Market Plus: John Roach

Jul 22, 2016  | 7 min  | Ep4148 | Podcast

Podcast

Market Analyst John Roach discusses the commodity markets with host Mike Pearson in a special web-only feature of Market to Market.

Pearson:  This is the Friday, July 22, 2016 version of the Market Plus segment. Joining me now is John Roach.  John welcome back.

Roach:  Thanks Mike.

Pearson:  Now we talked on the program about this corn crop that could be phenomenal and I am in East Central Iowa and I get a little backyarditis looking out there and everything looks really good.  We have got a question here from a viewer of ours and he is up in Roland, Iowa in Central Iowa and he says this year was his second hottest and his driest June in 28 years and he says crops undoubtedly took a hit.  In 2011 he had a no drought July and crops looked great but then they averaged 146 bushel an acre.  His question is when will the market realize that this crop is potentially shorter than advertised?  Is anybody in the trade talking about that idea?

Roach:  The people talking about that idea have lost the most money because they argued the damage had been done and so forth and so far the trade has not believed it.  Whether it has actually happened, whether we have actually losses or not, we don't know.  But the first time and to answer his question the first time we will know is in the August USDA Report.  That is when the USDA in field samples actually start to become a part of the yield estimate and we start to get real world data that people will pay close attention to.

Pearson:  Now the good to excellent portion of this crop, I believe from Monday still stands at 76 percent.  How many years in history have we had that much of the crop in good to excellent condition this late in the summer?  Can you remember?  Are there a lot of years?

Roach:  It is not going to be a lot.  We haven't gone back and looked at the history to see how this compares to 20 year’s worth of history but looking back at last five, this is the best in the last five.  So, the thing that people have to remember is that if 75 percent good to -- 76 percent good to excellent is an extremely high rating for this time of year.  That means that 24 percent is either fair or poor or very poor and so what we are really saying is that every year you are going to have 25 or 30 or bigger percentage that fall into those lower categories and what is happening is that those lower categories get moved around from one place to another.  Now that doesn't have a lot to do with that specific question of how much might we have hurt the crop with the high temperatures of June but my suggestion would be that we didn't hurt the crop very much but we will see.  We will just have to wait and see. 

Pearson:  All right.  With that in mind.  With the idea that we still have a big corn crop out there.  We still have a decent amount of old crop corn left to be sold.  We have got a question here from our Twitter follow Drew Rievert who asks how low can this corn market go?

Roach:  I think we are down toward the bottom side of it right now.  We have been in a buy signal on corn for a few days.  We are recommending to our livestock producers that now is time to accumulate some inventory for livestock feed.  These are cheap prices.  We looked at the spot price on Chicago Board of Trade and the average for the first six months of 2016 is the lowest in nine years, and so now we are now at one of the lower level of where we have been in all of 2016.  The point I am trying to make is when you are at nine year price lows don't look for prices to go a lot lower if the world is not coming to an end.  

Pearson:  Now buying corn for feed are you also in a buy signal for soybean meal or do we have more room to the downside?

Roach:  We are and we are also on a buy signal on wheat.  So, if you are in the feed buying business whether you are buying wheat or you are buying corn or you are buying soybean meal, we think you need to be active. And we don't think you need to buy a year's worth here at this point or anything but we think we buy a third of what we want for kind of long term purchases and then we will use a buy signal down the road  The next one we will buy another piece of it.  We think these harvest lows in here will represent real value and we don't think they are going to be a lot lower than what they are right now.

Pearson:  All right.  Next question here from Trinity Ranch.  We have had the markets, the equity markets set record highs for the last two weeks and yet the cattle market has really not responded as one would expect.  We haven't seen a bottom come into this thing and Trinity Ranch wonders can cattle rebound by the end of the year.  

Roach:  Well, they certainly can but a placement numbers will really kind of dictate that. We saw today's report that the placement numbers were in line with what the people were expecting and bigger numbers out forward, and when I look at the projections based on the placements through the year so far we have got bigger supplies coming in the fourth quarter than we had last year.  So, we think that is going to require something to help the demand side that we aren't seeing it right now.

Pearson:  All right.  Regardless of the heat fire up those grills.  We need to chew through this beef supply.  

Roach:  We need demand.  We need demand.

Pearson:  Now before we let you go we haven't had a chance to discuss crude oil in a couple weeks on this program.  It has been bouncing around here in this range.  Where do you see crude moving going forward?

Roach:  Sideways.  We are in a trading range, if you will, and struggling to get prices up and maintain $50 a barrel.  We think that the supply is going to continue to be - we are going to be well supplied.  Remember the new technology that we have to drill wells and horizontal bore and frack the - open the pores up, I mean that just brings more production and the speed at which they are drilling wells these days and the cost structure of a well today compared to where it was- I mean these are all working in favor of having plentiful oil for the foreseeable future.

Pearson:  All right.  Well John Roach thank you so much for taking the time to join us this week.

Roach:  Thank you very much Mike.  Great to be here.
Pearson:  And before we go, we’d like to remind you the web-only sale of Market to Market gear is still in progress. If you are already on our web page, go to the story about “Everything Must Go.”  Inside you’ll find a link to iptv.org/warehousesale.  Once you click through, you’ll find a list of one-of-a-kind mugs, die-cast tractors, and Carhart jackets, many adorned with the vintage Market to Market logo. 
Or, if you’re interested in new gear, you can follow the links to show your support for the program that brings you news and market analysis you trust. Your contribution for any of these items helps keep this program going. Remember, once they’re gone, they’re gone. 
Thanks for watching and have a great week.
          

Pearson:  This is the Friday, July 22, 2016 version of the Market Plus segment. Joining me now is John Roach.  John welcome back.
 
Roach:  Thanks Mike.
 
Pearson:  Now we talked on the program about this corn crop that could be phenomenal and I am in East Central Iowa and I get a little backyarditis looking out there and everything looks really good.  We have got a question here from a viewer of ours and he is up in Roland, Iowa in Central Iowa and he says this year was his second hottest and his driest June in 28 years and he says crops undoubtedly took a hit.  In 2011 he had a no drought July and crops looked great but then they averaged 146 bushel an acre.  His question is when will the market realize that this crop is potentially shorter than advertised?  Is anybody in the trade talking about that idea?
 
Roach:  The people talking about that idea have lost the most money because they argued the damage had been done and so forth and so far the trade has not believed it.  Whether it has actually happened, whether we have actually losses or not, we don't know.  But the first time and to answer his question the first time we will know is in the August USDA Report.  That is when the USDA in field samples actually start to become a part of the yield estimate and we start to get real world data that people will pay close attention to.
 
Pearson:  Now the good to excellent portion of this crop, I believe from Monday still stands at 76 percent.  How many years in history have we had that much of the crop in good to excellent condition this late in the summer?  Can you remember?  Are there a lot of years?
 
Roach:  It is not going to be a lot.  We haven't gone back and looked at the history to see how this compares to 20 year’s worth of history but looking back at last five, this is the best in the last five.  So, the thing that people have to remember is that if 75 percent good to -- 76 percent good to excellent is an extremely high rating for this time of year.  That means that 24 percent is either fair or poor or very poor and so what we are really saying is that every year you are going to have 25 or 30 or bigger percentage that fall into those lower categories and what is happening is that those lower categories get moved around from one place to another.  Now that doesn't have a lot to do with that specific question of how much might we have hurt the crop with the high temperatures of June but my suggestion would be that we didn't hurt the crop very much but we will see.  We will just have to wait and see. 
 
Pearson:  All right.  With that in mind.  With the idea that we still have a big corn crop out there.  We still have a decent amount of old crop corn left to be sold.  We have got a question here from our Twitter follow Drew Rievert who asks how low can this corn market go?
 
Roach:  I think we are down toward the bottom side of it right now.  We have been in a buy signal on corn for a few days.  We are recommending to our livestock producers that now is time to accumulate some inventory for livestock feed.  These are cheap prices.  We looked at the spot price on Chicago Board of Trade and the average for the first six months of 2016 is the lowest in nine years, and so now we are now at one of the lower level of where we have been in all of 2016.  The point I am trying to make is when you are at nine year price lows don't look for prices to go a lot lower if the world is not coming to an end.  
 
Pearson:  Now buying corn for feed are you also in a buy signal for soybean meal or do we have more room to the downside?
 
Roach:  We are and we are also on a buy signal on wheat.  So, if you are in the feed buying business whether you are buying wheat or you are buying corn or you are buying soybean meal, we think you need to be active. And we don't think you need to buy a year's worth here at this point or anything but we think we buy a third of what we want for kind of long term purchases and then we will use a buy signal down the road  The next one we will buy another piece of it.  We think these harvest lows in here will represent real value and we don't think they are going to be a lot lower than what they are right now.
 
Pearson:  All right.  Next question here from Trinity Ranch.  We have had the markets, the equity markets set record highs for the last two weeks and yet the cattle market has really not responded as one would expect.  We haven't seen a bottom come into this thing and Trinity Ranch wonders can cattle rebound by the end of the year.  
 
Roach:  Well, they certainly can but a placement numbers will really kind of dictate that. We saw today's report that the placement numbers were in line with what the people were expecting and bigger numbers out forward, and when I look at the projections based on the placements through the year so far we have got bigger supplies coming in the fourth quarter than we had last year.  So, we think that is going to require something to help the demand side that we aren't seeing it right now.
 
Pearson:  All right.  Regardless of the heat fire up those grills.  We need to chew through this beef supply.  
 
Roach:  We need demand.  We need demand.
 
Pearson:  Now before we let you go we haven't had a chance to discuss crude oil in a couple weeks on this program.  It has been bouncing around here in this range.  Where do you see crude moving going forward?
 
Roach:  Sideways.  We are in a trading range, if you will, and struggling to get prices up and maintain $50 a barrel.  We think that the supply is going to continue to be - we are going to be well supplied.  Remember the new technology that we have to drill wells and horizontal bore and frack the - open the pores up, I mean that just brings more production and the speed at which they are drilling wells these days and the cost structure of a well today compared to where it was- I mean these are all working in favor of having plentiful oil for the foreseeable future.
 
Pearson:  All right.  Well John Roach thank you so much for taking the time to join us this week.
 
Roach:  Thank you very much Mike.  Great to be here.
 
Pearson:  And before we go, we’d like to remind you the web-only sale of Market to Market gear is still in progress. If you are already on our web page, go to the story about “Everything Must Go.”  Inside you’ll find a link to iptv.org/warehousesale.  Once you click through, you’ll find a list of one-of-a-kind mugs, die-cast tractors, and Carhart jackets, many adorned with the vintage Market to Market logo. 
Or, if you’re interested in new gear, you can follow the links to show your support for the program that brings you news and market analysis you trust. Your contribution for any of these items helps keep this program going. Remember, once they’re gone, they’re gone. 
Thanks for watching and have a great week.
     
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