Market Plus: Mark Gold (Feb. 4, 2022)
Mark Gold discusses the commodity markets in a special web-only feature.
Yeager: Welcome in to the Friday, February 4, 2022 Market Plus. Joining us again this week is Mark Gold. And Mark, we had a discussion about calls and puts in the main program. Go back and watch that if you want to rewind it and listen to it again or see the transcript that Tiffany does. But I want to start with Tim in Crookston, Minnesota for a question because he's talking about the '21 crop, specifically should we be all sold out on 2021 corn and soybeans?
Gold: Well, if you're not you've got to give me a pretty good reason why you're not. There's no carry in these markets. The only reason you're not selling it here and taking advantage of these great prices is you're scared that prices are going to go higher. A lot of things can turn this market around on a dime. If China ever was to move into Taiwan it wouldn't be good for the grain markets. If we get a good growing season here in the U.S. I think whatever has been done in South America is done. What can move this market higher? Certainly the WASDE report. My suggestion would be because there's no carry in the market and you've got good basis, why not sell it and reown it with a call option? I wouldn't advise selling it without having that call option in your back pocket because the worst thing you would think of is, boy why did I listen to that Mark Gold on the TV? He told me to sell my corn and it went up another buck a bushel. Well, I'm telling you to sell it but reown it with a call option to keep that upside open. The market falls out of bed for whatever reason you'll lose your 25 cents on a corn call but you'll have sold the crop at phenomenal prices.
Yeager: It only took me one question to go out of order. But you bring up something that is another question here. I'm going to go with Zach in Lawrence, Kansas. He's talking about seasonality, Mark. He says, seasonal trends say to never sell corn in February. Is this year different? If so, by how much?
Gold: Well, I don't know how much different. Certainly when you've got this kind of market where there's no carry why would you store the grain? It's costing you three cents a month. If you carry it let's say until July you're out 30 or 40 cents in storage and interest and deterioration of the crop. Why not just sell the crop, get it in the merchandiser's hands where it belongs and reown it with a call option? It'll be cheaper to buy the call option than it will be to store the grain. So to me it's a no-brainer. And the seasonals, they're great, but I wouldn't bet the farm on it, so to speak.
Yeager: Well, we didn't have, January wasn't regular. Let's discuss cotton for a minute. We didn't really necessarily talk about acreage. But do you think the reason for cotton's rally is that they're trying to buy acres? It seems like the same question I ask week after week. But is it trying to keep pace with the others? Is it trying to keep up with the other kids?
Gold: I think that's exactly what's going on, Paul. I don't know they can really justify $1.20 cotton right now. But when you look at new crop bean prices here almost $14 a bushel you don't want to lose acres in the South and if you don't want to lose acres in the South and in other places you're going to have to see some higher prices. So I think the reality has really been about the soybeans taking off here and the cotton saying, don't forget about me.
Yeager: That's a good song I think from, I can't remember who sang it from the '80s. But just don't you forget about me. Jason in Templeton, Iowa has a little bit of a follow up I almost used during the program but I want to go now. He's been hearing that China has canceled some shipments. You talked about corn. But are there any consequences for canceling a sale?
Gold: Not to the Chinese. There has been that age old argument, they book stuff and cancel it, who gets left holding the bag? Whoever had those bushels sold to them, they generally will back it up with some kind of put option to protect themselves in case the market falls and the sale isn't there. So I think that is built into the pricing mechanisms when they bid an offer of grain out here. But we've never seen any real major ramifications. There is enough competition around the world where the Chinese or anybody else can say, sorry Charlie, we're going to cancel the sales, we don't need it, we don't want it. And don't put it past the Chinese to cancel sales and look to buy the break, which may be what happened here this week.
Yeager: It wouldn't be the first time that has happened. That has been one of those things that has happened, I've sat here with you and others and seen that happen. But do you think the market is really responding like they used to when China cancels a sale?
Gold: Well, the knee jerk reaction is sell something, that the Chinese don't want it. In this case I think it's a matter of maybe their demand has been overestimated by a lot of analysts out there. But the export demand around the world is still going to be strong for corn. So that is why we see these, when you get a cancelation the market breaks, but there's plenty of long-term buyers out there willing to buy it on a break.
Yeager: Geopolitical is always a topic. We mentioned China and Russia earlier. Is this at all playing, Jeff in Sheffield, Iowa's question, he's asking about fuel. Will it ever come back down? What are the factors that would play in fuel here? Is it geopolitical or something else?
Gold: Well, I think it's mainly geopolitical. If you've got a war, an invasion with Russia moving into Ukraine, that is going to send these prices higher. I don't think there's any doubt about it. How long will it last? Again, if they invade there will be a knee jerk reaction, maybe we push crude to $100 a barrel. We're at prices we haven't seen since 2014 out here. Now, keep in mind just two years ago they couldn't give away oil, they were paying you $34 a barrel to take it away. So these things go in cycles. It will come down at some point. But how high is high? Tell me what the geopolitical situation is going to be two months from now.
Yeager: I don't even think two or three people know the answer to that one, they have to see how it plays out. But OPEC agreed to increase production and Russia went along with that this week yet oil still went up, Mark.
Gold: I think it's a question of people just don't want to get caught short in here. They got caught long two years ago and now I think they just don't want to get caught short in case there is an issue because if there is an issue we should see that knee jerk high and if it opens up at $100 a barrel how comfortable do you feel with that? And we've seen crude significantly higher than it is now in times past. So can crude move higher? Sure it can. Did you want to be short in this weekend now that the Olympics have started knowing that this may be the prime time for Putin to move in? Of course, you could leave it to Putin to be selling these rallies, pounding it in and never invade Ukraine and come out with some statement that we never intended, we're pulling back our troops and oil will break $20 a barrel and he'll make another gazillion dollars on a trade like that.
Yeager: Well, and they've already been making statements like that this week saying that this is all western brought up. So there is already the propaganda game going.
Gold: Yeah, absolutely.
Yeager: Let's move to Brazil instead. Let's go to Phil in Dresden, Ontario with his question that came to us via Twitter which is @MarketToMarket. He says, Brazilian soybean basis values are unusually high at harvest time. Soybean demand seems insatiable. Or is it, Mark? Do we challenge the 2012 highs in soybeans in 2022?
Gold: We do if we have a drought here in the United States, no question about it. Without a drought here I don't believe we will. High prices cure high prices and the Brazilian basis is high now because the export market is tight. And we know that Brazil maybe have lost 5, maybe 7, maybe 8 million metric tons of production that the world was counting on and relatively tight supplies. We're not at a 900 million bushel carryout here in the U.S., we're at a 300 million and change, whatever the number is. So we're certainly tight and you just generally don't see Brazil at par with U.S. beans at this time of year, they're usually at a huge discount. Now, keep in mind the dollar is still incredibly strong. We've broken about 2 cents off the recent highs. But a 95.5, 96 cent dollar is still way too strong to attract much business.
Yeager: Exactly the discussion we had earlier today in our building. I want to finish with a planting question from Lee who splits time between Iowa and Minnesota, had time to tweet this into us. What do corn and soybean prices need to be a year from today to compensate for the predicted rise in inputs for the '22 crop? He wants you to talk about seed, chemicals, fertilizer, fuel, equipment and land rents.
Gold: Well, there's no question most of those things if not all of them will be higher a year from today than they were unless for some reason we have a huge crop there and prices take a big tumble. Then you'll see all these input costs come down dramatically. But how do you plan for that? If you're buying all these inputs now if you can get your hands on them and get contracts for them, you've got to look at selling some grain. What is the worst thing that can happen to the American farmer? He pays all these huge numbers for the input costs and then there's something in the market whether it's China or some other thing that spooks this market and you're right back at $10 or $11 beans. Now you're in a jam. So my sentiment is protect it, buy some puts, $14 even with higher input costs, if you can't make money with $14 beans assuming that rents don't go to $700, $800 an acre, assuming fertilizer doesn't go through the roof with crude oil at $150 a barrel, all that is possible, but if you've got that locked in, if you've got the put, beans will be at $18, $20 and you'll do just fine. But if something does happen to the downside you just can't afford to take the double whammy of cheap grain prices and high inputs.
Yeager: All right. Mark Gold, good to see you again. Hope your snow blower worked yesterday.
Gold: Nice to be here again. Thanks, Paul. Yeah, no kidding.
Yeager: All right, go easy on yourself. Mark Gold, thank you much.
Gold: Thank you.
Yeager: That will do it for Market Plus. Next week we're going to look at the drought story that just won't go away and Dan Hueber 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.