Market Plus: Angie Setzer

May 7, 2021  | 13 min  | Ep4638 | Podcast


Yeager: This is the Friday, May 7, 2021 version of the Market Plus segment. Joining us now is Angie Setzer. Angie, this week, this month, this year, the questions you would think would be easy to ask. But it's pretty simple, everybody always just wants to know how high we're going. But as you said during the main program, it's really hard and it's just like it is to predict in trends. We think we know certain factors. I guess you mentioned USDA and acreage and I want to start there, that they're married to a certain number. We're due for a new report. We won't get acreage for a little while longer. But let's start here with Joel in Herman, Nebraska. He asked us via Facebook -- by the way, thank you everybody who asks questions because we had so many and I know you're going, why didn't they use me question? Well, we're going to try. I'll shut up and ask. Is the market in for another big surprise when final planted acres come in above expectations on both corn and soybeans?

Setzer: Right now it would be a surprise, yeah, because the next few numbers that come out the USDA is married, as I said during the regular show, married to the number that they released at the end of March. And so there's no adjustment that will take place in the next two supply and demand reports. And so there could be a surprise, especially in the situation we're in where there are so many outside investors right now. When you have your regular run-of-the-mill sort of commodity folks they understand what the USDA is reporting, they understand what the likelihood of changes are, this that and the other thing.. The newer investors that we're seeing do not and so yeah they could be caught off guard. And that is part of the reason I said that June 15th, June 20th timeframe is going to be that much more important because we're likely to start to see some private acreage numbers that come out and based on history, based on price and based on spring weather we should see an increase above the acreage that we're seeing right now anywhere from two, three, four, some say up to five million acres more of principal crop area that could come into play and into production versus the number that we got from the USDA the end of March.

Yeager: All right, well given that I guess I'll ask Dan in Lincoln, Nebraska's question. Are you going to start recommending that everybody holds out for $18 beans?

Setzer: Goodness no. My job is a risk manager which makes it stink in years like this because obviously the last eight years your risk has not been oh you sell and it goes to the moon. But this year is a bit different. And so we've really been holding back on sales. We made some decent chunks of sales, my growers and I, around the crop insurance time period where you'd need to maintain level of protection between your insured amount and the gap there. We have since put on some additional sales in that $5.50 to $6 range, depending on the grower. I have zero target orders in place and I am all right with that. At this point in time let's just see where we head. I am definitely not recommending that you do nothing. But one thing that I have really kind of been married to is you take 10% of your expected production, 10% of your unpriced bushels and you start selling 10% increments at every 50 cent move in that range. And so like I said to a customer today, if you take 10% of what is unsold and you break that into 50 cent increments you've got a $5 range and so that is going to provide you with a really nice weighted average when all is said and done and that is really all you're shooting for. No one is going to hit the high of this thing, no one is going to nail it except for the few lucky ones that are out there and yeah for them, I'll send them a helium balloon. But from an overall standpoint just be selling incremental, making incremental sales, scale sell up into this market as it continues to move higher and don't get frozen with the idea that oh my goodness I sold 10,000 bushel last week and all of a sudden it's 75 cents higher, gosh I'm an idiot. No, just look at selling another 10,000 bushels 75 cents beyond where you're at right now when all is said and done.

Yeager: That's one way to take some risk off, I get what you're saying there, to dribble some things out. John Roach always likes to say that as well. Ken gave you a couple of really good questions, I'm not going to ask you the really hard one, historic, you kind of had fun with that one via Twitter. But I'm going to ask this one and this is about the corn to soybean ratio. Ken in Michigan, the corn-soybean ratio favors corn. Why? And our soybean carryout is in much more peril than corn, isn't it?

Setzer: Isn't it? Yeah, to a certain extent I guess. I think the one thing about soybeans that is a little bit different right now than what is going on with corn is that we know what Brazil produced for this crop year so we know that there is a reasonable amount of beans and then if all things stay constant with the USDA supply and demand outlook, if we manage to meet the acreage number, we manage to meet the production number, demand number is probably pretty good from a historical standpoint overall and so the beans are really tight. I think the average trade guess right now is like 135million bushel for carryout, super tight, that is a $15 carryout sort of number. But we know it, we're okay with it. In corn right now we really don't know what the heck is going on because we have no idea what Brazil is going to end up producing. The USDA right now is forecasting a very tight global supply and demand outlook with 109 million metric ton Brazilian corn crop total. We don't know if that 109 is going to turn into 90, we don't know if it's going to be 95, we don't know if it's going to be 99. And so there is this huge swing and a lot of folks are saying that the U.S. is going to automatically pick up that lost production out of Brazil, not necessarily the case with the premiums that we're seeing in Argentina and some of what we could see in the Black Sea and I would contest that a lot of our traditional importers perhaps have booked a larger amount of bushels earlier on than what they normally would. But that fear of the unknown is what has driven December corn up because now we're that much tighter. The soybean we kind of -- we have an idea of what it looks like as a whole, we'll trade weather if we need to, obviously things could change. But corn is just so much more unknown, uncertain right now that you're just seeing, it's the story, it's taking the attention.

Yeager: All right. Well I've got a couple of good questions. Tim and Mitch, you both have great questions and Angie has kind of talked about that so I'm going to jump down to Chad in Grimes, Iowa. He says, many elevators have bids for corn or soybeans through October of 2022. For the average grain producer what are your thoughts on entering into a contract that far out?

Setzer: For corn it still scares me simply because of the fact that your cost of production for corn could increase exponentially from where we are right now. If we truly believe there is inflationary pressure that is going to remain and we have all of these costs included and on top of that we do see a U.S. production issue it's hard for me, believe me as a risk manager again it's very difficult for me to be like, you probably don't want to sell much $5 corn. It might cost 5%, 10%, something like that. See what happens, get a better feel for what the U.S. corn crop looks like. That makes more sense to me on corn just simply because what may seem like good margin now -- what I told someone is basically take your cost this year, double them, and if you're still making money at $5 corn next year go ahead and book some. Just kind of look at what your base case, worst case, most likely scenarios are when it comes to overall support. Soybeans I also still, $12.73 is great and all, but $13 is better. So I think that there's still a long time before we get to where we know what we're going to have, the soybean story barring anything weird out of China is an 18 month story. So make sure that what you are selling is more of a no brainer from a cash price standpoint, $12.50 cash, $13 cash, something like that if that is something that you're looking to do. But I really haven't felt the need to get overly aggressive. Again, I want to see what the crop looks like. Four weeks, give me four weeks of seeing what the weather does and what our demand looks like as we move ahead and some of these other things before we get overly aggressive on the sales side. And the reality is there is going to come a time when you're going to want to do it. I feel like it's an okay time but I also don't want to see anyone get too bogged down into numbers that end up not being profitable.

Yeager: You mentioned weather and Tim in Manilla, Iowa is asking the question, there is rain in the forecast this weekend for some dry areas, maybe not necessarily his. But would one general rain across the Corn Belt be enough to drop the market significantly?

Setzer: No, not at this point. There's too much other stuff going on. Now, maybe around pollination, yeah. We get a good rain the 4th of July hold onto your hats there. Now, we get a good general rain across Brazil right now, that could create some pressure on the corn market. That is not in the forecast for the next two weeks. So a good general rain across the U.S. you'll probably see some selling that people will buy. I just, we have to get to where we're looking at an increase in acres potentially, we have to get to where we're looking at the Fed making an adjustment to rates and then we have to see weather be good. So this year is really kind of one of those things where you have three checkboxes. And yes, it is, I have whiplash, when I'm not on TV I am wearing a neck brace because a year ago we were trying to figure out how we were going to manage through 3 billion bushel of corn.

Yeager: I remember having that conversation several times with you. You were on one of those weeks where it did look awful. And just how things change. Okay, we talked about livestock a little bit here. I'm going to interrupt. Matt in Ayrshire, I'm sorry I kind of stole your question on the main program. But I'm going to ask Matt in Amherst, Wisconsin's question now though and you talk about risk and this is where we didn't quite get into. How can a cattle feeder reduce risk when buying feeders with the cost to raise a steer changes anywhere from $50 to $100 a week?

Setzer: I'm speechless. I'm very rarely speechless but I'm speechless when it comes to that just simply because of the fact that there's really no way to -- I'll take that back, there are a ton of approaches that you can make to reducing risk, for managing risk when it comes to cattle, when it comes to protecting your feed, when it comes to this that and the other thing. But it's really an operational or a situational basis. It's something that you have to talk to an expert. In this type of market structure talk to someone who has a very good track record. There's several different folks out there that cattle is their thing, livestock is their thing and they can help you when it comes to managing the risk of an explosive move to the high side, they can help you when it comes to protecting yourself against booking feed costs that end up being too high and they can help you really put up some floors in place underneath the cattle or the feeders that you're getting ready to buy. Unfortunately I'm not one of them, all I can do is give you a shoulder to cry on and if you’re into that I can buy you a cold beer because it's a mess right now out there and the only thing that I can say is that inflation is going to pick up, the consumer still has a bunch of money. The problem that we have right now is what is taking place at the packer level and that is well above my pay grade to tell you how we fix it.

Yeager: All right. We'll leave it on that. Angie Setzer, thank you so much, appreciate it.

Setzer: Thank you, thanks for having me.

Yeager: Next week we look at how dry conditions in the west renew an old debate and Ted Seifried will join us to break down the markets. Thank you so much for watching. Have yourselves a great week.

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