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Market Plus: Mar 04, 2011: Market Analyst Darin Newsom

posted on March 4, 2011

Market Plus: Mar 04, 2011: Market Analyst Darin Newsom Pearson: This is the Friday, March 4, 2011 version of Market Plus. Thanks for joining us here at our Market to Market website. Tell your friends and neighbors to join us here too and of course remind them that this is Festival on public television throughout the country and this is a chance to show their support for this program by dialing in a pledge at their local public television station. And of course if your local public television station is not airing Market to Market give them a call, get on their case, tell them you want to see the show live on your local public television station.

Pearson: I'm Mark Pearson, with me this week Darin Newsom and Darin very well known in the grains business for his work at DTN. And we opened the show, I'm going to get a lot of complaints because we opened talking about energy and metals and foreign currencies but that's what's been dialing into these commodities markets really for the last three/four weeks. Really since Egypt blew. Really since Tunisia blew. So it is having a big impact on us, but the other big thing we talked about at the very end of the program and those are those big funds rolling in and out of these various commodities looking for what's cheap and buying them and this week they backed out of hogs. They must have backed some into wheat because we have a nice rally in wheat.

Newsom: Yeah, you know, we can look at the CFTC Reports and we can see what these - the non-commercial long positions or the net long positions whichever classification you want to look at and you can see how over the last two or three weeks money was coming out of corn, soybeans, and wheat. It was moving into the energy markets. Certainly seems to be changing a bit again. Wheat did seem to draw some attention. I think the dryness in parts of the U.S. growing area certainly contributed to that. The weakness of the U.S. Dollar also certainly helping but it is interesting. We can watch the way the money flows in and out of these markets and the way these markets react basically is this buying is met with little to no resistance regardless of what sector it moves into.

Pearson: And as we go forward and again we got a report out on Wednesday which is USDAs closest numbers and let's face it at the end of the day that's what everybody trades on. So that is going to be something that the trade is going to be watching but this news out of the Outlook Conference and I want to switch now to corn, 92 million acres of corn, they kind of dropped that number out the Outlook Conference which we normally don't expect. Everyone is so focused on the end of March Planting Intentions Report. In the last few years we know that that one can change dramatically from March to June as well. So there is the two main things that we have from a government standpoint. So we do wind up getting affected more by headlines don't we?

Newsom: We do. Right now these are headline driven markets. They feed -- they feed the computers and then turn those headlines into orders that send markets going scurrying off which ever direction they might want to go. In the corn you're absolutely right. Now I think the biggest thing this coming Wednesday that we're going to see is the old crop whether or not we drop that ending stock - down below five percent. If we find some extra demand, cut supplies again, whatever might happen, drop that a little bit below five percent that would be the tightest domestic situation that we've seen on record. So, I think the market is certainly going to be watching that. As for the acreage, you know, it's pretty well, you know, tabulated now that if it comes in at 92 million probably not going to have enough new crop to start rebuilding stocks again.

Pearson: Back in 2004 we had very tight soybean supplies, cash soybean supplies, and literally we were moving beans all over the country and we saw strong basis levels. Same situation for corn in 2011 as we get into the August time period of course depending on where the crop is?

Newsom: I think so. One of the markets that I really like is the cash corn market. I think you feed this thing very slowly because the basis should start to firm even if the market runs as high as it possible could, you know, comparing it back in 95/96. I don't think you're going to see the basis collapse. I think the basis could go with it. Certainly indicating the tight supplies that we're looking at here to finish off the marketing year.

Pearson: All right. Well a lot of producers are out there wondering, concerned over what's happened over the last couple of year weather-wise. April is going to be a critical month. We will see how much corn gets into the ground and how quick and of course that's really where we start the real weather market will be the planting season. Problems there - do you think this thing could get unhinged?

Newsom: Yeah, we have no margin of error when we start looking at that 2011/2012 particularly if it is only 92 million acres that gets planted. So, there are going, you know, the markets as a whole, traders as a whole are going to be watching the progress. They are going to be watching to see if there is any type of planting problems, any type of early season growing problems, all of these things. The flooding that is being talked about. All these things are going to come into play and should certainly keep corn a very volatile market moving forward.

Pearson: Ok. Tight supplies for corn, tight supplies for wheat, tight supplies for soybeans, very tight supplies on cotton. So, you're still saying keep some - keep some flexibility in that marketing plan?

Newsom: I think so. This is not a situation. These are not markets that you want to get way ahead of. This isn't something you are going to be wanting to unload a bunch of deferred contracts on. Let it play out a little bit. Sell a little bit? Yes because they are very good prices but keep enough back until we start to see some sort of structural change, some sort of dynamics change in these markets, other than that looks like they just want to keep going in the trend that they are.

Pearson: All right. Final question. The YRC Report. Ok, let's say we haven't reduced demand very much and we're going along at about the same pace. We've dropped below five percent. What's that market going to do?

Newsom: You know if we compare it back to the same situation we saw in 95/96 it would project, I don't want to be the first eight dollar bull out there maybe there is already others talking about it, but it would project to an 8 to 820 market, old crop market. New crop market would certainly follow along. So, is it impossible? No because if they reduce that ending stocks to use I think you're going to see fireworks coming in the corn market.

Pearson: Just on the surveys I have done, I've talked to a lot of the people in the processing business, a lot of people in the ethanol business, they're not backing off at all. Cattle feeders haven't backed off at all. They fed a lot of junk corn this year but they haven't backed off much. Hog numbers are staying pretty steady. Poultry numbers, we haven't seen boiler sets drop Darin. I mean so the feed side we're not seeing ethanol. So it's going to be an interesting report from the USDA Wednesday.

Newsom: It certainly should.

Pearson: Darn Newsom, as usual appreciate your insights sir. Thanks for being with us. Thank all of you for joining us on Market Plus as well. Make sure you tell your friends or neighbors to join us here and again this is Festival on public television for the next couple of weeks and we're going to be airing our show at different times. So, be on the look out for us and of course always be ready to join us here at our Market to Market Website. From all of us on Market to Market, I'm Mark Pearson thanks for being with us and have a great week!

Tags: agriculture commodity prices markets news