Market Plus: Mark Gold

Dec 3, 2021  | 13 min  | Ep4716 | Podcast


Yeager: Welcome in to the Friday, December 3, 2021 Market Plus. Here is Mark Gold. Mark, you're seeing all of our warts now in person here, sorry about that. The commute was a little different this time. Instead of from one hallway to a room in your house it was a commute out. What is on your mind? What do you want to really make sure that we get covered this week?

Gold: Well, I think one of the most important things is I look at the fund length in corn, it's 380,000 contracts is my guess as of tonight. So we've got the funds long. And let's be clear about that, that is New York money, Chicago money, big city money being long corn. The American farmer is long a bunch of corn in the bin right now. That doesn't sound like a recipe for higher prices to me. So that concerns me a great deal. Can it move higher? Of course it can move higher. If we stay dry in Argentina, the Brazilian corn crop looks like it has some problems, it can move higher. We can go back to $6, maybe $6.50 again. But it just bothers me the length of this corn position with the funds and the American farmer being long so much. I think that is, I look at new crop and old crop prices, why the American farmer is sitting on it, they're sitting on it because they're worried last year they sold it too early and they missed a huge rally. But then we were at $3.70 corn a year ago. Now we're at $5.50 new crop corn, $5.70 old crop corn, they don't want to do anything with it. And I'm not advocating just go sell it and forget about it because there could be higher prices out there. But not to sell some, look at buying some calls back to keep the upside open or at least put some kind of put underneath you to protect because there's just too many black swans that can be out there. If China goes into Taiwan that could be a major issue for American grain markets.

Yeager: Russia and Ukraine, you talked about that in the wheat market, but that could also be a corn story too.

Gold: It could be as well. So there are a lot of potential black swans out there and the one that scares me the most is the one we're not even thinking about today. It's always the one, that is the one that bites you is the one that nobody sees coming. And what is that I don't know. Is it COVID getting worse? I don't know. But with the farmer long and the funds long I think it's a problem.

Yeager: John Roach will be with us next week and he likes to talk about everybody on one side of the boat, that boat is not going to float.

Gold: I agree with that.

Yeager: So who is the first one to get to the other side of the boat?

Gold: Well, it usually isn't the American farmer. Usually the funds at some point will start lightening up, something will happen and they'll move quickly. And they can shed 40,000, 50,000 contracts a day if they need to while the American farmer is sitting there watching it go from $5.50 to $4. And then they say, well what happened? Well, they're the last ones usually out of the boat.

Yeager: You said a couple of weeks ago talking about crude oil and then come this week, this was coming into today, was down roughly 17% in the matter of 3 days, $16 in 5 weeks, natural gas down 25%. What does any of that mean if I'm sitting on the farm today?

Gold: Well, it means your input costs ought to start coming down and coming down dramatically. Now, are the fertilizer people going to try to squeeze you as much as they can in my opinion? Yeah they will. But I think it's irrational to think that crude has gone from $73 to $60 a barrel and we won't see something come down and natural gas going from $6.50 to $4 and change. I don't think it's rational that it won't come down. So I think that is going to be a plus for the American farmer. But also I would expect to see lower prices with that as well because that inflation bug that has been pushing these markets so high, I just don't see it there like it was a month ago let's say.

Yeager: We show it on the screen, we don't usually talk about it, we talk about gold, Mr. Gold. Luke in Nebraska wants to know, Mr. Gold, tell us when gold will rally again.

Gold: Gold hasn't participated and some of the other real exotic metals haven't participated in what we see this inflationary thing moving. Silver as well is off $3 an ounce. Some people are saying it's because of the chip situation and metals just not getting here and I'm not sure I buy that argument. But at any rate, gold hasn't participated to what you would expect. If inflation, and I've been saying this for the last month, if inflation is as bad as it would seem to be you would see the bonds at 150 not making new contract highs today at 165. You'd see gold at $2300, $2500 an ounce. You'd see silver at $50 an ounce. We don't see that. In fact, ,we see gold and silver getting cheaper, bonds getting more expensive, that doesn't tell me inflation is good. To answer the question, when are we going to go back? When we see inflation I think in interest rates, when the interest rates start to go up and people can put their money somewhere else and get a return on it I think maybe we'll see some guys go into gold if the interest rates start really moving higher. I think that is going to be the real trigger for real inflation and I think gold will then follow that. But until then I think it's pretty tough.

Yeager: It's like you were reading the questions because the next one I'm going to ask is asking a debate, and I hadn't thought of it this way in this context. But Mike in Stillwater, Oklahoma sent us this on Twitter. He says, which is more volatile in 2022, inputs costs or interest rates?

Gold: I think interest rates are way too low. And I grew up in a time when people were used to 5%, 6%, 7% mortgages and they lived with that until the last 10 years. All of a sudden a 2% mortgage is too high. I don't buy that. So we've gone up very high, very quickly here, we've rallied a good 7 or 8 points in no time at all despite all the inflation talk. Can it come down just as quick? Yeah, I think maybe it can. Input costs, whether it's gasoline at the pump or fertilizer prices, they are very reactive when prices are going up, they are very slow to react when prices go down. So, my guess would be interest rates but I think there will be increased volatility in a lot of commodities.

Yeager: There's a lot of concern from critics of the President who said, when the President released all this oil on the market and there wasn't an instant drop in gas prices, we don't see the two connected down.

Gold: Right, because it was such a small amount. It's a drop in the bucket compared to world prices and if the Saudis, OPEC cut production I think 400,000 barrels a day. All these numbers are really a drop in the bucket. And you've got Russia in the game now. I see that crude oil has come down dramatically, I think gas prices are going to come down, I think input prices are going to come down but they won't move as fast as many people would like it to move.

Yeager: All right, Roger in Oklahoma, I want to let you know thank you for your question. We kind of covered that hard red wheat story in the main program and Mitch asked about pull back in crude oil and if it sticks. Ryan is asking about natural gas. Doug is asking about the wheat dynamic that changed so much. So I'm going to make up a little bit of all of your questions together. Let's look at commodities specifically, Mark. As we move forward, which one of wheat, corn, soybeans, cotton do you see having the biggest upside in 2022?


Gold: I don't see a big upside in 2022 for commodities in general. I think we've gone through two years of high prices, I think farmers are going to plant more. Maybe some acres in the north will come out of soybeans and go into oats. $7.50 oats, why wouldn't you? I just think we're due for a better growing season than we've had the last three or four years. Now, if I'm wrong and this drought continues and this global climate change is for real then there's no telling where we can go because the bottom line is the higher prices go we're going to see people hoarding grain, hoarding food stuffs at some point and that will feed on itself. If we get good rains any time this spring I think we're in for potentially a hard fall in a lot of these commodities that have been so high. But make no mistake about it, corn acres will be there, bean acres will be there, there has been so much talk about three or four million acres of corn going into beans. I don’t buy that at all. The University of Illinois has done some great studies in the last 10 days about profitability and it's actually, in Illinois it's anywhere from $30 to $50 an acre more profitable to raise corn. The corn to bean ratio doesn't justify it at 2.3. So I agree with the University of Illinois and they think that there could be an increase in corn acres and that wouldn't surprise me looking at $5.50 new crop corn. If we have good weather, like we talked about on the show, the yields will go through the roof on corn and beans and I just don't see that as being friendly to grains in 2022.

Yeager: Even average and timely rains, not even good. There were farmers I talked to this fall that said they were, and Sue Martin would say the same thing, she had people tell her they benefited from heavy dew and that is how they were able to get through with the bean crop. And I know that there were many people that talked about it at Thanksgiving that shared the same sentiment.

Gold: We saw that in 1988 in the drought in 1988. It was the dew that the plants lived off of and got through and we had a much better crop than we thought we did and prices collapsed in September. I don't know how big these yields can get. I do know that when farmers complain about tech charges on the seed, if you look at your yields on the weather you had this year I think it's a pretty cheap investment myself. And I just believe that these genetics when they are given decent weather we're going to explode yields on corn and beans to levels that will really knock people's socks off. And then we're in a situation, what do we do now? And yes, if we have the drought we're going to look at $7 or $8 corn and we're going to look at $18 beans again probably, maybe higher. But if we don't have that drought and the American farmer is sitting here long and the funds are long corn, look out below. Prices will have a tendency to go back under profitability and that has been the case for 100 years in American agriculture and I don't see it changing now. But weather will probably be the key issue.

Yeager: Mark Gold, thank you so much for the insight and for the conversation as well.

Gold: Great to be here again.

Yeager: Thank you, Mark. That will do it for this Market Plus. Next week, we will take a look at what one couple discovered about the realities when they move from the city to the country and John Roach will analyze the markets. Thank you for watching. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

Grinnell Mutual Insurance