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WASDE Worries · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is September 15th.
• 0:25
  SPEAKER_01: I've got Pat von Tirsch with us here today.
• 0:27
  SPEAKER_01: How's it going, Pat?
• 0:29
  SPEAKER_00: Good.
• 0:29
  SPEAKER_00: How are you this afternoon, Mike?
• 0:31
  SPEAKER_01: We're doing pretty good.
• 0:32
  SPEAKER_01: Doing pretty good.
• 0:32
  SPEAKER_01: We had uh some wild news this week that kind of came out, but that futures market, for the grains at least, sure hasn't done a whole lot of moving here, Pat.
• 0:41
  SPEAKER_01: We had a WASDA report to get through this week and a few other things I wanted to talk to you about and some of the things you've done this week, Pat.
• 0:50
  SPEAKER_01: How's that sound?
• 0:50
  SPEAKER_00: Let's get to it.
• 0:51
  SPEAKER_01: All right, that WASDA report.
• 0:53
  SPEAKER_01: Obviously, the bigger shaker out of that report that shook some uh shook some news, I guess, was the 800,000 acres they found extra on corn, Pat.
• 1:04
  SPEAKER_01: I know they had hinted at a few more acres in the August report, but really that uh helped grow the balance sheet even that much more.
• 1:11
  SPEAKER_01: They did take down the yield a little bit to 173.5, however, not enough to keep that balance sheet from growing, Pat.
• 1:18
  SPEAKER_01: What did you what caught your eye?
• 1:20
  SPEAKER_01: Uh let's start on the corn balance sheet side of things uh out of the WASD airport.
• 1:25
  SPEAKER_00: Yeah, so the production number didn't change at all, right?
• 1:28
  SPEAKER_00: Um so the the uh the direct um offset of additional harvested acres um versus yield drop.
• 1:37
  SPEAKER_00: And so we're still projecting uh ending stocks to be frankly comfortable, right?
• 1:43
  SPEAKER_00: 2.2 billion bushel plus 16 percent.
• 1:48
  SPEAKER_00: In excessive stocks to use ratios, right?
• 1:51
  SPEAKER_00: So um so so you know, I find you know, as they're engaging in discussions and you talked with with end users or saying, well, you know, the end users are saying, well, how come how come corn doesn't go below 475 um or something like that, right?
• 2:05
  SPEAKER_00: When when we have you know these types of burdensome stocks uh being projected, and you know, then real crop producer or or you know looks at this thing and says, well, you know, we continue to I mean we're now five bushels off of our trend line yields, um the prospects of some increased economic activity in China, those sorts of things.
• 2:26
  SPEAKER_00: Uh um you know, how come how come we can't move this corn market back above five bucks?
• 2:31
  SPEAKER_00: And and so I just I I guess I just say that, Mike, to say this.
• 2:36
  SPEAKER_00: I I mean we've been more or less stuck in a 25 cent trading range for over six weeks now, which is incredible when you think about it from the perspective of how volatile this market has been really for the last three years.
• 2:51
  SPEAKER_00: And so there's no doubt this crop's um uh struggling to finish.
• 2:56
  SPEAKER_00: There's no doubt that we've done some damage to this crop as it relates to uh to final crop size here.
• 3:04
  SPEAKER_00: And I'm pretty comfortable with projecting national crops yield to be basically the same as last year, 173.
• 3:12
  SPEAKER_00: Right?
• 3:12
  SPEAKER_00: There's gonna be some some relatively significant uh gyrations from one state to another compared to a year ago.
• 3:20
  SPEAKER_00: But but ultimately, um right on top of the 10-year trend.
• 3:26
  SPEAKER_00: And I think that's something else that's that's sort of interesting to talk about, and would like to take a little bit deeper dive on that in this podcast now, Mike, if we could.
• 3:36
  SPEAKER_00: I appreciate you pull that information together uh for us this week.
• 3:40
  SPEAKER_00: And and uh, you know, the 30-year trend for this year's projected crop was the 178 that the USDA started out with before the beginning of the year.
• 3:52
  SPEAKER_00: And now we're gonna end up probably around 173, which is more or less the 10-year trend.
• 3:58
  SPEAKER_00: And so, you know, when you think about you think about that, is that's kind of a it's kind of an important point to just think about like where we're at in the stage of increasing corn production, increasing yield potential.
• 4:13
  SPEAKER_00: Like what stage uh are are we at these days where we've really leveled off, right?
• 4:18
  SPEAKER_00: We've had some some quite a few decades of some pretty significant improvement in crop production potential.
• 4:26
  SPEAKER_00: And we've leveled off here now, I would say, over the last uh ten years or so.
• 4:30
  SPEAKER_00: And you know, there's there's there's all kinds of different um theories that could attribute to all of that, not the least of which is more weather volatility, short-term, long-term, those sorts of things.
• 4:44
  SPEAKER_00: But also, you know, we have hybrids today that um are certainly performing better in defensive conditions.
• 4:52
  SPEAKER_00: Yes.
• 4:53
  SPEAKER_00: Right?
• 4:53
  SPEAKER_00: But maybe we've we've exchanged that uh better insulation in in years where the weather isn't quite so good.
• 5:01
  SPEAKER_00: Maybe we've lost a little bit in terms of top-end yield potential, um, you know, when when things are going well.
• 5:07
  SPEAKER_00: I don't know that for sure.
• 5:09
  SPEAKER_00: But it's just something I I think that's interesting to think about here just a little bit.
• 5:13
  SPEAKER_00: And then and maybe it's been going on long enough now where it's it's worth starting to factor in a little bit to some of our longer-term thinking in terms of available supplies.
• 5:23
  SPEAKER_01: It'll be interesting to see once we get more normal weather, how that theory goes.
• 5:28
  SPEAKER_01: And really we won't know until that happens, because it's been uh almost a handful of years now since the last time that we had norm more normal weather across the United States as a whole.
• 5:37
  SPEAKER_01: So maybe once we get out of this cycle from changing from a La Niña to an El Nino, uh we can experience some more normal weather in the United States.
• 5:46
  SPEAKER_01: And uh corn price, I mean, you talked about it, 25 cent trading range here, kind of near some major support levels.
• 5:54
  SPEAKER_01: Tuesday, we didn't break through that 473 area like we did in the uh middle of August there as well.
• 6:01
  SPEAKER_01: I'm really watching for corn futures if we break below that here in the short term.
• 6:05
  SPEAKER_01: If that does happen, uh I'm gonna be worried about some more downsides.
• 6:08
  SPEAKER_01: So that'll entry that'll be.
• 6:14
  SPEAKER_00: But I'm also thinking that if a burdensome U.S.
• 6:18
  SPEAKER_00: balance sheet was gonna push this market below 475 futures, why why what's it waiting for?
• 6:25
  SPEAKER_01: I keep thinking that too, because you've had an opportunity basically since February.
• 6:29
  SPEAKER_01: I mean, really, if you go back to the Outlook conference, that's where they're projecting two plus billion bushel ending stocks.
• 6:36
  SPEAKER_01: And that balance sheet hasn't changed a bit.
• 6:38
  SPEAKER_01: I mean, it's been 2.2 ever since then.
• 6:41
  SPEAKER_00: Yeah, so so at some point in this process we need to stop talking about old information when we're when we're talking about a futures market, right?
• 6:48
  SPEAKER_00: And so and so what likely ends up changing this pricing range that we've been in is a new development that the that that market participants aren't talking much about today.
• 7:00
  SPEAKER_00: And that could be what kind of a start does the the does does the Brazilians get off to in terms of of a growing season, what's happening with economic activity in China, uh those sorts of things.
• 7:12
  SPEAKER_00: Which by the way, there was some uh uh positive uh uh economic news that that came out of out of uh China in the last 24 hours, specifically to manufacturing rates and those sorts of things.
• 7:24
  SPEAKER_00: And I am interested in your thoughts as that relates to uh energy prices and the connection to corn as a result.
• 7:31
  SPEAKER_01: Yeah, industrial output, consumption indicators, they showed improvement for China.
• 7:36
  SPEAKER_01: Their uh property investment that was tumbling for a little while, their um private investments had shrunk a little bit, but really their uh real estate sector remains to be the drag on their main economic uh revival here.
• 7:51
  SPEAKER_01: So everything else, we're trending okay when it comes to industrial output, but their real estate market's still struggling a little bit.
• 7:58
  SPEAKER_01: Kind of almost like ours, really, if you start to think about it.
• 8:01
  SPEAKER_01: Our real estate market's having trouble moving uh a lot here with higher interest rates.
• 8:06
  SPEAKER_01: So uh otherwise, though, we're still adding jobs, we still have pretty good output.
• 8:11
  SPEAKER_01: Uh so that's kind of what's going on in China, and I'm watching that from the perspective of they're gonna be continuing to buy a lot of uh commodities from us and uh from other countries as well, uh specifically the energy market.
• 8:25
  SPEAKER_01: So when I look at agriculture specifically, obviously the exports that they're purchasing from us uh directly impact ag, but then crude oil as well.
• 8:36
  SPEAKER_01: We we uh closed the week around$91 on the WTI this week.
• 8:40
  SPEAKER_01: The output cuts out of OPEC, Saudi Arabia, Russia, some of these other countries has put the crude oil market into a pretty tight position and a 13% rally here.
• 8:52
  SPEAKER_01: So that is obviously supporting this grain market a little bit as an outside fundamental as well.
• 8:57
  SPEAKER_01: Um, but I think ethanol is being supported because of that as well.
• 9:01
  SPEAKER_01: And the ethanol plants have got a lot more aggressive here lately when it comes to cash bids, and uh they've been aggressive on their own grind as well at at maybe a little bit of a weird time because it's not like corn availability is fantastic right now for them to be using a hundred plus million bushels a week.
• 9:18
  SPEAKER_00: Yep, indeed.
• 9:19
  SPEAKER_00: And so, and and and so I and so not only are we seeing a little bit of a rally in the crude oil complex, uh attributed to the things that you just described, there's been some tightening of available supply, and now maybe uh some added additional demand here.
• 9:36
  SPEAKER_00: Um, but it uh as it relates to some in improved economic activity in a in a in a major economy there in China.
• 9:43
  SPEAKER_00: But you know, we've also seen a nice little rally in the in the cattle complex.
• 9:47
  SPEAKER_00: Um you know that the equities market is doing doing pretty well.
• 9:51
  SPEAKER_00: Um and so we've got this this we've also got this this this outside influence of some, I guess, additional support for commodity demand.
• 10:02
  SPEAKER_00: And I think it's just worth noting that uh you know, especially on the day that uh um a portion of the United Auto workers you know walked you know walked out at at at a couple different plants or the or the big uh the big auto uh three big auto companies, is that we are improv increasing uh wage rates in a in a in at a greater rate than what we're than what inflation is going up here recently, right?
• 10:29
  SPEAKER_00: And so it does that sh that does I mean there's a whole whole bunch of other issues that are going on.
• 10:35
  SPEAKER_00: The one I'd like to focus on as it relates to this observation is that it it it it it is improving or increasing the amount of disposal income the average consumer has, which generally is supportive for commodity demand.
• 10:48
  SPEAKER_00: And I I could just make that point, right?
• 10:50
  SPEAKER_00: As it relates to um um maybe there's a little bit of an underlying support here across the bucket of commodities, just as it relates to some sort of a bias that that uh um we're we're s we've got a pretty strong economy in some in some pretty major economies across across the world.
• 11:07
  SPEAKER_00: And so um so that then we could go down this rabbit hole of now what's the Fed gonna do as it relates to to interest rates and all those sorts of things, which is a a whole whole nother thing to talk through, and and just for whatever it's worth, it it would imply at least that there's a better possibility of them raising interest rates versus lowering and those sorts of things.
• 11:28
  SPEAKER_00: But I I just find all of that I I think also worth observing today as it relates to what impact that that might have on the commodities that we care about.
• 11:37
  SPEAKER_01: What else did you do this week, Pat?
• 11:39
  SPEAKER_00: Well, I'll tell you, you're talking about uh you know uh maybe some increased exports into China and had the opportunity uh yesterday to um tour an export facility uh down uh uh just uh north of New Orleans, uh Louisiana, uh an export facility that loads Panamax uh vessels, unloads uh mostly barges from uh Mississippi River, but also a little bit of rail and truck uh thanks to the folks at Zenno Corn Green Corporation that allowed for us a tour of their facility and and uh uh pretty interesting.
• 12:14
  SPEAKER_00: Those folks uh uh their goal is to load a Panamax a day, uh about two million bushel boats.
• 12:20
  SPEAKER_00: Uh and uh we the when we were there yesterday they're loading a vessel for of soybeans to to go to China.
• 12:27
  SPEAKER_00: Uh the Zeno Cor Grain Corporation is is uh um is owned by a uh uh the largest agriculture cooperative in Japan.
• 12:36
  SPEAKER_00: And so they're then and then they're affiliated with uh CGB Consolidated Grain and Barge that has interior assets here in the U.S.
• 12:44
  SPEAKER_00: And so they've aligned themselves um and have had since 1979 when this uh facility was uh was constructed to uh provide uh uh an efficient, easy access of of the commodities that are that are grown here in the U.S.
• 13:00
  SPEAKER_00: to to to that market in Japan.
• 13:02
  SPEAKER_00: So it's pretty interesting.
• 13:03
  SPEAKER_00: Interesting to see how that process works, not only physically, but but a reminder of of the the merchandising aspects uh and and all of that that's that's employed as well.
• 13:14
  SPEAKER_01: So um that's a crazy amount of volume coming out every day.
• 13:18
  SPEAKER_00: Incredible, yeah, and and doing it on on relatively short space there too.
• 13:23
  SPEAKER_00: And so the idea behind uh getting the logistics lined up around all of that uh is uh is quite an amazing thing to see.
• 13:31
  SPEAKER_01: So when the river levels start to get a little bit low north of there, obviously, when you start throwing off a day or two, all of a sudden you're behind four million bushels.
• 13:41
  SPEAKER_01: That adds up pretty quick, doesn't it?
• 13:43
  SPEAKER_00: Exactly.
• 13:43
  SPEAKER_00: Yep, and and uh if you have some issues with with Panamax's getting back because of water levels uh issues in the Panama Canal or or anything like that uh really messes up the logistics.
• 13:54
  SPEAKER_00: I we're we're all reminded uh in this post-COVID area era of uh you know just in time inventory, and this is uh this is that on steroids for sure.
• 14:04
  SPEAKER_01: No kidding.
• 14:04
  SPEAKER_01: Well, thank you for that, Pat, and uh we'll catch you next time.
• 14:08
  SPEAKER_01: Thank you, Mike.
• 14:09
  SPEAKER_01: And thank you to all our listeners.
• 14:11
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 14:14
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:20
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 14:26
  SPEAKER_01: See you next time.