Pearson: This is the Friday, April 14, 2017 version of the Market Plus segment. Joining us now is Don Roose. Don, welcome back.
Roose: Thank you, Mike.
Pearson: It's April 14th. You've got taxes paid? Everything squared up?
Roose: Well, we're working on it.
Pearson: Aren't we all. One of the topics we did not get a chance to discuss on the program was the cotton market. We've seen a lot of volatility in that market here over the past few weeks. Are we settled in with the USDA's acreage number of 12.2 million acres? Is that what the trade believes?
Roose: Well, I think so because we're far along on that whole process down there. And I think when you look at it, to put that into perspective, those are acres up 21% over a year ago, so we've got a big jump in the acres. And the other side of it I think the cotton market very much like the other grain markets we're oversupplied. The only thing that is really different is we're a big exporter, the U.S. and we're very dependent on Asia from an import standpoint. So I think that is where we're going to watch what China, Vietnam do from an import standpoint. But certainly it's a market that wants to drift lower into the fall much like the grains if we get a big supply.
Pearson: Okay. Weather, again, going to play a huge part in that as we get into the growing season.
Roose: Yeah. I think the weather, but I think also the dollar is going to be a big factor from an export standpoint.
Pearson: Well, and we did not get a chance to discuss the dollar. We did see a little bit of weakness but we're still just that 100, that par mark is like a magnet that keeps pulling us back whether we're under or over it. Is that going to be the trend we see throughout the year?
Roose: Well, we're kind of handcuffed right at that level. We did have some information from the Trump administration, President Trump did say that he was more in favor of a weaker dollar policy, which was really a turn from what we were talking before. So weaker dollar policy probably is a little bit of a plus from an export standpoint. So we'll see how it unfolds. But the U.S. is still the best of the worst. We're still the one with the best economy. So I think the dollar maintains some strength.
Pearson: What impact can President Trump have? Most of the strength in the dollar, as you mentioned, is related to the economy, related to Janet Yellen and the Fed's policy of perhaps raising rates again. Is there anything the Trump administration can do for a softer dollar?
Roose: Well, I think a lot of talk here more than anything else because if you look at it, with the economy as strong as it is, we're on a pace to have interest rates continue to rise through maybe one, maybe two more interest rate hikes during this next year and that is positive to the dollar because everybody else is still sitting with interest rates that are very low, negative even, so we look pretty strong and attractive from an investment standpoint.
Pearson: Gotcha. While we're talking about international world we've got a question here from Tim in Crookston, Minnesota. He's on Twitter @6dollarwheatguy. Tim wants to know, do we use this Argentina wet harvest bean rally to sell the last of old crop beans? And then he says, sell them for real this time? How are you marketing that old crop if you've still got some on hand?
Roose: Well, you're down to a weather market because just like he said, South America's crop looks pretty big, Argentina is a little bit wet but it's really not an issue, it's not a last year type of issue. They're about 8% harvested right now, about 17% on corn. But look at Brazil's crop, it's a monster when you look at it, and between Brazil and Argentina they're going to have about 150% more supplies than we're going to -- they raise over 6 billion bushel, we raise 4.3 billion bushels. So they're going to be selling, their crop is getting bigger, not smaller, just the opposite of last year. So I would use a rally of 20 to 30 cents to sell. New crop beans even $9.80 on up are selling opportunities.
Pearson: Okay. Now, one of the things that we did not spend much time on with the program was how to handle old crop corn. You work with a lot of farmers. I've heard through the grapevine that there is still a lot of corn in bins and in commercial storage. Are we just waiting for a Hail Mary now if we've got those old crop corn bushels?
Roose: Well, it's a real problem and the government did cement it in. As of March 1st we had, the producer on-farm had 5 billion bushels of corn out of the 15 billion bushel crop that we had this last year. So there's no doubt there's big supplies out here that have to move. And I think beans have been pretty aggressive moving, but on the corn I think shortcovering rallies, the funds are sitting here big short and you want to make sure to use shortcovering rallies, weather rallies, even minor ones, as catch-up sales opportunities. And if you want to continue that risk, go to work and transfer it over into the options market because it's probably going to take a late weather problem to really move a market significantly higher, particularly when you have the big supplies that we have. And we usually say fade the weather early rainy conditions.
Pearson: Alright. On the option strategy with that old crop what would you be looking at doing? Just buying puts? Are you going to be selling the physical, reowning with calls if people really want to try to capture a late season rally?
Roose: Yeah, most definitely, that's what I would do. On a minor rally, the funds are short 150,000 contracts, if they get out of what percentage watch technically these rallies, gets up to a resistance overbought go to work and sell the cash but reown it and options, go out into the September and now you're probably with buy September options, $3.80 and then sell $4.80 December, that starts a premium contract sale for new crop. So I like those a lot because it keeps you in the ballgame through the third week of August.
Pearson: You betcha. Alright. Now we've got another question here from some new followers on Twitter. Thank you folks for tuning in. This is from @5ProFarmers. They're asking, do you think we will see a swing in acres with the new logic, well corn acres are down so I'll plant more corn? What do you think?
Roose: Well, usually what we do is acres actually go up about, eight out of the last ten year we've went up about 800,000 acres on corn. The bad news is soybeans have also gone up about 1.5 million acres. So if we have decent weather it all comes down to the prevent plant acres, those acres go up unless it's really wet and you don't get them planted. So I would bank right now that both of them go up just a little bit. But those acres probably are a little bit low with the corn rallying back here lately.
Pearson: Yeah. And so if we follow history, those last eight years, this could be a year where we see more beans planted than corn. If we had 1.1 million on beans and 800 on corn I believe that's more beans.
Roose: No, it would. Definitely it would be more beans. We had it one other time in history. That was a wet year. But exactly. And I think when you really look at it, both of those, if you take you're still over 2.3, 2.4 billion on corn, soybeans you can really start to scare yourself with a trendline yield even you can be up 600, 700 million and if you happen to get last year's yield, 800 million plus. They're big numbers so when you're looking at selling keep in mind that you've got big supplies that you're fighting.
Pearson: Right. $9.60 might look a lot better than taking that low in around $8.50.
Roose: Yeah, and I think that's the downside target, $8.50 on November beans and December corn is probably $3 to $3.20. In the soybeans if they get loose, the problem is when you get down to that low level the producer is just not going to be interested in selling. So it's going to be a storage issue. And I tell you where we're at in this market you really have to make sure that you're kind of a merchandiser and use the carries, the basis to your advantage because you don't have these big prices, it's little windows on merchandising.
Pearson: Right, think back to 2004 and how you marketed grain 15 years ago versus how you did it in 2012.
Roose: That's a good point because that's where you're really at. We're not in these big swings. You hopefully that happens but you're down to making pennies not dollars.
Pearson: Right. Now, we do have a question, we've got a new way of doing our commodity market question where people are sick of looking at me. They want to look at the future of agriculture. And so we've talked to students at Iowa State University and we encourage all of you at land grant schools across the country, if you're curious about the markets, get out your phone, shoot a little video and send it into us and we'd love to make sure your question gets on the air. This week, as I mentioned, our question comes from an Iowa State student. And you can learn more about this project if you listen in on Tuesday's M-to-M podcast. So, Don, here is the second edition of our college level ag question from students.
Cody: For someone who is going to possible be using the new farmer loans, what would you say is the best time to buy land? Would you say in the next three to five years or five to ten years?
Pearson: Alright, Don Roose, when do you buy ground?
Roose: Well, that's a good question and I think the first thing you have to look at is land is very much interest rate sensitive. And so interest rates are at historical lows so I think that's the first thing you think about, can I lock in a rate that gives me something that is sensible, even if the value of the land comes down? So I'm more in favor of three to five. We're on a setback already on the land values fairly significant. Land historically has been a good investment over the long pull. So I would view it as a setback, an opportunity and lock in the interest rates in three to five years.
Pearson: Alright. You buy the farm when it's for sale, right?
Roose: Well, like people always tell me, they have never bought a cheap farm. It always seems too high because we're advancing in an inflationary environment.
Pearson: That's right. Well, Don Roose, thank you so much for taking the time to join us this week.
Roose: Thank you, Mike.
Pearson: And join us again next week when Brian Roach will sit across from me here at the Market to Market table and we'll explore a sour note in a sweet domestic industry. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week.
Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.
Market to Market is a production of Iowa Public Television which is solely responsible for its content.