Pearson: This is the Friday, November 16, 2012 version of the Market Plus segment. Joining us now is Darin Newsom. Darin, welcome back.
Newsom: Thank you, Mike.
Pearson: We've got a lot of great questions from Twitter. Obviously a lot of people are very curious about what to do in this environment. And it seems like Tim in Crookston, Minnesota has some issues that he'd like to have helped answered. He's saying, how long before the market shakes this funk? I want to sell wheat, beans and corn. Daddy's got bills to pay. How can we help him pay those bills?
Newsom: That's a great question. How long is this thing going to last? In the show we referenced Newton's first law of motion and I truly believe that when you can apply it to trends. I don't think these trends are going to change. I don't think the motion in these markets, the direction of these markets are going to change until we can change the investor's outlook on markets as a whole, until we erase some of this uncertainty. Now if we look at price we've probably done about as much damage as we can or move the market about as low as we're going to right now for soybeans. But you never know. They could come in next week with another round of selling. We've already seen a huge amount of liquidation in the soybean market, a decent amount of liquidation in the corn. Until we get signals that this momentum is starting to change it's hard to say the bottom is in. But I do feel like we're probably getting close.
Pearson: As far as things that could change this momentum, we talked a lot on the show about the fiscal cliff. Getting that resolved do you think that would be a positive thing? Or is that something the market has kind of already priced in?
Newsom: No, I think that if this financial problem, I'm not going to say the financial problem is going to be solved by the end of the year, but let's say U.S. government works together, the different houses of the government, branches of the government work together and we do reach some sort of negotiated, I'm not going to say negotiated piece, but some sort of agreement, I think the markets will react. I think it removes one layer of that uncertainty. I think the stock market comes back. And if people get, traders get and investors get interested in the stock market again I think that spills over into commodities. I think you just see the investment community as a whole start to firm up a bit.
Pearson: All right. And that leads almost directly to the next question. Rodney from Edgar, Wisconsin is asking basically the inverse of that. If things aren't resolved, the stock market continues to fall, will corn and beans follow the downward, follow that downward direction? Also will pork and beef follow it down? And how low will pork and beef go?
Newsom: The interesting thing is that investors usually look for markets that have strong fundamentals. When we start to see buying again in commodities it has to do with strong fundamentals, bullish fundamentals. Two really come to mind. That would be soybeans and live cattle, long-term. The cattle on feed report again today showed the lower numbers. It was expected but if we look long-term in that market it is just kind of reflecting the idea that we're going to have tighter supplies. Getting people interested in those markets so if we don't have an agreement and if we see the investment community as a whole remain afraid of any type of market situation I think it's going to be tough to draw money back in for quite some time.
Pearson: And the flip side of that, you kind of raised an interesting issue, as we look at beans and live cattle they do seem like good investment prospects over the long-term. If we see a continued slide in the other markets might money move into those? Or is that just not the way it works?
Newsom: It could. No, that is the way it works. We do see money shifting from one market to the other and I think that in the long run that could certainly help because I do think money is going to gravitate towards these markets but we still have to remove some of this uncertainty. Maybe we're going to raise interest rates, fed fund rates going to come up, dollar is going to continue to strengthen and then at that point no one wants to own commodities basically regardless of what the fundamental situation is.
Pearson: All right. We'll change the topic here. Siouxland Energy is asking, how is the U.S. corn price in comparison to the rest of the world? Do we have the most expensive corn in the world?
Newsom: We may have -- if we look at it right now we may have some of the most expensive corn. Right now we have a very strong basis. We see a very solid cash market. The corn futures have backed down and we've seen the cash gain over the past many weeks. So we could probably, that argument could probably be made but we also have to remember in a normal year the U.S. is the number one producer, exporter and user of corn as well. So maybe we are the most expensive in town but we're also usually the only game in town and it's where the rest of the world usually comes to get its corn.
Pearson: All right. So it's relevance really to be measured by price.
Newsom: It is. I've never really looked at corn that way. I think that argument holds more in soybeans where you've got U.S., you've got Brazil, you take your turns and it can be South America as a whole, you take your turns exporting. Certainly in wheat it is that way. It is measured by which one is more expensive because wheat can be grown anywhere except for this year.
Pearson: All right. Well we had a little break on the questions relating to the uncertainty but now we're back. Phil in Ontario is asking, we used to have seasonality in prices caused by the fundamentals. Is there a seasonality for non-commercials? With non-commercial spec demand isn't it impossible to predict a seasonality behavior in prices?
Newsom: It's a great question. One of the studies I'm going to do is to look at these trends in seasonality, trends in movement of money, non-commercial activity. Seasonality of the markets as a whole I think has changed. I don't think it is as reliable a factor as it used to be. I think the reliance on fundamentals is not what it used to be and certainly we've seen that play out in many of the markets here over the last couple of months. I think it has more to do with the money flow and if we can figure out times of years when the money actually starts to move back and forth, you know, criss-crossing in different markets that could be the next phase of seasonality rather than just looking at a particular market and trying to watch for its supply and demand cycle.
Pearson: So long-term that represents a fundamental shift in how markets are traded.
Newsom: It does. Yeah.
Pearson: What is going to be a good way for producers to kind of keep track of this stuff?
Newsom: Well, the biggest way they can use it is as long as we have the same amount of interest or the same amount of participation by investors and investment funds and so on in commodities we have to start to understand why and when they move and not necessarily when cash grain or cash supplies move. So it is a fundamental shift. Going back to 2006 the dynamics have changed. This is just the next step. So these types of studies, these types of understandings of the market I think are the next level that we're going to have to go to.
Pearson: And so it's just going to take time to get that understanding down to where a level of seasonality was prior?
Newsom: It is. And it will change because will all of this computer trade based on algorithms you'll never actually quite figure out when they pull the trigger because there may not be a set time. There may not be anything but a strange coincidence if you start to see a seasonal cycle.
Pearson: All right. We've got one final question here. Jeremy in Onida, South Dakota is asking, fundamentally should or could grains make new highs if funds get back on board or has that ship sailed?
Newsom: Most likely that ship has sailed. The one market that is out there that still could, maybe soybeans. And that is if anything happens to the South American crop. Again, right now we're talking about record production both Brazil and Argentina. If that doesn't come to pass, if they have some sort of harvest delays, if the have any kind of weather problem at all I think the soybean market could catch fire again. I think it's going to be very difficult for corn to do because we are seeing demand whittled away and the wheat situation just doesn't seem to be as tight. You never know what headline to believe in the wheat market but if we look at the future spreads, the forward curves, at least for this year it doesn't look like the wheat is that concerned over supply and demand but now we're going to get into next year and our ongoing dry situation for our own winter wheat crop which could light a fire under next year’s crop.
Pearson: That brings me to one more question. You mentioned the ongoing dry situation that we're seeing in the western Corn Belt and over wheat acres. What are your thoughts on how long is that going to last? Is there relief out there in the future?
Newsom: You look at how far behind most of the Midwest, let's take one step back, the heat of the drought moved from the southern plains up into the Kansas, Nebraska area where it is sitting as we head into winter. So now we've got the fingers and we've got the fringes of this drought now reaching further into the Corn Belt this year than it was last year at this time. So it's going to take an extraordinarily wet winter over much of that area to even start to rebuild the soil moisture heading into next spring and I think that's going to be critical because if that doesn't happen then we're starting next spring off in a worse situation than what we did this year and so if it turns hot and dry we have less to fall back on. So I don't think we're out of the woods. I think it's going to take an extraordinarily wet winter to even get us close to a good starting point next year and that is just something that is not being forecast right now.
Pearson: All right. Well, something to keep our eyes open for. Thank you so much for being here, Darin, appreciate it. Thank you all so much for watching the Market Plus segment. Remember to keep sending in your questions via Twitter and Facebook and pretty soon I'll be on Twitter so we'll be able to have a conversation. I'm learning all about technology. It's wonderful. Thanks so much for watching and have a great week.