Latest / Professional Ag Marketing Podcast / ‘Obliteration day’

Transcript

‘Obliteration day’ · 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.
• 0:24
  SPEAKER_01: Today is April 4th.
• 0:25
  SPEAKER_01: I've got Lucas Peters back with us after he has been swamped over this past week, but also I don't think I've had you on since what?
• 0:35
  SPEAKER_00: Probably the crop insurance season.
• 0:36
  SPEAKER_00: And boy, you picked a heck of a day to ask Lucas to come up and talk on your market review podcast, Mike.
• 0:43
  SPEAKER_01: Who wouldn't want to talk today?
• 0:44
  SPEAKER_00: I got all sorts of fun stuff.
• 0:46
  SPEAKER_00: Yeah, this is actually the one where this podcast could go for a while, but uh there you don't want bad news to linger forever, do you?
• 0:53
  SPEAKER_01: Ain't that the truth?
• 0:54
  SPEAKER_01: So we'll try to not be too giddy talking about the things that make us excited over here.
• 0:59
  SPEAKER_01: But what uh what do you want to start with today?
• 1:01
  SPEAKER_00: Well, so so I guess uh first off, uh you know, it was tough a day, Mike, right?
• 1:07
  SPEAKER_00: Like uh it's been a long week.
• 1:09
  SPEAKER_00: I was actually just on a phone call saying it seems like this week has just drug on forever.
• 1:14
  SPEAKER_00: Um, you know, we had the Trump tariff announcements in the middle of the week, uh market reaction to those, and then of course the China retaliatory tariff announcement last night, and markets uh really kind of reacted negatively, especially the commodity market.
• 1:29
  SPEAKER_00: Well, I guess every market, I shouldn't say that.
• 1:31
  SPEAKER_00: Uh the commodity markets that that we follow reacted negatively for the most part, you know, except for corn.
• 1:37
  SPEAKER_00: Um but uh you know, specifically on the livestock side, and I know we'll talk a little bit about this later, but uh, you know, LRP uh is something that you know we offer uh at our our agency and you know feeder cattle all limit down, and so there's no LRP available on feeder cattle tonight.
• 1:55
  SPEAKER_01: Which that's eight dollars and twenty-five cents, by the way, to put this in perspective.
• 2:00
  SPEAKER_00: That's a bad day on a lot of feeder cattle kind of.
• 2:02
  SPEAKER_01: That's a lot more than it used to be.
• 2:04
  SPEAKER_00: The fed cattle, there is only one offering for tonight, uh, 52 weeks out.
• 2:10
  SPEAKER_00: Uh that is the only LRP offered uh for Friday night.
• 2:13
  SPEAKER_00: And swine has a limited offering as well.
• 2:17
  SPEAKER_00: Uh I I didn't look real close, but I think it's more on the deferred months on the swine LRP.
• 2:22
  SPEAKER_01: Yeah, the summer months for both fat cattle and hogs there.
• 2:25
  SPEAKER_01: Hogs down four bucks on a couple months, and then the live cattle down six fifty uh spread here there through the months.
• 2:32
  SPEAKER_00: Yeah, so so tough day, uh lots of red.
• 2:35
  SPEAKER_00: Um Mike, I I guess what's your take on a day like today or or kind of this leading up into the week?
• 2:43
  SPEAKER_00: What is driving this type of trade and and feeling in the market?
• 2:47
  SPEAKER_01: So first and foremost, it's fear.
• 2:50
  SPEAKER_01: Fear is getting traded across whether it's a commodity um in investment like in equity or a dollar safe haven, even buying.
• 3:00
  SPEAKER_01: Um it's totally trading fear.
• 3:02
  SPEAKER_01: The VIX index has completely spiked.
• 3:05
  SPEAKER_01: Uh I mean the Vic VIX index is on s on the verge of signaling a bear market for US stocks, for example, that soared over 50%.
• 3:14
  SPEAKER_01: That's the highest level we've seen since the pandemic, for example.
• 3:18
  SPEAKER_00: So just to step, you said you said VIX index.
• 3:21
  SPEAKER_00: So uh for the the crop insurance guy in the room, can you expand a little bit of what the VIX index is measuring or or relating to?
• 3:30
  SPEAKER_01: Yep.
• 3:30
  SPEAKER_01: So that would be the volatility index.
• 3:33
  SPEAKER_01: Uh so that's just gonna basically measure volatility in the marketplace.
• 3:38
  SPEAKER_01: Gotcha.
• 3:38
  SPEAKER_01: And they can quantify that to a number.
• 3:41
  SPEAKER_01: Gotcha.
• 3:41
  SPEAKER_01: Essentially.
• 3:42
  SPEAKER_01: And then you can trade that too.
• 3:44
  SPEAKER_01: You know, through history, that normally just goes down ever since it's been really created, and then it has moments of a pretty steep spike during a recession or some really good news comes out and it'll pick up a little bit.
• 3:58
  SPEAKER_01: But most of the time it just goes down, just like the stock market would normally just go up.
• 4:02
  SPEAKER_01: It's a business you invest in, uh, it wants to go up.
• 4:06
  SPEAKER_01: Now, lately here we saw a massive surge.
• 4:09
  SPEAKER_01: Money doesn't know what to do.
• 4:10
  SPEAKER_01: It's a radically uh pulling out of almost everything, which the in the interesting thing I'm gonna send to all of you listening today is look at where the money isn't leaving.
• 4:22
  SPEAKER_01: That's a that's a funny one for me this time.
• 4:25
  SPEAKER_00: Where is where isn't it leaving?
• 4:26
  SPEAKER_01: Well, look at corn.
• 4:28
  SPEAKER_00: Yeah, there you go.
• 4:28
  SPEAKER_01: Corn was actually trading higher at the close today in the front two months.
• 4:32
  SPEAKER_01: Uh we were up two cents on the May and the July up a penny.
• 4:36
  SPEAKER_01: Now that doesn't sound like a lot, but for us to even trade green at the end of the day on the corn market was incredible to me.
• 4:44
  SPEAKER_01: And a big part of that was that earlier in the week, so Wednesday the tariff announcement occurred, which was like a dang near game show the way it was presented to the markets.
• 4:54
  SPEAKER_01: The big news out of that was that Canada and Mexico didn't get that additional tariff on them.
• 5:00
  SPEAKER_01: They already have the fentanyl tariffs, they're already kind of in their skirmish on their own, but they didn't increase or worsen that situation, which your main corn buyer would be Mexico.
• 5:12
  SPEAKER_01: So that was a good sign or a good signal for corn.
• 5:15
  SPEAKER_01: And also earlier in the week, the the rest of the markets almost all went down.
• 5:20
  SPEAKER_01: However, the hog market the first day, it was pretty quiet.
• 5:24
  SPEAKER_01: I mean, we were down 25, 50 cents, but it wasn't a huge reaction right away.
• 5:28
  SPEAKER_01: And that close that even traded green a little bit on uh uh on Thursday morning or so after it as well.
• 5:35
  SPEAKER_01: Um, that would be what I was focusing on here this week is listen, I mean, everything's trading lower.
• 5:41
  SPEAKER_01: I think I saw some stat about like 95% of the stocks in the SP 500 were trading lower.
• 5:46
  SPEAKER_01: It's just it at this point, it's not even fundamentals.
• 5:50
  SPEAKER_01: When the when the jobs report came out today, the stock market completely ignored it.
• 5:54
  SPEAKER_01: It was actually good data, but they did not care at all about fundamentals.
• 5:59
  SPEAKER_01: And it it was hilarious for me to watch Powell speak today, the the Fed chairman, and say, Oh, no, there's no reason for us to cut interest rates at this point.
• 6:08
  SPEAKER_01: The economy looks great.
• 6:09
  SPEAKER_01: It's like the you might as well just have the wall burning down behind him, right?
• 6:14
  SPEAKER_01: It's like uh, you know, uh you're just unaware of what's happening beyond the scenes or what's starting to occur in the stock market behind him.
• 6:22
  SPEAKER_01: And he's not supposed to make huge, you know, uh risk management decisions revolving just around what the stock market's doing, but we can see the trajectory of this, right?
• 6:32
  SPEAKER_01: It it's uh something bigger.
• 6:34
  SPEAKER_01: So it it's very interesting to where money wasn't leaving because it was leaving everything.
• 6:40
  SPEAKER_01: It I mean, gold was down, the US dollar was down, every commodity was almost down.
• 6:45
  SPEAKER_01: The other one was Bitcoin.
• 6:46
  SPEAKER_01: Bitcoin actually traded a couple thousand points higher today.
• 6:49
  SPEAKER_01: So that was uh you know, not shook up too much at all either, which I found interesting.
• 6:54
  SPEAKER_00: That's it's interesting on the corn market, and I I don't want to spend uh you know a lot of time just specifically on the one that really didn't react, but what Monday we had the acreage report that said we're gonna plant 95 plus.
• 7:06
  SPEAKER_00: That feels like so long ago.
• 7:08
  SPEAKER_00: It feels like a long time ago.
• 7:10
  SPEAKER_00: Yeah.
• 7:11
  SPEAKER_00: And then you had the tariffs, and at the end of the week, corn was kind of held up pretty well.
• 7:18
  SPEAKER_01: Plenty of reasons to trade lower throughout this whole week.
• 7:20
  SPEAKER_01: Because I mean, really, Monday wasn't that long ago.
• 7:23
  SPEAKER_01: And I know that the market probably figured there's 95 million acres in there anyways, but it was still above the average trade estimate.
• 7:30
  SPEAKER_01: So it it yeah, very in that man, that feels like a long time ago.
• 7:34
  SPEAKER_01: That is so funny you said that.
• 7:35
  SPEAKER_01: So it the the corn market held up fine.
• 7:38
  SPEAKER_01: The the soybeans, we've been through this before.
• 7:41
  SPEAKER_01: Yep.
• 7:42
  SPEAKER_01: China came out 34% retaliatory tariffs that immediately hit the soybean market, and it's been hitting it this week.
• 7:49
  SPEAKER_01: I mean, November soybeans at uh 984.
• 7:54
  SPEAKER_01: Uh, we started the week off here, uh, for example, on Monday, we had a high of 1038.
• 8:00
  SPEAKER_01: Yep.
• 8:01
  SPEAKER_01: So, I mean, we we ripped a lot off that soybean market, mainly today in this session because of China, they still buy the majority of our soybean exports.
• 8:09
  SPEAKER_01: And we've been through this rodeo before with China.
• 8:12
  SPEAKER_01: Uh trade wars, tariffs are not bullish.
• 8:17
  SPEAKER_01: No.
• 8:17
  SPEAKER_01: And I mean pretty much any commodity.
• 8:18
  SPEAKER_01: Corn was up two cents today, but it's not like that's bullish.
• 8:22
  SPEAKER_00: No, it's it's not bullish, but when you're in the when you're in the business of growing a commodity, uh anything that negatively affects trade is going to negatively affect your business, right?
• 8:32
  SPEAKER_00: Yeah.
• 8:32
  SPEAKER_00: We need buyers of our commodities because we produce a lot here, especially our grains, well, and and livestock, and we need to ship them out to other other places, and tariffs and trade wars do not uh do not complement those things together.
• 8:48
  SPEAKER_00: Um so you know, obviously bad week, tough day.
• 8:52
  SPEAKER_00: Um, you know, the China retaliatory tariffs, I remember I technically go into effect, what, April 10th?
• 8:58
  SPEAKER_01: April uh 5th?
• 8:59
  SPEAKER_00: Oh, okay.
• 9:00
  SPEAKER_00: I thought I I don't know.
• 9:01
  SPEAKER_00: I can't remember.
• 9:02
  SPEAKER_00: But it it wasn't today.
• 9:03
  SPEAKER_00: And of course we've seen these these tariffs, uh, the negotiations with Trump all of a sudden uh can change on a dime.
• 9:11
  SPEAKER_00: So maybe there's some a little bit of hope there, but he definitely seems dug in on you know the tariff announcement coming out uh uh coming out on Wednesday.
• 9:20
  SPEAKER_00: Yeah, tomorrow.
• 9:21
  SPEAKER_00: Oh, tomorrow they do okay.
• 9:23
  SPEAKER_00: Um and so yeah, sorry about that.
• 9:25
  SPEAKER_00: April 5th, they start on that.
• 9:27
  SPEAKER_00: But so given all that, a tough day.
• 9:30
  SPEAKER_00: What are we looking forward to?
• 9:31
  SPEAKER_00: What are the next steps, Mike?
• 9:33
  SPEAKER_00: Uh what what are we gonna do you know come Monday morning?
• 9:37
  SPEAKER_01: You know, uh a couple weeks ago, might now have been that long, I talked about uh the importance of recognizing market trends with just every other industry in the world is taking risk off the table right now.
• 9:50
  SPEAKER_01: Whether you have a coffee shop or whether you have a farm or whatever the case or business is, you're taking risk off the table.
• 9:58
  SPEAKER_01: Even in your own retirement account, you're probably thinking, I don't know, should I be in a really risky type uh portfolio right now?
• 10:06
  SPEAKER_01: And the answer is probably no.
• 10:08
  SPEAKER_01: The uh now from that perspective, uh, we need to bring that back to our own business as well.
• 10:15
  SPEAKER_01: You know, I've uh adjusted some risk management strategies just by thinking, you know, yeah, we get back to the crop insurance price almost every year in corn and soybeans between March 1st and November 30th.
• 10:29
  SPEAKER_01: So 470 and 1054 between corn and soybeans.
• 10:33
  SPEAKER_01: If we get back to those points now, it's gonna be way more attractive, or at least face value is gonna look way more attractive than what it probably was before all of this.
• 10:43
  SPEAKER_01: Sure.
• 10:43
  SPEAKER_01: The the world has changed, whether we like it or not, whether it was a knee-jerk reaction or not, the our global trade looks different than it did before Wednesday.
• 10:53
  SPEAKER_01: Yep.
• 10:53
  SPEAKER_01: So when I am viewing risk management, I'm viewing it from the perspective of one, your capital down the road, if this continues, probably gonna go further.
• 11:02
  SPEAKER_01: So that built up working capital you've been working on that the bankers have been telling you to keep on hand, that's gonna become uh a bigger stick here soon at this point.
• 11:11
  SPEAKER_01: Uh two, taking risk off the table at opportunities that make sense for your business at a more aggressive rate, uh, for one.
• 11:19
  SPEAKER_01: And then two, just volatility's picking up, ranges are picking up.
• 11:23
  SPEAKER_01: You know, option strategies seem to be a more comfortable go-to just because it's not so hit or miss.
• 11:30
  SPEAKER_01: It's not all in one boat.
• 11:32
  SPEAKER_01: So keeping more flexible strategies uh make a lot of sense.
• 11:36
  SPEAKER_01: So that'd be one thing.
• 11:37
  SPEAKER_01: Like for an example, you know, a November soybean put at the money, it sounds crazy.
• 11:43
  SPEAKER_01: It's 54 cents.
• 11:44
  SPEAKER_01: Well, I mean, shoot, that was only a couple days ago at this point.
• 11:47
  SPEAKER_01: So um yeah, and not saying we would ever buy a put just straight up at the money like that, but just an example.
• 11:54
  SPEAKER_01: So that's where I'm going with a lot of stuff right off the bat.
• 11:58
  SPEAKER_01: One, this is not gonna be uh next week, this is all done thing either.
• 12:03
  SPEAKER_01: We learned that in the first administration.
• 12:05
  SPEAKER_01: This is the goal, and that's not long-term bullish agriculture.
• 12:09
  SPEAKER_01: I mean, this is a a trend that will be uh a hump to get over for quite some time.
• 12:15
  SPEAKER_01: This is only two and a half months into his admit, we got another three years of this.
• 12:20
  SPEAKER_01: Yep.
• 12:20
  SPEAKER_01: And this is definitely the way he's pushing it.
• 12:23
  SPEAKER_01: So just from a a cycle perspective, the next few years, um, that puts a lid, whether we like it or not, on probably a lot a lot of prices.
• 12:33
  SPEAKER_00: Yep.
• 12:34
  SPEAKER_00: No, I I think you're you're exactly right.
• 12:36
  SPEAKER_00: Um, you know, from an insurance standpoint, that's you know, from a crop insurance, which I know was uh almost a month ago we made those decisions, but we we talked about using higher levels of crop insurance.
• 12:47
  SPEAKER_00: Which most people probably did.
• 12:49
  SPEAKER_00: Uh using the ECO product like we had a lot of people do to take some of that risk off the table.
• 12:54
  SPEAKER_00: Um, and uh and that you know right now looks like a good decision.
• 12:58
  SPEAKER_00: Of course, you know, we have a long way to go uh to settle all that out.
• 13:02
  SPEAKER_01: But it's been a busy week for you on the LRP and LGM side.
• 13:06
  SPEAKER_00: Yep, and so that's uh another kind of to your point, Mike, of as as we're looking at opportunities, um, you know, we are down in the markets, the the you know, like the cattle markets uh specifically uh from you know some all-time record highs, but we're still protecting pretty good prices.
• 13:23
  SPEAKER_00: And so to your point, of if you're getting to the point where it it's time to take some risk off the table, uh, you know, definitely talk to us.
• 13:32
  SPEAKER_00: You can work with the the you know futures and option strategies on your side, Mike.
• 13:38
  SPEAKER_00: But you know, that LRP and LGM products on the livestock insurance for cattle and swine uh really do offer some good protection and gives us a little bit of a uh a look back.
• 13:50
  SPEAKER_00: You know, we have until 8.25 a.m.
• 13:52
  SPEAKER_00: the next morning to do it.
• 13:53
  SPEAKER_00: So if you're kind of on the fence and want to watch an overnight market reaction, uh you do have a little bit of time the next morning to do that.
• 14:00
  SPEAKER_00: But we have been doing that a lot as guys sit back and think, you know, man, is it time to take some risk off and buy an insurance coverage?
• 14:08
  SPEAKER_00: And we did quite a bit of that this week.
• 14:11
  SPEAKER_00: And I just would say kind of echo your point, Mike.
• 14:14
  SPEAKER_00: If it's that time for you right now, let's look at it and let's get it locked in.
• 14:18
  SPEAKER_01: You know, with feeder cattle just sending home one last final thought.
• 14:22
  SPEAKER_01: We're only about four and a half percent off the high on November feeder cattle, for example.
• 14:27
  SPEAKER_01: Uh, that puts us just back about the beginning of March, really.
• 14:31
  SPEAKER_01: So about a month ago.
• 14:32
  SPEAKER_01: Yep.
• 14:33
  SPEAKER_01: Uh, where like the stock market, for example, is basically erased a year's worth uh of gains.
• 14:38
  SPEAKER_01: So if you look at it that way, like some of these commodities we're not that far off the high, especially record highs in the cattle.
• 14:45
  SPEAKER_00: Yep, good perspective.
• 14:46
  SPEAKER_00: But don't give up hope right away.
• 14:48
  SPEAKER_00: Yeah.
• 14:49
  SPEAKER_01: All right.
• 14:49
  SPEAKER_01: Thank you for your time.
• 14:50
  SPEAKER_01: Thanks, bank.
• 14:51
  SPEAKER_01: And thank you to all our listeners.
• 14:52
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 14:56
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 15:01
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:07
  SPEAKER_01: See you next time.