Pearson: This is the Friday, June 17, 2016
version of the Market Plus segment.
Joining us now is Don Roose.
Don, welcome back.
Roose: Thank you, Mike.
Pearson: On the program we did not have a chance to
discuss the cotton market, wanted to get your
thoughts.
We're hanging out here in the mid-60s.
Is cotton going to break one way or the other in
your opinion?
Roose: Well, I think when you look at it the cotton
market is still very much in a supply bear market
but it is caught up in some of the frenzy that
we've seen in the grain market.
And so I think it's kind of a me too type of an
attitude.
So China very much still controls the cotton
market.
From their standpoint I think they're going to be
continuing to shed stocks.
So I think when you look at it the upside is
probably limited, Mike, so I guess we're not bullish,
really fundamentally bearish on the cotton.
Pearson: Planting report going to change anything
big acreage numbers here at the end of June?
Roose: I don't' think we're going to see any big
changes.
The focus I think that we're going to have more
is going to be on the soybeans than anything
else.
So I think that will be the big focus on the
report.
Pearson: Okay.
Now we've got a question here from one of our
followers on Facebook.
This is from Flinton in Zumbrota, Minnesota.
He's asking, how much upside potential is there
if we see a weather scare?
And he mentions corn in southeast Minnesota looks
awesome right now.
Roose: Well, he's got a good question because this
is what is going to happen is with this ring of fire
that we have with the heat in the southwest, the high
pressure ridge keeps coming and going, it looks
like the northern Corn Belt could have a chance
for terrific crops, some of the other areas suffer.
So it's going to be a real jump ball.
It doesn't look like a full blown drought like
we've had in some of the other areas if we get it.
But upside potential, there's an awful lot of
bull news dialed in, like we were talking on the
program.
When you have a 60 cent inverted market from
November to July the opportunity for the
producer is make sure you take advantage of that,
don't hold your soybeans into July of next year
where you take a big loss.
So I think upside target was his question.
There is a gap on the November beans up at
$12.25 if we get loose to the upside.
Remember on the continuation charts that
we already had July beans got to $12.09.
So those are some areas that I would look at but
certainly technically on our trends we turned down
on the middle of the week here this week technically
after being in an uptrend since March from clear in
the $8.79 range.
So when you look at it, this market very iffy,
could be very toppy but it's going to be all up to
the weather.
Pearson: Okay, now speaking of weather, I've
heard a lot of producers my age talking about how
this kind of reminds them of 2012, crop went in
easily, then it got hot, now it's getting dry in
places.
What year does this remind you of?
Is there an analog year in your mind?
Roose: Well, every year is different, Mike, and I've
seen a lot of these different years and this
is certainly one I think that sets up not like a
full blown drought yet like we had in '88 or '83
because it looks like it's going to be more regional
with some areas having big crops, other areas may be
suffering.
But it looks like we're shaping up that we grow an
awful lot of grain north of Highway 80 and it looks
like as you go further north the crops get bigger
as we go past Highway 80 north.
So I think it's a unique year.
I think you could probably cross it somewhere between
some of these that are just bent back a little
bit.
But so far I don't see a similar year that I would
want to look at at the present time.
Pearson: Okay.
Now we've got a question here from Rodney in Edgar,
Wisconsin.
And his question, I think you have alluded to his
answer a lot so far.
But he's asking, have we seen the highs as far as
the grain markets?
And as you mentioned, it's weather, weather
forecasts.
Roose: Yeah, that's very difficult because
technically what we're really at is we're in an
uptrend on corn, we're in a downtrend on soybeans,
corn could turn into a downtrend, soybeans into
an uptrend, it's all on weather.
And that's why I think when you're uncertain like
this you certainly have to do some kind of risk
management.
I think that's the key.
Don't let these prices get away from you.
If you think there's upside potential come up
with some strategies that can give you the upside
and the downside.
So when you have a market that can go either way,
and I tell you we're right here, Mike, the next two
weeks we're going to find out where we're really
sitting.
Pearson: Okay.
Now Rodney had a second part to his question.
He's asking, with storage issues looming with this
year's wheat crop, will this continue into the
fall or are we going to have storage concerns with
corn and beans?
Roose: Right, and he's got a good question because
right now the government is carrying.
All the weather and everything else we're
talking about yields is all ifs and buts.
What the government really said on their last report
is we're going to have a 2.1 billion bushel
carryover on corn, that's a lot of corn.
They're talking about a cash price of $3.50.
They're talking about a bean carryout 260 which is
still adequate.
And they're talking about an average cash price of
$9.50.
So are we going to have storage issues?
It's possible I think so you have to be prepared.
Pearson: Okay.
Finally we've got a question from John in
Mid-Missouri, @jhansman on Twitter.
He's asking, wheat, is it worth planting this fall
if you have other options?
He says, could double crop beans.
Roose: Well, I think right now double crop beans are
terrific to plant.
We're right in the timeframe where as the
wheat comes off you're going to plant the
soybeans.
And I think that is one of the reasons wheat acres
are probably bigger than you think, our soybean
acres are bigger than you think.
So that is going to be a key.
But some of that is going to be dependent on
moisture also.
Pearson: Okay, now you mentioned you anticipate
to see an increase in bean acres.
That's an increase over USDA's 93.5?
Roose: Yeah, that's right.
Well, the corn acres is right.
We don't really look for much of a corn acre
increase at 93.5.
The soybeans were 82.2 million and we think that
that could go up 3 million possibly so you could get
up into that 85 plus million acres.
So that's a big buffer.
But I can't say enough about the weather, the
charts, when the market got a little bit of a
taste at what happens if you think things start to
change direction.
Remember, we always talk about you take the stairs
up and the elevator down in the market so be
careful and be quick.
Pearson: And that's interesting, you look at
Monday through Thursday I believe it was almost a
75, 76 cent drop in November beans Monday's
high through Thursday's low.
When it turns -- Roose: When it turns it turns
very fast and we always go down faster than you go
up.
You kind of inch up, at the final phase of a bull
market you blow up and then you stop and drop.
But soybeans, with all the bull news we had last
week, we ended up lower.
Corn, with all the bull news that we had last
week, most of the gain was put in on Friday.
So it's a careful market here.
Pearson: So in this environment would you be
advising producers to make physical sales and reown
with an option?
Would you be selling the futures directly?
What would be advice for a producer to try to capture
some of this and manage their risk?
Roose: Well, I think how you manage your risk is
there is no doubt with an inverted market that you
have in soybeans and not much of a carry in corn,
your best strategy is probably not locking in
cash prices, doing some kind of a hedge to arrive
unless the basis is in your favor.
But even if the basis is in your favor I'd still do
a hedge to arrive with a chance to roll it out to
the deferred.
Cash sales I think you want to make sure that you
know what you have a little bit.
So this is a year where you definitely can use
some options and you make some tight sales, it's not
a bad idea to reown out into the March contract
with some calls or some call calls to try and
catch to the advantage of that tight spreads or
inverted market.
Pearson: Okay, now you led us right into our final
question for you, Don Roose.
We have been trying each week to work to define a
lot of the terms that we throw around here on
Market to Market.
And we've got a question from Jess in Webster City.
What is the difference between a put and a hedge
to arrive?
What are the advantages or disadvantages of either?
Roose: Okay.
A hedge to arrive really what you're doing is the
person that you implement the hedge to arrive with,
he's selling the futures contract for you so that's
a tight sale and you convert it so you're
really up and down with what the futures month
that you sell.
If you sell December corn, that's what you're basing
it on.
On a put what you're doing is you're buying the right
to sell the market.
So a put is more like an insurance product to cover
you.
A put gives you the flexibility of the market
going down but it gives you the upside potential
and you're not locked in tight.
Pearson: Okay.
Alright.
Don Roose, thank you so much for taking the time
to join us this week.
Roose: Thank you, Mike.
Pearson: Thanks to all of you for sending in your
questions via Twitter and Facebook.
Please continue to do so and we will get expert
analysis right to you each week.
Have a great week.