Latest / Professional Ag Marketing Podcast / Keeping up with the markets

Transcript

Keeping up with the markets · Professional Ag Marketing Podcast

• 0:17
  SPEAKER_01: Welcome to the Professional Egg Marketing Podcast.
• 0:20
  SPEAKER_01: This is Mike Minor with Professional Egg Marketing.
• 0:22
  SPEAKER_01: The weekly podcast targeting egg producers of all sizes.
• 0:58
  SPEAKER_01: Today is February 18th.
• 1:00
  SPEAKER_01: I've got Pat back with us here again this week.
• 1:02
  SPEAKER_01: How's it going, Pat?
• 1:03
  SPEAKER_00: Good, Mike.
• 1:04
  SPEAKER_00: It's been a couple weeks.
• 1:05
  SPEAKER_01: It has been a couple weeks.
• 1:06
  SPEAKER_01: You've missed a lot.
• 1:08
  SPEAKER_00: I know.
• 1:08
  SPEAKER_00: Thanks for the invitation.
• 1:09
  SPEAKER_00: Yeah, of course.
• 1:11
  SPEAKER_00: Back in the uh podcasting uh office here.
• 1:14
  SPEAKER_00: It's pretty exciting.
• 1:15
  SPEAKER_01: Well, the audience can't wait to hear what you've got to say about the past couple weeks, Pat.
• 1:19
  SPEAKER_01: So uh just go for it.
• 1:21
  SPEAKER_01: What do you think about the current market environment we're in right now on uh on everything?
• 1:26
  SPEAKER_00: It's gonna go up forever.
• 1:27
  SPEAKER_01: Yeah, that's what people keep telling me.
• 1:29
  SPEAKER_01: I my job's not very hard.
• 1:31
  SPEAKER_01: I mean, everyone calls me, it just tells me what it's gonna do.
• 1:34
  SPEAKER_00: Right.
• 1:34
  SPEAKER_00: It's pretty easy.
• 1:35
  SPEAKER_00: It's uh um it's podcast.
• 1:38
  SPEAKER_00: Right, exactly.
• 1:38
  SPEAKER_00: Yep.
• 1:39
  SPEAKER_00: Good talk.
• 1:40
  SPEAKER_00: Uh see you next Friday.
• 1:42
  SPEAKER_00: No, it's a fascinating time.
• 1:44
  SPEAKER_00: I mean, it's uh the uh uh the the in terms of trading, you know, there's uh we always talk about week longs, and it's easy.
• 1:52
  SPEAKER_00: And once in a while, um markets like to shake out week longs, and there really hasn't been much of that going on lately in a lot of different markets.
• 2:01
  SPEAKER_01: And it's funny how we've got a three-day weekend ahead of us.
• 2:04
  SPEAKER_01: We've rallied for a really long time now in a lot of these commodities.
• 2:08
  SPEAKER_01: We have a ton of uncertainty across many different trades with the Russian-Ukraine situation just for one thing to kick off.
• 2:15
  SPEAKER_01: South America weather is pretty much in the heat of things still somehow, and no profit taking ahead of a three-day long weekend.
• 2:22
  SPEAKER_01: I was really shocked.
• 2:23
  SPEAKER_00: I was too, yeah.
• 2:24
  SPEAKER_00: No markets on Monday, and and uh we don't seem to care.
• 2:27
  SPEAKER_00: Just uh a very strong finish uh to the week.
• 2:30
  SPEAKER_00: And uh, you know, we were you and I were talking earlier this week, uh, well just yesterday probably, is it uh we were looking at that crude oil market in particular, and and uh I had been on the nearby chart, I had uh thrown up there as kind of been watching this five day uh moving average just from a technical perspective, and it hadn't violated the five day for three weeks, Mike, until this week.
• 2:56
  SPEAKER_00: And so um so I I I saw it violate the five day, so then I put another little chart, another little line on there at the 10 day, and and then it it violated that this week too.
• 3:05
  SPEAKER_00: So then I just put a 20 day up there and said, Oh, that one's still holding.
• 3:08
  SPEAKER_00: So yeah, exactly.
• 3:10
  SPEAKER_00: But I uh I say that just to say this.
• 3:13
  SPEAKER_00: There's uh there's a little less in the middle of all of that.
• 3:16
  SPEAKER_00: Uh uh we joke and observe, we observe and joke about um how easy it is to not hedge these opportunities uh because it just plain goes up every day.
• 3:27
  SPEAKER_00: And uh um I think it's safe to assume that it's not gonna go up forever, right?
• 3:32
  SPEAKER_00: I mean, and now we all remember 12.
• 3:36
  SPEAKER_00: That's exactly right.
• 3:37
  SPEAKER_00: That's exactly right.
• 3:38
  SPEAKER_00: And so how high high is, I don't know.
• 3:41
  SPEAKER_00: Um what application that we can use in terms of uh of trying to figure that out, I'm not sure.
• 3:47
  SPEAKER_00: We can talk through all that a little bit, but I do know this that uh um if you uh if you hedge December corn uh from a row crop producer's perspective at uh um five ninety-eight and a half today's high.
• 4:01
  SPEAKER_00: Um if you hedge it on the way up at 598 and a half or on the way down at 598 and a half, it's still 598 and a half.
• 4:08
  SPEAKER_00: Um the hard part is selling it on the way down, yeah.
• 4:10
  SPEAKER_00: Right.
• 4:11
  SPEAKER_00: And so uh again, I I'm uh um if if we're gonna do nothing because it just goes up every day, we better have a plan when it stops going up every day.
• 4:21
  SPEAKER_00: And one of one of the uh cornerstones of that plan is going to have to be that we sell into lower markets, right?
• 4:28
  SPEAKER_00: By definition.
• 4:29
  SPEAKER_00: And that's a hard thing to do.
• 4:30
  SPEAKER_00: And so one thing that we can do, I suspect, is start to prepare ourselves for that.
• 4:36
  SPEAKER_00: Start to think about how we were gonna have to fight that urge to take a five-day moving average and make it into a 10-day, make it into a 20-day, so that we can convince ourselves that the uptrend is still intact.
• 4:49
  SPEAKER_00: So um, so that's a technical observation.
• 4:51
  SPEAKER_00: From a fundamental perspective, Mike, I I uh I'm fascinated to sort of watch the dynamics of this market, how it all of these markets, how they sort of flex in and out of uh money flow, external fundamentals versus internal fundamentals.
• 5:08
  SPEAKER_00: And and for those of you, I don't know how obvious that that term is.
• 5:12
  SPEAKER_00: We talk about it all the time internally here and with our clients.
• 5:15
  SPEAKER_00: And so, you know, internal fundamentals are uh how much rain is it uh have we gotten in Argentina and what size is that crop going to be.
• 5:23
  SPEAKER_00: External fundamentals are uh how much money is Goldman Sachs going to invest in the commodity market as a hedge against inflation.
• 5:31
  SPEAKER_00: And you brought up a good point earlier this week as it relates to just one big, big issue, but just one issue, and how if you look at it through the prism of internal fundamentals, you come up with a different conclusion than if you look look at it through the prism of external fundamentals.
• 5:50
  SPEAKER_00: And specifically you were referring to the uh um the Russian-Ukraine conflict.
• 5:55
  SPEAKER_00: And you think about that, it's true, right?
• 5:57
  SPEAKER_00: If it from an internal fundamental perspective, if the the Russians decide to stop the movement of goods and commodities out of the Ukraine region, it's bullish corn, it's bullish wheat.
• 6:13
  SPEAKER_00: They're responsible for about 12% of the world wheat trade, as an example.
• 6:17
  SPEAKER_01: In 2014, for example, Crimea, when he invaded into southern part of their wheat, skyrocketed like 75% through Feb and March in that 2014 time frame was interesting, right immediately after the Olympics, same time of the year.
• 6:34
  SPEAKER_01: Um interesting correlations there, well, a lot different prices today.
• 6:38
  SPEAKER_01: But uh yeah, we saw some of that trade earlier this week on those wheat and oil and corn markets, yeah.
• 6:44
  SPEAKER_00: And so so internally, that could be internal fundamentals could suggest that a conflict in the Russia Ukraine region could be could be could be bullish, right?
• 6:53
  SPEAKER_00: Um maybe the West, quote unquote, um will place sanctions on Russia, and uh that could be uh bullish crude oil.
• 7:03
  SPEAKER_00: Um however uh if you take a look at it from an external money flow perspective, boy, you usually don't get a whole bunch of money flow into commodities when you have geopolitical conflicts.
• 7:15
  SPEAKER_00: Yep.
• 7:15
  SPEAKER_00: Right?
• 7:15
  SPEAKER_00: So that's kind of like if you look at it from an external perspective, it it could be it could be bearish.
• 7:21
  SPEAKER_00: Um let's talk about this a little bit, uh, to your point.
• 7:24
  SPEAKER_00: Uh uh back in uh 2012, 2013, 2014, um about the same timing around the Olympics, uh uh Russia and uh uh did did engage in a conflict there.
• 7:38
  SPEAKER_00: And I've I've been thinking about the the current situation and and uh on one hand I think it's gonna be pretty hard for Putin to back down.
• 7:49
  SPEAKER_00: I think it's gonna be pretty hard for him to to put troops up at the at the Ukrainian border and then and then back off like there was some discussion that may have been happening this week.
• 8:00
  SPEAKER_00: Um the the likelihood of him allowing for the West or for the current US administration to take credit for the Russians to to back down, that doesn't seem very probable, on one hand.
• 8:12
  SPEAKER_00: On the other hand, it does seem um likely that his only intent is to get the Ukrainians to, uh, I guess for lack for oversimplification, to not fill out the application to try to join NATO, right?
• 8:28
  SPEAKER_00: And and so if if if even behind closed doors that the Ukrainian leadership has has indicated that they're willing to to back off their their uh um their partnership in with NATO in the West, may maybe maybe Putin doesn't push quite as hard.
• 8:46
  SPEAKER_00: And so who knows how that whole situation turns out.
• 8:49
  SPEAKER_00: It's gonna be interesting to go and it's gonna continue to add some volatility in these markets.
• 8:53
  SPEAKER_01: Yeah, it seems like he uh if he just backs off right now, it makes me scratch my head like, wow, that didn't take much.
• 9:00
  SPEAKER_01: You know, he either got what he wanted or he's not gonna it doesn't look like he's gonna get what he wants, and really not much has happened yet.
• 9:08
  SPEAKER_00: Right.
• 9:09
  SPEAKER_00: Not much has happened, but he might have he might have got what he wanted.
• 9:12
  SPEAKER_00: He could have.
• 9:12
  SPEAKER_00: Right.
• 9:13
  SPEAKER_00: Yeah, exactly.
• 9:14
  SPEAKER_00: Maybe maybe the Ukraine's the that leadership team's gonna back off a little bit.
• 9:17
  SPEAKER_00: So so we'll see how that goes.
• 9:20
  SPEAKER_00: Um, you know, between now and then we still have uh getting inching ever so closer to uh trying to determine final crop size uh down in South America as we continue to progress through that growing season.
• 9:33
  SPEAKER_00: Do you want to give us a little bit of update on on weather and crop size from South America, Mike?
• 9:37
  SPEAKER_01: Yeah, so it seems like the uh the Argentina side of things is really uh that's in a poor situation.
• 9:43
  SPEAKER_01: Doesn't seem to be um getting much for rainfall.
• 9:47
  SPEAKER_01: Temps are still a little bit out of control, so it's not getting favorable from here on out, and the forecast doesn't look too favorable either.
• 9:53
  SPEAKER_01: So uh we could easily see that Argentina crop continue to decline in size here for corn and soybeans.
• 9:59
  SPEAKER_01: The Brazil one is where I think it's interesting.
• 10:02
  SPEAKER_01: We're still dry, and uh they're dry combining or harvesting this soybean crop, their first big one, but they're planting their corn crop immediately into it after, and they're a little bit ahead of schedule on that, but the forecast for Brazil has got some more rain in it for that important second growing crop of corn.
• 10:22
  SPEAKER_01: So, like last year we saw the soybean crop for Brazil, the first one, that was great, and then the second crop was poor on corn.
• 10:30
  SPEAKER_01: It makes me wonder if we're gonna see a similar situation here, uh, opposite.
• 10:35
  SPEAKER_01: We could have a really poor first soybean crop, and then we could start to see Brazil's corn crop to come together on their second leg.
• 10:43
  SPEAKER_01: And we're seeing a little bit more activity from an export perspective because of this this this week.
• 10:48
  SPEAKER_01: You're seeing countries like Paraguay come out and say, well, we're gonna import soybeans for like the first time ever.
• 10:54
  SPEAKER_01: Uh you're seeing countries like China stepping in and buying a lot of soybeans from the United States and unknown countries uh from the United States uh here at a very odd time of the year.
• 11:07
  SPEAKER_01: And a good chunk of those too are for next year as well.
• 11:10
  SPEAKER_01: We we uh are a little bit lagging on the old crop side of exports for soybeans, but the new crop we've got a pretty good book on already for next year.
• 11:19
  SPEAKER_01: So people are taking taking this to heart now a little bit more than they were.
• 11:23
  SPEAKER_01: They realize that they're a little bit short, we're far enough along that they're trying to take other measures to protect themselves, but uh the Brazil weather quite isn't quite done yet, and I thought by now it probably would have, right?
• 11:35
  SPEAKER_01: It normally is by the end of January, so we'll see.
• 11:38
  SPEAKER_00: So if we had to guess today on on seasonals for the grains, I typically we would expect a little bit of a break in these corn and soybean markets as we go into South America's harvest and then get ramped up, uh riled up again as we get closer to our spring.
• 11:57
  SPEAKER_00: And I've I found myself this week thinking about well, it's probably gonna be hard to see a significant setback, all other things being equal, a significant setback in corn and soybeans going into South America's harvest, because we probably have done enough damage to that first crop, to the crop size, as you mentioned, that it's it's probably gonna be hard to see a well, a tremendous amount of hedge pressure down there or something that would create a significant setback.
• 12:25
  SPEAKER_00: And so then I sort of think from an end user's perspective that it's probably gonna be pretty hard to see much of a buying opportunity in the you know between now and our spring sort of thing.
• 12:36
  SPEAKER_00: And then and then maybe the market just doesn't get real comfortable with crop size until you know we find out about acres and get started on this crop.
• 12:44
  SPEAKER_00: What do you think about uh um boy?
• 12:47
  SPEAKER_00: We just continue to see some real dry weather in the western part of the United States, and how much should we care about that in February, Mike?
• 12:53
  SPEAKER_01: So the the interesting part about weather right now is the winter wheat section, which we're seeing uh about 72% of the winter wheat areas are in drought conditions right now.
• 13:05
  SPEAKER_01: That'd be up from like 58% last year at the end of last year.
• 13:09
  SPEAKER_01: So that is increasing, getting a little bit worse.
• 13:12
  SPEAKER_01: Um that's not that's not a really a news story.
• 13:15
  SPEAKER_01: We've seen drought conditions over the West now for uh well over a year.
• 13:19
  SPEAKER_01: Right.
• 13:20
  SPEAKER_01: And uh but that did get a little bit worse.
• 13:21
  SPEAKER_01: Spring wheat is a little bit less severe for their sector uh from where they were.
• 13:26
  SPEAKER_01: They're only 46% now uh covered in drought versus 53% at the end of last year.
• 13:31
  SPEAKER_01: And at one point they're actually 99% covered in drought uh back at the peak in August.
• 13:37
  SPEAKER_01: Uh corn, though, only about 32% of the corn growing areas are covered in drought.
• 13:42
  SPEAKER_01: And that's that's gonna be one of the main focus points for me when it comes to our weather, is all the I states pretty much east had record corn and soybean yields last year.
• 13:50
  SPEAKER_01: You know, the western corn belt was the ones that really held things back, and they're not improving necessarily, but we still had decent production out of the United States last year on these grains.
• 14:01
  SPEAKER_01: It was just we had that huge surge in demand, we had weird things going on logistically because of COVID.
• 14:07
  SPEAKER_01: It was a an anomaly, right?
• 14:08
  SPEAKER_01: So if we do start to see some of these uh exports try to pull back or demand on ethanol start to pull back, as we saw a huge inventories number this week on ethanol, maybe corn stocks, if we can get a decent uh number again on product production, we could get into a little bit more comfortable of a spot.
• 14:26
  SPEAKER_01: But that gap you talked about between South America's dryness and the United States planting or dryness time frame there, it's getting closer every day.
• 14:36
  SPEAKER_01: So that fallback period we normally see during that time frame, it it could be a little bit smaller this year because they're gonna want to try trade dryness right off the bat this year in the United States after we plant.
• 14:48
  SPEAKER_00: And perhaps appropriately so.
• 14:50
  SPEAKER_00: And I it's it's an interesting dynamic because to your point, uh we raised a pretty nice crop a year ago with below normal precip.
• 14:58
  SPEAKER_00: Um the bulls in the crowd that are listening to the podcast are thinking, well, you can't do that every year.
• 15:04
  SPEAKER_00: And they're probably right.
• 15:05
  SPEAKER_00: We did do we did dip into reserves a little bit last year, and and uh yeah, below average rainfall, but man alive was the timing just perfect, right?
• 15:15
  SPEAKER_00: I mean, and that's an important important component of the whole thing.
• 15:18
  SPEAKER_00: And and above normal temps, but that was in June, July and August was more moderate, all that stuff.
• 15:24
  SPEAKER_00: So there's a lot of different things that we came into play to allow for last year to be last year, and and uh um I suppose one could could likely tell a story like that about every year, right?
• 15:34
  SPEAKER_00: In terms of of its uniqueness and all of that.
• 15:36
  SPEAKER_00: So um so going forward here, um, that's going to be a significant debate.
• 15:43
  SPEAKER_00: We just mentioned, you know, that uh um uh beef cow harvest, uh beef cow slaughter is still up ten percent year over year.
• 15:51
  SPEAKER_00: So as we talk about dryness in winter wheat regions and the west in general, it is impacting the livestock industry as well.
• 15:59
  SPEAKER_00: Is uh the access to affordable and available feed, uh, particularly in the West, is a is a real issue and uh um and and likely is going to be for a little bit longer period of time here.
• 16:13
  SPEAKER_00: And so I think what I'd like to do, Mike, just to wrap up today, is just to is to talk about um the interest in money flow into commodities and the reasons why, and and let's just talk about whether or not the current setup is creating a scarcity of commodities.
• 16:35
  SPEAKER_00: Okay, and I say that just to maybe like one example, again, you and I talked about earlier this week was um some concerns about uh having access to equipment and labor for fertilizer application this spring.
• 16:52
  SPEAKER_00: And so that could and s and so and so there's many, many business segments that are struggling with the same thing.
• 17:01
  SPEAKER_00: It doesn't matter if you're in the business of of uh of uh uh putting insulation into new construction, uh applying fertilizer on producers' fields, processing hams at a at a at a pork uh uh slaughter plant, um there's challenges associated with with access to labor.
• 17:22
  SPEAKER_00: Heck, you can even say the same thing about the McDonald's down the street, right?
• 17:27
  SPEAKER_00: And so if one looked at this the scarcity that's being created of those goods and services and assumed that that was cur that was occurring because a there's a shortage of fertilizer or a shortage of hogs or a shortage of whatever goes into making insulation.
• 17:50
  SPEAKER_00: Um in some of those cases your theory may be inaccurate.
• 17:55
  SPEAKER_00: To your point, um you just you just talked about how ending stocks on corn as an example are gonna be up a little bit year over year.
• 18:04
  SPEAKER_00: We actually grew more corn last year than we used.
• 18:07
  SPEAKER_00: And so if you're if if you got some money guy that's buying uh corn is uh because uh you know you use some of that to make crude oil which goes in unleaded gas, which by the way still isn't back to the levels that we were using pre-COVID, at some point in this process that might be the wrong bet.
• 18:25
  SPEAKER_00: And so we have a lot of money flow going into commodities today as a hedge against inflation.
• 18:30
  SPEAKER_00: The theory is is that the when when the the the feds print uh a 6.7% inflation figure for the month of December, that the theory is that is that there's so much money chasing goods and services that it's going to create a scarcity of commodities.
• 18:48
  SPEAKER_00: When the reality is in a lot of these cases, it's because of a of a of a of a messed up supply chain, a challenging labor environment is what's creating the scarcity of goods and services, not necessarily access to the raw commodities.
• 19:04
  SPEAKER_00: And so we started this podcast talking about, well, this is easy, it just goes up every day.
• 19:11
  SPEAKER_00: There's a potential uh needle that pricks the bubble, right?
• 19:16
  SPEAKER_00: There's the potential issue of just believing that as long as the Fed is saying we have inflation, that commodities are going to continue to go up, sooner or later we run the risk of those two dots not necessarily connecting one another.
• 19:31
  SPEAKER_00: And at that point is when the internal fundamentals of building supply year over year of these commodities collide with the external uh euphoria by of of buying commodities that hedge against inflation.
• 19:45
  SPEAKER_01: And that would be that exact environment you talked about where it can be hard to sell on a down day because those are going to be some pretty big down days, I would have to imagine.
• 19:54
  SPEAKER_01: Exactly.
• 19:54
  SPEAKER_01: Well, thank you for your time today, Pat.
• 19:56
  SPEAKER_01: Fantastic talking points.
• 19:58
  SPEAKER_01: If you guys want to call in and uh go over any of the information we talked about today, I'm sure Pat and I would uh love to chat with you.
• 20:05
  SPEAKER_01: Thank you and uh have a good week.
• 20:07
  SPEAKER_01: And thank you for all of our listeners out there.
• 20:09
  SPEAKER_01: We love to hear your feedback and enjoy the opportunity to hear your opinions on the vast array of topics that we cover.
• 20:15
  SPEAKER_01: This concludes this week's edition.
• 20:17
  SPEAKER_01: This podcast is presented for informational and entertainment purposes only.
• 20:22
  SPEAKER_01: The information presented should not be construed as trading or investment advice.
• 20:26
  SPEAKER_01: Please consult a licensed advisor before making any investment decisions.
• 20:31
  SPEAKER_01: The views and opinions expressed on this podcast are those of the participants only.
• 20:36
  SPEAKER_01: We are not liable for losses resulting from your investment decisions based on this information from the podcast.
• 20:42
  SPEAKER_01: We look forward to hearing from you.