Market Plus: Darin Newsom (September 7,2018)

Sep 7, 2018  | 10 min  | Ep4403 | Podcast


Delaney Howell:               This is the Friday, September seventh, 2018 version of the market plus segment. Joining us now is Darin Newsom. Darin, welcome back.

Darin Newsom:                 Thank you, Delaney

Delaney Howell:               Darin, I want to touch on it here, just briefly, before we get to our awesome social media questions this week. Talking about Brazilian politics. We've got a lot going on down there. Some instability. How will that affect the soybean market in particular in acreage adjustments for 2019 and 2018 growing seasons?

Darin Newsom:                 I think. Yeah, it's a crazy situation politically down in Brazil, but I don't think it's going to change the plans as far as from what we're hearing right now, that Brazil is going to increase its area...its planted area next year. Uh, I think they're going to not necessarily look at the Brazilian political situation, but the US political situation and see that this is a golden opportunity for them to take advantage of it. So I think we are going to see more planted area. I think we're probably looking at another, you know - weather providing - I think we're looking at another huge crop coming out of Brazil.

Delaney Howell:               ...And would there be any reason for them to pull some of those corn acres, the safrinha corn crop to soybeans?

Darin Newsom:                 Yeah, they could. A lot of it's going to depend on what happens in the corn market, but if we're getting into fights with say Japan and uh, you know, who knows what the situation with Mexico's going to be at that time. Uh, certainly Brazil and Argentina both once Argentina, rebuilded stocks, uh, Brazil could certainly look at that as an opportunity as well, created again by the U. S, uh, by this administration.

Delaney Howell:               Absolutely. We've got a question coming up here that'll kind of address some of those factors that you just mentioned there, but I'm going to start here with a different question. Matt at Farmer Fuss on twitter wants to know is all the bad news, quote unquote bad news being built in this corn and soybean markets and will we see a trend change November first?

Darin Newsom:                 I'm gonna assume that bad news means bearish news. And no, I don't think it's all built in yet. Uh, I think what we really have to see is what happens with our exports in the 2018-19 marketing year. So I think we've still got some time in here. Number one, we've got to get to the September 28th quarterly stocks report that could be another round of bearish news for soybeans in particular. Uh, then we've got the January report where we'll actually find out, supposedly we'll find out what the production is at that point. We'll have a pretty good idea of what our total supplies are. That could be where we really start to see things start to weigh on these markets, both cash and futures. And then from there, I don't think, I don't think we've taken into account all of the potential demand problems yet. Uh, so I think there's still, I think, I think there's still some time.

Delaney Howell:               Okay. Here is going to be a softball question for you, Darin. We've got MT in Missouri wants to know your opinion. He said the elephant in the room is no NAFTA, no China, no RFS. And now talks of sparring with Japan. In my opinion, we've done permanent damage to the ag markets. The question is, do you agree?

Darin Newsom:                 I don't know that... I wouldn't call it permanent damage, because there's nothing all or never in in always or never in in commodities. Have we..are we...are we doing some long term damage? Yes. We certainly could be and what it's going to take is something even more severe weather-wise in South America than what we saw this year because South America is going to run tight on soybeans this year. So there's going to be some play in the market for that reason, but if we don't see those weather problems and we start to see some years again of good weather and good production, the US is going to be cut out of some of this demand and and some of it could be permanent, but all of it could be long term.

Delaney Howell:               Darin, how closely are you watching weather patterns in the US and South America specifically?

Darin Newsom:                 I'm not.

Delaney Howell:               Okay.

Darin Newsom:                 I figured the market will tell me what it thinks about the weather, so I'll just simply watch the market.

Delaney Howell:               Okay, good answer. I like it. Let's another question here, Matt in Whitewater, Wisconsin wants to know, why didn't the corn market react more last week with the agreement with Mexico being reached?

Darin Newsom:                 Because nobody believes it. I mean why would anyone believe that we've actually reached an agreement just because we have folks in the administration come out and say we've gotten a deal and the folks in Mexico say, well, we've got a deal if we can do something with Canada and then we hear that we're not going to do anything with Canada... You put those pieces together, we don't have a deal. So Mexico is still going to buy corn. I don't think NAFTA is any closer. A true Nafta isn't any closer today than it was a week ago, two weeks ago, three weeks ago. The market has no reason to react to it at this point.

Delaney Howell:               If we do get an agreement with China Canada and with Mexico both. Do you expect the corn market to react then?

Darin Newsom:                 I think it could - short term. I think. I think this could have like a three to four month play, but then we'll start talking about the next South American crop and you know, that could kind of kick the feet out from underneath any rally in the corn market.

Delaney Howell:               Okay. We're going to take another question here: basis, which I know you love. So Ryan in Orient Illinois says, what can we expect on the basis level headed into the fall and the winter?

Darin Newsom:                 I think it's going to get weaker. Uh, I think we're going to continue to see basis weakening, particularly in the soybeans. I know it's a disaster up in the northern plains right now. I think we're going to see, I think we're going to see problems along, uh, going into the, into the Midwest as well. And a lot of this is going to be, if we're not shipping anything like what we're seeing out of the Pacific Northwest right now, there's...I think you're going to see the river market having problems and then, you know, of course we always shut down the river market in winter anyway. So I think you're going to see the interior market start to suffer. Corn, local demand could keep it firm, not firm, but stabilized for quite some time. But I have a feeling by the time we get to the end of winter and early spring, I think we're going to be looking at again, another round of, of uh, of weaker corn basis levels as well.

Delaney Howell:               Okay. What about soybean basis levels?

Darin Newsom:                 Soybeans, I think it's going to get going to get crushed. I think we're just at the beginning right now of how weak the soybean basis could get. So again, we talked about in the program how the futures market hasn't gone to a new low but the cash has. So I think we're going to continue to see that type of divergence where the cash continues to pull away and sink lower than the futures market.

Delaney Howell:               And this is an interesting question I think kind of plays off of that basis level a little bit here. Jared, in Oklahoma, we've gotten this question a couple of times now. If elevators go contract only at harvest for soybeans and storage is full, what happens to all these beans?

Darin Newsom:                 They get sold, you know, folks try to make contracts so they have a place to put them or they move them to another terminal. You know, so it's going to cost them more in freight and those terminals are going to fill up as well. So because there may not be any export market for it, there may not be any local demand for it. So I think all of this is, you know, the 90 million acres producing whatever it might produce, he lack of demand, at least the, you know, the expected lack of demand at this point. Uh, I think it's going to cause a huge problem at harvest and I think it's going to cause a much weaker basis than what we're used to dealing with.

Delaney Howell:               So basically forcing producers hands to take a cash price or a spot price.

Darin Newsom:                 Exactly. You're going to be, you're going to be forced to take that spot price as we talked about in the program. If you've got it hedged, you know, rolling the hedges out, it's going to look pretty good, but if you're just sitting open on it, it's going to basically force sales.

Delaney Howell:               So if you have storage available, you don't have all your corn sold and you don't have all your soybeans sold, what would you be doing? Would you be keeping beans and taking cash for corn?

Darin Newsom:                 That's the. That's the great question. You know, do you... If, if you assume that all of this is unhedged and you're just sticking it in the bin.... Right now, the spreads not being as bearish in corn would say store your corn, sell your beans. Just get rid of them and see if this corn market can't, uh, can't recover some in, into early 2019 if you've got it hedged saying the other thing, use the carry to your advantage and there's a stronger carry in the bean market. But, if basis isn't going to appreciate then you're not really going to gain all that much in the end.

Delaney Howell:               Okay. Interesting perspective. One final question for you here. I think it's a good one to end on here - getting analysts' perspectives as we move into the planning season for 2019.... Matt would like to know what kind of corn and soybean rotation should we start to think about here for the 2019 growing season? He says he's thinking all corn.

Darin Newsom:                 I think we're going to hear a lot of that. The talk is out there, you know, this year too...and this is a great year to start this, year one, because supposedly we're 90 million acres in both. We've already talked about, I think wheat's going to gain some acres. I think corn is going to gain acres next year. I think, you know, 92, 93 million possibly up to 94 million acres in 2019. Uh, soybeans, I think is going to lose two or 3 million acres at least given the price differences that we're going to possibly see in these markets. So yeah, I think as we look at rotations, I don't think we're going to see that 50 slash 50 split in 2019. I do think we are going to go back. The US likes to plant corn. Uh, I think we're going to go back and do what we like to do and that's plant more corn.

Delaney Howell:               All right. Plant more corn. Darin Newsom, thank you so much.

Darin Newsom:                 Thanks, Delaney.

Delaney Howell:               Join us again next week when we'll explore the battle plans being made to fight the opioid crisis in rural America and Brian Roach 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.


Grinnell Mutual Insurance