Market Analysis: Angie Setzer

Market Analysis: Angie Setzer

May 7, 2021  | Ep4638 | Podcast


The grains again shook off poor export news and traded at levels not experienced since 2013. The move higher was aided by concerns over weather in both North and South America. For the week, July wheat added 27 cents while the nearby corn contract jumped up 59 cents. China is still in the market for soybeans and the supply risk remains. July soybeans improved 56 cents. July meal gained $15.70. July cotton expanded by $1.58 per hundredweight. Over in the dairy parlor, May Class III milk fell 40 cents. A mixed week in the livestock sector as June cattle dropped 55 cents. August feeders shed $2.47. And the June lean hog contract expanded $3.12. In the currency markets, the U.S. Dollar index decreased 102 ticks. June crude oil enlarged $1.30 per barrel. COMEX Gold added $63.50 per ounce. And the Goldman Sachs Commodity Index improved almost 18 points to finish at 523.05.

Yeager: Now here to provide insight is regular market analyst Angie Setzer. Kind of a ho-hum week, Angie.

Setzer: Yeah, this whole entire year has just been so boring I think I need to find a new hobby or something, I'm not sure.

Yeager: I've been yawning this entire time before you came on so sorry about that. It's just another 50 cent week, another 27 cent week. The overlying question in all of this though is how much higher -- right now it feels like we're on one of those roller coaster rides that we think is great because it's going so fast and so up but it's pretty scary right now. Wheat has come along now for the ride. I guess let's stick with the amusement park. Is the ride over any time soon for wheat?

Setzer: Oh goodness no. We've got a couple more loop-de-loos and probably another hill to the high side. I don't know, you had asked me the last time I was on and I was like oh yeah, we're probably not going to see beans try anything higher, we're probably not going to see corn -- we'll trade sideways for a while. And I was looking at it the other day and I was like, oh good call Ang, you only missed it by like $3 in soybeans and $2 in corn. And the reality is right now there is way too much in the way of uncertainty. Now, if we had had a normal, if we had good weather taking place in Brazil right now we would just be trading the inflation story because the Brazilian thing wouldn't be that big of a deal. But the reality is the drought in Brazil is something that is going to have an incredible reduction on their old crop corn availability or the corn availability that we were kind of relying on between July and October to get us by and so now we're just kind of trying to figure out how the world is going to resolve that.

Yeager: All right, let's specifically move into wheat. I know that it's a global thing all over the place and that's all right. We have wheat right now at $7.61 is where this thing closed. It looks like it is going along for the ride but it does have some dry factors in the Dakotas and other wheat areas to the west. Has weather taken over going along for the ride with wheat?

Setzer: Yeah, weather and corn. So the weather issue is a huge issue when it comes to the Northern Plains. Something like 98% or above 90% of North Dakota's wheat production area is in -- you're not just talking a little bit of drought, we're talking extreme drought conditions. We also have the issues in South Dakota and other spring wheat areas. And so there was a lot of concern about how that would work, what we would see from a ratio standpoint on acreage overall and all of these things and we saw some pretty rapid planting pace in the spring wheat area. But the fact of the matter is they're dry, they're incredibly dry. And so weather is a story when it comes to spring wheat production. The Southern Plains look like they should see some soils getting recharged. But wheat also is following corn. Wheat right now is the replacement feed and so the wheat story is one that they're kind of tied to one another and traders really kind of struggle with the idea of wheat shouldn't trade below corn, that's against the rules. We did see it happen 2012, 2013 timeframe where wheat did trade underneath corn for a short period of time and if we keep it up at the rate we're going. So wheat has got two stories, that Northern Plains drought with that hard wheat and then of course the idea that it's going to replace a lot of corn in rations simply because it's going to be more available here in another month or so and we're going to need it.

Yeager: Let's go, stay in South Dakota, Schuelke on Twitter was asking us a question about protecting things and that is really kind of what other analysts have talked about is protection. And he's asking, what is your favorite way to protect corn bushels that are unsold and will be stored being that December-July just went inverted. You kind of talked about the inversion a little bit.

Setzer: Yeah, the reality is the best way to do it, puts right now are extremely expensive but they would have some value to them. I really honestly at this point in time, and I'm not saying that you completely go unhedged or anything of that nature, we're just utilizing the scaled sale approach. I'm not spending much in the way of money on options until we figure out which direction this market really wants to go and right now the path of least resistance is higher. Let's look at December corn here and what did we do, we gained 67 cents in three days. And so if you would have bought puts on Monday you really kind of wasted your money. I mean, they're there, they're going to be there, they're a long-term sort of protection but from an overall standpoint right now I just really kind of, we're talking the approach of if you get another 50 cents or so, you sell another 10% and just kind of continue to scale sell, the downside risk is there but the reality of us really facing this huge downside risk with everything else that is taking place right now in the world, what I have told most of my customers that I'm working with is put it on your whiteboard, circle it on the calendar, June 15th is when we really get serious about kind of looking at figuring out where the market is, where our downside risk is, what we need to protect. Until we get closer to having a better idea as to what we're going to see from acres, once the crop has emerged, once we get a good feel for what pollination weather looks like, then you really get serious about protecting this downside. In the meantime, I'm just more of the side of things where you just kind of continue to trickle your sales in and take advantage of the market that is moving higher.

Yeager: All right, you mentioned December, almost 13%, 73 cents on December just this week alone. In soybeans the November contract is almost the same story. November contract 7%, up almost a dollar. November is almost caught up to the nearby. Again, same strategy? Are you selling a little bit at a time here?

Setzer: A little bit at a time. It's the same story. New crop -- we keep talking about 2008, everyone keeps talking about 2008 and everyone shows the picture of 2008 where we went up and we came right back down and it's true, this is very much like 2008 because we have the inflation story. We also have a supply and demand story. And I will, I am sitting here as a person that like yeah, yeah, yeah, I've traded the supply and demand bullishness for the last five years, I am cynical, I am jaded, I don't believe that something will change. But until something changes, which isn't going ot happen until the June 30th report, the USDA is married to that acreage number they came out with. You look at new crop S&D outlooks, carryout outlooks, you're talking about corn at 1.35. So that is still exceptionally tight from a stocks to use point, absolutely zero room for risk. Beans are looking at 135, same story. And so yeah, you just kind of trickle a little bit in. I'm not saying you stop, I'm not saying you just sit here and say well, the girl on Market to Market said it's going higher so I'm just going to wait and see. But you just have to start to take a look at the fact that we are going to remain relatively supported until the Fed changes their tune on rates and until we can confirm that the crop we're going to have produced this year is good. Now, the reality is it's going to be. The reality is global supplies are going to increase exponentially. The reality is that China is probably going to be dealing with some ASF issues and they may see some slowdowns in demand. And so long-term this market has some real risk to the downside. But for the next four weeks or so just enjoy it. If you have motion sickness, pop a Dramamine and just love the fact that every sale you make is another 50 or 75 cents higher and you're hopefully kind of rebuilding some of that equity.

Yeager: Okay, so what are you telling livestock producers because they're on this end wondering when is our time coming, when are we going to rise? Hogs have, they’re the first to celebrate. You talk about China and ASF. Do you want to start with cattle or do you want to start with hogs? You get to pick.

Setzer: Hogs are amazing and I also definitely misread the hog market. But you saw exports this week up substantially. So therein lies the struggle when I talk about China and ASF, it amazes me if you read a livestock wire how bullish they are on Chinese demand for imports of meat, specifically pork. You read a grain wire and they are very bullish on demand when it comes to China for feed for the hogs. One of these things is not like the other. I've spent some time watching Sesame Street and I can't get it in my head how they are congruent. But hogs right now you can't ignore the same exact story. For one we have the inflationary pressure in commodities and then for two we have a supply and demand situation. We have a reduction in freezer supplies, we have an increase in demand overall and you really can't increase substantially the amount of supply that is making its way through the processor. And so in hogs that is bullish right now, in cattle it seems to be bearish. Long-term we've been here before, I just talked to a cattle producer who is also a grain farmer and he's like, you've just got to wait, eventually it swings back, you've got to make your way through the hard times and it will swing back and that is the case. It's just really hard right now, at least in the past times, in 2012 as a cattle producer you could prepare yourself because you saw the crop drying out, you knew that we were going to be extremely tight. This year is so different in the sense that we thought we were going to zero. A year ago I was probably on this show and handing out tissues because the grain prices were going to zero. So it really blindsided a lot of folks to see this cost increase. It increases fast is what it has. We're going to be telling our kids about this and our grandkids about this for years and years and years, the '21 market. And so short-term I think hogs are the bullish story and I think they continue to trade really strong as we continue to see that demand. I think long-term cattle gets to wear the crown eventually.

Yeager: Eventually, all right. 30 seconds on feeders. That market keeps going. Are you expanding right now if you're a feeder knowing that maybe brighter days are ahead?

Setzer: If you've got the equity, if you have the equity I think they are. If you're really struggling -- the equity and the ability to feed I think there is some expansion going on there. There's always the people that function under the blood in the streets there's opportunity sort of mentality. They're going to take advantage of it, they've been waiting and saving up for a moment like this hopefully. But there are some that definitely won't and there are some that probably will get out of that business and stay out of it.

Yeager: Angie Setzer, thank you for the Sesame Street reference. The check is in the mail. That will do it for this installment of Market to Market. We will talk more in Market Plus so join us there. Find that on our website of And school may be winding down for the year but that means learning doesn't stop. In fact, our Classroom project is always open. We have modules from business, history to the study of commodities. Click on the Classroom tab the next time that you visit Next week we look at how dry conditions in the west are renewing an old debate. Thank you so much for watching and have a great week.




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