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Market Plus: Sep 02, 2005

posted on September 2, 2005

Market Plus: Sep 02, 2005

Pearson: Welcome to Market Plus here on Market to Market. I'm Mark Pearson. One of our senior analysts Virgil Robinson with us this week. Virgil, what a week it's been. The record high oil prices, the situation down in the Gulf is, as we said on the show, indescribable and mind-numbing what has happened down there. It impacts us here in the upper Midwest and this year unfortunately maybe more so than normal because of all that old crop corn we continue to carry in many parts of the Corn Belt particularly it seems in the Western Corn Belt.

Robinson: Mark, this is a tremendous illustration of the importance of understanding and recognizing your local basis. As you mentioned on the show corn futures actually closed the week little changed yet in some geographies cash values declined upwards of 20 cents or more. I mean, a classic illustration of a local supply phenomena exacerbated by the perception of this problem at the Gulf.

Pearson: I was in Lincoln, Nebraska on Thursday and I heard from bankers and farmers who were saying they flat can't unload corn at the local elevator. They are stuffed full and we haven't started harvest yet.

Robinson: Yeah, and I'm not sure how they'll rectify that problem, Mark. But I know rail cars are in demand and as a result are difficult to source. But the best and more reliable information that I've been able to find this week most are in consensus that there will be shipping, shipping will resume, commerce will resume at the center Gulf ports probably in the next two to four weeks. So, ideally that will be in time to accommodate some of the grain movement that is pent up and about to develop here, Mark. So, that is I think good news in an otherwise tough week here.

Pearson: On the show you mentioned first of all we have much higher drying costs, our propane is going to cost us a lot more to dry this crop down so there probably is going to be a tendency to not rush through the corn harvest this year.

Robinson: Yeah, I would agree and as mentioned there are clearly risks involved in making that decision. But I think there will be little alternative in some areas for that to happen. So, Mark, again we're talking about supply here and a short-term phenomena. We didn't get an opportunity to address demand and I'd sure like to relay the message to our listeners that the demand for corn and the demand for soybeans and the demand for wheat is strong and the demand base in two of those three is clearly ramping up year over year over year and I see no reason why that won't continue this year. So, it will put, I think, an emphasis on again producing a pretty darn sizeable corn crop next year and a pretty darn sizeable bean crop next year which leads us then to be observant of those 2006 futures contracts for opportunities to lock in or minimum price some of what we intend to grow next season. You know, a lot of talk about switching corn acres into beans because of input costs and the like. That remains to be seen.

I think this market it's unusual, in the last 20 some years, 25 years December corn futures have expired below $2.10 only 20 percent of the time. They have expired below $2.70, however, 80 percent of the time. So, those can be used perhaps as parameters as you think ahead here about opportunities that might develop because of weather scares and so on. In soybeans in the last 20 some odd years only 20 percent of the time has November soybean futures contracts settled below $5.60. However, they have settled below $7.20 85 percent of the time. So, we have some parameters here that we can perhaps apply to our thinking, our market planning and strategies beyond the crop in hand.

Pearson: Absolutely, taking a look at that July '06 contract might be something people should be doing. Virgil, it's going to be an interesting harvest season. We're going to track it for you right here on Market to Market. For Virgil Robinson, I'm Mark Pearson and all of us here on Market to Market, wishing you all the best on this holiday weekend.

Tags: agriculture commodity prices markets news oil