Pearson: This is the Friday, January 27, 2017
version of the Market Plus segment.
Joining us now is Darin Newsom.
Darin, welcome back.
Newsom: Thank you, Mike.
Pearson: We did not get a chance to discuss really
the only bright spot in the world of ag
commodities this past week and that was the cotton
market, continued to post solid gains, $2.14 to the
upside on the nearby.
What is cotton trying to do here?
Newsom: We've finally found a market that isn't
suffering from oversupply, that actually has some
strong demand issues worldwide.
And it's pushing the market up.
We've seen the March contract really take off,
looks like it wants to target the 78 cents level.
It's a good, solid market.
Now, if you look out to the December it's not
quite as bullish.
It may try to pull back a little bit, everything
might calm down a little bit by the time we get to
new crop.
But still, it's trading in the mid to low 70s so it's
looking better than it has for quite some time, we
have the right kind of buying coming into this
market and it looks like, at least as far as the old
crop is concerned, that it could continue for a
couple more weeks.
Pearson: Okay.
Now, do you think at these price levels we're
starting to see cotton buy some acres back from
beans?
Newsom: Unlikely, but it's possible.
In certain areas of the country it's possible.
I think that could be some of the hesitation that
we're seeing in the December contract, the
reason that it's not quite moving as quickly as the
March, this looks more like a short-term short
supply and a strong demand situation sort of play and
by all means it could certainly help the market
at least over the next month or so maybe.
Pearson: Be taking advantage of it.
Selling that old crop do you want for it to hit 78?
Newsom: I wouldn't sell too soon.
It's going to spike.
But let's give it a little room in here but the
minute it looks like it's losing some momentum I
wouldn't hesitate.
Pearson: On new crop, same story, continue to let it
ride?
Newsom: Yeah, it may want to ride the coattails for
a little while.
But, again, I'm a little more concerned by the
weekly charts on Dec than I am on the March that it
could start to falter in here.
Pearson: Last week on this program, Darin, we had
Angie Setzer on and she and I had both received
numerous questions from producers, as I'm sure
you've heard out in the countryside, tremendous
basis affecting, negative basis I should say,
affecting Holstein cattle feeders.
And she and I had both heard stories from folks
that we considered reliable and we talked
about it last week on the show.
And after we talked about it we mentioned some of
the rumors that we had heard, one of them we
heard was that Tyson, something had happened,
they had quit buying Holsteins in the open
market.
So this week we decided to dig in a little bit
further and executive producer Dave Miller
reached out to Tyson Meats and they responded.
They got back to us and they said, they do
continue to harvest Holstein cattle from
existing long-term supply agreements.
And they said, meanwhile, customer demand continues
to drive the direction of our procurement needs.
So that was their first statement.
And then we asked, okay, was there any kind of
conflict with certified Angus beef, which was the
other part of the rumor we had heard.
And Tyson said, that is not true.
Certified Angus beef is a USDA certified G1 program
and hide color and quality grading are not the only
factors that must be met to qualify animals for the
CAB stamp.
So that was the response we received from Tyson.
Certified Angus Beef also reached out to Market to
Market and they sent us a list and you can find it
on their website of all the quality measures that
must be met to have beef be labeled CAB.
So I encourage all of you to check that out.
It didn't help us really to find an answer yet with
what's happening in this soybean, excuse me,
soybean basis, man, this Holstein basis, but Market
to Market will continue to look into it and as we get
more answers we'll report it.
Newsom: Next question to you, Darin Newsom.
Marty in Buxton, North Dakota, you're not a very
sunshiny guy when it comes to the wheat market.
But Marty is up in North Dakota, he's looking at
that spring wheat market, that high protein wheat.
We have seen decent demand for that globally.
He wants to know, what is the percent spring wheat
stocks of total wheat stocks?
Newsom: Yeah, and this is something that you and I
touched on in our market discussion, the fact that
we have almost 1.2 billion bushels of total wheat
stocks, 53.3% ending stocks to use, unheard of
numbers.
But after seeing that question I broke it down a
little bit and if you take the spring wheat out
that's only 17.3% of total wheat stocks.
So we've actually got a tighter situation in both
ending stocks, less production, more exports,
the things you mentioned, and that's why we've seen
spring wheat just run away from the winter wheat
markets.
We've got inverted futures spreads, we've got a
stronger up trend in the spring wheat market than
we could ever dream of in the winter wheat market.
And how long can it last?
One of our buyers, one of our major buyers is Canada
of spring wheat.
They didn't have as much protein as they needed and
we had some protein down here.
So, again, one of our trade partners.
So, to quickly blow the candle out on that little
piece of sunshine, is how long can we continue to
export if a problem arises?
Pearson: Okay.
Both Canada and Mexico signers to NAFTA, North
American Free Trade Agreement, which there is
discussion of renegotiating in some
capacity.
Next question is from our friend Philip in Ontario,
Canada @Agridome.
And he wants to know, excuse me, Philip wants to
know, is it realistic to think as of now to see
more U.S.
soybean acres than corn in 2017?
And does the soybean price need to come down or the
corn price need to go up before spring to even out
2017 planted acres?
Will we see a reversion to that 2.4 ratio that we
always talk about?
Newsom: I don't think so.
Not yet.
Not yet.
Not in the '17 crops, '17 contracts, we're not going
to see that.
And if we do it's not going to be until harvest
time that we see that type of correction.
Pearson: Just because demand for beans has
pulled that market so much higher?
Newsom: Yeah.
You know, and we've got that undercurrent of
demand, we've got the question of what's the
ending stocks really going to be?
Is it going to be 170 million bushels versus 420
million bushels?
Is it going to even be down at 310 million
bushels because that becomes beginning stocks
for the next year?
So, is it realistic to imagine a situation where
we could see more U.S.
soybean acres than corn acres?
It's probably realistic to imagine that sort of
thing.
I'm still doubtful because of the U.S.'s tendency to
once we start planting corn to keep planting
corn.
But if there is a market that's saying the
opportunity is here, it's this year.
Pearson: You mentioned the tightness, the demand
story that exists in winter wheat.
I've heard a lot of soybean enthusiasm coming
from the northern plain states.
Is winter wheat buying some acres with these
price levels?
I'm not all that familiar with the price structure
in producing wheat?
Are we profitable in spring wheat?
Newsom: In spring wheat, spring wheat is probably
profitable.
It's probably on the road to getting profitable, let
me put it that way.
Pearson: Beans are still a better choice.
Newsom: Exactly, because of the protein premium.
The minute the protein premium goes away from
spring wheat to hard what or at least gets cut back
then you're back into the old thing that wheat is
just wheat and one bushel is too many, one bushel
leftover is too many.
So I think spring wheat acres are probably going
to stay about the same, maybe gain a little bit.
Winter wheat acres obviously are going to
lose some ground and as you mentioned up in the
Northern Plains they're really looking at going
heavy and beans pulling from some of the other
pulse crops and some other specialty crops probably
going to lose ground.
So I would say, at least from what I've heard,
spring wheat acres probably going to hold
about the same, probably still see a pretty solid
market at least over the next month or so, then
we'll have to see if we're able to continue
exporting.
Pearson: Okay.
Now, Darin, this program and then here during this
Market Plus we have danced around that confluence of
commodity market supply and demand and policies
coming from regulators and legislators and
presidential, new presidents, I guess we can
say now, he's no longer President-elect.
We've got a question from Glen in Bryan, Ohio.
As you look at that convergence of factors, in
regards to the commodity markets, what potential
presidential policies should be of greatest
concern?
And I wanted to ask this question of you because
you are a technical analyst so you watch the
charts.
At what point do policy proposals, or perhaps even
policy enactments, overwhelm the charts, in
your opinion, to drive a market?
Newsom: I think we're there because the basic
tenet of technical analysis is that it takes
everything known in the market and prices it in
before it's known in the greater public.
But what we're dealing with now is nothing but
unknowns.
And in our conversation of feeder cattle I talked
about the long-term trend.
I see long-term trends in all of these different
markets.
They can all come unhinged, they could all
get blown up here.
What policy should commodities in general be
concerned about?
All of them.
Let's look down the list, trade agreements,
pipelines, everything, from energy markets to
metals markets to the interest rates and so on,
grains, all of them.
Pearson: Producers have to be on their toes.
Newsom: They have to be on their toes, they have to
be up on these latest developments what's going
on with policy and not just sit back and say it's
just Washington.
No, these are going to have some real effects on
not only the grains but energy markets, livestock
markets, you name it, all of them.
Pearson: Okay, now ordinarily, Darin, at this
point in the program we would as you a commodity
definition, give us the definition of a term
commonly used.
But this week is a little bit different.
We are excited to have welcomed to the Market to
Market studios a group of young farmers from the
Iowa Farm Bureau.
They're here taking a tour, seeing how the
sausage gets made in the world of television and a
couple of them had questions for you.
Several asked about the Holstein basis.
So we will continue to dig into that.
But we also have a question here from Adam
Smith.
He's from Mount Pleasant.
And we touched on this on the program.
But he wants to know how much 2017 soybeans should
I sell now or in the near future?
As a percentage how hedged do you want to be?
Newsom: If I'm just doing options I have no problem
being 100% covered with options.
If I'm out there doing hedges that's pretty
ticklish.
The first big hurdle, well we're going to get a
couple of hurdles coming up soon, that's in
February we're going to get the outlook forum from
USDA and they're going to kind of set, I don't know,
people say it sets some sort of parameters, I
think it's a waste of time and then we get the
prospective plantings report, which is just a
little bit less of a waste of time because it's still
just guesswork.
But those things could certainly put kind of an
anchor on the new crop soybean market.
So if I'm going straight hedging probably going to
be more aggressive than I usually am, 50% at least
with the markets here in the $10.20, $10.30 mark,
then look for some opportunities for the
market to dip down, buy some short-term options,
some call options to go back against it in case we
do get a spring, summer rally like we normally do
or we see the situation where we don't get the
acres that everyone is talking about.
So yeah.
I would be more aggressive hedging but also be
looking for opportunities if the situation arises to
get some short-term calls bought back against it.
Pearson: Reown it and find a way to capture some
gains if and/or when they come.
Newsom: Right.
And then when the spring, summer rally comes, get
out of the options and you're back to your short
hedges.
Pearson: Alright.
Our final question is from a young producer, Donny
Conway.
And he is asking, we talked about the feeder
cattle market, you looked out five to seven years in
that cattle cycle.
Donny wants to know, on a short-term basis, less
than six months, what can we expect if we're coming
to the top of one wave, what does the next six
months look like?
Newsom: I would say initially we're going to
come down and as we talked about usually when you get
what pullback, that first pullback, that's a wave 2,
you could pull back 75%, 80% of the first save.
So we could get within sight of that, I'm just
going to round it to $115 low from last October, we
could get within sight of that, then hold, flatten
out for a little while, then start to move higher
again.
So, next six months at least initially what we're
going to see is some pressure, then probably
moving sideways and then start to move back up.
Pearson: Alright.
And we should expect that wave 2 high to be a little
bit higher than the wave 1 high.
Newsom: Theoretically that's what happens.
I just looked at some charts where that didn't
necessarily happen.
But theoretically that's what is supposed to
happen.
Pearson: Alright.
Well, Darin Newsom, thank you so much for taking the
time to join us this week.
Newsom: I always appreciate it, thanks for
having me on, Mike.
Pearson: We enjoy having you.
Join us again next week when John Roach joins me
here at the Market to Market table.
Plus we'll look at how a plant disease is hammering
Florida's citrus industry.
And if you find value in our work, please consider
clicking the donate now button on our website.
So until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week.
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