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WASDE & CPI · 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 October 14th.
• 0:26
  SPEAKER_00: I've got Pat with us here again this week.
• 0:28
  SPEAKER_00: How's it going, Pat?
• 0:29
  SPEAKER_00: Good afternoon, Mike.
• 0:30
  SPEAKER_00: I'm doing well.
• 0:31
  SPEAKER_00: How about you?
• 0:32
  SPEAKER_00: Fantastic.
• 0:32
  SPEAKER_00: We had a very busy week in the markets this week, Pat.
• 0:36
  SPEAKER_00: We had a lot of market movers.
• 0:38
  SPEAKER_00: Kind of started off the week, had some Russian news, had uh ethanol report come out that was a little bit interesting, had a WASD airport, had a CPI report, had some big exports this week.
• 0:49
  SPEAKER_00: It was a long list, Pat.
• 0:51
  SPEAKER_01: Indeed it was.
• 0:53
  SPEAKER_01: Tremendous amount of opportunity and volatility and all of that.
• 0:57
  SPEAKER_01: So looking forward to having a discussion about all of that, Mike.
• 1:00
  SPEAKER_00: All right.
• 1:01
  SPEAKER_00: Well, let's talk uh we'll start kind of with how the weekend uh started this week off.
• 1:06
  SPEAKER_00: We had uh uh Russia and Ukraine got into some more conflicts there.
• 1:10
  SPEAKER_00: Uh Russia said that they're planning to not extend the Ukraine grain shipping deal there.
• 1:15
  SPEAKER_00: That had some influence on these grain markets.
• 1:17
  SPEAKER_00: Uh the wheat markets really started to trade that again.
• 1:20
  SPEAKER_00: We went through a phase where we had a very sideways wheat market pat that any Russia-Ukraine tensions or headlines, it seemed like didn't have an impact on the grain markets.
• 1:30
  SPEAKER_00: And starting here in about the last week and a half or so, we've started to trade that again.
• 1:36
  SPEAKER_00: And we were up 60 on Monday and then on wheat markets, and then the next two days we lost all of it.
• 1:42
  SPEAKER_00: So it's interesting how we started to trade that again, Pat, and uh just talking about volatility, the impact it has on these grain markets could be really big going forward um with Russia.
• 1:54
  SPEAKER_00: So just watch out um with any of the news that we see stemming from them and some of the erratic grain trade that we see with within the wheat market that has influence on on the corn market specifically, Pat.
• 2:06
  SPEAKER_00: So any comments on Russia right now?
• 2:09
  SPEAKER_01: Well, I just look every time we have this discussion about wheat, I pull up the December wheat chart and I looked to see where wheat was trading at on February 2nd, yeah, before this uh conflict started, and it was around uh 760, 770 or so, and today we settled around 860, so a dollar higher from uh where we were at uh pre-conflict.
• 2:35
  SPEAKER_01: Um and so you say all of that, what's a buck, especially when you when you consider that back in November it was higher than where it was trading at today, not by much, but a little bit.
• 2:46
  SPEAKER_01: And so we say all of that to say this.
• 2:48
  SPEAKER_01: Uh between um that uh quote unquote low pre-conflict to its uh peak of concern in May, um, you know, we we put you know the market traded up close to thirteen dollars, twelve eighty-two-ish was the high on on December wheat.
• 3:05
  SPEAKER_01: And so uh significant rally there, significant correction, and now here we sit.
• 3:11
  SPEAKER_01: And so I find these levels uh as it relates to at least this the the conflict in in the Russia-Ukraine region.
• 3:19
  SPEAKER_01: I mean, if that's the only thing that we were trading, it was all kind of in a vacuum besides that.
• 3:24
  SPEAKER_01: Um I find these levels undervalued.
• 3:27
  SPEAKER_01: I mean, I don't I there's no question that uh not only is there logistics issues that are that are involved with all of this, but in addition to that, there's gonna be production challenges going forward.
• 3:38
  SPEAKER_01: And then there's just the the real human element of all of this stuff is we're we're talking about uh you know the wheat supply and demand table in in the context of this is a pretty serious week over here, over there this week.
• 3:51
  SPEAKER_01: And so um so that in of itself is is worth pausing for.
• 3:56
  SPEAKER_01: Um but the other realization, unfortunate, is the the impact uh that this is likely to have on on global food trade and global feed food availability.
• 4:09
  SPEAKER_01: And and uh boy, when you start to consider about a forced human error conflict of lower production in the in the Ukraine region, coupled with some La Nina challenges all across the globe, Europe, China, to some extent, US, um, all of these things is creating much tighter balance sheets.
• 4:33
  SPEAKER_01: And it's worth uh recognizing that uh um you know the Russian-Ukraine conflict is maybe just another layer of what is becoming an increasingly uh concerning thing over the last two or three years, even as it relates to um the our ability globally to produce enough feed food, f feed grains, food grains, and oil seeds to supply the the the the world's needs here too.
• 5:00
  SPEAKER_01: And so, you know, we'll get in today to you know some crop thoughts and all that in here in the US too, I'm sure, Mike, but but we just try to answer your question as it relates to the the Russian-Ukraine conflict, maybe in the con context of what's going on globally, and it's a it's a concerning thing, no doubt about it.
• 5:20
  SPEAKER_01: And and uh will you layer that on top of some weather problems and and uh inflationary pressures and all of that, it it uh it starts to be a a pretty interesting volatile time indeed.
• 5:32
  SPEAKER_00: Well, one of the areas with excess supplies right now is actually Russia, and they're having troubles getting rid of it with uh obviously some logistical issues there.
• 5:41
  SPEAKER_00: So it'll be interesting and uh to watch that going forward.
• 5:44
  SPEAKER_00: As we break into exports here a little bit too, Patty, it was a big week on soybean exports.
• 5:49
  SPEAKER_00: The 38 million bushels of soybean sales added this week.
• 5:53
  SPEAKER_00: We had a 20 million or uh we had a 20 million bushel soybean sale to China on Wednesday morning, and then we had another shot just shy of 10 million here yesterday morning as well.
• 6:05
  SPEAKER_00: So we started to finally see some sales pick up here from for the soybeans uh globally.
• 6:11
  SPEAKER_00: China started to really buy some soybeans uh globally, and uh any input on exports here going forward and seeing what we're seeing with uh export shipments like we talked about last week and uh kind of how we're tracking going forward.
• 6:25
  SPEAKER_01: Those sales on beans um out of the U.S.
• 6:28
  SPEAKER_01: in particular being being uh more robust this week is probably the combination of uh uh a couple different things finally coming together.
• 6:39
  SPEAKER_01: One of not the least of which is our harvest, right?
• 6:41
  SPEAKER_01: We finally finally got through a pretty good chunk of the bean harvest, particularly in the west and got it moving.
• 6:47
  SPEAKER_01: A little bit of freeing up up of logistics in the uh uh in the Mississippi River basin probably helps on that.
• 6:53
  SPEAKER_01: A little bit better movement from a rail perspective in the west probably helps with that.
• 6:58
  SPEAKER_01: Probably also working through this uh this time frame of you know it was about six weeks or eight weeks ago when Argentine government um provided some uh currency manipulation to um motivate their producers to start to move some product.
• 7:15
  SPEAKER_01: And so um I think the Chinese market had been living off of a surge in movement out of out of South America that that that likely is starting to wane a little bit here.
• 7:26
  SPEAKER_01: And then lastly, there'd be some hope that the the further that that uh uh China gets away from uh some of their more acute uh COVID concerns, that they should have a little bit of an uptick in demand, some increase in economic activity.
• 7:41
  SPEAKER_01: And so the combination of all three of those events is probably what's leading towards uh some better saving shipments in spite of a strong dollar and you know that you know and all that.
• 7:52
  SPEAKER_01: So so now whether or not that persists is is really the question, and and uh you know, we are the world's primary supplier kind of now through February, so so some of that should also be expected.
• 8:05
  SPEAKER_00: Definitely.
• 8:06
  SPEAKER_00: And as we start talking about the balance sheets a little bit more here, we did have a WASD report come out this week on Wednesday, Pat.
• 8:13
  SPEAKER_00: Uh we could start talking about the corn there.
• 8:15
  SPEAKER_00: They released that on Wednesday.
• 8:16
  SPEAKER_00: Core numbers were somewhat friendly all the way across the board, but uh again, we kind of failed to break the December corn above seven dollars too much this week.
• 8:25
  SPEAKER_00: Just early on there.
• 8:27
  SPEAKER_00: On Monday, we saw it break above 706, but fairly unchanged after a friendly report.
• 8:32
  SPEAKER_00: Uh money flow just continues to dominate the market action here outside markets and a high US dollar kind of casting a shadow over uh some uh some of these top-tier prices that we've had on this corn market, and they came in at a 171.9 yield pad on corn versus a 172.5 and local global carryouts, they came in a little bit lower as well.
• 8:57
  SPEAKER_00: Uh, but we did start to see some of the demand destruction we've talked about over the past few weeks.
• 9:02
  SPEAKER_00: Uh we saw a hundred and twenty-five million bushel reduction in corn exports, and uh that still wasn't quite enough to keep it ending stocks from hitting a 10-year low, Pat.
• 9:12
  SPEAKER_00: But uh, what did you see out of the uh out of the report here on Wednesday for the corn market?
• 9:18
  SPEAKER_01: Well, the market's reaction is fascinating, right?
• 9:21
  SPEAKER_01: I I mean that$7 area must be a a pretty solid, thick brick wall that this market really can't get through because we've given it pr plenty of ammunition to to bust through that wall and it just can't, and or ceiling or whatever you want to call it, right?
• 9:37
  SPEAKER_01: So yeah, so there's uh there there's something happening, I s if nothing else, from a technical perspective, that's that's not allowing for us to uh um to to to bust through that barrier.
• 9:48
  SPEAKER_01: And I would just say that um it it it sure seems to me that there's uh um this corresponding drop in demand that you described as we lower production is more than just a balance sheet that's trying to balance itself.
• 10:05
  SPEAKER_01: That's a good point.
• 10:06
  SPEAKER_01: Right, and so there definitely is a reduction uh in demand, and there would be or there should be.
• 10:14
  SPEAKER_01: We have low lower animal numbers globally.
• 10:17
  SPEAKER_01: Um crude oil is in the 80s, not the 120s, um, and we have a very strong you know U.S.
• 10:25
  SPEAKER_01: currency.
• 10:26
  SPEAKER_01: And so and so all of those things will reduce demand for corn in the US specifically.
• 10:33
  SPEAKER_01: And and so there is a corresponding drop in demand uh as this crop uh continues to get smaller.
• 10:41
  SPEAKER_01: And so um as you mentioned, uh 8.3% projected stocks to use ratio on this on this report could have been a little tighter if if it wasn't for that drop in exports, which I'm submitting to you is is is likely likely warranted.
• 10:56
  SPEAKER_01: And price does matter, right?
• 10:58
  SPEAKER_01: And so we so going back to the seven dollar observation, maybe there's more than just a technical reason why it can't go over seven.
• 11:05
  SPEAKER_01: Um there's less demand for corn above seven than there is below it, right?
• 11:09
  SPEAKER_01: It's that's a pretty pretty uh straightforward uh logical sort of a thought, I think.
• 11:13
  SPEAKER_01: So, you know, there's there's um so all of that maybe makes some sense, and and uh um, you know, the other fascinating dynamic that's taking place in in this corn market today is basis.
• 11:25
  SPEAKER_01: And so I'm not sure if you wanted to to dive into that now or not.
• 11:28
  SPEAKER_00: Oh, we could dive into that, yeah.
• 11:30
  SPEAKER_00: Um, what are you seeing out of basis here in the last week, Pat?
• 11:33
  SPEAKER_00: It seems like uh uh more than a week is too stretched out.
• 11:37
  SPEAKER_01: Right.
• 11:37
  SPEAKER_01: What's happened the last four hours, yeah.
• 11:39
  SPEAKER_01: Yeah, yeah.
• 11:40
  SPEAKER_01: No, I uh I I I mean we the the one story of the transition from old crop to to new crop is a story um breaking that inverse.
• 11:50
  SPEAKER_01: But the the more interesting one is the is uh the weird uh uh phenomenon that's taking place with a with a crop in the northwest corn belt that's quite disappointing, um, more or less in our area of the world, uh particularly west and and uh you know west of us here.
• 12:10
  SPEAKER_00: Um and the Wazda Airport showed that too.
• 12:13
  SPEAKER_00: The most uh most of the reductions in that yield came from Kansas and Nebraska on corn.
• 12:18
  SPEAKER_01: And South Dakota, right?
• 12:19
  SPEAKER_01: Do you have those numbers in front of you?
• 12:20
  SPEAKER_01: I think they had South Dakota down to 130.
• 12:23
  SPEAKER_00: Yeah, three off last year.
• 12:24
  SPEAKER_01: Yeah, yeah.
• 12:25
  SPEAKER_01: And then uh and then talking about Illinois at a at a at a record of 210, just to make the point.
• 12:31
  SPEAKER_01: Yep, exactly.
• 12:32
  SPEAKER_01: So pretty significant, and then and then the river closure on top of all of that.
• 12:36
  SPEAKER_01: You've got uh you got uh October basis levels on the Mississippi River trading at levels that we used to buy corn at in South Dakota and and southwest Minnesota, right?
• 12:47
  SPEAKER_01: You got 40-45 under trading on the river like drop.
• 12:52
  SPEAKER_01: Right, and uh up here we're still trading corn at at uh option price to five and ten over in some cases, and so just a complete flip-flop in terms of what you'd expect to see from a basis perspective.
• 13:06
  SPEAKER_01: And so there's a good lesson in that, by the way, for for uh anyone that is uh uh maybe a a younger study, an under study of the of grain markets and grain merchandising, uh um what basis job is in particular markets to um manipulate uh grain movement in a way that makes some sense, you know, relative to uh uh par values in Chicago.
• 13:30
  SPEAKER_01: So uh won't uh another good topic someday for uh definitely the podcast, but it's uh it's a fascinating uh situation that's taking place today.
• 13:39
  SPEAKER_00: And with that too, Pat, I mean, when I started thinking about a 30 over in Chancellor, South Dakota versus a zero basis here in Laverne, I was like, you know what, that's a that's a lot of money.
• 13:50
  SPEAKER_00: We can make something work to get some trucks moving that way.
• 13:53
  SPEAKER_00: But then at the same time you start thinking about it, well, it's gonna take over half that just to get a truck there.
• 13:58
  SPEAKER_01: Right.
• 13:58
  SPEAKER_00: With where freight rates are at today, let alone find a truck, and it's in the middle of harvest, long lines, it doesn't work logistically.
• 14:04
  SPEAKER_00: We saw it can snow in Minnesota here yesterday.
• 14:07
  SPEAKER_00: So I got to thinking about some of that stuff too, and it might not be as simple as what I gave it credit for last year.
• 14:13
  SPEAKER_01: Right.
• 14:13
  SPEAKER_01: Yeah, it doesn't get fixed overnight, that's for sure.
• 14:15
  SPEAKER_00: No, that's for sure.
• 14:16
  SPEAKER_00: And uh when we talked about uh ethanol a little bit, so we can break into that here right after the CPI report.
• 14:23
  SPEAKER_00: We did get an update for CPI data for September.
• 14:26
  SPEAKER_00: That was at 8.2% higher than year over year, or about 0.4% higher than last month's data.
• 14:34
  SPEAKER_00: And the core CPI, which excluded the food and energy, that rose 6.6.
• 14:39
  SPEAKER_00: So that was the highest level since 1982 that we saw that rise.
• 14:44
  SPEAKER_00: Um estimates were about 8.1% and 6.5%, respectively.
• 14:49
  SPEAKER_00: So they pretty much saw it coming.
• 14:51
  SPEAKER_00: It was uh right at expectations, just a little bit higher essentially.
• 14:55
  SPEAKER_00: And uh what most people are getting out of this would be it's a sure lock for a 75-point basis hike in November, is what they're calling it.
• 15:04
  SPEAKER_00: And uh with the CPI data with inflation, Pat, do you have any comments on that going forward and the impact on our markets?
• 15:13
  SPEAKER_01: Um the only comment that I have to make as it relates to this is that this information, we're all paying more attention to it than we ever used to, for sure.
• 15:24
  SPEAKER_01: And it comes at us pretty fast, pretty furious, pretty consistent.
• 15:29
  SPEAKER_01: Um this we have to be really careful that we don't like we don't take this information and then interpret it in a way that we're sort of accustomed to on how commodity markets move.
• 15:42
  SPEAKER_01: And I what I what I'm what I'm what I'm trying to say is is that this is a long game here, right?
• 15:48
  SPEAKER_01: It's gonna be it we're not gonna just fix inflation overnight by ha uh by raising this thing three quarters of basis points, right?
• 15:58
  SPEAKER_01: It takes a while.
• 15:59
  SPEAKER_01: It takes a long time and it and and it's different than the grains, right?
• 16:03
  SPEAKER_01: If you just want to say it that way.
• 16:04
  SPEAKER_01: Like if there if there all of a sudden was uh a a surge in interest in in corn, the futures market would fix itself in a very short period of time and it would find the right price to you know for equilibrium.
• 16:19
  SPEAKER_01: This this don't apply that concept to this process because this process is going to take a long, long time and and uh it's it's months and years, not days and weeks.
• 16:31
  SPEAKER_01: And so um so I think that's exactly right.
• 16:34
  SPEAKER_01: Your interpretation is right.
• 16:35
  SPEAKER_01: We'll get three quarters of a basis point, but that's uh that's uh just on top of the one that we just had three weeks ago, and there's gonna be more, right?
• 16:43
  SPEAKER_01: It's gonna take a long time in order to get um interest rates up to a level where it slows down economic activity enough where it reduces inflation down to the two percent Fed targeted rate.
• 16:57
  SPEAKER_00: Well, one of the main things we've looked at in those reports have been um implied gasoline demand.
• 17:02
  SPEAKER_00: So ethanol stocks right now are incredibly high.
• 17:06
  SPEAKER_00: Production was up a little bit this week, uh, but still very poor levels for this time of the year, Pat.
• 17:12
  SPEAKER_00: We should be producing a lot of ethanol right now, and we really haven't been able to.
• 17:16
  SPEAKER_00: Uh pretty much the second highest time frame for this time of the year that we've had for stocks ever in ethanol.
• 17:23
  SPEAKER_00: And uh gas demand's been off.
• 17:25
  SPEAKER_00: It's actually about 6% lower than where we were last year, very close to the 2020 levels, closer to COVID type levels.
• 17:33
  SPEAKER_00: So um, when we start looking at some of those other demand destruction items like we've talked about here over the past few weeks, that would be one of the main talking points, I think, uh, that we're looking at and the USDA looking at going forward.
• 17:46
  SPEAKER_00: And um, seeing the CPI report data, they they did uh talk about energies a little bit in that as well, Pat.
• 17:53
  SPEAKER_01: So layman's terms, uh um I can look out our new podcast window here, Mike, and I see that gas at the holiday station is three dollars and seventy-four cents.
• 18:02
  SPEAKER_01: Was that a buck and a half off its rise from this summer?
• 18:06
  SPEAKER_01: And what you just said is we're still building inventories.
• 18:10
  SPEAKER_01: Right?
• 18:10
  SPEAKER_01: So we've seen a buck fifty drop in gas, and uh we're still building building unleaded gas inventory and ethanol inventory as a result.
• 18:19
  SPEAKER_01: So that's a statement as it relates to economic activity.
• 18:23
  SPEAKER_00: Definitely.
• 18:24
  SPEAKER_00: Any fine finishing thoughts for our listeners this week, Pat?
• 18:27
  SPEAKER_01: You know, this uh the we'll just wrap up with uh uh first of all, thank you.
• 18:32
  SPEAKER_01: Thank you for taking the time to to uh to listen to to our podcast.
• 18:36
  SPEAKER_01: We're uh looking forward to uh any feedback uh from anyone in terms of topics or frequency or or length or medium venue, any of those things.
• 18:47
  SPEAKER_01: And so um sure appreciate uh if you have any comments, uh feedback for us on how to how to improve this process.
• 18:54
  SPEAKER_01: We sure we sure would appreciate that.
• 18:56
  SPEAKER_01: And and then also, and more importantly, probably if if you have any questions or thoughts or or or just just want to just talk through how this volatility and and opportunities in these markets there may be a way to help benefit your operation and capture some of the of the opportunity that's available and and manage the significant amount of risk.
• 19:19
  SPEAKER_01: We sure do uh appreciate the opportunity to engage with you on that.
• 19:23
  SPEAKER_01: So with that, Mike, thanks for thanks for putting this together this week and uh looking forward to talking to everyone soon.
• 19:30
  SPEAKER_00: Thank you for your time, Pat.
• 19:31
  SPEAKER_00: And thank you to all our listeners.
• 19:33
  SPEAKER_00: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 19:45
  SPEAKER_00: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.