Market Plus: Arlan Suderman

Oct 8, 2021  | 11 min  | Ep4708 | Podcast


Yeager: Welcome in to the Friday, October 8, 2021 Market Plus. Ladies and gentlemen, Arlan Suderman. Arlan, before the show I don't normally pre-interview you, you know what we're going to talk about. But I did ask you one question about what is the biggest story? You gave me two answers and we talked about one already in the broadcast, the other one is inflation, which we easily could have talked about. Why is China a story we need to be paying attention too?

Suderman: Well, there's some of the more obvious things, negative hog margins and how will that affect demand and stuff. But the one potential black swan that I'm keeping my eye on is Taiwan. We have seen things change dynamically there over the past six weeks or so and more specifically over the past week. China's national day, which is a day of pride for China, it strategically flew 38 bombers and jet fighters into Taiwan's National Defense Identification air space. That was an all-time record and then over the next three days another 111 flights into that space. It is clearly trying to send a message. Xi Jinping has stated one of his major goals while he's President is to reclaim Taiwan. And whenever I say something like this on Twitter or something like that I get people say, oh Arlan, it's not going to happen, it's not going to happen. But this is one of those categories of things that Xi Jinping has made a high priority. And if he was going to do it when the President of the United States' approval ratings are low, and I'm not trying to be political, but the fact is for whatever reason they are right now, that would be the time that he would choose and their economy is starting to struggle again, he would want to do it before their economy really got into trouble. Will it happen in the immediate future?  I don't know. But that's why it's a black swan event. And until now the tensions between the United States and China, these two superpowers, both have been able to compartmentalize trade and continue to trade. But my personal opinion is, if China would go into Taiwan that might be one of the factors that might lead to a blockage of trade, a stoppage of trade maybe is a better way to say it. So I think it's something that I'm obligated to say to my followers and keep that in mind as a possible black swan event.

Yeager: All right, you mentioned black swan, I'm going to go a little bit out of order in what I was telling you we were going to discuss. But Glen in Ohio is asking us on Twitter, and he's asking, when will the black swan event fueling the global energy shortage run out of gas? And China maybe isn't quite in the energy story like Europe is but they're in the discussion. What do you think of the black swan event fueling the global energy shortage? When will that run out of gas?

Suderman: Yeah, China is one of the major consumers of energy in the world and OPEC Plus just made the decision not to alter their plan for slowly increasing supply. The supply of crude oil is there, it's off availability right now, offline so to speak because OPEC hasn't gone back to full production and neither have our oil territories here in the United States, our shell oil territories haven’t gone back. So therefore the available supply has been tight. But then when you look at globally what we're doing is we're moving grain, especially in Europe and some other parts of the world, but the United States now is picking up the pace on that. Going green pushes a lot more people toward natural gas. And so we're seeing demand for natural gas really surge right now and inventories are low and we're just getting into the front end of the winter. And so prices are getting so high in some parts of the world, we're shutting down fertilizer production of nitrogen fertilizer and we're just at the time of the year now when we really want to buy a lot of it to pre-apply ahead of next year's growing season. So that's a problem and we don't see a quick solution.

Yeager: All right, well that ties into a question from Michael in St. Cloud, Minnesota. With fertilizer prices climbing, does selling soybeans now make sense before everyone gives up on corn next year?

Suderman: There's a lot of uncertainties in the business of farming. And so how do you deal with uncertainties in any business? You treat it like a business and you say, if I can make money and grow the equity in my farm today then why not do it? And that's a scaling in of sales ahead of time. It doesn't say you do it 100%, you scale in some sales and say, I hope I sell the next increment at a higher price type of a thing. That is how a business operates and kind of manages its risk exposure. But there's a lot of tools out there you can use to do that and still keep the upside available be it options, be it some of the over the counter derivatives that are, not derivatives but tools that are available for many grain buyers that we help them with or others. There's a lot of different tools out there you can do that to lock in some minimums while maintaining some upside opportunity down the road and it just makes business sense.

Yeager: All right, we have a couple of questions about pricing things forward. Tim was asking about '21 crop in wheat but I want to ask specifically Justin in Rock Rapids, Iowa asked us, how much 2022 and 2023 corn and soybeans should we have sold? So let's talk corn and soybeans and answer Tim's question about wheat a little bit about moving forward. What are some things I need to look for here?

Suderman: Well, any time you can lock in, and I just talked about it from a business standpoint locking in profits, equity on your farm so some of that makes sense. But, probably now more than ever remember back 15 years ago when we were facing this in the corn market and we had a lot of people lock in two, three years of production ahead of time not taking the other side of the equation into account which is input costs. And we're looking at a time when input costs -- so look at both sides of the equation and there are tools out there now that you can utilize to help lock in fertilizer prices and fuel prices. So look at both sides of the equation, don't get yourself locked into a potential loss situation because you've only looked at one side of the equation. And that will tell you kind of how aggressive you can be in pricing once you see what is available to you locally and locking in your inputs as well.

Yeager: But, you're on Twitter, you saw I'm guessing this week the people talking about my local elevator or my local whoever wouldn't let me lock in out a certain point. Have you heard a lot of stories like that?

Suderman: Yeah, absolutely. And we have a fertilizer program that we can work with those elevators to do so and it's taking time to slowly help them see and understand the process to go through and how to mitigate the risk exposure or how to manage that risk exposure in order to provide that. And so encourage them to talk to us at StoneX certainly, but there's others out there as well. It can be done. There are ways to do it. It just takes time to develop that new pattern change, shall we say.

Yeager: Speaking of new patterns, I want to finish up an old discussion with some things that are developing in an old market and it's the cotton market. Bill in Cambridge, Ontario -- hello again to all of our friends in Canada -- Bill asked us on Twitter, what are the fundamentals regarding cotton trade?

Suderman: I love a cotton question coming from Canada.

Yeager: I know, right?

Suderman: There are several factors at play. One, we're seeing speculative money coming in because of this inflation play that is coming into all the commodities. But China has also really stepped up its purchases of late of cotton and so when you see all the commodities, the crop commodities kind of fighting over acres for this next year, cotton is certainly one of them and China buying kind of raising the concerns will we have enough supply? We really need to get more acres, that turns the charts, as the charts turn the momentum traders come in and the money starts to come in. So it's partially driven by fundamentals and partially driven by this outside money coming in and driving it, like everything in today's markets, the algos are really driving things too high and they drive them too low. Right now we're in a high part of that cycle. Is there more upside potential? Yes, there is more upside potential. What that is I can't tell you at this point. But this market has really been on fire of late.

Yeager: Well, the old adage is once it shows up in the front page of the New York Times or your network news the peak is in. But that came Monday, Tuesday and we still rallied towards the end of the week. So who knows pushing in. When we started Market Plus we mentioned inflation. Which inflationary ingredient is cooking the most right now? Because you talked about the algos, we've talked about rises in cotton, in crude. What is the biggest thing right now in ag country that we need to be watching about inflation?

Suderman: Well, they're all related to each other but I would say probably the one that affects the ag sector the most right now is going to be those input costs and fertilizer prices, and not just the price but availability as well. And I mentioned the high price of natural gas, which is causing fertilizer production in some locations to shut down, so it's not just the price but the availability. And the same thing, the fossil fuel industry is the foundation for the chemicals that we use in that culture as well. So a lot of different factors there.

Yeager: Never a dull week is it, Arlan?

Suderman: Not at all. It's a lot of moving parts and you can't fall asleep on any of them.

Yeager: All right, Arlan, thank you for staying awake for us. I know it's been a busy afternoon. Thank you for sitting.

Suderman: Thank you, Paul.

Yeager: All right, that's Arlan Suderman and we appreciate his insight. Next week, we assemble our panel of analysts to look at the big reactions to government reports, there's one of those next week, as well as harvest pressure. Join Naomi Blohm, Elaine Kub, Ted Seifried and Matt Bennett. They'll join us to analyze the markets. Thank you so much for watching, listening or reading here on Market Plus and have a great week.

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