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Market Plus: Dec 10, 2010: John Roach, Market Analyst

posted on December 10, 2010


Market Plus: Dec 10, 2010: John Roach, Market Analyst Pearson: This is the Friday, December 10, 2010 version of Market Plus. Thanks for joining us here at our Market to Market website. With us this week, John Roach, our senior market analyst. John, it's been a wild couple of years really, really you can go back to '06 I guess when the bull market started. I've been out and about a lot, as have you, talking to people and you talk about these very strong markets. You've got a lot of sell signals out there. You're of the opinion that we need to take advantage of this market.

Roach: We're selling into it, Mark. And we know it's bullish, we know all the fundamentals, we know how positive they are but they were a year ago too. And people need to remember that a lot of producers a year ago right now were deciding not to make sales because they anticipated higher prices in the spring. But before it was done prices weren't higher in the spring, they were sharply lower. Maybe the major driving force there was the change in currencies. The dollar became strong. As people anticipated the economy was going to recover in the United States we had a big surge in the dollar's value and at the same time we had a big decline in the grain prices. Now, people would like to say, well, it's because the government found more corn out there in the harvest and so forth and I think that probably was part of it.

Roach: But the reality is that the currency really made a lot of difference and here we are again with very high prices at this time of year and people anticipating higher prices in the spring, a lot of farmers just shut the bin door, they just aren't selling anything and yet we've got sell signals. And if you look backwards just a little bit we aren't as high as we were the last time we had a sell signal. So, the market is here struggling a little bit and part of the reason is the dollar is stronger. When you look at Europe and you see the kinds of problems that they still have to deal with and then you look at the United States it's really starting to show positive economic news. It's sure easy to make the argument that the dollar can be stronger, considerably stronger next spring than what it is today.

Roach: And so we think that making some sales in here both for the inventory that's in your bin and the inventory you plan on raising next year, we think that makes good business sense. And what a producer needs to think about is what kind of profits would I generate if I made these sales. And once you look at that then that should be your guiding light. And if you're talking about generating record kind of profits at these kind of price levels you have to be very careful to say no thanks to that kind of potential. We've learned in agriculture for a lot of years that profits come and profits go, we don't seem to be able to maintain big profits for long periods of time and here we are again, big profits, don't fall asleep on the switch.

Pearson: Time to make some sales. You're talking about '11 and '12 as selling opportunities here as well and a lot of people have kind of been holding off and saying, well, we've got a lot of bullish things that could still happen up there. You mentioned very robust demand but the impact of the currencies on this export market is huge what that can do to the price of our product.

Roach: It's not the impact on our export market, it's the impact on the speculative demand that comes to our futures. When we bottomed the dollar back on the 9th of November with the QE2 announcement, that was the last bearish thing that they could put into the dollar, we peaked the grain market. On the CFTC report as of November 30th and that one particular week we lost 660,000 contracts of open interest so the speculators literally ran for the door as the dollar turned higher. Now, we've gained some of that back. This week we gained 158,000 back but we're still 500,000 short of where we were. Now, is that because the fundamentals have worsened in the market? I don't think so. I think it's because the dollar has changed directions in that period of time. And so I think producers need to realize that we're up here at these price levels because we've had massive, in fact, record long positions in the grain markets and if we can't interest that speculator back into our market we can't get the prices back.

Pearson: John Roach, always some great analysis, we appreciate it. Thank you so much. John Roach, our senior market analyst joining us here on Market Plus and, of course, on Market to Market this week. And for all of us on Market to Market, I'm Mark Pearson saying thanks for joining us here at Market Plus. Tell your friends and neighbors. We'll talk to you again next week.


Tags: agriculture commodity prices markets news