Latest / Professional Ag Marketing Podcast / Running on E

Transcript

Running on E · 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 January 6th.
• 0:26
  SPEAKER_00: I've got Jeff with us here today.
• 0:27
  SPEAKER_00: How's it going, Jeff?
• 0:28
  SPEAKER_01: Good afternoon, Mike.
• 0:29
  SPEAKER_01: Things are going well.
• 0:30
  SPEAKER_01: At least we're not in the middle of a snowstorm today.
• 0:32
  SPEAKER_00: Not this time.
• 0:33
  SPEAKER_00: It's been a while.
• 0:34
  SPEAKER_00: We are gonna talk about a few different things today, mainly talk about some corn destruction here on the demand side for ethanol and talk about gas a little bit.
• 0:45
  SPEAKER_00: Uh talk about a few of the things going on with that seasonally, and then a little bit more of the macro uh look on it going forward, anyways.
• 0:52
  SPEAKER_00: How's that sound, Jeff?
• 0:53
  SPEAKER_01: Sounds good.
• 0:54
  SPEAKER_01: Let's get started.
• 0:55
  SPEAKER_00: All right.
• 0:56
  SPEAKER_00: Well, when we look at the markets here this week, a little bit up, down, all the way around for most of these commodities here.
• 1:01
  SPEAKER_00: Started off the week a little bit rough after the long holiday weekend on these grain markets, corn end of the week up a penny here, 654.
• 1:10
  SPEAKER_00: That was after a really rough start to the week here.
• 1:13
  SPEAKER_00: We saw the end of 2022 all the way through the start here really take off.
• 1:18
  SPEAKER_00: Uh, you know, we already had a high of about 685 on that March corn and dipped down to the 650 area, so it took off a nice 30 cents to start off the week.
• 1:27
  SPEAKER_00: And soybeans, we saw that market collapse a little bit there as well through that time frame.
• 1:33
  SPEAKER_00: Kind of had a high of like 1529 on that march and pulled all the way back down to like 1465 and really close a week out on a strong note, up 22 on the beans, up a penny on the corn.
• 1:45
  SPEAKER_00: A little bit Argentina dryness there helped us out.
• 1:48
  SPEAKER_00: Found some key support areas that held on the grains.
• 1:51
  SPEAKER_00: So little choppy waters here ahead of next Thursday's Wazda Airport, Jeff.
• 1:56
  SPEAKER_01: I know I know we hit on this about every week, Mike, but uh what's your current thoughts week over week on South American weather?
• 2:04
  SPEAKER_01: I've I've been waiting for that thing to kind of run its course um last couple weeks now.
• 2:11
  SPEAKER_01: Is that getting to be old news, or we still got a few weeks of weather to trade down there?
• 2:15
  SPEAKER_00: We've got a few weeks of weather to trade there, you know.
• 2:18
  SPEAKER_00: Argentina, 82% planted on the soybean crop, a little bit behind normal there, but they are just wrapping up planning.
• 2:25
  SPEAKER_00: So we've got a little bit left to trade weather over there, and they've started behind the eight ball, so it's gonna be tough for them to fully catch up and get okay.
• 2:32
  SPEAKER_00: And Brazil looks great.
• 2:34
  SPEAKER_00: There's no major changes on Brazil here going into next week's report, but I could see the USDA trying to adjust that Argentina number lower finally.
• 2:42
  SPEAKER_01: These uh soybean meal markets really been driving that complex sum um this week, and surprising me, once again, you know, we're we're actually gonna close on our high, like March putting in a new high on meal up over twelve bucks today.
• 2:57
  SPEAKER_01: No question that's been dragging the beans a little higher this week as well.
• 3:01
  SPEAKER_00: Definitely.
• 3:02
  SPEAKER_00: It's hard to break this soybean market too much here when meal's doing what it's doing, and I think that helped today too.
• 3:07
  SPEAKER_00: How about on the livestock side?
• 3:09
  SPEAKER_00: What do you see out of that, Jeff, this week?
• 3:11
  SPEAKER_00: It was kind of a blood bud bloodbath all the way through on that one, wasn't it?
• 3:14
  SPEAKER_01: Yeah, it was a really tough week.
• 3:16
  SPEAKER_01: And as I, you know, look back on it and reflect a little bit.
• 3:20
  SPEAKER_01: I I don't think there's anything that really ties the two together.
• 3:24
  SPEAKER_01: Um you know, I I the the two markets being hogs and and cattle, I guess is what I'm talking about.
• 3:30
  SPEAKER_01: You know, they they have a few different fundamentals going on on the pig side, um, just a lot of shaky ground over there.
• 3:38
  SPEAKER_01: We we lost all that kill um right before Christmas.
• 3:41
  SPEAKER_01: We we didn't quite get the numbers back on the slaughter side this week as we were hoping.
• 3:46
  SPEAKER_01: We got some weather interference there again.
• 3:49
  SPEAKER_01: So there's uh the market, I think, is pretty concerned about okay, are we gonna um run into some troubles getting these backed up pigs through the system or not?
• 3:58
  SPEAKER_01: But good news on that front, we are hearing um a few packers looking for some pigs, starting kind of out east, um you know, Indiana, Illinois type stuff.
• 4:09
  SPEAKER_01: Uh so we're looking to see if that'll bleed into the western corn belt here.
• 4:15
  SPEAKER_01: Um, and you know, hopefully we are getting those cleaned up a little bit quicker than what we thought.
• 4:20
  SPEAKER_01: You know, I would say the biggest issue on the pigs, who by the way, you know, did end up uh on their lows here, um, especially on the front end, um, really across the board.
• 4:31
  SPEAKER_01: But we we broke through the lows of last week, um, started you know this on this rally.
• 4:38
  SPEAKER_01: Uh we had this rally go back to up to almost 92 bucks on the feb, and then gonna end up at a just over 80 here uh in a sh long week of trading.
• 4:47
  SPEAKER_01: That fixed that in a hurry, huh?
• 4:49
  SPEAKER_01: Yeah, that changed changed that relative to where the cash market is in a big hurry.
• 4:55
  SPEAKER_01: But you know, our biggest concern over there, internally at least, is a cutout just doesn't seem to get any strength behind it.
• 5:02
  SPEAKER_01: So it's you know, you you kind of start asking a lot of questions around, well, we lost some supply, so why isn't product values going up?
• 5:10
  SPEAKER_01: Um yeah, I I'm one to say that this demand picture is you need more than a week or two is worth of data before you make any big picture um observations there.
• 5:20
  SPEAKER_00: But you know the futures don't work like this.
• 5:23
  SPEAKER_01: Yeah, they're not gonna wait two weeks and then make their move, huh?
• 5:26
  SPEAKER_01: Um the cattle on the other side though, they've they have this huge spark um on their product values off very little loss in slaughter either last week or this week.
• 5:39
  SPEAKER_01: Um so that is uh like an impressive uh very impressive.
• 5:43
  SPEAKER_00: Because every cattle feeder is waiting for like three dollars higher than that what they've been able to get, right?
• 5:48
  SPEAKER_00: So they're just not selling them.
• 5:50
  SPEAKER_01: I think the weather, you know, even though we didn't lose shackle, yes, I think gives the the feeders a little bit more patience for sure.
• 5:56
  SPEAKER_01: And I think in the back of their mind, the packers saying we better bid up on some of these cattle too, because they're gonna be a little tougher to peel out of the yard, so to speak.
• 6:06
  SPEAKER_01: But um, you know, on the product side there too, it just we we've seen this big move higher.
• 6:11
  SPEAKER_01: Um, so it gives the packers a little bit more confidence to pay up a little bit.
• 6:16
  SPEAKER_01: And that must be a signal on the demand side there.
• 6:19
  SPEAKER_01: Um, you know, just really good clearance through the holidays the way it looks to me.
• 6:22
  SPEAKER_01: I wouldn't be surprised at all if we seen that um fall back on its nose pretty hard in the next week or two um and see these box beef values come back down to earth a little bit.
• 6:33
  SPEAKER_01: Kind of got two different little demand stories going on there, both of them pretty short term.
• 6:38
  SPEAKER_01: Um that's some of the stuff we'll be looking at uh you know in the next week or two on this livestock thing.
• 6:44
  SPEAKER_01: And hopefully these hogs can find themselves some footing here.
• 6:48
  SPEAKER_01: I I really think they will.
• 6:49
  SPEAKER_01: I mean, you got February trading lowest price, you know, lower than in December, for an example, and December went off at 82 and some just under 82, and we're at just over 80 on the fib.
• 7:02
  SPEAKER_01: I can't imagine things gotta be the that ugly here going forward, Mike.
• 7:07
  SPEAKER_00: Makes sense.
• 7:08
  SPEAKER_00: Well, let's get into some fun stuff here on the ethanol side of things.
• 7:11
  SPEAKER_00: We've talked a lot about demand destruction in these grains here real recently, and it makes sense, right?
• 7:17
  SPEAKER_00: When you've got high corn prices here, they're gonna try to fix high corn prices by destroying some demand.
• 7:24
  SPEAKER_00: And it it's kind of the right time of the year to start talking about some of this, and we really saw it this past week.
• 7:29
  SPEAKER_00: I mean, the uh poor weather didn't just impact uh the harvest on the livestock side of things.
• 7:35
  SPEAKER_00: We did see it majorly in the ethanol production industry as well.
• 7:39
  SPEAKER_00: And uh when we start going over the some of the numbers, this week, as I say, was the biggest shock and awe.
• 7:44
  SPEAKER_00: We saw a uh 19.5 percent lower uh a week than the week last year uh for production on ethanol, uh down about sixteen percent from the five-year average for last week.
• 7:57
  SPEAKER_00: You know, the four-week average on ethanol production that decreased five point six percent.
• 8:02
  SPEAKER_00: So the production really pulled back here, Jeff.
• 8:05
  SPEAKER_00: And when I look at uh corn used for ethanol at only eighty-four million bushels, to put things into perspective, to hit the USDA's number that they're expecting, we need one oh hundred and two million bushels of corn every week to get ground to hit their forecasted five point two seven five billion bushels of corn.
• 8:25
  SPEAKER_01: That probably hits the low water mark for last year, or did we have a week back last winter they ran into some some similar issues?
• 8:34
  SPEAKER_00: You know, September we had an eighty-five week.
• 8:38
  SPEAKER_00: All right, we switched from old crop to new crop, didn't we?
• 8:41
  SPEAKER_00: Yeah, we did have that one.
• 8:42
  SPEAKER_00: Otherwise, this drop in production that we've seen over the past two weeks, when we started to look at it, I mean, we pledged plunged 18% in the last two weeks from December 30th to like uh this first week of January here.
• 8:57
  SPEAKER_00: And uh that was a fifth largest two-week fall on record to put things into perspective.
• 9:02
  SPEAKER_00: Okay.
• 9:03
  SPEAKER_00: So that was that was all because of extreme cold, winter weather, um, shutting down plants and transport, all that, right?
• 9:10
  SPEAKER_00: But it's also a you know, we'll get into it here.
• 9:12
  SPEAKER_00: It's a poor time frame of ethanol margins.
• 9:15
  SPEAKER_00: But uh here uh what we've seen is just uh a major pullback in production on ethanol, and at the same time we've seen ethanol stocks get built up pretty strong here, and uh, we've seen very high stocks on the ethanol side, which so it's kind of going against each other here a little bit, Jeff, with production pulling down, stocks going up.
• 9:37
  SPEAKER_00: You know, stocks uh here they did decline a little bit this last week, just 0.8% was all, but they're still 14% more than a year ago and eight percent above the five-year average.
• 9:48
  SPEAKER_01: I know you I know you've got some uh information similar to this in your uh weekly letter there, Mike.
• 9:55
  SPEAKER_01: And I I would I think you almost got to put some of this into a visual, right?
• 9:59
  SPEAKER_01: I mean, until you really see it on a graph.
• 10:01
  SPEAKER_01: Um these are big moves, these are very unusual moves.
• 10:05
  SPEAKER_01: Um some of that obviously is some extreme circumstances with some of the the weather and logistics that we're going through today.
• 10:13
  SPEAKER_01: But big picture uh things look a little tough as well, don't they?
• 10:18
  SPEAKER_00: Yeah, so if you break it down short term, you know, it makes sense.
• 10:22
  SPEAKER_00: We have the poor weather, transport, all that stuff.
• 10:24
  SPEAKER_00: Uh probably gonna get a little bit better from here on out.
• 10:27
  SPEAKER_00: Next week, start to get nicer, uh logistics improve, all of that.
• 10:31
  SPEAKER_00: So short term here, hopefully that's all behind us, and we'll see improvement and runs already next week.
• 10:37
  SPEAKER_00: Um, seasonally, this is the worst time of the year for margins historically on ethanol.
• 10:43
  SPEAKER_00: Usually sucks pretty bad this time of the year, usually starts to get better about February where we start grinding for summer needs, and then really the best margins are in the summer, right?
• 10:52
  SPEAKER_00: For grinding ethanol.
• 10:53
  SPEAKER_00: Sure.
• 10:53
  SPEAKER_00: So it's gonna get better from here on out.
• 10:55
  SPEAKER_00: And I hope I say that too for you livestock producers out there that haven't been able to get DDGs.
• 11:01
  SPEAKER_01: Yeah, that's been a tough go.
• 11:02
  SPEAKER_01: And I know I know on the hog side people have been fairly aggressive about making some ration adjustments.
• 11:09
  SPEAKER_01: I know on the cattle side we've made some, but it's hard to pull that product out of the cattle um rations.
• 11:15
  SPEAKER_01: And I and speaking from experience, it's it's been getting a little frustrating getting the supply side.
• 11:21
  SPEAKER_01: So hopefully you're right about that, Mike, and we don't maybe don't have to do anything too drastic and can get back in the wheel again as far as the supply goes.
• 11:29
  SPEAKER_00: Because exports of DDGs slipped 9% this past week.
• 11:33
  SPEAKER_00: That was the lowest volume we've seen since May of 2020.
• 11:37
  SPEAKER_00: So that's a pretty extreme number, too, because we remember what COVID did.
• 11:40
  SPEAKER_01: Yeah, it's kind of surprises you that you export much of anything in this environment, but yeah.
• 11:45
  SPEAKER_01: I suppose sales on the books gotta be delivered type of a thing.
• 11:48
  SPEAKER_01: It was mainly three destinations.
• 11:50
  SPEAKER_01: Sure.
• 11:51
  SPEAKER_01: Interesting.
• 11:51
  SPEAKER_00: Yeah.
• 11:52
  SPEAKER_00: So when I start talking about that, it should get better from a seasonal point of view, but it does worry us from a macro perspective.
• 11:58
  SPEAKER_00: You know, if you go back and you look at times where we've had$7 cash corn and above, historically, like 2011 to 12 through that time frame, it was typical for us to have plus a hundred dollar crude oil that entire time.
• 12:12
  SPEAKER_00: Now this is happening right now where we've got gas prices dropping pretty dramatically too.
• 12:19
  SPEAKER_00: We're actually below last year's gas levels at this point for price.
• 12:23
  SPEAKER_00: And when we start to see gas levels pushing lower, like the price of E85, for example, at a local gas station here is only a buck eighty nine.
• 12:33
  SPEAKER_00: So we're starting to have some really low prices here on gas, and yet we've we're paying seven dollar corn.
• 12:39
  SPEAKER_00: Really, in the macro sense of things, this doesn't work too hot longer term.
• 12:43
  SPEAKER_00: We need an above a hundred dollar crude oil to really make this uh work too well in the longer term, and it makes no surprise ethanol margins haven't been fantastic for quite a while now.
• 12:53
  SPEAKER_01: So$75 crude and$7 corn doesn't yeah, it doesn't walk hand in hand.
• 13:00
  SPEAKER_01: I can definitely see your point.
• 13:01
  SPEAKER_01: And that's interesting because as you thought about demand destruction on corn, um, you know, all summer we when we were at$85 going to 100 and back to 90 to 85 again, you know, then you can make the argument, well, exports has got to do all your rationing, but this ethanol thing with$75 crude, that can that kind of jumps out at you, don't it?
• 13:22
  SPEAKER_00: Yeah, and gas dem gasoline demand's been a big problem here overall.
• 13:26
  SPEAKER_00: I mean, demand for gas is 8.1% less than a year ago, 9% below the five-year average.
• 13:33
  SPEAKER_00: So it's it's definitely a demand problem when we start talking about gas here.
• 13:37
  SPEAKER_00: And uh in the bigger picture then, more macro, if we start to think about some of these global economic concerns that are out there, whether it's China or the United States, they're pretty legitimate when it comes to the impact it could have on these two markets here.
• 13:54
  SPEAKER_00: Because if we start to push crude oil prices down here, it's gonna be hard for us to hold seven dollar corn.
• 13:59
  SPEAKER_00: It's also gonna be hard for gas demand to continue.
• 14:02
  SPEAKER_00: It's also gonna be hard for us to find enough DDGs in in the longer run.
• 14:06
  SPEAKER_00: It's gonna be tighter.
• 14:08
  SPEAKER_00: So uh when we start talking about some of the implications that could have, I think it's more important than maybe what some people have been giving it credit for if the concerns about recessionary environment globally is is a real threat.
• 14:22
  SPEAKER_00: So I think that's something uh as a major takeaway this week to focus on uh for the ethanol industry and for livestock producers for the rest of this year, anyways.
• 14:32
  SPEAKER_00: And uh as a grain guy who let's say you've got corn in the bin, you know, and we've got another chance to hopefully sell seven dollar corn here before the report next week, um, it makes you think about it a little bit harder when you start talking about a couple of those things and say, you know what, it's uh it's a lot harder to leave that in the bin than it was before.
• 14:52
  SPEAKER_01: Yeah, that would probably potentially has an impact on both basis and futures prices, I suppose, if we continue to.
• 14:59
  SPEAKER_01: So watch the crude oil market, that should be a leading indicator in your mind as far as margins and and uh you know, especially you can look out at right now there's no carry to speak of into the crude market, but if you start to see some higher prices out on the horizon, maybe can you know maybe this trend would start to change a bit as far as expectations on ethanol margins.
• 15:20
  SPEAKER_00: Definitely.
• 15:21
  SPEAKER_00: Any final thoughts for our listeners this week, Jeff?
• 15:24
  SPEAKER_01: No, I don't think so.
• 15:26
  SPEAKER_01: I guess the only thing I was gonna quick bring up, um, you know, as far as expectations for the report next week, Mike, we've got uh, you know, potential changes in total yield um on both corn and soybeans.
• 15:39
  SPEAKER_01: Um obviously the demand factor will be a big deal, you know, as you talk about both exports and ethanol on the corn.
• 15:48
  SPEAKER_01: Um and then I'm guessing we'll throw some South American numbers into the mix as well as we go through next week.
• 15:54
  SPEAKER_01: So generally ports are kind of a big deal.
• 15:57
  SPEAKER_01: It's probably an alright time to sharpen our pencil and make sure we're we're happy with where our coverage is at.
• 16:03
  SPEAKER_01: Um I know it I know it kind of makes me start thinking about maybe some uh some put options and some maybe even some short-term coverage stuff that buys us another month or two and gets us into a little bit more friendly seasonal time frame.
• 16:16
  SPEAKER_01: But that all just kind of goes back to if we've hit our marks so far or not as far as new crop sales go in my mind.
• 16:24
  SPEAKER_00: Thank you, Jeff.
• 16:25
  SPEAKER_00: I agree.
• 16:26
  SPEAKER_00: Demand and Argentina weather or supplies there.
• 16:30
  SPEAKER_00: That'll be the key in next week's report.
• 16:31
  SPEAKER_00: So that'll be a fun one.
• 16:33
  SPEAKER_00: Hopefully, we'll check in next week with you guys.
• 16:35
  SPEAKER_00: Thanks, Jeff.
• 16:36
  SPEAKER_00: And thank you to all our listeners.
• 16:38
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 16:42
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 16:47
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 16:53
  SPEAKER_00: See you next time.