Market Plus with Ross Baldwin and Jeff French

Paul Yeager: Welcome into the Friday, March 8th, 2020, Market Plus. Joining us again, Ross Baldwin, Jeff French. Gentlemen, good to have you back. 

Good to be here, Paul. 

Paul Yeager: Do you think we were nice to him? 

Jeff French: First time through. 

Ross Baldwin: It's great. Do you think. 

Paul Yeager: Should we ask him if we were nice to him? Were we?

Ross Baldwin: You are. Flew by. Flew by again?

Paul Yeager: It does fly. You brought up a point during the broadcast. We kind of had to skate over just a little bit. There was a WASDE report that I asked Jeff about. You have a cattle on feed report coming up next week. Jeff asked you basically, do you trust what the numbers are right now? What is confusing to you or interesting that we should be watching in this next report?

Ross Baldwin: The cattle on feed report will be in two weeks, I believe. Yeah. But the thing that gets a little confusing with the cattle on feed reports is when you when you look at last March at the on feed placements marking the number that is the benchmark for what this report is compared against. And last March we had placements very low, 92.8% placements and we were talking about the low placements and the last report that was driven off of lack of feeder auctions, which was driven off of the tumultuous weather that we had. So feeders that would have been placed in January are going to get placed in February. So we're going to have high placements and this, this next cattle on feed report that we that we're going to see and it's driven off of. We've got really a couple of months worth of feeders all getting placed in as compared against the low number. But you got to step back and look at the big picture that you didn't change anything. You're just shuffling some cattle around those cattle that would have been placed in January. They're going to weigh a little bit more going and getting placed in February. And so in the big picture, it does not change a whole lot. At the end of the day, you got to look at the numbers that we've seen that we're working with. Look at what the cash markets is doing, rallying back to the highs. You look at how tight these inventories are, the cow herd, the all cattle and calves, and that the cattle outside of feedlots, the feedlot inventory number, that's the tightest since the early seventies. That's the big one to me.

Paul Yeager: When you say things like that, then I have to ask another question later. But it does give you cause for concern because when we keep talking about inflation, that starts with seventies, it always kind of makes you wonder what the parallel is. We'll save that for another day. Jeff, I'm going to start with you. Keith in Illinois wants to know via the this is from Facebook, what percentage does the farmer hold on price today and what percentage do we need to get down to see prices go higher?

Jeff French: So I think a lot of grain was moved when that March option contract was going off the board here two weeks ago. You know, I think a lot of guys threw in the towel instead of rolling it to me and the old crop that is still in the bin. I think those guys, you know, they sold that they needed to. Now they're going to go with it into the summer and see what happens here with the summer market. See if there's any type of weather delay, you know, problems. So my number would be is I bet they're, you know, half sold on corn and probably 60 to 70% sold on beans. I think a lot of beans have moved here. So, you know, there's still a lot of grain out there. But we've moved some here in the last two months for sure.

Paul Yeager: Do we need to see that number go below 40% before a significant move in the market?

Jeff French: Well, or just a change in psyche. And today could have been the start of it. Again, it's one day, you know, I want to see some follow through. But it's the one day that we've waited the last four months to see. And trust me, the funds and I said it again on the show, but it's the first time that they're going to feel uncomfortable with this many short positions.

Paul Yeager: Speaking of uncomfortable, Paul, in Minnesota wants to know about China. China is buying from everybody else in the world but the United States. Any ideas why?

Jeff French: Price number one availability. I mean, but yeah, something is going on there because if you look at their January and February being purchases and that's not just from us, this is all their purchases. It's a five year low. So something is happening there. I mean, obviously they can make it up, but to start out the year, they've kind of pulled back the reins on their bean purchases. So is that telling a story down the road? I mean, there are many people thinking that the Chinese economy could be catching a cold here. So it could. We'll see if that happens.

Paul Yeager: But I think some of the reports were that China was buying from Brazil. Say Brazil gets low on product again, then the United States becomes an option. So we're not option A, We're like option B right now.

Jeff French: We are. Yeah, I mean, Brazil right now is about 50% harvested. You know, they've been selling aggressively, as they should.

Paul Yeager: Right. And dealing with harvest lows. Yes. I mean, harvest pressure pushes their price down and makes it more attractive. The dollar. What do you think of the dollar's movement in this discussion?

Jeff French: Six week low here today. You know, is it enough to attract? I don't think quite yet. We start breaking below that 103 level that maybe it is, but it looks like we could push lower here. No question about it.

Paul Yeager: Let's go dollar into the consumer and the inflation rate. You know, we have the State of the Union where inflation gets mentioned quite a bit. It's always that consumer. Do you see any signals at the store of that are a flashing warning to the cattle market right now?

Ross Baldwin: No. Beef demand seems pretty robust, honestly. I would say as a whole, beef demand is resilient is what anyone is probably been hoping for across the beef industry. You've got choice boxes. It's back up to $3.06, $3.07 range, which is the highest we've been. I would throw out there last year. The high we got up to is $3.43. I think we're going to take that high out over the next few months. The there's no question, though, beef, it's high priced beef production right now is running a little over 4% lower year over year. We're down 8% in the last two years for beef production. Slaughter so far is 5% lower this year. That is naturally gonna put some strength on the cut out market. But the thing that you got to go back to is it's a supply and demand market. The supplies are going to continue to get tighter. And you still have the demand there. You still have the consumers that do want beef and there are going to be people that are going to eat less beef. It has to be like that's the job of the market. But for right now, I don't have a ton of concerns about beef demand. Exports have remained solid also so far on the year.

Paul Yeager: Is that why go back to the hog discussion? Is that why you see a little bit of that optimism that I think you had a couple of weeks ago about hogs? Is that's an alternative? The chicken market, the poultry market as an alternative, as beef remains high.

Jeff French: Yeah, I mean, the beef demand has been robust. The correction in the beef market in the cattle market is not going to be coming from the supply side. In my opinion, it's going to come from the consumer when the prices get so high. And I don't think we've been there. I mean, I've been I've been to two steakhouses here in the last month and I've waited 30 to 40 minutes each time go in there with you know, bringing my family, our family at five. So it's a little bit bigger table. But the know the demand remains good. Hogs above $100 here this week they've held that mark in the summer contracts. That's good to see. I think we could work up in that 108 110 area.

Paul Yeager: Let's move another global story. Let's do Phil in Ontario now. He had a question about wheat because he says we continually hear about Russian wheat dominating the supply side of the market, keeping a lid on prices. How big was their crop? How and why do they discount it so successfully? And how will this impact U.S. wheat across wheat acres in the future?

Jeff French: Well, it's it was supposedly 91 million metric tons. I mean, they had a good wheat crop. And, you know, obviously they're coming out of dormancy here, just like us here in North America. But, yeah, they continue to undercut not just our wheat prices, but French matif wheat. It's how low is low enough? I mean, that's the one thing that we got to see. And I don't know if we've hit that, but, you know, again, we've thrown a lot of bearish things at this market. Again, the weaker dollar, hopefully that can help out with the wheat exports. Wheat exports have been, you know, not really strong. They could definitely be much better.

Paul Yeager: And wheat spent away on corn and soybeans and then corn a weight on the other one. I mean, they've all kind of been very interconnected here lately, too.

Jeff French: Yeah. I mean, so when wheat gets $0.80 within of corn prices, I mean, then you'll start to see that potentially the cattle feeder would, you know, switch to maybe feed in some wheat. But right now it's still over a dollar. So we're not quite there yet. But that's something that we'll have to watch down the road.

Paul Yeager: He must've seen me write the word feed down. We're going to get to feed needs in a minute. I have one more question about corn. Mike in Iowa, and this is again, I just want to reiterate one more thing, but I'm going to put Jeff on the spot here. Looks like the bottom might be in for corn. I know Jeff's going to say, let me see what Monday brings, but what kind of bounce should we be looking for to sell Underpriced old crop?

Jeff French: Old crop. So I you know, we're $0.30 off the lows right now. So, you know, maybe if you don't want to sell, you buy some puts to protect it. We can easily go down from here. But I wouldn't be looking to sell for 48. There's a double top up there in the ME and then I want to sell around for 65 again. You know, that'd be $0.50 off the contract lows. I think any 20 to 30 cent rally in this market needs to be addressed and that's either with a cash sale or with buy and some put options to protect the downside.

Ross Baldwin: And producers need to be mindful of the base of values on what corn is going to do. I mean, at the end of the day, like just saying, I mean you got to ratchet down what you think the bounces are going to be and the corn market, but there's still going to be a lot of corn that's got to move and which is going to put pressure on the basis.

Paul Yeager: And how is it going to move? I mean, that's that whole look at the Mississippi. So is it all headed west through the PNW? Not much corn. It's usually the wheat that goes north.

Ross Baldwin: Mm hmm. I mean, that's what it's all looking like. I mean, for right now, for the time being.

Jeff French: River levels are much better than they were last summer. And, you know, hopefully we do get some spring rains where we don't have that again, affecting the basis. But the river levels are much better here right now.

Paul Yeager: Let's close with this, Ross on feed needs. Are you advising people to be covering those right now.

Ross Baldwin: For guys that need some coverage on the nearby market? We've been talking to guys about when cash corn was down this $4 level low $4 range. I think you need to be locking in 2 to 3 months worth of corn needs. I'm not terribly bullish corn but from a sheer risk management standpoint, $4 a corn, it works with your cost to gain your cost of gain is extremely manageable at these levels. I do think with the just look at a 15% stocks use ratio in corn that don't make me bullish. And I do think what the carries that we're seeing there's a lot obviously hedging on the growing season but if we grow a good sized crop in this country, you're going to see the back end of the market continue to roll down where the front month goes off. So I do think there's opportunity to buy cheaper corn further out. But with low $4 cash corn, you should be definitely covering some needs here.

Paul Yeager: Ross Baldwin thank you so much. Appreciate the time.

Ross Baldwin: Thanks for having me, Paul.

Paul Yeager: All right, Jeff French good to see you as well.

Jeff French: Yeah, we'll see you in a couple of weeks. 

Paul Yeager: See you in a couple of weeks. The regular, regular, regular, regular market analyst going to change your name, I think, in that. All right. Next week we are going to look at the whole hog. Producers have for better times ahead and we'll have the commodity market analysis with Matthew Bennett. Thank you for joining us. Have a great week.

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