Market to Market - December 2, 2022

Market to Market | Episode
Dec 2, 2022 | 27 min

A rail strike averted. A new set of biofuels targets from EPA and we'll take a close look at the commodity markets with Matt Bennett and Sue Martin.


Coming up on market to market, Congress keeps the rail industry in business, and the EPA reveals their RVO numbers. Market analysis as well with Sue Martin and Matthew Bennett, 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've worked to help our customers be ready for tomorrow.

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This is the Friday, December to Market, the weekly Journal of Rural America.

Hello, I'm Paul Yeager. The economy. Well, it kept adding jobs in the month of November. Brisk hiring was the order of the day, despite the Federal Reserve's raising of interest rates. The economy added 263,000 jobs last month. The unemployment rate, well, it stayed at a The government's preferred inflation gauge rose Many economists had predicted the pieces growth would be higher. The U.S. economy grew 2.9% in the third quarter GDP estimate, which measures the total output of goods and services.

A major knock on the future of the U.S. economy. Well, that was avoided this week. It's been averted because President Biden, he just signed a bill making it illegal for railroad workers to strike. The House and Senate agreed to legislation binding the rail companies and workers to a proposed agreement that was reached back in September. Now, four of the 12 unions rejected the original deal in the ratification phase. A strike would have happened and could have happened as early as next Friday. Freight and passenger rail would have been impacted as Amtrak and other commuter lines operate on tracks owned by freight railroads. President Biden said a strike would cause almost 750,000 job losses and would have ruptured supply chains for basic goods, food and chemicals. The EPA this week they released blending requirements, adding a great bit of volatility to the trade.

For the week, the nearby wheat contract, well, that was lower by $0.36, while the March corn contract dropped $0.25. Weakness in bean oil weighed on the soy complex. The January soybean contract improved two pennies, while January meal added March cotton improved 302 per hundredweight over in the dairy parlor. January Class three milk futures weakened $0.31. The livestock market was higher as February. Cattle added $0.75. January feeders put on for 15 and the February lean hog contract was up a dollar 93. In the currency markets, the U.S. dollar index shed 136. January crude oil climbed 381 per barrel. COMEX gold increased 40 to 20 per ounce. And the Goldman Sachs Commodity Index was almost up eight points to finish at six 1525.

Joining us now for their insights, Sue Martin and Matthew Bennett, two of our regular market analysts panel. Start with you on wheat. The dollar weakened as we just heard, but it's also very weak in the rain gauges in parts of U.S. wheat country. Why is the U.S. wheat contract so struggling to find in a gain?

MB: You know, the winter wheat crop's probably going to go into dormancy in the worst shape that we've maybe ever seen. I mean, it's going to be a kind of a train wreck as far as that is concerned. There's been a lot of talk about how good the wheat crop looks over in the EU. And quite frankly, I think that the wheat markets oversold. I mean, I I'm not going to say that I'm wildly bullish because. Right now, as far as the charts there can be, is like a three month low here today. A technician is probably going to tell you that there's more room for downside. Me personally feel like it's a bit oversold. It doesn't look like we've had a bottom yet, but I certainly wouldn't want to be selling here.

PY: Sue is the wheat bottom in?

SM: Well, I one thing I will notice or say is that today on the KC Wheat on the March contract reached the trend line from the lows of 2020 August of the week of August And so this is a spot where there should be good support. Now, if we violate that trend line, we could fall another $0.40. But I think we're really pushing the envelope now. We'll hit some way for it's not much lower. And so I think, yes, we're very close. I think let's put it this way. Why sell it now when you didn't before? You might be getting yourself. In fact, that probably be a good sign. It's ready to turn.

PY: That sounds like the Thanksgiving talk I heard of. Why didn't I sell when it was at this price or whatever? So you're saying hold on a little bit. I am. I'm I'm thinking you do. Hold on at this time.

SM: Now, one thing I've heard that India has a very good crop and they're looking at pulling their export ban off. And that could be a little bit of a negative that could possibly send us to that full away for account. But to be honest, I think that when I look at the market, it just looks to me like we're in the process of putting a huge secondary low in. And and I think there's better times to come or just as the crop goes into dormancy, you've got to look at your competition around the world. That's it.

Matt, you were just in North Dakota last night. Any optimism there or questions about what I should do with wheat.

MB: You know, there was a few questions, but to be honest, said that that was probably not my most important question or the ones that they were asking the most. I mean, I asked about the wheat up there. Do you think they're going to see an increase in wheat acres? You know, you've seen the obviously pretty good prices over the last couple of years, but historically, we're still at a pretty good price. And they said no, they didn't know that they were going to be looking at a huge increase in the area that we were in. They were actually wanting to talk more about corn prices.

PY: So we'll move into that then. So what was their big question about corn?

MB: I think one of their biggest questions is what do we do with 23? You know, there's a lot of questions, of course, about old crop. And and so it's two different discussions, but just getting a ton of questions about 23. And I think it's people are nervous. And so you look at the 23 settled under $6 last time we had a settlement like that was on Monday of the Pro Farmer Crop Tour. And so, you know, we also saw these 22 basically in March as the last time that we traded that low, there was a monday, the pro farmer crop. So we wiped out all those losses. The thing that's scary about 23 is that your typical producer is probably going to have the most expensive corn crop they've ever seen as far as their inputs are concerned. And so one thing that we've encouraged producers to do, if you are going to step forward and go ahead and book all your inputs, we got to at least do something to put a floor under some of these corn prices. I'm not saying that I'm bearish, it's just that you're very susceptible, even though fundamentally I still like corn. That doesn't mean that the corn market can't move lower.

PY: Hold your thought, because I'm going to set you up big time here, Sue, with Dustin's question that he sent us via Twitter this week. Dustin wants to know we have been in a two plus year bull market for grains. Will the markets be making new all time highs or will they start a new bear market in 2023? Start with corn, Sue.

SM: Well, first off, 23 was where I thought we would see nice, nice high prices because of China remaining at longer in lockdowns. I think that's stalled that I still think it's coming. I think at that start when I look at 23, what's interesting is, is it looks to me like if we have highs normally a year, but three comes in around July. But I could also see if we were to catch here, turn and close firm at the end of December for corn. I think you'd make a little higher high in January, possibly February. And I think the market would go into a bear trend. Into a bear trend, yes. But not a long lived bear trend. So maybe for 23, but 24 and 25 look differently.

PY: Okay. That's I was going to ask, what's your timeframe then? So you're saying a full year of a bear trend? Yes, I think that 24 and 25 is holding a little better expectation for it than what I originally had. And I think that the dollar will see higher highs in 24 to 25 and that's why I think it'll top out. But I think that when I look at corn, I think the EPA, when they came out with their RV, RV shows and and it was such a disappointment for corn because it basically went to cellulosic. I mean, a chunk of it was and it was all vented pretty much around electric and cellulosic took a big chunk in there. And I think that shot the trade. They weren't looking for that and I think that's disappointing. But on the same token, we're still going to increase in ethanol. You're going to see in 23 we're supposed to be but on the same token, you know, you've got and then you have that same amount, 15.25 in 24 and 25. And in the meantime, the White House was under pressure to lower the renewable fuels. Which is yeah, that becomes a political thing, which unfortunately, that's the way ethanol has become a political thing.

PY: Matthew, do you think that the EPA's was the market surprised by what the EPA said?

MB: Well, I'm certainly I think the one thing about it is that these are preliminary numbers that we're talking about. I certainly hope that as we move forward, maybe we'll get a little bit better idea that actually cellulosic won't take up quite as much. I mean, I agree with what Sue is talking about there. I think a lot of people in the trade were just a little bit disappointed, especially up front and 25 don't look terrible to me. And I thought it was fairly good for renewable diesel. But the thing about 23 that that again scares me if you did get into a bad trend is that I really want people to stop and take a look at how much money they're putting on the table because a few things could happen. Not only are you putting a lot of money into the crop, you know, and the producers should be flush with cash, but there's going be a lot of people still borrowing money, money not going to be cheap. And so what it costs to borrow that money is going to be another line item for some producers that if they see this market take a turn and they've chosen not to do anything, it's a little scary. What I've said is that high prices and high fertilizer prices, so high price of corn, high fertilizer prices works a heck of a lot better than if you get your wish and fertilizer moves lower because if you get your Western fertilizer moves lower, corn is probably coming down as well. You'll make more money with high corn for higher corn prices and high fertilizer.

PY: You find ways to counter that differently, is what you're saying?

MB:Yeah, absolutely. I mean, what I'm saying is if you go back and you look when ever to, you know, two years ago, whenever fertilizer was a multiyear low, it was you know, we were telling producers, hey, let's step in and buy as much fertilizer as we possibly can. We had no idea the market was going to take off on a bull run for corn. What a beautiful thing. But the years previous to that, we had cheap fertilizer in 2015 through 19. What kind of price of corn did we have and what kind of profit margins were we looking at? It just wasn't that pretty. You go to $6 corn and high fertilizer, you still make a lot of money. Just the yields.

PY: So your phone rings a lot. Are people still concerned? High fertilizer is they make plans for 23?

MB: They are. I think that what I hear from clients is that even at $6 corn, you're not making as much because of all the inputs. And I think another thing this next year is going to hold is are we going to see an acreage fight? You know, I think the acres and the acreage fight is going to become more and more stronger as we go towards 24 and 25. But this next year, I think we may see more of a 5050 spread in in planting. But it depends on what we do before because corn was sure. So showing moxie and into soybeans and all of a sudden that just flipped.

PY: Beans yesterday, flipped down $0.40 on that after the news from EPA. But also oil took a soy oil took a big hit. Why is soy why were soybeans so reactionary yesterday.

MB: To soybean oil?

PY: Because of the bio renewable fuels. Biodiesel. I guess. Yes. Why were they so reactionary to that news just in general yesterday?

MB: Because they had expected really large of our RVOs and they had expected that they had priced in so much of that, even in soybean oil and then even palm oil fell apart. And so, you know, it's got to be in the old days, we would say beans rally best with soy meal. That's getting to be not the case. It's getting to be that it's soybean oil that's clearing the bean market now. And that's probably something that isn't really going to change a whole lot. You've got a fair amount Minnesota. You've got the IHS very much expanding their production at their crushing plant. You've got Cargill and AGP expanding aggressively. So the demand for beans is going to be huge as we go down the road.

PY: Then where does corn fit in? Because corn's got to compete for those acres you still need.

MB: Yes, you can seed soy meal, but only so much. You need that corn for feed usage, ethanol and so on. And ethanol right now carries a better percentage that exports the acreage.

PY: I'm guessing you had one of those last night, too.

MB: Yeah. And so I kind of agree with Sue and this is what I've been saying is that I think 23 could be the last year that we plant more corn than beans, given what's going on with this renewable diesel situation. And so I think it'll be very interesting because, you know, another thing that I've said in rooms before is that we like in corn, us producer like plant in corn, right in central Illinois. It's no secret we've raised some pretty good bean yields the last few years. And of course, we had a 215 bushel state cornmeal this year. We do like planting corn, but Paul, I really like cutting and sell them for $14, too.

PY: And so you're not alone, I'm sure, right?

SM: And so I'm not alone. And so moving forward with all these crush plants coming online, you know, there's no question that you're going to see a pretty strong demand for folks to go ahead and plant soybeans that, you know, to me, we used to crush beans for meal. Right. And now we're crushing them not just for oil, for oil and meal. And so I think moving forward, you know, there could be some fairly cheap meal in this country. And I think that expansion of the pork sector might be something that a person wants to look towards.

PY: Well, you mentioned you were paying attention to our China discussion last week on the program. I mean, how interesting.

SM: Just trying to get on news of yesterday with what Matt saying bean meal might be cheaper here real soon for you the US we'll just keep an eye on that. Well I think I think China you know, everybody's so worried because China seems to be working these deals with Argentina and Brazil, especially at Brazil. And but at the end of the day, demand is growing for everything. And China, as they come out of their their lockdowns and get that economy really back rolling, demand is going to be huge. And I think that China knows that now. There's two ways they can protect that. They're not going to let us know what they're going to do until they're protected. They're either going to be long on the board or they're going to be booking basis and booking up, you know, their beans and and corn. And they might be a little bit of both. And I think that when I look at the whole, you know, we get so caught up in the fact that China's, you know, like we're going to lose some of our demand. Yes, maybe at first. But then word is Europe. You know, some of these other countries, of course, it's a lot more sexy when you talk about the big elephant. But China needs us all. They need us all three, Argentina, Brazil and the US and I. I just think that as we go forward in time, this is going to kind of work itself out. But there's going to be some tough downturns through this and but through the process of the setting up the energies and what we're doing excuse me, I think what we're going to see is a new floor put in for corn and for beans with time. But we've got to kind of have a break to figure that out soon. I have been conversing about Brazil for the last few weeks about the unrest that's going on there.

PY: How much have you been paying attention to that and how much should the American producer who's watching this show tonight? I mean. What should they be studying?

SM: Right. I mean, I've been paying attention to it. The interesting thing is that the new president says, you know, they're going to take ground out of production. I just kind of want to see how that plays out. I think that's going to be easier said than done, quite frankly. But the unrest down there certainly is warranted, especially when you start talking about agricultural production because they've become an absolute powerhouse in the world export market, you know. And so I think that the U.S. producer needs to pay attention. It's not the only place in the world that we're trying to take ground out of production. It's concerning, quite frankly. I do think that the producer around the world, especially the U.S. producers, probably running as efficient and environmentally friendly as they ever have in the history of production agriculture here in the U.S.. And so I want to pay very close attention to it, first of all. But second of all, I want to see how it all plays out down there, because I don't know that taking all the ground out of production that he's suggested is ever going to come to pass.

PY: We're still at beans in the teens, 14, for that matter. So give me a first six months of '23 for a range you like on on soybeans.

SM: The November contract. I could see. 

PY: Are you talking November beans?

SM: Yeah, I could see them go back under 13, something like that. But I also could see the upper 14 form. That's to me that's almost a range rather than a nice trending market that's on a mission. I think the market has a lot of news to shake out, to feel comfortable. You know, we have recommended making some sales around if you got the chance. So we got close but not close enough and then the market fell. But there's a lot to go through. And, you know, the one thing that's kind of interesting, you talk about, okay, all the soy oil we're going to need, which means a lot of beans. Beans are going to compete with the crushing plants for processing for biofuels and renewable fuels and biodiesel and but then also for export, because countries need them. And and then you look at the fact that we've got these these products and that demand. Now, all of a sudden we've got all 17. I think it'll be between Illinois, Iowa, Minnesota, Nebraska, you name it. So in the heart of the Midwest, what happens if we get a drought in 24 to 25? Because from what I'm hearing, that's going to be pretty doable. The weather becomes a story.

PY: Drought has been a major story in cattle, country, live cattle that we had a report a couple of weeks ago where eggs were in that between time for fresh news from the government, cash trade, those been building in live cattle. What's that tell you?

MB: Well, you know how I feel about cattle, Paul. I think the last time we were here, I threw some big numbers at you. You know, let me just throw one at you placements in Texas, What does that tell you? I mean, here's the thing is, is that moving forward, your numbers on cattle from a fundamental standpoint could could make way for some awfully interesting prices. I think the end of the third quarter of this next year, maybe fourth quarter, you could be looking at, you know, some hundred and $75 cattle. Anyway, my thing with a fat cattle is that the consumer still has money. I mean, Black Friday, they spent more than they've ever spent. You know, and we've talked about recession. I know that. Yes, there is some fear with interest rates. There's no question that consumer confidence is probably going to wane a little bit as they start to realize their budget for 23 might look a little different if they've got much debt at all. But the fact of the matter is, they're still want the beef, the producer or the consumer still wants beef. And as long as they've got money in their pockets, I think they're going to step forward. And the fundamental story is not going anywhere anytime soon. Takes a long time to build the cattle herd. And we've really trended in the wrong direction. You know, if you're wanting cheaper prices on cattle. Yeah, I'm not sure who wants them in that sense other than you know, going to the grocery store. That's what I'm saying. The consumer. I mean consumer.

PY: But Sue, when you have this discussion about has there ever been a time when the feeder cattle, the live cattle contracts have been so close together where you've had to really pay attention to both because it feels like there are no independents.

SM: They are absolutely together. Well, they are. And when I look at the feeders, you know, we're in a seasonal time anyway for right now where the market pushes up until about the 7th of December, dips down towards Christmas, renews another step up into about January 10th, especially feeder cattle, and then rolls back over for a brief break. And then you're on moving higher into April. I agree. I think that's right. On this cattle market, you know, the all time high on April futures is 170, 170. And I would think if there was ever a time that you could take this out, you know, Matt talked about Texas overall production. Beef production is going to be at least I'm not sure. But the last time that was so aggressive might have been 1979. I think the problem is with the cattle market is is that everybody's bullish or most everybody. And so it's how you work into it. And get going. But it's a market that I think we are going higher. We have immigration. so is males younger males. So the demographics is meat eaters. And I you know, and there's another thing in the old days, 5% interest, a 7% home loan, really not so out of line. It's just we got used to this And to me, I'm thinking we can handle that five, six, 7%. It would be if we got up around 9 to 10%, then I would say, oh, my goodness, we need to really think about it.

PY: Real quick on hogs. Matt, we went this whole time and I have to say but do you see any optimism for the hog market spilling in there?

MB: I mean, in the last six trading sessions, basically, you went down about seven bucks and then came back up. I mean, to be honest with you, it's a very volatile market. You know, any time that you see the corn market come down and and the hog market go up, it seems like all is right in the world. It makes sense to me. I just have a hard time getting real bullish hogs here, which doesn't make as much sense because I'm awfully bullish protein overall. But I just feel like up here in the nineties, you know, when you get into a couple of subsequent months, I have a hard time getting to four and I don't think we see a lot of hundred dollar hogs, but we will if the cattle market catches fire like I think. But that's again, that's going to be a little bit later on. I don't think it's going to happen right now.

PY: All right. That's Matthew Bennett, thank you so much for your time.

MB: I appreciate it.

PY: Sue Martin as well. Nice combo here.

SM: This is kind of fun.

PY: All right. We're going to continue as we put a pin in this discussion and keep going in market place. And you can find that on our website of market to market dot org, we put this in podcast form. You can also watch it on YouTube, play it back, watch the try and read the transcript, whatever you want and want to remind you that the e mail machine is always open. You can send us an email, give us your feedback, your story ideas, your general commentary at the inbox of market to market at Iowa always love hearing from you there on email. Next week we are going to look at the expanded impact of those biofuel mandates and we'll continue with the commodity discussion next week. Thank you so very much for watching. Have a great week.

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.

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

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.