Market Plus: Jeff French

Dec 31, 2020  | 12 min  | Ep4620 | Podcast

Podcast

Paul Yeager:
This is the Friday, January one, 2021 version of the market plus segment joining us now, Jeff French. Good to have You here. Jeff.

Jeff French:
Paul. Great to be here. Thank you.

Paul Yeager:
This, um, there's always a thing that it's supposed to be between Christmas and New Year's. It's supposed to be relaxed. This was, I mean, granted, you were coming on the show, so you had to study a little bit. You couldn't take the time off, but in a normal year for normal people, they would just be, you know, light, light trading. There was anything, but this week, is there any specific thing I know I asked you in the show and stuff coming together, but as you, as you said, during the broadcast unprecedented, we've never seen wheat, corn soybeans, you glad you worked this week.

Jeff French:
Yes. I mean, yeah, because, because I have to have another broker watch my book and it would have been way too busy. Uh, but yeah, unprecedented action. But you know, there are some major issues out there. We have weather, we have port strikes, we have huge Chinese demand. Um, so it was one of those weeks that, uh, well, even the last two weeks, uh, with the Christmas holiday, we were very busy then too. And a lot of farmers typically, you know, they take December off and, and, you know, kind of forget about it. It's usually a do nothing market, nothing, uh, type of a month, but, uh, definitely not this year.

Paul Yeager:
So what are people calling about? Are they calling to sell they calling to put a position on, are they just wanting your insight of where we're headed

Jeff French:
A mixture of both? I mean, mostly it's- My clients, a lot of them sold the beans off the combine for cashflow purposes. Uh, you know, beans at harvest were $10.40, $10.50, you know,

Jeff French:
Given that it was $2 Above what it was in April. Why would you not?

Jeff French:
Exactly, You know, needed the money for cashflow, sell the beans, but you know, they re owned them on paper, paid 25, 30 cents a bushel for the call option. And now those call options are, you know, a dollar and a half to $2 in the money. I mean, would have never thought it, I mean, this is unprecedented rally during, after harvest. I mean, you just don't see action like this, but that's why, you know, that's why you manage the risk. You put on positions to protect it in case something happens that you don't expect.

Paul Yeager:
Sometimes that position protection is by a nickel or a dime, but I was telling you before we rolled, uh, the range for four months on soybeans, it's $4 right now. And I asked you also on the broadcast, how much higher, $14 as possible, but what's it going to take beyond continued drought in South America, dry conditions, Chinese buying, you said the soybean meal is, is high. Is there going to be a point? Is it going to take a major producer to say we have to ration this before it goes higher?

Jeff French:
Oh, I think you're doing it now. I mean, I, I believe these prices will ration demand. And I think you'll know here in the next couple of weeks out of China, I mean, does China come to the U. S. and buy beans for quick shipment? You know, obviously Brazil is South America is out of beans. Uh, now they are expected to have beans ready here in the first or second week of February. So if we do see some flash sales out of China here in the first couple of weeks of January, uh, you know, yes, absolutely. We can go higher. Also looking forward the January 12th crop report, um, you know, I'm in the opinion that the acre, the production is coming down on the beans as well as the national yield. So usage is up. Exports could be up. If the USDA lowers the, uh, uh, U.S. carryout below 120 million bushels, uh, I think you'll see the beans scream higher, but that's, that's something that we won't know until January 12th.

Paul Yeager:
I have a question about January 12th and a minute. I want to get to something else though, if this wasn't the end of the year, because there are some producers who were, who had looked at books and said, I don't need to take any more sales. I don't need to make any more money as goofy as it is. We know that there's farmers in that position, if it would have been in November, October, would we have sold ourselves out of this position? Were there people who were not selling who were doing their own rationing going? I just, I just hope it lasts until the next year.

Jeff French:
Absolutely. I had the many conversations with my clients. Just exactly what you said is I don't need any more revenue for 2020. Um, absolutely. It was going on. Um, yeah, I mean, it's, it's just, you know, it's a holiday week, uh, you know, people aren't thinking about marketing, you know, they're on vacations, they're with their family. Um, but you know, this definitely got a lot of people's attention. Uh, I think if we can get through this weekend and then we can close higher, uh, with new contract highs on Monday new month, new year, uh, I think that's a very good signal, but I mean, you're going to see farmers sell this here. Yeah.

Paul Yeager:
It's going to be a pretty busy phone phone bank on Monday.

Jeff French:
Oh yeah. Monday. You're you're going to get, you're going to need to get a good night's sleep there Sunday.

Paul Yeager:
Yeah, for sure. Especially looking at the overnights on Sunday, we need to get to some questions. Um, we've got three w that I want to get through before I get to another thing. Uh, let's start with Keith and Taylorville, Illinois, and he writes us via Facebook. November 21. Beans are almost $2 per bushel less than the nearby contract. Is this the reason corn is not rallying as intensely as beans are. When you look at it from a percentage percentage wise, it is, and if old crop beans continue to rally. When will we see the November 21 soybean contract follow suit?

Jeff French:
Well, I mean, it's going to follow suit, but the the the worry right now in the market is not nine months from now. The worry in the market is in the next five to six weeks, uh, in the next two to three months, are we going to have enough beans here in the States? Um, now you look at the new crop corn to being ratio. It's closed today at 2.56 to 1. You know, I expect that thing go out to 2.7, Maybe 2.8 to 1. Uh, I expect beans to gain 6 to maybe even 8 million acres compared to last year. So I look for beans at 90, to maybe 91 planted acres here in 2021.

Paul Yeager:
That'll be something we'll find out at least an estimate here soon. Uh, Sylvain in Quebec ask us via Twitter, and we had to translate this one. So we will take questions in French. I just want to set the record straight, straight there. What is driving the market so high? Is there so much bad news or just so much demand for beans and corn in the last four months versus the last four years? I talk about emotion. You talk about fundamentals, how come the two aren't Meeting right now?

Jeff French:
Oh, I think they are, I mean, um, markets can be driven by fear and they can be driven by greed, and then they can be driven by, you know, fundamentals of weather or whatever, but it's, it's all kind of coming together here. I mean, we have the port strike going on. Uh, we have huge Chinese demand, uh, and then you have the American farmer that is mostly, uh, sold out of, uh, new crop, uh, beans here at these levels. So, um, I look for higher prices here, if we can close higher on Monday. I think that's a very good sign.

Jeff French:
All right. One more question. Phil in Dresden, Ontario. Are these grain markets unsellable as we move into 21, or is the end of bullish exuberance coming? How does the January 12 USDA report factor into that? And he wants to know, are the black swans tapped out

Jeff French:
Well, that's, that's the unknown, the Black Swan is the Black Swan because nobody expected it. And, um, yeah, the January 12th is going to be the crop report is going to be huge. It's, it's not only the final production numbers for the 20 crop, but it's also the December 1st quarterly stocks number. And you look at the trade the last couple of years. I mean, the trade estimates have missed the quarterly stocks number in December, uh, pretty large. So the last two years in the corn markets, it's been by a hundred million bushels. So we're looking for the carry out in that 1.4, to 1.5 area, 1.5 billion bushels in the corn. Um, you know, the beans, you know, that's a wildcard. Uh, do they continue to lower the acres, uh, lower the production, up usage? I think the demand has been better than what the USDA is stating. Uh, so if we get, if we get the beans carry out in that 130 to 120 million bushel area, uh, I think you can see this market really take off. Now, the one question we don't know though, we've rallied this thing a long ways. Uh, could they already be pricing in some of those scenarios that we just talked about? And we won't know that until 11:01 AM January 12th.

Paul Yeager:
As a friend of the show has, has called that report, the Superbowl, the Indy 500, the Daytona 500 and everything else all thrown into one. And, and this year more than ever, but we are going to put stock in a government report, which does rankle some people a little bit.

Jeff French:
Yeah. But it's the number that the market moves off of. And, you know, most of my clients will be carrying a lot of unpriced corn into that market. You know, the, the bins are full, um, you know, maybe they don't sell, but there, there are weekly options. It's the week three option, um, that get you through that report. Uh, the reports on a Tuesday, those options expire on Friday. Uh, you know, I, I just tell in recommend if you've got a lot of unpriced bushels, get some protection on it's cheap and, you know, again, it can protect you in case it is buy the rumor or sell the fact type of scenario. And we'll just have to see what it is.

Paul Yeager:
I want to wrap up with a livestock comment you made, I didn't have a chance to follow up with her. You said, record low in hogs, and you were referring to cold storage. We have low amounts of corn, cold storage, but in all, in my personal cold storage and everybody else's, there seems to be this, you know, there was this run-on freezers, is that legit. And is that, um, how did those not jive up? Why? I mean, w we're running up because of China and their need, but how much are we running up because of our domestic need, or demand?

Jeff French:
I think it all comes together. I mean, you know, I, I have three young kids. I mean, we have a freezer, a deep freeze, and one of the first things we did, like every, every American do is go out and buy a bunch of meat to get us through the unknown. I mean, there, there's something comforting to have when you have meat in the freezer, obviously where you can put food on the table for your kids. So, uh, I think that has a lot to do with it. Um, but also the, the numbers of hogs are coming down. Um, and, you know, they might continue to be a little bit lower. I mean, th this high price corn and this high price meal, um, you know, th th this the last three weeks, uh, you know, this is something that the livestock sector, uh, really didn't need to see. This is, uh, this is some high price grain.

Paul Yeager:
Yeah. The input. You're going to see some creative feed options. There's going to be a lot of people searching the internet or talking to their nutritionist to say, Hey, what's a cheaper option. And you would have thought it was wheat up until this week. And then it ran up. So 21 we'll have no shortage of stories. Happy new year to you. Jeff French,

Jeff French:
Paul happy new year. Thanks for having me.

Paul Yeager:
Good to have you think. Good to see you as well. That will do it for Market Plus. Remember, this is in both video and podcast form, and we're glad that you download subscribe today to the Market Analysis, the Market Plus, or the MtoM podcast. Next week on the program, Dan Huber will break down the markets. And we're also going to be looking at food insecurity as we move into the new year. For all of us here at Market to Market and Iowa PBS I'm Paul Yeager. Thank you so very much for watching.

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