Market Plus with Matt Bennett

Yeager: Welcome into the Friday, September 23, 2022 Market Plus. Joining us again from his home studio is Matthew Bennett. The reason he's home is, well, home is where the heart is. Home is also where the harvest is, Matt. How does harvest look? Okay, now wait a minute, don't answer that because I already asked you in the show and you made a joke on Twitter a little bit about how things look and just say expect generalities. The last couple of weeks I've talked about -- I just had this discussion with someone last night -- the gradient is small, you mentioned it during the show. Are you finding that to be the case that the gradient from good to bad to ugly is small?

Bennett: The thing is there's some really good crops out there, no question. Right where I'm at really good crops. There's some areas that producers are telling me that it's just a nightmare. And so that is going to be a feature. For instance, parts of Kansas, Nebraska. And so that is going to be something that we're going to talk about the next time I'm on I'm sure and the next time your next guests are on over the next few months is because the difference between the good, bad and the ugly is most of the bad is going to be west of the Mississippi River quite frankly. And so what's going to happen is the market is going to have to do something about that because that's where a lot of your usage is going to go on. You've got a ton of cattle in that part of the country, basis has got a lot of work to do. It will be a very interesting year to see grain flow.

Yeager: You mentioned basis, we had a good discussion with Elaine on that recently. But you were wanting me to ask you about early premium. First, tell me what it is and why people need to be paying attention to it.

Bennett: So one of the processors in my part of the world for corn has been drying corn for free with shrink only which is a pretty good deal whenever you're harvesting 23%, 24%, 25% corn. Obviously there's some significant savings whenever another one of the end users across town charges 8 cents a point. So do the math with that on 24% corn. Obviously that's something you need to pay very close attention to and to boot their basis was actually about 40 cents better than our local basis and it was about 40 miles away. And so for us to haul up there and get free drying, I tell you what, it was just something we really couldn't pass up. So that only lasts so long. So pay very close attention there. The other thing is beans. Some of these areas that have ran short of beans you've seen huge overs on a quick ship push. We saw beans $1.85 over in our part of the world this week, dropped to $1.50 and then on Friday morning, this morning $1.50 is where we started the day, of course we dropped the bean market like a tank and then we went to 15 over by the end of the day. So those of you that had beans ready in my part of the world and didn't cut them yet are probably pretty frustrated.

Yeager: Well, that brings up a point we were talking about between the programs here, Matt. I was going to say during the show when you look at our four month charts that we show, let's just talk about the bean chart that you're referring to, we were in a period where we had tremendous volatility. Then to a sense we've kind of gotten into a lull and a pattern. We're going to stick with stocks, specifically soybeans here on range. Do you see volatility returning?

Bennett: I do see some volatility returning for sure and I think as a farmer I've got to ask myself, if it gets real volatile where does my risk lie? And so Paul, whenever I first started coming on your show if we'd have talked about $14 beans people would have thought we were crazy. And so now we're sitting here saying, I'm not selling beans at $14 because I thought they might go to $16. That's all fine and well. There's so many tools out there that we can utilize. But I do see some serious volatility. Now, are we going to see some support in this $14 level if we continue to move lower? I do think that you'll see some support. But at the same time you’ve got to ask yourself, what does the global stock situation look like? What does the Brazilian crop look like with good weather? And I think that we can answer those pretty easily that that could mean some pressure to the downside so that volatility might not be the type of volatility we want to see.

Yeager: Back to I think what we were just talking about a moment ago about energy or the drying. Does that have anything to do with maybe the drop in natural gas? Granted, I know it doesn't translate overnight. On the week 11%, crude oil dropping 7%. In just the energies, what and when would we see any type of relief in prices that anybody pays for the end products of some of those commodities?

Bennett: Well, we should start seeing them rather quickly I would assume. The thing is when you look at energies, when you're talking global recession, when you're talking about interest rates continuing to go up and quite frankly consumer confidence going down by the day it seems the that tells you there's no question that you're going to have some pressure on energies. You're probably not going to have folks wanting to spend near the money to get out and about and do the things that we've done ever since COVID was over quite frankly. You and I both know people got out and about, they couldn't wait to get in the car and go somewhere. But right now even though gas prices are moving lower as people start to feel a little bit of a pinch with the inflation that they had experienced and then obviously interest rates are going to change folks' lives significantly if they don't have all their rates locked in. To me that is going to be a real headwind whenever you're talking energy prices.

Yeager: I think this week we finally broke that streak of 99 days gas moving down. It has turned up. And here at least in Iowa jumped up significantly here in the last 10 days. Real quickly before we get to the questions that we have. Cotton, that was a $6.75 move lower, almost 7%. Why?

Bennett: The thing is with cotton as well, you saw a broad based commodity selloff. And I've got to think that some of the fears of a slowdown as far as China is concerned obviously they have been a big purchaser of cotton in the past, big consumer of cotton globally. The bottom line is you didn't have a very good crop, we already kind of knew that, once you quantify that a lot of times it basically gives the market reason to go ahead and move in the path of least resistance. And I think as you enter into harvest timeframe the path of least resistance unfortunately looks like it's lower, especially as you see this broad based commodity selloff. So I don't think that cotton, it didn't do cotton any favors to see what was going on in the rest of the marketplace, especially with the dollar, again. It's hard not to talk about the dollar when we're talking about any commodity, especially when we're looking at $113 on the index essentially.

Yeager: This piece of paper has a couple of questions about the dollar. But we're going to open up with Scott in Wisconsin for you, Matt. What commodity shows the most upside in value in the 2022-2023 crop year?

Bennett: That's a great question and I'm probably going to go a little bit different place than most people might think. As far as a rally is concerned I think later on in the year, and maybe it's going to have more to do with profitability for me, but it's going to be fat cattle. I've got to think that you're going to see numbers that are going to be suggesting that fundamentally you could see a really strong cattle market rally. You get into the third and fourth quarter of 2023, if we end up seeing feed costs move lower, and that is a big if, I'm well aware of that, but let's face it, high priced corn typically is going to lead a fair amount of acres to come back into corn, at least to an extent. South America is talking about planting more corn. If you have what I would call stable global supplies of feed grains and you see the price of those back off, I've got to think profit margins could be substantial. And so I think not only could cattle rally, I think profit margins could be quite strong.

Yeager: Well, you just kind of answered Eric in Custer's question about fundamentals. So let's move to Mitch in Hull, Iowa. See there's Eric's question and now we'll go to Mitch. Thank you, everybody. Mitch wants to know, what is your six to twelve month outlook on soybeans? Will commercial storage pay this year? Or is there a reownership strategy that you like better?

Bennett: The thing is on soybeans, that's a great question, first of all, but here's the deal. You've got $14.25 beans. A lot of folks right now can sell beans right off the combine if they're able to harvest around $14 in the heart of the Midwest. And so if you're in that situation, once again, significantly higher prices than what most of us have sold the bulk of the beans that we've raised over the last six or eight years, spend it on a strategy. I don't mind going in and having a limited risk strategy where I'm simply buying some sort of a call. Whether it's a bull call spread or a call, I want to step in there and do something that doesn't put me in a major situation that if the market moves lower I took a really good sale and made it an even worse sale. And so what's going to happen that would rally the market? Well, if Brazil has another issue with their crop, and there's no reason to say that they won't, it's just I don't want to bet on that as being my marketing strategy. I think the best thing to do, quantify your worst case scenario, sell the beans and then turn around and reown them. As far as storage is concerned, most folks don't like storing beans on the farm at home so I'm probably talking more commercial storage than what I am on the farm. But if you're going to store them commercially and you have a substantial amount of them at $14, I at least want to put a floor under some of those beans, at least a percentage of them, because you could see a $2 move in the bean market and that's not saying I'm bearish, it's due to global situations, recession, macro fears. You could see this bean market move south fast.

Yeager: Thank you to Adam, Matt, we answered Randy's question on the show. Cory kind of had his question answered there, Cory in Illinois. So we're going to do two last ones. The last one will be, we'll have a little fun with this. But let's go with David in Decatur, Illinois. David wants to know, Matt, planning for '23. What's your main focus? You've kind of talked about it a little bit but I want you to lay it out here a little more clear. Inputs, crop rotation or acres, fertility rates, interest rates or not upgrading the iron? So what is your main focus as you plan for '23?

Bennett: First of all, David and I have done several interviews together in the past, Paul.

Yeager: He's putting you on the pace -- he wants you on point right now, that's why. He's making me do the job of the moderator.

Bennett: Absolutely. He's a good producer too. But it's a great question. And so I've been talking to a lot of folks about this. Anhydrous prices have been obviously moving higher at times in the last month. Dry fertilizer has actually seen some relief at times. But here's the deal, a lot of producers look towards last year and say hey, whenever I locked my fertilizer in it did nothing but go higher and then the corn market went higher at the same time. So if they locked those in last year it certainly was a great move to sit there and do nothing as far as the price of corn is concerned. I don't know that I want to bank on that this year. I've got no issues with you locking in fertilizer and I want to lock in, I've got all my fertilizer locked in right now, Paul. What did I do? Well, I stepped in and I put a floor under the market. And what I wanted to do is step in and buy a $6 to $6.20 put option, depending on what day we did it, and then go ahead and sell a call on a portion of my bushels. And I'm talking a smaller portion, maybe a third to 40% of the crop. But between that and making a couple of HTA sales actually the guys that I work with we're 50% protected as far as our '23 is concerned. So here's the problem, if you book all your fertilizer, Paul, and you're booking it because you know you can make a lot of money at $6.20 and $6.10, $6.15 corn, what if corn is $5.15 whenever it comes time for you to make some sales? Don't do one side and not do the other. It's a great question from David. And let's talk beans real quick. Again, beans, you're over $13 substantially, almost $13.50 and so to me I've got no issue stepping in and at least putting a floor under the bean market.

Yeager: Okay, so you just kind of, you took a little steam out of what we're going to do here. Terry asked you on Twitter, let's play it with soybeans first, I think you just answered it. Are you selling it or storing it?

Bennett: I'm selling beans. We had a lot of beans sold coming into harvest. But I believe that I'm going to have better beans than what I was planning on. With that being the case, if someone is wanting to hand me a check for $14 times the yield that I think I'm going to have, Terry, you better believe I'm going to reward the market.

Yeager: And with corn, are you selling or are you storing?

Bennett: We're going to store a fair amount of corn. I think you've got to store corn on the farm at home, give it an opportunity, wait and see what kind of happens globally. The different situation with corn than beans is that bean world stocks are getting bigger while corn world stocks are actually tightening. And so I've got to think that you've got an opportunity here with corn. The big question, Paul, is going to be the corn that you haven't sold or contracted and that you can't store at home. What are you going to do with those bushels? And so I'll put myself on the spot there. I've got no problem with going ahead and selling corn, especially if you can get a quick ship bid I totally recommend that you do so. If you can't, you're still looking at $6.50 corn. Good night. I have no reason why I wouldn't want to step in and sell fall delivery in that area.

Yeager: Matthew in Illinois wants to know, what do you do if you can't store all the corn? We'll ask that one next week. Thank you, sir. The farm called, they need you back.

Bennett: Yeah, absolutely. Thanks for having me.

Yeager: We'll see ya. Next week we're going to look at the crop harvest rate and bring in a double analysis segment. We'll have Angie Setzer and Chris Swift comes back with us. I'm Paul Yeager. Thanks for watching this Market Plus. Have a great week.

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