Latest / Professional Ag Marketing Podcast / WASDE & CPI

Transcript

WASDE & CPI · 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 involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Miner.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is April 14th.
• 0:25
  SPEAKER_01: I've got Pat with us here today.
• 0:26
  SPEAKER_01: How's it going, Pat?
• 0:27
  SPEAKER_00: Good, Mike.
• 0:28
  SPEAKER_00: How are you?
• 0:29
  SPEAKER_01: Doing very good.
• 0:30
  SPEAKER_01: We're looking at a situation here this week where we had a WASDA report, uh, had a CPI report, and uh had some choppy markets out there, but uh just want to get your take on a couple things today, Pat.
• 0:42
  SPEAKER_01: How's that sound?
• 0:43
  SPEAKER_00: Sounds great.
• 0:44
  SPEAKER_00: Let's start with that CPI report.
• 0:45
  SPEAKER_00: What'd we hear?
• 0:46
  SPEAKER_01: Yeah, so uh CPI report, inflation's coming down a little bit here, uh specifically in the egg sector, it it really looks like we found uh a little bit of a decrease across some meat, poultry, eggs took the biggest hit, uh, specifically down 10.9% in March.
• 1:05
  SPEAKER_01: So uh we did see the food sector go down about uh uh 1.
• 1:10
  SPEAKER_01: So percent, but we did see some significant changes uh uh regarding the trend lines between core CPI um and some other things going on currently in inflation PAT.
• 1:21
  SPEAKER_01: So I I think it's worth mentioning that um you know the the Federal Reserve uh is expecting to raise interest rates in the month of May, 25 basis points still.
• 1:34
  SPEAKER_01: And um uh looking at that regarding their new Fed minutes they came out with this week as well, uh there could be some uh deadly implications uh in the future here as they try to uh slow our economy down.
• 1:48
  SPEAKER_01: It looks like it's potentially working, and according to them, uh they could potentially see a mild recession by the end of uh 2023, uh whatever that means in the Fed context, I guess, Pat.
• 1:59
  SPEAKER_01: What do you think?
• 2:00
  SPEAKER_00: Yeah, so as we as we watch um what the Fed what the Fed does and we listen to what the Fed says and then we look to see how the markets react is quite interesting, isn't it, Mike?
• 2:15
  SPEAKER_00: And so you know the Fed's behavior is uh uh you know was a 25-point basis hike in their last opportunity to do so a couple weeks ago.
• 2:23
  SPEAKER_00: As you're saying, they're forecasting uh another 25-point basis hike.
• 2:28
  SPEAKER_00: When we're starting to see some of that CPI data suggests that um they're getting they're they're starting to have the impact that they want, right?
• 2:37
  SPEAKER_00: So that's what I heard, I think I heard you just say is that inflation is at least has stopped the rate of increase and is actually starting to uh to go back down just a little bit.
• 2:47
  SPEAKER_00: And then just a good reminder to all of that, right?
• 2:50
  SPEAKER_00: We're starting to get into this path now where we're comparing ourselves to a year ago that was already elevated, right?
• 2:58
  SPEAKER_00: So so it's important to keep perspective as it relates to uh denominator itis and those CPI numbers, and that's actually true for a lot of different things for for whatever it's worth.
• 3:09
  SPEAKER_00: But um as it goes here, um, you know, the Fed is is uh I mean they're they're they're doing the right thing, they're saying the right thing.
• 3:19
  SPEAKER_00: Uh they say they've got this, they say that um um that that uh they're they're managing the rate of of inflation here to the point where we can still potentially create a soft landing.
• 3:32
  SPEAKER_00: What the markets are saying, however, is something slightly different, not surprisingly.
• 3:36
  SPEAKER_00: Of course.
• 3:37
  SPEAKER_00: Um right there the the markets are saying is that by the end of this year that we're gonna have to start to l the Fed is gonna be forced to lower interest rates.
• 3:45
  SPEAKER_00: And that um that would suggest that it sometime between now, middle of April and December, that we're gonna go from being worried about inflation to be thinking that we need to start to stimulate the economy.
• 3:59
  SPEAKER_00: And for for me personally, I don't think it's that bad.
• 4:02
  SPEAKER_00: Like I I think the the forward curve on what the markets are forecasting in terms of Fed behavior, I think it's too pessimistic.
• 4:09
  SPEAKER_00: I don't think things are that bad.
• 4:11
  SPEAKER_00: And maybe just another opinion, just whatever it's were.
• 4:14
  SPEAKER_00: So so so you ask that's the answer, and kind of a long one, but but I don't I don't think that that uh I think the Fed is doing is they do have a chance to get this thing about right.
• 4:25
  SPEAKER_01: Here's the thing where I'm getting stuck.
• 4:28
  SPEAKER_01: All of that, I think that's probably uh a very probable outcome.
• 4:33
  SPEAKER_01: Um what happens if crude oil goes to a hundred dollars?
• 4:37
  SPEAKER_00: What happens if crude oil goes to a hundred dollars just because Saudi Arabia decided not to produce as much?
• 4:42
  SPEAKER_01: Basically, yeah.
• 4:43
  SPEAKER_01: OPEC plus yeah, let's say OPEC continues to tighten the global balance sheet on crude oil, but maybe the banking sector is hitting the United States a little bit hard still.
• 4:52
  SPEAKER_01: It it'll be very hard for us to lower interest rates with a hundred dollar crude oil.
• 4:58
  SPEAKER_01: And at the same time, we're probably not gonna be in a recession with a hundred dollar crude oil either.
• 5:03
  SPEAKER_01: But it starts to really mucky up the waters.
• 5:06
  SPEAKER_00: But uh a hundred dollar crude is inflationary, yeah.
• 5:09
  SPEAKER_00: So then you'd raise interest rates.
• 5:11
  SPEAKER_01: Yeah.
• 5:12
  SPEAKER_00: A hundred dollar crude is also creates less economic activity.
• 5:17
  SPEAKER_00: Yep.
• 5:17
  SPEAKER_00: Right?
• 5:18
  SPEAKER_00: So that is a quandary, right?
• 5:20
  SPEAKER_00: And it's the Fed's job.
• 5:22
  SPEAKER_00: It's the Fed's job to uh I guess act and then react to other decisions that are made.
• 5:30
  SPEAKER_00: And oftentimes you'll see the Fed have to try to offset like uh uh stimulus spending would also create inflation so they'd raise interest rates at a faster rate, right?
• 5:41
  SPEAKER_00: And so um I would argue that uh um the the the energy's reaction um would the the Fed will do their best to react to the to react to the impact that that has on the economy and adjust their their rate hike decreases accordingly.
• 5:58
  SPEAKER_01: Exactly.
• 5:58
  SPEAKER_01: So they got a chance.
• 5:59
  SPEAKER_01: See, if I I think if we do start to put a little pressure and support underneath that market, that will make like you talked about that rate hike at the end of the year, that'll make that look improbable.
• 6:12
  SPEAKER_00: Exactly.
• 6:13
  SPEAKER_00: So the other thing that's worth noting is since you brought that up, OPEX plus announcement and the potential for a little bit of a crude oil rally here.
• 6:20
  SPEAKER_00: Um we've also seen uh a couple different instances, read an article in the Wall Street Journal this week about I think it was mobile Exxon that is uh investing in uh some uh fracking company technologies uh in a in a pretty prime area here in the U.S.
• 6:36
  SPEAKER_00: And so um we're seeing uh inventory levels drop of of crude oil, distillants, fuel, all of those things, right?
• 6:45
  SPEAKER_00: But we're also seeing now for the first time in a while the uh interest of big oil in mo in in investing back into creating new supply.
• 6:56
  SPEAKER_00: It's been a while.
• 6:56
  SPEAKER_00: It's been a while.
• 6:58
  SPEAKER_00: And so um so OPEC Plus better be careful, right?
• 7:01
  SPEAKER_00: They they uh you know,$100 crude, um that'll that'll get North Dakota fired back up again.
• 7:07
  SPEAKER_01: Very true, very true.
• 7:09
  SPEAKER_01: How about the Wazday Report this week, Pat?
• 7:11
  SPEAKER_01: You know, out of the report we saw the U.S.
• 7:14
  SPEAKER_01: balance sheets on corn and soybeans not change at all month over month after uh what some people would have expected, a little bit of decrease in both those after the quarterly stocks reports, maybe suggested things were a little bit tighter.
• 7:27
  SPEAKER_01: And I want you to talk about spreads here a little bit because the reports didn't really tell us much, but it is shaping up uh the balance sheet for this next month, which would show us the 2023 balance sheet.
• 7:40
  SPEAKER_01: And we're seeing some really interesting things right now on uh the bull spread activity between May and July corn, for example, and then uh even new crop corn getting mixed in there as well with uh where current planning progress uh looks here today, Pat.
• 7:57
  SPEAKER_00: Increased probability of of uh uh better production for the crop that's starting to get planted?
• 8:05
  SPEAKER_01: Yes.
• 8:06
  SPEAKER_00: Right, and so I would say that uh that spread activity has as much to do with the current six to ten day forecast, especially if you take pull out that map, everyone, uh pull up uh go to uh whatever your weather uh uh quote news source is and look up six to ten day um and see the area of the US that's forecasted for above normal precip.
• 8:34
  SPEAKER_00: And then Google drop monitor map and put that right beside it.
• 8:37
  SPEAKER_00: We can send it out to you if you like.
• 8:38
  SPEAKER_00: But the point is, right, is that we're gonna get rain right in the areas of the country that need it the most.
• 8:43
  SPEAKER_00: At least that's the current forecast.
• 8:45
  SPEAKER_00: And no question, if you take the drop monitor map from now compared to a year ago or compared to really any time during last year's growing season, immensely better.
• 8:56
  SPEAKER_00: All right.
• 8:57
  SPEAKER_00: And so I think the answer to your question is like, why is old crop corn gaining on new crop corn?
• 9:04
  SPEAKER_00: It's because of the prospects of 91 or 92 million acres, right?
• 9:08
  SPEAKER_00: We we saw that those numbers at the end of March.
• 9:11
  SPEAKER_00: Um, and uh um and coupled with the possibility or probability of trend line type yields, and you start to change this balance sheet significantly with a normal crop.
• 9:23
  SPEAKER_01: No kidding.
• 9:24
  SPEAKER_01: And last year we saw the impact of planning progress and the impact that had on the yield used in the May report because we were slow on planting, right?
• 9:35
  SPEAKER_01: Yeah.
• 9:35
  SPEAKER_01: And we drug down yield not even as far as we should have, but we did drag it down quite a bit in that May report from trend line.
• 9:42
  SPEAKER_01: Now, what happens when we plant it all in a really time timely time frame and get it in the ground quick?
• 9:49
  SPEAKER_01: You know, are we above trend line then with depending on forecasts at that time?
• 9:53
  SPEAKER_00: Well, uh uh strong probo strong possibility, right?
• 9:57
  SPEAKER_00: I mean, there's a there's a s there's a high correlation between planting date and final yield.
• 10:01
  SPEAKER_00: Yeah, not the only high correlation, but it's one of them, right?
• 10:05
  SPEAKER_00: And so it certainly increases the probability of us being able to produce at least a trend line sort of a crop.
• 10:11
  SPEAKER_00: And I I mean the the speed in which we're transitioning, uh, especially in the northern belt here, is just phenomenal, right?
• 10:18
  SPEAKER_00: Like we were, you know, we just keep joking.
• 10:20
  SPEAKER_00: It's like went where did did I miss spring?
• 10:22
  SPEAKER_00: Was it like last Monday morning for four hours?
• 10:25
  SPEAKER_00: We went straight from from winter to summer here in this in this part of the world.
• 10:29
  SPEAKER_00: And so, um, and so anyway, rapid progress away from significant snow cover to uh uh to field work progressing and corn getting planted and all of those things.
• 10:40
  SPEAKER_00: And I um at this point in the process, that's certainly a positive as it relates to the potential of crop production.
• 10:46
  SPEAKER_01: And the people, I mean, Illinois right now, I've seen some people already wrap up corn planting.
• 10:51
  SPEAKER_01: It's pretty incredible.
• 10:53
  SPEAKER_01: So please send us some planning progress uh if any of you guys are hitting it out there.
• 10:57
  SPEAKER_01: I've heard some people in Iowa too.
• 10:59
  SPEAKER_01: So I think next week's gonna be incredibly busy after we get some of these cold, wet rains out of the way here, Pat.
• 11:05
  SPEAKER_01: What else do you want to talk about today?
• 11:07
  SPEAKER_00: You know, I would just say that uh as we uh kind of enter into the the spring season and move out of the winter doldrums, uh, you know, we're we're hopeful, uh I guess optimistic that we can see a little bit of an improvement um in meat demand, uh meat disappearance, particularly in that pork sector.
• 11:25
  SPEAKER_00: It's been uh struggling here for an extended period of time as it relates to just um softer markets uh uh week over week, month over month, and and been been going on for for a while here now.
• 11:37
  SPEAKER_00: And and uh um we need and and looking for you know some opportunity there to move to move some products.
• 11:44
  SPEAKER_00: So so uh hopefully, you know, as we kind of turn uh the uh weather system, weather patterns into uh more spring sort of summer like that that can not only uh provide for the opportunity for a safe and and uh successful spring for for everyone, but also some improved demand for the commodities that we produce.
• 12:04
  SPEAKER_01: All right.
• 12:04
  SPEAKER_01: Thank you for your time today, Pat.
• 12:06
  SPEAKER_01: Thank you.
• 12:07
  SPEAKER_01: And thank you to all our listeners.
• 12:09
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 12:12
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 12:18
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 12:24
  SPEAKER_01: See you next time.