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Market Plus: Dec 11, 2009: Market Analyst Virgil Robinson

posted on December 11, 2009

Market Plus: Dec 11, 2009: Market Analyst Virgil Robinson Pearson: This is the Friday, December 11, 2009 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. With us this week one of our senior analysts, Virgil Robinson. Virgil, good to have you with us. Appreciate your insights a great deal. Now, you track all of the commodities that we discuss on the program closely. You also look at some of the factors that are behind them. There's no secret, we've had a ton of outside money come into these commodity markets, that's been going since 2006. On the show you mentioned maybe a chunk more coming in. Tell us what your thoughts are on what that could mean.

Robinson: Well, I think index funds have been building positions in various commodities to include many of the commodities we talk about and I see no reason why they will not continue to do so and they do so for various reasons. Hedge against inflation, which currently I don't detect any inflation, but certainly in due time I think we'll have to address that issue. They'll use this as a hedge against or to position themselves for macro developments and I think that is maybe a key point. The worst recession since World War II has I think ended for most of the world and economies are beginning to recover led I think initially here by the Asian countries and then followed secondly by Brazil and then thirdly by India. Those countries are emerging economies and the emerging middle comes to mind when we visit about those countries and the pent up demand for various goods and services including foodstuffs as they move forward.

Pearson: This week, we talked about it on the show, the dollar moved up. Do you think that's more of a little bit of an up trend in an otherwise bull market for the dollar?

Robinson: That is my read, to the best of my skills.

Pearson: You've had some pretty good reads in the past. I remember your everybody on the one side of the boat can result in a pretty good correction and we've certainly seen that through the years.

Robinson: It is always wise to drink upstream from the herd.

Pearson: Another good one, Virgil. You've got a book going there. So, be that as it may, a pretty strong move by the dollar this week and yet for the most part the teeter totter has been a weaker dollar and then we've got higher commodities, particularly in the precious metals I guess I should say, particularly there but corn, beans, wheat have all benefited as well. So, as we look at this market going forward and let's say we do go back to more of that pattern of a little bit weaker dollar, which most of the analysts here on the show have been feeling that way and you've certainly felt that way for a while, you've also pointed out in the past that these currency moves are usually pretty long, it's not going to be a short-term move. That benefits agriculture for the most part since we're so export sensitive. So, could we see some more optimism on that front? Having said that, the point I was trying to make in this long soliloquy of mine, corn exports have been poor.

Robinson: They have, Mark. And the USDA has mentioned and addressed that in their most recent S&D. They did reduce the export target by 59, a modest reduction which would imply one of two things -- in pursuant reports they'll adjust it deeper or they're of the opinion that trade will in fact improve as we move through the balance of this crop year. Now that remains to be seen but I do think there is an argument in that direction. And it will probably be expedited by what I think will be a weaker dollar over the course of the next many months. The Federal Reserve and other parts of the economic functions of the U.S. will be vital in determining the strength or weakness of the dollar but it is my best opinion that the fed open market committee will remain very accommodative to this recovery which means interest rates should remain very, very low, at least by historic comparison and that has a tendency in my opinion to weaken the dollar, not strengthen the dollar.

Pearson: All right, so you don't see the corn export impact really much positive or negative, really much of a change going forward?

Robinson: No, I like the ethanol economics here too as well. They are profitable and I think we've seen some increased capacity in the last few weeks as a result of that and I think that is a trend that is pretty well entrenched. A little setback, the EPA kind of dragging their feet here on whether they wish to increase the blend but I think that is eventually coming. And remember we're talking about a futures market, they look to the future, not to the past. So, that is something that I think the market is anticipating also over the course of the next several weeks.

Pearson: The U.S. economy is going to improve, could that maybe change your outlook for what is going to happen with beef prices in particular and pork and everything else along with it, the whole protein sector?

Robinson: Yes, certainly no disposable income and discretionary income in terms of vacationing and things of that nature are likely to improve slowly but I think they are likely to improve over the course of the next several months. And as mentioned, we're visiting about a futures market that has a tendency to look forward and anticipate change and I think that is one that will find its way into price discovery here in the near future.

Pearson: All right, Virgil, as usual we appreciate your insights. Virgil Robinson with us this week on Market to Market and right here on Market Plus. On behalf of Virgil and all of us on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news