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Market Analysis: Mark Gold

posted on February 24, 2012

Market Analysis: Mark Gold

Pearson: Here now to lend us his insight on these and other trends, one of our regular market analysts, Mark Gold.  Mark, good to have you back.

Gold: Nice to be back, Mark.

Pearson: A lot of things are happening out there.  I want to touch on a lot of them.  I want to get your impression on them.  But first off, you just got back from bouncing all around the state of Kansas. What does the wheat crop look like?

Gold: Well, certainly in the eastern part of the state it looks pretty good.  A little bit drier once you get west of Platte and that area.  But overall it looks pretty good, certainly considering the drought that they had last year.  Things are looking a lot better this year.

Pearson: Nice improvement over 2011 to date, to date, to date.  Let's talk about what you see as far as the grains overall. Let's stick to wheat here for a moment.  Talking to producers, USDA's outlook conference has been underway.  Their baseline numbers have really not been much of a surprise.  Talk about what you see for wheat demand.  Globally I know there's plenty of it.

Gold: Plenty of wheat around globally.  The ag forum was saying that we are going to plant more wheat here this year.  And we've got bigger numbers.  And I believe that is indicative of what we have seen.  We've had some relatively high wheat prices, particularly Kansas, Minneapolis.  Farmers have responded to that by trying to plant some more wheat.  But the problem is everybody around the world has been planting more wheat.  Now, you've had some isolated problem areas.  Certainly the cold weather in Russia has been a factor.  But for the most part we haven't seen them really pulling back on the export market.  We've got a lot of competition out there.  Interesting that even Iran is trying to get wheat from Pakistan this week.  Whether or not they get it or not in some kind of oil swap.  But the fact of the matter is there's demand out there for the wheat but we’ve got plenty of wheat around the world to sell and I really believe that wheat is going to more follow the path of corn.  If corn takes a much lower trend in here, the wheat is going to have a hard time responding.  But if we do see the corn take a spike up I think the wheat is going to go with it temporarily.

Pearson: All right.  As you look at the spreads right now is there anything that surprises you at this point?

Gold: Not really.  I think we've seen moderate activity in the spreads, nothing really exceptional in my opinion.  But the fact of the matter is we've seen more action in the corn spreads with old crop gaining on the new crop than we have I think in the wheat markets.

Pearson: And let's talk about corn.  Again, the outlook conference baseline is 94 million, which, not a big surprise. Some people think it's going to be a bigger acreage number than that.  Obviously it is a tale of two crops, old crop versus new crop.  Let's talk about old crop first and kind of what you see happening there.  What does this market trend do?

Gold: Well, the market we had a nice response despite the ag forum numbers.  We closed the nearby contract of corn relatively strong as the options run off the board here today.  There was talk about this Chinese purchase of a little bit of corn.  Now, is that the tip of the iceberg?  We've seen this before.  People say, well it's just a one off purchase but if we see them come back next week for a little bit more this may be the start of some new Chinese buying that could certainly help that market.  But in the long run what I believe not only the corn market and the soybean market is trying to do is work its way lower.  And the reason I believe that is because no matter how high prices have gone in the past, we've had some incredibly high prices just back in July of '11, I believe we're going to try to get these prices back under the cost of production.  Now, why do I believe that?  Because I believe one of the true functions of the market is to force out inefficient producers.  And when I see people paying $15,000 an acre for land in Iowa, I don't know how it can last if they don't start protecting those prices farther out for '12 and '13 because the market has always gone back under the cost of production no matter how high the spikes have been.  It has always been within 18 months.  Yes, we could have a drought this summer and you could put corn to $8 or $10 a bushel.  It doesn't mean we're not going to go back to $4 a bushel and force out these inefficient producers.  I believe that is what the market is ultimately trying to do here to say guys, if you're paying $15,000 an acre let's take a second look at that.

Pearson: Okay.  Those guys that are paying $15,000 an acre, you were a big seller, we talked to you last summer and you were jumping all over these markets.  For people that didn't do that, if you look at new crop corn these days is that a place where you want to start taking some protection?  What should you be doing?

Gold: Well, certainly we have our clients, we've got about 25% of the crop, estimated crop sold what we think we'll raise.  We've got puts on for the balance of that and we're going to maintain those positions.  I believe the acres are going to be huge.  If you look at the crop insurance in this February timeframe that we're just finishing up here there is a strong economic incentive to plant corn over beans.  If we get planting weather like we've had so far in this moderate, moderate winter I believe if guys can get in the ground they're going to go plant that corn, they're going to plant it until they drop.  The only question is, is there enough seed?  Yes, there's enough seed.  Maybe not the exact variety that they're going to want but they're going to get it and if we have Mother Nature cooperates finally this spring to get that corn in the ground I believe the acres are going to be huge.

Pearson: Are soybeans in the meantime trying to buy acres based on the action we've seen here recently?

Gold: Well, I believe that is what the last 30 days has been about.  We've seen the beans take a big jump against the corn in here.  We've had the corn to bean ratio under 2, we've got it back to close to about 2.3 now.  You have new crop beans up to $13 a bushel.  But beans have been fighting to try to get back some of those acres.  But what do we see?  With the averages in the February time period for that revenue insurance there's still that incentive to plant corn.  Now that this period is coming to an end I don't believe there's much guys are going to be able to do to entice more bean buying.  Again, if we get the weather these guys are going for corn.

Pearson: Absolutely.  And, of course, those who are still holding old crop corn in particular, are they kind of waiting for what we've seen the last couple of years where as we transitioned that new crop year that is where the opportunities have really been basis wise and on the board?

Gold: Well, we've had a real strong basis, not because there isn't grain out there in my opinion, but because the American farmer is holding so much of it.  We've built so much capacity and bin space in the last couple of years I believe the American farmer is storing the corn.  What concerns me is he has got a lot of the '11 crop in the bin, he hasn't protected '12.  If we come out March 31st with a huge acreage number and we're looking at decent planting weather for the next 30 days this market could take a hit leaving farmers with two crops to market and the real violent downturn of this could come in the time period from March 31st to July 1st.  We could have a big down and then maybe a spike up if we have some summer weather.  But I believe these guys are holding too much of two crops and it needs to be protected and protected right now.

Pearson: All right.  Of course, new crop soybeans, as you say, these aren't bad prices.

Gold: These are great prices, almost $13 a bushel, old crop and new crop.  Certainly get something sold up here, protect the rest of it with some put options in case we go lower.  The bean market I think has a pretty good chance in here to stay relatively strong with the problems we've seen in South America.  But overall it is the corn market that really concerns me in here.

Pearson: Real quick, Mark, what is the corn acreage number that is going to blow this market out of the water?  Is it 95 plus?

Gold: 95 plus would just be too much for this market to handle considering the glut we have of ethanol around the country and demand backing off.  Now if the Chinese come in that can change this picture.  But 95 million would be an awful lot of acres.

Pearson: A lot of risk out there right now.

Gold: Absolutely.

Pearson: So we face the greatest risk when price is the highest, I've heard you say it many times.  Let's talk about livestock.  Totally different scenario there.  There's no supply out there.  Walt Hackney sat in that chair last week and I said, Walt, what do you think about this cattle market?  And he said, I've been on this show for 25 years, I've never not known, I don't know.  We had a wild week cash wheat last week, another wild one this week.  What is your take?

Gold: My take is that we're booking up $130 on the fat cattle, incredibly high prices, $155 on the feeders.  I agree that the cattle numbers are down.  The cattle on feed came out this afternoon showing that the on feed numbers were less than expected.  But the total number of cattle on feed were less than expected.  Marketings up.  Certainly it appears to be a friendly report.  Is it going to be friendly at $130 cattle?  I don't know.  But the fact of the matter is that at this prices, if you have been around agriculture as long as we have been around, something always happens to the cattle market.  Now, there's obviously two words that can break this cattle market.  Could there be another situation where somebody gets on TV and says something bad about cattle?  One of the things I think we have to watch is this announcement out of Europe that they are now using stem cells to make hamburger meat.  Now, it's new technology but is this maybe going to be something that people are going to look at?  I mean, I don't know about you but I don't want to walk in and look at that and does that sound appetizing to you?  Do you want yours medium rate?  No, I'll pass on the test tube hamburger.  But the fact of the matter is there will be people that eat it and if it is a viable product whether it is two years or ten years from now, we've seen how quickly technology can change and adapt.  And if this technology is for real that could be a tipping point in this cattle market if people, if the funds decide we've had enough, it's been a great run, let's not take a chance here.

Pearson: We've seen it with friendly chickens, we've seen it in so many areas in this industry.  That is a good point.  So good prices now, take advantage of it.  Hog market, what is your take?

Gold: We've seen incredible Chinese demand in the pork industry for the last certainly twelve months.  I don't believe that is going to stop any time soon.  The Chinese certainly realize that feeding their people is the key to the stability of their regimes and they will continue to do that and that’s why we're seeing these grain prices where they are and to some extent certainly the meat prices.  The pork -- guys have asked me, what do you think of the pork business?  And I think that it is actually a great place to be in if you manage the risk of getting in at these higher prices in here.  Long-term I believe the outlook for pork is friendly.  We have to be concerned about some of the EPA concerns but aside from that I think pork looks pretty good.

Pearson: You take the temperature of the market better than anybody.  What is your take on precious metals?  And how worried are you on this crude oil situation?  If anything has slowed down the economy in our lifetimes it has been spikes in energy prices.  Could we see that with the Iran-Israel situation?

Gold: Well, that is the big key.  We went up $13 in this crude oil market just since February 12th.  It is all on concerns mainly of Iran and Israel.  It is an explosive situation.  I would say that if there is any shooting that takes place, oil will spike to, who knows, $125, $130 a barrel, I think it is going to be a short-lived spike but I wouldn't certainly want to be short in front of that and I think that in turn helps the gold market stay strong as people always look to buy gold in uncertain times.

Pearson: Absolutely, the panic metal.  As usual, Mark, appreciate you coming by and being with us this week on Market to Market.  Always some great insights.  But that is going to wrap up this edition of Market to Market.  You can find expanded market analysis as well as streaming video of our program all free at our website.  But now we want to let you know that Market to Market may be airing in some different time slots in the days ahead due to PBS' fundraising activity.  So if you value programs like Market to Market please consider phoning in a pledge and investing in a service providing you with accurate information and timely market analysis each and every week, 52 weeks a year.  And, of course, be sure to join us again next when we'll examine the outlook for agricultural prices.  So until then, thanks for watching.  I'm Mark Pearson.  Have a great week. 

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