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Market Plus: Market Analyst Darin Newsom

posted on February 3, 2012

Market Plus: Market Analyst Darin Newsom

Pearson: This is the Friday, February 3, 2012 version of Market Plus. Thanks for joining us here at our Market to Market website. With us this week one of our regular market analysts Darin Newsom and Darin, a couple things I wanted to talk about and we have got some great tweets from our listeners that I want to get to as well. The number one discussion point right now is old crop corn and the fact that a lot of it is being held in the Corn Belt across the Grain Belt. The last couple years that has been the scenario. Are people going to be right this year?

Newsom: Certainly looks like they should be with the type of tightening we are seeing in the global supply and demand situation. The pushing of that demand over towards the U.S. supplies it looks like the market is going to continue to try to buy this corn. Try to pry it out of the hands as we move into spring. So, it certainly looks like it could pay to continue to hold. The problem is we have talked about you are going to reach this tipping point where the focus is not on the old crop any more, it moves to the new crop, and then there is a huge rush to empty the bins in front of next harvest and that could start to bring the market back down.

Pearson: Ok. So, be alert, be awake, and be ready to unload the bins when that opportunity comes.

Newsom: Feed these rallies with some sales as we go along five/ten percent. You start cleaning out the bins so you don't have to do it all in one rush, and don't have to compete with everybody else trying to do it at the same time.

Pearson: A lot of questions about what the 2012 with the new crop soy/corn ratio is going to be. That is a question from Brent over in Illinois. The new crop soy/corn ratio going into this year's planting season. What is your forecast?

Newsom: It is has been trading very low. We are in the 1.85, you know, 1.85:1 to 1.86:1 somewhere in that range. Well below 2. Well below the historic 2.4:1 to 2.5:1.

Pearson: So are beans too cheap? This is a question I get asked a lot. Is that what we are looking at going forward?

Newsom: You know beans could probably be viewed as too cheap, but what we really have to look at is what is the global supply and demand situation. It is tight for corn and it is not for soybeans. Certainly not for wheat. So the historic price relationships that we have seen with corn and soybeans, corn and wheat, I don't think they hold water anymore. I think we have to look at it through new parameters. And so maybe by looking at these new price relationships, given the types of fundamentals that we have, soybeans aren't really that cheap. Now if we see a weather problem hurt the soybean crop in South America that could certainly change if Chinese demand stays strong which it is expected to do. So, right now I would say it certainly looks cheap compared to corn. Fundamentally it is probably not but that situation could quickly change.

Pearson: We talked on the show about what is happening in the Black Sea Region, what could happen to Russia, the Ukraine, obviously that is a wheat growing area. It has also become a corn growing area. It looks like there is going to be a lot of corn coming out of there this year. They have been extremely cheap relative to the very high dollar that we have here in this country, but the dollar has been stronger, then weaker, we have seen some weakening again, a little bit of strength this week against the euro. Phil from Canada, a buddy of yours, has sent us a tweet wondering whether this is an aberration. Is the dollar going to turn up solidly do you think going forward?

Newsom: Right now it looks like the dollar has been in a short term downtrend and we can break trends up into all different types of time ranges. I would say the dollar is about to - could start to find some support. Now one thing that would indicate that this long term uptrend that we have seen in the dollar could be coming to an end is all the bullish economic news. The more bullish economic news that we are seeing, you know, the possibility that we are starting to turn a corner. This week's - numbers certainly were a good indication of that. If we do start to see some more bullish economic news and if Europe starts to stabilize itself money could start coming out of the dollar, go back into commodities, certainly go back into crude oil, come out of gold into the grains, and so I think that is going to provide some support. So is it an aberration, this sell off? Probably right now it is just short term downtrend? Could it turn into a longer term sell off? Absolutely. Bringing the long term uptrend to an end.

Pearson: Someone pointed out to me the last couple days all the problems in the U.S. certainly aren't solved in terms of unmet liabilities for Medicare and Medicaid and Social Security and blah, blah, blah and obviously a 15 trillion dollar deficit. So, there is reason to be concerned. But again dollar strength compared to say the EU is probably going to hold up at least for the time being until a plan comes across from Europe.

Newsom: Right.

Pearson: So, let me ask you another question. This is one that I have been curious about. I came up with my own answer for it and Phil tweets this one as well. That is we have seen basis strength strong in the Midwest and we have a lot of viewers over in Michigan and up in Ontario and Quebec where they haven't seen much basis strength. Now my response to that question has been hey, lack of ethanol production in that region because this ethanol demand at the first of the year has been very strong and they have been bidding up to buy corn. Is that it or is there some other issues at play in those regions?

Newsom: I think that is the biggest part of it. We have got this demand market going in corn and where we see the basis the strongest is certainly along the ethanol belt. You start to get out to the fringes of that and the basis hasn't really - it has been helped but it is not seeing, it is not as strong as what you see where you have got more competition from ethanol plants, and other end users. So, I think that is a large part of it. As we look ahead do we see some huge improvements coming in basis for Michigan and other parts of the upper Midwest? Probably. I mean it could still get some, you know, ride the coattails of the others particularly if we see an increased demand over the spring and early summer. But I just don't see it getting as strong as what we see here in the heart of the Corn Belt and in the lower Midwest.

Pearson: Got a final question for you. I want to talk livestock anyway and had a tweet from Samuel in Nebraska. It is a comment. How high realistically can feeders go before 99% are all forced to become vegetarians? Which I like that. Appreciate that Samuel. Then his serious question was we have got a big storm brewing in the western Corn Belt for this coming weekend. We haven't had any weather issues. We have been able to move livestock to town at will 2011/2012 until now. Samuel's question is, and it is a question and a concern I share, if we get a cold snap in here, we've got this snow, we get a transportation rally going in livestock, could that put a near term top into this market?

Newsom: You know it certainly could because we could get some sort of spike activity in the markets on this. Now the thing that is going to -

Pearson: We are spiking from some strong levels.

Newsom: We really are and that is why when you are trying to say how high can this market go, is because we are already at, in many of these markets, all time highs. So it is hard to gauge how much stronger it might want to be. Now the thing that is going to keep a huge sell off from occurring is this continued strong demand and tight supplies basically in the cattle market but spilling over into hogs as well. Could the weather cause a short term top? Yes, that is certainly a possibility because once the snow goes away we start moving things back to town again markets - the prices could ease. But I don't think it is going to cause a long term top in the market.

Pearson: All right. Good question, appreciate all the tweets everybody, make sure you go to our website and you can tweet us. You can visit us on Facebook and we would love to get your questions. Darin Newsom, appreciate you joining us this week and from all of us here on Market to Market thanks for watching, thanks for joining us here on Market Plus. I am Mark Pearson have a great week.

Tags: agriculture commodity prices economy markets news