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Market Plus: Blue-Ribbon Panel

posted on August 22, 2014


This is the Friday, August 22nd version of the Market Plus segment. Joining us today is our blue ribbon panel of experts. We've got John Roach, Naomi Blohm, Tomm Pfitzenmaier and Sue Martin all joining us this evening. And we have a special event going on here at our Johnston IPTV Headquarters so we'll be showing you some cuts from our control room, see how the sausage gets made as it were here at Market to Market. But we do have a crowd in Studio III and they have been asking some questions so those are the questions we're going to lead off with tonight. And we've talked a little bit about the Ukrainian situation during the show. And we've got a question here. Our fans from Nebraska out in North Bend are curious, how bullish shall we market winter wheat? John Roach.

Roach: Well, I think bullish is probably the wrong word. I mean, if you look at any of our grains, although we have some reason for some optimism and some bounce and so forth, bullish is probably the wrong word or adjective to use. We have reasons for the market to stage a rally. There could be longer term reasons, depending on what happens in the Ukraine and Russia, but for a moment at least we see shorter term reasons for rallies. And on those rallies you need to be dribbling into the market.

Pearson: Looking at 2015, making some sales there for this year's winter wheat going into the ground? 

Roach: I would be looking at the wheat that is in the bin from the harvest, the recent harvest and very light sales into '15. We really like to hold off sales until we get toward the end of the year. Traditionally that's a better timeframe.

Pearson: Even with all the unrest overseas the market hasn't responded with enough of an incentive into 2015. There's not enough uncertainty, Tomm Pfitzenmaier, as we look out to the future?

Pfitzenmaier: No, I'm kind of with John, I'd make a few sales in but I wouldn't get real carried away with it I guess.

Pearson: Okay. And Sue, anything else to add as we look at making, marketing some winter wheat?

Martin: Well, I think with the wheat there's where we're going backwards in production around the world. And because of that, it's probably more in quality than anything, and because of that if you've got France importing Lithuanian and Great Britain wheat to blend off and they might see that they need to do that again down the road because their weather has been kind of horrendous, you've got Saskatchewan, Canada dealing with bad weather, you've got North Dakota having had an issue. Okay, that's poor quality wheat. What that says to me is that Europe is probably going to feed their wheat out instead of importing corn and they're probably going to export what corn they have.

Pearson: Okay. Alright. Now, our next question is a topic we didn't get a chance to discuss on the show, which is the hog market. Naomi, our question here is from Tom in Freeborn County, Minnesota. And he says, what is with the highs and lows of the hog market? We discussed it briefly with John. What are your thoughts?

Blohm: The hog market had a big setback recently because we've had lower cutout values and just lower cash markets. The market in the spring had been expecting lower production totals because of the PED Virus. And what happened was, yeah, the slaughter numbers absolutely were down. But the weights were so tremendous that production barely was unchanged from year ago levels. So, because they had priced in all of this expected lack of production then that is why the market now has fallen because now they're trying to get back to alright, well where truly is demand and where are we going to be at for production going forward. And seasonally we're expecting the market to kind of stay a little bit lower here for the short-term and now we're also hearing talk of expansion for a lot of hog producers. So, the market I think is just really trying to get a balance on truly where the supply and demand fundamentals are right now.

Pearson: Okay. Alright.

Pfitzenmaier: I think there's still a lot of question marks about whether this PED was suppressed because of the heat in the summer and whether it is going to come back and some people say yes and some say no. So, there's a little uncertainty and it's going to be hard to resolve that I think a little bit.

Martin: And I think, Mike, we have to keep one thing in mind. With the Russian ban it maybe wasn't so hurtful to us, but to Canada, Russia is their number one buyer for pork. And our dollar has been on a rally. I see those hogs coming south.

Pearson: Okay. As they look there, one export opportunity is closed, we're the next closest. Alright. Now, our next question is from it looks like Larry in Algona, Iowa. And he is curious, this was a topic that got exciting during the show, Larry asks, what is the chance of cash corn going below $2.75 this fall. Tomm?

Pfitzenmaier: Slim to none.

Pearson: Okay. Do you think enough demand is out there to keep the cash price high?

Martin: He's talking basis.

Pfitzenmaier: That's pretty cheap corn.

Pearson: John Roach? 

Roach: That's too cheap. Not to say that in various markets you may see that. I mean, we see that already in areas where they're having trouble with transportation in the north and the northwest. So, I hate to see these kinds of prices we have already. But I think that's too cheap of a price if we're talking now but let's say a central Iowa bid.

Pearson: Okay. Okay, but as we look at the rail situation in North Dakota, South Dakota where they are growing a lot of corn and don't really have the storage, $2.75 is already a reality. Could it persist through harvest, Sue?

Martin: Well, it sure could and I think it will because already they have a crop on hand and now they're adding another one. It's just going to add to the situation. They might be able to move some of it into Minnesota by truck. But one thing that, with the corn market, I think we've hit a ledge, we're bouncing back and forth on the corn market, but I think overall we're trying to push our way higher here and probably into the turn of September. And then I would keep a very close eye on this market because I think there's one little more slip in this market for prices on the board. And I think then, and that might take you down to like around $3.27, $3.30, maybe $3.25. I don't think we go any lower than that. That would be my extreme. And then I think the market does the unthinkable and it just goes flat and we stay there as we go into the winter until all of a sudden they start bidding to get farmers to move some corn. And, you know, farmers aren't quite as well healed this year coming up as they were this past season.

Pearson: That's right. A little less ability to maybe sit on it as long as they could have.

Martin: Exactly. But, Mike, one good thing overall, and I didn't say it on the show, but overall just over the past two weeks there's been $700 million globally move into the commodities markets in funds. And that is, usually I doubt that they would be looking at the short side of some things. I think they're looking at things being cheap and trying to find some areas to invest in and let's face it, interest rates are bad and there's starting to become some concern about the stock market, a little uneasiness there. And so I was pleased to see that we had had it move into commodities. We haven't seen that for a while.

Pearson: Yeah. It's been a while so hopefully maybe they're finding some compelling stories in the commodity side of things.

Martin: Exactly.

Martin: Now, we would be remiss, Naomi, as our native Wisconsinite, big move in the dairy market this week, $1.40 both on the nearby and deferred. Talk us through it. What happened?

Blohm: It's a lot of, it's a combination of technical buying, we got through some major chart resistance, but we've got front month milk now up at $24, which is record high, near the highest that we've been in years and it's amazing that it can do this because we just had a milk production report come out this week that actually showed that milk production is up 3.9% year-over-year right now. And anything over 1% is considered just huge. And so to have 3.9% it's just amazing. So, we're having the largest cow herd for the dairy market right now since 2009 and the demand market is strong. This is absolutely a demand led market. So, we had not a hot summer so the cows were able to have good production numbers that way. But it is demand led. And one thing that is very cautious right now that we need to be very aware of is how the butter price and the cheese price is actually trading at a much higher premium to the global dairy trade. And when that happens it's usually then we have to come back to reality and we have to come down. And all that is done for the past year is just keep the market in check. So, it allows for just a nice correction but we're still in this uptrend but it is only demand led and it's because we're presenting product still to Mexico and South Korea and to China ultimately.

Pearson: And so China, that is the driver, if we're looking at things.

Blohm: Yes.

Pearson: And now there has been some concern, well, over the past really a year about the Chinese economy slowing and perhaps some misleading signals. While we've got the brain trust here, do we have any thoughts on our biggest trade partner? Are things looking stable, John?

Roach: You said brain trust and you looked at me. I'm wondering if you must be mistaken. Chinese economy is growing at 8%. I mean, we look at the stock market and we go, the S&P is at 2,000, we're at 17,000 on the Dow, but this demand for all of the stuff we're doing in agriculture is not so good. Well, wait a minute, really it is, it actually is good. So, I think that the growth around the world, economic growth around the world has been held back for years and years and years and we're just now starting to gather some steam and the stock market anticipated this a long time ago and started its run quite a while ago and now the world's economies, they're actually starting to crank up a little bit. We've got some problems in some developed areas but we don't do a lot of business there anyway. It's the poorer countries or the less developed areas where we're seeing all the growth. And so I think as you look at this in agriculture you know that you're going to have years with big crops and cheap prices. Don't assume that's going to continue into next year. The proper assumption, from my point of view, is next year we're going to hurt to try to get enough crop produced to satisfy the demand. We're going to have to hurry to get that job done. And that is what we'll be trading in the spring. We're not going to trade it next month. If we've got a problem with big production we're going to have to work our way through that. But when we do we're going to find how big the demand really is out there for cheap priced commodities.

Martin: And I think, Mike, the ethanol industry has seen beautiful profitability and they're going to be in the market very aggressively processing for ethanol. Yes, we've got DDGs but we're going to find other markets for those DDGs as well. I guess I think too that we've got a much better market coming in time. And I said this last weekend, I think we're in the 70s in a quirky sort of way.

Pearson: Okay. Alright. Tomm, do you have any thoughts?

Pfitzenmaier: I guess I'm not sure, again, I don't see the big demand rush that everybody else at the table seems to. I'm not quite as optimistic I guess.

Pearson: Naomi?

Blohm: You're right from the standpoint of it's not going to like all of a sudden just increase this demand and we're not going to see new, new demand coming. But it just keeps it firm and it just keeps that base building and constant. And so then what John had said about all of a sudden if we get a hiccup in production along the way then we're in trouble again and it could happen pretty quick. So, it's going to be another big year for agriculture.

Pfitzenmaier: Production has been continuing to increase. Why would that increase stop? We're talking about an El Nino next year and an El Nino that could impact South America.

Roach: Because you can't produce corn for $4.

Pfitzenmaier: Why not?

Martin: It's not profitable.

Pfitzenmaier: Well, nobody -- are you kidding me, you talk to farmers, you know they don't run out of optimism that fast. They still think things are going to be $6 next year. So, I'm not sure that they're going to drop out of the market that fast.

Roach: We put a lot of pasture ground into production. We had lots of incentive to do that. We raised our total planted acres in this country by about 10 million acres over a period of, you know, a relatively short period of time. And we can take it back down 10 million acres and put it back into pasture and we will do that not in Iowa, don't expect to have it in the heart of the -- but go out to the fringe areas where your productivity is a little less --

Pfitzenmaier: And do what, put the 20 heifers that people are going to withhold, hold back on that pasture? I mean, what are you going to do with it? Just let it sit idle?

Roach: Maybe.

Martin: I think another thing too we have to keep in mind is that when you look at China because they seem to be the one that gets all the attention, but in my opinion, China, yeah they say it's food security, food safety, well they need to start in their own backyard aggressively. But I think that when you look at China their situation with they had 90 to 100 million metric tons of reserves, state reserves and last year's crop couldn't have been that special. And so I think that -- because they had like 13 typhoons. But I think that is happening is, and they're already downsizing on estimate their production in the northeastern part of the country by 3.5 million metric tons. So, from 222 you go on down. But that said, I think that China stopped the imports and on DDGs too because they wanted to work off a third of the state reserves and they can't do it and even then they're not selling everything at the auction. So, it makes you wonder, is it all really there like they've been saying? Have they really had the production they've been saying for years? Or have they been sort of telling us stories?

Pearson: Maybe inflating it.

Martin: Yeah. It could be a smokescreen. But I just think this is to get that old stuff out of the way because they have a growing economy, increasing pork production, poultry and they're going to then turn and import back again and start to clean up with some better updated quality product. In the meantime, their consumer is caught. He has to pay the price.

Pearson: Pay the price or not eat.

Martin: Well, and they even diverted it and went and started importing sorghum and barley. So, now they're going to get them on importing sorghum and barley and testing them for metals and pesticides.

Pearson: Alright. Well, I think that's going to wrap up our Market Plus segment tonight. I want to thank all of you for taking the time to be with us. Again, Sue Martin, Tomm Pfitzenmaier, Naomi Blohm and John Roach. Thanks for all your support on Market to Market over the years. And thanks to all of you for continuing to watch Market to Market. We're beginning our 40th season. Please stay along with us. It's going to be a fun ride. Keep watching Market Plus, tell your friends and again next week submit your questions via Facebook and Twitter and we will have more expert market analysis right here for you. Thanks for watching. 


Tags: agriculture analysis commodity prices economy John Roach markets Naomi Blohm Sue Martin Tomm Pfitzenmaier