Market Plus: Don Roose

Market to Market | Extra
Mar 4, 2022 | 7 min

Don Roose discusses the commodity markets in a special web-only feature.


Kohlsdorf: Welcome to the Friday, March 4th Market Plus. Here is Don Roose with more analysis, back for more.

Roose: Glad to be back.

Kohlsdorf: We talked a lot about Ukraine so we want to kind of start with weather in South America. We're going to go to social media for a question first from Justin in Michigan. How severe is the drought in South America? Is it severe enough to likely persist into another growing season to some extent? Has the market factored this in already?

Roose: Well, it's a good question. It's much like the United States, the weather is cyclical. It was a La Nina which has caused the weather problem. La Nina is dying now and so the odds of things starting to improve should occur and it is. The dry areas of Southern Brazil, Argentina now are getting some rain, just the next 10 day forecast 1.5 to 4 inches of rain. That is good news for the safrinha crop. So the odds of going into another dry drought next year is probably low. Think in terms of the U.S. How many times do we get back-to-back droughts? Usually not. Next year we should go into an El Nino year, which should be favorable for growing conditions there and hopefully here in the U.S.

Kohlsdorf: Okay, so Chris in Iowa is now asking, if Ukraine is unable to produce a crop and it stays dry in South America, how high will prices go?

Roose: Well, I think what he's really saying is if Ukraine has problems shipping and if they have problems with production that is a big deal. They're one of the four breadbaskets of the world, like we talked before. So how high do you go? And it's always the fact that you have to reach a level that you ration supplies. And we know what has rationed supplies before $18 on soybeans, we couldn't hold it. We know $8.40, $8.50 on corn you couldn't hold it. We know that $13 on wheat that you couldn't hold it. So you'd have to go into a whole new realm. And then on top of that the rest of the world starts to change stuff. You have countries that start to maybe bring grain, CRP ground into production, some of the RFS stuff changes. Things can change greatly pretty fast so that's why you ration, that is why you change things at the top of a market.

Kohlsdorf: So, Dennis in Iowa, if there is a peaceful resolution in Ukraine sometime soon, how much would the grain markets pull back?

Roose: Well, and I think that is probably what this whole market is about. If we start to run into a situation where it looks like we're moving to a peaceful resolution or a peace resolution the market is going to take an awful lot of this risk premium off very fast. Just remember, the last time we thought there was something that was kind of reaching a little bit of a cool down, the wheat went down 75 cent limit, soybeans dropped $2 just in short order from the top to the bottom. So this thing can move pretty fast here. But we've put a lot of premium in the market right now.

Kohlsdorf: All right, Justin in North Dakota. Do we dare hedge much 2023 or 2024 crop or wait until we know what potential future input costs look like?

Roose: Well, you can sell some of those crops way out there but you have to do it on smaller percentage because you have to match your input, the input costs have risen so greatly and we're not sure what they're going to be down the road. But you can also use some different various contracts where you're not tied to a tight specific price with options and I would challenge him to look at some of those things on some of the sales because you can lock in like $6 and still get $8 on the upside, some of these window contracts we're seeing producers use.

Kohlsdorf: All right, and then Billy is asking, if a good part of old crop corn is sold and can take more risk on with what is remaining, how do you set objectives in a crazy market like this?

Roose: Well, I think for him, probably most of us know as farmers we don't want two crop years at once. So you're going to sell your crop somewhere before you harvest the next crop. So your timeframe is set. As far as a price standpoint, it probably reaches a timeframe when you can ship it. I think what he's really saying is, I'm down to my gambling bushels, and that is really up to him how long he wants to gamble. It's probably a price level he didn't think he would get. You can also buy some put options under that in case the market really turns to the downside that you still have some insurance.

Kohlsdorf: We didn't get to cotton in the earlier segment, we don't always talk about cotton. But there were some swings in prices this week. Is there enough demand for cotton to take some acres from corn or beans?

Roose: Well, I tell you, I think what you're talking about is the acre fight is just going to be use because all of these commodities now are fighting, the price is high enough that they all can join in the mix, cotton, corn, soybeans, wheat. So it's possible and I think this is going to be a really interesting year to get the acres. I do feel comfortable one thing that we're going to produce, we're going to plan the maximum acres that are available whether we have some prevent plant because too wet is going to be another issue. The government has the prevent plant acres very low at 2.3 million acres, the same as last year. Is that going ot happen? I don't know. We've got two-thirds of the wheat area in a drought, a third of the corn area in a drought yet and 25% of the soybeans in a drought area. So we're coming into spring, we're going to have to have some rain pretty quick.

Kohlsdorf: Yeah, we've got some dry ground. All right, well thanks Don Roose for joining us for Market Plus. We always appreciate your insight here on the show.

Roose: And thank you.

Kohlsdorf: All right, well we are entering the time when public television stations like this one are asking for your support. If you value the work of this program or the station in your area, please consider making a gift of support now. Next week, we take a look at the continued effect of the war in Ukraine on the rest of the world. And we'll join John Roach for analysis of the markets. Thanks for watching. Have a great week.

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