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Market Plus: Jul 28, 2006: Senior analyst John Roach

posted on July 28, 2006

Market Plus: Jul 28, 2006: Senior analyst John Roach Pearson: Welcome to the Market Plus page here at our Market to Market Website. Remember, next week we'll tell you how to podcast our program. So, it's going to be real exciting, hope you're with us then. Now, John Roach is with us, our senior market analyst. Always good to have John with us. And John, you were talking at length about storage on the show tonight. Obviously you think this is extremely critical for producers that they are able to maintain and control their own destiny by having a place to haul their crop to.

Roach: Yeah, Mark, I talked to a producer this week in South Dakota and his cash bid was $1.68 for corn. South Dakota is going to be a corn deficit state, they're going to have to import corn in order to fuel their ethanol business and that is if they have good crops. This year they don't have a good crop. So, their surpluses that they have left over from last year are getting forced out of the marketplace at price levels that in my opinion are just ridiculous. There is an opportunity for that particular farmer, I think, to make $1 a bushel if he can find a way to hold the crop. The part of this that is distressing to me when I talk to farmers is that they say well, I can't get the storage put up before harvest. But that's only part of the question because my guess is that that farmer will be raising corn for probably the rest of his farming career. So, what difference does it make if the storage gets up before harvest or it gets up sometime later than harvest. If you don't have enough storage to hold onto your crops you've got to get it built or you've got to get it secured. We have condo storage opportunities in various co-ops here in various areas and there's got to be a creative way to do this. I've seen instances of condo storage that can be purchased at a co-op elevator for something less than $1.40 a bushel. You could, if nothing else, you could talk some investor into buying it and then do a long-term contract, you could rent it for 15 cents a bushel per year. That would give the investor better than a 10% return and you'd have storage to be able to hold your crop. And that's what is going to be necessary. I believe the inability to control your cash grain, it may be the thing, the next thing that takes farmers out of the business. And you can't be selling crops at below cost of production because you don't have a place to put it.

Pearson: Alright, and you're talking about corn and I see that. What about farm storage or farm control of soybeans? Obviously with biodiesel plants coming on line in the next two years...

Roach: Same thing applies, same thing applies. If you're forced into selling beans below the cost of production because you can't control the inventory, you know, you just, you can't do that, you just can't do that. Now, people say well, but I can contract forward and certainly you can and we're great advocates for doing that and we use our own sell signals and we contract forward those bushels that producers can't store and so forth. But in an environment when price levels are going from $2.00 to $3.00 or from $5.00 to $7.00 you can't contract forward and take advantage of that. You've got to be able to hold inventory to take advantage of that. Farmers say well I can sell the crop and then come buy it back on the futures market. Sure, you could go buy next July corn but it's $2.85 a bushel. If you're selling corn for $1.85 today and you're going to go buy next July futures back for $2.85 that doesn't work either. The only way to do this is to control your inventory and you're going to be farming, you're going to need storage, you're going to be raising more bushels because you're going to be shifting over to more corn acres. So, get the plan going, it's time to get that, to work on that. There is nothing that I can do from a marketing standpoint to help a farmer any better than to say get a place to hold it.

Pearson: Absolutely, some great insights, John Roach, in this ever changing world of merchandising your grain. Again, join us next week, we'll start our podcasting. Look forward to talking to you then. From all of us here on Market to Market and for senior analyst John Roach, I'm Mark Pearson. Have a great week everybody.

Tags: agriculture commodity prices markets news