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Market Plus: Apr 02, 2004

posted on April 2, 2004


Market Plus: Apr 02, 2004

Pearson: Welcome to the Market Plus segment here at our Market to Market Web site, glad you've joined us. Tell your friends and neighbors. My name is Mark Pearson. With me this week, one of our long time market analysts, Virgil Robinson. And Virgil, wow, what a year it has been really starting about last spring, last year, grain markets increased volatility, demand driven markets. We're in places right now that we didn't think we'd ever be again. Talk about this from, a farmer faces his greatest risk when prices are highest and we're into that mode. I'm afraid we're going to let this opportunity slip by us. I think a lot of people are thinking about five dollar corn, they're thinking about fourteen dollar beans and I'm thinking, and you mentioned on the show tonight, you've got to look at this from a return out investment standpoint and right now we've got some good returns, we need to protect those. It's a little, they're jumpy in Chicago these days.

Robinson: Mark, I think you've made two great points. The prospect of sharply higher grain prices and oil, seed, or soybean prices is clearly possible. I mean, it is possible. The circumstances this market must deal with the next several months are unlike any I've ever seen in 30 years and therefore one can not discount the prospect of sharply higher prices should we encounter any kind of growing adversities in this up and coming cycle and we haven't even started that. Now, on the other hand, as you mentioned, there is probably a responsibility to one's financier or to one's bottom line that is hard to ignore with the kind of price prospects and price opportunities we have at hand. So, the dilemma really is, how do you manage those two circumstances? And again, I've often used and have continued to support the idea of supplementing one's grain marketing programs with some type of simple option strategy. And I know premiums are high, I understand that, but they are high only in proportion to the risks associated with them. So, I like the idea of listening to someone's argument about fourteen dollar beans, I think there is a good argument there, it certainly could happen. On the other hand, as mentioned, there is a responsibility here to solvency and return on investment and we are at that crossroads. So, supplementing programs with some type of option strategy or there are hybrid cash grain contracts being offered by a lot of vendors, Mark, that will put you in the same situation as we've just discussed here where you can create some minimum price, let the opportunity for higher prices move forward and create some type of security below you.

Pearson: And those should be examined at this point?

Robinson: A lot of Web sites, Mark, a lot of information available. We refer to it, to some extent, at a couple of the Pioneer sites, Dr. Wisner's site at Iowa State, Dr. Goode, Chris Hurt at Purdue, Kansas State, there are a number of sites that would address these issues should our viewers and listeners choose to research those.

Pearson: Absolutely, and you mentioned Kansas State, there is some great work being done out there and this is all the way to kind of bring some of these dollars down to the bottom line.

Robinson: Yeah, I would concur with that, Mark. Clearly, you know, the kind of incentive we're pumping into our marketplace has to be considered as a worldwide invitation to respond to these kind of prices and grow a lot of different commodities and a lot of different crops in big proportion because of the incentive being provided.

Pearson: I was down in Florida, Virgil, a couple of weeks ago and I'm on the plane and had a fellow sitting next to me who was not directly involved in agriculture and he said he was going to contact a broker because these beans are coming up. Virgil, I'm starting to get that feeling where a lot of players get into this thing right now.

Robinson: Yeah, I happened to notice before we had our conversation, Mark, the bimonthly CFT, Commodity Futures Trading Commission's report, which in essence gauges the size of the commercial entity and the non-commercial, which we refer to as the speculative community or clearly the fund driven community, and they have, as we visit tonight, a record long position in corn futures and wheat futures, a sizeable long position in beans and products, Mark. So, they haven't been wrong to this point but I would emphasize that because of their presence there is a tendency to accentuate moves in commodity markets, both higher and lower. So, if you're a new player making a new entry into the futures market be advised that you may have to stand some heat from time to time as these funds shift their equity and their positions very freely and very quickly.

Pearson: Good points, Virgil, as usual, thanks so much for being with us. Virgil Robinson, with us this week. Glad all of you joined us too here at our Market Plus site on our Market to Market Web page and be sure to join us again next week. For all of us here at Market to Market have a great week.

 


Tags: agriculture commodity prices markets news