Market Plus: Jeff French
Jeff French discusses the commodity markets in a special web-only feature.
Yeager: Welcome aboard to the Friday, April 22, 2022 Market Plus. Joining us again is Jeff French. Jeff, you do know that they talk in my ear while we're discussing things and I thought I had more time to ask you about fertilizer and I filled a bunch of time talking natural gas. First, finish your thought on natural gas. Is that done being high or are we just taking a break?
French: I didn't like the action. We got above $7.70. We got to a 10 year high and then we failed. Was it a case of profit taking? Profit taking usually lasts about a day or two. This is a pretty good four day sell off. It did not close Friday very strong. So if I'm holding in a long position in natural gas I'm more nervous than I would be, being short at these levels.
Yeager: What are you then translating some of the fertilizer movement to? Do we see any relief coming ever?
French: Ever, yeah, there will be relief. But I don't have the answers for that. It's just, there's just so much going on in this world. But clearly there's things that we could do. We have the energy here at home, we could expand it. And I don't know why we're not doing that besides the administration has the answers for that. But yeah, it's a problem that is not going to go away here any time soon.
Yeager: Well, you mentioned economy. I'm going to go of course out of order. I'm looking for my question on my sheet here. Oh, it actually is the first one. Matt in Amherst, Wisconsin asked us via Twitter, what are your thoughts on the economy in general with inflation happening and interest rates starting to creep up? How will what happens there affect the commodity markets?
French: Well, I think it has affected them. If you look at these prices and the inflation talk is something that we've been talking about here the last 12 months. It's something that we've been talking about for a while. But the general economy, yeah, I think it's slowing down. You look at, not used homes, but pre-owned home sales for March it's the slowest sales on record in the last two years. Used cars, which had one of the biggest run-ups during the last 12 months, are down two consecutive months. So yeah, eventually the consumer is going to run out of money and it's one of those things where they're going to have to decide well, do I put it here or do I put it here? And break it down per commodity. People have to put gas in their vehicle to get to work. They do not have to go out and buy a steak. They can buy the pork loin that is much cheaper than the ribeye.
Yeager: Or the hamburger.
French: Or the hamburger. Yeah, so yes, it's going to affect commodities but I think it's going to be one-by-one.
Yeager: There is an argument to be made about the cooling of the markets you just mentioned, both the used car and the housing. Median price I think again was the highest it has ever been. Certain people are being priced out of the market. But then look at the picture of some of the most expensive townhomes in Des Moines, Iowa, there was a story this week, they sold out. So there's somebody still buying money somewhere, it's just nationally, like you said, you look at the national level. But those are all signs, right? They're all contributors.
French: Oh yeah. And it's something that we've been talking about for a long time is how long can it go? Where is all this money coming from? And eventually the consumer, you just start to run out of money and you have to make choices. And I think we're getting there. It's not something that's going to happen overnight. It's a slow process.
Yeager: Tye in Washington was asking about how much higher the corn can go. I did ask you in the main discussion. He's from the feeder -- take it from the animal perspective of this question. How much higher is or can this corn market go?
French: Who knows what happens here this summer. We're at near all-time highs right now and this corn is still in the bag. You throw weather or a drought during July on this market, who knows where it can go. I don't know how high high is. Right now corn in China is nearly $11 a bushel. Markets do things that nobody expects. Look at crude oil. It traded to negative $40 a barrel. So markets can do crazy things. What I would make sure I would have done is have some call options to protect the upside, at least to get you through August. April, we're high right now, but April from a seasonal standpoint that is typically when you not put in a high in a market. Now, I don't know if that's going to happen here this year. But if you look at seasonals you usually don't put highs in, in the grain market in April.
Yeager: Right, which is always a sign. Yeah, exactly. But again, I think I've asked it here a couple of times recently of all the norms seem to be thrown to the side.
French: Yeah, just expect the unexpected. Look at the bond market. We have not had a bearish bond market in the last 30 or 40 years and the bond market has just continued to tank. So this market is wild and expect the unexpected. This thing is not even close to being done.
Yeager: Well, one factor could be this question. Bradley in Upland, Nebraska asked is via Twitter, have the corn and bean prices in conjunction with a stronger U.S. dollar finally hit a level that will hurt export sales?
French: I don't think I've seen it. We have $8 corn. The last time we had $8 corn back in 2012 the dollar was trading at $81. And now here this week the dollar is right around $100, $101. It's certainly a factor. I think you look at just the general health of some of these other economies because the demand is going to be there. There is a strong demand for commodities right now. But if some of these economies in other countries get a cold and stop growing as fast I think that is the thing that could definitely affect the export demand.
Yeager: All right. Well, you also maybe peeked ahead to this question just a little bit with Phil in Ontario, in Dresden. He asked a question similar to what you had just said. He asked, May soybeans -- you said corn, he's talking beans here -- on the exchange in China are approximately $22.34 a bushel equivalent. China has been a big buyer of U.S. soybeans with U.S. exports likely surpassing USDA expectations. Phil wants to know, Jeff, how bullish should we be on soybean prices? Or is it all about the weather?
French: It's weather driven here this week. But it has also been, we talked about it on the main show, it's that edible oil complex of the beans that really drove this market up this week. All-time highs in soybean oil. Typically you don't like the rally that is relied on by the soybean oil, but it definitely helped out the soybeans. The Chinese demand actually if you look at the first quarter, Chinese soybean demand compared to last year is actually down about 5%. Now, you've got to take last year as a grain of salt because last year they were buying everything from everybody. But China has definitely slowed down a little bit here this year on bean purchases, and not just from us but from Brazil as well.
Yeager: And that could be tied to some of the hog market if they don't have as many hogs because if they had some virus that ran through there, which they're still kind of recovering from, right? Is that part of it?
French: Yeah, it's a mess. They have no meal. And look at their ports. Look at the ships that are trying to offload. Yeah, the hog margins are terrible over there. It's estimated that they're losing $80 a head. So they expanded way too quickly and it changed drastically.
Yeager: All right. We have one more livestock related question. This is from Doug in Thornton, Iowa wants to know, he asked us via Facebook, which is always a place you can talk to us. Will the higher feed grain cost lead to lower meat production with lower harvest weights? He's asking, especially in cattle?
French: Well, the weights right now are three to four pounds above last year. But feedlots are trying to stay current. The less days that they have to feed them $8 corn, that's better. So as long as the packers can stay current, the feedlots stay current, I think they're going to try to push for less days on feed. That would just be natural. What we don't need is any slowing down in demand. And the cattle on feed report this week showed we're going to have plenty of cattle to get us through summer and I just think you've got these summer contracts at $140, $142, this is a great place to put some downside protection. If you think it's going higher, that's fine. But I would definitely be buying some puts right here.
Yeager: Protection sounds like a common thing in many of these markets.
French: Well, when you have them trading at near all-time highs it's pretty easy to -- look at the likelihood. I just, what are the chances of us going higher from these levels? I think it's probably 30% to 70% in the near-term. Long-term I think these prices are going to be prices that we talk about for a long time. These are phenomenal high prices.
Yeager: Do you remember 2022? Do you remember 2021? Right?
French: Yeah, absolutely.
Yeager: All right, Jeff French, good to see you. Thank you.
French: Great to be here, thank you, Paul.
Yeager: Good to have you. All right, next week we are going to look at the roller coaster ride for dry beans and other pulse crops and Shawn Hackett will join us to break down those commodity markets. Thank you so much for watching, listening or reading. Have a great week.
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