Latest / Professional Ag Marketing Podcast / Weather Market

Transcript

Weather Market · 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 ag 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 involve 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 uh May 25th, actually.
• 0:25
  SPEAKER_01: Here I've got Jeff with us today.
• 0:27
  SPEAKER_01: How's it going, Jeff?
• 0:28
  SPEAKER_00: Good afternoon, Mike.
• 0:30
  SPEAKER_00: It's going well unless we uh are watching the hog market.
• 0:34
  SPEAKER_00: Been a tough week over there again.
• 0:35
  SPEAKER_01: Well, I promise you we don't have to talk about that today.
• 0:38
  SPEAKER_01: We're gonna talk a little bit about the weather market that we're experiencing in this uh in this grain uh complex here.
• 0:45
  SPEAKER_01: Finally get to talk about that a little bit and some of the reaction uh that we're seeing to that market here.
• 0:51
  SPEAKER_01: How's that sound?
• 0:51
  SPEAKER_00: I was wondering when we were gonna get into a little bit of weather, Mike, but from the looks of it, we're maybe getting closer, huh?
• 0:58
  SPEAKER_01: Yeah, last week uh on the 18th or uh last Thursday, we put in a low at 490 on the December corn.
• 1:06
  SPEAKER_01: And uh really we've rallied up past that, put a high in at 527 yesterday on the corn.
• 1:12
  SPEAKER_01: So I think we have a couple of different things going on.
• 1:15
  SPEAKER_01: And uh what kind of set it all up was that managed money funds right now, they've carried on a position of net short around 130,000 contracts, give or take, going into this growing season now.
• 1:28
  SPEAKER_01: So they've built up a little bit of a net short position ahead of a growing season.
• 1:33
  SPEAKER_01: And uh now, real recently, some more news has come out about the last 30 days we have seen uh below normal precipitation in some certain areas, specifically Western Corn Belt, uh Nebraska, over in that area mainly.
• 1:49
  SPEAKER_01: And then some Missouri, I heard too, some stuff like that.
• 1:51
  SPEAKER_01: But that got the market a little bit uh worried.
• 1:55
  SPEAKER_01: And if we start talking about a weather problem starting ahead of the growing season or right in the beginning of it, like we are now, and the funds are carrying a net short position, that gets them a little bit concerned about carrying those forward.
• 2:07
  SPEAKER_01: So we've seen some liquidation of those funds, I think, Jeff.
• 2:11
  SPEAKER_00: So the shorter they are, the more bearish they're leaning um to the bearish side of the boat is if we can get a little if we can get some catalyst to to flip the psychology over, there's more room to to move that direction, is kind of what you're suggesting.
• 2:27
  SPEAKER_01: Exactly.
• 2:27
  SPEAKER_01: Yep.
• 2:28
  SPEAKER_01: So they're just uh in a process called short covering here over the past week where they don't want to get burned.
• 2:34
  SPEAKER_01: The most recent example I can think of was in 2019.
• 2:37
  SPEAKER_01: They carried in a huge chunk of short positions into the 19th growing year, then it was too much rain, so then they had to flip the other way and they got burned really bad.
• 2:46
  SPEAKER_01: So they're they're maybe short covering some of those, just uh keeping an eye on the weather.
• 2:51
  SPEAKER_01: And it's ahead of a three-day weekend, which I think has some weight to it as well, because if we go into this three-day weekend with a little bit of a dry forecast like we've got right now, um, if we pop out of that three-day weekend with either some rainfall, that would be a little bit bearish, and we can maybe retrace back and cover some of what we've uh gained here over the past week.
• 3:12
  SPEAKER_01: Or if it's another dry forecast going out the next two weeks, then uh maybe we get a little bit more support, some more short covering going on in these grain markets, and then uh we start to talk uh impact of that down the road and what we're gonna do.
• 3:24
  SPEAKER_00: So you could you could almost look at the short covering as maybe of a proactive approach.
• 3:30
  SPEAKER_00: Yeah.
• 3:31
  SPEAKER_00: Is that the argument?
• 3:32
  SPEAKER_00: So they're gonna then they may not believe that the yield is really shrinking.
• 3:37
  SPEAKER_00: They're not getting why not why not get your position a little bit more right size in case the yield does shrink?
• 3:43
  SPEAKER_01: They're not getting bullish necessarily.
• 3:44
  SPEAKER_01: They're just getting not so bearish.
• 3:47
  SPEAKER_01: So it's that's what I view this little rally as right now.
• 3:51
  SPEAKER_01: You know, the market isn't showing us we're up 20, we're up 30.
• 3:55
  SPEAKER_01: It's running crazy when you see a weather market really take hold and it's like, oh crap, we're gonna be short on yield like we saw the last couple years.
• 4:03
  SPEAKER_01: Um, we're not seeing that yet.
• 4:05
  SPEAKER_01: This is just a little bit of uh preparation before a long weekend, and uh maybe we'll see what weather's got entail for us going forward.
• 4:12
  SPEAKER_01: Because we really don't use a lot of water on this crap in this crop yet until V10, you know, end of June.
• 4:18
  SPEAKER_01: Then we're gonna start using more rain, uh more water on in these crops, and then it'll become a little bit more serious of a conversation.
• 4:26
  SPEAKER_00: Yeah, it's interesting as I look at um my crops on on our farm, it's uh I I'm kind of a nervous Nelly on it because last year, you know, we were just about in the worst spot and it just absolutely would not rain um past pretty much the middle of June.
• 4:43
  SPEAKER_00: Um so I look at it and think, well, you know, if we don't get some pretty timely rains, we're gonna be in some pretty serious trouble.
• 4:50
  SPEAKER_00: But then you sit back and think, well, actually, we're probably adding yield yet today as you're driving corn roots deeper and and all that fun stuff.
• 4:57
  SPEAKER_00: So it is a an interesting time of the growing season.
• 5:00
  SPEAKER_00: But as we creepy creep on the front of June here, Mike, you know, what's the next, what does the forecast kind of look like for the next couple weeks?
• 5:08
  SPEAKER_01: It's a little bit dry yet, and I think the western corn belt is a one that's really gotta get w watched closely because uh eastern cornbelt's sitting fine, they're not hurting on the drought map, but when you start to look at the western corn belt, uh it's definitely a lot more interesting because you've got to start looking at they need to replenish, they need to get caught back up.
• 5:29
  SPEAKER_01: So they need they really need the the rainfall to just get caught back up over the next couple weeks here.
• 5:34
  SPEAKER_01: And with it being a little bit too dry uh going forward yet, and no significant uh rainfall amounts over the next couple weeks for that side of the corn belt, uh that's gonna get watched pretty closely if they do put anything in or if it continues to you know show some mid 80, 90 degree days here going forward with no rain, uh that's gonna start to uh worry some of those guys in that part of the world, definitely.
• 5:59
  SPEAKER_00: So we talked about the potential um of you know some of the bigger positions right sizing and and exiting some of their shorts here and in case we start to get a little too dry and start to reduce the yield a little bit.
• 6:13
  SPEAKER_00: He also has the WASDA report come out last week, um, which you guys reviewed some.
• 6:19
  SPEAKER_00: But let's talk about some what ifs here uh this afternoon, Mike.
• 6:24
  SPEAKER_00: You know, um I guess to first to start off, uh you know, we've we've got the USDA punched in or above 181 bushel yield.
• 6:33
  SPEAKER_00: I know I for one have really been questioning that.
• 6:36
  SPEAKER_00: I know that's the that's the trend line like we've talked about before, um, but we haven't even got close to that.
• 6:42
  SPEAKER_00: Um so I don't know what kind of weather it takes to get there, but in my mind, you're gonna I in my mind you're almost gonna have to get the perfect amount of moisture in in all situations almost.
• 6:54
  SPEAKER_00: And you're especially gonna have to get some moisture in the western corn belt.
• 6:58
  SPEAKER_00: Um that ends up being, you know, that 2.2 type uh billion bushel ending stocks, um 15% stocks to use ratio when you compare that to the projected demand and and historically if you just you chart that over simply chart that over um the historical spot where we've been able to end up with corn prices, you know, kind of we use the march as our expiration the analysis that we use, but and you have get awful close to four bucks.
• 7:31
  SPEAKER_00: Um I guess and you're my and Mike, what's your thoughts on that?
• 7:35
  SPEAKER_00: Is that is that a real uh possibility, or is that uh are you a bit more my camp?
• 7:41
  SPEAKER_00: That's a bit of a pipe dream.
• 7:43
  SPEAKER_01: So let's say the USDA is right on already.
• 7:46
  SPEAKER_01: Let's say we get perfect growing conditions, we get a little rain all the way through to really get us in a perfect spot, pretty much for the whole US, and and we get a 181 and a half yield, like they suggest.
• 7:58
  SPEAKER_01: So that's probably closer to the one of the most bearish scenarios, and demand doesn't pick up.
• 8:04
  SPEAKER_01: And today that's suggesting, based on history using stocks to use ratio, that we'd be at four dollars.
• 8:11
  SPEAKER_01: So that's kind of what we're working towards.
• 8:14
  SPEAKER_01: Every day we slip by and we get a little rain here, a little rain there, and uh it'll be a lot more choppy here as we get towards the more of the critical growing part of the year for it in July, let's say.
• 8:26
  SPEAKER_01: But the the work from$7 cash corn that we've been experiencing the last two years in this part of the world back towards normal-ish conditions of four dollars.
• 8:38
  SPEAKER_01: Obviously, if you change a yield night overnight, you're not gonna go from you know six dollars to four dollars in one day.
• 8:45
  SPEAKER_01: So we're kind of taking that the stair step approach down to four dollars at this point, just based upon each day we get a little bit better.
• 8:53
  SPEAKER_01: We don't change the fact that we can't get that 181 yield.
• 8:57
  SPEAKER_01: And uh we'll have some events maybe that, okay, let's start opening it up.
• 9:02
  SPEAKER_01: Let's say we didn't get enough rain in Nebraska, and now we've got capabilities of 178, or let's say it's Kansas to Nebraska, South Dakota looks too dry.
• 9:12
  SPEAKER_01: Now we're slipping towards 175.
• 9:14
  SPEAKER_01: What's that give us?
• 9:15
  SPEAKER_01: And that's where I think you really need to have some back and forth here.
• 9:18
  SPEAKER_01: So 181 yield is four dollar corn, uh, to say to put things into perspective.
• 9:25
  SPEAKER_01: Um the last couple of years we've had 171 to 173 uh for corn yields here in the United States, and and that brought up a scenario with a little bit less corn acres than what we're expected to have this year, too.
• 9:38
  SPEAKER_00: So about two million.
• 9:40
  SPEAKER_00: Well, last year I guess it was probably closer to a little over three million um and about a million more than the year before.
• 9:48
  SPEAKER_01: So a same yield as the last two years is probably not quite as bullish as what we saw the couple years before.
• 9:54
  SPEAKER_01: But we don't we're not carrying in too many ending stocks either.
• 9:58
  SPEAKER_01: It's growing a little bit, but um, it's probably not quite as bullish.
• 10:02
  SPEAKER_01: So I would say you really got to get this thing down to what would your number be if you had to pick a number to be like we can take out six dollar corn again.
• 10:10
  SPEAKER_00: I don't think my fundamentally my yield number wouldn't have to be a ton lower than the last couple weeks or the last couple years, excuse me.
• 10:18
  SPEAKER_00: I think if you're down in that 171 type area, um that starts to trim and that starts to trim them quite a bit.
• 10:27
  SPEAKER_00: Yeah.
• 10:28
  SPEAKER_00: Now I think our dem our projected demand would probably have to decrease a little bit also.
• 10:32
  SPEAKER_00: You know, they got a they got a big number in there on feed and residual, and we all know we're gonna have fewer cattle um in the next 12 months and fewer hogs and probably fewer chickens.
• 10:41
  SPEAKER_00: So a smaller crop would also reduce that feed and residual kind of a uh slot bucket type of a category.
• 10:49
  SPEAKER_00: So maybe I don't think you would have to maybe you know screen back to seven bucks, but I think you could get yourself into the six dollar territory with a 171 yield mic.
• 11:00
  SPEAKER_01: Not a whole lot changes from the last couple of years.
• 11:02
  SPEAKER_01: If you get 171 yield, the only major change I see globally is Brazil's second crop being outstanding this year that they're gonna start combining here, uh mainly in the month of June and July.
• 11:13
  SPEAKER_01: So that'd be the main difference maker, I think, uh, when I look at it from a global export perspective, that really kills demand for us.
• 11:21
  SPEAKER_00: For sure.
• 11:21
  SPEAKER_00: Yep.
• 11:22
  SPEAKER_00: No, and there's it's really I know these things can kind of creep up on you, but you really don't see anything that just looks outstanding that could surprise you from a demand standpoint either, globally.
• 11:33
  SPEAKER_00: Nobody's expanding any of their policies a ton.
• 11:37
  SPEAKER_00: Um, and and the livestock sector really isn't growing.
• 11:40
  SPEAKER_00: So and there's there's some other regions, you know, um, that don't get as much attention.
• 11:45
  SPEAKER_00: So maybe you could end up with some weather issues um in the Black Sea.
• 11:50
  SPEAKER_00: Um obviously that's also got some serious trade barriers over there, Asia, some places like that that you could possibly um come up short on some crop and could spark this thing a little bit.
• 12:02
  SPEAKER_00: But yeah, I absolutely agree.
• 12:04
  SPEAKER_00: It's all about um South America being a big per crop here, and you know, we're gonna have to trim back our yield quite a bit from the current trend line to really get anywhere as close to the six and seven dollar territory that we've seen the past couple of years.
• 12:22
  SPEAKER_00: So how about five bucks, right where the market's trading today, Mike?
• 12:26
  SPEAKER_00: Five, five and a quarter.
• 12:27
  SPEAKER_00: What's that scenario look like in your mind to to get us to average that in the next six to nine months?
• 12:34
  SPEAKER_01: 177, 178.
• 12:36
  SPEAKER_00: That puts your ending stocks, in your opinion, somewhere what, one six or something like that?
• 12:42
  SPEAKER_01: Yeah, you end up in in between a ten percent to a fifteen percent stocks to use ratio.
• 12:47
  SPEAKER_01: And because you gotta excite them just enough to say we've got some problems in here that are gonna kill a little bit of our total production to keep things interesting.
• 12:57
  SPEAKER_01: But I feel like it's really hard.
• 12:58
  SPEAKER_01: It's either like four dollar corn or it's seven dollar corn.
• 13:01
  SPEAKER_01: And it it it the in-between of that is just a number that gets traded one day.
• 13:05
  SPEAKER_00: Yeah, it's like why are you gonna hang out at five bucks?
• 13:07
  SPEAKER_00: Either you're running out or you got plenty of it, right?
• 13:09
  SPEAKER_00: Yeah, make it the same.
• 13:11
  SPEAKER_00: That's the world we live in these days.
• 13:13
  SPEAKER_00: I I have the same same thoughts.
• 13:15
  SPEAKER_00: It's it's interesting to to try to think through these different scenarios that as to far as to what could happen and how we get there, type of a thing.
• 13:24
  SPEAKER_01: But definitely.
• 13:26
  SPEAKER_01: Um El Nino wise, it looks like we are uh within weeks of uh switching here um into more of an El Nino-based pattern.
• 13:34
  SPEAKER_01: Uh El Nino during May to July, that that chance is about 82% or so.
• 13:39
  SPEAKER_01: That was from a little while ago, so I haven't updated that real recently.
• 13:43
  SPEAKER_01: But the transition to El Nino from La Nina is gonna make basically benefit uh Kansas and then like Argentina in their current drought situation.
• 13:53
  SPEAKER_01: So uh those are gonna be the biggest beneficiaries from uh from this transition here, and we'll watch that going forward and and kind of track that here through the through the main summer months.
• 14:03
  SPEAKER_01: But that's kind of the uh updated progress on that.
• 14:06
  SPEAKER_01: Uh not a whole lot of rain in the Corn Belt next uh week or so, just a little bit in the west, uh, but not enough to really matter here from the looks of it.
• 14:14
  SPEAKER_01: And uh when I look forward at like the the temps here, it's gonna be pretty hot, uh, above normal temps here for most of the Midwest over the next six to ten days as well.
• 14:24
  SPEAKER_01: So keep an eye on that.
• 14:25
  SPEAKER_01: But that'll really get things growing, I think.
• 14:27
  SPEAKER_00: Yeah, it'll get it'll get things growing, and you know, there's certainly a lot of scenarios that give us a lot more uh comfortable ending stocks on um projected at least as we roll into harvest uh this coming fall.
• 14:41
  SPEAKER_00: But you know, we still got a decent amount of growing season ahead of us.
• 14:45
  SPEAKER_00: I don't you know if I'm a row crop producer, um I don't think I'm necessarily giving up on this market.
• 14:51
  SPEAKER_00: Are you, Mike?
• 14:52
  SPEAKER_00: I mean I I think we'll get a chance to get people excited about hey, maybe we do have 172 bushel yield um and maybe we better go up here for for a few weeks.
• 15:02
  SPEAKER_00: And I think those warmer temperatures is could be the start of that.
• 15:05
  SPEAKER_01: Yeah, given what we know now, the information's probably suggesting more of a short-term rally here in the near term.
• 15:12
  SPEAKER_01: But if uh if we continue continue to be a little hot and dry here, it's gonna start to reflect in some bigger rallies probably going forward.
• 15:19
  SPEAKER_00: I think it's a great time to you know take an honest look in the mirror.
• 15:24
  SPEAKER_00: Um, you know, if you're uh a person who really struggles to pull the trigger, especially in a weather market, and I still think you know these weather markets are the uh very difficult in my opinion to make good decisions.
• 15:40
  SPEAKER_00: So making those decisions today is the right thing.
• 15:44
  SPEAKER_00: You know, if you're the end user, make sure you got coverage on.
• 15:46
  SPEAKER_00: That's not gonna make you panic if this thing starts to rally and it stops raining.
• 15:52
  SPEAKER_00: Um if you're a producer, you're I'm a big fan of get your orders in now so you don't talk yourself out of them.
• 16:00
  SPEAKER_00: Yeah.
• 16:01
  SPEAKER_00: You know, two weeks from now when the market's going up and it's never gonna rain again until the day it does, and then it's too late as we all know how that's I really like that 540 area.
• 16:11
  SPEAKER_01: If we can get back that, that's 50% retracement uh from that April high that we had there.
• 16:16
  SPEAKER_01: So yeah, if we kind of bounce back up to that, I I really like clipping some clipping some targets around that area right now.
• 16:24
  SPEAKER_01: So hopefully we can get back there.
• 16:26
  SPEAKER_01: It's a little bit of a march yet.
• 16:28
  SPEAKER_00: And don't forget about D-24 has been another preaching moment for me.
• 16:33
  SPEAKER_00: I I just I would really like I want to make some decisions that uh or some and some sales that make sense out there, and I I struggle as we get under five bucks.
• 16:42
  SPEAKER_00: Probably shouldn't.
• 16:43
  SPEAKER_00: Historically, that's still a pretty darn high price, but five and a quarter and higher.
• 16:48
  SPEAKER_00: Don't forget about uh DS 24.
• 16:51
  SPEAKER_00: Get some sales on this growing season for for the next year type of a thing.
• 16:57
  SPEAKER_01: Alright, well, thank you for your time, Jeff.
• 16:59
  SPEAKER_01: And thank you to all our listeners.
• 17:01
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 17:04
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 17:10
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 17:16
  SPEAKER_01: See ya next time.