Howell: This is the Friday, June 1, 2018
version of the Market Plus segment.
Joining us now is Darin Newsom.
Darin, welcome back.
Newsom: Thank you, Delaney.
Howell: Darin, we got quite a few great social
media questions this week so I'm kind of just going
to go down the list here.
Let's start out with Troy in Cobb, Wisconsin.
He's looking for some insight on the crude oil
markets.
How high, or how far high could it go?
And how might it influence the commodities throughout
the summer months?
Newsom: I think it's topped.
We got it up into the 70s, we couldn't quite get it
to 80, at least not the West Texas intermediate
market.
I think it's topped.
We've seen our seasonal demand push, we always see
that over the course of the spring and then when
you get into late May through mid-June is when
you normally see a top in the crude oil market,
gasoline and heating oil and so on.
So I think we have put a high in the market now.
I think we're going to come down, we're going to
get some bounces along the way.
Bu with OPEC talking about taking off its production
cuts I think we've got some room now for the
market to go down.
Howell: If producers haven't locked in those
fuel needs yet for the summer should they be
waiting or do you think they should lock in now?
Newsom: I'd be waiting because to me we have just
started to break.
This was the first serious week or the first serious
selloff we've seen over the course of a week.
It was a shortened week, come back next week, I
think we've got some more room to go down.
Howell: Okay.
Let's take another question here from Richard
in Belle Eagle, Tennessee.
King cotton is back doing his royal strut.
And Katie D., who worked at DTN with you, says
cotton is booming even in Kansas.
What do you say?
Newsom: Yeah it is.
Going back to earlier this spring you know it's dry
in Kansas where they're abandoning wheat, and this
is Kansas, Oklahoma, Texas, abandoning wheat
and they're putting cotton in.
Now, cotton is a long-term commitment.
If you're going to go out and get all the equipment
and do all this, it's hard on the land, it's tough on
the land.
But yeah, I think we saw more acres go over into
cotton.
Wheat was abandoned, they went into cotton.
Now, cotton is still suffering from the effects
of weather.
We talked about Alberto on the show but we've still
got the severe drought going across the Southern
Plains.
So I think more acres went in.
We'll see what it does to overall production.
Right now it doesn't really seem to be slowing
down the price much.
Howell: Where do you think we're going to end up then
with that being said, having some wheat acres
switched to cotton?
Newsom: Yeah, I think in the long run we won't know
until January what acres, what final acres are.
Howell: Do you have any guesses I guess I should
say?
Newsom: I'm not going to get into the guessing game
as far as acres.
I'll let USDA do all the guessing.
But I do think we're going to see, again we're going
to see larger acres than what we saw last year,
some of it is being built in.
I think it's the yield though that is going to be
the question.
I think yield is going to be down again because of
the weather in both the Southeast and across the
Southwest Plains.
Howell: And as you mentioned during the
regular portion of the show, definitely adding
some support to the cotton markets.
I didn't get to ask this during the main portion,
but what are you looking for, for some support
price level wise?
Newsom: It didn't leave any when you have a
straight up market.
So we've got the Dec contract sitting up around
93, 94 cents right now.
How high could it go?
No idea.
When you get these rocket rides you have to just
kind of ride them out.
When it tops, and it didn't leave any support
underneath, it's got a long way to come back
down.
I don't see that happening because I think we're
still going to be tighter supply.
But it is going to have a lot of room to come down
once we get through this spring, summer timeframe.
Howell: Okay.
So something that we'll continue to watch and see.
Another question here, Greg would like to know,
do you think the packers will buy sports teams with
their record profits this summer?
Newsom: Well, it's probably not the Packers
he's talking about, but they could buy the Lions
because they're not buying any championship history
and they're probably relatively cheap.
I say that for my friends Angie and Phil.
But the packers themselves, the livestock
packers, I visited with John Harrington, DTN
Senior Livestock Analyst, about this and what we're
seeing right now, yes we're seeing extraordinary
profits being made by the packers.
But is this a seasonal move?
Yes it's stronger than it normally is but so are so
many other, just like so many other markets.
But this tends to peak in mid-June, somewhere in
that mid-June timeframe.
By the time we get to July those packer margins are
starting to fall back off.
So it's extraordinary, it's rough, it seems
completely out of line and from a numbers point of
view it is, but from a calendar point of view
this is what usually happens.
Howell: So when we look at the mid-June time are we
going to see some of the packer margins that
they're losing transfer into either the cash or
futures contracts?
Newsom: It might transfer some but I think the
biggest thing we're going to see is just start to
see those margins start to come down, we're going to
start to see some of the buying start coming back
out of the market.
I don't think we're going to see these big pushes
that we've got going on in the cash side right now.
Howell: Okay.
Let's take another question here.
Phil in Ontario @Agridome, one of our favorites here.
What scenarios do you see for December corn?
What are the support and resistance levels going
forward?
And based on the past two years history and
seasonality, has the late spring/early summer top
come early?
Newsom: Yes to the last question.
Howell: Okay.
That's quite a lot but we can break it down.
Newsom: Yeah.
I think the summer top is, I think the early summer
top, it usually occurs the first week in June, first
or second week in June, I think we have put it in
place.
That was up around $4.25 on its weekly close, on
its weekly close on the chart.
Where do I think it could fall?
If we look at the seasonal pattern it could fall to
about $4.
That's not a lot of pressure.
Could it go lower than that?
Absolutely.
If we get into the heart of summer and we get into
say July, late July maybe into early August and
we've had ideal weather and we're starting to talk
about the possibility of 175, 176, 177 bushels per
acre again we're going to go lower than $4, we're
going to drag it back down below $4.
Do I see the market collapsing this year?
No because, again, we don't have the competition
on the world stage.
But once we rebuild our, rebuild out stocks, once
we add to our stocks then yeah, the market has got
more room to go down as we get towards the middle to
the end of the '18, '19 marketing year and looking
ahead to the next crop.
Howell: Okay.
And are there any months specifically you're
watching?
Are you watching the December?
Newsom: Right now I'm watching the Dec contract.
That is the one that is most interesting because
that is the new crop contract.
So I'm certainly going to watch how that works over
the summer because summer is always pivotal for the
December corn contract and November beans contract.
But yeah, I'm going to be keeping a close eye on the
Dec and Nov beans.
Howell: Okay.
Let's take another question here.
As we look at weather you mentioned earlier in the
program to me that Glen in Bryan, Ohio had a great
question so we want to make sure we get that
answered.
When will the market start reacting to the predictive
seasonal talk about a potential drought in both
the Midwest and South America?
Newsom: Yeah, Glen and I talked about this and I
asked him to send this question in and when he
sent it to me, when he sent this question in, and
it's a great question, and it goes along with the
seasonality that we talked about before in the
program.
And so when are we going to see this seasonal talk
of drought really start to come into play?
And my response is different than most people
is it already has.
We talked about it in the program.
The most important drought that we're going to see
this year happened this past February in
Argentina, starting in Argentina and spreading
into Southern Brazil.
That's the most important, that is the critical
drought event that we're going to see because
without that we're looking at probably a collapse
across the board in American agriculture.
But it didn't happen because we had that
drought.
So let's say it gets hot for 10 days here in the
United States, there's going to be a lot of talk
about it, analysts are going to get all worked up
and markets are going to get excited but it doesn't
mean anything.
The real damage has already been done.
The real change in global supply and demand was
already done and that was this past February.
Howell: Okay.
So it's something that has already been priced into
the market as well?
Newsom: I think that part of it has been priced in.
Now, if it gets to where it just refuses to rain
here in the United States, yeah, then all these
scenarios about people talking about $5, $6 corn
certainly could come true.
There's no reason why it can't.
But I'm not going to sit and wait for that to
happen.
Howell: And we can't predict the weather.
Newsom: No, I can't predict the weather any
more than I can predict markets.
Howell: Well I'm certainly sure you wish you could at
some times.
Let's take another one here from Jeff in Lincoln,
Nebraska.
What should trigger a farmer's decision to sell
new crop corn right now?
Newsom: I would look at seasonality for one thing.
Of course I always watch price patterns.
But also how does it fit in?
We got up to $4.25.
Does that work for you?
Can you price some of it in there?
Can you put some sort of protection in place be it
options based on the idea of seasonality turning
markets that we've got the possibility of some
non-commercial money coming out of corn for a
while, all these things could come into play.
But the bottom line is how does it fit with your P&L?
If you can make money when it's up in that $4.20,
$4.25 why not pull the trigger on some of it?
Howell: And I think maybe we should clarify just so
producers at home know what you mean when you say
seasonality.
Are you talking about compared to this time last
year?
Newsom: What I look at is the seasonality say going
back in corn right now I'm comparing, I usually
compare to five and ten years.
So what has it done over the previous five years?
What does it normally do this time of year over the
last ten years?
And if I look at both of those patterns what I see
is this early June timeframe to get some
sales on the books.
Everyone says I don't know because the critical
months are June and July.
That's not the way the market behaves.
The market usually puts a top in before everyone
calls it a critical timeframe.
Howell: Okay.
Let's take a couple more questions here.
John in Iowa said, how has the trucker strike in
Brazil and the proposed tax increases in Argentina
impacted Chinese demand for soybeans and source of
beans?
Newsom: Pumped some life into the U.S.
soybean market that would be dead otherwise.
We're in the time of year where we usually don't
ship anything but now we're still shipping
soybeans.
So yeah, the trucker strike that lasted nine,
ten days, whatever it was, the fact that Argentina's
crop, soybean crop is dismal, yeah both of those
have come into play.
Both of those have kept China interested in the
United States' supplies of soybeans and probably will
here through at least the end of the marketing year
at the end of August and I think it's going to
tighten up even more and get even more interesting
when we get into that September, October
timeframe.
Howell: For sure.
A couple more here.
Lee in Wisconsin, we talked about this a little
bit or alluded to it a little bit.
But will the sudden weather that we've had
have any impact on traders' view of the crop?
Newsom: Traders, at least back in the day when
humans traded the market they were always
interested in the weather.
And now that algorithms do most of the trade you just
feed it in the latest weather forecast and it
will churn out a few trades here, a few trades
there.
So yeah, it's different but it's still the same.
So yes we get into this time of year and weather
is going to be what everybody talks about
every day, every week.
But as we see in the seasonal patterns it's
really not that important because we usually wind up
making a crop somehow, unless it's wheat, but
yeah traders will pay attention and traders will
trade it.
Howell: Okay.
We have just one final question here and it's a
corn question.
Craig in Adams, Minnesota says, have we seen the
marketing high for corn since corn was in the red
this week?
Newsom: I would say we've seen the '17, '18, we've
seen the summer high.
I would say we've seen the summer high for corn
unless, I'll throw out an unless, going to have to
put an asterisk on it unless something does
happen with the weather because, again, the
competition that we were expecting from Brazil,
Argentina, other countries, isn't there.
So if we continue to ship corn at this extraordinary
pace that we're seeing here as we get further
into the second half of the '17, '18 marketing
year it's going to tighten up the supplies.
So then we get any sort of weather scare, that could
lead to new highs.
I don't think it's going to happen.
I'm not expecting it.
I'm not positioning myself for new highs.
But they could certainly happen.
Howell: You touched on something that I want to
just end with here as we wrap up Market Plus.
Can you give us a quick update on where the
Brazilian corn crop does sit?
As you mentioned there quality is a concern.
Newsom: The second crop, the safrinha crop, what we
see every time we get a headline on this or every
time we get an update on this from Brazil itself
they're chopping more off of that crop, they're
taking it down, they're ratcheting it down.
And so what we'll finally see is eventually we're
going to see that also reflected in USDA WASDE
report.
So those production numbers are going to
continue to come down and as those numbers come down
global supplies come down and that just means more
interest still on the U.S.
market.
So yeah, it just keeps getting ratcheted down a
little bit each week.
How much further it could go I don't know.
Howell: Okay.
Definitely something we'll continue to watch.
Darin Newsom, always a pleasure.
Newsom: All right, thanks Delaney.
Howell: Join us again next week when we explore how
legislators and lawmakers are pondering the future
of ditch mowing.
And John Roach will sit across from me at the
Market to Market table.
Until then, thanks for watching, listening or
reading.
I'm Delaney Howell.
Have a great week!
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