Market Plus: Matt Bennett

Nov 20, 2020  | 12 min  | Ep4614 | Podcast


Yeager: This is the Friday, November 20, 2020 version of the Market Plus segment. Joining us now is Matthew Bennett. Matt, I am out of 2020, 2020 references, but I'll do what we can to move forward. Something that didn't move, I did right at the end talk about Class III milk. It has dropped almost $3 here in two weeks, government buying has exited that program, I just took the knowledge that you had and cotton has shot up $2.56 on the week. I know those two aren't connected but those are two markets that we talk a little bit on the fringe. Is there any fringe impact, spillover impact from either of those for the corn, soybean, wheat trade?

Bennett: We talked briefly right before we started here and on cotton you've got to think that cotton is going to try to stake its claim to a few acers, it's going to have to do something because if you don't you're going to lose quite a few acres and I think this acreage battle is actually going to be one where we're not playing hot potato like we have the last few years and it's nice to see. We haven’t seen this type of a situation for quite some time where we're having to actually buy acres.

Yeager: We do have all sorts of great questions that do get into acres and as we move into cattle, I kind of blew over cattle and feeders and didn't the chance to separate them out. But Aaron in Ocheyedan, Iowa, he asked us via Twitter, for cattle when will the real bullish data take over the wheel from the fear and unfounded rumors/

Bennett: That's a good question. There's a lot you can read into the question. But quite frankly you've got to balance any sort of bullish enthusiasm, for instance, with an 89% placements number, with some COVID fear, and I know a lot of folks roll their eyes but let's just be honest about it, the last time that we had a major flare up in the spring there's no doubt that it had a devastating effect eventually. Now, right up front it was interesting in that people were just rushing out to buy beef so your boxed beef demand was incredible. But your restaurant demand pretty much went away. And so he's got a really good question. And again, I'm just going to say, I'm not super friendly right up front and part of the reason is because it's hard from a speculative standpoint to get real friendly whenever cases are rising on a daily basis. It's a little bit concerning. On down the road though your placement numbers have to keep you feeling pretty darn good and demand has been really good. So I do like cattle prices on farther out. I Don't think we're going to fall completely out of bed by any means, I could maybe see $3 or $4 down in this cattle market, but I will tell you if he's looking for something bullish Monday morning you might get it because the numbers that we got on Friday by all means I think will have a friendly impact on the market to start out the week.

Yeager: The last report we had it did carry over strongly into Monday, it wasn't like the market forgot about this and it doesn't get to trade it over the weekend. But I look at Tyson, great income in the fourth quarter, but they have made changes, as have all these meat companies, about the safety of the worker, trying to improve and stay markets operational. One thing I read this morning said they know what animals they're going to harvest and bring in, they know it's going to be slower because they have to be spaced out, they've got a little bit of time and frankly they've got experience from what happened in March. Does that give you cause for hey, maybe this won't be as bad from the beef and pork and poultry standpoint from the processing plant?

Bennett: Absolutely. I think they are way better prepared than what they were the first time around here and obviously this was a tough situation. Nobody saw this coming to this degree. But what do they do, they made some modifications and they tried to figure out a way that they could avoid any sort of shutdown because I think everyone knew that COVID wasn't just something that was going to show up in the spring and go away and be gone. So they did what they had to do to avoid shutdowns on into the future. I think that is what a lot of people are a little bit worried about is as soon as you hear about a plant closure there is no doubt that people start to get very nervous, and for good reason. But we're not seeing that just yet. And so I feel pretty good about where we're at moving forward.

Yeager: Let's move into the area where you were pretty busy on Friday afternoon. There was a couple of tweets that came in and one of them was from Stephen in Virginia and Stephen, hello. He asked, when do new crop beans have to start chasing old crop prices because this crop is gone?

Bennett: You know what, here's the thing, he brings up a really good point. So let's stop and think about this, obviously we're extremely tight. We understand that. And people are worried about South America, about the weather. How many beans are they going to bring to the market? But we all know that the South Americans are planting a lot of beans. So a couple of well-timed rain events that can abate some of this dryness can certainly change the mindset of the trade. And so you've got to ask yourself if they do come with 135, 140 million metric ton crop, what is the incentive to run new crop beans to $12? And so we don't want as a producer to be lackadaisical on our sales in the 2021 crop just simply due to the fact that we're seeing 2020 prices so much higher than 2021. It bothers me a great deal whenever a producer is worried about that sort of thing because what I want to look at is profit margins. What is the profit margin at $10.50 basis the board in soybeans? And you know what, the last five years we haven't had the luxury to be able to even see that. And so he makes a really good point and it's a really good question but it's something the producers are going to struggle with and I don't want them to. I want them to run the numbers on it. If profit margins are really good, let's manage profit as this market rallies, take a little bit of risk off the table because we may think that the farming community was really risky the last five years, but guess what, as the rally goes up, as the market goes up, your risk increases. Our risk was less whenever the market was lower than what it is now because your risk at this point is that this profit margin is going to evaporate. We've got to be very careful to protect that as much as we can.

Yeager: Is that because other things are going to become expensive, input costs, is that what you mean by that?

Bennett: For instance, I don't want to switch gears too far, but fertilizer prices were pretty darn cheap coming into harvest. What are fertilizer prices now that Dec corn rallied, we rallied $1 in the corn market and Dec '21 corn is up in that $4.10 area, what have fertilizer prices done? Well, they sure as heck didn't do down. So we saw phosphate, pot ash and nitrogen all go up. And why? Well because they can and that is basically what is going to happen here. And so what I'm saying is you've got to run the numbers. And a lot of folks said, I'm going to go heavy corn because this market has rallied and fertilizer is pretty cheap. That's all fine and well. But what you said was is that you're going to go heavy corn because the market has rallied and fertilizer is cheap, you booked your fertilizer, what have you done about your corn price? You probably ought to be cautious there.

Yeager: You mentioned, that discussion that you had online on Friday also then threw into, we've mentioned it a little bit, the acres, the prevent plant acres are going to come back online. If it's dry you're planting, you can't plant a wet field, so those acres might get planted. But given the odds there is a chance that maybe we're going to not have a prevent plant acres but we're going to have lost acres. Does that ever figure into this discussion? We can't predict the weather but we can look at trends.

Bennett: Whenever prices are higher the acreage seems to show up a little bit more than when prices were lower. The bottom line if you look back in the era where we were making a ton of money, '07 to about '13 or '14, acreage was robust. Whenever you have extremely strong profit margins we do things that maybe we shouldn't do at times. And I say we shouldn't do in that I learned some lessons on some corn on corn. And whenever it works and the ground is fit and you're able to do it correctly it works. Whenever you try to push the envelope and try to get cute it doesn't always work. And so high prices encourage us to sometimes do things that are a little bit out of the box. We have to be very careful to still agronomically make really good decisions, economically make really good decisions. I think you're going to see at least 180 million of corn and beans and it's probably going to be in excess of that, especially if you're looking at insurance prices anywhere close to what we're looking at today. $10.50 beans there's going to not be a large evaporation of bean acres with a $10.50 spring insurance price.

Yeager: We have a bean question from Ben in Jesup via Twitter. He asked, sometime during this rally will there be that moment when everyone says, man, I wish that they sold three years of crops? Could you kindly let me know when that will happen? And he only wants your best guesses.

Bennett: Well, Ben is a very sharp dude and I can tell you that it's a good question that he comes up with. We had some really good discussion online about this. But here's the thing, I always go back to my playbook and it's a very simple thing, I want to figure what my profit margins are for next year and look at where the board price is for the following year. And if I'm not looking at areas where historically I know I can do well from a profit margin standpoint I don't want to get too awfully aggressive. And so I don't really see that, you see a pretty big falloff whenever you get out to '22 as far as soybeans are concerned. As far as corn is concerned you're still in that neighborhood where you could conceivably make a sale based on the last five years, but on soybeans I don't see it. So I do think that time is probably going to show up I guess. But the thing, like I told Ben, is that I'll know it after the fact and then maybe on a subsequent show maybe we can talk about what we should have done. But stick to economics, stick to figuring your break evens, stick to profit margins in black and white, maximize return on investment on your farm and if that's the way you look at your sales strategy you're not going to go wrong. 

Yeager: Last question, real quick, and it's kind of an answer. But Glen in Bryan, Ohio asked it, I kind of want to ask the last part of his statement. He says November farmers are making planting decisions, we've kind of covered that a little bit. Skip ahead. What will be the greatest influence on final planted acreage?

Bennett: Well, it's going to be very interesting because for instance in 2020 there were some folks that printed some seriously profitable per acre situations as far as soybeans were concerned, like in my part of the world. And so I do think there's a lot of folks that are actually talking about beans on beans, I never would have dreamed were going to talk about beans on beans. So I think one of the main things you can look at is what are your spring insurance prices going to be? As usual they are going to have a large impact and I think if a producer can come in here, like we did for several years, and guarantee the banker, you know what, worst case scenario is I collect insurance and make money this year, if one of the two crop is a better situation than the other, you better believe it's going to have a very large impact. We had all the weather that we needed to be able to get the tillage work done that we needed to do this fall so a lot of folks are going to be fairly flexible. I've got to think that price is going to be the number one thing but insurance price, don't go to sleep on it.

Yeager: Matthew Bennett, thank you so much, good to see you, good to talk.

Bennett: Absolutely, I appreciate you having me on.

Yeager: Next week we'll look at the health in the rural economy and Chris Robinson will join us to analyze trends in the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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