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Grain Market Talk - Trend is your friend · Professional Ag Marketing Podcast

0:03
SPEAKER_00: You're locked in to the Grain Market Talk Podcast.
0:07
SPEAKER_00: Fast updates, market movers, and the grain news you need right now.
0:12
SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
0:22
SPEAKER_01: Today is October 23rd.
0:24
SPEAKER_01: I've got Nathan back with us here today, and we're going to be talking about the grain markets.
0:28
SPEAKER_01: How's it going, Nathan?
0:29
SPEAKER_02: It's going real well.
0:30
SPEAKER_02: Hello, Mike, and hello world.
0:31
SPEAKER_02: Hello.
0:32
SPEAKER_02: Flipping the script here a little bit today.
0:34
SPEAKER_02: I am interviewing Mike on these grain markets.
0:38
SPEAKER_02: Mike, tell me about harvest progress.
0:40
SPEAKER_02: What are we seeing along those lines now?
0:43
SPEAKER_01: A lot in the Northwest Corn Belt here.
0:45
SPEAKER_01: I'm going to be talking about folks who have either been completed, which I would argue the folks who are done, a lot of them were in areas they were drier, got an earlier start, more poor yields, I would argue, or high horsepower.
0:59
SPEAKER_01: That'd be the majority of the folks wrapped up.
1:02
SPEAKER_01: The next part of uh folks who will be probably combining silk for about the next week, it looks like uh we're getting close, depending on more about a breakdown or basically uh what this weather's gonna do this weekend with a little rain in the northwest corn belt here.
1:19
SPEAKER_01: Otherwise, almost everybody is supposed to be done in the next two weeks, Nathan.
1:23
SPEAKER_01: So harvest progress has been hard and and plenty.
1:27
SPEAKER_01: Uh, I would argue a lot of folks probably switched over to soybeans about a week and a half or so ago uh in the local area here.
1:35
SPEAKER_01: So the rest of the corn belt, a lot of progress throughout the state of Iowa, yet that has to be had uh slower start for sure there, but they've been picking up quite a bit as well, Nathan.
1:46
SPEAKER_02: Makes a lot of sense.
1:47
SPEAKER_02: As far as uh percent complete goes, how are we comparing to last year and kind of the five-year average?
1:53
SPEAKER_01: Yeah, I mean, honestly, at this point, uh it started off decent.
1:58
SPEAKER_01: We fell back just a wee bit, and then now, I mean, we're we're running towards a very normal pace now, especially in this part of the world.
2:06
SPEAKER_01: It's very common for us to be finishing up a lot of the harvest by the end of October.
2:12
SPEAKER_01: Uh, now if we do have decent uh weather going forward here, we should complete in a very timely fashion, a little bit ahead of pace.
2:20
SPEAKER_01: And the the one thing I would just argue with uh the pace now is that we're getting to the point where a lot of elevators are starting to get full.
2:28
SPEAKER_01: So folks are saying, uh, especially end users, I could delay a little bit as I use, I could uh refill, and maybe I'll store everything still, uh especially in some higher yield areas.
2:40
SPEAKER_01: They weren't expecting it.
2:41
SPEAKER_01: Otherwise, it would appear that uh folks starting to fill up now a little bit are starting to have an impact as well.
2:47
SPEAKER_01: The lines I thought haven't been too bad yet at a lot of these elevators.
2:51
SPEAKER_01: Um, but that's just my opinion, I guess, on the lines.
2:55
SPEAKER_02: Makes sense, Mike.
2:56
SPEAKER_02: And we we talked a little bit uh on yields and performance.
3:00
SPEAKER_02: Uh, could you expand on that just a little bit?
3:02
SPEAKER_02: And what are we looking like compared to what the USDA is saying as of their last report?
3:07
SPEAKER_01: Yeah, the USDA there uh gave us a shocker, a 181 plus here yield in this last report.
3:13
SPEAKER_01: And this was after they had boasted in the 170s, uh, after the pro farmer crop tour was down at a 173 and change.
3:20
SPEAKER_01: So uh if I would argue if if you didn't see the pro farmer crop tour, uh maybe a 181 wasn't so surprising.
3:29
SPEAKER_01: But I think it that made us really wonder about how low this yield could potentially go.
3:34
SPEAKER_01: Now, sure, we're five off last year at this current level.
3:37
SPEAKER_01: About uh, are we gonna stick around that level?
3:40
SPEAKER_01: I'm just fine with it.
3:41
SPEAKER_01: I think a few of the key items here are one, uh, Illinois' probably too high from from what we've heard, folks we've talked to.
3:48
SPEAKER_01: I I don't know.
3:49
SPEAKER_01: Uh I think you could probably drop that one a handful.
3:52
SPEAKER_01: On the Iowa side, sure, there's good spots.
3:55
SPEAKER_01: It's decent overall.
3:57
SPEAKER_01: I just have a hard time believing that we are that much better than a prior record, Nathan.
4:03
SPEAKER_01: Seven, eight.
4:04
SPEAKER_01: Yeah, some folks talking nine bushel better than a prior record with where the USDA is at at 219 right now.
4:10
SPEAKER_01: Seems like a stretch.
4:12
SPEAKER_01: Uh, from the yields we've heard coming in.
4:14
SPEAKER_01: There's good spots, yes, but not enough to really justify that big a number.
4:18
SPEAKER_01: I thought record, probably, but that big, probably not.
4:21
SPEAKER_01: In the Western Corn Belt, yields have been uh well, everywhere soybean yields were better than anticipated for the most part.
4:28
SPEAKER_01: So that yield, I think, should go up uh even from their higher number that they're at now.
4:33
SPEAKER_01: The the big one is with uh with corn, it's it's all over the board.
4:38
SPEAKER_01: It's really hard to get a gauge on.
4:39
SPEAKER_01: In the Western corn belt, though, the corn that is there, the good fields, the if you had that inch of rain at the right time, those yields are fantastic.
4:47
SPEAKER_01: And you're asking yourself, how in the world are we getting 250 on this?
4:51
SPEAKER_01: Uh, that's been the interesting part because uh you go five miles from there and it's like, okay, we're back to 150 bushel corn in the dry area, like I thought we'd be.
5:00
SPEAKER_01: But the corn that's there that just got enough rain, it's really it's a rocket ship still.
5:04
SPEAKER_01: So uh something to continue to track over uh the rest of harvest here.
5:08
SPEAKER_01: Uh but some of these new numbers are really fantastic.
5:12
SPEAKER_02: Makes a lot of sense, Mike.
5:13
SPEAKER_02: And speaking on those reports uh as well as quality, I think that's a pretty good segue into corn futures price action.
5:20
SPEAKER_02: What are we seeing there?
5:21
SPEAKER_02: And could you kind of set the stage there over the past month or so?
5:24
SPEAKER_02: What's influenced this market?
5:26
SPEAKER_01: Well, I would say, in your own words, trend is your friend.
5:30
SPEAKER_01: And uh to the roll crop producers in the room, the trend is not our friend because this has been going down and it doesn't look like it's been breaking very easily at all.
5:38
SPEAKER_01: Uh, if you look even on this chart here, that uh very bottom line that we're looking at, it's gray.
5:44
SPEAKER_01: Uh is nine-day moving average.
5:46
SPEAKER_01: And we we have had troubles trying to even violate that thing.
5:50
SPEAKER_01: So uh I would argue that uh getting in this low mid 450s, it's starting to slow up a little bit on the rate of decline.
5:59
SPEAKER_01: Uh, but at this point, the market needs a catalyst to try to get any substantial buying activity.
6:04
SPEAKER_01: Otherwise, I think we'll continue to see these managed money fund longs continue to get out of this market.
6:11
SPEAKER_02: The trend is your friend, not only catchy, but it is true for the most part.
6:15
SPEAKER_02: Uh, and to kind of talk on what started that trend, we had two pretty significant reports here uh over the past month.
6:22
SPEAKER_02: Could you describe what those did to the market and what changed in those reports?
6:26
SPEAKER_01: Yeah, uh two different stories.
6:28
SPEAKER_01: You've got uh the first story was quarterly stocks showed we're coming into this year with more corn than we anticipated.
6:34
SPEAKER_01: And then you added on a bigger yield in this last report as well.
6:38
SPEAKER_01: So those two combined added almost half a billion bushels of corn to the balance sheet, and it really set up the funds to be in a position where if they wanted to be long, is it for a fundamental reason or inflation?
6:50
SPEAKER_01: Well, the fundamental picture got worse.
6:53
SPEAKER_01: So we've seen that pressure continue.
6:55
SPEAKER_01: We've had two major sell-offs during those report days, but that's dictated the direction of this uh recent trend of the corn market for sure, towards some levels that uh are having some trouble sticking, Nathan.
7:08
SPEAKER_02: One last thing on this corn market here, and we've kind of overviewed this in the conversation as well, uh, but just describe how harvest pressure continues to weigh on this market.
7:17
SPEAKER_01: Yeah, I mean, uh especially some of these areas where we're seeing better yields than anticipated, we've had to sell a lot more corn uh out of the field than maybe what we thought we were gonna have.
7:26
SPEAKER_01: So uh some of that harvest pressure, just that time of the year is starting to really take place.
7:31
SPEAKER_01: And I think it makes sense with uh where the weakness has been in the last week or two.
7:36
SPEAKER_01: I think that's where the strong harvest pressure really timely uh added up.
7:41
SPEAKER_01: So between the two reports, between some harvest pressure, the path of least resistance has been lower in this corn market.
7:49
SPEAKER_02: All right, Mike.
7:50
SPEAKER_02: Makes a lot of sense here.
7:51
SPEAKER_02: We've given given a lot of love here uh to the corn market.
7:54
SPEAKER_02: Why don't we move into soybeans?
7:56
SPEAKER_02: Describe to me what's going on in the soybean market.
7:59
SPEAKER_01: Yeah, the soybeans uh a similar story, but not as dramatic.
8:04
SPEAKER_01: One, and we'll start with the two reports.
8:07
SPEAKER_01: The soybeans didn't really have that bad report.
8:09
SPEAKER_01: So it was pretty neutral, if on anything, really.
8:12
SPEAKER_01: So even with a uh higher soybean yield in that last report, uh, it the balance sheet wasn't nearly in as bad efficient as we thought they'd be.
8:19
SPEAKER_01: The most recent story I think worth telling, uh news-wise, direction-wise, fundamentally, is that we're looking at a soybean market that's had a really strong buyer again in China.
8:31
SPEAKER_01: We took a little hiatus between the President G and Trump meeting until about a two weeks ago.
8:38
SPEAKER_01: Yeah, there wasn't much buying going on in soybeans from soy uh from China.
8:42
SPEAKER_01: And now they've really kicked off the last two weeks.
8:44
SPEAKER_01: Last week's exports were impressive, many flash sales on soybeans.
8:49
SPEAKER_01: We're tracking well ahead of normal.
8:50
SPEAKER_01: If you take that into account to the balance sheet, even with a little higher yield, you're still shrinking that balance sheet pretty dramatically if these numbers live up to expectations.
9:01
SPEAKER_01: So at this point, exports are running fast enough to basically cut our uh ending stocks in half on soybeans.
9:07
SPEAKER_01: So that's been a very friendly story that's held the soybean market up.
9:11
SPEAKER_01: As Jake pulls up the futures chart there on soybeans, what you'll notice is the rate of decline hasn't been nearly as fast on soybeans.
9:18
SPEAKER_01: Corn in this chart, you saw a picture where we were below every significant moving average.
9:24
SPEAKER_01: On this one here, we're right in about the middle of that range.
9:27
SPEAKER_01: It's gonna have a hard time deciding.
9:29
SPEAKER_01: Are we gonna want to hold an uptrend line here?
9:31
SPEAKER_01: Are we gonna want to bust through some of these levels that we put in?
9:34
SPEAKER_01: Otherwise, do we have enough ammo to try to work this thing higher?
9:38
SPEAKER_01: And at this point, Nathan, it seems like that soybean market is wanting to hold on to these gains a little bit stronger, where corns just kind of gave up.
9:47
SPEAKER_02: Kind of circling back uh on the Chinese demand piece of that, Mike.
9:52
SPEAKER_02: The million-dollar question, China has agreed to purchase 25 million metric tons of soybeans from the United States.
9:58
SPEAKER_02: I believe they're a little over halfway purchased on that so far.
10:02
SPEAKER_02: In your opinion, do you think do you think they're gonna make good on all of that?
10:06
SPEAKER_01: I think they'll get close, actually, at this point.
10:08
SPEAKER_01: I do think they will.
10:10
SPEAKER_01: Uh, they they like being bargain buyers, though.
10:12
SPEAKER_01: So a lot of that will probably be in uh on the back of what happens in South America as well.
10:18
SPEAKER_01: Some of the support we've had recently is because their outlook is still pretty hot and dry in South America for us for their Brazilian uh soybean crop, which will be harvested around that January, February time frame.
10:29
SPEAKER_01: So we'll have a better idea, probably November D.
10:32
SPEAKER_01: So if South America's got a problem, I would not be surprised if uh if China tried to hit that number pretty fast and furious.
10:39
SPEAKER_01: They're on pace to hit that number.
10:41
SPEAKER_01: Uh, I was concerned that they were only going to do the 12 million metric ton again this year and stop there because that's what they did last year.
10:49
SPEAKER_01: But at this point, I'd say over their recent commitments, they've lived up to them recently, Nathan.
10:54
SPEAKER_01: And I think price-wise, they're we're probably in line for them to try to live up to those expectations this year.
11:02
SPEAKER_02: Amazing answer, Mike, and very insightful.
11:04
SPEAKER_02: As we're kind of wrapping up soybean harvest here, uh, could you tell me a little bit about yields uh and what are we seeing off of harvest pressure on the soybean side of things?
11:14
SPEAKER_01: The harvest pressure is probably fading a little bit just because harvest is done for the most part on soybeans, especially in this part of the world.
11:21
SPEAKER_01: I would argue that most of the harvest pressure is a week to two weeks behind us.
11:26
SPEAKER_01: And I think that makes sense with where a lot of the downward pressure was.
11:29
SPEAKER_01: Kind of like the timing, I think that lines up with corn as well, with where that harvest pressure is really picked up the last bit.
11:36
SPEAKER_01: Um, when I look at the yields on soybeans, they were better than anticipated for most everywhere.
11:41
SPEAKER_01: Uh, there were still some areas that struggled a little bit, but most everyone I talk to, whether you be in the Northwest Corn Belt or Illinois, Indiana, most folks had a better soybean yield than anticipated.
11:53
SPEAKER_01: That soybean number at 53.1, I think, will probably have a hard time not going up in uh the January WASD airport.
12:00
SPEAKER_02: I'd agree with that, Mike.
12:02
SPEAKER_02: Um, moving on from soybeans here, uh, oil markets right now, big influencer in the broad commodity markets as well, and specifically the grain markets.
12:12
SPEAKER_02: Tell me what we're seeing in the oil markets right now.
12:14
SPEAKER_01: Well, it's hot.
12:15
SPEAKER_01: We've had a really strong oil market setting new highs again.
12:19
SPEAKER_01: Uh, we saw some really wacky activity with that November uh WTI futures contract the other day.
12:25
SPEAKER_01: When that came off the board at the beginning of the week, we got up to 110 that day, had about a$9,$10 trading range, had a lot of uh a lot of crazy trade there.
12:33
SPEAKER_01: We're wrapping up the end of the week up another four bucks on WTI.
12:37
SPEAKER_01: D's is just under$104.
12:39
SPEAKER_01: Uh, when I look at some of the market moving news there, I mean, it's pretty easy to see what's pushing it.
12:44
SPEAKER_01: You've got one, your main story still, you're escalating geopolitical risks in the Middle East.
12:49
SPEAKER_01: That's still going on.
12:51
SPEAKER_01: Uh, it's no nothing new there to really talk about other than the UAE oil spill, something to keep an eye on there.
12:58
SPEAKER_01: But I think that's got traded pretty heavily over the last week or so.
13:02
SPEAKER_01: Uh when I talk about some other things logistically that make more sense, you know, we've had a surge in freight and logistical costs as well.
13:09
SPEAKER_01: And I think that's kind of uh it's hitting on its uh on itself here a little bit, right?
13:14
SPEAKER_01: It's a it's a uh it's a fuel cost problem to ship fuel.
13:20
SPEAKER_01: So I think uh that one's hurting itself a little bit.
13:22
SPEAKER_01: And then also just there's other global supply disruptions, whether you talk about the Russia-Ukraine situation and what's been taken offline there, that long-term impact, I think, is continuing and starting to show that hey, this wasn't just a short-term problem.
13:37
SPEAKER_01: You can't just release a few reserves in the meantime to try to try to keep these prices down.
13:43
SPEAKER_01: Longer term, it's been supported really well.
13:45
SPEAKER_01: And I uh it's had some really nice uptrend recently.
13:49
SPEAKER_01: And uh, I think there's some pretty good strength still behind this crude oil market.
13:53
SPEAKER_02: We've got crude oil uh rising above$100 per barrel on both WTI and Brent Crude.
13:59
SPEAKER_02: Uh and at the same time, you have corn going down, Mike.
14:02
SPEAKER_02: Uh, if I'm not if I'm not incorrect, uh those two usually correlate, don't they?
14:07
SPEAKER_02: Could you tell me a little bit about that?
14:08
SPEAKER_01: Yeah, and uh, you know, correlations, especially in the fall, get really weird because you're realizing the yield on crops.
14:15
SPEAKER_01: So I always talk about like corn to soybean ratio.
14:19
SPEAKER_01: Normal is about 2.32.
14:20
SPEAKER_01: But at certain times of the year, like fall, uh fundamentals change and you can't really do anything about it, right?
14:26
SPEAKER_01: You can't plant more acres of soybean or corn to influence that.
14:30
SPEAKER_01: So then you see those spreads get really wacky, you know, 2.7, et cetera.
14:35
SPEAKER_01: When I compare oil and corn, it's not quite that dramatic, but we are realizing a final corn yield that's maybe a little bar larger than we just thought it would be.
14:45
SPEAKER_01: So we've had some internal fundamentals that have kept corn futures probably on the decline a little bit longer than they should have.
14:53
SPEAKER_01: If it was two months ago, every update it seemed like on crude oil, corn went along with it.
14:58
SPEAKER_01: Crude oil controlled all the markets in reality.
15:01
SPEAKER_01: It controlled the US dollar for the most part.
15:04
SPEAKER_01: Uh, it controlled, you know, it it is half of our inflation measure.
15:09
SPEAKER_01: So uh do we have to worry about inflation or not?
15:11
SPEAKER_01: And if we do, then you gotta buy things like corn and soybeans.
15:15
SPEAKER_01: Um, that trade seems decoupled today.
15:18
SPEAKER_01: They're not buying, the funds aren't going more long on corn and soybeans because crude oil's back up to new highs.
15:25
SPEAKER_01: In fact, uh, when you look at the commitment of traders today, uh they came out, we took off 84,000 contracts on corn in a week's time frame.
15:33
SPEAKER_01: We're at 146,000 managed money contract longs is all.
15:37
SPEAKER_01: Uh, and that's a pretty minor uh pun intended uh managed money long position in this corn market.
15:43
SPEAKER_01: So they are not positioning themselves like they were two months ago, I would argue, in this corn and oil market, where if oil's going up, corn's going along with it.
15:52
SPEAKER_01: And that's not the case today.
15:53
SPEAKER_01: But I I know you dug into the correlation specifically between the two.
15:58
SPEAKER_01: So just historically speaking, how far apart are they?
16:02
SPEAKER_02: Yeah, if we start, we have two graphs here.
16:04
SPEAKER_02: One is a 20-year correlation or a chart uh with WTI crude oil and corn price on it.
16:11
SPEAKER_02: Um, and in this you see generally moving together for the most part, uh, they diverge in certain scenarios, but most of the time they move together.
16:20
SPEAKER_02: And uh for a correlation number, it's around 65% uh that these two commodities are moving the same direction.
16:28
SPEAKER_01: Which in the real world's actually pretty strong.
16:30
SPEAKER_01: It is, yes.
16:31
SPEAKER_01: You know, in a textbook, it's like, okay, whatever, minor strength.
16:34
SPEAKER_01: That in the real world, I think, is pretty strong from when I run correlation studies with most uh most things, especially if they're not super directly correlated, like you know, soybeans and soybean oil or soybeans and soybean meal, or something like those that are in the same industry, even.
16:52
SPEAKER_01: So for those two to be that close, in my opinion, is way higher than I thought they'd be.
16:57
SPEAKER_02: That's a phenomenal observation there, Mike.
16:59
SPEAKER_02: And now if we hone in uh on a graph, last two months uh of the same two commodities there, uh red line being corn declining as we have described, crude oil, blue line rising, um, moving opposite directions here over the past few weeks uh since the start of October.
17:16
SPEAKER_02: That correlation is minus 34%.
17:19
SPEAKER_02: So opposite correlation there uh in the past two months or so.
17:23
SPEAKER_01: You can really see almost to the day, that's the October WASD airport right there, where those two separated themselves.
17:31
SPEAKER_01: And yeah, you could see too, like it was around that same time frame where crude oil really started the incline again, too.
17:37
SPEAKER_01: So really going against us both ways there, anyways.
17:41
SPEAKER_01: But that that chart perfectly tells a story this week, I think.
17:44
SPEAKER_02: I think it does.
17:45
SPEAKER_02: Well, on that note, Mike, any final comments here on these grain markets as a whole?
17:50
SPEAKER_01: Uh we need to realize what stage we're at in the crop season.
17:55
SPEAKER_01: And a lot of it is you're making sales to the elevator, you're realizing crop size.
18:01
SPEAKER_01: A lot of big decisions need to get made right now regarding should I sell, should I store, should I reown?
18:08
SPEAKER_01: What should I do with my current risk management portfolio?
18:11
SPEAKER_01: And I think it's worth talking through.
18:13
SPEAKER_01: I think there's some really good opportunities to not give up on some of these items.
18:17
SPEAKER_01: And uh it's just time to really uh hone in, see what we got, and what's our next step to do?
18:23
SPEAKER_01: Because right now is not the time we want to ignore any marketing decisions or forget positions we have on, things like that, Nathan.
18:30
SPEAKER_01: So please give us a call because uh basis is an important topic right now, spreads, managing any short contracts we've got on.
18:37
SPEAKER_01: Uh today we had November options come off, but we've got uh November soybean futures first notice day is next Friday.
18:44
SPEAKER_01: So a lot of uh a lot of positions here for new crop is gonna have to get managed in this next week, which will keep you and I both busy.
18:52
SPEAKER_02: Absolutely.
18:53
SPEAKER_02: Well, thank you for educating me here today, Mike.
18:55
SPEAKER_01: Thank you for helping me out.
18:57
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19:06
SPEAKER_01: Uh, we really appreciate it.