Market to Market (October 15, 2021)

Oct 15, 2021  | 27 min  | Ep4709

Coming up on Market to Market --

USDA raises the size of the grain piles.

The market moves lower on the report.

Big questions about highs, inputs and futures remain.

Market analysis from Naomi Blohm, Elaine Kub, Ted Seifried and Matthew Bennett, next.

(music)

What's the most complex industry on Earth? It's not genetics, or meteorology or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.

(music)

Tomorrow. For over 100 years, we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

This is the October 15 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello. I'm Paul Yeager. The shock received by this week’s USDA report produced a downward move for the major commodities. The markets tried to shake it off as commodities bounced back at week’s end. We’ve brought in our panel of experts to break down what’s been happening and what might be the next trend. Before we get to our discussion, let’s set the table. Retail sales rose 0.7 percent as consumers spent a little more on clothing, back to school purchases and hobbies. The increases were being made in the face of higher prices as the consumer price index bumped up 0.4 percent. Without food and energy, core CPI only moved 0.2 higher. Those making the products we buy have seen prices rise as the Producer Price Index moved half a percent higher but when compared to year-over-year, the index rose 8.6 percent, the largest jump in nearly a decade. We do have a panel discussion to get to, so let’s first start with the numbers.      

For the week, the nearby wheat contract was even while the December corn contract shed a nickel. The November soybean contract posted a 25 cent loss. December meal dropped $2.10 per ton. December cotton fell $3.08 per hundredweight. In the dairy parlor, November Class III milk futures moved higher by 58 cents. A mixed week in the livestock sector. December cattle added 73 cents. November feeders improved 28 cents. And the December lean hog contract weakened $3.22. In the currency markets, the U.S. Dollar index dropped 10 ticks. November crude oil added $2.73 per barrel.  COMEX Gold gained $9.80 per ounce.  And the Goldman Sachs Commodity Index improved more than 12 points to finish at 593.15.     

Yeager: Now here to provide insight are our market analysts Ted Seifried, Chief Market Strategist at Zaner Ag Hedge. Naomi Blohm, Senior Market Advisor for Total Farm Marketing. Elaine Kub, author of Mastering the Grain Markets. And Matthew Bennett, co-founder of AgMarket.net. To the four of you, welcome to the table. This little report, we've had a couple of little reports, Naomi. You can't say the real words you think about some of these reports lately. But what are you thinking about these reports lately when they come out?

Blohm: It's interesting to see how the numbers twist and turn just enough to ultimately I think leave a point of equilibrium and here's why I say that. We have a market now where the soybeans used to be the friendliest thing in the whole complex and now they are the follower with ending stocks being bearish and getting bigger than trade was anticipating. Corn is still second place in this. The report was neutral to slightly bearish for corn. But ending stocks still just at a point where it makes you have to think and wonder what is going to happen next year. And then of course the wheat report was friendly. So you've got the wheat market trading at the higher end of the range. So we have a lot to talk about on the panel today. I'm really excited to discuss where we think things are going to be going in the short-term and the long-term because there's so many different points on the report that we really need to dissect.

Yeager: So, Ted, do you see the report differently?

Seifried: I don't think the report was terribly bearish, really. We knew we were going to have bigger ending stocks, especially for soybeans, when we saw the bigger beginning stocks. Now, it's a bigger number than what we had been thinking three or four weeks ago. But it's still a relatively tight number. We still have to get through the South American growing season and if they have any problems there and we see a little bit more demand we can still have a scenario where we run out of soybeans. So that bullish story is still potentially there. I think we have come down to the target. I have been saying, well documented on this show, I was talking about $11.80 for a harvest low for November beans. We got to $11.84. I think we're good. I think now we have the opportunity to see a little bit of a post-harvest rally into the end of the calendar year until we know what is going on with South America and what their crop looks like. And corn, 1.5 billion bushel carryover is still relatively tight. If we see any extra demand that is going to get really tight too. So the stories aren't over, we don't really know. We're sort of in that timeframe where it can go either way. But we've already come down I think enough, now I think we're ready to bounce.

Yeager: Matt, you've seen the harvest yield monitors on the combine. Do they jive with what you saw from USDA?

Bennett: Yeah, in all honesty coming into this report I thought the easiest thing to predict was the soybean crop was going to get bigger. Every producer I talk to says, my beans were better than expected or my beans met my expectations and I had really big expectations. So I thought that the bean crop going up to 51.5 was, it's actually the number we picked. Now, we got kind of lucky there. But I would tell you that we felt like it was going to go up a decent amount. What do I think is going to happen from here? I think the bean crop grows from here quite frankly, I think it's a big bean crop. But as far as corn was concerned I just didn't think it would move much because for corn it has been a mixed bag. About every producer you talk to has a different story than the last producer you talk to. Some of them are talking about record yields, best ever, others are saying we're 70 under what we were expecting because we were dealing with disease issues, nitrogen loss, you name it. There's a whole host of things that this corn crop dealt with in certain parts of the Midwest that I'll tell you what, it has kind of evened out those areas where you just had phenomenal corn. So a mixed bag on corn, really good crop on beans. I wasn't too surprised.

Yeager: Elaine, you get to either analyze what they have said or come up with something different because you came from a different direction where things look differently in South Dakota.

Kub: Yeah, I was going to say you talk about areas where they're not quite as great, well yeah in South Dakota and the Dakotas and lots of the Western Corn Belt there was extreme drought and in fact there is still a drought, even in Iowa there's still D2 drought in areas. So all that really doesn't matter much in October. We're getting rain now that will get folks set up for 2022. But yeah, I don't think that necessarily it was perfect. And that kind of goes to Ted's point that you have to look forward into 2022 now. If you look at the global numbers from this week's report, for global feed looking to next year is talking a 5% improvement in stocks and inventories for corn and for soybean meal and for any sort of a feed grain. So that is better but it's not so much better than end users are going to sit back and sign and feel like they have been relieved. They still have to be paying up for convenience yield and you're seeing that in basis markets, in the basis prices. End users still want to get their hands on the possession of these commodities because they know they're going to need it.

Yeager: Naomi, I want to go back to something you said about wheat. We're trading over $7, we've been on a run that maybe bucks some of the trend and conventional thought coming into this season. Do you see this continuing?

Blohm: I think that the wheat market is going to continue to hold some strength here in the short-term. The spring wheat market still is trying to figure out how many acres it can attract for next year. I think we've going to see that market get up to the $10 future mark. So it's getting closer. I think we'll happen next week and then $10 is such a significant resistance point. Now, the expectation is that with fertilizer costs being so expensive that potentially we see more acres shift into wheat here across the Midwest. But we need it, we need more acres of spring wheat, we need more acres of Kansas wheat, we need the Chicago wheat market and I think that you're going to see it pick up. So the wheat market, it's supported because the ending stocks are so tight, but at the same time speaking to 2022 it knows that more supply is potentially coming.

Yeager: I'm going to go back to South Dakota and wheat country because what are you hearing from people? Are they going to plant more next year in light of some of the things?

Kub: Yeah, if you have $10 wheat that is the motivation. And I would just caution folks not to get too worked up about, I shouldn't even say it on TV, but the 2008 price of $24. When you talk about how high could it go you never really know, especially in the environment we are for commodities generally are just so inflationary. So it could get wild and I think, yes, that would be very motivational to acres.

Yeager: So, Ted, the acre battle, do you see wheat losing to corn next year? Does wheat lose acres? Does wheat gain acres?

Seifried: Wheat losing to corn? I think everybody is talking about corn losing acres because of input costs, right? And I don't know. We have markets, natural gas in particular, which is one that drives a lot of the input costs for corn and beans. But that market has a tendency to spike and then come back down and maybe it does, maybe we have a better chance to book input costs later if you haven't already, we'll have to see. I was talking to a guy this morning in South Dakota and he's like, you know what, I was thinking about planting more wheat but I'm not going to, I'd rather just trade the wheat with you and we'll farm it on paper. I have a feeling there's a fair amount of people that are like that. There's just been that move away from wheat in the last few years and I don't know how easy it is to come back to that. So, I don't know, I think wheat acres will increase but I don't know if it's going to be this massive jump that we're going to see and I don't think the corn acres are going to fall that massively either.

Blohm: I think that's a good point where we're going to be in a holding pattern here for I think a month or two with prices because of really not understanding for sure what the producers are going to be motivated to plant in the spring. And you talk to the producers in North Dakota and for the first time in years I'm hearing them say, I'm thinking about sunflowers, I'm thinking about barley, I'm thinking about oats, I'm thinking about canola and that is a new conversation that we haven't had in a while. So there is still a lot of shifting and there's some acres that need to continue to fight for prices and you look at cotton and that market got through some resistance levels on charts and cotton ending stocks are half what they were a year ago, that was friendly on the report for U.S. cotton. So there's a lot of fight for acres to come yet. The conversation is going to be ongoing. What I like about corn carryout at 1.5 billion bushels, last year it was at 1.5 billion bushels for three months, January, February, March and the price of corn was just stuck between $5 and $5.50. So I'm just kind of thinking we're going to see quiet prices for now and then I think we'll see some fireworks towards the end of the year.

Yeager: All right, so Matt, you get unfortunately pegged with a question from a viewer here to start about corn but it's the same thing I was going to ask you. Mike in Dyersville, Iowa asking about corn. He's asking, would you be selling off the combine if our cash price is still over $5 and we don't have storage?

Bennett: The thing is for me, I'm not a huge fan of commercial storage all the time. I think there's a lot of different ways to look at it. But for instance, let's say it costs you 25 cents to get out to Jan 1, I think there's some things you can do. Get your hands on the money and spend less than 25 cents and still have a pretty good opportunity to make some money on farther down the road. I think whenever you look at corn you've got to ask yourself, is it just cash corn that is going to be driving price later on or is it the whole corn situation? I think just to go back to the acreage discussion, I think there's a whole lot of things going on for the corn market that could be supportive on farther down the road, it's not just input costs that's going to be driving a pull back from corn acreage. It's can I get a hold of anhydrous this next spring if we don't have a good run this fall? A lot of the Midwest is getting kind of wet right now. So it's very concerning and these input costs are definitely a deterrent. But it's getting a hold of what you need to get a hold of to be able to plant the crop I think is as big a deal as anything.

Yeager: Matt, you bring up a point. The drought monitor came out yesterday and we have the latest drought monitor. And if you're sitting in an area that has been dry and then all of a sudden you see rain in the immediate future or immediate past, do you change your mind about what you're looking ahead? If you're still in drought, the map says I'm still in drought, but it's so wet I can't do any fall field work, am I changing my mind?

Bennett: I think there's a general consensus among a lot of producers and they're saying, you know what, I'm going to wait on these input prices, I'm going to wait until next spring, if we don't get relief by next spring I'm going to go ahead and plant soybeans. But I guess my thought as a producer is you might be able to pay $1400 a ton for anhydrous and make money because if everyone else is going to switch to beans what am I going to do? I'm going to plan corn because I think corn acreage could be a little bit scary. And so it could be fairly low if all the right things fall into place. So, absolutely weather has to play into it, you've got to pay attention. The bottom line is there could be some very dynamic stuff happen in the next few months.

Yeager: Elaine, you've heard that argument before. If everybody is going to go on one side of the boat, go to the other.

Kub: Right.

Yeager: Are we going to outthink ourselves on corn?

Kub: Well, I don't know. I think historically if you look as a nationwide picture there's usually not that much shifting honestly because mostly it's 50/50 one way or another and some people will strategize particularly based on what their local weather is. But as far as the markets are concerned we should still expect roughly a 50/50 sort of rotation.

Yeager: Ted, what do you think?

Seifried: I mean, you look at the strength in December '22 corn and obviously there is something that is keeping that stronger relative to December '21. There is a concern in the market that we might see a shift out of corn acres. But I agree with these guys, or these two, I don't think there is going to be a dramatic shift out of corn acres. We like to plant corn, we have good prices for Dec '22. Most of the guys that work with me, we've been talking about 20% to 25% sold on new crop corn at this point and a lot of us have booked a lot of our inputs already before they got really crazy. So the corn acres are going to be there. Can it swing 2 million, 3 million acres? Maybe. But we're not going to lose 10 million acres of corn because of input costs, it's just not going to happen.

Blohm: And ethanol is so fantastic right now too so there's motivation there, there's incentive there. Those are the, ethanol plants have been lately bidding up ash markets right now here at harvest time to keep having that supply come in. I think they're very well aware that prices for corn could continue higher, especially when you have crude oil for an entire week staying above $80 a barrel. That is very significant. So I'm really pleased to see that ethanol is doing well.

Bennett: I think the margins are good. The margins are good right now, there's no question about it. And I don't expect a 10 million acre shift. You've got to expect the 87 million acres of soybeans are going to go to corn. That's got to be the assumption I guess from my vantage point. Now, how high do you get over there? How many people are going to want to go out and spend them money on corn on corn? I think in the “I” states you still retain some of that corn on corn. But I don't think that, I think that getting significantly over 90 might be a little bit tough, especially with all the different, everyone is vying for acres this year, wheat, cotton, you name it, milo, sorghum.

Kub: Sunflowers and canola and everything, yeah.

Bennett: Absolutely, everyone is trying to get the acreage. And so there's going to be a big fight, a big battle in my opinion. I think that if you see these input costs the way that they are, they stay the way they are, then I think that you're going to have to see this corn at least stay supported. I'm not saying it's going to rally through the roof. But I think it's going to at least have to stay supported.

Kub: I agree that there's support here. Like I mentioned before, the end users are demonstrating that. You mentioned the ethanol plants. Cedar Rapids is five over so countryside bids are 20 or 30 under, which is not historic, but it's pretty darn good for harvest time frame. And you go out to the Western Corn Belt and livestock producing areas, the Dakotas, Kansas, down into the Panhandle of Oklahoma and Texas, basis is extremely hot. So it's not just ethanol, it's the livestock producers too. The end users do want to get their hands on this corn even at the gut slot of harvest.

Bennett: One last thing on acreage that we can't, in my opinion, that we can't deny is that whatever is fresh in your mind a lot of times the producer is something you're going to look at and we're harvesting one heck of a soybean crop this year. And so I think there's a lot of producers, hey you know what, 75, 80 bushel beans and we just experience a buck, buck fifty drop in the price of beans and I'm still grossing close to a thousand bucks an acre, it's something that you can't just deny. And so I do think that the strength of how good soybeans have been this year not only from a profit margin standpoint but bushels per acre is definitely going to factor into the discussion.

Seifried: Yeah, so you're right, I think we're feeling a lot more comfortable about soybean yields and the fact that they're just going to be there. The variability isn't as bad as it was a few years ago, similar to how we felt about corn, or still feel about corn but that change happened in corn a few years ago. Back to Naomi's point, yes, domestically corn demand strong because of ethanol and strong because of feed. The one missing piece to that puzzle is exports. And when do we start to see the corn exports really get going?

Kub: We saw a big purchase from Mexico this week. It's still happening.

Seifried: We need bigger --

Yeager: We don't get excited about a Mexican corn purchase.

Seifried: We should.

Kub: We should, yes.

Seifried: They're one or two, our first or second biggest customer depending on where Japan is every year. But we need these export sales weeks where we're at 2.4, 2.6 million metric tons rather than 1.1, 1.2. So when does that happen? I think that shift will start happening in a big way between now and the end of the calendar year because I think a lot of these global end users were waiting for that low to come in and now what happened at the end of this week kind of says, maybe that low is in, now we need to get more aggressive. So I think things, good things on the export front to come in the next few weeks.

Blohm: Yeah, I agree with that. I agree with that. I think you're going to see, soybeans and corn I think are going to see the export pace pick up because exactly that reason that it's, oh this is it, this is the low. You can't compare though this year to last year just because of course prices were so significantly cheaper last year. So I don't know that we're going to be to the pace that we were last year but I think we're going to pick up the pace so that's encouraging.

Yeager: So, Ted, open the door for a very specific question but maybe I might go with you instead on this one, Naomi. Gary in Franksville, Wisconsin is asking, what are some key dates and quantities we need to see China purchase in beans before we panic?

Blohm: I don't know if it's -- I would say the date needs to be between now and Thanksgiving and we need to see it sooner than later because then that will really make the market a little bit more satisfied. I think just a consistent number weekly would be great. If they do one big panic number the market may, I don't want to say panic, but then have too much of an oomph higher. China likes to come in and just do small incremental purchases and then every once in a while something a little bit bigger. But they wait for the pull backs too and they're watching. And then when the pull backs come that is when they come in with their buying.

Bennett: I tell you what, whenever they think that the lows are in there's no question. But I would say that we're not necessarily going to know whenever the sales are made to China. Last year that was perfect evidence of that, especially with regards to corn January and March both times. Every time that we announced these sales what did we do by the end of the day? We sold off. And so I do think that there will be some Chinese interest. And I think that what is going to happen is you'll see a little bit of strength in the market, nobody is going to know exactly what's going on, you've got to make the assumption that they have stepped in and bought some soybeans.

Yeager: Elaine, do you anticipate that short of a timeframe on that soybean story?

Kub: Yes, I would repeat everything they just said, yes.

Yeager: Ted, anything else on beans?

Seifried: Yeah, I want 4 million metric tons of soybeans sold in the next three weeks.

Yeager: To anywhere? Just sold, period.

Seifried: Specifically to China, but yeah, if Mexico wants to come in and take some big chunks too. It's great to get the global end users sort of competing with each other. If Mexico starts getting more aggressive China will say, oh we need to come and do that too, and vice versa. So yeah, I want to see 4 million metric tons of soybeans sold in the next three weeks and I want to see a lot of it happening on a daily wire. You've talked about how we sell off during the day after seeing a purchase. Well, I think a lot of that is we see these 132,000 metric ton purchases and we say, oh that's disappointing. Okay, great, there's a daily sale and then you open it up and it's just not what you had hoped to see and it's not what we had been seeing last year. So I think that is kind of why -- I want to see that pace really accelerate. We saw that Friday morning. We need to keep up with that. If we do that then I think dollar to dollar, 50 upside potential in soybeans.

Yeager: Cotton real quick. Do you see cotton fitting into any of this discussion we've had? It was mentioned earlier.

Kub: Cotton had its own little thing going on this week. It's very rare that you have a pattern in a commodity market that you can really predict and cotton actually did it this week where you have a really streaky high bubble. But then because of the China, the global story that China has been pulling back their cotton production of fiber and such, that is what really I think spooked that market and now we're pulling back and I think it could continue to pull back.

Yeager: Okay, live cattle, Naomi. We are still putting on some gains but we're changing, is that story changing about the consumer as we all of a sudden see numbers start to tick down on infections of COVID? Maybe we'll start eating again? Is that going to be the story of the cattle market?

Blohm: So what's interesting is that trade right now is assuming that with gasoline prices going higher and with maybe people feeling more pinch at the grocery store that the consumer is going to eat less beef. Now, let me tell you, for an entire year I was wrong. In 2013 and 2014 that was the last time we had $100 crude oil, we had cattle prices up $140, $150 and I said on this show twice, people can't afford it, they're going to eat tuna noodle casserole and I was wrong for an entire year because the beef demand is there, there is no substitute for beef. Cuts at the store got a little bit smaller. Maybe instead of a pound and a half of hamburger in your spaghetti you scale it back to a pound. The demand is there, there is no substitute for beef, and I think the market is going to be surprised to see that because they're assuming it's not going to be there. But I'm still friendly for cattle. I think it's going to be slow going here for the short-term, cash markets are pretty quiet, but the deferred contracts we've got less cattle coming down the pipeline.

Bennett: Demand is strong. And I'll tell you what, a lot of people thought that demand was going to completely fall apart whenever people quit going to restaurants. But what I said all along is that instead of going out and spending $100 for a couple of steaks for you and your wife, or whoever you're going out with, you'd spend $100 on 7 steaks and cook them over the course of two weekends. So beef demand is strong and I do expect that we're going to see a rally into the spring timeframe. I'd get into the $140s, maybe even a little bit above that.

Yeager: The big story was always the cut choice was different, the demand was there. So in the feeder story, let's go back to the dryness of certain regions. Is that going to impact us? Got a great question out of North Dakota saying, this is going to be a dramatic impact on feed because these animals are coming off dry pastures and the have more to feed.

Kub: Yeah, and in fact, we're not seeing the big fall runs yet necessarily at the sale barns. But in North Dakota you're already seeing people bringing in their calves right off the cow, which is not ideal, but it is going to impact the feed usage then for those calves through the course of their lives. But in the areas where we are seeing the spring calves coming to market already the demand, as Matt said, is good or characterized as very good. People want to put these calves into feedlots and get going through the entire supply chain, absolutely.

Yeager: All right, Ted, bullish hogs still?

Seifried: Yeah, sort of for the same reason. Domestic demand is not going anywhere. We talk about higher energies and higher food prices or whatever. But look at the stock market, it's going crazy as well, just continues to chug along. People feel like they have money, people have money, people are spending money. I don't see domestic demand going anywhere. And we keep stringing together really good weeks of export sales for hogs or for pork and we don't have as many animals out there as we thought we did. Now, we had a bit of a corrective week this week, we held right where we needed to on Friday, I'd like to see some follow-through to the upside early next week, need to see that. But overall, yeah, I think the December hog contract should be trading pretty close to where October was, let's call it $92 to $96, somewhere in that neighborhood. That's a ways away to go from where we're at right now.

Kub: Yeah, it needs to get pulled up to even match the CME Index. Absolutely that convergence will happen, certainly.

Yeager: All right, Naomi, 30 seconds of dairy. What's going on because we keep rallying?

Blohm: Yeah, we have milk prices $19.50. So that was the price this week. We got as high as the May price for nearby contracts. So absolutely amazing. It's a combination of more cattle coming to slaughter, we have milk production that is finally trending lower, we've got phenomenal exports up 13% from a year ago, butter is up 100% from a year ago for exports and the cheese demand is strong right now. Seasonally it's that time of year. So it's a friendly story. But now we're at the point where everything is high enough that it probably needs to have a little bit of a pull back. But the trend is finally changing. So we've got some good news for dairy.

Yeager: 33 seconds, very good. Thank you very much. That's Naomi and Matt and Elaine and Ted. Thank you all, appreciate your time as always. And that will do it for this installment of Market to Market. The conversation continues in Market Plus. We're just getting started to join us there. Find that on our website MarketToMarket.org. And we have to tell you, we hit a milestone this week on our YouTube page. You rang our bell and put us over 5,000 subscribers. Thank you so very much. Click subscribe at MarketToMarket and you too can be in our inner circle of knowing when the stories, Market Plus and full program and anything else that we have are ready for viewing. Next week, we explore how a dry weather bet paid off for some grain farmers. Thank you so much for watching. Have a great week.

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

What's the most complex industry on Earth? It's not genetics, or meteorology or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.

(music)

Tomorrow. For over 100 years, we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer