Market Plus: John Roach (August 9, 2019)

Aug 9, 2019  | 9 min  | Ep4451 | Podcast


Howell: This is the Friday, August 9, 2019 version of the Market Plus segment. Joining us once again is John Roach. John, welcome back.

Roach: Thanks, Delaney, nice to be here.

Howell: John, I wanted to pick up on where we ended our conversation there talking about the live cattle markets and adding in the feeders. Of course you said you expect more supplies of beef here heading into the fourth quarter of live cattle.

Roach: Yes. We think that we've had lighter weight, lighter slaughter weights through the summer as people have moved the cattle very quickly, which is good, that kept us moving. But we think as we move into the fall that we'll see people starting, we're already seeing some of that start to put a little more gain on and so we think that brings us more tonnage as we come into the fourth quarter.

Howell: Are there any indications too that we're starting to consolidate in the live cattle or feeder cattle markets?

Roach: I think that the feeder cattle market has been pressed a little bit by dry conditions that we've had and concerns about what the corn market is going to do. So we've seen some people move some feeders out and get some feeder hedges on in case there's something that comes out on Monday. I think that has been kind of the main situation that we've dealt with this week.

Howell: Let's talk about Monday's report. We have a question. Let me find it. Yes, we've got a question here from Chris in Bowling Green, Kentucky. I know you said you didn't love talking about the report to nail down estimates because there's such a wide range. But I think he has a good scenario question here. He said, what's the lows in the corn market if USDA comes out with more acres on the 12th?

Roach: Well, I think that we can go back and look at springtime lows. And remember what the attitude was when we made our springtime lows this year and that was that we had a good growing season ahead, this was before we had problems, that we had concern with the tariffs with China and we had people really demoralized that the supplies were going to be so big that we'd never get out from underneath of them. And so the lows were made with what I would call a real emotional letdown, it was just like the air was let out of the tire. And that low represents a very significant low in the marketplace in my opinion. I don't think we have to go back there again. And so I think the market will find itself, even under negative news following Monday's report, will find itself relatively well supported, not far underneath the recent lows here over the last couple of weeks.

Howell: And we're not out of the clear here with weather yet. As you mentioned on the main show we're now watching maybe the opposite of wet weather. We're not concerned necessarily about droughts that we've seen in years prior, but starting to see a little drier weather. The other thing that's right around the corner is harvest time and we've got a question here from Paul in Kansas. He said, what are the odds that all this late planted corn will face an early freeze? And I want to add to that, what does that do for us for the markets?

Roach: Well, I think that there's a real risk of that. The late planted corn is going to still need some more time before it's able to mature and it's going to start pushing some of the areas beyond their normal frost date. And we could always have an early frost. So I think that risk is in the marketplace. And we're going to continue to trade a risky crop growing season until we finally get combines in the field. And we probably have to get into the field and have the first corn that was planted early harvested and then we're going to wait for a while, while the other corn gets ready and we'll still be worried about it. So I think there's really quite a bit more time yet to go through here and that keeps the market from falling apart. We might have that in a normal year when we have the crops pretty uniform or more uniform than this year. But we don't have that. We're going to, it's going to take more time this year to know what we have.

Howell: And you bring up a good point I hadn't though about until now, the variance in the crop planting will also of course bring variance in the harvesting. What will that do for our price action? Is it going to push back a potential rally we could see?

Roach: Possibly. But more it will reduce the flow of corn sales coming into the marketplace. When you don't know what kind of crop you have or you don't like the price, farmers tend to be holders. And so they'll wait until the last possible minute and instead of having all the harvest wrapped up on a certain date this year it's going to be a later date. So we're really going to have harvest last quite a long period of time.

Howell: Okay. John, moving back a little bit here to the report, we've got a question here from Bradley in Upland, Nebraska. He said, is there any current estimate on the number of old crop bushels lost to Missouri River flooding form this spring?

Roach: That's the question that stumps me. I haven't heard any estimates. I'm sure there are because there's been some payments made and so forth but I don't know that number. And we certainly saw all of the evidence of that with the bins that were burst and so forth. But I'm sorry, I don't know the number.

Howell: Will USDA account for anything like that on Monday's report?

Roach: I'm not sure of that either. That's another question, that's two strikes, I'll be out in a minute.

Howell: We won't let you be out quite yet. We've got a couple more questions we've got to get through here, John. We've got one more here from Dan in Illinois. He said, have we handed our Chinese export market to the southern hemisphere for good? I think that's a great question.

Roach: I think it's a great question and it's one I'm afraid that we have maybe handed it off for a long time anyway. They are going to create infrastructure, they are going to open up more land and we already know that they've been clearing some more of their scrub ground and so forth and some of their poorer pastures. And so everything that we read is that they're going to increase production there, at least increased acres. And so we think we'll have increased competition from there. And what it really means is that we have to do our job in agriculture and that is get out and promote our product all around the world and some different places. One of the things that we became a little complacent with was we kept going to China until we had a substantial percentage of our business going to one marketplace. And I can tell you as a business person when one buyer is the majority of your business that's a risky position to be in and so we need to diversify and we need to do it very rapidly. And so there's where we're going to get markets back. We're going to have to get them back in new places.

Howell: Do you see us mirroring the experience that happened with Russia back in what years was that, under the Carter administration? Do you see that happening now?

Roach: Well, there's a possibility that we lose that business for a long period of time. That’s what you're referring to. And so sure there's that possibility. There's also the possibility that a deal can be struck and suddenly the relationship improves substantially between the United States and China. This is big international poker and it's really hard to predict how all the chips are going to fall longer term. But we do know there's going to be more competition out of South America, we know that for sure. We also know that China is going to continue to increase their consumption and they may get it from some other Asian countries where we do business with another Asian country that then does business with China.

Howell: John, with all that being said, then what do you see as the outlook for the, I know we're looking really far ahead here, but next year's crop, the 2020 crop? Do you see a lot of acres shifting even further to corn as opposed to soybeans?

Roach: Probably. The profitability in soybeans is not as good as in corn. And so the likelihood is we're going to raise more corn. And so that is the reason farmers are worried and talking about selling next year's crop and our caution is to give this market some time. This is the wrong time to be selling next year's crop. This is the right time, however, to be buying diesel fuel. We had buy signals generated this week in heating oil, which is a future comparable to diesel fuel, so for those growers out there that are thinking about getting their diesel purchases we encourage them to do that.

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

Roach: Thank you, Delaney.

Howell: Join us again next week when we explore how the U.S. leather industry is searching for new markets and Naomi Blohm 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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