Pearson: This is the Friday, January 15, 2016
version of the Market Plus segment.
Joining us now is Don Roose.
Don, welcome back.
Roose: Thank you, Mike.
Pearson: Now at the end of the program we ended on a
pretty bearish tone.
You mentioned the variation we've seen in
the dollar index over the last 30 years.
Can you expand on that a little bit?
Where do you think this could go?
Let's talk about the dollar first.
Where could the dollar go here over the next several
years?
Roose: Well, I'll just be real quick on this, but
the dollar is sitting around 100.
But in the mid-80s when we had all the issues with
the crude oil under a lot of pressure, the farm
crisis, the dollar was at 160.
Then the dollar went down in the 90s, down to 80,
then we went back up in 2000 back up to 120.
Then we moved back down in the crisis of 2008 to 71.
And now we're back up to 100.
I guess my point is people say the dollar can't go up
but it's a wild swinging currency and it's one that
can still go up because we're very much the best
of the worst out here, Mike, and everybody wants
dollars right at the present time.
So we'll see.
But that is an anchor for exports and it's a
deflationary environment.
Pearson: Now, it's a deflationary environment.
That's something we've been talking about, we've
seen it globally in commodities over the past
18 months, particularly in the last six months, and
we have a Federal Reserve increasingly concerned
about inflation and we've seen them increase rates,
probably going to do it again.
What impact would a continually tightening
monetary policy have on commodities, on U.S.
ag?
Roose: No doubt that we are in a deflationary
environment, look at almost all the
commodities, look at the CRB Index across the
board.
Really what happens as interest rates keep
rising, and we were into a very unusual situation
because we probably need to normalize interest
rates, which means we need to go back to something of
a normal, not an artificial situation.
But as interest rates go up the dollar gets
stronger and that's the real issue if you don't'
think the dollar can go up because interest rates
really do need to go up because it's just too
artificial, the people on fixed income, Mike, it's
really just a depression type of an era.
So that's what you need to do is normalize things.
Pearson: Now I want to move to some of our
questions here from our followers on Twitter and
Facebook.
I want to start out with one that you alluded to on
the program.
This is from Paul in Columbus, Wisconsin and he
is curious, as you mentioned, funds have been
record short commodities.
So Paul wonders, if we get corn down to that $2.90
level, beans at that sub-$8, will that be
enough to have them step in and buy these lows?
Roose: Usually the way the funds they enter and exit
is you need to go up to get some kind of a
technical signal to push up.
So I don't see them liquidating as we continue
to push lower, no.
I think it would be one that you would go to
$2.90, you'd push up to $3 or something, get a
technical signal to push back up, that's really the
way the market works from a fund in, fund out
standpoint.
We've tracked them for years and that's really
the way it is.
Pearson: Okay.
So if we sell strongly down to $2.90 that's
really an incentive for the funds to continue to
put short positions on.
Roose: That's right, they just continue to press it
and you'll need some kind of a technical up move in
order to push them out and usually that is predicated
on some kind of a fundamental change.
The most likely situation would be if we move from
an El Nino to a La Nina quickly, we went into a
dry drought pattern quickly, that's the most
obvious right at the present time.
But right now it doesn't look like a big bet.
Pearson: Right.
And there was just a report from NOAA looking
at the possibility of a La Nina.
What did they say?
Roose: Exactly.
We just had an update from NOAA and they're really
the people that set all the standards and what
they really said is they do not see us going into a
La Nina, which would be the fear pattern.
They look for the El Nino to kind of base out and
weaken but they don't see it moving the other
direction so that means favorable weather
conditions.
Pearson: Right, rather than heading into a
drought and possibly getting some kind of a
price premium into these markets, we'll head to a
historical average type of year potentially.
Roose: That's what they're saying.
But that can change pretty darn fast.
And the year that you have to be afraid of, we had
the exact same thing in 1983, we thought
everything was perfect, come back after the Fourth
of July, El Nino went to a La Nina, we went to a
drought.
Pearson: Alright.
Well now I want to continue on this thought
of what do these low prices, particularly low
crude prices, mean for the ag commodities?
We've got a question here from Chad in Dunbar,
Nebraska.
He's wondering, since crude is falling like a
rock and the price of crude is tied or at least
correlated to the ethanol corn price, is $3 corn
cheap enough long-term or do we need to go lower on
the corn prices before we can get a fundamental
bounce back to the upside?
Roose: That's a good question but where we're
really at, we're in a deflating environment.
So if all the input costs can come down we can
normalize a price, maybe $3 with a big yield is a
break even at some point in time, if all the input
costs come down.
So I think it's premature to talk about that.
When you're coming down in a deflationary environment
nothing looks right until you stabilize But if you
bring back some of these other things, fertilizer
should come down a lot, the fuels coming down a
lot, if the seed and some of these other things
could come down then your break evens change a bit
if the yield is there.
But $3 right now, it looks like a possibility.
Pearson: We're seeing some inputs drop, as you
mentioned fertilizers and fuels a little bit, but
cash rent, seed and chemical are still hanging
right in there so we'll have to see what happens.
Roose: Yeah.
Usually takes a while for that, Mike.
People just don't give up on prices just in one
year.
They usually need to take pain themselves.
Pearson: Now I want to turn the topic over to the
cattle market.
We've had interesting developments, well for the
past two years in cattle, but really over the past
two weeks we've had a couple of interesting
things happen.
And Rodney in Edgar, Wisconsin is looking at
one of those.
We had that large blizzard come through the
southwest, New Mexico, the Texas Panhandle and he's
curious, what if any impact will the death
losses have on the fat and feeder cattle market from
that blizzard in the southwest?
Roose: Well, Mike, for any individual group that is
in that situation it's terrible.
But really in my experience over the years
is that really it doesn't really change the
fundamentals at all.
So I would say it's probably going to have
minimal if any effect on the marketplace.
Pearson: Now, our next question is from Lyle in
Lester, Iowa and Lyle, I'm sorry, Kyle is in Lester,
Iowa.
My apologies, Kyle.
I'm having a hard time today.
So Kyle is alluding to a report that came out on
Wednesday I believe that the cattle organization
R-CALF is pressuring the Senate to look into this
big price drop we saw in live cattle.
And he's wondering, what will happen to the cattle
markets if or when they open up an investigation
into that price drop?
Roose: Well, the CME already has a big price
discovery on stuff and there's a lot of
mechanisms in place.
So I tell you, my opinion is I don't think it will
see a big change.
I think it will be a lot of news type of talk.
But I think from a trader standpoint I don't think
that is going to be a market mover.
Pearson: Some finger pointing and some arguing
about what had happened, not a whole lot of change
in the ongoing price.
Roose: Exactly.
I think what we're going to go back to is really
what are the real fundamentals.
Are you moving beef?
Aren't you moving beef?
What is the break even for the packer?
I think you'll just go back to the fundamentals.
And the demand actually is probably the key for the
cattle market.
Can you really keep the demand, what is the demand
at what price of the box beef?
Pearson: Okay.
Well, Don, before we let you go, crude closed
Friday $29.42.
Do you buy crude or do you sell crude at that price?
Roose: Well, I tell you, from a trader standpoint
you never pick a bottom because you don't know
where the bottom is until you get there.
So I'd be careful, wait for a signal to turn up.
But we are oversold enough that you're probably due
for a dead cat bounce.
Pearson: Okay.
Well, Don Roose, thanks so much for joining us this
week, really appreciate your thoughts.
Roose: Thank you, Mike.
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