Market Plus with Jeff French

Yeager: Welcome into the Friday, September 2, 2022 Market Plus. Jeff French is back with us. Jeff, this is the, we're in the last grasp time people travel around. You're always traveling. You were on the road this week talking. What was the producer question for you?

French: You know, how long this thing lasts. The gist I got is the farmer is very light sold here going into harvest.

Yeager: Forward contracting.

French: Yeah. They haven't sold very much of what's out there still in the field.

Yeager: Is that a good idea?

French: When you look at the five year average of prices for the first week of September corn is $1.50 over that average right now. Beans are $1.70 over the five year average for the first week of September. So we are at historically very good prices pre-harvest. And in my opinion this harvest is going to come fast, especially in the west. You're going to hear about it next week, you're going to hear about guys rolling. And what I got from them too is they just have a bad taste in their mouth from selling too early last year. We've seen it for two consecutive years where beans during harvest they hit that low in October and then they proceed to rally all winter long, four or five dollars a bushel the last two years. So to counter that is yes, take the good prices now, but follow that up and defend that sold bushel position with some March call options. You can get it back on the board for 25, 30 cents a bushel. That's your most risk. And if it's going to rally, you'll partake in that rally.

Yeager: Okay, there's the protection side of things. Let's talk about what ifs then. What would change that story if we don't rally after October?

French: Well, so we've had the private analysts out there and if you take the low ball, the 168 national yield in the corn market, if you believe that number that is still the 9th biggest corn production that we've seen in our history. So it's not a bad crop, obviously it's not a record crop or near record what the USDA was telling us a couple of months ago, but it's still a decent good crop. And we've had a very good supply rally here into August, historically supply rallies in August are meant to be sold, especially coming in here to September with harvest approaching.

Yeager: Have a couple of questions that are very similar so we'll consider this an education of reiterating the points, we'll call it that. Tom in Greeley, Iowa is where we're going to start. The last time that we could book grain sales for these prices so far out, 2023, 2024, 2025, we didn't get them back for quite some time. Thoughts on booking that far out?

French: I have no problem with it. You have almost $6.20 December '23 corn futures right now. I think we close at $6.17. Awfully good prices. I advise all of my clients to get at least 20% sold, cover some of the inputs. And then the beans same thing. You look at the beans, we tried to get up to $14 twice this week. We were at $13.99 and then $13.98 and then we failed pretty good. So we're in the mid-$13 for November '23 beans. Again, get a percentage. We're not doing everything but 20%, 25% no problem and you can always reown those bushels on a break with call options. So yeah, absolutely. These are great prices. I will never stop anybody from selling $6 corn and $14 beans.

Yeager: If you do you're done working.

French: Yeah, exactly.

Yeager: All right. Mitchell in Orange City asked this question last week and I wanted to bring it back again because I thought it was important. Is this one of those years where the low has been put in already and will trend higher into harvest? And I know you already said October we've rallied in the past. So let's go back and say that we've put it in already.

French: Unlikely but maybe. As of right now, and it's September 2nd right now, our lows in corn and beans was scored on the first trading day of the year, January 3rd. $5.32 in December corn and $12.77 in November beans. So that was the low of the year on the first trading day. We came close in the July and we got down to $5.80 in corn or $5.66 in corn and $12.88 in the beans. So we got close. Do we not take those out? It would be surprising if we don't take those lows out. But again, we have to see what happens with China here during the winter. Does Brazil get the 104 million acres of beans planted? So there are a lot of what ifs. But it wouldn't surprise me if those lows are not taken out.

Yeager: Well, let's go Boyce in North Dakota here because Phil has a good question, we'll get to you in a minute, Phil. Let's go with Boyce in North Dakota because he is kind of along these same lines so a good follow up. How often do we see both a seasonal rally in the spring and a counterseasonal rally in late August in the same year? If we have a disappointing crop this year are we setting ourselves up for another year of high prices? I was more obsessed about the counterseasonal rally that you were talking about.

French: Yeah, and we've had a nice supply rally here in August, no question about it. We've rallied $1.20 in the corn off the July lows and just under $2 a bushel in the beans. So, seasonally though and we're just going to have to see in the next 30 days, with harvest approaching, with the American farmer in my opinion compared to years past are definitely undersold from my opinion. So what happens and we get in the field and all of a sudden the yields aren't that bad? Do farmers hit the sell button across the scale? We're just going to have to see here in the next 30 to 45 days.

Yeager: This is an immediate reaction to this week's market. You see the report last week, Monday the price rallies. Did a lot of people pick up the phone and call and say I'm selling?

French: No. But we did, there was quite a few people, we did put a lot of $6.50 corn puts on and a lot of $14 bean puts. So there are guys where they've got the rain, they're being very quiet about their yield potential.

Yeager: I'm not going to tell you who did send me a note in the Eastern Corn Belt who did say, yeah, we're pretty good.

French: Yeah, you can tell the guys that have a good crop, they're keeping their mouth shut.

Yeager: I'm just going to say he's east of Iowa, that's all I'm going to say, I'm not going to call him out. Let's go to Phil in Dresden and no this isn't from Phil. The question is from Phil but he's not the one who gave me that information. Phil wants to know, Jeff, both corn and soybean future spreads tell a bullish story into '23. It would seem gone are the days of will December corn reach $4.25 or are they? What could upset the apple cart in corn and soybeans looking ahead? Do we sell everything off the combine this fall?

French: Well, I think you've got to take a little bit into this winter and see what happens. Again, keep it locked in with puts to the downside. There are going to be places, especially in the west, that you're going to see some really good appreciation. That is real money. So I would take some into the winter. But  what's going to upset the apple cart here? I think it's going to be something -- and this is how it usually is -- it's something that's not related fundamentally to corn and beans. Is it China invading Taiwan? I'm in the boat where it's not a question of if, it's only when. And when that happens what are we going to do? How are we going to respond? Personally I think all we'll do is sanctions and they're going to respond by saying okay, well you're going to sanction us, we're done buying corn, beans, wheat, cattle.

Yeager: Which has always been a threat in all of this.

French: That's a big one. And then the recession. I mean, if we are truly in a recession and the world goes into a recession that is going to hurt commodity demand long-term and that is what could definitely bring prices lower.

Yeager: All right, well this is a little bit of a global question but it comes to the weather and this is from Robert in Garwin, Iowa. Thank you Robert for this question. With a world drought it seems we may have a real problem with the supply this coming year. So it would lead to much higher farm prices in the new marketing year. Am I wrong?

French: Well, no, but I think those prices are pretty darn high already. This is something that we've been talking about for a long time and we are pretty close to, we're going to see here in the next two months, but we're going to have a record bean crop or close to a record bean crop here, Brazil is going to expand 5%, 104 million acres, I know I've talked about that a lot but that is a big number and that's just Brazil alone. And then we have two different private analysts out there talking about much different size of a corn crop out there. One analyst is down at 168 while the other one is at 173. That's a 400 million bushel difference. So that makes a big time difference. So I look at prices right now and these are great prices. They can go lower in a hurry. We talked about cotton, cotton has a very fundamental bullish story and it just broke $15. That's about 12% in five trading days. So when it does break -- and money flow will always trump fundamentals and we've seen it before. So just be prepared. Hopefully it doesn't happen. But keep some downside protection in case it does.

Yeager: Those are your last good parting words. I should close on that. But I do need to do one more thing. I kind of asked you about crude oil at the end of the television show. I bring crude up because of its relationship with corn. But do you think crude has had a bigger influence on other commodities or influence on other commodities? I guess I shouldn't use the word bigger.

French: Well, I think it's kind of the staple, it's got to be the biggest traded contract in the world. It's one of the biggest industries in the world, energy. So yeah, when crude is up $5 it's really easy for corn to be up 10 cents. You just don't see it too often where crude is down a bunch and corn is rallying. We did see it a couple of days here this week. But it does not happen too often. And when you ever see $8 corn, crude is always usually over $120 a barrel. So it definitely has influence and bigtime influence.

Yeager: All right, Jeff. Thanks for your insight. Good to see you again. Thank you.

French: Thanks for having me.

Yeager: Glad you came back. Talking with Brooke there I was worried that you weren't going to answer our phone and you were going to say, I don't want to talk to her.

French: I'll be back in six weeks.

Yeager: All right, see you then. Next week, we're going to look at new approaches to handling mental health emergencies in rural America and Elaine Kub will join us to analyze the markets. I'm Paul Yeager. Thank you so much for watching. Have a great week.

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