Market Plus Rountable: Roose, Blohm, Seifried, Bennett

Apr 9, 2021  | 16 min  | Ep4634 | Podcast


Yeager: This is the Friday, April 9, 2021 version of the Market Plus segment. Joining us now, Don Roose, Naomi Blohm, Ted Seifried, Matthew Bennett. It's my curls for the day. I didn't get my full workout in, that's how I point, just point. That's pretty easy when you just point and Ted talks. I like that. Matt, you get the first question. We got a lot of great questions and the issue is when we do the roundtables, you all have great questions, the problem is I don't even get to ask that many questions because they just kind of pick up off each other and that is why we love these segments so much. So I'm going to try to get some of the questions here and then let you follow up. Matt, you want to talk about acres. I already had your name penciled next to this one. Let's start with Colin in South Dakota. How many more cropland acres are likely to come into production, he's asking about South America but you can also talk about the United States, over the next three growing seasons?

Bennett: Well, I answered him on Twitter. I don't know if you saw that. I said, several.

Yeager: I thought maybe we could go a little bit more.

Bennett: Maybe I should quantify it a little bit more. But I think over the next five years for me in Brazil alone you're looking at around 15 million hectares, in my opinion, 37, 38 million acres. That is similar to the kind of growth that they have already seen and I don't expect any more rapid of growth than what they've had. Obviously you're going to run into issues any time you grow that much, they've got environmental issues, there's no question that they're going to be fighting that somewhat. But there's quite a bit of ground down there that they can bring into production. As far as the U.S. is concerned, any time you see really good profitability your principal crop acres are going to expand, that's all there is to it. And so we saw that whenever we were in the heyday of '07 about the '13, '14 timeframe, we had really big principal crop acres and I think that you're going to see that tendency continue. Now, this year are we going to pick up a few more acres in June? I absolutely think we will. And then next year I think it's Katy bar the door if the markets react in the way that I think they will.

Yeager: But Don, how can you not, how is the door not -- how are we not wide open right now after what we saw in the last six months?

Roose: Well, and I think, Paul, realistically from 2018 until now 5 million acres went someplace. So I would bet that we're going to pick up 4 to 5 million acres again. Last year we had 10.8 million of prevent plant alone. That could go down to 2 to 3 million. It's dry up in the Dakotas. So I would bet that the corn acres go up 2 million and beans go up 2 million. But we'll see. It's a big chore.

Yeager: Ted, we talked two weeks ago about the big story is always acres, but you thought it would be stocks. It ended up both being stories. But the acreage story went I think above and beyond any of our expectations.

Seifried: Or the acres came in well below.

Yeager: I'm sorry, yes.

Seifried: But it was a bigger story, certainly a bigger story than what I thought. I really thought that we were going to see acreage come out pretty close to what the trade was expecting. And to answer the question, I think we'll end up seeing acreage fairly close to what all of us were expecting. I really think that's what will happen, weather permitting. And I guess that's the thing we're not talking about. That can change, we've seen that happen in the last couple of years, weather can make it very hard to get those acres in. So we have to say weather permitting. But if the weather is as good as the forecasts look yeah, I agree, we're going to see a pretty significant -- I think we get back to about 89, possibly 90 million acres of soybeans. We need it. I think we get to 92, 93, I don't know about 94 million acres of corn, but 92, 93 million acres of corn. But that doesn't get us to a point where we can say oh, well next year's not a problem, we'll have a comfortable balance sheet. It really doesn't get us there. On top of that we're going to have to see at least trendline and a bit of demand destruction or we're going to have to see yields three or four bushel an acre over trendline corn and one or two, maybe three bushel over trendline in soybeans.

Yeager: Naomi, when you're able to travel, you were in South Dakota a couple of weeks ago, you're in Iowa tonight, in your area of Wisconsin the snow has been gone for a while, everybody is itching to go. What are you hearing there in any of those three states you've been about hammer down, let's go?

Blohm: Yeah, some people are definitely chomping at the bit to get going. With Wisconsin it's more of a regular rotation is what I'm hearing. Parts of the Dakotas I've heard both. I've heard people say I'm going to do more corn. I've heard some people say more beans. So it's still up in the air I think what is going to actually happen. I agree that we're going to see the additional acres come in June and then it still is going to be a weather market going forward. And then God forbid what if there is something weather wise happening in Ukraine or Russia or if China has another year of poor growing conditions? That just adds more fuel to the fire on a global perspective. So thankfully we've got these nice higher prices that I think are going to stick around for a while. But as we were saying earlier in the show, don't be complacent because some kind of a demand scare or black swan is always ready to swoop in at any time.

Yeager: Oh, the black swan. Ted, I'm going to ask you Elena in Ukraine's question. She's asking, both U.S. and Latin America faced with a lack of raw materials for biofuels. Could they decline production to fulfill exports there? And the second question is, this season looks like 2008 in corn and soy. I don't know if you agree with that premise. If you think we're more of an '08 situation or a '12 situation. Talk ethanol, biofuels first, South America.

Seifried: You've got a lot of competing things going on in South America. They have a big export market at the moment. A lot of it kind of depends on that second season Brazil crop too, which 24% maturity, I don't know if we're going to have a big disaster even though yes, south Brazil looks dry. Possibly that is less test weight, less kernel fill, but I don't know if we're going to have a big disaster. Anyway, yeah, so they've got a big export market so that could maybe mean once again we're back in the business of selling Brazil ethanol. We usually do but maybe it will be more like the bigger numbers that we had seen a couple of years ago. As far as the second question, the market more like '08 or more like '12?

Yeager: Or now. What is this market like in recent times? Is there a set of years?

Seifried: You think about 2012 we were really bearish on the market at this time of year because we had these big acres going and we had a really early start to planting and we thought this is going to be great, these yields are going to be fantastic, and then it didn't rain and then we're sitting there the weekend before the 4th of July going, um it hasn't rained for like two months and it's not going to rain, it's 102 degrees, uh-oh, and then we really went crazy. Now this is a much different story. We've been rallying coming into it. I like the 2008 analogy because a lot of that was driven by inflation and that is something that we didn't talk about in the main portion of the show, we don't really talk about that a whole lot when we're talking about agricultural commodities. But inflation is a real thing. The value of the dollar has been under a tremendous amount of pressure. It's a basket of against mostly the Euro and the Yen, so our customers’ purchasing power in China, for example, it's not that relevant, it's not that relevant versus South America's currencies, but just as a gauge of inflation yeah, commodities should be worth more because the dollar has been worth less. So I like the 2008 analogy better.

Yeager: Okay. Naomi got specific homework to her and she had to do, I don't know if I'm going to have you show your work or not, we'll find out here. But Ben in Jesup, Iowa was asking us on Twitter, he says, Naomi, for each increment the funds liquidate X the market might likely move up Y. And this is in reference to something you had talked about one of your previous appearance so this isn't totally out of the blue. Now with the surprisingly small planted acreage projection and no planting problems so far, he's asking, to estimate for each X more acres of corn or soybeans farmers plant the market is likely to move Y. Solve for X and Y.

Blohm: Okay, algebra.

Yeager: I know, that's why I asked you and not me.

Blohm: First of all, let's lay down two thoughts on premise. I didn't get a chance to see where the commitment of traders report came out today for corn. I'm assuming we're still over 400,000 contracts.

Roose: Yeah, I think we're probably at 470,000 or something.

Blohm: Okay, let's say 450,000 for the sake of easier math. And then are we all in agreement that the funds do have this ability to have expanded position limits? Okay. So back in 2010, '11, '12, 2010 even going into '11 the funds got long corn and they were long 400,000 contracts of corn and they just hung out there for months. And that was I think part of that they were capped on how many positions they could have. So now you have this ability to nearly double that amount. So potentially you're looking at almost maybe 800,000 contracts of corn that the funds could go long if they wanted to. So the question is, if the funds buy, if we're going to assume they're at 450,000 right now, again I didn't see the report today but let's say that, if they go to 500,000 contracts long that is enough to get May or July corn futures up and above the $6 level which then triggers technical buying. So the fund buying is one component of it then the technical buying comes in. So I think if we see the corn market get to 500,000 contracts long then I think we see, let's use the July contract really get up to speed and get up to $6 quickly and then I would go almost every 50,000 increment that they go long it could potentially add another 50 cents to futures prices. That would be my breakdown based on quick math and analysis. But it's not just the fund buying, it's short covering that would go into that and technical buying and then all the woodwork people show up who have no business trading corn and they get excited because they hear about it on the national news and then they started buying too. 

Yeager: They had no business trading in GameStop either and look where we -- so the premise is late, not premise, the history is there that anybody could jump in. All right, Don, I'm going to finish up with you here. Livestock wise, there's always this story of the pent up -- let's look at the Des Moines suburbs where you and I both live. I haven't noticed many empty spots in the parking lots in the last two to three months and I know Ted had said the same thing in the Chicago area. I haven't asked these other two. People are already out. Is that enough -- are there enough people in the sidelines at home to go out and keep this beef demand going for an extended period of time?

Roose: Well, you're right. What we're doing is we've got the domestic demand, we've got the seasonal grilling demand which we always have this time of year, you've got the restocking of the food industry, you've got our export market has been strong, China even taking beef in February. So I think the market is one of those that has some strength underneath of it but at the same time there is always a caution when you get up to a certain price because the cure for high prices is high prices so that is the fear. That's not only in the meats but also in the grains when we're talking about all these bullish things, eventually economics come back to bring you back to real life again.

Yeager: And then a follow up in the hog market. Did you see this coming, this move higher?

Roose: Not many people saw this one coming. But it's a slingshot from last year just like the grains. But a number of things, we started with just disease problems have been huge across the Midwest, that's number one. The building has stopped, the cost went up so much, and then the demand just on top of it. But we are the unique in the world because the rest of the world is not following up to the upside like we were talking earlier so that is the warning sign when you look at it. The government did say $103 for this summer in this report, $79 for the fourth quarter, so they're not saying we're falling apart either.

Yeager: All right. I'm going to ask each of you one final question, pretty much the same one. Give me something to watch, Matt Bennett, for the next let's just say two months, maybe a specific contract, something that I need to really be paying attention if I'm a producer.

Bennett: Well, I think I'm going to take an easy one here and that is this May S&D report. If you don't think that has got the potential to be an extremely bullish report then I think you're missing the point because they have to use the acreage numbers that we use in planning intentions. So with 91.1 and 87.6 you cannot paint a bearish picture for new crop supply and demand. So if I'm a producer and I'm paying close attention, if we have any spring weather problems going into that May report and I really want to get some coverage on, I'll tell you what, I'd be paying close attention because if you get on the back side of that thing and the weather turns off to be fairly good, like Don said earlier, there's no guarantee prices are going to stay here. And so that could potentially be a really good opportunity if a person hasn't gotten the coverage on that they want yet.

Yeager: Ted, what is your big story for the next four weeks?

Seifried: Okay, so I would agree with what you're saying as far as what that report is going to look like. If we haven't gotten reminders that this could be a very bullish situation for next year already that will be it. But between now and then, this was not the bullish old crop soybean report that the market needed to break out to new highs. I think you have an opportunity to see things come back down a little bit. I think planting is going to look pretty good and I think corn has an opportunity to come back down a little bit. This report, like we were saying earlier, yes they cut 150 million bushels, but that has been expected for months now. They didn't cut more than that and I think that was a problem for the corn market there on Friday with the reversal off the highs. So for the next four weeks I'd like to see markets come down. I'd like to own them cheaper so maybe that is wishful thinking. But I think the groundwork is set with good planting progress that we do see a bigger correction in the market and that might scare some people or the funds, which are really very long right now.

Yeager: Naomi, biggest story in the next four weeks?

Blohm: I'm going to keep my eye on ethanol. I am very intrigued by the two plants reopening in the midst of high prices for corn and watching the basis levels surrounding that. It makes me think maybe China is going to be importing ethanol or DDGs which would be really good for the green energy picture that this new administration is looking for and they said that on the May USDA report they're going to be doing some tweaking with how they're categorizing the biofuels category under soybeans. So I think that green energy is something to watch and ethanol is my watch because it's the weekly ethanol report that comes out also. That will be a picture for demand for corn and of course ethanol too.

Yeager: Don, you can pick from one of those or go out on your own.

Roose: Well, for me I think all these other things are ifs and buts. But I'm going to watch the basis levels very close because I think that is the true story. I'd watch the spreads. And then I'd watch when the funds start to move in the marketplace. In the pits we always used to talk about the roar of the lion takes you up and the squeak of the mouse takes you down because when everybody is excited and then it stops. So I'd watch for when things get quiet.

Yeager: And the party is over and so is our time today. Don Roose, thank you so much, good to see you. Ted Seifried, thank you. Matt Bennett, hey man, good to have you back. Naomi Blohm, same as well. Good to see you all. Thank you so much for spending your time with us. We really appreciate your insight. Next week we're going to take a look at the new weapons to help pollinators in the fight against colony collapse disorder and Elaine Kub will get a chance to break down the markets. Thank you so much for watching. Have a great week.

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