Market Plus: Ted Seifried (May 10, 2019)

May 10, 2019  | 15 min  | Ep4438 | Podcast


Yeager: This is the Friday, May 10, 2019 version of the Market Plus segment. Joining us now, Ted Seifried. Hello, Ted.

Seifried: Hi, Paul.

Yeager: How are you doing?

Seifried: I'm doing well. How are you?

Yeager: Good to have you here. Just a little word of warning. This one could jump off the tracks in a hurry or it could be one of the greatest Market Plus’s ever. I'm just saying right now --

Seifried: I'm all in on that.

Yeager: I want to set high expectations.

Seifried: Perfect.

Yeager: All right. We’re going to open up with a question that came via Twitter. And we always thank all of you who submit your questions via Twitter or Facebook. This one is from John in Madison, Alabama and he wants to know, how has it or will ASF decrease overall demand in the soybean market or at least an estimate if they have to cull X percent of the herd? And I assume that means we're talking hogs.

Seifried: I think that's a soybean question actually.

Yeager: Right, it is a soybean question first, correct. Culling the herd talking hogs.

Seifried: How has it, let's start with that. You go back to the start of this last marketing year when we were looking at the world balance sheet from the USDA. They went from a 104 down to an 88 million metric ton crush number for China. That crush number is 99% making soybean meal for hogs to eat. So right there is 16 million metric tons. So it has, absolutely has affected Chinese soybean demand. Now we look at we saw today what the next USDA's projection is for next year. They left it almost identical to what it was for this year. Now, you can say that normally we see 3% to 4% growth in their herd, in demand and that the USDA is just saying that's going to offset by ASF. But I think there's potential for a much more profound impact than that. I'm very worried that 88 million metric tons of soybean crushing by China is way too high, maybe 10 to 12 million metric tons too high. And if that's the case, we put that back on the world balance sheet, where is that coming from? It's coming off of our exports, most of it, the vast majority.

Yeager: Right. And late today the President said, or at least the reports out of the trade deal said, we're going to give China three to four weeks. Then it slipped into oh it could be June. So then that becomes July which becomes, there's nothing left of the year at that point.

Seifried: Just keep kicking it down the road.

Yeager: How can we ever catch up on any of these exports?

Seifried: Well at this point, and the USDA capitulated today, at this point we're giving up on the old crop. We've realized that it's too late for that. We added 100 million bushels back onto the soybean old crop carryover because we took it out of exports. Now I think it really does, China at this point I think wants to drag their feet until the next election cycle because they really feel, I think, that if Trump can't get this deal done then a lot of his constituency may not vote his way again. So China I think is now going to play that card even though economically they are starting to hurt a little bit.

Yeager: You heard Senator Grassley in the story during the broadcast, he talked about how I haven't heard from farmers in Iowa who voted for the President say they're ready to bail on the President yet. A lot of farmers have a whole lot of optimism yet. We were not, I could say a word but I might not ever get to sit in this chair again, they were getting hosed before and we don't want to get hosed in the future, finally the President is standing up for us. At what point, Ted, can we keep saying yeah a better deal is coming?

Seifried: So, if you asked last week --

Yeager: Oh, Darin Newsom, the forever bear, was actually positive.

Seifried: Oh no, I remember. But if you asked the American producer last week, and Reuters did this poll, 61% said that they would vote for Trump again. I really wonder if you do that now today if that number is not sharply lower because I think a lot of us feel like we were really let on by trade talks are going really well, we're going to get a deal, this deal is going to happen and it came down to it's going to be next week only to find out that the Chinese are not on board with this at all, it completely fell apart. And I think a lot of us feel slighted that we didn't get the chance to market because hope is a terrible drug, we had this hope that something was going to happen, we were going to get a chance to sell soybeans a dollar higher, we were going to get to sell corn 40 cents higher. But now the optimism, the hope for that, is just all gone. So you have this towel throwing in. So we feel kind of cheated I think.

Yeager: You didn't even get to the Sunday night overnights. That tweet came out five, six o'clock on Sunday afternoon. All right, Jeannine in Illinois, @agnews_otto, apart from the weather straightening up, what is the perfect storm of factors here, Ted, that could make the grain markets turn around and gain ground? We were all doom and gloom, let's go positive. How much of a factor is ASF on corn and soybean demand? We kind of talked about that. Even if we get a favorable trade deal with China.

Seifried: Wow, there's like three questions there.

Yeager: There is.

Seifried: Okay, let's say what's the perfect storm for grain. I think we saw in the report for corn today that demand, unless it's a trade deal and China says we'll take 25 million metric tons of corn even if we don't need it, demand is not going to be the answer for corn, it has to be weather. It really has to be weather. We have to knock the yield number down and have less acreage because we can't, at a 2.4 billion bushel carryover, even though I do think ethanol demand is going to be better than what the USDA is currently saying, I've been pessimistic about ethanol demand but I think it's going to be better than what the USDA is at. I think feed demand can be a little bit better. I hope exports can pick up a little bit. But that's not going to be enough to offset 600 million bushel. That's got to come off of yield. For soybeans it's an even bigger thing. We've got to get trade going with China again. If we don't do that we're going to be sitting on a billion bushel carryover indefinitely, if we keep planting, if we keep growing as much as we have been. Weather, for wheat I really think it's about the U.S. dollar and that is something that can help really everything. A sharply lower dollar makes us more competitive and we have a much smaller problem. But really it's a weather thing. We really have to have a weather problem and today's report really proved that point.

Yeager: Well, there was talk of are we living another 1993? We're seeing flooding along the Mississippi River and the Missouri that we saw in 1993. John Roach had talked about, you know, maybe there's some, we had to get to the middle of May, well today is the 10th when we sit here tonight, it will be the 15th before we know it and this flooding story might continue. But the discussion was on Thursday's drop was weather related because all of a sudden the wet had left and the dry weather looked ahead and now oh there's rain again. So yes, we're at the mercy of the weather markets. Okay, there's no question in there, I just wanted to talk for a minute. I also wanted to let you know Delaney is gone, she'll be back, don't worry. But while the teacher is away, the kids are going to play. I need to have a little help, Ted, and I know you're game for this because you've done this before. Go ahead, bring this in. It looks like Scott has got a couple of things. We have the corn hat and a white board. We're going to have a little Ted Talks here. So Ted is going to lay out a couple of things, a little hit or miss on some questions, and then he might put the hat on depending on how this thing shakes out. So first we're going to ask a question and you can write first, or pick up the corn hat. So Ted, which market were you most disappointed with in the WASDE report today? Was it corn? Or was it something else? You can write something or you can pick up the corn head. Does that make sense?

Seifried: Yes, it makes sense. And where did you guys find a corn hat on such short notice?

Yeager: I don't know. It's amazing how things just show up from the state of Illinois. So you're saying, Ted, the biggest disappointment is corn. Why?

Seifried: Wow, at a 2.4 billion bushel carryover that was much higher than what the trade was expecting, it was much higher than what I was expecting. We were at a 2.134 I believe. That was a tremendously bearish report for corn because like we were talking about earlier it means that our only hope is a weather problem really. I'll say this, though, I think this report could very well be the high water mark for corn carryover. I'm worried that it might not be the high water mark for soybean carryover. So over time I think corn has a little bit more potential to get a little bit more friendly whereas beans have the potential to get worse and worse and worse.

Yeager: Okay, take the hat off. All right, now, question from Paul in Montevideo, Minnesota. This is a question we got off of Facebook. This is a yes or no. Is the trade war going to be the same as President Carter's grain embargo? Do we see these two compared?

Seifried: That's a yes or no?

Yeager: That's a yes or no. Is this going to be the same as the Carter grain embargo?

Seifried: Is maybe an answer? I'm going to go with no. I think there are some very distinct differences that keep that from happening. But there aren't very many other instances that we can compare to that are better than that one. The only one that I would say is go back to the '80s and what we did with Japan when we basically said at the time our number one purchaser of soybeans we're not going to sell you any soybeans anymore, and it wasn't because we had a problem with Japan at the time, it was just because we didn't have a whole lot of soybeans. So Japan said okay, we're going to go down and invest in Brazil and they pretty much started Brazil as the soybean grower for the world. So you can draw a lot of parallels with that because China is going to try to do the same thing with Africa, with a number of areas. So that would be my comparison if I had to choose one.

Yeager: All right. Former Farm Boy in Central Iowa @ruralmidiowa, he wants to know, this is a yes or no again. Is the U.S now the residual supplier of corn and beans like we are with wheat?

Seifried: That's a big yes for now. And I say for now because a trade deal could change that if we are able to force China to buy in order to close the trade gap.

Yeager: Put that down. That gives a big, bright glare. The video people get very angry when you do that. That's all right. You can't see that.

Seifried: But no, for now, yes. That is the position, that is the role that we have to assume while we have a trade war with China.

Yeager: The dairy folks are curious about this one. Cody in Owensboro, Kentucky, an Iowa native, he wants to know, how will ASF impact the dry whey market?

Seifried: Okay, that's not yes or no.

Yeager: That's not a yes or no.

Seifried: But I'm going to say yes, it absolutely will. So what we're talking about here, dry whey is part of feed rations that we're using for hogs and whenever you have less feed demand for hogs in China that is a problem. Now it's a short-term problem because there's going to have to be other countries that pick up the slack. And when you talk about soybean meal too, look at the surrounding countries in Southeast Asia that haven't really gotten terribly affected by ASF quite yet. They're going to have to fill a role, they're not soybean crushers, they'll have to start importing these feed products. So ultimately I feel like that demand can get displaced. But at first, yes, that is a big impact.

Yeager: Okay, we have to skip down because I've taken too much time. Wally in Clearwater is asking, is the gap on the soybean chart a breakaway, measuring or an exhaustion gap?

Seifried: Well, it could be one of two of those. It can't be a breakaway gap because we've already made the move now. So anything that is coming well into a move is not a breakaway gap. Now it could be either a measuring gap, which that usually ends up being a midpoint gap. So you take the size of that gap and it gives you an idea of how much further there is for the downside. But I'm going to say it's probably, at least for the time being, pretty close to being an exhaustion gap and the reason I say that is you look at the makeup of the market, funds are record short. Yes they can add to that position but they're probably not going ot double it at this point and look how oversold we are. We are very, very, extreme case of being oversold in soybeans at this point. So for me in the short-term it's an exhaustion gap. I think we'll have to recover, probably close that gap. But that doesn't mean we can't make new lows at some point in the future. We have to correct the RSI's before we do though.

Yeager: Last question. Shannon in Iowa, she's asking a question, I don't know if you can write a number on this one. But, how much dynamite does it take to stop this bearish train? That's the perfect storm thing.

Seifried: I'm putting the hat back on. How much dynamite does it take? I'll write a number down actually.

Yeager: He's writing a number down.

Seifried: 168. National average yield in corn. If we can do that, that's all the dynamite we need. That would definitely take care of our problem. Now, I don't really want that, I don't want my producers to have poor corn crops. But we need a lower production number one way or another and unless we take 10,000 acres, not 10,000, but unless we take 4,000 to 6,000 acres of PP, which there's been talk of that, if you're looking at prices that we have for both corn and soybeans and you're having a hard time planting the easy way out is just to set at $4. You almost are rooting for that at this point. But for me that's it, the corn yield, it's got to be corn yield and that's what stops the whole thing. As far as soybeans it's a trade deal, but for corn it's yield.

Yeager: It's yield. And that is Ted Seifried on Market Plus. Ted, the corn man, the corn hat, roll corn, whatever you want to say, roll tide, I don't care. Thank you, Ted. Good to have you here.

Seifried: Thanks, always a pleasure.

Yeager: That will do it for Market Plus. Next week we're going to play economic matchmaker as we link new owners and established rural businesses and Darin Newsom will be back in the chair at the Market to Market table. So until then, thanks for watching, listening or reading. I'm Paul Yeager, maybe for the last time here on Market Plus. Have a good week.

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