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Market Plus: Mark Gold

posted on June 21, 2013


Pearson: This is the Friday, June 21, 2013 version of the Market Plus segment.  Joining us now is Mark Gold.  Mark, welcome back.

Gold: Thanks, Mike.  Nice to be back.

Pearson: Well, glad to have you.  We've got a simple question to start this session off.  James in Kremlin, Oklahoma is asking, should people hold or sell wheat off the combine?

Gold: Well, I don't see a whole lot of carry in the market which tells me that there's no real economic incentive to store wheat.  The question really is, does wheat have an up side potential here and particularly on hard wheat I think it does.  So I would be selling the wheat off the combine.  I'm not a big fan of storage.  Guys if there's a basis reason, a basis play there maybe I could see storing that wheat.  But in all intents and purposes I'd be selling the wheat and buying a call option.  Don't sell the wheat if you're not willing to buy the call option.  Spend 20 cents and get long something.  Don't try to get cute with it.  Don't sell a put to try to pay for the call.  Just go out and spend the money for the call and try to keep the up side open because if the yields are as bad as we're hearing in some spots in Kansas there's a hope in the hard wheat.  If you're selling soft wheat in the eastern part of the country I'd still reown it with a call option but, again, I would use the Kansas City call, the hard wheat call because I think that's got a much better chance of moving higher faster than the soft wheat does.

Pearson: Alright.  Good advice.  Now we've got a question.  Jeremy in Onida, South Dakota is asking, what does it take to make Mark Gold bullish?  What are you bullish on and what sort of, what informs sort of the bearish sentiment you seem to have from time to time?

Gold: Well, I guess I've got the reputation of being the big bear, that prices are always going down and I've been that way probably, you know, for several years.  And it's real easy to define what makes me bearish and what makes me bullish.  When we're in the upper third of historical prices I'm -- it's not that I'm bearish, I'm considering that we've got a lot more risk to the down side than to the up side.  So in the cases where we're in the upper third of historical prices whether we're on cattle, whether we're on grains, I'm looking to buy a put option to protect that risk that's in the down side.  When we get in the lower third of historical prices now I'm getting bullish.  If we're selling grain, if there's no carry in the market and we're selling grain that's when I want to buy a call option and to have a reasonable expectation that that call option can pay off.  So I don't, in my own mind I don't consider myself a bull or a bear.  I consider myself a risk manager.  I'll let all the gurus try to figure out which way this market is going.  What I try to do is to manage the risk.  And when we're in the upper third of historical prices I want to manage that risk with a put option, with some cash sales to protect all that risk to the down side.  I've been in this business now, it was 40 years this last week.  I've seen a lot of markets.  I've seen the ups and downs since the early 70s in these markets.  And in my opinion, every market generally has a tendency to go back to where it started from so when we get these kind of spikes in a market, $15.00, $18.00 beans, do we have a legitimate chance to go back to $8.00 beans?  We saw that in 2008.  We got to $15.00, $16.00 beans, right back to $8.00 within four months.  We went to $8.00 corn back to $2.90 corn.  These are the things that I remember and I want to protect my clients.  So, you know, prices can move higher.  But when we do get those highs it's not that I'm bearish, I want to protect the risk.  So I think there's a difference between being the perennial bear and being a risk manager and when prices are high I want to protect the down side.  When prices are low and we're making cash sales we're buying call options.  So I think that's what defines me.

Pearson: Alright.  Alright.  Well I hope that clears it up for Jeremy.  Now as we take a look, a lot of folks are curious about what to expect from next week's USDA report.  A couple of the questions, is it going to matter?  Are people, is the market going to trade the numbers that come off the USDA?  Second question, what is your anticipation of how the USDA is going to be reporting these numbers or what is the market trading currently?

Gold: Well, the market will trade the USDA numbers.  The Informa numbers and the average guesses that people put out, they're an indicator but it is the USDA number that we will trade and that is the number that will be used as the benchmark.  So yes, it makes a big difference.  I believe we probably lost 2 million acres of corn out here.  I believe we'll pick about 1 million acres up in beans which is pretty much what Informa says.  I agree with that.  I think those are realistic numbers.  Ultimately, I believe we could pick up a few corn acres that people don't think we're going to pick up but I don't know that that's really going to be the real driver of these markets.  From here on in it's a weather game.  If we have rains in July for the corn, if we have the rains in August for the beans we're looking at huge crops, a lot of competition around the world, a strong dollar and China's demand backing off which, let's face it, China has been the demand driver in these grain markets basically period and if we see them backing off and we have bigger crops then we're going to lower prices.  If we come into July and we turn 95 to 100 degrees, if we shut off the rain then you've got a corn market.  Now, in my opinion, these weather gurus can't predict the next two or three days.  But the government came out with their July forecast, the southwest looks hot and dry, the rest of the country is in the normal range, normal rainfall, normal temps.  If we have an 85 degree July with scattered rains I can't even begin to guess how high these yields can go.  But I believe despite all the talk about the late planting corn that we can pump up some pretty large yields out here.

Pearson: Alright.  And with that being the case, how low do you see prices going?  Are we going to be looking back at the $8.00 beans again and the $3.00 corn if we get the rain?

Gold: If we get the rain I believe $3.50 is certainly realistic.  I believe $10.00 is certainly realistic in the beans.  You know, it's $2.50 in the beans, that's a buck more, almost two dollars in the corn.  I believe there's significant risk out there.

Pearson: Alright.  Now if we see those kind of prices that sort of plays into Jason's question.  Jason in Nebraska is a cattleman, he's frustrated.  We finally are seeing a little bit up an upswing today.  If we get those lower prices obviously that's going to be helpful.  But he's asking, is there any hope in site?  What can we anticipate short-term, medium-term in these cattle markets?

Gold: Well, in the cattle market, here's a market I'm relatively friendly.  We've got high prices out here historically but we've had a nice break off of these highs.  We've seen the market try to come back.  We closed over the trendlines in both the feeder cattle and the fat cattle.  Impressive.  Hog prices are high.  So that is going to help the cattle market ultimately.  If pork continues to move higher that's not going to hurt the cattle market.  Again, a lot of the pork demand is going to be off of China.  They've got certainly problems with their rice market and some of the incidents they've had which are going to hurt the rice demand which tells me that they've got to either eat chicken or pork.  So we can see that market stay firm.  We just need a little bit better demand.  We've seen wholesale beef go from $210 record highs, we did break it here the better part of ten bucks, but I still believe we've got pretty good demand out here for the cattle and as we get maybe a little bit more summer weather, guys get out and grill a little more, I think we're going to see the demand pick up, I like the fact that we closed over the trendlines.  So I'm a little friendly on this cattle market and I think there's some hope in there.

Pearson: Alright.  So just keep an eye on the trendlines.  Keep an eye particularly on Monday's

Gold: Yeah, if we can close it twice over that trendline then I think you've got something because the report was a little bit bearish.  If we can have a solid close on Monday I think that would be a great indicator that we could see some higher prices yet. 

Pearson: Alright so we'll end on a positive note.

Gold: Absolutely.

Pearson: Thank you so much, Mark, appreciate you being here.

Gold: Thanks, Mike.

Pearson: Thanks to all of you for sending in your questions via Facebook and Twitter.  Please keep it up and we'll get expert answers for you.  Have a great week.  Thanks for watching.


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