Latest / Professional Ag Marketing Podcast / Grains: Bulls vs Bears

Transcript

Grains: Bulls vs Bears · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_02: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_02: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_02: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_02: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_02: This is your host, Mike Minor.
• 0:22
  SPEAKER_02: Let's get started.
• 0:23
  SPEAKER_02: It is May 16th.
• 0:24
  SPEAKER_02: I've got Pat and Jaden here with us today.
• 0:27
  SPEAKER_02: We're going to do uh a little bit of a different podcast.
• 0:30
  SPEAKER_02: There's going to be three of us on today.
• 0:31
  SPEAKER_02: We're going to do a quick recap on how the week went here in the grain markets and some of the moving items.
• 0:37
  SPEAKER_02: And then we're going to have a little bull versus bear discussion when it comes to corn and soybean prices here.
• 0:42
  SPEAKER_02: So what could go wrong, right, Jayden?
• 0:44
  SPEAKER_02: Nothing like arguing the opposite side of your boss at the moment.
• 0:47
  SPEAKER_02: So this is going to be fun.
• 0:49
  SPEAKER_00: Maybe a little, maybe a little introduction for Jaden would be a good way to start things out here, huh, Mike?
• 0:54
  SPEAKER_02: Yes, Jaden is a new member on the team, new but old.
• 0:57
  SPEAKER_02: He interned with us last summer.
• 0:59
  SPEAKER_02: Jaden now has started full-time at Professional Ag Marketing here this week going into this marketing season.
• 1:06
  SPEAKER_02: So uh tell us a little bit about what you plan to focus on here as a risk manager at Professional Ag Marketing, Jaden.
• 1:13
  SPEAKER_01: Yeah, Mike, I plan on focusing mostly on real crop and trying to grow that side of the business.
• 1:20
  SPEAKER_01: Awesome.
• 1:21
  SPEAKER_02: And you are from Holland originally, very close towards kind of Pipestone area, so pretty close by.
• 1:26
  SPEAKER_02: A lot of good relationships in that area.
• 1:29
  SPEAKER_02: South Dakota State graduate, so we got another one on you, Pat, away from Iowa State.
• 1:34
  SPEAKER_00: We're not keeping the score.
• 1:35
  SPEAKER_02: Oh, some of us are now.
• 1:36
  SPEAKER_02: Yeah, right.
• 1:37
  SPEAKER_02: Yeah.
• 1:38
  SPEAKER_02: But all right, let's get into the week.
• 1:40
  SPEAKER_02: Last week, I believe, Pat, we went into the weekend.
• 1:43
  SPEAKER_02: We were anticipating some trade discussions with China after we got the UK deal signed and a WASDAer port on Monday, and it seemed like the uh weekend kind of lived up to the hype, didn't it?
• 1:55
  SPEAKER_00: Certainly did, yeah.
• 1:56
  SPEAKER_00: Another interesting uh volatile week here in the markets.
• 2:00
  SPEAKER_00: And uh by the way, welcome aboard, Jaden.
• 2:02
  SPEAKER_00: We're happy to have you uh on our team and and uh looking forward to uh interacting with you as we go forward here for sure, and and uh encourage all uh all of our listeners and producers also to to reach out and interact with us as well.
• 2:16
  SPEAKER_00: And so yeah, I mean we've had uh uh again an interesting week.
• 2:19
  SPEAKER_00: Um December corn, you know, trading under that 440 area and uh really laboring to sort of spend much time above it uh you know, the last few trading sessions, Mike.
• 2:30
  SPEAKER_00: I find uh um pretty interesting for this time of year.
• 2:33
  SPEAKER_02: That is for sure.
• 2:34
  SPEAKER_02: And uh so we got very nice news out of the China negotiations on the weekend uh with their uh announcement to agree to cut tariffs, and that gave us a big pop on Monday.
• 2:46
  SPEAKER_02: We had a good WASDI report that brought uh ending stocks on both corn and beans lower on old crop and on the new crop balance sheet versus expectations.
• 2:55
  SPEAKER_02: So, I mean, Monday kind of starting off hot and heavy there on the soybeans.
• 2:59
  SPEAKER_02: We were up uh 27 cents on November soybeans to start off the week, Pat.
• 3:04
  SPEAKER_00: Yeah, really good start to the week.
• 3:06
  SPEAKER_00: And uh um you you know, there's uh um quite uh quite interesting as it relates to uh kind of wraparound on on uh the the government report that came out on on Monday.
• 3:20
  SPEAKER_00: And you know, we lost a little bit of ground here as we as we went went through the week, but you know, that balance sheet on Monday um generally was supportive and and and you know we talked uh uh about all this just a little bit earlier too, but I I do think that there's a um you know there is a it's a it's an interesting uh situation developing here where you have what is uh you know mostly perceived to be fairly uh favorable, supportive uh uh weather um on average, but uh there's still some real concerns about extremes, whether it be too wet in certain parts of the of the corn belt and and too dry in others.
• 3:59
  SPEAKER_00: But uh when you look at that new crop balance sheet, it's uh um it's getting kind of sneakily tighty tighter as we go forward here in the bean complex.
• 4:08
  SPEAKER_02: So if we started the conversation here between corn and soybeans from a weather aspect, Jaden, where are we sitting at right now on planting progress and kind of forecast?
• 4:18
  SPEAKER_01: Yeah, Mike.
• 4:18
  SPEAKER_01: Um according to the US Day USDA earlier this week on the planting progress report, 62% of our corn crop is planted, up six percent from our average, and even further ahead on the soybeans at 48% compared to a 37% average.
• 4:35
  SPEAKER_01: And another aspect of weather, the drought map earlier this week looked a little dry on the west side of the corn belt.
• 4:42
  SPEAKER_01: But with 1.5 to 2 inches of rain in the forecast through next Friday for every corn producing state besides some spots in Nebraska and Iowa, combining that with fast planting pace, there is no real premium in the markets today.
• 5:00
  SPEAKER_02: So planning progress very fast, and weather outlook here, kind of drying the Western Corn Belt, but it should get better kind of the next week here.
• 5:09
  SPEAKER_02: So the real main focus there, I hear anyways, is Nebraska and Iowa.
• 5:14
  SPEAKER_02: Little bit of chance maybe not to get as much rain as the rest of everybody else, so that'll keep in.
• 5:19
  SPEAKER_02: But honestly, at this point, I'll let you uh I let the bear camp kind of take the weather here, I guess.
• 5:25
  SPEAKER_00: Well, I I uh there's I mean, first of all, especially in the Western Cornwall here, the old uh uh axiom you plant in the dust the benzel bust.
• 5:34
  SPEAKER_00: We definitely uh planted in the dust this year.
• 5:37
  SPEAKER_00: Um it is you know interesting.
• 5:39
  SPEAKER_00: We've only had three or four tenths worth of moisture so far this week.
• 5:43
  SPEAKER_00: Um, you know, as Jane just mentioned, we've got some more forecasted for the first part of next week here.
• 5:47
  SPEAKER_00: But um, you know, it seems like uh from where we're broadcasting this podcast, we're uh I'm not we're not in the epicenter, northeast Nebraska would be the epicenter of the dryness, but but um you know we can see it from here and we can feel it for sure.
• 6:01
  SPEAKER_00: And so um it's uh it's it's uh it's an interesting uh it's an interesting uh uh time of year to be really concerned about such things.
• 6:12
  SPEAKER_00: And and clearly the the the crop today isn't deficit moisture and it's had enough moisture to get started and all those sorts of things, but uh um the need uh for us to uh um rely upon uh timely rains going forward here is is is going to be very real.
• 6:28
  SPEAKER_00: The bare argument would certainly be that today's technology, today's hybrids, uh today's uh farming practices, uh production practices uh allow for all of those things to happen pretty easily.
• 6:42
  SPEAKER_00: And so um, you know, we've grown some really nice crops recently without a lot of moisture, and uh and so the argument would be is that these timely rains uh or the the the possibility or probability of timely rains to get this this crop off to uh a good start, and then frankly, you know, leaning towards the dry side as we go through the month of June has proven through the years, fellas, that we've been able to uh um really establish a better root structure in that environment and and create the opportunity for some outstanding yields.
• 7:15
  SPEAKER_00: And so um, you know, if there's a if there's a basketball analogy in this whole thing, I mean this is uh I mean you've you've really got a chance to uh this may not be a layup out here in the Western Corn Belt, but uh well you certainly got a shot at some real nice three-pointers or something, right?
• 7:31
  SPEAKER_00: Like the opportunity for for some real success there um if if uh if the pattern continues to play out the way it potentially could.
• 7:40
  SPEAKER_02: And the bull camp on the other side of that would be that like a basketball game.
• 7:44
  SPEAKER_02: We're probably in the first quarter, second quarter of this, and it's a lot of time left this summer to get some weather premium in this market.
• 7:51
  SPEAKER_02: And uh we all know it gets hotter and drier later into the summer here, and we saw the impact that a dry, hot finish at the end of the year in August could have last year in moving that corn yield all the way down under 180 again.
• 8:04
  SPEAKER_02: And that also was the sixth straight time now that we've had uh failed to achieve a 180 or above yield in this corn crop after posting it uh ever since 2018 for a trend line every year.
• 8:18
  SPEAKER_02: So six straight years of below trend line yields for this corn market.
• 8:22
  SPEAKER_00: So if uh if the bull can be six straight years of uh below trend line yields and uh you know we're sitting here at a 443 July corn futures, right?
• 8:32
  SPEAKER_00: So that's the tricky part, right?
• 8:34
  SPEAKER_00: With with uh you're right, and we we have struggled with above trend line yield events, but we've also um even though we forecasted, you know, last late last summer, we thought we were gonna carry in um you know 2 billion plus bushels into this next year crop, and now we're down to 145 or something like that.
• 8:56
  SPEAKER_00: And that has provided for some nice marketing alternatives.
• 9:00
  SPEAKER_00: But boy, what's going on today, Mike?
• 9:02
  SPEAKER_00: How come uh uh how come we're sitting here with uh with uh um old crop uh um you know trading in that well, that 443 area and and new crop um at 435.
• 9:15
  SPEAKER_00: So really you know, you only got an eight cent inverse, old crop to new crop.
• 9:18
  SPEAKER_00: Um I guess the the bear in the room would would argue the demand side of the equation seems to be pretty comfortable even in spite of that supply tighten up considerably last year.
• 9:28
  SPEAKER_02: I do feel like if I looked on the bull camp side, the market has been bear spreading, like corn, for example, they've been selling the front month because we've been heading lower as we continue to have better planning pace and uh rain in the forecast.
• 9:43
  SPEAKER_02: So they've naturally been bare spreading that market.
• 9:46
  SPEAKER_02: But I do believe that that doesn't um uh accurately represent the current fundamentals at hand.
• 9:52
  SPEAKER_02: You've got a tighter balance sheet on the old crop by over half a million bushels almost than new crop coming out now.
• 9:58
  SPEAKER_02: I guess it's just under that.
• 10:00
  SPEAKER_02: But uh nonetheless, you're much tighter in the old crop, and yet July this week traded under December futures.
• 10:05
  SPEAKER_02: So that's one thing I've been watching.
• 10:07
  SPEAKER_02: That bear spread is probably manipulated a little bit by recent market activity.
• 10:12
  SPEAKER_02: The second thing would be that we're at a breaking point in the stocks to use ratio.
• 10:16
  SPEAKER_02: If you do have a little bit tighter stocks to use ratio, historically speaking, you'd have above five five dollar corn in this market.
• 10:25
  SPEAKER_02: Now, if you go above 12% stocks to use ratio and corn fundamentally, you find yourself much closer to$390 to$4.
• 10:32
  SPEAKER_02: And you're right in the middle of that, which is quite odd.
• 10:35
  SPEAKER_02: You historically don't really end up here.
• 10:38
  SPEAKER_02: So, fundamentally speaking, given the fundamentals we have, price historically, there's no weather premium factored into this price at all going into the growing season.
• 10:49
  SPEAKER_00: Um, I would agree there's little uh weather premium built into this market today.
• 10:54
  SPEAKER_00: Um, but we also do have the uh um, you know, the bears in the room have the uh support of a nicely sized uh uh safrina crop down in in uh in South America through pollination, um, you know, turning uh they are in the third period down there and uh and uh you know moving into the fourth that's that was a hockey third period.
• 11:16
  SPEAKER_00: It's third quarter, isn't it?
• 11:18
  SPEAKER_00: This basketball analogy that we're doing.
• 11:20
  SPEAKER_02: Keep it straight here, Pat.
• 11:21
  SPEAKER_00: So heading to the fourth quarter here, um in that second crop uh uh down in in Brazil.
• 11:27
  SPEAKER_00: Uh certainly the potential is there for uh a nicely sized crop and allowing for some some positive contribution to the global balance sheet.
• 11:36
  SPEAKER_02: Now on the bear on the bull camp, I will say we gotta get moving because a lot of the time your rallies are done by the end of June.
• 11:44
  SPEAKER_02: So I'm gonna be looking for something aggressively by the end of June to happen in this corn and soybean market as we try to trend towards more trade discussions with countries like India in particular.
• 11:56
  SPEAKER_02: You know, the UK deal was nice, but let's focus on some people who are really gonna have some volume behind them to substantially increase uh demand for these agricultural goods.
• 12:06
  SPEAKER_00: Yeah, unfortunately, the bear camp probably does have global trade a little bit in the bear camp side, as especially in this stage of negotiations as it relates to Trump and tariff and trade and all of those sorts of things.
• 12:21
  SPEAKER_00: And and while we are in a bit of a of a calming period here currently, um that overriding concern as it relates to what may or may not happen as it relates to trade to a lot of very important countries, um, as as you're mentioning there, Mike, is is critically important.
• 12:38
  SPEAKER_00: And so I um as important as all of that is in terms of what actually happens and about how many boats are actually gonna get loaded, those sorts of things, I think as important as how um index funds, money managers outside money flow is impacted by those concerns.
• 12:56
  SPEAKER_00: And I and I think um today when when we look at this market, whether you're a bull or a bear, no one's gonna argue with you too much about lack of weather premium in the market today.
• 13:06
  SPEAKER_00: And a little bit of that, or a lot of that, might have to do with money flow and just the the concern about what might happen as it relates to to commodity trade that that perhaps is is uh um isn't allowing for money flow from outside markets to come into these these commodities like they normally would this time of year.
• 13:27
  SPEAKER_02: All right.
• 13:27
  SPEAKER_02: Any final thoughts for our listeners this week, Pat?
• 13:30
  SPEAKER_00: I don't think so.
• 13:31
  SPEAKER_00: I again I what what we do have uh uh is in these markets is some level of volatility and certainly entering a time of year we where we should expect more of that.
• 13:42
  SPEAKER_00: So uh the best advice that we can give is the good consistent advice of of ensuring and making sure that you have a plan.
• 13:49
  SPEAKER_00: Think about the combination of of how you're structured today as it relates to your risk and opportunity from a production perspective, very early in the game, as we've talked about.
• 14:02
  SPEAKER_00: But also, what tools have you put in place to help you manage both the price and the production risk?
• 14:09
  SPEAKER_00: And so a good risk management plan does a great job of combining what you're doing as it relates to the in crop insurance products that you're utilizing, uh, revenue protection and all of the other choices that we've we've talked about uh all winter long.
• 14:24
  SPEAKER_00: What do you have in place today relative to the market opportunity and how do we combine what we can and maybe should be doing from a risk management perspective, whether that be in the cash market or in the futures market, and how that relates to what you're doing with your crop insurance products as well?
• 14:41
  SPEAKER_00: So would uh encourage everybody to to uh take a few moments, make sure that you've you've thought through all of those things, interacts with professionals like ourselves, and and and let's make sure we're making the best decisions for your operation.
• 14:53
  SPEAKER_02: All right.
• 14:53
  SPEAKER_02: Well, thank you, Pat.
• 14:55
  SPEAKER_02: Thank you.
• 14:55
  SPEAKER_02: Thank you, Jaden, and thank you to all our listeners.
• 14:58
  SPEAKER_02: Please reach out to us at professionalagmarketing.com.
• 15:02
  SPEAKER_02: Check out our other podcast as well, Professional Ag Marketing, that's released every Friday.
• 15:07
  SPEAKER_02: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:13
  SPEAKER_02: See you next time.