase is currently projected somewhere in the 3 to 5 million acre range, Mike, so clearly if that would come to fruition and those acres yield at something near trend we would grow U.S. stocks year over year, U.S. supply year over year and that is clearly why that new crop soybean futures contract is discounted $2.50 to the old crop.  We had a real dichotomy between those two crops.

Pearson: Alright.  Now, Phil in Ontario, Canada is asking, with the U.S. on track to become energy independent at some point, is this a long run drag on corn?

Robinson: Well, energy independent?  How does he define that?  In fossil fuels or the combination of that and wind, solar?  I'm not sure what he really means there.  I would rather tend to believe, at least right now, that as mentioned earlier, the growing affluence globally I think will have as much of a bearing on corn price as will fuel or fossil fuels as we know it today.  So I don't know if I understand his question completely but I think there are some other factors to consider regarding $4.00 corn.

Pearson: Okay.  Now, one of the things that was talked about was we saw a price spike in the ethanol markets here this early part of, or late part of last week into this week.  What was happening there?  Was it just tight supplies as we've seen producers continuing to scale back?

Robinson: You know, it's interesting the last few weeks ethanol production has actually ramped up with the availability of new crop corn and less expensive corn while stocks, at least as defined by the government agency that we track, have declined.  So it would appear to me just declining stocks a demand, a more demand driven market than perhaps has been the case in months past.

Pearson: Okay.  A little bit of pull up on the market as we recognize that we're drawing stocks down.

Robinson: And we have a lot of people making different, coming up with different scenarios here regarding the mandated level of biofuel moving forward to include what might develop in Brazil and other producing regions.  So there could clearly be some jockeying for position, some RIN activity underway there.  That is a complex issue and one that I just can't give a simple answer to.

Pearson: Certainly, and certainly not one we can get to in five or six minutes and send you on your way.

Robinson: Or five or six years for that matter.

Pearson: It would take some time to fully digest as we're understanding now as we make these, have this discussion with the EPA and the RFS going forward.  Dietrich in Homestead, Iowa is asking the question, with the continuing price decline of corn, why have ethanol co-products, especially dry distiller's products risen in price especially taking such a sharp jump at the end of last week?

Robinson: Yeah, I think a couple of things. The strength in soybean meal.  I mean, if there has been a commodity, a strong commodity of late it has clearly been soybean meal.  And I think the interest from importers in distillers, those two factors I think have combined to kind of underpin and give that market a little charge of late.

Pearson: And now, you speak the interest of importers.  Again, looking at the growing affluence, that import is probably projected to continue going forward?

Robinson: I think there's reason to believe that will be the case, particularly if soybean meal remains at a premium to that particular protein product.  So clearly there is a relationship between DDGs and other protein sources, but particularly and primarily soybean meal.

Pearson: Okay.  Now one of the things, you keep on track of all issues really in the agriculture industry.  Matt in Anamosa, Iowa, excuse me, Louise in Healy, Kansas is curious, where in general are land prices headed?  We've seen a tremendous, a tremendous fall in commodity prices across the board, on the grains.  How big of an impact is the market anticipating that to have on land prices?

Robinson: You know, often times land is defined as good land and that is the way we'll address her question.  With commodity prices declining, equities markets attracting a lot of attention from investors, it would only stand to reason that land values probably flatten out here, Mike.  But to suggest they collapse like they did in the mid 80s I don't think the underpinning to the market is anywhere remotely close to that.  I think land values will flatten.  But for good farm land I think the market will stay relatively robust for the foreseeable future.

Pearson: Alright.  Producers have cash in the bank, not getting much for a return elsewhere.  They understand farm land.  It's a good investment.

Robinson: It has been and I think it will continue to be at least over the balance of your career.

Pearson: Alright.  Well thank you so much for taking the time to be with us, Virgil.  Hope you have happy holidays this year.

Robinson: Thanks, Mike, I appreciate it.  It's nice to be with you.

Pearson: You bet.  Thanks to all of you for sending in your questions via Facebook and Twitter.  We hope you've had a wonderful Thanksgiving week and be sure to check back with us next weekend.  Thanks for watching.


Tags: acreage agriculture analysis basis commodity markets commodity prices corn economy markets midwest new crop grain soybeans USDA Virgil Robinson weather wheat