Market Plus: Matthew Bennett and Dan Hueber

Jul 10, 2020  | 14 min  | Ep4547 | Podcast

Podcast

Yeager: This is the Friday, July 10, 2020 version of the Market Plus segment. Joining us now Dan Hueber and Matthew Bennet through the power of technology, both in the state of Illinois and Matt Bennett has the mark of being one of the last humans we've had in the studio. That's been a long time, Matt, since we've seen you. How have you been?

Bennett: Very good. That actually was a precarious time, as you remember. I was out speaking that week and things were changing like every two minutes. Every time I opened my phone not only was I getting information but my wife was saying, when are you going to get home, and I said, well I've got to drive right by Market to Market so we're going to go ahead and do the show. And I was certainly glad to be there. It was fun to be there. But that's a show that I don't think I'll ever be able to forget because not only was there a lot of uncertainty just with everyday life but obviously with the markets there was a lot of angst and just general uneasiness about what was to come.

Yeager: So if you look back to mid-March then, I guess I'm going to start with this, what do you think you got right? What do you think we've maybe not gotten right? And what do the next three months hold?

Bennett: That's a big question. What did we get right? I think any time producers would hedge a little bit of risk, we had some opportunities over the wintertime, they weren't going to be home runs necessarily, but after the last several years having multiple opportunities to sell December corn above $4 and beans above $9.50 basis the Dec and Nov those were some good areas to manage some risk. And so I think we did a really good job of managing some of that risk. Where did we miss a little bit? I think a lot of us felt like if we wouldn't have had this issue with the ethanol sector due to coronavirus that we would have seen some really good cash prices. So that certainly didn't come to pass. We didn't see the basis we thought that we might see. Now, as far as the next three months are concerned the next three months in my opinion a lot is going to be quantified in the next 10 days because of weather. The weather is going to have an enormous impact on what we see moving forward. And we talked about this a little bit before we came on the air but there's going to be a large, you're going to have to really manage well as far as your insurance situation. If we don't rally back up towards the highs that we saw, if the weather does indeed turn into be corn making weather and we have enough moisture to get us by it's going to be a very challenging situation for a producer. But if we do get that rally up there I think the producer at the very least has to take some risk off the table, set some floors under themselves and then hope this market gives them better opportunities than what we're currently seeing.

Yeager: Dan, if I give that widespread of a question to Matt I better give you the same one. You weren't here but you were here close to that, I think it was the second or third week we went to these remote shows. What do you think has changed the most maybe different than what Matt sees or what he said compared to now? What do you think has been the biggest difference?

Hueber: Well, of course the elephant in the room is the coronavirus which not only has it disrupted everything from production to transportation, supply chains, you name it, it's just one of those unknown factors and I think fits that complete description of being a black swan. It's an event that hits us, nobody has experienced it before, how do you come out of it and of course if you're really making a black swan you go back and say we should have seen this coming type of thing. But regardless, I think it has so disrupted the rules that we trade by, the rules that we work by that we're all in that adaptive loop right now. So I still feel the same things apply, exactly what Matt said, for five years now if you could sell beans at $9.50 and corn above $4 on the December you did it. That has been the upper end of our ranges and good risk management said you had to do that. Now granted, we haven't had the opportunity to do that now for the last six months and maybe it would be a challenge to say in corn especially we have that room to get up there this year, not impossible but it would seem to be a long shot here at this point.

Yeager: I suppose we should talk about some commodities. We did not talk about cotton, Dan. But that is a market that has kind of chopped along for a while, broke out last week and it continued the run this week. A lot of rain in the Delta. IS this a weather market too or something else?

Hueber: Both, it is a weather market but we saw less acreage than was anticipated in the cotton market so I think you have a combination of both. Realistically December cotton has rallied almost 30% from its spring lows. And again, part of those lows were coronavirus type inspired panic, everybody wants to get out of everything at that point in time. That said, I think any time you have a 30% rally you've got December cotton back over 64 cents here, yeah you probably need to start looking at rewarding in this range right now. The market is starting to look just a little bit tired. You notice today we did have a fairly friendly report both domestically and on the world stocks, the market didn't really react much so it's probably getting a little tired of rallying on those same factors.

Yeager: Matt, we have a question that came to us from Bradley in Upland, Nebraska. You answered part of this one already so I want to focus on the second part. He's asking about managed money. Will they disregard the forecast of the heat during corn pollination? And then I'm going to skip ahead, or will they roll out of their record short positions as the market trends higher?

Bennett: Typically we see them get back to even during the growing season but this year has been a different type of year. You're coming in with you had a really friendly report here in July and you're still talking two six and a half, so you're still talking a pretty large carry and so are the funds going to look at that situation and say hey, this is a place where we think we need to go net even or even long? I think that is maybe a little bit of a stretch until you get into a discussion where I think you at least have to get to where people are throwing around a 2 billion and below carry and then maybe you could get the funds to step in and really pounce on something like that. But at this stage of the game we remember the funds they want to buy a story, they want to buy value. Is the corn market a value to some people right now? Yeah, maybe so. But at the same time unlike Dan, you really have to work hard in my opinion to make a run back up to that $4 level and considering we're 50 cents plus below that right now, yeah there's probably some room to go up. But I don't know that the funds are interested in a 20, 30 cent move as well.

Yeager: How do we get to that market move? I guess I'll let either one of you answer. There was a question, Matt in Amherst, Wisconsin, this is a question I was saving for the end but, he was asking, how much wind is left to blow the sails of this rally? So if it's not weather, Dan, what is it?

Hueber: Well, you'd have to have a number of sequences fall into place realistically. Weather has to be a part of it. You've got to put a little bit of fear into those who are holding that short position and I would say I don't think they try to gauge the weather, is it going to be good or bad, they get a signal it's time to turn around they're going to turn around regardless of what the weather forecast is. But I think the other element that could be out there, and again we're kind of sick of talking about it, seems like we've been waiting for a year and a half for the Dow to sit back and it hasn't for a number of various reasons but I think if you had a combination of China stepping up some import business of corn as we saw some very nice sales made to them this morning, had a weather issue and then you saw, the dollar break, the combination of those types of things could probably lift us a little bit better to the upside than what we see with what we know here today.

Yeager: Matt, you look like you were agreeing with that one. Do you see it the same way or do you have more to add?

Bennett: I do, I've said all along people are asking what do we need to do to go back to the spring insurance price and I've said, well, this was before the June acreage report, I said I'd like to see a big reduction in acreage and then they're shaking their heads yeah, I think we can do that. And I said, and I would like to see Chinese purchases. They're shaking their heads. I said, and, so yeah if the dollar backs off then that all of a sudden starts to change the scope of things. Yeah, we came in today and we saw a tweet from President Trump that said Phase 2 is off the table basically and I think that definitely had an impact on the market but at the same time, I guess Dan would probably agree with me here, if the Chinese can buy corn cheaper from the U.S. and they hate our guts they're still going to buy corn from the U.S., they're traders, that's what they do and I think that they look for value and they're going to go try to find it and I happen to think based on most of the intelligence that we receive that China is going to have to be in buying corn. They've been using more corn than they've been producing for several years in a row. You watch these auctions and they're selling everything at these auctions. People are gobbling up corn like it's going out of style and interior corn prices in China are very strong. And so you've got to look at all those things and ask yourself what are they going to do? And I think that is one big wild card that can give you the opportunity to rally this corn market. At a time whenever you're looking around for reasons why it can't rally that's one big reason why it could.

Yeager: Dan, I've got to ask you a question here about the oil industry and this one comes from Boyce in North Dakota. We had this as one of our stories, the Dakota Access Pipeline. With that shutting down should we expect the basis around there -- he's in Montpelier -- to get wider if the elevators have to compete with the oil field for rail service?

Hueber: Well, if I'm understanding it properly if you're shutting down the production on the oil and you're not moving it via the pipeline I guess yeah that could push some back into the rail system. That said, I think you're really kind of struggling to keep that industry moving along anyway. So yeah, it could increase competition if they're moving for more rail cars but if there's less fracking going on overall there's also less demand on bringing -- some of those other kinds of products. So I guess I would not look at that necessarily as being a long-term negative on the basis.

Yeager: I'm going to ask you both a question, it's kind of a big one, be quick on it if you could. I know I've already gotten long and Tiffany who transcribes this always gets mad at me when I ask these really long questions at the end. Merrill @Pricehelp is asking me, Dan and Matt, assuming the highs have occurred, what are your plans for remaining old crop, but mainly new crop? Sell across the scale? Do you store? Do you hedge to arrive? Do you look at basis contracts? Or carry? Matt? What do you do?

Bennett: It's going to be hard to answer this quickly but I guess a couple of things come to mind for me. Basis contracts have not exactly treated everyone well this time around. That doesn't mean they're not going to moving forward. But I've got to be careful, especially if I don't know production in my area real well yet, what is going to happen for me locally, I think basis could provide some opportunity especially in my part of the world and east if we don't get the weather. And so I'm not sure I want to do too much of one thing. So how am I going to approach new crop sales if the highs are already in? I've got to have a really good handle on production. I've got to have a really good handle on how I'm going to manage the relationship between crop insurance, what my cash sales look like, because if I'm making the assumption that I'm going to be selling 240 bushel corn here in central Illinois and that's going to be able to help me make the bills, pay the bills and then I don't have 240 that is a big issue, especially if the market rallies and it limits my insurance payout, if you will. So it's a very complex deal. But again, I want to spread my risk out, not have too many eggs in one basket. I'm okay with some basis contracts here and there. I'd probably be a little bit more with a HTA if we can rally back up closer at least above $3.50, into that $3.60 area, if we do get enough weather to make me feel good about production.

Yeager: Dan Hueber, same question, same constraints too.

Hueber: Well, okay, I'll be rapid here. The key word there we're assuming the highs are in. If the highs are in you sell rallies. And you not only sell futures rallies, you use short call options to try to enhance that price a little bit if you're assuming there's no more risk to the upside. As far as basis do you put it in a bin -- that's all a personal, individual farm operation and regional because basis here in Illinois may be different than it is in Iowa or Nebraska or South Dakota. So you have to gauge that by your own local area. That said, if you have carry in the market you sell the deferred and you try to pick up the basis in storage that way. But again, if we're assuming the market highs are in you sell rallies.

Yeager: Dan Hueber, good to see you, appreciate your time as always. And Matt Bennett, good to see you as well.

Bennett: Thanks for having me.

Yeager: Thank you gentlemen, we'll talk to you next time. Next week we’ll see one exhibitor is overcoming an obstacle in the show ring. And Don Roose will join us to analyze the markets. We'll see what this weather does this next week. I’m Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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