Market Plus: Jeff French
Jeff French discusses the commodity markets in a special web-only feature.
Yeager: Welcome in to the Friday, January 7, 2022 Market Plus. Here is Jeff French. On this sheet are some questions that you have submitted and we always appreciate everything you send via Facebook or Twitter or Instagram or e-mail. We had some through our website today, always appreciate that. So Jeff only kind of knows what we're going to ask. We may or may not ask this last question, we'll see how it goes. We have some familiar and similar questions so we have boiled down a couple. But first off, Jeff, before we get to these questions, what do you think of this USDA Wednesday? I've had some people who have sat in that chair have called it a combination of all the big sporting events. How do you see this January report? Is it a big deal?
French: Yeah, it's a big deal, especially for the 2021 crop. It's the final production report. Now granted, yes, they can go back and redo them later on, especially in the September report. But yeah, this sets the tone for the New Year. And we'll trade these numbers for the next couple of months. So it's a big deal. The numbers, nothing should be too surprising. We had a good crop. Now, the trade has a history of overstating the final corn number and the corn carryout. So that might be an area. Beans all over the board. The trade is expecting a bump in yield. But the last time that we got changes back in November we were expecting the same thing and actually the USDA lowered the yield. So it can be all over the board. What we're looking at is if there are major surprises that can really shock the market. But I go into these reports and I kind of analyze what's the most difficult trade to hold through that number? And you look at beans in the last 60 days, old crop beans are up $2.20 a bushel. They're here at levels that we haven't seen in years. So I think being long beans would be pretty difficult through the report. But fundamentally there's a story out there and the funds are long. So the corn side, corn has been kind of just along for the ride. We've had strong basis levels, great demand especially on the ethanol, and corn hasn't really been the story. It has been all about the beans in the last six weeks.
Yeager: It has but there was a time when beans was all we talked about it seemed and then beans just kind of went away. Is beans still the biggest story after Wednesday?
French: I think we'll have to see. But going into, this is the South American growing season and that will be the fundamental focus for the next couple of months, especially being that we are in a La Nina year and like we were talking about on the main show is the La Nina is expected to peak here third, fourth week of January. We are expected to see some relief after that. Will it be enough rain? That's kind of what the market is focused on right now. Will it be enough? And we're just going to have to wait and see. But watch that March contract. If we start making new contract highs above $14.40 it can go and it can go fast.
Yeager: All right, so be probably paying attention to things on Wednesday.
French: Oh absolutely. Why be at the mercy of the USDA? I say that to my clients all the time, especially in these big reports. There's these weekly options that are extremely cheap, 5, 10, 15 cents a bushel. The report is on Wednesday. These options expire Friday. So you can buy this protection, get through the number and then you have 24, 48 hours to decide what you want to do with that protection. But I just, I don't like seeing my clients, a lot of my clients have unpriced corn in the bin and we'll be talking next week to protect that just in case they don't want to sell.
Yeager: All right, well let's move to some questions. Again, thank you. You can always hit us up on any of the medias. Let's start with Larry. He emailed this question. And he's asking, what are the changes that farmers will apply less nitrogen, maybe even switch to beans and thus force a spring price drop?
French: I don't think -- I don't think it's very likely, not in the Corn Belt. I think most producers are going to take the stance of I want to grow as many bushels as I possibly can and applying as much fertilizer gives me the best opportunity to do that. That would be what I would have in mind and I think a lot of my producers are going to.
Yeager: And frankly the fall was extremely busy with a lot of anhydrous put on and the weather was good after that rain in October, it really dried up.
French: It was perfect.
Yeager: Okay. Bradley in Upland, Nebraska asked a question. He's asking similar to what we discussed to start the program. With the dry weather, lack of snow cover, damage from the windstorm and low crop ratings, is winter wheat undervalued and due for a rally?
French: Historically speaking $7.50 wheat is still pretty good. If you look at the action in the last two months, yeah I can see how you have that thought that it's undervalued, especially with the drought conditions and the windstorm. I was touring Kansas the week before the windstorm and before that the wheat wasn't even looking that great. So I can only imagine how bad it looks after what happened there the week after I was there. So again though, I said on the main show, money flow will trump fundamentals and that is what we've seen here. Wheat was overdone and it was $8 to $8.50 there for about two months and we've had a little bit of a fallback here. I think it's critical that we hold these moving averages, especially the 200 day moving average. We start taking that out there's probably 50, 60 cents downside risk. But I do like it, if you have made higher sales this is the time to maybe start buying half of them back.
Yeager: An opportunity.
French: Yeah, absolutely.
Yeager: Nathan in Taber Alberta, and we do appreciate all of our Canadian viewers and listeners. This one he is asking, what do you expect to see from the bond market in 2022? And this has big implications in many different ways that we should pay attention to.
French: Well, if you look at the Fed they in their minutes this week they indicated that they're probably going to be raising interest rates three times this year and as early as March. That is what I took from their minutes. So, higher interest rates, lower bond prices. That is just what you look at. Now, what effect will it have on land prices moving forward? I think psychologically higher price to borrow money, I think we could see a correction there. I think you'll be well supported. But yeah, that is going to be one of the big questions moving forward.
Yeager: Well, inflation is a topic and there is discussion if this is inflation on the input side of the ledger. Justin Ithaca, Michigan wants to know, due to those high inputs costs, he means fertilizer and see, will we see the corn market put highs in earlier this year to buy acres? You already talked about buying acres for soybeans and cotton. But what about corn in that equation?
French: You look at, you compare it to what the beans have done. So new crop, we're talking about November beans and December corn. November beans in the last 30 days is up $1.20 a bushel, it's just straight up. During that same timeframe, December crop corn it's up about 10 cents. It has not gone anywhere. So that tells me as of right now, the first week of January, the corn market is pretty comfortable with the acres that they will get. Could we put a high in early before it gets planted? Possibly. But that also means that we have to have perfect summer weather. And you look at some of those extended forecasts, I know you can see them all, but we've come into this on the drier side, so I would doubt that we would see a high before we put this stuff in the ground.
Yeager: Interesting. And frankly the moisture, as you mentioned, not there. If you look at the snow pack maps, North Dakota has some, Northern Minnesota has some, but you start getting south of there there's just, here including where we're sitting not as much snow in this early part of January, but that can change quickly.
French: It can.
Yeager: All right. Anything else on your mind, Jeff.
Yeager: Does pineapple belong on pizza? That's what David wanted to know.
French: You know, I guess I've never had it so I'll just say I won't knock it ‘til I try it.
Yeager: And you lived in a spot where pizza was pretty good. So if he hasn't tried it folks that might be saying something. All right, Jeff, thank you so much.
French: Thanks, Paul.
Yeager: That will do it for this installment of Market Plus. Next week we'll expand and add a couple of chairs here and we'll examine the major government reports with Naomi Blohm, Ted Seifried and Matthew Bennett. Thank you so very much for watching or listening. Please have a great week.
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