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Market Plus: Apr 29, 2011: Darin Newsom, market analyst

posted on April 29, 2011

Market Plus: Apr 29, 2011: Darin Newsom, market analyst Pearson: This is the Friday, April 29, 2011 version of Market Plus. Hey thanks for joining us here at our Market to Market website. I'm Mark Pearson. With me this week Darin Newsom and Darin there is so many things to hit on I'm not sure where to go. This Fed Chairman thing was interesting. He did give away a lot, I felt, everyone seemed to be yawning about what the Fed Chairman had to say. Boy, I thought he was very specific. QE2 is going to end but we're going to reinvest the assets which basically means QE2 is going to continue which means continued easing is going to mean a cheaper dollar going forward. Wind at our back in agriculture. The commodities responded with silver going to record highs. Gold going up. Crude oil going up.

Pearson: The only thing going down really was wheat which is somewhat surprising with what we're looking at there for a crop. Sort all this out for us Darin. I mean should a lot of - a lot of producers are out there. A lot of dollars are on the line in 2011. A lot of crop inputs. We've got to make sure that we're covered. We've got crop insurance. Maybe not if you're in North Dakota and you get preventive plantings more than two years.

Newsom: Right. There is so many - there is so many different ways these things can play out, but we've got these incredible prices. If we think we're going to have production we need to find some way of it at least establishing some floor prices. I mean we've been looking at that. You certainly don't want to be short most commodities at this time because again the dollar we have no idea where it wants to go but it certainly looks like it wants to go back to that March 2008 low. So, with the dollar continuing to weaken it looks like commodities want to keep going up. Those commodities that have bullish fundamentals really there is no reason to start getting short those because the money is going to come pouring back into the market and I think there is a long term move yet but we want to protect ourselves in some way, shape, or form. We're going to see moves like we saw this week. The sell off in the wheat there was some rains that formed over parts of Kansas. Will it make any difference? Probably not. But it was enough to get the market triggered and these are the type of high volatility markets we're going to be dealing with the rest of 2011.

Pearson: They may get more volatile. They're talking about corn going to a fifty cent trading limit. Boy for a hedger that's pretty scary.

Newsom: It is. What it does basically is drive hedgers out of the business. You have out of that part of the business, you have to find other ways of managing your risk through options, as you said, through insurance and these other ways because holding a hedge with a fifty cent daily price limit is going to be very difficult for many producers. Producers of any size who grow a great number of bushels.

Pearson: We're going to get the number in June and we'll find out what reality is but end of March we were talking about this ninety-three million acres which you alluded to on the program. You said well, I don't care if we hit ninety-two or ninety-three, you know, is it in right and is it productive? Well, we're talking about maybe a million acre loss out of the Dakotas alone, Darin, we're not going to be close to ninety-three million acres are we?

Newsom: No, it doesn't look like it. I don't want to be the first one to say look the corn is in this drastic situation but I guess the biggest point is that even if we have the acres that USDA is projecting and if we somehow are able to get ideal planting conditions which we haven't had and growing conditions and were able to approach that trend line yield we're still not going to increase our stocks enough to call it - to alleviate the tight situation that we had there this year. So, I think it is just going to be a situation that gets tighter and tighter because I don't think we're going to see these ideal conditions going forward. And I don't care if we get the ninety-two/ninety-three million acres there is still a potential for loosing those acres but if we don't it is going to be a tight situation.

Pearson: I'm a big fan of Elwynn Taylor, followed him for years, climatologist from Iowa State University. He confirmed a couple of days ago to some colleagues of mine that we're in a strong La Nina. That's never good for Texas, Kansas, Oklahoma. Typically it means more volatile weather in the upper Midwest. Well we're certainly seeing that. Another thirty days that - that becomes a pretty serious issue.

Newsom: Yeah, it will. We're already deep into a weather market and if we start throwing all these other factors in it's only going to get worse. So the next, as you said, thirty days, forty-five, sixty days going to be incredibly volatile and I don't see any end to that at all.

Pearson: Is there complacency in Chicago? Is there a complacency that derives from the fact that they believe producers are always going to get the crop in?

Newsom: There very well may be and it is kind of this wheat mentality. Again it rains one time --

Pearson: We kill it five times.

Newsom: Exactly. It rain once and it is fine. We get three days of sunshine in the Corn Belt and we're going to get all the corn planted. So, I do think there is this mindset that ok, let's prove that there is a problem and in the meantime we're going to take some of this money, like what we saw this week, out ag markets, move it over into the precious metals because we do know that the dollar is going to stay under pressure. So this is where this movement of money comes from on the idea, as you just said, that it might have to be proven that there is actually a problem longer - longer term problem.

Pearson: And that's how you explain the fact they sold what forty thousand contracts to corn in one day? I mean who is doing that? We haven't got a crop in the ground. We're at three percent in Iowa, nine percent nationwide, and they're like whoa let's get out of the corn thing. That's going down.

Newsom: Yeah, I was visiting with some folks on the floor and some reporters on the floor that day and it was fund liquidation. It was not commercial selling. It was not on the idea that the fundamentals had changed. It was simply let's get out of this and move into something else.

Pearson: Ok and the metals have picked up the balance.

Newsom: Precious metals.

Pearson: Darin Newsom, great to have you with us. Appreciate your insights as usual. Good to have Darin join us. I want to thank all of you for joining us here at our Market to Market website as well and from all of us on Market to Market and for Darin Newsom, I'm Mark Pearson, have a great week everybody!

Tags: agriculture commodity prices markets news