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Market Plus: May 21, 2004

posted on May 21, 2004

Market Plus: May 21, 2004

Pearson:Welcome to the Market Plus segment here in our Market to Market website, I'm Mark Pearson. This is Friday, May 21st. Our guest this week is Virgil Robinson. Virgil, everywhere I go I'm bumping into to people who are talking to me about the soybean market. I can't even call my mom down in Champagne, Illinois, without the soybean market being the primary focus of the discussion. Which makes me a little worried, frankly. What's your take?

Robinson:We've had a pretty serious pull back on these beans. Decent planting conditions and decent growing conditions, to date, alot of acres. We're still in this old crop thing and I haven't talked to too many people that have old crop soybeans left. If they do, you're saying we get fifteen, twenty cents, get rid of them. And the reason I say that Mark is based primarily on my tracking of the national cash soybean index price, which is out of Minneapolis. In any event, that market has been in an extended up-trend for a long, long time, Mark, and just this week, that up-trend, based on my work, was breached. Which I think is a fairly serious warning that the cash market has topped. Now, I fully understand the supply situation's tight in the United States, we've a whole weather cycle, a whole crop cycle to go through here with a number of variable things that could happen. But for those that have cash beans in hand and if they were to ask me what would you do? My answer would be if that index, which as of tonight was at 875, trades back above 9 dollars Mark, I'd sell them. Now, again, there are a whole host of people in our viewing audience that do not employ futures or options for the, for their marketing strategies or plans. So I'm saying this predominantly to them because that's a question I'm frequently asked. For someone that's worried about weather, and the prospects of weather through the growing cycle, which some type of option strategy to supplement that sale be appropriate? I think it's probably warranted. But for those who do not use futures or options, and set here and wait, and wait, and wait for a return back to ten dollars or higher they could be terribly disappointed Mark. And at some point in time, the inverse that we have in futures and in cash, old value verses new, you know what will happen at some point in time. They are going to converge in value, which means either old crop is way too high and will come down significantly and align its self with new, or vise versa. And right now the mentality of the market is the former, not the latter.

Pearson:Real quick Virgil, new crop. This is another thing I'm hearing everybody talk about.

Robinson:I've heard this before in my tenure of this profession. We're at a new plateau on these beans, look at the demand, look at China's demand. We have had a demand driven market, we've had a demand driven market for longer than any continuous period of time in modern history. So demand markets eventually go away don't they? Well, with supply grows to accommodate them, Mark. And again, given the incentive of higher prices, the US farmer, at least based on intentions, March intentions report, has responded by growing his or her acreage a couple of million here year over year. Now if you take that same type of scenario and thinking to the Southern Hemisphere, Mark, it's likely they too will make an effort to grow their hectares this coming season. So if both would produce at trend line or better, what is perceived now, and what is in fact now, relatively tight soybean situation could change enormously in one years time. So the new crop challenge, of course, is will we grow a trend line crop and will it be on the number of acres projected by the USDA or fewer? Well, only time will resolve that. June 30th is the USDA's official acreage report and we'll take a look. But my opinion would be Mark, seven dollars and higher if you've done nothing to this point and time, I would get started.

Pearson:Good point. Always good to have Virgil Robinson with us. That'll wrap up out Market Plus segment. Thanks for joining us. Be sure to tell your friends and neighbors about our Market to Market website. And be sure to check in every week. For all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news