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Market Plus: May 02, 2008: John Roach, Senior Market Analyst

posted on May 2, 2008

Market Plus: May 02, 2008: John Roach, Senior Market Analyst Pearson: Welcome to the Friday, May 2nd, 2008 version of Market Plus here at our Market to Market Web site. Thanks for stopping by. Make sure you check out our Web site and all that we have to offer here. Mark Pearson along with our senior market analyst, John Roach. John, good to have you with us this week.

Roach: Thanks Mark.

Pearson: We talked broadly at the start of the market segment about commodities in general and you kind of walked through other bubbles. You mentioned the real estate bubble. You mentioned a huge move in commodities which has been relatively unchecked since about the 15th of September 2006. Is this a bubble?

Roach: I think we're in a bubble. I think that we've already seen the bubble burst in the case of wheat. We momentarily had a bubble in the cotton market which burst and the bean market bubbled up pretty strong and is considerably cheaper now. Really the only grain market that is left is corn. And true to all the other bubbles I've ever studied nobody can figure out how we could possibly reduce the demand and increase the supply enough to burst the bubble. But what happens is when nobody can believe that we're in a bubble and there's no way that it can burst that's when all the last buyers finally walk into the marketplace. And if you just watch the newspaper and the news and so forth the big news is that you have a limit of how much rice you can buy at some of these big stores. If I'm not mistaken that's four 25-pound bags. That's 100 pounds of rice.

Pearson: That would be a lot for our family.

Roach: That would feed me for a week or two. So, the point I guess I'm trying to make here is that the same characteristics that we've seen in other bubbling markets reaching a peak those characteristics are being seen in our grain markets right now.

Pearson: The Dutch tulip bubble would be one of the first ones, John. A little tulip bulb could buy you a home and then, of course, the next crop came in and there were tulip bulbs everywhere and the tulip thing all came to an end too. You mentioned some flags which I thought was interesting. You've talked about -- the soybean market you talked about in January, you were one of our few analysts who said sell soybeans, sell soybeans, sell soybeans and we had that big $15 move there. What would you be selling now? Would you be clearing out your wheat positions? The rest of your soybean positions? Everything except corn?

Roach: Well, as you know, Mark, we don't sell just willy-nilly. We follow a technical system that generates a sell signal for us. We also know that there is a selling season. Our selling season is March, April, May and June, maybe into July a little bit. So, we're only halfway through our selling season and we've already sold heavily into these grain markets on sell signals which occur at market peaks. So, I'm a little reluctant to be selling wheat because we're a mile away from a sell signal, I'm reluctant to sell soybeans right now, same reason. We're a long ways away from a sell signal. But we'll have a sell signal in corn next week. So, producers who are holding onto inventories of corn or have inventories of corn they plan on raising that they don't really want to store next year that corn needs to get sold. These are great prices, they're great profit levels, it's time to take some of the risk off the table and batten down some of the profits on the farm.

Pearson: The U.S. dollar you mentioned on the show has been a factor in this bubble. Maybe showing some signs of strength here in the last week?

Roach: Yeah, it really is. The U.S. dollar has strengthened and some of these commodity indexes have put in a bad performance this week, they staged some recovery on Friday but still a bad performance this week, still well off the highs that they made a couple of months ago. So, if the dollar continues that strengthening process -- nobody thinks it's going to, by the way, people think the United States is being run in such an irresponsible fashion that the currency is going to continue to weaken maybe forever but we know that's not the case. The currency cycles back and forth, we've seen it a lot of times in the past. And it's about time. One of the great stories in the commodity business is China. But people need to examine what's going on in China. The inflation is occurring so rapidly there, wages are going up there drastically and the U.S. has slowed down its buying activity. China had a bad Christmas because we had a slower Christmas and some of the newspaper articles I saw this week show that retail spending is even slowing more in the United States. That is a direct influence into China. So, the marketplace that has really carried us for quite a little bit here could start to have some of its own problems as we look a little later down the road. So, again, there's caution flags flying and really what I'm saying that people should do is just do good business, make good business decisions, ignore some of the forecasts of much higher prices.

Pearson: Good points, as usual, John Roach, good to have you with us, our senior market analyst on Market to Market. From all of us here on Market to Market, I'm Mark Pearson, have a great week.

Tags: agriculture commodity prices markets news