Pearson: This is the Friday, December 21, 2012 version of the Market Plus segment. Joining us now is Sue Martin. Sue, welcome back.
Martin: Thank you.
Pearson: We've got a lot of curious people submitting questions to us on Twitter and Facebook and so I'd like to kind of get your thoughts. Excuse me. We had a question asking, what do you think the acreage estimates are going to be for 2013, corn and soybeans?
Martin: Well, I certainly think we're going to have, depending on what our weather is like to start off with I think Informa pretty well came right in at 99.3 or 99.1. I think we'll be around that 99.3 to 99.5 area. The one thing that we have to remember is, is that we're bringing in -- yes it's at the expense of soybeans and also at the expense of cotton and then at the expense of wheat in some areas -- but the bottom line is going to be that we're also going to be pulling in acres especially in the western Corn Belt and especially in Nebraska and South Dakota. We're going to see pasture torn up and planted to corn and so we're going to be bringing in ground that probably shouldn't be in production. So that could drag our average yield, national yield backwards a little bit. But also on the beans I think the acres still higher than a year ago but I don't think we're going to see the 80 million. And, again, Informa came out with I think 79.3. I think that's pretty in line. It might end up being a little less. The one thing we've got to watch is what kind of spring do we go into? We need to get at least eight inches of rain each month, March and April and if we don't then we're going to be very, very dry. Will this be the year where you plant your corn in the dust and your bins bust? We'll see on that one because we're so dry. But on the situation where we catch a lot of rain it's kind of like a Catch 22 to get replenished then we could be delayed on our corn plantings and all of a sudden maybe we see a switch back to beans.
Martin: It depends on too this rally, how it comes about. We have to know that if Brazil ends up producing at 82, 80 million metric ton crop that's going to be a phenomenal yield in beans. And if Argentina picks up more acres because they have been so wet away from corn to beans and they come across well then South America, that's going to be the black cloud that holds us back. But we already had a chance to watch South America, watch Brazil's ability to export on time with corn and I have a funny feeling we're going to see that with the beans and therefore that delays them from getting stuff out the door, brings business back to the U.S. but it's going to be an ebb and flow situation. But there is the potential that if there's anything that starts to go wrong with say Argentina where all of a sudden they're ratcheted back because they turned from too wet to too dry and hot, which could happen in January, all of a sudden -- and there's even dry pockets forming in Brazil -- but all of a sudden you could have just taking from 82 down to 76, a new record but not what we need to be and we've already got keyed in these high numbers. Just like we're talking big numbers in the U.S., everybody is going to have expectations of what the yield should be and if you go back to looking at trendline yields which will probably be around 162.5 you're going to have horrendous talk about a 2 billion carryout on corn in the U.S. Is that going to happen? No.
Martin: We're coming in with the biggest amount of acres that will probably have nowhere to go but down. And in the meantime we're going to have, we are so dry, we keep forgetting what gave us our yield this last year was the fact that we got the crop planted early, we had good subsoil, the crop planted early and the roots followed the water down. We are not going to have that this year. So we have to have rains in April -- March, April and May to get us going and help us out. And that's the problem I worry about. I spoke with Dr. Elwynn Taylor this past week, about a week ago, and it was very interesting. He had some fabulous graphs that he showed at his meetings. And it was interesting, one of them showed the drought of 2012-2013 as the year of 2012 as a major drought or a mega drought that tend to be multi-years like three or four years lasting and it's debatable is this year two or is this year three. We would like to say maybe year three but there could be a four. Well, he went back and showed how it compared in history and it compared to the year of 1988 but more so bypassed the year of '88 and was comparable to the year of 1956.
Martin: What showed up more than anything was the fact that there was never in the past a time where the yield went back to trendline the very next year. It turned back a little better but one year was a little better than the other but certainly did not even get close to trendline.
Pearson: So we're looking at lower yield no matter what most likely.
Pearson: Now with that in mind, that question was from Brad in St. Joseph, Illinois. We've got a follow up question from Jason in Murrayville, Illinois. Looking at those numbers, the potential we've got for large carryout there in the corn crop, will he have a chance to sell $6.40 new crop corn again here this spring?
Martin: Yes. Definitely. And maybe more. It might be $6.70, $6.76, it could be $7.00.
Pearson: So keep your options open.
Pearson: Pencil it out.
Martin: Just know that it's going to be -- just know that what he's dealing with is the bearish atmosphere of the big acre talk. We'll deal with that. But in the meantime the weather is going to be the top player, it's going to be our ace in, basically in March and April and May. We come in and we're dry in that timeframe, markets are going to put weather premium in.
Pearson: So we'll see that pretty quickly once we get a shake on this weather. Looking over at soybeans, Ethan in Maddock, North Dakota is asking, why is China cancelling so many soybean orders? And what should we expect for demand in January and February for corn and bean exports?
Martin: I think our demand in January and February is going to be good. We have to remember that China is going in towards the end of January into February into their Lunar New Year and so they are usually big buyers in front of that. It's possible the beans that they cancelled here recently were added in as insurance against potential weather issues. And at the moment Brazil is getting pretty much planted. Argentina still running behind. But the fear, the longer they run behind they could pick up more bean acres. It could be that. They are also well known to play that hand of making cancellations and then turning around and using the dive to come back and buy back in. So it could be that as well.
Martin: Regardless, I think as we go into January and February we're going to see demand here. It is because the beans aren't going to be out the door yet in January or February, it's going to take until March and then on into April because they're running so late. I think we have better things coming on this bean market. I just think we have to be patient. December is kind of a squirrely month. We have followed the pattern of last year so similar, I'm amazed. That won't last forever. But I do think that we do have potential here if we take out these highs. The key will be taking out now making higher highs in January than what we see in December on the January, February -- let me try that again, January and March beans. And the other thing will be taking out the fall high, the October highs, the $15.77. If we set this up right and get going this market still has the potential to run to $21, $22 beans. And at a minimum, $19.22 to $18.88, those old targets that we had before for the November contract. Those targets could still be there. We just have to set the stage right and at the moment we're still in very low levels and preliminary. So we're watching. But if you're selling cash or needing to sell cash then maybe come back and work some call spreads back on it.
Martin: The other side of the coin, devil's advocate, profitability, the spread between profitability and inputs is huge. That would say, why are you hanging on? Maybe you just go sell it, market gives you a break, then come back maybe speculatively with some call options or some futures depending on your risk.
Pearson: Look to reown if you're comfortable with that strategy.
Martin: That's right.
Pearson: We did have a final question here from Dustin in Emporia, Kansas and this is a big question and so you can touch on whatever you feel like touching on. He is asking, how do I make money with cattle in a drought?
Martin: How do you make money with cattle in a drought? Probably the first thing you do is protect your feed costs. That's the first thing. And the second thing -- because the western Corn Belt certainly is not looking real special. If you have looked at these drought monitors recently the drought has really escalated and covering a very large portion of the U.S. Now, up in Montana they're catching an awful lot of rain. So, cattle, the cow calf guy up there is doing okay. But in other areas we're going to see probably a little more liquidation I think of cows and then that moves calves to market which holds that feeder market, you know, my opinion is the market rallies you get some hedges on in the feeders but the fat market because of the demand pool and everything is going to be good.
Martin: The problem in a drought is that it works your cattle prices over because of liquidation under a normal year. And so it is harder, you have to use your, be willing to maybe narrow your cost of production in a little bit or what you need as profitability just so you can kind of stay alive and look ahead into the year out. But my take is that the cattle producer is going to have a beautiful year this next year barring any major, major recession, depression thing. I don't think the fiscal cliff is going to do that to us but it's all about perception and God knows the media can certainly get us there.
Pearson: You bet. So plan safely, lock in your feed costs at the breaks and be lean and mean and wait for these prices to rebound.
Martin: I think so and instead of doing September calls, trying to cut some time value, I would go over and take a look at doing some call spreads even in the Dec corn. You can do it via buying maybe the $6.40, selling the $7.50, $7.70s mainly because if this market gets back up over $7.70, which has been our high on this last December contract, that secondary high, something has got to be happening, weather.
Pearson: All right. Well, thank you so much, Sue, really appreciate you being here with us today. Really appreciate all of you sending in your questions with Twitter and Facebook and on the Market to Market website. Please keep doing it. We'll continue to address them each week. Thanks so much and have a great week.