Pearson: This is the Friday, July 31, 2015
version of the Market Plus segment.
Joining us now is Don Roose.
Don, welcome back.
Roose: Thank you, Mike.
Pearson: Now, on the program you had mentioned
making some sales out in 2016, 2017 on the corn
side as far out as you can make them and we had a
question here from a Facebook viewer named
Andrew Bowman.
And, Andrew is curious, while the beans are in the
driver's seat, is it possible that 2016 corn is
priced about as low as it can go?
Is $3.50 the downside on Dec 2016?
Roose: Well, I think that is a good question but I
think we just came off of some opportunities from a
risk management standpoint so now you're back to what
we were talking before the rally.
And I think really what you're looking at is what
do you think is going to happen with the weather
down the road?
So it's the same thing back to it.
Without weather problems you're fighting with South
America, Europe.
We're in a demand bear market probably on the
corn market where we're going to have to try and
figure out how to export more corn because our
ethanol industry is mature.
So I would say the downside for 2016, if
we're right on the overall direction, could
eventually be $3 to $3.20 again.
Upside we're probably going to get some rallies
between now and then.
But upside rallies are catch-up selling
opportunities and certainly we saw that
$4.40 to $4.50 again was a tough area and $4.20 is
going to be a tough area to start with and we're
going to hover right around $4 for probably a
while.
Pearson: Now looking at Andrew's question in a
different light, from an end user's perspective for
feed needs or anything like that, would you be
looking to buy out Dec '16 corn at $3.50 in the
chance of a weather event?
Roose: Well, I think you always have to use the
proper risk management and I think when you think
you're in a demand bear market, maybe a supply
bear market, you say well I don't want to lock in
anything tight.
So you can go out there and use some call
strategies, probably buying some calls, selling
some calls window and even sell some puts below it
where you'll take the future ownership if it
gets down around $3.20 or something like that.
So I would probably be more prone to do something
like that than I would straight out tight
coverage, particularly in the cash.
Pearson: Okay.
Well now we didn't get a chance to discuss the
cotton market this week on the program.
Down again, cotton has just had a rough coming up
on six weeks here.
Does it look like we're finding a support zone
here shortly?
Roose: I think the cotton market is very much like
the soybean market, that the soybeans are probably
getting into a zone where you find some intermediate
support and that's probably the same thing
with the cotton market.
But long-term the cotton market is very dependent
on what China does.
They're the big elephant in the room.
They're backing away from a lot of commodities right
now.
So you have to say that probably that bull story
has probably already sailed.
So I would say that there's more downside
potential, maybe a little bit of support right here
and then look for some further downside after we
stabilize.
Pearson: Okay.
Alright.
Well now we do have another question here from
a Twitter follower, Phil up in Ontario, Canada.
And Phil is curious, we've touched on this a couple
of times, you have mentioned the great
selling opportunities we saw at the beginning of
July.
And he is curious, the recent run-up and then
fall in futures prices, was that due to either
misguided exuberance or was that real crop issues
that we were trading our best knowledge of?
Roose: It was probably looking too much at the
Eastern Corn Belt and their problems versus the
overall picture where the Western Corn Belt is just
terrific.
I mean, we've got a lot of areas that we're talking
about record crops maybe in Iowa, Minnesota,
Nebraska, the Dakotas, just some huge areas some
big crops.
So I would say it's probably some of that.
And it's a good reason why you look at some good risk
management strategies when you're rallying up,
particularly when you're coming off of some numbers
that were supply bearish.
And maybe we have another chance.
I mean, right now the crop ratings are telling us
we're 163 to 166.
I'm not sure of the acres total with some of these
drowned out areas.
But certainly we're going to need something either
from that August crop report or for some weather
problems to push back up again.
But the good news is we're deeply oversold, we're at
major support and we usually get a relief rally
going into the August report.
Pearson: So take advantage of it.
Roose: I would say if you want catch-up sales that
would be your opportunity.
Remember there's that gap up at $4.02.
That may be a possibility, may be fishing behind the
net a little bit, we'll see.
Pearson: Now as we look out a little bit
longer-term you've mentioned some of the
headwinds we've seen with China stepping away from
some commodities and we've seen crude really be the
beneficiary on the end user side, or if you're
long crude it's been kind of a rough couple of
weeks.
But as we watch this crude market stagnate below $50
and we watch corn here bounce around in the mid
$3.80's, what is your prognosis for the ethanol
industry as we get through harvest and into 2016?
Roose: Well, the ethanol industry really boils down
to how aggressive and how well you manage the crush.
That's the big issue over there.
So certainly the lower corn is definitely a big
plus out there.
But you were talking about the overall Chinese demand
and the slowness, but we're at a six and a half
year low on the CRB Index, so that tells you
generally that's the commodity basket, so
that's what you're up against.
We're in a deflationary type of environment in the
commodities right now.
Pearson: And those aren't typically short-lived are
they?
Roose: No, you're going to need something to revive
it again and I think that what's it going to be,
probably some kind of inflation fears or
something that the government is definitely
fighting.
So it's just that we really caused a lot of
expansion at the low interest rates and some of
these other issues.
So sometimes low interest rates cause other problems
too.
Pearson: Alright.
Now as we're talking the dollar, we're talking
international growth, I want to touch on something
you mentioned on the program, which was exports
on the meat side, protein exports.
So let's talk first about pork.
Even with the high dollar, we're continuing to see
pork exports increase.
Is that correct?
Roose: Yeah, our exports on the pork are starting
to really pep up here, which is the good news.
But then, again, remember that we still consume
domestically about 75% of our pork.
So it has been the strong exports but it has also
been really terrific domestic demand and I
think part of that can be explained by just the high
priced beef.
People are really cost conscious when they go to
the counter right now.
And so while the hog market has been going up
during the summer, the beef market has been going
down and maybe we're getting that back in a
little bit of line from the consumer demand
standpoint.
Pearson: And on the beef side we've seen exports
really, really tumble for beef exports, while
imports have increased.
Roose: Yeah, the exports on cattle care basically
down 10%, 9.4% for the year.
And the imports are up almost 10%.
So that is what has happened.
The dollar, it's this dollar is really an issue
for the exports and bringing in some imports,
not only of beef but also of the grains.
Pearson: Now do you see the dollar continuing to
be strong here throughout the remainder of the
summer?
Are you watching for that September rate increase by
the Fed?
Roose: Yeah, you know, we're still bullish on the
dollar.
We think it probably goes over par.
It's just you have all the mechanisms in place to
keep moving up.
Interest rates are going to start to move up here
in the U.S.
Everybody else is still taking their interest
rates lower.
So we're strong and best of the worst I guess is
what you would say.
So yeah, we're still bullish on the dollar
right now.
Pearson: So, continued headwinds for our export
products.
Roose: That's what we think and that's why we're
thinking a lot of these grains are in a demand
bear market regardless of where you think the supply
is.
Pearson: Alright.
Well, Don, thanks for taking the time to join us
this week and for sharing some of your wisdom.
Roose: Thank you, Mike.
Pearson: Thanks to all of you for sending in your
questions via Facebook and Twitter.
Please continue to do so and we will get expert
analysis right to you.
Thanks for watching and have a great week.