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Market Plus: Mark Gold

posted on August 8, 2014


Pearson: This is the Friday, August 8, 2014 version of the Market Plus segment. Joining us now is Mark Gold. Mark, welcome back.

Gold: Nice to be here.

Pearson: We didn't have a chance to discuss the cotton market on the show. Would you like to give us your quick thoughts on there? A nice little rally this week.

Gold: Yeah, a nice little rally. It looks like we finally made a little bit of a bottom in here. We've been so depressed in this cotton market. We're certainly due for some kind of a rally in here. Again, like the grains, we might have gotten a little bit ahead of ourselves in terms of everybody just kind of piling on the bearish side of the market. And we'll see if we can't get a little bit of a rally out here. But I'm hopeful that hopefully at least until we get a little bit later in the season that the lows are in at least for a little while here.

Pearson: And there's nothing ahead of us on Tuesday's report, for example, that could really spike it lower?

Gold: Well, there could be some carryover from corn and beans in that report. But I'm going to stay hopeful and say that we have made at least a temporary bottom in the cotton market.

Pearson: Okay. And now you touched on people piling in on the bearish side of the markets. Shawn in Newton, Iowa has a question that kind of leads right into that. He is curious, if this year's corn crop turns out to be as big as expected, what would prices look like in 2015? I guess the corollary would be, should we be marketing today for 2015?

Gold: Well, we have already done some marketing on 2015 corn and beans with some cash sales quite a while ago. And those sales are obviously looking pretty good. We haven't gotten real aggressive on the put option side of that yet. But looking at how these things are settling out here I wouldn't be surprised if pretty soon we start looking at a couple of alternatives that we may still have some pretty good value that can protect that 2015 prices out here. If we're looking at big crops, certainly as far as '14 prices we can look at $3, sub-$3 corn prices. We can look at certainly sub-$9 bean prices. Hopefully it won't be sub-$8. But certainly that is going to have an impact on '15. We're still going to raise a lot of acres in '15 no matter what we do. Right now for the '15 corn/bean ratio there's still an incentive to plant a few more beans than corn. We'll see if that holds again. But there's still plenty of risk out there and I believe guys still need to be proactive on the marketing.

Pearson: And that is the question. You travel a lot throughout the Corn Belt. As this crop has grown and grown there really has been kind of a deer in the headlights approach to this from a lot of producers who never anticipated we'd see corn drop so far so fast. What is your advice to producers who have been thinking that, maybe haven't made the sales they'd hoped to have made so far, they have got their grain storage? How do you approach that heading in this harvest season?

Gold: Well, I think you've got to be more proactive and it's a little bit tougher now to do the marketing than you could have two months ago when there were some great opportunities out there. But the fact of the matter is that there's still things that can be done. There's short-dated options where you're not spending a whole lot of premium to try to get through the next month or two to get through these reports next week. There's cash sales that can be made. And guys hate to make cash sales when we're on a $1.50 break in corn but the fact of the matter is there's still potentially more risk out there. If you sell the corn you can always buy back a call option. Marketing isn't just about protecting the short side. A lot of people look at a marketing firm, where can we sell our grain and what is the best we can do there? Marketing is really a two-sided coin. There's the downside and then there's a potential upside to the market. And if you can manage both, in my opinion, with options I believe you can do a lot better than just looking at one side of the market.

Pearson: Alright. Now, speaking of looking at both sides of the market, or at least at one side of the market, we have had a lot of questions and Bill in Missouri is curious, with these low prices coming, when should folks look to price inputs? He asked specifically about ammonia, anything else. What are your thoughts?

Gold: Well, if we're going to move lower in here between now and let's say October, November, maybe through the first of the year, I believe that we're going to see these input prices come down a bit. We have generally seen that as a pretty good rule of thumb and there will be some discussion about can we get all the inputs around on the rail system but I think we will. And I still believe we'll see some spotty shortages maybe here and there. But for the most part I wouldn't be in a huge rush right this minute to be pricing fertilizer or any other real inputs at this point.

Pearson: Okay. Now, you mentioned rail issues. We have talked about using puts and calls to get some price protection on as we look at basis for a lot of producers especially in the western Corn Belt but perhaps even in the interior. What are your thoughts here as we look at this rail situation tied up with oil?

Gold: Again, marketing is more than just about a cash sale. Marketing is also about managing the basis risk. And we believe that because of the rail situation and the tightness of getting cars we're going to see tightness in the basis at the Gulf and at the Pacific Northwest. But in the interior markets if you can't get it to a route very easily and you need to rail that, that is going to cause some backups in these grains, particularly this crop as big as it is. So, we want to advise our clients and we have been advising them for the last several weeks, be looking at your local basis. If you're in an area of basis that is historically not too bad, 30, 40 under, somewhere in that range, go ahead and start doing some basis contracts. Keep in mind when you do a basis contract that isn't protecting your flat price, it is only protecting that basis. So you still have to manage that flat price risk as well. But if things get ugly this fall they're already talking about a lot of guys turning to these bin, these bags, these plastic bags to store the grain that they use a lot of in South America. We have seen sales of these bags increase dramatically in the last month or so. If we have this kind of situation where we've got that much grain the basis is going to take a hit and we'd want to be doing something about it now. A lot of guys their marketing plan is we'll throw it in the bin and then we'll look for the basis appreciation after the first of the year. Well, there might not be, if we've got this big of a crop and if the Brazilians and the South Americans have a big crop this basis might not improve any time soon. And then what are we going to do if we have another big acres and big grain in 2015? That is not a game I think is a good marketing plan. I think you need to be proactive and proactive right now.

Pearson: Be aggressive today. Certainly. Now, before we let you go I'd like you to kind of gaze into your crystal ball here. We've heard reports of Russia amassing troops on the Ukrainian border for quite some time. Jason in Iowa is curious, would a Russian invasion of the Ukraine rally the grain markets? Would that be a substantial bull mover?

Gold: I really don’t' think so. I mean, they have been in there, the pro-Russian troops have been taking cities. I don't think it's any surprise what Putin wants to do. Is it going to stop the Ukraine from exporting grain? I don't believe so. There's still going to be plenty of grain around. Is somebody going to retaliate against the Russians and say we're not going to take any Black Sea wheat? I don't really see that as being realistic. The gold will probably take a jump that could firm commodity prices a little bit. But in the long run I don't see a huge implication unless things get out of hand. Now, how do things get out of hand? One guy makes one move that he thinks he can get away with and all of a sudden the world kicks up its heels and now you've got a more serious problem. That would certainly affect grain prices in the long run.

Pearson: Alright. Well, Mark, I want to thank you for taking the time to be with us this weekend.

Gold: Always a pleasure, Mike. Thanks.

Pearson: And thanks to all of you for sending in your questions via Facebook and Twitter. We appreciate it. Please continue to do so and tell your friends to check us out on the website. Thanks for watching.

 


Tags: acreage agriculture analysis basis commodity prices corn economy Mark Gold markets midwest new crop grain soybeans USDA weather wheat