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Market Plus: Don Roose

posted on February 7, 2014

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Pearson: This is the Friday, February 7, 2014 version of the Market Plus segment.  Joining us now is Don Roose.  Don, welcome back.

Roose: Thank you, Mike.

Pearson: We're glad to have you with us.  We've got a lot of questions from Facebook and Twitter today.  Big thanks to all of you for sending in these questions.  We're going to get through as many as we can and we will hang onto the rest of them if we can't get through all of it tonight.  It could take hours.  We've got a lot of work to do.

Roose: We've got time.

Pearson: So we'll dive right into it.  Clint inAtlantic,Iowais curious, looking at this most recent rally in the corn market, when should he have all of his old crop corn sold by?  And what do you see as the top end of this range?

Roose: Well, a lot of times when you look at the cash market what you really have to look at is what is the basis level and the basis levels have really kind of peaked here as we have seen a pick up in cash movement.  And for catch up sales probably right in this zone, the $4.45, $4.50 for the time of year you're at right at the present time.  So we’re at the top of the range.  Then I think if you don't sell right in this zone you're really concerned with more of a weather type of rally later on.  So it is all time of year and what you have for opportunities and when you need the funds.

Pearson: Alright.  And that leads really right into Dale inBloomington's question, watching this rally in the soybean markets, we're over $13.00.  He is curious, how long will beans be able to sustain $13 pricing?  As you mentioned we're the only ones with that really tight stocks to use ratio.

Roose: Yeah, we're the ones that are the tight situation in the world so I would say that we're kind of on a ventilator.  IfSouth Americabegins to aggressively sell soybeans into the world market, which they're getting very close to, we think they'll sell about 1.5 billion bushels in the February slot.  IfChinastarts to roll beans away from theU.S.or starts to cancel soybeans the top is in just like that. South Americabeans are about a dollar cheaper than we are.  So you know what you're up against, it's probably also a weather concern.  Acres are probably going to be up next year.  But near-term we're going to be in a very tight situation ifChinadoesn't cancel soybeans.

Pearson: Alright.  And you mentioned acres being up next year, inAmerica, and we're talking soybean acres.  Daniel in Kansas and Adam in Litchfield, Michigan are both curious, with the recent rally we've seen in Dec corn, not really rally but strength relative to Nov beans, are we going to see more producers who were maybe going to plant beans pull back to corn do you think?

Roose: Well, we're of the belief that we didn't think the corn acres are going to be down that much to start with.  The big thing that you have is you have about 8.1 million acres of prevent plant that is going to come back in.  We had 1.7 million acres of CRP from September that's going to come in.  So you're going to have a lot more acres.  So we think that the corn acres are probably going to be down just 1, maybe 2 million but probably 1 million acres, still going to give you a big carryout over 2 billion and we think the soybean acres are probably going to be up somewhere in the area of 5 to 6 million.

Pearson: Alright.  Now, where would that put us soybean carryout next year assuming trendline?

Roose: Yeah, that would put us soybean carryout probably up around 350 million.  So you go from very tight to excess to actually burdensome just in one year possibly.

Pearson: Keeping that in mind, would this be a time to start making some new crop bean sales?

Roose: Yeah, it all depends on what you think the weather pattern is going to be.  We think that probably we're moving more into an El Nino pattern in the summer which gives you a chance for a more normal weather pattern.  So we do, we think we're in a supply bearish situation, we think up around $11.20 on November beans, probably are selling opportunities.  Of course, you could have some weather spikes.  But we think if the wrong thing happens November beans could go down to $9.50 to $10.00.

Pearson: Ooh, single digit beans, it's been a long time since some folks have seen those, a couple of years.

Roose: It has but look back on your '03-'04 to '05-'06 on soybeans went from 112 million carryout to over a 500 million carryout in just those two years.  We can do it, we did the same thing with corn so those are the years you're kind of afraid of. 

Pearson: You bet. The American farmer wants to grow some grain, we can grow some grain.

Roose: Particularly if we don't have weather problems like we've had for four years in a row.

Pearson: That's true.  Now, speaking of grain, Doug in Moses Lake, Washington is curious, how much more canKansas Citywheat move?

Roose: TheKansas Citywheat market some of it is going to be dependent on the summer but we do have a tighter situation in the wheat market.  But we think probably another 25, maybe 50 cents to the upside but really what we've done is we have kind of balanced ourselves back.  Technicals are positive but we're overbought so you're at some good resistance levels.  We think that if the right thing occurs you're putting in some intermediate tops across the board on the grains just around this crop report.

Pearson: Okay.  The upcoming crop report we'll see some market movement. 

Roose: That's what we think.

Pearson: Alright.  Now, Dietrich inHomestead,Iowahas a question.  As we look at the meat demand, the run up in the protein prices, he is curious looking at the export side, will Russia step back into buying U.S. pork and push lean hogs higher?  What are we seeing on the Russian side of this market?

Roose: Well, what we've seen is that's right,Russiahas pulled back from the pork market and I think overall our export pace has slowed on the hogs.  We think it's probably really more of a function of the currency than anything else.  These currencies around the world are really having some issues.  They're more favorable for exports than they are imports.  So I would say that the exports probably build back a little bit but I don't see them getting just unusually strong back to the levels that we were.

Pearson: Okay.  Now, Mark in Enterprise, Kansas is wondering, with this harsh winter that we've had and it looks like we're going to have some more cold spikes here on into February and March as we get into calving season.  What kind of numbers of new calf losses because of thisArcticfreeze is the market going to have to deal with?  Is the trade considering that much yet?

Roose: That's a good question but we really haven't had a lot of conversations around that yet.  It really doesn't seem to be a market force.  I know we had big calf losses inSouth Dakotahere a few months back.  That really didn't come on the radar either.  So my experience tells me that's something that is usually not a market mover.  It's some of the other more traditional things that we can follow, exports, how the beef moves, the cattle in the feedlots, that type of thing.

Pearson: Alright, now keeping an eye on the protein markets, Ray inGrinnell,Iowais curious, with the PED virus in hogs, how much feed demand are we going to lose with the losses in pork?  Is it going to be substantial?  What are your thoughts?

Roose: Well, I tell you, that's a good question because in the last quarterly report the government had the feed usage up substantially, really for the number, the livestock numbers it didn't make sense. So that is a risk and we think that in the next quarterly report that could show up that we actually have the feed use goes back in line because the numbers are down on cattle, they possible will be down eventually on hogs.  But remember the hog numbers have actually been higher here so far not lower.

Pearson: Right. Really fighting for expansion in the face of PED.

Roose: Yeah, that's right.  Our total overall production has been up like 3.5% the last six weeks.

Pearson: Wow.  Wow.  Alright, now we've got a question, kind of a group question it sounds like.  The Coffee Shop inGroton,South Dakotais curious, if a producer is fully hedged for '14 corn, where should he concentrate?  Call options?  Short-dated calls?  How do you market?  What are your thoughts?

Roose: Well, the best thing to do is not to -- it depends on where you have it hedged, but actually you can say from any place. What I would advise doing is buy at the money calls and then sell calls above them and probably between those two a window, we call it, like buy $4.60 December call, sell $5.50 call, spend 20 cents for that insurance protection until you find out what the weather is going to be.

Pearson: Alright.  And just play it that way and hopefully make some money.

Roose: It's a good insurance policy is what it really is.  You've got the crop sold, you feel comfortable with it and this is an insurance policy.

Pearson: Alright.  Well, thank you so much for being with us, Don.  I think we got through nearly everybody in record short time.  Much appreciated.

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 right to you.  Have a great week. 

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