Market to Market (January 15, 2021)

Jan 15, 2021  | 27 min  | Ep4622

Coming up on Market to Market. The summer weather of 2020 shows up in a series of impactful USDA reports. The bulls take charge initially. We've assembled a panel to parse the future. Market Analysis with Ted Seifried, Don Roose, Naomi Blohm and Matthew Bennett, next.


What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer. 

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.


Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.


This is the Friday, January 15 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Paul Yeager. A blizzard of news this week as a storm blew across the nation’s midsection and President Trump was impeached for a second time. The economy as a whole gave another indication of its direction and if inflation is on the horizon. The Consumer Price Index rose 0.4 percent as a hike in gasoline prices fueled the increase. Wholesale prices measured in the Producer Price Index gained 0.3 percent, again, driven higher by energy. Retail sales fell for the third straight month. The mark declined 0.7 percent. A series of bullish USDA reports gave a major boost to the commodity markets and we have assembled a panel to discuss the ramifications as we look forward. Ted Seifried is the Chief Market Strategist at Zaner Ag Hedge. Naomi Blohm, Senior Market Advisor for Total Farm Marketing. Don Roose is founder and president of U.S. Commodities. And Matthew Bennett, co-founder with Ag Market.Net. That’s our panel. We'll hear from them in a moment.

Yeager: Now, the weekly closes as a stack of USDA reports fed the market bulls. March wheat gained 37 cents while the nearby corn contract skyrocketed 35 cents or 7 percent. Despite big gains, sales to unknown continued in the soy complex. Nearby soybeans added another 42 cents.  March soybean meal increased $23.60 per ton. March cotton expanded 93 cents per hundredweight. Over in the dairy parlor, February Class III milk futures fell 50 cents. A down week in the livestock sector. February cattle lost $1.70. March feeders declined $1. And the February lean hog contract shed 77 cents. In the currency markets, the U.S. Dollar index gained 69 ticks. February crude oil added 7 cents per barrel. COMEX Gold fell $18.90 per ounce. And the Goldman Sachs Commodity Index improved more than 2 points to finish at 428.35.

Yeager: It is against this backdrop, we gather to discuss this week in the markets and the months ahead. You can tell by that weather we are split into two different rooms, actually three. So everybody can hear each other and see each other. Don, I'm going to start with you just for the sake of experienced on these USDA reports. Have you ever seen such a bullish combination and the market respond the way it did on Tuesday? Have you seen that before?

Roose: Well, we have, Paul. We forget about it. But on this final report usually it's a little bit more measured. You take the yield down to 3.8 bushels an acre on the corn, really what it signals is our demand is too strong for the supplies that we have right now and that we have to ration. So it's one that is a work in progress. But what it really did is set the tone going into February now for the next month. We have a whole new set of supply/demand factors that are bullish again so the bull gets fed after this report and consequently you had a strong move up this last week.

Yeager: Matt, so the bulls are feeding. Are they -- what is going to keep them going the most? Is it the government reports, the weather, or is it something else?

Bennett: I think it's going to be a combination. But one thing I'd like to point out is this report, you dropped quarterly stocks, December 1st stocks 600 million bushels. We just dropped the crop 325 on 2020. So there's a lot of interesting stuff going on here. Obviously two quarterly stocks reports in a row you lose 600 million bushels total, I guess out of the 2019 crop. Very interesting. But regardless, what is going to drive it moving forward? I guess in my opinion you have to obviously keep an eye on South American weather. We know that. But we are going to be setting a crop insurance price here before too long and I think there is going to be a battle for acreage. The battle for acreage the last few years has been a hot potato type game. But this I think we're actually fine for acres and I do think that at this stage of the game it's pretty tough to get down on these markets considering what we've got going on from a stocks to usage ratio both for corn and beans.

Yeager: Ted, biggest surprise from the report?

Seifried: Yeah, I can't agree, I can't disagree with the two of you guys more. I'm sorry. But look, we have been trading a bullish scenario in the corn for some time and that was really based on the supply side of things. We saw the USDA rip the Band-Aid off by lowering the yield as much as we've ever seen from a November to a January report. We saw, to Matt's point, 325 million bushels come off last year's production, 76 million bushels of production come off from the year before, we saw a quarterly grain stocks number that was really very bullish. These are all numbers that are retrospective of where we've been coming from and the corn market had been responding and telling us these things from a long time ago. But going forward, to you guys' point, we need to feed the bull. We are not in a situation where we have a price rationing scenario for corn. In fact, the USDA just said we lost 250 million bushels of demand because of the higher prices. Going forward if corn prices continue to go higher I worry very much about ethanol, I worry very much about what is going to happen with our exports. While the export sales are really very good we're only 26% shipment wise of the USDA target. Can we logistically hit the USDA's target even if we have the sales? We'd have to set pretty close to near record weekly sales averages to hit the USDA's target. Will we logistically be able to do that or not? I don't know. I think we just saw the most bullish USDA report for corn that we're going to see. I think the speculators are taking a hold of this market and we've seen things like this happen. We see it happen all the time. Look at Bitcoin. Look at Tesla. Look at the stock market as a whole for that matter. So, let the speculators run. That's all well and good. But as actual market analysts that we pay attention to balance sheets and things like that, we have to understand that we're maybe overrunning the mark here on corn and as producers we need to be looking at this as a great opportunity.

Yeager: All right, Naomi, I'm not saying you have to pick a side. But do you have a different side in this debate we haven't though of?

Blohm: I think the biggest thing producers just need to be monitoring right now is what they can be doing for additional sales for old crop and for new crop. Quite frankly, that is what people want to know. So here's the pricing ranges that you need to be watching for both corn and soybeans. For the March corn your trading range right now, $5.20 is support and $5.50 is resistance. I could see us trading in a sideways pattern for the short-term. On the new crop corn your trading range that we're looking at $4.50 was a big number that the market was finally able to get through for December corn. We're above it right now. So the next target is closer to the $4.75 area and ultimately $5. So thinking about making those cash sales to the point that these guys, we are supported going forward, but now are we at the point where we see a setback? And when you look at the soybean market, March soybean futures well supported right now at the $14 range and below there are $13.75 and above there at $14.50. For new crop beans, $12 is a significant resistance point that you have to be watching. Thinking forward if we grow an additional 6 million acres of soybeans this year, if we have trendline yields, you're still looking at ending stocks for the next year coming in somewhere between 150 and 300 million bushels. So that keeps the scenario tight going forward. There's opportunities there. Ted makes a great point about maybe this market has priced in all the bullish news it can for the short-term. We have inauguration next week. There is a lot to watch. There's a lot to manage.

Yeager: Don, I read in a thing I got in the mail from you and it laid out bullish scenarios, bearish scenarios. You had to publish that thing back in November but things have changed so dramatically. Are we done with the most dramatic changes in this market over a six week period? Or are we just, we've hit the first part of that roller coaster and we still have more bumps to hit?

Roose: Well, I think we're in for some real volatile times. You know I respect what everybody is saying, but the bottom line actually going forward nobody really knows because what happens, it's like a card game, as the cards come out you find out what is going to happen. If South America has continued problems that is going to be another push to the upside. There's no doubt about it. We’re using stuff faster than our production. The same thing if we get into weather problems here it's going to be another issue. So I think what is really happening at these price levels we've got a lot of volatility ahead. We've been in an uptrend now for a month. To take a pause and to meter and to see what the next leg is going to be up or down only makes some sense and I think that's really where we're at. The structure of the market is pretty bullish yet. We haven't seen any real signs of rationing. That's always a look back when it's all over. But that's about where we're sitting.

Yeager: Ted, the R word has been used twice now, rationing. Do we see rationing in corn or soybeans in the United States in 2021?

Seifried: Okay, so we're talking about two completely different animals. Soybeans is a market that aggressively needs to price ration and to this point we continue to see daily -- four out of the last five trade days we've seen daily sales or daily sales on the wire. We haven't completed the job on soybeans and to me that is the most bullish thing about the corn market right now. We have started to ration demand, at least according to the USDA we've started to ration demand in corn. We don't need to ration demand in corn. If we continue to ration demand in corn we'll end up with a 2 billion bushel carryover. Does that justify $5.50 corn? I don't think so. Again, I'm not terribly bearish corn at the moment because I'm bullish soybeans. Buy it's not the corn market that I look at and say, wow, I'm really very bullish. Now, throw in a problem with our growing season and that changes things completely. But between now and then I would think at some point we could see a healthy pullback in the corn market. And even if we don't, if this is where we're starting to make sales, well whatever we have left to sell in old crop, if this is where you're making sales you're wildly profitable. I mean, come on. Let's get on that. And then as far as new crop is concerned I think you need to be at least 30%, 40% sold for new crop at this point.

Yeager: So Matt, I guess I was going to ask you or Don this, but I'll ask you, Matt. What percentage of your clients right now are still have some old crop to sell?

Bennett: There's no beans that I know of. There might be a few here and there but quite frankly most people are completely out of the beans. As far as corn is concerned, it has been interesting to see, for instance, this week basis has been really screaming for quite some time and in Central Illinois we saw a pullback just a little bit and I do think there is a fair amount of grain moving. But at the same time I think there's a lot of producers that are still holding onto anywhere from 25% to 50% of their old crop corn stocks. Anything that they have in the bin they have been a more stingy with of course, stuff that was in commercial facilities I think has been priced or some sort of a transfer of ownership there. But I think that the main thing for me is that when you look forward for corn some of these buyers are telling me that they're still having a hard time being able to get a hold of corn farther out. You're seeing really good basis push whenever you get into that Feb, March timeframe. So I think that cash grain is still going to be awfully good property. But I would agree with Ted, I don't know why a person wouldn't want to sell some $5.50 corn or $5.25, whatever your basis is or whatever the true price that comes to you, that is the best cash price for corn you've received in 7 or 8 years. It's pretty tough for me to thumb my nose at that.

Yeager: Naomi, I guess I'll ask you as well. Is there any incentive to be selling if you've got old crop given the run we've had? And I'll say corn or soybeans. You can pick either one. Is there a reason for anybody to sell knowing what our past has done in the last six, eight weeks because you're like, it's going to go higher, right? Or am I way off?

Blohm: Well, so the thing again, right now the market is keeping an eye on a few things. So it's keeping tabs of just the trading range of the markets and we're watching the fund positions near record longs. So if the bigger picture we are well supported going forward and looking back 2007 into '08 and 2010 into '11, the funds started building their long position at harvest and they continued to stay long overall until June and that is when the market peaked in those years. So the funds can get long 400,000 contracts and then they can ease up a little bit to 300,000 contracts but then still overall hold that long position. For producers I think we saw a lot of sales here recently with the USDA report. We saw a lot of sales because it's a new year, it's a new tax year, so they're ready to start making those sales on the books again. And I agree with Matt, a lot of producers probably holding onto 25% to 50% of old crop yet but it is time to keep moving on things. You never know when the next black swan could be around the corner. And then as far as much higher prices to come I think Ted said earlier it could just more be tied to summer weather, which of course is five or six months away. So do keep an eye on the value that is in front of you, but at the same point this is a fundamental situation so much different than where we even thought we could be and the fundamentals are going to keep us supported into 2021.

Seifried: Yeah, first of all, Paul, I've been hearing in the last few days that guys are going to the elevator to dump and lines are longer than they were at harvest. So you are seeing some of that cash move right now. Secondly, whoever is not selling the old crop corn right now, you're trying to make up for selling beans too early and I get that, but guess what, forget about that, look at where the price of corn is, you've got the opportunity, it's a good time, go ahead and do that. As far as soybeans are concerned, if you have any old crop soybeans left I want you to take something into this growing season. Make China come and get them is what I'm going to say.

Yeager: Don?

Roose: When you look at the market overall what the market is really about if we're not rationing going higher how do you ration going lower? These markets -- I agree with everybody, there's no doubt you should be scale in selling from a producer's standpoint. But I'll also remind people from a trending system you never know how high it can go. I remember it went to $8 and it was the same type of talk that we had, a market ends violently, these markets like this, it's not a market that goes up like it has so far. You go up like 20, 30 cents for a few days in a row and then you spike and top. So I think no doubt you need to be selling stuff at these levels to manage things. You can also change ownership, make some cash sales, and then change your ownership into some options.

Seifried: Escalator up, elevator down.

Yeager: That's exactly right. I want to take one of the questions we got from Twitter this week. Thank you so very much on Facebook and Twitter, great stuff. This one I want to start with Chad in Grimes. Matt, the adage for the cure for high prices is high prices. So what are your favorite two or three factors that you watch when the signal, which may signal a fundamental shift to the downside? What are you watching, Matt?

Bennett: I think obviously you've got to watch export sales. Are we going to run so high that we're going to scare off some export business, first of all? Whenever you look at ethanol profit margins there's no question that there's a lot of angst moving forward. Obviously ethanol has been through the ringer in the last 12 months. It's gotten over some hurdles. But moving forward if you run the cash market too high there's no question that it's going to cause a little bit of frustration for your ethanol industry and I definitely think you could see some pullback there. But if you start pulling back on those two I think that those are the ones that I'm going to look at the closest. Obviously feed demand could be affected but it's not going to be maybe as quickly reacting as what those other two factors might be. So those would be the two that I would be watching the closest whenever we start to think that we're running things a little bit too hot.

Yeager: Naomi, do you have anything different than either of those two?

Blohm: Also in addition I would say to keep an eye on the value of the U.S. dollar. It has been starting to creep a little bit higher here lately. That is of course tied with the exports. But then just in general there's a lot of things to factor, not just two or three. Keeping an eye on South American weather of course. And with ethanol I think we've already seen the reduction from COVID so we have plants that have been idled and I think the most recent thing I saw was 24 out of 200 plants in the country are still idle. But if you look on USDA reports that lost demand is accounted for, for the most part. So going forward as long as the vaccinations continue to service and continue to be distributed I think that is a good case for ethanol demand, gasoline demand and just for the economy in general. And then that also correlates to feed from the standpoint of the U.S. consumer is getting ready to go back out to eat, going to summer festivals, the demand is going to be there for protein, which is of course still good for grain.

Yeager: Hold that on the protein side of things. Ted, I have a question here I'm going to ask. Paul on Twitter asks, he's NEIowaFarmer and this is something you've kind of alluded to and you may even know this question is coming. Why is the spread so large between nearby soybeans and November '21 beans? It makes it hard to get excited about pricing new crop. You've kind of talked about it. But answer this one a little bit more for me.

Seifried: Actually that was a question that Paul and I had talked about earlier in the week too. Okay, so first of all, in a bull market this is what you see. The front month rallies further than the back month. The reason for that always is, is that even if we think that supplies could be tight in next year we're trying to carry as much carryover as we can into the new year and this is a function of price rationing the lack of supplies that we have here. We know that it would be very, very difficult to bring in soybeans on a mass scale up from Brazil aside from the beans that every year go to the eastern seaboard, Port of Savannah, we know that is going to happen. But to bring in say 100 million bushels from Brazil, I don't know if we can do that logistically speaking. If we can figure it out it's going to be super expensive. So what you're looking at is you're looking at how tight this market is going to be going out into June, July and August for our domestic end user, for our crusher. That's the problem. You've got that November contract lagging behind because the thought is that we're going to see a significant increase in soybean acreage. Now, I'm not so sure that's going to happen. I think we will see an increase in soybean acres. But I think we're also going to see an increase in corn acreage. What I will say though is that it is an interesting spread to play. That spread has run up to about $3.60 before in the past. But typically in normal circumstances this $2.25 which is right around where we're at right now, to $2.40 is usually where that spread peaks out. So that might be telling us something. One of our other friends of the show likes to talk about spreads a lot, I think this is one of those scenarios where that is a spread that is maybe telling us something at that point.

Yeager: Don, I've got to ask you two things here about wheat and cotton. We touched on acreage a little bit. Wheat and cotton have both rallied a lot. Is that in an effort to try to entice people to plant their crop, to get acres next year?

Roose: Well, we're going to have a fight for acres next year there's no doubt about it. But the wheat market is running -- the largest wheat exporter in the world is having a real concern with food inflation. They're trying to figure out how to slow down the food inflation so they're trying to back up supplies into their market. And so consequently they put a tax on, an 82 cent tax on exports in mid-February and then $1.65 for March 1st. But so that is -- I want to back up a little bit as far as the spread situation. The market is really super afraid that we're going to have the same carryout next year on corn and beans that we have this year. More so we're worried about what the farmer does. November soybeans are trading 60 cents higher than July '22. Can a farmer carry soybeans from November eight months and lost 60 cents? So that's really where your next marketing is. What are you going to do about that if you're a producer? And it tells you how fired up this market is to get the acres next year.

Yeager: Well, Naomi, we've got an issue where it comes to the protein markets. Higher prices for feed make it really hard to make money if you're a cattle feeder. Is that right?

Blohm: Well that is what the feeder cattle market is responding to. The feeder cattle market for the past three weeks has just been working lower overall as the grain markets have been rallying. And so that struggle is there. You are starting to see the deferred live cattle futures take off and ratchet higher. There's a lot of thoughts that the demand is going to pick up, we're also going to be seeing lower supplies. In fact, the total production between first quarter and second quarter for cattle is supposed to be about 95 million pounds lower and that is counter seasonal, that is not a normal thing. Part of that is just leftover from COVID from last year. So it's unfortunate news for the feeder cattle market for right now with these higher grain prices. But I am really bullish to cattle looking at those deferred contracts.

Yeager: Matt, you were shaking your head there a little bit. Which one has a better upside -- are you bullish both live cattle and feeders in the long-term right now?

Bennett: I have a hard time being bullish feeders for right now. In my opinion with feed costs the way they are it certainly isn’t going to be something that is typically supportive to feeder cattle. But I'm like Naomi and I think that there's other people that are like Naomi and I and you see this big carry, nice carry in the market, healthy looking market, there's no doubt that I think the industry is expecting these big supplies that we've tried to chew through here in the first quarter that we're going to still be working through at the start of the second quarter, those aren't going to be around near as much as what you're going to see in the third and fourth quarter and the nice thing about beef demand is beef demand has stayed pretty darn strong here in the last year at times when you would have thought that it wasn't going to. So I do think that you'll see a little bit of an uptick whenever people go to restaurants. But as I've said before, I'm pretty sure people eat a heck of a lot of beef whenever they're barbequing at home too which is a really good thing for us to see.

Yeager: My freezer still has a lot of hamburger from the summer. Ted, in one minute on hogs, is there a worry in that market that a lower near-term cattle market is going to pull that market down? Or is there another factor at the hog market?

Seifried: I think we might have already seen that with the last five or six trade sessions. I think when it comes to hogs what we have to do at this point is get rid of the notion that China is going to come in and buy a massive amount of U.S. pork based on ASF issues that they had had in the past. Look at the soybean demand that China has. Their hog herd is stronger than we ever thought would be possible this quickly after ASF. They just put a lot of their pork supplies out, their state reserves out into public auction. They've got the pork. But our domestic demand has been really very strong. And I look at the Feb hogs, that double top that we have at 72, I don't really think double tops are a real thing. I think at the very least we'll go back and test that 72 again. I'm bullish. I think we'll go beyond that. I'm looking 76 to 78.

Yeager: Don, 20 seconds. Is there a livestock market you're excited about in the next six weeks?

Roose: Well, I think when you look at the livestock we also have to think about the grain market because what you're really doing is putting a lot of grain premium into all of these markets and in the livestock too. You can see the back months of cattle, hogs making new contract highs. So that is the real issue. Keep an eye on it. I think high price grains is high priced meats.

Yeager: And I've been keeping an eye on the clock, as have the people in the control room. Don Roose, thank you so very much for your time. Also Matthew Bennett and Naomi Blohm and Ted Seifried. Good to have all of you. We know how this thing goes, it goes ridiculously quick. Thank you all. That will do it for this installment of Market to Market the TV show. We will talk more in the web version we call Market Plus. You can join us there. Find that on our website or wherever you watch YouTube videos, usually YouTube, at The social networks have caused their own series of news this week so we want to let you know that we still have our email inbox turned on for you. Drop us a line any time to Next week, we'll look at the acreage battle from the cotton perspective. Until then, thank you for watching and have yourselves a great week.




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What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer. 

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.


Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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