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Market Plus: Oct 22, 2010: Virgil Robinson

posted on October 22, 2010


Market Plus: Oct 22, 2010: Virgil Robinson Pearson: This is the Friday, October 22, 2010 version of Market Plus. Thanks for joining us at the Market to Market Web site. Virgil Robinson is with us this week and Virgil, we had a lot of things to talk about on the show tonight and a couple of things that drew my interest. Number one, you were talking about the fact really we've got demand markets underneath cotton, soybeans, corn, wheat to a certain extent. You talked about how the cash index may be turning lower. So, a cautionary note there. But as we look at these markets they are all going upwards. That causes a certain amount of paralysis for producers because no one wants to jump in and pull the trigger. But at the same time, you know, the old saying was, short crop, long tail. Well, theoretically we've got a short crop here this year. We had reduced yields on corn and certainly over in the former Soviet Union we had reduced wheat numbers. Is there any truth to that old truism about the short crop and the long tail? Could we be looking at this market correcting starting in the spring or in the winter?

Robinson: Well, it would all, I think, evolve around the old nemesis demand destruction and visibly as we chat tonight I can't sense any of that. Now, we can forecast here and try and do so proving some caution to the people that are listening here. I noted this week in more than one industrial base here in the U.S. price increases at a time where unemployment continues to hang around 9%, 9.5%. So, it is going to be difficult I think for the consumer in the next several months to reconcile him or herself to the fact that commodity prices have created an increase and an increase in price at the wholesale and retail level. So, clearly that would suggest they become more conscious shoppers and that we can make the analogy not only here but globally. And I think that is probably what we're going to experience in 2011. So, can there be surprises and does this theoretically short crop have a long tail? That could well come to fruition but I don't think in the next few weeks. It's going to require months and that rationing process will have to be recognized I think first here in the livestock industry, perhaps political policy will address that to some extent post the mid-term elections. So, there are a lot of variable that come to my mind when you state that old truism.

Pearson: Maybe that was true back in the government program days, you know, when we would see the supply management start to take over and maybe not so much with the demand or markets we have today but certainly on the livestock side of things. We talked about cattle and hogs. We have a small cow herd, we have shrunk that factory quite a bit, Virgil.

Robinson: Absolutely. That is a good point, Mark. I just did a little research for a little paper on live cattle or fed cattle and over the course of the last decade the total cattle supply not only in the United States but all of North America to include Canada and Mexico is off about eight percent.

Pearson: That's a big number.

Robinson: Yeah, it is. So, you know, when you think about increased feed costs and less available replacement supply the economics of that industry are kind of at a crossroads here and any number of producers I have visited with who are my age or thereabouts have a decision ...

Pearson: Early 30s.

Robinson: ... yeah, I was born in the early 30s, that's right. Do I commit more of my personal equity to this operation or do I call it a career? And I think we're rapidly approaching that crossroads in this industry.

Pearson: Which would be friendly to beef and pork prices, would you not think?

Robinson: Well, it would be initially, Mark, but it certainly could encourage production offshore and that will likely be the case. There are environmental concerns that also come into play there, Mark, and the ability to produce feedstocks, feed grains, clearly we know that can develop in the southern hemisphere, that can develop in parts of Europe, it can develop in sub-Sahara Africa, there are lots of opportunities for that to occur as well moving forward here in the next several years.

Pearson: All right. So, we get a chance, we're profitable, take advantage of it.

Robinson: Well, I think you need to recognize margins and acknowledge them. If you choose to take them or not I can't address that but if you are in the camp of being a risk manager clearly you have to employ those tools that are available to you and we referred to one tonight in the form of agricultural puts and calls.

Pearson: All right. Virgil Robinson, always good to have you with us, appreciate the insights. Thank all of you for joining us. And for all of us here on Market to Market, I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices markets news