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Market Plus: Market Analyst John Roach

posted on August 31, 2012

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Pearson: This is the Friday, August 31, 2012 version of Market Plus segment. Joining us now is John Roach. John, good to have you back.

Roach: Thanks Mike.

Pearson: Well, on the show this week we did not get a chance to talk about cotton. Hurricane, now tropical storm Isaac is rolling up the Mississippi Valley. What is that doing to the cotton crisis?

Roach: Well, it boosted cotton prices again this week. We were stronger last week and it boosted it again this week. And the, about half the bolls are open and according to the USDA reports and storms and wind and so forth at that time is, you know it is difficult. It causes losses in the field. On the other side we saw China do actually a couple things. They sold some cotton out of the reserve or out of their stocks, and at the same time they opened up import permits to allow another 1.8 million bails to come in to be processed and shipped back out again. So, we are seeing a little bit better demand come from that sector.

Pearson: So, these recent price increases last week and now through this week, is this something you see continuing? Are we kind of at a stable level in cotton here for the -

Roach: Prices are too cheap, I think and I am not so sure they are going to get lots better really quick. But we are headed into harvest and so, I think selling here at this timeframe is the wrong thing to do. I think I would give the markets some opportunities as we move into the winter months.

Pearson: Any particular price point you would be willing to throw out there?

Roach: I would like to put an eight in front of it. I mean I like to see $.80 cotton instead of these $.70s. So, - but again we need to get the crop harvested, get it put away, see what kind of losses actually occurred out there because of the storm. It is a very active hurricane season. That is what is forecasted. Maybe we will have some more storms come at us. So, we just want to have a little bit of patience here.

Pearson: We did have a question here from Twitter. One of our guys was asking - oh, Matt in Oklahoma is asking should we be locking in puts for 2013?

Roach: Well, I think so. I mean if you have to shop and be kind of careful. But with these kind of prices for all the crops we're going to see acreage worldwide increasing. I have friends in South Africa that are telling me they are getting ready to tear up pastures there and they have got some programs that are going to bring more corn into production there. The producers in Brazil and Argentina, we hear exactly the same kind of news from there and some more nontraditional kind of locations are going to be increasing production. And so we think that the demand for all the inputs that go into producing crops are going to be increasing as we move in the months ahead.

Pearson: All right. So now might be a good time to really start shopping around and consider getting that done.

Roach: I think so. I think you want to be ahead of the crowd.

Pearson: We had another question here and this guy, Jeremy in South Dakota, is asking a question that has got to be on a couple of different farmers' minds now-a-days. He is saying if I am short on grain and I contracted --. If I am short on grain I contracted from the drought and I have no insurance, what should I be doing?

Roach: Well, you have got to buy the grain that you sold that you are not going to have for delivery. And the time to do that, in my opinion, is when you are in really the biggest part of harvest. That is when you should have the most pressure on the market and then you should also have the weakest basis levels. And so look for harvest progress reports that say that we're somewhere in the neighborhood of 70 percent harvested and then you just have to step up and start accumulating the bushels that you need to accumulate.

Pearson: All right. So, just kind of wait, keep watching -

Roach: But be ready because you will want to make your purchases and come out of those contracts in the bulk part of harvest. Remember in the show we talked about once the harvest is put away, that is when the prices can get very exciting. So, you are on the opposite side of that if you are a buyer and so you need to be looking, really seriously looking at the market when you are again in that upper edges of harvest completion.

Pearson: All right. Phil in Canada is asking, we sort of touched on this a little bit in relation to corn, but he is saying at what price level do the buyers stop buying corn and soybeans? When do we start rationing?

Roach: Well, I think we are rationing. I mean, I think every person who uses corn or soybeans or the products that come from corn and soybeans are looking at today's prices and having a difficult time making anything work. It doesn't matter if you are making milk, meat, eggs, any kind of protein. I mean it just doesn't work at today's price levels. So, I think we are already there. The question is what most people are asking themselves that are in that business is can I stay there? Can I continue to produce whatever product I am producing? And I think there is still hope being held out that maybe the crop is bigger. If the crop is bigger maybe this is the highest price and maybe I will be able to buy something cheaper. As a consequence some people haven't really yet made that decision that I am going to get out and yet somebody has to. You can't cut the demand, the kind of percentages we need to cut it, without somebody cutting back rather drastically and some people getting out all together. I think maybe some of those decisions that have already been made but I think there are more of them that are yet to be made. And I think those decision will finally be made once we see what prices are available after the crop has been harvested. And I think those could be the frightening prices and the thing that really shuts the demand down at least for those people who are going to be the ones that adjust their consumption.

Pearson: Ok. So, we will just keep seeing maybe a little bit of attrition in demand as these prices continue through harvest and then we will know the answers.

Roach: I think that is exactly right and we are already seeing that in the case of corn. I mean export sales this week were puny and we're not seeing any beans yet. The Chinese continue to stand in there buying beans. They don't like the prices. I mean beans in China, they sold beans out of their stock piles for 19.50, I think, per bushel. I mean it is a very, very high price level when you put this grain landed and into somebody's feed ration out on the farm at an importing country. So, I think it is - we are at very high price levels. It is just we haven't had everybody yet decide that they are going to slow down or get out.

Pearson: All right. Anything else you really want to talk about this week that we didn't get a chance to talk about on the show?

Roach: Well, I think one of the things that people are saying is that they're afraid of next year's production and they are afraid of selling anything for next year. Corn is not high enough really to sell much out for next year at all. Beans are not bad prices to sell some for next year. We don’t know about next year's weather but I can guarantee you one thing, next year's demand is going to be wacked considerable. So, if you want to worry about something, worry about next year's demand levels and take a look at what offers you are getting for your crop for 2013. Don't miss those opportunities as you go through these next three, four, or five months.

Pearson: All right. Well, thank you so much John. We really appreciate having you here. I hope you have a great week and we will see you next week.

Tags: agriculture commodity prices economy John Roach markets Mike Pearson news