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Grains: Lack of Direction · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg 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.
• 0:23
  SPEAKER_00: Today is May 30th, and I've got Pat back with us here again this week.
• 0:27
  SPEAKER_00: How's it going, Pat?
• 0:28
  SPEAKER_01: Good, Mike.
• 0:28
  SPEAKER_01: How are you today?
• 0:29
  SPEAKER_00: Very good.
• 0:30
  SPEAKER_00: Well, we're going to talk a little bit from the rope crop producers' perspective here this week, Pat.
• 0:35
  SPEAKER_00: What do you think they want to hear?
• 0:37
  SPEAKER_01: Well, I think uh we first we should just talk about um you know a little bit of a sell-off here again on Newcrop Deese Corn.
• 0:44
  SPEAKER_01: Uh talk to us about crop conditions, planning progress, uh state of the crop, Mr.
• 0:49
  SPEAKER_01: Minor.
• 0:50
  SPEAKER_00: Yeah, so state of the crop, we are uh ahead of pace on planning progress, just to put it.
• 0:56
  SPEAKER_00: However, there are a few areas, uh, mainly in like southern Illinois, uh some Ohio regions, even some in the South Dakota type area that need to get some crops in still.
• 1:08
  SPEAKER_00: Uh with those conditions, uh, we are getting later.
• 1:12
  SPEAKER_00: It is gonna be June here this next week, and some of those areas are uh we've caught some optimism through the market, mainly about a week ago, that are those areas gonna get finished up in time or not?
• 1:25
  SPEAKER_00: Is the 96 million acre number that we've talked about for a while on corn, is that number really gonna happen or not, Pat?
• 1:32
  SPEAKER_00: So some question marks have been raised if uh that total acreage number can still uh occur with over a million and a half to two million acres and just Illinois alone to plant in this week's Monday report.
• 1:46
  SPEAKER_01: And condition scores came in for the first time, first time released, and just a little bit worse than expected.
• 1:53
  SPEAKER_01: Is that accurate?
• 1:53
  SPEAKER_00: Yeah, and about four percent lower than what average would be, which normally it starts off really high.
• 1:59
  SPEAKER_00: Normally crop conditions are perfect to start off with, around 72%, and then they kind of dive off from there on out.
• 2:06
  SPEAKER_00: But because right, it's pretty hard to have a crop condition problem uh late in May, so to say.
• 2:12
  SPEAKER_00: It's not very hot yet.
• 2:13
  SPEAKER_00: You don't quite know if drought is a problem, your crop's not using much water yet, but um maybe a little worse than they would have expected.
• 2:21
  SPEAKER_00: But talk about the extremes with the crop conditions too across the corn belt.
• 2:25
  SPEAKER_01: Right.
• 2:25
  SPEAKER_01: And then yeah, we'll talk about that a little bit, but also wheat condition scores too were also just uh a little a little lower than expectations and quite lower for this early or this stage of their growing season as well, right, Mike?
• 2:37
  SPEAKER_00: And that was a little bit more unexpected, probably, than the other two, but the markets have reacted quite well to that through most of the week.
• 2:44
  SPEAKER_00: And spring wheat specifically has been a real uh rocket ship here this week.
• 2:49
  SPEAKER_00: That's had a lot of strength behind it.
• 2:51
  SPEAKER_00: The other thing you gotta look at too with wheat is compared to some of the other grains and the way the fundamentals look is uh people have been looking for a rally in that wheat market for quite some time.
• 3:01
  SPEAKER_00: So it seemed like the buyers kind of came pretty easy to the wheat market.
• 3:04
  SPEAKER_01: Yeah, I agree with that.
• 3:05
  SPEAKER_01: And I also think there's there's quite a few people that are looking for a rally in the corn market as well.
• 3:10
  SPEAKER_01: And generally, I would just say that I'm I'm one of those guys.
• 3:14
  SPEAKER_01: I mean, I to to dece corn trading under 440 at this stage of the game would would potentially suggest, Mike, that that uh the 95 or 96 million acres is planted or will get planted, and and um you know a 181 or 182 yield.
• 3:30
  SPEAKER_01: I mean, it it this is you know where the market's trading at today is uh is trading uh um I don't know.
• 3:38
  SPEAKER_01: I want I I want to say as if the crop is in the bend at trendline yield or better, and that's maybe too strong of a statement, but I think a fair enough observation for the 30th of May.
• 3:48
  SPEAKER_01: And so to your point, as it relates to um what's you know, it's it's one thing to look at averages and and it's a wholly another thing to look at at uh at more specific areas or crop reporting districts, those sorts of things.
• 4:03
  SPEAKER_01: And I do think, and I think it's worth noting, that we we likely do have more extreme variables uh this year compared to others.
• 4:13
  SPEAKER_01: Um it's too dry in northwest Iowa, but it's too wet in north central South Dakota.
• 4:21
  SPEAKER_01: It's too dry in northeast Illinois, but it's too wet in northeast Indiana, right?
• 4:28
  SPEAKER_01: And so I would submit it's not uncommon for us to have dry pockets and wet pockets and variability across the Corn Belt, but to have extreme variability in that relatively short geographic distance, I do believe to be unique.
• 4:45
  SPEAKER_01: And so I do think it's possible that if there is a developing weather concern, it's it would go something like that, right?
• 4:54
  SPEAKER_01: Like it is interesting to observe that that we are um that we do that we are experiencing some some pretty extreme uh uh weather.
• 5:04
  SPEAKER_01: And so for those of us in southwest Minnesota, I talked about this a little bit last week, but for those of us in southwest Minnesota, so far no problem, right?
• 5:12
  SPEAKER_01: No real issue with it being the um 84th driest uh uh May in Southwest Minnesota or something like that out of 133 years, but but so far it's okay.
• 5:24
  SPEAKER_01: And the drop monitor map would also um support that we are abnormally dry today.
• 5:29
  SPEAKER_01: Um, but we caught enough rain so far and and you know to to get the crop um started, although it has remained relatively stagnant here, right?
• 5:39
  SPEAKER_01: Now we've cooled off again and and uh off to a decent start, but crop development isn't as as robust as what you'd like it to be, and and do have some heat forecast, we do have some more rain forecasts.
• 5:50
  SPEAKER_01: So so far, the forecast perhaps with looking at the the the whole corn belt in terms of I mean you we we started off this this podcast with your observations, which you're you're all right.
• 6:03
  SPEAKER_01: Yeah, we're we're ahead of planning pace.
• 6:06
  SPEAKER_01: Um we're uh you know the the good to excellence scores came in slightly disappointing, but not not anything that would be extraordinarily concerning.
• 6:15
  SPEAKER_01: And and so on average things look pretty well.
• 6:18
  SPEAKER_01: But but but potentially if there's a if there's a concern developing, it's sort of wrapped around this idea is yeah, the average looks good, but pretty extreme variability around that average.
• 6:28
  SPEAKER_01: And and so that doesn't mean that we can't harvest a good crop?
• 6:31
  SPEAKER_01: Far from it, right?
• 6:32
  SPEAKER_01: We're we're a long ways from making or breaking a a crop here.
• 6:36
  SPEAKER_01: But I would submit to you that there's enough going on, enough concern going on that perhaps a little weather premium is warranted and we're not getting it today.
• 6:43
  SPEAKER_01: And so I just it just uh I just I find that observation interesting.
• 6:48
  SPEAKER_00: When talk about the market's reaction and weather premium, the market's been pretty choppy.
• 6:53
  SPEAKER_00: You know, you've seen good variability in price.
• 6:56
  SPEAKER_00: The problem is it seems like it's a tighter range.
• 6:58
  SPEAKER_00: We haven't really stressed much above four and a half dollars on corn, but not much less than four and a half dollars on corn either, but it's moved a lot in between.
• 7:07
  SPEAKER_00: So it's it's uh not a lot of uh price direction at this point, and that's something the soybeans got caught up in this week as well, and just you know, mainly the soybean oil complex struggling lately because of a lack of direction with biofuel policy going forward.
• 7:22
  SPEAKER_00: No real trade deals saying that a country is gonna try to promise to import more biofuels from the US.
• 7:29
  SPEAKER_00: So so far here this spring, probably the last two or three weeks, I would argue this grain market, corn, soybeans, soil seeds, uh, they're just they have a lack of direction, Pat.
• 7:41
  SPEAKER_01: For sure.
• 7:42
  SPEAKER_01: And and it's it's it's interesting that I mean normally that's not the issue this time of year.
• 7:48
  SPEAKER_00: Not this time of the year.
• 7:49
  SPEAKER_01: Yeah, we usually have uh have plenty of different things to to trade and talk about, sort of a thing.
• 7:53
  SPEAKER_01: So I I I I appreciate your observation there.
• 7:56
  SPEAKER_01: That makes sense to me as well.
• 7:58
  SPEAKER_01: Um, and then uh old crop corn, back to that, uh, or back to the corn complex for just a second.
• 8:04
  SPEAKER_01: Let's talk about old crop.
• 8:06
  SPEAKER_01: You know, one of the things that you and I um talked about earlier this week was was uh um one of those sell-off days was was more primarily focused on the old crop contract than the new crop.
• 8:19
  SPEAKER_01: And and you know, we keep looking at the balance sheet and and export numbers in in particular, and and projecting a really relative tight ending stock situation on corn that's projected to get tighter, and and uh um flat price and spreads and basis isn't really suggesting any of those things are are are what's occurring today.
• 8:46
  SPEAKER_01: So let's so talk to the talk to our our listeners about that a little bit, Mike.
• 8:50
  SPEAKER_01: What are what are some reasons why um the the old crop corn seems to be struggling a little bit here as well?
• 8:57
  SPEAKER_00: Part of the problem I think is just the idea of bearish trade action, bearish uh bearish spreading going on.
• 9:05
  SPEAKER_00: So normally when you would have funds leaving a market, they're getting out of like the front month, which would be July futures today.
• 9:13
  SPEAKER_00: So part of the problem here, I think, is that when you've had bearish trade or you don't have weather premium coming in, it seems like bear spreading is the normal option, regardless of maybe what fundamentals should tell you about a tighter old crop versus a a new crop problem.
• 9:29
  SPEAKER_00: And this is why this spread is so dangerous, right?
• 9:31
  SPEAKER_00: Why they they did it in Cargill they nickname it like the the widow maker back in the day when you were there and that uh spread between old crop and new crop corn, and that's why it makes it dangerous because you have a few different things at play there.
• 9:43
  SPEAKER_01: Yep, and so that's just where open interest is at too, to your point, right?
• 9:48
  SPEAKER_01: And and uh and so when we when we see uh an index fund or a manage money that that isn't really interested in being in the corn complex today, um that's where you're gonna see the liquidation occur because that's where the that's where the the action is, if you will.
• 10:04
  SPEAKER_01: And and you're right, that uh that spread can be incredibly volatile and and uh can can make or break uh uh uh folks from from a from a profitability perspective for sure.
• 10:16
  SPEAKER_01: Um But there also is some underlying um there also is some underlying uh uh fundamental cash reasons why that's occurring.
• 10:25
  SPEAKER_01: I mean, I we certainly don't um it it we certainly don't see where end users are are concerned about covering their their their old crop uh obligations here.
• 10:37
  SPEAKER_01: Um exports are robust, but but there seems to be plenty of of corn in the pipeline.
• 10:43
  SPEAKER_01: And so while the balance sheet suggests that that we have a tight situation that should be tightening further from here, um basis spreads and flat price are not behaving that way at all.
• 10:56
  SPEAKER_01: And so it does prompt, if you will, just the observation that perhaps this balance sheet isn't tightening up like the USDA or WASDI is is forecasting.
• 11:07
  SPEAKER_01: Maybe last year's crop was a little bit bigger than than than what got printed.
• 11:12
  SPEAKER_01: Maybe feed disappearance is a little less than what is forecasted at this point or something.
• 11:16
  SPEAKER_01: But yeah, but if the board is right, or if spreads are behaving the way they should be, based upon some fundamental uh reasons and or basis the same way, if all of those things are are true, then maybe that old crop balance sheet ultimately does end up um going back the other direction and and expanding from here instead of instead of contracting.
• 11:38
  SPEAKER_01: And so uh another observation, right?
• 11:41
  SPEAKER_01: And so what we're really talking about here is is based upon what we think we know about the the the stage of the of the crop that that's that's mostly in the ground today, based upon what we think we know about the old crop balance sheet, corn should be trading at higher values than what it's trading at today.
• 11:59
  SPEAKER_01: Yes.
• 11:59
  SPEAKER_01: And so it can just be money flow, right?
• 12:02
  SPEAKER_01: People just don't want to have money in corn, and that could be because of the uncertainty wrapped around you know, trade, trump, and tariffs.
• 12:10
  SPEAKER_01: Um or or it could be some real solid fundamental reasons, right?
• 12:16
  SPEAKER_01: The balance sheet isn't as tight as what we think it might be, and the crop does have a better process better prospects than maybe some of the some of the data that we're looking at today.
• 12:26
  SPEAKER_01: So as always, the story will be told.
• 12:28
  SPEAKER_01: But as as we as we move forward here, Mike, but I I do think that there's uh um I do think it's reasonable to believe, if nothing else, to kind of the smart alec answer, we own a calendar, right?
• 12:39
  SPEAKER_01: That yeah, that that that that there likely will be some more uh volatility uh in these markets as we go forward here and beyond this you know choppy, relatively narrow trading range that you observed earlier.
• 12:53
  SPEAKER_00: So I'm really gonna be watching spreads probably between like July 25 corn and deece 25 corn, especially if we start to get that volatility or this seasonal rally that uh every grain farmer is kind of waiting for at this point.
• 13:06
  SPEAKER_00: So we're six or five cents today between the spread of July and De's corn.
• 13:11
  SPEAKER_00: If we start to see some problems with new crop or something, I'm gonna be very curious to see how concerned buyers get up front for old crop cash corn, and then just the spread activity to see if there is very quick bull spreading.
• 13:24
  SPEAKER_00: Because it wasn't that long ago where July was 30 or 40 cents higher than the December, and today now it's only a nickel.
• 13:31
  SPEAKER_00: So I'd expect some uh extreme tell-alls from these spreads here in uh in a quick manner, probably.
• 13:38
  SPEAKER_01: Absolutely makes sense.
• 13:40
  SPEAKER_01: Uh, just a quick reminder uh anybody that uh might be traveling to Des Moines next week for World Pork Expo sure would uh appreciate the opportunity for a shout-out.
• 13:49
  SPEAKER_01: Both Mike and I will be there uh on Wednesday.
• 13:52
  SPEAKER_01: Uh I'll be there Wednesday, Thursday, so uh don't hesitate to stop by the uh professional egg marketing uh tent at uh the World Pork Expo at the Iowa State Fairgrounds in Des Moines next week.
• 14:04
  SPEAKER_00: Yeah, and we've got some cool guests with us here this week uh too, this year at the uh World Pork Expo, the Farm Progress Group, the uh This Week in Agribusiness will be hosting their show from our tent.
• 14:15
  SPEAKER_00: So if you want to stop by, watch a show, or see Mike Pearson, uh you can also watch that Friday, Saturday, or Sunday on RFD TV.
• 14:23
  SPEAKER_01: Thank you, Mike.
• 14:23
  SPEAKER_01: Have a great weekend.
• 14:24
  SPEAKER_00: Thank you.
• 14:25
  SPEAKER_00: And thank you to all our listeners.
• 14:27
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 14:31
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:36
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 14:42
  SPEAKER_00: See you next time.