Market Analysis: Don Roose

Geopolitical developments influenced domestic movement in the trade. For the week, the nearby wheat contract shed 11 cents, while July corn lost 2 cents. Thursday’s action of a possible hedge fund liquidation overshadowed delayed planting in the northwest Plains region in the soy complex. The nearby contract improved 27 cents. July meal added $2.40 per ton. July cotton decreased $2.85 per hundredweight. Over in the dairy parlor, June Class III milk futures expanded 9 cents. The livestock sector was higher. August cattle put on 85 cents. August feeders increased $2.40. And the July lean hog contract enlarged by $2.73. In the currency markets, the U.S. Dollar index declined by 147 ticks. July crude oil strengthened $4.48 per barrel. COMEX Gold added $8.70 per ounce. And the Goldman Sachs Commodity Index improved almost 24 points to finish at 789.80.

Yeager: Joining us now to provide insight, our old friend Don Roose. Hey, Don.

Roose: Great to be back, Paul.

Yeager: Good to have you here as we head into this holiday weekend. There was always this standard of we have all these positions in place to hold us until Monday night's trade. In the wheat markets, lets start there, is the bottom in?

Roose: Well, it's a volatile market, Paul. And I tell you, this thing is moving very fast and you really had to be fast on your feet and knowledgeable with the technicals because we move, you hit some technical points with some of the fund buying and you move into over bought and over sold levels just very fast. So, is the bottom in? I think what this market is about is trying to sort out what the risk management is in the market as we're trying to figure out what the world supply is. And you alluded to it in the program that are we moving into a food crisis? It seems like in the wheat we have one problem after another. If it's not Russia/Ukraine, it's the Indian problem. So yeah, a lot of issues on the table.

Yeager: And it is geopolitical. We have Russia making contact with Brazil -- I'm sorry, China making contact with Brazil, which impacts Russia, which impacts India, everything is tied together. So how does the American producer sort this out? You talk about trying to sort the risk. How do they protect themselves right now?

Roose: Well, I think you have to watch the technicals and then be careful of the noise because these things move very fast. So I think a producer, what does he do? And I think that is both for the end user and the producer themselves, the producer make sure you protect the bottom line. When you have some breakeven levels then look at programs that you can use from risk management. If you want to stay away from margin exposure use some different tools. And for the end user I think you have to make sure and guard the crush because these are historically big prices, Paul, and we've had some other times when we had some black swans and the markets just fall out of bed. Now right now I can tell you the trade is positive, wants to be positive, thinks that the world supplies are impossibly tight. We keep running into one problem after another. If it's not our spring planting it's the dryness in India with wheat, the dryness in Europe. And we still are trying to deal with are we going to ship grain out of the Ukraine when their storage is full and they're going into harvest? So there's those types of issues that we've got to unlock Ukraine supplies somehow and I think that is going to be probably next week's trade and then the weather trade.

Yeager: Well, the weather has been a story in corn. We moved ahead of the five-year average on Monday's report of where we were for planting progress. We're still seeing this wet locked in though in North Dakota, South Dakota, Minnesota. They have been planting a whole lot more corn. What does it mean when they're not planting corn?

Roose: Well, just think about it, these markets are always about weather. I always say 80% of it is weather either here in the U.S. or around the world. And think about it last year, they were in a drought and we didn't know what was going to happen. And so now we've flipped to it's too wet. But I think what you have to say is now we still have in play what are the acres going to be? Are we going to get some prevent plant acres? Are we going to see acres switch? So this June 30th report I think on acres is going to be a big deal. But I think the trade is still trying to say that we're going to have 1 to 2 million more corn acres regardless, going to plant just what the yield is and we're probably going to see if we have maybe 1 to 2 million less soybean acres. But we'll see, Paul. And then we also have to get a yield.

Yeager: Well, okay, you gave me a number because I was just about to say, what are you hearing? Because there's always that head fake. It happens around the reports, it happens around I'm going to plant this, no I'm going to plant this, no I'm secretly going to plant this. Are there really big switch decisions happening right now?

Roose: I don't think they're big switches. Basically there's 180 million acres of corn and beans in rotation. I think we try and push those around. With the prices where we're at we're going to try and plant those. The prevent plant that we have you can still take prevent plant and then get 55% of your APH plant to a forage type of crop and then you can even decide whether you want to actually take that in plant or if you want to pay back the insurance. So there's just a lot of things that are in play here. But it's going to be a volatile market and next week I think you'll start the weather watch. We'll be talking about what's going to happen with the weather? I think we're kind of starting to say listen, I know we've got the Northern Plains, but I think we're kind of saying that the crop is basically sorta kinda planted. Now, what does it look like on emergence and how is it going to go forward?

Yeager: Well, and that's what we have coming out on Tuesday, it'll be delayed next week, we get I think our first look at crop conditions. And I just made a drive down to St. Louis and everything looked good in there and there was some water, they had moisture. What is that doing to the bean crop because I saw beans in the field too? Their number is going to go up for sure come Tuesday. What is the bean trade?

Roose: Well, I think when you look at the end of the week, the soybeans hard to believe that they're just off of contract highs. We went just a few cents off it. So Monday, Tuesday is probably going to be what does, can we push through those news highs or not? And China, are they still underneath the market buying soybeans? But we're over bought, we're kind of at the top end of the range, Paul. And what we've had so far is every time you get this market in a run if you're chasing rallies and chasing breaks it hasn't been real successful. So you try and use those tools around things to keep yourself managed.

Yeager: Well, Thursday was a huge pop in soybeans and then kind of came back to just a standard under a dime range trade. Are those high days done?

Roose: Yeah, I don't think so. I think those wild days, the big swinging markets, I think the producer has to prepare himself because I think those days are ahead of us because we do have very tight world supplies and we were counting on South America to bridge the gap, then we were counting on the Black Sea, we know what happened there, counting on Europe and we know they're dry, counting on India and they turned dry. Now we're counting on North America. Well, it's wet in Canada and we've got issues here that aren't perfect. So, we just can't buy a break. And what we see in the marketplace, talking about breaks, is the end user every time we get down to support, get a little over sold, boom they pop up and support the market again. Now, we know as we move deeper into the season this risk management tries to come out of the market a little bit.

Yeager: Well, $17.32 is what we closed on the July contract. Is $18 done? Is that a possibility?

Roose: Yeah, we shoot for these big round numbers. If you can pop through this make new highs you'll get -- remember everybody that would be short has a loss and then scrambles on in $18. But what we've had, Paul, the end user does not want to chase the market. But basis levels very tight on corn and soybeans. The producer is basically sold out except for his gambling bushels. And the supply starts in August again on soybeans here.

Yeager: Let it ride is what it sounds like many are doing. Let's move to livestock quickly here, the cattle market. Again, you mentioned the rain in Texas and Kansas, it's going to be too little too late for some of the pastures immediately. But what does that do long-term for the cattle market? 

Roose: Well, the cattle market has been a disappointment for the bulls and for the cattle industry because we really never did get the big run during the grilling season, it was a tough grilling season, we didn't get the run to the upside on the demand for whatever reason during Memorial Day, Mother's Day. So I think it's a market now, Paul, you're going through and you're going to have bigger numbers through the summer, the demand is shaky, exports are good but the domestic demand is a little bit shaky. So the placement figures that we had on the last cattle on feed report kicked the bull story down the road again probably into the middle of the fourth quarter. So that is the cattle market. You know we keep grasping for, we’ve had four years of liquidation and the trade keeps looking for two to three years of a bull market.

Yeager: Is it time to expand a herd? Am I going to buy some feeders this next week?

Roose: Well, I tell you one thing, if you look at it from a cycle standpoint we usually run three and a half years up, three and a half years down. So we're poised for a bull market. It's not going to be the supply side. If we stumble it's going to be because of the demand side. Interest rates are rising. Consumer spending is slowing. They're getting more selective. They're buying down on their protein needs. So it's not necessarily a one way bull market so use risk management there too.

Yeager: All right, demand for beef maybe not as strong. What about the demand for pork? We know demand for poultry is high. What about for pork?

Roose: Yeah, you talk about poultry, chicken breast I think are at an all-time high here, they surpassed 2014 so even chicken. But your questions about the pork, the pork disease issues pushed us to the upside, export demand just continues to flag, it's just the opposite of the beef. So our domestic demand has to pick up the pace and the domestic demand a little bit concerned of from a risk management standpoint we're seeing people if you can get some rallies, $2 to $4, risk management makes sense, probably going to expand the herd, breeding herd 1%, maybe more in June. So this liquidation phase, lack of expansion may be coming to an end on the hogs.

Yeager: All right. Guess what else is coming to an end? Our time. Thank you, Don Roose, good to see you.

Roose: Thank you, Paul.

Yeager: We'll continue this discussion in Market Plus. We have a whole lot of questions that we're going to answer from you, as I said we'll answer them in Market Plus so join us, you can find that free on our website of MarketToMarket.org. And information comes from all different sources and we've compiled many of the stories that we are reading into a Flipboard magazine called Market to Market Reading Material. Click on the red and white F on the home page of MarketToMarket.org. Next week, we look at the shakeup of a niche market. Thank you so much for watching. Have a great week.

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