HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today, my guest is Tom Essaye, who’s the publisher and founder of the 7:00’s Report. I welcome you back to the show, Tom. Good to see you.

Tom Essaye, publisher/founder, 7:00’s Report (Essaye): Mike, thank you very much for having me. I'm glad to be back.

Norman: I want to talk about the grain markets, which have really been in a very bullish mode. We've had the heat wave embracing a lot of the country, but also most importantly for the grains, the growing areas. And the USDA recently reduced the outlook for the corn crop; corn prices have skyrocketed recently along with soybeans. How do you see the outlook there?

Essaye: Well, we got that latest report and I think what surprised people was that the USDA was more aggressive in cutting their yield than people had expected. So we've seen the rally continue, but as I look at it, I want to step back and say, “Wait a second. At the beginning of June, corn was trading $5 a bushel. Now it’s trading $7.50.” It’s a 50 percent move in …

Norman: It's quite a move.

Essaye: … literally five weeks, if that. So, the crop better be in really big trouble.

Norman: Do you think that's too much?

Essaye: I think it's too much, given where we are from a crop size. We have to remember acreage planted for corn this year is the highest since the early 1930s. So even though we're yielding less, we're planting more. So, is the crop damaged? Yes. Is it damaged with $7.50 corn? I'm not so sure.

Norman: So you'd be a little cautious at these levels?

Essaye: I think so; especially in corn. Now, soybeans has much more bullish fundamentals underneath it. There was a very low inventory levels; there remain very low inventory levels. But it's been overshadowed because everybody’s so focused on corn because it’s such a more recognizable crop. But there's probably more opportunity in soybeans around these prices than there is in corn.

Norman: How much of the rally in corn and soybeans has been due to just the accessibility of those markets now because of ETFs and other ways that investors can get involved with them? Historically, you'd had to be a futures trader or a cash trader. But now you can buy an ETF. There is an ETF called CORN, actually.

Essaye: CORN, yes.

Norman: I did an interview here with the guy who runs that firm, Teucrium Funds. So, it’s much easier to get involved now, right?

Essaye: Yes, absolutely. And certainly the managed-money side of it has pushed corn to these levels. You don’t have to unravel that puzzle, you can go look at the open interest, you can go look at the net longs of the COTs, the Commitment of Traders. They’ve exploded. The net long has gone way higher than it was five weeks ago, so there is a lot of managed money. There are a lot of people that are long corn, they really have no business being long corn except they think that they're riding some sort of a panicked market or a mega trend. And I just think that 50 percent in five weeks is a lot. So that crop better really be in trouble; otherwise, the prices are too rich at these levels.