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Soy bounce and what to do with stored corn · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the egg 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 October 27th, and I've got Jeff with us here today.
• 0:26
  SPEAKER_01: How's it going, Jeff?
• 0:28
  SPEAKER_00: Hey, Mike.
• 0:28
  SPEAKER_00: Going pretty well.
• 0:29
  SPEAKER_00: We've actually got an update on some of the livestock, and I can speak from experience.
• 0:34
  SPEAKER_00: That does not happen every day, Michael.
• 0:37
  SPEAKER_01: That it doesn't.
• 0:37
  SPEAKER_01: We had an update in the soybean market as well today, up about 18 cents on the November here, Jeff.
• 0:44
  SPEAKER_00: Sounded big moves in the meal again, huh?
• 0:46
  SPEAKER_00: Meal.
• 0:47
  SPEAKER_00: New contract ties over there.
• 0:49
  SPEAKER_01: Tell me about the meal market here quick before we get started.
• 0:52
  SPEAKER_00: Well, I've been blaming that a bit, just like everybody else, I think.
• 0:56
  SPEAKER_00: Um, and maybe you can confirm this or not, but been blaming that on Argentina situation for the most part throughout this week.
• 1:05
  SPEAKER_00: Now they did pick up some recent rains, so I have to admit I'm struggling a little bit to continue to point fingers at the Argentina situation.
• 1:13
  SPEAKER_00: I'll let you dive that into that for a minute.
• 1:16
  SPEAKER_00: But um I also think back to last year, and we spent a lot of days up in the podcast room, I think, talking about Argentina weather and why it was so important.
• 1:27
  SPEAKER_00: And then in my opinion, it's it's maybe gets over traded, over-annual analyzed to the marketplace because what happened after harvest, we started focusing more on the Brazil situation.
• 1:39
  SPEAKER_00: But I would also say the cash market on the meal side is pretty hot too.
• 1:45
  SPEAKER_00: We've seen bases strengthen a bunch, um, and they're grinding hard.
• 1:50
  SPEAKER_00: Margins are big.
• 1:52
  SPEAKER_00: Uh, there's some demand for meal um from a global perspective here, and I don't know if that all comes from Argentina um or if there's some bigger picture demand pieces out there, but nobody's expanding livestock, so it's a little hard to see where uh we're seeing this big draw from.
• 2:09
  SPEAKER_00: But what's your thoughts on weather and what do we see in the next week or so there, Mike?
• 2:14
  SPEAKER_01: Yeah.
• 2:14
  SPEAKER_01: So I mean, soy I to bounce off your point a little bit here, soybean meal, uh soymeal sales last week were over 500 million uh tons or 500,000 metric tons here.
• 2:26
  SPEAKER_01: That was on uh really putting us on a way to a record export year for the United States here in soy meal exports, making up for that lost Argentine meal shipments.
• 2:38
  SPEAKER_01: So it's almost like it it's doing this based upon what's already happened, Jeff, which is interesting.
• 2:43
  SPEAKER_01: And uh so that's one thing.
• 2:46
  SPEAKER_01: Um looking forward here, uh weather-wise for South America, yeah, mainly focused on northern Brazil at this point.
• 2:54
  SPEAKER_01: Uh planting is off to a pretty good start here.
• 2:57
  SPEAKER_01: They picked up a little bit recently, so you're gonna be talking more about Brazil and Argentina weather.
• 3:03
  SPEAKER_01: I would say December, January time frame.
• 3:06
  SPEAKER_01: You're kind of at the beginning of it right now here as they're planting, Jeff.
• 3:09
  SPEAKER_01: So it's a little bit early to really talk about a ton of South American weather, but um, yeah, they're just getting started kind of a deal.
• 3:17
  SPEAKER_00: That's what that's what makes kind of that's what makes the meal market as interesting as it is.
• 3:21
  SPEAKER_00: I mean, that thing's all excited.
• 3:22
  SPEAKER_00: Like I said, contract highs a couple times this week.
• 3:25
  SPEAKER_00: Uh and we're very early in the process.
• 3:27
  SPEAKER_00: It's gonna be they're not gonna keep the thing as a dull, dull uh market, are they?
• 3:32
  SPEAKER_01: No.
• 3:33
  SPEAKER_01: Say something quick about the live cattle market, particularly trade here this week on the cash side, Jeff.
• 3:39
  SPEAKER_00: Well, I think the the big news there is how uh respectable that cash market stood in here.
• 3:46
  SPEAKER_00: I mean, if you think about this, um we had every motivation to keep cattle and keep making them bigger.
• 3:54
  SPEAKER_00: We had premiums in the uh in the futures markets, we had a cost of gain that was much lower than our revenue, so you know, marginal feed on those last pounds was huge, still is big.
• 4:05
  SPEAKER_00: Um, so I think we were holding on to some cattle longer than what we maybe would have in a different environment.
• 4:11
  SPEAKER_00: I'm going back about two weeks when I'm saying this, Mike.
• 4:14
  SPEAKER_00: Um, that completely flip-flopped as a Monday this week, and now you had this huge discount.
• 4:20
  SPEAKER_00: Futures were trading you know, at times six dollars lower than where the current cash market was, and we really bought cattle almost all week.
• 4:30
  SPEAKER_00: Uh started kind of in that 183 to 184 area, ending in the the week here in the north, 184, maybe 185 on a live basis.
• 4:40
  SPEAKER_00: But more impressive than that is the south really they're they're gonna trade, I think, two bucks higher week over week, or at least a dollar higher.
• 4:49
  SPEAKER_00: That's incredibly impressive, especially when you consider um the inventory that's down there, the number of hedged inventory that's down there.
• 4:57
  SPEAKER_00: So if you had a hedge December hedge on, it just doesn't seem like there'd be any reason to keep that thing around or those cattle around.
• 5:05
  SPEAKER_00: They they probably need to be shipped and lift your hedges.
• 5:08
  SPEAKER_00: So I'm if the south is performing that well, catching up to the north, um, in these conditions.
• 5:15
  SPEAKER_00: I'm if I'm a packer, I'd be a little bit nervous as to just how many cattle are going to be available out there.
• 5:21
  SPEAKER_00: Um so impressive cash market, really in face of uh you know, very dismal futures action here starting Monday, of course, with that big move lower.
• 5:33
  SPEAKER_01: Jeff, uh soybean harvest has kind of quickly come and gone here.
• 5:38
  SPEAKER_01: 76% harvested as of Monday uh for the corn market, 59% harvested for the 18 states uh as of this last weekend.
• 5:49
  SPEAKER_01: So harvest activity has really picked up.
• 5:52
  SPEAKER_01: Uh I want to talk a little bit more about uh plans with storage, uh marketing plans, and reviewing them at this time of the year, Jeff.
• 6:01
  SPEAKER_01: So let's start a little bit with uh where we're at in in our phase of marketing.
• 6:08
  SPEAKER_01: We uh we had a plan going into this harvest at the beginning of the the marketing year this last year.
• 6:14
  SPEAKER_01: So let's say May.
• 6:16
  SPEAKER_01: You had a plan or February is before you got it planted, and maybe you had a pre-harvest sales number, you some goals that you were shooting for if corn traded this, for example, let's sell some corn ahead of time.
• 6:29
  SPEAKER_01: I have to sell uh let's say uh I have to uh sell this much because I can't store that.
• 6:36
  SPEAKER_01: Yeah, let's talk about that a little bit.
• 6:38
  SPEAKER_01: Um you finally got here to this point, now you know what your yield is, at least on at least 59% of uh, you know, your farm, according to the United States uh um government.
• 6:51
  SPEAKER_01: So when I look forward here uh at plans uh for what you've harvested and kind of now you have a pretty good idea of what you can store and not, and uh I want to talk a little bit about some of those things.
• 7:04
  SPEAKER_01: How's that sound?
• 7:06
  SPEAKER_00: Good.
• 7:06
  SPEAKER_00: So let's let's start on the storage piece, I guess I would say, Mike.
• 7:10
  SPEAKER_00: Um, you know, certainly there's some carry in the marketplace, but one of the things that I think we've talked about some, I know in on this podcast we've internally talked about it a bunch, is you know, what's really the cost of carrying grain.
• 7:24
  SPEAKER_00: And so I mean I think we're still sitting around three and a half cents or so if from an interest standpoint, if you're um borrowing money against that grain, um, you know, every month and uh more like seven cents as you go out onto the soybean market.
• 7:41
  SPEAKER_00: So just from day one, you're gonna start to struggle a little bit if you're if you can either get a credit for that money, meaning you know you're gonna invest it someplace or whatever, or if you're paying off an operating note, not deferring it to the first of the year.
• 7:57
  SPEAKER_00: I know there's a lot of different situations in here that make the math a little bit complicated.
• 8:03
  SPEAKER_00: But from our chair, I think we have to sit here and say the money's worth X, and that works against you pretty much uh every day as you go forward, of course, and that number's a lot bigger than what it used to be.
• 8:14
  SPEAKER_00: Now, you look at the carry in the market, that pretty well eats up the interest cost.
• 8:19
  SPEAKER_00: Um, so maybe you know, rolling out to March at what seems to be a pretty good spread or May, um, really just gonna cover the interest cost, correct?
• 8:30
  SPEAKER_00: On on most of the corn, you're not gonna get that accomplished on the soybeans, of course.
• 8:36
  SPEAKER_00: Um so what do you think about next?
• 8:39
  SPEAKER_00: Basis flat price, Mike.
• 8:42
  SPEAKER_00: What are we what are some of the decisions we gotta think through once we look at it and say, okay, Carrie's really not doing me that much good here this year?
• 8:49
  SPEAKER_01: So if carry's not doing it and it's canceling out the interest or the interest portions carrying canceling out the carry, then it's up to basis to do the legwork from basically give it March until July.
• 9:02
  SPEAKER_01: So if you're gonna be storing corn and ignoring it, let's say, or if you have corn in the bin and and you're deciding on March 1st or the end of February on what to do with that corn, uh you best have a number and then work with this with your uh with your marketer.
• 9:21
  SPEAKER_01: You best have a number on basis and say, if I can get this on my corn, I need to let it go.
• 9:28
  SPEAKER_01: And if you can't get it, then maybe you keep storing until the summer months and it it comes all back to basis at that point.
• 9:36
  SPEAKER_01: Which now the next point that we go to is gonna be the important one because when we look forward at at uh this corn crop that's sitting in our bins, it's it's a pretty good sized one in the United States.
• 9:48
  SPEAKER_01: It may not feel like it today, but farmers have been slow sellers up until this point, and we've uh the last couple years we've had shorter crops, so we're trying to get bins full, processors are aggressive, uh, end users with mills trying to get a big book on, uh ethanol margins are large.
• 10:07
  SPEAKER_01: By the time we get to the back half of this harvest, it's gonna be important to remember that we have 2.1 billion bushels of corn left over going into the end of this marketing year.
• 10:18
  SPEAKER_00: That's what that's what I keep looking at and thinking that's a pretty big risk here.
• 10:23
  SPEAKER_00: Um and the farmer started to uh based on the like the last bit of old crop corn, the farmer was holding more of that corn than normal compared to the off-farm storage.
• 10:37
  SPEAKER_00: And I think that will definitely that trend will continue.
• 10:42
  SPEAKER_00: So the farmer's gonna be holding the corn.
• 10:44
  SPEAKER_00: I think you've got to be concerned both from possibly a flat price standpoint, but from a basis standpoint, um, the end user wants it now, so basis has tightened here some and probably will continue to tighten a bit.
• 10:59
  SPEAKER_00: Um, but if you wait too long, you're gonna be selling it right along the same time everybody else wants to from a basis perspective.
• 11:08
  SPEAKER_00: And I also am concerned a little bit from a flat price perspective.
• 11:11
  SPEAKER_00: If we get to next summer um or even next spring, I mean it's it's it's gonna keep this wet blanket on the market.
• 11:19
  SPEAKER_00: Every time we get a rally, there's gonna be some farmer selling um on the flat price.
• 11:24
  SPEAKER_00: And and I think if you end up keeping it too long and if we grow a crop, that could get a little dangerous.
• 11:31
  SPEAKER_00: Um it's uh the old stain of you know, don't outstay your welcome, I think really applies to this type of a marketing year.
• 11:41
  SPEAKER_01: Definitely.
• 11:42
  SPEAKER_01: So going in, we'll have a couple punchlines here.
• 11:45
  SPEAKER_01: Just uh mainly focus on a new plan B.
• 11:51
  SPEAKER_01: Uh now that Harvest has really wrapped up.
• 11:54
  SPEAKER_01: It's time to review uh your game plan and really set something new in motion with new price level targets.
• 12:00
  SPEAKER_00: You probably have a good idea what your yield is, right?
• 12:03
  SPEAKER_00: Yep.
• 12:03
  SPEAKER_00: So you can start dialing that break even a little bit closer.
• 12:06
  SPEAKER_01: Exactly.
• 12:06
  SPEAKER_01: And then know what your number is, your basis number.
• 12:10
  SPEAKER_01: Know what number you need by the time March comes around to get rid of that corn at a at a level that makes sense based upon opportunity cost and uh a number that works for your business.
• 12:22
  SPEAKER_01: So that'll uh that March time frame up until then to it, it's gonna give you a little bit more time to maybe hedge off your future's risk on anything left over as well.
• 12:32
  SPEAKER_01: So this is something you need to talk with your marketer about very soon after getting harvest wrapped up now.
• 12:40
  SPEAKER_00: I do also want to mention we're dialing into the last couple days of October.
• 12:44
  SPEAKER_00: So you know what that means.
• 12:46
  SPEAKER_00: You're put from the insurance company, you're in in your inherited put because of the drop in prices.
• 12:53
  SPEAKER_00: That is pretty well gone away at this point.
• 12:56
  SPEAKER_00: So you're that helped give us some security and and some reason not to be pushing the sell button here for the past couple of months, I would argue.
• 13:07
  SPEAKER_00: That's gone now.
• 13:08
  SPEAKER_00: Um market goes lower from here, it's it's affecting all of us that have corn or soybeans on the open market.
• 13:15
  SPEAKER_01: All right.
• 13:16
  SPEAKER_01: Well, thank you for your time today, Jeff.
• 13:18
  SPEAKER_01: And thank you to all our listeners.
• 13:19
  SPEAKER_01: Please reach out to us at professional eggmarketing.com.
• 13:23
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:28
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:34
  SPEAKER_01: See you next time.