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Market Plus: Oct 29, 2010: Darin Newsom, Market Analyst

posted on October 29, 2010

Market Plus: Oct 29, 2010: Darin Newsom, Market Analyst Pearson: This is the Friday, October 29, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. With me is Darin Newsom, one of our regular market analysts and one bullish guy and you're not normally a bullish guy. You were bullish in '08 but, I mean, after that you started to get cautious in '08 when we saw prices literally become unhinged and on the show tonight you're talking about prices again perhaps going unhinged based on this reduced USDA report from October. Now, what is your feeling? I know this is early but what is your call? Are they going to drop that average yield another bushel or two?

Newsom: I think there's a strong possibility that they will. I think when the November report comes around we could ratchet this crop down a little bit further and it's going to be interesting to see what happens at that point. The other side of the argument is normally they don't see, normally we don't see as big of a September to October drop so there is a chance that USDA did everything it's going to do for now in the October and kind of let the market settle out. If I look out at that December-March futures spread it seems like at least the short-term commercial outlook is that maybe we're not going to see another huge drop or another significant drop in the November number. The carry continues to strength in December-March where the March-May and May-July spread is certainly much more bullish meaning longer term commercial traders are going to be struggling or really fighting to find some supplies to meet demand.

Pearson: Darin, let me ask you this. Obviously with the situation in the former Soviet Union that tightened the world wheat situation dramatically, whether or not they're going to continue to be a reliable world supplier is something else that is phasing us. We're not off to the greatest start in the U.S. for a winter wheat crop. So, we've got all these factors in there right now. As you look at the wheat market and the grain market overall, and obviously the shrinking corn crop here in the U.S., at some point someone is going to say enough is enough. I don't know if it's going to be some guy feeding hogs, I don't know what is going to happen with the ethanol blenders credit issue or the tariff protection, if that's going to happen in Congress' lame duck session, nobody knows what is going to happen there. But at some point we're going to start rationing this thing. Crude oil is cheap which we're not going to see a spike in gasoline prices that could justify a lot of increased ethanol production and you are not particularly bullish on oil or the energies, you think we'll see some pressure there. Taking that into account this would look like we've got to be close to making sales. I know overall everything is bullish and obviously South America is not off to a great start. So, I mean, everything is aligned. So, we've got this super bullish situation and how much of this is being fueled by new money coming in? I meant to ask you this on the show because I'm hearing from people who are saying, you know, forget the stock market I'm going to get three X or four X in commodities.

Newsom: Right. There's a huge amount of money coming into commodities right now. It is the investment opportunity of choice and this is one of the things that has changed. It's hard to look at a market in the short-term because so much long-term money is coming into these things. Now, over the last few weeks we've seen the corn, the non-commercial net long futures position in corn whittle down a bit but not significantly. It was huge, it was record, it was almost up to 470,000 contracts, we pulled it down to the mid 430,000. You know, but that is really still a pittance. There's still money coming into these markets. As long as the dollar stays under pressure and if we look at the fed fund future spreads there's no indication that the dollar is going to start to strengthen anytime soon out through the latter part of 2011 so this gives us that long for money to continue to say look, these commodities are just heating up, we're just now getting into the possibility of talking about inflation rather than deflation so we've got some room for these markets to go yet and with the tight supply and demand situation that we see in many of the ag commodities and it could be corn, soybeans, wheat, cocoa, not cocoa but coffee and sugar, there's a wide variety of markets for money to flow into. And so this is what I think is going to continue to provide support as we head into 2011.

Pearson: Before we wrap up I want you to talk about livestock because that too has had a great rally and we saw kind of the top get cut off on cattle and hogs on the board. I agree, it was a strange week, it's the last week of the month, you mentioned that on the show. But we can't have these corn prices continue to go up and not have -- and milk futures, I'll throw that one in too -- without having those corresponding markets strengthen.

Newsom: Yeah, there's a lot of talk that while we may see a bit of a downturn, a short-term downturn and we even talked about it in the show in the cattle market certainly it looks like longer term. There's a strong rationale for it to go higher. If everything else is going higher, if demand stays strong, if all of these things happen and the outside markets are strong certainly it looks like money is going to come back into cattle after it takes a bit of a break and it's going to look for these markets that are thought to be cheap. Cattle could fit that bill, money comes back in and the market goes back up.

Pearson: All right. Darin Newsom, as usual, we appreciate your insights. Thank you, sir. Darin Newsom joining us this week on Market to Market and, of course, right here on Market Plus. And from all of us on Market to Market, I'm Mark Pearson. Thanks for joining us. Have a great week.

Tags: agriculture commodity prices markets news