Market Plus: Don Roose

Oct 9, 2020  | 11 min  | Ep4608 | Podcast


Yeager: This is the Friday, October 9, 2020 version of the Market Plus segment. Joining us now is Don Roose. Don, I've got to say, good to see you, nice to have somebody in person. I still feel like I'm yelling because you're far away from me. We were talking between the taping of the program and this Market Plus, we usually have two to four minutes depending on how many random stories I want to tell, we have all sorts of good things, but a question will come up and we can discuss during Plus today is, why are the markets responding the way they’re responding right now? We are in the smack middle of October, probably going to see a whole lot of corn, that number is going to go way up on harvested acres on Monday, Tuesday's report. So why is the market rallying right now? It just doesn't seem what we traditionally think, Don, is normal is happening. Why?

Roose: Well, I think when you look at it, Paul, because it's not normal. And normally just let's stop and look at it, you usually plant the crop in the spring, you get a big crop, it goes down into harvest, you try and store it, you have big carries and you try to pull the grain away from the market. And this year what you have is just the opposite. You had the crop getting smaller and you had the market going up into harvest, right into the gut slot of harvest, so it's what we call a short crop year. Now, it's not necessarily short, but it's a shorter crop year and in these type of years you do everything just backwards. And stop and think about it if it makes sense. You're at multiyear highs on wheat, you're at multiyear highs on soybeans, you have carries that are inverted in the soybeans as wide as 34 cents, you have the end user scrambling because he needs the supply. He has to feed the cattle. He has to run the ethanol plan. And so consequently you put your tops in right at the gut slot of harvest, right at the time when you should be putting a bottom in. And I'll tell you, Paul, there is an outside chance that that is exactly what is going on, particularly the way the soybeans acted today with the carries widening out and it's always a work in progress with these markets. But why is it going on? That is the reason and what happens is the funds are record long in soybeans, they have never been this long, the end user is scrambling, China is frontloaded on beans, they could cancel, they could move them. So what happens when the merry-go-round stops, there's nobody left and then you drift lower all the way to spring.

Yeager: Well, you hope for a drift and not the elevator shaft down in a hurry that you've it all the buttons and you go down to the bottom. That's always a concern. But Don, go back and give me a little history lesson here, let's go back to the beans in the teens time, not that long ago. Didn't we kind of think some of the same things and that kept rallying because listening to what you just said makes it sound like this train is not going to last forever in beans. Can this party keep going for a little bit longer?

Roose: Well, Paul, it's always a work in progress. Sure it could, but at the same time it could also go the other way. And how could it is we'll say that Brazil stays in a dry drought, Argentina stays in a dry drought, their crop continues to shrink. That's probably why we're front end loaded right now. Chinese keep buying. Then in a La Nina year we go into a dry pattern next year and the beat goes on. The other thing can also happen that South American has a huge crop, remember we're about a 4.3 billion crop, they're close to 7 billion and so we'll say they have a huge crop, their production 325 million more than last year in Brazil alone, so they have a big crop. China quits buying. COVID turns out to be an issue. So there's all these reasons that could possibly happen in a year where you're putting the tops in or you're putting a high price in, in the fall.

Yeager: William, we answered your question in the main program. But Dan in Northwest Iowa, we did not, kind of did. But he asked us on Twitter, how much of this rally is due to the dryness in South America? Or is it because of a fear of the yields in the U.S.? Or something we haven't really talked about, is it completely technically driven?

Roose: Well, one, the technicals are true, funds pile in and they push things further than they should or they at least get in not as slow as you'd like. They're record long right now. But how much of it is, these markets I've never seen a drought yet where you say okay, boy that's a drought. You start, it's a work in progress, it's day-by-day, week-by-week you get into a dry condition and it's week-by-week that things change from a demand standpoint and we do have monthly reports and they do change, as we know we've just had huge changes since May. We had a 3.4 billion bushel carryout for this year that we're harvesting right now on corn, now we're worried about it could be under 2 billion. That's a monster change. And remember we had soybeans over a billion, now we're talking under 300 million and maybe getting smaller. So it's always a work in progress from the farmer's standpoint. It just doesn't leap to that number, you have to take a number of issues, a number of problems that happen and you get to those prices.

Yeager: And you have to just hope all the stars align for you there and that you've done all your homework. Tim in Crookston likes to do his homework. On Twitter @6dollarwheatguy asked us, wheat prices are on the rise. Will weather issues and spec buying continue to push wheat to, and he says, dare I say, $6 a bushel?

Roose: Well, it's a good question but we went over $6 on Chicago this week. There again the wheat market, there's no shortage of wheat today. In fact, the supply and demand report just said world stocks are still large. What we're worried about is next year, May, June, winter wheat planting in Russia, slow, don't get the acres, don't get the acres here in the U.S. or have a weather problem. So it's a futures market and that's what we were trading. But the wheat market stumbled on Friday.

Yeager: And also the largest Australian crop in 4 years. They have become a little bit of a, they contribute to that pile too, and they've had some off years. 8 month high. Just all these crazy things that are happening in the wheat market. So, this I could say is an easy question for next week, but Roger in the Milky Way is asking us via Twitter, when are we going to start talking about the great Chinese grain robbery? Sue Martin likes to talk about that, she has mentioned it before. What is your take, Don?

Roose: Well, I think the Chinese are very good traders, first of all. Most of their buying right now is frontloaded and it's due to we're getting pressed by, they're getting pressed by our government to continue to buy ag products. They're buying aggressively. So I would say what is happening in the world with China is they're not relying on one person anymore, they're shuffling things around the world. And I know what you're talking about, it was the great Russian grain robbery in the early '70s, '73 I think it was '74. But that is when the communication wasn't so great. It took days to find out what was going on. Remember the '74 freeze we had that took soybeans to $12 for the first time. That one, I think it took three or four days before we knew for sure that the crop was that short.

Yeager: We could know now in 10 minutes via Twitter.

Roose: Exactly, so I don't think it's the same thing as we've bene. You've got to be in your toes in pretty fast markets.

Yeager: There was a question about if we got to $10 in soybeans maybe the Chinese would hit the pause button. They were on holiday last week, came back, $10 didn't seem to matter to them.

Roose: Well, in fact, more than that they came back over 7 days and they were up $1 on soybeans in 1 day, 28 cents on corn. But they are the oldest traders in the world. They can also go to work and cancel stuff. So I would say that they have got this market in their palm right now.

Yeager: And that is something that study history, study what they've done. We have two livestock related questions. Jesse in Colwich, Kansas wants to know what's going on with sorghum?

Roose: Well, the sorghum market is one that is much like all these other markets, it's pushing to the upside. But it's a cheaper commodity and you have China even looking maybe to buy sorghum. So what happens with a lot of these commodities whether it's corn or wheat, you kind of neutralize it by the price and you push up to it, so it's trying to join the whole pack.

Yeager: Sorghum can be used as a feed for livestock. And that's where this question from Bradley in Upland, Nebraska -- Bradley, thank you for your questions each and every week -- he said, last week it was said that more corn silage was cut to back more calves. In his neck of the woods, silage was cut because the hay crop was short and it has been used to feed cattle. So corn was cheap, hay isn't. Neighbors haven’t cut silage for years now have piles. His question that you see on the screen now is, how are those extra silage acres accounted on the balance sheet? And does it change the corn carryout number in any way?

Roose: Well, remember that in the balance sheet it isn't because when you're looking at the corn carryout of 2.2 billion bushels, silage isn't in that. That's why when you plant 100% of the crop, 91.5%, something like that is always harvested, the rest is silage. So what it really does is it goes and competes with corn, it competes with hay and so it is a factor, there's no doubt about it. It means feed more silage, you probably feed less corn, less sorghum.

Yeager: I don't normally throw this softball out there, but what is the biggest story, what do you think has been the biggest story in the trade this week?

Roose: I think the biggest story in the trade is that we still have the government changing reports and it gave us an awful lot of, it was the crop report no doubt about it and I think more important how it reacted to it. With the bear spreads on soybeans you always have to be careful, are you near tops, and the wheat closing not all that great. But I think it was he crop report no doubt and China coming back buying aggressively here when they came back after the holiday.

Yeager: All right. Have fun this week, enjoy. It's always an adventure, isn't it?

Roose: Thank you, Paul.

Yeager: Don Roose, good to see you. That will do it for Market Plus. Next week we'll learn in the program more about this year's World Food Prize winner and Sue Martin will join us to analyze trends in the commodity markets. For all of us here at the television program we call Market to Market, I'm Paul Yeager. Thanks for watching, listening or reading. Have yourself a great week.

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