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Weather, ARC, PLC, and SCO · 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_02: Today is January 27th, and this is Lucas Peters filling in from Mike Minor.
• 0:31
  SPEAKER_02: Mike is uh off this week having a little bit of fun, and uh I got Jeff Lucas.
• 0:36
  SPEAKER_01: Lucas Peters.
• 0:37
  SPEAKER_01: We meet again.
• 0:38
  SPEAKER_01: How about that?
• 0:40
  SPEAKER_02: Just a fun little time up in the podcast room with Jeff.
• 0:44
  SPEAKER_02: Uh perfect place to be on a Friday afternoon.
• 0:47
  SPEAKER_02: There you go.
• 0:48
  SPEAKER_02: So, you know, all in all, uh not a whole lot going on here today, Jeff.
• 0:52
  SPEAKER_02: But what uh what do you think we should talk about on the market wise?
• 0:56
  SPEAKER_01: Well, I think we should jump into a little bit of weather.
• 0:59
  SPEAKER_01: Um not necessarily that's maybe been a big mover and shaker, but you know, it's been impacting some of the markets.
• 1:06
  SPEAKER_01: Um and you know, grains over the week have been kind of sideways in action, I would say.
• 1:13
  SPEAKER_01: I I I keep going back to this corn market.
• 1:15
  SPEAKER_01: You know, it did it tried again to push up to highs and it didn't quite make it.
• 1:23
  SPEAKER_01: Um so I you know I continue to look at that and think, okay, we can't bust out of this high range.
• 1:29
  SPEAKER_01: Uh probably got enough demand type of blues to keep us down under this 685 when I'm staring at the March chart here.
• 1:39
  SPEAKER_01: Um, you know, they go over into the soybean world, we start talking about the weather in South America.
• 1:46
  SPEAKER_01: Um, and we've got some you know, rain come through this week.
• 1:50
  SPEAKER_01: We've got some decent rains going in there in the overnight.
• 1:54
  SPEAKER_01: Uh the front end, you know, taking the brunt of the market reaction here today.
• 2:00
  SPEAKER_01: That thing also had the biggest rally yesterday off some you know, daily export sales or excuse me, weekly export sales, I guess that report was so just kind of ending the week, I would say, and pretty well in a sideways matter.
• 2:14
  SPEAKER_01: You know, the beans um kind of stuck between South American weather being on the bearish side, I would argue, with the rains that have moved through in the past week, the uh tight balance sheet on the front end here as far as old crop soybeans go.
• 2:31
  SPEAKER_01: But you know, the other side of the weather is over into the livestock arena.
• 2:36
  SPEAKER_01: You know, we've got some really cold temperatures moving in next week.
• 2:40
  SPEAKER_01: That's gonna do probably a couple things.
• 2:42
  SPEAKER_01: That's gonna make the cattle situation a tickle worse, especially if you look at some of these cattle that have got some conditions, poor conditions working for them already.
• 2:52
  SPEAKER_01: I know our friends in Nebraska, for an example, are getting fairly nervous about what the you know, they're gonna see some below zero temperatures down there on some cattle that had a pretty tough go of it already from a moisture standpoint.
• 3:06
  SPEAKER_02: Now you saw that firsthand, yeah, didn't you, Jeff?
• 3:10
  SPEAKER_02: Weren't you down there yesterday?
• 3:11
  SPEAKER_01: Yeah, we did sneak down there yesterday.
• 3:12
  SPEAKER_01: We had a couple customer visits, Macy and I did.
• 3:15
  SPEAKER_01: So we did some uh gravel traveling, not the fun kind, but uh we would run around looking at some cattle lots.
• 3:22
  SPEAKER_01: Um, you know, it's you can't see a ton from the windshield course, but the uh you know the conditions we've seen were kind of all over the board.
• 3:31
  SPEAKER_01: You've got some cattle that I would say look quite a bit worse than the ones I had at home.
• 3:37
  SPEAKER_01: That was the biggest reason I went down there, Lucas, feel a little better about myself.
• 3:41
  SPEAKER_02: Confirmed that your stuff looked good.
• 3:43
  SPEAKER_01: Yeah, but that's uh no, that's not exactly where we were going there, but uh there'd be some yards that don't look so bad either.
• 3:51
  SPEAKER_01: But you know, one of the concerns and um you know, talk about the cattle market real quick is we've gotten ourselves into a whole list of really willing sellers, um, and that's been tough on our cash market.
• 4:04
  SPEAKER_01: I'm concerned of one of the biggest takeaways is the number of bigger cattle that we've seen on that trip.
• 4:10
  SPEAKER_01: And we just we just covered the eastern portion of the state just a day trip.
• 4:14
  SPEAKER_01: Um, but there was a lot bigger cattle in the yard than what I was thinking there would be.
• 4:20
  SPEAKER_01: There's a lot of tough conditions, of course.
• 4:24
  SPEAKER_01: It'll be interesting to watch this cash market.
• 4:27
  SPEAKER_01: I'm I'm getting a little concerned that our doldrums might last a little longer uh than what we'd like to see uh on as far as the front end cash and the motivated sellers that we've been seeing.
• 4:40
  SPEAKER_01: If you pop over to the uh hog situation, of course, you know, last time we've seen temps dip this low, I I don't I we we did end up seeing a little bit less demand.
• 4:54
  SPEAKER_01: Uh I'm pretty confident.
• 4:55
  SPEAKER_01: And that's certainly an arguable um discussion point, but in my opinion, I think we've seen some d some decrease in the demand side on the on the hog side, and you know, you just don't see it from a production standpoint.
• 5:12
  SPEAKER_01: The pigs keep growing no matter what the temperatures are like, of course.
• 5:17
  SPEAKER_01: So, you know, unlike the cattle, you sure we got some willing sellers up front, but that's gonna take pounds off the big picture.
• 5:24
  SPEAKER_01: Obviously, that's not true uh in the hog world.
• 5:27
  SPEAKER_01: Um so from a weather standpoint, I think we've got uh you know both some negatives on both the proteins there.
• 5:36
  SPEAKER_01: Um also been kind of a supports around the wheat market this week.
• 5:41
  SPEAKER_01: Uh winter wheat, Kansas City winter wheat's kind of been an impressive market so far.
• 5:46
  SPEAKER_01: It's building off a pretty solid low here in my mind.
• 5:52
  SPEAKER_01: And I think that's probably helping our corn, you know, stay up against the top end of the range here at least.
• 5:58
  SPEAKER_01: Uh further into the hog market, uh we've really we've seen that marketplace just get pretty tired this week, is the best way I can explain it.
• 6:09
  SPEAKER_01: We've got uh front-end fundamentals that just don't seem like they want to get any legs underneath them.
• 6:16
  SPEAKER_01: So you keep that CME index and the 72 and some change type of number.
• 6:21
  SPEAKER_01: Um for the longest time we had February continuing to print a five dollar premium to where the index is at.
• 6:29
  SPEAKER_01: Um that started giving up a little yesterday.
• 6:32
  SPEAKER_01: Gave up a buck today.
• 6:35
  SPEAKER_01: I I'm definitely concerned we're gonna see some more of that.
• 6:39
  SPEAKER_01: I I can't bring myself to go short that February um at these prices, but certainly not arguing with folks who want to do so.
• 6:48
  SPEAKER_01: It just doesn't seem like we're gonna get any strength to this market before we run out of time on the February.
• 6:55
  SPEAKER_01: You know, from there, the April's had a pretty tough week this week and probably justifiably so.
• 7:01
  SPEAKER_01: You know, we started uh into last week there with the over ten dollar premium with the April to the February, for an example, so a really big premium off the CME index.
• 7:14
  SPEAKER_01: And I think you're you're gonna experience the same kind of exhaustion there in my mind.
• 7:18
  SPEAKER_01: I know we had a nice up day yesterday, um, but it's just gonna be hard to hard to continue to support those unless we get some good news on the front fundamental front, and we're so far been lacking pretty hard.
• 7:32
  SPEAKER_02: Yeah, that's so just on the hogs, you know, this week we were at the uh Iowa Port Congress uh down in Des Moines for the last couple days, Wednesday, Thursday down there, and it was my first time of going to the Iowa Port Congress.
• 7:45
  SPEAKER_02: They they just let the insurance guy out to the office a little bit, but uh, you know, the the attitude down there uh of course wasn't real great, Jeff, because you know, you look at uh where these prices have been in the short term, and uh and it's putting a lot of pressure on guys, costs are up.
• 8:02
  SPEAKER_02: Um the uh of course corn price uh stays up pretty high.
• 8:06
  SPEAKER_02: We even if futures dip a little, basis strengthens back up, or vice versa.
• 8:11
  SPEAKER_02: Um a lot of guys kind of had the feeling, you know, this thing should turn around eventually, but if it doesn't, uh boy, it could get real ugly here uh long term if it uh we don't get a change in some of these.
• 8:25
  SPEAKER_01: Yeah.
• 8:26
  SPEAKER_01: Well you're gonna see some I dare say you're gonna see some$50 negative bills on some of these closeouts uh coming through here.
• 8:33
  SPEAKER_01: So that's that is the definition of nasty.
• 8:37
  SPEAKER_01: And one of the more disappointing parts about the hog market is we just can't seem to get into these lower numbers that we've expected to be getting into.
• 8:46
  SPEAKER_01: Quite the opposite.
• 8:47
  SPEAKER_01: Looks like we're gonna have another uh total weekly kill here of you know almost 2.55 uh million head, and we're supposed to be killing a solid hundred thousand less than that.
• 9:00
  SPEAKER_01: And it's been stubbornly high.
• 9:02
  SPEAKER_01: Packers uh seem to be able to put their kill together quite a bit easier than what we uh really would like to see kind of each week that goes by.
• 9:13
  SPEAKER_01: That's gonna be one of the top things that we're watching in the hog market.
• 9:16
  SPEAKER_02: So I mean, are they still playing catch up from the closest when they were closed during the weather over the holidays?
• 9:22
  SPEAKER_01: I don't think that's the right question to ask.
• 9:24
  SPEAKER_01: I don't think they are.
• 9:25
  SPEAKER_01: Um and it's just too too far in the past.
• 9:28
  SPEAKER_01: I mean, that was a month ago that we really seen that major event.
• 9:32
  SPEAKER_01: So, yeah, if we haven't talked this week with um some of you folks, that is I think we have to kind of move past that and start thinking about what else we got going on.
• 9:42
  SPEAKER_01: We're not ready to throw in the towel on the less pigs and and say, hey, we're wrong about that.
• 9:47
  SPEAKER_01: Well, I don't think that's the situation, but we're gonna have to see some shorter numbers really quick here.
• 9:55
  SPEAKER_01: Uh and that's what the marketplace is also looking for, of course.
• 9:58
  SPEAKER_02: But well, yeah, so I you know you brought up uh weather uh before when you're talking, and uh, you know, one thing that I I saw the drought monitor uh come out for the U.S.
• 10:08
  SPEAKER_02: here, was it yesterday came out?
• 10:10
  SPEAKER_02: And for it 45% of the uh corn growing area of the U.S.
• 10:15
  SPEAKER_02: is still in some sort of drought.
• 10:17
  SPEAKER_02: Uh that doesn't sound great, but that's down from like 75, pushing 80% back last fall.
• 10:23
  SPEAKER_02: Um so you know, we're starting to kind of see a maybe see a pattern shift.
• 10:28
  SPEAKER_02: Maybe it's just finally getting some moisture in these dry areas, but it sure feels like it.
• 10:33
  SPEAKER_01: And I think you think you know, some f some of the theory is you can throw the South American discussion right into that same bucket, and you know, Argentina's been picking up a few rains, and that um often swings up into North American also.
• 10:47
  SPEAKER_01: So it's that's very possible that we're seeing a little bit of a difference in moisture there.
• 10:54
  SPEAKER_01: You know, so as we think about spring planting and getting some acres in, making those final decisions on what we're gonna plant and maybe sooner or later, hopefully, when we're gonna plant it, Lucas.
• 11:06
  SPEAKER_01: Yeah.
• 11:06
  SPEAKER_01: Um what I know you've been talking about and doing a webinar of here and there about you know, ARC or PLC, the famous argument this time of year.
• 11:15
  SPEAKER_01: What's your thoughts on those decisions again this time around?
• 11:19
  SPEAKER_01: Yeah, you bet.
• 11:20
  SPEAKER_02: So uh time of year when we have to make those decisions for ARC, PLC, also crop insurance all tied in, and uh all of that has to be decided by March 15th.
• 11:31
  SPEAKER_02: So that's kind of our magic uh deadline there, still a month and a half away, but of course that creeps up uh on a guy pretty fast.
• 11:39
  SPEAKER_02: Yeah, my experience is that's not very far on the things that I'm pushing off.
• 11:43
  SPEAKER_02: Six weeks goes pretty quick.
• 11:45
  SPEAKER_02: So so we better uh get this stuff figured out now so you got time to get your appointment scheduled and get signed up.
• 11:52
  SPEAKER_02: But you know, when we look at this uh farm program sign up or ARC or PLC, uh it's anyone's annual sign up now.
• 11:59
  SPEAKER_02: And you know, the PLC program, uh, you're looking at a reference price of$370 on corn and$840 on soybeans.
• 12:08
  SPEAKER_02: You know, that hopefully is unrealistic in 2023 of sinking to those uh type of price levels.
• 12:15
  SPEAKER_02: Uh so I've kind of uh pushed off the PLC.
• 12:18
  SPEAKER_02: Uh Arc County uh is a little bit better since we use an Olympic average price and yield, and it's a revenue-based formula, so we get a little yield protection as well as the price protection.
• 12:30
  SPEAKER_02: The problem is the prices that they're gonna use are are still way below market, right?
• 12:36
  SPEAKER_02: So we're at$398 on corn for an ARC price.
• 12:39
  SPEAKER_02: You know, the yields are good, but uh you have to have a significant loss before an Arc County payment is triggered.
• 12:46
  SPEAKER_02: Uh now you do have to sign up for one, so even though both programs might not be great or might not look like they have they're gonna pay, uh, you do have to pick one.
• 12:55
  SPEAKER_02: But what I would encourage everyone to do before you just automatically go in and sign up for Arc County or tell your local office to uh sign you up for Arc County, go to your crop insurance agent, or better yet, come see uh us at ProAg and get a quote on the SEO coverage, uh supplemental coverage option.
• 13:16
  SPEAKER_02: It is a crop insurance add-on, but it acts a lot like Arc County.
• 13:22
  SPEAKER_02: And the reason why you should get a quote and look at it this year, uh for one, you cannot buy SCO if you're signed up for any of the ARC programs, uh so you'd have to be on the PLC program.
• 13:35
  SPEAKER_02: But what that ARC is or excuse me, what the SEO is gonna give you is the 86% trigger, just like the ARC County, but it's gonna use planted acres instead of uh base acres, and it's gonna use the crop insurance price uh for setting that uh revenue protection.
• 13:53
  SPEAKER_02: And and that uh, you know, jumping that insurance coverage up to 86% if you normally buy 75 or 80 percent coverage, uh, to me is a great thing to do in 2023.
• 14:07
  SPEAKER_02: Um, you know, we've come off a couple years of high prices and rising prices on corn and beans through the year.
• 14:13
  SPEAKER_02: Uh that doesn't always hold true every single year, and prices got to come down at some point.
• 14:19
  SPEAKER_02: Uh, it was interesting just looking at a chart here comparing D's 23 uh corn futures to uh D's 13 corn futures, and man, that line is uh synced up pretty good right now.
• 14:33
  SPEAKER_02: And maybe it's just a coincidence, but in 2013, if you remember, we had a really steep price drop from spring to fall uh for our crop insurance guarantees by paying a little bit more for crop insurance coverage, bump that uh strike price up uh by using SEO to 86%.
• 14:49
  SPEAKER_02: Uh I really like that program this year.
• 14:52
  SPEAKER_02: Uh, if you're at 85% individual, probably doesn't make a lot of sense to buy it for the 1% of coverage you're gonna pick up with SEO.
• 14:59
  SPEAKER_02: But if you typically buy that 75-80%, uh be sure to check out SEO before you go in and uh sign up for uh Arc County.
• 15:08
  SPEAKER_01: So the decision maybe isn't so much PLC or ARC, it's more if you want to tack on the you know, just because you're hopefully not gonna see either one of the those kick in this year again, more if you want to kick on the additive coverage or not.
• 15:24
  SPEAKER_02: That's that's exactly right.
• 15:25
  SPEAKER_02: So you the reason you why you have to look at that adding on the SEO is it I mean it's gonna cost you some money out of your pocket, right?
• 15:31
  SPEAKER_02: So it's an insurance coverage is gonna cost 10, 20 bucks an acre, depending on where you're at, um, what your APHs are and and all that other fun stuff.
• 15:42
  SPEAKER_02: But uh is spending 15 bucks for an average uh to pick up you know a sign uh a decent amount of coverage for insurance, get a little better price protection, bump up your yield protection.
• 15:56
  SPEAKER_02: Is that better than just signing up for ARC County, which costs nothing?
• 16:00
  SPEAKER_02: Uh, but the likelihood of payout is is way lower.
• 16:03
  SPEAKER_02: So that's that is the exact uh right point, Jeff.
• 16:06
  SPEAKER_02: Of maybe it's not ARC PLC, it's ARC SCO for 2023.
• 16:13
  SPEAKER_01: Very, very good, Lucas.
• 16:15
  SPEAKER_01: Well, I think that maybe does it for us this week, and hopefully we'll see everybody back here again next week, and then have a good weekend.
• 16:23
  SPEAKER_01: Sounds good.
• 16:24
  SPEAKER_00: See you guys later.
• 16:25
  SPEAKER_00: And thank you to all our listeners.
• 16:26
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 16:30
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 16:35
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 16:41
  SPEAKER_00: See you next time.