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2023 Weather · 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 Miner.
• 0:22
  SPEAKER_00: Let's get started.
• 0:23
  SPEAKER_00: Today is February 17th.
• 0:25
  SPEAKER_00: I've got Pat with us here today.
• 0:27
  SPEAKER_00: How's it going, Pat?
• 0:28
  SPEAKER_01: Good Mike.
• 0:28
  SPEAKER_01: How are you today?
• 0:29
  SPEAKER_00: I'm doing pretty good.
• 0:30
  SPEAKER_00: We're gonna talk a little bit about weather today, 2023, a little bit about our weather forecast, and uh gonna start us off uh talking about some odd weather, actually, Pat.
• 0:42
  SPEAKER_00: Uh I was looking before the show here today, and Argentina could be experiencing a frost in the next coming days, which for us it may not sound very crazy, but for them it's basically summertime, right?
• 0:56
  SPEAKER_01: Right.
• 0:56
  SPEAKER_01: So how much are you sort of uh I guess getting into this uh uh higher weather volatility?
• 1:03
  SPEAKER_01: Because we've had some of those uh those uh kind of extraordinary weathery events happening up here over the last three or four months as well.
• 1:12
  SPEAKER_01: Is that some indication of a changing weather pattern, perhaps?
• 1:16
  SPEAKER_00: Definitely.
• 1:16
  SPEAKER_00: You got 10-day weather patterns that you would experience, El Niño weather type events, and then 10 days of La Niña.
• 1:23
  SPEAKER_00: And usually some of those can be pretty extreme.
• 1:25
  SPEAKER_00: For the United States here, that would lead to extra snowfall days or s maybe extreme drought for 10 days, who uh whatever that means.
• 1:34
  SPEAKER_00: Um but odd weather events could ha occur like that back and forth a little bit as it changes.
• 1:40
  SPEAKER_00: And that's what we're really going to talk about today, Pat, is the forecast for 2023 weather and uh kind of what La Nina is, what El Nino is, and uh what that tells us about this upcoming s upcoming growing year for crop production in both the United States and likely the world.
• 1:59
  SPEAKER_01: Yeah, Mike, that sounds good.
• 2:00
  SPEAKER_01: Why don't you provide a little bit of insight on that?
• 2:02
  SPEAKER_01: I know that's been a very popular talking point uh this winter about uh you know the challenges that that uh uh that we've had in in various growing regions across the globe the last two or three years and the impact that it's had on on global grain production.
• 2:20
  SPEAKER_01: And so you know, I think it's three years in a row of blow trend yield events here in the U.S.
• 2:25
  SPEAKER_01: as an example.
• 2:26
  SPEAKER_01: And uh as we lead into uh an Outlook conference, the USDA Outlook Conference this month, and and we'll see our first look at what their guess is for a trend line type yield for next year.
• 2:38
  SPEAKER_01: It's certainly a pertinent topic, and we're on the cusp here, right?
• 2:42
  SPEAKER_01: If we are continuing these uh extended weather challenges, why we're likely to experience continued elevated prices here, but uh but you start uh reverting back to a more normal sort of weather pattern and uh a higher probability of higher trend line yield events, uh why this balance sheet could change pretty significantly.
• 3:04
  SPEAKER_01: So I think this is as good of a or as an important topic as anything to to to to work through here in the middle of February.
• 3:12
  SPEAKER_00: Definitely.
• 3:13
  SPEAKER_00: So you mentioned the last three years with some struggling uh yield events here in the United States, and so has Brazil for that uh for that matter.
• 3:21
  SPEAKER_00: But uh those were La Niña weather patterns that we experienced over the last three years.
• 3:27
  SPEAKER_00: And uh one of the things we see with that in the Midwest here in the uh South Dakota, Nebraska, historically in those weather patterns are a little bit uh drier.
• 3:37
  SPEAKER_00: A lot of the coasts would see some more uh experience with rainfall, picking up of hurricanes, things like that.
• 3:44
  SPEAKER_00: And all of that has been pretty easily seen over the last three years and some strange weather at that.
• 3:50
  SPEAKER_00: And uh as we work into this time frame of spring, early summer, we're supposed to transition out of this three-year pattern of La Nina that we were just getting into the third year here, which is abnormally long for what it's worth.
• 4:05
  SPEAKER_00: Typically you see it one, maybe one and a half, two years, but not three.
• 4:10
  SPEAKER_00: That's very abnormal to have that many years in a row for that pattern.
• 4:14
  SPEAKER_00: And we're gonna start to see that shift, a very high percentage uh probability at least that we are gonna change to an El Nino weather pattern by this next summer.
• 4:24
  SPEAKER_00: So, what that means, Pat, is as we make that transition uh from La Nina to El Nino, that historically would produce more of an average type growing year in this part of the world, Pat.
• 4:37
  SPEAKER_00: So, what do you got to say about uh the forecast here with La Niña switching to El Nino?
• 4:44
  SPEAKER_01: I mean, I I guess there's some risk, right, of it of it not uh uh converting all the way over to to uh El Nino and there's some sort of a neutral pattern type risk, and what happens in those times of years when those situations occur?
• 4:57
  SPEAKER_00: Yeah, so if we do get stuck in something like a neutral pattern here through this, you would experience something more uh like 2012, a very abnormal event, even more abnormal than the La Nina pattern is, which would be neutral, and that could be some very difficult growing conditions um given what we've seen in the past.
• 5:17
  SPEAKER_00: So the likelihood of us going to El Nino is very, very high, like 85-90% probability.
• 5:23
  SPEAKER_00: But there is that there there is that small, slim chance that we could get stuck in something like a neutral weather pattern here um going forward, and that would probably not bode well for uh crop production in the United States.
• 5:37
  SPEAKER_00: So when we look at uh what we've seen for uh crop production and in years of El Nino, uh that would be a lot more favorable to upside uh growing potential.
• 5:48
  SPEAKER_00: So about uh for example, 10 out of the 13 years that we've had those type of events, we've had above trend line yields with an El Nino year.
• 5:59
  SPEAKER_00: And it's not necessarily just that, but pretty much every year we've ever had a record yield has been El Nino.
• 6:05
  SPEAKER_00: Uh it's a lot more difficult for you to get a record yield uh in a La Nino year.
• 6:10
  SPEAKER_00: So pretty much to sum things up, if we do experience an El Nino type uh weather event going forward, it just historically that would raise our probability of being able to grow a good crop in the United States and likely world too, where it matters.
• 6:24
  SPEAKER_01: Exactly.
• 6:25
  SPEAKER_01: And so to to wrap up this portion of the of the discussion, we'd just say that.
• 6:29
  SPEAKER_01: And I, you know, one of the things that we we used as illustrations uh in some of the presentations that we gave this week is is the drought monitor map in the U.S.
• 6:39
  SPEAKER_01: and uh uh finishing up the growing season in 2019, um, you know, all white all across the whole country, right?
• 6:46
  SPEAKER_01: No drought concerns whatsoever.
• 6:49
  SPEAKER_01: And so over the last three years, as we've worked through this uh La Niña type weather pattern, we all know what's happened, right?
• 6:58
  SPEAKER_01: Uh um the the drought not only droughts here in the in the Midwest, but also in the southwest and southern plains.
• 7:05
  SPEAKER_01: And so, um, and so you know, also if you would look at a weekly corn chart, um, we didn't spend much time at all uh above five bucks uh before 2020, and we haven't spent much time below five bucks since 2020, and there's a there's a direct correlation to those two observations, right?
• 7:24
  SPEAKER_01: A pretty good one.
• 7:25
  SPEAKER_01: A pretty good one, exactly.
• 7:26
  SPEAKER_01: And so um so that's it.
• 7:28
  SPEAKER_01: That's all framed up.
• 7:29
  SPEAKER_01: Uh you know, it it and and and not surprisingly, right, as we sort of think about what the potential prospects are for uh December corn futures specifically, uh trading around that six dollar mark today.
• 7:43
  SPEAKER_01: It elevates up to seven-ish if uh or so, you know, if if these drought uh uh if these if these droughts uh persist, if we get this changing weather pattern, uh there's probably some downside from the numbers that uh that that even the discounted new crop markets trading at today.
• 8:01
  SPEAKER_01: And so, you know, we say all of that, I suppose say this.
• 8:05
  SPEAKER_01: It's uh pretty darn important that um all of us from a real crop producer perspective or from an end user perspective think through, I guess, the risks and probabilities and manage accordingly.
• 8:18
  SPEAKER_01: And you know, there's some pretty unique and neat ways that we can go about doing that from an end user's perspective.
• 8:24
  SPEAKER_01: There's some nice opportunities and alternatives that relate to option management that allow for us to manage the risk of the drought persisting, uh, but yet uh be able to participate in lower markets if they present themselves.
• 8:39
  SPEAKER_01: From a real crop producer's perspective, there's some unique uh opportunities and options available to us to find the right combination of uh of crop insurance strategies coupled with uh risk management uh uh strategies as well that allows for us to accomplish the same thing real crop producers' perspective.
• 9:00
  SPEAKER_01: Let's keep one eye on yield potential, another eye on price risk, and manage accordingly.
• 9:06
  SPEAKER_01: And so um, you know, that's really the message, Mike, as it relates to this to the to the weather portion of this thing and how or what that means as it relates to uh you know the impact of the bottom line on our farms.
• 9:18
  SPEAKER_00: And I uh to build on this a little bit now, Pat, over the winter time frame here, we typically see a corn market that likes to consolidate or move sideways, and we're seeing that again this year.
• 9:28
  SPEAKER_00: And now, real recently, we've started to see a few more bigger items come into this market that could have longer-term impacts on our market.
• 9:37
  SPEAKER_00: Uh, Russia has increased some of their offenses again.
• 9:40
  SPEAKER_00: Uh, we've talked a little bit more about China reopening their economy, and now uh we're also talking about uh tensions between the U.S.
• 9:49
  SPEAKER_00: and China and uh seeing a lot more headlines talking about that with uh with the recent events with the weather balloons, spy balloons, whatever you want to call them.
• 9:58
  SPEAKER_00: Uh a lot of these other events are starting to pick up here as we've really consolidated this corn market tight together, and we're heading into a time frame of the year where we usually like to have some bigger swings now again after this uh more sideways pattern.
• 10:13
  SPEAKER_00: So it'll be interesting to watch which one of those events really try to push the markets around um going forward, and it's gonna be impossible to know if it's up or down or all the way around here, right?
• 10:25
  SPEAKER_00: But um what do you have to say about all that, I guess, going into spring?
• 10:28
  SPEAKER_01: Yeah, I it's uh the the the outside influence, the the the influences, the macro uh impacts on on our commodity markets are are as uh as significant uh as as ever, Mike.
• 10:42
  SPEAKER_01: And and uh you know it's it's it's worth reminding ourselves that we're still trying to work through the great experiment of how do you manage um economies uh uh coming out of a hundred-year pandemic for a good portion of the world, and and China is still you know experiencing all of that.
• 11:01
  SPEAKER_01: And so, you know, the risk of inflation and the impact that can have on commodity demand is is significant, and then and then that uh um is is not uh maybe even the most important macro item at play today, as you mentioned, the Russian Ukraine crisis is still uh a significant part of the impact of all of that, too.
• 11:20
  SPEAKER_01: And so the China and Indian economies are uh benefiting from you know utilizing Russian crude at a$25 a barrel discount to what the rest of the planet is is is paying for energy these days, and and uh that too is uh you know kind of meld the two issues together, right, as China comes out of their COVID issue, and they have have had access to cheaper energy.
• 11:45
  SPEAKER_01: Russia's claiming or saying that they're gonna cut back on production.
• 11:48
  SPEAKER_01: And so there's a lot of balls in the air there, and so your observation is accurate as it relates to you know trying to predict or or guess uh correctly what the outcome of all of this is is likely uh a bit of a challenging task.
• 12:03
  SPEAKER_01: And so, you know, we'll revert back to then, right?
• 12:06
  SPEAKER_01: Let's make sure that we're um there's one thing that that we probably can uh assure ourselves of is the the volatility in these markets aren't likely going away anytime soon because of all of the things that we tried to discuss today.
• 12:19
  SPEAKER_01: And so you know volatility often creates opportunity, but the only way to to to know and capture that opportunity is to is to have a defined plan uh and execute on what makes sense for your business, and and then uh when the market presents those alternatives, why why take advantage of them?
• 12:37
  SPEAKER_01: So look forward to that opportunity to uh uh engage uh with with any of you as it relates to how that can apply specifically to your operation.
• 12:47
  SPEAKER_01: Um but Mike, I I also appreciate the discussion, right?
• 12:50
  SPEAKER_01: Is is is everything that's happening today as it relates to internal fundamentals, the impact of weather and changing weather patterns that it has on global balance sheets, too.
• 13:02
  SPEAKER_01: Um, gosh, how how is China gonna react to uh you know uh coming out of their COVID concerns and into uh an inflationary uh uh uh increased economic activity?
• 13:15
  SPEAKER_00: That'll be something to really watch here at a time frame where we're really focused on weather.
• 13:19
  SPEAKER_00: So a lot of balls will be in the air, and I I think we'll start to see some more market movement again in these grain markets going forward, Pat.
• 13:26
  SPEAKER_00: Um, any final thoughts for our listeners here this week?
• 13:29
  SPEAKER_01: That's it.
• 13:30
  SPEAKER_01: I appreciate the appreciate the time, appreciate everyone taking the time to listen.
• 13:34
  SPEAKER_00: All right, well, we got a holiday on Monday, so no markets on Monday, but we will catch you guys next Tuesday.
• 13:39
  SPEAKER_00: Thanks.
• 13:39
  SPEAKER_00: And thank you to all our listeners.
• 13:41
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 13:45
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:50
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:56
  SPEAKER_00: See you next time.