Market Plus: John Roach

Dec 13, 2019  | 9 min  | Ep4517 | Podcast


Howell: This it the Friday, December 13, 2019 of the Market Plus segment. Joining us once again is John Roach, John, welcome back.

Roach: Thanks, Delaney, nice to be here.

Howell: John, we've got a couple of great questions I want to make sure we touch on here tonight. The first one I want to talk about some bigger picture things as we're hearing the end of the year and the first one comes to us from Craig in Kansas wanting to know what looks better to sell or has less upside between corn, soybeans and wheat?

Roach: That's a really good question. A this point I would say the least upside probably is in wheat, but we may actually get that to move higher sooner, but I think that is maybe where the least upside is.

Howell: And the most upside, John?

Roach: I think the most upside is in soybeans but it's going to take the Chinese coming in buying in the kind of quantities President Trump is saying that they're going to purchase.

Howell: Okay, John, so with that being said we've got another great question here from Tim in Crookston, Minnesota. When will the markets start buying acres?

Roach: Farmers are already making decisions about this next year's crop and they're deciding today what, they're getting their fields ready and a lot of farmers they are still waiting because they can't get in the field to do anything. And so at the moment I would say that we're going to increase corn acres as long as weather will allow us to do that and pull the bean acres down some.

Howell: And beans, when we were sitting here about a year ago, beans was a completely different story. We were looking at a 1 billion bushel carryout. The story has definitely changed when you look at where we are today, John. I know you wanted to talk a little bit more about that.

Roach: The situation we had a year ago was really a very negative situation and it started with very large crops in South America and very large crops in North America. I'm talking about the harvest of '19, sorry the harvest of '18, I've got to get my years right here, the harvest of '18, very large in both areas, actually the entire world, very large harvest. We ended up with being stuck with the beans because we couldn't trade them because of China and their tariffs and so we ended up carrying a billion bushels into the new crop year and on my graphs where we graph each year in supplies as a percentage of usage it was a big red bar, the farthest bar on the right, and it stood out above the rest of the graph so you could see just how big our surpluses were. What was really interesting in the report that came out this week is when we looked at that red bar compared to now our blue bar for 2020 it is much, much smaller. When you look at the 20 years’ worth of history you can see this is large inventory but it's not huge burdensome and we must have decent crops next year or we're going to pull that down again. So this is a much different picture fundamentally than we had a year ago at this time for soybeans. In addition we had the Chinese trade tariffs, in addition to that we had the Chinese losing half of their hog herd, so we really had some negative factors coming at us. And when you look at them now the supply is not so big, the Chinese are coming back and their hog herd is coming back. The last report shows they're increasing their breeding stock a little bit. So we see the situation much better than it was a year ago. We're not bullish or anything like that but we think that there's reason to not be as negative as we have seen people here over these past few weeks.

Howell: And do you think that will buy back some soybean acres, John?

Roach: No, I think that the farmers have pushed enough acres into soybeans for rotation purposes to the degree they can they're going to switch back over to a more normal rotation which would be more corn acres and fewer bean acres.

Howell: John, I have been reading some reports this week too when you look at Chinese production that they have also been increasing in soybean production. Does that have you concerned at all for the global soybean market?

Roach: No, I think it's a relatively small increase compared to that big total. So it's not surprising that they're doing that because they're having to import so many beans but I don't think it's going to be a drastic difference as far as your demand is concerned.

Howell: Okay. John, I know you love price questions. We've got a question here from Bear Trap in Illinois. When are the highs in corn and beans going to be?

Roach: Well, there's a really good question.

Howell: That's the million dollar question, right?

Roach: It's when the crop is most threatened. And so if you look in South America there is growing crop. In fact, as they're moving right into the middle part of their summer and it is being threatened a little, they have missed some rains and so they're not overly moist but they're not overly dry either. They need to continue to get timely rains. And so assuming they get timely rains then we don't peak on their summer growing, we'll peak on our summer growing season and in recent years that peak has been in May or June. And so I would be looking for a similar kind of peak again this year. That is a real normal situation to have peaks on soybeans and corn both actually during that May, June, July timeframe when we're most worried about the crop.

Howell: Are we going to see any sort of a rally though or maybe a high put in? This year was such an abnormal year, we still haven't really seen USDA adjust to where harvest and yield and all of that really sits. Could we see a high or maybe not a season high but a contract high put in here January or February instead?

Roach: Sure, certainly possible. But we have to rally up on something, something has got to give us the move. Now, if it's a big move in the speculative funds buying the market and taking it higher or if it's the Chinese demand that comes right to the market here soon then we could get that happening right now. But at the moment I would go back to my normal routine, we make highs in May and June, and so if you wanted to do something that would get you a good average price sell part of your crop every day of the months during May and June and I think your average will turn out to be a pretty good average.

Howell: All right. You took the question right out of my mouth, John, selling every day in May and June. We've got one more question here from Dave in South Dakota. What should farmers be focusing on right now, locking in a profitable basis or staying bullish on all these deals with China and USMCA and other trade?

Roach: Watch your basis very carefully. We have basis in some areas that is just really very strong. And so in those areas where you have very strong basis you have to be awful cautious about not taking it. I don't see basis weakening in those areas because the basis is strong because they have a problem. But we've seen strong enough basis levels we have advised people to make some sales in those areas because of the strong price.

Howell: And John, when you say seeing the basis being strong and not taking it, what do you mean by that?

Roach: Well, there's two components to the price that a farmer receives. One is the futures market which represents world values and world situation and the second is the local bid which represents what is the situation in this county and if the situation in that county is the crop is still in the field, people can't harvest, we lost the crop, we never planted the crop, you can think of all the things that happened this year, then you're in an area that the local price has to be bid up relative to the world because there is not enough supply and the demand still remains strong or remains constant. And so when you get those opportunities that part of your cash bid that is your localized component is something you have to pay close attention to and this year is one of those years because we have localized areas where we had disasters and we have other localized areas where they have very big yields. And so the working that basis in between those areas there's some profits to be made there. But you also have to watch the world component of it and by that we're now talking about crops in South America, crops in North America and what happens with the trade with China.

Howell: There certainly is a lot to watch here at the end of this year.

Roach: There certainly is a lot but it's much more positive than it was a year ago, much more positive.

Howell: Definitely, gives us something to look forward to this holiday. John, thank you so much.

Roach: Thank you very much, Delaney.

Howell: Join us next week when we’ll explore how a group of farmers are growing their operations by sharing their talents and Jeff French is back at the Market to Market table. Until then, thanks for watching, lis1tening or reading. I’m Delaney Howell. Have a great week!

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