Market Plus: Arlan Suderman

Apr 2, 2021  | 13 min  | Ep4633 | Podcast

Podcast

Yeager: This is the Friday, April 2, 2021 version of the Market Plus segment. Joining us now, Arlan Suderman. Arlan, you want to discuss basketball? Should we just start there instead?

Suderman: Yeah, it wasn't a very good year for either one of us this year. There's always next year.

Yeager: There's always next year. A new coach for the Iowa State Cyclones but K State, they live to tell the tale. But basketball is on the minds, brackets were busted, I kind of teased your appearance talking about a bracket and last week Ted Seifried said, the story usually is about acres, but he said watch the stocks. What did you think of the whole stocks versus acres debate? Did you predict the bigger story was going to be acres? Or did you think the bigger story was going to be about stocks?

Suderman: Typically stocks is where the biggest market moving surprises come from. But this year the market was much more focused on the acreage numbers and that turned out to pay off for them because from an impact standpoint, yeah the wheat and soybean stocks were unfriendly, the corn numbers were friendly, not major surprises and they paled in comparison to the impact as far as on the balance sheet of the acreage numbers.

Yeager: That leads into a question that we had that came in via Twitter. We always appreciate all of the questions that we get. You can always join this discussion on Wednesday, Thursday or Friday before Noon Central Time. Except this week we're recording early so these are the questions from Thursday night. Bill in Victoria, Texas wants to know, are you buying the rumor or the fact on grain stocks?

Suderman: Well, the market did both this week. But on the stocks side there's a lot that goes into there. For example, on soybeans it comes down to what they calculate for residual use. Typically in the second quarter of the marketing year there is a big negative residual. I had a low estimate for my stocks number because I went back and looked at the first quarter, it was a lower than typical percentage of residual versus the total expected for the year and I looked back at all the years that had a similar percentage and those years almost always had a small positive residual use in the second quarter then as well. USDA didn't follow that trend this time around. They went back with the big negative residual. I'm not sure how you get negative residual with soybeans. We know what crush is, we know what exports are, so maybe it is what's in transport, whatever. But that is why I was on the low side in these stocks numbers but there's a lot of things like that, that go into it. So I don't get too excited on the stocks numbers unless they're really significantly different than what the trade was expecting.

Yeager: Well, on the feed stock side of things we have a question from Aaron in Ocheyedan, Iowa. It's a little more on the livestock side here. He said, aside from increasing feed input costs, how else might livestock producers be affected by the report going forward? Will margins be a double edged sword if the critter complex turns lower? And can and will that demand fill the big shoes of margin that is current bullish optimism and now increasingly higher input costs? There's only 8 questions there. Pick one.

Suderman: Yeah, bottom line here is this means that the livestock producer has to be a lot more worried about the weather patterns because that will really amplify the market impact of any threats that come along during the growing season or even perceived threats. And so that is why livestock producers really need to be concerned for both soybeans and for corn that's going to be a major factor right now at these stock levels and unfortunately climatologists are starting to raise the red flags about this summer. So I think what we're going to see is livestock producers, ethanol processors, soybean crush processors all buying the dips on these markets until we get a better handle the type of growing season we have.

Yeager: Buying dips, so Wednesday limit up pretty much across the board. Thursday was not quite gave everything back but it was substantial. Do you anticipate that that's kind of what we're going to see here, these big ups, these big downs? How big are these dips that you're talking about?

Suderman: Computers control the majority of the trading in the markets today and those computers have billions of dollars behind them and position limits were increased dramatically on March 15th. So we've been predicting higher highs, lower lows, big swings, a lot of volatility in the markets. This is just a taste of what is to come because as soon as the momentum indicators, the intra -- indicators switch, there's lots of money to push it in that direction until something changes it. So I think we're going to see that more and more in the future. But over the two days, Wednesday and Thursday, corn was still up 20 cents for the May contracts, soybeans were still up 35 cents. So look at the overall trend that we're going and pay attention to that. That may change at any point. But for now I think this market will see buying on the dips until something changes.

Yeager: All right. Phil in Dresden, Ontario asked us via Twitter this week, he says, November soybeans spent six months from the beginning of September 2020 through the end of February holding a sizeable price premium to December corn indicating it needed more acres in 2021. So limit up and USDA says 87.6 million acres. He asks, are they right?

Suderman: Is USDA right? That's the debate that is going to go on until June 30th. But soybeans really, based on current anticipated demand if you assume a normal growing season and trend yields, soybeans have to have at least 90 million acres. I would argue 90.5 million acres. And that doesn't allow for any weather problems whatsoever. Corn on the other hand needs to be around 92 million, 92.5 million or so. Corn doesn't have as big a task to get there. It has a little bit more leeway. And that is going to be the job of the marketplace now is to make sure we get those acres.

Yeager: See where we find them, so much for that fence row to fence row business? Maybe some fences will go out in April. You never know, right?

Suderman: Yeah, exactly right. And those acres can be had. They're out there. But the weather has to cooperate. That means spring weather. If we were to have a repeat spring of 2019 the markets would go ballistic like they did then. That is not in the forecast at this point. We've had some problems in the eastern Midwest, the Ohio River Valley into the eastern Midwest, but I don't see any weather forecasters really sounding alarm bells, just that those planting windows may be a little bit tighter. But we can plant a lot of corn real fast with today's equipment.

Yeager: Well, I've seen a lot of people via our Instagram feed already out in the field throwing some nitrogen down if they didn't get that done last fall. So let's talk about some macro issues here, Arlan. This one comes from Bradley in Upland, Nebraska. He asks us via Twitter, he said, I'd love to hear Arlan talk about money velocity, inflation concerns, energy prices, the impact of major tax hikes on a struggling economy and a ballooning national debt. The floor is yours.

Suderman: We have an hour?

Yeager: Yeah, exactly.

Suderman: I'm doing more and more of my presentations on this because this has big long-term implications for the commodity sector. Basically the direction we're going is what is called modern monetary theory is being adopted by policy makers and it has its roots kind of with Ben Bernanke, actually we could go back to Japan and what they did over two decades ago and they're still continuing to do. Ben Bernanke, the Federal Reserve Chair a couple of chairs back from where we are now, and he studied what Japan did and made it the U.S. pattern for the Federal Reserve and then Europe followed and many other Central Banks followed. And the great financial crisis of 2008, 2009 we initiated this quantitative easing, very low interest rates and printing money to buy our debt, essentially monetizing our debt. And we got away with it, so to speak, without any real inflation. There were economic reasons why we did not, one of those was the slowing of velocity of money. We had high regulations and uncertainty about the economy, we had a retiring baby boomer generation that was hanging tight to money. So velocity of money is how many times it circulates in the economy. So that really slowed. And then when COVID hit, it went to the lowest that we've seen since the '50s. So we're really building up the money supply at an unprecedented speed. It went up $4 trillion just during 2020, continuing to go higher. That money is waiting to be spent. So if confidence in the economy increases, we anticipate that we're going to see rapid inflation pressures. The other factor that we're expecting to see now with Congress spending at an unprecedented level is we're seeing a smaller portion of the debt certificates being bought by foreign investors. That means that the Federal Reserve is going to have to support congressional spending with more quantitative easing, expanding what they're doing in monetizing the debt and that tends to devalue the dollar so we're anticipating later in the year that we'll see the dollar really start to devalue. That tends to be bullish for the commodity sector. So as we get later in the year we think we'll see more of that forward price pressure on commodities. If you need commodities as an input that's a negative. If you're a producer of commodities that's a positive. But that means your input costs are going to be going up too, fertilizer costs, chemical costs, equipment costs, everything that goes into producing it.

Yeager: So who wins in all of that? And who comes out ahead of things? Because if I'm a producer and I've got to pay for inputs and I've got a hired man that needs, could use a raise because he sees $14 soybeans?

Suderman: Well, some of our viewers remember the late '70s, early '80s and when we entered into a period of stagflation. And that is the real concern -- I remember that well. That was a very dark time in agriculture that followed. A very good time is followed by very bad times because that stagflation led to decreased demand for our commodities and a rapid increase in costs for what we produce or inputs and a depression in our prices and agriculture went through a very dark time then in the mid-80s'. So that is really the concern going forward is that stagflation could lead to a negative period down the road for agriculture.

Yeager: I'm supposed to say something right now and say thank you. Arlan, that's some sobering things to think about. No need to joke about it. But it is absolutely, commodities and agriculture are not the only game, and so many things interact. So I appreciate you trying to tie those things together for us.

Suderman: Well, and I think one of the keys is treat it like a business. So when the times are good build the equity in your farm, but build it with those safeguards and focus on protecting that equity and not getting over caught up in the emotions of the markets and getting greedy. But treat it like a business, build the equity and protect it.

Suderman: Thank you.

Yeager: All right. Arlan Suderman, thank you so much for your time, I appreciate the insight.

Yeager: Next week we'll assemble a roundtable of analysts to look at the bulls and the bears now that the commodity markets are loaded with new information. Ted Seifried, Naomi Blohm, Matt Bennett and Don Roose, they'll all be here to break down the markets. I'm Paul Yeager. Thank you so very much for watching. Have a great week.

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