Market Plus: Mark Gold

Dec 11, 2015  | 00:09:18  | Ep4116 | Podcast


Pearson: This is the Friday, December 11, 2015 version of the Market Plus segment. Joining us now is Mark Gold. Mark, welcome back.

Gold: Nice to be back, Mike.

Pearson: We are glad to have you back. We've got a lot to discuss. Obviously this DOW/DuPont merger caught a lot of attention in the middle of the week and now farmers are getting interested, could have a big impact. And Caleb in Central Iowa is curious, is this merger bad because there's a smaller number of competitors, we're losing competition, or is it potentially a good thing because there are stronger companies competing against one another? Where do you think we should come from ag's perspective?

Gold: Well, from the producer perspective I think in the short run it is probably a little bit positive. I think they're going to try to buy some market share out here. They can do that with some discounts and try to come in and really push that brand and do some things and make it a little bit more competitive and maybe lower some prices out here. And particularly at a time when the American farmer needs a little bit of relief from wherever they can get it. So that might be helpful in the long run, excuse me, in the short run. In the long run I get a little bit concerned about some of the size of these companies and the lack of competition that is out there. Yes, the companies are stronger but I like to see a lot of different people vying for the business out here. So I'm sure it's going to happen. When it does, long run are we really going to feel it? Probably not that much. But in the short run I think there might be some benefits.

Pearson: Okay. Might notice something in '16 or '17 as they're trying to grow their new ag company.

Gold: Exactly.

Pearson: Okay. We've talked a lot about fertilizer prices, you mentioned crude on the program. Crude has been below $40 for the past week. We're taking out lows or looking at lows we set during the depths of the great recession. Mark, what does that mean to you going forward for crude, commodities? What does that tell you?

Gold: Well, everybody is on the dump on crude bandwagon out here. And between now and the end of the year, which we're only two weeks away now, could we see lower prices? Sure, we could go test those lows at $32 and change. We could go down to $30, maybe $29 a barrel. I find it hard  to believe with all the uncertainty in the world that we're going to stay down there for long. Now we have a lot of political reasons why the President wants cheap crude oil, he wants to stick it to ISIS, he wants to stick it to Putin and the Saudis certainly want to take some of the profitability out of the Bakken region. So there are some political reasons why crude oil can stay down. But there are also a lot of reasons it can spike the crude oil in a heartbeat. So certainly if you've got energy expenses on the farm, which all farmers do, when you start getting 1,500, 2,000 acres it may be time to start looking at buying a call option on the crude oil, the heating oil, one of the petroleum products in case we do rally up.

Pearson: Gotcha. And heating oil would be historically the number two diesel, that's your closest.

Gold: Yeah. And you want to use that or crude oil it's kind of a 50/50 shot. But either one will get the job done if we do have a rally.

Pearson: Okay. Now are you in the camp that as crude falls we're going to see benefits to the American consumer? Could lead to more economic growth in the future? Or is crude a barometer for the broader economy?

Gold: Well I think it will bring some opportunities again for the American farmer, cheaper energy costs, again at a time when the farmer needs it. It's hard to say where we're going to go long-term, particularly on fertilizer. Can crude go to $20 a barrel and see higher fertilizer prices? You tell me what the price of corn is going to do. If we're at $6 or $8 corn we're not going to have cheap fertilizer, it's just cut and dried, I don't care what the price of crude oil is. However, at these levels right now I think we can see fertilizer come down as the crude comes down and as corn prices stay in this range.

Pearson: Okay. Inputs will have to, you imagine, rationalize a little bit more.

Gold: Yeah, I think so. When the farmer is looking at his balance sheets for 2016 I believe that there are a few things that will be a little bit cheaper for them and that will help with some of the margins that are out there. Now there aren't a lot of margins to be had right now but the fact of the matter if we can get some of these input costs down it will help the American producer.

Pearson: Okay. Now before we wrapped up on the program you were talking about bond yields and what we might see with relation between the dollar and bond yields and what that means for Janet Yellen. Could you come back to that a little bit? What do you think that means for us as an economy?

Gold: Well, you've got the dollar, the bonds and the crude. Most believe that the chairman of the Fed, Yellen, is going to raise the interest rates marginally. There's a lot of talk that they may push them up and then pull them back again and we've seen that in some other countries over the last year or so. And can that happen here? Sure it can. We tend not to do that. We tend to go on a long-term cycle and once we start that uptrend I think it's going to be difficult to pull it back. But what is that going to do to the dollar? The dollar acts toppy to me, from a technical standpoint just the way it's acting in here it hasn't taken bad news very well and it has broken, one day we broke the dollar two and a half percent on just one day when Yellen was talking. So that raises some red flags to me. What is interesting is that the crude oil keeps breaking and the bond market keeps rallying despite the fact the bond market keep rallying despite the fact that we're expecting an interest rate cut. So what is behind all that? It's hard to know but there is some political maneuvering that I'm either not smart enough to figure out or that somebody has got control of something that I don't get out here. But I still believe that if interest rates are going to go up that these bond prices have got to be coming down.

Pearson: Okay. Now, we've got a question from Chris in Wisconsin. This is a question a lot of producers are probably starting to wrestle with this time of year. When commodity prices are below your cost of production, what is the best strategy utilizing all of your marketing tools to protect against lower prices but still be able to capitalize if things improve?

Gold: Well that almost sounds like it was written for me.

Pearson: That sounds like a planted question.

Gold: The fact of the matter is, particularly at these prices a little bit under the cost of production, the put option is your best tool. Just because we're under the cost of production doesn't mean that there can't be a lot more pain out there. And we've seen it in too many markets over too many years to discount the fact that things could get even worse. I believe that between now and the summertime, every year since 1973 in the grain markets in the United States you have had an opportunity to sell grain at profitable levels, every year. And maybe that was a year where you had $2 corn and you went to $2.60 but that was enough. But the fact of the matter is we only need about a 40 or 50 cent rally in the corn, 60, 70 cent rally in the beans to get this thing profitable. We will get there, in my opinion, between now and the summertime. So if you buy the put now to protect against whatever could happen between now and the summertime that's still, you haven't locked in that loss, you have just protected a smaller loss. And you still have that upside open. So if we get that marketing opportunity by the summer now you can go sell cash grain and wind up having a decent year because, let's face it, we've seen a lot of scares in June and July that haven't turned out to hold water and then we go right back down again. So you've got to be looking for that opportunity this June or July to get some grain sold to do something out there.

Pearson: And those opportunities like we saw last year could be short-lived.

Gold: They can be very short-lived.

Pearson: Gotta be aggressive.

Gold: You've got to be aggressive and you've got to be on point and ready to take those moves when the opportunity occurs.

Pearson: All right, Mark, one final question before we let you go. This is from Jay in Paullina, Iowa. He's curious, how low can we go? In your mind what is the riskiest market in America today or market with the most risk in it?

Gold: Yeah. I think there will be two camps on that. There are some professionals I know who are very bearish the soybean market. They believe the Argentinians are sitting on too much beans. We haven't seen the devalue the peso yet, they do have the new president. Those terrorists look like they'll be coming off over time. But if the Argentinians hit this market, if we grow a big crop in South America and the American farmer gets big yields out there, which they can on these beans, there is a tremendous amount of risk out there. Personally I'm more concerned about this feeder cattle market, what I see happening in the feeders, that there's still an awful lot of risk that guys just don't believe it can go down as far as it could go. But if you look at some other charts that have had these spikes and come back down it makes you very leery and very cautious. So certainly looking at buying some puts on the feeder cattle still makes sense to me.

Pearson: All right. Well, Mark Gold, thanks for taking the time to be with us.

Gold: Thanks, Mike, always a pleasure.

Pearson: Thanks to all of you for sending in your questions via Facebook and Twitter. Please keep it up and we will continue to get expert analysis right to you. Thanks for watching and have a great week.

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