Market Plus: Don Roose

Dec 14, 2018  | 13 min  | Ep4417 | Podcast


Yeager: This is the Friday, December 14, 2018 version of the Market Plus segment. Joining us now, Don Roose. Don, welcome to YouTube, the podcast, one of our three podcast offerings. You're a big podcast guy aren't you?

Roose: I can be.

Yeager: You've been a guest on many of them here and you're on this week. Everybody wants to talk about China, soybeans, we'll get to that in a minute. Cotton, the cotton market has performed, I don't know if you'll count 2018 as a good year but it has not been a real solid end of the year for that. Where is this market headed?

Roose: Cotton is very much like a lot of these commodities, Paul, is cotton pushed up and over that 95 area and then it just drifted lower and just hovered here at the $80 and China is just such a big player and I think that is the dominant issue and they really control the market and I think we might have some positiveness under the market if we have some negotiations that go forward. But I would say it's a market that is still very much rangebound.

Yeager: Okay, so you talk about negotiations and cotton is not one of those things. Outside of the farm belt who really is talking about China's trade negotiations including agriculture in the sentence? It's mostly, for so many people it's about technology but agriculture is so vital to this audience and to everyone else. How do you make the case if you're the American farmer, we're losing right now because of this trade battle? Or hey, keep it going because we could win more. We've got people saying both sides of this.

Roose: Yeah, and I'll tell you the reason the soybeans won is just key, China takes over 60% of our exports that's the first thing and we do have a positive balance of trade with China on soybeans where we don't in a lot of other areas. So they're our key but I think we have to be really careful that we don't lose some of our market share to South America like this last year. So I think it's key to get off of dead center on these negotiations and move forward.

Yeager: There was a chart that producer Peter Tubbs had this week that he showed me that he found via Twitter and it basically showed where we've been sending bushels to China has been down here compared to what China has been getting from South America and it has just been going, we'll say it, off the charts. And so we have been losing some of that market share and there is a question here. Doug in South Dakota, he was asking via Twitter, Don, it doesn't look good for American growers as China will be switching to South America for soybean supplies leaving the U.S. with huge stocks and low prices. So the question is, do you agree with Doug's statement there?

Roose: Well, number one, we're a dollar off the low on soybeans in the futures market and probably a dollar and a half off the low on the cash. And there still are some opportunities. July soybeans this last week pushed close to $9.60 a bushel so that's not a bad price. It's not a great price. But then you look out to next year and January '20 beans went all the way up to that $9.75 and like we were talking in the show you put a carry on that you're up around $10.30. So, one, there's some opportunities if you take advantage of them right now. As far as South America they raise about 1 and three-quarters times the soybeans we do in the U.S. so they just continue to expand production is the real issue.

Yeager: So you answered Boyce in Montpelier, North Dakota's question. Are $10 November '19 beans possible? Yeah, you said that. So Phil though brings up the question, our friend Phil in Dresden, Ontario, Canada, he wants to know via Twitter, with 2019 acreage, acreage is the big story here, he says, if it's set to jump, what price levels can we expect? And how do we sell into that? And a third question, what is the timeline, seasonality aspect that we're looking at here?

Roose: And he's talking about soybean acres jumping? Soybean acres probably are going to go down next year. So I think when you look at it -- I think when you look at the acres first of all, the corn acres are destined to go up three to four million, possibly, and the soybean acres go down somewhere like 4 to 5 million acres. But I think what you have for price opportunities already are right here to take advantage of them and you can lock in some kind of a profit at the present time. So I think that's what you probably should realistically do. And I'm not so sure that we don't have a lot of the bull news already in on new crop if you really look at it.

Yeager: For corn?

Roose: For soybeans.

Yeager: For soybeans, the bull is there. Is the bull in the corn market too if we take that same question and apply it? You think the acreage is going up, everybody kind of things the acreage is going up in corn, so let's talk about that. What price levels can we expect in corn if their acreage goes up?

Roose: Well, let's look at where the corn is. The corn is, December corn is $4.05 and if you put a carry on the market there of 26 cents, let's just say that's where we were last year, you're at the $4.30 of 2020 so same crop year. The last number of years we've had a tough time moving over $4.50. $4.40, $4.50, three years ago we were more like $4.15. So when you're in to this range of $4.30, which you have right now, it's at least a place to say I better lock in some kind of a profitability. Hopefully these are your worst sales, Paul. Now, I will give you this, that we haven't had real weather problems, we haven't had big yield reductions for a number of years. So that is always the wild card, that is a few months that you could have some real issues but we're not there yet, it's too far away, but that is always the bull card though.

Yeager: Well, Darin Newsom has sat in that chair and said last year at this time and even recently has said, just think if we didn't have the weather problems in South America last year, we would have probably sped up this price problem that we have if we wouldn't have had the demand for our product like we did last year.

Roose: Well, look at it last year, we had a dry drought in South America, we had a dry drought in Europe, we had Australia problems, so we had a lot of weather problems last year and it's an El Nino year this year which means that South America should have fairly decent growing conditions, maybe a little wet in Southern Argentina, but I would expect a big crop out of South America in an El Nino year.

Yeager: Every sign is pointing to that right now. So I will, let's go back then to Bill in Amenia, North Dakota, @CrystalCoBill up there in sugar beet territory. How many more soy million metric tons in sales can we expect from China? We've got 1.1 of 41 million bushels right now. Where do we go? How much higher? Or are we done?

Roose: Well, I think on the outside it has been rumored in the trade that we could get up to 8 to 10 million metric tons so we'll see. Remember, a metric ton, 10 million metric ton would be 360 million bushels. I think that's a pretty big number. So I would expect more realistically we probably inked this last week probably 2, 2.5 million metric tons and maybe you do another 2 to 5 million metric tons by the state owned traders, government traders for the reserve and I think that's what we're doing right now and then South America comes at us with their competition.

Yeager: So I was just going to ask, what is that window then? Are we only looking at this news of China buying here for the next month or two and we get into March it's over?

Roose: Well, even more than that, they're going to start harvesting soybeans in Brazil the end of December so you're going to start, they look at the situation as to take advantage of the price in the export market so they started planting much earlier than normal to hit an early market and it has actually worked for them. So competition is here. I think when you look at it, Paul, you still have to say these markets are a range bound type of market. You get down under $9 on March beans you get some pretty good buying. You get up around the $9.40 area you get some pretty big selling. So it's just that back and forth type of market. As we don't buy rallies and don't sell breaks I think is the key to this market and there's opportunities on both sides.

Yeager: We are above or near the moving average for most commodities, the 20 day moving average right now. Is that an indication that things are improving or have we just really had a junkie 20 days?

Roose: No, I think when you look at it there is a demand underneath the market. The markets have a bid under them. The funds appear to want to buy the grain market. We're going to have some rebalancing at the end of the year so that's another thing that is probably going to affect the market a bit. But no, I think the market, I would not be a bear, we've got a lot of weather ahead of us, we've got a lot of South America weather ahead of us here also but look for opportunities and take advantage of the spikes as opportunities. And we're back at some pretty good resistance areas, not that far away from some really hard resistance areas.

Yeager: I kind of cut you off when we were talking hogs at the end of the main broadcast. Off $3 on the week. Is that demand driven on why we're dropping or what's going on there?

Roose: The real issue with the hog market is the government. They have an idea what they think the hog market is and it's nowhere close to what the futures market says. For example, in the summer months they're more like 56 to 61 in the futures market out there in June, July and August are more like 83 to 85. So it depends if you want to look at the supply side it's quite negative, or if you want to look at the potential bull side on the export fronts being real positive. And even when the government is talking those numbers they're still having 8% bigger export pace than this last year. But they also have hogs up 8% over 2017 on production next year.

Yeager: All right. I want to hit you up on oil. We're hanging around $50. Didn't drop below it this week. Do we go there next week?

Roose: The thing you have with the oil, it's an interesting commodity because if it drops too low you just go to work and shut it off, you don't have to pull it out of the ground, you don't have to store it. So I think that is going to be the key.

Yeager: Domestically you think we shut it off or does OPEC shut it off?

Roose: I think everybody does. If it gets below the cost of production they just slow it down. So I think when you're talking $45 to $50 that's the bottom end of the market. And then on the other side of it I think when you're up around $60 that's the top end. So unfortunately like a lot of these markets $45 to $60, it sounds like a broken record, but rangebound market.

Yeager: Is that the same story with the ethanol market because production finally is headed not as much as it has been, we've been producing a lot of ethanol. Are we going to produce more again? Or are we going to pull back in that market?

Roose: Well, the ethanol margins, as you know, have been mainly negative. So there's a number of plants that are talking about we're either going to have to slow down, shutter or something. Maybe, again, back to China, maybe China picks up some ethanol purchases. I think that's on the radar. So hopefully our export market picks up for ethanol because we can't consume it all domestically, we know that, so that's the real issue.

Yeager: All right, last question is on China. What's the thing, two maybe three things we need to be watching from an ag standpoint of things that are going to help us or hurt us moving forward here in the next month?

Roose: Well, I think the big thing that we have to watch on China, if the negotiations on some of these technology trade are moving forward because that's a real stumbling block and I think if we don't move forward we probably move backward on trade and we move backward on demand also. But from what is happening in the marketplace, watch the Pacific Northwest because that is, watch the basis and the bids out there on soybeans because that is probably going to be your sign that there's some action going on.

Yeager: All right, pay attention to Seattle and not just the Seahawks in their playoff run.

Roose: That's good advice, Paul.

Yeager: Don Roose, thank you so very much for your time. Always appreciate it. Good to see you.

Roose: Thank you, Paul.

Yeager: And have a good holiday as well.

Roose: Same to you.

Yeager: All right, that will do it for Market Plus. And again, this is one of those three podcasts that you can download. And next week when we come back when we have three podcasts again we'll explore why one farmer spent a year in prison and Mark Gold will sit in the chair. Delaney Howell will be back here at the Market to Market table. So until then thanks for watching, reading or listening. I'm Paul Yeager. Have a great week.

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