Pearson: This is the Friday,
August 1, 2014 version of the
Market Plus segment.
Joining us now is Virgil
Robinson.
Virgil, welcome back.
Robinson: Thanks, Mike, nice to
be with you.
Pearson: On the show we did not
have a chance to discuss cotton
prospects.
Cotton has been on a fairly
long-term selloff, month to six
weeks we have been dropping
cotton prices.
Is that going to continue?
Robinson: Well, a couple of
things that I sense that might
serve as a catalyst there, Mike,
and provide the springboard for
some modest recovery.
If my calculations and my
reading is correct, cotton
prices have declined to a point
where they're now very
competitive with synthetics.
Okay, so that clearly is in
favor of perhaps some additional
cotton demand.
The other concern, and I heard
this firsthand from a customer
this week in Georgia, his crop
prospect is pretty good but it
has been dry and is forecast to
remain dry and he is concerned
that what was once not too long
ago the best prospect he had, it
is deteriorating.
So, maybe it's a combination of
a couple of things like this
that provide some recovery in
the cotton futures market.
I'm speaking futures now, not
cash.
I could argue I think under the
circumstances described that
October and December futures
could recover to the low 70s, at
which point if I were a producer
without the security of a
government floor, for example, I
would either create some kind of
option defense or certainly if I
had made no sales I would, in
fact, start on that type of
price recovery, Mike.
Pearson: Alright.
Now, as you look longer term the
cotton market, as we have talked
about on the show, as you have
looked into in depth, it's an
interesting market due to the
varying players that are out
there and the supply and demand
situation.
Could you talk about a little
bit longer term view of the
cotton market?
How do you see it squaring up
here over the next year?
Robinson: I think, you know,
Brazil, Australia and India are
major cotton exporters.
Now, the economics for cotton
versus other commodities in each
of those three regions has
changed and changed
significantly in the last six
months.
It would suggest to me that
there will be fewer acres of
that commodity in those regions.
So, it is conceivable a decline
globally in cotton acres and
perhaps a modest decline of
cotton acres here in the U.S.,
provides some opportunity for
improvement in the next 12 to 18
months.
Pearson: Okay.
Alright.
But there is still a lot of
cotton around the world.
Robinson: Inventories are ample
at this point, Mike, and ample
to the extent it should meet and
exceed demand by a healthy
margin.
Pearson: Okay.
Alright.
To kind of keep a ceiling.
Now, as we take a look at our
Facebook questions, Martin, who
asked the question on the show,
had kind of a part two of his
question.
We have spent a lot of time
discussing the U.S.
yield potential, potential
carryout and everything.
You take a global outlook in
most of the work you do.
He is curious, how big do you
anticipate the world supply of
corn and soybeans to be this
year into next year?
Robinson: You know, as
mentioned, a fairly reputable
source, the International Grain
Council did make and revise
their forecast just this week
and they increased corn
production and wheat production
versus their previous monthly
forecast.
Both are yet a bit below last
year's record production but
certainly one of the bigger
crops in the last several years.
So, no shortage forecast there.
They did forecast and they made
this notation that they're
incorporating what they feel to
be an increase in southern
hemisphere, specifically
Brazilian soybean hectares, for
their summer crop, their safra
crop.
Okay, so we harvest, they plant.
Should that come to fruition and
yield at something near
trendline, then bean supplies
will be the largest they have
ever been.
So, that is the point I need to
emphasize moving forward here
regarding bean prices, not just
for the crop in hand, but
perhaps the next season or two.
Supply does not appear to be an
issue as we visit today, even
with an increase in overall
demand year over year.
Pearson: Okay.
As we jump back, take a look at
the wheat market, as you
discussed on the show we have
seen an increase in demand from
Europe for the higher protein,
hard red winters.
For the balance of the wheat
crop, as corn has continued to
fall, does the outlook look a
little less rosy as producers, I
imagine, might shift away from
wheat feed to corn feed here in
the next year?
Robinson: You know, wheat
carries, I'm referring
specifically to soft red wheat,
about $1.60 or $1.70 premium to
corn.
So, I don't' sense here in the
U.S.
that it's likely to be much of a
feed alternative or substitute.
Now, you do have some issues in
parts of Europe where they have
had too much rain and the
quality of their crop has
deteriorated more towards a feed
type commodity, Mike.
I think there, there will in
fact be an increase in wheat
feeding, probably to the
detriment of corn and other
proteins.
Pearson: Okay.
Alright.
Robinson: That's not
particularly encouraging
regarding the corn market.
Pearson: You bet.
Now, in another issue that has
been getting a lot of press
recently, we've got a lot of
viewers up in South Dakota,
North Dakota, places where corn
basis is very, very low.
As we look at the rail
situation, as you look at the
market in broad strokes, what is
the anticipation come harvest
for folks in that neck of the
woods who rely primarily on rail
transport?
Is it beginning to pick up?
Robinson: From its worst point,
yes.
But to suggest there will be a
bountiful supply of trains and
rail cars for this harvest
season, I don't think that's the
case, Mike, particularly if
crude oil prices remain at or
near these levels.
There is an emphasis, in my
opinion, to cater to the freight
that pays the best return and
unfortunately it's not always
grain cars that do that.
Good point, good segway, I think
looking forward in this country
as well as others, roadways,
railways and waterways all are
in need of significant
improvement and in need of
significant capital and
resources to accomplish that.
I'm not sure budget wise we're
in position to address that.
So, for those who are of the
opinion if we produce large
crops we'll have the ability to
readily move them and export
them, please understand there
will be transportation issues
that will be magnified by big,
large crops.
Pearson: That's the truth.
We saw it last year up in that
neck of the woods, we've seen it
with the Mississippi last year
during the low year.
So, it'll be an ongoing issue as
we continue to increase our
yield.
Robinson: Correct.
Pearson: Well, Virgil, I want to
take the time to thank you for
being with us this week.
Robinson: Thank you, enjoyed it.
Pearson: Thank you for sending
in your questions via Facebook
and Twitter to us.
Please continue to do so and we
will continue to get expert
analysis right to you.
Thanks for watching and have a
great weekend.