Market Plus: Naomi Blohm, Elaine Kub, Ted Seifried, Matthew Bennett

Oct 15, 2021  | 18 min  | Ep4709 | Podcast

Podcast

Yeager: Welcome into the Friday, October 15, 2021 Market Plus. Ladies and gentlemen, I present to you for consideration in their opinions, Naomi Blohm, Elaine Kub, Ted Seifried, Matthew Bennett. I'm pointing like a traffic cop here. I didn't really have to play like a traffic cop during this one. You all are very civil. Matt, I always enjoy -- Ted and Matt always give me clues a little bit, they do the old feed. I'm buying cattle and you just, you know, Ted's giving me the eye, Matt's giving me, whatever. Okay, there are three things that we need to discuss, inflation, input and all of these other things. This is something that came up this week. Cotton, aluminum, coffee, crude oil, natural gas, fertilizers, wheat, Bitcoin, lumber, S&P, all highest price in years if not printing records right now. When does it end? This is ridiculous of all sorts. Who buys -- are we at the high of any of these things, Naomi?

Blohm: I think that's what we're all just truly, truly, truly trying to understand when you've got crude oil near resistance levels, you've got wheat levels near resistance on charts. Everything is at this point of do I have a reason to trade higher or are we going to fall apart lower? The other part of this hinges on the value of the dollar. The dollar has been inching higher but it's also coming up to a bigger resistance point on its chart as well So, it's again, more of the hurry up and wait mentality until we try to figure out where the demand actually comes into play along all of these lines and can the consumer keep up with higher prices at the store and at the pump.

Yeager: Okay, save that last part. I know Elaine wants to jump on that. I want to get back quick to inputs. Let's start with inputs, then we'll get to inflation. Inputs, Ted. Matt is going to tell us a story in a moment about things on inputs. what do you hear from customers? Are they trying to lock anything in now? Or are they just going to let it ride?

Seifried: Okay, so end of August I had this conversation with a vast majority of my customers, what do we do about input costs? They seem to be going up, I'm worried about inflation, whatever. Okay, we did one of two things, we either locked in inputs or we are long the natural gas market. Yeah, I don't think right now is the right time to buy. I look at that natural gas chart and from a long futures perspective I'm a little nervous. I feel like that can come down. The interesting thing about that is I've been bullish on that chart for a long time but then I realized this is a market that is following London. So do I even look at the technicals of the U.S. natural gas and I don't think you do. So I don’t know, I think input costs are going to come down. But I also don't think inflation is gone. We'll get to that I suppose. I think if you're going to ask me right now as a producer what do I do about input costs I think you have to wait.

Yeager: How long?

Seifried: Yeah, I don't know. I'm hoping that you get a dip into the end of the year. But again, we'll get into the inflationary conversation and that has to be something very concerning. So there are ways to be looking to hedge the risk of those input costs and I think you need to be very active in that.

Yeager: Matt, if I call the co-op in Windsor, Illinois can I buy fertilizer for '22?

Bennett: There is no co-op in Windsor, Illinois.

Yeager: Well okay, go with me.

Bennett: I'm just messing with you. Okay, so here's the thing about '22. If you got in on their summer fill prices, okay, they're significant lower than your spot prices. So I agree with Ted, if you're paying spot price right now you're up a creek. That's just all there is to it. And so if you got in on summer fill for anhydrous you're probably looking at somewhere in the 700s, maybe $800 a ton for anhydrous. That's if you can get it put on. The real question on anhydrous is if you don't get it put on there's virtually no co-ops, they'll even give you a price for next spring. So it's very concerning. So most of these co-ops, these folks that you're going to deal with, distributors, they had a period up to about September 30th where you could go ahead and pay for their summer fill prices. If you didn't get your money in you're out of luck. So dry fertilizer was significantly cheaper than what it was today. Today you're looking at 2.5 to 3 times for urea, map, dap, potash, you name it. And so unfortunately if you missed that boat you're going to have to either bet or you're going to have to do some hedging like Ted is talking about. And so some producers don't feel comfortable with that. I had the same conversations he does. So bottom line is this, a lot of them are saying I'm going to wait until spring, I’m going to see what happens. But the bottom line for me is there is no guarantee spring is going to bring you any -- I think you could get some relief by next fall. I feel very confident there. I don't feel like that for spring just yet.

Yeager: What do you think -- oh, go ahead.

Blohm: I was just going to say, the thing with waiting until spring too then is then you worry about do you have time to do the fall field work in the spring on top of getting a crop planted? So there's so many things that are going along with this. And then you add to it, it's not just United States producers, South America is in the same boat. So how are they going to handle their growing season that is starting to occur right now? And then they have their second crop corn, of course, to plant February, March and then they don't have the fertilizer for that yet is what I've heard. So then in France also they're having the same issue. So this is a global thing and then it makes me wonder from a production standpoint do we end up seeing yields fluctuate because of it? So this is really something to keep tabs on.

Yeager: Elaine, anything on this one before I ask you a different question?

Kub: Except that I paid $40 for glyphosate, but in September, like you said, there was the opportunity to do that. And so it's not just the fertilizer but it's also the other ag chemicals, the herbicides, some of them. Glyphosate and glufosinate that are difficult to get a hold of too. But it's the same story and it puts me in the mind of lumber, when lumber got crazy during COVID. And at the time it was like oh, this big panic. But then eventually it did come back down. But there are enough structural reasons, the natural gas that you mentioned and the European problems with their fertilizer plants. There are enough actual structural reasons and some Chinese plants, Chinese chemical plants that are not able to be running anymore, that I don't think it is the lumber story over again. And I'm just as uncertain about how this is going to play as everybody else.

Bennett: I think that if you can get a good fall run on anhydrous in the "I" states, in any area that puts on anhydrous ammonia then I'm going to feel a lot better. But right now we're saturated in Illinois. It's wet. In the Eastern Corn Belt if you saw the system that came through this week, so you're two weeks away from people wanting to be able to put on anhydrous in that part of the world. Of course we want to get down to 50 degrees, I understand that. But two weeks, this time of year doesn't dry up quickly. And so we need that good fall run. If we can get it, I feel a whole lot better if we don't get it, I'm concerned because a lot of these folks are telling us we can't get ahold of 32 and 28, there's no guarantee we'll even have it available next year. And so 32 and 28 can be that source to help you bridge the gap, you can't put your anhydrous on ahead of time. So there's definite challenges this year that we don't normally face. I don't want to be a panic person but it's certainly not something to go to sleep on.

Yeager: Here's the thing, this is a discussion the audience that watches this program is dealing with and knows real well. But the problem is a little bit there's the rest of the audience is paying attention to a different set of circumstances and it's back to inflation and costs of everything else. So, Elaine, in this world of high inflation and we see the story this week, the President trying to help with the Port of Los Angeles, increasing the hours, Christmas is ruined but if that's your Christmas then what are your priorities, whatever it's going to be, the story of COVID supply issues whether it's food or other things. Why is that important to this audience?

Kub: Yeah, well, from both perspectives everybody eats, everybody cares about food prices, but to the degree that you are producing that food it matters too. And that kind of goes to what Naomi was talking about, the beef prices and in an inflation, when you saw the CPI numbers come out actually the portion of that basket of goods that goes into the CPI calculation, the portion that comes from beef, that was one of the highest increases at 12.6%. And actually if you look at choice box beef prices those are about 33% higher than they were a year ago. But they're much better than they were in late August, better from a consumer perspective. They've come back down to about 280. So that makes me think that perhaps we've seen the worst of it as far as food price inflation so far. They've kind of gone up and explored these highs and this has been true for grains as well, we've explored some highs and come off of them. So from a consumer's perspective it puts me in the mind to think that perhaps we've seen the worst of it and it will continue because we are in an inflationary environment, just monetary and fiscally loose policy, that's just the way this is going to go. It will continue. But I think we've seen the biggest push already.

Yeager: Ted, is the worst over?

Seifried: I don't know. Naomi was talking about watching the dollar and how we've seen strength in the dollar. But we have to understand that the dollar is weighted against a basket of other currencies and these other currencies, these other economies and these other central banks are doing a lot of stimulus as well. I think the truer gauge of inflation is what is happening with the stock market, which continues to just go higher and higher and higher, at least from my opinion fundamentally I don't think has much justification. That is inflation. And if that is going to keep happening I don't see how we're not going to have that in other things. I don't feel like the inflation story is over. It might be cooling off a little bit. But hey, if they pass the $3.5 trillion stimulus, that's just another truckload of money you're just dumping on the economy. How do you not have inflation in those circumstances? So yeah, I think this is going to -- inflation is not transitory is the new realization that I think we're coming to and I think this is something that is going to be lasting for a while. It's really only going to end when we start having a completely different monetary policy and we start raising interest rates fairly aggressively and I don't like how this is potentially going to end. But at least for right now it could be a positive for some of the commodities that we watch and follow.

Yeager: So many different things, thank you. We've already discussed the end here, but here's the thing, what the consumer is seeing is that so much is out of their control. They watched earnings reports come this week, all the banks higher. And they're going, I'm not higher. Glen in Ohio is asking, how low do we go from here? He's taking the converse of things. I know it's on grains. But at what point do we start -- back to the question I asked Elaine earlier -- when do we get on the wrong side of the canoe here?

Seifried: That's a good question, that's what we're all obviously trying to figure out. We're waiting to see I think more how does the consumer get through Christmas season? I already got my Amazon magazine in the mail this week encouraging me to shop for Christmas early. And then I think too of an administration that is so gung-ho about alternative energy sources that maybe some types of higher priced energy products could help bolster their argument to have alternative energy types become more predominant in the countryside. Or solar panels. That's another show.

Seifried: Paul, what's the side of the canoe right now because you have one person talking about maybe we've seen the worst of inflation, you have another person saying I think inflation is going to be here for a long period of time. You've got Glen talking about lower prices. You've got me talking about higher prices. Some indecision -- Naomi saying that --

Yeager: Matt can't get any prices for some products.

Seifried: Exactly. And Naomi saying, we're in a sensitive timeframe we can go either way.

Blohm: Yeah, well absolutely, and the markets are saying that.

Seifried: So the canoe is wide open. There's open seats on every side of the canoe right now.

Yeager: So you could say we're balanced.

Blohm: We're searching.

Bennett: Someone like Glen, the assumption that he's a producer because he's talking about prices --

Seifried: Oh yeah, Glen Newcomer. Hi Glen.

Bennett: Oh Glen Newcomer. Hey, hi Glen.

Blohm: We all know Glen.

Bennett: One thing that we all as a producer have to think about is something Ted mentioned is that the other side of this is high interest rates. And so on a year like this you're making a lot of money, most producers are, that's just the way it is. It's a fantastic year. But you've got to be really careful the decisions that you make -- taxes, to do all kinds of fun stuff that we tried to do before and it didn't always work that well. And so if interest rates are on the way up at some point -- and I agree with Ted that they will be eventually and I think that is the way that you start to rein some of this in -- I'll tell you what, you better be cautious that you're not on the wrong side of that because we've seen this play out before. So how low do prices go? In my opinion right now I actually feel like we've got pretty good support for most of these commodities. I can't get super bearish in here. I think renewable diesel is one thing that I was going to bring up. The demand for renewable diesel is going to be very, very strong over the next several months and then you get out 12 months and beyond and I'm telling you, I think that you're going to see an acreage battle in the U.S. in '23, '24, '25 whereas corn is going to struggle to get more acres than beans. I think that it's a very real possibility.

Blohm: And one more new crushing plant announced this week out in the countryside too. So there is demand there. And then exactly like you said, for the biofuels, for the oils. China said they're going to be importing more edible oils this coming year. So there is the demand is there and we've got to figure out what do with the soybean meal.

Seifried: Soybean oil is actually a very significant part of crush margins right now and we actually are potentially going to start crushing soybeans for soybean oil. We've never really, that has been a joke in the past. But soybean oil led rallies. That can be a thing apparently. So yeah, the renewable diesel, that's a big thing, yeah.

Yeager: All right, I've gone over a certain timeframe which is at the point of the program I say, Tiffany, I'm sorry. But I do have one more quick round of questions to everybody. Final thoughts, something that you wanted to say down on the drive, Elaine, that you didn't get a chance to cover today. Any topic. You all get the same question. I'm picking on Elaine first.

Seifried: Does this have to be a market related thing?

Kub: You go first, you've got something in mind, you go first.

Yeager: You go first, what have you got on your mind?

Seifried: I love 650 horsepower with a stick shift and rear wheel drive and a nice straight road and being 45 minutes late. Woo-hoo! Also, yeah, come on ethanol. We said earlier, it kind of got lost in the mix, ethanol has been really strong lately and that is even with RIN prices coming down and concern about RFS being lower for 2020, '21 and '22, yet ethanol is really strong. I love it, I'm super happy about that. That's my thing.

Yeager: Naomi, what do you got?

Blohm: Sit down and pencil out your input costs of what you know and start thinking now even though you are in the midst of harvest, be thinking about your cost of production, be thinking about if there's things that you can be locking in now that are profitable from the grain standpoint of things. Start thinking now about your marketing plan for the next year. This is the time where option strategies are really going to potentially come into play and you need to know how to use all of the tools in the toolbox. And stay on your toes. We're just getting started.

Yeager: Matt?

Bennett: I saw one combine running in my six hour drive today. Be careful to assume that the weather is just going to be ideal from this point forward. Let's hope that it does get clear, like they said. But one thing I'll say, and it's kind of the same type of thing Naomi's saying, we can all sit here and be kind of friendly and think that we've got a lot of support for prices but we don't know what is around the corner. You never know what's around the corner. So you know what, lock in some worst case scenarios. We were sitting around looking at $12.50 beans for Nov '22 in the past few weeks and saying, what if that is our worst case scenario $12.50, because we can actually participate in an upward market with some of the tools Naomi is talking about in the toolbox. So I'll tell you what, explore your options, make sure that you lock in some worst case scenarios and participate if we get a rally.

Yeager: Elaine?

Kub: I'll build on Ted's theme of gratitude.

Yeager: Fast driving?

Kub: Well, things that are fast. Trains are fast, train loading has been going well, service has been going well. So that is one thing that has not been going wrong this harvest. With the supply chain, the crops that do rely on containerized shipping that has been a problem, but for the crops that rely on rails and barges and things, they're doing all right. So that's one thing to be grateful for.

Yeager: Mark, Paul, Mike, Gary, Phil, Mike, Justin, Glen, Jack, Bradley, all great questions, sorry I couldn't get them in, I tried to mix them into all of you throughout the week. So sorry we didn't put them up. But, Elaine Kub, Ted Seifried, thank you so very much. Matt Bennett, Naomi Blohm, I always appreciate it. We could keep going and going and going and that's why we make these special. So good to see you all four. Thank you so very much. And next week, we will explore how a dry weather bet paid off for some grain farmers and Angie Setzer will join us to analyze the markets. Thank you so much for watching and have a great week.

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