Market to Market - Feb. 25, 2022
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Yeager: Coming up on Market to Market. A first look at acres is muted by an invasion, An anniversary of a trade war approaches.
Seifried: Pretty good. Now You found some strength.
Yeager: and market analysis with Ted Seifried, next.
Seifried: has really approaches some very peaceful.
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Announcer: This is the Friday, February 25 edition of Market to Market. The weekly journal of rural America.
Yeager: Hello, I'm Paul Yeager. The Russian invasion of Ukraine became reality Wednesday. Airstrikes rang out across Ukraine as Russia targeted several areas. Now globally, the countermeasure was one of economic response. The us joined the EU in trying to starve Russia of international capital and key industrial technologies. For months, commodity futures trading had been influenced by the potential of an invasion as the global impact to oil, natural gas, and wheat were immediately higher before a sell off on Friday. The U.S. Stock market rallied as traders exited positions in gold and oil during the final session. Russia and Ukraine account for 20 percent of world corn trade and 30 percent of global wheat trade. And before the attack, an inflationary picture was building around the world. New home sales in the us dropped four and a half percent in January and 19.3 percent year over year builders navigated headwinds of supply chain strains and lost man hours due to COVID. Personal consumption expenditures jumped higher by 6.1 percent from a year earlier, this alternative look saw inflation rise. 5.2 percent in the month of January. Orders for durable goods were up 1.6 percent last month as demand remain strong, Fertilizer prices have been rising over the last six months as grain prices have also climbed higher. Several state attorneys general announced the launching of a study into the more expensive fertilizer. Some of the gains are attributed to stronger demand as trade wars were waged. Josh Buettner reports as the second anniversary of the phase, one deal has come and gone in our cover story.
Zieba: Trade retaliation. The fact that we're paying a 37 percent duty on our products while the rest of the world is paying a 12 percent duty
Buettner: This week, a virtual town hall meeting hosted by agricultural advocacy group Farmers for Free Trade brought together farm state leaders, producers, and economic experts. Participants spotlighted, ongoing tariff ramifications, and called on the president to change course after four years of trade war brought on by the former administration,
Ernst: Tariffs are, are nothing more than tax on Iowa farm families, and they put the livelihoods of our rural communities and in the crosshairs
Buettner: While some praise trade deals with Mexico, Canada, and Japan under Trump and chastise the current white house for leaving key USDA positions unfilled, critics noted recent reports of the shortcomings of the 2020 phase one trade deal with China.
Bible: The long term implications are, are what we're facing now and, and are much more detrimental. And one of those that I think about most is, is market share.
Buettner: While phase one may have fallen short due to pandemic and alleged dishonest brokering by Beijing, some stakeholders say diplomatic misuses, like Trump abandoning the trans Pacific partnership, have allowed Chinese regional influence to grow and inhibit potential us farm export markets. At the same time, retaliatory tariffs gave competitors like Brazil and Argentina, a window to bump up acres.
Walton: That acreage isn't gonna go away. It, it will never go back to rainforest. It will never go back to Serrado. It will never go back to, uh, grazing land. It's it's always going to be farm now.
Buettner: While economists say tariffs have had a modest, but real effect on inflation. An another area of ongoing concern is fertilizer.
McMullin: You don't wanna look at what is causing inflationary food braces. Start by looking at the actions of few, a few companies in the fertilizer business to restrict trade in the competitive supply of much needed crop inputs,
Buettner: Processors, cite tariffs, domestic turmoil, and consolidation abroad, particularly in Russia for fertilizer costs. Pundits warn this week's Russian invasion of Ukraine, a regional agricultural power, could cause energy and farm input costs to skyrocket. But some financial analysts see an interim silver lining as the incursion could blunt Ukrainian supply dealing domestic wheat and corn producers, price spikes, and an opportunity to mend trade relationships with China. But for now all eyes are on the Biden. Administration's next move for Market to Market. I'm Josh Buettner.
Yeager: The USDA's ag outlook forum is usually a market mover. As the government agency releases estimates of the coming production year. 2020 two's reaction was muted as global events were unfolding almost simultaneously. Peter Tubbs has our story
Tubbs: On Thursday, the USDA released their commodity outlooks for the coming year, and the expectations are mixed. Corn acres are predicted to decline slightly due to high input costs and lower profitability compared to other crops. Improved yields are anticipated as how the industry will overcome the acreage drop and create an increase of 125 million bushels in output and hit 15.24 billion bushels, a 1 percent gain over 2021. High crush demand and drought conditions in south America will add 3 million soybean acres. Yield growth is expected to produce a crop of 4.5 billion bushels, also 1 percent larger than 2021. A tight stocks-to-use ratio is expected to add 1.3 million wheat acres to the nation's plantings. Responding to a dry summer. The wheat crop could be 18 percent larger than 2021 at 1.9 billion bushels. Higher supplies are expected to push prices down for all three crops over the course of the year. The USDA sees 17.6 million bales of cotton to be harvested in 2022, an increase of 3 million bales from 2021, but below the four year average. Cotton will be planted on 9 million in fewer acres, a decrease of 7 percen. The USDA sees a fractional decline for red meat and poultry production in 2022. The first decline for the sector since 2014. Tighter supplies of cattle are expected to support fed steer prices. The size of the nation's cattle herd is estimated to decline for fourth consecutive year. Pork exports are expected to decline in the coming year, bringing lower prices for slightly smaller production. For Market to Market, I'm Peter Tubbs.
Announcer: Next, the Market to Market report.
Yeager: The volatility of Russia's move on Ukraine gave trading limits a workout. For the week, the nearby week contract was up 56 cents or 7 percent, while may corn improved 3 cents. Soybeans rallied to 2012 highs before testing these $16 support level on improving south American weather. The May soybean contract lost 19 cents. May meal shed $3 per ton. May cotton shrank by $2.53 per hundred weight. Over in the dairy parlor, March class three milk futures fell by 45 cents. Down week in the livestock sector. April cattle dropped $3.95, April feeders cut $6.10, and the April lean hog contract declined $5.72. In the currency markets, US dollar index gained 65 ticks, April crude oil added a $1.50 per barrel. Comex gold dropped $4.10 per ounce, and the Goldman Sachs commodity index increased six points to finish at 649 even. Joining us now to provide some insight is Ted Seifried. Hello, Ted.
Seifried: Hey Paul.
Yeager: So we start the program talking about Russian Ukraine. It is the story that is encompassing lots of world events. We've been talking about this story on this program for months. We've seen a buildup in the market, but the question still is what is the big implication of this invasion have on commodities as a whole?
Seifried: Yeah. Uh, you know, and that's really kind of what the market's trying to figure out now. You know, you look at, uh, what, Russia's the number, uh, what two wheat exporter, Ukraine's the number three, Ukraine's the number four corn exporter. So, I mean, there's a lot of grain that comes out of the black sea area. However, you know, a lot of the grain that comes out, everything that comes out of the Black Sea, almost everything that comes out of, uh, the black sea area goes to countries that don't typically do business with us anyways. Um, and are also countries that would not really follow along with sanctions if we were to place sanctions on the grain coming out of Russia. So, uh, really it comes down on to what happens with the ports. If the ports are shut down, and there is no movement coming out of it, you take away, you know, 22 percent of the exportable, uh, wheat supply
Yeager: Creates an opportunity for somebody else.
Seifried: What you're saying so that, you know, creates demand displacement and ultimately makes things higher. But that's really the bottom line. Is if the ports are absolutely shut down, whether they're destroyed, or just unable. And, and that had, that has happened, that did happen. Uh, but I, I think the market's looking at that as being a very temporary thing, uh, I think ultimately will be a very temporary thing. You saw a ton of volatility happening, you know, Wednesday, Thursday, Friday, uh, sharply higher than sharp. We lower. Uh, and I think the sharply lower on Friday was for two reasons. One, you have this idea that, okay, you know, these, the ports and whatever that will come, that will come back and probably in a, in a fairly reasonable timeframe, but more than anything else, you have China. Russia's biggest ally, saying you know what, Russia, you should probably not do this. I mean, they're not condoning this. They're saying that this is not in fact they, some of their, uh, they took some action on some of the Russian banks as far as their agricultural purchases. So without China's support you, you, the market was getting the feeling that maybe this isn't, uh, real going to be a complete takeover of Ukraine. And, you know, it really kind of contradicts some of what we were seeing in the headlines. But I mean, this is just a very big question mark, about how this is going to end up. Um, I will say this though, a lot of this has to do with money flow. Like I said, from an ab, absolute grain fundamental, I don't think we should have rallied as much as we did. And therefore taking a lot of that back on Friday made a lot of sense to me, but that was conflict on, right? You know, we talk about risk on, or we talk about flight to quality. I gotcha. I'm gonna say conflict on there's a whole subset to traders and, and, you know, traders in general, too, that look for these sort of unfortunate events, right? And then they look for ways to profit on them. You know, that started really with 9/11, but they look at and say, okay, Russia's invading Ukraine. Well, how do we make money off of that? The Ukraine exports a lot of grain. We, we gotta come in and buy a whole bunch of grain. And I, I believe there was a whole lot of funds that maybe don't typically play in commodity markets or grain markets that were coming in and very aggressively buying based on the conflict. And then they also say, well, you know, if the rest Western nations start sanctioning Russia, what is Russia export? Well, that's crude oil. So then crude oil was flying, but then you know, that conflict trade starts to fade away and you have this big vacuum because a lot of that run up was caused just by tho those that, that money coming into the market. And again, when it fades away and these guys don't feel like they need to be in that trade anymore, it all goes away in a hurry.
Yeager: Okay. So let's specifically discuss wheat because that's the biggest, we'll say winner of the week when it comes to price, uh, is it all attributed to Russia Ukraine or is this drought story starting to take root?
Seifried: Yeah, so something that happened this week is that we pushed all of the grain fundamentals to the wayside, right? Whether it's wheat, corn soybeans doesn't matter. But before this, before this really kicked off midweek, you had the wheat chart really holding very key support of the 200 day moving average with an inverted head and shoulders formation. It had a really good looking chart and really looked like it had some upside potential. And then we needed a spark, but we gotten more than we needed from a spark. And that spark sent us sharply higher, probably a lot more so than we needed to do in, in the short run. Like I said, I, I think we over factored in a lot of things, a lot of the Russia Ukraine situation across the board, but no, I think wheat, even without-if this hadn't happened and I wish it hadn't, I mean, from a humanitarian perspective, obviously, but the grains as a whole, I think we're operating under are some pretty bullish fundamentals before this happened. And without it, I think we would've been doing the things that we were doing just maybe not in that timeframe and certainly not for that reason, but that just really accelerated a whole lot of things. And again, I thought wheat had some upside potential before Russia invaded the Ukraine.
Yeager: We have the July wheat chart up right now and you can see that blip at the end, as you're looking at the deferred month right now, what are you doing from a position standpoint?
Seifried: Oh gosh. I mean, I, you had to buy some puts in the last, you know, couple of days there's, uh, Thursday and Friday. I mean, when you have that sort of movement based on news related, things like this, I mean, selling futures is a very scary thing to do. Cash pricing is one thing, you know, uh, but you know, I was really advising people to buy some puts fairly aggressively.
Yeager: What were you doing in corn?
Seifried: You know, as we know, as we've talked about, I'm, I'm longer term bullish and corn. In fact, I think corn is going to be the big bullish story that nobody's seeing right now. Uh, you know, everybody's been focused on soybeans, but I look at that second season, safrinhac, corn crop, 86 million metric tons that we're just expecting to be there. And we're expecting it to be there in a, la Nina growing season and a climate where input costs are so very high. I really wonder how or how aggressively the Brazilians are gonna push that second season corn crop. And what if it's not 86? What if it's 78? What if it's 76? What if it's closer to last year, which was 60 million metric tons. If that happens, that'll leave a massive hole in the global production. And that will bring a lot more exports to us, both for this year and for next year. And all of a sudden we've got some really tight corn balance sheets for this year next. And, and we can start talking about having to price, ration corn, like we are for soybeans. So what I've been talking about and the, the name of the, the, or the mantra has been let's make cash sales, but let's re own those bushels because in the inflationary environment that we're in, in an acreage battle where corn is fighting with soybeans, traditionally, but not just soybeans this year, it's everything. Anything you put in the ground is profitable, and you've got, you know, the Ukraine and, and, and Russia deal. There's so many bullish things that are are happening. It's a powder keg out there. I think very easily. We could see corn prices go sharply higher and we did midweek. Right. So ask me about those midweek prices. How often do we see our highs of the year in January or February? It's extremely rare. So now we have some really high, high water marks to gun for going into the growing season
Yeager: When it becomes more volatile, which brings in Phil from, uh, Dresden Ontario's question, which came in and there was a good, uh, back and forth about this one. And he's asking with crop prices at high levels as war wages, how do you combat letting emotions impede your pricing decisions?
Seifried: Yes. Way to use the play on words there, Phil, I really like the question. Uh, yeah, so, I mean, that's always, what we're trying to do is we're taking the, the emotion out of marketing, right? And whether we're doing that in a 20 cent range or a $2 range, you know, this is what we're working to do. And the way we always work to do it. And a lot of people don't agree with this strategy, which the strategy that I use a lot is I will re-own bushels with calls. Because that makes it easy to set price targets and leave them. Not pull 'em last second, when you think, oh, that might get hit, I could get more well, okay. But we already have a strategy in place for you to continue to get more, to continue to participate in, in upside potential, while still laying off the risk and doing the right things that you should be doing for your marketing decisions.
Yeager: And the back and forth had happened on Twitter from our friends, uh, at Naomi Blohm's firm. And it might have been Naomi on the, the tweet was you have to prepare yourself for the high, the low and the middle. Yeah. Is that what you're saying too?
Seifried: I, look when you have profitable prices that we have right now, you never know where the middle is, Right? So you can't say I'm gonna sell the middle. Because you don't know if you're selling the middle, you don't know if you're selling the top.
Yeager: Sure.
Seifried: I could say right now, you're probably not selling the bottom. Uh, but you know, you kind of have to look at your profitability and you have to make the sales where, you know, you're profitable. And we know we're profitable in most area in most places. So let's be making those sales. But again, we wanna participate in upside. I think if there was ever a time to come own bushels because of the explosive upside potential that we have with inflation, and global unrest and acreage battles and, and demand, you wanna replace those. In my opinion, you really wanna re replace those bushels so that you can continue to, to participate in that profit, because, Hey, let's be honest. If we're, if we're fighting with our neighbor, farming is competitive, right. If we're fighting with our neighbor over rents next year, it's gonna make a difference if I made an extra 20 cents on my corn board.
Yeager: Sure. All right. Let's quickly get in beans. But when we've kind of been talking about a lot of the same factors that at play, was this a lot of profit taking late in the week?
Seifried: A lot of profit taking again, the Russian Ukraine thing had very little to do with beans aside from sunflower oil. So soybean oil was certainly very strong, but you, you know, beans have had a whole lot of reason to rally well, before this even started. And, you know, look at export sales, continue to roll on at a very strong pace at a time of year where we wouldn't expect that to happen. If we continue to make export sales like this, both for new crop and old crop, we're gonna, we're gonna talk about, you know, a 350, 325 million bushel carryover. That's, we're, we're chipping away at that in a hurry, right? So at some point we might have to price ration soybeans, and we're not gonna do it in the crush because the crush margins are really very profitable at this at these high prices already. Global exports don't seem to be slowing down. So if we do have to price ration soybeans in an inflationary climate, in an acreage battle, things could get very, very interesting. And some of the wild high numbers that we've heard from other analysts that have been on the show recently
Yeager: Very recently.
Seifried: Hi, Sue. Uh, I, I'm not saying that I, I mean, most of us think that these are, are some, uh, well, no comment on Sue, uh, but some really high prices are possible in this environment. Some prices that most people would think are, are ridiculous, are possible in this sort of environment. So you wanna have, you wanna have, uh, a window to that. You want to have a possibility of attaining that, but you still have to make your cash sales because look at what happened on Friday. Look what happened Thursday and Friday. I mean, you're gonna drop $2 in soybeans? I, well, Well.
Yeager: let's move over to livestock because they too have been feeling the hammer of an up and a down right now. They end the week down live cattle specifically. We were at some highs, just a couple of sessions ago, and what's, what's beating 'em up now.
Seifried: Uh, well, you know, risk off, right? I mean, you had a lot of that happening. Money flow was the name of the game this week. You know, um, and as far as cattle were concerned, we were kind of at a point where we were sort of consolidating up near highs. It had to make a decision higher or lower. And with everything that happened there, with everything that transpired this week lower is the easiest path of resistance for the end of the week. When you have speculators that are unsure about things, they want to move out of the way. And when you have turbulence in the stock market live cattle, you worry about demand and things like that. I am, I have no worries about beef demand in this country. Going forward. Export demand is always questionable. Um, I think we needed a correction. I think we'll find our footing. I think we'll start to come back head on feed. Wasn't tremendously bearish, in my opinion, um, feeder cattle, I think look interesting. They needed to come off because of the strength and corn midweek, but then look at what happened in corn on Friday. So, you know, let's see how feeder, how feeders respond to that early next week. Um, and then, you know, when you get to, to hogs, right? I mean, for a very long time, the hogs I think, had been undervalued and we had a lot of weight up front and that was, was really holding us back at the end of the last calendar year into the early part of this year. And then we started to rally and the speculators really took note of that and liked the chart and started buying hogs too. And I think we may have kind of extended a little bit further to the upside than maybe we needed to. So having a correction later this week, you still, you look at a chart. You still, it still looks pretty good. I don't know if we need to go make new highs in lean hogs, but I do think we'll find some footing and start to bounce back. As long as the markets are a little bit more stable next week, you know, I mean, if we're just trading headlines again, like we had been this last week, then all bets are off.
Yeager: Well, the, the matter of trading headlines, I mean that sometimes has, what's gotten us to this point. Yeah. And not the study of the fundamentals or the technicals.
Seifried: Well, absolutely Paul and, and you know, if we've learned anything at all in the last four or five years, is that things can and will happen. And apparently at a very ferocious pace. Uh, so, you know, when we talk grains, we like to trade weather. We like to trade weather, China's buying and things like that. Not necessarily global pandemics aside from potential world war III or second cold war. But these are things that we have to trade, have to trade. And that all brings us back to the idea of marketing and making the sales where you need to make your sales because things do happen
Yeager: And I'll make another sale of you of more questions in a moment. Thank you, Ted.
Seifried: Thanks, Paul.
Yeager: All. Right. That will do it for this installment of Market to Market the TV show. We will keep talking in the online version we call market Plus. Find that on our website of Market to Market.org. We are entering the time when public TV stations like this one are asking for your support. We may also be airing in different time slots to accommodate changes in the schedule. If you value the work of this program and your station, please consider making a gift of support right now. Next week, we take a look at the bottle necks that continue to squeeze the supply chain. Thank you for watching. Have a great week.
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Announcer: 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.
Announcer: Tomorrow. For over 100 years, we've worked to help our customers be ready for tomorrow. Trust and tomorrow information is available from a Grinnell mutual agent today.