Market Plus: Angie Setzer, Chris Swift

Market to Market | Extra
Jan 21, 2022 | 14 min

Angie Setzer and Chris Swift discuss the commodity markets in a special web-only feature.


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Yeager: Welcome in everybody to the Friday, January 21st, 2022 MarketPlus. Joining us again as, uh, we continue our discussion, Angie Setzer and Chris Swift from different parts of the country. And, uh, you two dodged, the cold. I know Chris, every time we try to bring you up here, the weather throws us a wrinkle. And Angie. I, I mean, I don't know, you're close enough to a lake, it was probably like 26 below or something this morning.

Setzer: We weren't, uh, near as bad.

Yeager: Okay. So that, it, it,

Setzer: I, I have experienced that and I'm glad that I no longer have to experience it. So I'll take a low of six.

Yeager: Yeah, that sounds good.

Setzer: It's on the right side of zero

Yeager: And, and Chris probably we consider 60 low, you know how those Tennessee, those Tennessee winters have mild you up a little bit.

Swift: Yeah. We're, we're 30 and it's cold.

Yeager: Uh, Chris, we talked a lot about, uh, you answered a little bit about cattle on feet. It came out right before we taped on Friday. Uh, I think you said something about 6 percent, but that was, uh, rise because they were pulling, uh, animals off of wheat pasture. What else in that report caught your attention from Friday?

Swift: The, the total on feed number, it came out at a little over 12 million head. So when we kind of, that's a pivot point that under 12 million head things are very manageable over 12 million when we it's manageable. But when you have distribution and transportation issues like this, and we have other issues of the COVID, it makes it a little bit more. So it was a 101 percent on feed. It was the second highest, uh, January, uh, on feed number since like 1996. So we do have some inventory. The marketings were fair at a hundred percent. Um, the weather there was probably not a big impact in December. So we have to think that the COVID, you you've mentioned that several different times tonight. So that is more likely than not some of the issues in the marketing since we just didn't need as much product through that, uh, December timeframe.

Yeager: Well, and you know, you talk about feeders and, you know, it was cold in a lot of the cattle feeding areas this week. You saw the pictures of the ice being chipped out of all those feeders, trying to keep the water. And we thank everyone who's been going out to, uh, keep those animals well cared for, uh, Angie, I'm gonna start with, uh, AJ in Kansas. He has a question via Twitter, uh, and it's basically asking, "What are the odds that we just stay in this $5 to $6 channel all year, given the, a fluctuation that we're talking about in corn acres?"

Setzer: Honestly, I don't think it's that bad. Um, you know, historically you would say, oh, it's relatively low. We don't tend to stay this high. You know, you can go back through some historical charts and see that corn above $5, $5.50, and especially $6 is, is actually quite rare. But with all, all that we have going on, you know, I mean, at least for the next six months, I would say that it, it would not surprise me at all, uh, to see us stay just in this sort of range, probably in the higher end of the $5, $5.50, $6 range, um, than anything else until we have some more clearer, um, you know, answers to the unknowns that we currently are looking at.

Yeager: Ooh, answers to the unknowns. Uh, very good segue into the next question, uh, from Nathan in Yuma, Colorado, Angie, and it is about acres. That's one of those unknowns. Uh, Nathan wants to know, "How many acres do you think corn is to other crops? If we don't see a spring run up?"

Setzer: We've had this conversation time and time again. Um, and obviously with $13 in November '22 soybeans, it gets a little bit more, it becomes more of a head scratcher. Um, but I would say for every customer that I've talked to and I think Michigan qualifies as fringe. Right? Uh, so every customer that I talk to in, in Michigan for every person that is increasing corn and, and reducing beans, because corn has to move higher. Right?. And maybe they booked their, their inputs early or something, you know, I have another, that's doing the opposite. Um, I would say in the heart of your corn belt, Iowa, Illinois, uh, you know, your areas where your 200 bushel plus yields, uh, is probably going to be a, a, you know, it's gonna take a lot to get them to look at planting soybeans instead. So, you know, to me, I think we could lose a couple million acres, but I'm, I'm not entirely convinced at this point, just because farmers are eternal optimists and tend to bet a bit on the come, and so it wouldn't surprise me that everyone, not everyone, cuz that's a, a misnomer, but a good majority of people may actually go ahead and, uh, start planting or plant corn with the idea that the price increase.

Swift: Okay. Uh, I need to go to an acreage follow up then if I'm someone who has wheat or, I'm sorry, well, wheat too, but cotton has a possibility Angie, uh, has, has cotton done enough movement on the charts to buy acres?

Setzer: I think so. For sure. Cotton's definitely one that everyone's gonna be looking at planting.

Yeager: Okay. All right. I hear what's going on there. So I'm gonna go to Chris now 'cause Chris, I wanna know, last week we had a good discussion about '23 marketings and I know you talk about grain a little bit. You advising anybody to be buying into '23 right now, Chris?

Swift: We are looking at it from an aspect of, we don't wanna be caught by surprise. So we have looked into owning call options out in the July of '23 timeframe for just such an instance. Um, we saw so many markets in, in the year of '21 exceed levels that we've never seen before or could have ever really fathom and moving to. So what I don't want to have happen is is my client wake up a morning to $8, $9 corn and, and we have nothing on. So what we've really done is just taken some preemptive strikes, uh, against maybe something like that and own some really out of the money call options, maybe own a few more than what you need so that you can make up a difference. If it does work, if it doesn't work and we're able to buy grains cheaper, it's gonna be really hard to not be able to overcome the premium that you pay. For it.

Yeager: All right. So Angie, I guess I'm gonna ask you this question. Uh, I'm gonna skip down to Roger in Indiana because he's asking a little bit about this discussion. Roger's asking us via Twitter. "Do farmers make money buying options, insurance as a hedge, as a group on average? Yes or no?"

Setzer: Well, 90 percent of options expire worthless. So I think that answers the question, but I think if managed properly and you know, utilized in a way that does enhance their hedging, you would, if you talk to people that, that are working with the right people or have experienced and really work to educate themselves, you'll find that a, a good portion of them have made my using options, uh, you know, to really enhance the hedging practices that they're using.

Yeager: How much '23 are you advising people on? I know you probably saw the traffic last week.We asked Matt Bennett that question, and it continued through to this week. What's your take on '23?

Setzer: We've been small. I, I, you know, basically I've been saying what's the smallest crop you've ever pretty produced and let's look at starting with 10, 15, 20 percent, depending on what crop you're looking at, which price, you know. Specifically, a lot of folks have been asking about '23 wheat and so that's been the one where it's like, right, well, let's start small smallest crop, take a percentage. What's the floor you wanna look at? Twenty percent or something of that nature. Obviously these are good numbers to take advantage of, but there's so many unknowns in the world today. It's hard for me, especially when it comes to the costs of production, not necessarily whether or not $5.25 or $12.50 or $7.50 are good prices, but what is it going to cost to produce this crop next year? You know, that's the part that I get really nervous about, you know, saying to get aggressive.

Yeager: All right.

Setzer: And so we've, the lower end.

Yeager: The lower end. Okay. So Phil in Dresdon, Ontario asks us, uh, a little bit of a combination of all of these questions. Uh, we, we're talking about in a perfect world before now. Let's talk about the current world we're living in. "Is it time to set all new crop or is the geopolitical risk this year too hot, (whether it's Ukraine, Russia, China, Taiwan) to price now, or Angie, should we just bear down and do the right thing?"

Setzer: Bear down and do the right thing. I think he's been listening to me too much.

Yeager: I think so.

Setzer: Yeah. I think we talked about it a little bit earlier. Uh, you know, what you spending, I think you have to cover with some sales, you have to look at it really kind of trying to make sure that you're being a proper manager of your risk. Now, if that's through options, go ahead. If you want to, you know, sell some and, and defend with some calls, that's fine as well or, or own puts. Um, but I think it's definitely something that you wanna be of, especially if you're a younger producer working to, to build some equity and, and really, you know, especially working not to, to go backwards.

Yeager: Mm-hmm.

Setzer: Um, you know, I think you have to really have an honest conversation with yourself about what your cost structure looks like, where your level of, of profitability is what you think you'll be able to accomplish when it comes to spreads and basis and actual cash values and, you know, make sure you're taking advantage of $13 soybeans, especially if the market, if you're making a decision on planting, based on market values, you have to take advantage of these values because they're not guaranteed to be there later.

Yeager: Okay, Chris, I need to get at, uh, you, uh, another take on this. I feel like I'm maybe a member of a committee. I keep asking similar questions, but a lot of 'em are the same. This one. Uh, Chris is for you specifically, uh, JJ in Minnesota, wants to know via Twitter. Uh, "Where do you see the cattle market through 2022, given both the drought and the cow liquidation. You've kind of taught, talked about the drought. Let's talk about the cow liquidation side of this equation.

Swift: Well, I think we have to wait until for two more months until we get to the March timeframe and see if the drought is broken enough to reestablish the pastures in the Northwest where they're burned up so bad. So, really, we're not gonna know for two more months what that might be. But, again, as we know, we're in kind of minor liquidation right now, if that slows and goes into any kind of expansion, we start pulling those cows and heifers back onto the farm. It, when we look at as far as prices go, I doubt very seriously that you will see the premiums put on futures that we have in the years past. If we look back and, and ant, uh, um, Angie had answered this question very well about the option inspiring, but what a lot of producers don't understand is when they say, do they make money off of the option? Do they make money off the future? What that probably helped, even though the actual balance of the position may be a loser, the cash side of it could be an enormous winner and that backing by either the put or the call option that allows the freedom of movement. And it, it can give that producer the, the ability to withstand a lot of market pressure, knowing that he has a backstop somehow or another there. Now the market does something different, as we all know in the next six weeks, six months, then he gets to take advantage of what he had no idea was gonna be available to him. But in the whole interim, he's still protected to a limited, uh, maximum ceiling or minimum sale floor, one of the two.

Yeager: All right. It's been fun that you've both had a chance to be positive. Now, in our last question, you're gonna have to stick your neck out, just it's a tiny little bit. Angie, sorry that you've said so much about, you're always willing to roll with whatever we ask. Uh, Paul Farmer in Tennessee, and maybe the Twitter handle says what he's about to ask Angie you first. "When is the crash coming?"

Setzer: Oh, go. I mean, it's the 700 pound gorilla in the room. So I, I think honestly we have to watch the outside markets more than anything. Um, you know, potentially see what's going on there and then obviously geopolitical. Like, I don't know it's coming, but could it be six months from now? Could it be six years from now? Yeah. I mean, honestly, I, I, I wish I could stay with confidence when and, and make my job much easier. Um, you know, but I think that goes back to the conversation we had before about managing risk and booking profits when you can. Yeah. You know, simply because we don't know, uh, you know, what's going to happen six months from now.

Yeager: What do you think Chris is that crash coming? We saw the mar we saw the equities give back some this week.

Setzer: Uh, we did, I think when the money slows down, uh, we continue, even though the, the fed is tapering, they continue to pour more money out into the system. The current administration is talking every day about more social spending out there. So until you pull back on spending and you stop giving people money that don't work for it, then you're gonna continue to have greater inflation. It it's just the obvious you more money creates inflation. And when you have, uh, no type of infrastructure being produced from that money being dolled out, they just go buy things with it.

Yeager: Mm-hmm, Chris,

Setzer: I'm really sad he didn't take the opportunity for 'Mo money, Mo problems.'

Yeager: He could have.

Yeager: And frankly, I, I just also knew need to apologize to the, the control room. I, I resisted the entire time, not doing any, uh, Meatloaf comments, either ‘two outta three ain't bad’ paradise, any, you know, we haven't seen anything by a ‘dashboard lights.’ All right, Angie Setzer Chris swift. Thank you so very much. Good to see you both and appreciate your time.

Swift: Thank you, Paul.

Setzer: Thanks for having me.

Yeager: All right. Next week, we are gonna look at the call for voluntary electronic identification in cattle while Elaine Kub will analyze the markets. Thank you so much for watching. Have a great week.