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Market Plus: Nov 24, 2006: John Roach,

posted on November 24, 2006

Market Plus: Nov 24, 2006: John Roach, Pearson:This is the Market Plus segment here on our Market to Market Website for Friday, November 24th. Our segment was actually recorded on Wednesday, November 22nd. I'm Mark Pearson, thanks for joining us and of course this week our senior market analyst John Roach is with us. John, you talked in the show, we talked a lot about corn and you're long corn, corn demand is huge, everybody is excited about corn. I think you said it was unprecedented optimism in the show. Soybeans are what I don't understand. There's, what, over a half a billion extra bushels of soybean running around. You talked about South America where Brazil may be down in acreage but Argentina and the rest of that part of the world might be up on acreage. So, what is the big hullabaloo about soybeans? They've had an awfully good rally.

Roach: Yeah, the soybean market is needing to follow the corn to a degree because if the corn prices were to run way out ahead then we wouldn't plant any bean acres or certainly substantially less next year. But that is the attitude of traders right now. We're not going to plant enough bean acres, we'll have to move even more bean acres in 2008 away and plant even more corn acres so everybody looks forward and wants to get really bullish about the market one and two years away and that's fine except that it frequently doesn't last. We need to be able to clear these beans out as we move through this upcoming year because our inventories are going to be the largest in history in November or October next year before we start the soybean harvest. So, we think that a producer needs to pay very close attention to what happens here in December and we get some weather worries or concern in South America and the market pops up on that rally, those are rallies that will be meant to be sold. I think producers need to have the attitude that they're going to sell heaviest in soybeans during December and perhaps January and be a little less anxious to sell corn.

Pearson: Alright, so with that in mind, we're talking about buying acres away from soybeans and as long as this price differential remains and yet the strength remains in soybeans we haven't seen much of a dramatic shift either out of CRP by producers so can we buy enough corn acres to meet what is expected to be in demand?

Roach: I think so. The way I do my numbers even if we were to reduce the soybean acreage by six or seven percent or I should say six or seven million acres we still have enough beans the year after providing we have average to above average yields. The beans production is going to come from South America. That's where we're going to see the big increases and producers need to remember the fears everybody had five years ago that the acreage was going to be so big there's just so many acres that can come into production. Those fears, of course, were not realized because prices went down and the profits were not there, the currency realignment just really took a lot of money out of the South American producer but now we've had prices go up enough that the South American producer will expand acreage with these current price levels.

Pearson: Alright, well it's going to be interesting to watch. You mentioned the deferred contracts at record highs -- would you go out and sell some '08 beans?

Roach: Well, perhaps but remember we're all sitting here looking at a marketplace that resembles something like 1973 when we were changing from having $1 to $2 corn and now we're going to change from having $2 to we're not sure what. We don't know if it's $3 or if it's $4 corn so we really don't know what is happening. So, long-term sales decisions need to be, you need to be very cautious on any long-term sales decisions. '07 is fine because you know kind of what your production costs are going to be for '07 so I'm making some sales in '07 if they make good business sense, I'm sure not opposed to doing that. But when you stretch on out into '08 and beyond that would have been like making decisions in 2002 and 2003 assuming that the history was going to repeat itself when in fact it didn't and right now it's probably a mistake or I believe it's a mistake to make decisions assuming that we're going to repeat what our history has been in the last five to ten years.

Pearson: Alright, some excellent points. John Roach, thank you so much. That will wrap up this edition of Market Plus, glad you've joined us. Be sure to join us here again next week and tell your friends and neighbors to join us here at our Market to Market Website. For all of us here on Market to Market, I'm Mark Pearson. Have a great holiday weekend.

Tags: agriculture commodity prices markets news