Market Plus with Sean O'Leary

Paul Yeager: This is the February three, 2023 Market Plus segment from market to market. Joining us now, Sean O'Leary. Shawn, how'd that first segment go? Are you. I'm surprised you're still here. I think you did pretty well

Sean O’Leary:  Well. Thank you.

Paul Yeager: Because my words are on the screen. Yours or not. Right. We did a podcast a couple of months ago, had a chance for some of your background from Carroll, Iowa. Your father was in commodities. You didn't study commodities in college. You did you want this job?

Sean O’Leary: I was actually kind of a studio guy, broadcast and film major perfect lead into a commodities career parallel. Just kidding. But yeah, born and raised in Carroll, Iowa, attended the University of Iowa, graduated in 89 with communications studies degree, was looking for a job and dad said, Well, where do you want to work? What do you want to do? Told him, I'd just like to work for a good sized company. I never really understood what he did. But, you know, two years of college brought me up a little bit. He told me about it and I became very interested in it. Been doing it ever since.

Paul Yeager:  And now here you are on the show, getting asked questions. Yeah. You might not have wheat in your backyard, but you have customers that pay attention to it. So thank you for putting up with my 15 wheat questions. That's just my that's just the way I show love and affection. How about.

Sean O’Leary:  That? Appreciate it.

Paul Yeager:  All right. Well, let's start with it's a question with wheat in it. So that's where I'm going. Mark in Minnesota Sean wants to know, with future prices for wheat, soybeans and corn being rangebound, what is your forecast for basis levels of these commodities for the first half of 2023?

Sean O’Leary: Well, I think that's going to continue to be quite variable and from region to region. I mean, you can you can say that any time of year, probably any given year with all of those, but it's because it's been the case where there have been some real big differences in basis levels. And I think even though the markets are rangebound, you're going to continue to see that play out.

Sean O’Leary: And it comes down to areas that we're a little bit short on the crops on long last fall, and I think you'll see that into the spring and probably early summer.

Paul Yeager: And I would imagine the areas that are like you said, a shorter crop, but maybe areas that need the end product more for livestock, say North Dakota down to Texas, their basis could really fluctuate wildly here.

Sean O’Leary: Yeah, yeah, I would agree. I would agree. So it's a that's a function of how how aggressive the end user wants to be in there. They're going to start turning to our own weather domestically as soon as South America's weather talk is done.

Paul Yeager: Well, I'm out of wheat questions, but I want to get you in the politics about that. Paul in North Dakota wants to know, Sean, if we go to war with China in 2025, who will buy our corn, soybeans and pork?

Sean O’Leary: Boy, very good question. I don't know that there's any answer that is anything other than not very pretty. You know, China, it's great to have a big customer like China unless you lose that big customer. And unfortunately, they're kind of the tail of wags the dog. And in both the corn and bean markets, too, to a large extent, there's a reason that they put money into infrastructure over many, many years in south of South America. So our political climate with them right now is probably the worse it's been in several years. You know, there's there's tension between what how we've approached bases in the Philippines and Guam, for example. They're not real happy with that. I don't know where all all of our product would be exported to if not to China.

Paul Yeager: And that's been a discussion several people have had here of, you know, China's buying ahead of a 2025 invasion. But can't you say over the last now three years since COVID started, I mean, the world dynamic can change. So can the markets and who's buying and who's selling. And we've seen China really not be as aggressive of a buyer in the last, would you say, three, six months?

Sean O’Leary:  Yeah, I would say I would say that's the case. You know, we we have a tight, tight balance sheet on a lot of a lot of markets, corn and beans included. China is usually, I think, pretty shrewd as a buyer. They have at times bought only what they've needed. They have at times bought ahead. It's kind of hard to put a finger on what they're going to do. Right. They're they're they're good at kind of keeping their cards close to the vest.

Paul Yeager:  And as Don Rose likes to say, they're the ones who taught everybody how to trade. So, you know, we look to them for examples. Okay. Here's one Ken in Michigan. And I think you're like this question when I read it to you before, many of your market analysts recommend using options as a hedging tool. Do they consider position delta when making that recommendation?

Sean O’Leary: Using Delta is probably the easiest of all the Greeks. You can have an understanding of every option or put or a call. Long or short has a delta value. The delta value is going to tell you roughly as a percentage what the option is going to do relative to a move up or down on the board price. So a put that has a delta value of 0.6 means that if corn goes down a dime. Your put option if you own it is going to increase by roughly $0.06. The delta value is going to fluctuate from day to day. It's going to change as the market goes up and as the market goes down. The delta value is also going to give you an idea of the percentage chance of the option finishing with value at expiration. So if you buy a put out a call that has a delta value 0.3, I buy one with a delta value of 0.6. I've got better odds of having value at expiration differences. I might pay twice as much as you to have that, but I think it's it's an important one to know. Most most quote, services or trading platforms are included. It's going to list that delta value. So it's a that's a good tool. It's something I wouldn't ignore. And if you're going to learn anything about Greeks, that's step number one start.

Paul Yeager: It started as a base.

Sean O’Leary: Start at start. All right. With Delta.

Paul Yeager: Okay. Well, let's start with Ryan in Iowa. When it comes to natural gas, why are NH three prices so high when it hits 1600 a ton? Natural gas is up to 26 now. Natural gas is 250 and NH three is still pushing 1200. Sorry, NH three. I read faster than I meant to be.

Sean O’Leary:  Yeah.

Paul Yeager: What's the explanation?

Sean O’Leary:  You know, I can only imagine it's kind of like crude oil. Crude oil moves down. We don't see a lot on for quite some time. I can only imagine the natural gas situation is the same way. And unfortunately it's probably the case where the producers of it, if they can charge a higher price for a long enough time, they'll get by with it as long as they can.

Paul Yeager: Well, natural gas this week for the for the record, was off 16%. Yeah. So you're saying it might be a little while before we see that reflection, but this isn't the first time we've we've declined. So I guess I'll take this a step further and tie in one of the other questions. Would you be buying any inputs right now, or do I think that do you think that there is a price break coming in some of these fertilizers and other inputs?

Sean O’Leary: I think I would I would dip my toe in the water on on on covering needs for that. If you look at the nearby contracts of natural gas, the futures contracts have lost a lot of value. They have really gone down a lot. There's a chance that those recover and the cash price never really matches what the board price does. So I would I would start covering costs here. Yeah. You may not get much more of a chance to later.

Paul Yeager: All right. Thank you. So another opportunity that could be lost is old crop. Tim in Iowa wants to know what should a person keep on stringing out old crop sales of corn or is it time to finish selling the old crop? Some of the people in the chair before you have said, open up that bean door and start selling.

Sean O’Leary: Okay. I think I think it varies from producer to producer depending on how much of your old crop you have left. If you are undersold at this point relative to years where you had been more aggressive on sales, I think I'd, you know, start to be a little bit more aggressive. I had mentioned the planning intentions report. You could save a little bit for that. If you're you know, if some of your sales were made at more attractive prices. You know, going back to, you know, we're a fair amount off. If you had made some sales early on, maybe you can afford to be a little bit more aggressive and hold for that report, hold for maybe a weather scare in the planning or even the month of June.

Paul Yeager: You did talk a little bit about that weather during the main show about. Yeah, I, I won't say they're fun bushels, but you're more of your. If I lose, I lose. But, man, if I hit it big, that'd be great.

Sean O’Leary:  Right. Okay.

Paul Yeager: All right. I guess I didn't fully give you the full heys on everything. I didn't ask about the cotton market. Cotton's been kind of stuck in a sideways range for quite some time. Talked to a couple of cotton people here recently. They just don't see much interest in planting any of that. Do you see cotton buying acres or is this an accurate story right now or is this a China story right now?

Sean O’Leary:  I think it's a combination of the two. I looked at that earlier this week. I was curious as to, you know, when you talk about cotton acres, you also have to talk about soybean acres. Cotton at the start of the Ukraine war had a 20, 20% price increase. Beans only went up seven and a half percent. And I'm talking about the highs made in in July. And I think I think Cotton actually peaked in June. Beans in July. Cotton and bottomed out in October. Beans bottomed out a lot quicker. But the from the contract high, the cotton declined 45% and is still 15% lower. The beans after seven and a half percent rally right now is still sitting at a five and a half percent gain.  That's a big swing between those two. Price wise, the bean contract notional value, a lot bigger contract than the cotton contract. But I would say the way cotton looks, you might think you will have seen that much of a decline relative to the bean price. Is that a buying opportunity? I, I don't know that it is. Honestly, if if I were to approach it that way, I'd probably go back to the options and maybe some some sort of option premium.  The cotton option market isn't nearly as liquid as a bean option market is, but there might be. And I, I did a Google search for a cotton soybean spread. Yeah. Couldn't find anything. Oh.

Paul Yeager: Well, you're going to have to write it then when you're done here.

Sean O’Leary: Might be a crazy idea, but might be some opportunity there.

Paul Yeager: All right. Thank you so much, Sean. Appreciate it. Thank you for your time.

Sean O’Leary: I appreciate it as well. 

Paul Yeager: All right. Thank you, Sean. Sean O'Leary, everybody. That's it for Market Plus. Next week, we are going to look at a startup that's gaining momentum and preserving pollen. And Matthew Bennett will be in to offer his analysis on the markets. Thank you so much for joining us and have a great week.

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.