Market Plus: Matt Bennett
Matt Bennett discusses the commodity markets in a special web-only feature.
Yeager: Welcome into the Friday, May 20, 2022 Market Plus. Here is Matthew Bennett. The Matthew Bennett crop tour took place this week, central Illinois, across Missouri, Kansas City up to here in Central Iowa, you'll head back, I don't know what your final leg is. But touring crops is always an interesting time because there are those who have and those who have not. Who has and who has not right now?
Bennett: On my tour I saw quite a few what I would say good crops, a lot of corn and beans that are just coming up. Where we are in Central Illinois right in my back yard we were able to get going about the 20th to 22nd of April, never had a lot of big rains. We usually do. We usually dry out enough to get running and then we get this big rain, fills all the ponds, we have to go out and replant at least the ponds and we know that obviously whenever you stay wet for a really long time in the spring there might be some nitrogen loss and quite frankly it has been devastating for yields for us over the last several years. And we've had good yields, don't get me wrong, but Paul, as I sit here today I feel like the corn around home and beans, but especially the corn around home is the best I've seen anywhere. Now, south of town here I did see some good corn om my way in but not near the growth that we're seeing so far. So, I feel like the start for those who are able to get in the field early has been really good. The frustrating thing I think is those who are wet early stayed wet and they just keep getting the rains. And so it has been very frustrating for them and I certainly sympathize with them. But by all means, yeah, it looks like it could be one of the best crops I've ever had.
Yeager: But there's always the year comparisons. I'm sitting here while you're talking and I'm having flashbacks to Ted sitting right there saying, well I'm going to pull up a chart from this year or this year or this year. It kind of leads into our first question that we have here from Steve on Twitter. It's kind of juggling a lot of things. He goes, I don't recall when we had so many bouncing balls in the air at one time. How do you sort them all out? And what I mean by the bouncing balls, I'm saying what happened in '12? What happened in '08? What could happen in China? What could happen here? What do you do?
Bennett: Here's the thing, you look back at '12, we went into '12 dry, everyone knew that there was a potential that the drought might spread to the north and to the east. This year we've got drought in the west. It has been mitigated somewhat but still it's there. I've got folks in western Kansas telling me they can't plant corn yet until they irrigate to be able to get the corn up. And so what do you do? Well, in my opinion you've got to be cognoscente, especially if you’re in an area that doesn't have an overabundance of subsoil moisture to get yourself too far over your skis on physical sales. You've got to be super cautious here. Now, if you manage this appropriately, Paul, this could be a balance sheet changer this year. You could make yourself a lot of money. But the bottom line is if you're wrong, like in 2012 and you do get oversold and under produced, that is a terrible place to be and there's so many good tools right now for producers whether it's buying a put option and putting a floor into the market, just see where the upside runs, stop and think about it, we've had times lately where we were a buck fifty, a buck sixty above the spring insurance price on Dec corn. And still as we sit here today we had kind of a rough week on Dec corn and we're still $7.25, $7.30 towards the end of the week. Nothing to complain about there. So we've got to manage risk but stay super flexible because a lot of these bouncing balls he's talking about, any one of those things could strangle you this year if you're wrong. So you've got to be super cautious as to get yourself too leveraged in any one direction.
Yeager: There's opportunities to go up and down.
Bennett: I'd say I could make a case for a couple of dollars on either side of this corn market right now and on beans you can take that probably to three or four dollars pretty easily.
Yeager: All right, we have a couple of those technical type questions. So let's start with Jarid's question. Should a guy be selling $6 fall 2023 corn?
Bennett: So the first thing you're going to say whenever you mention that to a producer, well I don't know what my fertilizer prices are and I understand, I farm, I'm there with you. The thing is, how many times have we had an opportunity to hedge this far in advance $6 plus corn and it has never been a bad idea before, Paul. But the thing is there's no question we don't know what fertilizer prices are going to be. So I've said all along, once we get past this season I've got to think we'll get some relief in fertilizer prices because their supply will be able to recuperate a little bit. And so if you can get the ratio on fertilizer to corn to a level that you like to see and right now quite frankly a lot of these people won't even price anything to you, I've heard some $1800 and $2000 anhydrous type quotes. I would be very frustrated if we end up there this year. Last year I think the hurricane had a lot to do with the disruption in anhydrous production. But we don't have that this year as of right now and so the assumption is that supply should be a little more plentiful. Now, we also know nat gas is a big part of that and you've seen that gas up over $8 here. So my personal opinion is yes, I would sell anywhere from 10% to 20% in some sort of a hedge. Some of the HTA fees are actually quite reasonable out to fall of '23. And so let someone else assume that risk if that's what they want to do and get it locked in on the board on an HTA where you're not having to manage the margin.
Yeager: We have an HTA question in a minute. Let's see, natural gas up 44 cents, that's up 6% on the week so yeah, big week for nat gas. Let's not go to '23, let's go to '22. Scott in Dyersville, Iowa wants to know, should we store corn or beans this fall?
Bennett: That's a great question. Here's the thing. Looking at prices where they're at today are we okay selling at $7.30 Dec corn or $15.20 November beans? Can we make money there? That's almost a laughable question. If you are going to raise a crop of course you can make money there. But do you want to store some? If you've got storage at home I totally understand it. The market right now doesn't have any carry in it and so it's not telling you that that's something that is going to be advantageous. The market is trying to tell you look, we're going to want the crop the day you're harvesting it and we're going to want it quite a bit. Now, you could lead that, that could lead you to believe that later on they're going to want it even more, I understand that. But as a producer, if you can lock in the kind of income levels that we're looking at, we don't need to reinvent the wheel necessarily. And so I would say if you've got bins, absolutely. If you want to store some that's fine. But know what your risk is because if there was a huge carry in the market I'd say fill your bins and see what happens even at high prices. But typically when you’re in a market like this that is inverted and the processor is telling you they want it up front then the best thing to do sometimes is to go ahead and listen to what they're telling you.
Yeager: Just be tapping those bins, they'll be empty for a few months. All right, let's go to Phil in Dresden. Hi, Phil, hope things are going well. There are inverses in soybean futures almost into perpetuity. What is the potential highs in July and November soybean futures into July, especially if USDA reduces soybean planted acres going forward? How do farmers manage the risk?
Bennett: How do they manage the risk? And so whenever you're talking about July futures, first of all, we talked about this a little bit in the normal segment, there's not a whole lot of folks that even have those beans. And what's the risk? In my opinion, the risk if you've got old beans is that the market goes down two or three dollars and you sell them higher than what you've sold beans in years. But there is an inversion there and I know where Phil is going with this. Here's the thing, what could the high be in July beans? Could beans go to $20? Yeah, I think they could go to $20. I'm not saying they will, but I think that if you make a new high in the bean market then there is going to be some buy stops above that and quite frankly there's a lot of folks, we talked a little bit about origination in corn, that people are a little bit uneasy if you will, you can take that about three fold as far as beans are concerned because there's just not very many beans out there. And so as a producer, again, what kind of risk are we managing or what not? If you look for instance at $15.20 November beans, yeah there's this inverse from July to Nov, I think what really hurts a lot of us is we say, you know what Paul, I don't want to sell $15 beans because I sold old beans for $17.
Yeager: I'm looking at the chart there as you were narrating it. Yeah, why not?
Bennett: Well, that's what people think because they sold their old beans for $17. But let's take $15 times whatever your beans might make this year and a lot of people have a three or four year APH right now of 65, 70, 75 bushels. Take that times $15. And so the thing is we've got to keep perspective. What are we trying to accomplish here? Are we trying to hit the high of the market? Or are we trying to lock in incredible income and put ourselves in a situation once again where our balance sheet has improved significantly from what it has been over the last few years? We have to keep sight of what we're trying to accomplish here.
Yeager: Always a goal. So I'm going to -- let's do quick Aaron in Ocheyedan, Iowa's question. It is similar to what you've already covered but I just want to recap it because I think it's important. Is it still strong basis and inverted carry telling us producers to use HTAs if making new crop sales, at least for now?
Bennett: Here's the thing, I've thought HTAs, I always kind of like HTAs as part of my risk management plan. The thing is, I think that basis actually could get a little bit wider than what people think it will be if we have any crop at all. And here's why, you look at transportation costs and I've got to think that transportation costs are certainly going to work their way into basis. And so you've got to be cognoscente of the fact that transportation is a huge issue this year. And so to me if the elevator is telling you right now, hey you know what, we want your stuff this bad for fall, sell them some fall delivery. There's nothing wrong with, again sometimes I feel like we try to reinvent the wheel and I think it's a fair question. I like the question. But sometimes we've got to take a step back from the situation and say okay, I can HTA for $15,20 or I can sell them some beans for $14.90 off the combine, no storage costs, all I've got to do is get it to them. Take $14.90 times your APH and what kind of profit margins are you looking at there? And if those are acceptable to you, and they're acceptable to me, then let's go ahead and take advantage of some of those. But HTAs are okay I think for '23. '22 I'm trying to get away from as much as I can.
Yeager: Fair enough. Let's finish with the overall economy and tie it back into commodities here with John in Kansas asked us on Facebook, how high will the Fed have to raise interest to slow down inflation? And then will tightening the money supply to control inflation slow down commodities?
Bennett: I'm not an economist to that level that I could pick an interest rate. Here's what I'm going to tell you, Paul. The way that the equities are performing there is going to be a ton of pressure on the Fed to halt interest rate increases. And so there's going to be a massive tug-of-war ahead of us. How much could interest rates go up from here? I could see maybe another point, point and a half, two points at the absolute max for me in the next 12 months. It's possible. But if they do that I think the ramifications are going to be something that politically speaking a lot of folks aren't going to like one bit. And so I think obviously your equities market they haven't really liked what we've seen so far and they're certainly not going to like the scenario that I just painted. So it's going to be very interesting moving forward. Again, I'm not as good of an economist as maybe some people might be whenever you're looking at equities. But I can tell you equities, interest rates, you name it, you start raising interest rates even more than what we've already seen and it's going to be an intense amount of pressure on the Fed.
Yeager: Okay, don't take it from the Fed raising interest rates perspective, take it from the part of this question, will tightening the money supply to control inflation? I can't tell you how many times I hear that of there's just too much money out there, tighten that balance sheet. Is there more political capital to go in that direction?
Bennett: Probably. The bottom line is there's been too much money available, we all know that. What is the money supply going to be moving forward? Are we going to continue to print money? If we continue to print money you're going to continue to see inflation and you continue to see inflation people are going to continue to say you've got to raise interest rates to curb inflation. And so let's quit printing so much money and giving money away. That would be my thought process. But on the same token there's a lot of folks that are going to be against that. We just wrote a check for $40 billion this week and not everyone is in favor of that. Some people are, some people aren't. But that $40 billion is a lot of money. I'd take the interest off of that for a couple of weeks.
Yeager: Wouldn't be bad, make your drive home a lot easier.
Bennett: It would be a fly. I'd be flying home.
Yeager: Matt Bennett, good to see you, thank you.
Bennett: Absolutely, thank you.
Yeager: Talk to you soon. That will do it for Market Plus. Next week, we are going to look at the costs after the flood is gone and John Roach will join us to break down the commodity markets. Thank you for watching and have a great week.
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