Market Plus: Angie Setzer

Oct 22, 2021  | 10 min  | Ep4710 | Podcast

Podcast

Yeager: Welcome in to the Friday, October 22, 2021 Market Plus. Here is Angie Setzer. Angie, good to have you back and continue this discussion. You're in a different position than you were the last time we talked.

Setzer: Yeah.

Yeager: You're working close with clients all over. So, Jared in Rothsay, Minnesota is asking, how do we stay profitable moving forward?

Setzer: Well, I think the biggest thing is to focus on profitability and not to try to get into this habit of guessing where the market is going to go because I think everyone is going to be one year removed from what took place a year ago and we're all going to assume that this thing is going to surprise us, if I'm sell it's going up tomorrow, and maybe it does. But from an overall standpoint you can't go broke making money, everyone hates that but it's true. And so if you want to really focus on profitability you've got to sit down, we've got to get a sharp pencil, take a look at what we're looking at from an overall cost structure, inputs, things of that nature and start making smart decisions not only on the production side but on the marketing side and make sure that we're utilizing the market tools that are available to us to book that profitability when it shows up.

Yeager: Okay, so take your pencil out. Which acres are going to make the most sense? Let's talk between wheat, corn, soybeans and then with cotton and spend a little more time on cotton first because there's going to be a battle with those four, and canola for that matter.

Setzer: I think canola will be your northern market structure for the most part. A lot of the prairies, the canola market is exceptionally strong, but production was basically halved versus a year ago. Now, granted, we're crushing for oil now on the soybean side of things so that should help cheapen that meal up enough to where we're not really looking at that massive amount of canola meal demand potentially that we may have been seeing in the past years when canola was much cheaper. And so when it comes down to it, it's going to be very specialized, it's going to be individualized, it's going to be based on where you're located, where you're sitting, what your production potential looks like, what your historical production values are and what you can access from a cost structure standpoint. So, for every person that I have that says they aren't going to plant corn next year because of the increase in inputs, I have another guy that says he's not going to plant soybeans because he's betting on the fact that corn is going to go up or something of that nature.

Yeager: Well, and cotton is still, it was up again this week. It did have a little bit, maybe a bearish trend starting. But what's going on with the cotton market?

Setzer: The cotton market is getting a lot of spillover. What tends to happen, especially when you see petroleum and crude and things of that nature move higher, that tends to increase the cost structure or the cost component to the polyester that you're going to purchase. Cotton becomes the fabric that we look to, to a certain extent. In addition to that we have seen some reduction in carryout, we saw reduction in planting because when it came down to competing for acres this spring you saw corn trading to $6.38 and cotton was just kind of like, you guys go ahead, I'm just going to sit here for a minute and take a breather. And so you did see a reduction in acres, you've seen some weather issues, you've had some other things that have really taken place to kind of impact cotton and so that is part of the reason that you've seen that stay stronger. I'm old enough to remember though that cotton doesn't tend to stay as supported as what you may see in other commodities simply because the volume is a little bit thinner and folks don't necessarily understand it as much as what you see elsewhere. And so whether or not that is there in 6 months when folks are really starting to make these decisions on planting, granted they're making decisions today, don't get me wrong, but those decisions can be changed for a while yet. And so cotton is going to have a say. And again, going back to what we talked about on the show, the market's job is to figure out at what price point we can reduce demand and encourage increases in supply to get us to where we feel comfortable with what is available in the pipeline as we move ahead.

Yeager: Well, you bring that up, but here's another factor. I guess I'm going to go in order. Let's go Bradley in Upland, Nebraska asked us via Twitter, the growing consensus is a deep La Nina is forming in the Pacific. Has the market already factored in dry weather for next year? If not, when will the market start trading weather for 2022? You haven't mentioned the weather yet in this discussion.

Setzer: No, and I think to a certain extent you're seeing some of that in Kansas City wheat. You've seen deferred values that stay above $7 and the idea of La Nina, La Nina doesn't impact really anywhere except for the Southern Plains. But if you were to ask most of the producers in Texas what their corn crop looked like this year they're going to ask for La Nina again. It's going to impact your wheat a lot of times, especially the dependency will be when it breaks down. Does it break down prior to the end of March, the beginning of April? Well then for next year it will be all right. We did see some more rain because La Nina did come on later. So we have seen some moisture in some of those areas that really helped provide a good seed bed for the wheat that was planted. A lot of folks are telling me big increases down there in wheat, big jumps for a lot of folks. And unlike my guys in Michigan they were able to get it planted because it was a little bit dryer. I think the market is factoring it in to a certain extent, but I think we also have to recognize the fact that La Nina and weather and climate and all of these things, we can use historical indicators, but past performance is not indicative of future results. And so we've had it show up before where La Nina does create a big dome of dryness over the Southern Plains and then we've also had it to where it doesn't. I think it will have the biggest impact on what happens in Argentina and what happens in Argentina is going to have the biggest impact on what takes place in the corn market until we can get an idea as to what the Brazilian second crop is going to look like and that's not going to be until June.

Yeager: You've given indication that anything can happen at any given moment. So Phil in Dresden, Ontario asked, U.S. coal futures fell 15% in one day yesterday. Could we see similar daily action in corn, soybeans or wheat? Would the coal analogy be to the upside for grains in the weeks ahead?

Setzer: I think one of the things that we're starting to see, and I talked about it a little bit with some customers this morning, is that usually the last chapter in the inflation story is the government start to step in and say, listen, we're done with this speculative stuff, we're going to crack down on this, we're going to encourage this production. And so you had seen Chinese coal futures leading into today fall 28% in the last 3 days, limit down, limit down, limit down. China is going to be back to coal, they're going to start producing more, they're working on some mine projects and other things like that. And so yeah, it's a true concern. Like I said on the show, I'm old enough to remember what happened in the fall of 2008 --

Yeager: That's three times you've used that saying, you're not old, Angie.

Setzer: I feel very old after this last year especially with these markets. But I'm going to tell you, one of the things that we learned in 2008 quickly is that the economy can go from full speed ahead, it's never going to stop, to slammed into a brick wall. And again, the market's job, and I will repeat this until I'm hoarse and blue in the face, the market's job is to get to a price to where we discourage demand and encourage growth in supply. And it takes longer than what anyone ever anticipates. So, right now for me I feel like from a farmer standpoint you sell on the high side of the ranges, you hold on the lower side of the ranges, but you also keep in mind that profitability component, what is taking place from a cash market structure standpoint and recognize the fact that next year is going to be extremely meager when it comes to margins and that this past year you need to be able to kind of pad all of that that you can because you're going to have to be able to, like a camel, carry that forward into next year because it is going to be rough in '22.

Yeager: I felt like you've answered this but I want to do it one more time for the people in the back. Dan in Prairie City, Iowa asked us via Twitter, for corn unsold and being brought to town in the elevator there now, should I use a basis contract, store it or sell it and forget it?

Setzer: I think honestly I'm team sell it and forget it. We're making cash sales. Anyone with HTA's that I'm working with we're rolling forward, capturing the carry, getting that better basis because some of those contracts are much lower than where we're at right now. But especially if it's above on a production standpoint or something of that nature it's additional production you weren't anticipating on having, just look at the cash side of things. If you really want to stay active in the market what I've always done in the past when it comes to harvest time, and volatility is low enough to where it may make sense, is take into consideration what it would cost you to store until March or something of that nature and use that value, sell the cash, get yourself a call bought for around the same, you've got a floor locked in at that point in time and then you know you can stay active in the market structure but you're also not going to be open to the fact that if this thing does stop, because when this music stops there's not going to be enough chairs, and if this thing does stop you're not paying the elevator 5, 10 cents a month to hold onto bushels for you and the markets drop 75 cents.

Yeager: And you can say, I told you so.

Setzer: Me? I would never say that.

Yeager: Not on Twitter.

Setzer: No, definitely not.

Yeager: Angie Setzer, thank you so very much. Good to see you.

Setzer: Great to see you.

Yeager: That will do it for Market Plus. Next week we will explore how a dry weather bet paid off for some grain farmers and Shawn Hackett will join us to analyze the markets. Thank you so much for watching and have a great week.

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