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Market Analysis: Don Roose

posted on May 4, 2012


Market Analysis: Don Roose

Pearson: 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. Pearson: I want to come back to something we talked about just a couple moments ago, the changing of trading hours for many of the agricultural commodities the CME announced. There's concerns about volatility. There's concerns about whether or not we need to be trading these markets 22 hours a day. We're taking a lot of markets. 22 hours a day. If you're a global trader, you're trading Europe, you're trading Asia, you're trading all the time anyway. How big of an impact is this going to be? The big concern being a live market going out when the USDA Reports are announced. Roose: That's the big change that you're really going to have. The hours are going to extended until 4:00 o'clock in the afternoon. It will start the same time in the evening as we are right now. But I think the big change is going to be the on-the-go trading right through the reports, right through crop condition reports. So you're going to have live action all the time and a lot of volatility. But, you know, probably the trade will, like we always do, adjust to it and come out on the other end okay. Pearson: And of course, from a cash standpoint, as far as settlements for those handful of contracts that you do get cash settled, is there going to be an impact there? Roose: Well, I don't think so. I think probably we're going to have a two-hour break at 4:00 o'clock and probably the commercials are going to have probably a bigger adjustment on what is the final price that they're going to post for the evening and how quick can we get those out. As far as the cash settlements, I don't think there'll be a lot of difference. Pearson: All right. So be aware of that. The intercontinental exchange is playing a big role in this global competition. Roose: That's really what pushed it. As soon as the ice exchange announced that they were going to a 22- to 24-hour trading, the CME was right behind it. Pearson: There you go. Well, it'll be interesting to see what participation farmers have. Like you said, the big side is probably going to be on the commercial side. Of course, the margin clerks getting in their money is always a critical part of this too. Roose: Yeah, we need that break. Whether it's an hour or two hours, we have an hour break in the meats right now. Now we're going to have a two-hour break on the grains. Really that's so you can settle up so everybody can see where they're at and they can start the market activity again. That's really why we even have a break, Mark. Pearson: It may not be starting as quick as a lot of people think. It's been pushed back once or twice already as far as implementation and CFTC approval. We'll see where it goes. But that's what's going on. Let's talk more about these markets, though, don, and what's happening. I want to talk about the corn market coming up in a moment, but let's start with the wheat market and where you see prices heading there. It seems like decent conditions out there for the most part. Roose: Well, and that's the problem with the wheat market. Remember 22 months ago, the wheat was the big bull. Right now it's the big bear. Where we're at really is we are just not that far away from wheat harvest. We're probably going to be about two half weeks early. We had the wheat quality tour this week. We had a huge crop in Kansas. That's the probably going to go right across the Corn Belt and so, you know, wheat is suppressing the corn -- help suppressing that also. So the wheat is the anchor. Pearson: We have wheat to sell, we have a lot of Kansas, Oklahoma, Texas, Nebraska viewers. What are you telling them? Roose: Well, I think what you're looking for is we are down sharply this week. The rally now is down 25-50 cents. July wheat, if you get that close to 650, 675, you know, those are bounces, preharvest bounces that you have to sell. We're down at some low values, but there's still opportunities out there. Pearson: The global situation, there's a lot of concerned about Eastern Europe. It's typical of the wheat crop. It seems to have recovered okay. Roose: Yeah, I mean our wheat crop overall is going to be down this year globally. But, you know, it's really not an issue because we had such an abundance. But we've had problems in Europe, Asia, but the North America Hemisphere is going to make up for a lot of those problems. We're even looking at right now -- to tell you where we're at, India is looking at exporting 10 million metric tons of wheat. So the world has changed from that standpoint. Pearson: It's changed a lot in the last fifty years, that's for sure. Let's talk a little bit about the corn market then. Informa had some numbers out, adding to corn acres. I think 96.1 million acres. The USDA was 95.9. Not a huge differential but I don't hear too many people arguing that number, don. Are we going to see more acres? Roose: I just think plain more acres. I think when you look at the USDA on the last report, it was probably light on their total overall planted acres to 3-4 million acres. Now we're seeing this bounce back. We think, too, that we're going to maintain those large corn acres, but we think the soybean acres could bounce as much as 2, probably even 3 million acres as this double crop planting of soybeans is probably going to be in that range to six, maybe even seven million. So that's the job of the market is calling for the acres, and we're going to try to get them. Pearson: They certainly haven't been calling for the bean acres here of late. And on the corn acres, a lot of my friends and relatives over in Central and Southern Illinois, they're going to try and beat this old-crop corn date, because they were able to get corn in very early in that part of the world. Many parts of Indiana and Ohio as well. Is that going to maybe reduce this transition period between old-crop corn to new-crop corn? Are we going to have some available? Roose: That's what the job of the market is. Right now, you know, we're looking for big wheat harvest to kind of plug a little bit of the gap. We're looking for maybe 750 billion bushels of corn harvested in august. I plugged that. But right now the, Mark, the story really on the cash corn is the basis levels. You're talking 40, 50 over in the Eastern Corn Belt. You're talking 30 plus over on the Western Corn Belt. So the cash market is just on fire on corn, and we came back strong on Friday led by the May, but a big rally back. A lot of these ethanol plants just really bidding up to get corn in the door. Pearson:  Is the corn still in farmers' hands. Are farmers just being stingy with it, or are we selling a lot of this stuff? Roose: That's the big question Mark, and that's what we're going to try and find out. That's why that June 30 crop report is going to be huge, but, you know, our gut feeling is that we know where we were in the last stocks report. It's just that the produces are really -- they've seen the price erode, and so they're just really being hard fought on making any new sales here. If you didn't make them before, why now is their question. And they're planting corn. Pearson: Absolutely. When you're on a tractor seat, it's hard to be hauling in. The corn market in terms of making sales, do you want to do anything right now on this futures market, old crop, new crop? Roose: Well, I think when you look at the market overall, we're in a market that's moving into a supply bear market. So I think what we're looking at is, yeah, rallies back are meant to be sold without a significant weather problem. You know, the corn market is really dead in the water. So we think if rallies back on the Dec. corn back to 550, 560 or sales weather problems, you shoot back up to $6, but you may not get the weather market soon enough and it may start at a lower level than you think. Old crop, really, the job of the producer is that with these record tight basis levels, sell the cash, figure out another way to own it because there's a much cheaper way to take on risk. Pearson: All right. Let's talk soybeans for a minute. Soybeans, like you say, they bought more acres and Informa numbers showed a couple-million-acre increase. Do you think it could be bigger than that by the time it's all said and done? We've had this tremendous rally in these bean prices. We're making sales here, Don, or is this the start of something great? Roose: The thing you have to remember on all these markets that you have, the soybeans is the last bull standing, so don't lose that advantage. And so it's still trying to buy the acres, but we may find out June 30 that we've done that. We may find out that Brazil has a huge crop next year. And so we think that the market around $15 on up, you know, is a tough target on soybeans. Make some sales risk to the upside from there is limited and the same thing on new-crop beans as you approach $14. You know, the upside risk is not really a lot from there. Pearson: This WASDE Report Tuesday, the world agricultural supply/demand estimate, Don, anything there that we should be watching for? Roose: Well, I think it's going to ring the bell. We've got some big corn stocks out here. We're going to be approaching 2 billion bushels. That's just a monstrous number. It's going to show abundant wheat stocks. It's going to show soybean stocks tight, but then, you know, you can add in bigger acres down the road possibly, but it's going to be the soybean table and how tight or how small the South American crop is. I mean those are the two things we're going to watch. Pearson: And of course, cotton, I want to mention that and what you see happening there. Maybe an acre or two lost in cotton. Roose: It's like who cares because we're in a supply bear market over in the cotton, and that was at one time the big bull. We've lost demand. We've increased supplies. It's just the state that we're at the present time. The market did its job. It plugged the tight situation. Pearson: Let's talk fed cattle market too. Obviously we've had some hits there. We had the BSE thing, which turned out to be fairly insignificant. We've also had a lot of the big money evaporate from the cattle futures contracts too. Roose: Yeah, I think they just plain got spooked. I mean they got hit with the lean beef issue. Then they got hit with BSE. But the market really was pretty strong, Mark. It went through those and it took the hit. Now we've recovered. We think we put in a significant low in the cattle, probably an intermediate low. And the cash market this week still showed us that we're running a big premium to the futures, so we think the downside there is probably limit. Third and fourth quarters turn pretty bullish. Pearson: All right. That's a good report on the beef. What about on the pork? Roose: The hogs is another story. We just have too much pork. There again, we did the job of the market, and that was to fill that void from China. China's production is up 4.1 percent this year. We're going to be up 2 percent overall, 2.6 percent more pork produced in the world and the demand is soft. So we've got both ends that are hurting. And so, you know, the hog market is moving into a supply bear market. Pearson: Okay, so consumers beware too and producers. Anything that you want a producer to do in the hog business right now? Roose: Well, we think that we might be -- if beef puts in an immediate low, we think we are deeply oversold. We're near some cash support levels. We're probably going to get a bounce, and we think that, you know, if you get June hogs up around 90, 92, if we're lucky, we think those are probably hedge opportunities. The same thing when you look out at 2013 hogs. So make sure and protect yourself. Risk management we think is key. Rallies back on Dec. hogs makes sense to us. Pearson: I can't let you leave tonight without asking you, Don, your thoughts on what happened in the oil market this week. Was this a dose of reality that we're awash in oil here in the United States? It seems like we have, according to the energy information agency, who a handful of people believe what they're putting out these days, that there's an awful lot of oil out there. The world prices have held high. Gas at the pump has been strong and people just aren't driving much. Roose: Yeah, I think the problem is clear; there's just too much debt in the U.S., in the world, and we're trying to come to grips with that. And consequently, we produce more oil than we need and we're got the largest supplies of oil we've had since the early '90s. Pearson: So $6 move didn't surprise you that much. Roose: It really didn't. I think the key is can $95 crude oil hold us. I think we found out that 110 was a tough resistance area, so we're in a market that is moving lower and the dollar is trying to move higher. Pearson: All right. Of course, any disruptions -- any issues between Israel and Iran, it could be a whole different conversation. Don, precious metals, where do you think the dollar is going? Roose: Well, we think the dollar is moving higher. We still think we're the best of the worst, so we think there's some strength there. As far as the metal market, we think that it's had its better days behind us. If interest rates move up, it's certainly not a good sign for the metals market. Interest rates now have just quit going down so far. Pearson: All right. Your global outlook, the concern about Europe is going to continue. Obviously, the sovereign debt issue you talked about is a big issue there. Over in China, what are your thoughts over there? Is there a slowdown coming in Asia? Roose: Well, we think there has been a slowdown. China topped out the stock market in 2008 about the same time we did. They're really coming to grips. They are trying to get up to speed with us, so they're going to have to spend a lot of money. Most definitely, they're in a slowdown. Pearson: Don Roose, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from Don on where these volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page -- exclusively at the Market to Market Web site Pearson: And be sure to join us next week when we'll examine the market impact of USDA's latest estimates on global supply and demand. Until then, thanks for watching. I'm Mark Pearson. Have a good week.


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