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WASDE & CPI · 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 July 13th, and I've got Pat back with us here today.
• 0:27
  SPEAKER_00: How's it going, Pat?
• 0:28
  SPEAKER_00: Good, Mike.
• 0:29
  SPEAKER_01: How are you this afternoon?
• 0:30
  SPEAKER_00: Really good, really good.
• 0:31
  SPEAKER_00: We had a fun week here at ProAg.
• 0:34
  SPEAKER_00: We had uh two major reports come out yesterday, the WASDA being the major one, and then uh the CPI number as well.
• 0:41
  SPEAKER_00: So we're gonna cover those two uh reports today, Pat.
• 0:44
  SPEAKER_00: How's that sound?
• 0:45
  SPEAKER_01: Sounds great.
• 0:46
  SPEAKER_00: Awesome.
• 0:47
  SPEAKER_00: Well, we had a WASD report, the July one came out, and as expected, we did drop uh let's start with the U.S.
• 0:54
  SPEAKER_00: corn balance sheet a little bit.
• 0:55
  SPEAKER_00: So the major talking point there was we did pull back corn yield Pat to 177.5.
• 1:01
  SPEAKER_00: They were expecting a little bit lower than that at 176.5.
• 1:06
  SPEAKER_00: Um that did bring uh bring us back to very similar levels to what we had the month prior for ending stocks.
• 1:14
  SPEAKER_00: They uh, you know, we had a uh acre increase that was taken into account in this WASDA for the first time.
• 1:21
  SPEAKER_00: So we were gonna try to swallow that up, use a little bit lower yield to try to counteract that a little bit after some dry conditions have taken over.
• 1:29
  SPEAKER_00: And then uh we really messed with beginning stocks a little bit, otherwise, not really any other major changes uh across the board, Pat, on the corn balance sheet.
• 1:40
  SPEAKER_00: That old crop corn, they they did shrink that a little bit as well month over month, just from that quarterly stocks report we had.
• 1:47
  SPEAKER_00: Uh so they shrunk that 50 million uh bushels there.
• 1:51
  SPEAKER_00: The soybean balance sheet, I think, was more of uh the one that got a bigger reaction out of the report.
• 1:57
  SPEAKER_00: It was a little bit more unexpected.
• 1:59
  SPEAKER_00: You came in, uh you had the lower acres from that last report, which uh was a uh a little bit of a surprise at the end of June, and then you left yield the same, which I would have argued was probably the right move.
• 2:12
  SPEAKER_00: Um we've got a lot of time left, uh really decent rains here, we'll get into it, but left that the same, and then beginning stocks, they raised those a little bit.
• 2:22
  SPEAKER_00: Um they had lowered exports, uh, seed and residual, they moved that up uh a little bit there.
• 2:29
  SPEAKER_00: But nonetheless, they changed uh quite a few categories in that new crop balance sheet on the soybeans, and that crushing number they they dropped a little bit, and then exports for next year they dropped a little bit too.
• 2:40
  SPEAKER_00: So the export number you're getting dangerously close to the levels we saw actually in the trade war era era of uh 2019 there, surprisingly.
• 2:49
  SPEAKER_00: So we we have pulled quite a bit of demand off, and that ending stocks number only came in at 300 million bushels pat.
• 2:56
  SPEAKER_00: So that was down 50 million bushels from last month, yes.
• 2:59
  SPEAKER_00: But that number was expected to be like 199 going into the report.
• 3:03
  SPEAKER_00: So that didn't quite live up to the expectations the trade had wanted from it.
• 3:08
  SPEAKER_00: So what do you think about the the report there yesterday and the reaction to it?
• 3:13
  SPEAKER_00: I should start with.
• 3:14
  SPEAKER_01: Well, sometimes, Mike, I I think I'm I'm maybe like naturally sort of skeptical when I look at these things and and maybe I I I shouldn't be, but you know, as you're describing the the changes in the corn uh balance sheet and the changes in the bean balance sheet month over month uh as it relates to 23-24 projections, um the net number on either commodity didn't change much at all, right?
• 3:41
  SPEAKER_01: I mean uh in June projecting a 7.9% stocks to use ratio on soybeans, 350 million bushels, and then in July a 300 million projection, which is I mean, it's 7% stocks to use, which compared to where we've been for a while is frankly, you know, it's livable, quite comfortable, you know, that sort of a thing.
• 4:00
  SPEAKER_01: And then on the corn side of thing, it didn't change at all.
• 4:02
  SPEAKER_01: I mean a 15.6% stocks to use ratio in June, and again uh here in July.
• 4:08
  SPEAKER_01: And so uh the government was forced to deal with the acres number.
• 4:14
  SPEAKER_01: And on the on the corn side of the balance sheet, they just uh reduced uh the yield by the by the uh the same number of of bushels that would have been increased by by acres.
• 4:27
  SPEAKER_01: And then on the bean side of things, they more or less came up with the same ending stocks numbers we just described, but but uh was forced to uh deal with the lower acreage amount by also lowering demand.
• 4:38
  SPEAKER_01: And so then you question, like, well, all things being equal, if they would have been able to present pre uh print 87 and a half million bean acres in the July report, would they still lower demand and and uh we would have gone up to 600 or 700 million projected?
• 4:56
  SPEAKER_01: I doubt it.
• 4:57
  SPEAKER_01: Right, and so anyway, just saying it seems a little bit weird that that that um that uh I mean is it possible that that the USDA just kind of wanted to back into these numbers just a little bit and and not rock the boat too much.
• 5:10
  SPEAKER_01: Um mostly because there's so many things that that will change and can change and and all of that between now and harvest, let alone between now and and January when they print that the final numbers, uh at least on the production side of this thing for for both corn and soybeans.
• 5:28
  SPEAKER_01: I I wonder if if there wasn't some uh thought process of uh you know there's enough volatilities, markets are ready, let's not get too carried away with uh making some significant adjustments.
• 5:39
  SPEAKER_01: And I'm certain that I read way too much into all of that or or try to anticipate some uh uh subjectiveness in a in a in a relatively objective process.
• 5:48
  SPEAKER_01: So uh having said all of that, let me just step back to corn for a second, and I would just say, Mike, that that um actually the yield number 177.
• 5:58
  SPEAKER_01: I mean, if they would have asked me, that's the number I would have thrown out.
• 6:01
  SPEAKER_01: I mean, it seems reasonable.
• 6:03
  SPEAKER_01: I think generally the condition scores that have been reported, especially through the month of June, um probably a little pessimistic relative to today's um technology from a genetic potential perspective, probably a little too mess pessimistic relative to the areas of the corn belt that were trending drier.
• 6:28
  SPEAKER_01: Uh said a different way, there's pretty good dirt in Illinois, right?
• 6:32
  SPEAKER_01: Yeah, you know, so so we probably were talking ourselves into a little bit bigger problem, but coming off of that record trend yield of 181.5 down to 177 when you look at the drop monitor map, no problem, right?
• 6:46
  SPEAKER_01: And so um in order for the crop, you know, to drop much more than that or get down to last year's 173, which by the way, even if it does, you still have a balance sheet that's relatively comfortable.
• 7:01
  SPEAKER_01: Um I think it's going to take uh some significant or or more significant uh uh weather events as we go here.
• 7:10
  SPEAKER_01: And and then I would just say, um, speaking of weather, I mean another nice system.
• 7:15
  SPEAKER_01: We're we're we're recording this on Thursday afternoon the 13th, but you know, on uh yesterday on Wednesday, a really nice uh uh coverage system that that uh you know was a little better than advertised, I think.
• 7:28
  SPEAKER_01: And and so now that's how that's going, right?
• 7:31
  SPEAKER_01: And I would just mention that that um you know the the longer term, intermediate to longer term weather guys, Mike, they're kind of right so far this year.
• 7:40
  SPEAKER_00: They kind surprisingly, they're calling this one pretty dead on.
• 7:43
  SPEAKER_00: The end of July, middle of July, it's supposed to get a little bit wetter.
• 7:47
  SPEAKER_00: El Nino starts to set in, August a little bit wetter.
• 7:50
  SPEAKER_00: So it it's kind of uh what the bulls were afraid of, right?
• 7:54
  SPEAKER_01: Yeah, yeah.
• 7:54
  SPEAKER_01: I think uh whoever those guys are, they should take a victory lap now because they're good point.
• 8:00
  SPEAKER_01: Now I yeah, so we talked about hot and dry at the beginning of the year and and uh transitioning to cool and wet, and that's kind of what's happening.
• 8:06
  SPEAKER_01: And then when I sort of take a step back and think about that, I said, well, that'd be kind of weird if you start out hot and dry, trend cool and wet during the middle of the growing season, and then revert back to hot and dry again.
• 8:18
  SPEAKER_01: I mean, it would be it would be uh again, just sort of thinking about uh like longer-term weather patterns, it'd be a little bit strange to oscillate back and forth between all of that.
• 8:28
  SPEAKER_01: So I would guess that the best guess is that we will maintain this cooler, wetter pattern long enough to finish the crop, whether or not it it uh provides for enough moisture in the month of August to hold that 52 bushel bean yield, in my mind's the biggest question.
• 8:45
  SPEAKER_01: Yeah.
• 8:46
  SPEAKER_01: And so and so when we think about the corn balance sheet, if we think the yields at 177 with 94 million acres planted, given the size of the crop in South America, given uh the fact that we're not expanding animals numbers anywhere on the planet, given that uh um you know the ethanol uh capacity is probably where it's at, it appears as though we're forecasting a pretty comfortable balance sheet.
• 9:13
  SPEAKER_01: Now, we could end up with some wheat problems in different parts, and that so there could be some substitution wheat feeding uh uh opportunities there for some additional corn demand, but that's not going to happen with$7 corn or maybe even$650 corn.
• 9:26
  SPEAKER_01: So I just make that point to start to maybe start to talk about uh you know how much demand for corn do we have at$650 versus$450 kind of a thing.
• 9:35
  SPEAKER_01: And it and it's different and it matters, right, Mike?
• 9:37
  SPEAKER_00: Definitely, because we haven't got to talk about Russia, Ukraine, their war, how that's impacting us, and then the you know, the dollar situation too, helping us out recently.
• 9:46
  SPEAKER_00: We'll get to talk about that in a little bit.
• 9:48
  SPEAKER_00: But I think it really comes down to the soybean balance sheet, because when I look at corn, even with the adjustments they made the other day, that would be the second highest uh stocks to use ratio we've had since 05.
• 10:01
  SPEAKER_00: So it's significantly above the last three years, so and you can drag that yield down a long ways before you start to make it a real bullish situation again in corn.
• 10:10
  SPEAKER_00: The soybean situation though, you know, you start to move a couple things around, not too big, that balance sheet starts to get a little bit more favorable.
• 10:19
  SPEAKER_00: The other situation is corn, we're heading into pollination for the majority of the United States, it's pretty cool, getting rains like you talked about.
• 10:28
  SPEAKER_00: August is still a little ways away from us yet.
• 10:30
  SPEAKER_00: So I think you gotta look at the soybean balance sheet and the soybean yields coming and the conditions in August.
• 10:37
  SPEAKER_00: And I think if you want to have corn to get any significant rally from here on out, I think soybean balance sheet might be the one to try to drag it higher if they have problems.
• 10:46
  SPEAKER_00: Because that's the one I think that's gonna be the more volatile one that can kind of move a little bit easier.
• 10:51
  SPEAKER_01: Yeah, agreed.
• 10:52
  SPEAKER_01: I yeah, and I I agree with you 100%.
• 10:54
  SPEAKER_01: The the the yeah, the weather, the balance of the growing season will the the biggest question mark is what impact that has on the final soybean yield here in the U.S.
• 11:04
  SPEAKER_00: I think so too.
• 11:05
  SPEAKER_00: And we talked about the dollar a little bit here.
• 11:07
  SPEAKER_00: That had a another really hard down day, actually, Pat.
• 11:11
  SPEAKER_00: We we're spending some time below 100 points now, which uh first time really in a couple of years that we've seen this.
• 11:18
  SPEAKER_00: Uh, you know, if you go back to like April of 22 was the last time we were kind of at this level.
• 11:23
  SPEAKER_00: So uh yesterday we had a CPI report come out and we had 3% inflation, it looked like on the dot versus 3.2 expected.
• 11:32
  SPEAKER_00: And month before we were about 4%, so it is coming down, and we're getting awfully close to that 2% level that the Fed wanted.
• 11:40
  SPEAKER_00: And at this point, looking past the July 26th ability to make another rate hike there, which it sounds like they will do, um, it doesn't sound like they're planning on any rate hikes the rest of the year.
• 11:53
  SPEAKER_00: And uh, you know, it almost looks like this soft landing is actually gonna happen almost for now in in this market.
• 12:00
  SPEAKER_00: And I think that's surprising a lot of people, but it's also made some of these commodities look a little bit better uh, you know, as an export opportunity going forward.
• 12:09
  SPEAKER_00: And I think that might have even added some buying after yesterday's report today, which uh we saw a pretty significant increase through some of these agricultural commodities.
• 12:19
  SPEAKER_01: Yeah, great point.
• 12:20
  SPEAKER_01: I I agree with I agree with that.
• 12:21
  SPEAKER_01: I I mean clearly uh a lower U.S.
• 12:24
  SPEAKER_01: currency provides for better export opportunities for the commodities that we produce.
• 12:31
  SPEAKER_01: Um but in addition to that, the reason why the dollar is lower is also uh incredibly uh significant.
• 12:39
  SPEAKER_01: And and uh you know, when when we were seeing money flow into U.S.
• 12:45
  SPEAKER_01: currency starting clear back in May of 2021, it was because of all of the concern about you know what's happening with uh economies and economic activities and some in in places like the European Union and and China and those sorts of things.
• 13:00
  SPEAKER_01: And so you know you see that you hear about that money flow into the dollar as a safe haven, is a good place to park some money here.
• 13:08
  SPEAKER_01: And so if that money's moving out, which it clearly is, uh would suggest that investors, speculators and the like are uh willing and wanting to look for some better return opportunities, and and uh that must mean that we're in a better position as relates to economic activity globally globally, which can't be bad for protein demand or or corn and soybean demand or wheat demand for that matter as well.
• 13:33
  SPEAKER_01: And so I think that's uh is a promising development on a couple fronts that's uh is certainly good for U.S.
• 13:40
  SPEAKER_01: agriculture.
• 13:41
  SPEAKER_00: Definitely.
• 13:42
  SPEAKER_00: Any final thoughts for our listeners here this week, Pat?
• 13:44
  SPEAKER_01: Well, it's you know the July 13th, and we just uh um we when you when you get rains that aren't forecasted in the middle of July, um that's uh that's significant.
• 13:54
  SPEAKER_01: And so uh all of us should be, I I suspect, adjusting our thought process just a little bit in terms of what production potential is, especially on the corn side of things, and what impact that might have on prices here.
• 14:06
  SPEAKER_01: And continue to work the plan, continue to look for um and and you know, work with your risk management advisor and and uh define and determine opportunities that make sense for your business and and get the orders working.
• 14:19
  SPEAKER_01: If we haven't learned that lesson in the last month, it's uh it's one that needs to be reminded.
• 14:24
  SPEAKER_01: These things are these things are poppy, and now we've got money flow moving around a little bit more, so so let's make sure that that we know what we want to execute on and and uh we got the orders working to execute that plan.
• 14:35
  SPEAKER_00: Alright, thank you, Pat.
• 14:36
  SPEAKER_00: Thank you.
• 14:37
  SPEAKER_00: And thank you to all our listeners.
• 14:39
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 14:43
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:48
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 14:54
  SPEAKER_00: See ya next time.