Pearson: This is the Friday, August 12, 2016
version of the Market Plus segment.
Joining us now is Don Roose.
Don, welcome back.
Roose: Thank you, Mike.
Pearson: Now, to get started here we want you
to kind of gaze into your crystal ball.
Our buddy Phil from Ontario, Canada has a
couple of questions, points, pretty open-ended.
He's asking, the U.S.
is importing wheat from France, we're exporting
ethanol to Brazil, both of those things were once
unthinkable, what's next?
How are things changing globally in agriculture?
Roose: Well it is a global market and I think the one
thing you have to make sure and I think there's
some things that you have to watch.
One, you want to make sure you keep your balance of
trade pretty close to equal.
But I think when you look at it overall it just
tells us how competitive the world market is the
U.S.
producer and I think we're going to have to be the
low cost producer.
I think we can do that.
And I think if you're the low cost producer you'll
eventually gain market share, not lose market
share.
So I think that's the big focus and I think that's
the goal of the whole industry no matter what
industry it is.
Pearson: You bet.
You bet.
You need to compete on that global stage.
Phil's next questions builds right on that.
He's saying, with the Brazilian Real
appreciating, will this affect their planting
decisions this fall?
Roose: Well I think when you look at it actually
from a Brazil standpoint it looks like of course
they had a short crop this year, both soybeans and
corn, more so on corn, they're really struggling
here with their feed, maybe even import GMO corn
from the U.S., we'll see.
But I think when you look at next year it looks like
what's going to happen is with the real where it is,
with their inputs where they're at, with selling
in the dollar around the world on their grains,
that you're going to see their soybean acres go up
probably three to four percent, so probably at
the expense of some corn.
So I think that's going to be the real issue and
that's going to be the competition.
Pearson: Now, with their acres increased three or
four percent, this last year they were roughly
comparable to U.S.
soybean acreage, right, at mid-80 million some acres?
Roose: That's exactly right.
If you look at Brazil and Argentine combined they're
raising about one and a half, one and
three-quarters times the beans that we are right
now so just a lot of beans down there.
The Argentinians with the export tax being take off
on corn they're probably going to plant more corn
than soybeans so I think it leaves South America,
Brazil as a big producer of soybeans.
And that's why from a U.S.
standpoint for a producer you have to be aware that
starting late January, February you're going to
have a lot of competition again and then we're going
to have to figure out in the U.S.
how to come up with less acres on soybeans versus
corn and right now it looks like maybe people
will plant soybeans versus corn.
So we'll see after the big acres last year on corn.
Pearson: Or, perhaps, if we take a look at again
the reports, Friday's reports, we saw incredible
USDA actually input pretty incredible soybean demand
whereas if they hadn't added 100 million bushels
to the overall production we would actually be what,
low 200 million bushel carryout if the crop comes
in at 47 some bushel per acre?
Roose: Well, exactly, and I think that was the issue
with soybeans, why they came back on Friday so
strong is because you look at it, we have a 330
million bushel carryout, but first you have to
believe their demand side on new crop, old crop is
pretty much in cement.
But if you take a bushel off you take a 330 million
carryout down to 250.
If you take a bushel and a half off you can go under
200 million.
So that's why it's still a little bit dicey on
soybeans.
I know the government has a big yield out here but
we don't have it in the bin yet either, Mike.
Pearson: Right.
And demand has been strong.
We continued, as you mentioned on the program,
Chinese buying has been there for us.
Roose: Yeah, Chinese, so far it has been there but
that demand is going to be front-loaded really like
we haven't seen for a long time on corn and soybeans
and then it's probably going to really drop off
fast unless South America has a weather problem.
It is a mild La Nina starting to that means
that Northern Argentina, Southern Brazil could have
some weather issues.
Pearson: Okay.
Now you have mentioned quite a bit that shift
from the favorable conditions for U.S.
producers now until roughly January when the
market really starts to look at Brazilian
production.
As we're getting close to harvest, as we're looking
at these lines of credit that are going to need to
be paid off, making decisions what should I be
weighing with my crop in the field before the
combine rolls out?
Roose: Well I think when you look at it from a
producer's standpoint the market is giving you clear
signals.
It's telling you with the inversions November beans
trading 15 cents higher than November that you
should sell soybeans in corn, on soybeans.
If you want to reown it go out to July, buy some
insurance, some calls or some call calls, give
yourself some upside potential in case we have
weather problems again either in South America or
here.
On corn it's just the opposite, you've got a
carry of 24 cents from Dec to July, seven months,
that gives you about 3.5 cents a month storage so
take advantage of that.
That's what the market is telling you to do.
Store corn but get some protection on it so you
just don't let the price erode because remember on
corn in a continuation market, September corn is
$3.12, if things don't straighten out next July
we'll try to go down to the same price if we don't
improve so that's the problem with the big carry
in the market.
Pearson: So we've talked quite a bit about selling
that carry.
If I'm a producer, I've got bins on my farm, I am
going to try to capture that carry, what is the
most effective way to do it, that July carry in the
corn market?
Roose: Well, if you're satisfied with it what you
really should do is just plain sell the futures or
hedge to arrive out in July.
And then if you want upside potential go out to
July and buy some call calls, buy some insurance
to go back up again if you're not satisfied with
the price.
But that way it locks in your carry because if you
just look at the carry and don't do anything about it
the price erodes and you say well I still have the
carry but a lot lower price.
So that's what you're really trying to do.
Pearson: Alright.
Next question to you from Former farm boy in Central
Iowa @ruralmidiowa on Twitter, he's asking, have
we seen the low in December corn?
We kind of danced around that on the program.
Is the low in?
Roose: You know, historically you would say
not, historically what you do is you put the lows in,
in corn, in a big crop year and I think you have
to say regardless this is a big crop year.
It may not be as massive as the government thinks
but you still have to prove that you can put the
crop away, store it, pull it away from the market.
So typically that usually takes until the middle of
November before we really get all the stuff tucked
away.
So I would say it's probably a low bet,
usually you put your lows in earlier in a short crop
year.
So I would say probably not.
Pearson: Alright.
Cindi R.
Cramer from Dighton, Kansas is asking about
basis contracts.
She has heard them recommended several times,
lock in that basis, but hers is 54 under.
You talk about a lot of Kansas, Nebraska, Oklahoma
places that had massive winter wheat harvests,
basis is soft.
How do you handle marketing in that part of
the world?
Roose: Well, and that's exactly the problem.
And we're talking about the south but that's the
same thing that could happen as you go north.
You get closer to harvest there they had to compete
with the wheat for storage.
We might have to compete with the old crop supplies
for storage.
So I think what you look at is take advantage of
what you have.
If it's going to cost to carry it and you can't
beat the storage and you can't beat the carry in
the futures market I think you're better off to just
plain sell it regardless and then just reown it on
paper.
Pearson: Okay.
Now, Don, before we let you go, we like to get our
analysts to answer questions about phrases
that get used a lot in the futures market and we've
got two questions for you.
First one, what is contango when used in the
market context?
Roose: Well, contango is when you go to work and
buy a put and buy a call so you catch both ends of
the market moving up and down.
Pearson: Okay.
Secondly, why are U.S.
commodities measured in bushels and foreign
commodities are measured in metric tons?
Roose: That's a good question because a lot of
the world is in metric tons and the U.S.
is in bushels.
We've always been in bushels.
But when we take our bushels, a lot of times we
convert them in a world market back to metric
tons.
So it's really just a U.S.
issue.
When you trade on a global market you're really
usually trading in metric tons.
Pearson: Why doesn't the USDA on their USDA reports
convert the other country's productions into
bushels so we can understand it without a
calculator?
Roose: That's a good question and the foreign
countries would ask you the other way, why don't
they convert backwards, so it's probably one of those
situations I guess we're the U.S.
government and we're going to report the way we look
at them.
Pearson: Alright.
Well, Don Roose, thank you so much for joining us
today.
Roose: Thank you, Mike.
Pearson: Thanks to all of you for sending in your
questions via Facebook and Twitter.
We do appreciate all of them, continue to do it
and we will continue to get expert analysis right
to you.