Market Plus: Angie Setzer and Chris Swift

Feb 12, 2021  | 14 min  | Ep4626 | Podcast


Yeager: This is the Friday, February 12, 2021 version of the Market Plus segment. Joining us now, Angie Setzer and Chris Swift. Good to have you both. We were talking about the weather before we started recording today. And Angie is telling me she has temperatures above zero. Chris, I assume you have temperatures above zero. But this little storm over the weekend is anything but little in the South where you're at. What is the forecast for you this weekend?

Swift: Actually we've got some icy and cold weather coming in but nothing like where you guys are at. We're going to be probably in the mid-20s and nothing just horrible whatsoever like you guys.

Yeager: I saw a photo out of Kansas, the Peterson brothers who we have featured on this program before, many in agriculture will know who they are. They are in Central Kansas north of Wichita. Their feeding operation, they showed a picture today of the ice freezing over in the feedlot. That is going to be a problem. You talked about it during the show. That slows down weight gain, that slows down just everybody in general. But what really besides those two factors, why is it so hard for the animal to gain at that time?

Swift: Well, a lot of it has to do with the amount of exercise that the cow has to do in the pen. If it's real muddy conditions then they have to pick their foot up out of four or five inches of mud and you know how hard that is to do that. Anything that exerts energy has a tendency to burn energy off and that is what they don't want to have happen. So I think that that is the biggest issue to look at is when it's really cold and the ground is hard, although they may need the same amount or a little bit more energy to stay warm they're not having to use any of that energy to get around on. So when it starts to thaw a little bit and it gets real muddy and mucky, that's when they start to have some issues.

Yeager: Angie, is that what happened to the bull behind you, it got stuck in the mud, on your floor?

Setzer: Yeah, it's just there. It would be better if it were a bear rug in the current market structure and then I could be like, I shot it, which is not allowed either because that's violence and we frown on that.

Yeager: It would be, all right. Let's talk about another animal in the black swan. Aaron in Ocheyedan, Iowa is asking an economics question here, a year ago the macro markets crashed taking commodities along brutally so. Let's say now toppy macros crash mid-February. Are commodities better protected this time or would it have to be a black swan anyway?

Setzer: I think we're starting from a higher level so you could say that commodities are better protected in that sense that you're not going to see them drop to $3 a bushel on corn like we had happen a year ago. But the reality is if the market as a whole, if the entire economic structure as a whole really starts to crumble, then you just see everyone leave, they flee for a short period of time. Now, maybe they come back in with the idea that commodities are the safer bet or something of that nature. But the reality is we saw it in '08. We started the year out in 2008 exceptionally strong and when the housing market tanked and everything kind of collapsed around it you saw the market structure itself also kind of fall apart. And so I think that is a real concern that we have to have. There are a lot of economic indicators out there or a lot of economic feeling where it's kind of like did we learn anything 13 years ago? And so the question at hand is what are we doing here to kind of keep this sort of Wylie Coyote style outside market where as long as we don't look down, it doesn't matter we ran off the cliffs, as long as we don't look down we don't fall.

Yeager: But there was a point this week that, to your point of we sold off and then there was a little bit of support. 12, 13 years ago that wasn't there. So does that give you pause for optimism?

Setzer: Yeah, for sure. I think there's people that are going to come in and continue to buy this thing until they are proven that they shouldn't. And so like we talked about in the show, the reality is that the South American crop is just getting started. We haven't had that enter into the pipeline. We don't know what that looks like completely. We can have a good guess. We can hear that yields maybe are disappointing on the front end or that there were a few stories that floated around that certain areas of Brazil had where they just weren't filling, they had pods that were empty and they were mowing down soybeans. And so obviously until we know for sure what we're looking at from a crop standpoint and things of that nature you're going to see extensive support. Until we know what we're looking at from a crop standpoint new crop wise. And so I've had a few customers talk about '22, December '22 or November '22 and the reality is we have five crop cycles to get through before we know exactly what those timeframes look like. And so everything should give you pause in a sense that until we know for sure, unless we see something from China that indicates that maybe we're Charlie Brown and they're Lucy with the football or something of that nature, which at this point that doesn't appear to be the case, it appears they truly need our stuff. But if you were to see that happen then it would be a bit of a freefall. Without that though if Chinese demand stays as consistent as what folks are anticipating we will see a strong level of support underneath this market simply because of the supply and demand economics overall versus where we were at a year ago.

Yeager: Bugs Bunny, the Peanuts, you've just left out Marvel and DC. But Chris, hang on for this one. Angie, this is a rationing question and we have a couple of these and we kind of talked about it a little bit. Keith in Taylorville, Illinois is the question I'm going to go with first. He says, soybean stocks are extremely tight and we keep seeing large weekly exports. What happens if the U.S. actually does run out of soybeans? Angie, you first.

Setzer: We don't. You're going to pay through the nose if that's the case. You're going to figure out a way to get soybeans from where they are to where they need to be and that is going to be at the pain, the huge pain point of the processor, something of that nature. The reality is we may be running on fumes and you may see $2 plus over basis levels in the summertime market structure to kind of be able to bring either the bushels that are left in the bin kind of hanging out or the bushels that are in South America to get up here. You'll see basis levels get extremely strong. You'll see spreads continue to invert even further. And then one day new crop is going to start and it will slowly unwind, obviously depending on what our friends in China do. So the idea that you run out but reality is even if we are a 50 million bushel carryout, you still have 50 million bushels. It's not ideal and it's not comfortable for anyone that has to buy them but there's still something somewhere that will eventually work its way out or someone is going to take a big hit on carrying forward.

Yeager: All right, Chris. You hear what Angie says and she talks about no. But if I'm someone who has got a pencil trying to figure out how to feed my herd and I even hear that word, does the R word scare me a little bit if I'm a producer?

Swift: It does. But there's always ways to go about it. You can hedge. You can buy soybean meal futures, you can buy options on soybean meal futures. There's alternative ways to be able to hedge that product and price. And I think Angie is absolutely right, price will dictate everything and as it moves higher there's no better cure for higher prices than higher prices. So I think she's right on that idea. And although it could get very short, basis will do a lot of work to it and the unfortunate to the hog producer, they have had so few alternative feed sources to go to. The cattle producer can go to various different feed sources for alternatives and the hog producer is pretty much stuck with corn and soybeans. So that in itself might be a little bit more of a driver to it, to the hog market, than what it is into the cattle market.

Yeager: We mentioned inflation at the beginning of the broadcast and Angie, you've talked about it. Chris, I'm going to take your temperature here for a minute. I'm going to combine a couple of question. Eric was asking me about inflation or fundamentals at play right now because he says, many cite inflation as the reason for the uptick in grain markets since last fall. However, China has realized they are hungry and worried about world grain stocks while U.S., Midwest soil moisture is at levels less that long-term normals. What say you, inflation or fundamentals?

Swift: Well, inflation tends to be too much money chasing too few commodities. And if you look at the United States right now we're flush with stimulus packages all the way from 2008 I think is when we started, 2009 we started the stimulus packages, quantitative easings that continue to this day. So the government has yet to relinquish any of the funds, the stimulus, the low interest rates to the consumer out here. So in all honestly there's a lot of money still out there floating around if you include the value of your home at 10%, 15% and 20% rises over the last year, look at the equity market's gains, there's a lot of money out there and there's only a few set number of commodities to be had.

Yeager: Angie, I have to finish with this and I'm very serious in what I'm about to say. Bradley in Upland, Nebraska asks, Australians' criticism of the Chinese government has resulted in a boycott of rock lobster -- stay with us -- which has driven the price down to $25 a kilogram. That is below breakeven. They are buying New Zealand rock lobster for $120. Does the boycott spill into wheat and sheep's wool as well?

Setzer: Yeah, first of all, you guys are lucky I just don't sing the song to finish out the rest of this portion of the show. But, that's a valid fear that I have for everything right now because we have built this house of cards on Chinese demand and I don't know how many of you gentlemen that are watching this show that are married but I think all of you know that when something happens like just took place over the last four years suddenly we're fine? Suddenly China is in the other room and is like, no big deal, the trade war thing doesn't matter, I'm fine. Fine should send a ripple down the back of your neck, make your hair raise that something is wrong. And so to me I feel like the easiest answer when it comes to China is probably not the right one and right now the easy one is oh, they ran out of food, silly China and their games. And so I'm really concerned that there is some sort of underlying factor at play that could have a long-term implication overall in demand. And I think the tit for tat kind of relationship that China tends to have with its suppliers is something that should kind of bring a little bit of a pause in the celebratory sort of mindset that we have about China is coming in and buying bigtime. We saw them claim that they found COVID in a pork shipment this week. Now, they're on holiday and it was one container. But I'm old enough to remember the Starlink debacle and MER-162 and all of these other things. And so I think it has to give us pause. And so I think there's always something there you always have to kind of be aware of is right now we're working with the largest portion of trade that we're seeing is with China and we have a lot of issues going on in the South Sea, we have a lot of issues with Taiwan and so there's just a lot, we have to kind of tread carefully to make sure we maintain that business. And Australia really hasn't done anything different than anyone else had. But Australia I think is the smaller of all of these countries and so they're getting a little bit more of the ramifications. But if you look, their barley imports have increased out of Australia, they're buying wheat, China is, and so there's certain things that they are punishing and other things that they are just welcoming in with open arms. And so fast forward to another 8 months and we'll know exactly maybe what their plan is and maybe it's not anything nefarious at all, they really did run out of food. But it's definitely something that we have to keep an eye on and something that I kind of feel like it's the 500 pound gorilla in the room every day I walk into the office.

Yeager: Pick one, Chris, that's all of those things. No, we can't unpack that. She even got a Despicable Me reference in at the very end. That's Chris Swift and Angie Setzer, the two of you thank you so very much for your insight. Good to see you both. Thank you.

Swift: Thank you, Paul.

Setzer: Thank you.

Yeager: Next week we'll have a firsthand account of that relationship between the United States and China with the former Ambassador to China. We'll also talk with Elaine Kub. She'll break down the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. This has been Market Plus. Have a great week.

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