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Market Plus: Dec 26, 2008: Darin Newsom

posted on December 26, 2008

Market Plus: Dec 26, 2008: Darin Newsom Pearson: This is the Friday, December 26th, 2008 version of Market Plus, actually show taped and referenced on the Christmas Eve show of the 24th, that's where our prices come from this week because of the holiday shortened week. With us this week, one of our regular market analysts, Darin Newsom. Darin, good to have you with us. I've been out talking to a lot of farm groups the last month and everybody wants to talk about not so much corn and beans and wheat and cotton and cattle and hogs, they want to talk about diesel fuel prices. You addressed it at the start of the show. Obviously this collapse of oil prices down into the high 30s at this point and people are still wondering, hey, I'm still paying a premium for diesel.

Newsom: This crude oil market has just caught everybody by storm. We just continue to see this market collapse and world fundamentals are very bearish and it has had a very dramatic effect on gasoline and heating oil futures as well as cash gas and cash diesel prices. Now, the question has been asked to me and you as well, why isn't the diesel fuel coming down as quickly as the gasoline and so on? That's because we still have this under current of support. We have better demand for diesel fuel right now than we do for gasoline. Some of the gasoline demand has been just done away with due to more efficient cars, less driving, so on and so forth, certainly ethanol has played a role, the increased supply of ethanol has certainly offset some gasoline demand. We're not seeing that sort of thing in the diesel fuel market. Soybean biodiesel is not as big a player right now as corn based ethanol is so we haven't seen that demand offset and plus if we look at freight it's still very important and so we're still seeing a lot of shipping, a lot of movement of goods from here, there and everywhere else so that's keeping some support underneath the diesel market as well. So, it has some different issues plus going into the winter. Diesel fuel is tied to heating oil and basically based off of the East Coast that's got some support in the market as well. So, there's some different supply and demand issues going forward or between the two markets that helps to keep the diesel market gaining or pulling away from the gasoline market.

Pearson: Going forward are we going to see that change improve particularly as we get into all the diesel that is used in spring planting, obviously the fertilizer inputs and everything else that we have that are in there too, are we going to see this diesel start to break as we get into spring? Will this gap start to close?

Newsom: I don't know. We've seen both markets go to new lows, both futures markets go to new lows but that doesn't really reflect the local demand or state demand or however we want to look at it. So, I think as we start getting into this busier timeframe of planting season heading into summer and everything else that's going to keep the diesel market from going much lower. We could also see some of this helping the gas market as well. So, if we're going to see this gap narrow it's probably not going to be because diesel is coming down, it could be because we start to see our seasonal rally in the gasoline market instead.

Pearson: Okay, and producers are saying, should we be going on the board? Should we be locking this price in on futures? Should we be trying to lay in some -- obviously diesel is down from where it was -- should we try to take advantage of this energy pullback in one way, shape or form?

Newsom: I think so but I'd be very leery about doing it on the futures market and the reason why is the weakness in the crude oil that we see. We've got a huge carry in the market with fundamentals and that could continue to pressure the diesel futures. Now, if we can, if we can forward contract our needs for 2009 using these lower prices that we've seen established as compared to the last couple of years by all means we should do it. If we can't maybe we should look at the futures market. But my first card that I would play would certainly be looking at getting some cash contracting out to cover my needs.

Pearson: Absolutely, real quick the grain markets we talked about on the show you're fairly bullish going forward, you're bullish on corn, beans and wheat going forward, not immediately after the first of the year, do you see kind of a grind higher? Is that what you anticipate?

Newsom: I think so but the thing is this thing could be surprising as we come into 2009 because there's still some non-commercials, some speculative money that's looking for some opportunities and all these grains, corn recently moved below $3.00, we saw huge selloffs in wheat and soybeans, these things are looking pretty attractive. If we start to see some money coming back in on the idea that supply and demand could possibly turn a bit more bullish in 2009 these markets actually they could move quite quickly. They could start to pull away from the energy complex which would be something in and of itself due to the tight correlation we've seen over the last part of 2008.

Pearson: So, hold onto your hat, 2009 looks like it's going to be another interesting year in agriculture.

Newsom: It certainly should.

Pearson: 51 years and I've never had a dull year. Darin Newsom, thank you so much. Happy Holidays to you and yours and, again, to all of our folks out there who are joining us, thank you for being a part of Market Plus. Tell your friends or neighbors and, of course, don't forget if you enjoy us on the Web you'd really enjoy us if you could see us on HDTV maybe on your local public television station. Contact your local public television station about carrying Market to Market. From all of us here on Market to Market, I'm Mark Pearson wishing you a very happy holiday.

Tags: agriculture commodity prices markets news