Market Plus: Jeff French

Jun 25, 2021  | 11 min  | Ep4645 | Podcast

Podcast

Paul Yeager: Welcome into the Friday, June 25th, 2021 version of the Market Plus segment joining us now, Jeff French. Hello, Jeff.

Jeff French: Hello, Paul. Thanks for having me.

Paul Yeager: Good to have you here, uh, capitalizing on some, some changes, uh, with you since you were last here and good to have you close by. We might see you a little bit more when we say emergency, we might ring you quite often, but it's a snowstorm you got to come through.

Jeff French: Okay. I will be here.

Paul Yeager: Mount the truck. Uh, the weather is a story we're going to get to here in a moment, but I want to talk about the acreage report. We kind of talked about it in the main show, a little bit, Phil in Dresden, Ontario, even in Canada, they watch what USDA does. And Phil's question. He says last year, USDA decreased corn average or acreage 5 million acres between their March 30 and June 30 report. Do we see a reverse of that on June 30 of this year? Or has the market, or, and has the market already factored in?

Jeff French: Well, the market has factored in probably an increase of right around two and a half to 3 million acres. Um, you know, there's some private analysts saying that it's going to be upwards of 96 million acres. Uh, you know, I think that would be a little bit bearish, uh, initially. Um, but we've got a lot of growing season ahead of us and, and the balance sheets, no matter, no matter, you know, if we get a couple more million acres, we're going to have to see where those acres are. Uh, because if they are, uh, up in the Northern belt where they are under drought conditions, you know, the question then is, you know, what are, what are those acres going to produce?

Paul Yeager: So there's a theory about government reports that it's the word of gov is Dan Huber likes to say, there's other folks that think differently that it's overblown. Do you think that in the era of volatility, which we have been in for a while, at least almost a year, now that this report carries more weight or it will just look like it carries more because our prices are higher.

Jeff French: Probably a combination of both. I mean, this, this is a big one. I mean, this is a, uh, no, this is not an intentions report. I mean, th this is farmer survey. This is data, and this is what goes into the balance sheets moving forward. So, uh, it is a big deal. And I think if you get something above 94 and a half million, eight corn acres, um, you know, that's probably a little bit negative initially, but then we go right back trading weather. And, uh, we all know we still have plenty of growing season left, especially that the most important month in corn, which is July

Paul Yeager: Well knee-high by the fourth. It's always a fun hashtag we do on Twitter. Uh, we're already past that. Uh, got some rain this week that kind of changed that. I want to show you a couple of maps. We, I asked you in the beginning of the main show let's uh, well, first I'm going to ask Troy in Tama's questions, sorry, Josh, I'm throwing Josh for a loop. I told him I'd do it differently. Try and Tamer Iowa was asking Jeff, how many acres from Missouri to Arkansas do you think are a zero from the flooding?

Jeff French: I mean, I think still a question that is left to be determined. I mean, uh, could there be some acres that absolutely get zeroed out probably, um, has the market taken that into effect yet? I don't think so right now, uh, you know, all eyes right now this week, at least where the rains that fell in Iowa and then are forecasted to fall here this weekend.

Paul Yeager: Let's look at the map of the weekly precept that we've had. And so let's go back to Saturday because Saturday is included. There was a heavy amount of rain in Iowa and in Illinois, but it was Southern Iowa, Northern Missouri into Illinois Peoria. And that area really got dumped on last night. Could get more again this weekend. One week of rain, the market can kind of weather, I guess that's a bad pun, but is it repeated weeks where the market starts to care more about excess rain?

Jeff French: Oh, I don't, I don't think they're too concerned about excess rain right now. Not in the corn market as of right now. Uh, could that change depending on what falls this weekend? Sure. Uh, I mean, there was reports of, you know, eight, eight to nine inches that fell in some parts of Northwest Missouri here last night. So I think, you know, we'll see how long the water sticks around, but you gotta remember, you know, this is falling where, you know, in generally dry conditions, I mean, we haven't been saturated from, uh, excess rain this spring, so we'll just have to see how long it sticks around.

Paul Yeager: All right, let's flip it to the dry side. Let's look at North Dakota, South Dakota. We talked about wheat production. It's dry up there. It's dry. And a lot of wheat country to the west of there in the High Plains. What are you hearing from some of these, you know, really dry areas you see on them?

Jeff French: Uh, I would talk to a producer here today in North Dakota. Um, and I just said, Hey, give me a report. And he laughed. He's like, it's actually raining right now. And, uh, he said, not much, but he said, it's raining. I said, well, you know, what's the wheat going to do? He said, I drove wheat fields all day yesterday. I said, he thinks it's going to produce 30 bushels an acre. And I said, well, what's the normal? He said 70. So it's serious. And he also commented that, you know, he's in one of the better areas of North Dakota, you go 10 miles each way. It gets worse. So right now last year, the spring wheat was 530 million bushels is what we produced, uh, in the United States. Most analysts right now think it's right around 300 to 400 million bushels. Uh, so that's a big deal. And then you go into the quarterly stocks report next month, next week, uh, you know, we have fed a lot of wheat, uh, this winter, especially in the Southwest because of the drought conditions. So that quarterly stocks number on the wheat that could be a bullish surprise. If you see a reduction, uh, with the feed wheat, and then obviously the spring wheat, uh, that crop is borderline disaster.

Paul Yeager: There was a story about the stocks on wheat about three weeks ago that that was having influence on the market. So you're saying that could possibly return if the report?

Jeff French: Oh, absolutely. I mean the dry conditions, you know, they're going to be above average or above average here for the next 10 days. Uh, they're forecasted to get a little bit relief after that, but absolutely if you see a big reduction in wheat stocks because of feed, and then you have the spring wheat crop that continues to burn up, uh, we could bring that, uh, carry out in the wheat down sharply.

Paul Yeager: I cut you off in the main show. Cause I shouldn't have asked a question with 10 seconds left cotton acres. Uh, you were starting to say something, I, there was a 12 that you threw in and I got lost after that.

Jeff French: Yeah. So I mean, th the USDA right now, our, or the projection for next week report is, is right around 12 million acres. Um, you know, I think that could be a little bit on the high side. I mean, we had beans, uh, during the fall that were pushing $12. Uh, so, um, you could see an increase in being acres down there, but they've got hit with massive amount of rain. And that has really been affecting the cotton crop cotton close out the week, really strong above 87 cents. Uh, next resistance is in that 90 to 92. If it can test that, then maybe we go above to the $1 mark. We'll have to see,

Paul Yeager: We've talked about volatility a lot, and we still have another question here. Roger in Indiana asked us via Twitter. And this one is asking, does volatility have a negative effect on basis as to the fact grain buyers have more hedge costs associated with forward purchases?

Jeff French: No, I mean, I don't think so. I mean, a merchandiser wants to, you know, buy your grain as cheap as possible and, and either stored or ship it to someplace where they can sell it and make money off of it. And, you know, they look at it as a hedge cost as a straight line item. So, no, I don't think the volatility, uh, plays, plays effect into the basis. I mean, I look at basis levels being set, you know, depending on where you're at, but that's, that's mainly to do what's happening in the export market, in my opinion.

Paul Yeager: All right. We asked Cole in North Dakota's question. It was about, but I want to ask it again just to cut because I want to expand upon one thing here as a feeder, looking to price corn, what are your thoughts ahead of USDA report? You answered that one. Um, but you can answer it again. Are weather and acres already priced in, or will report be another ride at the amusement park.

Jeff French: It's going to be a ride. It's going to be a ride. And just the way that the markets have declined going into this report, you know, I've done, I haven't done this forever, but I've been doing this thing for a long enough that when a market goes into a major report on, on such a downfall or such a rally, you know, typically the market reacts the opposite way. Um, you know, everybody anticipates the number to be a little bit bearish, uh, on the corn because of more acres. But, you know, I, I look at it from a risk management standpoint and you know, some of the, the hardest trades to enter are the most difficult. And I, and I look at it this report, well, what, what would be the most difficult trade to be in during this report? And it would probably be to be long corn and long beans. Those are the, probably the most difficult, but some of those most difficult trades are some of the biggest winners. So we'll just have to see what the government says here, come Wednesday.

Paul Yeager: I should have brought out a piece of paper, so you could draw it, but why don't you give me the pattern of that amusement park ride? Is this thing-

Jeff French: It will probably be V-shaped.

Paul Yeager: V-shaped.

Jeff French: Yeah. If it is, I mean, you know, we'll have to see, we'll, have to see.

Paul Yeager: All right. Uh, you did say the most danger or most volatile would be the long corn. Is that what you just said?

Jeff French: Yeah, I mean, beyond the long side, I mean, to me that would be the most difficult trade to put on before the report and typically, you know, yeah. Your most difficult trades are the best ones you have, so we'll see.

Paul Yeager: All right, Jeff, appreciate it. Thanks for coming back. Good to see ya,

Jeff French: Paul. Thank you very much. That's Jeff French. Thank you much. That will do it for market plus next week, the data markets and surveys of the USDA and Shawn Hackett will join us to break down the markets. Thanks for watching. Have a great week.

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