Market Plus: John Roach (June 8, 2018)

Jun 8, 2018  | 27 min  | Ep4342 | Podcast

Podcast

Howell: This is the Friday, June 8, 2018 version of the Market Plus segment. Joining us now is John Roach. John, welcome back.

Roach: Thanks, Delaney, nice to be here.

Howell: We've got a lot of great social media questions in this week. And of course folks can send those to us on Twitter, Facebook and Instagram. Let's start here with Trent in Charter Oak, Iowa. He said, what marketing strategies would you use to sell the last of '17's crops?

Roach: The same strategy that we use all year long. We have a system and we generate sell signals and we'll generate in corn six to eight sell signals per year and about the same in soybeans and we just follow the system. And so we hope that will pinpoint the next market peak likely to be caused by some kind of weather issue. And so we'll follow the system and pull the trigger and make sales when we get the sell signal. Right now we have buy signals so we're actually on the other side of the market. We made sales a couple of weeks ago and now we're looking to buy feed needs and get that coverage on.

Howell: When do you anticipate us to see some sell signals for old crop?

Roach: I think we have to wait for a weather issue. We get prices to peak when weather is worrying us the most and a couple of weeks ago we were worried that we weren't going to get the crop planted, it was late and all those situations. And then suddenly it got planted and it went from being a worry situation to everybody feeling very optimistic about yield potential and in addition we also put in the tariff issues that came along at the same time. So those two issues, improved weather and tariff issues, and then currencies, all broke the market down here to this price area and it will be one of those three likely that takes us back up. And typically it's weather but this year we have the tariff issues that are going on and the currency issues. That's unusual and we're just going to have to wait and see.

Howell: All right. Wait and see and of course you can't predict the weather so it's definitely a wait and see game. Let's take another question here from Brian in Illinois. He said, would selling out of the money calls and buying in the money puts be a good way to protect the downside move? Or is it too early in the growing season?

Roach: I think it's actually too late. I think that the time to have done that was a couple of weeks ago when we had sell signals, we had the market up at a high. You put on those kind of strategies, that's a down strategy, you're expecting the market to go down or you're ensuring against a market decline. So you're selling a call over the top of the market and you're selling a put down, buying a put down underneath the market. We're at the other side of the spectrum. We would be doing a different trade than that if we were doing it in the options because we think that the market has gotten cheap in here. Are we too early to have put in the high? No, we certainly could have put in the high. But the odds are we'll have another opportunity with some weather concern out in July.

Howell: Out in July, that's what you're looking for?

Roach: Well that's the normal. The normal is that when we have weather problems in early June, sorry, extremely good weather in early June and the crop is really doing well it's hard to maintain that and you can have some problem as you get a little further in the growing season. So typically when we have really good crops and a break in June we come back and have a rally in July.

Howell: Okay. Around the 4th of July, beginning of 4th of July, end of 4th of July? I know that's hard to predict.

Roach: My old rule is I don't want to hold inventory past the 4th of July unless I've got something that I'm working with. And so we need to have some of that start to show up by the 4th of July or we're going to start worrying and making sales for other reasons.

Howell: Okay. Let's take another question here. Bradley in Upland, Nebraska said, how bad will the Russian/Ukraine/Australian wheat crop be versus average? And how will those numbers impact the world ending stocks? We touched on that a little bit during the main program.

Roach: I can't, I don't have the numbers right in my head but we're having problems in really two of the three major or four major growing regions. We've gone along with very big crops and building surpluses, we're going to pull those down this next year. I think it's enough to change the fundamentals. And so it's a little early yet. We'll have to wait and see. This next week we'll learn more about the U.S. wheat harvest situation. We'll learn more about what happens in the next couple of weeks as far as weather is concerned as you look over into the former Soviet Union. But the key in here right now is that we are pulling the stocks down. The biggest surpluses are in the rearview mirror. And so we have to think in terms of better prices next year on an average than they were this past year. And so we're really trying to dial people into a better opportunity out forward with real weather sensitivity for South America's growing season this next year.

Howell: How much better are we talking for prices for next year's marketing season?

Roach: I think at the moment you've got two different things to deal with here and that's on the supply side and the weather side so I don't have any idea of how to put a handle on that. But assuming, assuming for a moment that we really don't have any interruption in our business, that the tariff issue gets settled and so forth, it would seem to me that we could put 50 cents on the corn market and a similar number on beans, or on wheat, maybe 75 cents.

Howell: That's pretty optimistic.

Roach: It is. I think we have to realize we've had several years in a row of having these big monster surpluses and they're not going to be there next year and we're going to have to raise a big crop in order to just supply the demand. So we're going to change the statistics here a little bit.

Howell: That's exciting news for producers. Let's take another question here from Tim in Crookston, Minnesota. He says, has the summer weather market bull left the building?

Roach: It was running south earlier this week pretty fast but stabilized a little bit here as we came in toward the end of the week except for soybeans. We still have to raise the crop. The crop is not anywhere close to maturity and we have areas that have some weather concerns. We have a monster area down in the Southwest that is terribly dry. And so we have issues. But on the other side we also have extremely high rated crops and so if the weather turns out to be a little more beneficial then we still have big crops in the field. So it's too soon to either count them out or count them as made. We have to go a few more weeks before we can really talk about that.

Howell: What is the timeframe I suppose I should say what you're looking at for weather to be factored into the market?

Roach: Usually between now and the latter part of July. You either have a bull market going and you're dealing with that or you don't, it's over. And so we'll just have to see how that weather shifts. And then again, I have to keep coming back to this, and we have to keep that tariff stuff in mind too.

Howell: We definitely do. Let's take another question here. Jeff in Lincoln, Nebraska. How many opportunities to sell will there be this summer?

Roach: In the summer maybe two. We normally look for four or five opportunities between the first of the year and the end of the summer, somewhere four or five. You almost always get three. But I'm going back to the first of the year. Most years in the entire year we'll get somewhere six or eight sell signals and in a year of very high prices we'll get up to twelve sell signals. So a lot depends on really what the conditions are like. But we think we'd have at least one more summer rally if not a second one.

Howell: I know I'm asking you to speculate, but if we do have another at least one more summer rally, when are you looking for that to happen, around the July timeframe?

Roach: It could come right away. It could come right away. Remember, weather next week becomes important. So we're right on the cusp here of weather becoming really important. As the crop grows it takes more water and in the areas that are dry we're consuming that water. And so we need to have the rains.

Howell: Okay. We need to make sure we're paying attention of course then to the weather or looking at sell signals as well.

Roach: Exactly, which what we're looking for here is we're looking for the market to get away from this negativism and start being concerned about do we have enough supply and how good is this demand and shift over and we were just there two weeks ago. So it's not like this is something that we can't do quickly again but we have to have a catalyst.

Howell: We have to have a catalyst. All right. One final question for you. We have Phil in Ontario said, it would seem that the late spring/early summer new crop price marketing opportunities are in the rearview mirror as of June 8th. If so, why did it happen like this in 2018 versus 2016 or 2017? Or has he got it all wrong?

Roach: Well, we don't know for sure. He may be exactly right. We may have already seen our best opportunities. But then again, we have all those other issues we talked about. Remember what -- every year the market is made up of a series and a whole bunch of different stuff that happens. Last year the South American crop kept getting bigger as they moved through the growing season, their second season corn, their safrinha corn just got better and bigger and more and became a real burdensome situation. This year the South American crop went just the opposite, it just kept getting smaller and smaller and smaller in Argentina and then surprisingly Brazil's bean crop started getting bigger and then Brazil's corn crop is getting smaller. And so we've really had a lot of movement. It's not a small issue to say that there's 20 million tons fewer supplies in Brazil this year, or South America this year than last year and 25 million ton smaller corn supply. That's a big deal in the scheme of things. And so it's a completely different scenario that happened and it was not a scenario that could be forecast. But you could see it as it was occurring and we're still in it.

Howell: We're still in it. Is that a big enough catalyst to push us towards another sell signal?

Roach: Well, the South American shortfall meant that we have to have good crops in the northern hemisphere. And so it's sort of like you have to have the first thing happen in order to set up the opportunity for the second. Now last year because they kept getting bigger and bigger and bigger in South America even though we had some problems in North America it didn't have much impact on the market because they had the big surpluses in South America. And so this year they're short, it gives us the opportunity to have a big impact, a bigger impact than we would normally have.

Howell: All right, John Roach, thank you so much.

Roach: Thanks, Delaney.

Howell: Join us again next week when we explore how cash-strapped firefighters are preparing to face another season of tinder-dry conditions. And Dan Hueber will sit across from me at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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