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Transcript

Sales are Heading to China · Professional Ag Marketing Podcast

• 0:03
  SPEAKER_00: You're locked in to the Grain Market Talk Podcast.
• 0:06
  SPEAKER_00: Fast updates, market movers, and the grain news you need right now.
• 0:12
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:22
  SPEAKER_01: All right.
• 0:22
  SPEAKER_01: Today is June 18th.
• 0:24
  SPEAKER_01: I've got Pat with us here today.
• 0:25
  SPEAKER_01: How's it going, Pat?
• 0:26
  SPEAKER_01: It's going good.
• 0:27
  SPEAKER_01: How are you, Mike?
• 0:27
  SPEAKER_01: We're doing good.
• 0:28
  SPEAKER_01: It feels like forever.
• 0:29
  SPEAKER_02: Happy brother's birthday.
• 0:30
  SPEAKER_02: Happy birthday, Jeamie.
• 0:31
  SPEAKER_01: Brother's birthday.
• 0:33
  SPEAKER_01: June 18th.
• 0:34
  SPEAKER_01: Very nice.
• 0:35
  SPEAKER_01: Do you get to see him this weekend?
• 0:37
  SPEAKER_02: No, I don't think so.
• 0:38
  SPEAKER_01: Any plans for Father's Day?
• 0:40
  SPEAKER_02: Yeah, we're gonna hang out the lake a little bit.
• 0:42
  SPEAKER_02: Yeah.
• 0:43
  SPEAKER_02: Hopefully I get a new shirt or something.
• 0:45
  SPEAKER_01: Yeah, yeah, that's about right.
• 0:47
  SPEAKER_01: I bought my kids a book for me to read them.
• 0:49
  SPEAKER_01: Oh, that's nice.
• 0:50
  SPEAKER_01: Yeah, yeah.
• 0:50
  SPEAKER_01: Yeah, that's how that goes.
• 0:52
  SPEAKER_01: But we've had a few exciting days.
• 0:54
  SPEAKER_01: You know, the last few podcasts we've been on, especially the last time I got chat with you, the grain markets were really in the tanker.
• 1:00
  SPEAKER_01: We were just headed lower, headed lower.
• 1:02
  SPEAKER_01: Seems like we've plateaued here for a little bit, and due to a couple different reasons, right?
• 1:07
  SPEAKER_01: We sold off in part to the fact that crude oil now is almost 50 bucks off their highs.
• 1:12
  SPEAKER_01: Uh, and then weather, we just kept getting rains.
• 1:15
  SPEAKER_01: But the one of the things giving us support over the last couple days here was that we had some export news, didn't we, Pat?
• 1:21
  SPEAKER_02: Yeah, we did.
• 1:22
  SPEAKER_02: Um, and and uh that export demand has been sneaky good for quite a while, hasn't it, Mike?
• 1:28
  SPEAKER_01: It has.
• 1:29
  SPEAKER_01: So the corn side, really demand in general has been really good.
• 1:33
  SPEAKER_01: Uh demand on exports, the ethanol side has been good.
• 1:36
  SPEAKER_01: And then on the soybean side, you know, crush really leading the way.
• 1:40
  SPEAKER_01: I should have had a crush chart up here too, but really the margins are still fantastic.
• 1:44
  SPEAKER_01: They're almost making four to five dollars a bushel now crushing soybeans.
• 1:47
  SPEAKER_01: So that's been fantastic.
• 1:49
  SPEAKER_01: It is on its way down now.
• 1:50
  SPEAKER_01: I've noticed here on the recent updates just with crude oil pulling back, but it's about time.
• 1:55
  SPEAKER_01: Like we've held this soybean oil price together really, really well.
• 1:59
  SPEAKER_01: And with that, the soybean price is held in really well.
• 2:02
  SPEAKER_01: But this morning here, soybean flash sales came out.
• 2:05
  SPEAKER_01: We had China and Unknown on there.
• 2:08
  SPEAKER_01: So uh we have had a little bit of activity there.
• 2:11
  SPEAKER_01: This is the third slowest start to a soybean exporting year.
• 2:15
  SPEAKER_01: The prior two years were the other two slowest in in the past.
• 2:20
  SPEAKER_01: So uh we're just getting started, but we're on the board, at least for this new crop marketing year.
• 2:26
  SPEAKER_01: And uh it's uh the markets were rumored the last few days that China was poking around and some stuff was getting done, uh, maybe even old crops, some stuff on boats headed to China.
• 2:38
  SPEAKER_01: So we've had a few good days of news from an export perspective, and I I've been saying the big three can help out the grains.
• 2:46
  SPEAKER_01: We're probably gonna have a weather situation.
• 2:48
  SPEAKER_01: You could have something with Iran fall through and crude oil go up, or China pops in and buys.
• 2:53
  SPEAKER_01: Well, you got one of the three, and the market basically went sideways for three days, which I thought was a little bit disappointing, I guess.
• 3:01
  SPEAKER_02: Yeah, absolutely.
• 3:02
  SPEAKER_02: And maybe you should just talk a little bit about manage money or index funds.
• 3:06
  SPEAKER_02: Maybe that's the the underlying issue here, right?
• 3:10
  SPEAKER_02: Are we not getting money flow in the long side like we maybe normally would this time of year?
• 3:17
  SPEAKER_01: You know, we held a really, really long position in all the e commodities here about a two months ago, a month ago.
• 3:23
  SPEAKER_01: And now it once you start to get rid of ag long commodities sometime in the summer, it get it seems like it's really hard to get them back.
• 3:33
  SPEAKER_01: Once they start to liquidate the ector, all of a sudden they're just headed for the hills.
• 3:37
  SPEAKER_01: And the corn market was really extreme right lately, I figured, because you saw managed money long on corn go all the way to we're actually net short now in last week's report.
• 3:48
  SPEAKER_01: And we'll we'll get another update here this next week on uh where we're sitting as of two days ago, but it is probably not going to be positive by any means.
• 3:57
  SPEAKER_01: Soybeans, though, like I said, they've been holding together okay just because of the soybean oil side, uh, which is probably putting them at risk now.
• 4:05
  SPEAKER_01: I'll have Cade pull up.
• 4:07
  SPEAKER_01: If you look at the corn to soybean ratio, we hit like 2.6 yesterday.
• 4:12
  SPEAKER_01: Average, for example, on this would be about 2.3.
• 4:15
  SPEAKER_01: And you can see on the chart here how much we've spiked in that ratio lately.
• 4:19
  SPEAKER_01: So really, if I had to look at corn or soybeans, just say that soybeans are pretty overvalued right now relative to corn uh compared to history, Pat.
• 4:28
  SPEAKER_02: Yeah, well, I there there may be some logic to uh around all that.
• 4:32
  SPEAKER_02: First of all, the the relationship between corn and soybeans matters a little less after planting, right?
• 4:38
  SPEAKER_02: I mean, so so there's a little bit of that going on.
• 4:41
  SPEAKER_02: We're we're more stuck now talking about uh uh weather or yield and or uh and and or demand.
• 4:50
  SPEAKER_02: And and so I uh so that's one point.
• 4:53
  SPEAKER_02: The second point though is and that's more of a this is June, not February discussion, right?
• 4:59
  SPEAKER_02: Yeah.
• 5:00
  SPEAKER_02: The second point though would would be I think just uh I mean just recently with the um with the Iran uh engagement uh issue since February um and how both the bean complex and the corn complex has reacted to higher crude oil prices.
• 5:19
  SPEAKER_02: I um um my hypothesis is is that given a similar set of circumstances 15 years ago that corn would have really went with crude, right?
• 5:30
  SPEAKER_02: And uh um and today we initially at least and now maybe even today yet, see soybeans wanting to trade a little bit more with with crude oil.
• 5:40
  SPEAKER_02: And so just an observation, I mean, it have has the has the bloom sort of wore off the ethanol engagement, right?
• 5:48
  SPEAKER_02: And corn's um ability to sort of tie itself to the energy complex and and uh and and and from a an energy trader's perspective, our soybean, soybean oil the new darling.
• 6:00
  SPEAKER_02: I uh and I and I and there's probably some logic to that, right?
• 6:03
  SPEAKER_02: I mean which industry is expanding today, right?
• 6:05
  SPEAKER_02: We're building soybean processing facilities about as fast as we can, and and we really haven't added much to ethanol capacity, at least here domestically for quite some time.
• 6:14
  SPEAKER_01: Even this week you're hearing a lot more news about just what's the future of ethanol look like if we stay at 10%.
• 6:19
  SPEAKER_01: Well, it's not bright because we're probably gonna have more electric cars, less gas cars.
• 6:23
  SPEAKER_01: Your demand probably goes the opposite way now of what it's been doing.
• 6:26
  SPEAKER_01: That's right.
• 6:27
  SPEAKER_01: Yep.
• 6:27
  SPEAKER_01: So you're you definitely have something there.
• 6:30
  SPEAKER_02: And we're also uh kind of ignoring the elephant in the room, which is um yeah, what percent of the world's crude oil trade goes through the Strait of Hormuz?
• 6:39
  SPEAKER_02: 30 of the seaborne trade.
• 6:41
  SPEAKER_02: Yeah, it's a big number, right?
• 6:43
  SPEAKER_02: And somehow that thing that that uh strait was closed for 90 days and it just doesn't matter.
• 6:49
  SPEAKER_02: Um, I again just we we up until this point in the conversation, we've chosen not to uh uh address that issue, which I still find fascinating, right?
• 6:58
  SPEAKER_02: Like, like how do you how do you shut down that significant portion of the energy trade for that long of a time?
• 7:05
  SPEAKER_02: And uh and uh once we say, yeah, we got a deal signed, Trump's gonna sign it himself, or whatever the story is today, right?
• 7:13
  SPEAKER_02: Then uh all of a sudden we we don't have a crude oil problem anymore.
• 7:16
  SPEAKER_02: And and and believe me, I'm I'm not uh uh I'm I'm uh um I'm very much looking forward to uh cheaper gas prices to uh you know free up disposal income for uh um for customers to to to be buying protein and and to uh and and to be able to afford commodities that would that we grow and and produce.
• 7:36
  SPEAKER_02: So in anyway, and it is working.
• 7:38
  SPEAKER_01: I mean uh this week, even on a lot of the operations I work with here, I'm noticing very nice levels of either either Roadmaster or ag dyed fuel.
• 7:50
  SPEAKER_01: I mean, 360 for a tanker on ag fuel now, that's down quite a bit.
• 7:54
  SPEAKER_01: We're just over four bucks on roadmaster, so it takes a bit, but we are starting to see those prices slip a little bit now, and that matters.
• 8:03
  SPEAKER_01: And uh especially that you know, a lot of folks who are coming into this thing, they're like, man, I'm kind of short on diesel fuel all of a sudden for this next you know, summer going into next fall.
• 8:12
  SPEAKER_01: Not a whole lot.
• 8:13
  SPEAKER_01: So this has given those guys a really good buying opportunity.
• 8:16
  SPEAKER_01: And now, urea, we're at lower levels than we were pre-war.
• 8:20
  SPEAKER_01: Now it's a lot of the other things too are still higher, of course, than pre-war levels, but uh we'll see what retail levels do by the time we get to kind of July, August when we start to look at locking those in.
• 8:32
  SPEAKER_02: Very good, man.
• 8:33
  SPEAKER_02: So here we sit today with uh dies corn, uh new crop dies 26 corn trading under 450 again on uh on June 18th.
• 8:42
  SPEAKER_02: And uh um I would have guessed in February, March, April, probably even in May, um, that uh by this time of year um that we would have enough of a weather concern, Mike, to uh um, you know, if I had to if the last two digits on D scorn is 42 on June 18th, I would have guessed it was 542, not 442.
• 9:04
  SPEAKER_02: Um, uh as we kind of were moving into this growing season, given the backdrop of uncertainty of energy prices, given the backdrop of good solid demand for um for grains in general, corn in particular, we started this podcast talking again about good export weeks.
• 9:23
  SPEAKER_02: We've grown nicely sized crops for three straight years, and we've been able to hold ending stocks at two billion bushels.
• 9:31
  SPEAKER_02: Um and uh the threat or thought process that enough of a weather scare could develop um here in the central part of the belt or the corn belt in general that would create a little bit of a weather concern this year, unlike last year, I thought was probable, frankly.
• 9:48
  SPEAKER_02: Right.
• 9:48
  SPEAKER_02: And so here we sit um a buck lower than what we could be 90 cents or uh 60 cents off of the off of its highs.
• 9:56
  SPEAKER_02: And uh it's June 18th, and your point earlier is valid.
• 10:00
  SPEAKER_02: Like once you lose that outside money seasonally, it is tough to get it back.
• 10:06
  SPEAKER_02: And and uh and I am by no way any stretch of the imagination saying that this crop is in the bin at 186 or something, but um the current forecast, the current state of crop conditions, and I know there's problems, Mike, right?
• 10:22
  SPEAKER_02: Like we're plenty dry up here in the northwest Corn Belt.
• 10:25
  SPEAKER_02: There's a good portion of of uh um you know that beltway from uh Missouri, southern Illinois up through Ohio that they're pretty wet.
• 10:34
  SPEAKER_02: They're pretty wet.
• 10:35
  SPEAKER_02: So so you know, maybe on average thing looks fine, and maybe both areas have a problem.
• 10:40
  SPEAKER_02: I'm not sure about any of that yet, but we do know um that uh once we lose that that outside money flow, it's a little tough to get it back.
• 10:48
  SPEAKER_01: Now, this seems very familiar, and it it makes you wonder like I'll have Cade pull up the chart of D's corn this year versus a couple of uh years that look similar to me on a chart, which would be last year.
• 11:00
  SPEAKER_01: Uh, and then that's gonna be in the uh green line there on the screen.
• 11:04
  SPEAKER_01: Pink is this year, and then 2014 as well, just eerily similar with the way the chart is starting to look.
• 11:10
  SPEAKER_01: And 2014 it did a very similar thing, very similar highs seasonally, and then it pulled back to this 440 area and then it stalled out for a little bit, and then kind of just after a little while, market gave up again and we traded lower till basically right before harvest.
• 11:25
  SPEAKER_01: Now, seasonal, like this is exactly how the corn market should look if I looked at just a seasonal chart.
• 11:31
  SPEAKER_01: You make highs in May, June, and then it sells off kind of the beginning, middle of August, and then it bounces back a little bit.
• 11:37
  SPEAKER_01: But so for my guys, I've just been trying to say, you know, there's a couple different scenarios here.
• 11:42
  SPEAKER_01: The 440 range has been pretty good support.
• 11:45
  SPEAKER_01: So we're stalling out here a little bit, trying making hard to make new lows.
• 11:49
  SPEAKER_01: We just got rid of all our long contracts.
• 11:51
  SPEAKER_01: But just remember, seasonally, we can keep going down from here.
• 11:54
  SPEAKER_01: And especially if you look at the weather maps, it looks like everybody's basically going to get rain again this week.
• 12:00
  SPEAKER_01: Uh, maybe we need a little heat.
• 12:02
  SPEAKER_01: I don't want to wish that upon anybody going into the middle of summer here, but uh just maybe we we don't have that big of a weather problem, like you said.
• 12:11
  SPEAKER_01: So uh that's kind of how the grain markets are sitting right now, I think.
• 12:15
  SPEAKER_01: Uh just from a a reflection of we took off a lot really quick.
• 12:19
  SPEAKER_01: I thought the bulls left the room super fast this time, you know, for both crude oil and for corn.
• 12:25
  SPEAKER_01: Uh soybeans are just holding on a little bit longer, it seems like, which isn't a regular irregular at all.
• 12:31
  SPEAKER_02: So absolutely makes sense.
• 12:32
  SPEAKER_02: And and so, you know, as we go into a longer trading uh uh trading weekend, I I guess with with uh no markets uh tomorrow.
• 12:41
  SPEAKER_02: Um what's uh what should we think about for next week, Mike?
• 12:45
  SPEAKER_01: Next week we're gonna have a few different items.
• 12:47
  SPEAKER_01: Remember, uh end of June, we're gonna have an acreage report quickly creep up on us.
• 12:51
  SPEAKER_01: That's our next big thing besides weather, obviously.
• 12:54
  SPEAKER_01: A lot of folks are around that V6 stage, so it'll start to matter here once we get into the beginning of July.
• 13:00
  SPEAKER_01: Some of these holiday weekends where we have long weekends like this week and uh option expiration coming up here uh pretty quick off of the July and expiration for any old crop basis contracts, things like that are gonna have to get priced here soon.
• 13:14
  SPEAKER_01: So those have been what we've been looking at, Pat.
• 13:16
  SPEAKER_01: Sounds great.
• 13:17
  SPEAKER_01: All right.
• 13:18
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• 13:21
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• 13:27
  SPEAKER_01: Thank you for your time.