Market Plus: Darin Newsom (May 17, 2019)

Market Plus: Darin Newsom (May 17, 2019)


Howell: This is the
Friday, May 17, 2019 version of the
Market Plus segment. Joining us now is a very
tired Darin Newsom. Darin, you’ve been on the
plane for quite some time. Newsom: Yes, we both have. Howell: Yes, we have. We spent a week together. We should maybe put that
into context though. We were in Chile together
which we’ll get to here in just a moment. We’ve got a great question
about that conference in particular. But I want to continue our
weather focus discussion. We’ve got a great question
to kick it off here with Adam in Wisconsin. He said, what do you think
planted acreage will be considering this
terrible weather? And does it even matter? Newsom: One, I don’t play
the acreage guess game. And I was going to preface
that with you know me, Delaney, I do not
play that game. Nobody knows what the
acres were going to be, are going to be, could
be, whatever the case. Any organization,
government administration or anybody that says they
know they’re just lying. Nobody knows what
acres are going to be. But does it matter? Absolutely. And we can tell that it
matters by looking at the Dec-March spread. The commercial side of the
corn market is looking at this weather situation. They’re watching the
weather forecasts and they’re getting all this
weather data from all of these different sources
and what we’ve seen is that spread just wipe
out a lot of its carry. There was some technical
resistance on the weekly close only chart
at 11 cent carry. We blew through that
this week to 9.5 cents. We’re moving into that
neutral to bullish, particularly if we bring
into play the changed storage rate of 8 cents
per bushel per month from 5 cents per
bushel per month. This was directed by the
CME starting with this next new crop. So that actually lowers
the percent of full commercial carry that
we’re covering now almost into bullish territory. And we haven’t seen this
for quite some time, particularly in corn. So I don’t know
what acres are. I know it matters and I
know the commercial side is starting to get more
concerned about the fact that the weather is just
now allowing us to get into the field. Howell: Is that why we saw
some shortcovering happen this week? Newsom: Yeah, and again
it’s interesting, as we talked about on the
program, is that the weather issue is new crop. Most of the non-commercial
position is held in the old crop market. So we’re seeing some
covering come along in the old crop market despite
the fact that fundamentals are still incredibly
bearish over on the old crop side. So if I’m a fund saying
okay, and I’m holding old crop short positions,
I’d still be pretty comfortable with them. But because of the weather
in new crop and the idea that the December contract
on out could continue to move higher they’re
covering some of those old crop positions as well. Howell: Okay, we’ve got a
good setup then for our next question. Phil in Dresden, Ontario
@Agridome on Twitter. He said, can we put
December 2019 at $4.25 to rest or has the rainy
weather spawned renewed possibilities of
getting there? Is there a butterfly
fluttering somewhere? Newsom: Phil always likes
to bring up the butterfly effect chaos theory, we
talk about it all the time together. Let’s get through $4. I think we got $4.396,
$3.97 this week so we’re close. Then a target is sitting
up there, I think the old high was, high weekly
close was something like $4.03, $4.04. Then we’re sitting up with
if we look historically $4.12 is a selling point. Is $4.25 out of
the question? Not at all. The way we saw the spreads
move over the last three or four, at least two
or three weeks, very impressive. And if it continues to
do that, if the new crop forward curve continues to
do that, I think we could pull December
corn up to $4.25. Is that going
to be the top? Nobody knows. What is the weather
going to do? Is it ever going
to clear out? Are we ever going to
get anything planted? If we don’t get anything
planted it’s probably not going to be the top. Howell: $4.25 is not
going to be the top? Newsom: If we don’t
get anything planted. I don’t want to sit here
and sound like one of the ultra bulls all of a
sudden on this program, which would I think shock
everybody, but if we don’t get anything planted I
think it certainly opens the door to continue to
push this market higher. Howell: But the fact that
Darin Newsom, the Darin Newsom is saying that
$4.25 may not be the top is — Newsom: It’s
because I look at the market and I look at what
the market is telling me. And as we discussed, the
technical side of the market is growing
increasingly bullish. And on the new crop
market we also have the fundamental side growing
increasingly bullish. This gives us one of the
stronger combinations that you can have. When both sides are
bullish there’s not many people who are going to
step in front of that, there’s no one really
out there to sell. So that means it can run
up and it can gain a great deal of momentum doing it. Howell: And I know you’re
usually a technical guy, you like to look at those
charts, but in this case fundamentals definitely
play a role in this. The other scenario I want
to run past you, and this is of course if the stars
align, let’s say we continue to see delayed
plant, maybe we see some acres taking prevent plant
or just not planted, planted late, etcetera, so
then the question comes and you don’t like this
word but I’m going to use it, trendline yields,
we’re probably not going to have trendline yields. So what is the forecast
as far as yields go? And how much more does
that give us as far as steam in this corn rally? Newsom: So let’s talk
arbitrary slope if we’re going to talk trendline
because that’s really all it is, is you pick a
starting point and you pick an ending point and
you draw a slope line and they teach us that
in grade school. Everyone likes to get
excited about trendline yield. Could we see much below,
yields much below expected? Absolutely. Again, it all comes
down to weather. Corn is always a weather
— but if we get it planted then what we’ve
seen over the last five or six years that it really
doesn’t matter what type of weather we throw at
it, the yield comes in. So if somehow the U.S. does get the acres planted
I’m not sure that we’re, everyone is talking about
historically this, this, this is what we’re
going to do with yield. What we’ve seen recently,
if we look at just the recent history, the
crop makes up for it. It can still yield as long
as we can get it into the field and as long as
weather cooperates a little bit. So I’m not giving up on
yield or trendline yield or slope or whatever we
want to call it at this point if we can get
it in the field. Howell: That’s the big if
that we’re waiting for right now. Newsom: That’s the huge
if and that’s the weather market we’re dealing with
which is far different than weather markets that
we’ve dealt with in the past. Howell: Right, because
this one is a wet one instead of a dry one. Newsom: Well, it’s a wet
one and we don’t even have it planted, it’s
still in the bag. And as I’ve seen on
Twitter so many times, corn seed can do great
things as long as it has been planted. If it’s in the bag it
can’t do anything. Howell: All right. This is going to tee
us up then for our next question. Roger in Kokomo, Indiana. Will we ever
run out of corn? Newsom: No. No. We like to grow corn. We could certainly tighten
our supplies a great deal this coming year if the
stars, as you pointed out, if the stars align. So how do we react
to that next year? 95, 96, 98 million acres? Just throw everything into
corn that we possibly can? I can foresee that. I think that’s
certainly possible. So we’ve seen us tighten
up the supplies I think like 2013, 2012-13
we saw U.S. supplies get pretty tight,
we saw corn run up to $8 and just blow demand
to smithereens. Right now we can’t do that
because we don’t have any demand anyway. Howell: But if the stars
align and we get increased demand and we have maybe a
weather issue — Newsom: If we’re going to live
in this wonderland of everything possible
working — Howell: We’ve got to think of all the
possible scenarios, Darin. Newsom: Well, I’m not sure
that if you add everything bullish that can possibly
happen as a possible scenario, yeah okay so
we don’t get the acres planted, those that do get
it we have below trendline yield, we get all of our
demand back because all of a sudden everyone says oh,
you were right all along, we should have just seen
that to begin with so we’re going to start
buying everything that the U.S. has, yeah this Peter Pan
world or this Pollyanna world is a possibility,
it’s just not a probability. Howell: Okay. I’ve just got to see
what I can get from you. All right. Just a couple other
quick questions. Let’s talk about the
soybean markets and how they’re reacting
to all of this. We’ve got Tim in
Crookston, Minnesota. He said, the planting
issue has turned producers bullish, even you bullish. Should we be rational
and sell some 2019 beans before another tweet
appears and crashes the markets again? Newsom: Well yeah, and I
was interested in the way the market behaved at the
end of this past week. Howell: It’s because
you came back into the country. Darin. Newsom: That’s
the running gag. Howell: You left the
country, the soybeans markets went up. Newsom: We saw on Twitter
that everyone was so glad, they’re always glad when I
leave the country, but in this cast it also went
along with soybeans going up 50, 60 cents early in
the week and then by the time I was getting ready
to come back, we were getting ready to come
back, and let’s look at it that way, you were out of
the country as well when the markets were up. Howell: Yeah, that’s true. I suppose I was. Newsom: The market came
crashing back down. Should we be
selling some 2019? Again, it comes down to
the difference between technicals and
fundamentals. Fundamentally the market
is not as bearish in the new crop as it is in the
old, similar situation to the corn market. It’s not as bullish as
what we see in corn. Could we move soybeans up
just on the technicals that we saw
this last week? Sure. So I think we can give it
a little room here but be ready to pull the trigger
because we’ve got a lot of soybeans left over from
this ’18-’19 marketing year that we’re still
going to be dealing with a year down the road. Howell: All right, Darin,
I’ve saved the best question for last. In discussion of our trip,
we were in Chile, we were talking about soybeans and
soy related topics all week. So we’ve got Kevin in
Guadalajara, Mexico. He said, what was your
favorite takeaway from the conference in Chile? Newsom: I think it all
comes down to the ASF again. There was a doctor, I
believe Hancock, from Kansas State who basically
pointed out the fact that the U.S. is not prepared
for this at all. We really don’t know what
would happen if it shows up here in the
United States. And then one of the other
speakers who was talking about markets pointed out
that the trade wars and the tariffs all make great
headlines and everything else but when we deal,
when we factor in the ASF situation that’s actual
demand destruction that is not coming back
any time soon. So the fact that ASF is
a big issue and it will likely come to the shores
of the United States and the fact we don’t know
what to do with it and the fact that it destroys
soybean demand, to me that was the biggest takeaway
of the conference. Howell: All right. It’s a little scary
to think about. Newsom: So I had to
end on that note. Howell: Of course because
you’ve been bullish this whole show. Newsom: So I have to
throw that out there. Howell: Of course. Well, Darin Newsom,
it’s been a pleasure. I hope you get home safely
and get some sleep. You’re running on like 36
hours of no sleep right now. Newsom: Thank
you, Delaney. Howell: Thanks
for being here. Join us again next week
when we’ll see how a pivotal moment in
agriculture is still drawing attention in the
nation’s attic and Sue Martin will join us at the
Market to Market table. Until then, thanks for
watching, listening or reading. I’m Delaney Howell. Have a great week!

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