Pearson: This is the Friday, June 6, 2014 version of the Market Plus segment. Joining us now is John Roach. John, welcome back.
Roach: Thanks, Mike.
Pearson: We've got a lot of questions here from folks curious about the bean market. You mentioned a couple of the factors at play on the new crop side. Danny in Baldwin, Illinois is curious, where do you see this new crop soybean market shaking out?
Roach: Danny, I think it's important that people understand what the government economists are saying. We learned a long time ago that the USDA economists, when they forecast prices, do a pretty good job of it. Now obviously things can change and they have to change their forecast every month. But the current forecast for average prices for next year's bean crop, the crop that is planted now, is $9.75, sorry, yeah I'm right, $9.75 to $11.75 a bushel. And the market is trading over $12. A lot of cash bids right now are near that $12 or slightly underneath $12. So, cash bids for most farmers are above or at the upper end of what they think the range is going to be and it's a wide range. It's a $2 range. So, the important thing producers need to understand is that we're going from very tight supplies that were caused by disappointing crops in Brazil and then disappointing crops in the United States, a good crop in Brazil and then disappointing in the United States. So we end up having enough beans this next year that the government is forecasting prices that low. And so I think producers need to really focus in on getting beans marketed this spring. When we get sell signals in the market you need to be there selling pieces of next year's crop.
Pearson: Does where we're at on Friday look like a sell signal? Is there a sell signal on quite yet or not quite yet?
Roach: No. Two weeks ago we had a solid sell signal that came on a Friday, lasted for two days and now the market is clear down on the other side. We have gone all the way down really to the beginning of a buy signal. We're not buying beans in here but the market has shifted that far. But surely we'll have some bounces and some opportunities to make sales and even at today's price level if you haven't sold any beans and you're getting really nervous, a small sale might not hurt. I think by fall you'll be happy with any sales that you're making here during this timeframe.
Pearson: Something up near $12 probably not going to hurt the bottom line at the end of the year.
Roach: If it works in the bottom line then you need to pay attention and you need to get some work done.
Pearson: Alright. Now, we've got a question from Wayne here in Shelby, Iowa and it's a question I'm sure a lot of farmers have. We watched that old crop corn market rally into the beginning of summer, end of spring and it has cooled off a bit. And Wayne in Shelby is curious, is there any chance for a rally in old crop corn or can we expect a dead cat bounce?
Roach: I think the market can rally some. I mean, I think the first thing we have to do is we have to source corn. We're continuing to ship and sell and consume corn and so we have to source it from farmers and farmers don't like this price. And so farmers have the ability to kind of dig in their heels and force the market. You've already seen that occur this week in basis move, basis in most areas has gained over the period of the last couple of weeks and really became kind of strong here this week in various markets. And so we would pay close attention to that and we'd take advantage of some strong basis and make maybe a basis sale and shift our ownership over to futures if you want to continue to wait for that. But for sure take the next rallies that we get in here and be willing to sell corn, old crop corn, because we're not in tight supply on old crop corn. It's hard to get it out of farmers' hands but they have plenty. Toward the end of the summer they'll sell it willingly.
Pearson: Alright. Now, we've talked about old crop corn. On the new crop side, just to dig in a little bit deeper, we've talked about on this show in the past how the ethanol industry is going to be facing some regulatory issues here over the next year, we're going to have the EPA coming out with their regulations. But we're seeing tremendous demand on the livestock side, both in America and around the world. Is the livestock feed demand going to be able to pick up corn demand from the ethanol side going forward do you think?
Roach: I think the ethanol business has become kind of a quiet spot in the corn market. It's quiet, solid demand that's not going to change much. It's just going to kind of stay at the levels that we have, we're not building new plants, we're really not expanding much and so the level of usage that we have in the ethanol business will probably stay relatively steady. The livestock business on the other side has really had a surge this year. If you look at the worldwide coarse grain demand, which is all your feed grains with the exception take wheat out, the demand is up about 8.5% from last year. Now, anybody in the livestock business knows you can't expand livestock by 8.5% in a relatively short period of time. I mean, it takes a little bit of time to get that kind of expansion. So, people were doing some expansion or maintaining herd numbers or maintaining the ability to feed as we were in the tight supply situation prior to last harvest. But, as the harvest came on and we had the supplies become available the worldwide demand has been very strong. We think the demand is going to continue strong. Livestock prices are strong, they're going to stay strong probably. There's good profitability in feeding livestock around the world. So, we think the government is a little conservative on their usage estimate for next year in the world and we think exports will be a little bigger and we think acreage is a little smaller and they're already forecasting record yields. So, we think if there's a situation here that could turn a little positive, we think it's in the corn market and a little negative over in the bean market.
Pearson: A little more bull potential on the corn side, a little, maybe a little more bearish on the bean side.
Pearson: Now, John, before we let you go, we have been asking all of our analysts questions about what they do to prepare for their day-to-day jobs and what they do to prepare before coming on the show. And these questions will be a part of the Market Plus website and then they'll also be found on the Market to Market in the Classroom website going forward. So, we've got just two questions for you before we let you get out of here. What oversight or regulation is there for the commodities markets?
Roach: Well, we have the CFTC, the Commodity Futures Trading Commission in Washington, that is charged with regulating the commodity markets. Then we have a self-organization called the NFA, the National Futures Association, it's an organization of people in the industry following the CFTC laws and rules and so forth and they are charged with implementing those. And so we're -- those rules continue to become more and more complex every year and with the new regulations and so forth we're, I would say, watched very closely by the regulatory people.
Pearson: Alright. What chance does a single investor have against high frequency trading, computer headline reading algorithms and that sort of thing in the markets?
Roach: I think that they have as good a chance as they have ever had. The high frequency trading causes a lot of noise in the market and the algorithms and so forth, I mean, there's -- but the bottom line is the biggest money that is made in the market is getting onto a move and staying with the move for a long period of time. And sometimes all of those different indicators will have you doing things other than recognizing this was a huge hog market move to go to the -- this is a huge move in wheat up and then a huge move back down. You see, those longer term moves are what you're looking for as an individual speculator and you have to tune yourself into recognizing when a trend begins and then stay with the trend as long as you can stay with that trend. As long as it continues to move. Most of these frequent trading type programs miss out on those big moves.
Pearson: They're in and out.
Roach: They're in and out too much.
Pearson: Alright. Well, John, thanks so much for taking the time to be with us this weekend.
Roach: Thank you very much, 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 get expert analysis straight to you. Thanks for watching and have a great week.