Pearson: This is the Friday, May 21, 2010 version of Market Plus. Glad you've joined us here at our Market to Market Web site. With us this week one of our regular market analysts, Virgil Robinson. Always great to visit with you. Apologize, we had so many other things going on by the time we got to the hog trade we didn't have much time. You said a couple of critical things and one of them is very important, we're back in China.
Robinson: Which is, I think, a great set of circumstances for us. The supply situation in red meat in general has clearly adjusted to demand to the extent where I don't think supply is a real issue here. The real unknown remains demand, sustaining current price levels or, in fact, seeing higher price levels. As mentioned tonight, I was very impressed by the cold storage report, total frozen beef, total frozen pork down from a month ago, down from a year ago at retail prices clearly that were higher and that is impressive to me.
Robinson: Japan is battling, as I understand, a FMD, foot and mouth disease issue where they may in fact have to cull their herd pretty significantly and that is likely to stimulate some new business, pork and beef. So, kind of a combination of things here. Futures having reacted to quite a number of events the last two weeks, many of which weren't really fundamentally pork or beef issues, fallen in value significantly, well below cash index values. I think they are oversold and with tonight's cold storage report I think we have the catalyst here to create a recovery over the next two or three weeks.
Pearson: Okay. It has been a pretty dramatic pullback in the livestock front but it also has been a pretty dramatic increase too.
Robinson: It has but the decline, of course, always seems to develop more quickly than the increase. We need to remind ourselves that the climb higher in value was driven by economics and we clearly had some red ink for an extended period of time in both of those industries. So, to say they have paid their dues is an understatement.
Pearson: Absolutely. And they were feeding that corn, everybody else was hauling it to town for $4.50.
Robinson: There were casualties along the way the last couple of years so we've realigned supply, now we are dependent on continuing and sustaining demand and I think we're in position to do that and I think we're in position to even grow that demand the balance of 2010.
Pearson: Corn, we talked about China and it's a precedent and you're saying within China corn prices are very strong.
Robinson: Mark, I think, and I don't think I'm lying here, I think they are at record high levels. So, that could imply quite a number of things. One, a lot of analysts were of the opinion that USDA's production number for China this last season was too high. Well, perhaps this underscores that assumption. Secondly, as you well know and everyone else well knows their economy has been blistering hot for several quarters, one right after another and I think they have increased the demand for a lot of goods and services including edible proteins and they are growing that hog herd. Clearly it needs protein to do that in the form of corn and vegetable proteins.
Pearson: Is a couple million metric tons of demand or maybe three million metric tons of demand for China, is that going to be significant enough to move our markets in the face of all the corn that we're going to have for carryout based on what USDA is saying?
Robinson: In the scope of quantity it's not very large, but in terms of a precedent I think it is. It comes at a time where the U.S. farmer is a major cash corn long and I think this is a wonderful opportunity for he or she to utilize this enthusiasm and this event to move through some of that old crop inventory. Many of them need to do so to make bin space for what's coming this coming fall.
Pearson: All right, on that note, Virgil, we'll wrap it up. Virgil Robinson with us this week on Market to Market and right here on Market Plus. And from all of us on Market to Market, I'm Mark Pearson. Thanks for joining us. We'll see you again next week.