Market Plus: Fall Roundtable Discussion

Oct 4, 2019  | 19 min  | Ep4507 | Podcast


This is the Friday, October 4, 2019 version of the Market Plus segment. Joining us are Naomi Blohm, Elaine Kub, Darin Newsom and Ted Seifried. Darin, would you like to start off this segment by perhaps offering your condolences to our other analysts for the main portion of the show.

Newsom: No, not at all.

Howell: Okay, I was just going to offer it up there. There was a little heat going on during the main part of the show. That's what makes it fun. That's why we include you specifically.

Newsom: Why not.

Howell: Ted, I had to cut you off there right at the end of the program talking about the lean hog markets. I also want to leave in this question because it was directed specifically at you this week from Bolt Marketing in Britton, South Dakota. They said, Ted, is it safe to buy the hog market?

Seifried: What's up, Duane? Yeah, again, the question is, is China going to buy? This is what we were talking about at the end of the segment. Is China going to buy or not? We keep pushing our hopes back and we keep getting disappointed. The good news that we're seeing fairly decent export sales on a weekly basis, other countries coming in, Mexico in particular. I think getting in front of the concern that China is going to come and buy everything or demand displacement, maybe having a hard time going down to South America and buying products. So yeah, you're running right down into some key support in the hogs. I think it is going to bounce from here but whether it really takes off to the upside is really China dependent and goes along with what is going to happen with the trade talks this week. But, Duane, I would say you can probably tell your clients that Ted says you can try to buy hogs here but keep a fairly tight stop. And hey, buddy. Hope football is going well.

Howell: We've got one other question about the hog market from Every Day is Beef Day. I like that Twitter handle. Wanting to know could someone just explain the latest moves in this hog market?

Blohm: I think it's partly spread trading going on, giving the day traders a little excitement to do between October and December contract. I've been watching that spread pretty close. If you're Johnny on the money you can pick up a buck or two every other day on it. Other than that, to Ted's point it is a battle between over production in general, that's the reality of what we have right now in our country and then the hopes of continued export demand. So exports yep, up 16% overall from a year ago, however if those exports at all falter in some capacity we just have the theme of over production.

Anything to add, Darin or Elaine?

Kub: Well, yeah, the slaughter numbers are huge, every day 488,000 and this is going to continue. But when you do look far enough out you're looking at like $90 in the June contract. So at some point someone is expecting this to change or there to be enough demand to swallow up those huge slaughter numbers.

Howell: Okay, I'm going to move back to our discussion with the grains and looking a little bit more closely at some of these reports. I know, Darin, it's not your favorite subject. But we've got a question here from Bradley in Upland, Nebraska wanting to know, he says specifically, I wonder how much if any of lower USDA carryout numbers are grains lost to flooding and storage losses piling on from last year's wet crop on the ground instead of a smaller 2018 crop.

Seifried: It's possible. I don't think there would be a big portion. I remember doing this back in the spring, coming up with the math of what it could be and it really wasn't, I think the absolute highest number we would talk about was like 40 million bushels but I think we're a lot closer to 4 million bushels. I think simply, for soybeans we know the difference, we revised production lower from last year, they were too high on production last year. For corn that will get lumped into the feed and residual category but I would suggest that the USDA was probably too high in production last year and feed was stronger than what we were expecting. But there could be some of that too so I'm not going to say no to that.

Howell: And to follow up on that too, obviously this growing season has been quite an unusual one and we thought perhaps Mother Nature would be nice to us during harvest season. Maybe she's not going to, it's still wet. And Elaine, I heard you mentioning before the show started that frost is obviously a huge concern. At what point does it turn to perhaps seeing a rally because of the delay in harvest?

Kub: I'm not too worried about it right now because we're still 10 percentage points behind in maturity level, actually there's like 50% mature when it should be three-quarters mature by now. But big deal, you've got corn in most of the northern Corn Belt has black layered and you could have a frost now and it would be all right. The delay from rain in the center of the Corn Belt, your Iowa areas, that's inconvenient but since the crop is not ready to go yet anyway at this point it's not a huge concern. Ask me this again a week from now, two weeks from now if you still have rain delays then, then you're starting to lose quality problems, then maybe it starts to be a problem.

Blohm: Actually the news in Madison just yesterday did a special on the grain that is sprouting in the fields around us. So it obviously just depends on where you live very much so. But we're hearing a little bit more in bits and pieces but I think we just live in a rainforest lately as far as Wisconsin with all the rain that we've had. But it will really be important to watch going forward. And you're right every weather forecast every week is going to be potentially market moving. If the delay continues or even I'm wondering if producers will try to let their grain stand in the fields for winter and then you have a whole other issue of being snowed on and how do you even get to it. So it's just you want 2019 to come to a close.

Seifried: We have a lot of on-far corn and soybeans right now, so the longer we push back harvest maybe the longer we push back a lot of grain coming to market and putting pressure on cash prices. Now what could happen though is if you look at corn with the basis already being tight harvest lows I think could start to make some local end users a little bit nervous and really push basis up which could help the futures market. But I don't think an extended delay in harvest is super bullish for either corn and soybeans just because we have on-farm stocks. We have other reasons to be bullish and I think that is what is really manifesting in the market right now.

Howell: Okay, Darin, I didn't mean to put you in time out. You're allowed to speak as well.

Newsom: No, I agree with what Ted is saying. If we do, and what Naomi and Elaine are saying, if we do push harvest back because of weather I certainly agree that we've got strong basis right now in the corn market and I think it will continue. So yeah, out of all of it I think merchandisers are going to be a little bit more nervous than the farmers are at this point. Farmers have kind of gotten used to it because starting last fall was when the weather really went south and it hasn't improved since then so we're just looking at another fall of weather not really playing nice.

Blohm: Then you wonder if it delays then we're going to be in another situation where they can't get their spring prep work done and the cycle continues.

Seifried: Like all of western Illinois, how many corn fields do we still see standing? Is that going to happen again this year?

Newsom: And if we're going to really get into the weather let's talk about the five to six feet o snow that we've got up in Montana. It's got to melt at some point, maybe not this fall, most likely not this winter, but next spring and then all of a sudden that all has to come back down the Missouri River again and that area still is flooded from last spring and then it makes its way across over to the Mississippi and then we see flooding over there. So I think yeah there's going to be some issues, there's going to be some spring field work possibly have problems. We don't know any of this but all of the pieces are in place.

Howell: I want to throw a curve ball at our production team, I didn't give them this question ahead of time. But I want to ask it because I think what you're all talking about right now is very important, the weather scare concern. We've got a question here from Jared in Mattoon, Illinois. And I've talked to a couple of you about this on the program as well. But based on limited harvest reports, reactions to season long crop conditions and USDA reports is this year further proof that the markets are now immune to weather scares?

Blohm: I'm going to say that the traders have really always thought that no matter the weather scare there's always going to be a crop. So that is what we're waiting to see with what is yet to be harvested. But again as I said on the show early indications are that yields are down significantly from year ago levels. And now we know what this type of weather can do so if in the future we see this type of wet weather pattern emerging I think the marketplace maybe will be more in tune to react sooner because it will be in their memory etched in stone.

Newsom: Believe it or not I'm going to disagree with that. In the past traders were much more reactive to weather and weather markets and so on and it does take more now and I think it has to do with there is this, number one, the buffer recently has been we've had so much on stock, we have so much stocks on hand, but also with the technology we use, with what producers are all doing to produce more, with the seed itself, with the science behind the seed, I think that does create a buffer all the way around so they don't react as much. So if we come in and somehow this crop still yields when all is said and done and USDA winds up changing it two or three years down the road as far as what production might be yeah, I think we are going to see more, I think we're going to see longer periods here where we don't see these huge weather market reactions.

Howell: Ted, you look like maybe you had something to add.

Seifried: Yeah, I think the biggest surprise for me this year was not necessarily that we were still able to yield given bad conditions, it was more we still planted 10 to 15 million acres of corn after June 5th, which is amazing and the fact that we got really lucky with the sort of Indian summer, not everybody but most areas, and some people got way too much rain, but we had enough time to get to the finish line. And it's really the corn crop's saving grace this year. But it could have gone a lot differently. And those acres came from, they said they didn't want to do it, they were doing it, they were trying to structure it in a way where they weren't manipulating acres but that's exactly what they did by MFP 2.0 saying it's going to be paid out the same amount regardless of what crop. Okay, well then we're obviously going to plant corn and it doesn't matter if we're doing it June 10th because we'll take our insurance and we'll take the MFP payment and that pencils out better than prevent plant. So the government bought 10 to 15 million acres of corn and it just happened to get the right weather to for the most part make it to the finish line. Now we still have 25% of North Dakota corn that is not dented yet. That is 850,000 acres roughly. That's probably not going to make it. That's going to be silage and it's going to cut out for some of the feed demand. But yeah, wow, we planted 10 to 15 million acres of corn after June 1st, that's amazing to me.

Howell: Ted, I saved this question just for you because I know you're a big ethanol guy. We've got a question from Gary in Wilton, Iowa. Big news on the biofuels front. And wow, would you look at that, the corn market is down 2 cents. I know some say it's not a big deal but who is really in control of the markets if it is not supply and demand?

Seifried: Well, okay, control of the markets. Darin would say it's the USDA. No, I'm just kidding, buddy. I don't think we were all that impressed with the deal that is being talked about for ethanol and I think that is more of a prove it type thing because we've seen ethanol production drop really, really sharply in the last couple of weeks and stocks aren't really dropping. So what does that tell us? That ethanol demand is really under pressure right now. We've seen a ton of ethanol facilities shutter in the last six months. There's a significant ethanol problem right now. We also have a trade problem, by the way, and that's helping to facilitate our ethanol problem. But by giving the SRE's the way we are we're destroying RIN values and if we're destroying RIN values we're destroying ethanol demand and we're seeing that reflected throughout the ethanol industry. We can't be doing both at the same time. We need to either fix the trade problem, fix the trade war or fix the ethanol problem otherwise this is going to be a big mess in the Heartland of America when it goes to re-election in my opinion. So the ethanol situation needs to get fixed very, very soon otherwise Mr. Trump is going to I think feel the wrath.

Blohm: My interpretation of what was announced today is that when you catch your kids taking cookies out of the cookie jar and you're caught and you're like put it back. So I feel like what happened today is the USDA, not the USDA, the administration today said that we're going to be able to just go back to where we were before the snafu happened so in essence they're trying to just say that we're still going to be using 5 billion bushels of corn towards ethanol instead of we were on the verge of losing over a billion bushels of corn demand. So my interpretation was we're back to where we were supposed to be and that's why I don't think the market responded but if I missed something just let me know.

Seifried: I just don't know if we believe that. We hear it and just in practice I'm not sure that works. It doesn't really do much to help RIN values, at least that's my current thinking, and I think that is what the market is feeling too. And I think that is really the biggest problem because the RIN values are very equivalent to what the ethanol demand is going to be.

Kub: I think in a universe where none of these hijinks are even happening I think you still might have some bearishness in the ethanol market just energy prices wise. We see crude oil is down to $51 a barrel and there's legitimate concerns about the global economy and the global use of energy and crude oil and fuels especially China, if their economy is not doing well energy prices won't do well, American energy won't do well and American ethanol won't do well.

Seifried: Yeah, theoretically if energy prices are low enough that should encourage demand from a blend standpoint.

Kub: Demand, sure. But prices.

Seifried: From a blend standpoint though if we're using more cheaper gasoline, if gas is cheaper, we're using more, if that's encouraging demand that should be better for the E10 and E15 blends, doesn't really bode well for E85 necessarily. But the idea is that if we're cheap enough long enough that should be good for ethanol demand. We'll see. Right now it's just there's no profit margins in ethanol. They have been negative for as long as two years now. It has been bad.

Howell: So I know Darin, you're not a USDA report guy, so I won't ask this question to you. But aead of next week's WASDE report is there anything, I guess we never can predict what the USDA will do, but is there anything that producers should be watching ahead of next week's WASDE?

Seifried: There's a 600 million bushel range between high and low of the corn carryover estimates. So that tells you we don't have any, analysts have no idea of what this thing is going to say. I know what I say, I'm the highest guess out there for corn carryover. I'm bullish corn and I think ultimately we can see that number a lot lower than what my guess is for this report. But I'm worried that once again, just like we were in the July report and the August report, I think we are way too aggressively bullish for what we were expecting from the USDA on this report. I just don't know if I see that and I'm worried this is going to be a little bit of a disappointing report for corn. It might not be for soybeans. I really don't know what to think about soybeans because are they going to reduce production numbers or not? And they have not, they don't have a whole lot of samples to go and test ear weight and pod weights so this is going to be another implied ear weight and pod weight report. And based on how high those numbers were the last time I don't know if those are going to change for this. So I don't know why everybody is looking for such a low carryover number for corn in particular. The soybeans, wow, I really don't know what to say. I'm bullish soybeans longer term but I don't know what this report is going to say.

Kub: I think the practical implications of what Ted is saying, and this was true in July, I remember farmers would come up to me in July, everybody was really bullish about that report, should we be buying futures? And generally almost always that's a pretty bad idea for someone who is a producer who is already inherently long. You may have more bushels than you realize already possibly. It's not in my opinion a great risk management strategy to get longer just because there is some idea that this might be a bullish report.

Seifried: Agreed. Yes, thank you, Elaine. And the practical implications are hey, ultimately this story in corn might be bullish but if expectations for this report, yeah you don't need to be getting longer necessarily, especially buying futures. But if the expectations for this report are so very bullish that makes it harder for us to get a bullish report. That's just the bottom line.

Howell: Darin, Naomi, do you have anything that you would like to share as a final word?

Newsom: Oh, there's so much I'd like to say but I'll just leave it, I could care less about this report and the folks I talk to I'm just telling them to watch the market because as everyone has pointed out nobody has any idea including USDA what these numbers should come in at. And if that doesn’t instill everyone with a great deal of confidence going into the next monthly supply and demand report and nobody has any idea except for maybe where the market is trading actually at this time. So that's all I'm looking for.

Blohm: I think as you head into any USDA report always be mindful of seasonality wise, what the market has a tendency to do, be aware of are we overbought or oversold on charts and be thinking about where you're at with your cash sales that you've already done, your overall weighted average production price, be thinking about what can make the market move higher or lower and just always have a plan ready for no matter what the market can throw at you. So this next report coming up yeah, we're expecting more of a supportive tone, but to Ted's point we're going to need over the top friendly to get us to accelerate through the next resistance level on charts. So be ready for anything and it's going to be a fun fall as we go forward.

Howell: Hopefully it will. Hopefully producers can get rolling. Naomi, Ted, Darin, Elaine, thank you all so much.

Kub: It's been a pleasure.

Newsom: Thanks, Delaney.

Blohm: Thank you.

Seifried: Thanks for having us.

Howell: Join us again next week when we’ll explore how one coalition continues to push back against wind energy expansion and Tomm Pfitzenmaier 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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