Pearson: This is the Friday, February 21, 2014 version of the Market Plus segment. Joining us now is Darin Newsom. Darin, welcome back.
Newsom: Thank you, Mike.
Pearson: On the show this week we did not have a chance to talk cotton. We saw a little bit of a price slide there. Talk to us a little bit about what's happening.
Newsom: It just looks like this market has run out of stream here for a little while. We've got some selling coming in from the commercial side, a little bit more bearish of a supply and demand outlook I think as we're starting to look forward a little bit. So it has put some pressure on the market. We see some investment money pulling out, going over to other sectors at this point. Cotton had a nice run, maybe it needs to pull back a little bit so it can find some buying interest again.
Pearson: No major news ofChinaselling a stockpile or anything huge?
Newsom: I haven't seen anything. Now that doesn't mean it hasn't happened. But I certainly haven't seen anything to this point.
Pearson: Alright. Well we'll keep an eye on that one as it goes forward. Like you say, nice rally, might be a time for --
Newsom: Just pulling back a little bit.
Pearson: A little correction.
Pearson: Alright. We had the USDA's Ag Outlook Forum this week. Had a lot of producers talking, USDA we're getting some of the numbers from the census, we're getting some forecast numbers for this year. Glen inBryan,Ohiois just curious and he's saying, every USDA projected number could be questioned or debated. And, of course, it's a projection. At the core, were we getting generally bearish, generally bullish news out of the USDA? What was your take on this week's festivities?
Newsom: My answer would be yes, we are. The numbers themselves probably look bearish. If we believe the trendline numbers, which we shouldn't, but if we just take the numbers at face value we would consider them to be bearish. Well then you could also build the argument that because soybeans weren't as bearish, in other words the acreage wasn't as large as what some were looking for, at least not in the outlook number, then that should be considered bullish. So it can come down either side. The most important thing to remember about these outlook numbers is that they're really, in my opinion, now I've had this debate with many on social media, Twitter, they're irrelevant. The market looked at them for maybe five seconds and then they moved on. We're going to focus now, unfortunately, on the March 31st prospective plantings report. That is the next big thing. This is just a piece of news at a time when there's very little other news outside of weather.
Pearson: Okay. Now, you talk about projections, the market not paying much attention to them. Chuck inWinnipeg,Canadahas a question that feeds right into that. The USDA made the projected soybeans $9.65 average price. What do you think on that number? What does the market think of that number?
Newsom: I think it's a little early to see that big of a draw down in the average cash price for the next marketing year, so the marketing year that starts in September 2014 and runs through August 2015. We may be a bit premature on that. Could we get there at some point? Yeah. Maybe the marketing year after that. But we're high enough now and we still have enough uncertainty over the type of supply and demand situation that we're going to have not just domestically but globally that I think we're going to stay above that price. We should continue to see an average price somewhere in the double figures. I think above $10.00. But we get to the year beyond that, that's when I think we're going to really start to see some problems.
Pearson: Alright. Even if we do start to test that beans with a 9 in front of them, into that $9 range, assume acres are probably going to shift globally, but like you say, down the line.
Newsom: Yeah, it's going to be down the line. Could we be in the 9's by the end of this year, by the end of 2014, early 2015? Sure we could. But that's not going to drop the average I don't think that much to get it down to that $9.65 level.
Pearson: Alright. Now during the show we talked about some of the non-commercial demand, the investment fund demand that we've seen coming back into the commodity markets. Phil is curious, where are we seeing this on the grains? Are they coming back in on the grain side?
Newsom: They are. They're not going to come back to the degree that they were say from 2007 through 2010, something like that. But we're seeing some buying. They have covered their net short futures position in corn, they have gone to a net long. They continue to build their net long in both soybeans and bean meal. So there is some interest coming in there now. The supply and demand situations have changed to the point where this group is willing to buy in. So yes, we're seeing them come back in but I don't want to get overly excited about the idea, yeah, we're going to be as big as we were before. I don't think we will. I think we're going to see a short-term buy in here and then at some point once we get through the spring, maybe into the early summer, most likely they'll turn sellers again.
Pearson: Okay. Now on the show we talked a couple of times about the drought inCalifornia, the effects that is having on the ag industry out there as a whole. And we talked beef during the show, probably not a huge impact. Let's talk a little bit about the dairy side. Californiaa number of dairy producers out there, clearly water is vital. Where do you see that market shaping up?
Newsom: I think this is really the market as far as -- agriculture inCaliforniais so vast, it covers so much area, but the one that we really focus on or one of the major markets that we focus on is the dairy market. And I think this is where it's going to have the largest impact as far as what we've seen so far. As this drought has worsened inCaliforniait has certainly helped to support the Class III milk futures, it's pushing it up, supplies are tightening and if this situation continues I think the milk market is going to find a way to push higher again. Yeah it backed off a little bit from its high but you get more news of an extended, the extension of the drought, getting even drier as you talked about in the program, this market I think is going to reflect that and it's going to continue to go up.
Pearson: And we've been seeing record high milk prices in this range now since December I want to say, middle of January?
Pearson: Probably going to continue for as long as the drought stays in the news?
Newsom: I think so. As long as it is major headlines, as long as it continues to mess with the supply situation can we go to a new high in the milk futures? Certainly, I think so. There's just plenty of support in there right now coming from the fundamental point of view.
Pearson: Alright. Now Darin, during the show I had to cut you off, we were talking crude oil. Just wanted to bring you back around before we let you go. You're seeing, we're probably going to see that pick up in demand as soon as the weather breaks. Pushing us up into that $105 on crude do you think?
Newsom: I don't know. I think we're about to hit a short-term top in here. We've seen this early seasonal buying which is very normal. The initial rally usually lasts up into April. So we have moved so far so fast, we may have just about burned up most of the interest at this point. I think we could get this market to back off a little bit. Could ultimately this summer we go back up into the $102 to $107 area? Yeah, it's an outside shot if something happens fundamentally that really tightens things up. I just don't see it right now. We've got our supplies picking up again if we look at the weekly EIA stocks report. So I think this has more to do with a short-term seasonal bump. Probably going to run out of gas here before too long and then start to back back down.
Pearson: Alright. Thank you for being with us, Darin.
Newsom: Thanks, Mike.
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