Pearson: This is the Friday, March 31, 2017
version of the Market Plus segment.
Joining us are: Naomi Blohm, a market advisor
for Stewart-Peterson.
Elaine Kub an analyst and author of the book
"Mastering the Grain Markets."
Darin Newsom, DTN's Senior Market Analyst.
And Don Roose is the founder of U.S.
Commodities.
Welcome back to all of you.
Group: Thank you.
Pearson: Elaine, when we ended the show you left us
on a great segway talking about the dollar.
We have seen that strength.
We have seen the Fed raise rates once.
Where does it go from here?
Kub: It should, I think remain strong.
The fundamental justification behind the
strength in the dollar that came about leading
into January is still there that we have slow
steady growth in the economy.
The consumer index that came out today were very
slightly up but they are upwards like .
1 of a percentage.
The economy is growing, prices are rising, there
is a slight amount of inflation in the economy.
Interest rate rises are likely to occur twice more
in 2017.
Pearson: And earlier this week consumer confidence
was printed at a 16 year high.
Does that have any bearing on this market?
Don?
Roose: I think when you look at the consumer
confidence is on the rise and I think the other
thing when you look at the dollar, you know we are
the best of the worst if you look around.
Our interest rates are rising and at the same
time the rest of the world is still struggling.
I think the dollar does stay strong probably
continues to rally but at the same time that is not
particularly positive for the exports which we
really are going to struggle with from a
competition standpoint.
Pearson: Darin, anything from a technical
perspective?
Is the dollar doing anything fun?
Newsom: What is interesting is that Elaine
and Don are absolutely right about the
fundamentals.
The dollar should be strong.
It remains the least ugly dog in the show.
From a technical point of view on the long term
monthly chart, the dollar actually looks like it has
established a long term down trend.
So, what fundamental justification for there?
There isn't any right now, but if you just throw away
the title of the chart and you just look at it, it
seems to have established a top.
If it comes down at the same time gold has
established a longer term uptrend and the euro has
actually tried to establish an uptrend.
So, none of it fits together fundamentally but
from a technical point of view it looks like we are
in for a bit a change in the direction of some of
these key financial markets.
Pearson: Naomi, do you have any thoughts on the
dollar as we look out through the rest of this
year?
Blohm: I hope it crashes.
(laughter)
Pearson: How far down does the dollar need to go for
us to get really competitive?
Blohm: We have been competitive.
If you look at what corn exports have done it is
remarkable how strong our exports are considering
the value and the strength of the dollar.
It is so awesome.
Let it fall.
Pearson: Ok.
We have got a question here from one of our
Twitter followers.
This is from Steve.
He is on Twitter at @blacknbluebird9.
He is asking is there a major currency that has
the potential to make new lows in the near future.
And he is asking the Chinese Renminbi?
Newsom: You know except for maybe the dollar
making new lows.
If we are looking at overseas, I still think
rubles is pretty weak.
It has bounced up a little bit here but to me it is
still one of the weaker currencies.
China's currency is fairly weak.
I am not even going to try and pronounce it and then
you always have to wonder about the real with all
the problems that Brazil is having.
It has seen a bounce off of its multi-year lows
here over the last number of months but is it going
to be able to hold?
I don't know.
I am not convinced.
So, if we look at that some of our key
competitors you know in wheat with the ruble and
soybeans and corn, with the real, we could be
looking at some competitors with some weak
currencies here down the road.
Pearson: Ok.
All right.
Some additional head winds facing us.
Now we have a pile of Twitter questions.
So, I want to get to them but before I do we did not
get a chance to discuss the cotton market.
First let's talk quarterly stocks.
How did they end up on the report?
Blohm: I didn't see the quarterly stocks.
I will just be honest.
I saw that the acres were up.
Almost a million acres.
Pearson: Well, we will talk acres.
We will talk acres.
Naomi, as you mentioned acres were up a little
bit.
North at 12 million projected.
Correct?
Blohm: Yes.
Pearson: Where does that put us to this year?
Blohm: That is almost a million.
Almost a million more than last year.
Pearson: Cotton acres coming out of beans or
well, corn I suppose.
Blohm: Yes and sorghum is what I had been hearing.
And actually talking about rice a little bit earlier.
Rice a little bit also is where they were sort of
switching things over if they could, but some of
those rice fields are pretty established.
Cotton had its rally on the anticipation of
needing the more acres and so actually it has a
rounded top and it has been working a little bit
lower.
Pearson: You expect to see it work to the downside?
Elaine, when you look at the cotton market is that
kind of what your thought is?
Kub: Yes, I am not super bullish on cotton and
geographically yes, it was Texas and so you are
coming out of corn acres.
This is not a Texas story but barley was down, oats
was down as far as acreage.
A lot of these specialty crops did lose.
So, cotton was unique in being a winner of acres.
Pearson: Don, as you look at the cotton market how
aggressive do you want to be marketing post report,
new crop?
Roose: I think cotton is like a lot of things.
We were up 21 percent on the acres.
Just over 12 million acres.
You know more acres out here.
Really the producer is just trying to run to a
crop that he thinks is profitable someplace that
he has some traction on it, but I think it is the
demand side that we really have to worry about a lot
of these markets and I think cotton is the same
one you know overseas China and Vietnam maybe a
little bit slow on their imports.
So, I think that is the real problem.
Pearson: Darin, any thoughts on cotton?
Newsom: I would keep it brief.
If we watch what the cotton market has done
here, the futures market rallied, we had
non-commercial money piling into cotton.
Meanwhile the future spreads were trending
down.
So you have got the rubber band principle going on in
here where you can't stretch it that much
further.
Looks like it is getting ready to snap and the
market is going to come back to its fundamentals
which means a more bearish situation.
Pearson: All right.
Our next question is from Aaron in Syracuse, Indiana
@Aaron Bobeck.
Thank you Aaron.
He wants to know, and we discussed this on the
program, but I want to know what in your mind is
the market that most exemplifies this question.
Are we going to see any significant price movement
on planting weather and long-term forecasts?
Naomi, you mentioned corn market was perhaps the
most bullish.
Is that something you really believe?
Blohm: Yes on summer weather but not planting
weather.
We all know we can get the crop planted these days.
We don't get the planting scare rallies anymore, but
I am looking for the summer one.
Pearson: Is there any commodity out there that
planting weather could really have an impact or
are we all watching for this summer and we are
needing heat and dry to really move this complex
to the upside?
Roose: I think when you look at it that you have
to really say now you are the first of April, you're
moving in the first week of April, and I do think
it is a critical time for producers.
They are going to watch very closely if we're not
at an ideal situation on planting corn, I think you
will see those acres change.
I think it is right this next week you are going to
have to watch it.
You have to remember that historically acres do
rally or so move up about almost a million acres
from March report to the June report.
So, I think next week is going to start to be
critical and I think that is part of the reason on
Friday we had a little risk spring into the
market.
So, I think we are watching it now.
Pearson: Got it.
Our next question is from Phil in Ontario, Canada.
Phil is asking, with what we have all talked about,
with corn demand projected at 14.6 billion bushels,
soybean demand at 4.1 billion bushels, can it
continue?
Elaine, is there room out there for additional
demand on corn and soybeans given what we saw
on those quarterly stocks?
Kub: I think globally we could make the argument
that the story that sustained these record
demand paces for feed grains in general, that
story is still in place.
So, if we can continue to find export markets or
find non-domestic markets somehow to build new
places for it go then demand could continue to
rise, but we are pretty well played out I think in
the United States as far as what we can use.
Pearson: Right.
Darin, thoughts on demand?
Mr. Sunshine over there?
Newsom: I think you are going to have to be a
little bit concerned about demand in there.
Again corn demand was extraordinary because
Brazil didn't have anything.
Now Brazil is going to have two big crops and
they are going to have a cheap currency.
A lot of countries are going to be looking at
that.
The other side of the corn is there is always the -
right now just talk and threats to possible trade
agreements that if these threats ever become action
all the sudden U.S.
demand isn't going to look so burley.
It is going to look a little bit weaker.
Certainly that is still a threat out there.
Pearson: It is tough to sell grain to people who
aren't allowed to buy it for whatever reason.
Our next question and this one, I am interested to
hear your thoughts.
Glen in Bryan, Ohio @glen_newcomer on Twitter
is asking what is the best short-term option strategy
a producer should consider from now until July?
Let's talk beans off the top.
Naomi, any option strategy really got you excited to
get us through that first part of planting weather?
Blohm: Well, you can take this question five
different ways.
Are you looking to try and take advantage of a market
going higher or a market going lower?
So maybe it is an open ended question?
Pearson: Yes, I think he is growing crops and wants
to know how do I not lose money so I can see my
banker and have him not fire me.
What is our best way to guarantee or at least
ensure that we are protected here?
Blohm: Well as a strategy might be and I don't know
that it is my number one but I am just trying to
think off the cuff here.
If you were thinking that the market might be in a
little bit of a range for the next few months but
yet you are worried about protecting to the
downside, you could if you have no risk tolerance,
you could buy a November 960 put and sell under it
an 860 put.
That way if the market goes sideways to lower you
have protection, you don't have margin calls.
If you have a little bit of a margin risk, you
could buy the 960 put, sell an 860 put under it
and then you could sell a call above it but then of
course you're subject to margin call if the market
should rally.
I would switch gears and go to corn and start
selling puts in corn.
That's what I would do.
Pearson: Ok.
What strategy would you use selling puts in corn?
Blohm: I would have to look to see where things
finished out.
I have traveling a lot but a Dec 350 put, I would say
would be a good one to be selling.
Pearson: Dec closed today at 388 but I don't know
where the prices ---.
Blohm: Well, I would give yourself room.
I am conservative that way.
Roose: Mike, I think you know if a producer is
really trying to give him a chance to really hit a
home run, give yourself a lot of different
directions.
I would prefer that they go in and buy September
370 corn calls are already worth some money and I
would sell a Dec 470 call against as a premium
contract.
I think it gives you a lot of variation.
If the market rallies you can sell cash against it.
You can get out of the call.
You can have a premium contract on but give
yourself a real chance.
Pearson: All right.
Darin?
Newsom: I would probably look at it a little bit
differently.
I am not overly crazy about selling options in
here because the volatility is -- we have
just seen it erode.
So, this is an opportunity to buy some and Don's
strategy of going out to September is a pretty good
strategy.
You can buy some time with the lower volatility.
The problem is September acts a little squirrely.
It doesn't know if it is old.
Doesn't know if it is new.
You could also look at going into short dated new
crop July options which is based on the December
contract down here with the market showing it
might be trying to turn around on both its daily
and weekly charts, last up through July which would
carry through the end of June to catch the seasonal
rally.
Low volatility might not be a bad opportunity.
If you have done some forward contracting this
would, you know - if you have done some selling buy
a call back against it.
Some of these short day new crop calls against low
volatility might work out.
Pearson: Elaine, turning to you.
We have got a question here from Southeast
Wisconsin.
He is on Twitter at @cranegrain.
He wants to know what are your thoughts looking
further out into the future, Dec 18 corn at 395
plus, does a grower sell a third?
Kub: Not a third.
No, not a third.
We talk about weather- going that far out you do
sort of expect to see some sort of weather, something
happen somewhere in the universe right?
Like it is - the thought is that there could an El
Nino year coming up and El Nino may not affect U.S.
Grains but it could affect palm oil.
It could affect lots of commodities.
It could bring in a burst of bullishness.
So between now and then I wouldn't be selling a
third and I wouldn't sell anything at 395 honestly.
I think we could aim higher than that.
Pearson: All right and Naomi, I am guessing you
would probably agree hold on, don't be marketing too
aggressive?
Blohm: I agree and I am waiting for Elaine to call
the high like she did last year.
Pearson: Yes because Elaine, to her credit, she
called the high in the corn market.
Not just in the week or the month but to the day
the 449 peak, Elaine Kub called it.
What is the date we should be looking for this year,
Elaine?
Kub: June 18th.
So, it was based on statistical expectation of
seasonally what is the date with the highest
probability of seeing the December corn contract hit
its annual high.
It turned out to be the middle of June because
that is when we do tend to have the most weather risk
in the market.
So, it was June 18th last year because it hit there
on the same date again the statistical expectation is
the same this year.
So, our best chances of seeing a high
statistically is the middle of June but it
could be any time in here.
I think we need to be spreading out our sales
all through that spring timeframe to get a good
shot at it.
Pearson: All right.
We did not get a question but I have a question for
Don Roose.
Cows, come down pretty substantially over the
past two years and their price at the sale barn.
Is it done?
Is this the time to get in there and start buying?
Where are we in the cattle cycle?
Roose: Well and you have mentioned the cattle.
The cattle - the cows peaked out at about $2200
and right now they are about $1200 for a cow.
But the cattle cycle we bottomed to $1113.
You know we topped out in prices in the year 14/15
and so we are really probably going to bottom
out somewhere in the year 2019/20.
So, I think we have taken - we are sliding to the
low end of the range again, but before we we
very bottom and start to move up it is going to be
a little while yet but the cow/calf operator is the
one that probably has the - sees the tightest
margins.
Pearson: Looking out to the future.
They are the ones that haven't lost their pound
of flesh.
Roose: Exactly.
Pearson: Well with that, I want to thank our entire
panel for taking the time to come down and digest
these reports and shed some light onto the
markets.
Thank you guys.
Group: Thank you.
Pearson: Join us again next week as we look at
how one-stop shopping is connecting growers and
buyers.
Until then, thanks for watching OR listening.
I'm Mike Pearson.
Have a great week!
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