Market Plus: Virgil Robinson

Dec 26, 2014  | Ep4018 | Podcast


Pearson: This is the Friday, December 26, 2014 version of the Market Plus segment. Joining us now is Virgil Robinson. Virgil, welcome back.

Robinson: Thank you, Mike. Always pleased to be here.

Pearson: And we love having you. On the show we got to talking and had a lot of good discussions but we didn't get a chance to discuss cotton pricing. Could you kind of give us an update on where that market is and where it might be headed here into the New Year?

Robinson: Well on the last WASDA report they did reduce U.S. cotton production, Mike, month over month and there was a minor adjustment in ending stocks downward. Unfortunately WASDE also increased global cotton production. Again, the two biggest consumers of cotton on the globe are India and China and both at present, Mike, appear to be very amply stocked with that particular commodity. The current stocks to use ratio in India is 60% and in China 160%. Now those are intended to give you some indication of supply. So as you and I visit tonight the supply of cotton globally is very ample which should keep price levels relatively well in check, Mike. I don't sense any significant price improvement in cotton.

Pearson: It does keep a ceiling on there.

Robinson: It does in fact.

Pearson: Now there was some concern earlier in this year and we're seeing it today in China's corn stockpiles about the quality of that cotton. Has there been any more rumors or fact coming out of China on the quality of their giant stockpile of cotton?

Robinson: I haven't heard anything, Mike, that would be something I could repeat or I would in fact repeat. They have historically always professed to be self-sufficient in corn, wheat, rice and cotton. So, again, I think they're well practiced in retaining and sustaining in-country reserves. So I don't think at present that's a major game changer.

Pearson: Okay. Now as we're talking about China we've got a question here. It's one that we have addressed the past few weeks on the show and we'd love to get your take on it. Andrew in northwest Iowa from Twitter is curious, should we export corn prices to soar now that the MIR162 has been approved by import to China? Does that change the fundamental supply-demand makeup of the U.S. corn market?

Robinson: Well I think it adds an element of potential demand that was perhaps absent up until the announcement of late. But soaring corn prices probably not, Mike. I think there's an adequate supply of corn and coarse grain worldwide wise to keep prices relatively in check. So I don't sense it will make the markets soar but it has certainly added and I think underpinned corn values as well as distiller's values.

Pearson: And that was leading right into my next question. Chinese pork production is predicted to continue to increase. We've got continued increase in Vietnam and a lot of the Asian countries in their pork market. Does that bode well for DDGs to those parts of the world? Should we see more sales?

Robinson: Well I think it will. I don't know if it will benefit by all of the aforementioned you listed there, Mike. But certainly it will assist moving forward. Keep in mind some of the countries you listed there, their technologies and their practices are improving as well. So it is conceivable that they can produce more pork in this instance or poultry or fish with less feedstuffs as their technologies become more efficient and improved practices to accompany that.

Pearson: Sure that makes sense. Their historical feed demands might be consistent with their increased herd.

Robinson: Yeah, the thing about China is at present they probably retain less than half of a litter of pigs versus here in the U.S. but they are in fact hungry for new technologies and improved efficiencies and improved practices and they are acquiring those, Mike. So there will be bigger numbers. I just think the efficiencies will smooth some of that demand and perhaps not grow proportionately.

Pearson: Right. We can't expect a one-to-one in corn demand as they increase their herd size.

Robinson: That's correct, and their efficiencies.

Pearson: Alright. Well now as we take a look one of the topics we didn't get a chance to discuss on the show but has been much in the news recently is the U.S. dollar pushing to eight year highs I believe we said on the program. We've got a question here from one of our many Canadian viewers. Phil in Ontario, Canada --

Happy Boxing Day.

Pearson: Happy Boxing Day, Phil, as it is December 26th. He is curious, corn demand is so strong, how much more does it grow at these price levels in 2015? Or will the U.S. dollar put a damper on that?

Robinson: Well, the U.S. dollar will in fact inhibit some importers, Mike. But, as mentioned earlier in the show, hog numbers and poultry numbers here in the U.S. are on the increase and I think that will in fact equate to new and stronger demand. As mentioned earlier, surprisingly ethanol, the amount of corn used to produce ethanol the last five weeks has exceeded 100 million bushel per week. I think this last week was the largest of the year while ethanol stocks are not growing significantly. So that would imply that demand is strong, Mike. So I think the demand base for corn continues to grow, ever be it so gradually over the course of the next several years. Now a short crop here or in the Ukraine or in the southern hemisphere would change the dynamic of pricing. But at present I don't sense any major leap in price based on supply.

Pearson: And you mentioned no major leap in price. We've got a question here from Matt on Twitter. What are the odds of $2 to $2.50 per bushel corn? Is there a major drop in price in your opinion?

Robinson: Yeah I don't think that's likely at least in the foreseeable future, Mike. Again, I think the demand for corn continues to grow. The Chinese would be the wild card here moving forward. And now with their acceptance of some of the genetically modified product I think there will be some business to be done with the Chinese moving forward. I don't know how large the business will be. They're trying to improve their corn production as we speak and I think they're fairly successful at that. Last year was the biggest crop of corn they've ever grown and the technologies and genetics and practices are improving there as well.

Pearson: And they do plan to continue to maintain government support for the corn crop so they can be self-sufficient.

Robinson: To my knowledge they profess to be self-sufficient in corn production and corn usage, Mike. Again, when they have a disastrous year they'll have little alternative but to import.

Pearson: Alright. Now we've got a question here from Shelby in Decorah, Iowa. And Shelby's question is, since past trends consisted of corn and beans following crude oil prices why are we seeing the opposite now? Is this more of a correlation than a causation type question?

Robinson: Well it could be an aberration. Again, the correlation factor there, I think there have been some changes in that correlation over the last few years, Mike. I don't think, again, it's a pure science by any stretch of the imagination. But to explain the recent phenomenon in crude oil perhaps it is an aberration of sorts. But again, it's like any other commodity, if you have an excess of that particular product, Mike, one of two things has to happen. Either you drive the price to a level that discourages production, and thus far I haven't seen anyone proclaim that's the case, or you encourage disappearance and consumption. And I think that is underway in several areas, particularly the U.S. and to a lesser degree China.

Pearson: Alright. Now before we let you go we do have a final question. It comes back to crude. That was a very busy topic for our Twitter and Facebook viewers this week. DecibelJim from Des Moines us curious, has crude fallen enough to make the Keystone Pipeline a moot point as we enter 2015 and changes in Congress? I'm sure it will be in the news again. Economically where does that sit?

Robinson: Well we probably have to discuss policy here. Is it our intent to become energy self-sufficient? If that in fact is the policy moving forward the pipeline is still quite relevant. Politically here, I've got to be careful what I say because I can offend one of two camps pretty significantly here. But right now I don't sense the eocnomics are such that it would discourage that pipeline and the production associated with that pipe.

Pearson: And kind of the correlating question, without the pipeline, with the oil production continuing as it has in the past and then relying on rail to get it shipped, should we be anticipating come harvest time again in 2015, which I know is nine months away, another holdup on the rails, another drop in basis like we saw in the northern states this year?

Robinson: Well the logistics have improved, both U.S. and Canadian, Mike. And again, last year in retrospect we did have an unusually harsh winter that provided, presented problems the likes of which we had not experienced. So I think while the fleet of cars hasn't increased significantly there has been a movement in that direction, particularly by a couple of U.S. carriers. Warren Buffett's organization to be specific and the Canadian Nationals as well. So I think they're addressing that issue in an effort to try and prevent the circumstances that developed a year ago.

Pearson: Lessons learned from last year and now being put into practice.

Robinson: I think that's true.

Pearson: Alright. Well with that, Virgil, we'll let you get on your way. It is the night before Christmas as we are filming this so the markets will be open Friday, the day after Christmas. But Virgil, I want to thank you for taking the time to join us this evening.

Robinson: Thank you, Mike. It's always a pleasure.

Pearson: And Happy Holidays to all of you that have watched. Happy Boxing Day to our viewers in Canada. And please tune in next week as we will address more issues affecting rural America. And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we will get expert analysis right to you. Thanks for watching and Happy Holidays. 

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