Pearson: Welcome this is the Friday, November 11, 2011 version of the Market Plus update here at our Market to Market web site. Thanks for joining us. I'm Mark Pearson and with us this week on Market to Market and here at Market Plus one of our regular market analysts Don Roose.
Pearson: Don you said a couple things I wanted to follow up with on the show. Number one a risk off bet kind of explain that a little bit for people that don't understand it. It means some of the monies come off the table.
Roose: It has and previously what we would see when you have a positive news in the market place the trade was interested in supporting that. Now what we see is with the commitment already there by the funds, they are interested in liquidating some positions. So it is a position where they are getting out rather than getting in and I think it is going to ebb and flow but the excitement isn't like it was over the last year.
Pearson: We became very dependent for this upward volatility on that kind of funds flow. You don't think we are going to see what we saw in '10 and '11 as far as volatility?
Roose: Well, what I really think is it would be odd to have another poor growing condition year, and I think the funds recognize that too. I think they would be very quick to get back into the market if it was there but I think the odds favor bigger acres of corn and some press to the downside as everything has to compete with wheat as it is sitting where we were in July of 2010.
Pearson: All right. So with that as - you also talked about the situation in Europe too.
Roose: Yes, I think that when you look at it you are looking at the demand factor and the demand is slowing down, there is no doubt about it, around the world. And so when you see the problems in Europe, you see the liquidation take place there, the dollar moves higher, slows down the demand, the export front and so that is another problem. And that's not going away any time soon Mark.
Pearson: That doesn't appear to. Strengthening dollar is one that has become a concern for a lot of producers out there as we become a bit less competitive compared to other producers particularly in South America.
Roose: Yes and as we look, you know, really what has happened around the world is production has increased and the yields have grown and so now we are coming up to the world cycles. And the United States and Mexico are really the only countries that had big short falls this last year and the rest of the world is making up for it.
Pearson: All right. Producers the less they need to take. We talked about this during the show as well- strong cash basis for corn.
Roose: Yes, most definitely. I think -
Pearson: It is time to sell. If you want to own, I think you said it on the show, let's go buy it back. Take an option position.
Roose: Yes, it would take your cash off the table. If you still think the market is going to move to the upside in this volatile environment you can do it in another method whether it is a futures or some kind of an option strategy. But you can change your ownership. That is what the structure of the market is trying to tell you as the basis is firm and spreads are narrowing.
Pearson: Just because you built storage doesn't mean you have to use it.
Roose: Well, sometimes the best investment isn't to use your investment and that maybe the case, you know, with the storage this year.
Pearson: I am going to have a t-shirt made up that says avoid avoidance. Don tell us this, as you look ahead for the commodities going into 2012, and we're just going to put our thinking caps on, and look into the crystal ball barring weather issues, barring weather issues, will this be a commodities year? I am thinking gold. I am thinking crude oil which has been in a rally. There is still a lot of interest, a lot of concern, as you mentioned with Europe and what is happening over there and what the recapitalization of those banks could look like. Where do you think we are going to go come next year?
Roose: Well, what I think without weather problems is that you are going to see production bounce back. You are going to see the yields bounce back and I think what you will end up with is if under that case you have a chance for the carry out on corn to bounce close to a 1.5 billion, you have soybeans - have the opportunity to have gone to 300 million, and those figures, Mark, it is hard to sustain the price levels that we are at.
Pearson: It is hard to have six dollar corn or even four dollar corn with a billion and a half bushels left over Don.
Roose: Yes it is and take your cue from the wheat to start with. Our world supplies are abundant and the wheat market is pressed down significantly. So you have the others just on hold waiting to see what happens in South America and the end user, as long as the crush is still there, you are still going to have terrific support underneath the market. It is just a matter do you need to go - move to the upside very aggressively.
Pearson: Well said. Don, we are going to leave it right there. Don Roose with us this week on Market to Market and of course right here on Market Plus and for all of us here on Market to Market I'm Mark Pearson, thanks for joining us. Have a great week!