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Market Plus: Feb 25, 2011: Market Analyst John Roach

posted on February 25, 2011

Market Plus: Feb 25, 2011: Market Analyst John Roach Pearson: this is the Friday February 25, 2011 version of Market Plus. I'm Mark Pearson, with us this week our Senior Market Analyst John Roach:. John good to have you with us.

Roach: Thanks Mark.

Pearson: I want to talk about - and you said on the show and let's face it is our crop and it's the corn crop and very tight supply. There was a little scariness and you talked about it. We did go below a twenty-two day moving average in corn?

Roach: Twenty.

Pearson: Twenty day moving average in corn and you know a lot of technicians got really scared by that. You're not?

Roach: We were too. No, we thought that was a signal that the market might well be breaking down. The twenty day moving average is our proxy for what the trend of the market is. If the price is below the average for the last twenty days then it's trending lower. If it is above the average for the last twenty days it's trending higher and the corn market has made a huge move staying up above the twenty day moving average for some time and going quite a distance. This week it broke below and it broke below with power close -- down. Acted like it was really ready to sell off. The next day it came back and brutally punished anybody who sold that lower trade and today of course shot right back up again and attacked the old highs. Contrast that with what happened with wheat and soybeans once they broke below their green lines they sailed off into the sunset. They're still below theyir green lines although beans came back up and tested the green line a little bit. So, that twenty day moving average is very important to understand how the fund trader is going to handle the market and remember the funds live by the adage of the trend is your friend. So they try to stay on board whatever the trend is and this week they initially started selling out their positions but there were enough buyers to come in and take us right back up above the twenty day moving average and then again back up challenging contract highs.

Pearson: All right. You talked about the fact we're very tight this year. It's a hair trigger on corn. I think the government number is an eighteen day supply on corn? Maybe a little bit less now?

Roach: Yeah, I'm not sure. Three weeks I was thinking but ok we're close.

Pearson: Three weeks. That's a tight number. I have talked to a lot of farmers in Illinois, Minnesota, Wisconsin talking about shifting to some shorter maturities trying to capture the tail end of this 2010/2011 market. Your thoughts?

Roach: Could be a very smart play particularly if you get an early spring and get out and get the crop planted because there is a huge difference between the old crop corn and the dollar cheaper new crop corn and we anticipate strong basis levels as we go into the latter part of the summer. An interesting situation is that the elevators really have an almost impossible task of maintaining an inventory past the July futures because any hedge that they have on they have to roll it to the September, take a discount, roll to the December and take huge discount. So, it's very difficult for them to maintain a hedge which means it's very difficult for them to maintain an inventory. The people who work with those hedgers of that nature are basically counseling them get your corn gone before the July goes off the board. So - just be done with it. Let somebody else worry about it. So that puts us into the latter part of the year where we can have some very exciting basis levels depending on just what that real inventory is out there. We also still have pretty good chunk of that poor quality crop from a year ago that's hanging around that needs new crop corn that needs to be blended with it. So we have some reasons to see some very strong corn values at the end of this season.

Pearson: And you not only said earlier what but also where is going to be critical where that corn is and where that demand can be too.

Roach: Absolutely and if you've got corn sitting in a bin and you're the closest corn to that demand then you're the one that captures that big basis move.

Pearson: John as we wrap up the show and we talked about it on the show obviously we got a lot of geopolitical events out there that are impacting energy thereby impacting corn and other commodities as far as that goes but as we wrap up and as we go forward the real big news that we have really to look forward to next and the markets always feed on news is that acreage report coming out in March. What are your thoughts on that? Where do you think we're going to be for an acreage number?

Roach: Well, we saw the USDA come out with that their estimate today 92 million acres up about 4 million acres on corn and virtually unchanged on soybeans and they came up with almost 10 million acres more planted this year than last year. So they're putting their - betting their money that we're going to have a big increase in the corn acreage. We will have to see. The weather is going to have a lot to do with how the acreage mix goes this year. Every crop we have is very profitable. Corn is more profitable right now than soybeans and so we would suspicion that what the USDA is projecting is right. That we're going to see the biggest increase in corn.

Pearson: All right. John Roach, great to have you with us. That wraps up Market Plus. For all of us here on Market to Market, Mark Pearson here with a reminder in the coming weeks public television stations are going to be coming to you asking for your support. If you find value in this program, you would like to support it and programs like it on your public television station, now more than ever we need to hear from you. If you would like see Market to Market on your local public television station as opposed to having to watch us here on the web simply contact your local public television programmer and say why don't you get us Market to Market so we can watch the live version of the program. With all that have a great one! I'm Mark Pearson and from all of us on Market to Market have a great week.

Tags: agriculture commodity prices markets news