Market Plus: Don Roose

Aug 17, 2018  | 10 min  | Ep4352 | Podcast


Howell: This is the Friday, August 17, 2018 version of the Market Plus segment. Joining us now is Don Roose. Don, welcome back.

Roose: Thank you very much.

Howell: Don, we didn't get to hit cotton during the main program so I wanted to make sure we touched on it here during Market Plus. With Thursday's close higher does that indicate to you that a short-term low is put in?

Roose: Well, the cotton markets, like some of these other markets, it has just had a terrific rally to the upside and I think that the cotton market is very dependent on some of the trade that we have with China, with the U.S., similar to some of these other commodity markets. So I think if the trade negotiations improve probably can see another push to the upside. If not I think it's a market that relaxes back again. I think it's probably realistically caught in a range of somewhere between the $75, $80 on the downside and probably $95 to $100 on the upside.

Howell: What about from a weather perspective? We're still factoring in some of the drought and loss of quality I'll call it in the Texas Panhandle region. Is that still playing in the markets today?

Roose: Well, I think that from a U.S. perspective is a thing that gives us a port on breaks. So I think most definitely and always like we say in a lot of these markets weather ultimately comes out to be a factor. It was there again this year.

Howell: Absolutely. Don, let's take some social media questions. We've got a couple of good ones this week I want to make sure we get to. We're going to start right off the top here with Minda Moor. She is wondering about the direction of corn yield from August to final in other years with this fast maturing crop.

Roose: Well, one, that's a good question. But typically the yields go up, once a crop gets bigger it continues to grow like it did. This last year from July to August it went up. Four out of the last five years that is what we have done. The real issue is the last time we had a crop mature this fast was 2012. Of course, 2012 was a drought year so I think that is the reason that the trade is very concerned that rather than at a yield that is going up that either stays the same or even contracts a little bit. And again, I think we're going to get a prelude next week when the Farm Journal Tour goes through.

Howell: Yes I think we will. Everybody will be watching. I'm going to switch it up here so I'm sure our producers in the back will have to follow along. But I think Adam's question here plays nicely into that. Will the early harvest start pressuring prices before August is up?

Roose: Well, it can go both ways. Typically that is what it does. But in bull years, which who knows it could be, if the yield is smaller than the trade thinks then the market goes up during harvest and it peaks in harvest when normally you're putting in a low. So what you're on the watch for is a contraseasonal market this year. Remember we're going to start harvest in the South first, those could be some of the poor yields but we'll see.

Howell: Don, with the weather issues or if we do see crop progress tours next week come back with a lower yield than what the USDA has put in, in the last report how much strength will that add to the market with all the trade and political tension that we've been seeing?

Roose: Well, one thing I think the government is the one that only really counts. So I think the trade will be respectful of what we're coming up with because it's real people going through real fields. But it's going to be the government that is ultimately going to be the real factor. But it's a market that I don't think the downside is huge, 10 to 20 cents in corn, and the upside is just an unknown yet. You have big carries in the market. You have a 24 cent carry from December to July so you get up to $3.90 on December corn, that's really $4.15 out into July and that is for next December, December '19 that probably puts you up to $4.25. So some of those areas get to be a little more respectable.

Howell: Don, we talked about a strategy for soybeans during the main program. Let's walk me through here a strategy you would be looking at right now for corn going into harvest season.

Roose: Well, one, I think going into harvest you have to be respectful that you can have a harvest break, particularly if the yields are big and you can't tuck the crop totally away. Remember we have over a $2 billion bushel carryout going forward. But I think from a producer standpoint if you have storage you have to take advantage of what you have in the marketplace and what we have is a carry in the market. And even today you can buy July '19, that's the same crop year you're harvesting, $4.10 puts, you can still give yourself a window up to $4.90 on July '19 corn, which is respectable. We haven't been over $4.50 something the last four of five years. And then if you don't want to pay that much you can put a window downside and say we're not going to get much under $3.70. So you can do a 40, 50 cent window down and give yourself about 90 cents to the upside. There's nothing wrong with that. That's good for a producer and it's good insurance policy.

Howell: Okay, let's take another social media question here about hogs because we didn't get to give hogs their fully glory during the main program. Andy would like to know, do some recap for us on what happened to the hog market in 1998 compared to the hog market now. He said, some of us young producers were in 3rd grade in '98.

Roose: Yeah, well we've had some wild swings in the market. The last time we had a disease problem was the PED virus here and I think that is what the trade is worried about now with China having 50% of the world population worried about they could have a problem there also. But some of those years we had years where you just ran out of capacity, you couldn't process the hogs, that was the biggest issue that we had in some of those down years. This year is really not that. We have basically enough capacity so I don't think that's the problem. It's going to be if we can sell the pork, if we can resolve some of these trade issues. But we have a mountain of pork out here. I think it's wonderful we just had an $11 rally in seven days but I think you also have to make sure you get some insurance, I mean you have summer hogs getting up to $78, to $79, we're going to have 4.4% more hogs than a year ago, so you certainly do some kind of a contract, window contract out there that makes some sense.

Howell: With the African swine flu going on and our large production that we're sitting on here in the U.S. how much of a production issue are they going to have to have in China for us to start to see some demand pick up chewing through this wall of pigs I'll call it?

Roose: Well, remember, first of all, we have a 62% tariff on China right now so it doesn't look like they're going to take anything soon. And that’s what I mean, it looks like China is boxed into a corner on some of these things. We're going into harvest on soybeans, they need soybeans, they have a tariff. It looks like they have a little bit of a disease issue, who knows how big it is where they have shut out pork from the U.S. basically so it is one, when you have 1.3 billion people to feed you have to be aware of your surroundings and I think the pressure seems to be on them right now. But let's wait and see. That African swine fever, I think the big issue was they found one, they thought they had it under control, they found another outbreak and it was miles away, I think it was 1,400 miles away from the other and those hogs travel to a slaughtering plant hundreds of miles and it can be transmitted by not only people, animals, but also vehicles. So it's dicey and it closed more limit up, traditional limit up on Friday, up $3.12 on October.

Howell: Definitely something to continue watching. Don, I want to take one more social media question here, switching tracks a little bit to talk about fuel. Jeffrey Cole would like to know, what is keeping fuel costs up. Generally isn't fuel cheaper with a stronger dollar?

Roose: Well, it is and we also had a stock build at the same time. But we've had some issues around the world. Iran we have some, they're an exporter, we have some talk issues with them, we have Venezuela we have some trade issues with them. So I think it's some of those world issues is really what is keeping the fuel up here.

Howell: Don, I wanted to end on this, your opinion basically because I kind of have been trying to get every analyst's opinion about the trade and tariff discussions as they have come on the show and you had an interesting opinion that I don't really think a lot of analysts have taken to this point. In talking to producers a lot of them think that this is going to be resolved by December or the end of this year. What is your take on all of it? You had some interesting thoughts to share off camera and I want to make sure we get them on the record too so to speak.

Roose: Yeah, I think when you look at it from a trade standpoint the Chinese are really boxed into a corner because this is a timeframe where they really need soybeans. They rely on us heavily for about a third of their total imports. So I think the pressure is on them. I think the timing has been terrific and I wouldn't be surprised if we get things worked out, negotiated out sooner than you think and also remember we have the midterm elections also and sometimes that plays an influence.

Howell: All right. Don Roose, always a pleasure.

Roose: Thank you very much.

Howell: Join us again next week when we look at how processors are bumping-up shackle space to handle more hogs. And John Roach will sit across from me 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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