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Market Plus: Don Roose

posted on June 7, 2013


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Pearson: This is the Friday, June 7th, 2013 version of the Market Plus segment.  Joining us now is Don Roose.  Don, welcome back.

Roose: Thank you.

Pearson: We've got a lot of questions and not surprisingly a lot of them are concerned with the effects this wet weather is going to have on acres planted.  To begin with Martin in Carroll, Iowa is asking, is there a possibility we could see a larger than 2.5 million acre shift from corn to beans?  And what effect would that have on Dec corn prices as well on November bean prices?

Roose: Yeah, and those are good questions.  But I think when you look at it right now the trade is trying to dial in that we're going to have about a 2 to 3 million acre loss and those are very much a big question mark because you have a lot of things that you have to think about.  One was the 97.3 million acres that the government used in March.  We've seen other years where that hasn't been and so consequently what is your real starting number?  And then this is a year where producers are really going to want to plant for insurance or they're going to want to plant if possible.  But I think realistically probably the corn acres are going to be down 2 2.5 million.  Historically 50% of those acres go to soybeans, the rest go to then plant.  We did have 2011 where actually, we actually only went down 300,000 in that year.  But as far as the price effect you can go all, with that type of 2.5 million acres down and even a yield that goes from 158 to 150 you still have about a 1.2 billion carryover so we've got a big cushion this year like we haven't had for a long time with world competition.

Pearson: Alright.  Now as a follow up here, we're talking prices, Lee is asking, we've heard for the past six months as we've anticipated record crop, $4.00 corn is in the cards.  Looking at this spring's weather, is $4.00 corn still in the cards? Or have we bypassed that with the troubles we've had so far this spring?

Roose: I think what it really means is at one time I think that was the downside potential, you know, if we would really get a negative situation.  It still could be, very much is going to be dependent on the weather.  But you've got a number of issue now.  One, we don't have the acres.  We've got, you know, the yield is very much in doubt.  We're going to have to look at the heat this summer.  41% of the corn was planted in one week this year so it's going to be bunched up on pollination then you're going to have to worry about the cold weather in the fall here.  So I think realistically take it a step at a time.  I think you're going to hold about $5.00 to $5.20 going into the June 28th acres report, stocks in all positions report and then after that we'll see what the yield does and watch the crop conditions very close each week.

Pearson: Now as we get close to that June 28th report, since there is so much variability, we talked on the show about using those relatively new short dated options on the board.  Now those were created to help us negotiate massive reports like that.  Another good time to use them?  Can you elaborate a little bit on the advantage of a short-term futures contract?

Roose: Yep, it's a short dated option and then come on the board on corn in January and what you're really doing is you're trading new crop but you're trading them like there's only a May, July and September so they go off the board during those timeframes as a normal option would.  But what it is, it protects your new crop corn and beans at the same time the cost because you don't have as much time involved is a lot less. So they're a new product and I think they're a good product and they're to be used in risk management just like a year like this year.

Pearson: Alright.  Now, speaking of risk management, as we take a look at livestock producers, would this be a good time for -- Denise is asking, should producers be locking in feed needs now?

Roose: I always tell producers what we really do is look at the crush and if it is a profitable crush I certainly would.  But there's always a good time to lock in feed needs, it's just a matter of what kind of management to use.  But if you're uncertain I think this is still an ideal time to lock in next year's supply.  For example, like buying a call and then maybe selling a call above a window contract and then selling the put below it.  You can do a lot of those things where it gives you a dollar up, a dollar down for ten cents.  So I would use -- I do think with the uncertainty that we have as soon as you see some caution I think you should be looking to lock in.  It's just a matter how tight.

Pearson: How tight and how far out in the future you would be prudent to go depending on your operation.

Roose: Yeah, I think all of those things, you know, make sense.

Pearson: Alright.  Now, another question we've got and you touched on it briefly, maybe we can go into a little more detail, as we look at, again like you mentioned, 41% of the crop planted in a week, after the June 28th report, as we get into the meat of summer, when will the market start to really add the weather premium to the corn market regarding that pollination?  What should producers be planning for as we get into the heat of summer?

Roose: Well, we're going to have -- this is going to be a really uncertain year because I think we probably have risk premium in the market right now for a lot of that stuff, Mike, to be honest with you.  I think, you know, we're probably trading realistically today, even though we're sitting here close to $5.60, we're really probably trading historically a $4.80 to $5.00 board eventually in the fall.  But it's really probably going to be the August crop report, it's going to be our first surveyed crop report and that's probably going to be the first time you're going to have a better handle on what your production and your acres are going to be.  That's a long time out there, it's a lot of uncertainty, you're going to have to go through the pollination in July but I would say that will be the report that will key us.  But we're going to have a lot of volatility this year.

Pearson: Alright.  Now, looking back to livestock, particularly in the hog market, with that bump we saw this week, Tim in Crookston, Minnesota is wondering if we could talk a little bit more about Smithfield, the Chinese company buying Smithfield.  Would that have had an impact on pork prices this week?  Or is that going to have long-term price impacts do you think on the U.S. pork market?

Roose: Well, I think one thing we know we're not certain but we do know that the head people of Smithfield did say that this isn't anything that has been just came out in a week.  They said they've been working on it for seven years and that's why they probably have pushed over to ractopamine and some of the things that are friendly to exports to China.  But I think it could go both ways.  I do say one thing even though a Chinese company buys a United States company, we still are in control of all the regulations and all of the tariffs.  So we're really still in control.  But there's no doubt about it, right now you'd have to say it's positive from an export standpoint.  So I would view it as a positive.

Pearson: Certainly, providing a tunnel into China basically for U.S. meat potentially.

Roose: Yeah, most definitely.  So I think it's a good thing and ownership of it, I mean, is another question but I think, I don't think that hurts anything either.

Pearson: Alright, Don, before we let you go, as we get ready to close out the weekend what should producers be most concerned about or prepared for as we head into next week?  What are your thoughts?

Roose: As far as a grain producer?

Pearson: Yes.

Roose: I think a grain producer we're going to keep your eye on the sky and then I think the other thing is even if we go into this last week it was a cool, wet week, we were down 8 cents on new crop corn, so it's more important to see how you react than the news that you see.  So that is another thing so I think it tells you the maturity of a market.  Watch corn spreads, new crop corn spreads razor close because if they start to come in, last year the Dec-July corn spreads, Dec '13, July '14 inverted 25 cents so that is going to tell you, that's going to be your real key.

Pearson: King of an indication of what to expect.

Roose: Yep.

Pearson: Well thank you so much, Don, really appreciate you being here with us today.  And thanks to all of you for sending in your questions via Facebook and Twitter.  We really appreciate it.  Please continue to do so.  Thanks for watching and have a great week.


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