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Market Analysis: Darin Newsom

posted on April 20, 2012

Market Analysis: Darin Newsom

Pearson: Darin, Good to have you back.

Newsom: Thank you, Mark.

Pearson: We have a mixed bag this week, I guess you could say. I mean we were so early in getting the corn crop in the ground. A lot of people are focused on that. There's a lot of interest in what's going on with wheat production and the stand that we have coming for 2012. Let's start there. Let's start with what you see for the wheat market. Again, kind of the repetitive thing has been there's plenty of wheat globally. But there really is a lot of wheat. We're feeding a lot of wheat.

Newsom: We have seen demand stay strong. Now, the interesting thing about this year's crop is that it's running 3-4 weeks ahead of time -- ahead of pace, so we're going to be looking at a very early harvest in wheat. And the condition right now, because of the early moisture and the early spring conditions, we're seeing a much better crop condition rating right now than we have in years past. We've got an earlier crop. It could be a bigger crop. And that could start to put some pressure on the market again a little bit earlier than normal, but we could start to see some pressure coming back into the market. What it's also going to lead to is a higher chance of larger double crop acres. And right now the debate is going to be -- the theme is going to be corn right now. It seems like leaning toward beans over a large part of the southern plains, so I think wheat is going to be very important to watch not only its condition but how it moves along here as it matures.

Pearson: If we're selling wheat -- and I don't think there's that much old crop left on farms. There's some out there. But making new crop wheat sales, is this a buy/hold/sell time period, in your mind. Could we look at maybe a larger crop here in the U.S., based on current crop conditions, and you maybe want to pull the trigger?

Newsom: You're almost to the point where you're going to have to pull the trigger in new crop wheat, because seasonally we go down through May. If we do see an earlier crop, it means we're going to have more pressure on this market. It's going to be very difficult to establish. So if we see some sort of move up, let's say we get some spillover support from corn or beans or maybe a lower dollar, the dollar index, maybe then we can get a few sparks of light in the wheat market, and we're going to have to use those to get some sales. I don't really want to sell here right at these levels because we've been under such pressure. But if we get any kind of bounce at all, given the fact that there's really nothing bullish out there in the market, I think we're going to have to increase some new-crop sales.

Pearson: All right. Let's talk about the corn market. There's been some China news. There's been some positives, but this old-crop corn market has softened up quite a bit.

Newsom: Yeah, the reason is really it's an interesting situation. We've got a divergence going on here. We do have bullish fundamentals. You know, we've got very strong demand for U.S. corn. We've got tightening supplies. We've known that for quite sometime. It's not getting any better. National average basis continues to run very strong, but the problem is we cannot get investors interested in this market. They continue to sell while the fundamentals get more bullish. This situation doesn't happen very often. If it does, it's usually the opposite. At some point either the fundamentals are going to come back and play or we're just going to throw in the towel. It's going to hit that tipping point where we're no longer concerned about the old crop. We're just going to be focused on the larger new crop, and that's going to probably -- that could possibly add more pressure to the market.

Pearson: So the big money is taking the money and running then.

Newsom: that's the biggest thing in corn right now is the continued liquidation of long positions right now on commercial traders. This started back --

Pearson: And this was a huge position --

Newsom: It was. I mean if we go back to, I think, early 2011, we were up to almost 620,000 some contracts. That's been whittled by more than half. So there's a lot of this pressure that occurred in corn has come from the investment side of the market. I guess fundamentally, the market probably should be going up.

Pearson: We're going to be on tractor seats here. We're going to be planting corn. A big chunk of it is planted over in my own home state of Illinois, some in Iowa, some in Missouri. We're seeing that corn belt really starting to move. We'll see the bulk of the players probably in the next week or two on tractor seats pulling planters. That's usually in time to make sales. Is this counter seasonal this year?

Newsom: It is because normally the corn market does move higher up into mid June. We usually get that planting season and early growing season rally in the market. We're not seeing it. So not only do we have bullish fundamentals, but we have a bullish seasonal tendency that just simply isn't coming into play. This all points to the fact that investors just aren't interested, for whatever reason it might be. But until they join the market, until they come back into the market, this corn could have some problems.

Pearson: All right. Buy or sell on old-crop corn at this point? Do you want to hold?

Newsom: I still want to hold. I mean, there's just too many bullish factors out there. We talked about basis. We talked about spreads. We talked about the longer term commercial outlook. We want to continue to hold the old crop for a little while.

Pearson: New crop.

Newsom: New crop, you know, that's a scary thought when we're talking about that 95.5 million acres increasing production, increasing all these things. But again, if we can get some sort of seasonal rally up into, say, later spring, then I think we pull the trigger. We don't want to wait too long because there is going to be that tipping point where we're no longer concerned about old supplies.

Pearson: All right. As we look at where the money's going, could it going into the soybean pit? We certainly see the move there.

Newsom: yeah, and just as with corn, there's a lot of rumors floating around right now in the soybean market. You talked of how soybeans closed up 10 cents for the week. Well, it added something like 30 some cents today. So it made --

Pearson: Right, on Friday.

Newsom: On Friday alone. It made it all up on today. And there was talk of Brazil possibly pulling its offers off of the export table.

Pearson: Concerned about that crop size.

Newsom: Exactly. And possibly even canceling some of its export shipments. So, you know, that hit the market and it immediately reacted. Now, come Monday, we'll find out if it's true or not. We'll find out if the market really believes, but it does seem to indicate there's a lot of money moving over into soybeans right now. Should probably keep pushing it higher again. Its seasonality usually goes up -- the seasonal rally usually goes up into early July. So we've still got some time, and we've still got a lot of fuel to burn up in the soybean market.

Pearson: And of course, we still have time on that corn trend too. As you say, it hasn't materialized yet, which we normally see it. It's a cause of concern. Let's shift. I want to talk about livestock, Darin, with you tonight, because we had that massive selloff on cattle. A lot of people are wondering what's the deal. I know the consumer was balking a little bit at some of those higher prices in the meat case. We're kind of moving around that. Grilling season is underway. For some of us, it never ends. But the grilling season for a lot of people is underway. And perhaps we're going to see things start to move again. What' your take on the fed cattle going forward?

Newsom: Well, the biggest thing about the cattle market that I've seen -- you know, we talked about this divergence in corn. We had just the opposite -- we had the opposite situation where fundamentals weren't very bullish on the cattle market and they had been getting soft for a while, yet money kept pushing the markets higher. Once those adjusted back, that's what led to that huge break.

Pearson: Those funds came back out.

Newsom: The funds came out, the markets collapsed, and it came back to its fundamentals. Now, as you just said, we are starting to see some demand pick up again, so I think we could stabilize this cattle market. I think it's going to start in the cash market. I think we're starting to see some early signs of that, but once we do, I think that's going to give us some stability in the cash market and the cattle market, and it should start to slowly work higher again. I doubt if we test our highs that we've seen recently, but we should start to work higher again.

Pearson: All right. Well, there's a little bit of an upbeat outlook. Calf markets underpinning -- last time you were on, you said it's an extremely good shape. But obviously we're going to be sensitive to corn prices.

Newsom: They are. You know, they're looking at this lower corn market and saying this isn't all that bad for us. Now, if the corn doesn't move, the calf is still going to look pretty good -- the calf market is still going to look pretty good. If we start to see a better fat cattle market, then that's also going to provide support for the cap market as well. Out of the cattle markets, I still think the calf market is the strongest of the three that we'd be looking at.

Pearson: Even with that as a cow/calf producer -- there were some good prices out there. Further out should we be looking at marketing them this fall -- that's for the spring cow/calf crop this fall?

Newsom: Yeah, you know if you can get some good prices locked in and, particularly if you've got all your feed costs locked in, you've got all your inputs locked in, and you can make pretty good money with what's out there right now, sure, take some of it because these markets are getting more volatile. We're entering that time of year. So if you can lock it in now, probably not a bad thing to do.

Pearson: And I know it's all protein supply. We've got poultry and other issues out there, but the key one has been pork. Pork has been such a great export story. Has that story started to change or evaporate a little bit here?

Newsom: It certainly seems like it. I mean it looks like demand is just evaporated in the pork market. You can see what's happened on the charts for the lean hogs and some of the cash markets as well. I think it's going to be a while for them to come back. Maybe it can get some support from some of the other markets, but right now of the livestock - of the livestock contracts, it certainly looks like hogs remain the weakest.

Pearson: All right. Darin, you always have a good handle on energy. The energy market didn't move much this week. Crude oil didn't move much. Longer term, where do you think we're going to be? Are we going to hover over a hundred bucks from the summer?

Newsom: Yeah, again, we just don't have the fundamental catalyst for the domestic West Texas intermediate market traded in New York. There's really no reason for it to go much higher. I mean we're going to bounce around probably between 104 and 100, maybe get up a little higher than that. But long-term, there's just really no reason to push it higher, but they are going to keep a very close eye on the international Brent crude market because it is more fundamentally bullish.

Pearson: Darin Newsom, as usual, we appreciate your insights. Thanks so much for being with us tonight.

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