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Market Plus: Apr 15, 2011: Host Mark Pearson and analyst Don Roose

posted on April 15, 2011


Market Plus: Apr 15, 2011: Host Mark Pearson and analyst Don Roose Pearson: This is the Friday, April 15, 2011 version of Market Plus. Thanks for joining us here at our Market to Market website. Joining us this week and on the show and here on the Market to Market website is Don Roose one of our regular market analysts.

Pearson: We covered a lot of ground, Don, in the show. A couple of things we want to key on here in this segment. Goldman Sachs gave us a big signal. They said hey for the time being we think we better take some of the money off the table in commodities. Their name resonates with everybody that trades. They're big on buying low and selling high. Look out for some of these new crop contracts. These are pretty attractive prices. What are you telling people? What's the risk management scenario right for particularly for grain producers and the livestock producers?

Roose: I think first of all when you say when you start to see somebody start to pull out of raw commodities like the funds are starting to do you have to be concerned and look around what your profitability is and so I think, you know, when you look at the risk management tools there are some excellent things you can do even right now on new crop corn you can buy six forty December corn puts. You can sell eight dollar calls. You can put a window on that somewhere around twenty-five cents. That's pretty reasonable for protection down to six forty and you still have a chance at eight dollars and you can do the same thing on soybeans with a thirteen dollar put and a fifteen or sixteen dollar call.

Pearson: And take advantage of those opportunities while they exist. You pointed out on the show rightfully it's going to be a volatile year. I mean the old crop is tight, we're anxious for new crop, obviously big demand if the ethanol surge continues. If China's growth and expansion and demand for raw commodities continues it's going - everything is still going to be on a hair-trigger. But a lot of times that causes people to not act and pretty soon the Goldman Sachs of the world have all gone away and we don't have that big liquidity coming in and out of this market. So, you're saying let's take advantage of this thing?

Roose: Well and even those - the program that we just talked about you still don't have a tight sale. You just have a huge insurance program on that says that you're guaranteed at least a very good solid floor and some huge profitability because those things can evaporate very fast and you have to be careful in these markets that you don't see the volatility go up or is two steps down and one up and you're missing the whole market. So that's the advantage of that Mark.

Pearson: All right. So at least take a look at some of these options, get some risk management in place, strategy for soybeans?

Roose: Well, in the soybeans I think it is the same thing. What you can do is - we closed about sixteen forty or so on the new crop beans. You can buy thirteen forty on the soybeans. You can buy thirteen dollar puts and sell fifteen or sixteen dollar calls, still gives you that range of protection of thirteen down. Still have the potential for fifteen to sixteen on the upside that's a good window also.

Pearson: All right. These are opportunities to lock in some profits for multi-years too.

Roose: Yes and I think the other thing it does is it doesn't lock into some real nervousness and freeze you when the volatility starts to really ramp up. But when you look at even 2012 corn zeroing in on six dollar corn, you can do some option strategies out there that are pretty attractive also.

Pearson: Another great place to start looking and start making some decisions. Bridge-over maybe any pull backs in price. We can still produce big corn and soybean and wheat crops here in the United States.

Roose: Well I think we forget that just under a year ago we were still at three fifty on new crop corn. I think we were going lower. So, this is just a short-term blip over all really. And we can build back these stocks faster than you think if you get the right conditions.

Pearson: What are you seeing for risk management for livestock producers?

Roose: Well, the livestock is going to follow the grain really for the most part and so if the grain market leaks lower the livestock will too. Really that's the reason we're so high here on the livestock in general because we've been following the grains putting that premium in. So, I think you do those same type of things. When you're out there on December cattle and you can buy some one eighteen puts and sell some one thirty calls, you know, the same type of risk management just makes sense.

Pearson: All right. Don Roose, as usual some great insights, some great ideas for getting the crop sold, and being profitable in agriculture which is the bottom line. That helps you live to find another day. That's for sure.

Pearson: So from all of us here on Market to Market, for Don Roose, I'm Mark Pearson, have a great week!


Tags: agriculture commodity prices markets news