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Market Plus: Darin Newsom

posted on October 18, 2013

Pearson: This is the Friday, October 18, 2013 version of the Market Plus segment.  Joining us now is Darin Newsom.  Darin, welcome back.

Newsom: Thank you, Mike.

Pearson: It's been a big week, particularly in the wheat pits, we've got a lot of people curious about wheat.  Talk to us a little bit about what we're seeing.  We've got a great question here from Jerod in Oklahoma to kind of open us up.  When will the wheat circus end?

Newsom: You know, I don't know that it's going to end any time soon.  We could see some pressure come back into this market.  We may outdistancing ourselves here for a little bit.  The market has moved, it's posted a very strong move here over the last few weeks.  The reality is, is that we've got a cheap dollar, the dollar has been coming down and U.S. wheat has been moving into the export market.  So this could last another couple of weeks, we could see a selloff as early as next week.  But I think longer term we have turned the corner and wheat is going to continue to garner more attention and it just looks like it may want to push higher longer term until we start to see some other country moving in taking some of our export business away.

Pearson: And the other countries that could move in, we're going to be looking at the Ukraine and they have been plagued with issues really all year long.  Who else would be the major player that could start making some headlines?

Newsom: Well, you mentioned issues, Ukraine has had issues, Argentina has had issues, you're never certain about the European wheat situation.  Canada is going to be getting in, going to be moving its spring wheat and some of its winter wheat off from the western plains and these sorts of things.  So there's going to be more competition out there.  But for right now it seems like the interest is in the U.S. wheat market.  We are starting to move a great deal more into some sales, into some exports and so a very positive thing for U.S. wheat producers.

Pearson: Alright, now Ernest in Dunbar has a great follow up question.  Is Kansas City wheat going to continue higher for the near-term?  Where do you see Kansas City, Chicago?

Newsom: The Kansas City wheat has actually run a little bit further than the Chicago market, at least percentage wise right now, so it may be getting a little bit tired but I still think it's got some room to move up another 10, 15, 20 cents at least, going to provide some good selling opportunities because it's still, wheat, I can't help but think about the old adage I learned a long time ago is you don't want to be long wheat in December.  So we've got some time in here, we've got a nice move, we're going to use this to our ability, get some pricing done, give us some opportunities in here to make some sales.

Pearson: Okay. Now, one of the things we've seen really brought to the forefront this week, we've seen in the past few weeks, Betsy is curious, what do you expect from the wheat-corn spread?  And is corn going to hold back just the Chicago contract or do you think it will be a drag on everything?

Newsom: If it holds back the Chicago contract it would probably hold back the Kansas City as well.  Now, sometimes the Minneapolis wheat contract, because it's so different, it's spring wheat, it's more high protein centered and all this, it'll move off on its own.  But if that really starts to be a drag, and it could here over the next week or two, maybe over the next month, then that could certainly slow both the Chicago and the Kansas City markets.

Pearson: Okay.  Now, those are -- it's interesting -- it's good to have enough time to talk about the wheat market, especially at this time of the year.  Now as we take a switch over to soybeans, you mentioned on the show, Jeff has got a question.  Is demand, in your opinion, going to offset the supply increase?  Yield reports so far have been higher than a lot of folks were anticipating.  Are we going to see that continued demand build throughout the year?

Newsom: It's an interesting question because, number one, I don't think we've got the supply increase.  I don't think we've accounted for old crop supplies.  I think they're still overstated.  So we're not starting the year with the supplies that we think we are.  Maybe the early yields are coming in a little bit better than expected but if we look at the market, the market doesn't seem to believe that overall yields, the overall supplies are going to be as much as everyone is talking about right now.  So I think demand is going up.  I think demand is still very strong.  I think we've seen a lot of buying coming into the market, a lot of export buying coming into the market.  So I think demand is going to outpace supplies, once again, in '13-'14.

Pearson: Now, you mentioned you don't think we've accurately accounted for the old crop --

Newsom: No, not at all.

Pearson: Can you explain that a little bit?  What are your thoughts?

Newsom: Sure, very simple.  If we go back to the quarterly stocks report that came out at the end of September it still did not account for 15 million bushels of exports.  USDA has not accounted fully for exports last year in its own reports, in its weekly export sales and shipments it came in at 1.33 billion bushels and it's only accounting for 1.315.  So you can take 15 billion bushels off.  And instead of taking 15 billion bushels off in its quarterly stocks report it added 16.  So we could be as much as 30, 31 million bushels off right now, overestimated on last year's, on last year's ending stocks.  So you take that off of our total supplies and all of a sudden you’re back into a tight situation in '13-'14.

Pearson: And that would put us down under 100 million bushel.

Newsom: Yeah, well, for '12-'13 it certainly would or we'd be right in that 100, 110 million bushel mark.  In '13-'14 we'd be back in that 120, 125 instead of talking about the 160, 165 million bushel.

Pearson: 120, 125 is where we were all summer looking at higher priced soybeans, which leads right into Siouxland Energy's question.  What do you anticipate for acre switches in 2014?  Are wheat and beans getting competitive enough to buy some acres from corn?

Newsom: I think you'll see more soybean acres going in certainly.  This ratio spread that is talked about so much this time of year certainly could get to the 3, could get larger than 3 to 1 because corn really has no reason to go up except for being pulled along by beans at this point.  So I think that's going to be enough to entice more bean acres next year and possibly, even though U.S. does not like to decrease corn acres whatsoever, we just see it going up every year, this could be the thing, this could be the straw that finally breaks the camel's back and we finally do see things swing in the favor of beans.

Pearson: Alright.  Now, as we take a look, we've been talking exports.  Bill in Spirit Lake is curious, did the Chinese sneak any corn purchases away from the eye of the USDA market watchers?  What have you been hearing on exports?

Newsom: I think so.  And I'll kind of stay away from the whole sneak in, under without the visage of the USDA, but I think they were active buyers.  I mean, business has to go on.  And this is the great thing we were able to see these last three weeks is how markets act when it's being driven by business going on.  We saw the spreads react, we saw the futures markets react, we saw basis react.  So, yes, I do believe there was some business being done with China, I think they were active in soybeans, could have very well been active in corn as well.  So it's just one of those things.  They can't take a break just because our U.S. government can't seem to figure anything out.

Pearson: One final question before we let you go.  Rodney in Germantown, Wisconsin is asking, how high -- as we take a look back at the cattle market -- how high do you see the cattle market going?  He has heard rumors that feeders might hit $2.00.  Is that possible?

Newsom: In time it possibly could because corn is going to struggle.  At some point this increased production in corn and this questionable demand that we have laid out for '13-'14 could really cause a problem in the corn market.  And if beans every throw in the towel then corn is really going to be facing some problems. And if that's the case and if we look at we're going to have to rebuild the fat cattle market, we're going to have to rebuild the fat cattle herd, there's going to be great demand for feeder cattle here maybe later in the winter, early next spring and so there's the potential for still some big buying to come back into the feeder cattle market.

Pearson: But it's going to take a perfect confluence of events to hit that $2.00 mark.  We'll have to see corn fall another $1.00, probably $1.10 --

Newsom: You know, as we talked about, the feeder cattle market shot up and has pulled back.  And it's going to pull back to the point where it finds those buyers.  When those buyers come back in then we're going to have to see how long they're willing to continue to buy once we get up into the prices that we've already seen and if it's strong enough to push us back up to that $2.00 level.

Pearson: And if we can sell fat cattle --


Newsom: And if we can sell fat cattle, exactly.

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

Newsom: Thank you, Mike.

Pearson: Thanks to all of you for sending in your questions via Facebook and Twitter.  Please continue to do so and we will continue to get expert analysis right to you.  Thanks for watching.  Have a great week.

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