Market Plus: John Roach

Dec 16, 2016  | Ep4217 | Podcast

Podcast

Pearson: This is the Friday, December 16, 2016 version of the Market Plus segment. Joining us now is John Roach. John, welcome back.

Roach: Thanks, Mike. Great to be here.

Pearson: We are glad to have you. We did not get to discuss the cotton market on the program. Tell us a little bit about where you think cotton could be headed.

Roach: The cotton market has been pretty horizontal here for the last month or so and we think on strength you probably have to be moving out inventory and not to expect anything very exciting right now, to just expect more of a sideways kind of market.

Pearson: Do you think we are going to see 89, 90 million acres of soybeans this next year?

Roach: We think that the acreage will be up, wouldn't argue with 90 million acres on soybeans. It's bigger than where I thought actually. As I was out doing meetings in Illinois and I come away thinking we're going to see more beans acres than what I thought going into the meetings.

Pearson: Wow, and that's in North Central, Central Illinois they're talking about plant more beans. That's corn country.

Roach: That's corn country. That's exactly right.

Pearson: So now, if corn country is planting beans, how much cotton acreage do you think we're going to lose to soybeans? Would it be fairly substantial?

Roach: It could be, particularly if the bean market holds its relationship to both corn and cotton it's going to encourage more beans for sure.

Pearson: Okay. We've got a number of questions here from our followers on social media, Facebook and Twitter. We've got one from Tim in Minnesota. Tim is on Twitter @6dollarwheat guy. He's asking, will interest rates increasing have any effect on agricultural commodities?

Roach: There's a possibility that it could have some impact. It's more of a linkage impact. I think as interest rates strengthen the likelihood is the dollar stays strong or maybe even strengthens further and the impact there is it makes it harder to sell our commodities to overseas buyers. And so higher interest rates puts a headwind in our face when it comes to marketing.

Pearson: Now, we talk a lot about our buyers over in Asia, Southeast Asia, you're a well-traveled worldly man, when you look at those economies what do you see? Is there, given the strength in the U.S. dollar do you think there still could be strength in that part of the world to purchase American goods even at a premium?

Roach: I just spent a couple of months traveling in Southeast Asia and it's booming. So yes, those economies are really percolating and the economic growth in Thailand where I spent a lot of time, it's not really, it's not growing quite as fast but there's a lot of economic activity, there's building going on, there's families that are growing and so yes, I think that we have continued demand coming from all those areas in Southeast Asia and I know that the dollar and some of the other issues out there may tend to slow some things down a little bit. But I think in general that area is looking for an economic resurgence. We're just coming up out of the recession that happened, started back in 2008. Here we are eight years later and there’s an optimism around that we haven't seen for quite a while. And so I think we have to think in terms of positive outlook as far as markets are concerned with some headwind of the dollar strength. But not enough headwind to slow the demand down very much.

Pearson: Okay. Now looking at the demand picture, on the program you said if you are planning on planting beans, especially additional acres of beans for '17, you're encouraged to go ahead and make some sales. There's a lot of folks out in the countryside looking around not seeing a lot of things to be excited about. They're wondering, should we be pricing in corn for '17, wheat for '17, beans for '18? How far out are you willing to hedge with these current prices?

Roach: Well the first thing that has to happen is the sale has to make sense to you. And so if you're looking at a price that you can make a margin of profit on and it looks like it's with good yields would be a good sale then I think you have to take a look at it. And that's where we are with soybeans. Being able to sell beans up near $10 or in some areas a little over $10 a bushel we think represents a pretty good opportunity. The government is forecasting bean prices next year to average $9.33. And so whenever we can sell well over the top of the price that the government is forecasting we know that makes good sense. We also know we're into that period of time when we have beans and South America does not and at the same time when China wants to be a bigger buyer than anybody figured because they're trying to get ahead of the dollar strength. So we've got a lot of things on the positive side with beans right now and that is the reason we want to sell into the strength on the old crop as well as start on '17. But to go out and make sales on corn for '17, to go out and make sales for wheat on '17 I don't think so. There's still opportunities here, the northern hemisphere is the bigger producing area for corn and wheat. And so let's give the market an opportunity, let's give the weather worries an opportunity to give us some better price levels. So we're very slow sellers of '17 crop on wheat or corn. We are making sales on strength in order to cover cash flow needs, in order to get your storage situation straightened out. We had a corn sell signal this week that lasted for 2 days.

Pearson: Old crop corn.

Roach: Old crop corn, but we didn’t make any sales on new crop corn.

Pearson: Okay. And wheat, have you had sell signals? Have there been any selling opportunities in wheat for the last six months?

Roach: There really have been. In fact, we had Minneapolis wheat where the higher level of protein is where the greatest demand seems to be because the world had a big crop and the protein levels are low. So we think we'll continue to have some selling opportunities but they're just not going to be big prices, they're not going to be lots higher unless something comes along. And in the case of wheat it's very cold in North America, it's also very cold in Russia right now, so we are potentially having some winter kill losses out there. We won't know that for a while yet. But potentially we could see some reductions and we could change the stats on wheat. Too early to tell, but there are some reasons here that we might have a little different kind of market out forward than we have today.

Pearson: Alright. Change the narrative. Coming out of a political season narrative is what counts doesn't it?

Roach: I like that, I like that.

Pearson: Our next question coming right back to what we're still talking about here, David in Kansas on Twitter @seckfarmsdave, he wants to know, what is the best way to hedge the expected tightening of the corn-soybean ratio for '17?

Roach: I'm not sure how to do that. You can certainly go out and buy beans if you want to bet on the beans continuing to outperform the corn or if you want to go the other direction and buy corn and sell beans, but otherwise I think what's important is to recognize in your farming operation which market makes sense to make sales in. And the extra strength we're getting in beans relative to corn tells me that when you get strength in the market you make some sales on soybeans, you do the marketing that you can do and don't ignore it.

Pearson: Alright. Do the marketing that you can do. Our next question from John in Kansas who is on Twitter @4720john, marketing we can do --

Roach: Might be a John Deere guy.

Pearson: That's my guess. Yeah. He wants to know, how can we manage the large basis for corn, wheat and milo that we're seeing in Central Kansas? Talking about doing the marketing we can do for a lot of these folks where they had big yields all year long, how can they cope with that?

Roach: The basis values are weak and what you have to do is you just have to have some patience here because basis tends to strengthen as we move into the spring of the year. And so you just have to be patient here and keep track of it and make sure when you get some basis movement that you're there to take advantage of it.

Pearson: Get those tarps, cover up those piles. Final question, John in Missouri has a gaze into your crystal ball type question. He wants to know, what commodity is the sleeper of 2017? What is out there lurking that could surprise us all in 2017?

Roach: That's a really good question. That's just a really good question. I think it's corn. I think what we could wake up to at some point here is smaller corn acres, a little bit of a reduced yield situation because we have a little bit of weather concerns and we could look out to the demand and say, how are we going to satisfy this increase in demand. The world demand increases at 2.8% per year on the average.

Pearson: And how long, looking back over how far?

Roach: From 2003. So it's a longer-term process. Beans increase at the rate of 4% per year. And all you have to do is take a look and say, well we're eating up almost all of a monster crop out there and now, oh guess what, we need another couple percent more crop next year. We're not going to get much in acreage anywhere in the world because how do you plow up more ground when your profit levels are so tight. So acreage is going to stay relatively fixed or total acres are going to stay relatively fixed and so we're going to have to find more yields out there and that means really good weather. So I think if I were going to bet on the sleeper it would be corn.

Pearson: It would be corn. And let's say with 90 million acres of beans your corn acreage estimate you'd be at 86 million acres?

Roach: Take three to four million off from last year.

Pearson: So 89, roughly 90 to 90 call it. With a little bit of a 2 bushel below trendline yield, a weather issue --

Roach: You just come down to trendline yield, just come down to trendline yield.

Pearson: Are we at $5.50, crystal ball gazing, do we put $1, $1 plus onto this market?

Roach: We could. We could.

Pearson: That would be the sleeper.

Roach: I'm not betting on that, don't get me wrong, I'm not betting on that. I'm just saying that you don't have to have much change in the fundamental tables on acreage and yield and it has a big change when you compare it to the demand level that's out there. And remember we're going to continue to have demand stay strong because of these cheap prices levels really in all likelihood for the next three or four months. And our exports out of the United States right now are running 4% over the pace that was anticipated --

Pearson: And that's with beans taking all of the shipping space. If South America starts shipping more beans and we're able physically to export more corn do you anticipate corn exports then to stay very strong into March, April, May?

Roach: Yes. I think corn exports stay strong.

Pearson: Alright. Well, John Roach, you give us something to look forward to potentially in 2017. We really appreciate you taking the time to join us.

Roach: Thank you very much, Mike. I enjoyed it. Merry Christmas.

Pearson: Merry Christmas to you. Join us again next week when Angie Setzer will sit at the Market to Market table and watch the broadcast portion of our show where we'll take a look at how a holiday flower is being used as a teaching tool. So, until then, thanks for watching, or listening. I'm Mike Pearson. Have a great week.

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