Podcast

Pearson: This is the Friday November 11, 2016 version of the Market Plus segment.  Joining us now is Mark Gold.  Mark, welcome back.
 
Gold:  Thanks.  Nice to be back Mike.  
 
Pearson:  It is good.  Good to have you here. Glad to have you here.  We have got a lot of questions.  Post-election people are wondering where do we fi in agriculture into this new paradigm in Washington.  So, I want to start off with some of those.  Corey Halverson from Kennebec, South Dakota is asking do you have an speculation on how the new president will affect the farm economy and trade?
 
Gold: I believe that t new president realizes which side of his bread is buttered on and that is rural America.  We learned a very important lesson that you can have celebrity people out there and you can buy all kinds of support from all kinds of places but that one vote in that vote booth can't be bought. I don't think any American out in the farmland took a buck to vote for anybody out there and that is the power of the American vote and that is the power of the American democracy.  As far as it affecting trade, I believe Trump is smart enough to realize that the American farmer got him here.  He is going to have a tough time balancing the manufacturing issues as part of trade versus the agricultural, but I believe that he is not going to want to get into a hunger discussion or debate or have that bog him down.  I believe he understands the value of exports to our farm economy.  I believe he understands the farm economy and how important it is to all of Americans and if he is going to be the president of all Americans that's a great place to start is American agriculture.  So, I used to kid that if he got elected president we would have to build a huge auger to get the corn over the wall of Mexico, but I don't think we are going to see that kind of a problem and I think when it is all said and done and you look at what he is going to be capable of doing in terms of Department of Transportation, EPA and getting a lot of these monkeys off the American farmer's back, it is going to be a powerful thing for the American farmer.  Let them get back to what they know what to do and how to do it and be stewards of the land and they don't need the government sitting there watching him do it.  I think it is going to ultimately be favorable for the American farmer.
 
Pearson:  That was a great answer and it leads right into this next question which is Roger Cooper from Twitter is asking do you have any idea where ag fits in Trump's plans for the next four years and I think you touched on it.  It is - the trade issue is still we have to wait and see, but the regulatory side maybe when the farmer went into the booth that was what was on their mind.  
 
Gold:  Well, when I go around the country and Lord knows I go from one corner to the other, one of the number one things I hear from the American farmer is they are killing me out here.  I can't move my truck without somebody flagging me or doing something.  I can't use water in the way I need to use the water to grow these crops and to do the things that they need to do.  We want the government off our back and some of this is too oppressive, it is too costly and it is killing us out here.  So, I think we are going to see a big relief there.  I think the American farmer is going to benefit from it and I think consumers will ultimately benefit from it as well.
  
Pearson:  That's right.  The idea being you rollback some regulations, you potentially lower the cost of production.  Add some - maybe add - lower the break evens for some of these producers out there with three dollar corn.
 
Gold:  And cash -- where they are it would be nice to get a little relief somewhere and you know when you look at farming in the future, if we can eliminate some of these estate taxes and death taxes and be able to transfer the farms from generation to generation without giving half of it to the government, this is a positive thing for America and something that needs to be addressed and I think we have got a chance to do something with that with the new president elect.
 
Pearson:  All right.  Taking a look back to the numbers, Mr. Gold, Nathan Nieuwendorp has a question.  He is on Twitter on niewendort_n.  He wants to know if and when should producers look at reowning beans.  You mentioned maybe a little bit later.  Give it a couple six week. Then when we are reowning would you look at a call or would you look at outright futures if weakness continues in the bean market? 
 
Gold:  In any market, I don't want to be trading futures but in a market as volatile as this one is I think you would be shooting yourself in the foot to go trade futures.  Why take the risk?  Spend 20 cents on a corn call, spend 30 cents on a bean call.  Go out and buy a July call and be done with it and if we have a good spring/summer rally we will know where this weather is by the end of June, spend your money there.  Spend it one time.  Do not get caught up in all these ups and downs and hang in with a position that you are comfortable with knowing what that risk is.  So, again I wouldn't be buying those necessarily today but sometime between let's say December 1st and January 1st, I think you need to look at a program to reown whatever it is you are selling out there.  Now if guys have got crops in the bin, they are not sure - the basis is terrible in so many spots, there is some carry in this market of 23/25 cents depending where you are at.  Go ahead and do some deferred contracts.  Sell a July contract at the elevator.  Use a hedge to arrive so you have a chance of getting that basis improvement in the spring or early summer and then once you make that sale, then look at buying back those call options.
 
Pearson:  Final question from Flinton Stehr in Zumbroata, Minnesota via Facebook.  He is asking will we, the U.S., be able to chew through this massive corn crop at current prices or does it need to get cheaper to make it disappear?
 
Gold:  I think that is a great question.  To lose that crop and to see it - the piles of grain that are out there disappear, does it have to be cheap prices?  It doesn't necessarily have to be cheaper prices but we have to see a pickup in demand somewhere.  Ethanol has been strong despite what has been going on in the crude oil.  We have had great demand there.  The export demand has been exceptional.  It seems like it is a million, a million two just about every week.  
 
We have got a couple of lower figures but we are exporting a lot of corn.  Is that going to continue now that the election is over and maybe some of those jitters are out?  I still think we are going to continue.  The world needs to eat, we have got the grain, we are willing to sell it.  The dollar hurts us a little bit.  A little bit lower prices would certainly offset that.  Keep in mind the best and biggest bull markets have started with the biggest carry outs and vice versa but we have big carry outs now.  Could we see La Nina?  Could we see a drought? Could we see a lot of different things? Record demand continue?  There are a lot of things.  So, do I want to be bearish corn at 340 a bushel?  No thank you I will let somebody else. Am I going to keep a cheap put?  Spend 10 or 15 cents to buy something out there to get me through the next four months?  Yes.  I will do that.
 
Pearson:  If South America looks good there is some downside potential.  
  
Gold:  No question about it.  I am a risk manager.  I am not here to try and tell you corn is going to 240 or corn is going to 640.  I am here to manage that risk and the way to manage it, like I have always said, is with an option and in this case you have the put option on until you sell the grain.  Once you sell it reown it with a call option.
 
Pearson:  Now we did not get an option to discuss the cotton market during the program.  Down nine cents on the week.  A little bit of stability finally in this cotton market.  Is that going to continue?
  
Gold:  Probably not.  I look at the cotton charts and still realize there is a lot of risk out here.  If we start taking out 55 cents on the cotton for whatever reason you can go a long way down.  So again - what is going to happen with the acres in cotton?  That is going to be an interesting question this year.  I am not sure I have an answer to that quite yet, but if we see more acres coming in certainly we can move this thing lower.  The cotton and the beans are going to fight for some acres there.  In my opinion the beans will win at these levels.  We are certainly going to loose one of the things that makes me friendly about 2017 corn is the fact that I believe we are going to loose four to six million acres of corn out there.  Are we going to loose some cotton acres as well?  We may.  So, again I want to protect the downside and hope for the best on the upside.
 
Pearson:  Ok.  Now you mentioned cotton is probably going to loose to beans on some acres.  Are you in the camp that sees a four or five million bean acre increase as we look to next year?
  
Gold:  I am.  When it comes down to it is it going to be four or five million or is it going to be three or four?  It is probably going to be three or four.  Farmers are just so hesitant to change some of these rotations.  They love planting corn but money is money and whether bankers have an input to those decisions considering where the farm credit is today and the concerns that are out there, there maybe more input from the bankers than just from the farm side.
 
Pearson:  And looking at 70 bushel yields this year, lower input costs, I mean breakevens look pretty good for a lot of producers.
 
Gold:  Yes, it is certainly got a leg up on the corn at the moment.  Now again is corn going to have to rally to buy some of those acres potentially?  One thing we didn't talk about in the show is that we have got the funds.  Those short a hundred and some thousand contracts of corn.  We are short a hundred thousand weight and if we can get them to trip over themselves to come out of those short positions for whatever reason that can be a dollar rally on the corn just from them covering their short positions.  So, there are a lot of things that can still move this market and move it considerably.
  
Pearson:  Ok.  Before we let you go, Mark Gold, we have talked this show there has been conversation this week about the large carry outs in corn and soybeans and we have been talking about it for six months in the wheat market.  For our ask the analyst question could you define for us what is a carryout.
  
Gold:  The carryout is the amount of grain that we anticipate that will be leftover as of September 1st that we didn't use and people will say well if you have got a two billion carryout in corn why isn't corn a dollar a bushel?  Because you still have to maintain supplies and the lower you are going to go the more you are going to eat up that carryout and it is never going to go to zero.  We are all even in the soybean market.  You will always have some carryout there. So, it is - a year ago right now we were about a billion three carryout in the corn.  Now we are looking at 2.3 or more.  That is a lot of grain out there.  We know it is a lot of grain but the market already knows these.  We know that the grain is there, today's prices, today's price and it is everything we know about that market.  Does that mean we can't move lower?  No, it doesn't.  Does it mean we can't move higher?  Of course not.  And I think one of the takeaways from this election for the American farmer is nobody predicted it, nobody saw it coming.  The reactions when the Dow was down 700 or 800 points they all said oh, my God the world is collapsing and within 24 to 48 hours we are making historic highs on the Dow.  Quit listening to all the nonsense that is out there.  Manage the risk you have in front of yourself because let's face it if any of us analysts knew where these markets were going to we wouldn't be telling you.  We would be long retired.  So, quite listening to so much of the garbage that is out there. Just manage the risk.
 
Pearson:  Every hand is a winner and every hand is a looser.  Mark Gold thank you so much for taking the time to join us this week.  
 
Gold:  Thanks again 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.
 

Market analyst Mark Gold discusses the commodity markets with host Mike Pearson in a special web-only feature

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