Pearson: This is the Friday, May 2, 2014 version of the Market Plus segment. Joining us now is Mark Gold. Mark, welcome back.
Gold: Thanks, Mike. Nice to be here.
Pearson: Well, and we'd love to have you talk a little bit about cotton. We are on the third consecutive week of upward movements in that contract. Where do you see us going?
Gold: Honestly I'm a little surprised at the rally that we've had in here. I was down in the south this winter and I saw an awful lot of catfish ponds being drained to pick up those acres in the cotton and soybeans. So I think we're going to see some more acres out there. Certainly the weather in the, the very rough weather they're having in the south has added to that price increase. But it's a little too early to write that off and to think that's going to be a major player long-term. They're going to get everything in the ground. They're going to have a crop. But it's off to a little bit of a rough start, which is why we've had this increase in price in my opinion. Now, where could it go? We certainly could see new crop $88, $89, $90, somewhere in that range. I think it's going to be pretty tough to punch through that level. When it's all said and done, if everything works out, we have a normal growing season, I don't see that the demand is all that strong. And, you know, if we get a good scare, weather scare in the next two to three weeks I think it's going to be a good marketing opportunity. But certainly take a look at that $88 to $90 level.
Pearson: Get in there and pull the trigger --
Gold: I certainly would.
Pearson: Now, is the specter of China's cotton holding still hanging over that market? Have they been able to do anything with their giant stockpile?
Gold: Well, it's hard to really know what the Chinese are doing. They'll let out information that they want out to move a market one way or another and then they certainly take advantage of it. We've seen it in wheat, soybeans, corn, you name it. So, it's really hard to get a handle on that. But I'm guessing that with the prices having been relatively depressed over the last while that they still have a fair amount of cotton to chew through. But I think weather will be the primary feature, certainly in the next two months.
Pearson: Alright. Now, we do have a couple of great questions here from our viewers on Twitter and Facebook and so forth. And Tim in Crookston, Minnesota has a question, we touched on it on the show, but hopefully you can go into maybe a little bit more detail. For producers, he is asking, where should we be on new crop sales? And should we get caught up here?
Gold: Well, certainly as far as top Third is concerned, we have used these rallies over the last several months to push ahead on some more sales. We're about 40% sold of our guaranteed bushels if they've got the crop insurance out there, which means about 30% of their expected production roughly and I think that's a pretty comfortable level to be at right now. So if you haven't gotten to those levels, you've got the corn in the ground, this is certainly a good opportunity to get something sold. I think a lot of times people look at marketing in terms of it is all or nothing. We either have to sell it all or we have to buy all the puts or we have to do this or do nothing. It's all or nothing. And I don't necessarily subscribe to that. I believe that particularly this time of year if you start with maybe a third in sales, two-thirds in put options, even if you don't want to buy those two-thirds puts, buy a third of it and then if we do get the corn in the ground by June 1st and we look in good shape, the weather looks alright, then get the other third on. So you can kind of ease into these things. So, I believe that this has presented itself with a great marketing opportunity. We're at $12.25 tonight on beans, we're just under $5.00 in corn, we have been significantly lower, like around the 1st of the year, so not that long ago and, again, you can use these options to protect the downside prices but keep that upside open. Who knows. If El Nino doesn't show up, we have another hot and dry situation like they're going to be seeing in Oklahoma and Kansas over the next week or two, prices could certainly eat up. I don't want our guys trading futures and wind up looking at a $2.00 margin call on corn. If we do move higher I want our guys to be looking at making more sales if we get to $6.00 and $7.00. So it's just a marketing strategy. But the key in any marketing strategy is to have one and to be willing to pull the trigger and to actually do something rather than just look at it.
Pearson: Having a marketing plan and following it, more important than ever.
Pearson: Alright. Now, we do have a question, Gayle in Remsen, Iowa is curious about that move we talked about on the show, that 50 cent drop in beans on Thursday. Gayle is curious, did the soybean market take the decline in price on Thursday due to investors anticipating a switch from planting corn to beans due to the cold damp weather? Was that a factor?
Gold: I don't believe so. I believe the funds have been certainly long up in the front. They need to be rolling some of these positions out into November. And the spreads took a huge hit. 40 cents of that was the old crop going into the new crop. I really believe that the market is starting to wake up to the fact that we are importing soybeans into this country from Brazil, we're actually seeing a couple of loads offloaded already, the numbers keep getting bigger and bigger in terms of how many bushels. We've gone from 15 to 18 to 20 to 28 now. So, these are numbers that certainly help that balance sheet in the long run and ease the tightness. Now, there has been the question, once the beans get into the port, how are they going to get them out of there? That's an interesting question. I'm not quite sure but they'll manage. Where there's a buck somebody's going to figure out a way to move those beans. And just the thought of them importing beans has been enough that the market took the hit. Now, we've seen other things, we've done this before several times over the last four or five months where we've seen a 50, 60 cent drop in the market and then the market just comes right back. I think it's going to be a little bit tougher this time because I believe we're actually seeing the beans come in. I believe the problems in China are for real in terms of their economic issues. There's a lot of cargos at sea looking for a home. So, I think it's a little bit different this time. And, again, as we talked about on the show, I think it's going to be pretty tough to take out those highs that were made on Thursday in the corn and the beans any time soon. If we do that any time between now and the summer then you could have an explosive market, one that could move significantly higher. But right now I would certainly be more concerned with protecting the downside than I would be worried about losing something on the upside.
Pearson: Alright. Now, Mark, as part of our new initiative called Market to Market in the Classroom, we like to ask our market analysts sort of where you get your information, how do you come up with what it is you do every day. And so we've got a couple of questions tonight we'd like to ask you and then eventually these will all be found on the Market to Market in the Classroom website. They'll all be up there. So, to begin, we've actually got a question from one of our Twitter viewers that is a spectacular lead-in. JD is asking, what affects the market most, domestic fundamentals or international instability? What is the market mover, fundamentals or technicals?
Gold: Well, I believe a market is moved by the fundamental supply and demand picture. The technicals will, in many cases, switch before the fundamentals justify it. So, when you were at a higher market like cattle, for example, in feeder cattle, we know we have incredibly low numbers. What will actually turn the market? The market will turn technically first before we find out maybe that there's more cattle out there or a problem in demand or something else. But what got that market to those high levels in the first place was the supply and demand. And that is a domestic issue. Certainly internationally, as we export more and more of our products around the world, the international picture and what is grown internationally certainly affects the market. The bean market is going to be affected by South American production. The wheat market is going to be affected by European wheat growth, Russian wheat, Argentinian, Australian. So, wheat is probably more of a world market than any of them. But certainly it's going to have a play in it. But domestically when we look at corn, wheat and beans, cattle and hogs, it's the local, not the local, but the domestic supply and demand that is really going to move that market. And then ultimately the fundamentals will switch and that will tend to lead a market down or change direction at any rate.
Pearson: Alright. Now, another question we've got, and we're talking to high school students as our audience here. What oversight or regulation is there for commodities markets?
Gold: Well, there's two main oversight groups. There's the CFTC, Commodity Futures Trading Commission, which monitors the exchanges and the activities on the exchange. So, they're the ones that are responsible for any new contracts, for allowing them to be put in. They're the ones that regulate the markets in terms of any type of market manipulation and any kind of squeezing going on, the guys trying to corner a market, if you will. So, you've got the CFTC as the oversight of the exchanges. You've got the FIA, the Futures Industry Association, which really governs the brokers, the people who are interacting with the customers. Now, certainly the CFTC can step in if they see anything that they want to do, they can do it. But it's certainly the FIA that is watching the individual brokers that they're advertising is honest, that their claims are credible, that they're registered, that they've taken the Series 3 exam, that they're licensed to do business and all that. So, you've got the FIA for the brokers, you've got the CFTC for the exchanges and those are the major oversights. But keep in mind every major clearinghouse today, clearing firms, Goldman Sachs, R.J. O'Brien, all the clearing firms, they all have their compliance and oversight committees and teams that are watching the brokers and what they do very carefully so at the hint of anything wrong they're right on top of it long before it should get to the FIA. And all of these things combine to help make the integrity of the market what it is today.
Pearson: Alright. We've been hearing a lot in the news about high frequency trading. We hear a lot about the headline reading algorithms in computers and that sort of thing. So, what chance does a single investor have against that type of technology, against the high frequency traders and so forth?
Gold: Well, I'm a guy that trades a fair amount and it's tough. And the average guy in the short run trying to beat these high frequency traders, is a day trader, is in for a very tough go. Now, there are plenty of computer programs out there available to the public that try to look at relative strength and moving average to try to give a guy an edge on some of these things. Personally I'm not a fan of those programs. I find them difficult to work with, let's put it that way. But in the short run if you're trying to day trade these markets against these computers, I think you're in for a very tough time. What you can do is these computers really only affect the very near-term prices very quickly. So, if you're a long-term trader looking at trends over a period of time the high frequency traders will have very little to what you're doing because the supply and demand in the long run will rule the market and not the high frequency traders. Probably more important for a long-term trader is what are the funds doing. Once the funds get a hold of a market one way or another they tend to push it and steamroll it, so that has much more of an impact in the long run than the high frequency traders would have.
Pearson: Alright. Well, Mark, we appreciate you taking the time to be here with us tonight and to answer our questions.
Gold: Always a pleasure, Mike, glad to be here.
Pearson: Alright. 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 get expert analysis right to you. Thanks for watching and have a great weekend.