Market Analysis: Ted Seifried

Market Analysis: Ted Seifried

May 14, 2021  | Ep4639 | Podcast

Podcast

Another volatile week of dramatic price swings on weather and USDA reports which may have sent the longs to the exits with dramatic sell-offs three of five days this week. For the week, July wheat fell 55 cents while the nearby corn contract plummeted 89 cents or 12 percent. Beans remain in the teens but predictions of near-trend line yields and rain in the U.S. dropped the July contract by 4 cents. July meal lost $23.30. July cotton shrank by $7.23 per hundredweight. In the dairy parlor, June Class III milk gained 44 cents. A mixed week in the livestock sector. June cattle dropped 73 cents. August feeders improved $6.87. And the June lean hog contract shed $4.12. In the currency markets, the U.S. Dollar index increased 8 ticks. June crude oil added 53 cents per barrel. COMEX Gold gained $9.90 per ounce. And the Goldman Sachs Commodity Index dropped almost 10 points to finish at 513.50.

Yeager: Now here to provide insight is regular market analyst Ted Seifried. Hello, Ted.

Seifried: Hello, Paul.

Yeager: USDA report this week. Was there a winner? Was there a loser in that one?

Seifried: Obviously corn was the big loser. New crop corn in particular, the big loser. The trade for the most part was looking for a 1.3 billion bushel carryover. I think we had been factoring in something maybe even slightly smaller than that. The USDA gave us a little over a 1.5 billion bushel carryover and that's not especially tight. It's kind of hard to justify $6.40 at a 1.5 billion bushel carryover. Now, there's going to be a lot of people that say okay, the USDA is lowering exports 325 million bushels from last year to the new crop. And since the USDA did these numbers we've seen China purchase a little over 5 million metric tons. Now, if you give the USDA a chance to do their export number again would they raise it? Maybe. I don't know. I'm not going to argue with that. But then you have to say all right, when we looked at planting intentions we were talking just under 92 million acres of corn. I think the trade for the most part really thinks it's going to be a lot closer to 94.

Yeager: 2 to 3 million --

Seifried: Yeah, in fact we saw a private estimate on Friday 96 million plus. So there's going to be more corn acres very likely. The weather has been good for that. If you look at what prices of corn have done since December 1st, December corn versus November beans since December 1st has had an unprecedented rally against that November bean contract. So if we're getting anything in acres, which everybody seems to think there's more acres out there, it's going to be a lot of corn. So, even if I bump the exports, the increase in production on those acres probably offset that and then some. So we could easily start talking about a 1.6, 1.7, 1.8 billion bushel carryover in corn and then oh boy we have a problem. Now, there will be others that say a 179.5 national average yield is 3 bushels over the record that we currently have. And with the dry conditions that we have out west it looks rather unlikely at this point that we're going to hit that 179.5. But, it's really early to say that. And yes, you have an improving weather forecast, which was a big part of why we saw weakness earlier in the week and then again at the end of the week.

Yeager: But that weather forecast changes, it was early wet for next week, now it has kind of dried up a little bit and that's what we'll have to deal with. So I'm going to stick with corn and I'm going to ask a question a little bit about the rally. And this one comes from Drew in Bay Port, Michigan. He's asking, is the big corn rally done for now until pollination weather comes into play? Or is there still enough strong bullish factors to get us back to the $6.30, $6.40 range.

Seifried: So done for now, I like how we're saying that because yeah, I think so. I think this last USDA report and a 1.5 billion bushel carryover is sort of a game changer. And now the idea that okay, we're going to have more acres. That doesn't mean that we can't have a weather market and get us back to those highs, towards those highs and possible even make new highs depending on what weather does during the growing season. But it's really the soybeans that I am interested in and I feel like this is a broken record because I feel like we were here at this same time last year and I was saying the same thing. But the potential for tightness in the soybean balance sheet for new crop is tremendous and I really feel like there's a lot of upside potential there.

Yeager: Yeah, and that was the discussion after the report this week was every bean bushel is accounted for, every corn one is whatever happens. So do you see it that way too?

Seifried: Yeah, we've been doing this for the last four months on panels and individually where I've said, we were never really in a position where we had to price ration demand for corn in a very big day like we did have to do for soybeans. We were never completely running out of corn. We had tightness in the cash market because end users were worried about what was going to happen towards the tail end of this year, if our exports had kept up and we had a very strong basis. So there were reasons to rally corn but we were never really in danger of completely running out of corn unless China had kept buying old crop supplies. But at this point we kind of see them more canceling than anything else. So, again, the soybeans have a much different story. It's not the same for corn.

Yeager: One last bow on corn. 14%, 15% on December corn. You liked the for now. But is this an elevator shaft that goes down a long ways? And what can we grab a hold of if we're heading down?

Seifried: We still have to grow this crop. And so there are weather concerns even though we just talked about I think it's early for that and an improving longer term forecast kind of eases some of those concerns. But we're going to be on edge because we really can't stand to have a significant yield loss even with if you want to call it 2 million acres additional. So we are going to be on our toes for weather. You just saw China bought 5 million metric tons. If that trend continues and we have to start raising that export number pretty aggressively then we have a ballgame. So there are definitely two sides to this coin right now and you're going to continue to see very volatile markets. I think just the way it acted on Friday it seems like there might be a little bit more downside in corn left here. We'll see how far that goes. But yeah, no, we should see a nice bounce here at some point too.

Yeager: Soybeans, volatility there, but we finish almost even, if we consider 4 cents even for the week. The soybean, you have laid out the scenario of it being extremely tight. I would expect more volatility. What am I missing?

Seifried: Well, I think up until about a week ago or maybe 10 days ago we've really kind of forgotten about the tightness in the soybean market and what the potential could be for next year too. We were very focused on South American weather, Brazil's safrinha corn crop in particular, we were very focused on tightness in the cash market for corn and we were really excited about the corn market and soybeans kind of got forgotten about a little bit. But in the last 10 days when we started putting together our numbers for this new crop balance sheet and analysts like myself started releasing them into the wild and people were saying oh, at a trendline yield we're projected to have a 130 or 140 million bushel carryover for next year? There is a razor thin margin for how much we can lose which is really nothing. We can't lose any of our soybean production. So our weather market, unless there is a major demand destruction event, we stop doing business with China, China invades Taiwan and we saw okay China, no more, something like that, ASF travels throughout the world. There's a couple of things that could happen from a demand destruction perspective. But if those don't happen we have to have a trendline yield because I'm not seeing a huge increase in soybean acres and if we have anything less than trendline yield we have a negative balance sheet. And this is all, keep in mind the USDA's balance sheet at a 140 million bushel carryover for new crop, that is including a 205 million bushel reduction in demand for next year. If that reduction is not accurate and we have similar demand or improving demand form one year to the next we already have a negative balance sheet. So the soybean story could be potentially very, very interesting.

Yeager: Wheat is following which one? Corn? Soybeans?  Or is it setting its own path?

Seifried: Traditionally it has to follow corn more. And that is really what is has been doing. I think towards the end of this week you had wheat really wanting to wait and see what happens on the wheat tour next week. We are very curious to see if there -- damages and what the recent rains have done to improve and it's the first real kind of idea we're going to start getting about yield because up until now we've just been sort of guessing at what all of these conflicting factors for the wheat growing season have accounted for or come up with. So yeah, but wheat will continue to follow corn more than anything.

Yeager: Livestock market, live cattle, there's a discussion about maybe there's not enough labor to process the animals. The packer making a lot of money. People asking why aren't we talking about this. Are you talking about packer margins? What are you saying about it?

Seifried: It's frustrating, right. The cattle market right now is frustrating because I don't think it's accurately reflecting fundamentals. Domestic demand is really very strong. We didn't have a great export sales number this week. But for the most part, again, domestic demand is very strong, consumers are willing to pay higher prices. We talked about inflation and inflation is running rampant. And people are willing to pay $10,000 to $15,000 more for a car than over MSRP, sure they're going to pay $2 or $3 more for a steak. Packer margins are really fantastic. They complain that because of the stimulus and everything like that we can't get guys to come in for work. But when your margins are that good you can afford to pay these guys more money to get them to come in. But if they did that, that would cook their golden goose, that would really hurt the massive profit margins that they have right now. So they're perfectly happy blaming COVID, blaming stimulus, blaming workers for not fixing the problem, increasing production, paying up on cash and pushing both the cash and the futures higher. It's really frustrating because, again, there are times where I feel like the cattle market is disassociated from reality and I feel like this time right now is maybe stronger than what I've seen in the past. And again, we're using the global pandemic and things like that as an excuse when really it's packers that are having fun with the market, they're trying to get their way and they're succeeding.

Yeager: The feeder market went up a bunch this week. Is that all on lower input cost? Or is there somebody seeing optimism that they think something is going to cycle out and they're going to time this right?

Seifried: I think both. I think there is optimism in the feeder cattle market. But to your point, yes, corn was down 86 cents or so this week. That helps things a lot. I will say though it was a little disappointing on Friday that we didn't see feeders a little bit stronger. But we had already bounced a fair amount off the lows, technicals are kind of negative here for the moment. But yeah, live cattle struggled at the end of the week. The cattle complex has been frustrating because, again, I think we are a little disassociated from reality there.

Yeager: We've got a gap in the hog market. Is that top in?

Seifried: Hmm, I have concerns about that. I'm not going to say that yet. I'm still optimistic that we have more upside potential. Again, domestic demand is really good. The whole inflationary idea I think is still in play. It doesn't seem to be as many animals out there as we get into the late spring and into early summer months. So I like that August contract a lot. But I am on high alert from a technical perspective. I don't like what I'm seeing in hogs right now.

Yeager: Is there technically any of the three livestock markets that you do like?

Seifried: If I have to choose one it's the hogs. From a chart perspective if we can hold here it's been a very nice rally. It's just like the grains, we've had a correction, everybody wants to kind of panic on that. But if we -- the fact of the matter is if we hold support and turn around then that chart looks really good again. From a fundamental perspective I think the fundamentals are there for cattle to go quite a bit higher. But we've been frustrated that it hasn't been able to do that for quite some time now.

Yeager: But when you get frustrated I can tell. Hey, guess what, I got the whiteboard. You ready to have fun on Market Plus?

Seifried: Let's do it.

Yeager: All right, thank you, Ted Seifried. Appreciate the time. That will do it for this installment of the TV show Market to Market. We just talked about we're bringing the whiteboard out so we'll have fun with Ted there and answer your questions. Find that on our website of MarketToMarket.org. School may be winding down for the year but the learning never stops in our Classroom project. We have modules from business, history to the study of commodities. Click on the Classroom tab the next time that you visit MarketToMarket.org. Next week we look at a year of struggles for one hog produce. Thank you so very much for watching and have a great week.

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