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WASDE Report · 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.
• 0:23
  SPEAKER_00: Today is February 9th.
• 0:25
  SPEAKER_00: I've got Pat with us here today.
• 0:26
  SPEAKER_00: How's it going, Pat?
• 0:28
  SPEAKER_01: Good afternoon, Mike.
• 0:29
  SPEAKER_01: Going well.
• 0:30
  SPEAKER_01: How are you?
• 0:30
  SPEAKER_00: Pretty good, pretty good.
• 0:31
  SPEAKER_00: Let's talk about the WASDA report this week.
• 0:35
  SPEAKER_00: For a February report, Pat, typically that one's usually quiet, at least.
• 0:40
  SPEAKER_00: And this year it seemed like we had quite a few changes for a while February WASDA report for both the U.S.
• 0:47
  SPEAKER_00: and for some of the South American expectations.
• 0:50
  SPEAKER_00: And uh, you know, when I look at some of the reactions in in these grain markets, especially, I mean, week over week, 14 cents lower uh close here for the corn market, uh starting to really peck away at that one, isn't it?
• 1:04
  SPEAKER_01: Yeah, it's uh it's a slow grind here on the on the old crop chart in particular.
• 1:09
  SPEAKER_01: I was looking at the March chart a few a few minutes ago on on corn, and and you're right.
• 1:15
  SPEAKER_01: I mean, just a steady slow grind lower for an extended period of time here.
• 1:20
  SPEAKER_01: And on New Crop December, Mike, it it looked like Dee's was trying to consolidate a little bit in that 475 to 480 area, and and uh you know four low 470s had held on some swing lows there a couple different times.
• 1:36
  SPEAKER_01: And then unfortunately, as we wrapped up the week here today, um uh not a not an ideal uh technical sell-off here, right?
• 1:44
  SPEAKER_01: Dropped below that 470 area with uh with a close close below there.
• 1:49
  SPEAKER_01: And and so, yeah, and and and you know, we can get into some of the numbers on the WASD report specifically as it relates to um uh the projections on the size of the South American crop and in a pretty big divergence at this point between what the USDA is forecasting and what and what uh Conab is saying as an example.
• 2:10
  SPEAKER_01: So you want to share with our listeners, Mike, uh a little details around that?
• 2:14
  SPEAKER_00: Yeah, so if we start on the corn balance sheet here for the United States, there wasn't really any changes.
• 2:19
  SPEAKER_00: They made a 10 million bushel decrease in uh corn usage for clu uh glucose and dextrose, and that was really the only U.S.
• 2:28
  SPEAKER_00: balance sheet changes.
• 2:29
  SPEAKER_00: So a decrease of 10 million bushels on uh or an increase of 10 million bushels on ending stocks, and they were expecting a little bit lower, so that was a little bit disappointing, but not many other changes.
• 2:40
  SPEAKER_00: And then uh for for the uh for the global balance sheets there when you focus on South America and their numbers, I mean some major changes uh when you look at uh the United States balance sheet from the USTA to you know Conab came out with their numbers yesterday.
• 2:57
  SPEAKER_00: So the US had uh Brazil corn production at 124 million metric tons, and that was after that morning uh Conab had came out at 113 million metric tons of their pet.
• 3:09
  SPEAKER_00: So that's over a 405 million bushel difference in in the corn balance sheet.
• 3:14
  SPEAKER_00: And actually on soybeans, the difference between conab and the United States that was 243 million difference uh in bushels, which is if you think about it, it's like well that's just barely smaller than what our carryover is on soybeans.
• 3:29
  SPEAKER_00: So a pretty big significant change uh between conab numbers and the USDA.
• 3:34
  SPEAKER_00: And one of the things I found interesting was that the USDA, I guess, the one of the reasons they slow play it out of Brazil for their numbers is they like to reconcile their shipping on it.
• 3:45
  SPEAKER_00: So it takes them a little bit longer to uh make major changes out of the Brazil production numbers I've noticed on soybeans, which I thought was interesting.
• 3:54
  SPEAKER_01: That is interesting.
• 3:55
  SPEAKER_01: I would also, though, they just um I I don't say logically, uh we have experienced um improved weather conditions in South America generally, right?
• 4:08
  SPEAKER_01: And and so and so I I uh the the the USDA numbers might be lagging in terms of information, but um uh but and they also might be right, and maybe for the wrong reasons.
• 4:21
  SPEAKER_00: And it you're getting into the back half of their harvest, which is a I mean that's a harvest that experienced more of those rainfalls.
• 4:28
  SPEAKER_00: So this back half should be better.
• 4:30
  SPEAKER_01: Yeah, exactly.
• 4:30
  SPEAKER_01: Right.
• 4:31
  SPEAKER_01: And so, you know, as we talk through all of these things, I I'm um I find myself wanting to attempt to express the uh um the observation that I think is important, especially for for row crop producers today.
• 4:45
  SPEAKER_01: I think it's you know, we've gone through this two or three year um stint of of when we look at uh making decisions as it relates to to hedging our commodities.
• 4:55
  SPEAKER_01: It it was largely sort of wrapped around uh about hedging opportunities, right?
• 5:00
  SPEAKER_01: And and uh um, you know, we've been through this in uh a couple couple different times through the years, right, as we sort of um likely um transition from more of a margin opportunity uh sort of thought process to to more of a of a managing managing risk and and managing the risk of loss uh opportunities.
• 5:26
  SPEAKER_01: And so, you know, I I think as we work through these winter months here um and as we continue to do, which we should be, in terms of trying to analyze uh the current fundamentals as they're presented to us, we need to recognize, I think, a little bit bigger picture here, right?
• 5:41
  SPEAKER_01: Is that you know we just harvested a record crop in the U.S.
• 5:44
  SPEAKER_01: with with below average weather, frankly.
• 5:47
  SPEAKER_01: Um, and we're significantly building ending stocks year over year here in the U.S.
• 5:53
  SPEAKER_01: and uh globally on both corn and soybeans.
• 5:56
  SPEAKER_01: And at this point, um it's hard for me to imagine where we're going to find some additional demand, especially if we get ourselves into um um some sort of a additional stocks building year, whether that be acres and and or some combination of of better yields.
• 6:14
  SPEAKER_01: And so the the real thing that I think we need to be thinking about now, Mike, is is is is are we in the process here of trying to establish a bit of a of a winter base, uh working into harvest in the in South America base here, or or are we potentially taking another little leg lower here?
• 6:35
  SPEAKER_01: Um if we can hold this 460, 470-ish area on new crop corn, like going into our growing season, uh and establishing spring price and all those sorts of things, that's not the worst thing in the world, right?
• 6:50
  SPEAKER_01: This is a nice level, frankly, to rally from, yeah, when as we get into the growing season.
• 6:56
  SPEAKER_01: The the concern is that you is that you end up, you know, the the the size of the South American crop kind of continues to grow just a little bit and uh and this market continues to to leak lower some and and then and and you know we said this for years, but but um you know most years, it's not a question of of whether or not we're going to get a weather rally, it's a question of where we're gonna rally from, right?
• 7:21
  SPEAKER_01: And and so you know, we're trying to you know keep a close eye on that and and again from a real crop producer's perspective are hopeful that these sort of areas can hold.
• 7:29
  SPEAKER_01: And so I guess that's why I kind of started this conversation with that, right?
• 7:33
  SPEAKER_01: A little bit of a of a technical sell-off um towards the end of the week this week is discouraging from that perspective, but but all's not lost, right?
• 7:41
  SPEAKER_01: I mean, if there's some opportunity for us to hold in these levels, um this again, this isn't a bad, a bad area to to rally from.
• 7:49
  SPEAKER_01: You know, we've talked a lot over the last couple weeks and tried to interact with our clients on on uh just being cognizant, aware of the potential um cycle shift, right?
• 8:01
  SPEAKER_01: This this idea that we probably are transitioning into a little bit more of a burdensome stock situation.
• 8:07
  SPEAKER_01: This idea that we probably are going to have to get uh these commodity prices down to some levels to start stimulating some demand again.
• 8:14
  SPEAKER_01: And so, you know, there are some things we can do from a risk management perspective to guard ourselves against that.
• 8:21
  SPEAKER_01: Let's think about strategies in which we can guard ourselves against cycle change and then but yet leave uh our options available to us and in terms of of marketing our crops in a in a way that that historically makes sense.
• 8:36
  SPEAKER_01: Uh establishing targets that that make sense for your business, using seasonals as you as your backstop, those sorts of things.
• 8:44
  SPEAKER_01: But I think, you know, in terms of of of maybe the best advice that we can give in this current situation is to is just to be be aware of the stage of the cycle that we're likely in and and look for some alternatives or or risk management strategies that that allow for us to manage that to some extent.
• 9:02
  SPEAKER_00: Awesome.
• 9:02
  SPEAKER_00: And one thing uh to build on that too is historically uh you usually reach max volatility around June, July in that time frame, and kind of it it tends to really drop off going into February, March.
• 9:16
  SPEAKER_00: Yep.
• 9:17
  SPEAKER_00: So like that Feb the March expiration on options are typically very quiet around this time frame.
• 9:23
  SPEAKER_00: So going forward here, maybe even yesterday we've started to see a little bit more volatility in the corn market again here.
• 9:30
  SPEAKER_00: And uh remember that creates opportunities for these row crop guys too.
• 9:33
  SPEAKER_01: Yeah, absolutely.
• 9:34
  SPEAKER_01: And then and and uh you know, a lot of discussion outside markets, and we've I think done a pretty decent job on previous podcasts um uh spending a little bit of time on that.
• 9:45
  SPEAKER_01: But we have seen um, at least in the uh livestock sector, we're starting to see a little bit more money flow coming back into commodities, some um crudos showing a little bit of life this week and those sort of things, and certainly aren't seen in the corn complex quite yet.
• 10:00
  SPEAKER_01: But um nonetheless, uh to your point, it's not uncommon, especially as we start to get closer to our growing season, that you don't start to see a little bit of outside money flow into commodities here and start to generate some of that volatility that you're referencing.
• 10:15
  SPEAKER_00: All right.
• 10:15
  SPEAKER_00: Well, thank you for your time, Pat.
• 10:17
  SPEAKER_00: Thank you, Mike.
• 10:18
  SPEAKER_00: And thank you to all our listeners.
• 10:20
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 10:23
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 10:28
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 10:34
  SPEAKER_00: See you next time.