Market Plus Don Roose

Yeager: Welcome into the Friday, September 16, 2022 Market Plus. Back with us is Don Roose. Great questions here. I'm going to weave in something here in a minute. I made the same trip to our home area of Northeast Iowa consecutive Thursdays. The difference in one week in the bean crop was dramatic. Harvest is almost here. So I guess we'll start with Karen in Nebraska and her question that she asked us on Facebook. She's wanting to know, how high will the price of corn go if we have a low yield crop? And I know I mentioned beans. But the corn is changing too. But what are we going to do here if USDA is right and there's a lower crop on less acres?

Roose: Well, I think the lower the yield, the more rationing we have to do. In the last crop report we took the demand down 250 million bushels. So that is ultimately what has to happen. You have to get to a price that you ration somehow, either the ethanol, the feed industry does a better job, you cut your exports and actually in the last report the government did all of those. We did see typically small crops get smaller and so we were at 172.5 on yield. It wouldn't be surprising to see us go down to 170, 171. I don't know if that's a game changer. It would also be maybe a surprise if we went back up a half to a bushel.

Yeager: Well, you mentioned small gets smaller. USDA in recent times, we'll just say 2022, they have done things differently in their reports than they have in the past. They have been more possibly reactionary to what is really happening than in the past. Do you think that when you say a small crop gets smaller is that the government or is that just what you see as the crop getting smaller?

Roose: Well, I think look at the crop ratings. The crop ratings keep getting smaller. So that tells you, I know it's been touring, but that says the crop is getting smaller. And so far the early yields are below I think what we think. But I think it's one of those, Paul, that doesn't get much smaller or not. And that’s where we're going to trade from now until the October report was did the government catch all of it? They certainly took a knife to the acres on corn and soybeans so they were trying their best to get it right, right now, so that's what I'd say.

Yeager: Well, I've given USDA some credit. This next question maybe not so much. Don in Prentice, Wisconsin wants to know via Facebook, when will the USDA take off the rose colored glasses and come up with a crop progress report that has some truth to it?

Roose: Well, I think they're trying to do the best that they can and it's a difficult situation. And if you don't believe that, you poll a farmer and ask him what he thinks his yield is today and it's so variable they even have a hard time. And again, this is probably going to be one of those years that the combine really tells us and that's why week by week I think that is what we'll hear and if week by week it looks like the yield isn't there, the market probably tries to go higher. If it can't go higher that means that you've got it dialed in. It also means that we're more fearful of the recession than we are the supply side. I just have to point out that a demand market is the market that is very strong because it's a chugging demand. We cut the demand. So the supply market is a dangerous market because you don't know how to react to it sometimes  because it doesn't follow through and we saw that on Monday.

Yeager: New question, Don in West Des Moines wants to know, what do I do if I have this scenario of a supply versus a demand change than what we've had in recent times? What do I do if I'm listening to what Don Roose is saying?

Roose: Well, the number one thing is your protect your bottom line. You do what you should. And if you look at it from -- if you're a producer looking at it from just a merchandising standpoint, there's no carry in the market in corn or beans from December, from right now all the way to next year, so you don't have a back drop with carry in the market. If the basis is tight enough, which it's pretty tight, last year it got tighter, you should go to work and just sell the crop is what we're seeing people do and then come in and reown it with options out in July because there's no carry, either an options or futures if you don't mind the margin exposure but you can go backwards there. So that's what we're seeing people do, Paul.

Yeager: Okay. Let's flip over to an outside market that has a little bit of commodity interest here. Daniel in Wisconsin wants to know, why is gold down? What's the impact of that?

Roose: Well, if you look at it the gold market has always been, gold and silver and if you talk about both of them, they're an inflationary hedge. And the government is doing everything they can to fight inflation. So if you look at it, as interest rates go up and if we're in a deflationary environment, the gold market struggles and that is what has been happening because it's not inflation, it's dialed in and we're worried about deflation and that is what is putting the inflation out of the gold market.

Yeager: Deflation, stagflation, inflation. Are any of those that we need to worry about the most?

Roose: I think stagflation is the worst. And I think you have to ask yourself, how similar are we to the late '70s, early '80s when we didn't raise interest rates fast enough to knock out inflation? When you have inflation running as hot as it is right now that is an anchor on everybody's income. So we have to do it quicker and I think that's what the Fed is going to do, Paul.

Yeager: Well, I think you mentioned it during the main program, you think three-quarters to a full point is what we'll see next week?

Roose: I think you will. And obviously the surprise would be if they went more than that and said, listen, we don't care if we drive the market into a recession, it's better to have a recession than it is inflation because they're both hurting us.

Yeager: Do you think -- we talked about the dollar at the end of the discussion, you talked about the stock market. I know there's a couple of parallels to commodities with stocks. Did you see any of those emerge this week?

Roose: I think the big thing we saw after the report, what you're seeing is raw commodities that were very popular to buy whether it was gold, silver, grain, meats as we had the economy pretty strong. What we saw last week is the funds trying to liquidate on rallies. And that's quite a change. So what are you going to do to bring the funds back into the market right now? And if you look at the grain market historically these are pretty high numbers. And I know we're all trying to figure out is this a new level or are we going to sink back to some lower level? And the world is going to be a big dictator of that and South America is going to be a big dictator of that and the Black Sea is going to be a huge dictator if Russia continues to sell their wheat at whatever price to clear it.

Yeager: Whoevers wheat it is that they're selling.

Roose: Yeah.

Yeager: Let's go back to the wheat market. Matt in Amherst, Wisconsin wants to know, what are the watch outs in the wheat markets?

Roose: Well, we have a number of them. I mean, probably the first on the radar is what happens with the export corridor with Russia and Ukraine. The second one is what is next year, we need a crop next year, does Ukraine get their winter wheat planted? What percent? Does the Southern Plains, do we get the wheat planted in decent conditions? So far the conditions are terrible. So I think those are the big watch areas. And then eventually we say, what is the price? Nothing is enough if nobody wants it.

Yeager: Well, James in Oklahoma, good to hear from you again, James. It had been a while. I was getting worried about we lost James. But he wants to know, how high can hard red winter go if it stays dry?

Roose: Well, we saw last -- when you put in highs that we did last February, if you get the same combination again, dry weather and you have the Russia and Ukraine situation, those targets we did last year probably could be a target again. And we'll see. That's a concern. Of course we couldn't stick it on those numbers either.

Yeager: All right, let's close with one more thing. Calvin in Fredericksburg, Iowa -- you know where Fredericksburg is I'm sure -- Calvin wants to know, where does corn and soybeans from the Gulf and PNW ship to and does the price spread mean anything?

Roose: Well, it most definitely does because the PNW a lot of shipments go to Asia, to China, if you will. And so we have to compete with South America for the exports. And Europe is very hard to compete with the Black Sea area. So the Gulf kind of competes with both ends. You can go to the, depends on the transportation, can also go to the Pacific Northwest. But we can also import soybeans, which we could do this year from South America if it's needed.

Yeager: If the price is right?

Roose: If the price is right.

Yeager: Okay, sorry control room, rail strike. Mentioning the PNW, that was some people's only route to get to a port is rail by rail. Would that have been a major impact on commodities had that rail strike happened?

Roose: Oh definitely because you're going to back up the supplies, you're going to widen the basis. The movement slows down. 20% of our grain moves by rail, 30% of the soybeans by rail. So it just tells you it would be a huge logistical problem.

Yeager: All right. Don, good to see you. Thank you for the time.

Roose: Thank you, Paul.

Yeager: You're back in a couple of weeks with another panel. So there's a little tease. I'm giving you a sneak if you're watching Market Plus. We'll see Don then. All right, next week we are going to look at one stop shopping for the overall health of your operation and Matthew Bennett will join us to analyze the markets. I'm Paul Yeager, thank you so very much for watching and have a great week.

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