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Transcript

Grains: Hold or Sold? · 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.
• 0:23
  SPEAKER_00: Today is June 26th.
• 0:25
  SPEAKER_00: I've got Jaden back with us here today.
• 0:27
  SPEAKER_00: How's it going, Jaden?
• 0:28
  SPEAKER_01: It's going good, Mike.
• 0:29
  SPEAKER_00: Good deal.
• 0:30
  SPEAKER_00: Well, we're going to talk a little bit about the corn market and soybean market here this week.
• 0:35
  SPEAKER_00: We're going to talk about the recent sell-off.
• 0:37
  SPEAKER_00: We're going to talk about what to do with this pesky old crop.
• 0:40
  SPEAKER_00: And then we're going to talk a little bit about the s the past acreage and quarterly stocks reports and what we see from that going into next week.
• 0:48
  SPEAKER_00: So, Jaden, just tell me a little bit about this sell-off that we've had over the past week and and uh just tell me kind of what's happened and why.
• 0:57
  SPEAKER_01: Yeah, Mike, in the corn market, we've had a about a 20 cent sell-off so far this week.
• 1:02
  SPEAKER_01: And it's really due to, I mean, if you look out the window, it's it's raining.
• 1:07
  SPEAKER_01: I mean, this weekend we had heat followed up by rain.
• 1:10
  SPEAKER_01: I mean, you can't ask for much more for growing crops.
• 1:13
  SPEAKER_01: And in the bean market, same thing.
• 1:15
  SPEAKER_01: We're we've lost around 60 cents this week in this bean market, and just kind of the same thing.
• 1:21
  SPEAKER_01: If you look out the window, you're driving.
• 1:23
  SPEAKER_01: I mean, we have plenty of rain where we need it, and it's it's coming at the right time.
• 1:29
  SPEAKER_00: That that is definitely so.
• 1:32
  SPEAKER_00: It uh it's been wet everywhere in the Midwest, whether you're in Iowa, South Dakota, Minnesota.
• 1:39
  SPEAKER_00: We've all been getting a lot of rain after last week's big heat at a very nice key time frame, the end of June here, going into the 4th of July.
• 1:47
  SPEAKER_00: It's gonna be some really nice recent weather here uh to really help this crop along.
• 1:52
  SPEAKER_00: And you know, when you look a lot of years, you can have 70, 80 percent of the U.S.
• 1:57
  SPEAKER_00: corn in a drought uh at this time of the year historically in some of the drier years.
• 2:02
  SPEAKER_00: And right now, corn production in a drought is down to 16% in the United States.
• 2:08
  SPEAKER_00: Weather's just not allowing this corn market to go anywhere but down, and the fund activity funds are pretty short going into uh this weekend here already.
• 2:18
  SPEAKER_00: They've built up a pretty sizable short position, they continue to add on to that in the past few days.
• 2:24
  SPEAKER_00: They've been able to add on to that here as a lot of weather models showed for the end of June.
• 2:29
  SPEAKER_00: We potentially had an opportunity to get a little hot and dry, and uh we just seem to continue to get rains here.
• 2:36
  SPEAKER_00: So that's been a big part of it.
• 2:38
  SPEAKER_00: Uh, a few other things as well.
• 2:39
  SPEAKER_00: If you look at the crude oil market we sold off because of the uncertainty got a little less, I would say, or the tensions uh settled down a little bit between Iran and Israel.
• 2:50
  SPEAKER_00: So that situation is not quite as crazy as what it could be from that perspective.
• 2:56
  SPEAKER_00: And wheat wheat did help corn out a little bit on that rally we had uh about last week.
• 3:01
  SPEAKER_00: Uh wheat was up 25 cents one day, for example.
• 3:04
  SPEAKER_00: Uh corn following that up was five cents higher that day.
• 3:07
  SPEAKER_00: And now with wheat moving quite a bit lower recently, corn's uh had a very easy time following that.
• 3:14
  SPEAKER_00: So from that perspective, that's a little bit of what's going on in this corn rally or this corn sell-off that we've had recently.
• 3:22
  SPEAKER_00: And it's really left us with a very hard position.
• 3:26
  SPEAKER_00: If you have old crops still in the bin that you're getting to after you got done planning, uh got done maybe with a first spray, uh side dressing, you got a little bit of time now and it's raining, you want to finish up cleaning out some of those bins.
• 3:40
  SPEAKER_00: A lot of folks are finding a few more bushels of corn than what uh maybe we had hoped they had left.
• 3:45
  SPEAKER_00: But a very common question out in the marketplace right now, whether you look at Twitter or from the callers calling in, is that what do we do with this old crop, Jaden?
• 3:53
  SPEAKER_00: And what are you seeing in the uh in the big talking points, I think, right now on this old crop?
• 4:01
  SPEAKER_01: Yeah, Mike, so from some charts we've pulled, July futures have just dropped a lot more than basis, and basis just hasn't improved uh uh as much as we hope, and it just hasn't had time to react to this big sell-off, and farmers are waiting to s sell their crop here and they're finding more bushels than they they thought they had, and I think we just need to wait for a couple weeks for basis to improve for that end user's uh bushels to tighten up a little bit.
• 4:32
  SPEAKER_00: Yeah, so really i when we look at this situation with uh with price going down, we think it's a basis decision.
• 4:40
  SPEAKER_00: We think at this point that the futures have dropped really fast and the basis hasn't had time to catch up because the end user's position is still somewhat long.
• 4:49
  SPEAKER_00: Their position hasn't changed that rapidly, they've only used four or five days worth of corn.
• 4:54
  SPEAKER_00: It's gonna take another week or two for them not to buy as many bushels because of the sell-off, for them to say, oh darn, we need to buy some more bushels to extend our position, get closer to harvest.
• 5:04
  SPEAKER_00: So when it comes to making this decision, it's about basis, and we think maybe wait another two weeks here or so to see what happens if this basis can strengthen up a little bit to give us a boost.
• 5:16
  SPEAKER_00: And at that time frame, if we do decide to make a sale at some point in the next two, three weeks, whether it's now or in two weeks, uh, you know, a re-ownership strategy at this low of futures is not out of the question at all.
• 5:30
  SPEAKER_00: And we're using options in that example very strictly.
• 5:33
  SPEAKER_00: So a September option gets you another two months, and they're relatively affordable in my opinion.
• 5:39
  SPEAKER_00: So uh let's talk about that a little bit and uh and uh really wrap up this old crop in a in an optimistic type manner.
• 5:47
  SPEAKER_00: Um, Jaden, what do we know about uh the next Monday?
• 5:52
  SPEAKER_01: Yeah, next one is a big day, Mike, for the grain producers.
• 5:56
  SPEAKER_01: We got our acreage and quarterly stocks report.
• 5:58
  SPEAKER_00: Yeah, so uh when we look back in history, Jaden, we've got five other years since 2006 that you had a net short position going into this report.
• 6:08
  SPEAKER_00: Now, four of those years you rallied on the day of the report.
• 6:12
  SPEAKER_00: It was a bullish report.
• 6:14
  SPEAKER_00: Um the only year we didn't was last year.
• 6:18
  SPEAKER_00: Now, the normal la rally that we normally have is around 5%.
• 6:22
  SPEAKER_00: So that'd be like a 20% rally on the day of the report.
• 6:26
  SPEAKER_00: Um today, being around that 420 to 425 area, maybe we pop back up, have the potential 450 or 450 uh somewhere in that area.
• 6:35
  SPEAKER_00: Um last year, however, it was interesting because that was the only year we sold off on the day of the report with a negative short spec position going into the report, and we continued to build on that position all the way into building a net short record in the beginning of July there.
• 6:54
  SPEAKER_00: And that market really had a tough time.
• 6:56
  SPEAKER_00: We were trailing lower basically into the end of August on this corn market, and then from that point on, we really rallied on this corn market.
• 7:05
  SPEAKER_00: Good demand turned on at low prices, that seemed to stimulate it, and then we happened to have a dry finish, and that helped us out as well to that crop and tightening up last year's supplies.
• 7:15
  SPEAKER_00: When I run the math currently, uh at what this crop is is pricing in at this stage.
• 7:22
  SPEAKER_00: When I look at price estimates for stocks to use ratios, I think you're trading a 184 type 185 yield.
• 7:31
  SPEAKER_00: That would be about where I would think.
• 7:32
  SPEAKER_00: 184 if you would think that uh you know we're we're not pricing in any weather premium still uh in that aspect.
• 7:41
  SPEAKER_00: If it's a 185, then we still got a little bit of weather premium and they're factoring in at this price.
• 7:46
  SPEAKER_00: Uh so that's what I think they're trading with the current fundamentals, with uh where where price is sitting at, that would be that kind of adjustment that I see out of the uh out of the trade.
• 7:57
  SPEAKER_00: So we're currently at a 181 on the posted balance sheet.
• 8:00
  SPEAKER_00: We've had fantastic weather across the United States, and uh you know, we could potentially be trading a bigger yield at this point, I believe, when I run through just the math uh versus history.
• 8:11
  SPEAKER_00: So uh other than that, Jaden, it it's been a sell-off on this corn market going into first notice day next Monday on these July futures.
• 8:19
  SPEAKER_00: You've got a quarterly stocks report coming up.
• 8:22
  SPEAKER_00: Uh, you have a short week next week with July 4th holiday.
• 8:26
  SPEAKER_00: A lot of things start to move and shake.
• 8:28
  SPEAKER_00: We've had more volatility pick up in this marketplace.
• 8:31
  SPEAKER_00: So please, anyone, if you want to talk grains, please reach out to Jaden and I, and we would love to talk.
• 8:36
  SPEAKER_00: And thank you to all our listeners.
• 8:38
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 8:42
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 8:47
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 8:53
  SPEAKER_00: See you next time.