Market Plus: Matt Bennett

Jul 30, 2021  | 7 min  | Ep4650 | Podcast

Podcast

Kohlsdorf: This is the Friday, July 30, 2021 version of the Market Plus segment. Joining us, Matt Bennett, back for more. Okay, so I want to go back to something, we were talking about corn earlier in the regular segment. There were some rumors this week that China bought some corn, there were some trade tensions as well between the U.S. and China. What kind of impact did that have on the market? Or did it have any impact? And what have you heard?

Bennett: Yeah, I think that some of the tension we've heard obviously is going to be a little bit negative towards prices. People are going to be worried that this huge export program that we were able to enjoy this year compared to years past, it completely blew things away, that we wouldn't be able to build on that. But at the same time I think a lot of times what you have to do when it comes to China is watch what they're doing versus what they're saying. And so they did tell us recently they want to build 11 million metric tons of government storage. And at the same time then they turn around the next week and say, we might not use as much corn and beans here this next year as what we did. Whenever they say something like that I typically think they're about to buy some corn. So my personal opinion is the China export program for the U.S. is actually going to look pretty good over this next marketing year. Based upon the people we talk to in the industry we feel pretty confident that they'll be exporting just as much, maybe a little bit more corn this next year than what they did this year.

Kohlsdorf: All right, so our next question is from Twitter. Jeremy is asking, how would world balance sheets look if we had a trend yield here but Brazil's crop continues to decline from freezes?

Bennett: The assumption from the USDA right now is that your balance sheet includes a trendline yield from the U.S. And so if you continue to trim the Brazilian safrinha crop, for instance, due to drought, freeze, you name it, they've had everything thrown at them that they could have thrown at them, then we'll continue to tighten. The thing about it is that over the last couple three years we've seen tightening balance sheets and I personally think that the balance sheet is even tighter than what we currently see. Whenever I see what has gone on with the Chinese purchasing program on corn it tells me that they don't have as much corn on hand as what maybe we've all thought that they would have. And so I do think that the world balance sheet is pretty tight and I think that the Brazilians will show up in a big fashion this next year as far as plantings are concerned. So I think producers need to pay close attention to that. If they do get really good pricing opportunities over the next few months with new crop I know prices and input costs are a little bit higher, but pay close attention because this is a futures market and we need to think about what is going to be around the corner.

Kohlsdorf: Okay. So our next question also from Twitter. What are the current planting economics looking like for Brazilian growers? And how large of an acre expansion can be expected and will this primarily be soybeans with the possibility of safrinha corn?

Bennett: I think that you're going to see anywhere in the neighborhood of 3% is what we continue to hear. It could be a pretty large expansion but they are used to fairly big expansion. They have this Cerrado area where they can go in and they can expand on acreage way more so than what the U.S. producer can. So are they going to expand on soybean acreage? Well, they've done so the last 13 years in a row so we've got to expect they're going to do the same. Whenever December corn prices are at the Board of Trade $5.50 a bushel the Brazilian farmer is licking their chops, in my opinion, saying we're going to plant more corn as well. So I fully expect the economics for them look fantastic, they're going to plant plenty of corn and beans this next year and we can't make the assumption that they're going to have weather problems like they did with the safrinha crop this year. We need to watch closely, see if that first crop soybean, if the soybeans get planted in a good fashion because last year about this time once we got into harvest and they're trying to plant beans they got those in the ground late. And what that did was it put the second crop in the ground late which made them susceptible to some of this heat and drought that we've seen as well as the freezes.

Kohlsdorf: All right, so Philip wants to know, transportation or freight rates across regions and across oceans are very high historically affecting grain movement. How might this limit U.S. grain movement into China? Will these rates ease or get worse with harvest?

Bennett: Well, that's a great question. But I think as far as freight weights are concerned everything has been in a bit of an inflationary environment whether you're talking energy, whether you're talking commodities. And so to me what is going to happen as far as China is concerned is that if they need corn they're going to purchase it regardless of freight cost is my personal opinion. Now, are they going to be tactical in how they do so or are they going to maybe tell us once again that they don't need corn for the next 6 months because they've got enough in reserves and then turn around the next week and buy corn? Absolutely, I could see something like that happening. But I don't think that the freight rates given the fact that it's pretty much the same across the board it's not just regional freight rates, it's for everyone, due to the fact that energy costs are higher. I think the freight rates are not going to be the biggest deterrent as far as Chinese purchases go. It's going to probably have more to do with what are the prices? And so if you get into harvest and you get some sort of harvest lows I would expect that there will be some purchases show up.

Kohlsdorf: Okay. There were some farmers, one in particular in Waterloo who was asking, how does it feel to get rain?

Bennett: Yes, that's Ted who was asking that and I told you about that just a little bit before we started. And the thing is that some of these guys have missed several rains and it's frustrating, especially whenever you've got $5.50 corn on the board. And so the thing that goes through your head is that I'm going to be the one that finally catches the rain but the market is going to fall apart and I'm not going to have been able to get in on those high prices. And so to answer the question, we've been very blessed. I'm not going to dance around it. We've been fortunate where I'm at. Some people have maybe had too much rain in Central Illinois. A lot of producers though in Illinois and Indiana would have to say that this is one of the better weather patterns they've seen over the last several years. And so I think we had a really good growing season in 2018 but I think some folks could have a better crop than what they had in 2018. So I know that Ted and Caleb are supposed to get some rain in that part of the world here this weekend. Let's hope that they do. Let's hope that they get a soaking rain because there's nothing more frustrating than having big prices and no crop to sell, or at least not as much crop to sell as what you prefer.

Kohlsdorf: All right, Matt, as always thanks for being here.

Bennett: Absolutely, thanks for having me.

Kohlsdorf: Yeah, thanks for all your insight. Okay, next week we look at how U.S. farming operations are struggling to find labor and Don Roose will join us to analyze the markets. Thanks for watching and have a great week.

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