Pearson: This is the Friday, June 3, 2011 version of Market Plus. Thanks for joining us at our Market to Market website. With us this week one of our regular market analyst Elaine Kub. Elaine good to have you with us.
Pearson: We've been talking a lot about the corn market and the bean market because of pricing. The wheat market because of pricing. We've got some spread activity that is pretty interesting when you look at these markets. Talk about that. What are you telling people?
Kub: Right. Well, the big one that makes - that is getting a lot of speculative interest is the July to December corn spread because it is very wide. It has been as wide as a $1.22 but that was months ago. I think probably a fair price is somewhere in the $.70 range just to reflect the different supply and demand between old and new crop corn. But that's a very volatile spread and it is a tricky trade and there is nothing that a farmer can really do about it unless they harvest their corn really early in September which is hard to do after a late spring. But the spread that someone can watch and gleam some information from is the September to March spread. The December 2011 to March 2012 spread which in a typical year you would see that be $.11 cents to $.15 cents to reflect three months of carry and right now it is trading around $.10 but it is very thinly traded. There's not very much commercial trading going on in that spread right now. Very few people are holding their hedges against the March at this point. So you can't get much out of it yet but you can certainly watch it and if it gets much narrower that would reflect very bullish viewpoint from commercial traders.
Pearson: You would have to think the viewpoint is bullish. We didn't talk about it on the show but is your acreage number? What do you think we're going to be at for corn?
Kub: Ultimately by the time fall rolls around I wouldn't be surprised to see it less than 91 million acres but how much is that going to get trimmed down month by month by the USDA? I don't know.
Pearson: Well, it is going to be interesting to see with the wet conditions in Ohio and now the flooding in the Missouri. The wet conditions continued up in North Dakota and parts of South Dakota and of course the additional flooding that is occurring up in those states as well. So there is a lot of things out there that really are not going to point to an idyllic situation but a very tight carry out for corn for 2011. I think everybody agrees on that. Can these markets really pull back that much? You mentioned the spread on ethanol to the RBOB and there is room there for ethanol plants to stay in business and stay buying.
Kub: Yes and exports with the dollar low and low shipping costs. Yes, there is really nothing that is standing in corn's way right now as long as we don't have any drastic shocks to the market. I agree with that and you talk about these wet fields, it looks like rice paddies out there, and even the ones that aren't specifically underwater I've seen a lot of them that are very muddy and corn doesn't like mud. It leaches out nitrogen among other things and there are some very good fields. There are some farmers that are going to have record yields and record prices and it is going to be amazing for them but as far as market wide I think you are definitely looking at cut acres and cut yield.
Pearson: All right. Now we had a big South American soybean crop this year and we haven't heard that much about it. But we still have strong demand going forward from China for soybeans and you mentioned in the show tonight you're more bullish on beans than you are corn.
Kub: Absolutely. Just because corn has been getting a lot of attention and it has certainly won this battle for acres. People are definitely financially motivated, economically motivated to plant corn as late as they can this year and that means who is planting beans? These acres that are lost to flooding those are effectively lost bean acres because people are planting whatever corn they can.
Pearson: All right. So we can see again just bullish scenarios all the way around the marketplace but it can. If you're in that area for instance Ohio, for instance North Dakota, for instance those areas that have crop problems or in the good bottom ground of the Missouri River, you've got some problems this year.
Pearson: Elaine as usual bringing some great insights. We appreciate you being with us on Market Plus this week and of course for joining us on Market to Market. And from all of us on Market to Market, I'm Mark Pearson thanks for watching. Have a great week.