Latest / Professional Ag Marketing Podcast / Serious Time for Serious People

Transcript

Serious Time for Serious People · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is January 5th.
• 0:25
  SPEAKER_01: I've got Pat with us.
• 0:26
  SPEAKER_01: How's it going?
• 0:27
  SPEAKER_00: Good afternoon, Mike.
• 0:28
  SPEAKER_00: Going well, thank you.
• 0:29
  SPEAKER_01: Awesome.
• 0:30
  SPEAKER_01: Well, what do you want to talk about today, Pat?
• 0:32
  SPEAKER_00: Well, let's uh spend a little extra time on grain fundamentals and and uh risk management and strategy and all of those things.
• 0:40
  SPEAKER_00: It's been a a couple weeks since we've had the opportunity to to dive a little deeper into that subject, um, Mike.
• 0:46
  SPEAKER_00: So I thought it it'd be a good idea to spend a little bit of of time in in that space.
• 0:52
  SPEAKER_00: And you know, we've seen a um we've seen a reasonably big sell-off here recently in in uh grains and largely wrapped around uh improved weather conditions in the southern hemisphere.
• 1:07
  SPEAKER_00: And and uh you know, we'd we are trading weather more or less year-round these days, right?
• 1:13
  SPEAKER_00: And so certainly part of the reason for the sell-off.
• 1:16
  SPEAKER_00: But um, I don't know, Mike, my sense is as I have the opportunity to interact with folks, that there's becoming an increasing level of concern about you know a market breaking later here.
• 1:26
  SPEAKER_00: I mean, we we were able to hold pretty good support uh through harvest time here, and then that December contract let us down as it worked its way into first notice and all of that.
• 1:36
  SPEAKER_00: And and now all of a sudden, if you will, March isn't too far behind.
• 1:41
  SPEAKER_00: And so um again uh um raising concern from the row crop community about what prospects are here in terms of of potential.
• 1:50
  SPEAKER_00: And so I thought today was as good a day as any to spend a little time on that subject.
• 1:54
  SPEAKER_01: So let's talk about some uh risk management practices and what custom uh what customers or farmers in general have become accustomed to or normal uh practices over the past couple of years, Pat, and then we'll kind of look at going forward what they should transition towards and what they should utilize.
• 2:13
  SPEAKER_00: Yeah, exactly.
• 2:14
  SPEAKER_00: And so one of the things that um I guess I believe is worth noting is part of the part of the the uh um core components of our success as it relates to managing risk, Mike, has been um to be aware of what stage of the cycle that we're in, right?
• 2:33
  SPEAKER_00: And and more or less, um we know how this goes.
• 2:37
  SPEAKER_00: We go in four or five year sort of cycles of decent margin opportunities and then a more challenging sort of uh of opportunities, and then and and so um and so for our rook producers, you know, we've enjoyed the last three or four years of reasonably good market opportunities.
• 2:57
  SPEAKER_00: And um my sense is, Mike, is that it's become a little easier to rely upon you know some some different type of marketing programs that are out there that achieve some type of an average during the summer months or or some type of a deal where you know if a certain price is tripped at a certain time you've got some more bushels marketed and all that other kind of all that other stuff.
• 3:21
  SPEAKER_00: And and I would just make the observation, Mike, that we probably are moving into a time frame here where um the the opportunities are going to get a little bit uh um less obvious.
• 3:36
  SPEAKER_00: The opportunities for uh margin probably are gonna constrict.
• 3:41
  SPEAKER_00: And the most obvious observation there is as it relates to that statement, is that we're sitting here today at some levels that are challenging break-evens for a lot of producers in the corn complex today, and that's happening uh when we produced a below trend line crop, right?
• 4:01
  SPEAKER_00: And so if you think back over time, there hasn't been very many years where um where we're marketing below trend crops and the prices at or below break-even level.
• 4:16
  SPEAKER_00: That's abnormal.
• 4:17
  SPEAKER_00: That's abnormal, exactly right.
• 4:18
  SPEAKER_00: And so, and so something's changing fundamentally on the demand side of the equation.
• 4:23
  SPEAKER_00: And then the obvious point is is gosh, what happens if we end up producing a crop that's at trend or better?
• 4:30
  SPEAKER_00: What impact might that have on our profitability?
• 4:32
  SPEAKER_00: And so, and so I just say that to maybe finish up the first comment, which is over the last three or four years, there've been some more um contracts that have been, I guess, have big have have become more popular because they do a good job of capturing seasonal tendencies, and you didn't necessarily have to hit your mark on on hedging because um because margins are pretty good, right?
• 5:00
  SPEAKER_01: And a lot of those too leave a little bit more of a window open for some to take advantage of some of the upside rather than a true protection hedge.
• 5:09
  SPEAKER_00: And you're giving up something for that, yeah, right?
• 5:12
  SPEAKER_00: Yep, and so and so when I think about the best ways to manage your risk on on uh on growing crops in tighter margin sort of situations, what has been most successful in that environment through the years is first of all taking this time of year to identify um what makes sense for your business, right?
• 5:37
  SPEAKER_00: And so this is a great time of year to to develop some some uh real uh projected cash and um depreciated and all that uh break-evens, but really think about what our margin objectives are here in this in this tightening margin environment, and then and then utilize some type of a firm offer order strategy, get your orders working.
• 6:01
  SPEAKER_00: And and so one thing that we would expect to see as we work into 2024 here and closer to our growing season is we do anticipate that we'll see some outside money flow.
• 6:15
  SPEAKER_00: You know, the last week we we talked a little bit on our podcast about about the lack of of index money, uh, New York money, managed money, index fund, all that all that that kind of thing is is at a record low in commodities today.
• 6:29
  SPEAKER_00: We would expect, as we go through 2024, there to be a little bit more interest in in outside money flow, which is a good thing.
• 6:36
  SPEAKER_00: It provides opportunity for us, a little more volatility um in as it relates to uh um to those markets, I think can help us quite a bit, Mike.
• 6:48
  SPEAKER_00: But what also happens in that increased volatility um um type of markets is that those opportunities can become more limited.
• 6:57
  SPEAKER_00: And so um so what you need in that situation is what's been most successful in situations of tighter margins is when um either we have orders working or working pretty closely with someone like you and I that's able to uh to execute uh sort of real time on those opportunities.
• 7:15
  SPEAKER_00: And so I guess what I'm trying to say, Mike, is that I I think that um you know this is uh that the the the tide might be turning on this thing a little bit, starting to get a little more serious.
• 7:25
  SPEAKER_00: We gotta the decisions that we make, we gotta start uh they gotta start being a little bit more acute, precise decision making instead of you know bigger, we'll just hit the average for the year, or I want some upside from here, that kind of thing.
• 7:38
  SPEAKER_00: And so um and so, you know, we're you know, we we've all been in this business long enough to understand that as situations change, we need to change and adapt with them.
• 7:50
  SPEAKER_00: And uh, I think this is one of those times you have to pretty take a pretty serious look at at making sure that we develop a firm, rigid, um, precise marketing plan that makes sense for our business and helps us um be able to capture, recognize, and then capture opportunities as they present themselves.
• 8:11
  SPEAKER_01: And know exactly what we have in those products and how much of it we have.
• 8:16
  SPEAKER_00: Yeah, exactly.
• 8:16
  SPEAKER_00: Gotta determine uh uh break-evens and and then make sure we're able to execute on it.
• 8:20
  SPEAKER_00: Absolutely.
• 8:21
  SPEAKER_01: What other final thoughts do you got for our grain producers this week, Pat?
• 8:24
  SPEAKER_00: Well, you know, and then and then as we work through the the month of January here, and I I think next week we'll spend a little bit more time on on uh revenue assurance products like crop insurance and the feb pricing and all of those sorts of things, not to mention um you know CRC and and and some of those choices that we have to make.
• 8:43
  SPEAKER_00: And so um so we'll we'll build upon today's podcast, I think a little bit, Mike, as we go through the month of January here.
• 8:49
  SPEAKER_00: But uh um sure look forward to the opportunity to to engage with folks and talk through you know a specific marketing plan that makes sense for your operation and and uh and trying to hit our marks and in what looks to be a little bit more of a challenging margin environment.
• 9:04
  SPEAKER_01: Thank you, Pat.
• 9:05
  SPEAKER_01: And then for next week's plan, remember we've got a WASD Airport coming out as well.
• 9:10
  SPEAKER_01: So speaking of those big uh big moments, uh big money market, moving events, uh that definitely could be one of them over the past few years that usually uh does create a little bit of volatility.
• 9:23
  SPEAKER_01: So keep that in mind there as we wrap up last year's balance sheet.
• 9:27
  SPEAKER_01: Thanks for your time today, Pat.
• 9:28
  SPEAKER_00: Thank you.
• 9:29
  SPEAKER_01: And thank you to all our listeners.
• 9:31
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 9:34
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 9:40
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 9:46
  SPEAKER_01: See you next time.