Market Plus with John Roach

[Brooke Kohlsdorf] This is the Friday, May 19th, 2023 installment of Market Plus, and joining us now is John Roach to continue our conversation. All right, John, let's we'll go to social media for some of our questions first. So this is coming from Doug in Pennsylvania. He's asking Every year since 2007, the corn and soybean market made it higher than the insurance price at least once after March 1.

Do we reach those levels this year and continue the streak?

[John Roach] I sure hope so. I sure hope we get the opportunity. But we need to have something to stimulate the market to move higher. Typically, we'll have some weather concerns and that'll give us an opportunity at those higher price levels. And so I have my fingers crossed that we'll get that again this year.

[Brooke] Okay. So Keith in North Dakota is asking, with European wheat so much cheaper than our hard we do we see millers importing, milling, milling wheat.

[John] It's possible. I really don't know the shipping cost relationship and so forth but it sure possible. But I think the greater likelihood is that we will bring our prices down. So we're competitive with European wheat.

[Brooke] Okay. So, Eric in Iowa, He's in the northwest part of the state. He's asking significant portions of the Corn Belt continue to be quite dry. Odds don't favor these areas getting close to enough moisture for a normal crop. What happens to price if instead of 180 plus yield, we end up with 160 bushels per acre national yield?

[John] Well, that'd be a substantial weather problem. That would be more than just the northwestern part of Iowa and and West. I mean, that would be in order to reduce the national yield by 20 bushels an acre. You have to have a bigger area in trouble. And and if we were to have that, then we're going to have to go higher on prices.

We're going to have to ration off some of the usage. But at the moment, even though you're sitting in a in a dry area, you have to be careful and you have to look around at the in the entire country. And when you do, you'll see that we are actually have moisture in in a lot of areas and in some areas actually too much moisture.

And so it's normal to have too much moisture in some and too dry and other. And that's the reason we have 180 rather than 200. If we had everybody having good adequate moisture and really good growing conditions. We'd be at 200 bushels an acre. So that's how we come down from those bigger numbers. And so I know it's tough when you're in the area that's dry.

But the other suggestion I'd have is if you get timely rains, you'll probably have a very good crop. And so I wouldn't look out my backyard and base my marketing decisions on my backyard. I would look across the entire country, watch the weekly crop ratings. And if you see crop ratings deteriorate compared to historical norms, now you can look for exciting prices, but if they don't, then you have to expect that the market will adjust lower as we get close to harvest.

[Brooke] And you mentioned let's talk about weather for a second. You mentioned that some parts of the country do have had a lot of rain, but then there are some other parts that are still really dry in that severe drought. Is that part of Kansas you're talking about in the upper Midwest?

[John] Yeah, it's certainly the you have the northwestern corner of Iowa that's very dry. And then you have the hard red winter wheat area that's been very dry. And I'd be mistaken to not mention it's also we have a very dry forecast for the second crop of corn in Brazil right now. And that's a concern I'd be more concerned about the Brazilian corn crop situation right now than I would be northwestern Iowa because it's a bigger it's a bigger swing as far as number is concerned.

And so we're still in a weather market in corn. And we will be, you know, for a few more months, a couple more months anyway, in beans, we pretty much have the Brazilian crop harvested, but we still have the U.S. crop that's in a weather risk, a period of time.

[Brooke] All right. Well, let's head one more question from social media. John in central Iowa is asking, what will it take to build markets for oats and other small grains? Is there a lane to do so?

[John] You know, it's there may be, but we haven't found it yet. We struggle to develop that kind of of production and demand for that kind of production. And if you don't have the demand for it, if it's being filled from other countries, it's hard to get it in this country.

[Brooke] What's a trend you're seeing in the grain market right now.

[John] Coming down off of the biggest markets, nearly the biggest markets in history, and we're on the decline following that we call the last couple of years the Super Bowl of markets. Well, now everybody's going home. And in the process of doing that, that means that the people who took the prices higher, the spec funds are no longer buyers.

They're now sellers and getting short. And that's what's driving the market down. It's speculative selling that you we don't expect to see that stop until the trend turns and starts to move higher. We think the 20 day moving average is a pretty good indicator. If prices move above the 20 day moving average, then those funds will become your friends again.

As long as you're under the 20 day average, those, it's hard to see the funds buying much at all.

[Brooke] Did you see anything else from the cattle on feed report?

[John] The numbers were very much what was expected and we have relatively tight supplies, as you can see from the cash market, as strong as what it is. And and so we're we continue to feel positive in the cattle market but cautious. We think the caution flags are flying and we want to be careful here, particularly with the replacement cattle that you get some sort of hedge or some sort of a of a of a price protection program puts or something in place to to protect some of that equity.

[Brooke] Okay. Here's a question. I had an it kind of went with your answer earlier about the trend with the markets. We've been talking for quite a while now about whether we're in a recession. Are we going to enter a recession? Are we not? There's all of this debate about what a recession looks like. Are the grain markets, though, acting like we are in a recession?

[John] Well, you'd have to say yes. And probably the first place you see it is in the ethanol demand that our gasoline demand is down. People are driving as much as what they were and in the markets, very cautious. So I would say, yes, that the grain markets are in a recessionary situation. But interestingly enough, when you look at the overall market in general, there's a lot of people talking about the recession, but stock markets are actually all moving higher and optimism about there will be a settlement in the in the raising the debt ceiling, but just a general optimism that the economy is doing better than people anticipated, even with the high interest rate.

So it's we're in a very unusual kind of a market right now or market time, I should say, in markets where we have a lot of cross-currents and we don't know for sure how they're going to play out. We don't know how the China, Taiwan and so forth. And in China moving around the world, trying to make friends and play with friends that we used to have and and the Russia Ukraine, that we just don't know how all that's going to play out.

And so lots of uncertainty and that's the way markets are acting right now. Very uncertain, very cautious and very nervous. And and it makes them quite erratic.

[Brooke] Lots of storylines.

[John] There's lots of storylines that could go in either direction. That's exactly right.

[Brooke] All right. Well, we'll end on that. John, thank you again.

[John] Thanks, Brooke. Appreciate it.

[Brooke] All right. Next week, we will meet three businesses that are shortening their grain supply chain. And we'll have market analysis with Sean O'Leary. Thanks for joining us and have a great week.