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Market Plus: Oct 26, 2007: Virgil Robinson

posted on October 26, 2007

Market Plus: Oct 26, 2007: Virgil Robinson Pearson: This is our Friday, October 26th, 2007 version of market plus. We're so glad you've joined us at our Market to Market Web site. Tell your friends and neighbors, we'd love to have them join us too and, of course, they can download audio podcasts of our program as well right here at our Web site so check it out. With us this week one of our long time analysts, Virgil Robinson. Virgil, I want to talk about a couple of things that we talked about on the show and just -- last time you were on you were friendlier to fed cattle. You thought we'd see $100 and most people I talked to agreed with you based on numbers and everything else but we seemed to kind of back things up a bit in this cattle market and beef demand fell off just a little bit too. So, now where do we go?

Robinson: Mark, I think there will be some recovery in the fed market and I think it should begin as quickly as November. If the cattle on feed numbers that we saw in September are accurate, the rate breakdowns, the kill schedules should be smaller in November and December. With that I think will come recovery in not only the cash market but the futures market as well. Now, having said that there is significant amounts of edible protein in the form of pork, to a lesser degree poultry and beef available to this market all competing for the consumer's dollar. So, there is no want for protein, Mark, and as a result of that I'm scaling back my expectations for the live cattle market. 2007 it's likely the average price for the year will be at an all-time high, something near $92. Given the fact that beef production will increase as well as other edible proteins it's not likely we'll maintain that level, Mark. So, what I'm seeing here as futures recover in November and December I would look particularly at the late spring, summer and early fall of '08 for hedging opportunities keeping in mind that basis levels through that period traditionally are pretty darn good, Mark, even option price on occasion, even positive. So, futures at $95, $97 and $95, April, June and August appear to me to be attractive hedging opportunities and I think we'll get that opportunity before the end of this calendar year.

Pearson: Alright, now I want to flip to another area. This week we mentioned at the open of the show record oil prices, record soybean oil prices, stronger soybean prices over $10, strong corn prices, strong commodities across the board. And we talked about possibly that cooling and if that's going to happen. You point out that the world economy is strong, it's vibrant, it's robust and the demand from that sector is going to continue. What does that mean for corn and soybean producers? What does that mean for us longer term here in this country?

Robinson: Well, as we scan, you know, the futures market, Mark, out over the course of the next several months the futures markets very optimistic about price and justifiably so. I think there are some genuine supply concerns pertaining to wheat, pertaining to rice, pertaining to soy in the event we do not replenish U.S. supplies. Should the southern hemisphere crop fall short of current expectations, Mark, all of a sudden the balance sheet gets even tighter. So, the emphasis, at least over the course of the next several months is on production, increased wheat production, rice production, soy production. Now, how do all of these acres and where do all of these acres ultimately fall? That will remain a guessing game and a price discovery game for the next several months, Mark, should create lots of opportunities for us as producers.

Pearson: Absolutely, okay, so be alert is number one, make sure you do take advantage of those opportunities.

Robinson: I would try, Mark, it's obviously going to cost us more money to grow corn next year so margin becomes a factor here. I attended last evening an Iowa State University sponsored pro-ag outlook that I thought was exceptionally well done by the presenters and made a case for all producers being very accountable in terms of their costs of production and from that attaching targets and objectives for the next couple of years, probably worth a visit on their Web site, Mark, which I think they can link to from ours, the Market to Market site.

Pearson: Absolutely, those pro-ag seminars can be extremely informative. Iowa State does a great job with it so now is a great time to check those out and some good thoughts about what is ahead.

Robinson: I agree, Mark, Illinois, Kansas State, I'm forgetting many of them but there is a wealth of help and information available to all of us.

Pearson: That's right and a good support for you too because these are the most dangerous times we have, the most risks we face are when markets are the highest and we're definitely there. Virgil Robinson, thank you so much. As usual, some great insights. Be sure to join us again next week for more Market to Market. And be sure to join us right here at our market plus Web site. From all of us at Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news