Market Plus with Ted Seifried

Paul Yeager: Welcome into the Friday, February 9th, 2024 installment of Market Plus. Ted Seifried is still with us. Ted, I did not get a chance to help you be positive at the end of the market analysis segment, but it is very serious what's going on. So but let's start positive here with a question. Ashlee in North Dakota wants to know, what commodity are you most hopeful for a rebound on the upside?

Ted Seifried: Hi, Ashlee. Hi. You know, I longer term, I think the report that we just saw opens the door for a lot more downside. However, and I really kind of wanted to get to this during the main program because I don't want to sound like it's just all gloom and doom from here on out. I will say that the recent price action, especially that we've seen in soybeans since that report came out, I mean, this is a report where we could easily been limit down or, you know, $0.40 lower.

Ted Seifried: And we weren't we actually ended up positive on the day. And even though Friday was a down day, we kind of held it together. At least we held the recent low, which is the lowest we've been since June. It didn't really have this breakout extension to the downside. Now that could happen next week. I'm hoping it doesn't, but maybe we do go through a timeframe here where you get some profit taking from the fund, some short covering and a bounce in soybeans are the ones, at least at the moment, that feel more likely.

Ted Seifried: But I think corn would want to follow and I'm I don't know, I'm always a little bit more bullish corn than anything because, you know, I'm big on the ethanol. And I do think over a larger period of time that, you know, sustainable aviation is a big thing. The problem that I see with sustainable aviation is twofold. One, it takes a lot of investment to build the facilities to really create it and to use more domestic product.

Ted Seifried: And the other thing is that we create a lot of byproduct in the form of DVG’s and also soybean meal, and that directly will compete with corn demand on a feed scale. So we're it's just it's a tight that's a tough question, really. You know, you've got a lot of negativity. And I got to say, the way this this is unfolding, the way these charts are right now, it feels a lot like some of the really not so great years that we've had in the past, like 2009, for example, 2013 into 14.

Ted Seifried: Like this is these are cycles where we go from the high end of the range to the low end of the range, and we're in that transition period right now. And so that's the feeling at the moment.

Paul Yeager: We have two lower questions. Then we'll start with one on Acres, because that one's really easy to predict, of course. Tim in Minnesota wants to know who, by the way, said it was like 47 up there in February is crazy. Will these low prices reduce planted acres this spring? Pick a commodity. Anyone?

Ted Seifried: Any commodity? Well, I'm going to stay with the road crops because that's you know, the thing that I think that really pertains to. Right. Man, you know, logical, rational thinking would suggest that that low prices are also the cure for low prices. And that means that we're going to plant less. But unfortunately, we saw this back in ‘17, ‘18 and ‘19 when we had low prices.

Ted Seifried: The answer to that wasn't let's take let's take acres out of production. The answer to that was let's out bushel the low prices, meaning I need more to get the revenue that I was having at higher prices or to get the net or the gross revenue that was having at higher prices. Unfortunately, Paul, I think this might bring some acreage out of the woodwork.

Ted Seifried: I think some of the fringe acres that haven't really getting had not been really getting planted for corn because of high input costs. I think you're going to go in now because they need more. We need more bushels.

Paul Yeager: But don't you think that already happened regardless of high inputs when the price was so good as it had been for the last couple of years?

Ted Seifried: I really don't. You don't know because you're not you're not going to spend you're not going to spend a tremendous amount of money on acres that don't traditionally yield. Well. Right. But now that input prices have come down and even if you were to thin out your input schedule, you're going to plant those acres because you now you need as many bushels as you can possibly get because you're dealing with you're getting lower prices for those bushels. So it's counterintuitive, Paul, and it ends. 

Paul Yeager: You really don't think- Yeah, it ends on a cycle that we have seen before. This is not a new movie. Let's go another negative one, I guess. Paul in Minnesota will stick in Minnesota. And this is about $4. Will $4 and sub $4. Corn futures be the new normal for the next 2 to 3 years?

Ted Seifried: Yeah. Hey, Paul. Unfortunately, you know, look, when we talk about cycles, we spend a lot of time at the higher end of the historical range. We can spend time at the lower end of the historical range. Now, I am going to say, because of inflation and everything like that, I don't think we're talking low three corn anymore. If we do it very brief period of time. I think we do have this new paradigm or whatever, but it's not $5 like had been touted a year ago. So yeah, unfortunately, I think we are swinging back to that side and we think it comes from a number of different things, right? I mean, you know, we've talked about how demand destruction has occurred after we've been at high prices for a long period of time.

Ted Seifried: We've talked about how China seems to be really backing off on their soybean demand, which will back us up on domestic soybeans, which will cause us to crush more means, more meal, more competition against corn. Now, Brazil's in the mix and really being the benefit of China's record imports of corn for this marketing year. So this is going to be a lot of global competition going forward until we really get the sustainable aviation demand up and running in a much, much bigger way than it is right now. And then for corn. Well, okay. So for corn and beans, I want to touch on this before we move on. There's something very, very interesting happening with China. China is always the focus of our attention. But China has imported a record amount of corn for this marketing year so far. This comes after they had supposedly grown a record corn crop.

Ted Seifried: Now, I don't know if I believe all that about the record corn crop, but it wasn't a disaster. I know that. So the question is why? Why have they imported this much corn? And yet also, you look at their schedule for April, May, June, and they seem to be severely undercooked for soybeans. Yet their crushed margins are really very poor. Pork prices are low. What's going up? And for the last six years or so, they've talked about wanting to change their feed ration. So they want to lower the amount of soybean meal to what we would consider a much more normal level and then feed more corn, which is cheaper feed for them, which with lower pork prices and in a bad economic time for them, this would be an ideal time for them to do that.

Ted Seifried: But if they're if they're successful in doing that, and if that is a permanent change, that is a very big problem for us and Brazil in the soybean market as a whole, because for the first time, at least in my career, 18 years or so, and for most of ours, we're potentially staring down the barrel of a significant decline in Chinese soybean demand. Rather, up to this point, it's always been stagnant or higher pretty much every year. Stay near higher, slightly lower. You know, we're talking 2 million metric tons, something like that. But there's a potential that China might be reducing their soybean import demand by 20 million metric tons. That's a huge problem. And we can't we can't build facilities fast enough to crush soybeans for sustainable aviation or whatever else to offset that. Neither can Brazil.

Paul Yeager: We can't use our way out of the problem is what you're.

Ted Seifried: Not in the short term. Long term, probably and honestly look cycles right. So if something like that happens that will really facilitate that sustainable, sustainable aviation industry and it might be better for all of us in the long run, but it could mean some period of time where things really do hurt. And I don't want to pile on top of things.

Ted Seifried: But in the meantime, you've got China approving GMO seeds for the first time in their history. They have not. It was it was a cultural thing where they did not feel comfortable putting GMO seeds in their ground, their sacred ground. All of a sudden they're doing this now. And if that really if that really takes traction, wow, they could double their soybean yields. And that's an even bigger problem, right? I mean, we are we have to be concerned about the possibility of significant demand destruction happening in China, not necessarily because of our high prices or not necessarily because of anything we're doing, but of things that they're taking steps to do.

Paul Yeager: They're taking a more in-house approach.

Ted Seifried: In-House approach. They very much want to be less dependent on global imports.

Paul Yeager: Okay. Let's take a little bit of that and try to answer Glen's question then about cost to carry, because there's no way you're going to carry through for just a couple of months, because what you're talking about is, is years. But Glenn's question, let's just talk a little near-term. Regardless of the report. If you look at a cost of carry table for corn and beans, does that give us a better indication of what is really going on in both markets at this time?

Ted Seifried: Well, there's a carry, right. And the scary thing about that is that there isn't a whole lot of farmer selling going on. Right. So you would think that, hey, maybe we can go to an inverse if if end users need it that bad. But the fact that it hasn't suggests that and you just don't really I supporters aren't begging for it right now we just don't have the sales. And I'm specifically talking about soybeans. So that's a problem. And an even bigger problem is that there is a tremendous amount of corn and beans that have not been priced yet for both old crop and new crop. And eventually that will have to come to town. And when it does that carry could get kind of ridiculous. So it's there's really there's really not a whole lot that you can say to get really excited about things aside from yes maybe we can see a fund covering short covering profit taking rally that's basically that in in a South American weather problem for that second season corn crop those the only thing two things that we can really hang our hat on right now and neither one of those seem to be happening in a big way, at least not yet. So this is this is a concern.

Paul Yeager: The people that have sat in your chair the last few weeks have said if there's any short term rally, take advantage of it. And that's what you're saying, too.

Ted Seifried: Absolutely, Paul. And look, you know, I've followed Twitter, obviously, and I've heard everybody like, oh, you know, all the analysts are getting bearish and whatever. But you correct me if I'm wrong, Paul, but I'm pretty sure I've been talking about a lot of these same things for eight months to two years now. And I think a lot of the other analysts that sit in my chair have been saying that same thing. I think this is the first time people are actually hearing a lot of the things that we're seeing. And it's maybe unfortunate because there were writing, there were clues or indications of things like that. We've seen. And I don't think enough people took advantage of that. But, you know, look, hindsight's always 20/20, 100%. I get that.

Paul Yeager: Well, I was just looking we had a question very similar. I want to end with that. Okay. Let's do it this let's close with Mike in Iowa, because this is what I was going to ask you, but I'll just let Mike do it. When is the bleeding going to be done with corn and what should you do to unprocessed old crop? Because and you can say answer soybeans, too. Because if we truly have missed this boat, what do we do?

Ted Seifried: Yeah, I mean, look, seasonally, we do have a rally in the first half of the growing season. Hopefully that will be the case. Maybe there will be a problem with that. The suffering of corn crop, I don't know. There are things that's the thing about predicting the futures that we can't fully know what's coming in the future. So I do like the idea of having some re ownership re ownership strategies.  I know some people will argue very, very much against that. But I think a great thing to be doing right now is rather than buying puts, which are pretty expensive, when you have an extended move to the downside, puts become an expensive surprise. Let's create a synthetic put right. Let's sell cash and buy a call on top of it.

Ted Seifried: That is a synthetic put, right? Because if you do get something that turns around and goes higher, well then you have your you have your call that you bought in order to help you regain some of that potential, regain some of that value. I think that is probably the best way to approach this at the moment. If guys don't want a price right here, which I don't blame them. You know, a lot of guys continue to ask me and look, I'm not twisting anybody's arm on this and I'm not sure I really love this idea. But, you know, like going out and buying July $5 calls and then going in and selling cash orders that you promise you won't pull at $4.84, at $4.92. So that if we do rally to $5, you get sold on the cash side.

Ted Seifried: And if it keeps going for whatever reason, your $5 call takes up, takes the ball and runs with it and you can continue to gain value there. So there are strategies to be using right now. I know it's not an ideal feeling compared to where we have been the last couple of years, but it could get a lot worse. And being complacent might be the worst thing right now.

Paul Yeager: The worst thing is we're out of time. Ted, good to see you. Good to see you. Just a reminder for everybody, when you do hear an analyst and you want to one of the joys of the Internet or the transcript that we have, you can go back and see what Ted said and relive it. I know I may have to do that with you, Ted.

Ted Seifried: Yeah, And if I might, I would like to say that I am doing my absolute best to inspire corn demand, the 803 horsepower Camaro sitting outside and it is full to the brim of E85. So I'm trying guys I'm trying.

Paul Yeager: You’re doing your part. All right, Ted Seifried good to see you. Thank you so much.

Ted Seifried: Pleasure's mine. Thanks, Paul.

Paul Yeager: All right. Next week, we are going to look at the challenges facing the oyster industry. And we'll have the commodity market analysis with Dan Huber. Thank you so much for joining us. Have a great week.

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