Market Plus: Brian Roach (April 21, 2017)

Apr 21, 2017  | 12 min  | Ep4235 | Podcast

Podcast

Pearson: This is the Friday, April 21, 2017 version of the Market Plus segment. Joining us now is Brian Roach. Brian, welcome back.

Roach: Thanks, Mike.

Pearson: Now, I wanted to get your thoughts on a market we did not get a chance to discuss during the program and that is the U.S. dollar. We still just are bouncing right around that par, that $100, that 100 point level on the index. What is your sense? Are we going to break one way or the other here this summer?

Roach: I think the economy has got to prove that it's on stable ground. The euphoria post-election has waned and now bigger questions are coming on how do we make all these changes and see these systemic moves that the White House is talking about. So I think the dollar remains on the defense for a while. I don't know how much of a break we get lower here but I think it trades lower, the White House wants, Trump wants a weaker dollar, he said as much and he's asking the Fed chair to monitor rates. And so I think whatever the market is trading in terms of expectations for rate increases those just keep getting pushed and that will lead to a weaker dollar. You also have some other influence like Brexit, you saw that had some impact where the dollar pushed lower on that type of news and certainly this French election may have a similar impact. So I think there's some headwinds to the dollar for a while and if you look down in Brazil the other commodity currency, the real continues to trade higher, that goes against the received price by the Brazilian farmers and I think that helps our export markets all things being equal.

Pearson: Now while we're talking about the real, if the real continues to strengthen would we see those Brazilian farmers that are currently holding their beans, not making sales, would they be more inclined to start getting them unloaded with a stronger real?

Roach: I guess if you're to look at it and if they were to read it as the real is going to continue to move on higher, and if you look at a weekly chart on the real it has a long ways to go. Even though it looks kind of tapped out or capped out here on a daily chart, if you look at the weekly it has a long way to run. So I think the Brazilian farmer has got a lot of inventory that they're hanging onto. They're going to have to do something here with the second crop corn coming because they don't have the storage to cover both and I'm hearing about storage, outdoor storage and some things like that. So I think the beans will have to move to make room for the corn and that's going to force some beans to market.

Pearson: How well does outdoor storage work in Brazil?

Roach: Probably better than you think. These are modern operations down there with all the tools that a U.S. farmer would have. The weather is obviously a little bit --

Pearson: That's what I was wondering. It just seems like we'd be coming into a period with more moisture down there, correct?

Roach: Yeah, you would. So there are obviously some problems there. I think the corn crop coming, a big second corn crop in Brazil is probably the bigger issue and that's going to force the beans to move regardless of pricing.

Pearson: Alright, we've got a question we touched on during the program but I wanted to get more of your thoughts in detail. This one is from Rodney in Edgar, Wisconsin. And he's asking, why is the spread for fat and feeder cattle so narrow? And do you see it changing in the near-term?

Roach: Well, it ought to follow a normal seasonal pattern but I think the current, as current as the market is it tells you that with these carcass weights continuing to fall and fall and fall that until we see that bottom we'll probably see this spread narrow like it is. So as you look out into the June contract and this next cycle on cattle I would expect it to stay fairly narrow until we get this market caught up.

Pearson: Okay. As a speculative play, would you be looking at buying August fat cattle, selling August feeders and trading that spread as it gets narrower?

Roach: I wouldn't recommend that. That's a small group of guys that are interested in that. That might be a trade that you would put on, Mike.

Pearson: Alright. Well, let's jump down and let's talk about, this question is from 5 Pro Farmers on Twitter. They're asking with the recent rains across the Corn Belt how long before the markets reflect delayed planting?

Roach: A little while. And so when Monday's planting progress on corn was at 6% I would expect on Monday it will get further behind. But it's really not a real problem until I would say middle of May. The forecasts on the six to ten are awfully wet, it's supposed to stay pretty wet here Delta on up through Missouri, Iowa, Illinois, it's going to stay wet here for the next week so obviously that's going to drag down planting progress. But really we have to look at, I like the third Monday in May as kind of a test as to do we have a problem or not? Should we expect some sort of top taken off the yield as less and less of the crop gets planted early?

Pearson: Is there a percentage figure you'd be watching for on that third Monday in May? Do we need to be 60% done to be in the clear?

Roach: I think 60% would be bullish. I think if it's below say 75%, 80% that's telling you a fair amount of the crop is yet to be planted, that's a big number in terms of acres. So I think that would be an issue. Now, that's bullish corn, that's bearish beans and so you kind of have to watch both sides of that.

Pearson: Our next question is from Shelby in Decorah, Iowa. He's on Twitter @ShelbyCorneliu2. Shelby is asking, where would the U.S. dairy industry go from here if the trade relations with Canada are not resolved? If we continue to not be able to export some dairy products into that country, is that a major negative picture in the dairy industry?

Roach: When you shut off those types of channels it's always going to create some problems and I don't think Mexico is going to be a big taker at this point, although they may see, it certainly has a negative on milk prices. I think that this trade problem with Canada though, I think it can be smoothed out. We've seen, Trump doesn't really want to destroy those channels. I think he's trying to at least what the promise was is make better deals, not unwind the deals completely. And so let's hope that that's what comes out of this.

Pearson: As NAFTA renegotiations begin maybe he can find some leverage and do what he talks about doing. Alright, our final question, we talked about the dollar earlier on, you mentioned interest rates. Austin in Iowa City @FrytownAustin wants to know, how will a 2% increase in interest rates effect ag? And how soon will we get there?

Roach: I would say those kind of interest rate numbers are getting pushed back more so than, more than we thought they would given Trump's latest comments about what he wants to see happen with the Fed. So we have a chance to renominate a new Fed chairman, is that this year? Around the corner. And so I think that the pressure is on Yellen to keep rates probably under some sort of reasonable escalation, maybe a little less so than what she thought based on what she's hearing from the White House. But the overall impact is bigger interest payments, harder to buy stuff, harder to get loans and lines of credit so I think it tightens things up on the size of the lines that the growers are typically used to, certainly the cost becomes a bigger issue. So I think it tightens things down a little bit more and certainly right now equipment and extra costs like that are being pushed off and so hopefully that will help us out a little bit.

Pearson: Alright. Now, we have been taking questions from Iowa State students as our commodity question of the week and we encourage all of you at school whether you're at Iowa State or Kansas or Nebraska or U of Illinois or wherever, or a high school student, if you've got a question about marketing and/or the future of agriculture shoot a little video and send it into us. But this week's comes from an Iowa State student. And if you're interested you can learn more about this project by listening in on last week's M-to-M podcast. Here is the third installment of our college level agriculture student questions. This is from Erica Baier at Iowa State University.

Erica: So as we see new technologies implemented such as biostimulants within fertilizer programs are we going to see those fertilizer markets ultimately shift?

Pearson: What do you think, Brian? Are we going to get some substitution of nitrogen for a biostimulant? What is your read on the fertilizer industry as a whole? Because I know that's something you guys track at Roach Ag Marketing.

Roach: Fertilizer side of the market is very well supplied. We have big supplies coming on here with OCI is building this plant in Weaver and I think the markets, you have consolidation in terms of operators in the market. But energy prices remain low, crude and nat gas. So I would expect that these types of products will remain a small part of production agriculture until proven. We're just seeing too much, we're seeing too much of the upside of all the science and technology that is going into the way we produce today and I think if I'm a grower I'm not apt to want to change from what's really working. And so those become sidelines until proven and they're probably going to have to be a lot of tests, a lot of proving out and that takes years. And so I think even though there could be some premiums, if you can call it organic and some markets that are developed with that type of input and those types of technologies it becomes, it still remains a small part of what you and I see as corn and soybean and wheat production.

Pearson: And you talk about it taking years, it also takes margin before farmers are willing to take a risk. If times are tight I'm going to stick with what I know, which is pulling on in, pulling gas and buying high quality seed.

Roach: Yeah, the cooperatives out there that are supplying all these products today, I just don't think they're going to be willing to move over onto something like that for quite some time. It might be a great idea and it might be some really good stuff but I think the dollars and cents and also the training and the idea of change in big ways, that's a big ship that is very slow to turn.

Pearson: That's right, especially in agriculture, we're a slow moving or slow turning industry when you've got millions of producers.

Roach: That's right.

Pearson: Well, Brian Roach, I want to thank you for taking the time to talk to us this week.

Roach: Thanks, Mike, appreciate being here.

Pearson: And join us again next week when Tomm Pfitenzmaier will sit across from me at the Market to Market table and we will also continue to explore how industries in Louisiana are helping shore up the Gulf Coast. Until then, thanks for watching or listening. I’m Mike Pearson. Have a great week! 

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