Market Plus: John Roach

Feb 1, 2019  | 13 min  | Ep4424 | Podcast


Yeager: This is the February 1, 2019 version of the Market Plus segment. Joining us now, John Roach. Hi, John. Since we teased it at the end of the show I know you've been extremely nervous about what I'm about to pull. But we want to give you a gift. You came into the area after polar vortex had left the area so we want to just make sure we went and opened up this jar outside when it was 25 below. That is cold air from the Midwest that you can take. That is TSA approved with the Market to Market stickers on it. So you can take that at the end of the day.

Roach: Back to Florida.

Yeager: Back to Florida. And if you think that's not enough we could go a bigger version for you. We also opened this up. But if you're really worried, and I think you are, that it's not truly going to be cold, we filled our director Peter Tubbs' thermos for you. This is insulated air so this should probably be cold. Do you miss cold weather when you see it on the news when you're in Florida?

Roach: Not so much, not so much. It is nice to come back to the Midwest and get a little cold weather but it's really nice to get on the plane to go back to Florida.

Yeager: Well, you are going to have a warm weekend and this weather has been somewhat impactful in the meat market, which we talked about during the main program. But people are already looking ahead to spring and Mike in Mount Pleasant, Iowa is wanting to know about spring nitrogen. He has been watching fall nitrogen sales compared to spring. And he's wondering, is spring nitrogen rising in price from fall? Based on that, he says it's rising, would you think more corn or more soybean acres are in store for 2019 on that specific indicator?

Roach: Well, there's more than bigger demand that is going on in the fertilizer business. We're seeing some reductions in plant capacities and so forth. But what's driving the fertilizer market is more corn expected, but it's not as much increase as what the market would really like, or at least the people that we talked to. People still would like to stay in their rotations. That has been proven to be the best strategy for years and years. So you really have to distort the price in order to get people to move acreage and that's the job of the market this spring, to put a bigger premium on corn than beans so that for someone who is looking at a field that they're trying to decide which way do I go, the market wants you to plant corn, so they'll need to move prices in order to get you to do that.

Yeager: I'm going to ask a little bit of a government shutdown question here. Are you going to be more reliant on private estimates versus government reports when it comes to acres and planted and intentions and things like that moving forward for the next six months as we shake this out?

Roach: I don't think there's been that much of an issue on future reports. I think we missed some numbers, didn't receive them, but we're catching up now or the government is expecting to get caught up. They're expecting to have the February 8th reports out. They're expecting, unless they've changed that in the last couple of days.

Yeager: February 8th is the new January 11th, I know that you've got that written down.

Roach: And then they're still anticipating having their outlook session the latter part of February. So the important reports are the ones that come in March, the March 31 planting intentions report will be very important, the stocks in all positions report will be very important, to see what intentions are obviously and then what do we have in the bin and what has our usage rate been?

Yeager: All right, I need a little strategy here, and this kind of ties into our M-to-M podcast this week that we had. We were talking about ask the analysts. This is one of those questions, John, where it's a little more strategy. And so, again, we're going to stick with Mike in Mount Pleasant, Iowa. Would it be prudent to hedge new crop soybeans at these levels using a hedge to arrive? So first, explain hedge to arrive and then this question, if you would move forward with that.

Roach: There's two components to a cash price on the farm. One is the futures component and secondly the basis, which is your connection to that futures market. Depending on where you're located you could have a basis that is less than the futures, that would be in the Western part of the belt. In the Eastern part of the belt the basis actually might be positive on top of the futures. So those two components can be priced separately and a hedge to arrive allows you to sell the futures component and then wait on the basis. In the soybean situation we're currently dealing with a big carryover expectation for fall and it's possible that can change and it's possible that can start to become less burdensome. But the problem right now is that we're going to have a lot of beans and somebody is going to have to hang onto them. And so the basis is already discounted and likely to stay discounted. The only way to improve that situation is to quick get a bin built and put the beans in a bin and try to get basis improvement and carry all the way on out into the summer of '20. So I wish I had good news but when we have these levels of surplus we're going to deal with poor basis today for new crop delivery and likely poor basis in the fall for new crop delivery.

Yeager: Well that kind of answers the next question. Mike and Tony had one more and this was Mike again. He's asking, is it likely that the soybean basis will improve significantly if the trade tariffs with China are resolved? You didn't mention that in your last answer so that's the only reason I want to bring it up. Does China and the tariff have any impact on our basis?

Roach: It has huge impact. The reason that we have such poor basis levels is because we don't have any business from China or haven't had much business from China and so when we don't see that demand then we don't get the demand at the port and when we don't then it goes all the way back into the interior. But let me talk about the other part that you can do something about. You can set the futures for your new crop soybeans and we did a lot of that this week. We had a soybean sell signal and we sold into the market both with old crop inventory and with new. We think we'll have another couple of soybean sell signals between now and the summer and our plan is to sell on both of them, both old and new crop. We're concerned that the bean inventory, unless the Chinese really change and remove their tariffs completely or something of that nature, we're going to struggle to get out from underneath this big inventory that we have in the bin today.

Yeager: And especially with the South American crop that's just about ready to start coming into the bins as well.

Roach: Exactly. The South American crop, according to numbers we saw this week, farmers there have already sold about 35% of their crop and they're just in the process of harvesting it, they've got about 15% harvested or thereabouts. So as they proceed with harvest it's hard for us to get that business. Prices seem to get discounted unless there's a political decision that China will take our beans in preference to Brazil's in which case them maybe we'll fare better. The key here is to realize these are political decisions and although we wish we knew how they would end we don't. And until they do change we're still dealing with tariffs there and we're still dealing with a difficult situation.

Yeager: Do you remember another time when we had politics influencing the ag markets as much as we have?

Roach: Yeah I do actually. I remember the last bean embargo that we put on - so yes I remember more than one time. One of the things that is really sad is that for a lot of our trading partners the biggest quantity of anything American they buy is agriculture. So whenever there's any kind of a trade issue that goes on agriculture and farmers are the tip of the spear. And so that has always been the case and unfortunately it's going to continue I think.

Yeager: All right. Phil in Ontario, Canada, from Dresden up there, he wants to know, you've got $10 in soybeans coming at you. He says, are $10 soybean futures a dream deferred in 2019 if we can't get that trade deal? So again, tied to China, what's your prognosis on $10?

Roach: Well, if we don't get the Chinese tariff or that trade situation relieved the inventories that we're dealing with we're not going to see $10 probably. There's one other wild card out here though, actually two. The Brazilian crop has been hurt with dry conditions through most of its growing season and that crop is still being reduced on kind of a weekly basis. And so that is possible that could change the statistics certainly. The other possibility is United States crop when we put it in the ground we could have problems. So that would be the second possibility. And then of course the third is China. So those are your three possibilities. Right now we have China that is a plus and we have Brazil that is a plus. We could lose both of those pluses so be careful and make sure you get some sales made in this price area here. This is a good price in view of the kind of carryover that we currently have.

Yeager: So keep an eye out and as you say in your newsletter, dribble things out so you're not stuck to one piece of news. All right. Lexi wants to know, Lexi in Iowa, she's @LexiFreund, and you can always follow us on Twitter @MarketToMarket or IPTVMarket on Facebook. With multiple government reports scheduled to come out in the next two weeks, that would be before we could have another shutdown, how will the markets react?

Roach: We'll react to the reports. If there are surprises, which some people think there might be because there's so much space that has gone by without much new information, then we could react to that. But I don't expect any shockers or surprise to come. If there is one to me it would be likely in corn where we've used corn at a faster pace here than what we thought we would and so we could actually get some friendly numbers on corn.

Yeager: All right, last question of the ones that are submitted and then I've got a couple of other ones. Dave wants to know, isn't it unusual to have a soybean sell signal and a soybean meal buy signal at the same time?

Roach: I thought that all week as I wrote about it, particularly since the meal is the largest component of a soybean's value. It made me concerned about how far beans could go up when their biggest source of value was going down or unable to go up. And so that is an unusual thing to have happen. And you'll be happy to know that we no longer have the sell signal in soybeans. Unfortunately the meal had more pull down than the beans had lift up.

Yeager: All right. Crude oil, still north of $50. We've held, now we closed at $55.28 today, up $1.59 on the week. Is that market still headed that way? Or what's driving oil?

Roach: Well, the economic news is just amazing. The jobs report out today 304,000 new jobs in the month, blew everybody away.

Yeager: Only 170,000 was the projected.

Roach: Exactly. So big numbers, the news out on the earnings for companies has helped rally the stock market and we've also had the Fed come out and say we're not going to raise interest rates here for a little bit. So we really have a lot of positive news that kind of hit in the equity market and of course that spills over into the energy market rather quickly.

Yeager: All right. And the dollar, we had a retreat from a 3 week low. Usually when the dollar is lower that's better for our products. Are we going to go back to the low trend? Or are we going higher on the dollar?

Roach: There's just so many things right now that are up in the air here. I think the dollar is in a state of flux. We need to see what's going to happen with the Chinese and this whole trade issue. And we have a lot of things, irons in the fire right now.

Yeager: It's not a broken record but it's a legitimate story that is impacting a lot of markets.

Roach: It really is and making traders very uneasy because if the deal goes one way that's positive, if it goes another way it's negative. And so it's really a conundrum.

Yeager: All right. Well, I know one conundrum, they just need a little cold air and that will get them cooled off. John Roach, thank you so very much. Good to have you here.

Roach: Thanks, Paul. Great to be here.

Yeager: That will do it for Market Plus. And next week we will look at an East Coast industry working to rake up new Midwest markets and Naomi Blohm and Delaney Howell will sit at the table. So until then, thanks for watching, listening or reading. I'm Paul Yeager. Have a great week.

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