Pearson: This is the Friday, March 29, 2013 version of the Market Plus segment. Joining us now is Darin Newsom. Darin, welcome back.
Newsom: Thank you, Mike.
Pearson: We talked about a lot of stuff on the show. One of the things we haven't talked about, and it has been a big issue at auctions and in newspapers throughout the country, and Cheryl in Wisconsin is asking, all we've been talking about are corn and beans and wheat. The other big feedstuff for livestock is hay. They talked in the prospective plantings report hay acres not anticipated to change. What are your thoughts? Where is hay going to go? We've had a rough winter. We're seeing less moisture. And we've seen hay prices really at all time highs in a lot of places. Do you have any thoughts on hay? What should producers be expecting?
Newsom: Fundamentally the hay market should remain well supported because, number one, again, the southern plains where we grow a lot of hay still in a strong drought situation. But, remember, herds overall are down. Live cattle are down. Feeder cattle are down. So there's not going to be as much demand for a smaller supply. So while I think the fundamentals are still bullish and it should support the hay market going much beyond these prices is going to be difficult because the demand isn't there. But, you know, I don't see them coming down, I just don't see them pushing well into new historic, you know, levels. I think we're going to stay relatively where we were over 2012.
Pearson: And the profitability over corn and soybeans is not going to entice people to plant land into alfalfa --
Newsom: No, not really because, I mean, this is still corn's world and everyone else is just, you know, spending time in it. So those that can plant corn will plant corn.
Pearson: All right. We've got another question here from Louise in Kansas. And this is something I've never thought about. Is there a correlation between the oil and wheat markets?
Newsom: There is a correlation, there is a rough correlation between almost every commodity market. They move at different times. They move in different ways. Wheat and crude oil probably a little bit of a difficult correlation to make really tight except for the general U.S. dollar goes up, U.S. dollar goes down, commodities goes up or down. So while there's probably a very loose correlation I wouldn't say that there's a strong one.
Pearson: Okay. All right. Well that's just good news to have. I never thought about that. Phil in Ontario has a question for us and he's asking, is the great corn demand driven market rally over? And have non-commercials left ag commodities, which we've talked about a little bit?
Newsom: We did, we talked about that in the show and I really think there's a great chance that non-commercials are leaving commodities and they need some fundamental reason to stay. As far as the great demand market in corn, this is all going to come down to weather. And oddly enough, if we have good weather and keep the market under pressure and prices come down that will sustain the demand market. If we see another weather problem in 2013 that cuts into yield, cuts into production, we don't have supplies that's when I think the demand market probably comes to an end.
Pearson: So far this year, with the high supplies, the demand market has backed off, they've looked in other places but we haven’t really killed demand off permanently yet is what you're saying.
Newsom: No, because as long as we have the type of basis that we do, this very strong basis, this inverse in the old crop corn market then we can make the argument the demand market is still there, it's just waiting for the U.S. to have supplies again. World competition is growing from Ukraine, from Brazil, that's only going to continue to get worse. But if we rebuild our stocks, if we have a good enough crop then we will have enough to meet, you know, have enough supplies to start filling some of that demand again.
Pearson: We'll be able to keep it sustained and carry the demand that we've built up over the past years.
Newsom: Right. And hopefully start to get some of that back that we've lost over the last couple.
Pearson: Okay. We've got a question here from Dale in Bloomington, Illinois and I think this comes back to what you were talking about with soybean ending stocks, if we keep the export pace up going to negative 135 million bushel. He's asking, what is the possibility of U.S. importing soybeans, more soybeans from South America?
Newsom: We already are importing some soybeans, we do every year. I think it's a strong possibility that we see that increase a little bit. A couple of things we could look at. Number one, the export number being left alone, we know that. But there's also 30 million bushels off in residual demand. That could be trimmed. That gives them a little bit of a buffer to, you know, if they have to increase exports or, excuse me, our exports and possibly increase some imports they can also reduce that residual demand to try to keep that 100 million bushel floor.
Pearson: And so that is a safety valve basically we've got built into the soybean --
Newsom: It is. That residual is a catch-all category, it can even go negative if need be, anything to keep the domestic ending stocks above 100 million bushels.
Pearson: The headline number of above 100 million.
Pearson: Now, I've got one other question. Two weeks ago I had the chance to go up to Garner and I was talking to a lot of the FFA students up there and their big concern as they're looking to come into ag is, what's going to happen with these land prices? We've seen strong commodity prices, great cash position for a lot of producers. In your experience, in your travels, where do you see land headed?
Newsom: It's difficult to make the argument that it's going to continue to go up. There's talk of, you know, interest rates going up in 2014 and that is kind of a pin that could pop this bubble. But overall the market is strong but it comes back down to will this demand market, how long will this demand market last? Because as long as we have long-term higher value for what those acres can produce the value will be there to keep pushing the prices or at least holding them steady. If we lose that demand market and if the market comes crashing back down because all of a sudden we have too much corn and not enough demand then land values are going to start looking overpriced, you add in increased interest rates, that's when I think we're going to run into some problems.
Pearson: Okay. So something to definitely keep your eye out for as we look to the future.
Newsom: I think so. It all comes down to can we, will Mother Nature cooperate so that this land market can exist another year or two?
Pearson: And give us a good harvest at 163.4 trendline yield do you think?
Newsom: Good old -- trendline yield is a fallacy. It's simply slope from statistics and other than that has no purpose.
Pearson: All right. Thank you so much, Darin, really appreciate you being with us here this week. And thank all of you for sending in your questions, really appreciate it. Please continue to do so and we'll continue to have exports -- experts answer them for us. We're talking exports, I'm getting all confused. Thank you so much for watching. Have a great week.