Pearson: This is the Friday, April 5, 2013 version of the Market Plus segment. Joining us now is Mark Gold. Mark, welcome back.
Gold: Nice to be back, Mike.
Pearson: We had a question on here, Kevin in Iowa is asking a question that a lot of traders have been talking about recently, it has been pretty big news, the change in trading hours. We're sort of reverting back to, almost to the old hours. Is that right? Can you explain what's happening and why that's happening?
Gold: All I can say is hallelujah. As a trader I certainly like the fact that we're going to open the markets at 7pm at night instead of 5pm. I think that's a big boon. We can now have supper with our family and not have to worry about the markets and actually do some family things before the market reopens. We're going to close at 7:45 in the morning for 45 minutes, reopen at 8:30 and close at the old closing time of 1:15. To me that's plenty of time to trade these markets. If you can't get it done in those hours something is wrong somewhere. So I'm a big proponent of these shorter hours. Frankly I wish that they would have pushed the opening to 9:30 instead of 8:30. But one of the things that I would still love to see is that the reports go back to 7:45 now or, you know, an earlier time when we're closed and release those reports so everybody has that first shot at trading at -- rather than these computers that are able to respond instantaneously. They get the advantage over everybody else in the market participants and I don't think that's fair and I really want the exchange to be closed when they release these reports. I think it is absolutely critical. I don't care of it is for 15 minutes. Close it, let it digest for a few minutes. How are you supposed to look at corn, wheat and beans in that first millisecond and the computers have already reacted. I don't believe it's fair and I'd like to see that change.
Pearson: And we saw that certainly take place last week --
Gold: No question about it.
Pearson: After the report two or three minutes later, limit down, you know.
Gold: It wasn't even two or three minutes, it was a minute and a half tops and it just absolutely flushed. Now, no human being can digest those numbers that quickly and then react to it and try to figure out what the market is. The computers can and I believe it is an unfair advantage to producers, end users and market participants in this market. The human beings are what these markets are for, they're not for the computer. So I'm a proponent of keeping the markets closed when the reports are --
Pearson: Is there a discussion about doing something like that because I know it was only January 1st they moved them up to 11?
Gold: Yeah, it was, in the last several weeks there's been discussions about it. The CME seems convinced that having the market open when the report is released is a good thing. I believe if they do another survey just on that topic like they did on the hours and I believe they will be shocked to find that virtually no market participant that is not high frequency traders wants these markets open during the reports. And I believe it is a detriment to the markets and I would love to see a change.
Pearson: So that is something we'll just have to keep an eye on and see what happens over time.
Gold: Yeah, and see what happens over time, yeah.
Pearson: Alright. Now one of the things we didn't have a chance to really discuss in detail on the show was the hog market. We talked about that $80 mark being sort of a line of support. But as we head into the summer and as we look at the export picture do you see any significant upside available in the hog market?
Gold: You know, not unless we get this Palene thing figured out. People overseas don't want the products and there has been a lot of controversy over it so that's going to still be an issue. Domestically I still believe that consumption is going to be strong, particularly if we have any issue with any of the poultry. In my opinion they'll go right to the hog market. And we've had a nice break in this hog market, we're down 20%. So I believe that, you know, from a consumption standpoint and a demand standpoint we're still okay. It would be nice if we could pick up some overseas demand but that remains -- that's an issue that hasn't been decided yet.
Pearson: Certainly. And looking at the countries that are taking issue with the Ractopamene, Palene usage, so far it is primarily Russia and China, is that correct?
Gold: So, you know, we haven't seen some of our more traditional buyers in Japan and other places back away. It has been China and Russia, certainly two potentially huge markets and, you know, who knows. I'd like to see them settle it out. I don't see any problem there. But we're talking about, you know, foreign and European demand and it's different than it is here in the United States.
Pearson: Certainly. Now one issue that might be more specifically related to the hog market is Japan's current, the devaluation of their currency. As we're looking to them as an export customer what sort of impact is that going to have?
Gold: That's going to have an impact.
Pearson: It will, okay.
Gold: No question about it. They have made some financial moves here in the last week. The U.S. dollar has rallied against the end. The end has taken a beating. That certainly isn't going to help that situation. On the other hand, people still need to eat all over the world. We still have some of the effects of the drought market and the higher prices out here. We're still historically at very high prices. People still need to eat. If we have any glitch here in terms of our weather food is going to be very scarce over the next six to nine months. I don't believe that's going to happen. I believe we're going to have a fairly normal growing season. But the fact of the matter is, if there is a problem, you know, some of these issues, people still have to eat and whether the Yen is weaker and it is more expensive they're still going to pay up. Whether or not China, Russia have a distaste for some of our products, when they get hungry enough they're going to eat it. So I don't believe, you know, long-term that these are -- they're short-term issues but in the long-term picture if we have food shortages it's not going to make a difference.
Pearson: Alright. Let's take a look back at corn and soybeans. We talked about this a little bit on the show but maybe we can go into better detail. La Pryor Farms in Illinois has asked, are we at new lows in the corn market? What are your thoughts there?
Gold: Well, we're at new lows for the season, since the beginning of the year we're at new lows. We haven't quite taken out the contract lows in either old crop or new crop corn. I believe that is coming. I don't really, unless we get a surprise in the supply and demand report on April 10th the pros want to be selling both of these products. The overwhelming, we have really changed in one week. I wrote in my e-mail last week that last Thursday's report was a game changer. And we have really changed the mentality of what if there's a drought and what if these supplies are tighter than we think to uh-oh, we've got a lot more grain and we're going to be growing a lot more grain around the world and we've gone from bullish scenarios to bearish scenarios in a week. And unfortunately I believe the American farmer wasn't protected well enough against this kind of a price break. They believed all the rhetoric that was out there that the demand is strong and we're going to keep losing these numbers and the carryouts are going to get tighter and if this thing is as tight as it can be we're going back to the moon, nobody wanted to sell anything, they've gotten away with not selling early the last two years and now they're kind of a deer in headlights out here and holding onto a lot of supply that they could have been marketing a month or two or three months ago that they haven't done so now there's issues out there.
Pearson: Certainly. So is this the time for corn and soybean producers -- we talked about this again on the show -- should they be out there selling?
Gold: They should be selling even at these levels. The new crop corn didn't take as bad of a hit as the old crop because everybody was long the old crop. We still have $5.40, $5.50 December corn, I think we closed at $5.35. This still is historically a decent price. So I would be getting some grain sold up here. I'd be putting some puts underneath this market in case we go lower. A lot of guys are under the impression if they have the revenue insurance that lower prices are going to be covered and they're going to get the checks if prices move lower. What is true is that if prices move lower and they raise the crop don't, in my opinion, don't expect the check that you think you’re going to get because what we see out here is the crop insurance still takes care of your dead bushels, the bushels you don't grow. If you're guaranteed a certain revenue per acre and then you've got a 150 APH on your corn and you come in at 165 and even if you were at a lower price you make that revenue per acre you're not going to get a check. So you still need to be proactive in this marketing. We always believe in crop insurance, though we don't sell crop insurance, we believe it is a necessary component to being a good risk manager. But just because you have revenue insurance doesn't mean that the revenue is insured if you grow the crop. So you need to be still proactive on the marketing and if, you know, to me the risk out here is $3.50, $3.25 corn. That's a $2, potential $2 break that guys can’t afford to sit by and hope and then maybe get a few marginal more bushels on the insurance but at the lower prices it's going to be an issue.
Pearson: And $3.50 corn, you think, is in the cards?
Gold: I believe it is.
Pearson: With trendline yield and acreage projections?
Gold: Absolutely. And the increase in this, in this stocks number. That 400 million really tips the scales. It takes us away from being very tight to being adequate, now potentially a big crop. The South American crop is huge so there are a lot of real risk factors here. I had been thinking before this report, you know, $3.80, $3.90. Now after this report I've got to lower it again. The risk, I don't know if we're going there but the risk is certainly down to $3.25 on new crop corn. In my opinion the risk is somewhere between $9 and $10 on new crop beans, maybe even lower.
Pearson: A very significant downside out there.
Gold: In my opinion it is something guys can't just shy away from. You've got to look at what is out there, manage this risk. Even if you've got crop insurance you still have to be proactive in the marketing.
Pearson: Now coming back to that extra 400 million bushels, Peter in Ontario is asking, this recent drop in corn price, is that enough, do you think, to spur demand to soak up that 400 million here in the short-term?
Gold: No, sir.
Gold: What it's going to do is increase some feed demand, certainly ethanol demand. We've already seen that pick up just in the last wee. We've talked about new plants opening up, profitability and the margins improving in ethanol so that will improve. 400 million bushels worth, I don't see that at all. But I still believe that when it is all said and done what we're faced at in the next six months I believe you can throw out a lot of the micro minutia that people normally look at in markets and focus on one thing. If we have decent weather from June 15th to August 1st on the corn and the temperatures, we can even be warm, 90, 95, if we get two or three inches of rain we're going to have a huge crop. Same things for beans, you know, shifted one month in beans from July 15th to August 31st, if we get decent rains we're going to have a huge crop. So to me it is strictly about the weather in the traditional July and August timeframe. If we have good weather the risk in these markets is severe. If we have dry heat and we burn it up again then we're going to go higher. Virtually nothing else on the micro side matters, it's a yield story. It doesn't matter whether it is 97, 98 or 99 million acres of corn, it doesn't matter if it is 76 or 78 million acres of beans, if we have the weather we're going to grow the crop and we're going to be flooded with grain.
Pearson: And now that is new crop, we're talking probably October harvest. We've got a question here from John. What is going to happen to September corn as this harvest keeps getting pushed back because we don’t see ground prices, ground temperatures climbing? What is the thought out there on September corn?
Gold: Well, you know, people get -- I can't remember an April 1st where it wasn't either too dry, too cold or too wet or too something and we were going to delay planning and boy this is going to be an issue. Guys, we've got six weeks to get this corn crop in the ground. In 150 years of modern, relatively modern agriculture we've always gotten the corn crop in and this year is going to be no different. And to me, yes, we are a little bit colder than normal, last year we were a lot hotter than normal. Are we going to get the corn in? We're talking about some rains next week, maybe slows things down. But my guess is you will see nobody can plant grain like the American farmer can plant grain. Give them a chance, we know they're already rolling now, Decatur south, Nebraska they're rolling, they are going to get this corn crop in. No, will it affect marginal yields? Instead of a bumper yield and, you know, something really extreme, if everything went in perfect maybe we won't see 185 national yield. Can we see 170 or 175? You bet. Again, depending on the rains in July and August for corn and beans.
Pearson: Alright. So keep an eye on July and August for that weather premium to either start to take effect or for people to really get nervous about the bushels coming out of the field.
Gold: Absolutely. And, you know, to me one of the great marketing opportunities in this market could be if we're looking at getting the corn in the ground and the beans in the ground relatively normal and we take a look at the size of the potential crops out there we could make our lows in this market by the end of June. Now at that point if we're at significant break, $3.80, $4 corn, if we're at $10.50, $10 beans, in that area, would I maybe look to buy some call options to protect those prices through July and August? Yeah, I might look to do that. It depends on where we are and what prices we're at. But I think we could have a great marketing opportunity to take money out of this market on the downside and then maybe catch something toward the first of July.
Pearson: Alright. Keep an eye on the big picture.
Pearson: Thank you so much, Mark, really appreciate you being here. And thanks to all of you for sending in your questions via Twitter and Facebook. Please keep it up and we'll continue to have experts get an answer for you. Thanks for watching.