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Market Plus: Sep 07, 2007: Darin Newsom

posted on September 7, 2007

Market Plus: Sep 07, 2007: Darin Newsom Pearson: Welcome to the Friday, September 7th, 2007 version of Market to Market, glad you've joined us. This week our guest, Darin Newsom. Darin, good to have you with us. And you're a wheat guy, you're from Kansas so we always talk about wheat when you're on. A lot of times we don't have much for you to say. Obviously this week record wheat prices, shortfalls everywhere around the world. How long does this thing last? This looks like a classic short crop, long tail potentially. Are we looking at that?

Newsom: Yeah, that's exactly what it is, you know, a very classic, supply driven market where you get this incredible spike, it's just that we've got the combination of the short, you know, U.S. supplies, world supplies, about anywhere you want to think about wheat is running a little bit tight. And you add in the increased non-commercial activity in these markets, the speculative activity in these markets and that's been what has catapulted the wheat markets, not only Chicago but Kansas City and Minneapolis, to these all-time highs. I mean, we're cresting above $8, you know, talking to the floor, $9, $9.50, nobody really knows where to pinpoint how high this market can go but it's got everyone's attention which is unusual, as you've said, normally it's corn and soybeans taking wheat where it might not want to go but this time wheat seems to be in the driver's seat and it is setting the tone for some of these other markets as well.

Pearson: Well, any typically when we do the wheat rally we see the acreage pick up somewhere else, we see another excellent crop emerging either in Australia, Europe, not the case this year. Nobody is growing anything worth a darn.

Newsom: Right, Australia, Argentina, Europe, Black Sea region, everybody's got some problems, most of it can be taken back to weather and this is what's really, you know, creating this situation that is much larger than what we've seen in the past, you know, in '95, '96 it wasn't as bad as what it is. You go back to '83, '84, a lot of people trying to compare it back to then, again, the numbers are different. That's why there is no such thing as a true analogous year. But we're in a very interesting situation here where the world is just short of wheat, a very tight supply situation and it's pointing out these incredible numbers that we see every day.

Pearson: Well, the thing that a lot of people in the Corn Belt wonder is how this is going to impact acreage, you talked about that on the show. Your heart goes out to people in eastern Kansas and down in Oklahoma and the panhandle this year that had no wheat crop and then to see these kind of prices emerge. So, as you look ahead and I look at states like Missouri, southern Illinois to a great extent, southern Indiana, those regions that can be good soft red winter wheat producers maybe looking at planting some wheat and when I was a kid, which I know was a while ago, we would go out there and hook on the old drill, we'd try and bang in some beans out there in that wheat ground too. That's got to be running through more people's minds than just mine.

Newsom: Yeah, just visiting with customers, you know, as we go to the trade shows and so on that's exactly what they're planning on, they're looking at doing the wheat, putting the wheat in particularly in the fringe areas but even in parts of the heart of the Corn Belt as well and then double cropping it in with soybeans. So, I think we are going to see some acreage loss this year. I think we are going to see corn trimmed back a little bit just, you know, input costs if nothing else and then you look at the price comparisons per acre, wheat is holding its own as are soybeans in comparison to corn. So, I'm thing we're going to see some of that this year and while that may put a little bit of a damper on the wheat rally depending on Mother Nature and weather it could certainly help to fuel another rally in the corn market as we go into the next year.

Pearson: Everybody is fighting for acreage, it was corn and soybeans. We had a lot of wheat acreage that was shifted over to corn and soybeans and now obviously we're seeing the, you know, everything has kind of come home to roost now in the fall of 2007. So, another factor to go into this thing. But you look at the corn market and that doesn't seem to be too excited about 2007 at least in this whole move in wheat.

Newsom: Right, not in the 2007-2008 because, you know, right now the expectations are we're going to have an enormous crop, record crop.

Pearson: The government will probably give its data on September 12th.

Newsom: Absolutely, they're going to give us their best guess at it but even some of the yields that we're hearing coming in from the early harvest are just extraordinary. So, you know, the market itself is not worried about the corn, you know, getting supplies of corn for '07, '08 but as we go forward into '08, '09 they're very concerned about acreage. The Dec. '08 contract is holding around the $4 mark. I think that's where we're going to see the battle play out.

Pearson: The alarm bell of get your own storage that you talked about over a year ago is really playing out this year. You've got plenty of carry there.

Newsom: And, you know, I still think that cash corn, you know, on storage, on farm is still going to be a pretty good investment as we go forward throughout '07 and on into '08.

Pearson: We're out of time, Darin. Thank you so much, Darin Newsom joining us this week on market plus. From all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news wheat