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Market Plus Video: Market Analyst Darin Newsom

posted on April 20, 2012

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Pearson: This is the Friday, April 20th version of Market Plus here at our Market to Market website. A big thanks to you for joining us. Tell your friends and neighbors and more importantly if you love Market to Market and you watch it on the internet and you would like to watch us on your local PBS program, by all means contact your local public television programmer and say hey, run this show. Everybody eats. With us this week Darin Newsom one of our long time regular market analysts and I always appreciate Darin's insight into the marketplace.

Pearson: I have got a lot of things I want to cover in Market Plus this week and a lot of things happened. We had a great visit with the Secretary of Agriculture. A man who is as bullish on agriculture and the outlook is anyone I've spoken with in the last year and he has been on trade trips. He has been all around the world. He is extremely optimistic growing global middle class continuing to support a man for what it is we produce and of course continuing to consume energy. I want to touch upon domestic natural gas real quick. I know this is off the - but hey we use a lot of products without -- which natural gas is a key contributor and anhydrous ammonia comes to mind, many other products as well. $1.90, where are we on natural gas now? It is going so low I can't keep track of how low it is.

Newsom: Yeah it just keeps grinding lower and it is right around that $1.90 level right now and you talk about a lifeless market. This market just cannot find any friends and if - and if there is an attempted rally it might last a day or two but it is nothing substantial. It has all of the bearish components as you could possibly think of. It has got bearish supply and demand. We have got plenty of supply and demand remains relatively slow. You know as far, you know - if you look at the total against demand and we have got investors who even though they are holding a huge net short position against natural gas in the natural gas futures market, they are willing to continue to sell. We're not seeing any buy back in that - in that side of the market at all. So both sides of the market can, you know are very comfortable pushing this thing lower until there is some sort of fundamental change in the market. It looks like it just wants to grind down here but of the commodity markets if there is an opportunity for something to rally one almost has to think with as -- as it is going to be natural gas.

Pearson: There is a lot of reasons - first of all a very mild winter, part of it, but increased domestic gas and oil production in the United States is a big part of this too which looks like everybody we talk to in North Dakota, was up in Fargo, everybody that I talked to that is in the energy business as that production and those -- are continuing. The, what is it the -- Eagle Ford Shale down in Texas huge deposits of natural gas are being found left and right and yet we can convert some of these diesel trucks to run on it seems like the way to go.

Newsom: We are hearing a lot of more talk of why aren't we using some of these stalks of natural gas. We have got some many of them sitting around. They are not doing anything at this point. As you said we continue to find more. We continue to pump more into the system. We're - we're going to have to find some way of increasing demand or you know this market is just going to stagnate. We have seen markets die off before. I don't think natural gas is going to be one of those on the endangered list, but you know right now it is just - it really has very few people interested in changing its direction at all.

Pearson: All right. Bearish picture there. Somewhat bullish picture on the crude oil on the distant side of the cracking crude side. Very -- because of what's going on globally and you mentioned Brent versus WTI just as we went off the show, let's follow up on that. The Brent market has been extremely strong. There has been some challenges over there in the production site. WTI, I mean if you look at what EIA, I get comments all the time from people going oh, that Energy Information Agency is dead wrong constantly, but if you give them credit for at least knowing what our domestic supplies are, they are more than ample. It looks like you could back stroke all the way from Cushing to the Gulf and just be in crude oil.

Newsom: You are absolutely right. You know government numbers are what they are. It doesn't matter if we are talking about EIA, USDA, whatever, but if we look - the way to read this is if we just look at the forward curve there is a series of future spreads in each one of these two markets. We have an inverted forward curve in Brent Crude. There is a lot of concern over supply and demand. There is a lot - there's this sense of threat to supply and demand in the global Brent Crude market. But we just don't have that. Our large stock supply, I think the latest weekly EIA Stocks Report again showed stocks well above average and just continuing to climb week by week. You know so we have got this situation where we are not going to run out of crude oil and that should keep a lid on what is a normal seasonal rally on crude. I just don't think we are going to see the strength, the strong rally that we normally see this time of year.

Pearson: We get some great emails and text messages and Tweets from viewers. Let me just - I want to run through a couple of these. There are some great points in there. And the first one we will talk about, we talked a lot about the corn market tonight. We talked about old crop/new crop. A good fellow, Matthew up in Oelwein asks what about 2013 sales? You we typically - it is a long ways out and I know you are usually uncomfortable with going that far out and doing something. Based on a 95 million acreage corn crop, based on normal weather which , Elwynn Taylor and some of the other gurus are saying hey, it looks like we are going to see trend line weather conditions this year if the El Nino starts to show up. Based on that should we take some insurance out there on --- percent of the crop?

Newsom: You know we sure can. I mean I don't really want to do it when the market is in the hole like it is, but you know earlier this week it looked like the market was going to try to rally. We saw it a day, day and half where there is some buyers coming back into the market. If we get some interest, if we get a ten day dry spell at all across the Midwest we could see the market rally. We could see the new crop market rally. At that point I do think we want to get in. We don't really want to mess around with this new crop corn because if things come together as - as they could, we could be looking at a much different supply and demand situation in 2013 then we have been in 11 and 12.

Pearson: We got a Tweet from Ben in Petersburg, Illinois. And he says how can this trade continue to ignore that March 31st Stocks Report? I mean if you look at that you have got to think this thing is so tight even with the big money pulling out there has got to be some demand underpinning this thing.

Newsom: It comes back down to the two sides of the market. Fundamentally the market is trading. We look at the - we look at that inverse between the May and July future spread and we've got the market saying it is a very tight situation. We know it is a tight situation. We could run short of corn say in late May/early June, but it is the investment side of the market. They are tired of the talk of tight supplies. They are looking for something else. They are starting to focus on the new crop situation. It is kind of - a little bit of the problems that - that are still being talked about in the old crop and they are focusing on other markets. Certainly soybeans have jumped into the fray. Yeah, other commodities are starting to get some attention and there is this possibility the dollar starts to rally and money just comes out of commodities in general. So, just can't get the investors interested in corn again.

Pearson: Talk about the dollar for just a minute and what you see happening there.

Newsom: Right now in the very short term it looks like the dollar may try to dip a little bit and over the next couple of weeks. And if it does that could, you know that could help commodities. That could help push commodities higher very short term. Longer term, I think it wants to stabilize here. I don't really see any reason for it to come down particularly if the euro starts falling apart again.

Pearson: All right. Well, I want to switch real quick. Doug in Washington says near term - near term bottom, are we seeing it in wheat?

Newsom: You know I don't think so.

Pearson: Near term?

Newsom: I think there is a chance out there that this market could rally. We have got some technical signals trying to say, you know this market may want to rally. Again investment traders are short to market. If for whatever reason there starts to be a perceived threat to the crop maybe they start buying back in. But you know if we take a look at all the different factors that are coming into play in the wheat, it looks like if we get any sort of short term bounce, we're going to go right back down. Probably go to new lows.

Pearson: Ok. Doug thanks for the question. I want to thank Joseph in Illinois for the - for the natural gas question too. Ok. We didn't get this question but curiosity. Gold has been such a - for people - this commodity market. Gold has been blown off quite a bit. And I know you are not a gold bug, nor am I, but as we look forward is gold going to rally back up? Could there be test highs? I mean, I know we have got Israel and Iran. We have got who knows how many other issues just below the surface out there.

Newsom: No, I don't think so. I still think we are dealing with a long - a longer term bearish situation in Gold, and you can flip that coin and say ok well that means we have - must have a longer term bullish outlook for the dollar which I think is - which I think is true. So, we may get some short term rallies in gold but we're not going to see - I really doubt if we go back up and test those highs. And longer term I think we still got some more room to go down.

Pearson: I want to say a big thanks to all of our viewers who send us notes and send us updates through social media. We really do appreciate it. A big thanks to all of you for joining us. A big thanks to Darin Newsom for being with us this week as well. And of course great to visit with Secretary of Agriculture Vilsack as part of today's program as well. From all of us on Market to Market thank you for being a part of us and again make sure you contact your local public television station. We love visiting everybody on the internet but it would be great to catch the live show in HD on your local public television channel. Secretary of Agriculture made a point on our first piece of conversation, he has been making this point all across the country, and we just went through a nightmare situation with the - the lean, highly textured beef. You know we need to be telling our story. We need to get our story exposed to the world so people understand where their food comes from and the quality with which producers in this country put in to create the cheapest and safest food supply in the world. And it would help to watch Market to Market on your local public television station. So take some action. Pick up the phone and call your local public television programmer. If you are in Canada talk to your local CBC person and say hey, we would like to get Market to Market on our local station. From all of us on Market to Market, I am Mark Pearson thanks for being a part of today's gathering. We will see you again next week.

Tags: agriculture commodity prices Darin Newsom economy markets news