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Market Plus: Jan 06, 2006

posted on January 6, 2006

Market Plus: Jan 06, 2006

Pearson: Thank you for joining us for Market Plus this week, I'm Mark Pearson. And two great analysts this week, Darin Newsom and Erin Golly and we're going to start with livestock. Erin, I'm telling you, it's been exciting in the cattle market. We talked about the calf market on the show and how hot that market has been. A lot of what is driving this has been cheap corn, cheap beans, cheap bean meal. What would you tell a producer?

Golly: Well, cheap feed inputs are a great deterrent for keeping livestock on your farm, keeping them heavier weights and keep the bankers rolling with the money for all your feed and for your animals. But I think it's important that producers keep an eye on watching their feed input costs. I know that a lot of funds are looking at buying and then they're already starting to buy some soybean meal and starting to get some bullish looks to it even though it's not fundamental but funds are starting to look into it and that is, you watch CNBC and you watch MSNBC they're talking about corn, how undervalued it is and that is what funds look at, they look for undervalued commodities compared to inflation. And so we need to just keep a close eye on that and make sure they dont get their foot too far in the door and scare away some profits.

Pearson: We didn't talk about it much, you mentioned it on the show but the funds and so everybody is on the same page, people in their retirement plan, in their IRA's and their investment portfolios after the last quarter of 2005 determine they want to have some commodity exposure and that is the money that we're talking about, right? These are now funds that you can go to your financial advisor and get some exposure in commodities, that is the trick. We talked about on the grain side, you talked about it a little bit on the livestock side of the show, how much of an impact is that going to have on say futures for hogs which have never been heavily traded? Fed cattle, a little bit less though but are we going to start seeing say increased volatility?

Golly: Oh yes, we have seen increased volatility, especially in the cattle anyway. But it creates more opportunities for producers to lock in some profits. I think it's a great fund for us to use. You can't get in the way of them too easily, you know, it's going to cost a little bit of money but I think it provides opportunity for producers to capture some profits.

Pearson: Alright, so more liquidity coming in. Alright, Darin Newsom, we need some liquidity for these wheat people. I'm telling you, I've been watching the news and I'm heading down to Stillwater, Oklahoma pretty soon and man it's dry down there. This wheat crop, you were home, this is your home crop here, the wheat market and you were saying it looked pretty thin to you and we always lose this wheat crop over the winter. I'm 48 years old, 48 times I've seen the wheat market lost in December and January. What is ahead now for wheat? We talked about it on the show, how can we make some money?

Newsom: : Well, the interesting thing in wheat is that we've had such solid demand, such strong commercial demand for the hard red crop, both hard red winter and hard red spring. So, we've seen a very strong basis moving there. Now, on the other hand, we have seen just anemic demand for soft red winter. So, you just, you can't really give the stuff away at this point. You look at the export sales report _____ we get, but yet soft red winter has rallied and why? It's just as you and Erin were talking about, the non-commercial traders, the large funds, whatever you want to call them had just a few weeks ago were holding a record net short position. They got out, they wanted the gold market. They watched the dollar starting to fall. They watched the crude oil. They watched some of these others, cotton and so on, all rallying and seeming under priced so they bought some of those contracts back. There was nothing else under there so it could air. Once that runs out and you may have seen it at the end of this week, you're going to see them go back in. You're going to see these non-commercial traders, these commercial traders taking advantage of this. They're going to start selling the soft red market again. So, what hard red winter and what hard red spring producers can do is that they can look at these new crop spreads and see that the spread between the July Chicago and the July Kansas City and the July Minneapolis are probably narrow for this point in time particularly if you want to look at the fundamentals in the market. That being the cash go ahead and look for a new crop spread to put on but hedge into the Chicago market. Then as the spread widens out, possibly 35-40 cents then you roll your contract. Then you roll your spreads. But _____ you roll your hedges back out to the appropriate contract be it Kansas City or Minneapolis then you have a better position going into harvest.

Pearson: Now, we had kind of the opposite of that going on this last fall didn't we where they were using Chicago?

Newsom: Right, they were still using the Chicago market. But we still, at that time, at that particularly point in time all the demand was in the hard red spring. We just had an astronomically high basis premium in the hard red spring wheat. So, the opportunity there was to go ahead and do the same sort of spread because you knew the basis wasn't going to stay that strong for that long. But there was just basically a cash selling opportunity and we had a lot of people take advantage of it at that point.

Pearson: Alright, so you'd use Chicago?

Newsom: Right now, right now I would certainly look at the Chicago market and wait for an opportunity to roll it out.

Pearson: Interesting, well this is a whole new world with all these new dollars coming into commodities.

Newsom: It changes the way we have to look at things and to the degree that we have to watch them.

Pearson: Outstanding, hey that's what we're here for on Market to Market.

Newsom: That's right.

Pearson: Thanks, Darin. Thanks, Erin. Good to have you with us this week. For all of us here at Market to Market, I'm Mark Pearson. Hope you have a great week.

Tags: agriculture commodity prices livestock markets news