Market Plus: Don Roose

Jul 5, 2019  | 9 min  | Ep4446 | Podcast


Howell: This is the Friday, July 5, 2019 version of the Market Plus segment. Joining us once again is Don Roose. Don, welcome back.

Roose: Thank you, Delaney.

Howell: Don, do you think you can get your leg up here and show us your holiday socks?

Roose: I can if you want me to.

Howell: I'm just teasing, Don. But we had the 4th of July this week, we saw grills going. I think the weather was pretty nice across the area. But as you were mentioning here just before we closed the normal portion of the show, you think hogs are going to $50. Would you care to elaborate on that a little bit here?

Roose: Yeah, always you have to say in the markets you have to be careful because if the right things happen you can go to $50, even $45. And by that I mean if the supply side of the market continues the way it is, which it is. The supplies are larger than we had thought, the weights are larger than we had thought and the demand has not really picked up domestically much at all. Exports are higher, up like 30% over a year ago. But I think we just have too much pork around and we either, like we say in the business you either sell it or smell it. The price is what does it. The expansion has been huge and so I think that is the risk for the producers when you get all hinges on China, all on Asia as far as their big demand coming at us because African swine fever. But that has been with us for a long time and when everybody was up around $100, $110 talking about how high we can go, now we took the fall hogs under $70. So $10 to $15 rallies on technical moves. I would catch up on some risk management. Keep your fingers crossed that we do have some big demand coming. But first protect in case the market can go down because a lot of supplies coming at us, we've never seen record supplies like this, Delaney.

Howell: Well, and you hit it right on the head, it was because of this African swine fever we saw so many folks expanding their hog herds. We've got a great question here from Mark in Persia, Iowa. He said, has the ship already sailed as far as African swine fever and pork shipments to China? Or are there more fireworks to come?

Roose: Well, I think there's probably more fireworks to come but which way is it? Do they buy less pork than you think? Or do they pick up? Remember, this week over the 4th of July, maybe it was strategic, but China did say that they are not going to buy any U.S., they're not going to negotiate on any trade unless we lift the tariffs that we have in place on China. And of course our administration says we're not going to lift the tariffs. So you've got a head lock. It looks like we're trying to move ever so close to how close can we get to the next elections before they make a move and so that's a long time and the Chinese are very good about waiting you out and they're very good traders. So I would be careful and I would do proper risk management.

Howell: Not to get too political, Don, but it sounds like you're maybe saying we might be in this trade war, this trade tiff here until the 2020 presidential election?

Roose: I tell you, if things don't change, we've been at it for over a year and remember originally we said it was going to be short-term, then we push it down it's going to be the next month, then it's going to be the beginning of July, now it's going to be the end of the year they hope negotiations. Well, they're having telephone conversations now. Well we're getting further away rather than closer. But anything can happen anytime. But it's not getting any better it doesn't look like to us.

Howell: And it looks like the cotton markets are also rangebound here as well since about end of May, mid-May when we saw that last round of negotiations fail between the U.S. and China. Is that what is keeping us in this trading range in the December cotton contract?

Roose: Oh, most definitely because if you look at the government, first of all, they have a projection of 64 cents on cotton. So we're not that far away from that, we just hover at it. But China really is the cotton market. What they do dictates and because they import a tremendous amount and then they export the product out, well they're getting hit on both sides. They don't need to buy a big amount of the product because they're not able to export with the tariffs. So that is an issue and I think that's an anchor for the cotton market.

Howell: Don, I don't know how much you pay attention to the rice market, but we saw the first U.S. shipment of rice head over to China this week from a California group out there. What does that signify to you? Is there something going on in China that we should be worried about? Was this an olive branch of sorts?

Roose: Well, I think it was an olive branch because remember, just before the G20 meetings they also bought a big amount of soybeans and I've often thought what they're going to do is probably switch their diet away from some of these protein sources to some of these other food grains and I think that is probably part of the program. They can just go to work and limit the amount of input per person. So I, remember you're dealing with a Communist country so they can set and change the tone pretty fast.

Howell: That they can. Don, let's talk a little bit more about the domestic issues impacting producers, all that trade stuff set aside. We've got a lot of issue going on here. In discussions I've had with producers a lot of them are nervous because they don't want to contract too far ahead because they really don't know how much of the crop they may or may not have this year. What is the advice you're giving producers for this situation?

Roose: Well, when you look at it, you've got prices that are the best that we've had for 5 years, number one, so you want to take advantage of them. But with the lower yield potential that you have out here you're not sure really how much headway you're making because you're getting a higher price, a lower yield, so are you just spinning your wheels? At the same time you don't want to let the price get away. So the bottom line I think you can go into the March contract, you can buy some $4.50 March puts and say listen, I don't think we're going to go below $3.90 so you have a window of 60 cents to the downside. And then you can put a target of $5.60, almost $1.10 to the upside and sell a call above it. So a window contract that gives you $4.50 down, $5.60 on the upside and you don't have a tight sale on and it gives you the flexibility and it gives you something that you can at least lock in some profits for most people.

Howell: Don, do you anticipate that we're just going to continue trading in a range until we actually see what is in the fields and what producers are getting out of the fields during harvest?

Roose: I think we will. I think that's really it. I think you're going to be in that Dec corn $4 at the bottom side, I think you'd have to be pretty aggressive to get too negative under $4 because anything can happen with an early frost. So I think $4 to $4.20 actually on the downside. The upside I think with the issues that we have with the world production as large as they are and some of the trade disputes and not sure maybe these yields are bigger than we think, I think $4.50, $4.60 on the upside is probably tough. So a big trading range, same thing on soybeans, probably $8.40 to $9.40 and pick your battle on those. I guess the advice you say is do not chase rallies on the upside, do not sell breaks on the downside because it looks like a big, broad, choppy trading range market with everybody trying to figure out where to go and everybody jumping on a different horse.

Howell: Okay. So one final question, Don. With all of those things in mind should guys be trying to contract as much ahead? Or do you think we'll see a lot more guys just selling straight off the combine this year?

Roose: Well, I wouldn't want to tell everybody to put all their eggs in this basket. But typically you put your highs in right in the fall as you're combining, it looks like this might be it, that as you're harvesting you find out the yields just aren't there. Part of it is if you look at it it's a very late crop, that means test weights are probably going to be low, could get an early frost, denitrification, just a lot of issues with yield. I know we're worried about the acres but I'm not so sure it doesn't turn out to be the yield that you should be watching.

Howell: Okay. Don Roose, thank you so much.

Roose: Thank you, Delaney.

Howell: Join us again next week when we’ll explore how the next generation is learning the art of the hedge and Tomm Pfitzenmaier will join us at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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