Newsom: I think there's some signals in the market itself that this crop may not be there or at least there's still some question over whether or not this crop is out there. If we look at the way the spreads, the price relationship between these contracts from December on out through next July and September have acted over the last week it would certainly indicate that the commercial traders still a little bit in doubt that we're going to see this huge yield, this huge production that everyone is talking about. Now, certainly it could still happen, there's still a lot of weather cards to play between now and then. But I found it interesting that we saw the carry in these spreads weaken at a time when the futures markets were rallying off the $3 mark, closing in on $3.40 at one point this week before selling off a bit on Friday.
Pearson: I don't want to ask you this question because it's such a hard question and such an unfair question but are we at the bottom of this market? We've hardly harvested any corn yet.
Newsom: Actually I've been asked that question quite a bit the last couple of weeks and if this demand market that we started in 2006 is still alive then $2.93 really needs to be about as low as we go. We saw the $2.90 in December 2008, we have recently seen the market test $3.00 again. So, as we get down into these levels demand needs to pick up. We've seen that. We've seen commercial demand coming into the market, we've seen a bit of non-commercial demand coming into the market. It is if we can hold it once we get into the bulk of harvest that is really going to be the test of this market and there's a good chance we can't, looking at the track record, what we've seen over the last few years but I think it's really going to be a test as we move forward.
Pearson: Let's say we're at 12.9 on this crop or 12.8 as opposed to 13 billion bushels apparently bottom line we've got a 1.6 billion, 1.7 billion cushion on this thing. Where is the excitement?
Newsom: Probably not a lot of excitement in that. Unless we look at the only number that I really care about in the USDA report and that is the ending stocks to use and that 1.6, 1.5 to 1.7, whatever we want to use if we see that demand over 13 billion bushels which is what is being talked about then all of a sudden we drop down that ending stocks to use down to around 12.4, 12.5%, the lowest it's been in three or four years. So, what it shows is that even with this type of almost record crop the strong demand is going to push us to a tightening supply and demand situation and it certainly could keep the attention of the market going forward in 2010.
Pearson: Because now you look at this thing and the beans have got the edge. Beans have the edge in the current price scenario we're in.
Newsom: They do. We need that spread ratio up in the 2.6 to 2.8 closing in at 3 sometimes. Historically it's been 2.4 to 2.5 so it certainly does look like next year it's going to try to pull some bean acres in but if we count what is going on in South America that situation too could change dramatically by the time we get into the spring of 2010.
Pearson: What direction do you think it's going to take?
Newsom: I think we're going to see the soybean price really come down in relation to corn. I think we're going to see these spreads move from 2.8, 2.9 ratio back down into that 2.4, 2.5 possibly even lower than that as corn gains on beans.
Pearson: So, we'll see the corn market going up, beans collapsing.
Newsom: I would say it's more like the beans could collapse if South American production ... I've thrown out numbers in the $6 range, cash price probably in the low $6 for soybeans if indeed South American production is as large as what is anticipated. On the other hand corn holds in these $2.90, $3.00 front month on futures, $2.70, $2.80 in the cash and starts to move up from there I think we're going to see a very dramatic shift in that price ratio spread.
Pearson: All right, then of course the acreage battle is right back on again.
Newsom: As we head into spring it certainly will be and it seems to come about earlier every year.
Pearson: All right: Darin Newsom, as usual some great insights in what's happening in this market. We appreciate it very much. From all of us here on Market to Market, I'm Mark Pearson wishing you a great week.