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Market Plus: Sep 24, 2010: Don Roose, Market Analyst

posted on September 24, 2010

Market Plus: Sep 24, 2010: Don Roose, Market Analyst Pearson: This is the Friday, September 24, 2010 version of Market Plus. Thanks for joining us here at our Market to Market Web site. Tell your friends and neighbors to stop by here too. Great to have Don Roose with us this week, one of our regular market analysts. Don, you said it several times on the show, we're within five to ten percent of the historic highs in corn, wheat, soybeans. It's time to be doing something and I've talked to a lot of producers who are like, yeah, I need to do something. Corn, wheat, beans. What are you telling these folks? This is who your clients are, that's largely their business. So, tell us what you're telling them in terms of risk management, what they should be doing and what they can expect because we had a situation in 2008 where we thought we'd be able to do some cash contracts with some elevators, they were so margined out that wasn't possible. People had to go the board, they had to utilize some of the risk management tools that are available to us in the futures market.

Roose: Yeah, and from a producer's standpoint if you are risk adverse to margin calls there's some very good things you can do. For a long time you didn't think that corn could ever get to $5.00 on March corn, now you can buy $5.00 corn puts for March that go off the board the third week of February for about 27, 28 cents. So, that is good, solid risk management. The same thing with January beans ...

Pearson: And no margin calls.

Roose: And no margin calls, you put the money up, you just see where you go, see if the basis comes in and see how high the market goes. So, it's a no risk, a win-win situation for you.

Pearson: Option strategies seem to have the most allure to more producers who, like you say, are risk adverse, but also from a business standpoint really looking at it as a piece of insurance on your crop.

Roose: Well, exactly and remember the insurance that you spend, you know, as soon as you sell the crop you could have a big residual left so make sure to look at that. But, yeah, it's just at these levels, particular levels that you didn't think you were going to be at even six weeks ago it's a good opportunity.

Pearson: Don, talk about basis and what is happening in basis right now. I mean, we've talked about the wheat market and there's been a lot of frustration there, has been really since 2008 when they see futures prices jump up so dramatically and maybe they're seeing a dollar or more basis level in their local communities, maybe not far from Kansas City.

Roose: Yeah, well and if you look at the corn basis level and we're relating back to the $5.00 corn put probably the basis improvement of 40 cents I would say is probably realistically what is going to happen. It will pay for your put options. So, the basis in a strong demand led market, which we definitely have here in the U.S., the basis should come in pretty sharply once we tuck the crop away.

Pearson: That's right. So, wait until first of the year and we'll see things hopefully certainly see that cash demand start wanting to pull that grain out. We certainly have seen that's been a good play the last few years.

Roose: Well, historically it's something that occurs almost every year so I think it's a very good bet on corn, should have a good stiff basis improvement. You also have a carry in the market from December to March and the same thing in soybeans, the basis should improve there but once we get the crop tucked away.

Pearson: All right. Don Roose, always good to have you with us. Don Roose with us this week on Market Plus. Thank you for joining us here as well. Make sure you tell your friends and neighbors to join us here for Market Plus. And, by the way, now is a great time if you'd like to catch our program live on your local public television station to contact your local public television programmer and say hey, we'd love to have Market to Market, we'd like to be able to see it on our local station. Call that local public television programmer, I'm sure he would be happy to arrange to have our program carried live on your local public television station. From all of us here at Market to Market, I'm Mark Pearson. Thanks for watching. Have a great week.

Tags: agriculture commodity prices markets news