Pearson: This is the Friday, April 4, 2014 version of the Market Plus segment. Joining us now is Sue Martin, Virgil Robinson, Naomi Blohm and Walt Hackney. Folks, welcome back.
Thank you, Mike.
Pearson: One of the topics that we didn't get a chance to discuss on the show was the wheat market. Virgil, we saw wheat sell off a little bit this year despite tighter supplies compared to last year. What sparked the sell off this week?
Robinson: Global supplies aren't really any tighter than they were a year ago, Mike, if anything they're modestly larger. You've got record wheat production in several exporting countries, Canada, Australia, Europe and now India. So there's a lot of competition that has taken shape. With respect to wheat sales globally there's clearly some concern. I think Walt and others addressed the issue here with the hard red winter wheat crop in the southwest. It's a hearty plant and can certainly survive and produce but it will clearly be dependent on some timely moisture here in the very near future. So wheat has put on a dazzling rally here in the last several weeks as has a lot of other commodities and I think anyone that is still lugging old crop wheat really has an objective that I would find hard to define. I would concentrate now my efforts on new crop wheat, either with some form of option strategy or some combination of an option strategy and protect this price.
Pearson: Now, on the new crop side we also saw a sell off there. Are we taking some of this Ukrainian risk premium out of the market as the situation is settling down there? Would that be a function of it at all do you think?
Robinson: I'm really not qualified to state whether that situation is settling down. One would certainly hope it is, Mike, but I think the market has factored that into its price discovery and it would require news of a different nature I think to really be a market driver aside from what we have there.
Pearson: Alright. Now, another topic we didn't get a chance to discuss on the show was the cotton market, which had been on a run-up over the past about a month and then we saw a little bit of a step back this week. Naomi, what happened this week in the cotton market?
Blohm: Well, the old crop had an initial run-up like you were talking about and then after the USDA report things just simmered down, really took the thunder out of the old crop step. A lot of it is really focused potentially even on the new crop where there is a big crop coming with all the increase of acres down south and that is where we're going to start to see the market potentially trade -- more interestingly the new crop price has been trading sideways for a couple of months now and I think also depending on weather it may be getting ready to have some sort of a move higher or lower, it just depending on weather. Globally we have a huge, huge crop as far as ending stocks go so it kind of to me seems similar to soybeans where you have this large global crop that is maybe going to keep the new price a little bit lower. But for right now there still is demand for the old crop.
Pearson: Alright. Now, Walt, we've had a couple of questions from our Twitter viewers about the cattle market. And one of the topics you touched on during the show Matt has a question about. Is the feeder market, as we look over the summer, going to be primarily driven by the price of corn or by the low numbers of feeders available?
Hackney: I think if you look at this week only and consider that some form of a barometer it will be corn. Right now at the price feeder cattle had been up until mid-week of this week the break even on those cattle coming out weighing 1350 was somewhere but in the vicinity of $138 to $139 weighing 1350. Now, if corn goes to such as what has been eluded to here, that figure will all of a sudden become $141 or $142 easily. And if what Sue has indicated as far as that goes, then all of a sudden you've got yourself purchasing into a red position on your break even.
Pearson: Alright. Things to keep an eye out when you're sitting at the sale.
Hackney: Yeah, it is.
Pearson: Keep that calculator handy. Now, Sue, Bryce in Omaha has a question. As we have been talking weather, and you mentioned weather and the effect of El Nino that could happen over the summer, today we're still sitting with a very cold, in a lot of places very dry situation. I know the extended forecast is calling for some wetness as we get into planting time. Has this potential for later than usual planting impacted the new crop corn price at all?
Martin: I think it is there subtly. It might be underpinning the market just a little bit, mainly because of what we've seen a year ago. But I also think we're looking at lower production this year than a year ago co-mingled with if we could potentially lower it again if we run late getting the crop in. Now, all that said, I think that it's going to take getting into May -- we're still early yet, I mean, decently we're not running late. Nebraska, farmers out there have been working in the fields and have been since the middle of March. Up in northwest Iowa until maybe the snow that we got late this week there was starting to be a little bit of ground being scratched in. But all that said, I think that when we get farmers the chance it won't take them long to get in and when farmers get in the field they aren't going to think about selling cash corn or anything else. They're going to be in that field to stay. But I think you have to get into May, put a 5 in front of the calendar date and I think the market is going to get real enthused. So I think April is going to be a very volatile, choppy month. Corn might still push higher but somewhere in here there could be a little bit of a correction and then we come back again. One thing that bothered corn here of late this week, even though corn managed to pull out of it late in the day on Friday, was the fact that ethanol prices had really taken a hit. Part of it was some more cancellations by China on corn and DDGs but also the fact that rail is loosening up a little bit and so they're starting to move some of the ethanol and I think getting it out to the East Coast to be able to ship. But other than that I think this market does have promise as we go down the road. But, I mean, every year is important for weather. This one seems really important.
Pearson: Alright. And, Naomi, the follow-up question, Calvin is curious, will we see a sell off, maybe even just a short-term sell off once the planters do start rolling?
Blohm: I think choppy is the right way to say it, like Sue had said. There's too much underlying fundamental support of we need a good crop now because the difference in that in the fall we had the price outlook potentially, some felt, for lower than $4.00 corn because the ending stocks were so large, close to 2 billion bushels and now it's a totally different story. We fed those animals. We exported corn. The ending stocks is a totally different picture and people are kind of really starting to understand that now. And so, again, with the ending stocks where they are right now we have to have like 160 yield in order to keep the ending stocks exactly where they are for the next year. So I don't think we see a big sell off. I think choppy because it has to give the day traders something to do and keep them entertained and then in the meantime the rest of the world is just sitting and waiting and watching for the bigger weather potentially to come for the spring and summer.
Pearson: Alright. Virgil, we've got a question here. Brandon in Manson, Iowa is curious, we've seen the funds and the managed money get interested in commodities here especially over the last month. In your research, is there anything that would indicate when those folks might start to get short? Are we going to be looking at momentum trades mainly?
Robinson: They all have various systems that they adhere to, Mike, whether it is algorithms or other means by which they enter and exit their trades. So no, I can't, I have no way of forecasting different behaviors.
Pearson: Okay. But as of today they are still, in most of the commodities, they have kept long positions open.
Robinson: I think that is correct.
Pearson: Okay. Alright. Now, before we let you go, Virgil, before we started talking you mentioned that pork was still cheap. Even though we have seen this record pricing we are still seeing pork as an affordable option. Does that, in your opinion, lend some support to these prices where they're at today?
Robinson: Yes. Relatively speaking, yes, pork is a bargain. And it would appear to me the economics will continue to support strong retail prices, Mike, I think the economy is beginning to improve, a little more employment. I think based on that and the idea that over the next several months I really believe that natural gas, for example, is a real game changer here in the U.S. I think we're going to become increasingly more competitive and our presence will be much, much stronger in the world export marketplace and that is going to support employment and a thriving and better economy. So I think meat prices, while they're high relatively speaking, there's no reason in the world they can't continue to move irregularly higher and that is what I would expect will happen.
Pearson: Alright. So we'll end on a positive note for all the livestock producers out there as we hope for --
Robinson: That's an opinion, now.
Pearson: It's an opinion. For better domestic consumption --
Robinson: Could I get curious Calvin's number? I'd like to visit with him.
Pearson: @calvin_rea6 on Twitter.
Pearson: And that is going to do it for this week. I want to thank all of you for coming in tonight and for having this discussion. I learned a lot and I really appreciate you folks all taking the time.
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 will continue to bring expert analysis right to you. Thanks for watching and have a great week.