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Corn Market Valuation · 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.
• 0:24
  SPEAKER_00: Today is April 22nd.
• 0:25
  SPEAKER_00: I've got Pat with us.
• 0:26
  SPEAKER_00: How's it going today, Pat?
• 0:27
  SPEAKER_01: Good, Mike.
• 0:28
  SPEAKER_01: How are you?
• 0:29
  SPEAKER_00: Fantastic.
• 0:30
  SPEAKER_00: Well, we're gonna do a little market recap here this morning, and then uh we're gonna talk about a uh feature topic today, uh, mainly based around corn market valuation.
• 0:39
  SPEAKER_00: How's that sound?
• 0:40
  SPEAKER_01: Sounds great.
• 0:41
  SPEAKER_00: Awesome.
• 0:42
  SPEAKER_00: Well, we're looking at the corn market down about nine cents week over week here.
• 0:46
  SPEAKER_00: Uh we had last Friday off because of the holiday, but uh last Thursday's close was 7.35 on that D's right now we're about 726.
• 0:55
  SPEAKER_00: So down about nine cents here on some profit taking over the week.
• 0:58
  SPEAKER_00: Uh we had uh some impressive sales this morning.
• 1:01
  SPEAKER_00: China stepped in, uh had a nice surprise there, but the bulls haven't seemed very uh uh interested in it today, anyways.
• 1:09
  SPEAKER_00: After the overnight, we've lost most of the support.
• 1:12
  SPEAKER_00: Uh other than that, with the uh corn market situation, the strong dollar continues for the outside markets that could impact that.
• 1:19
  SPEAKER_00: Some of the recent inflation news kind of has that USD getting a bounce here uh really recently.
• 1:24
  SPEAKER_00: Some of the other dollars do as well, so keep an eye on uh the real, uh the Canadian dollar, and Australian here going forward, as those would be interesting uh to keep an eye on in compet uh competitive markets.
• 1:36
  SPEAKER_00: The soybean situation pretty much unchanged week over week.
• 1:40
  SPEAKER_00: A little bit choppy, but November beans here 1501 pretty much unchanged.
• 1:44
  SPEAKER_00: Uh the bean oil cont uh the bean oil did try to uh help the soybeans out a little bit today with the uh major exporters uh kind of shutting down some of their doors on the palm oil exports, so that's helped soy oil today, but just not enough to really get meal or soybeans to follow grains, uh follow grains lower here today.
• 2:06
  SPEAKER_00: Other than that, on the grains, Pat, uh, we've had some interesting talk about weather here as of late.
• 2:12
  SPEAKER_00: Some 30-90-day forecasts came out and stuff.
• 2:14
  SPEAKER_00: You've mentioned a little bit of uh talks about that earlier this week.
• 2:18
  SPEAKER_00: Do you have any comments about uh kind of the weather that we're seeing longer term here?
• 2:23
  SPEAKER_01: Yeah, well, I guess, you know, first of all, we you know new crop December corn is about 25 cents off of its highs.
• 2:30
  SPEAKER_01: It traded earlier this week, uh, above that 750 uh area briefly.
• 2:35
  SPEAKER_01: Um and would just say too that I mean, just from a chart perspective, I pulled up uh the 10 and 20 day 20-day moving average there on Deese corn as you were talking there, Mike, and and uh looks like today's down action did violate the 10-day, the 20-day is still pretty solid support there.
• 2:51
  SPEAKER_01: So uh sometimes as we go through these volatile markets and especially this corn market, uh new crop that's been in a pretty steep uptrend, it's uh it's appropriate to pay uh pay attention to some of those uh relatively simple uh technical indicators.
• 3:06
  SPEAKER_01: So we'll try to stay on top of that for everyone for for y'all.
• 3:10
  SPEAKER_01: But but just say too that I mean it's a great question about weather and all that, and I I'm not sure if we should be more concerned about uh cooler than normal soil temps today and lack of progress as it relates to April and and and uh getting the crop in the ground.
• 3:25
  SPEAKER_01: We've become pretty accustomed in the in recent history to to uh uh to say that there's a strong correlation between early planting, April planting, and final crop size, better yields.
• 3:40
  SPEAKER_01: And while it's certainly true that it does provide for a better opportunity, it certainly doesn't box you out of a good opportunity, right?
• 3:48
  SPEAKER_01: So the yield potential is still there.
• 3:50
  SPEAKER_01: We could just say that first.
• 3:51
  SPEAKER_01: I think more importantly, as we go through the month of April, with lack of progress, it's what's more concerning is the 89.5 million acres that was uh planned to be planted on the uh uh March numbers.
• 4:06
  SPEAKER_01: It makes that number, uh, unfortunately, from uh from a bear's perspective or uh or a crop production perspective, it makes it uh um a little bit less likely that we'll be able to increase from there.
• 4:18
  SPEAKER_01: So we have to keep that and uh keep an eye on that as we go.
• 4:20
  SPEAKER_01: Um so now to your question.
• 4:22
  SPEAKER_01: Sorry for the long wraparound to get there, but your question as it relates to 30, 60, and 90 day forecasts.
• 4:28
  SPEAKER_01: It was a little bit interesting that we came up with uh um some longer-term forecasts this week.
• 4:34
  SPEAKER_01: We saw it in a bunch of different uh uh a bunch of different uh uh sources, but uh uh below normal precip, above normal temps as we look out into that that longer forecast, so kind of the the uh maybe the opposite of what we're seeing in the in the short run here.
• 4:48
  SPEAKER_00: Fix me if I'm wrong there, but not necessarily the perfect recipe for corn, right?
• 4:53
  SPEAKER_01: Yeah, that's exactly right.
• 4:54
  SPEAKER_01: And I and we're gonna get into this on our deep dive uh uh on our podcast a little later today, but uh the margin of error on new crop is pretty tight, and so um you know getting off to a start like this a little bit late and then longer-term forecasts that aren't necessarily favorable certainly is concerning.
• 5:11
  SPEAKER_00: Definitely.
• 5:12
  SPEAKER_00: How about the hog market, Pat?
• 5:13
  SPEAKER_00: D's uh$89 there last week.
• 5:16
  SPEAKER_00: We're slightly under that today, 88, 85, uh about 15 cent decreases all week over week.
• 5:22
  SPEAKER_00: Uh June was nearly the same too, but wow, that was a little bit more choppy across the week there.
• 5:28
  SPEAKER_00: So any um comments on uh lean hog progress through this week and updates?
• 5:32
  SPEAKER_01: Yeah, absolutely.
• 5:33
  SPEAKER_01: The first thing is that we should be talking about the crush, not the not the revenue only, right?
• 5:38
  SPEAKER_01: So so December hogs is is hanging out at 90 bucks, but that crush opportunity in in Q4 is uh four dollars and seventy-five cents off of its peak, just about five dollars ahead off of its peak because of elevated corn costs.
• 5:54
  SPEAKER_01: And so uh we've got uh the deferred uh lean hog futures again hanging around contract highs, but the crush opportunity is as deteriorated with uh elevated input costs.
• 6:07
  SPEAKER_01: And so we'll see how that plays out here.
• 6:08
  SPEAKER_01: We do have some time from a seasonal perspective to look for some slightly better opportunities that we see today, but that recipe is gonna have to be get the North America crop off to a good start, maybe get a little correction in that market, and you're still able to keep the uh the revenue side uh elevated.
• 6:27
  SPEAKER_01: So we'll see how that goes here as we go over the next couple months.
• 6:30
  SPEAKER_01: Up front here, the other observation I want to make about hogs is there's been it's uh been a lot of conversation about oh, I heard a load of cash hogs traded this week at this, heard a couple rumors today it traded at 115, um, which is great.
• 6:44
  SPEAKER_01: I mean, we've had a good uh aggressive uh cash market all week long here, um, but it's having a really hard time moving the weighted average in the cash market, let alone the index.
• 6:55
  SPEAKER_01: And so I think the real story as it relates to hogs and hog markets here is uh what's going on up front here.
• 7:04
  SPEAKER_01: We've got a a uh we've got an$18 basis on uh um uh on the index versus June hogs.
• 7:11
  SPEAKER_01: Typically this time of year, it's a five or six dollar negative basis, and we're out to eighteen, and that's come in two bucks.
• 7:17
  SPEAKER_01: It was over twenty at the beginning of the week.
• 7:19
  SPEAKER_01: And so uh extreme amount of optimism sort of priced into these nearby futures relative to a very stagnant index that's driven more and more by cutout uh every every week, every month.
• 7:32
  SPEAKER_01: It's become increasingly obvious that uh a firmer cash market is having an awful hard time uh allowing or pulling that index higher.
• 7:41
  SPEAKER_00: And that cutout, are we starting to finally see a little help there after Easter now, or is it still pretty sideways?
• 7:48
  SPEAKER_01: It's pretty stagnant.
• 7:48
  SPEAKER_01: I I think uh I I'm quite concerned about about uh pork uh demand for sure from an export perspective.
• 7:58
  SPEAKER_01: We were looking at world pork prices uh earlier today, and it's hard for the U.S.
• 8:03
  SPEAKER_01: to be competitive on a on a global basis, pretty narrow spread between uh what pork is trading at in China compared to here, and uh and even in Europe's trading at a discount.
• 8:14
  SPEAKER_01: Uh so not a great recipe for uh improved exports from these price levels.
• 8:19
  SPEAKER_01: And then domestically, I I think the story continues to be uh there's more protein trade, there's more meat trade going through uh food service these days than ever before, uh coming out of COVID and getting people moving around again.
• 8:32
  SPEAKER_01: And and as we all know, as uh from a pork producer's perspective, we don't compete well on that lunch and dinner plate uh compared to uh poultry and beef.
• 8:41
  SPEAKER_01: And so I think we're starting to feel the effects of that.
• 8:44
  SPEAKER_01: And uh frankly, we've had cutout values trading uh below a year ago now for up to a month, and I think those are the reasons why we're still into four and five, six percent less pigs, but uh uh that's not enough of a reduction at this point to stimulate product values uh above the levels that we're trading at.
• 9:01
  SPEAKER_00: Well, quick wrap-up on these markets here um for cattle to get into that as we talk about demand.
• 9:07
  SPEAKER_00: We've uh seen a lot of money out there in people's pockets, and uh how was the cattle side reacting to that this week here?
• 9:15
  SPEAKER_00: Uh we saw a really nice increase week over week in some of these cattle futures uh kind of getting led by the cash market here really recently, surprisingly, uh at 136.42 last week for that front month, uh at about 139 now at the end of this week here at 258 increase week over week.
• 9:34
  SPEAKER_00: Um, but like I said, it seems like the futures are kind of playing catch-up to the cash market here in the meantime.
• 9:39
  SPEAKER_01: Yeah, it's been uh it's been uh somewhat impressive to have uh some firmer cash here, and of course that uh um uh you know all along here that's uh the Packer seems to be able to bid whatever the heck he wants to bid.
• 9:52
  SPEAKER_00: Yeah, here's your treat.
• 9:53
  SPEAKER_01: Yeah, in the cash market here.
• 9:54
  SPEAKER_01: But uh relative to to box beef values is is certainly that perspective there.
• 9:59
  SPEAKER_01: So we'll see how it goes as as as it goes here.
• 10:02
  SPEAKER_01: But there should be plenty of uh plenty of cattle around.
• 10:05
  SPEAKER_01: I I keep I'm hung up on it.
• 10:07
  SPEAKER_01: Doesn't matter if cattle are trading 135 or 140 or even 145.
• 10:11
  SPEAKER_01: It's pretty hard to to put that last 50 pounds on them things when you got eight and eight fifty corn.
• 10:16
  SPEAKER_01: And so I'm thinking that we're still gonna see some cattle moving to market here.
• 10:20
  SPEAKER_01: We'll probably see weights continue to drop as as a result, probably get into a few less uh uh you know choice grade cattle too as a result.
• 10:29
  SPEAKER_01: But um that that'd be my guess as we sort of play this thing out going through the spring.
• 10:34
  SPEAKER_00: Definitely.
• 10:34
  SPEAKER_00: Well, thank you for the market recap.
• 10:36
  SPEAKER_00: Let's get into uh today's topic, which we're gonna talk about uh uh the corn market valuation here, and we've been throwing a lot of numbers around here over the week, but as a macro overview, I uh I'll start by saying I was talking with our newest member Macy here earlier today, and I was talking about how when I first started this job, you know, you could have really stared at the balance sheet and thought you had something figured out, and maybe you moved the thing half a percent.
• 11:03
  SPEAKER_00: In this environment now, we look at today's supply and demand sheet for corn specifically, and I mean you can change some of those numbers dramatically, you know, between the export number being a 2.3 billion bushel carry out, or a two or a export number or a two point seven.
• 11:20
  SPEAKER_00: You know, you can really adjust this spreadsheet a lot.
• 11:23
  SPEAKER_00: So take it with a grain of salt, but um I just thought that was an interesting uh conversation we were having there about the time that she started in compared to like the time I'm in right now.
• 11:34
  SPEAKER_01: So yeah, certainly true.
• 11:36
  SPEAKER_01: There's no question about it.
• 11:37
  SPEAKER_01: And I and so what what we'd like to do here is we're gonna take a couple moments, uh minutes to to to talk through all of this, and it's frankly gonna be a little bit hard to track with uh uh just trying to do all of this audio-wise.
• 11:51
  SPEAKER_01: So I'm gonna throw out a few numbers here and the danger of uh of getting buried into them.
• 11:55
  SPEAKER_01: But let me just let me just say it this way the the uh the observation is that we are uh the corn the US corn balance sheet is in a better spot today than what it was a year ago today, correct?
• 12:12
  SPEAKER_01: Correct.
• 12:12
  SPEAKER_01: Stocks to use ratio a year ago was eight point three percent.
• 12:17
  SPEAKER_01: This year it's nine point six percent, one point three percent better.
• 12:22
  SPEAKER_01: And then I asked you this morning how much what's the price difference in May of 22 corn nearby corn is trading at what level compared to a year ago today?
• 12:33
  SPEAKER_00: It was about 30 cents at that time.
• 12:35
  SPEAKER_01: 30 cents, all right.
• 12:36
  SPEAKER_01: So corn is 30 cents higher, but the stocks to use ratio is one point three percent higher.
• 12:43
  SPEAKER_01: Interesting.
• 12:44
  SPEAKER_01: It doesn't make sense, right?
• 12:46
  SPEAKER_01: And so and so you can make some arguments about the reason why that is occurring.
• 12:52
  SPEAKER_01: It's possible that just the flow of money, uh, maybe we've got Goldman Sachs buying the corn futures is a hedge against inflation.
• 13:00
  SPEAKER_01: It's possible that you have some uh interested longs in the corn market and anticipating um that the stocks-to-use ratio shrinks from 9.6% because of the the crisis in the Ukraine.
• 13:15
  SPEAKER_01: Perfectly logical sort of an observation.
• 13:18
  SPEAKER_01: But just for a second, let's just let's just set old crop off to the side and now let's talk about new crop for a second.
• 13:25
  SPEAKER_01: In about a month from now, we will get the USDA's first forecast of a balance sheet for the next crop year, D-22 corn, uh, is what we're talking about now.
• 13:36
  SPEAKER_01: We've tried to model uh a little bit of that already internally here, and we'll just say at 89.5 million acres, that was what's projected to be planted based upon the March intentions, at 180 bushel yield, which is the number that the USDA used in their Outlook conference in February.
• 13:56
  SPEAKER_01: It's a simple trend line number.
• 13:58
  SPEAKER_01: It's a record, by the way, but but it's 180 bushels, no issue with that, in terms of a baseline established to look forward today.
• 14:06
  SPEAKER_01: Uh, we chose to leave virtually everything else unchanged as it relates to carry-in numbers, normal abandonment, harvested acres versus planted.
• 14:17
  SPEAKER_01: We chose to leave um exports unchanged at 2.5 billion bushels, which is probably the biggest uh talking debate point.
• 14:25
  SPEAKER_01: And so again, listeners, just for perspective, apologize for all the numbers that were throwing out here, but um we are going to uh uh export about 2.5 billion bushels of corn this year.
• 14:38
  SPEAKER_01: We did export 2.75 billion last year.
• 14:42
  SPEAKER_01: I think the three-year average before that was around 2.1 or 2.2, right?
• 14:47
  SPEAKER_01: Yep.
• 14:48
  SPEAKER_01: So 2.5, especially when you consider something isn't perfect in the Ukraine, it's probably a reasonable sort of an export number.
• 14:55
  SPEAKER_01: And so I say all that to say this.
• 14:58
  SPEAKER_00: And that two seven, just for the record, was we had some help with China.
• 15:01
  SPEAKER_00: Yep.
• 15:02
  SPEAKER_00: Out of their mobile.
• 15:04
  SPEAKER_00: Exactly.
• 15:04
  SPEAKER_01: Yep, yep.
• 15:05
  SPEAKER_01: All right, so we're using a 2.5 billion bushel uh uh export number.
• 15:10
  SPEAKER_01: All of those numbers rattled off.
• 15:12
  SPEAKER_01: That gives us a ending stocks number for next year at 1.275 billion bushels, or more importantly, 8.5% stocks to use ratio, 8.5% stocks to use ratio, very similar to where we were a year ago at this time.
• 15:31
  SPEAKER_01: And by the way, also very similar to where we were in 2012, the last time that we had eight dollar corn.
• 15:39
  SPEAKER_01: And so um, up until this point, um a stocks to use ratio domestically that that uh uh approaches eight percent has given us eight dollar corn.
• 15:52
  SPEAKER_01: Only happened twice in history, right?
• 15:54
  SPEAKER_01: But it's uh it was 2014 and and and last year.
• 15:57
  SPEAKER_01: And so we and so here we are again.
• 16:00
  SPEAKER_01: So now we've got old crop this year um elevated up above that$8 mark in spite of more corn around right now than what there was a year ago.
• 16:11
  SPEAKER_01: But next year, D22 corn, I'll say it this way, just to try to make the point, is only trading at 726 when the baseline projection is suggesting that the stocks-to-use ratio could be 8.5% or lower.
• 16:26
  SPEAKER_01: And so interesting, I think.
• 16:28
  SPEAKER_01: Why do we have extra premium in the old crop market and uh and uh maybe less than normal premium in the new crop market when we've got all of this weather to talk about yet?
• 16:38
  SPEAKER_01: So um there might be some simple explanations to that, like open interest money flow.
• 16:43
  SPEAKER_01: It's just uh, you know, the the the funds want to be in in uh in July today, so that's where they're gonna be, sort of a thing.
• 16:49
  SPEAKER_01: And it could be that simple in terms of an explanation, but we find um as uh as we take this deep dive, I we find interesting, I think, that uh you kind of have the tail of two crops here in terms of how it's trading what we believe to be the underlying underlying base fundamentals.
• 17:08
  SPEAKER_00: Definitely.
• 17:09
  SPEAKER_01: Any questions, thoughts about any of that, Mike?
• 17:11
  SPEAKER_00: Yeah, and I you know this old crop situation with us being a little bit higher priced.
• 17:15
  SPEAKER_00: I mean, maybe they are trying to fix a problem, maybe just a little bit, right?
• 17:19
  SPEAKER_00: Some rationing.
• 17:20
  SPEAKER_00: But when I look out, it's I don't see a ton of rationing compared to what I thought I would have seen with eight dollar corn.
• 17:27
  SPEAKER_00: So I've been a little surprised by that, but maybe you know, globally speaking, too, and we've got some other stuff going on right now that has made our exports not just stop.
• 17:37
  SPEAKER_01: That's right.
• 17:38
  SPEAKER_00: So we'll see if that situation changes at all.
• 17:41
  SPEAKER_00: But I haven't heard a heck of a lot compared to what we were a month ago on that Russian-Ukraine situation.
• 17:46
  SPEAKER_00: So when you look at this balance sheet overall, um it it's gonna be changing.
• 17:51
  SPEAKER_00: You're gonna see a lot of different numbers on it, take it with a grain of salt.
• 17:54
  SPEAKER_00: But um, it's something that's gonna be probably a pretty volatile topic going forward.
• 17:59
  SPEAKER_00: The next couple months, you said it's coming out in May.
• 18:02
  SPEAKER_00: That'll be our next big change in these numbers, and I'm excited to see what what that is.
• 18:07
  SPEAKER_01: Sounds good.
• 18:08
  SPEAKER_00: All right, but thanks for joining us today, Pat.
• 18:10
  SPEAKER_00: Can't wait for you next time.
• 18:12
  SPEAKER_01: Thank you.