Yeager: This is the July 29, 2011 Market Plus segment. We are here talking with Virgil Robinson. Virgil, let's - we talked about anxiousness in the market. Is there anxiousness in the overall commodity market and is it tied at all to the Dow and is that something that farmers - are they watching?
Robinson: Oh, I think they are cognoscente of those relationships, Paul, but to suggest there is a strong correlation between all that you have mentioned I don't think there is. I can tell you, you know, risk aversion these markets kind of oscillate between those periods where money managers want to expose themselves to more risk and then they filter back to those periods where they want complete risk aversion and as a result you are getting these wild fluctuations in all kinds of markets, not just commodity markets, but all kinds of equity and treasury markets as well. That's likely to continue I would suspect for the foreseeable future. Now it is great for price discovery because it provides from time to time opportunities for our listeners, our producers, to lay off risk to someone else particularly at profitable levels. So, you know, having a crop budget in hand, some idea of what your cost of production might be, and then creating some type of projective from that crop budget. Don't hesitate to have those offers placed above the market because certainly they are obtainable in this type of an environment.
Yeager: Do we see anything moving dramatically corn, soybeans, commodity wise ahead of next week's - two weeks away from that WASDE Report? We see more movement next week or the week of the report?
Robinson: Well, it is hard to quantify that or hard to predict that, Paul, but clearly the crop conditions report next Monday afternoon will be anxiously awaited.
Yeager: That will factor in a lot of heat and rain in much of the Corn Belt and in the bean region.
Robinson: Yeah, you know, and the rain showers that developed were fairly predominate in the northern part of the corn and soybean belt and less so in the southern part. So unfortunately the southern part of the United States, the south/southwest, continues to experience a terrible drought and in that context and this is perhaps way premature, but there are weather forecasters who are now suggesting there is another La Nina event likely to take shape in the next few weeks and/or few months and if that should come to fruition that clearly could provide some weather issues to Argentina, parts of Brazil, and again the southern part of the United States.
Yeager: It is not a hurricane, I believe it is Tropical Storm Don, could relieve some - it's not really going to end the drought where it hasn't rained in a year, significant rain in many parts, but there is some help on that way but for cotton and sorghum and things like that in Texas and Oklahoma and Georgia it is just a dry mess.
Robinson: They have had real issues down there and unfortunately they have not been able to capitalize on good production and good prices. So it speaks to the issue of insurance certainly and for those people who do not employ that particular risk management product. Those who employ puts and created floors and things of that nature can walk away from those coming up short production wise and not be burdened with having to make delivery or buying in the cash market to satisfy that delivery. So there are a lot of lessons there, Paul, that at some point we can pick up and speak to.
Yeager: Why do I think that the last five years have been all about lessons? It just seems there have been more lessons than we have ever dealt with before. Let's talk about livestock a little bit. I cut you off on a comment about cattle earlier. Cattle was one of the bright spots for the market last week approaching 112 when it comes to cattle. What's happening?
Robinson: Well, I tried to make mention of the fact that domestic demand even though prices have recently, retail prices, have recently been at an all time high. Domestic and export sales have been strong. The export part of that comment would obviously be connected with the weakness of the U.S. dollar. It has enabled, and you mentioned this earlier in the show, it has enabled some of our regular customers to acquire additional product and that certainly has benefited the business, the industry. A lot of cattle because of the drought and the weather conditions have now been pulled forward. A lot of calves have been pulled forward and put in feedlots for lack of pasture, lack of feed grains, lack of feed stuffs. As a result we've got a bunch of cattle on feed and likely to continue to have a bunch on feed for the next three or four months. Post that the dynamics of the market change enormously.
Yeager: And not just three to four months but we could see three to four years long term of having who knows what is going to happen.
Robinson: If we are to rebuild the herd as we have known it in years past is going to require heifer retention which means fewer cattle available for feed purposes, for fattening purposes, and clearly higher prices for both.
Yeager: Hogs? What is going on there?
Robinson: Well briefly, tightening supply and strong demand. There again exports sales have been very, very strong as have interior or domestic sales. That cold storage report I referred to is one of those benchmarks that we look at each month to gauge whether inventories have grown month over month, year over year, or otherwise. And in the case of pork they are not growing despite the fact we’ve killed quite a few hogs here the last several months. The dollar again has enabled a lot of our customer base to increase purchases. We've had the prospect, the prospect of even the Chinese perhaps procuring some U.S. pork. Not been confirmed but has been talked about routinely. So clearly there are some things there that are very positive. Cut out values last week, I believe, were at an all time high. So demand for pork in face of tightening supply? Pretty strong marketplace.
Yeager: Anything else we need to cover?
Robinson: The only other thing I would mention is, you know, try and track and we'll try and help people with this, what develops in China and in Brazil, and as much as they have been two big drivers globally in terms of growth and each are experiencing some issues and some problems that could develop into what I would believe to be a slowing of demand in each of those two regions. And that would have an effect, I think, an aggregate effect on all commodities.
Yeager: Virgil Robinson thank you so very much, one of our regular market analysts, for stopping by. My name is Paul Yeager. Thank you so very much for listening to this web exclusive and Mark Pearson back in next week. We will see you then. Have a good week!