Pearson: This is the Friday, December 20, 2013 version of the Market Plus segment. Joining us now is Darin Newsom. Darin, welcome back.
Newsom: Thank you, Mike.
Pearson: Five days until Christmas. You all ready?
Newsom: Sure. I'll go with that.
Pearson: Alright. Now, we didn't get a chance to discuss cotton during the show. 7 cent move just hanging sideways.
Newsom: It is for right now and it seems like everybody is just sitting back waiting to see, I don't know, what the end of the year brings, there's just not a lot of activity right now. We've seen a little bit of commercial pressure in the markets. In other words, the supply and demand seems to be taking a back seat. So all that really leaves in the market right now is some investor positioning and there's, again, no reason for them to get overly excited on the bullish side or bearish side. So you see this consolidation going on in cotton, you see it just trending sideways waiting for that big piece of news to move the market.
Pearson: So it's good news, might see a jump. Bad news, might see a slide.
Newsom: I think so because at least we're consolidating near its recent high. It's a lot better for cotton producers than if it was just moving sideways near its low.
Pearson: Certainly. Now, the other big piece of news this week or interesting market news this week was the Class III milk move in dairy. We saw a jump from $18.50 to $19 -- I've got to look at my notes, $19.60 and change. What happened in the dairy market?
Newsom: You know, I honestly don't know, Mike. But I was going over my weekly charts just before we went on air today and it was an amazing look. You just don't see this happening in dairy and to me it would be some sort of a contraseasonal move because normally you would think this time of year with schools going on holiday break that you would see kind of a slip in demand and to all of a sudden see the market spike like this it's going to be interesting to go back, dig through the news, see what is going on, find out what is behind this and if it's going to be long lasting.
Pearson: And see if it's still around here next week to talk about.
Newsom: Right. I mean, next week when this program comes on next week we could see that dollar erased from the dairy market and Class III milk could come right back down.
Pearson: Certainly. Now, speaking of as we're talking dairy, any news on the farm bill and the dairy cliff and all of the shenanigans in Washington?
Newsom: I have visited a great deal with DTN's policy editor Chris Clayton and he just, he emphatically says, no we're not going to have a farm bill by the end of December, obviously, and no we're not going to have $7 milk per gallon. So we'll see, it's a great media story and you see it from all over but it's just really not going to happen.
Pearson: Folks like Mr. Clayton, policy analysts, have had a tough year.
Newsom: Yeah, he has. He's been very busy. We actually haven't seen much of Chris in the office. He has been very busy covering everything going on.
Pearson: Well, now let's get back to the markets. We've got a lot of questions here. We're curious, as we look at the hog market, John in Sioux City is concerned will PED related death loss be a major market mover during the first half of '14 or has it already, is it overblown?
Newsom: I think it's somewhere in between. Again, in our DTN Progressive Farmer Ag Summit in Chicago here recently I had the opportunity to visit with some hog producers and they said, it is going to limit, it's going to limit herd expansion obviously but it's more of a nuisance at this point than anything else. So it's going to limit this growth of supplies again. It's going to limit feed demand and all of these sorts of things. But it's not, it wasn't viewed as a major market view, major market mover at least at this point. So we'll see how it plays out. But that seemed to be the opinion of the industry heading into the end of the year.
Pearson: And that, what little risk there is that the market is interpreting, we've already got that priced into the spring contracts in the hog market?
Newsom: I would think so. You look at where they're priced and even how those spreads are sitting and it seems to be everyone has acknowledged it's a problem, everyone is king of taking into account the effects of what it could have as far as supplies and so on and now it's what develops from this point on and that is when we'll start to see the spreads change, that's when we'll start to see the futures react.
Pearson: We've talked about the rumor, now let's see the news.
Pearson: Now, Drew in Montezuma, Iowa is asking, what type of rally do you see in corn this summer? And how large do planting acres need to be to get sub $4.00 corn?
Newsom: There's a lot of interesting scenarios one can draw in the corn market. Sub $4 corn probably going to be pretty easy to accomplish. I know even all the talk right now is that we're going to lose 5 million acres from last year so let's just say that comes off the 97 million from the prospective plantings report and what we had most of the growing season. So we drop it down to 92, even if we have, even if we just leave yield, the national average yield around $160 we're still going to have ending stocks right around 2 billion bushels. So you drop it 5 million acres, I think it's easy that we could go below $4 and worse case scenario maybe we could drop it below $3 by the end of '14.
Pearson: See corn with a 2 and that carries on, Jerod had a question, what happens if everything is normal and we get a 3 billion bushel corn carryout --
Newsom: Then comes the scenario that I painted at, again, that ag summit when I presented my market outlook where you run the numbers and everything points at loan price again and that is not what anyone in the industry wants to hear.
Pearson: Yeah. A lot of excited cattle producers perhaps --
Newsom: On the other side, from the end user absolutely. They wouldn't mind it at all. But all of the industry is tied to corn. Wouldn't be too excited about a loan price cash prices.
Pearson: No, would not be good for the rural economy either. Now, the Hedge Whisperer in Tappahannock, Virginia is asking if soybeans need to go to $15 in order to manage supply, how high is that going to drag November '14 beans?
Newsom: I think the Nov will lag a little bit because, again, if we're going to lose 5 million acres of corn everyone is talking about gaining 3 million acres of beans. But I think a rally would be inevitable. It's just going to ride the coattails, it's going to be pulled higher. So if we're able to pull the old crop market or push the old crop market up to say 14.50, 15, which is not out of the question here in this first quarter of 2014, we could certainly see the November, right now it's in the 11s, get up to the 12, 12.50, maybe make a run at 13. Just lag just enough to show that most of the interest is in the nearbys. So I think we're going to see a rally and I think it's going to provide us some solid marketing opportunities unless something really changes in the market at this point.
Pearson: And that brings up, if we see that first quarter Nov '14 rally, to 12ish and a little over, time to make some sales as we look at that South American crop?
Newsom: Absolutely because that's really the problem facing the soybean market is how big is this crop going to be. It's got a lot of weather it's got to get through right now. But talk is of 90 million metric tons in Brazil, 58 million metric tons possibly in Argentina, we're just talking about huge numbers at this point. The market is not really reflecting it but when it does, when we start to see those spreads change, when we start to see basis maybe start to weaken we're going to have to react and we're going to have to be ready to get some new crop sales in place.
Pearson: Okay, now general market question from Ryan in Roslyn, South Dakota, as we get toward spring plantings, we roll through first quarter next year, will the market reaction to any plantings, we roll through first quarter next year will the market reaction to any planting delays be tempered considering what happened this year? We had all the hubbub --
Newsom: I think so.
Pearson: -- and then it dropped anyway.
Newsom: You know, I think the market learned its lessons. Sometimes it's a slow learner. But there was so much hype and so much build up about all the weather problems this year to wind up with a record crop. I certainly think the market is going to say okay, yeah, maybe we've got planting problems but let's remember last year when it really didn't do anything in the long run. There's so many things that have to happen after the planting season and I think it's just too early and I think what we found is just too early for everyone to get overly excited that the crop is dead just because it's slow planting. So yeah, I think it will temper the reaction to such a weather situation.
Pearson: Alright, Darin, before we let you go Phil in Canada has a question. He is curious, how do we get to $20 soybeans? What is that going to take?
Newsom: Take a really -- you know, you're going to have to have a major weather problem in South America. The demand is probably there, global demand is there. But what it's going to take is some sort of devastating situation, devastating weather situation in South America that really trims back those production estimates. At that point, yes, then I think the soybean market takes off and it is in position to do that so it's not going to be a complete surprise. But it's going to take something like that, something catastrophic really to get this market up to $20.
Pearson: And there's nothing like that on the horizon as of now.
Newsom: Not right now. Visiting with our weather team doesn't really sound like it at this point.
Pearson: Alright. Well, thanks for being with us, Darin, really appreciate it and hope you have a very Merry Christmas.
Newsom: Same to you, Mike.
Pearson: And thanks to all of you for posting your questions via Facebook and Twitter. Please continue to do so. We'll be back next Friday after Christmas to get those questions answered and we hope you have a very, very happy holiday and have a great week. Thanks for watching.