Pearson: This is the Friday, January 6, 2012 version of Market Plus. Thanks for joining us here at our Market to Market website. Tell your friends and neighbors to join us here as well. A lot of interesting twitters coming in and tweets and we look forward to sharing yours in the Market Plus segments. So don't hesitate to drop us a line. We would love to hear from you. Let's talk with our market analyst this week, Jamey Kohake, who is one of our regular market analysts.
Pearson: Jamey, I want to talk about a couple things. We have had short of dollar move in the corn market here. We haven't really seen big money show up. On the show you mentioned you think they are sidelined by the stronger dollar? They are out trading currencies?
Kohake: I think part of that, the reason why, is because the rally that we have seen in the dollar and I think a lot of this rally was short covering and some of the long money didn't get in until the last thirty to forty cents. They were not in the whole way and a lot of this was commercial money as well. I don't think the funds have rebalanced their portfolios yet for this new year. I think they are still in the process, but it is going to be a big concern if this dollar does move two, three, or four more points higher that we are going to need a big weather scare to keep money in this market for the long haul.
Pearson: All right. Well, we may be getting that down inSouth America. We have a got a forecast that is kind of iffy inArgentinamaybe some rain. Critical time down there for corn growth and I have had a couple emails from people down there. Farmers down there very concerned. We could - that could be a catalyst here couldn't it?
Kohake: Yes, that could be one. Energy market could be one. Argentinawas forecasted for a bump of crop just a month ago and we are shaving off two to four million metric tons already right now. They are in the critical pollination tasseling period right now; most of the crop is, so this is very, very pivotal. One rain early next week is going to make this crop. So we are going to need some more rain to back it up, and that is going to be the key short term. I still like selling old crop corn into this, letting it go, and using futures for new crop hedges up over $6/$6.15 area.
Pearson: Yes, those hedges now are doable again aren't they?
Kohake: They are. They are close. -- If a guy has already sold his physical corn looking for a bullish weather scare next week or a bullish USDA Report come on and buy the March 660/670 calls. 665 is heavy resistance, you bust through that we could do some real damage again. So that is where you want to be if you sold your crop and want to re-own and get bullish.
Pearson: Phil inCanadasent us several tweets and is he always good about checking in and that was one of his questions was whether or not the dollar could indeed put an artificial top in. The drought situation is going to out weigh that?
Kohake: I think short term it does. The drought situation here in theU.S.too, is pivotal as well. That, I think, is going to creep back up in the market come the first part of March and with the acreage battle as well we have to kick off. But it is always going to be a factor every year and we have got to see too howEuropegets situated with their defaults and all that talk over again. I mean the funds could get out of currencies and be right back into the grains two days later.
Pearson: Yes, it could be very interesting depending on what happens down there. And of course you mentioned the drought here, we have got one forming, in some cases it is extreme. We have had dry weather. You mentioned snow cover up north in the Dakotas, particular acrossKansas, it is 55 degrees/60 degrees down in - 60 plus down inKansas.
Kohake: Yes, that is right. Some are like late spring temperatures, no snow coverage at all down there right now. Really the only thing going for wheat right now is going to be the loss of acres. Other than that there is nothing positive at all. Exports are still very, very sluggish. Ukraine,Russiahave a chokehold on the export market. I still think you need to sell rallies in the short term, wait for the dollar to break, to get long. All wheat is doing right now is following corn. It doesn't really have much at all going for it.
Pearson: And weather conditions in theUkraineso far are not all that encouraging.
Kohake: Yes, over there as well. Our crop commission here has increased. They have gotten quite a bit better the last two weeks and also we are seeing basis- now. So really everything right now is negative. Wheat fundamentally and that is why I like still selling that - Chicago up there around six and a half.
Pearson: Shifting over to corn which you mentioned on the show is really the leader here and is going to drive so much of what happens with other commodities and with the situation inArgentinabecause primarily this is a corn concern at this point in the growing season down there. But as we look here domestically and we had a tweet from another viewer with a question about whether or not the lack of the blenders credit which has now gone away, so ethanol is no longer publicly subsidized, and just a point of clarification of our viewers who think that maybe that was going to farmer's pockets, that did not. That went to the actual blenders of ethanol which really resulted in about a nickel per gallon savings for consumers. So, it was really nothing that agriculture participated in. Yes, it helped drive corn prices but those blenders need to oxygenate and they seem to like ethanol. So, are you feeling pretty good about ethanol demand through 2012?
Kohake: I do short term. I don't see it backing off right now. Short term I don't think anything changes at all. Like you were saying, I agree with you, there is a lot of misinformation out the last couple of years. The public didn't understand the details of who got the credit and people thought it was another big subsidy for farmers and they are getting a paycheck once a year off that. But here the key, like you were saying, with corn is allArgentinaright now. We get a report Thursday that should be supportive, but I like using weather rallies to sell physical corn into. I think that is what you have to stick to short term.
Pearson: Especially with those who felt like maybe they missed it with the big pull back we had post harvest. So, there you go.
Kohake: Yes, you miss that and also too if you got scared and sold some sub six minus the basis and you get the chance to re-own just a little bit this week as well, buy some 660s/670 March calls and see what happens Thursday.
Pearson: I had aNebraskafarmer call me and he said I am going to make some sales now. This is like betting on the instant reply and I think that is true to a certain extent. If we look going forward, if we were to bracket prices based on what we know right now, and let's use an Informa number, call it ninety-four and a half million acres of corn and let's say we get a trend line yield, where are corn prices going to be?
Kohake: Oh sharply lower, Mark. I think that you are looking at that December '12 talking that down close to five. You will probably see some basis levels sub five up in this area especially, but we have a lot of weather yet and theMidwest, as you were saying, is still dry. 615, I like that area a lot being short up in there if we can get a bounce this early week off of Thursday's report. I would start laying into some right there.
Pearson: All right and really on soybeans you were kind of negative on soybeans on the show.
Kohake: Yes, I don't see much going at all for beans right now. Exports have slowed down, looking for at best unchange on the carry out Thursday that is 230. I am up around 235/240 myself- number there. Argentinamight get a little bit of support off of that but about 45 percent of the whole crop inArgentinais beans. So it is not a massive, massive amount. Their crop is getting smaller but I don't think it is anything to get excited on and start talking thirteen dollar beans yet.
Pearson: 230 is still a tight number.
Kohake: Yes, it is and -
Pearson: I mean sub 200 we are real tight.
Kohake: Sub 200 we are real tight and also too, I mean, look at the corn/bean ratio. We are going to have to that acreage deal settled out yet. I don't think beans are done and over with. Sell the crop and forget about it. On these things short term I would be selling rallies. I want to sell some more beans before the report Thursday. The old crop.
Pearson: Ok. All right, keep that one in mind. And I want to come back to livestock really quick. We talked about kind of the sluggishness in this cash market. We are kind of in this post holiday period. People are not eating out like they were prior to Christmas. They are not out and about shopping. So we don't get that surge of beef demand typically in January. So it is almost seasonal. Is it more than that?
Kohake: I think it could be. I am scared of the field prices putting a bigger crimp on domestic demand than we have already seen right now. Everybody knows foreign exports have been huge. That is what has kept the market in check the last twelve months and now the key is domestic demand. I don't see it being real supportive right now. I am neutral to bearish the cattle market right now. Feeder cattle are grossly overpriced relative to live cattle. There is a big seasonal starting next week, some March feeders, I like that a lot and I like selling rallies on live cattle. I just don't see a short term with a large on feed supplies this market hanging in.
Pearson: Well, it is going to be interesting to see how we shake out and in the hog market as well. You were talking about when it comes to pork that there are going challenges there and again there is another export story.
Kohake: Big export story withChina. That was the highlight in 2011. Key here too just like the beef sector is domestic demand. What I am watching here next week is the kill number tomorrow it has got to be huge. I am watching - to see when this demand does pick up. Hopefully it does but I still am bullish to summer months out in the third quarter myself, and I've just been selling - puts, just collect that equity, let the time tear it up, wait for us to get some more definitive fundamental news to be able to hedge off that way.
Pearson: All right. We had a viewer fromCanadanamed Peter and he was wondering about locking in some fuel price. You talked about that on the show and obviously we are going to need a pullback from where we are right now to make that worthwhile.
Kohake: Yes, I don't like buying futures, buying the heating oil contract up here right now. If I was nervous and I thought you missed out on the seasonal low what I would do is sell puts and how you are wrong. What I mean by that coming in and sell like some 220/230 puts, the market stays higher, you keep that equity, and hope you are wrong so that the market comes down and you can buy your fuel cheaper. But right now I don't see that market setting back longer term. I think it stays - heating oil within about an eight to twelve cent range right now.
Pearson: Jamey Kohake, I appreciate you being with us on the show, being with us here on Market Plus, and for all of us on Market to Market thanks so much for joining us. We will see you again next week.