Pearson: This is the Friday, March 8, 2013 version of the Market Plus segment. Joining us now is Jamey Kohake. Jamey, welcome back.
Kohake: Thanks, Michael.
Pearson: We talked briefly on the show about today's supply and estimate demand report coming out today. We've got a question here from John in Columbia and he is asking, with all of the on-farm storage built in the last few years, how accurate are the numbers that the USDA talks about? How confident can they be in stocks or carry over when farmers are storing so much on the farm?
Kohake: Well, I think that could be a loaded question because the sentiment on the farmer's side is they're clueless and they're playing roulette with it pretty much. I'm kind of on that side of the ledger too that it is a skewed number. I don't think anybody can probably figure it out. So yeah, I think they are off. But the problem is though with any government report, any EIA energy report it is what it is, you've got to trade it, it is what it is.
Pearson: The market puts faith in it.
Kohake: Yeah, the market trades it and there's no reason to sit back and chew the USDA out and the market's reaction to it is trade had to use the numbers no matter far it is off.
Kohake: But I think it is skewed. It's not an exact science by any company can figure it out.
Pearson: Sure. Sure. Well that's good to know. So when the market gets these reports and they begin to trade them it's instantaneous, I mean, they get the reports at 11, they read through them and they're off.
Kohake: Yeah, they get them on the news wire in real time and they trade it and you saw it today, I mean, there's some widespread volatility, the beans especially this morning at 11 were wild. The South American numbers weren't bullish enough. And the carry out domestically was unchanged and they didn't like it. But then by one o'clock they shook it off and said who cares.
Pearson: All right. We do have a question here, this is the kind of question I love to see, Doug in Moses Lake, Washington is asking, when should we make sales on new crop hard red winter wheat as well as corn? And then he says, great show, by the way. So thank you, Doug.
Kohake: Yeah, keep watching.
Pearson: Yeah, we appreciate it. But what are your thoughts on hard red winter?
Kohake: I think it's got to be sold into, should have been sold into. New crop I'd be looking up around $7.60. I know it's a little ways off but technically that is a nice number. The key is going to be, you know, are we going to run out of moisture? Is this it after this weekend with an inch again? But we've sold off pretty hard. I don't like chasing the market lower from here because we are trending towards over sold but I would be selling rallies until the weather does turn back for the worse again.
Pearson: Because we're not yet over sold in wheat. We're moving in that direction but we're not yet there.
Kohake: Moving in that direction but, you know, we're just about a buck and a half, two bucks off the highs. So it is the bottom range of the market. But I would be selling rallies and then if you can re-own it later on to enhance your bottom line look at that. But right now I would be getting short somehow, some way.
Pearson: Okay. Now let's talk about new crop corn. We talked about it briefly on the show. Tell us again where would you be looking at selling?
Kohake: I like $5.61, $5.65 area. That puts us right back at the insurance levels which isn't a huge incentive to hurry up and get short. And the number above that is $5.83 technically. That is without weather. I think weather probably won't turn bullish the way the forecasts look right now maybe until late spring, early summer, maybe a similar situation to what we saw last year, a lot of bearishness built in early and then later on we flush everybody out. I'm not chasing $5.30, $5.40 right now. I think there is a tad bit more down side but I think we will see some short covering. There is a big report coming up here soon on the acres. USDA estimates don't look to be, you know, terribly bearish so hopefully we can see some short covering ahead of that. Plenty of weather, plenty of time, we're below insurance levels so I'm not in a panic attack, just close my eyes and get short, wait until at least above crop insurance.
Pearson: Okay. All right. Now let's talk about beans real quick here. New crop sell point on beans. Where would you be looking at there?
Kohake: Same as on the show, $12.93, $12.98 and then $13.16 would be your next level. Get one layer sold before the report on that just so there isn't the big surprise. Beans are bullish. They're the leader of the grain complex.
Pearson: Okay. Now one of the things we talked about on the show, we had a segment on but I'd like to get your opinion and the market's thoughts, crude oil prices. With this rise in the dollar and everything going on internationally we've been watching crude oil fall. Where do you think crude is going to go?
Kohake: I think we're going back higher short-term. Today on Friday was very impressive to me. The dollar was up 70 points early on. Crude came back and closed just about unchanged on the day, I mean, within 20 cents roughly. I thought it was a very strong day for energies. But I think $94 was the top. I don't think we're going back to $100. I think the range is $88 to $94. Supplies are huge and the dollar is strong so I think $94 is the top side. The Brent market has pulled it up, supported it. Brent would have to go back to 130, 140 I think for really that would be TI to get in the runaway market again and just the fundamentals aren't there right now.
Pearson: Okay, all right, so that $94 top end --
Kohake: Yeah, top side, bottom side $88, $89, play that range.
Pearson: Okay. And now as we're talking energy prices where do you see ethanol headed?
Kohake: We saw a down tick this week. We've seen a down tick in fuel prices as well. That's not good for ethanol. I think ethanol is probably capped out until summer. We get a Memorial Day rally coming into some driving season, see an up tick there but key is going to be too here with these current prices back bouncing again above 7 are we going to see some of these smaller one have to go back offline again or not?
Pearson: You bet. You bet. So things to keep an eye on looking forward.
Kohake: Yeah, that demand there, that side of the ledger with the ethanol is the wild card with the weather.
Pearson: Especially with the basis they're having to pay to get corn out of farmer's hands.
Kohake: Yeah, it's terribly strong.
Pearson: Well, we do have a question here from Louise in Healy, Kansas and she is asking about China and their growth. And if China's growth slows from the ten percent they're shooting for to about eight percent what change is that going to have on agriculture?
Kohake: I don't think much. They have been talking about a soft landing for about two years now trying to get one. Their housing market was similar to ours, it got too hot too fast and they've been trying for a soft landing. Their population is growing so fast I don't think a couple of down ticks on the GDP number will slow them down. What they are doing, though, is they are storing a horrid amount of grain right now. They are still buying but they've got a ton, ton in storage and a good thing the crush margins, crushing margins are still positive and they can benefit off that. But I don't think it affects our ag sector. What would affect your ag sector is for South America to get their ports up to date and be able to move grain. That would affect us big time and China sitting out for two months.
Pearson: Now how long is the ship time from South America now?
Kohake: 50 to 60 days.
Pearson: Really? So they are sitting out two months.
Kohake: Sitting out two months. Some of the barges companies that I've got some research from the lines are over a mile long. So can you imagine, you know, some of the lines around here at harvest, doubling, tripling that down there right now.
Pearson: Now, one of the things that we didn't get a chance to talk about on the show but we'd like to get your thoughts, cotton prices. We saw a nice little bump this week about $1.50 and we know China has still got a heck of a supply, a heck of a storage over there. How are things shaping up for cotton?
Kohake: I don't like buying cotton up in here. I'm actually looking at selling the new crop December up around $87. That has kind of been my target. I'm a little bit nervous with the surging dollar and that could slow us down here short-term. New crop, or old crop I think you could continue to buy the breaks there, try to buy it back down around $86 but I'm not advising anybody to buying up in here. I'd be looking to get a little bit hedged in the Dec up at $87.
Pearson: Now even with this recent rally that cotton has been on, on and off again for the last month or so, do you think we're still going to be losing acres to corn and beans in the South?
Kohake: Well, the forecast here the last ten days for the early planting down there has been wet. They're delayed southern Texas stretching out, you know, into the eastern part of the delta. So we'll have to wait and see how that plays out. But yes, I think we have lost some and how wet or how long do we stay wet with that? We've lost, yeah, some acres for sure.
Kohake: And from beans down there.
Pearson: Okay. Before we let you go, Jamey, do you have any trade of the week advice you'd like to share?
Kohake: I like selling the Christmas corn, I'm sorry, the July corn, July corn $6.60 puts at 11.
Kohake: That's July corn $6.60 puts, ride them, sell them.
Pearson: All right. Thank you so much for being with us, Jamey, really appreciate it. And thank you for sending in your questions via Facebook and Twitter. Please keep it up, we'll continue to have our analysts answer them for you so you are the most knowledgeable person in the coffee shop. Thanks for watching. Take care.