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Market Plus: Market Analyst John Roach

posted on July 15, 2011

Market Plus: Market Analyst John Roach

Pearson:  This is the Friday, July 15, 2011 version of Market Plus.  Thanks for joining us here on our Market to Market website.  With us this week our senior market advisor Mr. John Roach. John when we talked on the show initially about volatility you made a lot of comments about how we've had a dollar up, a dollar move in the corn market and I can remember talking to you thirty years ago when we would get a dollar moved maybe over two years and now we are seeing it in a week.   

Roach:  Yes, we get ten or fifteen cents over a year. 

Pearson:  Yes, back in the day - 

Roach:  In the early days.  In the early days of this business for me. 

Pearson:  So, we look at these markets now and frankly I talk to a lot of persons who are just kind of like stepping back.  This volatility is so intense.  How do you handle these big markets?  And I'm talking about big markets, I mean, obviously we are talking seven dollar corn, we are talking twelve/thirteen dollar soybeans, we are talking eight/nine dollar wheat.  A lot of producers are saying well hey, this cash market, I'll just unload there, I'll dribble sales out.  Concerns about next year, a big crop, you know, could we have over a billion bushel of corn carry out for instance?  The market may not be as concerned to keep these prices these high.  How do you handle these big markets John? 

Roach:  What we do and in what I have done for, well I guess we have been doing this for getting close to twenty years I guess, is we use an oscillator.  An oscillator is a technical tool that says that the markets cycle up and down, up and down, up and down and we have our oscillators set as so we get in the neighborhood of about ten peaks in a year and we call those peaks a cell signal and they last normally from four to six days.  So we try to identify in the neighborhood of forty to sixty.  Sometimes it is up to eighty or ninety days a year where it is good opportunity to be making sales and so we just track that.  We further refine that by making more of our sales in the first half of the year than the second, try to really avoid harvest time sales all together, and then have confidence in that tool and then to keep your emotions in check.  Don't focus on price, focus on profitability, and have a good spread sheet on your farm operations so that you can really understand where you are on the cost side and then you can lay sales against that an see where you are profitability and then kind of measure that profitability.  And anytime you are looking at your spreadsheet and you go you know what?  The profits here are really strong and in this past year or so we have people that have been looking at record profit levels and not too long before that we actually were looking at losses following in 2008.  In the ladder part of 2008.  So, focusing on the profits on your farm and not focusing on the market so much except to focus on the market to have something a tool, some sort of an objective tool that says, you know what? We're on the upper side of the pendulum swing and try to focus your sales during that upper side of that pendulum swing.  We found that to be very successful long term.  Now it is frustrating when you - if you makes sales and the market continues to rally up and rally up and rally up and rally up, but what is interesting is when the market turns and the corn market is down a dollar you look back at those sales and suddenly they don't look so bad at all.  In fact they look very good and so focus on the profitability on the farm because what they are doing in Chicago has very little to do with your income level on the farm.  I mean it does but you can see it come and see it go.  If you didn't sell it, you don't get it. 

Pearson:  Right. 

Roach:  And so focus on the profitability.   

Pearson:  All right and when it comes to profitability it is obviously sales.  It is also inputs.  You mentioned on the show you want to get inputs covered as it is attractive to do so.  Are you concerned about what might happen?  Obviously we've got fertilizer, seed certainly has jumped.  We have seen the windblown corn start to come back up in most cases.  So, I had a couple producers say maybe three hundred dollars or three hundred and fifty dollars a bag is a good price for seed corn if it can do all that.  What about the inputs side, getting coverage there, and fuels is another one.  You talked about maybe a flat oil price near term but would you start getting some of those inputs covered this year? 

Roach:  Absolutely.  As soon as I made a sale I would go try to accumulate inputs.  Absolutely.  You have to get more creative on how you are buying if you are going to get a little more aggressive on how you are selling you have got to get aggressive on how you are buying.  And I have talked with producers who put up various buildings in order to hold some of their inputs and put up tanks and so forth and so those are maybe some of the best capital expenditures that you can make in this environment because once you tie down the cost then you are pretty good over on the other side when you tie in the revenue and then insure the heck out of it. Get with these kinds of insurance products that we have right now, I mean, insure at a very high level and if you run your business in that kind of situation, if something goes wrong from a standpoint of the production out there, you've got that insurance to recover some of that money back. 

Pearson:  All right. John Roach as usual is great to have you with us.  Always appreciate your insights.  Thank all of you for joining us here at our Market to Market website and until next time from all of us on Market to Market, I'm Mark Pearson.  Have a great week!

Tags: agriculture commodity prices economy markets news