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Market Plus: Oct 17, 2008: Jamey Kohake, Market Analyst

posted on October 17, 2008

Market Plus: Oct 17, 2008: Jamey Kohake, Market Analyst Pearson: Welcome to the Friday, October 17th, 2008 version of Market Plus. Thanks for joining us here at our Market to Market Web site. I'm Mark Pearson. With me this week one of our analysts Jamey Kohake. Jamey, it's been a rough month, I don't care what business you're in beyond agriculture we've been clubbed from outside factors, obviously a lot of these funds that have had to be deleveraged is the new word certainly has spilled over into these commodity markets in a big way. We talked about it on the show, oil is down 50%, corn is down 50%, beans down 50%, a lot of producers are scratching their heads wondering where to go. You mentioned the wheat market which has kind of been separate from everything else and, again, very strong export demand, a good global demand as you pointed out on the show. Let's talk about corn though for just a minute. This harvest is coming in fairly slow, corn has been wet, it's not exactly ideal conditions to get the crop in. With the high price to dry down that crop artificially people want to dry it down as much as they can inside the field. You mentioned a couple of things, the basis over Nebraska running a positive basis, that's pretty rare especially for this time of year. But the corn market has a lot of people stumped and confused especially after USDA's report showing a big carry out. What is your take, again, on this corn market? A lot of producers are out there in the livestock sector and watch this program and tune into this segment, what do you tell them?

Kohake: I think a guy will have to store corn until next year to get a higher price that is profitable or more than we are at right now. I don't think we're off to the races by any means right now but I think next year we will see fund money come in, push the market back higher and get rid of this deflationary selling that we're getting right now. The selling right now is just pretty much your margin reasons, funds losing billions and billions of dollars, the past two cent moves are now twelve cent moves and hundred point moves in the Dow is now four hundred and funds with $10 billion can pretty much create $100 billion leverage wise and we're seeing huge volatility. And I think once this selling is done corn will start creeping back further north. But like I said on the show I'd watch the freight rates very, very closely and I'd watch exports and I think that will be the first signal to sort of come out of this hole.

Pearson: You mentioned freight rates, what is the reason? Down 46%, has global movement slowed down that much?

Kohake: Global demand has slowed down, global usage has slowed down and there's all this global recession, global depression talk and everybody is just scared right now and also there is a credit crunch overseas as well where these big companies can't borrow the money, we can't get ten cargos and borrow it and bring it over so everything just slowed down to pretty much a halt right now.

Pearson: So, the easing of the credit market certainly will help which is going to occur at some point.

Kohake: I think so, we've seen the last two weeks the LIBORs never go up which is good, that's what banks borrow between each other. We've also seen the credit spreads narrow up which is good which means money is moving again. I think it's slow but there is some positive movement there. I think once more of it happens it will be supportive.

Pearson: Again, on corn you anticipate stronger prices first quarter of next year, probably towards the end of the first quarter?

Kohake: I think sometime the first quarter of next year. I think we're going to see some new money come in next year and I think we'll start looking at these break evens and say we've been down here maybe $3.50 to $4.50 for 90 days or so roughly, we're underpriced, exports are good, we're probably going to make a quick surge and leave everybody behind and everybody is going to start buying corn, we'll go to $6 when it's halfway over. I think a guy can start positioning in here on deep breaks right now. May corn I like it at $3.90 and December '09 I like it around $4.20, $4.40. This position you still have to hold it and get long until you pretty much margin next year.

Pearson: So, some strategizing to think about. You also mentioned the fact we were anticipating a lot more corn acres down in South America. You don't think that's going to happen?

Kohake: Not right now. If the numbers are right from this week where more bean acres are going to be planted which is opposite of pretty much what the trade was hoping for or looking for there is still time to change that. The crop wont' be planted until Thanksgiving, Christmas timeframe. But, yeah, it was a surprise and I think you could see the money come back in corn first and now it's in the beans.

Pearson: What are you hearing on biofuels, ethanol plants? Are they still buying corn? Can they get corn bought?

Kohake: Most of them can, you still see a few horror stories of ethanol plants who are long from $6 and they could leave the margin calls and maybe shut down for 30, 40 days. There are a few of them out there yet but I think the majority of them are adding on right now and getting positioned probably out into deep '09, your September and your December of next year.

Pearson: Let's talk about '09 corn and soybeans at this stage of the game. It's not a pretty picture going out there. You look at what these input costs are and I'm still not hearing much in the way of breaks despite oil coming down 50%, we're still not seeing much for a break on, for instance, nitrogen fertilizer and seed costs and some of these other issues out there. While our prices are coming down in production the margins are getting tighter.

Kohake: I think the market will correct that, it's just a matter of time when and it's going to be I think when the funds decide to get back and active again and get some money to position themselves and get rid of these margin calls. But the break evens are pretty much gone right now, most of them are around $5.00, $5.50 and we're 50, 60 cents below that right now but I wouldn't get too nervous about it right now. I think the time will be after Christmas when you really have to tighten up your belt and say, hey, do we plant the corn or do we go to all beans?

Pearson: It will be interesting to see what happens and then the acreage race will be on again in 2009. Jamey, as usual we appreciate your insights. Jamey Kohake with us this week, one of our regular market analysts on 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