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Market Plus: Feb 27, 2006

posted on February 24, 2006

Market Plus: Feb 27, 2006

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. Mark Pearson and Virgil Robinson, one of our senior market analysts is with us. And Virgil, this soybean market, it's caused I think a lot of confusion for producers out there. I think a lot of them are feeling like, you know, what should we be doing right now. We keep hearing about big crop down in South America, we keep hearing about the potential for increased acres here in the United States and yet this market you pointed out on the show above $6 this challenge, but $6 beans historically that's not a bad place to be.

Robinson: True, Mark. I think there is a strong cross current in the soybean futures market, Mark. The supply scenario you just outlined as well as chief economist Keith Collins in the ag forum suggesting daunting numbers in the soy complex. However, seasonally, Mark, and I am a student of the seasonal aspects of commodities, various commodities in soybeans there is a pretty strong tendency from the February lows to move irregularly higher into the spring of the year. And I think we have a lot of people in tune with that prospect and that possibility. So, how does one manage those cross currents? It would appear to me, Mark, as mentioned earlier that taking advantage of what is today a price quite a few cents above where we were a year ago yet with more beans in the pipe to go ahead and move through those cash soybeans and then try and replace that inventory with some type of option strategy. And I brought to the attention of you and the viewers the bull call spread strategy, the vertical call spread and if I penciled and calculated correctly before leaving the office the August at or in the money soybean call was priced at around 44 cents and I believe the $7 call was priced at around 17 cents. So, if one could buy that vertical spread at around 25 cents it would permit producers to participate in some, not all, if soybean futures were to spike a dollar higher for reasons that currently are unbeknownst to us they could capture much of that, Mark, and it would certainly permit us the opportunity to take a look at spring planting, perhaps a little better estimation of the size of the South American crop. There are several things we could deduce in that window of time and at some point should we decide okay, you know, the market has met its Waterloo and there is no need to maintain this insurance there could yet be some value in premium in that strategy. So, I think it's a viable repurchase strategy.

Pearson: I think it might be, right now it might be particularly good. You mentioned on the show also heavy Brazilian sales, we're coming into that season too.

Robinson: Traditionally Mark, if I could show you a picture of their traditional sales pattern March and April are the two months of the heaviest sales in Brazil and obviously we're right on that doorstep.

Pearson: Alright, Virgil Robinson, as usual some great insights. Appreciate you being with us this week. Thank you for joining us here at our Market to Market Web site. Tell your friends, love to have them join us here and join us again next week. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices markets news