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Market Analysis: John Roach

posted on March 9, 2012

Market Analysis: John Roach

Pearson: John, good to have you with us.

Roach: Thanks, Mark. Nice to be here.

Pearson: Well, there's Greece. There's Iran. There's all these global issues out there. Let's talk about some fundamentals, the Supply and Demand Report on Friday morning from USDA, what are some of your takeaways on that?

Roach: The crop in South America was smaller than what people anticipated by a little bit, the soybean crop. The corn crop, surprisingly, was a little bit bigger than what was anticipated. The net of that is that we now have what may well be the final kind of numbers on South America that is suggested for the weather problems that they had through their growing season.

Pearson: So you're not expecting more surprises from the Southern Hemisphere.

Roach: Well, they are already well into harvest of soybeans, and so  and in corn as well. So new surprises are certainly possible, but the likelihood is that any further adjustments will be relatively small, so the market has seen most of that positive news out of South America.

Pearson: We have an acreage coming out the 30th of March, which is everybody is certainly keyed up on that. The corn number is the extraordinarily important number. Have you got a number, John, in your head of what you think we might see?

Roach: I think it's going to be a big number. As I talked with farmers all through the winter, corn has paid better than soybeans. Farmers make their plans last fall, had a lot of work done before they went into the winter period. And it's been very difficult for them to change their choice of planting mix. It depends on the planting conditions. If for some reason or another there is a problem getting things planted, then that will force some changes, but we're going to have big corn acreage this year.

Pearson: Let's start with wheat for our weekly analysis here. Again, the USDA numbers there, I think let's just re-impose what people were thinking about the wheat market, that there seems to be ample supplies.

Roach: Ample supplies. Ending stocks were pulled down slightly in the world and slightly in the United States, but they were really ample supplies with the kind of price levels that have been offered for wheat producers around the world. We expect to see big acreage in the northern hemisphere again this year.

Pearson: John, what about making sales? Old crop, have you sold out pretty much?

Roach: We have gotten ourself down to just a little bit more left to sell. We have a little increment left to sell in wheat. February is usually a fairly strong month to sell, so we took advantage of that. We moved into a sell signal and took advantage of it. So we will wait for one more and then wrap up the sales on the old crop as well as wrap up the sales that we would like to get done on the new crop. We think that the market is going to stay relatively firm for the period of the next 120 days or so. We don't think prices are going to slide very much unless we really start to see some good weather conditions.

Pearson: But you would wrap up newcrop sales as well here the next couple of 

Roach: We've been wrapping up the advance sales, the sales of wheat that we make prior to harvest for a lot of for producers. That's not a big percentage of the crop, necessarily. But we'll try to get that wrapped up here over the period of the next month or two.

Pearson: You have the big acreage number for corn. What's your status now on oldcrop corn and newcrop corn for sales?

Roach: We still have some more corn left that we are planning on piecing out over the next couple, three months. We're down to the smaller side of that. We also have some more new crop we would like to get sold, but we'll wait for a rally back. We had a nice rally in corn and made some sales, and then the market disappeared. We think it will come back again. The supplies of oldcrop corn are just extremely tight. The market is not going to be able to sag very far until we start to have a real comfort level with what's going on in the Northern Hemisphere. On the other side of that, that comfort level could start really as soon as maybe six weeks from now, as we start to see the first seeds in the main part of the corn belt going in the ground. If we get our crop planted in really good shape that takes away one of the biggest concerns producers have about raising big yields is what kind of conditions do they have to get the crop planted. It's dry in a lot of areas, so we can stand to have some rain and not get ourselves in much trouble. On the other side of the token, we need some rain, and in some areas we're going to need to have quite a bit of timely rain. So we're already dealing with a drought scare in corn. We're already dealing with very tight supplies of old crop. We are continuing to deal with the conditions that they had in the former Soviet Union, where it was so dry through so many months. And so we've had a very positive kind of a market concerns with Iran and the energy market strong. We've had a lot of positive things all come to the intersection and it may well be that we are seeing the most positive things there today. It really depends at what the weather is over the next 3045 days and then how the weather develops as we move on into the growing season.

Pearson: Real quick, John, what's the rule of thumb for you for getting crop sales  newcrop sales getting done. For instance, when we've got that say, at the 580 level on December corn, how much of that do you want to own at this point?

Roach: Well, you know 

Pearson: It varies by farm.

Roach: Every farm is different. You and I both have a friend in common who never stores one bushel of corn. He tries to have every bushel sold prior to harvest. We also have some other friends who have lots of storage who never want to sell 

Pearson: Still trying to wrap up 2010.

Roach:  who never want to sell until after. But the thing we suggest for a producer is that they pick a number that they can be comfortable with year in and year out, a percentage of the crop that they want to have sold forward, and then keep that percentage relatively constant. So my suggestion is the number that you normally get sold ahead, you want to get it done this year. We could go from this tight supply situation we are in today to having very ample supplies if the big acres get planted and the weather turns out to be good. So you can't ignore 580 prices because you have been so having so much fun with the can't ignore the 580.those are still good price levels for people to be making sales but, again, space your sales out, do it on strength, get yourself up to your normal percentage, and then.

Pearson: All right, John. Soybeans, where are you an old crop and new crop?

Roach: Soybeans, we actually have another increment of soybeans then we have of corn left. This last move up in soybeans, we're on the 23rd day today. On Monday we will be on the 24th day of a sell signal. People make fun of that sometimes about what good is that, at lasts for 24 days, but we just had 24 days of positive, positive, positive news. Remember a bull market needs to be fed every day, and the soybean market has been fed every day. Now, we fed it again today, but the market didn't close higher. So we may have well run about as far as we can hear on soybeans, the market is overdue for a settling back, and then we'll come back and see what kind of strength we can get again. But remember, we have already dealt with a lot of the positive issues and Brazil is well into their harvest and Brazil will export the soybeans they've harvested and they can have a very full export program until U.S. Beans become available.

Pearson: Was your sell signal new crop and old crop, on the 13th of November?

Roach: Old crop and new crop both, absolutely. Same thing; you've got to get your new crop sales up to your normal level. And if you haven't started, you should.

Pearson: All right. John, we need to move over to livestock, which has been a very positive area but, boy, have se seen a selloff here of late. What's going on?

Roach: We ran meat prices right up to where they just couldn't go any further. Meat prices have fallen down, so it's a demand concern that the traders had to deal with this week. The futures prices moved higher than where meat traders think live markets can be. So the market looked fully priced last week in the live, and this week as the meat started to show some resistance at the higher levels, the live market was quickly to retreat, both in hogs and in cattle.

Pearson: All right. We have an interesting inventory situation with fed cattle. We've got lower unemployment. Do you feel better about this general economy maybe helping to buoy prices for the balance of the year?

Roach: Well, remember we set record high prices last week in the cattle business, and we're down about $3 this week, so we are at very high price levels. But what we need is we need the beef to move and we need the packer to be able to increase their margins a little bit as they move from now on into the spring months. And the concern is that we may be a little too high priced to allow that to happen. So we think the cattle and hog market both sag back a little bit and then come back for a little stronger move as a move into that April/May timeframe.

Pearson: John, let's talk about some of the other commodities. Obviously gold has been one that we've been watching. There's this kind of concern that some of the steam has come out of commodities. Obviously we don't know what the future holds  Iran, Syria, Israel, that situation is going to continue to boil. The Middle East is going to continue to boil. Well, but overall is there some cooling? Is there some confidence that maybe the Greek situation is kind of behind us? Do you think we're going to see some global strength here?

Roach: Well, commodities have been positive because people have been afraid to put their money in very many other places. The equity markets were not  didn't do good. The employment situation kept everybody worried. We've had really a series now for several months of positive economic kind of news month after month. We had the latest report today, the third month of good job creation numbers. And then they raised the estimates from December and January. So we're seeing positive news. We're seeing reason for people to move toward equities. We're seeing some more stabilization in economic pictures around the world. And even Europe is finally starting to get some things happening. They did what they needed to do in Greece in order to get the money that they needed, so things are moving on a more positive nature, and I think that that takes away some of the investment that people have been making in the commodities.

Pearson: Okay, so ten seconds. I just want to recap hogs since I didn't ask you directly. We see a little bit of weakness but then strengthening later on?

Roach: Weakness, come back in the early part of the summer.

Pearson: All right. So that's what we look forward to as far as the markets are concerned. John Roach, it's always great to have you with us. John Roach, our Senior Market Analyst. That's going to wrap up this edition of “Market to Market.” But you'll find expanded market analysis, streaming video of our program, and links to our Twitter Feed and Facebook account at our website. We want to remind you that “Market to Market” may be airing in some different timeslots in the days ahead due to PBS fundraising activities. 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. Of course, be sure to join us again next week when entrepreneurs break ground on America's first commercialscale cellulosic ethanol plant. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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