Market Plus: Darin Newsom (May 3, 2019)

May 3, 2019  | 9 min  | Ep4437 | Podcast

Podcast

Howell: This is the Friday, May 3, 2019 version of the Market Plus segment. Joining us again is Darin Newsom. Darin, welcome back.

Newsom: Thank you, Delaney.

Howell: Okay, Darin, let's talk about what has been going on in the cotton markets. Are we seeing some trend reversals there as well? And why have they been getting so much hype lately?

Newsom: There are two distinct markets and I like to talk about old crop and new crop as being distinct markets. And what we're seeing in the old crop market is it has been coming down, the July contract has been coming down. But there's still this thought process, if you look at the difference in price between the July and Dec we've got a much tighter situation in the old crop cotton supply and demand than we do in the new crop starting with the December contract. So that could help support the July contract. But we've still been coming down, we've still seen some pressure on the market. But my biggest focus, my main focus on the cotton market has been on the new crop December. I'm a little bit concerned about that. The carry in the Dec-March contract, or spread, continues to get stronger. And then this week we saw the December contract test somewhat I felt was relatively significant price support on its daily chart and its weekly chart at 74.35. It really needs to hold this and we closed awfully close to that area. It needs to hold this, then start rallying back up and we might be able to get some selling because long-term I can't help but start to feel even more bearish towards the new crop cotton market. And the reason why it's in so much of the news these days is all of the weather problems affecting corn, soybeans and everything else, there is this talk, there is this idea that more acres are going to go over to cotton. They don't know that, but looking at the spread, looking at the way the futures contract itself, there's something out there that's really starting to weigh on it. So it needs to hold here, get a bounce, give producers an opportunity to get some more sales on.

Howell: Okay, Darin, we kind of glazed over the feeder cattle markets during the main discussion. They've had a $14 decline here over the past two weeks. They're in the high 140s. How much lower are they going to go?

Newsom: Yeah, we glazed over it because it's a pretty ugly market. It did not look good. In fact, if I recall the August contract either equaled its previous contract low or went to a new contract low with the collapse this week. It's just one of those things, it's going to be hard to build support in this market right now. Some will say we got too high, I don't know that we did, but right now we just can't find any buyers. So we look at the August contract, it's the heaviest traded contract right now, at some point in here near that old low really needs to find some support. Yeah, we might have spiked through and come back on the close on Friday. If we can get any sort of follow through buying next week off of that bounce it's going to look a little bit better. But right now if the trend is your friend, or in this case the trend isn't necessarily your friend, certainly looks like the path of least resistance is down still in August feeders.

Howell: Okay. Let's talk about seasonalities and weather issues. We've got a good question here from Chris in Illinois, @Spikewelds on Twitter. He said, how does this weather year compare to 1993? I was told you have some thoughts on this.

Newsom: I was able to visit with a good friend of mine this morning about that. And the problem is, and I know the meteorologists, and this gentleman is a very good friend of mine and he said there are a lot of similarities between this year and 1993. But I have an issue with it because there is no such thing as an actual analogous year. If you have one factor that is different it changes the outcome, it's classic chaos theory. So where we had everything lined up in '93, if we have one difference here in 2019, and maybe it was the fact that fall and winter was wetter than it was back in 1992, '93, or whatever it might be. So while I think there is, there's going to be a natural comparison to the flooding that we saw in 1993, whether or not it plays out the same has yet to be seen because of all the unknowns. And so I'm not one that is going to go out there and say yeah, we're going to see this thing play out, it's going to be an exact replica or a very close replica of what we saw in '93. I just don't think that’s going to happen.

Howell: So, with all these weather issues and flooding and comparing it then, I know you follow seasonalities quite closely. Let's talk about the corn seasonality here. You do the six year and the ten year, is that right?

Newsom: That is correct.

Howell: So are we going to follow one of those two normal trends?

Newsom: Well, it certainly seems like we are because both of them are straight down from the previous December basically through the next harvest and that seems to be what December corn has been wanting to do. Now, the real interesting thing is, if we start to see a divergence from that, if we start to see the 2019 contract going up, that means there is a change fundamentally. And as we talked about in the program we're starting to see some buying coming in from the commercial side indicated by the spreads. So if we start to see the 2019 contract go against what the tendency is for both the six year and ten year studies that’s another confirmation that there's something happening fundamentally, maybe it is a '93 situation, maybe it's its own situation because of loss of acres, whatever the situation might be. That could be a counter seasonal rally that you really wouldn't expect at this point. But we might be able to build on it.

Howell: What about the soybean markets? They are feeling like they are following no seasonal trend. Is that the case?

Newsom: That is the case. And what we've got here, again, is just basically unchecked selling because the market seems to be of the belief that we're going to have plenty of soybeans coming over from old crop, starting off as beginning stocks for new crop, that we're going to have X amount of acres, probably X plus some amount of acres depending on what gets lost across the rest of the growing area. So we could see more soybean acres. So it is breaking down, it has moved further, faster than the normal seasonal tendencies and we haven't seen any seasonal bumps, at least not to this point.

Howell: Okay. Darin, we've got just a couple of other interesting questions here looking at maybe some larger picture ideas. We've got a good question from Roger in Kokomo, Indiana. He said, since we are residual suppliers of wheat and now soybeans and seeing peak demand in the rear view mirror, how long will it be before the government reinstitutes production reduction programs?

Newsom: That's a great question and I love his wording of the question. It's just not going to happen. The folks who cover Washington, D.C. that I still have the opportunity to visit with, there's no interest in that sort of program, there's no money behind that sort of program. So I just don't see it happening any time soon. The only cog in that machine, the only thing that could change that is that we are coming up on an election and a lot of things can happen in an election cycle. So that could be what changes things. But right now there's just no interest in extending or creating a new program like that.

Howell: Okay. Darin, one more question. I saved the best one for last because I know you're a huge baseball guy. And we have a question that recognizes your fandom. We've got Baloo @farmer_boyz on Twitter. He said, if you had to choose between growing wheat the rest of your life or the Royals making the ALCS every year but losing the series every year after blowing a 3-0 lead, which would you choose?

Newsom: I would have to go, I would have to stick to my nature and it wasn't that many years ago I wrote the last wheat harvest arguing that the U.S. shouldn't grow any more wheat. So, to stick with that theme I would say I would rather continue to be a fan of the Kansas City Royals, watch them get to the World Series or whatever, the title game, and lose every year. So that would still be enjoyable for most of the season, painful at the very end, where growing wheat is just painful from the day, well basically every day. So I would stick with the Royals.

Howell: And I'm sure we'd probably have to hear about it on Twitter all the time.

Newsom: Of course.

Howell: All right, Darin Newsom, thank you so much.

Newsom: Thank you, Delaney.

Howell: Join us again next week when we’ll explore how high school students manage the local grocery store and Ted Seifried will join us 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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