Pearson: This is the Friday, September 20, 2013 version of the Market Plus segment. Joining us now is Don Roose. Don, welcome back.
Roose: Thank you, Mike.
Pearson: We've got a couple of questions here that I think we'll start off with. Curious about harvest, it's that time of year. Poncho in southeast Iowa started harvesting this year. He's curious, how widespread is harvest? What are we seeing out in the Corn Belt?
Roose: Well, last week we had corn harvest was 4% complete, we're not that far behind normal. What we've seen is a pretty aggressive harvest in the south, in the mid-south trying to take advantage of the big premiums that we had in corn so I think the harvest was aggressive, it's starting to move more into a normal harvest right now. Of course, we have the delayed stuff in the way north which will slow things down also.
Pearson: Okay. And then ongoing rains are going to be a regular harvest delay and so forth but we're getting started.
Roose: We're getting started. Soybeans, you know, just really getting started. They'll pick up over the course of the next ten days and, of course, soybeans go very quick once they get started.
Pearson: You bet. And Mitch has a question. If we have a positive basis for corn out in the field, should we be selling it or holding it?
Roose: Well, most definitely I think that is a -- don't hold for those huge basis inversions that you had last year because I don't think they're coming. In fact, the market is telling you, the carry in the corn market between Dec and July 28 cents is really telling you that we have an adequate supply that we're going to have to carry. A year ago that was 25 cents inverted. So the job of the producer is to market with a positive basis and if you don't, go to work and lock in those carries in the marketplace so you'll at least get a return on your investment in your storage facilities.
Pearson: Okay. Now, as we look to next year and look broader, Calvin in Bernard, Iowa is curious, is 2013 a transition year for farmers in terms of input costs, farmland, all of the other things? What does the future look like? How should producers be preparing?
Roose: Well, we really do think it's a transition. In fact, we think since 2010 the thing that has kept pushing the markets higher and caused really the craze in a lot of the grain agriculture is the fact that we've had four short crops in the U.S. and we've had some world problems with production also. But as we're moving forward what we've really found out is that we brought a lot of world production out of the woodwork and so that's what we're going to have to compete with. So we think moving forward that the big challenge of the market is how do I market when I don't have these big cushions? And we've got some strategies that we think make some sense for new crop corn and beans and that is window contract for 2014. May not be too early to be thinking about that, Mike.
Pearson: Going ahead, setting some margins so at least you have a framework in which to operate through next year. Is that kind of the thinking?
Roose: Yeah, that's the idea. You look out to 2014, for example, we closed at $4.90 roughly on Dec corn. So what you do is you lock in, you give yourself 90 cents up, 90 cents down, you spend about 15 to 20 cents, you buy a $4.90 put is what you would do, you would sell a $4.00 put so that gives you that move down. At the same time you have about 90 cents up, up to $5.80. Our insurance rates last year were $5.68 so still gives you the opportunity to go up. But it prevents big losses in case this is a transition year, which if South America has a big crop it probably is.
Pearson: Now, one of the big concerns with the transition year, of course, is the stickiness of prices. You've been in the business a long time. Looking at the high cash rent values we've been seeing, how likely is it that those will start to turn down if we get a big crop this year, if South America has a big crop? What is it going to take to bring these down slightly?
Roose: Well, and, you know, because what we're seeing so far is the rents for this upcoming year have really not changed a lot. In fact, in some areas they have even went up. So I think what you really have is a lag year. Remember when the grain market pushed up, the first big up year we had the input costs were still very low. So you had that big opportunity for the jump. Now we're on the other side of that coin where what you're going to have is possibly high input costs and you're going to have prices that really aren't there to sustain it so hopefully people are able to roll ahead and conserve some of that cash.
Pearson: Ready to maybe have a belt tightening year as things catch up.
Roose: Yeah, I think that's, you know, we know that it comes eventually and it's been, you know, time in the making here. So we're probably getting closer to that day of reckoning where things get a little bit tougher for the grain end of it from a marketing and merchandising standpoint.
Pearson: Okay. Now, one of the other big stories this week that we didn't get a chance to talk about on the show was the big export numbers for soybeans. Can you talk to us a little bit about your thoughts? Are they going to continue? Is this a new demand dynamic in beans? Or what are we seeing?
Roose: Yeah, one thing you always look at in a market is it's more important how you react to news than the actual news. And we had a huge export sales on soybeans and the market actually went down on that day, it did not go up. So it tells you that type of export news is already in the market. And the reason is because we're already front loaded on soybean export sales. That is partly what drove this market up. We sold 61% of our soybeans that we're going to sell for the year already. Normally that is 44%. What we're really doing is we're on hold waiting to see what happens to South America. People bought ahead to a certain degree. If South America crop looks like it's going to be large in February the exports taper off so I think it is one of those, you know, we have big world supplies possible, tight U.S. supplies very similar to a year ago but I don’t' think we're going to get the same reaction as we did last year.
Pearson: Okay. And even though we're still dealing with, most likely dealing with those same export troubles we had in South America, the market is willing to pay that, take that risk of delayed delivery for a much cheaper crop potentially.
Roose: Yeah, and that is a good point and hopefully -- they did have a lot of shipping problems last year and hopefully as they have moved through in another marketing year that some of those are taken care of. So hopefully it gets better as we move forward, Mike.
Pearson: Okay. We've got a couple other questions here. Scott in Nashua and Cheryl in Wisconsin have started chopping corn, that time of year again and they're both curious, are we seeing more chopping this year in some of those potentially lower yielding ground that got planted late or got rained out? Or are we stacking up? Historically we're on track? What are you thinking on chopping?
Roose: Well, you know, last year was the big chopping year because there was a tremendous amount of chopping going on because of the corn crop size. I would say this year we're back to more of a normal. I know if you’re in those prevent plant areas, in those delayed areas it seems like there's a lot more silage being cut. But last year was our bigger year, I think we move back to more of a normal year this year.
Pearson: Those tough areas that get chopped change year to year depending on weather conditions but historically stay about the same.
Roose: Yeah, they really do. Usually our harvested acres are about 91% planted. They don't change a lot from there. They're 90.5 to 91.5 and that has been pretty much a historical range.
Pearson: Alright. Thank you so much for being with us, Don. I appreciate your thoughts this week.
Roose: Thank you, Mike.
Pearson: Have a great week and thanks to all of you for watching and submitting your questions via Facebook and Twitter. Please continue to do so and we will continue to get expert analysis for you. Thanks for watching and have a great week.