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Market Plus: May 01, 2009: John Roach, Senior Market Analyst

posted on May 1, 2009

Market Plus: May 01, 2009: John Roach, Senior Market Analyst Pearson: Welcome to the Friday, May 1, 2009 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. Mark Pearson with you along with our senior market analyst, John Roach. John, I want to talk to you because you were talking about sell signals and you've been very diligent about following your sell signals and the formula that you use to make those determinations and frankly they've worked out very well the last twelve months. But I know there's a lot of producers out there who remember 2008 and those prices and a lot of producers out there who this year were paying up huge for fertilizer and for seed and talking about their increased cost of production saying I need another dollar here, I need another 50 cents on the corn and you're saying if sales opportunities come in the next week we need to jump on them.

Roach: Exactly, Mark. The most difficult thing in the world is to get your head wrapped back around what your world is going to be like going forward after looking backwards at the last 12 or 24 months because the last 12 or 24 months we had one kind of an environment which was very explosive, a lot of people getting into commodities. You know all the energy thing and so forth. And now we're in a different world, it's a completely different world and so what producers need to do is go back to the tools that serve them well and our sell signals have done a really bang up job now really for several years in a row. Making sales in the spring of the year is the right thing to do and utilizing an overbought indicator such as our sell signals is a good tool to use. So, what we're suggesting for people is for a minute close your eyes on the price and just follow along and make sales at market peaks. We don't know what our yields are going to be and the tendency of producers is they figure their break even based on a five year yield average and yet they buy land and equipment and everything else based on what the next five year yield average is going to be which is a lot higher. So, what we believe you have to do is use your best yield ever, that's what you're trying to plant out there this year, use your best yield ever, use that when you're trying to calculate what your break even cost is and then look at these price levels and suddenly they're not out of line that far. To really get sobered up on what grain prices ought to be worth you have to remember that you sell your grain to the livestock industry or the biofuels industry for the most part, that's the majority of the grain and the reality of it is that the livestock producers can't pay more money for this grain, they just won't and so by fall when you're trying to deliver that corn you're going to have to deal with that livestock guy because he's going to be your buyer out there and he's not going to be able to pay lots higher money for it. The other thing to remember is that we're in the midst of one of the worst weather reduced crops in South America that we've had in recent years and when you're in the midst of a drought that's when you want to sell grain. Okay, it's not a drought in this country but in the case of soybeans it's a drought in the biggest area that produces soybeans in the world. So, we have to take advantage of strong prices here this next week and we have to be willing to make sales even though it's way below last year's price and even though it may be just nip and tuck with break even.

Pearson: You're talking wheat, corn and soybeans here. If we look particularly at corn and soybeans and the stack traits of the new technology that we had particularly for corn and soybeans the odds of us growing a crop are pretty darn good in 2009.

Roach: We went through a lot of trouble last year and amazed producers with the size of bushel yields that they got out there. So, again, don't figure your yields based on the last five years because if you're going to produce the yields you've raised in the last five years you're not going to be farming anyway because there's other people out there that are raising lots bigger yields. So, you've got to be thinking in terms of big yields and that makes the marketing issue a whole lot easier. And besides that, you're not selling all your bushels anyway, you're only selling a fraction of them. So, if it turns out to be that these are bad sales then life will be okay. If it turns out that these are really good sales you're going to be glad that you made them. So, sales in the first week of May on a market when you're dealing with strong Chinese demand and strong concern about the size of crops in South America and worry about inability to get the crop planted those are great sales.

Pearson: John, we're going to get some clarification from USDA about acres planted in corn and soybeans. There's been a lot of talk about the 7 million acres that were missing, whether those were re-plants or what those were from last year. What is your take on that? Will there be more bean acres?

Roach: Absolutely, right now we're looking at all the positive news. There is going to be a period of time and I believe it's going to be harvest we're going to be looking at all the negative news and we're going to be looking back and we're going to say look, we found more acres, oh look at that the yields are better and on the other side we're going to say holy cow, where did our demand go. So, that's what is out ahead and we've got to keep that in our mind this next week and make good sales.

Pearson: John Roach, always great to have you with us on Market to Market, our senior market analyst John Roach with us here on Market Plus as well. If you enjoy us here on the Internet why not watch our show on your local public television station. If it's not there call your local public television programmer and say I want you to carry Market to Market. For all of us here on Market to Market, I'm Mark Pearson. Hope you have a great week.

Tags: agriculture commodity prices markets news