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Market Plus: Nov 14, 2008: John Roach, Senior Market Analyst

posted on November 14, 2008

Market Plus: Nov 14, 2008: John Roach, Senior Market Analyst Pearson: Welcome to the Friday, November 14th, 2008 version of Market Plus here at our Market to Market Web site. We're glad you've joined us. With us this week our senior market analyst John Roach. John, first of all, you've been in the commodity business for four decades, you've seen a lot of ups, you've seen a lot of downs, you've seen the euphoria before the bubble burst, you were quite brilliantly telling people to take advantage of it and make sales. Hopefully some people did that. Now we've got the flip side. We're on the bottom side, all the news, the broad economic news we had on the show on Friday was ugly. Unemployment is up, everybody just seems to be running for the exits, you've got farmers looking at corn and soybean prices, wheat prices that are down over 50% from the highs, a lot of concern out there. What do you tell somebody in the farming business right now from your chair as you look at this industry today?

Roach: Most farmers aren't going to understand this but this is the best thing that can happen for your business. If we would have continued to inflate everything and we were trading $8 corn now or even $7 corn or even $6 corn we'd be decimating the livestock industry, we'd be decimating the renewable fuels industry and we would be encouraging grain production all around the world. The good thing that's happening now is that we are discouraging grain production in a lot of areas of the world. We have such a competitive advantage when it comes to financing and infrastructure to be able to put a crop in and raise crops under almost any kind of financial stress you can imagine, United States farmers have a competitive advantage. People around the world don't have that. People around the world are scrambling for financing, they are scrambling to try to figure out how they're going to make things work, their input costs are up just the same as yours are and they don't have the infrastructure to support them. So, as a consequence what we're doing is we are going to take some of the people out of production around the world which is what we really need to do otherwise if we bring them in and we support them enough to where they get a good foundation built we'll have that competition forever. By taking some of that back away that puts us back in a strong position. It also allows us the opportunity for inputs to come back down. The biggest problem we have are inputs have just run up through the roof and it's because the fertilizer has been going to all these other places in the world and now it's going to slow down. So, input costs will come down. These are not as bad times for agriculture, although we're feeling bad right now, from a longer term perspective this is not a bad thing for us to go through.

Pearson: And a normal part of our cyclical pattern of being commodities. We get an up and a down and when it's up you think it's going to keep going and when it's down you think when are we going to see the daylight again.

Roach: That's exactly the case and remember that as euphoric as everyone was back in June now we see people almost as pessimistic, on the opposite side of the scale. It was wrong to be that euphoric in June and it's wrong to be so overly pessimistic during this timeframe. I'm not trying to say that we're going to get out of this mess that we're in, this economic mess that we're in, in a big hurry. I'm not saying that at all. But what I am saying is that in these kinds of times you have to keep your head about you and you have to make decisions and understand that these negative times like this those are positive things for the industry and we will have better prices in the spring of the year and you have to be willing to make sales in the spring of the year because probably the real bottom of the grain market probably comes next fall, not now, it probably comes next fall.

Pearson: You just came back from South America. A lot of the interest in American agriculture right now is pointed on that region, that's where the crop is being planted. We've heard a lot of things, credit freezes, banking problems down there, credit issues for producers and you were exposed to some of that. What is your opinion?

Roach: What happened at the same time, farmers will remember this, when the grain companies in the trade in the United States said we don't want to buy any 2009 or 2010 grain at the same time they were telling Brazilian farmers we don't want to finance your new crop. And so what Brazilian farmers did is they took their profits from the crop that they harvested almost seven or eight months ago and bought their inputs. That has allowed them to plant the crop over the last 30, 60 days, they have planted the crop that they'll harvest out in '09. But the crop that they're going to plant in '09 financing is going to be very tight. They didn't pay off bank loans and as a consequence acreage is going to likely be reduced. We saw one estimates from a very knowledgeable firm of 7.5% fewer bean acres planted one year from now in South America. The market can't handle that. We need those acres. So, prices have a job to do to encourage enough acres to get planted. That is the reason we think we'll have stronger spring price levels and that's the reason that after we get through the harvest of 2009 we think we could have pretty good recovery into 2010.

Pearson: So, with that in mind and with South America you're saying really that debt issue will really creep up in that 2009-2010 crop year?

Roach: It's going to hit them right between the eyes because the trade is not going to get back in the financing down there. They have gotten away from it, they don't want to get back, it's just way too many dollars for them to finance and that's going to be a difficult situation not only in South America but also in the northern hemisphere when we go to plant in the spring of '09, not in America, but in other countries of the world where the financing has just really dried up because of this financial crisis.

Pearson: Acreage battle, will it resume again in the United States after the first of the year between corn and soybeans? It's hard to get an acreage battle going with where prices are right now with what input costs still are out there in the country.

Roach: Well, there's going to be decisions. Whether it turns into an acreage battle or not farmers will have to make decisions and if it appears that farmers are going to shift over to soybeans because of the lower input costs then the corn market has got a job to do because we can't lose acres away from corn. We are going to pick up some acres from the CRP, we'll probably pick up some more acres from cotton producers but we have got to balance our acres out and if the market suspicions one crop is not going to get planted in the size it needs to be then prices will move quickly.

Pearson: John Roach, our senior market analyst with us here on Market Plus and on Market to Market this week. Thanks so much for being with us. From all of us on Market to Market, I'm Mark Pearson. Thanks for joining us here. Be sure to encourage your friends to join us here as well. Have a great week.

Tags: agriculture commodity prices markets news