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Bore of a WASDE · 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 December 8th, and 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 this afternoon?
• 0:29
  SPEAKER_01: Doing very well, doing very well.
• 0:31
  SPEAKER_01: Well, it was uh USDA report day, Pat, so that's going to be the main focus of our talk today.
• 0:36
  SPEAKER_01: How's that sound?
• 0:37
  SPEAKER_00: The December report sounds exciting.
• 0:40
  SPEAKER_01: It was not.
• 0:42
  SPEAKER_01: One thing we've come to learn over the years is that December, I feel like, is uh a little bit of a bore when it comes to the USDA WASDA report.
• 0:51
  SPEAKER_01: And we at least haven't expected too much out of the report uh here the last couple of years, as they usually seem to kind of punt on a lot of changes until the January report, which seems to get a lot more exciting, bring a lot more volatility in.
• 1:06
  SPEAKER_01: So really the only main category that they were focusing on going into this report was the South American production, specifically Brazil.
• 1:15
  SPEAKER_01: So uh one of the things we've seen was CONAB here this last week.
• 1:19
  SPEAKER_01: They made some pretty large changes to production, uh, pretty decent cuts there, uh just over a percent or so from their total.
• 1:27
  SPEAKER_01: Um about 76 million bushel cut, I believe, in production is what they accounted for.
• 1:33
  SPEAKER_01: The USDA out of the United States, one thing we've realized is they can slow play things once in a while, even here in the United States.
• 1:42
  SPEAKER_01: So for us, when it comes to expectations of them being ahead of the curve, uh especially for someone like South American crop production, probably not likely.
• 1:52
  SPEAKER_01: They like they'll like to play that pretty slow.
• 1:54
  SPEAKER_01: So they did today in the report make a change from 163 million metric tons on Brazil soybeans to 161 million metric tons, which was pretty much right at expectations.
• 2:05
  SPEAKER_01: And other than that, there was no changes to the US balance sheet.
• 2:09
  SPEAKER_01: There was no changes to the US balance sheet on on soybeans, there was only an export change on corn uh of 20 million bushel 25 million bushel increase.
• 2:20
  SPEAKER_01: Other than that, across the US and really the world balance sheet, not a whole lot changed month over month.
• 2:25
  SPEAKER_01: So it was a very quiet report.
• 2:28
  SPEAKER_01: Um the the one thing I would say is, you know, uh going into the report at about ten fifty-nine this morning, we were trading at one level, and then about eleven oh three already immediately after the report, corn was trading five cents lower than where it was at ten fifty-nine, soybeans were trading fifteen cents lower than where they were at ten fifty-nine, and wheat was off about ten cents in that time frame.
• 2:54
  SPEAKER_01: So it was almost like people waited around or some funds waited around to see what the report was gonna say.
• 3:01
  SPEAKER_01: They could participate if there was some upward trading action going on, and then the moment they saw that there was no major changes at all, they just basically pulled their money out and they're running towards something else going into the weekend, it seemed like Pat.
• 3:14
  SPEAKER_01: So for us to have not a whole lot of expectations in the market, someone out there was at least willing to see what the almost see what the river card was here essentially on this report, Pat.
• 3:26
  SPEAKER_01: What did you take from it?
• 3:27
  SPEAKER_00: Sure, yeah, it makes sense, and I and I appreciate your observation as it relates to money flow.
• 3:33
  SPEAKER_00: I do think that's a a pretty important component of of um all of the markets that we we care uh most about here recently is is how the index funds and the managed money uh positions are moving cash in and out of of these different commodities.
• 3:52
  SPEAKER_00: And so we've seen a well, we've certainly seen it in crude oil and cattle, a significant drop in uh in open interest and um in managed money uh positions.
• 4:06
  SPEAKER_00: We've been keeping a close eye on what's going on in the corn complex, and um interested in looking at uh at this week's uh uh update on that.
• 4:17
  SPEAKER_00: But I would just say, Mike, that um, you know, as we as we try to, I guess, analyze um internal uh fundamentals, and so not much of a supply-side change here in the U.S., not much of a supply-side change in in the the southern hemisphere, not much of a change in the global balance sheet, as you mentioned.
• 4:39
  SPEAKER_00: So probably not much of a reason for a change in what the futures markets have been doing here recently, but nonetheless, we have sold off.
• 4:47
  SPEAKER_00: We have sold off, you know, corn going uh uh into uh first notice day on the December contract.
• 4:53
  SPEAKER_00: We've rebounded a little bit since then, and the March contract is held in there pretty well kind of back now to the old to the middle of the old trading range.
• 4:59
  SPEAKER_00: So so see how that acts.
• 5:01
  SPEAKER_00: But I'll I'll tell you, Mike, I I I think the biggest um risk in these commodity markets is this issue of money flow and the impact that outside markets have on commodities.
• 5:13
  SPEAKER_00: And as I understand, we did get a little bit of financial information out today as well in the forms of a jobs report.
• 5:20
  SPEAKER_01: Yeah, we did.
• 5:21
  SPEAKER_01: A couple of the key takeaways there I think worth noting is that unemployment rate tightened back down to 3.7%.
• 5:28
  SPEAKER_01: That was below all the forecasts, and that was a four-month low.
• 5:32
  SPEAKER_01: And uh, you know, payrolls r ra raised about uh 199,000 uh in the month, so that was more than the average estimate there as well.
• 5:42
  SPEAKER_01: Um basically what this did today in this release of information when it comes to the the US jobs report for November was basically that um when we look forward at this strength that we've seen the last two months, I would say, when it comes to December's report that we'll see at the beginning of next month, um, that would complicate the Fed's outlook going forward.
• 6:07
  SPEAKER_01: They were in a pretty easy pause here the last few months, and they were even supposed to, or at least the market was expecting, uh a slight rate cut maybe first quarter or by May at least.
• 6:19
  SPEAKER_01: The May was their expected rate cut.
• 6:22
  SPEAKER_01: If we continue to get unemployment to hold at around that 3.7 or even keep backing off, it's gonna make that difficult for them to cut rates anytime soon, Pat, which wouldn't be outside of your expectations, I believe.
• 6:35
  SPEAKER_00: Right, yeah, I didn't think they were gonna cut rates anyway.
• 6:37
  SPEAKER_00: And so I um I I found all of that discussion incredibly uh premature and and a little bit the Fed had been telegraphing that for some reasons of of uh um trying to to manage the message, if you will.
• 6:53
  SPEAKER_00: But um nonetheless, uh with unemployment dropping, you sure wouldn't um suspect that we have some um some real issues with these higher interest rates impacting um economic growth, at least as it relates to unemployment figures.
• 7:09
  SPEAKER_00: So so nonetheless, um this this inflation fight um seems to be a a a stubborn adversary, right?
• 7:17
  SPEAKER_00: And and so we'll uh we'll see how that plays out as we as we uh work through the balance of this calendar year here and and look into next year.
• 7:26
  SPEAKER_00: And and so so maybe, Mike, the um I'm not sure if this jobs report is enough information to to spur or change the tide, but theoretically at least, and we did see a rebound in crude oil today as an example, I think.
• 7:42
  SPEAKER_00: Um it it it's it is perhaps reasonable to think that you might see some some money flow back into commodities here if it seems as though a recession is uh is less imminent.
• 7:56
  SPEAKER_00: So we'll see what happens as we go forward here.
• 7:58
  SPEAKER_00: I I think you know the next um I suppose topic or item that we should be talking about, especially as it relates to um managing price risk for our row crop producers, is this uh uh opportunity, particularly in the Western Corn Belt, as it relates to some pretty um uh historically attractive basis levels.
• 8:20
  SPEAKER_00: And uh um this is always an interesting time of year post-harvest and before what seems to be some natural movement after the first of the year.
• 8:30
  SPEAKER_00: And so we're in this time frame between Thanksgiving and Christmas, where historically is some of the better um basis opportunities of the year from a real crop producer's perspective on both corn and soybeans.
• 8:41
  SPEAKER_00: And so as we're uh um, especially with what we're enjoying here, these above-normal temps and the and the the ability to to haul uh grain and some some reasonable, respectful weather instead of what we usually have up here in December and January, um, certainly worth considering um what's uh being offered out there today in terms of again some some narrower than normal uh basis levels for this time of year.
• 9:08
  SPEAKER_00: And it's time to put our merchandising hats on, Mike, and and make sure that we're making the right decision from a cash management and a and a basis perspective, and then looking to uh um uh different alternatives that the futures market offers as it relates to maintaining uh uh flat price ownership, uh staying long uh the commodity, those sorts of things.
• 9:31
  SPEAKER_00: And so as we wrap up here today, Mike, I I I think I would I would uh at least just leave it at that, this uh the importance of um of uh uh managing uh the the opportunities that from a merchandising perspective the market's offering today, and clearly the uh heightened flat price risk that we have on these commodities because of uh the influence of these outside markets.
• 9:56
  SPEAKER_01: Anything from a end user's perspective on that same note?
• 10:00
  SPEAKER_00: Yeah, well, it's uh it's a there's a big difference from eastern corn belt to western corn belt in terms of the right way to manage those things.
• 10:07
  SPEAKER_00: Definitely.
• 10:08
  SPEAKER_00: Uh yeah, and then in the west here, we we probably should be working from the the lower stock short side of the equation here and and uh and not trying to push too hard as it relates to some of these tighter basis levels.
• 10:20
  SPEAKER_00: And so so yeah, there's some there's some equally uh interesting uh mute uh merchandising opportunities from an end user's perspective, and sure would uh look forward to having that conversation with folks.
• 10:33
  SPEAKER_01: Thank you for your time, Pat.
• 10:34
  SPEAKER_00: Thank you.
• 10:35
  SPEAKER_01: And thank you to all our listeners.
• 10:37
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 10:40
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 10:46
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 10:52
  SPEAKER_01: See you next time.