Pearson: This is the Friday, November 8, 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 lot of questions this week, not surprisingly about the corn market. Tim in Crookston, Minnesota is asking, when will the collapse in the grain markets end? Tied along right with that, Ben in Indiantown, Michigan is wondering, is there really this much corn out there? What are your thoughts?
Roose: Well, I think when is the collapse going to end, I think the thing you have to be fearful of if you still have some premiums in 2014 and '15 corn. So you could look at the other way is that we're in a declining market with increased supplies that there's more downside potential in the marketplace. So I think we are moving into a multi-year bear market if we don't get weather problems. So I would say that there's probably lower prices ahead, not that we're not going to have some terrific rallies at some time, but I think that's it. As far as is all the corn really out there, well I've been in the business since the '70s and I learned one thing is never doubt the government because whether you believe it or not they are right. That's what we trade. So I think the crop is there. I think you probably see the yield actually go up a little bit from the final report in January. We won't get one in December. So yeah, I think the carryout is going to grow in the supplies there.
Pearson: Now, what you mentioned, we're possibly heading into a multi-year bear market. That jumps right into Phil's question. Is the hope for corn over for at least six months? How do you trade that? How do you capture what premium is out there in a trending market, in a market that is trending lower as you plan for next year?
Roose: Yeah, and that's a good question. And at any time these markets get oversold you could have some really terrific rallies to take advantage of. But overall I think the theory is lower unless we get into weather problems. Now we've had four years of weather problems so what if we have some consistently good years, that's the issue. But I think when you look out at the '14 crop and even '15 crop I think you have to have some kind of insurance policies on where you buy some insurance with buying puts, selling calls and then selling some puts below it until we figure out what this insurance is going to be at the beginning of March next year. So do that and do the same thing on soybeans and don't be afraid to even look at 2015 because you still have some prices to capture. A lot of us remember the $3.00 years and that wasn't that long ago.
Pearson: That's right. Now one of the topics we didn't get a chance to discuss on the show was the cotton market. We've seen cotton trending lower. What are your thoughts on cotton as we look to the future?
Roose: Well, what happened to the cotton market is stocks to use ration in cotton in the world is 87%. The stocks to use ratio in the U.S. is 21%. There's a lot of cotton out there and the bottom line on cotton is it's stuck. I don't think it can move to the upside very much. The downside may find support but it's all about China. China, for years, was stockpiling cotton and now what they're doing is they're selling out the surplus. So they're the big hammer over the market.
Pearson: As China continues to sell, how far could cotton fall?
Roose: Well, I think that goes with some of the other grains. I think the soybean/cotton ratio is going to come into play, some of these other ratios. But right now $70 is support and then if some of these other grains get loose to the downside cotton will slip under there and want to start to look even into the $60s area down the road.
Pearson: As you mention those gigantic stocks to use ratio in cotton, is there a possibility that we're going to continue to lose more cotton acres to soybeans in this next year? Or will there be a substantial acre shift do you think?
Roose: I think we probably will lose some acres right now probably to cotton, or to soybeans. You probably should. But there's, that is not being determined yet, we're just not quite there from a planning cycle. But right now today I would say you would and soybean acres grow and that even adds a little bit more to the bearishness.
Pearson: Okay. Now, one of the things we've been talking every so often is crude oil prices and we're keeping an eye on them as things change around in the Middle East. Talk to us about where you think crude oil is headed in relation to the U.S. economy and producers at large.
Roose: Well, the good thing is, is that we're becoming more self-sufficient all the time. And the other good thing is that we're using less all the time. So that's a good combination. Crude oil I think really struggles when it gets up around $100. The downside I think you would like to believe that we could move back down into those $80s at some point in time, very dependent on the dollar because the dollar, we trade crude oil in dollars around the world. I don't know if a lot of people realize that. That's what we do. So if the dollar goes up it does have a big effect.
Pearson: And the dollar has been staying strong recently. Is that expected to continue or just watching the U.S. economy by and large to check that?
Roose: Yeah, it may seem like we're irresponsible on some of our budget decisions but the rest of the world is also having some real struggles. Look at Europe, they lowered their interest rates again where we're looking at raising interest rates. So maybe we're a step ahead of the people and I think the world recognizes that. So the dollar is still the best of the worst.
Pearson: Alright. Now, before we let you go, Don, you get out and travel quite a bit, talk to a lot of people. We had a question from Erica. She has asked, has there been any state or federal assistance to the ranchers in South Dakota to help cover their losses from the October blizzard? What have you been hearing?
Roose: Well, right now, to be honest with you I'm just not sure if there was. I know there was, a lot of that occurred right during that budget shutdown thing. I think with all these disasters like that I think there's usually in the end there's some assistance that comes through.
Pearson: Call your congressman or woman and see what you can do.
Roose: That's a good thing.
Pearson: Thanks for being with us, Don, really appreciate your insight this week.
Roose: Thank you, Mike.
Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we'll continue to get expert analysis for you. Thanks for watching.