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Market Plus: Oct 28, 2005

posted on October 28, 2005

Market Plus: Oct 28, 2005

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site. I'm Mark Pearson. So glad you've joined us and glad to be joined tonight by Virgil Robinson, one of our regular market analysts, one of our senior analysts. Virgil, a couple of things; number one, soybeans. You talked about it tonight briefly on the show and that is that the soybean market, a lot hinges -- just a lot up in the air anymore. We can't look at what the U.S. is going to do and say that's it. We don't know what might happen in Brazil this year. It was the Brazilian drought that drove our rally in 2005. So, I mean, things have changed. As you look ahead and look at what soybean prices have been doing here in harvest, you talked about maybe we could see a bottom this next week in the soybean markets, at least as far as futures are concerned.

Robinson: Mark, the trade has been conditioned now to believe that the U.S. soybean crop is going to be 50- to 100-million bushels larger than the last USDA report. A report of that nature will not be surprising. It will be expected, so it had better bet that large. I like the fact that processing margins, Mark, are profitable here in the United States. And as mentioned on the show, in select geographies spot basis premiums improved this week upward of 20 cents. And they don't do that unless there is a specific reason and the reason is the processor can't source the beans. I think those that are under roof are likely to remain under roof for an extended period of time and, therefore, in order to buy those one of two things, either price has to pull them out or to many astute marketers the basis. And I think that is probably the vehicle of choice will be the basis and perhaps a tightening of the spreads, Mark, the cash spreads that are currently showing carry.

Robinson: You mentioned briefly, I think, Brazilian economics. A lot of issues down there, Mark. There are areas down there that are experiencing some weather problems. Brazil, Argentina, Paraguay, Bolivia all have experienced the rust issue, the rust problem. I'm led to believe from very reliable sources that in some instances Brazilian farmers may not have the credit or the equity or the available cash, Mark, to combat that problem with multiple sprayings. Could that affect potential yields? Well, absolutely. Could there be fewer hectares sewn this year because of the economic situation in Brazil? Absolutely. I don't know how to answer those questions but certainly they are market factors. So, giving up ownership here at this point in the calendar here in the U.S. to me is probably not the right decision. If the basis were to improve 30 or 40 cents by the middle of November, Mark, I'd be inclined to take advantage of that with beans that are in house or under roof, move them to market, defer the price if you want, defer the income if you want to January, but be cognizant of the fact that we might well see more movement in the basis than we do in the flat price for the next 90 days. So, make sure you're aware of that in your local marketplace. That could be the trigger and that could be the vehicle that signals you to move inventory out of storage.

Pearson: Let's talk Virgil, you mentioned something else on the show that I wanted to follow up on, and that was feeder cattle. You talked about this last time you were on a month or so ago, you talked about (how) you thought feeder cattle were topping. And $10 later you're saying they're topping. And now it looks like the evidence is swinging more your way.

Robinson: A couple of things I've noted, Mark, just in the futures market that might be of interest to folks is that this month, which will end Monday, a classic formation where the market opens higher, blows to an all-time high and now as we end the month we are back to and just below the previous month's close and virtually on the low for the month of October. If that would follow through on Monday, I think technicians will be quick to pick up on that and begin to talk about a market that has, in fact, topped. In addition to that, Mark, I'm seeing what I think is a slow turn in the spread between feeder cattle futures price and live cattle futures price. I'm seeing that spread begin to swing or at least I think it's beginning to swing, which would also suggest that feeder prices are at extremely high levels and you are very vulnerable with a lot of price risk if you own that particular commodity without any kind of protection.

Pearson: Some good points as usual. Virgil Robinson, thank you so much. That will wrap up Market Plus for this week. Glad you've joined us. Tell your friends and neighbors. We'd love to have all of you join us here at Market Plus here at our Market to Market Web site. And for all of us here at Market to Market, I'm Mark Pearson, have a great week.


Tags: agriculture commodity prices markets news