Market Plus: John Roach

Mar 19, 2021  | 13 min  | Ep4631 | Podcast


Yeager: This is the Friday, March 19, 2021 version of the Market Plus segment. Joining us now is senior market analyst John Roach. Hello, John. Do you get tired of all those Midwest people are you this week?

Roach: Hi, Paul. No, what we're looking forward to is when all the people from the Northeast go back home here pretty soon. Once we get through Easter then things get a lot quieter down here.

Yeager: Well, i will let you know when you visited us here recently it was cold, it was actually almost 70 degrees today here. So we saved a nice day for you the next time you come back.

Roach: I appreciate that, thank you very much. I'm looking forward to getting back in Iowa. I have both of my shots for vaccination and so I'm ready to travel.

Yeager: Fantastic. We will see you soon. But let's start, during the main program we discussed a little bit about the wheat market and corn and feed and I'm going to star there with more of a livestock question but you're going to tell me it's got something more to do than just livestock and feed issues. This is Doug in Thornton, Iowa and Doug, I always appreciate your questions, we just don't always get them in but this week we did. What is the corn to wheat price value? What ration options are making financial sense right now, John?

Roach: We're at that stage where people are starting to make those kind of decisions. The thing with feeding wheat is farmers tell me you don't want to feed wheat unless you have enough to feed the animals all the way through the feeding cycle. And we're yet at wheat harvest and so we may not have enough wheat to really be doing much. Even though the price might look right it depends really on a lot of logistics and so forth in order to really make that work until you get to wheat harvest. Now, when you get to wheat harvest you have a lot of wheat in a lot of areas and now you can look at the difference in the rations and the least cost rations and that is beyond me, that is a nutritionist at that point. But we'll see a lot of things being fed this year that are non-typical. I think it actually started really clear back last fall. We saw the Chinese, the first thing they took was grain sorghum in order to make their beer, which I learned that grain sorghum beer is the number one selling beer in the world. And so I don't care how high sorghum prices go, they'll probably be able to continue to sell sorghum into China for that beer. We also saw barley inventories cleaned up around the world, we saw oats cleaned up, we saw really every feed grain that had a lower cost value to it get moved very early in the season before we saw them really start to work on corn. If you remember, we were well behind on corn exports until just recently when we finally became the most favored product to buy. We finally became priced in the world and we have the volume and we have the transportation infrastructure and so we're the ones that the world turned to and that's where we are now but it's didn't happen until they cleaned all the other feed grains up around the world.

Yeager: Well, and that leads in a little bit to the next question that we have here from Ernest in Nebraska. He's asking, John, is the $6.40 area in old crop corn going to be harder to go through or to get to? You've kind of laid out some of the parameters that it might take. But what's your thought there, get to or get through it?

Roach: Well, first of all, you have to get to it and we're a long ways away from it and so whether we will or not it's really going to depend on how the cards get played as we move forward. And the first set of cards we're going to pay attention to will come from the USDA on the 31st where they give us the stocks in all positions, which we're not sure if we want to believe it, then we'll use that to update our projections of last year's production and then we'll take the acreage numbers and we'll lay those in and we'll make projections forward. I think when we get done with all of that we're going to find the stocks of everything for the year forward are still relatively tight. And so I don't think the government reports are going to say oh, there's lots of surplus here, and drive prices down. But we'll then have to step into the day-to-day weather and all those fundamentals that we will trade really all the way through the middle of summer if not longer.

Yeager: Well, you were saying how difficult --

Roach: Is that the $6.40 question yet?

Yeager: Yeah, that's still the $6.40 one and it gets to something you said --

Roach: In order to get to those kind of numbers, I'm sorry for interrupting, Paul. I really would like to address that $6.40. In order to get to those kinds of numbers you have to tighten the supplies further than what we have. I saw a fundamental analyst who has been kind of negative the market wrote today, there's still 300 million bushels more corn extra out there before we have to start worrying about anything. Well, 300 million bushels of corn can disappear in a big hurry either by somebody buying it or by having a problem with the crop or not enough acres to where you cut those numbers down and then suddenly the people who have been not talking very positive will suddenly change their tune. So we're really going to analyze the numbers as we go on forward and we're going to have to have, I would think you have to cut the carryover down under a billion bushels to get to that $6.40 and that's possible coming on these reports but I wouldn't expect it. That would be a surprise. Remember from the show we're selling into the corn market right now with an idea that this beginning weather scare of the year, beginning surge of demand for this year and we pushed the market up to a high price level, backed off and now we're right back up there again. So we'll be selling into it next week.

Yeager: Okay. You're bordering on almost sounding a little conspiratorial and checking numbers, which is our next question. Thank you, John. I'm glad I read these to you ahead of time. Scott in Indiana is asking, as inaccurate as the government was last year forecasting 97 plus million acres of corn planting intentions, how are we remotely expected to believe them?

Roach: With a big grain of salt, with a big grain of salt. We don't know what we're missing in here until we see these numbers on the 31st and then once we see the numbers then we'll see what people think about those numbers because remember, it's not what the government tells us, it's what people think about the numbers the government tells us. And so it's what people are wanting to do and their ideas, that translates into price. And so we'll have to wait and see.

Yeager: Well, there's another question then about acreage but it's more on the lines of where are some acres going to come from that might just reappear? This one comes from Dale in Illinois via Twitter. He says, do you think economics, psychological atmosphere, insurance guarantees, etc. are good enough to bring any of the millions of acres that we've lost since 2013 back into production?

Roach: The interesting thing is if you go back and look over a little longer period of time and look at the all planted acres that the USDA gives us with this report that comes out on the 31st, another one in June and then some final reports, look at the all planted acres. 10 million acres swing back and forth easily. 5 million acres all the time. 10 million acres easily. So take the total planted acres from last year, add 10 to 12 million acres to it, maybe even 15 and then figure out what crop does it go to? Does it go to beans? Does it to go to corn? Does it go to cotton? Too late to go to wheat almost. And look at what the P&L is on your farm and if you're able to put those extra acres into one crop or the other and it shows a favorable P&L well then that's the crop that probably gains the most. But do look for 10 to 12, perhaps 15 million acres more total planted acres on this report.

Yeager: Okay, John, you bring up a point here that I've been asking analysts for a while this winter and someone on Twitter, I just have to preface what I'm going to ask you. Say you've not done anything to this 40 acres of dirt and you've got, it all of a sudden yours to plant. What are you planting? Are you planting corn? Are you planting soybeans? Let's just say there's no inputs put in this field. You don't have to worry about what you've done for pre-treat. Magic 40 acres, what are you doing with them right now?

Roach: Depends on where you are. It depends on which one gives you the best profit opportunity with big yields, great big yields. That's the key here to this situation, it's the crop that has the big yields out there and when you get to big prices and that is going to depend farm by farm by farm. And some guys prefer planting beans, all else being equal -- most farmers prefer planting corn, all else being equal, but some farmers actually prefer beans because it's a lower cost crop and there's some other possibilities and this year we had people plant wheat on purpose to be able to plant beans behind the wheat because the combination of the two turn out to make wheat maybe, it could be a pretty good year for it, and now as it turned out with prices it is going to be a pretty good year for that strategy. So I don't think people know what they're going to do with that last 40 acres yes.

Yeager: All right, good discussion point, but something to talk about there in the shop. Ann in Iowa wants to know as we prepare for this report that is coming up, what percentage of new crop corn and beans should we have priced ahead of the end of month report?

Roach: Well, it's going to, again, vary with farmers. It's interesting, I've been doing this for enough years that I've dealt with and worked with farmers that were very poor, young farmers that really had tight, tight financials and now some of those farmers their farms are all paid for. And so their marketing decisions are a whole lot different today than what they were then and what they were then when they had bills that they had to pay, they had to take advantage of high prices when they came for fear that they would disappear and the fear of disappearing was worse for them than the fear of, uh-oh I missed out on something. About as soon as they could see a way to make money they started taking it home and I watched farmer after farmer with that kind of attitude really do very well over the years. I've also dealt with farmers who want to hold everything and hit home runs and they do pretty good and then they don't do so good and then they do pretty good and then they don't do so good. And so either strategy, I've seen both of them work. They work best if you're going to be the slow and I want the home run you've got to have your own storage. So the first question is do you have storage or not because what you don't want to do, Ann, is put more cost in that crop because you've put it in a bin at a commercial elevator because you don't have storage.

Yeager: Final question and I'm going to fold them to two -- Rick from Ankeny is asking, should we short corn or buy soybeans and sit on the sidelines for a bit? But John, you're going to tell me this is, again, varies by situation, but it's a hard year to market in 2021, right?

Roach: I think it's going to be a very hard year to market because every time when the market gets strong, as we've seen here over the period of the last two, three, four weeks, it gets strong and we think oh man, it's going to go now and then of course it doesn't, Lucy pulls the football, down goes the market and it looks like it's going to fall apart. Yesterday going home and early this morning it looked like this market was in trouble and yet this afternoon, wait a minute, these are all new high closes. So it has been an erratic back and forth market and I think we should expect that on out in the future. So when you get the price that you like, that does the job on the farm, you can sell as little as 1 truckload, you can take the quantity down, but don't be missing making sales.

Yeager: John, always good to hear that. I appreciate your time. Thank you so much, Mr. Roach.

Roach: Thank you, Paul, appreciate it.

Yeager: Next week we will check out some cattle producers using electronic animal ID's and Ted Seifried will break down the markets. Thank you so much for watching. Have yourselves a great week.

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