Pearson: This is the Friday, March 14, 2014 version of the Market Plus segment. Joining us now is Jamey Kohake. Jamey, welcome back.
Kohake: Thank you, Mike.
Pearson: Now, on the show we didn't have a chance to talk cotton. It's been on a bit of a rally here over the past few weeks. Give us your thoughts. Where could this market, old crop cotton, be headed?
Kohake: Old crop I think there still could be some upside short-term but I think the market does need sold into. China's economy is very soft right now. They're a big importer, just like they are in the grains, of cotton and so I think this is a kind of a short-lived type deal and needs to be rewarded. I have even started out in the new crop with a few sales at $80. We banged the $80 mark six times in the last two weeks and just keep hitting it and hitting it and coming off. So that's some pretty heavy resistance now I think needs to be sold into. But you get it sold in here, 30-40%, wait and see how the crop gets planted, probably see a weather scare eventually down south with some dryness and hopefully push through $80 to finish the sales off.
Pearson: Alright. Now, as we take a look -- on the show we were talking wheat and with the recent rally no surprise most of our questions tonight are concerned with wheat. And the big concern from folks all over the country is this tough winter and the dryness in the south. Is the market really taking that into consideration on this new crop wheat?
Kohake: I think it has a little bit, not near the effect that a producer would like obviously. You're probably looking out his back window and say, hey, we should be at $8 or $9 by now but it has done a decent job. We have rallied $1.30 roughly. So there is a little bit of that. There's a little bit of Ukraine in the market. But they did take a beating last week, like I said on the show, it looked like the dirt bowl last week down south. But I still like the $7.30 mark for December Chicago and we'd like to be sold up in there.
Pearson: Now, market enterprise Kansas, you're a Kansas boy, things do look tough down there. Mark is curious, he's looking, looks like he's going to be a lot of dead wheat, best advice? Let it lay foul over the summer or is there another opportunity to get in there and --
Kohake: Maybe try coming in planting some beans behind it maybe. But remember wheat is a weed and it is known for having multiple lives. So I don't know what his crop looks like in person but I think there's a chance he could come in and plant something behind it.
Pearson: Alright. Now, Tim in Crookston, Minnesota has a question that a lot of producers are dealing with and it was one you touched on, on the show. We've seen a nice market on the board but the basis in the northern plains, Tim mentions, has widened way out, he knows there's poor rail service, a lot of oil production. What can they be doing to capture better basis?
Kohake: I don't think you can do anything right now but sell futures or buy options and sell calls or puts and/or both against it to cheapen it up. But he's right, the basis is terrible right now. Just about full carry everywhere you look. You go further south it has tightened up in some areas, crushers aren't making any money for the beans, rail service is terrible, every car is pretty much for ethanol and oil right now, especially oil. Trains right now, if you want to run late April is the schedule so I think futures and options are the only option right now until we see how the crop goes in the ground and see some weather this summer.
Pearson: Alright. Now, how would you play that? How would you play an option strategy looking at a terrible basis situation with old crop wheat?
Kohake: I'd come in and buy like at $4.70 or $4.80 for corn, like a $4.84 December corn put, maybe sell like a $5.50 up to $6.00 strike against it and maybe come in and sell like a $3.80 put where your crop insurance is. You've got a free put down there and sell some puts down there and see what happens. That's what I would look at if I was going to trade options.
Pearson: Alright. Take advantage of the crop insurance. Alright. Now, we've got a question from ManGravy12 is curious, how much influence will the Ukraine continue to have on crude oil?
Kohake: Longer term it could be a big player. Germany buys, gets about 9% of their energy from Russia, big pipelines running through Ukraine, if Russia would want to shut those down or delay them or slow them down, whatever, they could. But I'm more concerned about China right now than I am with Russia playing games and doing something stupid over there. They're trying for a soft landing right now. The banking system is kind of all shook up. That's a $6 trillion business. They did $160 billion in January and February they did $0. So their economy is very, very shaky. It could affect our exports to them. It is already spilling over into Europe and to us. It's a big deflationary signal in my opinion, it's something to watch out for if you do trade the equities hard or trade crude, it has pulled some money out of there too.
Pearson: Now, speaking of equities, where do you see the S&P headed?
Kohake: I think there's plenty of downside here especially if Europe and China do soften up, which I do expect, and if you're long I would look to be taking some profits. We're in a 150 point rally since early February so I would be careful about chasing this thing here short-term without a little bit more of a setback.
Pearson: Alright. Now, Jamey, before we let you go, any trades out there this week that look especially good to you?
Kohake: I would take a shot at the beans, July versus November at $1.75. That is a 50% retracement from where we came. I like selling off some December cattle up around $140 too. I think that's a decent idea to look at.
Pearson: Alright. And I guess we do have one question that I just skipped over. Rodney in Edgar, Wisconsin is asking, as we watch this fat cattle market, how high can this market go?
Kohake: I mean, who knows. It depends on demand. Can boxes hold up? I think the boxes are very toppy but if demand stays together maybe we go to $160. I don't think so right now myself. I think if you get back to, the futures get back to $150 here short-term I would be laying some off for sure.
Pearson: Okay, because we have seen boxes, February, just this last week were topping their January highs. We are in uncharted territory choice box beef --
Kohake: Yeah, it's just been a wild ride there. Like I said on the show, the cutouts in the pork just ripping higher. But boxes did, I think, maybe start to signal a weakness this week and I think we'll get back to the futures, like I say, $148. I would take advantage of some hedging there for sure.
Pearson: Now, would the cattle market be hit especially hard if we do see China begin to slow down?
Kohake: I think all would be, cattle, hogs, grains here shortly. Crushing margins aren't that great in China right now. We've seen them wash out on several cargos with Brazil. So yeah, it could slow us down real gradually, just put us into a big deflationary market longer term.
Pearson: Gotcha. Alright. Well, thank you so much for taking the time to be with us, Jamey.
Kohake: Thank you.
Pearson: And thanks to you for all of your questions via Facebook and Twitter. Please continue to send them in and we will continue to get expert analysis right to you. Thanks for watching and have a great week.