Market Plus with John Roach

Market to Market | Clip
May 17, 2024 | 11 min

John Roach discusses the commodity markets in a special web-only feature.


Paul Yeager: Welcome into the Friday, May 17, 2024 market plus. Glad to have John Roach back with us and John, we covered a lot in a short amount of time and you mentioned a lot, the trend is your friend. There wasn't much news that I could stump you on that seemed to get you too excited. So I guess I'm going to start with a wheat question, though. The news was there's a freeze in Russia. It's dry over here. It's dry over there. The wheat crop here in the United States looks this way, but you're going to tell me that that doesn't matter or does it matter?

John Roach: Oh, it definitely matters. I don't mean to say it doesn't matter, but we have to think about where the wheat market was. And that was it was sold way down into a hole, not only because of the spec fund selling, but also because of the aggressive selling on the part of the Russia and Ukraine. The surprising thing about that war is instead of reducing wheat supplies, it made people in those areas sell faster. And so they took cheaper prices and they actually pulled prices down. Okay. So now they come into the spring of the year and there's mainly winter crops there. So they had a freeze, but that was a month ago where the market started moving a month ago. And so it's not like it's new news this week. And if you just wake up and go, oh, well, this is new and I better adjust to it, look at the chart and you'll see the market's been adjusting for a month. And so what happened during that month? What we adjusted all the weather and we also took the spec fund from being a record net short into a less short position with the report as it come out yesterday, the CFTC report, I expect, is going to show that the spec funds are not short hardly at all. So we had a massive amount of buying from the funds. Whatever buying came because of the weather. Whatever weather concerns we had in this country and other places in the world. And that got us up to the price that we peaked at this week. If you looked, you peaked, and if you didn't sell the peak, you're only a few days after the peak. It's okay. Now do you sell all your crop? No, But you sell some inventory because this is a place to reward the market and otherwise you get all this, you get the price. You failed to do anything. That doesn't work. It doesn't work. In my business, I've got to get the crop sold. And in your business, Mr. Farmer, you got to get the crop sold. So when do you do it? Best of all, to make sales during this kind of timeframe.

Paul Yeager: There's a little bit of a concern out there that this may be the top for wheat and corn and beans. There's a few of those that trace some charts that say this looks like a year where we've peaked in May. If that's the case. What do I do?

John Roach: Well, in the case of wheat, you're just a few days past the peak in the case in corn. Then in the case of corn, you're a few days past the peak. In the case of beans, you're a few more days past the peak. But I mean, selling peaks during this time of year is the right thing to do. Now, if you're in trouble on your farm, you don't have the crop planted and so forth and so forth. Those sales have to be relatively small. But if you're if your crops are in good shape, you need to be aggressive on these sales.

Paul Yeager: Good transition. John, To our first viewer question, Matt in Iowa asked us here on Facebook, how slow does the planting pace have to be before it becomes a bull market?

John Roach: Well, we've had a bull market, so it became a bull market already. And that bull market peaked. The first one peaked. Okay. So now what you're asking me is, okay, how far do we sell off? Which may not be very far if the weather is not cooperative. And then how far up could we go? Well, you can go a long ways if you can't get anything planted. And if you have drought or what. I mean, there's lots of possibilities. In the month of June, so I don't want to take those possibilities away. But by the same token, I don't know anybody can really count on them either because we're not that far behind on planting.

Paul Yeager: Monday's number could look like we catch back up to pace. You have the Western Corn Belt that maybe got back into the field this week. The Eastern is still saying any time it looks like it's dry, we get another rain shower. If I'm in each of those different regions, how do I approach your advice right now?

John Roach: Well, you take advantage of the difficulty some people are having if you're not. Which means you have to sell into their biggest worry, period.

Paul Yeager: Probably not a popular one, but it's what you have to do.

John Roach: Prices peak on the maximum worry. Maximum worry not after the maximum worry on the maximum war. And in the case of weather, in the case of weather, what you need is you need to be able to get a little change in the weather, a little drier in the areas that are wet and suddenly you get caught up, you're behind. But that's the reason that we have the national yields. The way we have them is because some people don't have big yields, others do. And when you put the average together, that's normal. That's really kind of normal.

Paul Yeager: Let's get into soy in a specific thing about crush here. Russ in Iowa asked us on Facebook, Why did the soy crush collapse? And is it temporary?

John Roach: Soybean oil has had some issues. You know, it's a question of how are we going to be able to utilize soybean oil the way that we've all been hoping? And and sometimes you end up getting stuff ahead of you get the production ahead of the demand. And it seems like we do that back and forth and the bean market has a problem in that the government forecast that came out for the new crop year, that's the 24 planted and 24 harvested in 25 crop year. If you put those ending stocks on a graph, we always use a red bar for the one on the furthest right which is the new year and it's a bigger bar than the prior three or four years. So I mean we're the forecast is one year from is this to say go to September of 25, we're going to have the biggest supply we've had in about four or five years. And so that's the problem we have with the bean market. Now, it's possible we can change that because we don't get it planted in this country or they don't finish harvesting in Brazil and so forth. I mean, and they lose all that. I mean, there's possible you can change that red bar. But at the moment, that red bar from a fundamental standpoint says that we're going to have a downtrend in year not up trending down trending in the case of beans. And so it's worrisome.

Paul Yeager: I'm going to put that through my translation machine. Did you just tell me to maybe look strongly at some 25 sales and beans?

John Roach: Right. I think there will be a time to do it, but I wouldn't do it at the moment. I'd wait until I got another sell signal. We'll probably between now and 25, we'll probably have ten sell signals. Is this the best one on beans, the one we just had? I'm not sure. Will the next one be? Could be the one after. So. So. June, July, August sales. We'll look at 25 a lot closer at that point.

Paul Yeager: You've taken us on the high road. Let's go on the low road for a minute because, again, different schools of thought. William asked us, this one's a little different. When will we know we're at rock bottom? Just like how do we know we're at the top? How do we know when we're there if we do keep falling?

John Roach: Okay. I think we saw it already. Rock bottom came when we had farmers holding big inventories. We were optimistic about getting the crop planted because we actually had people planting crop earlier than they've ever planted before. And we had the commodity funds net short, nearly record short positions. So you had everything bad coming to the intersection at the same time, and that was behind us. And then we rallied up from that. And so now we think the bottom is already behind us. But there could be and probably will be if crops are good, there will be new lows that'll come as you get closer to harvest is once we know how good the crop is.

Paul Yeager: Is the bottom in cotton?

John Roach: We're close. I hope we're close. I mean, we really KO’d that market down. We had a beautiful sell signal in the market took a break since the sell signal hasn't stopped. But we're down into a bottom area here where we think that if you're a user of cotton, you should be accumulating. Okay, we have solid buy signals.

Paul Yeager: Let's finish on energy. I asked you about metals at the end of the TV show. I want to ask you about energy now. Crude went above $80 or was it $80 at the end of Friday? Is there an energy market? I asked you if they should be paying farmers attention to one of the metals. What energy markets should they be paying attention to right now?

John Roach: Well, heating oil, which is a similar product to diesel, very similar. And that's a place where you can hedge your diesel is at the lowest levels it's been since last July, a year ago. And so we're down in the price areas were and we're getting solid buy signals and we're about to bump up above the 20 day moving average. So that turns the price into an upward trend. We think you need to be accumulating your diesel.

Paul Yeager: What do I do about natural gas? Because every time I look at this each week, it's another move in the teens. This week, 15 and a half percent. Is there any sense or as do I stay out of the natural gas market?

John Roach: Any time you think it's a good enough price to lock in, go ahead. Because it's just been it's cheap. And one of these days we'll all wake up to energy prices and we'll feel bad because we'll have something different. Energy prices, I don't believe, will continue to go down over time. I think there's enough uncertainty in the world, but that will stimulate an energy run.

Paul Yeager: You're almost opening up the door to a political question, so I'm going to just step into it just a tiny little bit. Oil seems to be one of those geopolitical issues that's going on with the events of Israel, this Russia and China combination. The American farmer, which of those stories do I need to really kind of try to get the most sense and find the most truth about to help me.

John Roach: I'm not sure that you'll know much after you do a whole lot of exploring. But let me just make this suggestion, and that is that you want to keep some inventory of fuel. You want that. And when you get prices that back off, such as we are right now, you need to be accumulating because if we can get out through all of this international conflict without having a big run in the energy market and then then we'll be just lucky, lucky. And so my fear is that we'll have a run on the energy market. And so maintaining inventory at cheap prices makes very good sense.

Paul Yeager: Great to see you, John.

John Roach: Thanks, Paul. Great to be back.

Paul Yeager: Good to have you and good conversation inside as well. Thank you, John. All right, John Roach. Next week, we are going to discuss the challenges and stressors of agriculture. And we are going to have the commodity market analysis of Don Roose. Thank you for joining us. Have a great week.

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