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Market Plus: Mar 20, 2009: Darin Newsom

posted on March 20, 2009


Market Plus: Mar 20, 2009: Darin Newsom Yeager: This is the March 20th Market Plus portion of the program. Darin Newsom with DTN is with us. Darin, let's talk a little bit. We had a pretty good week of trending up on everything except for hogs. But one market in particular that stuck out for you was soybeans. Why was that?

Newsom: Soybeans right now seem to be following its underlying fundamentals and it's been a long time since we've seen a market be able to fall back to its supply-demand situation. What we're looking at here is the inverted price spreads that we're seeing in the old crop market certainly indicating a tightening of the U.S. ending stock situation and possibly a tightening of the world situation but certainly starting to provide the support to the market that allowed the old crop May contract to push 75, 80 cents higher this past week.

Yeager: Why is that such a worldwide phenomenon? Why has the world so gotten into this soybean market to throw things off?

Newsom: Well, China remains a very strong customer and so their buying habits are key to how this market is going to go and with possible strike problems going on in Argentina, slightly reduced production going on in both Brazil and Argentina, the demand remains very strong demand coming out of the United States week in and week out and so the longer that we can continue this, right now we're on a record export pace for the United States, so the longer we can continue this the more support it's going to bring into the market and the more buyers that are going to be interested in seeing just how much higher the soybeans might go.

Yeager: A year ago if you would have had this conversation nobody was really looking to go into the soybean market domestically, they were thinking it's got to be corn, corn, corn because of ethanol. What has changed from last year to this year at least the amount of acres that we're going to have into the field?

Newsom: Right, the biggest change that we're seeing is the huge production that we saw in 2008 in the corn market and we had pretty good production in beans as well but what we're left with on the corn side is large ending stocks and an increasing ending stock situation and exports that continue to come down. There's not as much export demand, there's very little demand from week in and week out for corn. Now, this could pick up the latter half of the marketing year due to Argentina's short crop again in corn. So, this could certainly help out. But right now the biggest difference between the two U.S. ending stocks, strong demand for U.S. beans, not as much demand for corn at this point.

Yeager: Pretty much everybody has got to have their orders in unless there is a flood situation or it would get wet again and like we saw last year at least in this portion of the Midwest. Do we see any acres changing even with news this late in the game?

Newsom: That is a hot item, I think we're getting into that time of year where we've run out of things to talk about, the market has run out of things to talk about and so we really focus on this March 31st prospective plantings report. But if we really just take a step back and look it's really not going to make any difference what the acreage is because we're going to have enough corn to go around and so the acres that we have are going to be plenty, unless we have some sort of problem, it's going to be plenty to rebuild our supplies. Soybeans, they're going to gain some acres, they will probably gain some winter wheat acres, they're going to gain some spring wheat acres, cotton, peanuts, some of these other southern crops going to go into beans so we're going to have plenty of bean acres as well. It's going to rebuild our ending stocks from the tightness of 2008-2009. So, I don't think we're going to see the prospective plantings report have that much of an impact. I don't think the acreage debate is going to get as heated as it has over the last couple of years. But it certainly has given the market something to chew on here over the last four to six weeks when it really has run out of other news.

Yeager: We seem to have run soybeans, let's talk about the other market, the Dow. We had a good rally last week, four days of significant gains at least from what we'd had in recent time but now all of a sudden we've seen three downfall days, three down days. What is the impact of that on anybody in this industry right now?

Newsom: Right now what we're seeing is a bit of a recovery rally in the Dow and that's to be expected with as far as it has dropped. I think the most significant thing that we've seen is the last few days that the Dow has come back under pressure grains have been able to push higher and so what we're starting to see is this disconnect that we've been waiting for, such a strong correlation over 2008 between the Dow and commodities in general, we may be starting to see a few cracks in that relationship and in that close price tie. So, if we can do that, that would certainly be another indication commodities are turning back to their fundamentals, at least during the springtime and could allow them to rally and certainly outperform the Dow over the next 90 to 100 days.

Yeager: Last year it appeared even before the crash that there were people who may not have experience in the agriculture or commodities were sticking their toe in it because they saw the price, they saw everything going up. Are you moving by what you're talking about that maybe some of that is retreating? Is that what you're saying is maybe an option there?

Newsom: Yes, a lot of those traders are gone. We've seen a lot of that non-commercial money just simply disappear and they are going to be very cautious about the way that they enter commodities again. But you just can't help it, it's just very attractive when you start to see these sort of supply-demand situations build like what we're seeing in soybeans, what we're seeing starting to build in gasoline, possibly in the copper market, it's very attractive and it is going to start bringing some money back in so that's what I think is going to start to push us higher this spring as they start to turn away from markets that are a bit iffy looking at the Dow, looking at some of the other investments, possibly into some things that could bring some good returns over the next few months.

Yeager: What do we have to worry about ag companies that have struggled, they have seen their share price drop down and some have started to rebound, there's been bad news out of Caterpillar about a month ago, Deere has had some layoffs and some of those ag companies that are the traditional ones that Jim Kramer loves to talk about, he says buy when Deere gets below this or when Caterpillar gets below this, what is the impact right now on their standing with Wall Street on some of these ag companies?

Newsom: I think you're going to see them find some support but I don't know that they're going to be able to break themselves away for when we get ready for our next leg down in the Dow and we're going to see another leg down in the Dow, I should say we should see another leg down in the Dow starting this summer going into this fall. So, I think you're going to see some tentative support starting to build in these companies because of their tie to agriculture and because of agriculture's tie to commodities where you're starting to see some supply and demand issues come back into play. So, that's going to give them an undercurrent of support that is not available to many other companies in other sectors.

Yeager: Darin Newsom of DTN, thank you very much for visiting with us on the Market Plus edition.


Tags: agriculture commodity prices markets news