Pearson: This is the Friday, May 19, 2017 version of the Market Plus segment. Joining us now is Don Roose. Don, welcome back.

Roose: Thank you, Mike.

Pearson: We did not get a chance, we completely jumped over cotton on the program and it was a bit of a bear week and cotton lost about $2.75 in the nearby. I'm going to ask you the same question I asked you in livestock, is the top in?

Roose: Well, the cotton market is very much like a lot of these markets. It's not that there's anything that greatly bullish about them, it's just that these funds can move around pretty fast, get some short covering rallies. We had some export demand news that pushed the market up on cotton. It pushed up here over 87 on the nearby cotton and I think what we're looking for is those are opportunities. So I think we probably have put a spike top in the cotton market and probably more realistically we're back into this trading range of this 70 to 80, 81 and that is what I would expect as we move forward.

Pearson: Alright. So gives you some opportunities to market, when you get close to the top of that range, take advantage of it.

Roose: I think that's what you do. Of course we'll have to watch and see how the production season goes. IT's early yet and a lot of things can happen with weather. But that's the way it looks right now.

Pearson: Alright. Now, I want to bring us over to something we talked about on the program but I was going to ask you to go into a little bit more detail. We talked a lot about the Brazilian Real and we talk a lot about the strength of the American dollar on this program. We've got a question from Ellen in Central Illinois. She's on Twitter @EllenDearden. And Ellen wants to know, why do currencies matter? Can you give us the primer on what does it mean? Why do we care?

Roose: Well, I think the big reason we look at the currencies is because it tells us who is competitive around the world. And that is one of the real issues that we have. If the world players move the currency around we can have a lot of trade deals. But if they lower their currency it makes it cheaper in the world to sell and so they can sell stuff cheaper than we can. And we just saw that in the market ere this last week when soybeans dropped in the U.S. 30 cents, Brazil farmers were able to sell aggressively because the price was more competitive in the world market and their prices actually went up on inflationary fear. So the currencies are a huge issue. The dollar right now has been hovering around 100. It is down about 2.5% off of that. But it's a big issue.

Pearson: What happened early this week to make the dollar break so hard?

Roose: Well, I think it's just some of the issues that we were talking about here in the U.S. where some of the things that were supposed to happen from a budget standpoint, from a trade standpoint haven't really been occurring as fast as the trade would think. So I think it comes back to that type of thing, maybe the confidence in the way the government is running. Are we going to move as quick as some of the things we talked about? Maybe, maybe not.

Pearson: Okay, so it was just kind of everybody got tired of waiting and we had some selling.

Roose: I think a risk off type of situation.

Pearson: Gotcha. Alright. Now I want to turn us over back into the world, actually no I don't. I want to take us back to old crop corn. We talked about it on the program a little bit, we talked about the threat that is out there for beans with this cheaper Brazilian Real. And we've talked a lot about how farmers are still sitting on a lot of old crop corn. Don, give us some insight on how to manage through these bushels that we have sitting on farm storage and in elevators across rural America.

Roose: Well, and I think that's right, Mike. I think that is one of the big issues that we have out in the country right now is there's a lot of on farm corn being held. And what do we do about it? A lot of people waiting to see if we can get a rally like $4.40, $4.50 like we did the last two years. Maybe it happens, maybe it doesn't. But the clock is ticking, the noose is getting tighter. If you need to move stuff sooner rather than later for all different kinds of reason and you're afraid to let loose of ownership you can buy a call at the money, like a $3.70 or $3.80 so you reown it at that price level. Then what we like to do is also say, listen, we also have to sell new crop corn, so we like to sell some $4.50, $4.60 calls in December and collect like a premium contract. So we have two things going, a premium contract for new crop on options, plus we reown it with September so we're not spending a lot of money and it still give us a chance because the fundamentals aren't bullish, the seasonals are positive, the technicals are a little positive, the funds are massively short. So there are some things that could happen to push us to the upside.

Pearson: Because as you look out into the future there is some real basis risk on the table today as all these farmers move to clean out bins to make way for this crop that is getting put in the field today.

Roose: And that’s a good point, Mike. I think it's the basis risk also at the same time because as the cash moves somebody is going to widen the basis in order to pay for the carryout here. And I think producers really as we move forward we're going to have to think more like merchandising our way out of a lot of these situations, make sure you know the basis, like you're alluding to, the carries in the market, some of the price opportunities technically at some key levels, overbought, oversold levels. So I think we're just going to have to be really astute and we're talking about making dimes now rather than dollars so it's a different deal.

Pearson: Now, as we look out a little farther into the future what are your thoughts on marketing future years crops whether you look at 2018, would you be selling any further out than that?

Roose: Well, I think when you're looking at that, that is a good point because you have Dec '18 corn, just because of uncertainty what could happen, a lot of things can, if nothing changes we're going to be the same mess for the next two or three years. But you can sell $4.06 corn in December '18 right now. You put a 30 cent carry on that, which is possible, that's $4.36 for July of '19. So I think this is the way you have to think, does that work for you? And you can do some of these window contracts where you buy protection for the downside at $4.10 and sell a premium contract at $5 so you have that window between $4.10 and $5 and that still works, $5 corn. So some of these types of things I think we just have to really concentrate on.

Pearson: Alright. Now, I want to take us over to the world of livestock. We've got a question here from a Twitter follower. Tanner in Postville, Iowa on Twitter @DeeringTanner. He wants to know whether or not we're at the bottom of the cow calf cycle looking at a ten year picture? And then his second question is, is now a good time to get in? Because 2014 was not a great time to get into the cattle industry, some folks got burned. What do you feel about diving in now?

Roose: Well, like anything timing is everything and I think he's smart to look at the cattle cycle. The way we look at the cattle cycle we think the bottom is really closer to 19, if you look at the cycle, I know he's talking in terms of 10 years, a lot of times it's three and a half up, three and a half down, seven year run, go back and look at it, it falls not too far off place. But, so yeah, I think when you're talking '17 now moving into '18, '19 if we get setbacks in the price of cows and calves and stuff, yeah, you're close enough to the bottom that if the price dips take advantage of it if you want in.

Pearson: At least you're not buying at the high right in here.

Roose: Exactly, there's nothing worse than catching the top and then your cow is worth a third of what you thought it was just six months ago.

Pearson: Makes for awkward conversations with the banker, that's for sure. Our next question, I want to take us back to South America. This is a question from Vance in Nebraska City, Nebraska. He's on Twitter @Proverbs2_6Dad. He's making a comparison here, he notes that China is modernizing hog production, they have been doing that for several years now, and in the process they're using more soy. He wants to know, is Brazil or Australia moving to American style feedlots to increase corn demand in the future? Given this huge South American corn crop we're talking about, are they going to move towards an American style feeding system for beef?

Roose: Well, the American style is always the standard, not only just in agriculture but in a lot of things. So I think it's going to boil down to what the consumer desires and I think that's number one. And we know that it's not as efficient but if you feed corn versus grass fed they're going to move through the system faster, the meat is going to be probably tender just the way it is. So I think yeah, I think over time they'll move that way first in poultry, then in pork and then in beef.

Pearson: Alright, so it will be a longer process than just next year they're going to build a whole bunch of feed yards.

Roose: Right. And I don't think you have to just, you can consume your corn in a lot of different ways. And remember they also have ethanol down there, sugar ethanol so that's another thing to look at.

Pearson: That's true. Alright, now, we have been taking questions for our analysts from college students across the country and so far we have mainly featured questions from Iowa State University. So I want to encourage all of you if you are a student be it at a land grant school, at a high school, if you're in an ag program and you've got something you want to know about ag or the markets, get out that phone, send us a quick video and we'll ask our analysts. Today it is from Iowa State and all of you can learn more about this project by tuning into MtoM podcast #143. So, Don, here's the latest installment of our college level ag student questions.

Erica: So as a college student, what is one of the best ways that we can get involved in the agricultural industry and jump start our career?

Roose: Well, I think it depends on which direction you're going. If you're going into production agriculture it's very capital intensive. And under that system the ag community is getting older all the time. And I think there are, I encourage people to try and partner up with somebody that is looking to phase out or slowly transition. So that would be my advice.

Pearson: Alright. Find a partner or look to buy on contract, find a relationship.

Roose: Yeah, I think that's what you have to do. And also at the same time it's both financially but also kind of a mentor and a tutor at the same time so it can work in a number of different ways because agriculture is getting more complex all the time.

Pearson: That's the truth. Well, Don Roose, thank you so much for taking the time to be with us this week on Market to Market.

Roose: Thank you, Mike.

Pearson: Next week Angie Setzer will sit across from me here at the Market to Market table and we will explore a taste of Cuba in the Midwest. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week!

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