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Market Plus: Darin Newsom

posted on August 9, 2013


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Pearson: This is the Friday, August 9, 2013 version of the Market Plus segment.  Joining us now is Darin Newsom.  Darin, welcome back.

Newsom: Thank you, Mike.

Pearson: One of the topics we didn't get a chance to cover on the show and we'd love to get your opinion because it was a big week, was the cotton trade.  We saw a move of almost $4.00 north this week.  What's going on?

Newsom: Well, the cotton is one of the few ag markets that actually has some bullish commercial support underneath it and so what we're looking at is all spring and into early summer we've been talking about these lower acres, these reduced acres in cotton and we're starting to see, you know, the economic situation in China picking up again and so that is raising the idea, you know, we're going to see a stronger global demand for cotton as well.  So now we've got less production in the United States and we've got stronger global demand and you're just seeing the December contract just pull away from the March and that's a good sign.  That means you've got the commercial buyers in there, it means there's a real concern about supply and demand for the new crop market.  And this is providing support to cotton as a whole and I think this is going to have some legs.  I think this is going to be around for a while and be able to keep this market up there.

Pearson: Does China's cotton supply still put sort of a ceiling on the market?  Is that stills something traders are keeping in mind?

Newsom: It does.  But, again, China has had some weather issues and it's such a huge country and you never know, is it the wheat, is it the cotton?  But their agricultural area has had some weather problems.  And so this is probably cutting into their cotton crop a little bit as well.  So the whole supply and demand situation seems to be heating up right now and that is what is pushing cotton higher, at least the December contract.

Pearson: Okay.  Well then things to keep an eye on, positive trends for cotton farmers.

Newsom: That's right.

Pearson: Another topic we didn't get a chance to discuss on the show, I'd like you to briefly touch on milk.  Looking at the Class III milk futures, why do they look so poor?

Newsom: They've been stagnant for a while.  Some of that is seasonal over the summer.  And then you start to see, just as school gets ready to kick off again across the country, you start to see some buying coming back into the market.  Usually that is its strongest time of year is the beginning of the school season.  So we may just be entering that timeframe and we may start to see these prices start to tick up a little bit.

Pearson: Okay.  Keep an eye, get through August, get those kids back in school.

Newsom: Exactly, late August, early September we should see this market start to firm again.

Pearson: And firm again you think will put 20, 25 cents back on?

Newsom: It's possible, yeah, because, again, they haven't really gone all that far over the last few weeks, last couple of months so I do think there is some possibility for a pretty good rally here.

Pearson: A nice little upside movement.

Newsom: Right.

Pearson: Now, this is going to shock you.  We have four questions from viewers and they all relate to corn and they're all concerned about this ongoing bear trend we've got going on right now.  Michael in Nebraska and Bob in Columbus Junction are both asking, we see the crops look good from the outside.  You drive down the road things look good.  What is your take, what is the trader's take on the corn crop itself?  How are we shaping up?  We've heard concerns of southern rust.  We have several crop tours out touring the country.  Do traders take those reports into consideration?

Newsom: To a certain degree.  It just seems like the general consensus right now is that we're going to have that bumper crop, we're going to have, you know, we're going to see yields rebound from the last two or three years, that acres aren't really as, we're not going to see as many acres that didn't get planted that everybody was talking about early on.  So, you know, right now, setting weather aside, setting some other issues aside that they're just really not paying attention to, bottom line is they feel like we're going to have a huge crop, that we're going to have larger supplies to deal with this year and with demand still questionable it's going to result in a rather burdensome ending stocks figure.

Pearson: And it's going to take time to build back up the demand.  If we look at livestock, ethanol could crank up relatively quickly but --

Newsom: Yeah, ethanol really is the stabilizing, is the stable leg of that three-legged stool for demand.  The big question is exports.  I mean, it really looks like we're not even going to hit the 700 million bushels here in 2012-2013, which isn't all that surprising because we may just not have the corn to ship.  Be that as it may, it's a dismal number, 700 million bushels.  The USDA is projecting a larger number for '13-'14 but that could be trimmed back as well because we have some very strong competition, we have some competition from Brazil and they're just not going to give up that business again.  They have moved into that, they have moved into that slot of filling a lot of the world's needs and they kind of like it.

Pearson: Now those crop tours that are going on in corn fields around the country, traders are -- the reports coming back are justifying their belief in a large corn crop.  Is that what we're hearing?

Newsom: That's what we're hearing for the most part, yes.  You know, larger than expected or the potential for larger than expected yields and this is just really keeping its foot on the throat of the corn market.  Any chance that we see it having, you know, any possible rallies that it tries to make is met with immediate selling.  And so it's going to take something, it's going to take a major event to change this mentality.

Pearson: Now, building on all of those, Peg asks the ultimate question really.  What do you think corn will bring this fall?

Newsom: Heartache, lots and lots of heartache.  It's very possible that we could see, without a freeze and without another problem that comes down the line, corn getting back -- I think we talked about this on the show -- getting back to near its 2008 lows in the lower $3.00 range.  Longer term could it go lower than that?  Absolutely.  But I think here in 2013 that would probably be about as low as anyone wants to drive it at this point until we actually know more about the crop.

Pearson: Now, that being said looking at that low 3's potential, since 2008 we've had tremendous amounts of storage built, on-farm storage across the country.  Farmers are still sitting on cash hoards, really they have been able to accumulate.  If we get down that low are farmers going to sell or will we just be storing off farm until prices rebound?

Newsom: Most likely, that's the dangerous game -- they'll be holding off farm.  But then you've got the producers holding the corn against the investors in the market who are looking for any opportunity to sell.  Who has got the deeper pockets?  The corn market, the corn industry has been pretty good for the last three, four, five years.  Has it created enough equity to, you know, to play on the big table?  We'll have to wait and see because it looks like, again, unless there's a change in the overall mentality of the market that investors are going to sell each and every rally that we see.  And that is going to make it very difficult to hold corn, particularly if it starts to break below that 3.  I think there could possibly be some panic selling at that point.

Pearson: And so if that's the case we'd only be looking for holding at most a year until the next harvest comes in if this is a sustained downturn.

Newsom: Well, right and what we hear is that, you know, next year in 2014 we could see increased acres again because there's just more land wanting to go into corn, people still wanting to take advantage of this huge corn market that we've had going back to 2005.  The only problem is we may be out producing ourselves, that we may not be able to have demand keep up with the way that we can produce, particularly if Mother Nature decides to cooperate.

Pearson: Alright, so good news out there for livestock producers potentially going forward.  Sorry to the grain producers to depress you on this weekend.

Newsom: And this thing could all change on Monday.  Right now, yes, everything looks bearish.  It's so hard to find a bullish nugget that could appear in Monday's reports.  But it could happen.  So, I mean, anything is possible.

Pearson: That's right. Wait and see.

Newsom: Wait and see.

Pearson: Thank you so much, Darin, appreciate you being with us tonight.

Newsom: Thanks, Mike.

Pearson: Thanks so much for watching and for sending in your questions via Facebook and Twitter.  Please continue to do so and we'll continue to get expert answers for you.  Thanks for watching and have a great week.


Tags: acreage agriculture analysis basis commodity prices corn Darin Newsom economy markets midwest new crop grain soybeans USDA weather wheat