Market to Market - October 14, 2022

Market to Market | Episode
Oct 14, 2022 | 27 min

Harvest hits full stride in the Grain Belt. USDA updates their guess on the size of the crop. We assemble a panel to parse the paper and look ahead. Analysis with Elaine Kub, Don Roose and Jeff French.


Coming up on Market to Market --

Harvest hits full stride in the Grain Belt

USDA updates their guess on the size of the crop.

We assemble a panel to parse the paper and look ahead. Analysis with Elaine Kub, Don Roose and Jeff French, next.


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. 


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.


This is the Friday, October 14 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I'm Paul Yeager. The headline number released Thursday on inflation stood out as another reminder to the 1970s and '80s. The Consumer Price Index rose 8.2% in year over year comparison. The core measurement without energy and food factored in was up 6.6%. The monthly rate for September moved higher by four-tenths of a percent. Now, retail sales figures released at week's end by the Census Bureau were flat. The global consumer in the end is the destination to what is grown and raised in America. Their buying power also depends on the size and quality of two major crops being harvested right now. All of these factors coalesce at this table now in panel form.

Yeager: Elaine Kub is author of Mastering the Grain Markets. Don Roose is Founder and President of U.S. Commodities. And Jeff French is Founder of Ag Hedger. We will get to the three of you in a minute. Sit tight. First though we need to tell you about those numbers in the market following the major USDA report.

Yeager: For the week, the nearby wheat contract dropped 21 cents, while the December corn contract added seven cents. The report was friendly to the soybeans. The November contract improved 17 cents. December meal gained $10.40 per ton. December cotton shrank $1.20 per hundredweight. Over in the dairy parlor, November Class III milk futures shed $1.43. The livestock market was mixed. December cattle cut 27 cents. November feeders weakened 85 cents. And the December lean hog contract increased by $5.10. In the currency markets, the U.S. Dollar index expanded 54 ticks. November crude oil corrected somewhat with a $7.43 selloff per barrel. COMEX Gold lost $57.80 per ounce. And the Goldman Sachs Commodity Index fell by more than 25 points to finish at 642.60. Welcome back panel, good to see you all.

Yeager: Don, this report on Wednesday, we were kind of meh on the trade beforehand. What in the report stood out to you?

Roose: Well, I think in the big perspective of the whole report this report is all about the supply side of the market and that was the bull story for the week. Then after that it was really about the demand side and the demand side was a little bit suspect. And even in this report it was suspect as it took the exports down, it took the ethanol down on the corn. So I would say it's a market that couldn't get over $7 on Dec corn, it couldn't get over $14 and moved wheat back under $9, Paul.

Yeager: We talked about $7 with Sue last week about just kind of a psychological thing. So Elaine, I guess I'll ask you, is the $7 factor real? And did this report confirm that to you that we have a problem getting above there?

Kub: I think Don is absolutely right from a supply and demand perspective you can sort of argue that this report was sort of neutral or you could make it look either way as the trade has done through this week. But you're right to say that there's a psychological thing about $7 and it's difficult from a marketing standpoint for farmers who have this opportunity to sell $7 corn, which is a nice thing to do. If you think throughout your entire career of farming, do you have an opportunity to sell $7 corn, that's a nice opportunity and yet it's hard, it's difficult because you never know what's going to happen three months down the line or six months down the line.

Yeager: Jeff, the soybean contract though, or the report of the contract sent the contract higher because we don't think the crop is there. I rode with a few farmers this week, I'm sure you've all talked to farmers. Beans are pretty good for them. So why is the market not in sync necessarily with USDA?

French: Well, we had the spike up and we were 30 higher at one point during the week. But yeah, psychologically $14 beans off the combine, that's a pretty good number. Exports have been lower. We had inspections here down at 10 year lows. So we are running into the higher dollar affecting demand as well. But we are in the heart of harvest here. We're going to be about 50% harvested. We should be putting in a harvest low sometime pretty soon here.

Yeager: Putting the low in at this rate? That kind of makes you think are we coiling up for something big?

French: I think if you can see a close over $14.35 I think we could rally after that. But I want to see the November contract close above $14.35 before I get real bulled up.

Yeager: Anything else on the report you want to get in before we move on?

Roose: Well, I was just going to remind everybody that the big problem we have with the soybeans is last year Brazil had a drought. And if you look at it from a world perspective, we just saw it on the world ending stocks are going to be about 400 million more. Brazil alone this year is going to raise about 950 million more bushels of soybeans than last year. The five nations are going to raise about 1.5 billion bushels. So your export time is now. When you hit the 1st of January it's going to be a slow go.

Kub: Well, it's true that USDA boosted those Brazilian numbers in this report. But you think weather wise the Climate Prediction Center came out and said that the chance of a La Nina is now 75%, which I think the market has already been trading this triple dip La Nina idea but it's more and more certain. So I kind of wonder if there may not be a bullish South American story, not now and not in those tables yet, but that's the hope that I think some people are waiting on for the winter.

Roose: Oh most definitely. And we all know that weather is pretty uncertain. But along that we've got some meteorologists that are telling us that the La Nina is going to die starting in the middle of November and if it does then we go back to a weather pattern that is more favorable. But we'll see, we know how weather is.

Yeager: But Jeff, here's the story, alluding a little bit back to what you said. We're dry below St. Louis and Quincy on the Mississippi. We're lighter tows, less wide barges. We can't ship this product in the middle of the country.

French: Stack Island, it's stacking up. No, it doesn't look like it's going to change here for another three to four weeks. So not the best time right here in the middle of harvest to not be able to ship our product. So that's going to effect the basis, especially around the river areas.

Yeager: You can't say basis until Elaine says basis. It's kind of a thing we say here. Sorry, Jeff. But the reason I bring up the factor on the river is given what we're discussing about trying to ship and the weather pattern, even if it rains tomorrow it's not going to improve that situation on the river. So the basis is thrown off. If I'm along an area that depends on the Mississippi what am I doing right now?

French: Well, you have two choices. You can take your lumps and sell it here or you put it in the bin and see if you can improve this here in the next couple of months. But if you are putting it in the bin at $14 beans you've got to have some protection underneath this thing because like we were talking earlier here you get to mid-December, 1st of January, the export market, especially from China on the beans, is going to slow down drastically.

Yeager: Given what you said a minute ago, is USDA looking at South America enough in this report? Was it reflected enough in this report?

Kub: I don't know. And also I think that it also reflected this export idea. Some of that cut that they made to the exports I think is because of the Mississippi River problem, honestly. The very disappointing weekly export sales we've had is perhaps, in my opinion, because the shippers haven't wanted to make commitments because they can't get it shipped down to the Gulf and yet the daily reports we saw some huge daily sales to China this week in soybeans, half a million bushels on Wednesday, half a million bushels on Thursday, half a million bushels on Friday. So when you talk about the soybean market possibly seeing a low I think, it's not there again in the tables yet, but China I think is seeing these prices and seeing a buying opportunity.

Yeager: How are we going to get it there, Don?

Roose: Yeah and that's a good point. But you talk about exports, our export sales on corn are down 51% versus a year ago. Soybeans are up 7%. But basically the reason I think we're selling beans so aggressively because Brazil had a drought last year and they're sold out. So we're really the only game in town. And China's overall demand this next year is going to be down like 4 or 5 million metric tons. So they're in a slow down too. So I think you've got to be a little bit careful. I just still think all of these markets are about the supply side is kind of baked in, maybe you can reignite it and then you start to look at the demand whether it's the equity markets, the exports, I think that's where it's at.

Kub: I want to jump in, one more thing about the river is that it's not just the southbound that's the problem but northbound, the fertilizer. We did see sort of low prices in fertilizer in early September and it is starting to creep back higher and I think part of that is just seasonal, anhydrous like $1400 a ton, which is not a barge problem, but the barge problem for urea and such, that is why is because northbound barges are going to be a problem. So whatever problems you were anticipating about fertilizer pricing, just increase those problems.

Yeager: Jeff, let's start with wheat for a minute, specifically on a contract here. We haven't mentioned the word Russia or Ukraine yet but we know that's hanging over this conversation. Kansas City wheat had a rough Wednesday. The charts have been moving, each city has been so different. As a complex whole, talk to me about the wheat.

French: Well, you go and start Sunday night, you're at a three month high on the big attacks from Russia into Ukraine, spike it up to a three month high. And then by the end of the week we're down here at a one month low. Technically a weekly outside down on the weekly charts that is a negative chart signal. With the strength of the U.S. dollar, demand destruction, this wheat to me looks overpriced and I think we could see another 60 to 80 cents downside. You have $9, $10 wheat out there, those are some big numbers. And talking to a client here today, he sells wheat seed in Kansas and he's been selling seed wheat for 20 years, this is his biggest year for wheat seed sales this year. So a lot of wheat going in the ground, not at the best condition obviously, but the world is going to respond to these prices and they're going to be planting a lot of wheat here.

Yeager: At what cost though, Don?

Roose: Well, you talk about the wheat seed and I think one of the reasons they're up so strong is a lot of these guys are planting wheat for the insurance. We've got tons of people doing that.

Yeager: Because of the dry conditions you mean?

Roose: Because of the dry conditions, it's so dry what are you going to plant? Not soybeans, not corn, just plant wheat and see what happens. But the Putin rally just is what we look at it as. It just doesn't stick. It has been since February we spiked up and we keep coming down. So Russia has a record wheat crop and they want to sell it and they're selling it aggressively, they need funds. And they're basically clearing the world market. And Ukraine, they've been shipping out pretty aggressively. So the wheat market just fumbles around $9, 50 cents up, 50 cents down and world supplies are tight if you don't count Ukraine and the Black Sea area but adequate otherwise and I think that is part of the issue.

Yeager: You get a psychological question again, Elaine. Do we have another blockage above getting a certain number here in wheat?

Kub: It's that and the other blockage or psychological bias that I've encountered from farmers this summer, particularly in hard red winter wheat country where it has been so dry, is that they have poor yields, which means that their cost of production is higher. And so they say $9 wheat, sure, but my cost of production went up. Sure, but like just because your cost of production goes up doesn’t mean that the market has to, so my advice would be do not let that be your block. You still have to face reality of what the markets may or may not do in the future.

Yeager: Don, we talked about $7 corn already. What are you hearing from clients about how big the crop is for them? Is anybody optimistic yet?

Roose: Well, I think these yields are variable. Small crops get smaller and that is what happened. Basically from here forward yields don't change a lot, Paul. So you're back to the demand side of the market. But if you look at it from a pricing standpoint, historically these are pretty good prices where you're at right now and sometimes a producer should look at changing his ownership when you've got an economy the way it is, pretty shaky out here really. You see the dollar as strong as it is, you see the equity markets up and down. So sometimes you're better off to just look at your gross dollars per acre, make sure you're reaching satisfied numbers, change your ownership to options or futures and still participate and don't forget about next year's crop trying to do some risk management out there, Paul.

Yeager: Jeff, do you buy his description of the market?

French: Yeah, small crops get smaller. In the 7 years of that the USDA lowered the corn yield from September to October in every year they've gone on to lower in the final USDA numbers. So the market knows this. But again, we just can't get above $7. We've tried it nine times here in the last month. This corn has kind of been flat lined. It has been between $6.60 and $7 here for two and a half, three months. So we get a close above $7.06 I don't know what's going to trigger that right now but we get a close above $7.06 maybe we can go to that $7.30 area. But right now I just don't see that. We're just in the thick of harvest and there's just a lot of selling pressure right now.

Kub: And part of the reason may be, as Don mentioned, the dollar is getting stronger and stronger. So each time you get a slightly more bullish scenario on the crop you also have to fight against the headwinds of that stronger dollar. So I think that will keep that challenging.

Roose: The one thing sometimes we forget but historically short crops have a long tail. I think everybody has heard about that. And this is a classic one that could develop. And the reason is the end user is scrambling, basis in a lot of areas was tight too long and what happens in a short crop long tail is the end user you think he’s the smartest guy out there, he needs to get covered. He's usually the last person in. So he covers, then you get a big crop in South America, the producer is going to sell as you get past the first of the year into the spring and you go up into the fall, down into the spring. So let's see if that happens. I think it's up to South America.

Yeager: How long is the tail on the bean crop, Elaine? Small crop gets smaller? That's what the market appeared to respond to on Wednesday.

Kub: Yeah, and what's interesting is it's not just the soybeans, it's the palm oil and the canola and all of the edible oil markets and it was interesting that, we never want to say that soybeans are led by oil because they're typically not, but the meal has been so weak and the oil is the one that is finally starting to get some interest again. And I suspect that once again it's China or Asia more generally seeing this as a buying opportunity, that it's finally gotten cheap enough that they want to step in and buy.

Yeager: Jeff, do you agree?

French: Well, the canola it has been down in the dumps here for a while but it did close above $851 a ton here this week, looks like it wants to go to that $900 a ton but that's going to be probably some psychological resistance. But on a chart the canola looks pretty strong here right now.

Kub: Yeah, so canola chart looks exactly the same as a bean oil chart, they are neck and neck, very tightly correlated. So whatever anticipation you have for palm oil or bean oil or just edible oils generally that is how you should feel about your canola.

Yeager: And the reason we're talking about canola is because Paul in Saskatchewan asked about this and Elaine got real excited when canola was on the list today.

Kub: Can I also translate Jeff's $850 into America dollars it's about 27 cents a pound if you're in North Dakota, those were the cash bids today.

Yeager: So then that's always a factor in that region. Is that a good thing or bad thing this year with that higher dollar that you were alluding to earlier?

Kub: Well, I don’t know. The Canadian dollar has been pretty weak compared to the U.S. dollar. The U.S. dollar getting stronger just makes everything else look weird, the Brazilian real, the Euro, everything sort of operates in an opposite term. But as far as cash prices if you're a North Dakota canola farmer this is good times.

Roose: In the big pictures of things, the one thing that the oil really has a strong underlying fundamental support is biodiesel. It's a growth area and it's going to continue to be a growth area. Ethanol maybe you can fight gasoline but we really don't have a substitute for diesel and you're seeing a lot of plants that are going to come online so I think it's a big deal.

Yeager: Jeff, where's the role of inflation in this soybean discussion that we may have overlooked?

French: Well, it's effecting everything, it just makes everything more expensive. And with inflation roaring like it is right now it's going to continue to keep the Fed on a stance of raising interest rates and that will make the dollar continue to be strong. I think we have a period of time here probably for the next two to three years of we’re going to see very strong greenback. And you had one of the biggest private commodity traders in the world this week come out and say, higher dollar, higher prices and inflation is definitely having demand destruction throughout the world right now.

Yeager: Is the cotton market impacted more by China right now or higher dollar?

Kub: Well, this past week I would say neither. It was sort of trading the report and trading supply and demand and had some really volatile days. But I think long-term you're absolutely right that cotton is extremely sensitive to the overall economy and whether people are buying clothes. Can they afford to be buying clothes at inflated prices not just here but also in Asia? So you're right long-term, but I'd say this week it was a supply and demand story.

Yeager: Don, the packer margins have poof, evaporated. Why?

Roose: Well, because we're in the cyclical bull market on cattle. Usually we go three and a half years up, three and a half years down. We moved into the red for the first time since 2018, packer margins $5 to $25 a head in the red. So I think the things have changed where the feedlots are going to be in control versus the packer. But he has control from the standpoint that he can slow down the chain speed. But along that line, the government is telling me that we're going to consume each person 2.7 pounds less beef this next year, you're going to eat 2.4 more pounds of chicken and eight-tenths pounds more of pork. So while supplies are tight they're saying that we're going to change our consumption habits. Do you believe that?

Yeager: Well, why should I believe that because economically we've seen the culling of herds in Oklahoma and Texas and the struggle to feed all these animals. That flies in the face of what you're saying.

Roose: Well and you're back to the same thing, it's not about the supply side is bullish just like in the grains, it's the demand side. The demand side is unknown. You can't tell me what you're going to eat for the next year from pork, beef and chicken -- maybe you can --

Kub: But that's an inflation story too is that the packer, their profit margins are being challenged not because of the live cattle prices, which are impressively stable, but the beef prices that have been dwindling. And so you've got choice boxed beef at $246, which is not what it was back in July. It's still high from a grocery shopper's perspective, which I suspect is why you're looking at less beef consumption, but from a packer's perspective that's where they're getting challenged.

Yeager: Jeff, I'm only allowed to ask you about inflation. What is the role of inflation on this cattle market?

French: Well, it's going to just continue to give the consumer less dollars in their pocket to spend up. And that's the big question is do they start cutting in places? And we'll just have to see that. The supply side is well known and it's going to be friendly for probably two years in the cattle. But the demand is the question mark and we're just going to have to see what it brings. But there will be less demand I think in the beef market coming next year.

Roose: But you talk about the supply side, this is just how fast it goes down. Like in the end of this quarter, the fourth quarter we're going to go down 3.5% on supplies. The first quarter we go down 4.5%. The second quarter you go down 7%. The third quarter you go down 8.5% total production versus a year ago. Those are big drops and that's why you're talking the cyclical bull.

Yeager: Sounds like the sale barns should be busy.

Kub: Yes they should be getting worked up here. So in Montana they're just getting started with their fall run, we haven't seen the big, big numbers yet. But my expectation will be when you do see the big numbers, when you do have people go in to buy these calves, even now you can still be selling 600 pound calves above $2. A few weeks ago or a few months ago you saw big, big fancy sales at $260 or something and that may not be there when we get the fall runs going. But I think $2 is a reasonable goal for higher quality six weight calves when the fall runs get going.

Yeager: How can you pencil out to expand right now, Jeff, on a herd?

French: Well, the feeder cattle had that big selloff there last month, it was $14, $15 lower. But we've held the support levels in the November in that $170, $174 area. These fats, you look at the deferreds they're $150 to $155, $160 area. This feeder cattle market, if the corn can break here this feeder cattle market could get real hot real quick, especially on the futures.

Yeager: So how do you prepare -- before I go to Elaine -- how do I --

French: Well, you get some calls on right here. It looks like we're putting in a bottom here right now initially. So you buy some calls on paper.

Kub: Yeah, so Jeff mentions that $150, $155 level. That's where it needs to be for the feedlots to be making any money. It's got to be there or above. And while it is there, there is opportunities to lock in money and speak to your broker and lock in money. But even for the calves, the LRP insurance that you can buy for calves to lock in some prices, that is cheap, almost free when you look at the federal subsidy and certainly worth it from a risk management perspective.

Yeager: So we're eating more pork, is that what you said?

Roose: Next year we're supposed to consume basically one pound more than we did this last year.

Yeager: So how does that translate what I'm doing in the barn with the hogs?

Roose: Well, I think from the hog supply it's really a jumpy market because your supplies are going to be down 1% in the fourth quarter, then they go up 1% in the first quarter of next year, then they go down 2% in the second quarter, then up again 1%. But I think overall the hog market is going to have to see if it can keep up with the beef market because the spread is going to stay so much. So the high priced beef is probably the most bullish story on the hogs. China has expanded their herd greatly, their meal demand over there is very strong. So look at the exports, the exports are soft.

Yeager: One is always casting a shadow over the other.

French: Yeah, I look at the hogs, the chart we had the big selloff and this week we've come back to regain about 50% of that selloff. The December right around that 85 cent mark. So look for some protection here on this because this thing can go back south here in a hurry.

Yeager: You each get a few seconds to close. I'm riding in the combine this week, Elaine. What are the two things I need to watch next week?

Kub: Well, in the combine you'll see that yields are probably not as bad as they could have been given the drought that everyone, not everyone but much of the Corn Belt has experienced. So I guess watch that to keep a lid on things.

Roose: I think when you're driving in the combine I think you have to ask yourself, do I want to store this price on corn and soybeans or do I want to sell it? Historically we've never been able to sell prices this time of year at this level.

Yeager: Two things, two words.

French: Exactly, I like selling these prices. These are excellent prices off the combine. But look for some reownership out into July.

Yeager: All right, Jeff, Elaine, Don, thank you so very much. We have some questions that we're going to get to the three of them about welding the bin door shut. We'll talk about that in Market Plus but we're going to put a pause on this analysis right now. We will continue with the three of these fine folks and answer more of your submitted questions in our Market Plus segment. You can find that on our website of It's in podcast form so take it along in the combine there and on YouTube and all of those resources are free because harvest may be the best time to get caught up on podcasts. When you do have some time in the cab dial up one of our three offerings, the Market Analysis, which you just heard, Market Plus, which we're about to record, and the MtoM. Follow to stay in the know. Next week, a checkpoint on the fight against global food insecurity. Thank you so much for watching. Have a great week.


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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. 


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.