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Market Plus: Sep 21, 2007: Erin Golly and Virgil Robinson

posted on September 21, 2007

Market Plus: Sep 21, 2007: Erin Golly and Virgil Robinson Pearson: This is the Friday, September 21st, 2007 version of market plus. Glad you've joined us here at our Market to Market website. Stretch out and make yourself at home. I'm Mark Pearson, host of the show. Two great analysts with us tonight. Erin Golly is with us and Virgil Robinson. We're going to talk first tonight on market plus about what's happening in the meats sector. And you mentioned a couple of things, Erin, that producers need to be aware of, potential immigration challenges, getting people working those lines in those pork plants and beef plants may be a challenge with this immigration reform that's going on right now. That's an important issue. But also you talked about the last time we had big prices in wheat and corn and beans. What did that mean for the livestock industry?

Golly: For the livestock industry it's going to be a challenge looking forward into '08 especially with purchasing corn and looking where we're going to be able to purchase corn. I do think that the corn market is going to have to rally substantially higher in order to, you know, ensure 93 to 94 million acres next year. That's a problem for livestock producers. If we don't get those acres bought next year we could be talking about corn availability issues again next year. So, it could be a major issue. Of course, bean meal shouldn't be an issue at all, we're in fine shape with that. But corn is very concerning to the livestock industry right now.

Pearson: And we're not talking about buying a futures contract, that doesn't get you any corn.

Golly: No, you have to have actual ownership of it and that's the whole key to it.

Pearson: Alright, so producers need to be concerned about that. A couple of years ago you were on, you were talking about disease problems and sure enough we saw a sow herd that had expanded and we didn't see expansion, we were losing, circle virus and the other viruses that were hitting us were, in fact, in the hog business in a big way. Now, the circle virus vaccine which we reported on about a year ago has worked, hog numbers are up. What does this mean for expansion? What does this mean for total pork being available over the next twelve months?

Golly: Well, the circle virus vaccine definitely did work. For a long time we were seeing herds cut back about 20% in efficiency, now we're seeing that come right back. We've got barns that are double filled. You can't find a finishing space in the United States right now, it's very tight. We've got a lot of pigs coming out, it's going to have record numbers all the way through next summer so it's going to be a lot of pork on the market.

Pearson: This $4 sell off this last week, is that a heads up to everybody?

Golly: It's a heads up that things can go south awful quick if we don't have some export news in the market.

Pearson: Alright, and, again, the challenges you mentioned with getting that product finished too once it leaves the farm. Alright, let's talk about what's going on in the soybean world, Virgil, because you talked about a key issue and that was South America. Are they going to expand? What's going to happen?

Robinson: And you mentioned the exchange rate which is also a factor. Kind of interesting this week China has been ever present in the U.S. soybean market for weeks on end. This week to kind of underscore that issue, Mark, the Chinese processing margins, crushing margins as best I can calculate them or have them calculated, very, very profitable as the demand for vegetable protein and corn to sustain their growth in their hog industry as well as their poultry industry, Mark, they chose this week to reduce their import duties from 3% to 1% at a time where they've been buying beans hand over fist it seems from the U.S. So, that kind of opens the door to perhaps even some additional business soybean wise not only for us I'm sure but also the South Americans. So, I guess the take home is the demand, Mark, for soybeans and products, industrially and for human consumption, just continues to grow and shows no sign of abating. So, that's an awfully positive development for all of us that produce soybeans.

Pearson: Alright, I want to talk about this quickly but this whole issue of buying acres. Erin mentioned it, corn is tight, corn prices rallied this week but, again, not to acre buying levels right now. What are we going to start to see corn and beans do? And let's not forget wheat is at record high prices. How are you going to divvy all these acres up?

Robinson: You've got several commodities, Mark, vying for acreage so the realignment acreage wise will be an ongoing process. I don't know that there is a magic price, Mark. Much will probably evolve around the prospect in the southern hemisphere and how successful they are in terms of growing a sugar crop, in terms of growing a soybean crop and a corn crop and other commodities. So, this realignment process will be ongoing and should keep volatility in the futures markets exceptionally high which creates a lot of opportunities for Erin's customers and my customers to protect what we're growing as well as protect what we need to buy. So, tremendous opportunities for the next several months for production agriculture.

Pearson: I asked you on the show, Virgil, I'm going to ask you again. $10 beans this week.

Robinson: It's pretty hard for me to tell you that's a poor sale, Mark, but could they go higher than that? Well, absolutely, they sure could do that. I wouldn't have guessed $9 wheat a few short weeks ago. So, it's probably prudent for those who wish to protect an awfully attractive price and maybe those that remain in a corn-soybean rotation to put some type of minimum price structure together, Mark, and that requires and involves using the options markets to do so.

Pearson: It's a great way to do it, Virg, and you've been talking about it forever and it works.

Robinson: Well, particularly in high volatility markets, Mark, and markets that move very quickly. Soybean futures have moved $2 a bushel in the last five weeks.

Pearson: It's been wild. Virgil, thank you very much. Erin Golly, thank you very much. Be sure to join us again right here at this spot on our website next week for more of market plus. From all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news