Market Plus: Ted Seifried

Jun 28, 2019  | 12 min  | Ep4445 | Podcast


Howell: This is the Friday, June 28, 2019 version of the Market Plus segment. Joining us now is Ted Seifried. Ted, welcome back.

Seifried: Thanks for having me, Delaney.

Howell: You've had quite the tumultuous day today.

Seifried: Tumultuous, yes.

Howell: But you're here, we've got a lot to talk about. We had a short market segment so we've got a lot to cover here in Market Plus. Ted, I want to start out here, we had a report, we had corn acres pretty high, lower soybean acres pretty substantially and then they released a statement about an hour after the report here saying they're going to survey again on acreage. Tell us what's the deal there?

Seifried: Well, that is the deal.

Howell: Is it a cover your behind kind of move?

Seifried: No. It's not. It's basically the USDA's acknowledgment that okay, the survey that we did at the beginning of June is not an accurate representation, or might not be an accurate representation of what we have out there. The problem that I have with it is why did we do this an hour after the report comes out? Why don't we do it an hour before the report comes out?

Howell: Do you think that the markets would have traded as poorly as they did in the corn markets today if they would have released it before?

Seifried: Yeah, no, that obviously is where I was going with that. Look, when you have a report that the market is hanging on, pins and needles, and you release these numbers that are shocking to the market, and I can argue that maybe those numbers shouldn't have been shocking to the market, but limit down corn. We haven't seen that happen in like four years. And then to come out after that and say, um yeah, but these numbers maybe they don't mean as much as what you guys are reading into it. Right, let's have this happen before this report comes out. Let's make the market aware that hey, we're not confident that these numbers are accurate so we're going to redo this again next month and we'll have this report, same report on August 12th. Okay. When the market is not aware that hey, this survey might not be accurate and the USDA doesn't feel it's very accurate to the point that they're going to have to resurvey then we shouldn't be putting this much stock into it. The USDA should be diluting that report before it is released rather than throwing it into the wild, getting a limit down move in corn based on something the market doesn't understand, and then coming back after the fact and saying oh but yeah, this might not be right. So the way it was handled, yeah, I think that was really kind of amateur. I get it that this is not the USDA's, it's not their process, it's not how they work. But this is an unprecedented year and we've been seeing all through planting progress that the market does not understand a lot of the things that the USDA is doing. And is that the fault of the market? Maybe, to some extent you should say hey, we should understand more or seek to understand more about the numbers that we read and the numbers that we use to trade on. And that's true. But at the same time it's very difficult to do that. For certain things the USDA makes it very hard to find out what their processes are. Now, they do some things like we have data users meeting which maybe 50 or 60 of us show up for, but there's not 50 or 60 of us, Delaney, that are trading these markets. There's a lot of people. So I really believe that it's not really a courtesy of the USDA but sort of a responsibility of the USDA to make sure that the people that are using this data and interpreting it and using it to trade these markets, it's their responsibility to make sure that the people understand that. They are the single most influential body on agricultural markets that is out there, period, aside from maybe the weather.

Howell: Ted, you're starting to sound a little Darin Newsom-y.

Seifried: I know, it's frustrating. I put a lot of stock behind the USDA and I think the work they do is fantastic. I think the one thing that is really lacking and has been shown time and time again over the last few years is that a lot of the people that are using these numbers or reading these numbers and trading these numbers and probably manage money in particular don't really understand what they're looking at. And even in the analyst guesses that we had for the acreage numbers, you could see that there was a lot of people that would not understanding the USDA's process. And that is a problem. We need to understand the process in order to probably make assumptions or guesses for what these reports are coming out and we need to not be surprised when a survey that is done when we have 30 million acres of corn left to plant and 15 million acres of soybeans left to plant comes out showing that we were intending to plant more acres than maybe we actually did. That shouldn’t be a shock to the market, yet we're limit down in corn.

Howell: So, Ted, let me ask you, planting progress versus crop conditions report, are you starting to put more stock in those crop conditions numbers released now as opposed to the planting?

Seifried: Look, stock -- you have to understand how they're derived. A lot of people are under the idea with planting progress that when we say this corn crop is 88% planted that means we've planted 88% of the planting intensions number. That's not the case at all. What it really is, is that we are 88% done with corn regardless of whether we have decided to go prevent plant, decided to switch to soybeans, but really what we should be looking at is that we've got 12% left of this corn crop that we intend to plant. Now, again, the last number we saw was 96%, I'm talking a few weeks ago, but soybeans is a good example of that. It's not the crop progress number, the planting progress number is not saying how many acres we've planted, it's just saying what is left that we're going to try to get in. And similarly crop conditions numbers, you've got to understand these are objective numbers that we don't have people, the USDA doesn't have people scouting every field, this is just a general idea of how they think, the crops gods think that their local area looks. We can be wildly off. We saw that just a couple of years ago where we really got fooled by that. So you have to understand it before you put a whole lot of stock in it one way or another. If you're thinking that this is the be all end all, stocks numbers have a super strong correlation to what final yield is, whatever, you'd be sorely wrong. We've made that mistake before in the past. We need to understand these numbers and we need to trade them for what they are, not what we think they should be.

Howell: Okay. That sets us up nicely for a social media question here from Jared in Matton, Illinois. He said, since everybody knows this crop is in poor condition how much would a poor harvest move the markets? And will it already be priced in before the combines start to roll?

Seifried: That's an interesting question. Okay, so, a lot of moving parts there. We were in the process of pricing in a pretty significant production loss, especially for corn. With the numbers that the USDA gave us today and the reaction that we had to it today we took a lot of that away. And we will see how we proceed from here. A lot of this, like I said earlier in the regular show, now we're going to transition away from a planting weather market into a growing season weather market and a lot of that is going to depend on what the weather looks like between now and then. And we'll follow crop conditions, we'll follow crop tours. And I kind of get the feeling that maybe we don't really rally corn in the short-term, although I do think we'll see a healthy bounce back from today's shenanigans. This might be something that we realize when we get into harvest. But today a 91.7 million acre corn number, that just muddied the outlook so much more. We're more confused today than we were yesterday and that is a problem for this market. So it's going to be a market that is going to have a lot of back and forth and volatility as we try to fight this out on the board to see what it is and to try to guess because we are at this point just blindly guessing.

Howell: Ted, if we do have a healthy bounce back but maybe we still continue to be in this range, longer term towards harvest we start to rally, should guys be waiting to make some sales then until later this year?

Seifried: Again, this is where you want to use the board to lock in your, you lock in prices to manage your risk and use call options to manage the opportunity of people we're talking about, $6 corn and things like that, and that's all well and good, that's great. But sell $4.50 corn and use the call, buy a $5 call and maybe you go to $6 and make an extra dollar. All right, so if you haven't been doing that today should have been a very real wake up call. I think if you get a halfway decent bounce then you need to be selling again. I do understand that if you’re not sure if you have a crop you can't go too far with that so there's other ways to manage that. But you've got to be really active. Look, 60 days ago I would have guys calling me and saying I think I'm getting out of farming, I'm never going to get a chance to sell $4.20 corn again. Well, even after today we have a chance to do that. The opportunities have been there and a lot of people put blinders on, on the idea that we're going to $5.50 corn. Somebody said $10 corn. So I'm not going to sell, I'm going to wait until that happens because I can't, if I sell $6 corn and it goes to $10 and my neighbor sells $10 then he's going to buy all the acreage. Wow, that's a very dangerous way of thinking. It's very simple, if you're profitable you start to make sales and if you really want to recapture upside potential there's other ways to do that. But we should have been being aggressive. If we haven't been being aggressive we need to be looking for opportunities to do that. And again, I'm all for reowning opportunity, but the bigger problem is managing your risk and that is what we really need to be aggressive on.

Howell: Okay. Ted, I want to throw one more social media question at you since you're kind of our ethanol guy. We've got a question here from Roger in Kokomo, Indiana. He said, with current oil prices what corn price will begin to affect the ethanol production and markets?

Seifried: That's a great question, Roger, and once again do we have 20 minutes? But okay, so the $60 mark has always kind of been the market that we look at ethanol being really attractive for blenders. But when you have rising corn prices that makes things a little bit less clear. The other thing that we've got going on is the SRE's or the small refinery exemptions, are pushing RIN prices down to the point where we don't have a ton of motivation to really blend more ethanol than what the mandate is. So as far as that is concerned we're going to get close to the mandate, that mandate is going to keep us producing ethanol. It would be great if we could get some export business rolling as well. As far as what price do we start rationing corn demand for ethanol? I'm assuming he's talking corn price. I think north of $5, $5.25 that it gets really dicey. You've got a lot of ethanol plants that are inefficient that are already, were struggling at $3.65 corn, they'll continue to struggle at current prices and they'll certainly struggle at higher prices. But your inefficient plants will pick up a lot of that slack. I'm not terribly worried about ethanol production and I'm not terribly worried about price rationing ethanol production. I think if we're going to see price rationing it's going to happen a lot more on the export side of things, especially with the dollar being strong, even though it has come off of highs a little bit. And as you were talking about looking for different feed options such as wheat and things like that.

Howell: Okay. Ted Seifried, it's been an interesting day. Thank you so much for joining us.

Seifried: My pleasure, Delaney.

Howell: Join us again next week when we’ll explore how hay exporters continue working to recover from a dockside dispute and Don Roose 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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