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Transcript

Outside Market Pressure · 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 involve 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 4th, and I've got Pat back with us here.
• 0:26
  SPEAKER_00: How's it going, Pat?
• 0:27
  SPEAKER_01: Good Mike.
• 0:28
  SPEAKER_01: How are you?
• 0:29
  SPEAKER_00: Very good.
• 0:29
  SPEAKER_00: It's been a few weeks since I've had you on.
• 0:31
  SPEAKER_00: We've had some exciting guests in the meantime, so I know I'm excited to hear some of your thoughts today, let alone the uh rest of the customer base.
• 0:40
  SPEAKER_01: As always, it seems as though there's quite a bit going on.
• 0:43
  SPEAKER_01: So I'm looking forward to the discussion as well, Mike.
• 0:45
  SPEAKER_00: Awesome.
• 0:46
  SPEAKER_00: Yeah, a lot going on.
• 0:48
  SPEAKER_00: Uh let's start with uh some of the negative stuff to really start off with here, Pat.
• 0:53
  SPEAKER_00: Uh a little bit Yeah, I know, right?
• 0:54
  SPEAKER_00: Start off on a hot foot here.
• 0:56
  SPEAKER_00: Uh little bit of a sell-off pretty much across all commodities here lately.
• 1:01
  SPEAKER_00: Uh the grain market's an easy one that I want to start with here a little bit, being the corn market specifically.
• 1:08
  SPEAKER_00: You know, since about the middle of April, uh we've really backed off this corn market about 40 to 50 cents across the board and uh really had some resistance at the time of the year where we normally start to get fired up a little bit, start to get some support back under this as we start talking about planning problems or progress there now, beginning of May, maybe the forecast uh 30 days out into June is starting to get a little hot, something along those lines.
• 1:35
  SPEAKER_00: And it's really been put down a little bit, and I'd say one of the leaders in that recently has been the crude oil market, Pat.
• 1:42
  SPEAKER_00: And we haven't really addressed it too much in the recent podcast, so I'm interested in your thoughts here.
• 1:48
  SPEAKER_00: The crude oil market really put a low in today, kind of a uh almost a blow-off bottom.
• 1:53
  SPEAKER_00: I don't know if you want to call it necessarily that, but uh a reversal here for the nonetheless.
• 1:59
  SPEAKER_00: We we made a low down to 6390 on that July crude oil today and closed about six dollars higher than that.
• 2:06
  SPEAKER_00: So a really strong recovery there, but that crude oil market selling off that hard that fast has put pressure on these grain markets and the other commodities and uh really a broad sell-off that we've experienced here across many of these commodities.
• 2:20
  SPEAKER_00: And well, what do you have to say about the recent weakness we've seen in these complexes?
• 2:25
  SPEAKER_01: Well you said you're gonna start with the bad news and then and then you talk about uh crude oil and you say that it ri it that maybe it put a low in, and and I I I see what you're saying.
• 2:35
  SPEAKER_01: Like it's it is six dollars off of what it traded at one point today, but it at least right now it's still indicating that it's gonna trade lower for the day, which is kind of crazy as as much as we sold that thing off, and it's still gonna maybe get a lower settlement today than what we closed at yesterday.
• 2:49
  SPEAKER_01: But uh, you're right, it did take out that last uh swing low there around 65 bucks on March 20th, um, had a subsequent rally uh all the way up into the mid-80s, uh, gap higher and everything else on an OPEC OPEC Plus um uh announced production cuts.
• 3:10
  SPEAKER_01: And now here we go back down again.
• 3:12
  SPEAKER_01: It's interesting that uh um that energy is uh at the forefront of a lot of uh uh discussion here, so I think that's an appropriate topic to start with today.
• 3:25
  SPEAKER_01: Um I also heard that uh um Berkshire Hathaway, they're doing their annual conference this weekend down in Omaha, and uh and uh that group has recently increased their holdings pretty significantly on a couple different uh uh major energy companies.
• 3:42
  SPEAKER_01: And so um, and then we've also this week uh had a lot of discussion about uh the E15 waiver and and uh kind of plugging that in again for this summer and what uh hopeful impact that might have uh on additional corn demand.
• 3:59
  SPEAKER_01: And and uh we say all of those things, and and also the crude oil market just sold off this week because of concerns about uh economic activity in in the three major economies across the globe.
• 4:13
  SPEAKER_01: I call Europe European Union one of those, China, and then and then of course the US.
• 4:18
  SPEAKER_01: And so uh plenty of concern about about uh uh reduced or limited economic activity due to something between um slowdown of economic activity and and recession or or something along those lines.
• 4:36
  SPEAKER_01: And so the next topic should definitely be what the Fed is doing and what they decided to do this week, but more importantly, uh what uh what their comments were sort of wrapped around um that that rate height.
• 4:46
  SPEAKER_01: But I mean for me this is mostly a demand side concern uh uh situation, and the market um clearly is is worried about uh robust economic activity or even average robust uh or average economic activity being being uh uh a more of an unlikely sort of a scenario as we go through uh the next six months or something like that.
• 5:08
  SPEAKER_01: And so um it's a good opportunity from a producer's perspective, I think, to to uh uh locking up some fuel costs.
• 5:15
  SPEAKER_01: I mean, that'd be one thing to consider here uh in the short run, Mike, but but longer term um lower energy prices, probably a little bit of an increase in domestic supply.
• 5:28
  SPEAKER_01: There's been some reinvestment in infrastructure um domestically, and so I I'm I mean I'm I've been a uh kind of a crude oil bull for a while, but that was mostly based upon you know a of this the US government and other major um um governments across the the globe wanting to uh um restrict or transfer transition into a more uh green sort of an energy policy and that that uh limiting the desire for energy companies to be reinvesting in energy.
• 6:03
  SPEAKER_01: And that's starting to switch just a little bit here.
• 6:06
  SPEAKER_01: And so it's gonna be really interesting as we go forward here.
• 6:09
  SPEAKER_01: I tend to think that these areas that we're trading at um in this sixty-five dollar or so area, um, I'm not so sure if today was a low of that sort of a thing.
• 6:19
  SPEAKER_01: But I would I would bet that these kind of levels are levels that hold pretty well.
• 6:24
  SPEAKER_01: There's you're gonna become disinterested in and uh finds finding some more shale rock to screeze crude oil out of if we get much cheaper than this, I suspect.
• 6:34
  SPEAKER_00: And you know, this demand concern it spills over into the livestock world a little bit too.
• 6:40
  SPEAKER_00: It seems to have done the impossible, which it seemed here over the past few days.
• 6:44
  SPEAKER_00: This was a fourth technical straight uh day of closing lower lower on the cattle market.
• 6:51
  SPEAKER_00: We've taken off four dollars there or so really kind of broke a little bit of the trend that we've been developing here for quite some time, and that was heavily uh based on some demand concerns there for the live cattle industry with box beef values being where they're at.
• 7:06
  SPEAKER_00: But I thought that was the interesting one if it really had to stick out at me here, because the grain markets have been on a decline for quite a while, but that cattle market with the supply situation they've had, uh, you know, for that to really get hit here this week uh showed how big of a deal it was that outside markets really spilled into these commodities this week.
• 7:27
  SPEAKER_00: And then talk about outside markets here a little bit too.
• 7:30
  SPEAKER_00: You know, part of this grain weakness we had been experiencing was because of the wheat market.
• 7:35
  SPEAKER_00: And the wheat market's been getting uh really slashed here over the last few months, really, after that major inflation play back last year at this time.
• 7:44
  SPEAKER_00: And here this week we had some news across the wheat market, which we traded Russia Ukraine uh news for the first time in quite some time here in an aggressive manner uh after trading uh almost dang near lower every single day since the middle of April.
• 8:00
  SPEAKER_00: Uh, we had a nice fifty cent bump in some of the wheat categories here yesterday based upon uh m a potential drone strike uh at the Kremlin, if you want to even call it that, uh an assassination attempt, some people called it, which whatever.
• 8:17
  SPEAKER_00: Uh it had an impact on the wheat market, probably didn't help tensions from the sounds of it.
• 8:22
  SPEAKER_00: Uh, but that was an interesting topic here as we saw a key reversal in the wheat markets.
• 8:27
  SPEAKER_00: I thought that would have maybe gave the support uh some support to the corn market a little bit more, so I'm a little sad that still traded lower on the day there, Pat.
• 8:36
  SPEAKER_01: Yeah, and I just some a little bit better weather in the in the in the plains region, I think, is also uh has lent to the sell-off there in the wheat complex, and and uh now I see the most recent sort of seven-day forecast is take a lot of that moisture back out to.
• 8:51
  SPEAKER_01: So um, you got a little bit of of weather play there as well.
• 8:54
  SPEAKER_00: Definitely.
• 8:56
  SPEAKER_00: Um the Fed news, you touched about it uh just a wee little bit here, Pat, uh, about their uh uh outlook going forward.
• 9:03
  SPEAKER_00: Do you want to touch a little bit about uh some of their further comments on, yeah, they raised 25 basis points here, but what do you think it means uh going forward for their uh for their risk tolerance?
• 9:14
  SPEAKER_01: Yeah, well, I and they've they've uh uh made the strongest indication uh yet that uh we're gonna take a pause here now and and uh and and expressed concern as it relates to uh what's happening in the banking crisis, and expressed concern as it relates to what's happening and some reduction of economic activity.
• 9:37
  SPEAKER_01: And so um this is the closest we've been in quite some time to the the Fed saying we're done as as it relates to to rate hikes.
• 9:45
  SPEAKER_01: And and uh while all that shouldn't have been incredibly surprising, I don't think, to anyone, it it is uh it is uh maybe sobering is is a is is a word as it relates to just the the this idea that um the Fed's starting to recognize that that uh uh there is going to be some negative impact to some of the major concerns that are taking place today.
• 10:10
  SPEAKER_01: And and particularly in this whole the the whole issue of this banking crisis, I I'm not sure that I'm I'm pretty sure that the that we haven't heard the last of that story.
• 10:20
  SPEAKER_01: And and uh you know that concern is is is actually I think going to be the one that ends up uh causing some issues as it is relates to everything going forward here.
• 10:30
  SPEAKER_01: And so um so anyway, I mean I I think that's uh that's a a logical reason why we're we're seeing uh the sell-off in crude.
• 10:39
  SPEAKER_01: I think it's uh it's a reason why you might be seeing a little bit of a sell-off in cattle here, just uh the two uh the two commodity or the two yeah, the two products or commodities in our world that are you know that would most directly be impacted by a slowdown in economic activity.
• 10:55
  SPEAKER_00: Any final thoughts here for our listeners today, Pat?
• 10:58
  SPEAKER_01: Well, I just uh we could get into uh fundamentals here just a little bit and um the perception at least of a pretty doggone good start to this growing season.
• 11:09
  SPEAKER_01: And so, you know, as we go through the next week or two here, some modest planning delays in in the west are forecasted.
• 11:17
  SPEAKER_01: The east is a little wetter, um, but we're a ways away from any, I suppose, weather concern.
• 11:24
  SPEAKER_01: And so I I think uh you know generally the market is perceiving us to getting off to a pretty good start here from a crop development perspective.
• 11:32
  SPEAKER_01: And so I say that for the bears and that are listening, I suppose.
• 11:37
  SPEAKER_01: But for the bulls, I you know, from 92 million acres on a 181 yield, kind of where we started from, um, at least based upon those Outlook Conference numbers and the and and on yield and and the March intentions numbers on on acreage, um, it's hard to it's hard for the crop to get a ton bigger than that for a long time.
• 11:59
  SPEAKER_01: And I'm not sure if it ever will, but we're not planting more than 92 million acres, I don't think.
• 12:04
  SPEAKER_01: And I don't think that uh um, you know, I I I mean a 181 yield is an aggressive trend in my mind.
• 12:10
  SPEAKER_00: And so in order to Well it's hard to get both those.
• 12:12
  SPEAKER_01: Exactly, exactly.
• 12:13
  SPEAKER_01: And so for it to inc for it to eclipse that, I I I think that's a that's a bit of a stretch.
• 12:19
  SPEAKER_01: And so so we'll see here on the May report uh will be the first time the USDA takes a stab at a new crop balance sheet.
• 12:27
  SPEAKER_01: But um, you know, I think where the market's trading at today from a corn market perspective, you're pricing in a pretty big corn crop at this point and some um expected uh rebound in demand as well.
• 12:40
  SPEAKER_00: Well, if you think about it here, Pat, coming forward, the uh next time we will be talking, uh we'll have that May report under on our belt here, May 12th.
• 12:49
  SPEAKER_00: Uh we'll have that next Friday coming out on the WAS day.
• 12:52
  SPEAKER_00: So yeah, that report will likely be a very big report, giving us a first balance sheet for this next year's upcoming uh marketing year, and could have some interesting thoughts behind that.
• 13:03
  SPEAKER_01: Sounds great.
• 13:04
  SPEAKER_01: Thanks, Mike.
• 13:04
  SPEAKER_00: Thanks, Pat.
• 13:05
  SPEAKER_00: And thank you to all our listeners.
• 13:07
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 13:10
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:16
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:22
  SPEAKER_00: See you next time.