Market Plus: Mark Gold (December 21, 2018)

Dec 21, 2018  | 12 min  | Ep4418 | Podcast


Howell: This is the Friday, December 21, 2018 version of the Market Plus segment. Joining us now is Mark Gold. Mark, welcome back.

Gold: Thanks, Delaney. Nice to be here again.

Howell: Okay, Mark, I've got to ask. We're going to start here with a fun question before we get to the commodity markets. What is your favorite Christmas movie?

Gold: Oh, that's tough. I would have to say Miracle on 34th Street. I'm an old guy and it's an old movie and you've got to love it. It has just always been my favorite, closely followed by A Christmas Story.

Howell: That's my favorite is A Christmas Story. Merry Christmas ya filthy animals. Yeah, favorite line from that movie that's appropriate to air on TV. Let's talk here starting off with the oil markets. We hit an 18 month low. Are we going to hold here or continue lower?

Gold: I think we can go a little bit lower in here. We'll see how the stock market acts. Tough days on Friday. There's some port down around $41 a barrel which are the old lows so another $4 or so roughly, $3 or $4 lower. And then there will be some support at $39. I'm guessing we're going to hold those levels. But OPEC to me seems like it's a done deal, that dog is dead as far as I'm concerned. You see different countries pulling out of it, you've got the United States producing an awful lot of oil and exporting a lot of oil. So can this thing crack higher? It's certainly possible. Can we get down to those lows we had several years ago in the low 30s? It's possible. But we're still going to use a lot of oil and there will be tensions around the world and it will trade as volatile as it usually does when anything pops around the world.

Howell: Explain to me what you mean, OPEC is a dead dog, to use your terminology?

Gold: Yeah, I just don't think OPEC is going to exist as a group much longer. You've got so much in fighting in OPEC, you've got so many people who they set the quotas and ignore the quotas that it really isn't a functional real threat to the rest of the world as it was for many, many years. So are they going to redo it, do something different? Probably. But I don't think they're going to have the control that they've had in the past.

Howell: So if that does, if we just get rid of OPEC all together does that just make a free market, a free for all in the oil market?

Gold: It could be. I don't think that will happen though. I think the Middle Eastern countries and Venezuela and other places are smart enough not to let that happen. But is it going to have the strength and the ability to keep a tight grip? I don't think so. Over time I think their strength is going to wane more and more every year.

Howell: Let's talk about another impactful thing here in the soybean markets. We've got Phil in Dresden, Ontario @Agridome on Twitter. He said, is there an argument to be made for $11 soybeans in the future within the next 3 months or is that simply ridiculous?

Gold: Well, if we get a major problem in Brazil, no. We've got new crop beans at $9.50, we go to $11, a buck and a half, the bean market can really a buck and a half quicker than you can say Jack jump over the candle stick. So I don't think it's out of the question. But do we have a problem in South America? They were getting some rains in South America where they needed it in Parana, we don't know how much the rain is going to be. It looks like it's drying out in Argentina a little bit. But again, the rain is coming back. But they would need a significant problem there and solid Chinese buying. We need to get to 6 or 7 million metric tons. Then I think you can talk about $11 beans.

Howell: I'm going to skip ahead here a couple of questions down the list because that leads right into a question here we've got about Chinese soybean demand. Matthew in Ankeny, Iowa @wildeiasoybeans would like to know, how many bushels of soybeans will China have to buy to move the market 50 cents higher or more?

Gold: We'd need to see another 3 or 4 million metric tons. I think that would get us 50 cents higher than where we're at now, particularly on old crop, funds are short probably 35,000 contracts tonight so if they come in and buy, try the long side, we could certainly have a 50 cent rally without any trouble. Are they going to buy that much? I think 5 million is pretty much in the books that I think we can count on between now and the next couple of weeks. Are they going to buy that extra 2 or 3 million metric tons that will really move that needle on the carryouts? We'll have to see.

Howell: So it will move the needle on the carryouts, but when you look at the impact it needs to have to move prices, what are we talking here? 6 to 8? 10 to 12 million? What do we need to see China do?

Gold: Well, I think if we can get 6 to 8 that will certainly move the price. And the more we start looking at the carryouts going from 950 to 800 to 650 or to 600 and you're going to lose 4 or 5 million acres next year, now you've got a situation that if we had bad weather here you could have a soybean market, one of the things I'm suggesting to clients, no matter what else they do this year, if they are selling out grain at cheap prices and want to forward contract '19 at what I believe are relatively cheap prices you need to own a call option out in May or July next year to keep the upside open in this market because I do believe there's some potential out there.

Howell: Let's talk about acreage here for just a second because a lot of people have been estimating what are we going to see corn and soybeans and wheat wise. We've got a question here from GA in Iowa @BasisEater on Twitter. Over or under 92 million corn acres?

Gold: I think we'll be over. Guys like to plant corn. They like to plant it, grow it and harvest it and when they've got an excuse to plant more corn they'll plant more corn. And I think a 4 million acre shift is certainly in the cards out here and I think they'll lose it out of soybeans. We'll see what happens with cotton and some of the other competitors' wheat as time goes on. But I think we're going to see a nice pick up in corn acres. That will keep a lid on the December '19 corn unless we have a weather problem here. And again, if you're selling $4 new crop corn would I want to reown it with a call option? There's a lot of time in the next year and historically what we've seen in markets is some of the biggest, best bull markets we've ever had have started with the biggest carryouts. So do I want to get real aggressive and sell this year and forward contract next year without replacing it with a call option? No thank you. I'll leave that to somebody else.

Howell: Is there a timeline when we're going to start seeing, let's say we do get over 92 million acres in corn, is there a time of year when we're going to see that reflected in the deferred month contracts, that factor?

Gold: No, I don't think so. I think the market is pretty well anticipating a big shift. We've got December '19 corn 20, 25 cents over the nearbys. And I don't see that eroding unless there is some major surprise out there. I think the '19 crop will stay strong relative to the '18. We've got so much grain still around, the piles are still out there. So I don't see that happening. Yes, if old crop goes down new crop is going with it. But I think new crop will hold up relatively well even with a 4 million acre increase.

Howell: Okay. Let's talk here for a second about processors' wallets. We've got a question from Lee in Mankato, Minnesota. He said, while the producers' wallets have been lightened up with low prices for five years, what about the wallets of grain processors like AGP, Cargill, CHS & ADM? How have their bottom lines been affected and why?

Gold: I think Lee wants to get me in trouble here.

Howell: You can tread lightly.

Gold: Certainly this has been an opportunity for commercials. What commercials want to do is originate grain and they want to make their margins on that grain. And certainly there has been plenty of grain to make those margins on so I believe they're doing okay. Their storage fees have been astronomically high. Is it because they're taking advantage? No. They're in a situation where there's only so much room. Now, is there something that can be done for the American farmer? I believe they can. I don't have any problem with commercials. They're an incredibly important part in the whole process of farming in agriculture. I really have problems with some of the marketing things that they do and offer. But I think the commercials are doing just fine. I don't think we'll see any tag days soon for any of the grain companies.

Howell: All right, Mark, last question here from social media. I know you are an options man. We've been talking a lot about puts and calls. We've got a question here from Greg on Twitter. He said, shouldn't farmers be selling calls instead of buying them? And how much collateral do professional market advisors put up?

Gold: Well, if you want to go broke in a hurry you go sell these calls. We just had a situation two months ago with guys that had sold natural gas calls and natural gas went through the roof, blew out an entire firm because gee, we're going to sell a call for a nickel and we've got an 85% chance of capturing it, but when it goes bad it goes bad so quick and so bad that you can go bust. And we've seen too many times where guys sell calls, some people out there recommend selling two calls to pay for one put. I always say if you sell one call to pay for a put shoot yourself in the foot, if you sell two calls to pay for a put just go ahead and shoot yourself in the head because in my opinion it's death. You're taking, you're looking for a minimal gain and exposing yourself to unlimited risk out there. That is not a game as a risk manager I ever want to play with my clients. What is your exit plan when it goes bad overnight? If the Chinese come in, if the Russians come in, if something happens overnight there's a drought, a frost, and this thing beans are up $2 a bushel and corn is up 50 cents, what's your game plan now? Hope and pray? Well, good luck. Usually what we see are guys will buy futures to try to protect it then the market falls out of bed and they catch it both ways. It's an absolute recipe for disaster, it isn't worth the money. Yes, 85% of the time an option will expire worthless at expiration but that doesn't tell you what percent of options can explode on you before they expire and that's the risk I don't want any one of my clients taking.

Howell: Well, you sound like you're definitely passionate about that.

Gold: I am.

Howell: Okay, final question. We're going to end on a fun one. What is your favorite Christmas dessert or Christmas goodie?

Gold: Well, that's a tough one. For me anything chocolate. You can just inject it right, just give me the IV right in the arm and I'll take the chocolate.

Howell: I'm not much of a fruit cake person myself.

Gold: I'm not huge on fruit cake but we get Christmas cookies, I love cookies, anything chocolate. So I wouldn't say I have a favorite but if it's chocolate I'm there.

Howell: Absolutely. Mark Gold, thank you so much and have a very Merry Christmas.

Gold: You too, Delaney. Thank you.

Howell: Join us again next week when we’ll explore how one farmer is using the richest soil on earth to combat food insecurity and Tomm Pfitzenmaier will join 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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