Market Plus: Roundtable

Jan 15, 2021  | 14 min  | Ep4622 | Podcast

Podcast

This is the Friday, January 15, 2021 version of the Market Plus segment. Joining us now, we've got people all over the place, I'm having a hard time. If ADD didn't kick in this certainly did today. Ted Seifried and Don Roose are in the studio. Matt Bennett and Naomi Blohm are remote from their homes, this darn blizzard kind of impacted everybody's travel. Ted, you had your own series of adventures. I've got to say first though, Ted, that's a great looking tie.

Seifried: Right, I forgot my tie. Thank you for lending me one.

Yeager: How many times, Ted, -- 

Seifried: This is a tie for a much larger person than myself though because I had such a hard time --

Yeager: I've got a much larger neck.

Seifried: -- getting the length where the small part of the tie wasn't hanging down almost to my knees.

Yeager: And I'm shorter than he is, that's the other part of this. All the years I've taken extra ties and had them hanging out, this is the first time that I actually had to use it. So that was good. It paid off.

Seifried: That's fun for you. Thank you, I appreciate it.

Yeager: It was. Okay, Don and Ted, Naomi and Matt got to answer a question that came in Chad in Grimes, and this is the one that I know is, as Don would say, is the most helpful to people. Chad's question was, the adage is the cure for high prices is high prices. What are your favorite two or three factors that you watch which may signal a fundamental shift to the downside? What do you see, Don?

Roose: Well, the number one thing you have to watch is the structure of the market. The rationing and some of these things, export sales, is kind of a look back. But what you look at the future market dials it in, so you watch the spreads. Bull spreads in bull markets, so the front months when they start to relax back, particularly when you look out to the next year, the '21 November versus '22, that will give you a better look, so that. The other thing that you pay very close attention to is the calls. If the call volume is going down and the price that should be going up on volatility doesn't and the put volume goes up. So I would watch those two things.

Yeager: Volatility was something you talked about in the discussion we had. Ted, do you have different factors that you watch?

Seifried: I like a lot of the things that Don is saying. And a lot of times high volatility can be indicative of topping formations. So that is interesting. From a fundamental perspective, I'm not sure fundamentals really matter. This is a climate where the speculative market is kind of taking hold of a bullish story or what they have been told is a bullish story and a really good looking chart. We can keep, if they can keep pushing that higher regardless of whether the fundamentals really change. Now, that being said, the fundamentals will change and as we talked about in the regular program escalator up, elevator down, when it does we're going to wipe out two or three months of gains in probably less than two weeks. So we have to be very cognoscente of that. Now, from a fundamental standpoint the things that I will be looking for, for soybeans obviously export sales is the big one. If oil blend users are willing to continue to step up and pay at these higher prices that means we haven't done enough to ration demand. And this is the real story in soybeans because we are in a price rationing situation. That rarely happens in these markets so it is going to be the leader of the grain complex as a whole for corn. Obviously ethanol we've talked about it on both sides of things we want to be bullish ethanol but there's a lot of concerns that we have. We really need to keep an eye on what happens with shutdowns and so on and so forth. But the big thing for me for corn is this shipment number. We have only shipped out 34% of what we have sold so far, which equates to 26% of the USDA target. We are historically low on how much we have shipped of what we have sold to this point and if that number doesn't start coming up then I think we have a problem there in corn. And then we'll start seeing that reflected on the board. So for me export sales in soybeans, yes we also want to keep an eye on the crush and crush margins will be what price rations soybeans rather than actually the price of soybeans. And then for corn it's really the export shipment number, that is the biggest thing that I want to keep an eye on.

Yeager: Naomi?

Blohm: Well, one thing to keep in mind is that our export market has been busy getting those soybeans out of this country. Those shipments have been hot and heavy for beans. And so that I think is the reason why the corn exports leaving this country have been behind because all of those big cargo ships and ocean going vessels are full of soybeans. So now what you're going to see is a natural progression where export sales start to simmer down because seasonally as soon as that South American harvest gets underway usually our export market dries up. So maybe we have good exports for the next week or three weeks and then naturally it's going to simmer down and then I think that is when the corn exports are going to move out of this country. And the other thing with corn exports is that the USDA had prior to this report the exports at a record amount on paper. So they toned it down a little bit. And I think part of it was that it need to happen, to some of Ted's point, but the other part is that you're going to see the wheat exports really go hot and heavy out of this country. Everything that China grows for corn they use. Everything that China grows for wheat they use. And so they need to be importing wheat for feed, they're going to be buying sorghum, they're going to be buying corn. So I'm still optimistic for the export market for the United States.

Yeager: Matt, you're going to start our energy discussion here now. We've kind of danced around it. But Gary in Fransville, Wisconsin asked us on Twitter here in the last couple of days. He says, are these high prices the end of ethanol?

Bennett: I don't know that it's the end of ethanol. Whenever you look at what Secretary Vilsack did with President Obama there's no doubt that he was viewed as being very friendly toward biofuels. And I think that there's a lot of folks that look at that as a good factor moving forward is that they're going to try to do whatever they can. Maybe you're not going to get near as many waivers as what you had over the last four years. I know there has been a lot of frustration about that and people are assuming that that's not going to happen going forward. I don't know that it's the end of the industry. But I will say this, there's no doubt that over the last several years we've seen that this is a very mature industry and I don't know that it's one that is going to have a whole lot of growth by any stretch of the imagination. I just don't think it's going to go away quite yet. Until you get electric vehicles and if you get electric vehicles in mass quantity, I think you're still going to have a heck of a lot of dependence upon renewable fuels, just things that are friendly to the environment, which ethanol obviously is.

Yeager: Ted, you always have an opinion on ethanol and energy. But you said something before we started rolling that just popped in with what Matt just said and you talked about the Tesla stock. If you're looking for an indication of a consumer, they're buying Tesla because they think it's going to perform? Or do they really think electric cars are going to be here in the next year or two? And how does that impact ethanol?

Seifried: I honestly didn't know we were going to be analyzing Tesla stocks on the show. But okay, I like the question. I honestly think that a vast majority of people that are buying Tesla aren't buying the car, they're buying a piece of Elon Musk, a piece of hey this guy is going to space, he's one of the bigger innovators of our time, inventors of our time. And I think getting exposure to that is really why a lot of people buy Tesla stock. I just purchased a new vehicle and a Tesla was on the list of things to test drive. I did. I've got a couple of friends that have them. I see that this is a thing that is really coming along and it is becoming more mainstream. But there are some of us, myself particular, I can't get rid of the sound of a fantastic V8 engine, it just won't work for me. I have to have that. So I think the market share is growing, but I don't think it's something that will completely take over. And as far as the ethanol market is concerned, I really do think that, this isn't a 2021 thing, this is a '22, '23, '24. I think the Biden administration and the Biden EPA is going to be very friendly for biofuels. I think that is going to be very good in the future. But I don't think that's a 2021 thing. I'm worried what happens in 2021 and I don't think it wipes out the ethanol industry. But the real benefits I don't think happen until 2022.

Yeager: Don, I've got to ask you a question here that came from Twitter. Bob in Stanberry, Missouri asked us, have you heard of many farmers switching to early beans to catch the September market?

Roose: Well, we saw that in South America already. They're going to have some early beans, same type of thing. So most definitely I think we'll have the same thing up here, probably down south first. So definitely I think producers are going to try to take advantage of that price differential between old and new and that happens most years like this.

Yeager: Matt, this is a question, you used to be in the elevator business so you can answer it a little bit. Glen in Bryan, Ohio. Glen asked us, if forward pricing continues is there a possibility that some operators or elevators will not be able to make their margin calls or fund their hedge account if the markets continue to climb?

Bennett: That's a really good question. One thing that I guess I draw on is back in that '07, '08 market, a lot of that corn was purchased in the fall well under $4 and then of course we know that we ran to $7 plus and obviously there was a lot of grain that was carrying a significant amount of margin. There's a lot of smaller systems, including ones that we're involved with, where we actually had to look towards other sources of money because our local bank was having a hard time coming up with what we needed just to cover margin. But it happened. And I think that anybody who understands the way hedging works and the way that these elevators work certainly is going to be able to cover those needs. I think that the cost of money is very cheap right now which is a really good thing I think for anybody in that situation because it's going to lower your cost of operating somewhat. But I want to real quick like say something about the bean question because there's no doubt in my mind, Bob asked a good question, I kind of joked around with him about it. But you know what, bean basis is going to be screaming at the end of harvest next year. I would be money on it. Any producer who dos have a chance to get in the field early, if they've got the opportunity to potentially get some beans where they're harvesting very early in the harvest timeframe I think they're going to be handsomely rewarded.

Yeager: All right, Naomi, we did get a couple of questions via Facebook and this one came from Justin in Ithaca, Michigan. Hogs, fat cattle and dairy sector, they all rely heavily on the grain markets. Which sector will feel the pinch of higher feed costs? And which are you most optimistic about in spite of higher feed costs?

Blohm: Well, the delayed reaction is what I think people need to be aware of. So initially markets have a hard time getting their muster up, so to speak, once the grain prices start to go higher. But deferreds respond, so we're seeing that already with deferred hogs, we're seeing the deferred cattle respond. And as far as the milk markets go, that right now is a different beast. So the milk has record production, so you really need to understand that the United States we have record production of milk and if it weren't for the Farm to Family food program milk prices quite frankly would be in the toilet. But thankfully the USDA has continued to put that program forward into 2021 and that has been wonderfully supportive of all of the dairy markets. And that is what made milk go from $15 up to $20 just in a matter of two weeks' time. So as long as that program continues you're going to see the milk market supported right now for the short-term and that is a bigger factor than the feed for right now for milk. So we'll see what the new administration does with that Farm to Family food program, if they can continue it. But again, the theme for the dairy market is huge production, exports are doing well and the demand is because of that Farm to Family food program.

Yeager: All right, since I've gone over 12 minutes I have to contractually say, Tiffany, I'm sorry. And I'm going to now let everybody answer one word. Which market in 2021 has the most profitability ahead? You can pick any market you want, any commodity or livestock. Don Roose, in 2021 which one has the biggest profitability?

Roose: Well, for the input cost that you have I would pick soybeans.

Yeager: Matt Bennett, what would you pick?

Bennett: For the same reason, the same answer.

Yeager: Naomi, anything different?

Blohm: I like Minneapolis wheat. I think that that market is going to start to shoot higher because it's going to lose acres.

Yeager: Ted shook his head no on that.

Seifried: I thought she was going to say cheese. New crop soybeans.

Yeager: Ted Seifried, Don Roose, Matt Bennett and Naomi Blohm, you four thank you so much. These are always a great insight and I appreciate all of your knowledge that you give to all of us. Thank you so very much for your time.

Thank you.

Yeager: That will do it for Market Plus. Next week we'll look at the acreage battle from the cotton perspective and Chris Robinson will be here to break down the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have yourselves a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

More from this show

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer