Market Plus: Darin Newsom

Dec 18, 2015  | 00:10:18  | Ep4117 | Podcast


Pearson: This is the Friday, December 18, 2015 version of the Market Plus segment. Joining us now is Darin Newsom. Darin, welcome back.

Newsom: Thank you, Mike.

Pearson: We are excited to have you here. Before we get to our questions from Facebook and Twitter I want to talk about the cotton market. Any news?

Newsom: No. It's not going anywhere. Fundamentally it's getting a little bit more bearish. I know we're looking at increased acres, at least according to private analysts we're looking at a large increase in acres, so it fits into the same mode as corn, as soybeans, as so many other crops, so many other commodities. We've got a large supply, questionable demand right now and we're looking at increasing our production in 2016. So while the futures market is just trending along the bottom going sideways, futures spreads are trending down and that is usually a pretty dangerous combination that that pressure from the commercial side could start to pull down the futures market in a while.

Pearson: Would this be the time to go ahead and make some sales for a couple of years out given that we're watching China slow down as a demand indicator and increased acres?

Newsom: I would want to see -- I'd hate to sell it down here in a hole. I'd like to see a little bit of a bounce, some sort of winter-spring rally, let's say we get some sort of spring planting problems or whatever it might be. Then I think we might have an opportunity to make some better sales.

Pearson: Gotcha. Now next we want to turn to, broadly, the commodity market for the last several weeks on all of our price sheets there's a lot of red, a lot of negative numbers week after week seems to be the story. Jerod in Oklahoma, @jerodmcdaniel is wondering, has this commodity market downturn jumped the shark?

Newsom: This is a great question. From a fundamental point of view I'd say no, we've got more to go, we haven't really turned the corner yet. Technically though I think there is the possibility that we have done as much as we're going to do and we're going to change, the tone of these markets could start to change, at least over the course of the winter. So we've beaten this horse to death, we've talked about how bearish this is, everybody has. So I think there's an opportunity in here over the course of the winter to see some better markets, possibly start to change the overall tone of the argument or the discussion about commodities.

Pearson: Is this change in tone, do you think, watching the charts, technically speaking, going to be a change back to a bull market or just a blip in a bear market?

Newsom: Most likely because of the fact of the dollar is probably going to go up, investment money is going to stay away in droves, it's most likely going to be a blip in a bear market. What is going to have to happen is some sort of weather scare. We saw what happened in soybeans this week with a few warm, dry days in Madigroso. It's going to take something extended, particularly in the U.S. Midwest come this spring and summer, to really I think light a fire underneath these markets and really start to change the overall, to turn it into more of a bullish market rather than just a blip in a bear market.

Pearson: Okay. We need a production issue to happen whether it's a weather scare or, Nick in Tipton, Iowa, Nick Ehlers from Twitter is wondering, could it be a price situation where fringe acres look at other crops or put land back to pasture or CRP and we lose production that way?

Newsom: It's a possibility but it's really not one that many are talking about right now. Again, at the recent DTN Progressive Farmer Ag Summit had a breakfast roundtable and I threw the question out, is anyone planning on planting fewer acres? And the general consensus was no, they're going to stick with their normal rotations right now. I asked, are we going to go into some niche crops? Not really because it just doesn't work because of where you might have to go to deliver these crops, the availability of terminal sites and bids and these sorts of things. It's just not worth it. So I don't know that we're going to see this huge swing, this huge backing away in acreage. I know there was a private analyst that came out this week and lowered their target acres for 2016 from what they had said in November. If we start to see that as a pattern then that could start to change the marketplace a little bit. But by the time we get to the end of March and into spring I have a feeling we're still going to plant a lot of acres of everything.

Pearson: Still strong balance sheets on the farm, guys who have made the investment in corn equipment are going to keep planting corn?

Newsom: They almost have to. The economics of it, I'm not an economist, everyone knows that, but the economics of it you have to plant it to something so whatever works best for you is still what they're probably going to go to.

Pearson: All right. Well now we've got a question, as we talk about corn production, you talked about the fundamentals on the supply side, very bearish. On the demand side that is still up in the air, bearish thoughts are out there. But Matt in Northeast Michigan, @SchwabMatt from Twitter is wondering, with crude oil on the low, can ethanol still compete or will we cut production there as well?

Newsom: I don't know that we'll really cut production right now because the EPA finally came out with three years' worth of RFS numbers going back to 2014 and here at the end of '15, they finally got '15 squared away and we're looking ahead to '16. So I think we have the numbers on the book so at least through 2016 we pretty much know what our demand is going to be for corn from ethanol. Going forward it could be a little bit more difficult. But I think at least for this next year we have a pretty good idea of what it's going to be, it's not going to change all that much. What we have done though with the low price of crude oil is probably cap any of exceeding those expectations. So I don't see us doing more ethanol, more ethanol demand for corn but I don't know that we're going to cut it severely either over the next year.

Pearson: Now, I got pretty excited two, maybe three weeks ago when China stepped in, was a huge buyer, a lot of gallons of ethanol they bought. We still continue to hear air quality concerns in Beijing, they're on red alerts, ethanol would seem to help with a lot of that smog. Are they going to be a buyer? Was that just a blip, that big one-time purchase in your opinion?

Newsom: You know, you never know. Maybe this, again, is the beginning of a pattern but with China you never know. If it works for, if it works for China they'll continue to buy. And the minute it doesn't that program comes to an end. So it would be nice to see a few more of those come down the pike, a few more headlines of that. We haven't seen a lot of them here over the last couple of weeks. I don't think it was a one-time thing but it would be nice to see some flow up to that as well.

Pearson: Okay. Now, you talked about crude, we're under $35, in your mind where is this market headed?

Newsom: The December 2008 low was $32.40, in the $32's. We have huge supplies. EIA stocks report this week showed another increase in supplies.

Pearson: Much unanticipated increase.

Newsom: They say that but it was anticipated. We're not going to see a crude oil reduction at this time of year. We're not going to see stocks going down. We've got huge Contango carry in the market, it's just not going to happen. We have Saudi Arabia, we have OPEC in general saying we're going to continue to produce crude oil. We see what is happening in the West Texas intermediate, in the Brent crude markets, we've got a lot of supplies and that's not going change any time soon. Could we target that Dec 2008 low? Absolutely? We seem to go to a new low every week. There's really nothing magical about that number, probably approach 30 unless something changes.

Pearson: Okay, if we take out that low and that was a recession driven low, that was a fear driven low, that was a pretty big low in that market, if we take it out have you looked technically to see what the next support level would be?

Newsom: Then you just start looking at the old round numbers. If you take out that $32.40 most likely the next one is going to be pegged at $30, then $20 and at that point you're going to start talking about break evens for every other country except Saudi Arabia, who is losing the most at that point.

Pearson: It's a real bloodletting at that level.

Newsom: Yeah.

Pearson: Okay. But gas should be cheap at the pump.

Newsom: Gas should continue -- but it's interesting in that if you look at the gasoline charts that is the one that has stabilized. Heating oil is going down, natural gas is going down, crude oil and all these are going down. But RBOB gasoline, holding tough at these levels. Yeah, it will probably break if we continue to see a slide in crude oil, we can't almost help it.

Pearson: Now, this has been kind of a downer program for a lot of our producer viewers. Phil in Ontario has a question, our good friend Phil @Agridome on Twitter. He's making a reference to current pop culture events. He says, a long time ago in a galaxy far, far away, the demand market for corn expired. When does the force awaken?

Newsom: That's a great question. I kind of touched on the subject in my column this week on DTN but in a different frame of reference. To me the force is actually investment traders in the market. Will we ever rebuild this demand market? Probably not. But the bright spot is that we continue to see strong, global demand. We just have to earn our part in that. And to do that we really need to see the U.S. Dollar Index come down. It's going to be very difficult to increase our export presence on the global scene if the dollar continues to go higher or we're going to have to see some sort of production problem somewhere, South America most likely. So there is hope. There is hope for these markets that they could awaken, the demand could awaken again. But we have to see supplies, global supplies trimmed somewhere in order to do it.

Pearson: Okay. Well, Darin, thank you for taking the time to join us this week.

Newsom: Appreciate it, thank you, Mike.

Pearson: Thanks to all of you for sending in questions via Facebook or Twitter. Please continue to do so and we'll get expert analysis for your question. Thanks for watching and have a great week. 

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