Market Analysis: Angie Setzer and Chris Swift

Market Analysis: Angie Setzer and Chris Swift

Jul 16, 2021  | Ep4648 | Podcast


A smaller global wheat crop fueled a rally even as timely rains fell in portions of the Corn Belt. For the week, September wheat rocketed higher by 78 cents or nearly 13 percent while the nearby corn contract added 27 cents. Technical buying coupled with less rain than forecast exacerbated the tight supply situation in the soy complex. For the week, the August contract expanded 76 cents. August meal improved $9.10 per ton. December cotton enlarged $2.22 per hundredweight. In the dairy parlor, August Class III milk lost 78 cents. A mixed week in the livestock sector as August cattle had a gain of 95 cents. August feeders fell $3.55. And the August lean hog contract improved $4.07. In the currency markets, the U.S. Dollar index added 56 ticks. August crude oil shed $3.01 per barrel. COMEX Gold improved $1.50 per ounce. And the Goldman Sachs Commodity Index expanded by nearly 2 points to finish at 529.45.

Yeager: Now here to provide insight are two of our market analysts Angie Setzer and Chris Swift. Hello to you both.

Setzer: Hello.

Swift: Good afternoon.

Yeager: Chris, hold that thought on wheat and corn. But Angie, I have to start with wheat. This market was struggling for a little bit but 2021 has been pretty good for wheat, but then this week came. Minneapolis gets the gold star. Why?

Setzer: Well, that's where the heart of the drought is. Honestly, I don't think we've ever seen a situation quite as dire as what we're seeing in the spring wheat production areas. It would be like a 2012 on steroids sort of event. If you take into consideration where we see spring wheat grown in the Canadian prairies out that way and into the Dakotas, into Minnesota, parts of Montana, that is where the heart of this drought is centered and then everyone else has kind of experienced this really great rainfall, not to rub it in, obviously this past week, which has kind of allowed some pressure, the idea that maybe we would see some rain or the pattern start to shift to where you could see rain move more out towards the west, but nope we're going to see a ridge develop here over the next week and we're back up into 100 degree plus. I've read so much and I can't even imagine what we're going through up that way because a lot of folks are saying this isn't even comparable to '88, it's that bad up that way. And so on top of that you're looking at the spring wheat areas of Russia where their poor conditions are. And so it's a perfect storm. Honestly not only that but you have somewhat of the lower volume in Minneapolis wheat so you did see some of that spill over into Chicago wheat this week. Of course there were some other issues there that may have helped support Chicago. But yeah, I don't even know if you can really put words on what exactly the situation is in the north country there.

Yeager: So, what do you do right now?

Setzer: Well, as a producer of spring wheat probably nothing. Sit and see what happens, wait and see what is going to take place from a harvest standpoint, if you think you aren't going to make the contracts that you have already in place because perhaps you did write some, have a conversation with your buyer. But as a spring wheat producer I don't think you could do much. I think as a wheat producer elsewhere you've got to be more aware of your local market structure than anything. Yeah, we'll probably see some continued strength when it comes to wheat as a whole but make sure that you recognize that what is taking place in spring wheat and other crops that are very location specific to the Dakotas, in Minnesota, Montana, the prairies. It's a different story in other places than what you're seeing there.

Yeager: All right, in this corn market late Friday morning there was a report by the commodity weather group who released some news that said, below trend yields are out the window, we're going to hit that. Market went south right after that. But before that we had not been so weather dominant this week. Explain that.

Setzer: Well, I think we were somewhat weather dominant but I think we were also following wheat. I think there was a lot of strength spill over into corn. I think we all kind of have this idea and commodity weather group kind of said, unless we turn off hot and dry there is only 15%. And so that's what I'm saying about the spring wheat area, it's a different story. So the spring wheat situation, canola situation, that can be incredibly bullish but that doesn't necessarily have to spill over substantially into corn unless we want to see a continuation of the corn/wheat spread that we've been seeing. And so yeah, I'm not going to sign my name to above trend or any yield at this point because I have learned my lesson on guessing what the nation is going to produce when it comes to corn. Every year, 16 years running now any time I have assumed I've known it has went wrong for me. So the commodity weather group, they're using NDVI which is a satellite sort of imagery that takes into consideration what things look like, they're taking into consideration the fact that the weather pattern is supposed to turn off very warm, hot to the north, warm south of basically a line from the Dakotas to the east and then they're saying that the rain should come back in in that 16 to 30 day. And so sure, right now for us I would say we have a record crop. Am I marketing bushels that are not in the bin yet for my growers on the assumption we do? Heck no. I don't even want to tell you all of the ways I've seen that go wrong. So I'm going to sit here and remain somewhat non-bias or unbiased when it comes to that. But --

Yeager: It's only on Twitter where they hang you out to dry, Angie, I think that's what it is. All right, so Chris, if you've got this feeder cattle market, it has been beat up left then right then down the middle with these higher feed costs. So when you see the move in corn this week, if I've got feeders what am I thinking?

Swift: Well, you have to believe that you're going to have higher input costs to go into that and we can only hope that you can make that out with the fed cattle market when you get ready to sell them. But in all honesty the input costs just keep ratcheting up and they have and fortunately we've seen a pretty good rise in the feeder cattle market on both the cash index and the futures have just stayed stable. The futures beat the cash market to the punch and then they have just stayed there and I noticed that before I came out today that we were selling off in the feeder market.

Yeager: So we have the story about the dry conditions in the west, Angie just kind of talked about North Dakota, South Dakota. That would normally be an area that might be able to take some of that pressure off of say the Montana livestock industry if I'm trying to ship something that is ready to feed. What I heard this week is that there are animals heading to the market a little early in that feeder situation. Are you hearing that nationally or is it isolated to regions?

Swift: It's just to the regions right now, it's not a national thing and it's all about what we can handle for the winter. It's not what we can do right now. It's can I get they hay supplies in there for the winter to winter the calves over with and the cows? So I believe that what we'll see is we'll see more of that not necessarily maybe liquidation but trying to move everything out that we possibly can to keep a core herd together in order to be able to start this spring.

Yeager: All right, so where is my feedlot? Where is the magic feedlot location that I should be looking at expanding right now?

Swift: I don't know. With the corn crop it seems like the north is still always going to have the cheaper corn crop, we have the most ethanol plants there so we get the DDGs from those areas. So I don't think the drought is impacting any of the feed yard areas to the best of my knowledge right now.

Yeager: All right. Hey Angie, this December crop is darn close to the September, yeah December and September are really not that far apart. Is that normal?

Setzer: Yeah, it is -- the level of carry in the market. I think we'll see it, I think September is going to definitely be the first contract month under which we see relatively decent harvest progress out there. I think a lot of folks to the far south are going to be looking to start two to four weeks and so you are going to see some bushels start to move and I think you'll see some continued pressure on those front months for both corn and beans. And we saw that this week.

Yeager: You're not willing to put your neck out there on bushels. How about price? Do we have $6 another run up there?

Setzer: You just want me to say something so everyone can do the opposite and be right, that's the beauty part. So yeah, I think we do. I think we have some strength. I think really when it comes down to it though, Sunday night's forecast is going to give us direction for Monday. I hate to just kind of kick the can down the road. But the reality is we have to see the extended forecast continue to show indications of it turning off wet after the 10 day in to that two week. Right now if we see that then that's going to be just about as perfect as what we can get. There are some areas that out there that need to dry out. And so for 10 days if we can get 10 days of drier weather and even a touch of warmth I don't think many folks will complain. But we're definitely at the end of that 10 day to two week pattern or going to need to see rain come back in. So if we see the end of next week look wetter across the board I would definitely be of the mindset that we'll probably test that $5.20 low that we've been seeing on December. If we see it turn off a bit drier I think we fill that gap that was left right around that $5.75 mark. So I hate to be that person but we really are right now in the middle of the range and so for growers that are wondering what do you, I think you look at taking a little bit of risk off in that $5.50 range just because we are so well stuck in the middle and we really could swing one way or the other depending on what Mother Nature brings us two weeks out.

Yeager: All right, in that soybean market a little delayed in its key time for weather, pollination is the factor in corn. But in soybeans it's not weather, it was technical buying this week and there's still that concern about the end stock and carryout. How long is that story going to last?

Setzer: Well, now that we have the Canadian issue with canola, that is what is happening right now is this week was some technical buying that was spurred by concern over upwards of a 5 million metric ton production loss in canola production. Canola produces I think double the oil that a bushel of soybeans do and so now you're probably going to swing back in, remember when we were in an oil led rally here a month or so ago based on renewables and some of that other stuff, you're going to see that kind of come bac into play and canola is going to keep some strength under soybeans, keep that risk premium in place, supply and demand is super tight. We're still waiting to see what China is going to do next. But from an overall standpoint I think you’ll see soybeans stay a bit more supported than what corn can for the next couple, three weeks until we're able to verify that we do get those nice rains across much of the Corn Belt that second week, first or second week of August that we definitely need.

Yeager: You kind of mentioned this a little bit and I want to bring in Bradley from Nebraska, his question that he sent in via Twitter, the first half of this one. Will China's soybean import pace match the last 10 months? Or will ASF curb demand?

Setzer: I don't know if it's as much ASF curbing demand as it is negative crush margins. We have seen a bit of recovery in the Chinese crush margins since the first part of June. At one point they were nearly record low. They were losing a substantial amount of money. We haven't quite put our finger on what's going on over there when it comes to -- we saw all of the port prices in China absolutely collapse and we saw the government step in and start buying in reserves and all of this stuff take place. All of this goes back to meal but Chinese soybean stocks right now are the largest we've seen since last October. Concern continues over limited crush margin. So the million dollar question, do they keep exporting the same as what we've seen over the last 10 months? Right now based on what I'm seeing with stocks and crush margins I would say no. And so that does give me great pause and a lot of concern when it comes to what basis levels we could be looking at, a lot of folks are harvest time with that slower shipment pace possible.

Yeager: So the ASF question though, Chris, what are you hearing on the ground? Do you agree with what Angie is saying?

Swift: Well, maybe for the short-term yes. But in the long-term I view it from an opinion that in hog production China is going to do everything that they possible can to improve and continue to consolidate the hog production into a controlled environment. The more they do that and the more desire they have, the more need for a clean feed source that they'll have to have. So although the day in and day out of purchases that we see from them and even with the low crush margins they're going to continue to produce hogs and they're going to continue to increase the controlled environments for them simply because it costs too much money not to.

Yeager: So what does that mean for the U.S. hog industry right now here in the next month?

Swift: We've cut back on the hog market some, the hog population some a little bit. So I'm not real sure that you'll see anything. We've had three quarters in a row of lower hogs and pigs reports and so I think you might see a fourth one coming up and then after that you kind of stabilize the level off and especially with our packing processing speeds kind of set where they are right now I don't think you'll see the industry go hog wild and try to raise production any right now.

Yeager: The packing, the line speed, the packing issue has also been in that live cattle market as well. Which one is impacted more right now?

Swift: I think the cattle for sure. Although we know that maybe a few months ago Tyson attempted to get the line speed increased and USDA said no. So I think from the pork processing part of it it's pretty much set. Beef probably has some places to expand on there if it is needed but in all honesty until beef prices start coming down a little bit and the consumer can see some of that benefit from lower prices I don't think there's a need to have to rush in there and do anything yet.

Yeager: So, the consumer, are they driving much of this? Have they all of a sudden stopped -- we're past the 4th of July. We don't really grill that much on Labor Day like we do on the 4th of July. What is the big consumer rush to drive anything in that live cattle market?

Swift: I don’t think there is. I don't think there's any - when we look at ribeye steaks at $14, $15 and in some places $20 a pound at the retail grocery store that kind of curbs a lot of appetites there. And it is hot and dry and I know that the inflation numbers have been high and that impacts all of discretionary spending to the consumer. So when we look at what is really leftover at the end of the month and we try to go out and we buy a meal for our family that beef product is still very expensive.

Yeager: Angie, we always celebrate big things with beef, right? I've always heard you say that.

Setzer: Yeah, no one celebrates life's great accomplishments with chicken breast. It doesn't happen.

Yeager: That's right. Angie, real quick, is the bigger story with weather in your eyes on which commodity?

Setzer: Oh goodness, wheat and oil seeds as a whole. Non-GMO soybeans too are going to be hugely impact by what is going on in North Dakota.

Yeager: All right. Chris, same question, which commodity?

Swift: The Minneapolis spring wheat clearly because it just has, there's just none out there it doesn't look like.

Yeager: All right. Angie, on cotton before we go, that one has rallied and continues to go against trend. What is happening there?

Setzer: Yeah, I think we just sold it off way too far for what we've got going on. There's some production issues, some lower acreage that we've been dealing with. I know a lot of folks that know things about cotton really kind of scratching their head when we saw it trade down relatively substantially here a few weeks ago. So I think it's just a correction of people recognizing what actually is probably taking place out there from a global supply and demand sort of situation.

Yeager: Were you surprised by anything from WASDE? It was so long ago. It was Monday. Are we surprised we're not talking about that more?

Setzer: It was a thousand years ago. No, I didn't find anything surprising. The only thing I found surprising in WASDE was who the heck was guessing what spring wheat was going to look like because the USDA came in and set it substantially lower, we all have eyes, we all get the drought monitor, we all see that the crop is 16% good to excellent or whatever --

Yeager: And we all have to go.

Setzer: We still thought we were within--

Yeager: Angie, thank you so very much. Chris Swift and Angie Setzer, appreciate you both. That will do it for the installment of the TV show, but we will keep the conversation going in Market Plus. Find that on our website of And we are part of those millions of minutes of podcasts created each week. So subscribing is key to navigating and not missing out on an episode of Market Analysis, Market Plus or the M-to-M. Search for those three by name wherever you get your podcasts. Next week we look at the increase in local food that has continued post-pandemic. Thank you so very much for watching and have a great week.


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