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The 3 Step Process · 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_00: Today is April 28th, and I've got Jeff with us today.
• 0:27
  SPEAKER_00: How's it going?
• 0:27
  SPEAKER_01: Hey Mike, it is going pretty decent unless you are a corn farmer.
• 0:32
  SPEAKER_00: Decent point here.
• 0:34
  SPEAKER_00: After making season highs in the new crop of 2023, we opened up the marketing year on December corn at 6.09 on January 3rd this year, Jeff.
• 0:47
  SPEAKER_00: Closed the week below 530, about an 80% sell-off here across the December corn market since that time.
• 0:55
  SPEAKER_00: So a pretty rough week again this week.
• 0:58
  SPEAKER_00: We busted through some support levels that were pretty key on corn, busted through that 550, down through the 542 area.
• 1:07
  SPEAKER_00: And uh now it may look as if we're heading towards the$5 area.
• 1:11
  SPEAKER_00: So it a little bit rough this week.
• 1:14
  SPEAKER_00: Wasn't necessarily on the fantastic planning progress.
• 1:17
  SPEAKER_00: We're ahead of normal, uh, but we were supposed to be falling back a little bit through this week as some slower progress was going on.
• 1:26
  SPEAKER_01: A little surprised, Mike, even the folks I would say, you know, on the northern edge of where we thought they would put some corn in this week.
• 1:33
  SPEAKER_01: I'm kind of finding a few more people saying they put some stuff in the ground this week than what uh we I guess what I was hearing the beginning.
• 1:42
  SPEAKER_00: I thought some stuff got forced in, yeah.
• 1:44
  SPEAKER_01: Yeah, and I it I don't know if it's forced in or not, but it's it was kind of one of those things of yeah, do you go or don't go is a very difficult decision, of course.
• 1:53
  SPEAKER_01: And definitely seems like some people put a 10-20 percent in more than I would have anticipated.
• 1:59
  SPEAKER_01: This far north.
• 1:59
  SPEAKER_01: So then, of course, moving to the different geography, start the week, looked like eastern Iowa's gonna get a bunch of rain.
• 2:05
  SPEAKER_01: They ended up really not getting any rolling pretty hard through Iowa and Illinois.
• 2:09
  SPEAKER_01: Definitely make some progress, aren't they?
• 2:11
  SPEAKER_00: Saw some pictures of beans popping up today in uh in Iowa, so seeing some different areas have uh some stuff moving along.
• 2:19
  SPEAKER_00: But you know, the crop progress, I would say, is not one of the main movers in today's market.
• 2:24
  SPEAKER_00: This week it had a lot to do with the fact that China made a couple cancellations of corn, and it makes sense.
• 2:31
  SPEAKER_00: We're too expensive compared to the competition at this time of the year.
• 2:35
  SPEAKER_00: They are likely switching to someone like Brazil who's had um cheaper product now for both soybeans and corn.
• 2:42
  SPEAKER_00: So that was more of a talking point this week.
• 2:44
  SPEAKER_00: Had a couple major cancellations from them.
• 2:47
  SPEAKER_00: Our export shipment pace is very slow.
• 2:50
  SPEAKER_00: We've got some sales on the books, but not delivered yet.
• 2:53
  SPEAKER_00: So looking forward, that is a risk that could be uh could be detrimental down the road.
• 2:59
  SPEAKER_00: And numbers with where we're currently tracking, you could drag this year's uh export number by the USTA in the WASD airport down another 200 million bushels.
• 3:10
  SPEAKER_00: So we are starting to grow that old crop ending stocks a little bit with those numbers.
• 3:16
  SPEAKER_01: Um of a different trajectory there on the new on the sales because of the stuff that China was putting on the books.
• 3:24
  SPEAKER_01: You know, they were starting to put on enough to matter.
• 3:27
  SPEAKER_01: You suppose the marketplace is discounting most of those sales at this point?
• 3:32
  SPEAKER_00: What they probably they probably I didn't do the math today, but the first sale was equ or the first cancellation that they did this week was equivalent to the sales they put on the books on the 14th, those two big ones through those days.
• 3:45
  SPEAKER_00: Okay, it pretty much offset all those.
• 3:47
  SPEAKER_01: Okay, those two big ones, and then really the couple small ones there.
• 3:50
  SPEAKER_01: So they've they've pretty well canceled.
• 3:52
  SPEAKER_01: A week's worth of decent exports, yeah.
• 3:54
  SPEAKER_01: Sure.
• 3:55
  SPEAKER_01: Sure.
• 3:55
  SPEAKER_01: So then you're back, you are back to saying we're gonna struggle a little bit to meet our USDA goals, aren't we?
• 4:00
  SPEAKER_01: Yep, definitely at this point.
• 4:02
  SPEAKER_00: And ethanol's right along with it.
• 4:04
  SPEAKER_00: Uh demand was decent this week on the gas side, but the ethanol numbers, we can't get production up there.
• 4:09
  SPEAKER_00: We've had numerous weeks of running below the needed pace, so we are struggling pretty decent to uh get that to come around here, Jeff, on the ethanol side too.
• 4:18
  SPEAKER_01: Sounds fair.
• 4:19
  SPEAKER_01: Well, talk to us about technicals on this corn thing, Mike.
• 4:24
  SPEAKER_01: It seems like to me that they would have made a pretty big impact this week, and they look flat ugly, don't they?
• 4:31
  SPEAKER_00: They do.
• 4:32
  SPEAKER_00: I'm looking at two major things when it comes to technical fundamentals.
• 4:35
  SPEAKER_00: The first thing is going to be that we broke through those major support levels 550, 542, trading at close to the lowest level we've had since the end of 2021 and the beginning of 2022.
• 4:47
  SPEAKER_00: So that's the first thing.
• 4:48
  SPEAKER_00: Um in that first thing, really, I I don't see much support until we get back to$5 on December 23 corn now.
• 4:57
  SPEAKER_00: That's the tough part about this, is that there's no way Exactly.
• 5:00
  SPEAKER_00: There's not much holding us now.
• 5:02
  SPEAKER_00: That those were the two levels that it the market could kind of say, if we fight back to that, we've got a chance from there on out.
• 5:08
  SPEAKER_00: And we don't have that today as we see that lower at five bucks.
• 5:12
  SPEAKER_00: The second part of this is I hope that we don't have to go there all the way, or I hope that we um find support when we get back there based upon the fact that they have now got rid of all of their managed money fund longs.
• 5:27
  SPEAKER_00: They've liquidated those.
• 5:29
  SPEAKER_00: And for them to pile on more shorts at this time of the year, ahead of our growing season, would be a little bit abnormal for one, a little bit risky too, ahead of weather volatility.
• 5:40
  SPEAKER_00: Um so the third point that I'm kind of looking for in this fund activity is just basically from a seasonal perspective, I don't want them to pile on anymore from here.
• 5:52
  SPEAKER_00: So I'm really gonna watch that going forward and uh make sure they they don't get it a little bit more carried away.
• 5:58
  SPEAKER_00: And they didn't today.
• 5:59
  SPEAKER_00: So that's a third point, is that that continuation stopped once they seem to get rid of those.
• 6:03
  SPEAKER_01: Fair.
• 6:04
  SPEAKER_01: Yeah, so decent close when it was really all said and done, especially in the July, the upfront July here was fairly impressive close the way we started out, you know, taking out some old lows over there as well.
• 6:16
  SPEAKER_01: So maybe we can maybe we can stop the uh demise of that marketplace, but it's kind of a black hole down below us.
• 6:25
  SPEAKER_00: It is.
• 6:25
  SPEAKER_00: It makes you uh a little bit more uh aggressive of a seller on the way up.
• 6:32
  SPEAKER_00: The next rally you get, it's almost like I don't even care where it goes to.
• 6:35
  SPEAKER_00: I'm gonna find some places to sell it.
• 6:37
  SPEAKER_01: I know it.
• 6:38
  SPEAKER_01: And the people that have been listening to me at least in the past month or so, I just I just keep looking at a lot of history that shows us at least getting back to the highs in January or the highs in March.
• 6:51
  SPEAKER_01: And man, that is starting to look like a long ways away.
• 6:54
  SPEAKER_00: So put it into perspective, you get back to six dollars on December 23, corn today, a 75 cent rally or so, it's very hard for me to not at least be half sold.
• 7:06
  SPEAKER_01: Uh at least with about everybody.
• 7:09
  SPEAKER_01: Sure.
• 7:10
  SPEAKER_00: And I mean, you do whatever you want for options in that or cash sales, HTAs, futures, whatever the case may be, but I'm gonna make sure we got a pretty good coverage level on at that point.
• 7:20
  SPEAKER_01: Well, Mike put uh on our some of our team chats today, it looks like corn is the new hogs, and I would just tell the grain farmer if you're camel something along that fundamental term.
• 7:32
  SPEAKER_01: If if the hog market can rally, you can bet your boots that the corn market can rally again, because that thing's all as dead as it's all about that hog market, Jeff.
• 7:41
  SPEAKER_00: We uh I want to hear what we've got on this because the title today is gonna be the three-step process.
• 7:47
  SPEAKER_00: So walk me through this three-step process of the hog market today.
• 7:51
  SPEAKER_01: Yeah, it's it's one of the things that I find you know most interesting about the livestock business versus the grain, is it it's very much uh cyclical like within side of you know for fairly small periods of time, I would argue.
• 8:06
  SPEAKER_01: So the way I like to think about it is you get these markets that are just down, down, down, bad news after bad news, and we all know that that's gonna change at some point.
• 8:14
  SPEAKER_01: And the way it changes, in my mind, is kind of in three different steps or three different phases.
• 8:19
  SPEAKER_01: And I think the reason why the marketplace is rallying this week is because we've achieved job number one, and that really is to see some life in the cash market.
• 8:32
  SPEAKER_01: So basically, what happens is you know, you go from packers really not returning your phone calls and and begging to loads to okay, maybe we'll start taking a few pigs, we're not really willing to pay for them at all, to uh, oh, we kind of need some pigs here for next week.
• 8:51
  SPEAKER_01: And by the way, we're bidding a dollar better than what we were this morning, and that's that's kind of how this week progressed.
• 8:57
  SPEAKER_01: Um, Packers were very aggressive coming, you know, even late into the week here, seeing some of our highest uh posts on the cash, I believe will be yesterday.
• 9:07
  SPEAKER_01: I don't think we took out those levels today on Friday.
• 9:10
  SPEAKER_01: Um, but we've you know, the next step that's really suggesting that okay, we've finally gotten to a position where we've worked through whatever um issues we had from a hog supply standpoint.
• 9:22
  SPEAKER_01: So we've dried up the supply a little bit.
• 9:25
  SPEAKER_01: Um from a seasonal perspective, we're expecting that.
• 9:28
  SPEAKER_01: The next step is we will lower the kill speeds and then see what happens to cutout.
• 9:36
  SPEAKER_01: In my mind, cutout is going to be what matters over the next couple weeks.
• 9:41
  SPEAKER_01: If we lower these kill speeds because we have a little bit less supply, that's great news, but cash can only do so much.
• 9:49
  SPEAKER_01: So we're gonna take kill speeds down as our second step and then see what happens to cutout.
• 9:54
  SPEAKER_01: If we can get some rally on the product, um, then we can turn around and pay much more for cash hogs.
• 10:01
  SPEAKER_01: Then we've got ourselves um a full-blown rally um going into the summer months, which we're obviously very hopeful.
• 10:09
  SPEAKER_01: You spin that around, um, you know, you've got very large premiums that are still very concerning to us for these summer months.
• 10:18
  SPEAKER_01: Um so you know, we continue to look at kind of even the front month, really, with where it's at today, isn't it?
• 10:24
  SPEAKER_01: Yeah, even May is going to struggle to be at 79, 80 bucks.
• 10:28
  SPEAKER_01: And we got an index that's hanging right around 72.
• 10:32
  SPEAKER_01: It's maybe got to climb up to 73 and some change.
• 10:35
  SPEAKER_01: That's still some pretty big steps away from basically 10 trading days to get to May expiration.
• 10:41
  SPEAKER_01: Another four weeks beyond that is June, which is hanging out there just under 92 bucks.
• 10:48
  SPEAKER_01: So you're starting to look at a good$18 premium to those June futures and you know, roughly six weeks to get there.
• 10:56
  SPEAKER_01: We're gonna have to scoot to get there.
• 10:58
  SPEAKER_00: Ironically, though, that an eighteen dollar rally and cutout from middle of April until the middle of May is normal.
• 11:07
  SPEAKER_01: It's probably slightly wider than normal, but you're you're not far off.
• 11:11
  SPEAKER_01: It's just we haven't even begun that process.
• 11:14
  SPEAKER_01: That's what I mean.
• 11:15
  SPEAKER_01: That's and this thing is and that's so it's great if we can get that done, if we can get more than that done.
• 11:21
  SPEAKER_00: Incredible how discouraging that's been.
• 11:23
  SPEAKER_01: It it it is very discouraging, and a lot of alarm bells going off as far as is this demand really just problematic here or what is going on.
• 11:34
  SPEAKER_01: That's been difficult to really put our thumb on.
• 11:37
  SPEAKER_01: Um, and it just like I said, it hasn't changed.
• 11:40
  SPEAKER_01: The trend has not flipped over and started higher.
• 11:43
  SPEAKER_01: Hopefully, smaller supply will make a big difference.
• 11:46
  SPEAKER_01: That's what we've learned in the beef industry um this past couple weeks, I would argue, is if you can take the supply down, even if you have some demand issues, um you're you can sail right through it.
• 11:58
  SPEAKER_01: So that's what we're crossing our fingers on.
• 12:00
  SPEAKER_01: Unfortunately, or fortunately, I'm not sure which way you want to look at it.
• 12:03
  SPEAKER_01: The futures markets already have much of that optimism, possibly too much, priced into these summer markets, Mike.
• 12:11
  SPEAKER_00: What else do you want to talk about, Jeff?
• 12:14
  SPEAKER_01: I guess that's probably all I had um for the week.
• 12:18
  SPEAKER_01: It's been an interesting week in the hog business.
• 12:20
  SPEAKER_01: Been a lot of different announcements, lots of different rumors that we've got uh some pretty good leads on, I think, as far as um, you know, some sow liquidation here and there, some packing plant issues.
• 12:33
  SPEAKER_01: I think many listeners are aware of those.
• 12:36
  SPEAKER_01: Um, probably not podcast material, Mike, but happy to visit with anybody if they want to give us a shout, kind of go through our perspective on, you know, what's the sow industry or the sow side of this industry look like?
• 12:50
  SPEAKER_01: What's the shackle side of this industry look like for this summer?
• 12:54
  SPEAKER_01: Uh, I think we're gonna learn a lot.
• 12:56
  SPEAKER_01: This landscape is changing uh very dramatically uh as we speak here.
• 13:02
  SPEAKER_01: Um many producers know uh all that all too well, but it's important times.
• 13:09
  SPEAKER_01: Um and you know, we're gonna try and stay on the very cutting edge of this and just appreciate any discussion that anybody wants to have um about any of the state of the industry type stuff.
• 13:20
  SPEAKER_01: That is very much what we're here for.
• 13:22
  SPEAKER_01: That's what we're spending a lot of our time on.
• 13:24
  SPEAKER_01: So welcome those discussions.
• 13:26
  SPEAKER_00: Something worthy of it too, I think, going forward to follow that, especially.
• 13:31
  SPEAKER_00: Absolutely.
• 13:32
  SPEAKER_00: Thank you, Mike.
• 13:32
  SPEAKER_00: Thank you, Jeff.
• 13:33
  SPEAKER_00: And thank you to all our listeners.
• 13:35
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 13:39
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:44
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:50
  SPEAKER_00: See you next time.