Pearson: This is the Friday, June 24, 2011 version of Market Plus. With us this week one of our regular market analysts Jamey Kohake and Jamey let's put all the cards out there. There is a lot of negatives about ethanol from the government. What's going to happen there is probably going to want to be determined by the consumer continuing to select ethanol and actually with the ethanol industry wanted over time the big question these days is what's going to be that impact and what will happen to the corn market? What do you hear from the trade? How are they reacting? Ever since this subsidy destruction has come up we've seen corn prices fade a lot.
Kohake: Right. Big sell off in corn. Nearby July lost over a buck. We've seen the new crop now roughly about eighty cents after todays sell off again. Terrible close in corn today. Pretty much on the lows for the day but a lot of it has been macro. A lot of it has been liquidation, you know, of ethanol traders. I think they are feeling short term was right after it came out was mandates don't change, credits do, whoop-de-do, but I think the longer we sit here and kind of debate this the sentiment is more turning towards- it is just a matter of time when now that it all disappears. But I don't think it is in the market. I don't think it will be short term. I think longer term it is something that a producer has to be concerned with. Like we talked on the show $6.40 December corn, December 12 corn, I've sold that and I'd do it again. And the margins are big right now, they look good, and I don't think it is very wise to sit back and try to hit a home run off new mandates or new credits with the financial problems that we have. If you are so bullish off weather, off acres, off that we're going to have a heat scare, go buy some calls. I'm saying get your profits locked in, they're big. There is too many outside influences, the world is in terrible shape financially, anything could blow up overnight, - down for two/three days in a row. Get your profits in. Buy calls if you want to play the weather game.
Pearson: All right. I want to talk about, we talked about it a little bit on the show, I want to talk about it a little bit more and that is crude oil prices. And you're thinking there is we're close to a bottom?
Kohake: The WTI I think we are short term. We have had a big sell off in crude as well risk on/risk off type trade. We tanked it with thirty million barrels released this week and I think we stabilize in here unless a dollar really gets wild and it heads towards eighty which I think we very easily could longer term but not right now. Like I was saying on the show I think the trade next week is selling Brent buying WTI spread. If we take Gaddafi out next week I think that pretty much – big time.
Pearson: Well it opens up again and Brent is going to start to fall apart because that is largely European used products. We will see what happens.
Pearson: All right that's an interesting trade. I want to come back to another development this week and obviously the situation with Greece, you are right, we're going know a lot more Sunday night. We will see what the Greek people decide to do now that they have been bailed out if they will adopt posterity measures. We will see if that happens and of course if that doesn't happen and if this deal falls through then Katy bar the door. We could have a lot more exposure over there.
Pearson: A stronger dollar.
Kohake: Yeah. Yeah. The dollar - euro crashes, well not crashes, turns lower still and dollar turns higher off of it. Another influence it has in these outside markets is the bond market. We've been on a straight grind higher in this bond market for several months now. Everybody and their dog wants to be short but that's the problem the general public is short, they think rates are going up, QE2 is over this week, but I think the bonds could finally crash this week depending on what happens in Europe. Two year bonds yielding the lowest percentage since Dwight Eisenhower.
Kohake: Yep. Lowest since Eisenhower.
Pearson: These are unbelievable rates certainly. And as I pointed out in the show it is not doing much in the way of stimulating. It's not stimulating much new houses. I don't know that it is lessening it any but it doesn't seem much of a stimulant. We've got this though this outside market factors that could drive the dollar higher which could impact where, for instance, China goes to buy more soybeans and more corn near term. Stronger dollar also helps out in terms of us buying crude oil which is a plus. We also have the issue out there we touched on this in the market segment too but I want to come back to it. What is the situation with Russia?
Pearson: Now Russia is a - looks like it is back in the export game and coming in with very attractive prices to unload. How does that happen?
Kohake: Right. I'm not sure how they are - what markets they are pricing their cash sales prices off of but this could get very, very interesting if they are going to try to move all of it the rest of this year or try to spread it out, but this could turn into a serious situation with their wheat crop. If we end up with a small crop and we turn lower and it is kind of a double whammy for producers. I think you got to sell rallies short term. I don't see this wheat market turning higher and staying higher. I think you saw rallies and I don't see this thing doing much at all for another two to three weeks at least.
Kohake: And harvest is moving out of pace here in the United States.
Kohake: Yeah and we sit back and say loss of acres, you know, and there's no high protein wheat and all that but the market doesn't care about it and we're trading exports and the dollar pretty much.
Pearson: It's going to be an interesting week ahead. Big USDA report Thursday which will also make again it could have that short term impact. It could cause money to come back in. And that's the other question Jamey, where is the big money going to right now? Where are the big funds going? Where are they sticking it?
Kohake: Right I think they are still in the ags. There is still a huge amount of open interest coming into last week's trade they are still long over a hundred thousand corn, wheat, and beans apiece the index funds are. So they are still holding in and like you were saying they could be back in on a dime Wednesday or Thursday even earlier if a heat ridge would pop up over the Midwest somehow. But back like I was saying on the show I think harvested acres yields will be the key. If they get aggressive there or not that's the USDA, but I'm going to sit back and hold off and try to out guess USDA reports. I'm locking in margins and somehow Monday or Tuesday we will be back $6.80/$7.00. I am going to take advantage of it.
Pearson: All right. Well Jamey we are out of time but as usual some great insights. Big thanks to you joining us this week. Big thanks to all of you joining us here at our Market Plus Website. I want to apologize we had some interruptions to our services out to many parts of the country this last week. We are taking steps to fix that problem so it won't occur again, but again we to apologize. Make sure you keep it right there on your local public television station and if for some reason they aren't running Market to Market make sure you ask your public television station why.
Pearson: Thanks so much for joining us on Market Plus. For all of us here on Market to Market, I'm Mark Pearson, thanks for joining us. Have a great week!