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Market Analysis: Don Roose

posted on December 30, 2011

Market Analysis: Don Roose

Yeager: Here now to lend us his insight on these and other trends is one of our regular market analysts, Don Roose. Don, welcome back.

Roose: Thank you.

Yeager: Let's talk about oil, traded commodity. 8 percent is what it will end up year-to-year. But that's not the story with oil.

Roose: You know, crude oil has had a big rally recently. We were down to $75 a barrel and then we saw a lot of interest speculative interest in the energy field, and we moved back up to 100. A lot of that was problems around the world with Iran and others. So we think that's pretty good resistance again at these levels.

Yeager: So are we going to stay in a three digit marked for 2012?

Roose: You know, I think the thing we have to remember, Paul, is an overall economy is still struggling. I think as we move to the upper end of upper end of the ranges around 100, you really see the demand start to soften up. We think we are at the top end of the range, and we think a lot of it is going to be dependent on euro which is a big unknown here the second half of the year.

Yeager: A huge under known. Something everybody has got to follow, because it impacts all around the world. If one domino goes, they all go. One thing similar to oil that had some volatility, gold. That was the thing everybody had in their mattress this year.

Roose: Yeah, the goal put in its top right-wing euphoria was the highest, and it's had a big set back. It moved back close to $1500 where it's got some pretty good support again, but overall we just saw the risk of type off trade risky for gold.

Yeager: So is gold going to have interest again next year or have we seen its time in the sun in the back?

Roose: You know, as long as the currency is around the world are uncertain, I think you'll have the influx into the interesting gold. You know, gold overall we don't view us a solid investment. It is more of an alternative to the other currencies.

Yeager: We talked about commodities. Lets go to wheat now. For the week, we ended up 30 cents higher. Where is that headed?

Roose: The wheat market, all the grains really were on their backs here just about a month ago. And we had this big stiff rally in the lot is due to South America weather. When you look at it on the wheat front, we still had the second largest world ending stocks on record with wheat. There is no problem there. $6.60 to $7 on wheat is a lot of resistance and will be a hard place to jump through.

Yeager: So, a high amount of wheat in the stocks, is that going to impact to domestically what U.S. farmers do?

Roose: you know, we think the wheat acres will increase next year, but there is a real risk if the south has some decent moisture again, we could see the ending stocks that close to a billion dollars. That's not a bullish market. That is one that's anchored.

Yeager: A little more stable, a little more relaxed for folks.

Roose: The upsides are opportunities to sell and we pushed back to the lower end of the ranges again.

Yeager: You talked about all commodities having a bit of bounce back. Corn is one of those, up 32 cents -- I'm sorry, 27 cents. What's driving that?

Roose: The dominant issue on the corn market and the grain market in general really is the South America weather. We're in a key timeframe where we are pollinating in Southern Brazil about 50 percent to pollination and it's been hot and dry. 95 to 100. The big debate this last week was how much production have we actually lost in those areas?

Yeager: Any idea yet?

Roose: Right now we think realistically we could have lost a million metric tons in Brazil. Maybe 2 million metric tons in Argentina. So let's call a 120 million bushels. It's going to be a big market on Tuesday morning if we do or don't get rain.

Yeager: It is something we'll watch. You're saying maybe in Argentina another 10 days before a good chance of rain there?

Roose: As we went home on Friday, that is really what we had. The next big chance for a soaker January 10th. That can change. The weather changes very quickly. But if we go that long, we're going to have continued yield losses.

Yeager: What about here? We talked about acres. We saw the piece just ran, how many millions of acres we had. Is that number going to go up in 2012?

Roose: When you look at next year, that's one of the various potentials things we have is bringing acres back into production. In other words, maybe 2 to 3 million of acres go back into corn and probably the same in soybeans. Realistically, you could push the corn acres to 95 million acres and maybe they soybeans 7 to 6 million. If we put a yield on that, you have a large supply again.

Yeager: All right. Let's keep talking about corn. It's go over to soybeans though. I get a sense of this market as well. Always an acreage battle. And it's the time of year, all the farmer has to do is just think about second-guessing themselves. Do I plant more, do I plant less?

Roose: I think if you look at the profitability for most producers, if it's possible you'll try and plant corn. So we think the acres in the Midwest are going to shift to corn. No doubt about it. Of course, weather is going to be a big key issue in how the planting goes. Probably have more double crop soybean acres if we stay at these price levels. A lot of the acres will be determined on what price levels we are going to have as we go through February.

Yeager: So do we see this rally continue in the first part of the year? Where do you see this headed? Are we going to get back about 12? March already is, but are we going to see the teens before we get to spring?

Roose: I would say a lot it is going to be dependent on weather. Without weather problems around the world, what we are looking at, until the last month, was a market that was two steps down, while not as world supplies around the world were starting to grow. And South America was -- became interested in the weather problems they are. They've continued to accentuate themselves. We are cutting the production, and so the upside is probably eliminated if we get moisture there and the downside is still coming in now, a big question mark. If we have bigger acres and decent weather here. It is all about acres, all about weather around the world.

Yeager: That has been the story here domestically. And that is what it is around the world. As we look to 2011 and all the volatility for commodities, we are very optimistic about 2011. You feel optimistic about 2012 when we talk commodities?

Roose: I think to start at 2012 is much different than 2011. 2011 was like the roaring 20s. We have a lot of optimism, not only in the grain markets, but also in the metals, energy across the board. But then I think we really hit with the reality dose with the euro zone problems, the tsunami we had in Japan around the world. And consequently, the world supplies bouncing back. So the optimism just really isn't as strong. And maybe that is an okay thing in the long run.

Yeager: I forgot one commodity. Cotton had a good week. Is it going to continue up?

Roose: Cotton is very much the same as the other commodities. If the price is too high the to demand just shuts off. So probably below 90. When we get to get close to 85 to 90, that is where the demand picks up. We have an abundance of cotton and the slowdown, very much like we have in the wheat market. So supplies are large and are anchored. If the price is right, I think you'll see the consumer interest very much range bound.

Yeager: How did the consumer help the livestock market, specifically talking about cattle?

Roose: Cattle has overall bullish fundamentals. The supplies for 2012 and years beyond is going to take a while to build a third. The real bull story cattle this next year is the fact that we did not retain heifers. We did not expander because of the southern drought. So that's what we think is going to happen next year. So the upside and a catalyst probably the best about the meat sectors.

Yeager: Some of that anecdotal stories about families got together and heard stories about herd size and how bad it is in Texas? Do you see -- I mean, you talked a little about it. Is there any indication that we will grow these herds at a good enough pace to stabilize the market?

Roose: We think that is the job of the market is to put the calf price high enough at the restart to retain some have heifers. We will start to do that. We think we would've done that last year if it wasn't for the drought because the economics aren't there. We're optimistic they will. Overall the meat demand next year is forecast to be down six pounds for each person. So what we are talking next year is because of the economy is the overall meat demand will be down. Poultry production will probably be at a three-year low. Pork production will be up 2 percent next year.

Yeager: What about feeders? They are also off a little this week? Where are they going?

Roose: The feeder cattle, is that the upper end of the range. They are limited partly by the price of the corn. Corn is going to dictate a lot of the direction on the feeder cattle. We think we are at the top end of the range as we are at year end amongst the cattle.

Yeager: Hogs, we don't get a chance to talk about them too much. They too had a decent finish to the year. Where are they going to go?

Roose: Hogs were very dependent on the input costs, to feed. And on the export front, the real story for 2011 was the exports were strong, particularly to China. The risk for next year is if the exports to China slow down, which there is real indication that is a possibility as they grow their heard. China consumes and produces about 50percent of the world's pork.

Yeager: So where are we going on the hogs?

Roose: We think the up side is 98 to 100 anywhere in the summer months, and those are probably hedging opportunities. The downside is dependent on what happens to the export.

Yeager: If we continue to grow exports, there is a chance for the price to head with?

Roose: There is a chance for us to over price. You know, with production up percent this next year, what is really happening is a breeding herd didn't expand in the last quarter, but our productivity continues to grow. That's a positive thing, but also puts a lot of production in the marketplace that we have to deal with. And how we deal us on the export front. We have to try and export the meat.

Yeager: Final 20 seconds, Don. Feed needs, should we cover anything yet?

Roose: On this rally, it is one I would be a little more patient and wait for some setbacks before I did. Always, if it works into your crush, I would definitely do it. But you are in a weather market in a South America. In this market it's all about weather. Without the weather, the market is one that sets back again.

Yeager: Don Roose, thank you so much. That will do it for this edition of Market to Market. But if you'd like more information from don on where these markets just may be headed, visit the "Market Plus" page at our website. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page-- all free -- at the Market to Market website. And be sure to join us again next week when Mark Pearson will return to examine the outlook for commodity prices in 2012. Until then, thanks for watching. I'm Paul Yeager wishing you a Happy New Year!

Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans wheat