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Market Plus: Virgil Robinson

posted on May 30, 2014


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Pearson: This is the Friday, May 30, 2014 version of the Market Plus segment. Joining us now is Virgil Robinson. Virgil, welcome back.

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

Pearson: On the show we had a great discussion about wheat and cattle and corn and soybeans but we did not get a chance to discuss the hog market, which saw a little bit of a slide this week. Let's get your take. Where is this going? This is our almost fourth week I believe of consecutive downward movements in the hog market on the futures side. Where do you think we might be trending?

Robinson: There has been a pretty significant price adjustment from that big risk premium last winter when this PED-V issue hit the street, Mike. I think a lot of that premium has now been taken away from the marketplace and perhaps will soon here revert back to the more basic supply and demand factors, which I believe to be smaller butcher hog supply this summer. Weights, which have been unusually historically large here through the winter and spring of this year, are likely to begin to recede during the summer months, which is traditionally the case. As mentioned, I still think the demand for meat, by at least some of the indicators I can track fairly routinely, suggest disappearance is strong. So, you have the lean hog index tonight at a pretty significant discount to the July and August lean hog futures and there must be convergence over the next 30 to 45 days. My opinion would be I think cash is underpriced and cash will recover and make some type of move back towards the higher priced lean hog futures contract. And that would kind of coincide with a smaller butcher supply as well, Mike. So, I'm not interested and I've not been interested for the last $10, to be frank with you, in short hedging third quarter and early fourth quarter production. And I'm going to stay with that argument tonight.

Pearson: Alright. Alright. Now, let's also talk a little bit about cotton production. We have seen cotton on a downward slide, relative stability this week in pricing on the board. Is that going to continue? What does this market look like?

Robinson: Well, the supply argument, you know, is basically this. Globally cotton production is projected to decline marginally year-over-year while U.S. production, and there have been some beneficial rains in parts of the southwest that have aided, I think, the cotton that has been sewn, planted and will be planted. I like to use the stocks to use ratio, Mike, as kind of a barometer or an indicator and the U.S. goes from last year's 20% to what is projected this year to be near 30%. So, clearly that implies enough supply to meet demand. But I think cotton futures, as mentioned, other commodities earlier have felt the brunt of strong investor speculative interests and often times those programs will switch from bullish to bearish on a dime. So, I think we have acquired a fairly substantial short position in several commodities at tonight's price level. So any catalyst, whether it is a weather related thing, an international development of some kind could spark a recovery in a short covering rally and I am anticipating that, Mike, in the next two weeks in wheat, rice and cotton.

Pearson: Alright. Well, now, we've got a couple of questions here as we take a look at new crop acres and new crop prices. Jim and Mike, both Twitter followers, tweeted us questions. Mike's question is, where is new crop corn going? And I think that ties in pretty well with Jim's question, do you think the total projected acres are correct for '14? Do you think the planting intentions are going to be followed through with?

Robinson: I think they can certainly change because of the lateness in parts of the northern Corn Belt, North Dakota, parts of Minnesota, parts of Wisconsin, Michigan as well as the province of Ontario well behind. Now, they don't have the insurance umbrella that we do. But here in the U.S., that prevent plant date in many of those regions has come and gone. And they'll have to be making some decisions now. Do I go ahead and take the chance of planting corn with a little less insurance coverage than was the case here 10 days ago? Or given the fact that the new crop soybean, new crop corn price ratio has changed significantly in the last three weeks, and that is soybean, the soybean to corn ratio is out to 2.7, Mike, which historically has encouraged more soybean acres. I think that is likely to occur in select areas of those northern Corn Belt states we referred to. So, with respect to the corn number, the acreage number, I could argue I think pretty legitimately that it's too big, that it will in fact be smaller in subsequent reports.

Pearson: Right.

Robinson: I don't know that it will be in the near future but in subsequent reports.

Pearson: Now, that 2.7 and change ratio, that is probably the largest or the biggest we've seen in the last 10 years I would imagine, soybean to corn ratio?

Robinson: I don't know about the last 10 years but when it gets to this 2.7 area and beyond it is rare territory and it often creates a significant increase in soy acreage and, as mentioned, there are some opportunities for producers that are in this dilemma of what to do given the date and time we're at here tonight.

Pearson: We've got another question, weather related question. Matt from Twitter is curious, will the acres of wheat too dry to harvest -- you mentioned those producers in Texas and Oklahoma who are is it worth the diesel to go out there and take this one to ten bushel wheat out of the ground -- will the acres too dry to harvest get planted to something else? And he is asking, is soybeans an option?

Robinson: Well, it would depend on the geography, specific geography for a second crop, a double crop. But there have been some rains now through that driest area of Texas, Oklahoma, parts of Kansas and I did see the drought monitor made some minor adjustments reportable period, over a reportable period from D4 in areas to D3, D2. So there has been some moisture. Now, it's probably too late to help a lot of that hard red winter crop and some of it could well be abandoned simply because it's not economically worth the harvest effort or the cutting effort. How much of it I don't know.

Pearson: Okay. And that little bit of topsoil moisture, might that be enough to get some beans in the ground in some of those areas?

Robinson: In select areas it could be, yeah.

Pearson: Probably not a substantial number of acres one way or the other going to beans or not.

Robinson: That is traditionally not a big, big bean area. Ironically we're talking about that situation in the southwest. In parts of the Delta they are now challenged with the fact they're going to have to replant cotton and soybeans because of torrential rains here in the last few days. So maybe a good illustration of the complexity and the challenge that price discovery has over the course of a year’s time. We mentioned two or three of them tonight.

Pearson: Yeah. Another good indication you mentioned during the show of throughout this summer there's probably a good chance weather or some development will create a selling opportunity. We're seeing these implications kind of throughout the planting season already.

Robinson: Yeah, I think, you know, I would argue that tonight, Mike. And I would also bring to the attention of our listeners that if you still place any credence in the seasonal aspect of these commodities, and I still think there's at least the need to acknowledge these, you know, you get beyond the latter part of June and historically prices have had a tendency to decline. So we've got probably a 30, maybe 40 day window of time here where there will I think be a better opportunity than tonight's value to make your remaining old crop corn and old crop soybean sale.

Pearson: And when those opportunities present themselves you have to make that decision.

Robinson: You have to make that choice.

Pearson: Alright. Now, Virgil, before we let you go, we have started a program, we're asking all of our analysts what they do to prepare to be on Market to Market, what it is to be a market analyst. This is on, this will be on the Market Plus website and then it will be on the Market to Market in the Classroom website. And we're talking to primarily high school students, college students interested in commodities. So, Virgil, we've got a couple of questions for you. What are some risks to commodities trading? And what are some benefits? And how do you manage those risks?

Robinson: Well, commodity trading, I guess I think there are two camps here. One, the speculative community. And two, "the hedging risk management" community. And I have kind of migrated to that latter, Mike, over the course of the last many years. My preparation, I was in the cash grain business for many years and I think that was of enormous help to me. With the Internet and that source of information in terms of references and study materials I think some of the university extension sites and ag extension people roll out some of the best information you can imagine. And, again, it's all available at public access. So, the privates take on a different perspective in that they try and develop some type of niche that is not unique, or excuse me, that's not common to everyone. And clearly there is a place with respect to acquiring and buying their information as well.

Pearson: It's an option to mitigate some of the risks in trading.

Robinson: Yeah.

Pearson: You bet.

Robinson: You know, the risks in trading, Mike, from personal experience having had a customer list for a long, long time, I was always told from the get-go, make sure you know your customer, make sure you know your customer. Well, over the course of time I gathered a better understanding of what that meant. You need to understand what that person is trying to do. If he or she is trying to outsmart the market, fine, have the capital and the risk capital available to be involved. And the secondly, you have to have the discipline, a great deal of discipline. You have to be able to take a loss because not every trade is going to be right and those are extremely difficult skills to acquire. There are classroom environments from private sources that do teach their philosophies and how they manage the market and I think those are of benefit and help if you choose to cater to and be involved in "that trading camp". There are also equally as many good schools and references that teach the mechanics of hedging and risk management. From my perspective, and I'm in the twilight of my career, but I think the need and the demand for people who really are quality risk managers is in its infancy. I think it will do nothing but grow larger.

Pearson: Alright. Now, that leads right into the next question. You mentioned you got started in trading in the cash grain side. What are other ways for folks to get into trading commodities?

Robinson: Well, as mentioned, some of the university extension people do teach classes that I think are of help. The University of Minnesota, Kansas State, Iowa State, Illinois, all the ag affiliated, land grant affiliated schools I think have classroom curriculum that addresses risk management. And from that, you know, you can spin off into whatever camp or niche you feel most comfortable with.

Pearson: Alright. Well, Virgil, thanks for taking the time to be with us today. We really appreciate your insight.

Robinson: My pleasure, thank you, Mike.

Pearson: And thanks to all of you for submitting your questions via Facebook and Twitter. Please continue to do so and we will continue to get expert analysis right to you. Thanks for watching Market Plus and have a great week. 


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