Howell: This is the Friday, November 2, 2018
version of the Market Plus segment.
Joining us now Don Roose.
Don, welcome back.
Roose: Great to be back, thank you.
Howell: Don, there were a couple of things that we
didn't get to touch on during the main program
but I wanted to make sure we touched on now in
Market Plus before we get to our great social media
questions.
The first one being the feeder cattle markets.
Can we hold above $150 in the January contract?
Roose: Well, the feeder cattle you have to be very
careful because there's a lot of moving parts.
Number one, the corn market has good underlying
support and if it continues to move up that
is a little bit of an anchor.
The other thing out here is the interest rates are
going up gradually.
So those two things are a bit of an anchor.
And the fat cattle market we think is probably close
to topping out in here short-term on the futures
market, not necessarily the cash.
So we think that there is some downside risk in
feeders seasonally.
So don't be surprised if we break $5 or $10 from
here.
Howell: Okay.
Don, the other thing we wanted to make sure we
talked about was the baseline numbers report.
Before we get into kind of the nitty gritty of that
will you just explain for producers what that report
is for those that have never heard of it before?
Roose: Yeah, the baseline report is a report that
the government puts out from a budget standpoint
so they know what to work with from a budget going
forward.
But it is one that a lot of times in November we
don't look at.
They're going to put out another one in February
but everybody is so concerned about what the
acres are going to be, what things look like next
year that we did look at it this year.
Howell: Break it down for us then.
What were the important components that came out
of that report?
Roose: Yeah, I think if you look at it next year a
lot of talk on acres.
Corn acres they had up about 3 million, they had
soybean acres down about 6.5 million.
What does that all mean?
From a yield standpoint they had yield at 50
bushels down from where we're at this year on
soybeans, corn yield at 176 area.
But the price they had for next year is $3.90 on
corn, up a bit, and they had soybeans at $8.75.
Howell: Okay.
Let's talk about acreage estimates here.
You mentioned 2007-2008 crop year.
Walk me through that and how that could be similar
to what we see in 2019.
Roose: Yeah, the big acre debate is on right now and
if you look at another year that we had where we
had this huge uncertainty, big acre jump was from
2007 to the 2008 year.
And in that year the corn acres unbelievably jumped
15 million acres, the soybean acres dropped just
under 11 million, 10.8 million acres.
What the real catalyst was on that is soybeans were
just too cheap.
We forget about this, it's only 10, 11 years ago.
But soybeans in September on the board were $5.64,
$5.65 area so that's a low price.
At the same time we had the ethanol boom just
beginning so corn was on the rise.
So if you push the producer with numbers he
will change is our theory.
So watch it close but it's a big debate out here.
Howell: Don, my next question, you know what
it's going to be.
What are we going to see then for your acreage
estimates for 2019?
Are we going to see an 11 million acre shift?
Roose: I think it's work in progress but I think
we're going to have to watch very close what
happens with this, the trade negotiation with
China.
But I can tell you in soybeans today on the cash
sub-$8 and corn stays closer to $4 if that's
possible I think you'll see an acre switch that is
much bigger than people think.
So it's work in progress, the producer hasn't
planned yet either so we're going to watch it
very close.
Howell: And I'm sure a lot of producers at home are
watching it very close.
I think the other thing a lot of producers are
watching closely is commercial storage and we
talked about it a little bit in the main program
but we've got a good question here from John in
Nebraska.
He would like to know, commercial storage was
sold to stop storage.
Is it time to buy back in on both corn and beans?
Roose: I guess if he's selling the crop because
he didn't want to put it in storage and pay the fee
if you look at it that way I think you should retain
ownership is what we think.
Howell: For both corn and beans?
Roose: For both corn and soybeans.
Now, you don't necessarily have to own the futures
because you can go backwards.
But you probably owe it to yourself when you're below
the cost of production or at the cost of production
to reown it with some option strategies, you can
buy some $3.75 March corn calls to a $4.05.
You have to build that model.
You spend about 10 cents to make 30.
I think those are the type of things you're looking
for.
The same thing on soybeans, spend 15 cents
to make 60, go for the little windows right now,
but try to retain a little bit of ownership and try
to add some value to it.
Howell: Speaking of little windows, we saw a little
window here in the soybean markets which leads to our
next question.
John from Twitter would like to know, does the
soybean rally have legs or is it a blip?
How can people ever afford to grow corn again?
Roose: And that goes to the acre switch.
I think that's what he's saying too.
But I think soybeans, I think what you did find
out this week is the breaks are going to be
more shallow.
I think people are going to be very respective that
any day that there's a negotiation signed with
the Chinese on trade that the market is going to put
on a quick run to the upside.
It's probably going to be in the area of 40 to 60
cents depending on where you're coming from.
I doubt if soybeans can get over the $9.80, $9.70
area just because we were lugging around an 800
million carryout.
It's tough.
But I think that will cause some excitement to
the upside.
Howell: Do you think we'll see $9 soybeans here in
the near future?
Roose: Well, if you look at it from the basis
standpoint if the basis, I think that is what the
producers are looking at is flat price, because on
the board we got close this last week to $9.40,
went to $9.36 and three-quarters.
So if you put a normal basis on that in some
areas you're back to $9 by the time you hit the
spring.
So that is what we're saying, you have to try
and merchandise your way out of these low prices,
use the basis to your advantage, use the carries
to your advantage in corn, beans and wheat.
Howell: Okay.
Let's talk about corn prices.
We talked about soybeans, now let's take a question
here about December corn of 2019 specifically.
Phil in Dresden, Ontario said, with December 2019
corn at $4 and a huge swing back to corn acres
possibly in 2019 are these future levels rife for the
taking based on the last 5 year average?
Roose: That's a good question and I think so.
We just talked about how the acres could switch and
no doubt about it.
The corn market the last few years has only been
able to run on weather problems to $4.15 to the
$4.50 area, $4.15 to $4.50.
So we got up this week close to the $4.04 area.
There's no doubt if you put a carry on that of 26
cents you're up at some pretty decent levels
already.
You're talking easily close to $4.40.
So yeah, I think you have to, it just depends on
what kind of risk management you use.
But you certainly should be doing something, do
some hedge to arrives, buy some insurance policies
for weather.
But if we have that acre switch you could be
looking at the high end of the corn market before we
get weather scares.
Howell: Speaking of acreage switch, we have
Richard in Belle Eagle, he is confident that cotton
acres are also going to increase here in 2019.
And with that he said what are the fundamental and
technical factors driving the cotton markets right
now?
Roose: Well, I think he's right, I think the cotton
acres probably do go up and the cotton acres
probably go up because soybean acres down, maybe
even some corn acres down.
The issue that you have, much like we have in a lot
of these other commodities, the price is
just probably too low.
But on the baseline projections the government
didn't give you a lot of future optimism there
either.
It's just a matter of the best to the worst to plan
I guess is what you're saying.
And the Chinese were the big hope again.
If we have trade negotiations that are
positive, which we all hope, then I think we get
back to a more normalized market, one that gives
support not only to cotton but the grains and the
meat markets also.
Howell: Yeah, absolutely.
Don, we've got one final question for you here and
this is not usually your area of expertise.
We're going to be talking about the milk markets.
We've got a question here from Kyle in Corvallis,
Oregon.
What is the outlook for milk prices in the next
year?
Roose: Yeah, well, I can tell you I've been in a
lot of different ag markets and I did grow up
partly in a dairy operation too.
But anyway, when you look at it in the '80s the milk
was about these prices, hasn't changed a lot and
the great equalizer is always supposed to have
bigger production, like we have in a lot of
commodities, and I think the milk market is kind of
stuck in this range, a tight range.
I think the way the producer can help himself
is make sure he buys the inputs correctly, cover
your meal down in these areas, cover your corn
down in these areas and at least cover the, lock in
the low end of the price because there's nothing
worse than if the inputs also rally up out of here.
If the production, we've got over production is the
problem and slower exports.
So do what you can to help yourself and I would buy
the inputs.
Howell: So should producers, dairy
producers, specifically be looking to lock in their
feed needs right now?
And how far into the future should they be
locking in those feed needs?
Roose: I think I would and I think I would lock them
in all the way into the early summer because that
is the risk if we have some weather problems in
the crop.
Basis levels are wide so make sure you take
advantage and they should be buying the cash, if you
can't buy the cash buy the futures, if you don't want
the margin call buy the options.
Howell: All right, Don Roose, thank you so much.
Roose: Thank you.
Howell: Join us again next week when we'll explore
how one non-profit agency is feeding millions with
food from overlooked sources and Sue Martin
will join 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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