Market Plus: Don Roose

Yeager: Welcome into the Friday, May 27, 2022 Market Plus. Don Roose is with us. Don, sometimes I think we should just do a constant record between shows. Sometimes I think we get at things and I asked you what you wanted to talk about, but I wrote something down I want to talk about. But it's something, you answered one of my questions, the spreads. First of all, tell me what spreads are and what do spreads tell us? And can we take anything from those spreads right now trying to make a decision?

Roose: Yeah, it's a good question. Spreads are the carry in the market from December of '22 to July of '23 on corn there's seven months and the carrying charge from month to month we call it a spread between December and July. But right now let's just take corn. Corn is trading about December corn of '22 the fall month is trading about 3 cents higher than the next spring, July. So as a producer, would you store corn and keep it for a 3 cent loss and carry it for seven months? You say no. So, what it's telling you is the marketplace, and the same thing is on soybeans from November to July '23, it's about 10 cents inverted and was $1.01 inverted. But what those markets are telling you from a producer standpoint that if you're looking to sell your crop you should make sure and not carry it, sometimes there's no reason to use your bins. If the basis is tight, there's no carry in the market, then you should just sell it and reown it in a different way and you reown it in a different way out in July through some kind of either futures or options, it's your least risk. So it tells you that the market wants your supply now if you're a producer so your goal is to give it to them.

Yeager: Is the market telling us they want our supply right now?

Roose: The market is telling you that because the end user, the ethanol, the soybean crusher, they can't run on air, they need a real product. So they say, you know what, I'm not sure what's going to happen with the supply so I'll pay you an unbelievable price, we'll carry your corn for nothing, your soybeans for nothing, we'll lose because we want the product.

Yeager: We have orders to fill on our end and that is how the market works. All right. A lot of great questions and I know you submit them and we just don't get them all in. I need to stop talking to get to your questions. So we'll start with Brian in Iowa, Don. If Ukraine cannot export wheat and countries refuse to buy Russian wheat, is there enough wheat produced elsewhere in the world to satisfy the world demand?

Roose: Well, keep this in mind, Russia, or Ukraine exports 10% of the world wheat, Russia/Ukraine combined about 30%. India, a huge country, they were going to be an exporter of wheat, their crop looks like it could be 400 million bushels short. The EU, France and Germany, are in a dry drought pattern. So the question is -- and that's why you hear people talking about a food crisis, quite possibly there may not be, but if the price goes up I always say nothing is enough if nobody wants it. So that is what happens with rationing, you go high enough to cut the demand down. So it won't come from the supply side, it will come from the demand going down. Somehow, some way you stretch it.

Yeager: We talked about switching acres in the Market Analysis segment. Here on Plus, Dan in DeForest, Wisconsin wants to know, Don, do you think the delay on planting will shift acres to beans? And if so, do you think it will be enough acres to affect the corn market directly?

Roose: Well, I think it's a dicey question because we're still planting, I think we're going to plant corn as long as possible, shorter varieties and what not if you've already been committed. Somehow we're going to meet this balance, I doubt if you're going to have a huge number of prevent plant acres, although the government has got a very low figure figured in right at the present time. So I don't think it really is enough. I think you'll kind of bridge the gap. I think there's going to be a lot of double crop beans. You heard in the story about the CRP coming out, those acres are not going to go to corn, they're going to go to maybe double crop soybeans, something. So somehow the world manages to bring more acres into production. We have CRP acres, Europe has CRP acres, and let's just say eventually maybe Russia comes to their senses and allows exporting of wheat and corn.

Yeager: Well, let's face it, what if they declare victory tomorrow and go home?

Roose: Well, and that's what happened to the market. When we thought -- the market was up by almost $13 on July wheat, thought that there was some kind of humanitarian export window that Russia was going to allow and we dropped a dollar and a half in just a few days. And that's what happens. You can go very quickly in these markets technically once they hit some numbers they go.

Yeager: Especially if it's the news like that, you just don't know. All right, a question here from Austin in Belmond, Iowa for you, Don. Is the move down, or is the down that we've seen in the market a correction? And will we see this move higher or have we peaked?

Roose: Well, so far it's a correction. The one thing you always have to remember, the deeper you move into a growing season it's not like you're in the fall and you've got the whole spring to worry about, we're getting the crop in the ground, it is what it is. Maybe it's not as much as you think, maybe more acres, maybe we have problems around the world. But it is baked into the market right now, that's there. What is the next bull story? So you can put a top in these markets any time and that is why from a producer standpoint you have to be very careful. Our models right now have corn still in a negative mode, sell signals if you were, wheat the same, soybeans just the opposite. So these are big numbers that can change on you very quick. In mid-December nearby corn was $6.90. We're still not there yet. And we went up to $8.25 and then we just pulled back just recently to $7.60. So that was mid-December, Paul.

Yeager: And that's the thing is there has been so much --

Roose: And soybeans were $12, $12.50.

Yeager: The timing has been off on all of this. Does that concern you?

Roose: Well, the timing it is and it isn't because usually we rally into the spring on nervousness and we did it again. We're sitting here basically at the highs on soybeans, we're not that far off the highs on corn, we put in the high on wheat just a few days ago and then drop kicked it. So, these are good markets to learn risk management on because we could easily go up. We're tight enough in the world and the U.S., you get into some weather problems and NOAA says we're going to be warm and dry in June, July, August in the Southern Plains, Western Corn Belt. So anything could happen with weather. We need a crop. We need a fairly big crop, otherwise Brazil has got to bridge the gap. It's one thing to another.

Yeager: You read my next question on the sheet. Very good. Doug in Thornton, Iowa wants to know, Don, how do current prices of USA grains, he wants to know more about new corn, and soybeans from Brazil compare for China? So if China is buying, what are they looking at and how do we stack up with Brazil?

Roose: Well, right now we're very competitive. Remember, Brazil is just coming off of still production, Brazil and Argentina on their first corn crop is coming into the market. Their second corn crop, internally Brazil I guess a way to look at, their corn is we'll just say like $8.25, China is like $11.25, Europe is like $9.50. And you say, well what does that mean from a shipping standpoint? Well, you just have to calculate how much -- that's why Ukraine ships a lot of grain to Europe because it's close and we're seeing Mexico and Canada buy more grain from us all the time for the same reasons. Energy values, energy is high so you try to ship close.

Yeager: And Mexico and Canada have been the U.S.'s biggest trading partners for a long, long time, they've been buying products. And one of our biggest customers is Phil in Dresden, Ontario who has our next question, Don. Again, did I give you these questions before? Do you know what order we're going? The high price of gasoline is faced by consumers at all gas pumps with increasing degrees of price sensitivity. In fact, maybe gasoline demand is cracking? And when does demand for agricultural commodities crack? Or has it already happened?

Roose: Well, so far we have not seem demand rationing yet. So you're still, soybean crush is still like $2.25, $2.50 a bushel, that's a lot. Ethanol is making money. The livestock industry is what it is, making money, losing money, but they're not going to cut back. But remember, that is always, rationing is a look back program, it's not a futuristic program. So what you have to look at is the government is really focused on fighting inflation and they're going to get it done, they're going to raise, they're raising interest rates, they're going to slow down the demand and specifically they are targeting energy and food and those are the ones that are getting all the publicity. So you have to be very careful, I think the best way to know actually in these markets, when you get some really bullish news or bearish news, how do you react? In other words, if you get a story that you say wow, that is really bullish and you go down, that's a bad sign.

Yeager: You've said a couple of things today, Don. You said earlier, I think you were discussing wheat, you said watch the noise. We have to shield ourselves from some of that.

Roose: Yeah, you have to -- I've always said what really runs a market it's the roar of the lion and the squeak of the mouse tips you over because it's all the chatter chatter. And then if you look at the technicals and you look at the charts and you look at what the funds are doing they may tell you a different story. It's pretty hard to trade the headline news because it's always a look back program.

Yeager: All right, if you had squeak of the mouse on your bingo sheet, Don just hit it for you. Last question, Don. Doug again in Thornton. With boxed beef prices staying strong to rising that sure does not show consumers backing away causing demand issues. We talked about demand earlier, we didn't quite get a chance to fully flush out a lot of the livestock story. I told you I paid $6.99 for chicken breast last week at the store. Just a couple of weeks ago that would have been only $3. There's a rise, demand for chicken I think you kind of quickly threw it in during the show, chicken breast has been high. What does the demand on the beef side of the ledger mean right now?

Roose: Well, we just went through the best demand of the whole year, it's grilling season, it's Mother's Day, it's Memorial Day and it was a big dud, very disappointing. Now you're going to move into closer to July, that's hamburger and hot dog time. Those aren't big premium cuts. So I would say from a demand side as interest rates are going up, the consumer starts to tighten, maybe not yet, the government money has come to a halt, going to have to start to live on your own merits. So demand has been disappointing, the export demand on beef has been very good, that's a bright spot and China has been a buyer of beef so that is another bright spot.

Yeager: We'll see how long that continues and we'll talk about it the next time you come back to see us. Thank you, Don, good to see you.

Roose: Thank you, Paul.

Yeager: All right, that's going to do it for Market Plus. Next week we're going to look at the shakeup of a niche market and Dan Hueber will be right over there and he'll join us to break down the commodity markets. Thank you so very much for watching. Please have a great week.

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