Pearson: This is the Friday, August 24, 2012 version of Market Plus segment. Joining us now are Sue Martin and Jamey Kohake. Welcome back guys.
Martin: Thank you.
Kohake: Thanks Mike.
Pearson: We are glad to have you here. It has been a busy week in the markets and we got a couple of questions here submitted from Twitter that we didn't get to in the show. And Sue, I was wondering if you could speak to a little bit the percentage of ethanol plants that are closing or how that might affect DDGs going into this winter. What do you see going on there?
Martin: Well, I think that the dependency of whether they close or stay working depends on the ability to secure corn from the farmer and the area they are in. If it is in a really hard hit area they may not have a choice or they are going to have to bring it in from somewhere else. I think that one has to look at this and assess it. You have to look at the price of RBOB and the price of ethanol on the board and then you have to assess will they keep processing or not? The key is going to be that there are a lot of farmers that sold corn way too early this year because, let's face it everybody thought there was a lot of acres out there and there was no reason that the market would rally, and they went ahead and marketed too aggressively and maybe thought they were only 50/60 percent sold. Farmers in the U.S. are basically in the same boat that the South American farmer themselves in, in this past growing season. And they are going to find when it is all said and done that they are probably 80 percent sold or maybe even higher around 90. And the situation is they are going to have to deliver. Nobody is going to let them out of that one. They need the corn. So, there is a situation there that is concerning, bless them that they have crop insurance, but still bottom line is you got to come up with the product. And I think that as we go down the road, in time, we are going to see ethanol - not ethanol but DDGs get higher priced than corn. But we export a lot of DDGs to China and China's demand for protein is going to be huge and what might happen is at some point if they can't secure enough protein from us whether it be soy meal or whatever, they just flat buy the product from us be it - whether it is pork or beef.
Pearson: Ok. And now that kind of - I have got a follow-up question for you there. The past couple weeks we have been seeing less than exciting news out of China regarding their growth prospects. What would a slow down in China mean for the commodities here in America? Especially protein related commodities?
Martin: Well, usually it would mean that our markets would be very sensitive to that and worry because if they are slowing down that they will be able to buy less from us. The one problem you have got is they maybe slowing down but they are going to feed their people and that means that they will have to buy from us in one way or another. Just like they just bought 55 thousand metric tons of soy oil this week.
Pearson: So, it is less of a threat than people might perceive.
Martin: I think so. I think it is a less of a threat when it comes to food, but maybe in other markets it might not be.
Pearson: All right. Jamey, I would like to talk to you a little bit about corn and aflatoxin specifically. What are your thoughts there? How much is that going to affect the market as we go through harvest?
Kohake: A little bit. Obviously heat and the dryness caused it are the big player there. There will be people getting heavily docked of course 20/30 cents. Who knows how heavy. But it is going to be a big player especially down South, I think would be a lot worse than it is up north of I-80.
Pearson: Ok. All right. Is that going to have an effect on the market, do you think, if we get the combines rolling and there is substantially more aflatoxin than there was in previous years?
Kohake: I don't think so. A big market mover at all here short term. I think it could be more of a player trying to find feed maybe down the road for a hog or cattle guy. But I don't see a big change right now.
Pearson: All right. We have got another corn question. This one is from down in Kansas City. He was wondering should we go long on corn and the guy is reporting that much of the corn around there is already being bailed.
Kohake: Yes. I think we're past the stage of - if you are not long, you are wrong. I think we are past that. I would stay flat or maybe even look at a quick short position for 20/30 cents and be back out of it. I think the - all that is factored in right now. The terrible yields, the 40/50 percent cut down South is factored in right now. I think we need to hear more yields up north and that is probably two to three weeks away. But I think corn does go higher longer term, up through the 8.49 mark, the old high right now, and a lot of that will be spilled over from the bean market. Beans will be a leader, I think for the next six to nine months depending on what happens down in South America moisture-wise and how their crop goes in this fall.
Pearson: All right. And we have another question here and Sue, I am going to ask this of you. This is from Dan in Kansas. He is asking how do you think South American crop production prospects during December/March may affect April/May U.S. crop plantings. Is that going to have much of an effect? Do folks up here pay a lot of attention to what is going on in South America when their in the field.
Martin: No, I think what it will do is it will have an effect on basically price movement as to what their crop prospects are because it will -. Once their crop comes on deck, they are going to have huge acres and once, if they can get that to flourish and have a good crop, then they have got the logistic problem of getting it to port, getting it on ships and moved. This is just my own anticipation but if there was ever a year, and there has already been some rumblings of problems, that the stevedores would strike it would be this one because they would have everybody by the throat and so, I think we watch that. They usually do that in about April. But I think that when we come into our growing season or towards February to March this year we are going to have the thought process of huge corn acres again and of course big bean acres, but we're going to have a big acreage fight this next year. We are going to have a lot of wheat acres because they are going to farm the insurance but on the backside of that you might pick up some bean acres. But I think you care going to have a huge acreage fight and the key is how much moisture do we pick up to fill that Mississippi River back up to get it so that we can move fertilizer north, so that farmers can decide are we going to plant more corn acres or what is going to happen here? That is a key also that may let them be wide open in their decisions into late winter.
Pearson: Ok. All right. So, we have got another four or five months to wait for that Mississippi to refill basically.
Martin: Exactly. It just depends on how much moisture you get. And of course, like I say, El Nino tends to favor the South with moisture more so than up here in the wintertime. So, we will see. That is the one thing we can't really afford. We need moisture now to help work on next year's crops.
Pearson: All right. And with that in mind, Jamey, have you talked to people about pricing any of next year's crop yet or is it too early?
Kohake: No, we have talked about it, looked at it. Actually did make some sales. Tiny, tiny little bit at 6.50 for the - Dec. We will make some more 6.80/7.10 area. Some where right in there hopefully this winter. But back to the transportation issues on the Mississippi, nine foot deep as of about three weeks ago north of St. Louis. They were dredging it, trying everything they could to get the barges to roll. Nine foot deep in the Mississippi in the middle of August is unheard of.
Pearson: And if it keeps falling - how much farther can it fall before we actually run into a severe transportation issue?
Martin: We are going to see railing. We are going to see a lot of stuff railed is what is going to have to happen.
Pearson: All right. So, we won't be land locked. It will just cost a little more money and we will probably have to see that reflected in the price?
Martin: That is very probable.
Kohake: And the pricing issue, what is funny, is the hog guys out East are importing corn from Brazil. It is cheaper for them to go to Brazil than it is to have it trucked or have it railed out from the Midwest.
Martin: Isn't that interesting?
Pearson: That is. Anything else you guys really want to talk about today? Jamey any final thoughts?
Kohake: I would just be nimble in here. It is going to be wild markets, I think until next year planting-wise. I agree with Sue. It is going to be an acreage fight. Huge corn acres. I would be taking advantage of rallies in the cash market and I would be really nimble.
Pearson: All right. Sue?
Martin: Well, I think if we thought in 2008 that $25 Minneapolis Wheat was a surprise, think what this next year could hold for soybean prices, corn too, but soybean prices if things happen in South America and we come back and we are still looking dry as we go into spring.
Pearson: All right. Well, thank you guys so much for being here. Appreciate your commentary this week. Have a great week!