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Market Plus: Darin Newsom, Market Analyst

posted on June 17, 2011

Market Plus: Darin Newsom, Market Analyst

Pearson:This is the Friday, June 17, 2011 version of Market Plus. Thanks for joining us here at our Market to Market website. Another huge volatile week in the corn, bean, and soybean markets, cotton for that matter, livestock for that matter. It can make your head spin. The big sell-off has a lot of people wondering. We had some negative news on ethanol coming out of the United States Senate which was served as a backdrop for some bearish settlement in the grain market and it all comes back to what do we do now, Darin? And a lot of people -- I talked to a producer this morning who said, you know, he's still got some old crop corn. We've seen eight dollars be offered for cash corn contracts in the Western Corn Belt. Apparently that wasn't high enough for him. Now I'm afraid we're gong to get aggressive selling after the sell-off. What's your take? Where are we going?

Newsom:Well, it is really interesting. A week ago, you know, we saw the July corn contract press up against eight dollars, come a quarter cent short, this Friday trading level below seven dollars. So a very interesting week as you said. The biggest question in the corn market right now is the demand market that has driven the corn higher for so many years, is it in trouble? Are we starting to see some cracks in this? Could we start to see feed demand slow down? Is export demand going to slow down? Ethanol demand, you know, is it on the blocks right now? What's going to happen as these things move forward?

Newsom:I think if you've still got some corn, if you've still got some old crop corn you've got a good basis market right now. I think you could certainly make some sales, still come out well ahead on your corn. For safety sake we've moved into a seasonal timeframe where the market does tend to go down through say mid-August to early September. So it certainly looks like it is an opportunity to make some sales. Avoid some of the risks that is out there long-term, still some bullish fundamentals so the market could come back, short-term could continue to be a very volatile ride.

Pearson:Ok. So we were talking strategy on the show just a little bit. You were saying obviously in this kind of volatility options still seem to be the preferred method. Get some insurance.

Newsom:Yes. If you're going to go out and let's say you want to protect it out four, five, six months, you may want to look at some options. They are going to be pretty high because the volatility again is quite high, but that would give you the opportunity of just establishing a floor and you could take advantage of the market if the fundamentals do drive it back higher. So certainly we could look at some option strategies in here. Selling futures is pretty tough because of the type of volatility that is in the market running up the amount of margin that you have to keep in an account. So you have to take all that into account when you put any positions on, but options are still a pretty good strategy. Some cash sales with a strong basis probably the way I would lean at this point for the actual cash grain that I have.

Pearson:Soybean market you say you're little concerned about what is happening on that front not from a - demand side but from a production side.

Newsom:More the production side. We do have a tight domestic supply and demand situation. Basis is firm, you know, not as strong as it is in the corn market but certainly it is firm. But now we've got this threat of a continued rise in the U.S. dollar index for other reason than it has been down for so long it needs to go up and if that happens I think we are going to continue to pull more supplies from South America to China than we are domestically. We've seen some slow downs in export sales, shipments, and inspections and so on. This could continue particularly if the dollar continues to gain momentum.

Pearson:It sounds like, and we talked about this in the open of the show, it sounds like the air is coming out of commodities with the strengthening dollar and a little bit cooler global climate. Is that a fair statement?

Newsom:That is a very fair statement and it doesn't matter what commodity index you look at be it Goldman Sachs, be it the Continuous Commodity Index, CRB, whatever it might be they are all showing the same pattern and that is they are developing a pretty solid down trend here over the last few weeks/couple months and if that really starts to build and if we see more money coming out of commodities it is going to go into things like gold. It is going to go into the dollar and I think that is going to keep many of these key commodities under pressure over the next couple of months.

Pearson:Darin Newsom always great to have you with us, joins us regularly here on Market to Market, and for all of us here on Market to Market, I'm Mark Pearson, thanks for joining us. Have a great week.


Tags: agriculture commodity prices economy markets news