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Market Plus: Feb 29, 2008: Market Analyst Virgil Robinson

posted on February 29, 2008

Market Plus: Feb 29, 2008: Market Analyst Virgil Robinson Pearson: This is the Friday, February 29th, 2008 version of market plus. Glad you've joined us here at our Market to Market Web site. I'm Mark Pearson. It's our special leap year show. We're not going to do this show again for another four years. So, Virgil Robinson, good to have you with us this week. Always good to get your insights. And I appreciate all the things you said about this demand driven market. And all these markets that we're talking about I'm thinking particularly soybeans I guess of late, maybe that's where you're thinking but China is such a factor. I mean, who is buying $15 beans against the interest? China is buying them. Is that right?

Robinson: They are, Mark. They continue to be a regular customer in soybeans and vegetable oil as well as others but China, of course, steals the headlines because of their sheer size and the amount of equity and the trade imbalance between China and U.S. they do have the equity to afford a product. Exchange rates are a factor here too and I can't remember if you mentioned or if we mentioned that the U.S. dollar index which is representative of the value of the U.S. dollar versus several other currencies established a new low this week. So, the exchange rate remains attractive from an importer's perspective given the goods and services here in the U.S. and to this point I've not seen any appreciable rationing at least that I can identify and I think the exchange rate is clearly a primary factor as to why.

Pearson: Virgil, the livestock sector you pointed out when we talked about beef, beef export numbers down so sharply from where they were prior to the 2003 December outbreak of Mad Cow. And I hear from cattlemen and cattlewomen out there that they definitely want our product. Pork seems to be moving pretty well and there's a lot of hope that maybe a lot more will move into China. As we look at China are we going to see more meat imports? Are we going to see more grain, oil seed imports? Product imports? Where do you think it's going to go?

Robinson: It's arguable it could be all of the above, Mark, but clearly I think there will be additional protein imports as the Chinese domestically try and grow their hog herd, try and continue to develop their poultry industries, their aquaculture, their dairy industries and, of course, those are all intensive users of various types of protein, corn and vegetable, soybean vegetable protein spring to mind. So, I don't sense that that's slowed any. It's conceivable their GDP's may cool down to some extent, Mark. They have been growing at double digits for the last several years. But to suggest that that will abruptly end and our export trade and world export trade comes to a crashing halt, very misleading, I don't sense that at all. I think the trend is firmly embedded globally to include the Indians and other emerging economies, Mark, and I think the demand for a whole host of goods and services including agricultural product will continue to ramp higher.

Pearson: Real quick oil prices very high again this week. You mentioned the cheap dollar. Is that really what's going on here?

Robinson: Vegetable oil, Mark?

Pearson: Crude oil.

Robinson: A bit out of my domain but certainly part of it. I think, again, the demand from the U.S. I don't sense that it's been rationed too terribly much, Mark. Demand from the likes of China and India remain strong. I am somewhat surprised that OPEC and other non-OPEC countries haven't made an effort to increase production given this price incentive, that that hasn't seemed to be the case. So, again, demand remains strong. The likelihood of additional motorized vehicles in a lot of these emerging economies is very, very strong from what I understand and the demand curve remains sloping upward, Mark. So, I sense no slowing there, no appreciable slowing.

Pearson: We were talking on the show about buying acres and everybody is buying acres whether it's hay or corn and beans or whatever. Heard from some producers this week from Arkansas, some out in California who were saying, you mentioned rice on the show and other cereal crop that we produce. Corn and soybeans, particularly soybeans are starting to displace some of those. What is going to happen to those markets for us?

Robinson: Well, ideally some of that acreage slippage will be met in other regions of the world. I think the areas that globally are capable of expanding their agricultural production would obviously be the southern hemisphere or Brazil given the fact they can deal with some of their infrastructure and logistic issues. And that will likely take place over time. Another region would be the former Soviet Union and I think they have incentive to grow and expand their agricultural production. Again, they have issues, it's not going to happen overnight and even parts of western Canada, for example, that I think are moving more towards row crop production than has been the case the last several years. They begin to liquidate their cow herds and move towards canola, move towards barley, move towards wheat production. So, there are regions globally that are capable of increasing acreage and increasing productivity and, of course, that's where technologies and genetics and new hybrids and so on come into play and we are involved or at least the group I represent is clearly involved in that movement.

Pearson: Alright, it's fascinating, it's a whole change of what's going on in the world in agriculture. Virgil, appreciate the insights. That's it for our market plus segment. Thanks to Virgil Robinson for being with us this week and thank you for joining us at our Market to Market Web site. And from all of us on Market to Market, I'm Mark Pearson. Thanks for watching.

Tags: agriculture commodity prices Mad Cow markets news