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Corn Collapse · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_00: Today is February 24th, and I've got Lucas Peters with us today.
• 0:27
  SPEAKER_00: How's it going?
• 0:28
  SPEAKER_00: It is going pretty well, Mike.
• 0:30
  SPEAKER_00: Awesome.
• 0:31
  SPEAKER_00: Well, let's talk about the corn market a little bit.
• 0:33
  SPEAKER_00: We're going to call this one the uh corn collapse.
• 0:35
  SPEAKER_00: How's that sound?
• 0:36
  SPEAKER_01: Hey, that sounds like a plan.
• 0:37
  SPEAKER_01: I guess, you know, as we were uh kind of stuck uh in the upper Midwest with the weather this week.
• 0:44
  SPEAKER_01: Um unfortunately we had to watch the corn market all week long, Mike, and I mean, what the hell?
• 0:51
  SPEAKER_01: What happened?
• 0:52
  SPEAKER_00: Yeah, it was a rough week here.
• 0:53
  SPEAKER_00: So front month corn futures on Tuesday didn't have too bad of a close.
• 0:58
  SPEAKER_00: We closed up like two cents that day, had a high of six eighty-three, closed the week at six fifty, so thirty-three cents are off our high this week on the front month of corn.
• 1:08
  SPEAKER_00: And to put things into perspective a little bit, the corn market's had like a 41 cent trading range since the beginning of the year.
• 1:15
  SPEAKER_00: So for us to basically use all of that in one week's time frame is uh is showing how big this week was, I think, Lucas.
• 1:22
  SPEAKER_00: It was kind of a big deal, wasn't it?
• 1:24
  SPEAKER_00: Yeah, you know, new crop corn took off about 20 cents from that 596 to 576 here.
• 1:30
  SPEAKER_00: And uh it really had red across the board after Tuesday.
• 1:33
  SPEAKER_01: Yeah, yeah.
• 1:34
  SPEAKER_01: And I it well, at least on the new crop side, uh at least it happened late for the crop insurance averaging period, uh, so it shouldn't affect that too much.
• 1:42
  SPEAKER_00: But is it gonna happen is it gonna affect the volatility factor too much here having that big swing or not?
• 1:47
  SPEAKER_01: I would not anticipate the volatility factor changing much, uh, but the and we're we only what two days left after today, so the average shouldn't be changed that much.
• 1:58
  SPEAKER_01: Um but it's kind of interesting, like like lucky it happened at the very end.
• 2:02
  SPEAKER_01: But you know, hindsight's 2020, we know we can see what happened, but Mike, why did it happen?
• 2:08
  SPEAKER_01: Why why did they pick this week of all weeks to finally say let's break out of this range and oh by the way, let's go down.
• 2:15
  SPEAKER_00: Yeah.
• 2:16
  SPEAKER_00: So a couple things that we're looking at right now is from a technical analysis, let's look at the chart there, and we saw an ascending triangle in the corn market here over this uh period where we were consolidating sideways in the corn market and tightening up like a coil on a spring.
• 2:33
  SPEAKER_00: Um we broke out and we were kind of waiting for that, right?
• 2:37
  SPEAKER_00: All indicators were showing at some point we're gonna want to break out.
• 2:41
  SPEAKER_00: And a couple of the reasons why we're seeing that is uh well, first off, the technical analysis would point that March and May futures on this route down should go to somewhere around 636 and three-quarters technically.
• 2:56
  SPEAKER_00: So there could be a little bit more left for us to take off here.
• 3:00
  SPEAKER_00: The the the one part of it is when we look at about Thursday morning at six o'clock, we saw the Outlook numbers come out from the conference.
• 3:10
  SPEAKER_00: And the numbers had shown us a couple different things.
• 3:13
  SPEAKER_00: Now, first off, should the traders pay attention to those numbers?
• 3:17
  SPEAKER_00: Probably not.
• 3:18
  SPEAKER_00: It's a guess like you or me would be taking on acres and yield.
• 3:22
  SPEAKER_00: I mean, it's too early, right?
• 3:23
  SPEAKER_00: I won't it's a little more educated guess than us, but it is sure hope I hope it's more educated than yours or my guess.
• 3:29
  SPEAKER_00: Let's put it that way.
• 3:30
  SPEAKER_00: Um however, uh with them coming out with those numbers, they probably shouldn't get traded, right?
• 3:36
  SPEAKER_00: However, I think it scared people a little bit, and I think it scared traders because you can see our ability to grow ending stocks this next marketing year is basically gonna take a trend line yield and 91 million acres.
• 3:50
  SPEAKER_00: Now that trend line yield is obviously uh a heck of a ways up there at 181 and a half right now, considering the fact that we've had below trend line yields for the last couple years.
• 4:00
  SPEAKER_00: So that really seems like a step up for us.
• 4:02
  SPEAKER_00: And it it honestly, if you have a switch from La Niña to El Nino, kind of like we've talked about, the likelihood of us having a trend line or higher yield is likely this next year.
• 4:13
  SPEAKER_00: So I think this report, after seeing a few of these weather patterns develop a change in our weather, um switching to El Nino from La Niña, it's starting to really show that how we can build ending stocks next year on this balance sheet with more more acres and a little bit more normal weather.
• 4:32
  SPEAKER_01: But and so I don't I don't want to steal your thunder there, Mike, but like I I totally agree with you.
• 4:37
  SPEAKER_01: I th I think I think you made the comment this morning in the office of like the the trade was just hungry for numbers or something to talk about or trade.
• 4:46
  SPEAKER_01: Anything.
• 4:47
  SPEAKER_01: And so we're we're looking at in this example the outlook numbers for next year, yet it's old crab corn that takes the beating.
• 4:55
  SPEAKER_00: Yep.
• 4:55
  SPEAKER_01: Like that that just shows like they were they were looking for something to trade and be like, okay, let's take it down and let's take everything down.
• 5:01
  SPEAKER_00: Exactly.
• 5:01
  SPEAKER_00: Be careful what you wish for.
• 5:02
  SPEAKER_00: Yep.
• 5:03
  SPEAKER_00: So the corn market really was just hungry for information.
• 5:06
  SPEAKER_00: And I think part of the old crop situation, too, was it wasn't all just outlook conference.
• 5:11
  SPEAKER_00: Now looking back, they can say things like, Well, on Thursday morning since the holiday, we also got the ethanol report come out that showed an increase in stocks again.
• 5:20
  SPEAKER_00: Production's been pretty much sideways this year, choppy, nothing too abnormal there to really stand out, but stocks are still building, and gas demand's been poor, and uh crude oil stocks are building as well, so that's a little bit of a concern with where we're tracking according to where the USDA uh thinks we need to be.
• 5:38
  SPEAKER_00: Uh, we're running about 3% behind right now.
• 5:41
  SPEAKER_00: So the outlook isn't very good on ethanol demand in that sense.
• 5:46
  SPEAKER_00: Looking forward, we're starting summer grind.
• 5:48
  SPEAKER_00: Hopefully that picks up.
• 5:49
  SPEAKER_00: Hopefully, gas demand picks up with more normal weather going forward.
• 5:52
  SPEAKER_00: Um, hopefully the consumers don't feel completely broke.
• 5:55
  SPEAKER_00: We'll get into that later.
• 5:56
  SPEAKER_00: But those are a few other factors that are influencing this downturn.
• 6:00
  SPEAKER_00: The other one would really be right now, when you look at uh the fund activities, it's been an interesting thing that's got slept on because the CF the CFTC data that tracks managed money funds, spec funds, um, index funds, all of that information hasn't been coming out.
• 6:19
  SPEAKER_00: Yep.
• 6:20
  SPEAKER_00: That report hasn't been coming out.
• 6:22
  SPEAKER_00: So now it really makes you wonder if there was there was a little bit of chatter about managed managed money funds that have been selling their long corn and then adding to their wheat shorts because of the US dollar rallying.
• 6:34
  SPEAKER_00: As more talks from the Fed minutes this week came out and said that we're probably gonna need to raise interest rates a little bit more aggressively than we talked about in the past.
• 6:44
  SPEAKER_00: And I really think when March comes around here, they're expecting a 25 basis point hike.
• 6:49
  SPEAKER_00: I would not be surprised in one of these rate hikes if they all of a sudden did 50 or something a little bit more to shock the market.
• 6:56
  SPEAKER_00: And I think they probably need to.
• 6:58
  SPEAKER_00: Like if they came out and if they did a 50 or 75 instead of just a 25, I think that'd shock the market enough to do what they're wanting to do and not get that yo-yo back up uh with inflation.
• 7:09
  SPEAKER_00: So that's another thing.
• 7:11
  SPEAKER_00: But I I'm really interested in to see what what the managed money fund positions are gonna be when that finally comes out and how big of an impact that shows for managed money going out of corn into shorting something like the wheat market.
• 7:25
  SPEAKER_01: Why hasn't that report been coming out, Mike?
• 7:27
  SPEAKER_00: Good question.
• 7:28
  SPEAKER_00: I I initially thought it was because I got hacked or something.
• 7:30
  SPEAKER_01: That's like a data breach or something, is what I thought.
• 7:32
  SPEAKER_00: But um nope, just hasn't come out.
• 7:35
  SPEAKER_00: And they don't want to comment on it.
• 7:37
  SPEAKER_00: So uh that uh that too I think is very interesting right now when it comes to the grain market influence this week and kind of what we saw.
• 7:45
  SPEAKER_00: But in the big scheme of things, you're right.
• 7:48
  SPEAKER_00: They were just hungry for numbers, and it really shows that when we get into the end of March and we see prospective plannings, when we get further into planning time frame, how we're gonna be tracking, um, how they're gonna want to trade some of those stronger numbers.
• 8:03
  SPEAKER_00: So I'm not gonna get too discouraged in the in the near term on corn here about you know, geez, we're really going down.
• 8:09
  SPEAKER_00: Is it gonna go down forever?
• 8:10
  SPEAKER_00: Well, ending stocks are still tight this year.
• 8:13
  SPEAKER_01: Yep.
• 8:13
  SPEAKER_00: So the situation really doesn't change until we get ninety-two million acres or plus of corn planted, or we get better weather, things look good, then you can start to really talk about okay, this is never going up again kind of attitude.
• 8:27
  SPEAKER_00: Yep.
• 8:28
  SPEAKER_00: But until then, I mean it I think we have pretty tight ending stocks that can keep things volatile enough, especially in we're in February.
• 8:35
  SPEAKER_00: We don't have highs in the corn market in February historically.
• 8:37
  SPEAKER_01: Historically we don't.
• 8:38
  SPEAKER_01: No.
• 8:39
  SPEAKER_01: And and so one thing uh, you know, going back to that outlook, you know, they put out that yield.
• 8:43
  SPEAKER_01: Yeah.
• 8:43
  SPEAKER_01: Now that's the yield they'll kind of use going forward, right?
• 8:46
  SPEAKER_01: Uh they'll want to.
• 8:47
  SPEAKER_01: Yeah, that's what the USDA will want to use as far as uh before we get an actual estimate based on planting what in May, in the May report?
• 8:56
  SPEAKER_00: Uh you know, last year we saw a reduction that before we planting, and they could have done more, and they probably fixed it at the end, like we talked about.
• 9:04
  SPEAKER_01: Um and so, you know, it's it's interesting to think back uh, you know, last year had a late planting, that number comes down.
• 9:12
  SPEAKER_01: Uh this year, I mean, like at least where we're sitting at, and to the points west and a little south, and especially north, we got a big snowstorm the end of February.
• 9:22
  SPEAKER_00: We're in the second floor of a building, and I see a snow drift out the window to put things into perspective.
• 9:28
  SPEAKER_01: It's not generally good for planting when your your heaviest snows come uh this time of year.
• 9:33
  SPEAKER_01: Planting early, let me rephrase that.
• 9:34
  SPEAKER_00: That worries me with getting 92 million plus acres.
• 9:37
  SPEAKER_01: And to hit that 181 plus number, you're gonna have to have lots of acres planted on time.
• 9:44
  SPEAKER_01: Uh so just something to kind of keep in the mind going on.
• 9:46
  SPEAKER_00: And that's one of the reasons we didn't have as many acres last year either initially, because of prevent planting mainly in northeast South Dakota and then North Dakota.
• 9:54
  SPEAKER_01: Correct.
• 9:55
  SPEAKER_01: Yep.
• 9:55
  SPEAKER_01: Uh so yeah, interesting on that.
• 9:57
  SPEAKER_01: Uh so that was kind of the corn market.
• 9:59
  SPEAKER_01: Uh soybeans actually fared better than corn, I would say.
• 10:03
  SPEAKER_01: Mike, do you what do you why did the soybean market perform that way this week?
• 10:07
  SPEAKER_00: Yeah, so like March soybeans 1529 on their close.
• 10:10
  SPEAKER_00: They had a high of about 54 uh this week here, but they really didn't break their trend at all.
• 10:16
  SPEAKER_00: They we just fought back to the bottom end of the trend here um after kind of bouncing off the top.
• 10:21
  SPEAKER_00: And that's been consolidating sideways, but it's been an upward channel.
• 10:25
  SPEAKER_00: So we haven't broke out of anything there yet.
• 10:27
  SPEAKER_00: And when I look at the Outlook conference numbers on soybeans, those numbers, honestly, 290 million bushels of ending stocks is what they came out with.
• 10:38
  SPEAKER_00: That's not that much of an increase year over year.
• 10:40
  SPEAKER_00: We're at 225 right now, um, pretty reasonable.
• 10:44
  SPEAKER_00: And they use something like a 52 bushel yield at you know 87.5 million acres.
• 10:50
  SPEAKER_00: So maybe someone argues if you do end up double cropping a lot of beans, maybe that 52 is harder to get.
• 10:56
  SPEAKER_00: Or if they plant them in North Dakota and it's, you know, a dire situation there, maybe then it's not a 52 bushel yield.
• 11:03
  SPEAKER_00: It's probably a little bit harder now if you add acres to the soybeans to really get that yield to stay there.
• 11:08
  SPEAKER_00: Versus corn, you could still plant 92 million acres of corn and still get something like a 181 yield, I think.
• 11:14
  SPEAKER_01: I agree.
• 11:14
  SPEAKER_01: Yep.
• 11:15
  SPEAKER_00: So that's one thing.
• 11:16
  SPEAKER_00: The other thing is that the crush number they used at three and a half or so percent higher year over year.
• 11:22
  SPEAKER_00: A lot of analysts are arguing that could be a larger increase this next year based upon both crush margins and where they're at, and then also looking at crush expansion going into this next year with renewable diesel.
• 11:35
  SPEAKER_00: So a lot of those numbers I could argue are in a better situation on the soybean balance sheet, looking at this Outlook conference to increase their demand.
• 11:44
  SPEAKER_00: Um, export demand could increase here.
• 11:47
  SPEAKER_00: Um, however, when I look at corn, we're not in as favorable of a position.
• 11:52
  SPEAKER_00: You know, we talked about how um ethanol demand is struggling a little bit and there's a lot of stocks, and then exports are running significantly behind scheduled pace right now.
• 12:02
  SPEAKER_00: Yep.
• 12:03
  SPEAKER_00: So the demand situation is different between corn and soybeans, and I think the Outlook conference, when I look at those two balance sheets, I could say, yeah, the the soybean demand I can see easily picking up from those numbers.
• 12:14
  SPEAKER_00: The corn one, I just hope it hits those numbers.
• 12:17
  SPEAKER_00: Let's put it that way.
• 12:18
  SPEAKER_00: Yep.
• 12:18
  SPEAKER_01: Yep.
• 12:19
  SPEAKER_01: Well, good stuff.
• 12:20
  SPEAKER_01: So so that was this week, Mike.
• 12:22
  SPEAKER_01: Uh the big question is, what are we gonna see next week?
• 12:24
  SPEAKER_01: Are we gonna see uh more of the more of the same or are we gonna go back uh to trade in a different range?
• 12:30
  SPEAKER_00: So the corn one I think is an easy answer right now because that's the one that they're looking at a technical chart or a technical analysis, and that's saying 636 and three-quarters is the technical support on March and May futures.
• 12:42
  SPEAKER_00: Now, March is gonna be done here this next week into first notice day, so a lot of focus will be on May futures now.
• 12:49
  SPEAKER_00: So that'll be the number that a lot of people are looking for.
• 12:52
  SPEAKER_00: Do we go into next week strong and we don't get close to that?
• 12:55
  SPEAKER_00: Or do we fight back down to that level?
• 12:57
  SPEAKER_00: But I'm not expecting it hopefully to go any below that.
• 13:00
  SPEAKER_00: The soybean number, um, that's the one I want to watch a little bit closer because uh there's less play in that.
• 13:07
  SPEAKER_00: Uh we're right at the bottom end of the trading range right now, and I I want to see if we can hold this level and then start to work higher again, kind of like what we've been seeing.
• 13:16
  SPEAKER_00: But if we do break lower here, um the soybean the soybean chart is gonna be really discouraging going forward with you know, maybe old crop futures get to like 1476, kind of that old low.
• 13:29
  SPEAKER_00: But when I look at planting acres, like soybeans needed to buy acres before this, anyways, with what fertilizer's done.
• 13:36
  SPEAKER_00: So this helps maybe like a super smidge, maybe you know, like to buy a few more soybean acres, but I don't think it's really done anything yet.
• 13:46
  SPEAKER_00: So hopefully we can see soybean acres or soybean price still hold up here at 1374.
• 13:52
  SPEAKER_00: Otherwise, if it keeps going down here, who in the world is gonna want to plant soybeans?
• 13:56
  SPEAKER_01: Yeah, that's what you I don't know if it bought acres back, but maybe held them.
• 14:00
  SPEAKER_01: Yeah, if they're just kind of continues.
• 14:03
  SPEAKER_00: So now we're getting just close enough where I can start to argue about things like that, I think.
• 14:07
  SPEAKER_01: Yep.
• 14:07
  SPEAKER_01: Well, cool.
• 14:08
  SPEAKER_01: Well, time will tell what happens next week.
• 14:10
  SPEAKER_01: Anything to wrap up on, Mike?
• 14:12
  SPEAKER_00: That's all I got.
• 14:12
  SPEAKER_00: I would focus on a few of those things going forward.
• 14:15
  SPEAKER_00: It'll be a big week here to see if we can hold these levels, and uh I wouldn't be too discouraged yet.
• 14:20
  SPEAKER_00: Sounds good.
• 14:21
  SPEAKER_00: And thank you to all our listeners.
• 14:23
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 14:26
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:32
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 14:38
  SPEAKER_00: See ya next time.