Borg: Hello, I am Dean Borg. I am with Don Roose the President of U.S. Commodities and Darin Newsom who is a Senior Analyst at DTN and this is the Market Plus edition of Market to Market.
Borg: Well Don, this past week we saw prices declining and it is counter-intuitive to me that we can have much dry weather across the Midwest and corn and soybean prices going down.
Roose: Yes, it is and what it really means is the market is always right and what it means is that we are probably too high for the conditions that we have and the trade is optimistic that we're going to have a weather pattern change. Now that can be right and wrong but I think it also says that we have enough of a buffer in corn that the market is comfortable going down.
Borg: Darin, corn prices are they likely to go down even more?
Newsom: Very good chance of it.
Newsom: Because we just don't have this bullishness coming back into the commodity sectors as a whole. And with corn being on of the key commodities and no real push right now from the supply side, fundamental side, looks like it just wants to continue to drift lower for the time being.
Borg: What about soybeans?
Newsom: Soybeans have a stronger; have a more bullish fundamental picture long-term. So that is going to give us some underlying support still going to be factored. Still weather is going to be a key factor but still going to have to find buyers that are interested.
Borg: And you agree with that soybeans and come on into wheat.
Roose: Yes, it always is the short-term versus the long-term. You know short-term is going to be dependent on our supply. We lost 800 million bushels in South America last year. Next year we probably will bail back 1.1 billion. So, we can build back very quickly. So, I think short-term that is true and then South America is going to be right on our tail. But when you look at the wheat market it is one that our supplies are starting to sink a little bit in the U.S. and the world, but they are still very comfortable levels. And so I think it is really what is the fair market value.
Borg: And we had a note from one of our viewers in Kansas this past week saying their winding up the wheat harvest there. Does the time -- she said well ahead of schedule. Is the timing on that at all influence the wheat market?
Newsom: Well, it means it could be putting in an early seasonal harvest low, but again as Don, just pointed out we don't have a tight situation even though yields were a bit disappointing. We don't have a tight situation globally. So, there is really no reason for the market just take off and run.
Borg: We have got some people who have contacted us this past week. Brice in Storm Lake, Iowa says USDA lowered the corn crop rating report this week, but did not lower the expected yield or carryover. What is the reason for it staying the same, Darin?
Newsom: Well, number one USDA doesn't use mass numbers in its calculation. So, I have always found it interesting that the two segments are government that are in charge of this don't really use each other's information. So, the crop condition numbers really play - have very little to do with anything. They are not all that accurate in the long run either. So, USDA is going to stick with the way it projects out yield. NAS is going to continue to stick with the way it calculates crop conditions.
Borg: Don, as dry was we are from what I see of the corn fields in Iowa, for example, surprisingly good. And here is the question from Tom in Valparaiso, Indiana saying how long can Indiana and Illinois corn crops go without rain? Well, that's - I don't expect you to be the climatologist or the corn expert, but what do you think?
Roose: Well, I think we're two weeks early number one, and so I think we're entering a very critical time. I would say this next week is very critical timeframe. Our yields will probably start to suffer pretty severely and for the next week also.
Borg: Darin, Dale in Bloomington, Illinois, your ideas on plantings for the June 19th report?
Newsom: Don raised an interesting point in our conversation where he was looking for large increases in both corn and soybeans. I think it is possible. I am not quite on that same level yet. We may see some increases but we are already at very large levels. I think the biggest thing will be with this early wheat harvest did some more - is there going to be more soybean acres going in on double crop or because of the dryness was that trimmed back. So, I think we could see some small increases just not quite as large as what some of the discussion is out there.
Borg: And Don, Phil in Canada says how many limit moves have there been for the June 29/30th USDA report? Do you expect a limit move this time?
Roose: Well, he is right. It is a big report because it has the stocks in all positions and the acres. So, you have a chance for two things to move and remember the last couple years the stocks numbers moved about 300 million bushels on average on corn and 20 million on soybeans. So, it is quite possible to have a limit move. But all that is dependent, Dean, really on what the weather is and how oversold we are and there is as lot of factors besides the numbers.
Borg: We were talking rain and drought here but the world economy is dry in itself, isn't it?
Roose: Well and that is a good way to put it. It is dry and we have got a huge debt load that we are trying to figure out what to do. In the meantime everybody around the world is still spending and that is a huge anchor and eventually it is one that just slows down the economies.
Borg: What do you expect?
Newsom: Let me throw something in there on what Don said with this limit move. There is a strong possibility. But what I am most interested in is how the markets react now that we have all these expanded hours and changed hours between the Globex, the electronic and the pit trade. Will this mitigate some of this pent up excitement we see from the time the reports have been released to the open. We got a glimpse of it, kind of a dry run with this June report. There wasn't a lot in it, but we could have seen a limit move and we didn't. So, as we go forward into this June 29th a much larger report maybe again these extended hours allowing more trade over a longer period of time maybe keeps us from an limit move.
Borg: Just a quick final question to the both of you. We haven't touched on livestock at all. Just let me ask it in this way. Is the dry weather at all going to influence the hog and cattle markets? Don?
Roose: Well, I think it will because if the corn market moves higher and the soybean market moves higher, I think the livestock market will move higher just from a crush standpoint. So, I think most definitely and also it works in the reverse method. So, I think yes most definitely.
Newsom: I would agree and if you start talking about a very long, hot, dry period, that is never good for the hog market. I mean as far as the actual - how they perform. So, that could bring some buying into the hogs as well.
Borg: Thanks for your comments. Don Roose. Darin Newsom. Thanks a lot. And that is our June 15, 2012 Market Plus edition of Market to Market.