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Market Plus: John Roach

posted on May 31, 2013


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Pearson: This is the Friday, May 31, 2013 version of the Market Plus segment. Joining us now is John Roach. John welcome back.

Roach: Thanks Mike.

Pearson: One of the big news items out this week that we didn't have a chance to address on the show was the strengthening in home values as reflected by home sales across the country. We have seen it rise about ten percent year over year. What effect does that have on the U.S. economy? Where is that going to lead us do you think?

Roach: I think it is a real big deal, Mike. I think people need to go backwards a little bit and think in terms in what really got us into the problems that we went through from 2007 on? And it was a collapse in real estate market. Residential real estate collapsed not unlike what farmland did during the Farm Crisis if you recall and the thing that farmers now can look back and with experience and say well had I realized that farm prices would go up as much as they did from the bottom of the Farm Crisis to where they are now, had I realized it that could happen geez, I wish I would have known that. And I think that what consumers are going to learn or what residential people are going to learn is that home prices can do the same thing from the valley that we experienced in 2009, perhaps maybe the bottom of it, to where we go to over the next five years. I mean it is going to be an amazing recovery and it has already started and I think the best thing that we have out there going in the U.S. economy is this increasing value of homes and I think it is going to continue faster and further and longer than most people realize. So as we think about this in agriculture we need to understand how our consumers are going to have a better feeling about their financial situation because their number one investment, their home, is going up in value and the number two investment would be anything that is invested in the stock market and it is also moving up rapidly. So, we are in a very strong economic situation as far as the United States is concerned in my opinion.

Pearson: Now and one of the catches too as we watch the stocks rise and home values rise is that while consumers might feel wealthy those two things don't really put any extra cash in the pocket unless you are selling your house or selling your equities. Is that - that wealth affect going to translate into increased consumer spending do you think here in the next three to six months in enough timeframe for example help the meat market do you think?

Roach: Well, it is going to be slower for exactly the reasons you are saying. But I think that - the first step is that you have to change people's attitudes and so once you change people's attitudes then you start to- that starts to impact across a pretty wide area. Probably not in the next three months perhaps but as we look forward out into 2014 maybe even as we look out into the Christmas season for 2013, I think we are going to have much better - a much better outlook and I think people have to keep that kind of in the back of their mind as we look out to next year as farmer's are planning on ok, what do I do in my business next year? I think you look for a stronger consumer.

Pearson: Begin to anticipate increased growth because hopefully these effects are going to magnify one another as they feel more wealthy with their equities prices, they will spend more, it is going to help corporate earnings, it is going to amplify and so forth.

Roach: They all feed into that same pot and remember we have come out of the worst recession since the Great Depression and the housing, I believe, will lead this economic recovery.

Pearson: All right. Well that is a bit of good news out there as we look to the future. We do have a couple questions here from our followers on Facebook and Twitter and Robert - one of the questions he is asking as we watch this, as you said lethargic cattle market, do you think feeder cattle are nearing at least a temporary bottom? Should we expect at least perhaps a brief reprieve in the price fall that we have been seeing feeder cattle?

Roach: The biggest problem with the feeder cattle business is that we are still having to pay seven dollars for corn and we have lost a lot of equity in the business of feeding cattle. So, I think that the high price corn is going to last until we get out into perhaps August and the only relief there is we are harvesting a soft red winter wheat crop into a lesser hard red winter wheat crop and that will compete with corn. In fact if you look at some of the numbers with the poor basis values on soft wheat relative to corn we will move more of that wheat into the feed ration than we would in most years.

Pearson: Ok but don't be anticipating any spectacular rise in feeders.

Roach: I would like to hold out some - some optimism but I think for feeder cattle people for a little while are going to be slugging it out until we can get into the fall or get close to the fall prices.

Pearson: See what we are going to be looking at come harvest.

Roach: We will have cheap - we will have cheaper corn. It is just a question of how much cheaper and how quickly will that come and at that point then feeder cattle can come up. And I think at the same time we will have a better economic outlook which will help over on the fat cattle side.

Pearson: So it is going to be a tough summer but get through it. Then we will see hopefully a little better scenario.

Roach: That is exactly my concern. It is going to be a tough summer.

Pearson: Well now the other couple of questions we have had most of them revolve around weather. It has been a big issue this past week. Mark in Kansas asks when is the weather going to turn these markets from bearish to bullish or have we already seen that happen?

Roach: Well the corn market is up I think - new crop corn is up I think 50 cents a bushel. New crop beans are up sharply. So we are already seeing the market dial the weather in. We will come in on Sunday night and the traders will take a serious look at what the weather looks like next week, what the weekend has been like, and if it looks like we are going to make some progress in the field then you actually see the weather come out of the market place. You will see some weaker prices. But on the flip side if it looks like next week we're not going to get much work done then we will probably see another few days at least of stronger prices. We think that the best weather forecast that money can buy is traded every day on the Chicago Board of Trade and so watch the trade and it will be based on whatever the forecast is Sunday night. And then going home on Friday we're going home with strong prices because it doesn't look like we can get very much work done the early part of next week.

Pearson: All right. The other question. Nell is asking do you take the preventative plant on corn as we look at - you know there is no guarantee that people are going to be able to plant by 6/10/2013. How is that going to impact plant decisions, soybean acres, what affect is all of this moisture going to have longer term in the grain complex?

Roach: Well, we think that the first impact is that we are going to reduce the corn acreage a bit. We are not sure how much. We think that farmers will try to plant the corn as long as they can get it in the next 10 to 14 days. Something like that. We think farmers will continue to do their best to get that corn planted. When we do the number crunching that seems to be the answer most producers give us after we crunch the numbers they still want to plant the corn, but that is a moving target and it is going to change according to the weather. But each producer needs to look at their own farming situation and talk to your crop insurance person to make sure you really understand and you have got your arms around what preventive planting really does for you. As we have had those discussions with producers sometimes there is an ah-ha moment when they - when the clarity comes and they decide well, I don't think I really want to take the preventative planting. I think I still want to get it planted if I can. But as you can imagine there is a deadline to that as well but we think it is still a little ways down the road. We think here in Iowa for example it is still under the ten days to two weeks down the road before people will shift - will take preventative planting. Even though they would be eligible to take it, we think they will not until they exhaust all opportunities.

Pearson: So give it good consideration.

Roach: Talk to your crop insurance person so that you can understand on your farm exactly what it means to you because it varies according to the coverage of insurance that you have.

Pearson: Well thank you so much John. We really appreciate you being here and really appreciate all of you sending in your questions via Facebook and Twitter. Please continue to do so and we will continue to have experts answer them for you. Thanks for watching. I am Mike Pearson have a great week.

 


Tags: agriculture analysis cattle commodity prices corn economy grains hogs John Roach markets Mike Pearson news soybeans wheat