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Market Plus: Aug 18, 2006: Virgil Robinson, Pioneer Hi-Bred International

posted on August 18, 2006


Market Plus: Aug 18, 2006: Virgil Robinson, Pioneer Hi-Bred International Pearson: This is the Friday, August 18th version of Market Plus right here on your Market to Market Web site. Thanks for joining us. With us this week one of our senior analysts, Virgil Robinson. And Virgil, it's like we've got a tale of two markets here. We're trying to move through our current demand cycles, current production cycles and then as we go forward with this biofuel explosion, you also mentioned a couple of other key ones, China is short bought on corn and course grains, the Brazilian situation could kind of tip the balance in the soybean production. But we've got to get through 2006 first and you think there will probably definitely be some cash pressure on this market come this fall.

Robinson: I think it's already started, Mark, the national soybean index price as of tonight is $4.95 which is the low that we saw last year. So, I think the market has already sense this and we will experience in select areas, Mark, some cash calamities I think because of this supply situation. And it is ironic because as mentioned and has been mentioned on the show numerous times the prospects of each of these two markets in the future I think is very bright. So, this transition is going to be kind of clumsy and kind of an awkward one. But as we look forward I think there are any number of reasons to be very optimistic about production agriculture.

Pearson: I had a chance to visit with Senator Grassley today and he's with the Senate Finance Committee but also of course a real avid follower of what happens in the Ag Committee. He is convinced that we'll have the same farm bill or similar to the current farm bill now that the WTO problem is in front of us. So, that may not change. So, we could see some profit in these low markets, again with strong LDP's.

Robinson: Yeah, Mark, as mentioned it is going to be an interesting fall because in those areas and there has been new storage put up in the last several months in some of our central grain producing areas, Mark, that might well be capable of handling this fall's harvest without "calamity." And in those areas I think it's going to be very, very difficult to source grain and I think as you mentioned there are any number of buyers all assuming that in the harvest or the fall of '06 they're going to walk right in and buy grain at their beckoning call at prices that are below or significantly below prevailing values. And in some geographies I think there is a surprise awaiting them. I don't think that will be the case. As mentioned there are attractive carries in the futures market as well as the cash market and our producers, he or she, they have the ability, the uncanny ability in instances, Mark, of surprising you and doing things that you just absolutely can't believe they can do. And they're not oblivious to these carries. They are well-educated, they are well-informed and they will do, in my opinion, everything within their means to resist dumping and forfeiting grain at harvest type pressure under that type of situation, Mark. So, it's going to be an interesting fall and a story that I think will be unique and unlike we've seen in our careers.

Pearson: Let's talk about going into '07. You mentioned the Brazilian soybean story which is another emerging story for soybeans. They've got a lot of problems down there between spraying for Asian rust and you mentioned the Real and competitive crops, sugarcane, cotton, whatever. We may see fewer bean acres down there.

Robinson: I agree with you Mark and a lot of educated acadamians are in our camp as well. You know, the development in Brazil has been predominantly, not exclusively but predominantly in madigroso in that central and northern region and of course that is many, many kilometers away from the ports of export and the ports where they must deliver that grain. So, transportation due to the high cost of transportation, as you mentioned, the value of the Brazilian Real, Asian soybean rust, multiple sprayings for that and the realization that many of these folks have lost money this year, Mark. Their ability to acquire credit and grow their business, so to speak, is in doubt so I do think there will be a reduction in sewn hectares down there. If they should encounter a subpar growing seasons which who knows but should that be the case then the dynamics change much more quickly than what we've discussed regarding biodiesel and that evolving.

Pearson: Alright, from a sales standpoint Virg, what are you recommending for soybean futures? This year and next year.

Robinson: At this point I think the market is in position here in the next three or four weeks to recover a little bit and that is kind of a counter seasonal statement. But I have some underlying weather concerns. I'm reading from fairly reliable sources the concern about what could be a significant cold air mass developing in the Canadian prairies and provinces that could drop into the U.S. plains and perhaps even the middle part of the country. So, there are some weather concerns there. The market has been sold off aggressively. Processing margins are still profitable and the demand for cash remains profitable. The farmer has been resistant. I think we are set up here for some type of recovery. November beans back to $5.85 to $5.90 between now and the 10th of September, I'd use that as a sales opportunity, Mark. Beans dropping below $5.40 I don't think are a very attractive sale as we visit tonight.

Pearson: Alright, Virgil Robinson, thank you so much. That will wrap up our Market Plus segment here. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.


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