Market Plus: Chris Robinson

Jun 18, 2021  | 13 min  | Ep4644 | Podcast

Podcast

Yeager: This is the Friday, June 18, 2021 version of the Market Plus segment. Joining us now is Chris Robinson. Please do not adjust your television sets. A TV show that meant a lot to me as a kid was WKRP in Cincinnati and yesterday the actor who played Herb Tarlek, famous for coats like this, passed away. I was given this as a gift years ago by friends in North Iowa. So I thought, why not? Chris, is this a coat that would work to stand out in the pits? Would they let me onto the pits to trade this, trade with this?

Robinson: Absolutely. Yeah, they let you wear whatever you want for your jacket.

Yeager: As long as your checks cleared and your margins were clean.

Robinson: That's right.

Yeager: But there's another reason for wearing this and it is something to do with the '70s. We talked about inflation. It's really hard to not necessarily go back to is this a repeat of the '70s when we keep hearing all of this talk about the '70s. Or am I just making a mountain out of an anthill?

Robinson: It certainly has become the new story, I call it the story de jour. It's all you ever hear about. Once COVID started drifting away it's like, what is the new scary thing we can talk about in the financial press? It's inflation. So here is my question about inflation. If it comes back, why hasn't it come back since '08? They spent trillions of dollars, trillions of dollars, they spent enough money to buy the planet inflation and we haven't gotten it. So there has been a leak somewhere. That is my question. So is this little blip up that we've had to 2% or 3% or 4%, whatever is this last little blip, is this the beginning of what it is? Well, I think for six, seven, eight years we have been told that the Fed wants 2% inflation core rate. We get there and it's like what happens if it goes to 6% or 3%? So it's interesting to watch this. I think that how that is going to play out is for somebody with a higher IQ, certainly a higher pay grade than me. But I always, I'm concerned about that. When everybody starts talking about the same thing it tends to be less and less important. So that is my concern there. The things that really can jump up and hurt you are the things that nobody talks about. So if everybody is expecting inflation -- a little bit of inflation is probably good. We need it, they want it, they want 2%. The problem is what happens if they do have to start raising rates because if you go from 1.5% 10-year rate to 2%, 3% or 4%, how does that hurt you? Well, it hurts the ability for the government to spend more money because all of a sudden if you're paying a $30 trillion debt and you're at 0% and the interest rate goes to 1% or 2% or 3%, you've got a problem to service that debt. So that is what everybody is really worried about. So is it going to happen? I hope not. You and I, I'm older than you, but I can remember the '70s and the whip inflation now and coats like that. I had a coat like that I'm pretty sure. So we'll see. I think that we won't know for another six months. You've got to remember, we just spent $6 trillion, $8 trilling coming out of this pandemic. We'll see where that happens.

Yeager: Plenty argue that would be fuel for the inflation fire. So let's start with some of our great Twitter questions and Facebook that we got this week. Aaron in Ocheyedan, Iowa where it is dry and we're going to talk about weather in a moment. But first, Aaron is asking, we did some major technical damage to the charts. Have we limited the max upside to any rally now regardless of how bad the drought gets?

Robinson: I don't think until we get through pollination for corn we'll know really what the potential damage is for corn. So until that happens every 12 hours we get another weather forecast, if they put the rain in we break 30 or 40 cents, they take it out we rally 30 or 40 cents. So what are the big levels? Well, two times we've gotten to $6 corn and nobody really wanted to sell it, maybe the second time. Is the third time the charm? I think this time maybe some people say, you know what, I'm not going to miss it this time because we were there once, we were there twice, you know, fool me once, fool me twice. So that is the big level, $6. Same thing for soybeans. Can we get new crop back up towards $15? We topped out of $14.80 and then had a $3 collapse in a month. I think if we get back to $13, $14, we're already there, people certainly need to take a look and say, you know what, maybe this is something that I should be happy to sell, especially when you started the year and you were happy, more than happy to sell $10 beans.

Yeager: This question is tied into weather and it is tied into the ratings that come in on Mondays. Chad in Iowa is asking us via Facebook, traders are going to be so baffled when the good to excellent rating for Iowa corn goes down 14% again next week. I mean, there is rain in the forecast, so the corn is great, right?

Robinson: It depends on if it's your corn or your neighbor's corn which corn is great. We saw that this week, the good to excellent ratings dropped and corn dropped. And that was kind of the first sign that there was something maybe we topped out a little bit because the previous Friday people were extremely ready for the weekend so when that condition rating came out and we fell, when the market gets good news and falls that is a sign that there is something off. I've been doing this for 30 years. That was one of the first things I was taught, when the market gets good news and doesn't follow through with it look around and see what you're missing. So I would say if you're a bull you want to see the good to excellent rating drop lower. That would certainly be supportive. But I don't know if it's the be all and end all. I think what is really more concerning is if we get the good rains, an inch or two of rain is not going to make a difference. So again, we're into that time of the year in the next two weeks it's pollination, pollination.

Yeager: You have people, you have producers in parts of Missouri, Illinois, Indiana, Ohio, Pennsylvania saying don't tell anybody, we actually have rains, we actually might have a crop. It's hard to look past your 40 or what you see out the window of your neighbor's 40. And that is just something you've got to remember this is a big place, millions of acres out there. Right?

Robinson: Right, we just saw that with spring wheat, we were talking about that. I've got clients growing spring wheat that are like, look at this, it looks literally like a football field. And how can we break a dollar because they put a little rain in the forecast? I said, the market does what the market is going to do. That is why when it gives you good opportunities you've got to take advantage of it because if you're looking for a rational explanation for these markets you're going to be looking a long, long time. So I always tell guys I'm working with, I don't care if you're a bull or a bear, if it gets to your level and you're happy take action and then once you've taken action you can do something to mitigate what happens after that. But nothing beats a good cash sale. I would say that over and over again. At the end of the day I'd rather see you make a good cash sale than see you make a dollar on a hedge.

Yeager: So you're going to agree with Tom in Greely, Iowa's question then. With the selloff we had this week is this the time to buy more calls and puts on corn and soybeans?

Robinson: Absolutely, especially if you got oversold. And you know who you are if you're out there. If you got oversold at $4 corn and $10 beans and you've been waiting for the break and we're two weeks away from pollination and we just got that break yeah, step in there. I know it's scary. It's scary to step in front of a bus when it's just stopped in front of you and almost ran you over. But that is when you have to step in there and buy it. And again, the good thing is you don't have to go bananas, you don't have to spend a ton of money to get long in this type of market. You could spend 10, 12, 13 cents. If you want to do a weekly option you can spend a nickel. Believe it or not, those have been some of the biggest percentage gainers and losers over the past week. If you had a weekly option that you paid a nickel for and we drop a dollar that is a pretty good pay off. And that has happened. So look at the weekly options. You can look at the shorter dated new crop options, like if you want to reown new crop corn you can buy an August call which keeps you long through July 23rd. I forget exactly how many days that is but you're long on paper new crop corn and you don't have to spend a fortune. So I would say that. And if you're an end user, absolutely, positively. If the worst thing that were to happen to you were to see $8 corn or $20 beans, something crazy like that, the only way you can defend against that is buying calls when the market breaks.

Yeager: So a question that we had in the office today was, what happens if I go out to spray for two hours and the market does what it did yesterday? How do I protect myself in that window because I can't stare at my phone the entire time?

Robinson: This is great, I'm glad you brought this up. There is a difference between hedging and chasing. When you get to $6 corn and you can buy a $5.50 put for a reasonable amount of money you buy it then, you don’t buy the $5.50 put after it has traded down to $5.70. So you've got to have the hedge on before the break. It's hard to do because the easiest thing for most people to do, it's human nature, is let's wait, let's do nothing and then again you end up chasing the market. So if it gets to a good level be proactive, bite the bullet because yeah, while you're out in the field for two hours and come back in and you're like what happened, that 10 cent put that you paid for a $5.50 put, it's worth 34 cents and you're going, phew, I'm glad I spent my 10 cents. So that is the way you've got to have it. You’ve got to have the hedge on before the move.

Yeager: I didn't get a chance to bring this up but you mentioned it this afternoon, the dairy market. Huge up, huge down, we're kind of in the middle now. This whipsaw move is not isolated to just one or two things. It can happen anywhere. Talk a little bit about dairy for a moment. Is this thing leaning one way or another?

Robinson: Well, there's so many factors that went into that dairy deal. They shut down the country, we dropped to $11, it was 20 year lows or 10 year lows, I forget, it was a multiyear low. And then low and behold as soon as we started to reopen and they started talking about reopening the schools we blew back up to all-time highs. So you went from $11 to $24.

Yeager: And some government buying too.

Robinson: Oh yeah, stepping in and helping people. Nobody liked the video of them dumping milk down the drain. Unlike crude oil, when crude oil went negative that's because you can't dump crude oil out, it's illegal.

Yeager: You'll get a visitor.

Robinson: You'll get a visitor. So that is what happened. You had supply with nowhere to go and then as soon as things started getting back to normal and they started talking about opening the schools again that is a big demand thing there. So to see a 10 year low to an all-time high within basically three months, nobody has seen that. So again, how do you manage that? You've got to get your risk on paper. The magic number seems to be if you're a dairy guy, if you can protect the $20 level that is a good level to protect because the all-time high is $24. And then if you have that on $20 and it drops to $11 you're feeling a whole lot better about things. And again, just like we just said, you've got to have the put on, you've got to have the protection on before breaks.

Yeager: All right, Chris. Good luck on buying the Chicago Bears, buy the way.

Robinson: The Arlington Heights Bears.

Yeager: Oh sorry, let me get that right. Chris Robinson, good to see you, thank you so much.

Robinson: Thanks for having me.

Yeager: All right, that will do it for Market Plus. Next week we will look at the possibility of eradicating famine and Jeff French will join us to break down the commodity markets. Thank you so much for watching, listening or reading. Please have a great week.

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