Market Analysis: Ted Seifried

Market Analysis: Ted Seifried

Jun 28, 2019  | Ep4445 | Podcast

Podcast

The looming question of acreage lost to bad planting weather was answered on Friday when acreage and stocks reports were released. For the week, September wheat dropped 4 cents while the nearby corn contract plummeted 23 cents. Funds and private estimates of a bearish stocks report have been pushing the price of soybeans lower. USDA estimates a 10 percent reduction in planted acres. The news helped the August contract claw its way back to a 4 cent loss. August meal closed $1.70 per ton. December cotton gained 52 cents per hundredweight. Over in the dairy parlor, August Class III milk futures added 19 cents. Livestock was mixed. August cattle put on $2.12. August feeders expanded $3.17. And the August lean hog contract cut $1.90. In the currency markets, the U.S. Dollar index was flat. August crude oil gained 26 cents per barrel. COMEX Gold rose $11.00. And the Goldman Sachs Commodity Index increased almost 2 points to finish at 423.50. Joining us now to offer insight on these and other trends is one of our regular market analysts Ted Seifried. Ted, welcome back.

Seifried: Hi, Delaney. Thanks for having me.

Howell: Good to be here. Ted, give me some of your quick thoughts here, just overall thoughts about today's report. Was it what you expected?

Seifried: There's nothing quick about it. Okay, sure. Is it what I expected? I was one of the high guesses for acreage for corn acreage and it's simply because I understand what this report is. It's a survey that is taken in the first week of June basically. And in the first week of June if you looked at crop progress numbers we still had 30 million acres of corn to plant and 50 million acres of soybeans to plant. So basically this was acreage intentions 2.0, this wasn't a final acreage number by any means. So yeah, if you think about what we were thinking back at that time, MFP payments which are going to be done on acreage rather than by crop, that had guys moving more towards corn, the recent rally in corn prices had guys moving more towards corn. I'm not surprised that we saw a bigger corn number and a smaller soybean number. But it's a little bit hard to digest almost a 92 million acre corn crop given the weather that we've had. Now, the USDA is going to resurvey in the beginning of July and we're going to see that again on August 12th. We're probably going to see a much bigger number there. Now, the question is really --

Howell: A much bigger corn number?

Seifried: No, I'm sorry, a much different number there. The question is going to be is the soybean number going up and the corn number coming down? And I don't know if that's necessarily the case. I think really there's just a lot of prevent plant that's going to come out of that. You might see the soybean number come up a little bit. I don't know if it's going to be terribly bearish for the soybeans I guess is what I'm saying. But the corn number I think is going to come down. Even if it doesn't though, let's just say we have to live with 91.7. What is the yield going to be on that? And also how much of that is going to get harvested? Usually we use a .92 or .922% of harvested acreage, of planted acreage, now I'm thinking if we're going to stick with that higher acreage number that is coming down to like a .89 or so which is really going to lower harvested acreage and really lowers production as well. So one way or another we know we have a problem. Today's report was a shocker for a lot of people. It shouldn't have been, but it was. And now we have to live with it for a little while. But I think the market is going to kind of say yeah, this is not a real information, this is maybe what we were intending back in the beginning of June but it's not the reality of what we have now.

Howell: Okay. Ted, I think we've got a, you set us up nicely here for a social media question coming in from Dave in Madison, South Dakota. He said, how long will the market trade acreage before it peaks and waits for yield or has it already?

Seifried: Yeah, that's a great question, Dave. We were going to trade acreage until today and then now we start focusing on yield. But again with the resurvey and acreage, this acreage debate isn't going to go away any time soon. We're going to continue to be talking about this. But the focus will be more so now on growing season weather rather than planting season weather and what sort of yields we're going to get, the crop conditions, how our progress goes. The heat that we're getting right now I think is going to catch this crop up a little bit and I actually think that we're going to see crop conditions improve over the next couple of weeks. So that might temper some of the yield talk. But the fact of the matter is we've had a major problem this year. We've lost some production. It's just now it's the market's job to figure out how much production that we've lost and try to balance that out with price versus demand.

Howell: Ted, I want to talk soybeans specifically here. Lowered quite a bit, 80 million acres is what they're expecting. How does that change the soybean picture? Does it make us bullish about soybeans?

Seifried: Well, bullish is an interesting word. There's a lot of things for the soybeans that could be very bullish. Something else that is going on this weekend is you've got President Trump and President Xi in Tokyo talking about potential trade and I don't think we get a deal out of that. But there has been talk of lifting tariffs and if China lifts the soybean tariffs or agricultural tariffs and starts to buy soybeans and starts to buy pork that changes the game a little bit even though we have ASF and we know Chinese demand, I'm sorry China has ASF and we know that Chinese demand is cut back a bit, that would still be a big positive. 80 million acres of soybeans, wow, let's talk about yield. In my mind I think 45 is a pretty high benchmark to be looking at right now for soybean yield. And if that's the case on 80 million acres and we get Chinese business then yeah we could have a bullish market in soybeans. But there's a lot of what-ifs there. I don't think 80 million acres by itself is the path to a soybean rally. But lower stocks number today, the idea that yeah, maybe we can have a China deal, the idea of a lower yield, I think the outlook is more positive for soybeans than it was yesterday so that's good. And again, the question is going to be when we get to that August 12th report now is that soybean acreage number going to come up dramatically. So that might be sort of the wet blanket on soybeans for the time being.

Howell: Okay. And just really quick, Ted, we also know that the USDA is going to potentially change, or the soybean yield number in July. How much do you think they'll adjust that number?

Seifried: Yeah, good question, the 45 number is kind of the number I'm using right now and I think that would be a great target for them to start off with. To me that would make a lot of sense. So yeah, 45, again I think you take the acreage number with a grain of salt, that could go a little bit higher. That's probably the lowest acreage number we're going to see so I'm going to use like 82.5 and then use a 45 national average yield and that gives me a reasonable tight soybean carry, not tight but certainly a lot less burdensome than what we've been looking at, the billion bushel carryover plus. So a much more normal balance sheet and I think that's just sort of a sigh of relief for the soybean market and I think that allows for upside potential if corn wants to rally. I don't know if soybeans can do it by themselves short of a pretty awesome trade deal.

Howell: Okay. Ted, before we slide into talking about the livestock markets the wheat markets they could serve as a feed source for those livestock markets this year. At what point do corn prices and forage issues turn wheat into a viable option?

Seifried: I think we're already kind of there or we were there before the price reaction that we saw here today. But wheat was down almost as much or more. I think we're there really and with the amount of wheat that we have it should be a viable option for feed. Now it really depends on who is using what and who is willing to change rations and things like that. But it is an option. That being said, how much of an increase are we going to see in wheat for feed? Well, it's certainly not going to be 100 million bushels or more, probably not. So it's something that we're start chipping away at that wheat carryover for next year, this year is over. For next year is it going to turn wheat into a bullish market? Probably not, not unless we see corn really get into severe price ration mode.

Howell: Okay. Ted, we've got a question here following up on that forage issue from Matt in Amherst, Wisconsin. He said, cattle forage seems to be a huge issue in many areas. At what point will there be more cattle liquidation in both beef and dairy? And how will that affect the beef markets?

Seifried: Okay, so we can do like 15 minutes on that question.

Howell: Well, you have 1 minute.

Seifried: It's a really good question. You're already kind of seeing that a little bit with the lower placements number. When do we get to the bigger marketings number? I don't know if we're quite there yet. Take states like California, big dairy states, major forage issues. So milk production has been dropping, cattle for milk production have been dropping, this could be a bigger thing. We're not quite there yet but we are starting to already see sort of the effects of that and it could lower dairy production, it could lower beef production. But at the same time we probably need a little bit stronger domestic demand as well to really make that a big deal.

Howell: Ted, feeder cattle markets. Is the low in yet for us?

Seifried: Today was a good day, a good reaction to a big drop in corn prices, and I would say that before today we were starting to say what I would call sort of bottoming formations on the charts for both live cattle and feeder cattle. I would like to say that the rally that we saw in feeder cattle today would put a point on that and say hey, the low is in. But I'm very curious to see what corn does here over the next few weeks and keep an eye on that. So the two are going to work in tandem. But transitioning to the live cattle market I really like the look of the live cattle chart. I would like to see the feeders be the leaders to the upside. I hate clichés but that's a good one. I think live cattle have a chance to start going higher, especially as we get warmer temperatures and July 4th holiday and we really do get into the grilling season in earnest because we haven't really been able to do that yet. But I like the outlook for domestic demand for protein as a whole and I like the look of the chart of cattle. I think boxed beef prices can start to creep up as that demand creeps up, cash prices go up, and we can go higher in cattle. So I'm bullish cattle right now.

Howell: Okay. And finally we've got to talk about what is going on in the hog markets. Does this tiff between the Chinese and the Canadians give the U.S. an opportunity to slide in there and export some more hogs?

Seifried: Maybe. Right? Because if China is not buying from us then we just have more Canadian pork coming over our borders and further increasing the supply that we could potentially have. So if China is buying from us then that's a great deal. But Canada is going to have to have an outlet for their pork as well. So if they're not going to China then it could be coming our way and that’s part of the reason why we've been under pressure in hogs. But it was nice to see China on the export sales, although not huge numbers, but it was nice to see them on for last week. And everybody I'm talking to over in China is saying that it is really reaching crisis point right now and they are expecting our pork prices to skyrocket some time fairly soon. They're surprised that we've come down as much as we have and I kind of feel the same way. I feel like this is a realizing market and fairly soon we're going to start realizing that ooh boy, there's something going on here.

Howell: All right, we'll pick that up in Market Plus. Ted, thanks so much.

Seifried: The pleasure's mine, Delaney.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. When you subscribe to our YouTube channel you will get notified when the program and Market Plus are online. Find us at Market to Market. Join us again next week when we’ll explore how hay exporters continue working to recover from a dockside dispute. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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