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Market Plus: Oct 06, 2006: Virgil Robinson, Pioneer Hi-Bred International

posted on October 6, 2006

Market Plus: Oct 06, 2006: Virgil Robinson, Pioneer Hi-Bred International Pearson: This is the Friday, October 6th, 2006 Market Plus segment here at our Market to Market Website. I'm Mark Pearson along with Virgil Robinson this week. Great to have Virg with us. And Virg, we can't talk all about corn during the show. I tried to have you hit the highlights and I think you did. But there has been a change that has occurred just in the last few days, not an uncommon one, the market is saying we're not that concerned about the corn in 2007 but we're real concerned about getting some corn in, in 2006.

Robinson: I think, Mark, you've struck a nerve. All of us including yours truly was of the opinion that in late August, early September or certainly by the latter part of September we would see about 2 billion bushel of last year's crop that had been under loan move to the market place and move to the market place in abundance at which point cash prices, basis levels would all crumble and we could buy our fill of inexpensive corn. I couldn't have been more wrong, did not happen. A lot of new storage has gone up, Mark, year over year and again I think we mentioned one time many months ago the producer can be quite creative when there is little LDP or no LDP and attractive carrying charges in their cash as well as the futures market. They have taken that to heart, Mark, and to this point in time it's hard to source corn in quantity. Now, as the harvest progresses that may changes, it remains to be seen. But within that framework the carrying charges have narrowed, Mark, nearly a dime in many cash markets, perhaps more in some and certainly that in some of the futures carrying charge structures. The market is sending a signal, we need some corn and we need it right now. As a result of that I think it's an opportunity for a lot of producers to go ahead and reward their local markets with some of their production, Mark, and at some point in time if they choose they can repurchase that inventory in a multitude of ways. But the point is, at least in my opinion, the return on storage in just the last few days has diminished and it has diminished because the demand for corn has shifted to the nearby and I think we need to recognize that and reward that to some extent.

Pearson: Alright, so we do have a stronger cash market out there in the face of a stronger futures market which is pretty surprising for the first week of October, Virg.

Robinson: Yeah, very counter-seasonal as you mentioned earlier. Cash prices today, Mark, are almost 80 cents higher than they were one year ago and we have year over year about the same supply of corn on hand. So, again, that underscores the ability of the producer, he or she, to isolate those bushels from the market. They've obviously been very successful in that. Now I think it's time to reward the market with at least some of that production.

Pearson: Virgil, last time you were on you talked of another issue which I think is extremely important. We know about half our audience are livestock producers and if you're on that flip side you're seeing, like I say, this contra-seasonal type market, you're seeing this corn market start to have a little bit of a rally, staying fairly strong and that 2 billion bushel of corn that you were expecting to come in and everybody else was expecting to come in too wasn't going to give us that opportunity. What should those livestock producers do now? There is a concern out there particularly in the pork world about securing actual corn.

Robinson: Yeah, Mark, there is a really interesting article on the ag, The Farm Website written by Chris Hurt, extension economist, University of Purdue, addressing the issue of hogs and $3 corn. There is still profitability in his opinion and I would concur with that. But I have sensed in just the last few days, Mark, producers, livestock producers have kind of thrown in the towel and I think there has been a panic of sorts in the cash market which has created, as you mentioned, this very strong counter-seasonal movement. Trains out of Illinois, for example, into the feedlots in Texas, the basis on those trains, Mark, is significantly stronger of late than it was as recently as two or three weeks ago. That suggests to me the producer was short bought and has covered some of those needs. Now, if that is universal or uniform throughout the animal consuming unit group then that could create a little void in demand, Mark, and kind of accommodate this harvest movement and harvest break in price that I think is approaching us here the next two or three weeks.

Pearson: Excellent, as usual some great insights, Virgil Robinson with us on Market Plus. For all of us here on Market to Market, I'm Mark Pearson, thanks for joining us. We'll see you next week.

Tags: agriculture commodity prices markets news