Market Plus with John Roach

Paul Yeager: Welcome to the table for the. Friday, January 17th, 2025 installment of Market Plus. Easy for me to say, John. I get so excited talking numbers, but, what's a number? From last week's report that really, you think the trade held on to the most? What was the biggest hang over. Was it corn? Was it the less carry out the smaller crop. Which one really kind of stuck with you?

John Roach: I'm not sure that I think both the bean yield and the corn yield both. I mean, I think they were both surprising. They were both below what the trade estimates, the range of trade estimates. And so, and the markets have responded to both of them. And so I think that the market really is hanging on to the whole idea that the great big surpluses we were fearing are going to just be big surpluses, rather than great big.

Paul Yeager: One thing Matt Bennett said that some people hung on to was the market gave farmers a gift last week. Do you see it that way too?

John Roach: I think so. I think farmers knew it. I think farmers were. They were telling us that, hey, the crop really wasn't quite as good as we thought it was going to be, that it dried down too much, or something in the field where they really couldn't get their, their arms around and, and, and, and what is then given us is this is it helped the Commodity fund to buy because we kept the upward trend going. And there's the biggest gift perhaps is we kept an upward trend going in the commodity funds are the ones that are really driving these prices higher.

Paul Yeager: Because they're looking at technicals in corn had been performing well.

John Roach: Exactly.

Paul Yeager: And so is that, you look at I think you like to talk quite often about 20-day, 40-day, 100-day moving averages. When you got a good basis, the average is going to be pointing higher.

John Roach: Well, that's exactly what's happened. And we pay attention to the 20-day moving average. If today's price is above the average for the past 20, we say it's an uptrend and funds are responding usually in an uptrend by buying and if we go backwards to the summer when we made the lows in the summer, the commodity funds were record net short and they've gone from record net short to being substantial longs. They're not quite up to here, but they're getting close. And they've triggered one of the boxes that we pay attention to. And the money flow. And when we get the funds this long in the market, it gives us an extra incentive to make sales, because the funds will just simply follow the trend. So as long as the trend goes up, they'll buy up to a certain amount. But when the trend turns down, they sell it all. And so what we worry about is that if the trend turns down for some reason or another, we have to face that fund selling. And that's when the market really gets ugly.

Paul Yeager: You left off one thing what you just said, whereas what about the trend? Isn't the trend your friend?

John Roach: The trend is your friend. But in order to be a good marketer, you have to fade the upward trend. And that's what's hard for farmers to do, because most everybody, when the trend is higher, it's like, I'll wait a little longer, it'll get a little better. And but in order to be a good marketer, you have to have some kind of objective measurement. And we developed a tool that generates a sell signal. And we have four key components that we look at. And one of the key components. And I think the most important one is when you have the money flow all tilted, think of a teeter totter. You know, when the teeter totter gets all the way down on one side, there's only one way for it to go. It's to teeter back up and so that's kind of what happens. The funds that are either trading at long on the long side or the short side, and you want to sell in when they're the maximum long.

Paul Yeager: Well, let's see what the Sabrina corn crop does for acres. Let's do Gary and Wisconsin's question for you, John, will the recent WASDE report encouraged larger Sabrina corn crop acres. What are they going to do there?

John Roach: I think so I first of all farmers like to plant. So it's hard to stop them. But if the economics are really bad they won't plant a second crop. Or if the weather is not good, they won't plant a second crop on all those acres. But now what we've done is, as they're making those planning decisions, we've given the prices and the and the fundamentals a little more of a positive spin.

Paul Yeager: Do you? This was brought up last week and I didn't ask it, but South America farmers, do they really pay attention to what happens here when they make planning decisions. Absolutely. And so, Friday's last Friday's report really? Absolutely. Maybe forced a whole lot of head scratching and ripping up of plans and making some changes.

John Roach: I mean, they look at their cost of production and but maybe even closer than us farmers do because they farm so many acres. And so, to them, it's a lot of dollars difference if, if, if you're profitable or not profitable. And we've moved the market enough to take some of those people from the red into the black, depending on what their production costs are. And so we've definitely changed some acres. But again, farmers like to plant. And so it's hard to keep them from planting. Whether it would be another thing that would, could change that too.

Paul Yeager: All right. Let's talk about spreads. Bradley's question here for you, John, is the July December 25th corn spread continues to grow wider. Is the market telling us it wants more old crop corn, but sees big acres of new crop corn this fall?

John Roach: Well, I think the market needs to go up in order to get the old crop corn to move. I mean, if you're going to do the volume of business that we're doing, you have to have a price level that you can acquire. The corn and farmers have been tight holders and, and they've taken higher prices in order to move. So that's the old crop, new crop situation. When you take, anticipate a new crop and you put good yields against it, our production, surplus gets bigger, and so we end up with bigger carryover for the crop we're going to plant this spring. So the, and we also have spec traders who, who do the bull spreads which is buy nearby, sell the backs. Whenever they have a trending market. And it's certainly been an upward trending market. And that spread has been working and there and that's also occurring.

Paul Yeager: Well, here's another factor that, folks are asking about last week. And this is Jim in North Iowa. When we lock our crop in the bend, the shorts sell it. When the market goes up, the basis takes one half or more of the move. What's the remedy?

John Roach: There's not much of a remedy for that. The problem with basis is that when there's available bushels, the elevator backs away and, or the buyer backs away and, and when the price goes up, there becomes more available bushels. And so that's a natural function of the marketplace, is that as a, as the price moves higher, it's easier to buy. And so the local buyer is able to discount the, the, the discount from the board of Trade.

Paul Yeager: Again. You want to see my text messages from here. Last week it was complaining that exact same fact.

John Roach: Now some farmers who are comfortable with futures, will make a sale at the cheaper price level when basis is strong and turn their ownership over into the futures market and take advantage of the upward move. But that's a sophisticated thing that you have to be cautious doing that because, for most people, the emotional part of that becomes more important than the basis improvement.

Paul Yeager: All you just said, the keyword, the emotion is the hard part of this to to subtract some of that. I mean, you just kind of talked about the farmer needing to, you know, not be emotional as much. And that's hard to do because the farmer always, forever an optimist, always thinking it's going to go higher. Right. That hasn't changed.

John Roach: Now the buyer who's a reseller of an elevator, they utilize that basis in their favor. And what they do is they purchase from farmers and then the hedge they carry in the market out into the spring of the year when basis levels are normally stronger. And so they take advantage of that, that basis move, and a farmer could do the same thing. And rather than sell that grain for delivery right now, you could sell that grain for springtime delivery. And if you learn your basis, normal basis levels in your particular marketplace, there's some opportunity there. And that's what builds most of the elevator space out in the country is that learn that basis and take advantage of it. And so those opportunities are available and we know farmers that do that and they do it very well.

Paul Yeager: Well, let's we have a question about spreads and carryout. Let's do the spreads. Question first because carryout you kind of just covered that. And I was question John is what do we need to see happen to get soybean price to equal a better ratio compared to corn. And also will basis follow to make it profitable. So think of the basis from that standpoint.

John Roach: Well the the relationship between corn and soybeans for the new crop. We need to discourage farmers from planting soybeans, because there's going to be such a big crop coming out of Brazil. And so that's what the job of the market is to do. It's to get farmers to back off the Bean Acres, which were increased, you know, last year. And we need to increase the corn acres, which were decreased last year. So it's a natural thing moving back toward more of a rotation to decrease the soybeans, increase corn.

Paul Yeager: Do you think we have seen peak soybean acres in the United States, given how much South America is producing of beans? And given your answer to that previous question.

John Roach: Probably the United States should be a corn producer and less of a bean producer.

Paul Yeager: Can you see that going forward for the foreseeable future?

John Roach: Until we slow down the increase in bean acres in South America?

Paul Yeager: Okay. Last thing I want to ask you is about soybeans. And again, this is a little bit on carryout. Matt in Iowa, how many acres do soybeans need to lose to corn to really start pulling down the carryout? So give me a number.

John Roach: I don't know. It need to take off. Probably 2 to 3 million acres.

Paul Yeager: Yeah, and price could do it.

John Roach: Well, I mean, farmers have to get their pencil out and see where their, their cost on of relative crops are and what the rotation needs are. And, and one thing about farmers, they're very good at doing that.

Paul Yeager: Yeah. Last thing I know you want to cover feed needs. You said at the beginning, the end of the previous show. So, I mean, is that a good spot right now? Who else needs to be taking advantage?

John Roach: Well, we think that the meals is definitely something that we want to accumulate some meal for feed needs. Cotton is the other market that we actually have an a buy signal, and I'm not sure who out here needs to buy cotton, but, but we have a buy signal on cotton. It's down at the bottom. And, you know, we don't have real good fundamentals to talk about there.

Paul Yeager: Do we see Cotton Acres figuring it all into this low of a price right now?

John Roach: Well, I think it may. It sure may. I mean, with if because cotton and beans exchange acres. And so again we're going to try to discourage the number of bean acres. And so the, the, so the producers where they can go with either one of those crops are going to have to get their pencil pretty sharp.

Paul Yeager: You're always sharp John. So your pencil.

John Roach: Thanks, Paul.

Paul Yeager: Good to see you John.

John Roach: Nice to see you.

Paul Yeager: That's John Roach, everyone's senior market analyst here on the program. And a reminder to get signed up for the Market to Market Insider newsletter. It's free. Sign up at Market to market.org. The next issue will be a day later than usual with a Tuesday release, because the holiday next week, we are going to be talking about making that farm transition to the next generation in a new way. And commodity market analysis will be here with Naomi Blohm. Thanks for joining us. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.