Market Analyst John Roach discusses the commodity markets with host Mark Pearson.
Pearson: This is the Friday, September 2, 2011 version of Market Plus. Thank for joining us here at our Market to Market web site. We are thrilled you have joined us. Welcome aboard.
Pearson: John Roach our senior market analyst joins us this week. Always good to have John in the studio. John, I mentioned all those towns I was in this week. I was traveling a lot Redwing, Lincoln, Des Moines, Decatur. Every farmer I talked said eh, kind of worried about these corn prices going much higher. They are very concerned about deteriorating demand. And we are starting to hear it from the poultry industry.
Roach: Demand destruction. The problem with very high prices and particularly in years of tight supplies where it looks like ok somebody is going to be shut out. Once you play that game of musical chairs and find out ok, who is not going to get the bushels that they would like to have. It is hard to get the people back in the game later, and that is where we are at. We are at a stage here at these prices levels that somebody out there is going to have say uncle and not get the grain to feed or to utilize that they would like to have, and that's the greatest caution we have. We have an environmental situation that we have to be careful about as well and that is that the Gang of Twelve or whatever the right name is in the U.S. Congress is going to figure out how to solve all of our problems. My guess is that is not going to be a slam dunk. That could be a very bloody process and we have Europe in a similar situation where this week Greek two year government debt reached forty-seven percent. And so the - we have issues that we have to deal with. Half of the world's economic the GDP, actually a little more than that because you have to add Japan in as well, is heavily in debt and spending more money than they can take in and that is going to be dealt with as we look out over the next year. A lot of that is going to be dealt with in the next year.
Pearson: And hopefully be dealt with by reduced spending and it will be done in an orderly manner. There is a lot of concern about what could happen potentially in Europe and there is also the big corn case in Germany. I wonder if Germany is even going to be allowed to pay off a sovereign debt of other countries or guarantee it. So a lot of things about the euro make people a little nervous and like you say Japan has tremendous debt. Much more so than the United States and you've got all these other countries out there the BRIC, the Goldman Sachs terms, they seem to have plenty of commodities, plenty of natural resources, and plenty of cash. Are we going to see more growth down there?
Roach: Well, the Brazilians actually reduced their interest rates a little bit and the Brazilian Stock Market on Friday was the only one that was higher and while the U.S. Market peeled back again. We're just going to have more bad headlines. That's the problem. More bad headlines to come. We can't resolve these issues without bad headlines and that, I think, is it needs to be a concern of all the farmers out there because we're getting all of the small crop estimates and we will finally hear in the next couple months, we're going to know just how small the crop is and then we are going to have shift over to the demand side and say how real is the demand out there? And it may prove to be not as real as we would like to think because of the economic concerns in the world.
Pearson: In the old days, back in the day John, we would talk about short crop having a long tail and we really didn't see that in '08. Some of these others, we hit that period of time, but back in the days we had the government programs. That was certainly the case because all the sudden the over supplies were held by the government come out of the market, prices would go up, rationing would occur. These seem to be different times as - I think the last time you were on the show we talked about China was talking about buying more U.S. corn. They've got the cash to do it. They seem to be unfettered by these prices.
Roach: But they didn't do it.
Pearson: They talked about it.
Roach: They talked about it but they didn't do it. The - and the short crop long tail we only need to go back to 2008 to remember how we had very high prices in the summer and then we have very, very cheap prices the following year. So the - that is still a -
Pearson: Market truism.
Roach: Market truism. It is still a market truism and so here we are coming in finding out that the smallest crop numbers are being talked about on the first week of September. So we are surprised by how small the crop is. The market has adjusted aggressively to the smaller crop numbers and so now we have to shift over and say well how about those people who would like to buy our crops? What is their situation? I feel like also across the ocean and recognize the former Soviet Union Countries are chomping at the bit to take away our customers and have been very aggressive in their selling and they have lots of inventory to sell. So that will tend to hurt us as we go through the year.
Pearson: John Roach our senior market analyst on Market to Market. Great to have you with us here on the show and of course right here on Market Plus and from all of us here on Market to Market thanks for joining us here on our web site. We will see you next time. I'm Mark Pearson, have a great week!