Market Plus: John Roach

Yeager: This is the
February 1, 2019 version of the Market
Plus segment. Joining us now,
John Roach. Hi, John. Since we teased it at the
end of the show I know you’ve been extremely
nervous about what I’m about to pull. But we want to
give you a gift. You came into the area
after polar vortex had left the area so we want
to just make sure we went and opened up this jar
outside when it was 25 below. That is cold air from the
Midwest that you can take. That is TSA approved with
the Market to Market stickers on it. So you can take that
at the end of the day. Roach: Back to Florida. Yeager: Back to Florida. And if you think that’s
not enough we could go a bigger version for you. We also opened this up. But if you’re really
worried, and I think you are, that it’s not truly
going to be cold, we filled our director Peter
Tubbs’ thermos for you. This is insulated air so
this should probably be cold. Do you miss cold weather
when you see it on the news when you’re
in Florida? Roach: Not so
much, not so much. It is nice to come back
to the Midwest and get a little cold weather but
it’s really nice to get on the plane to go
back to Florida. Yeager: Well, you are
going to have a warm weekend and this weather
has been somewhat impactful in the meat
market, which we talked about during the
main program. But people are already
looking ahead to spring and Mike in Mount
Pleasant, Iowa is wanting to know about
spring nitrogen. He has been watching fall
nitrogen sales compared to spring. And he’s wondering, is
spring nitrogen rising in price from fall? Based on that, he says
it’s rising, would you think more corn or more
soybean acres are in store for 2019 on that
specific indicator? Roach: Well, there’s more
than bigger demand that is going on in the
fertilizer business. We’re seeing some
reductions in plant capacities and so forth. But what’s driving the
fertilizer market is more corn expected, but it’s
not as much increase as what the market would
really like, or at least the people that
we talked to. People still would like to
stay in their rotations. That has been proven to
be the best strategy for years and years. So you really have to
distort the price in order to get people to move
acreage and that’s the job of the market this spring,
to put a bigger premium on corn than beans so that
for someone who is looking at a field that they’re
trying to decide which way do I go, the market wants
you to plant corn, so they’ll need to move
prices in order to get you to do that. Yeager: I’m going to ask a
little bit of a government shutdown question here. Are you going to be
more reliant on private estimates versus
government reports when it comes to acres and planted
and intentions and things like that moving forward
for the next six months as we shake this out? Roach: I don’t think
there’s been that much of an issue on
future reports. I think we missed some
numbers, didn’t receive them, but we’re catching
up now or the government is expecting to
get caught up. They’re expecting to have
the February 8th reports out. They’re expecting, unless
they’ve changed that in the last couple of days. Yeager: February 8th is
the new January 11th, I know that you’ve got
that written down. Roach: And then they’re
still anticipating having their outlook session the
latter part of February. So the important reports
are the ones that come in March, the March 31
planting intentions report will be very important,
the stocks in all positions report will be
very important, to see what intentions are
obviously and then what do we have in the bin and
what has our usage rate been? Yeager: All right, I need
a little strategy here, and this kind of ties into
our M-to-M podcast this week that we had. We were talking about
ask the analysts. This is one of those
questions, John, where it’s a little
more strategy. And so, again, we’re going
to stick with Mike in Mount Pleasant, Iowa. Would it be prudent to
hedge new crop soybeans at these levels using
a hedge to arrive? So first, explain hedge
to arrive and then this question, if you would
move forward with that. Roach: There’s two
components to a cash price on the farm. One is the futures
component and secondly the basis, which is your
connection to that futures market. Depending on where you’re
located you could have a basis that is less than
the futures, that would be in the Western
part of the belt. In the Eastern part of the
belt the basis actually might be positive on
top of the futures. So those two components
can be priced separately and a hedge to arrive
allows you to sell the futures component and
then wait on the basis. In the soybean situation
we’re currently dealing with a big carryover
expectation for fall and it’s possible that can
change and it’s possible that can start to
become less burdensome. But the problem right now
is that we’re going to have a lot of beans and
somebody is going to have to hang onto them. And so the basis is
already discounted and likely to stay discounted. The only way to improve
that situation is to quick get a bin built and put
the beans in a bin and try to get basis improvement
and carry all the way on out into the
summer of ’20. So I wish I had good news
but when we have these levels of surplus we’re
going to deal with poor basis today for new crop
delivery and likely poor basis in the fall for
new crop delivery. Yeager: Well that kind of
answers the next question. Mike and Tony had one more
and this was Mike again. He’s asking, is it likely
that the soybean basis will improve significantly
if the trade tariffs with China are resolved? You didn’t mention that in
your last answer so that’s the only reason I
want to bring it up. Does China and the tariff
have any impact on our basis? Roach: It has huge impact. The reason that we have
such poor basis levels is because we don’t have any
business from China or haven’t had much business
from China and so when we don’t see that demand then
we don’t get the demand at the port and when we don’t
then it goes all the way back into the interior. But let me talk about the
other part that you can do something about. You can set the futures
for your new crop soybeans and we did a lot
of that this week. We had a soybean sell
signal and we sold into the market both with old
crop inventory and with new. We think we’ll have
another couple of soybean sell signals between now
and the summer and our plan is to sell on both
of them, both old and new crop. We’re concerned that the
bean inventory, unless the Chinese really change
and remove their tariffs completely or something of
that nature, we’re going to struggle to get out
from underneath this big inventory that we
have in the bin today. Yeager: And especially
with the South American crop that’s just about
ready to start coming into the bins as well. Roach: Exactly. The South American crop,
according to numbers we saw this week, farmers
there have already sold about 35% of their crop
and they’re just in the process of harvesting it,
they’ve got about 15% harvested or thereabouts. So as they proceed with
harvest it’s hard for us to get that business. Prices seem to get
discounted unless there’s a political decision that
China will take our beans in preference to Brazil’s
in which case them maybe we’ll fare better. The key here is to realize
these are political decisions and although
we wish we knew how they would end we don’t. And until they do change
we’re still dealing with tariffs there and we’re
still dealing with a difficult situation. Yeager: Do you remember
another time when we had politics influencing the
ag markets as much as we have? Roach: Yeah I do actually. I remember the last bean
embargo that we put on – so yes I remember
more than one time. One of the things that is
really sad is that for a lot of our trading
partners the biggest quantity of anything
American they buy is agriculture. So whenever there’s any
kind of a trade issue that goes on agriculture and
farmers are the tip of the spear. And so that has always
been the case and unfortunately it’s going
to continue I think. Yeager: All right. Phil in Ontario, Canada,
from Dresden up there, he wants to know, you’ve got
$10 in soybeans coming at you. He says, are $10 soybean
futures a dream deferred in 2019 if we can’t
get that trade deal? So again, tied to China,
what’s your prognosis on $10? Roach: Well, if we don’t
get the Chinese tariff or that trade situation
relieved the inventories that we’re dealing with
we’re not going to see $10 probably. There’s one other wild
card out here though, actually two. The Brazilian crop has
been hurt with dry conditions through most
of its growing season and that crop is still being
reduced on kind of a weekly basis. And so that is possible
that could change the statistics certainly. The other possibility is
United States crop when we put it in the ground we
could have problems. So that would be the
second possibility. And then of course
the third is China. So those are your
three possibilities. Right now we have China
that is a plus and we have Brazil that is a plus. We could lose both of
those pluses so be careful and make sure you get some
sales made in this price area here. This is a good price
in view of the kind of carryover that we
currently have. Yeager: So keep an eye out
and as you say in your newsletter, dribble things
out so you’re not stuck to one piece of news. All right. Lexi wants to know,
Lexi in Iowa, she’s @LexiFreund, and you
can always follow us on Twitter @MarketToMarket or
IPTVMarket on Facebook. With multiple government
reports scheduled to come out in the next two weeks,
that would be before we could have another
shutdown, how will the markets react? Roach: We’ll react
to the reports. If there are surprises,
which some people think there might be because
there’s so much space that has gone by without much
new information, then we could react to that. But I don’t expect any
shockers or surprise to come. If there is one to me it
would be likely in corn where we’ve used corn at a
faster pace here than what we thought we would and so
we could actually get some friendly numbers on corn. Yeager: All right, last
question of the ones that are submitted and then
I’ve got a couple of other ones. Dave wants to know, isn’t
it unusual to have a soybean sell signal and a
soybean meal buy signal at the same time? Roach: I thought that all
week as I wrote about it, particularly since the
meal is the largest component of a
soybean’s value. It made me concerned about
how far beans could go up when their biggest source
of value was going down or unable to go up. And so that is an unusual
thing to have happen. And you’ll be happy to
know that we no longer have the sell
signal in soybeans. Unfortunately the meal had
more pull down than the beans had lift up. Yeager: All right. Crude oil, still
north of $50. We’ve held, now we closed
at $55.28 today, up $1.59 on the week. Is that market still
headed that way? Or what’s driving oil? Roach: Well, the economic
news is just amazing. The jobs report out today
304,000 new jobs in the month, blew
everybody away. Yeager: Only 170,000
was the projected. Roach: Exactly. So big numbers, the news
out on the earnings for companies has helped rally
the stock market and we’ve also had the Fed come out
and say we’re not going to raise interest rates
here for a little bit. So we really have a lot of
positive news that kind of hit in the equity market
and of course that spills over into the energy
market rather quickly. Yeager: All right. And the dollar, we had a
retreat from a 3 week low. Usually when the dollar is
lower that’s better for our products. Are we going to go
back to the low trend? Or are we going
higher on the dollar? Roach: There’s just so
many things right now that are up in the air here. I think the dollar is
in a state of flux. We need to see what’s
going to happen with the Chinese and this
whole trade issue. And we have a lot of
things, irons in the fire right now. Yeager: It’s not a
broken record but it’s a legitimate story that
is impacting a lot of markets. Roach: It really is and
making traders very uneasy because if the deal goes
one way that’s positive, if it goes another
way it’s negative. And so it’s really
a conundrum. Yeager: All right. Well, I know one
conundrum, they just need a little cold air and that
will get them cooled off. John Roach, thank
you so very much. Good to have you here. Roach: Thanks, Paul. Great to be here. Yeager: That will do
it for Market Plus. And next week we will look
at an East Coast industry working to rake up new
Midwest markets and Naomi Blohm and Delaney Howell
will sit at the table. So until then, thanks for
watching, listening or reading. I’m Paul Yeager. Have a great week.

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