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Market Plus: Sep 19, 2008: Virgil Robinson and Erin Golly

posted on September 19, 2008

Market Plus: Sep 19, 2008: Virgil Robinson and Erin Golly Pearson: Welcome to the Friday, September 19th, 2008 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. With us this week two of our regular analysts, Erin Golly and Virgil Robinson. Virgil got to start first on the show so ladies first on the Market Plus segment. Erin, a couple of things that you brought to light. You're friendly 2009, which grandpa used to say cheap corn makes for cheap cattle and cheap hogs, high priced corn will make for high priced cattle and high priced hogs. Do you think we're going to start to see that high price for livestock coming up in 2009?

Golly: I definitely think so and with the ensuing acreage battle I believe when corn took off last year hogs followed right behind it and made new all-time contract highs so I think we're going to see that again this year.

Pearson: So, some opportunities out there for some profitability, some black ink in the livestock front which is good news and you're also friendly on hogs getting into the first quarter of 2009, less so in the fourth quarter of 2008.

Golly: Correct. And I think there's some good opportunities but if we're in an acreage battle and talking about the corn market rallying substantially producers need to be very smart about getting these feed needs bought for the next six to nine months, get us through the next growing season.

Pearson: You mentioned something else I want to talk about and that was the COOL program, this country of origin labeling, which has been highly discussed and no one really seems to like any of the plans that are out there and yet it is becoming a reality, whether we want to participate in it or not we're going to have to. So, what do you see ahead for country of origin labeling?

Golly: Well, one of the things that I wanted to note today was that there's starting to be a tendency from retailers and packers they're only wanting USA only labels on their products and they're getting that from customers. So, if that's truly the trend going forward is that they only want USA products it's going to be very positive for the U.S. livestock industry.

Pearson: So, keep that in mind, put that on the burner as well as one of the things that is hopefully going to be part of our mix for livestock production for the coming year. Virgil Robinson, a lot of things talked about on the show tonight and one of those is this fund liquidation, this overall financial I don't know if you want to call it a panic or whatever we had in the last week, it certainly looked like one but as we look at what is happening with kind of the air coming out of this commodities bubble a lot of producers saying did we miss it? What's ahead? What should we be doing to maybe take advantage of the opportunities that are out there right now?

Robinson: Mark, I think the U.S. and world supply and demand, the balance sheets probably support the 2009 market relatively well. I mean, we're talking about relatively tight inventories of U.S. and global corn and coarse grain, tight U.S. soybean inventories, more ample world inventories. So, until those begin to visibly grow I don't foresee the market collapsing. Now, futures on the other hand are an entire different entity. As we both realize there can be periods of time where prices are accentuated by activity or events that are very difficult to handicap and you've made mention of one tonight, the "financial crisis" and the fallout from various entities to include the likes of Lehman Brothers and AIG and their subsequent positions with index product. Are there more? Could there be more? You have to guard against that prospect. To suggest you bury your head in the sand and say this financial crisis or however you want to label it is now a mute point and everything is fine is probably a bit misleading. So, prepare for those inevitable or those possible market factors. Soybean meal, soybeans, we're sitting at the year's lows and the fundamentals aren't any different tonight as we perceive them than they were a few short weeks ago. Why is that? Well, we've rationed some of the usage I think in those products and we have changed the mindset of the investment and speculative communities. Should that continue then you have to prepare yourself for what could yet be lower prices. Options play and have a role in this kind of an environment regardless of the premium concern. We're talking about markets that are capable of very large and very swift moves and those who are not in position to absorb that kind of risk need to do something here. You can't bury your head in the sand and say everything is going to be fine. That's probably not very good risk management practice.

Pearson: Absolutely not. And, of course, we're talking about through the end of the year, 2009 may be a different story?

Robinson: Well, it could. Again, the real wild cards I think remain what happens globally. And, again, the signals that were sent not only to the U.S. ag producers but the world ag producers with this significant rise in price I think had been taken to heart by all. I think there will be a herculean effort made globally to increase coarse grain production and oil seed production, the likes of which we have not witnessed in our lifetime. The stronger dollar probably has a role here. Again, I think we're seeing, for example, anything tributary to the Black Sea including the likes of wheat and barley right now trading at values FOB anywhere from $50 to $100 a ton below corn. That takes an effect on demand and that is underway as we visit tonight.

Pearson: We've had a sea change in terms of commodities and the U.S. commodity market.

Robinson: I think there's been a change in attitude. I would concur with that.

Pearson: So, producers be alert. Some good news in the livestock side. Maybe we'll see some cheaper feed costs going forward and maybe some stronger prices in 2009 according to Erin and maybe some pressure on our corn and soybean products as we go forward as well.

Robinson: I think you have to guard and defend against that possibility, Mark.

Pearson: As usual, some great insights Virgil, thank you. Erin, thank you so much. That's it for Market Plus. Thank you for joining us. Tell your friends and neighbors to join us here at our Market to Market Web site each week for more of Market Plus. And for all of us on Market to Market, I'm Mark Pearson. Thanks for being with us. Have a great week.

Tags: agriculture commodity prices markets news