Roach: Thanks, Mark.
Pearson:: Alright, let's talk a little bit about -- let's start with wheat. That harvest is in full swing in a big chunk of the wheat belt. We're under a little bit of pressure right now and that is not, of course, inconsistent with historical patterns. But what do you see ahead for the wheat market? What should producers be doing?
Roach: The market ran up on the damage being done to the spring wheat crop over the period of this last week and peaked and now has fallen about as precipitously as it had moved higher. The market seems to have its arms around the wheat situation. When the USDA report came out it actually, they actually increased the carry over slightly because of increased soft red wheat supplies and that stopped the advance in the wheat market and turned things down. So, storing wheat under this kind of circumstance doesn't make any sense to me. As a wheat producer I would be selling wheat off the combine. As a spring wheat producer I'd be selling wheat on strength and expecting wheat prices to move lower as we go along rather than to move higher. It's very hard when you put the peak in a market right in the midst of the harvest. It's very hard to sustain upward movement because so much of that wheat moves into the channels.
Pearson:: Okay, so at this stage of the game you'd definitely be making some sales.
Roach: I'd definitely be making sales. I'd also be looking out forward to next year's wheat crop and start making some of those incremental sales for next year's wheat.
Pearson:: With all the discussion we had about all the dryness down in the panhandle of Texas and Oklahoma and so forth it helped drive wheat prices up. In terms of production this year how do we stand?
Roach: Well, our numbers are way down particularly in the hard red winter and in the spring wheat. We're going to be very tight in both of those markets. But the problem is that the prices go up about so far and I believe we've reached price levels that we won't be able to sustain, the demand will taper off and we're in that timeframe when supply is most available and I think that supply will be enough to satisfy the marketplace as we move over the next few months as other producers around the world are harvesting their wheat and utilizing their wheat.
Pearson:: Alright, let's talk about the corn market. Obviously we're in the midst of pollination for a big chunk of the Corn Belt. Everyone in the trade is watching to see what happens throughout both the eastern and western Corn Belt. And obviously when you see three digit temperatures in the Corn Belt that is a concern this time of the year. Is that really what was driving this market this week, this 12 cent rally in the corn market?
Roach: I think that's exactly what was driving the market. The market would have moved even higher except we received some surprising rains here through the middle part of the week. But we did distort the market up into one of our sell signals. The sell signal started on Monday. Normally it will last from four to six trading days and so here we are, we're five days into it now so this is a good time to be making sales, incremental sales on new crop corn that you can't store. I'm not worried very much about corn that you can store because I think next spring prices will be good. But I think that unless this weather continues to be hotter and drier than what the current forecast is the longer term forecast has cooler weather coming at it and more precipitation. And normally this time of year it's hard to keep a bull market alive unless you're really damaging the crop. We still have a significant percentage of the crop rated good to excellent. So, the crop is standing there waiting for the moisture and now this week we actually received some very beneficial moisture in some of the drier areas. So, the dry area of the Corn Belt is smaller this week than it was last week. But the market is still looking forward at this heat and that is what boosted prices so that we close corn higher for the week, it's because of the heat.
Pearson:: Alright, so you're sell signals have been pretty effective in the past. Now, as you go forward what are your price targets?
Roach: Well, I think just at the market actually. The way we approach this is when we have the market distorted into a sell signal we sell some bushels every day anticipating we'll have four to six days to make those sales. So, we don't really try to hold for higher price levels per say. In addition to that we are at the price levels, our target price levels out for the 2007 December and the 2008 December corn. So, we think small incremental sales of those crop years need to be sold as well.
Pearson:: Alright, let's talk about the soybean market and what you see happening there. We said around $6, what is your outlook on old crop sales and new crop?
Roach: Soybean market I think has the worst set of fundamentals of any of the markets that we're dealing with. The ending stocks are going to be very large this fall before we put a combine in the field and once we put the harvest normal kind of yields we're going to have the biggest supply on hand we've had in a long, long time, record actually. And the carry over forecast for a year from now is still very large. So, the bean market is up here on somewhat of a bubble and I believe that from this bubble that we will move to lower price levels as we move on into the harvest.
Pearson:: You talked about making some incremental sales on deferred contracts in corn. Would you do that on soybeans? Do you see those opportunities out there?
Roach: I think there are opportunities to make sales on deferred contracts of soybeans but I'm most concerned about those soybeans that people still have left in their bins and the soybeans that they are going to be harvesting that they don't have space for. I think there is going to be a difficult time finding enough space to hold the beans into the New Year without discounting prices down to force people to utilize substandard kind of storage.
Pearson:: South American crop which, of course, was such a big topic in January, February, we worked through that harvest. And, of course, there is a big question mark about what could happen in South America next year. It was not a profitable year to grow soybeans down there.
Roach: Yeah, it certainly was not a profitable year and it doesn't look very optimistic right now. Most people think that the Brazilian crop will be reduced. The talk is it might be down two, three, four, five, six percent, something of that nature. But on the flip side the Argentine crop is liable to be increased a similar kind of an amount. So, South America will continue to be a very large producer, larger than the United States. The job of the corn and soybean market is to change price relationships to increase the number of corn acres we plant next spring to supply this growing ethanol market. We need to increase corn acres something in the neighborhood of maybe five percent in order to supply the increased demand that we're going to have for ethanol. So, price relationship have a job to do and, of course, a lot of those decisions are made, you know, just only another three, four months from now, people will be making those decisions. So, that price relationship between corn and beans for this next year needs to adjust.
Pearson:: Let's talk about cotton. We watch the cotton market and, of course, China is such a big factor in cotton and when they're in we see a rally and when they're not, they're out. Would you be making sales in here?
Roach: These prices are clear down on their back. These are the lowest prices we've seen in cotton for some time. You know, the Chinese are the largest users, we're the largest exporters. The supplies are a touch bigger this year but these prices are just too cheap here in my opinion. I'd be patient. I wouldn't be much of a seller of cotton here at these price levels.
Pearson:: Let's talk about livestock. Fed cattle market under some pressure this week on the board. We've had, you know, some decent clearance of beef. There's always concern about, you know, backing these cattle up. What is your take going forward? Take us down the next three to six months in this fed cattle market.
Roach: Well, I think I really need to go backwards first. What happened earlier this year is we had such pressure on poultry prices that it exerted pressure over in the pork and over in the beef complex and we really had the beef complex come under extreme pressure and printed some low price levels there in the March/April time frame and a big surprise to people. From those low price levels we've had kind of a pendulum effect and we've gone to very high price levels into the time of year when we normally have trouble moving beef. We're very current in the herd but the market I believe has moved too high now and I look at the calendar, here we are in the mid part of July, we have a consumer that is having to spend more money for energy and interest rates are higher. I just think our demand is going to struggle here for a little bit. And so I think that we've printed the highs in the cattle market and I think that on recoveries that you want to be hedging cattle on out here all the way through this third quarter. Third quarter cattle numbers are substantially bigger than the second quarter and substantially bigger than what they were last year. So, I think we have a supply situation coming at us here that although we're very current right now I think we're headed into some more difficult times. And then I think from low in the third quarter and then I think we come back and see some strong prices in the fourth quarter. So, I think we're in a bit of a bubble and I think we're going to slide followed by recovery late.
Pearson:: Alright, John, kind of give us your highs and lows. What do you see this fed market doing?
Roach: I don't know. Normally we'll have a ten dollar drop from the peaks, you know, so we may well see that market drop off here, the cash market ten dollars off of where the peaks were here just a few weeks ago. And then a recovery I think all the way back by the time we get to the end of the year.
Pearson:: Okay, so fairly seasonal market.
Roach: Fairly seasonal market but a bigger swing perhaps than people are anticipating because of the swing down we had at an unusual time from the winter into the spring.
Pearson:: We had the problems, of course, with poultry that you mentioned and you talked about the impact it had on the beef market. Also an impact, of course, on the pork business as well. What is ahead now for pork producers?
Roach: Well, the pork market, this is the time of year when you also print highs in the pork market and I think that is what we have done, we've printed that high. The export business for pork has been just phenomenal this year. That is one of the things that pulled that market back up after the poultry prices pulled it down. But I think, again, here we are, it's the middle part of July, you know, this is when you print the high in the hog business and the futures normally do that ahead of everything else and I think that's what has already occurred. So, I look for a sluggish kind of a market. If you look at the historical seasonals you tend to just trail lower as we move through the balance of this year.
Pearson:: Alright, this fall what do you see?
Roach: Well, I think that the expansion, although it is coming very slow, I think we'll see increased numbers as we move along here through this year. And so I think we'll see cheaper prices.
Pearson:: Very good. John Roach, thank you so much. That will wrap up this edition of Market to Market. But if you'd like more information from John on just where these markets are headed visit the Market Plus page at our Market to Market Website. And, of course, be sure to join us again next week when we'll examine more opportunities to sell grains and oil seeds in this volatile weather market. Until then, thanks for watching. I'm Mark Pearson. Have a great week.