Latest / Professional Ag Marketing Podcast / Broad Market Overview

Transcript

Broad Market Overview · 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 Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is July 7th, and I've got Pat back with us here today.
• 0:27
  SPEAKER_01: It's been a while, Pat.
• 0:28
  SPEAKER_00: How are you this afternoon, Michael?
• 0:31
  SPEAKER_01: Very good, very good.
• 0:32
  SPEAKER_01: A little bit of uh rain going on in our neck of the woods here today, which is perfectly fine by um by my book anyway, so it's been nice to get that.
• 0:42
  SPEAKER_00: Anytime we get moisture on the 7th of July, it's uh is a good thing.
• 0:48
  SPEAKER_00: Um not sure if it's amounting to uh much today, but certainly these cooler temps this week and uh and a little bit of moisture has uh improved crop prospects in this area of the world.
• 1:02
  SPEAKER_01: Definitely.
• 1:02
  SPEAKER_01: Uh you know, we went into last week, we had the acreage report that we covered, and uh we were experiencing such a jump in soybeans there.
• 1:11
  SPEAKER_01: Things were really running, and the corn market had been put under a little bit of fire, but corn seemed to kind of find some support for now, anyways.
• 1:19
  SPEAKER_01: We haven't really traded below that uh 485, 59 490 level on December very much since then.
• 1:26
  SPEAKER_01: But the soybean market after reaching some new highs there on Monday, uh, you know, this week's cooler temps and reducing stress, and then that six to ten day forecast like you talked about, that's uh showing some promising rain for most of the central corn belt here.
• 1:41
  SPEAKER_01: And when I started to look at kind of how the corn belt was sitting pat, we're looking at uh about sixty-seven percent of the corn production now is in a drought.
• 1:52
  SPEAKER_01: So that's down just a little bit.
• 1:53
  SPEAKER_01: That was at 70 last week.
• 1:55
  SPEAKER_01: Um but we've got about 48% uh that remains in in kind of a soil moisture reserve level at short, very short.
• 2:06
  SPEAKER_01: So it's that area is growing just a little bit.
• 2:09
  SPEAKER_01: So we've got an area of the United States still that I think that could lead to some volatility with weather in these markets and grain yet.
• 2:18
  SPEAKER_00: We're gonna live with that through the whole growing season.
• 2:20
  SPEAKER_00: Kind of seems like it.
• 2:21
  SPEAKER_00: The the chances of of uh us coming out of uh an area that's categorized as drought in the month of July and and into August, the the probability of that occurring is pretty low.
• 2:33
  SPEAKER_00: Um so we are gonna live on the edge, and I think um boy the the the the futures markets are sure trading like we live on the edge, don't they?
• 2:42
  SPEAKER_00: I mean we just put a buck or so on a week and then take it off and all of that.
• 2:46
  SPEAKER_00: So um and maybe that's the reason why, right?
• 2:49
  SPEAKER_00: I mean it's it's gonna be you know, the analogy that we were kind of using over the last month or so is that uh um you know you can win the game, you can win the basketball game if if you uh just run the shot clock down to about four seconds and then shoot a three-pointer, right?
• 3:04
  SPEAKER_00: It's a really good strategy if it works.
• 3:06
  SPEAKER_00: And so um that seems to be the game that we're playing this year, isn't it?
• 3:09
  SPEAKER_00: We're gonna run this thing on the edge.
• 3:11
  SPEAKER_00: We're gonna stress the crop just a little bit at uh you know it's vegetative stage in June, and and uh but maybe that's not the worst thing, puts a little bit of root development in and those sort of things.
• 3:22
  SPEAKER_00: And then we're gonna get timely rains as we go through the month of July, and everything's gonna work out just fine.
• 3:27
  SPEAKER_00: And and then at the same time, the futures market's gonna provide really nice opportunities for end users and for row crop producers, and and uh we'll get hedgeable opportunities on both sides and and uh and when this whole thing wraps up at the end we'll we'll all be in really good shape, right?
• 3:44
  SPEAKER_01: Exactly.
• 3:45
  SPEAKER_01: And over the past few weeks, even it seems like more months now at this point, no one's really talked about fundamentals a whole lot.
• 3:54
  SPEAKER_01: It seems like it's just been a lot of weather this, weather that, and then we threw in the report last week that talked about acreage.
• 4:01
  SPEAKER_01: Um we're gonna start maybe getting another updated balance sheet this week to start talking about a few of those items.
• 4:06
  SPEAKER_01: And the one that caught my eye this week, Pat, was the ethanol market.
• 4:10
  SPEAKER_01: We posted really good production.
• 4:12
  SPEAKER_01: It was up uh uh aggressively, and then uh our stocks we actually drew lower, so that was a good sign of demand.
• 4:20
  SPEAKER_01: And then ethanol margins after this big break on corn just skyrocketed.
• 4:24
  SPEAKER_01: So pretty much the best ethanol margins now this week that we've seen uh in quite some time.
• 4:29
  SPEAKER_01: So hopefully uh, you know, as we start to break lower here, we can start to find different demand categories to try to help hold a floor in on corn to talk about here a little bit more about it.
• 4:39
  SPEAKER_01: Yeah, exactly.
• 4:40
  SPEAKER_00: And so that the uh the this week's ethanol disappearance was uh 106 million bushels.
• 4:45
  SPEAKER_00: Yeah, I think.
• 4:46
  SPEAKER_00: And that I mean that annualized number is 5.5 billion, so that's well above you know a uh even a record uh ethanol disappearance year.
• 4:54
  SPEAKER_00: So that's a really good point, Mike, and a good observation, right?
• 4:57
  SPEAKER_00: Is that is that there is some elasticity to uh to to demand here, and and uh given the current uh fuel versus uh corn relationship, you know, that has picked up a little bit.
• 5:09
  SPEAKER_00: And we did see a little bit of a of a rally in in crude oil this week.
• 5:13
  SPEAKER_00: We kind of set a new high for that move, and maybe we should take a little detour here and just talk about outside markets just a little bit.
• 5:19
  SPEAKER_00: But what are you seeing going on there?
• 5:21
  SPEAKER_00: I mean, we've got a again, we've got a little bit of a rally in the in crude oil, and and uh I think the stock market's been doing okay, hasn't it?
• 5:28
  SPEAKER_01: Yeah, we had uh a couple different reports come out.
• 5:30
  SPEAKER_01: We saw the stock market climb, the dollar fell pretty hard there, and that was following some jobs data.
• 5:36
  SPEAKER_01: There's more jobs out, um a few different things there, like that dollar coming in at 101, that's dropped quite a bit from uh from the levels we've seen it.
• 5:45
  SPEAKER_01: However, that crude oil market at 73, I can't quite say it's probably broke out of that that trend that we've been experiencing around 70 bucks.
• 5:55
  SPEAKER_01: So we'll see what we can get uh out of that market here going forward.
• 5:59
  SPEAKER_01: But it seems like that's really been stuck.
• 6:01
  SPEAKER_01: And uh going forward, I mean the stock market's been uh holding together a lot better than what some people would have considered.
• 6:08
  SPEAKER_01: I think uh looking at the S P 500, we only got to make a couple hundred more points on that before we're back to record prices again.
• 6:17
  SPEAKER_00: Yeah, that's impressive.
• 6:18
  SPEAKER_00: And uh, you know, a stock market continues to trade uh this belief that the Fed's gonna get this right, it's gonna get it's gonna find the right combination of of uh uh managing interest rates uh in a manner that uh that curbs uh the rate of increase in inflation, potentially works it back to that two percent area that uh is their well-stated objective, but do it in a way that that allows for a soft landing and it doesn't create you know recessionary recessionary type conditions, and so far so good.
• 6:49
  SPEAKER_00: Right?
• 6:49
  SPEAKER_00: I I think there's been plenty of of experts that have been uh skeptical that this plan's going to be g is going to work, but uh uh again at this point it seems like that's going pretty well and the stock market reacts uh favorably to that.
• 7:04
  SPEAKER_01: I agree to that as well.
• 7:05
  SPEAKER_01: And there was some concerns this week uh when they talked about the Fed minutes there.
• 7:09
  SPEAKER_01: Uh the group wasn't fully uh agreeable or not a unanimous decision right away during talks to to not uh raise uh interest rates.
• 7:19
  SPEAKER_01: They thought some of them thought we should still raise interest rates to try to combat inflation, so they agreed to leave them for now.
• 7:27
  SPEAKER_01: Uh but I know there was some pushback on that this week.
• 7:30
  SPEAKER_01: So we'll continue to watch that fight going forward.
• 7:32
  SPEAKER_01: And uh obviously the relationship between inflation and commodities is is a pretty strong relationship there.
• 7:39
  SPEAKER_01: So uh that'll be something to watch going forward for fund activity.
• 7:43
  SPEAKER_00: Well, and let's go into this dollar for just a little bit deeper for a second, too.
• 7:47
  SPEAKER_00: You know, you mentioned that we had a a little correction in that uh from a short-term peak at the end of May, um, which was a that peak was lower than uh the previous peak, which is at the beginning of March, which was significant lower than the peak back last September.
• 8:08
  SPEAKER_00: And so I just say all of that to say this that dollar is corrected uh about 14% from its peak back in September here, and probably um more of a of a statement of uh money flow and comfort that maybe the the the global economies are in a spot where folks aren't quite as concerned about having um their cash tied up in the safe haven investment like the US dollar.
• 8:36
  SPEAKER_00: So from an ag producer's perspective, um certainly keep an eye on that.
• 8:41
  SPEAKER_00: Uh you can pick up some more demand for protein and and for for corn and soybeans and wheat and all of that with some lower uh U.S.
• 8:50
  SPEAKER_00: currency here too.
• 8:51
  SPEAKER_00: So we'll keep a watchful eye on that.
• 8:53
  SPEAKER_00: It looks like as I I look at this weekly continuous chart that you know somewhere you know above right above a hundred dollars or so is a level that uh has been pretty good support recently.
• 9:03
  SPEAKER_00: We'll we'll see if this little break allows for that to break through there.
• 9:06
  SPEAKER_01: And that hasn't mattered for quite some time because we've had such high prices, we really haven't had to worry about the impact of exports.
• 9:14
  SPEAKER_01: But now you finally start to talk about if corn gets below five bucks, maybe we start to talk about the real impact that someone like a Russia-Ukraine war has, and now with a lower US dollar too, we start to get a little bit more competitive.
• 9:27
  SPEAKER_01: Now, the Safrina corn crop's only like 20% done uh for their harvest right now, which is a pretty sizable one at that.
• 9:34
  SPEAKER_01: So we'll have to get through all that.
• 9:35
  SPEAKER_01: But down the road, I think that'll be a huge talking point that uh will matter greatly once we dip into those lower fours.
• 9:42
  SPEAKER_00: Great point.
• 9:43
  SPEAKER_01: How about the livestock markets?
• 9:44
  SPEAKER_01: What do you think about uh the lean hog market right now, how we got through this last weekend, uh what's gone on with Prop 12?
• 9:52
  SPEAKER_01: Any major changes there?
• 9:54
  SPEAKER_00: Yeah, well, I I would start with just supply side, and we continue to see uh weights drop uh uh week over week here.
• 10:01
  SPEAKER_00: We continue to see um uh uh cash market trade very aggressively uh relative to to where product values are trading at.
• 10:09
  SPEAKER_00: And so uh um you know the the supply side of the structure of this market is is still continues to be favorable.
• 10:16
  SPEAKER_00: Get another week away from that hog and pig report, which essentially showed unchanged inventory, especially on the on the market side of things and and uh in and but frankly those are levels similar to what we've been trading you know over the last 60 days anyway.
• 10:30
  SPEAKER_00: And so, you know, I think uh um that hog and pig report was it was a little bit uh it was a little bit bearish uh from expectations, but mostly because we didn't see the type of of uh uh kept for breeding number or herd liquidation that that a lot of us I guess were hoping for.
• 10:50
  SPEAKER_00: But you know, there are other some signs there, the uh uh the farrowing intentions were lower and those sorts of things.
• 10:55
  SPEAKER_00: So we'll see how that plays out as we go here.
• 10:57
  SPEAKER_00: But I think the real story is what's happening on the demand side of the equation, and and uh we'll see what happens here with the next cold storage report.
• 11:04
  SPEAKER_00: But I'm gonna be a little anxious to see, especially that belly primal and and what's going on there as it relates to uh uh being able to move product tremendous amount of volatility in that particular primal uh in pricing here the last couple weeks, but but overall the composite has shown some nice steady progress in in terms of of appreciating values.
• 11:25
  SPEAKER_00: And you know, I uh we turn the calendar from June to July here, and and uh whatever impact of Prop 12 is starting to be felt, and uh and product values handle that all pretty well.
• 11:37
  SPEAKER_00: And by all indications, it looks as though um that we're we're seeing some some pretty good uh interest in in pork products uh coming off the uh the 4th of July holiday, which which also is encouraging.
• 11:50
  SPEAKER_00: And so, you know, I'm cautiously optimistic that uh that we'll see some some pretty decent domestic demand uh on pork products as as we work through the the last half of the summer here.
• 12:01
  SPEAKER_00: We did see a little bit of break in box beef values this this week.
• 12:05
  SPEAKER_00: Um, and so maybe maybe that's an indication that we are starting to see a little bit of a of a product switch there, a little bit more interest in pork that has been favorably valued, um, always is favorably valued to beef, but but more so recently.
• 12:21
  SPEAKER_00: Um yeah, potentially that's starting to see a little bit of a product switch movement there between beef and pork.
• 12:26
  SPEAKER_00: But nonetheless, the supply side of this thing, Mike, uh, continues to remain tight, and it doesn't matter if you're talking about pork, beef, or poultry, and and uh it's really all a question about um consumer behavior and the consumer's uh ability and desire to to spend money on protein.
• 12:42
  SPEAKER_00: And so, you know, we think uh think pro pork might be uh might be favored in that scenario here just a little bit uh as we go through the next couple months.
• 12:51
  SPEAKER_01: And on the beef side here, Pat, uh really been a little bit quieter recently.
• 12:56
  SPEAKER_01: Uh cash prices have started to uh slide more sideways, dip a little bit here.
• 13:01
  SPEAKER_01: The cutout, like you were just talking about, that started to dip a little bit from a seasonal perspective too.
• 13:07
  SPEAKER_01: So yeah, maybe people are starting to pay for some uh a little bit cheaper protein down the road, and we'll see what that does to the beef market here.
• 13:15
  SPEAKER_01: But those back months are still posting near some record levels, and that uh market from the supply side uh looks pretty well supported.
• 13:23
  SPEAKER_01: So we'll see what movement we've got going on in that going forward.
• 13:26
  SPEAKER_01: But thank you for joining us uh us this week, Pat.
• 13:29
  SPEAKER_00: Thank you, Mike.
• 13:30
  SPEAKER_01: And thank you to all our listeners.
• 13:32
  SPEAKER_01: Please reach out to us at professionalagmarketing.com.
• 13:35
  SPEAKER_01: Check out our other podcast as well, Professional Ag Marketing, that's released every Friday.
• 13:41
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 13:47
  SPEAKER_01: See you next time.