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Soybeans Got Crushed · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg 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 December 2nd.
• 0:26
  SPEAKER_00: November just flew past us, Pat.
• 0:28
  SPEAKER_00: How's it going today?
• 0:30
  SPEAKER_01: It's going good.
• 0:30
  SPEAKER_01: How are you, Mike?
• 0:31
  SPEAKER_00: It's going really well.
• 0:32
  SPEAKER_00: It's uh better than the soybean market yesterday, that's to say the least.
• 0:36
  SPEAKER_00: This podcast is gonna be uh soybeans crushed it, or something along those lines, I have a feeling, or soybeans got crushed.
• 0:45
  SPEAKER_00: How's that sound?
• 0:46
  SPEAKER_01: That's probably not too bad, and I and unfortunately, and and then uh corn's not too far behind there with today's action.
• 0:53
  SPEAKER_01: So a little bit of uh a little bit of a sell-off here towards the end of the week, no question about it.
• 0:58
  SPEAKER_00: Yeah.
• 0:59
  SPEAKER_00: So to catch uh catch some people up to date here, the EPA released their official RFS blending proposal Thursday, and with that, the biodiesel mandate was a little bit disappointing to the trade, and that sent soybean oil limit down.
• 1:13
  SPEAKER_00: That market here, Pat, this week has really got hit hard on the soybean oil.
• 1:18
  SPEAKER_00: And the funny thing was, I I don't know if you uh a lot of people knew this or not, was if soybean oil is limit down, the rest of the soybean complex can trade expanded limits the next day.
• 1:29
  SPEAKER_00: So, like soybeans had expanded limits today, and so did the meal.
• 1:33
  SPEAKER_00: But we did not try to use them at all from the looks of it here through the day.
• 1:37
  SPEAKER_00: Um, what do you got to say about the entire situation and what we're seeing in the soybean market selling off here in the past day?
• 1:43
  SPEAKER_01: Well, and and palm oil is down two nights ago too, about five percent or something, right?
• 1:48
  SPEAKER_01: That's pretty pretty significant sell-off in front of that that announcement.
• 1:52
  SPEAKER_01: And so the first thing I'd just say is uh thank you, Mike, and and uh your guest uh uh speaker last week, Jeff, for uh taking a deeper dive into the renewable diesel opportunity.
• 2:06
  SPEAKER_01: You guys did a great job and and uh would encourage any listeners that had a chance to listen to last week's podcast to to do that uh um a good summary of of the situation there.
• 2:17
  SPEAKER_01: But um I would like to uh I guess comment a little bit on on the observation or this week as it relates to uh uh uh what uh the federal government's announcement was.
• 2:29
  SPEAKER_01: And I would just say this that it it's um it's uh it while discouraging from the perspective of uh uh soybean producers, uh in terms of there not being more teeth in the mandate and in mandatory utilization of of uh oil seeds for for renewable diesel, it's probably not too surprising.
• 2:52
  SPEAKER_01: And I think, and you again you guys touched base uh on this a little bit last week, but I think a little bit deeper dive is appropriate.
• 2:59
  SPEAKER_01: And just uh this is a lot different uh renewable fuels uh situation than what ethanol was, right?
• 3:07
  SPEAKER_01: Ethanol was led by corn growers, ethanol producers, an era of low grain prices, and some desire to force food into fuel.
• 3:19
  SPEAKER_01: Yes.
• 3:20
  SPEAKER_01: And big oil was forced to use it, right?
• 3:23
  SPEAKER_01: Yes.
• 3:24
  SPEAKER_01: This situation is exactly opposite.
• 3:29
  SPEAKER_01: Right?
• 3:29
  SPEAKER_01: Exactly.
• 3:30
  SPEAKER_01: This is big oil trying to get away from fossil fuels and work something closer to uh utilizing carbon credits and utilizing renewable fuels and this sorts of things.
• 3:42
  SPEAKER_01: So so while the concept is similar, uh the situation is much, much different.
• 3:48
  SPEAKER_01: And so I think it's important that we keep that in mind when we're sort of analyzing the next step.
• 3:53
  SPEAKER_01: And now we, you guys, we're doing the right thing as it relates to measuring and watching what people are doing, not what they're saying, like you were saying last week, right?
• 4:04
  SPEAKER_01: We're going to see uh how much oil seed capacity uh processing is going to be added here as we go.
• 4:11
  SPEAKER_01: We'll measure that when we're making our balance sheet determinations.
• 4:15
  SPEAKER_01: But the what was announced this week is consistent with big oils in the ear of the people that are making the announcement, right?
• 4:23
  SPEAKER_01: All they care about are the carbon credits and their uh um efforts to move from fossil fuel to renewable fuels, they could care less where the oil comes from.
• 4:34
  SPEAKER_01: Yes, right?
• 4:35
  SPEAKER_01: And so this isn't a deal where we're gonna try to uh make sure that the U.S.
• 4:40
  SPEAKER_01: soybean producer is is uh gets his share of this market share increase.
• 4:45
  SPEAKER_01: Um that unfortunately, right, from a row crop producer's perspective, is is something that we just need to be aware of.
• 4:54
  SPEAKER_01: That doesn't mean it's not gonna happen.
• 4:56
  SPEAKER_01: That doesn't mean that investing in in in some additional oil seed processing capacity is a bad idea or something.
• 5:02
  SPEAKER_01: Yeah, it certainly isn't.
• 5:03
  SPEAKER_01: But the way the mandates are gonna come, the way that subsidies are gonna come is gonna be much different this time around.
• 5:09
  SPEAKER_00: Doesn't mean it's gonna be the smoothest process over the first year or two here, is it?
• 5:13
  SPEAKER_00: And it it's coming on a lot faster than the ethanol expansion errated too.
• 5:18
  SPEAKER_00: So it's gonna be interesting how the market and how the mandates, how all of it meshes together and how we absorb it, absorb it, because it's coming on fast.
• 5:27
  SPEAKER_00: Like this is starting next year, and it really wasn't here many years ago.
• 5:31
  SPEAKER_01: Indeed.
• 5:32
  SPEAKER_00: So that'll be very interesting.
• 5:34
  SPEAKER_00: Um the news was a little disappointing.
• 5:36
  SPEAKER_00: Forty cents lower on the soybeans yesterday.
• 5:38
  SPEAKER_00: Uh, they also had some other things influencing that decision too.
• 5:42
  SPEAKER_00: Brazil crops are rising, and uh their record crops here are gonna start having more of an impact as we move forward in the month of December and January.
• 5:52
  SPEAKER_00: I would usually call that those are the seasonal weather time frames where we look at the South American crop and really trade that news pat.
• 6:00
  SPEAKER_00: And with that growing down there, uh our timeline here for U.S.
• 6:05
  SPEAKER_00: exports is starting to shrink a little bit here.
• 6:07
  SPEAKER_00: And we see the the end game as we're already starting to get some really nice sales out from Brazil to China in the near future here.
• 6:16
  SPEAKER_00: And that to build on that a little bit longer, I think it's really gonna be a big point over the next few years when you transition from using, you know, US soybeans, exporting them to China, and then all of a sudden we're gonna start moving towards m shifting more soybeans towards renewable diesel now going forward and making soybean oil within the United States.
• 6:40
  SPEAKER_00: And at the same time this is happening, you've got Ukraine, which is still at war, and their grain production will be down significantly from what it was five years ago, which Ukraine was a mass producer and supplier of grain into China.
• 6:55
  SPEAKER_00: And now China's started relationships and is buying much more corn from outside of themselves.
• 7:00
  SPEAKER_00: They're importing a lot more, and now they're starting to do it from Brazil too, strengthening their relationship.
• 7:06
  SPEAKER_00: So you see where I'm going with this transition, Pat.
• 7:09
  SPEAKER_00: Do you want to build on any of that at all?
• 7:11
  SPEAKER_01: There's that's unpacked there, right?
• 7:12
  SPEAKER_01: I mean, I guess first of all, in the short run, uh, you know, it's U.S.
• 7:17
  SPEAKER_01: currency, which albeit uh you know 10 points,$10 off its highs, is a big setback.
• 7:23
  SPEAKER_01: Right, big setback, but still, you know, I mean, at elevated levels relative to where we've been for really back the last 20 years, right?
• 7:31
  SPEAKER_01: And so, and so uh in the short run, our our lack of competitiveness from a basis perspective, from a logistics perspective, and from a currency perspective has allowed for a bigger uh disappearance from uh South America, especially into China, in a time of year where that normally isn't the case, December and January.
• 7:53
  SPEAKER_01: So that's the short-term observation.
• 7:55
  SPEAKER_01: The longer-term observation, uh, as as as you mentioned, is is the the the the less output out of the Russia-Ukraine region as a result of that conflict, and that isn't uh isn't going away anytime soon, and so China's gonna continue to be looking in other places for that.
• 8:12
  SPEAKER_01: And so, um, and and so then I would just flip back to the south to South America again, and I I'm I I mentioned this the last time we had a chance to visit, but I just want to mention it again.
• 8:22
  SPEAKER_01: I I I think that what happens with weather in South America, particularly in Brazil, is pretty important, and not just because of the contribution that they may or may not make to the global balance sheet on uh on corn and soybeans, but but I also think that it's an indication of perhaps a bit of a changing weather pattern.
• 8:42
  SPEAKER_01: And so, you know, so we're gonna keep an eye on all that stuff as we go through the winter months here, but you know, from a U.S.
• 8:47
  SPEAKER_01: producer's perspective, um that that weather observation, that production observation, that has to be the first thing that we start with, right?
• 8:56
  SPEAKER_01: Because we've been we've had elevated corn levels here in the U.S.
• 9:02
  SPEAKER_01: for you know the greater part of two years now.
• 9:05
  SPEAKER_01: And it's not because there's been some extraordinary sort of demand thing that's occurred.
• 9:11
  SPEAKER_01: It's mostly because we haven't been able to grow very good crops the last couple years in a lot of very important growing regions, right?
• 9:19
  SPEAKER_01: And so, and so that that matters a lot, right?
• 9:22
  SPEAKER_01: So it matters a lot if that weather pattern starts to change some and it gives us the opportunity to start to grow some better crops.
• 9:28
  SPEAKER_00: And it kind of does look like that.
• 9:29
  SPEAKER_00: It's supposed to, La Niña is supposed to shift out here, El Nino back in by spring models.
• 9:35
  SPEAKER_00: So we'll keep watching that.
• 9:36
  SPEAKER_00: Weather models have turned a little bit wetter for Argentina the next two weeks, uh, which could help mitigate some of those hot temps over the next couple weeks.
• 9:45
  SPEAKER_00: And that that was traded here towards the end of the week, Pat.
• 9:48
  SPEAKER_00: The nother thing here getting traded this week, we talked about exports a little bit, which weekly soybean export sales totaled uh 25 million bushels last week, better than the 16 needed to hit the USDA's uh export forecast.
• 10:02
  SPEAKER_00: And um here when I start looking at that, we maybe uh averted a rail strike here in the United States as well.
• 10:09
  SPEAKER_00: Biden kind of caved there, so to speak, uh man uh president who's supposed to be for uh labor unions.
• 10:16
  SPEAKER_00: Didn't really look like it this week, did he, Pat?
• 10:19
  SPEAKER_01: Yeah, that's uh that's gotta pain those uh folks for uh uh telling uh unions they're gonna have to sign a deal they don't want to sign.
• 10:26
  SPEAKER_01: But uh um, you know, the the the threat of shutdown uh on the U.S.
• 10:32
  SPEAKER_01: economy is is is obviously the overriding factor there.
• 10:35
  SPEAKER_01: And and uh and so yeah, I I do think that there was a little bit of of extra uh corn trade going around because of that.
• 10:45
  SPEAKER_01: Perhaps corn futures were supported a little bit in anticipation of of uh some uh railroad strike or some additional logistics challenges.
• 10:54
  SPEAKER_01: We saw it in the West this week.
• 10:56
  SPEAKER_01: I mean we saw basis levels uh uh kind of soften up here just a little bit as as uh the uh the the news of this announcement started to come through.
• 11:06
  SPEAKER_01: So it it there there might be just a little bit uh of teeth to that, but mostly just a market trying to trade things, I suspect.
• 11:14
  SPEAKER_00: I saw that as well.
• 11:15
  SPEAKER_00: Not a lot of big pushes off of uh off of their posted bids, which has been the first time we've seen that in quite a while.
• 11:21
  SPEAKER_00: I mean, there's been you know guys paying 20 over their posted asking price, and uh this week those same guys really weren't pushing that hard.
• 11:28
  SPEAKER_00: And it maybe helped too that ethanol margins have dipped here a little bit, and that uh could be putting some pressure on these ethanol plants.
• 11:36
  SPEAKER_01: You want to uh share with everyone, Mike, your thoughts as it relates to uh uh the the Fed discussions this week and and uh the talk about uh how they're gonna manage interest rate hikes going forward?
• 11:47
  SPEAKER_00: Yeah, so it it wasn't too crazy, I don't think, what they came out with for them to come out and say that they are gonna have some more interest rate hikes ahead of them.
• 11:56
  SPEAKER_00: They're just gonna be smaller.
• 11:57
  SPEAKER_00: Uh that goes right along with the trend of trying to get into this softer landing like they've talked about in the past or um trying to back off a little bit.
• 12:06
  SPEAKER_00: And really, inflation looks like it's peaked in the in the short term here.
• 12:10
  SPEAKER_00: So, with that being said, they're gonna start backing off on interest rate hikes a little bit going forward.
• 12:16
  SPEAKER_00: They're not just gonna cold turkey stop hiking face or stop hiking rates for sure.
• 12:23
  SPEAKER_00: But um, it'll be interesting to see if uh, you know, two months, three months out, if we'll still be seeing that in this or if it'll just be a plateau for a while.
• 12:32
  SPEAKER_00: But I mean when you start talking about prime at seven percent, it impacts some decision-making processes with how much uh debt you want to take on uh in the short term here, and especially as guys are deciding whether to whether that whether to store corn or let go of it or store beans or let go of it, uh that's starting to add up and make people make decisions pretty quick here, I think.
• 12:53
  SPEAKER_00: Pat.
• 12:53
  SPEAKER_00: What did you get out of their announcement this week?
• 12:56
  SPEAKER_01: Uh well, it's a second time in six months where you you feel like you got a chance.
• 13:02
  SPEAKER_01: And and yeah, I mean that's a that that's a that's kind of a a I don't know if it's ambiguous statement, I suppose, is the description, but but you you would uh uh the this idea that we're we're gonna go through the worst pandemic in a century, and then we're gonna shut the economy down, and then we're gonna pump money into it, get it back going again, and and then we're gonna get obviously we're gonna get inflation as a result of all of that, and then the Fed is gonna get it right in terms of raising interest rates, not only up to the right level, but at the right timing of that level, and and uh create this soft landing that you just that that you just mentioned and and allow for us not to slip into a recession.
• 13:41
  SPEAKER_01: And so the other time this happened is when we got a little CPI data and in uh the middle of July, and it looked like uh inflation uh uh rate of increase had tempered there for for for a period of time.
• 13:52
  SPEAKER_01: And so, so maybe, I mean, it it still would be uh amazing, right, to to if that if the if this sort of all gets managed the way that it does, but it's got a chance.
• 14:02
  SPEAKER_01: It's got a better chance today than what it than what it did.
• 14:05
  SPEAKER_01: I will say though that I I a Wall Street Journal article this morning was talking about how how uh 263,000 jobs were created last month.
• 14:13
  SPEAKER_01: And so um we have significant wage inflation and we're still adding jobs.
• 14:18
  SPEAKER_01: That sounds inflationary to me, right?
• 14:21
  SPEAKER_01: Yeah, like I I mean so the the the this is the roller coaster that we're on, and we can always find data to support whatever your bias is on any given day or hour.
• 14:30
  SPEAKER_01: But uh um that's uh that's interesting, right?
• 14:33
  SPEAKER_01: That would that would suggest that uh uh tempering rate hikes is maybe not quite uh quite a great idea yet.
• 14:39
  SPEAKER_00: And really, I mean, since our octo mid-October lows in the stock market here, I mean we're up 500 points on the S P 500.
• 14:46
  SPEAKER_00: We're on quite a tear.
• 14:48
  SPEAKER_00: And uh from a chart perspective, and uh what we're hearing across some of the traders today in that market is we're kind of at a tipping point now again, where it's like, all right, if we're going up from here, it's a really good sign of a bull market again.
• 15:01
  SPEAKER_00: And if it starts to break, that's gonna may be some more major concerns for a long-term bearish market.
• 15:06
  SPEAKER_00: So this 4,000 level on the SP is getting looked at pretty hard here over the past couple days after we got back help here, but quite a tear out of that market after uh it was looking pretty grim there for a while.
• 15:18
  SPEAKER_01: Yeah, I would just uh uh make a quick observation if I could on on pork and pork cutout values.
• 15:23
  SPEAKER_01: Apologize for jumping around here, but I was just thinking about as we're as we're as we're like maybe uh talking about some of these different markets and the price levels that they're trading at.
• 15:32
  SPEAKER_01: Um pork cutout values are down six bucks the week of Thanksgiving, uh down another four or five dollars this week.
• 15:40
  SPEAKER_01: And and you know, the first six bucks you can say, well, there's not a lot of trade taking place that week, you know, everyone is uh is uh taking some time off that sort of a thing, so the least path of resistance might be lower on some product trade.
• 15:53
  SPEAKER_01: This week, well, this is a pretty big harvest week.
• 15:55
  SPEAKER_01: We're throwing quite a bit of pork production at the market, so you can so you can maybe uh uh maybe make an excuse that that's the the reason why things are getting a little bit softer here.
• 16:06
  SPEAKER_01: Um yeah, you get into January and we're still going lower, then we might find out that that uh domestic demand for pork is start or for proteins in general is just starting to uh to get worse as pocketbooks uh you know continue to tighten up here, right?
• 16:23
  SPEAKER_01: So I just say that to say I just grabbed one.
• 16:26
  SPEAKER_01: I talked about pork cutout values.
• 16:27
  SPEAKER_01: Um we could talk about the corn market today if we wanted to and say, oh geez, we haven't spent a lot of time below 650 futures.
• 16:36
  SPEAKER_01: Um today we had a close on March below that, right?
• 16:39
  SPEAKER_01: And so, yeah, maybe that's just bottom end of range uh stuff and no big deal, and maybe we'll put 20 or 30 cents back on this thing over the next couple weeks and and we're just back to trading the the same old range that we've been trading for a while.
• 16:55
  SPEAKER_01: Or maybe, right?
• 16:57
  SPEAKER_01: You know, we're getting into some better supplies in South America.
• 17:01
  SPEAKER_01: We are getting into some softer demand with gas prices dropping at the retail level, and and we are starting to see some economy issues that really aren't showing up in the data quite yet, but are showing up in the commodity demand era, like high prices are starting to cure high prices in a lot of places.
• 17:20
  SPEAKER_01: That's right.
• 17:20
  SPEAKER_01: And so I just I I I just that's right.
• 17:23
  SPEAKER_01: So we we talk about all of that now, not as if we know the answer, because we certainly don't.
• 17:28
  SPEAKER_01: But at some point, more than likely in this process of correcting from uh significant money stimulus into this economy and raising interest rates, that there will be lower commodity demand as the result of tightening pocketbooks, right?
• 17:46
  SPEAKER_01: Which is exactly what the Fed wants to have happen or needs to happen to slow the rate of inflation.
• 17:53
  SPEAKER_01: And so I I don't know if that's helpful and helpful or not, but I do think it's important that we continue to remind ourselves that that's the goal, right?
• 18:02
  SPEAKER_01: The Fed is trying to lower the demand of of goods and services.
• 18:07
  SPEAKER_01: And most of us are in the business of making goods.
• 18:10
  SPEAKER_01: And so that's the that that's the that has to always be in the middle of our mind.
• 18:16
  SPEAKER_01: Uh, you know, a couple weeks ago um we we use the term complacency a lot and we were talking about what is going on, in that case having to be the hog market.
• 18:26
  SPEAKER_01: But it's it's true for for all of our markets these days, right?
• 18:30
  SPEAKER_01: We have to be a little bit careful that we don't sort of fall into this trap that, well, you can average$98 pigs for the year, or you can have$7 corn or$14 beans.
• 18:40
  SPEAKER_01: Those are some levels that are pretty elevated and betting on some pretty good demand.
• 18:44
  SPEAKER_00: And like we saw yesterday when it does fall, it's like, oh wow, that happened really quick.
• 18:49
  SPEAKER_01: Yeah, we always say stair steps on the way up and elevator shaft.
• 18:54
  SPEAKER_00: Yeah.
• 18:54
  SPEAKER_00: All right.
• 18:54
  SPEAKER_00: Thanks for joining us today, Pat.
• 18:56
  SPEAKER_01: Thank you, Mike.
• 18:57
  SPEAKER_00: And thank you to all our listeners.
• 18:59
  SPEAKER_00: Please reach out to us from our website at professionalagmarketing.com.
• 19:03
  SPEAKER_00: Or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 19:10
  SPEAKER_00: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.