Market Plus: Jeff French

Sep 3, 2021  | 13 min  | Ep4703 | Podcast

Podcast

Yeager: Welcome to the Friday, September 3, 2021 Market Plus. Here's Jeff French. Nice tie, by the way, Jeff. Do you want to do a fashion talk instead?

French: No.

Yeager: No, fair enough. You didn't even buy your own tie, that's what I heard.

French: No, I have a great fashion designer in my life.

Yeager: That's good. Now, are you wearing ties when you go out to see these farmers?

French: No.

Yeager: No farmer wants to see you in a tie?

French: Maybe they do but I just, I wear a collared shirt with a company emblem on it. That's the go-to.

Yeager: You mentioned during the broadcast that you've gone to a lot of farms. What is the biggest question farmers are asking you right now?

French: When is the high going to come in?

Yeager: Isn't that what they're always asking?

French: Always.

Yeager: What's your answer?

French: We might have already seen it. We are quite a ways from the high. And the market right now is very comfortable with supply. I think we're at a price that we don't need to ration demand, we have really good demand. I think we're coming down here to probably attract a little more demand and we've seen it. We've had almost daily sales announcements out of China on soybeans and it is estimated here in the last week that they've bought 25 cargos. And why not? November beans are nearly $2 off the May highs. So this might be the approach of a harvest low. I think we're not quite there. But we'll have to see in the next couple of weeks.

Yeager: You kind of answered it, but it is the first question. Todd in Rice Lake, Wisconsin asked us via Facebook, why does the market go down when a China purchase is announced?

French: It's the old adage of buy the rumor, sell the fact. And when the purchase is announced it has already been in the market a day earlier, maybe even two days earlier. So that's why you hear it. And bull markets, they need to eat every day, so they want to see purchase after purchase after purchase. But it mainly comes down to buy the rumor, sell the fact. The purchase was confirmed. Is there going to be another one today? Let's see if they can prove it.

Yeager: The old joke is that oats knows. And Scott in Nebraska is asking, what does oats know right now?

French: Oats knows that there's not very many oats, not only in North Dakota and Montana but the Canadian prairie. That crop has been decimated. We got Stats Canada here this week, it's down anywhere from 35% to 40%. But yeah, this is rare territory. Oats closed at $5.10. That is 13 cents below December corn. It has just been a straight up rally with one or two day declines and then it comes right back up. So maybe we get a rally from the oat market. But yeah that has been on fire here.

Yeager: Which one would rally the most right now? Is the old adage true or is there a new one that gets pulled along if oats goes higher?

French: Well, typically it has been on the corn market because if the corn market rallies next week everybody is going to say oh, oats knew. But we're holding support down here in this corn. I just watch the $5.20 area. That's a big area. And then the 200 day moving average down at $5.01. But we did some damage technically on the charts of the corn market. It was good to see it hold here late week but we'll have to see what it does here next week.

Yeager: You mentioned round numbers and Phil in Dresden, Ontario Canada asked a question about round numbers. Corn futures like round numbers. So how about December at $5? Corn fundamentals have turned weaker with all 2021/2022 futures spreads with strong carries. With Hurricane Ida damage, lower export numbers and sagging ethanol numbers is $4.75 likely?

French: Well, there's a gap at $4.77 back during the rally in May that was left on the daily charts. So I think if you take out $5.01 you will turn these funds into sellers. They're long 200,000 contracts right now. That is probably after selling anywhere from 30,000 to 40,000 contracts this week alone on the 30 cent decline. So we'll see. You're going to attract demand at those prices though because that is $1.65 off the May high. We still have very strong fundamentals, stocks to use ratio at multiyear lows. So I think if we go down there you're going to attract really good demand. But again, I said it in the main show, I'm fearful of the harvest pressure this year because I've just talked to so many producers that have zero sold and I'm not saying, they said it's zero. It surprised me.

Yeager: We'll give you a chance to hit that topic again. But we do need to bring up something that you just discussed. Brian in David City, Nebraska is asking us, harvest low? We still have a short supply. He's asking, is it time to buy calls?

French: I have no problem with it. We've had a good selloff, we found some support. $5.20 is good support. If we take it out, it could mean lower prices. But if you have corn that has been booked here at higher prices and you're looking to buy it, I have no problem. You can go out there to March. I think a $5.70 call is under 20 cents a bushel. You're reowning that for the next six months and who knows what could happen. It's going to depend on what brings down in South America. And that La Nina, that's getting a lot of attention. So we'll just have to see what comes with the South American weather.

Yeager: What comes with the South American weather. I wonder what Kevin in Missouri is asking about and he's asking about La Nina. When will the market notice the upcoming La Nina weather event?

French: Well, when it turns hot and dry. That is going to be the number one thing --

Yeager: In South America?

French: Yeah, Southern Brazil and Northern Argentina. That's what the market anticipates where it's going to hit. So there's no room to be dry down there. They have had a very dry year. Now, we've caught some rains here, they're in their winter right now and they've had a little bit of rain but they're coming into this growing season relatively dry compared to years past. So the market will be very sensitive to that.

Yeager: Naomi Blohm sat in that chair last week and said, what if South America has a big crop? What if the rains fall? They're planting a lot of acres. What does that do for us here?

French: They are going to plant a lot of acres. Brazil alone is going to increase acres by 6%. They are anticipated to plant 99 million acres of beans next year. That is a lot of beans. And absolutely, they could have a good crop and that means China will buy from Brazil because just like North American farmers, Brazilian farmers from years past, compared to years past are woefully undersold. It is estimated at under 20%. So yeah, that is a big what if. But again, demand is overall pretty good. But I hit on it in the main show, these are still phenomenal prices and these prices need to be defended.

Yeager: And taken advantage of with that defense. Gotcha. Okay, Zach in Lawrence, Nebraska asked us, what should the plan be for unpriced corn or beans that you can't fit into the bin. What is the likelihood of a post-harvest rally like last year?

French: I think you'll have to see how far of a harvest pressure we get. Does corn stay above $5 during all of harvest season or does it go down to $4.60, $4.55? The farther we go down I think the more likelihood of a post-harvest rally. But last year was, I know that's fresh in our minds, but last year was, that never happens. I sat in this chair on the last day of 2020 and we hit our highs for the year that day in corn and beans. That has never happened before. So for us to repeat that I think it's highly unlikely. But could we have a 40 or 50 cent rally? Sure. Why not? But, yeah, if you're selling at good prices get it reowned, absolutely. With a call option you know your risk. If you buy it outright that's the most you can lose.

Yeager: And I think as one of your former co-workers said, it's easier to store paper than it is in the corn in the bin.

French: Well yeah, you put it on paper you get a statement every day and you see if you're winning or you're losing on a daily basis. You put it in the bin you forget about it and all of a sudden the corn market has moved 50 cents lower. So yeah, I like to put the risk on paper.

Yeager: Okay. Let's see, we have a couple of last questions. Actually let's do this last one here with Stairforce One in North Dakota. He's asking, why is spring wheat such a dog?

French: Well, I think partially the story of the dryness and the drought is kind of stale. We've been talking about this for the last four or five months. And it's not a dog, it's over $9 a bushel. It has had nearly a $3.20 bushel rally in the last five months. So I don't think it has been a dog totally. In the last couple two months here we've been kind of treading water but the market is inverted and when you have your front month December trading above March the market is telling the producer to sell your bushels now. It wants your bushels now, sell it, do not store it, put it back on paper that way like we were just talking before, you can track it on a day-to-day basis if you're making money in that position.

Yeager: That's good advice for somebody who might be new. But this is the time in the program if you know of someone that is thinking about getting into agriculture in one form or another, specifically production side, we're going to ask Jeff a question. We asked Naomi one. We'll keep asking our analysts here for a few weeks. So Jeff, I'm going to ask you, what are the challenges of acquiring and purchasing farm land, and we'll extend it to equipment, to get started in farming right now?

French: It's capital. We're in rare times right now. 5 counties in Iowa during the month of August, last month, broke price records for the price of farm ground being sold, new all-time highs, 5 counties in the state of Iowa alone. And then you had the highest price, $22,600 an acre. So unfortunately you're not competing against your neighbor farmers anymore because right now there's investors and there’s high wealth individuals that want to park their money into hard assets. And again, $5 corn, we have this inflationary money flow out there, this might be a time to just have a little patience here. I've been in this business 16 years, we've had $5 corn three times in my career. And in each of those times of $5 corn within 18 months corn was right back below the cost production. Is it going to happen this time? I have no idea. But three for three is a pretty strong trend and high prices tend to cure high prices. The world is going to respond to these prices, they're going to plant it. As long as Mother Nature cooperates they're going to plant the acres. So I think right now it's challenging because, again, you're dealing with people that have a lot of money and they know the value of farm ground and parking it into a hard asset right now. Again, they're not going to be here forever, but I think right now you just have a little patience. But it's a great career and if you want it, it takes time. Nobody starts out, unless it's given to them, farming 2,000, 3,000 acres. They started with 250 or 300 acres and it takes decades to get up there. So if you want it, you've got to get it, and it's going to come down to you.

Yeager: All right, thank you Jeff for the insight, appreciate it. Thank you. That will do it for Market Plus. Next week we are going to look at the transportation troubles that are looming as harvest approaches and John Roach will join us to analyze the markets. Thanks for watching and have a great week.

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