Pearson: This is the Friday, August 1, 2014 version of the Market Plus segment. Joining us now is Virgil Robinson. Virgil, welcome back.
Robinson: Thanks, Mike, nice to be with you.
Pearson: On the show we did not have a chance to discuss cotton prospects. Cotton has been on a fairly long-term selloff, month to six weeks we have been dropping cotton prices. Is that going to continue?
Robinson: Well, a couple of things that I sense that might serve as a catalyst there, Mike, and provide the springboard for some modest recovery. If my calculations and my reading is correct, cotton prices have declined to a point where they're now very competitive with synthetics. Okay, so that clearly is in favor of perhaps some additional cotton demand. The other concern, and I heard this firsthand from a customer this week in Georgia, his crop prospect is pretty good but it has been dry and is forecast to remain dry and he is concerned that what was once not too long ago the best prospect he had, it is deteriorating. So, maybe it's a combination of a couple of things like this that provide some recovery in the cotton futures market. I'm speaking futures now, not cash. I could argue I think under the circumstances described that October and December futures could recover to the low 70s, at which point if I were a producer without the security of a government floor, for example, I would either create some kind of option defense or certainly if I had made no sales I would, in fact, start on that type of price recovery, Mike.
Pearson: Alright. Now, as you look longer term the cotton market, as we have talked about on the show, as you have looked into in depth, it's an interesting market due to the varying players that are out there and the supply and demand situation. Could you talk about a little bit longer term view of the cotton market? How do you see it squaring up here over the next year?
Robinson: I think, you know, Brazil, Australia and India are major cotton exporters. Now, the economics for cotton versus other commodities in each of those three regions has changed and changed significantly in the last six months. It would suggest to me that there will be fewer acres of that commodity in those regions. So, it is conceivable a decline globally in cotton acres and perhaps a modest decline of cotton acres here in the U.S., provides some opportunity for improvement in the next 12 to 18 months.
Pearson: Okay. Alright. But there is still a lot of cotton around the world.
Robinson: Inventories are ample at this point, Mike, and ample to the extent it should meet and exceed demand by a healthy margin.
Pearson: Okay. Alright. To kind of keep a ceiling. Now, as we take a look at our Facebook questions, Martin, who asked the question on the show, had kind of a part two of his question. We have spent a lot of time discussing the U.S. yield potential, potential carryout and everything. You take a global outlook in most of the work you do. He is curious, how big do you anticipate the world supply of corn and soybeans to be this year into next year?
Robinson: You know, as mentioned, a fairly reputable source, the International Grain Council did make and revise their forecast just this week and they increased corn production and wheat production versus their previous monthly forecast. Both are yet a bit below last year's record production but certainly one of the bigger crops in the last several years. So, no shortage forecast there. They did forecast and they made this notation that they're incorporating what they feel to be an increase in southern hemisphere, specifically Brazilian soybean hectares, for their summer crop, their safra crop. Okay, so we harvest, they plant. Should that come to fruition and yield at something near trendline, then bean supplies will be the largest they have ever been. So, that is the point I need to emphasize moving forward here regarding bean prices, not just for the crop in hand, but perhaps the next season or two. Supply does not appear to be an issue as we visit today, even with an increase in overall demand year over year.
Pearson: Okay. As we jump back, take a look at the wheat market, as you discussed on the show we have seen an increase in demand from Europe for the higher protein, hard red winters. For the balance of the wheat crop, as corn has continued to fall, does the outlook look a little less rosy as producers, I imagine, might shift away from wheat feed to corn feed here in the next year?
Robinson: You know, wheat carries, I'm referring specifically to soft red wheat, about $1.60 or $1.70 premium to corn. So, I don’t' sense here in the U.S. that it's likely to be much of a feed alternative or substitute. Now, you do have some issues in parts of Europe where they have had too much rain and the quality of their crop has deteriorated more towards a feed type commodity, Mike. I think there, there will in fact be an increase in wheat feeding, probably to the detriment of corn and other proteins.
Pearson: Okay. Alright.
Robinson: That's not particularly encouraging regarding the corn market.
Pearson: You bet. Now, in another issue that has been getting a lot of press recently, we've got a lot of viewers up in South Dakota, North Dakota, places where corn basis is very, very low. As we look at the rail situation, as you look at the market in broad strokes, what is the anticipation come harvest for folks in that neck of the woods who rely primarily on rail transport? Is it beginning to pick up?
Robinson: From its worst point, yes. But to suggest there will be a bountiful supply of trains and rail cars for this harvest season, I don't think that's the case, Mike, particularly if crude oil prices remain at or near these levels. There is an emphasis, in my opinion, to cater to the freight that pays the best return and unfortunately it's not always grain cars that do that. Good point, good segway, I think looking forward in this country as well as others, roadways, railways and waterways all are in need of significant improvement and in need of significant capital and resources to accomplish that. I'm not sure budget wise we're in position to address that. So, for those who are of the opinion if we produce large crops we'll have the ability to readily move them and export them, please understand there will be transportation issues that will be magnified by big, large crops.
Pearson: That's the truth. We saw it last year up in that neck of the woods, we've seen it with the Mississippi last year during the low year. So, it'll be an ongoing issue as we continue to increase our yield.
Pearson: Well, Virgil, I want to take the time to thank you for being with us this week.
Robinson: Thank you, enjoyed it.
Pearson: Thank you for sending in your questions via Facebook and Twitter to us. Please continue to do so and we will continue to get expert analysis right to you. Thanks for watching and have a great weekend.