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Grains: Rally Why? · 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 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 May 23rd, and I've got Pat with us here again this week.
• 0:27
  SPEAKER_01: How's it going, Pat?
• 0:28
  SPEAKER_00: Good, Mike.
• 0:28
  SPEAKER_00: How are you?
• 0:29
  SPEAKER_01: Fantastic.
• 0:30
  SPEAKER_01: Well, uh, weather finally getting a little nice here.
• 0:34
  SPEAKER_01: Planning's mostly wrapped up, and all of a sudden we caught f at least three good days in the corn market to get a rally put together at the end of May.
• 0:43
  SPEAKER_01: Seems like we should maybe talk about that this week.
• 0:45
  SPEAKER_00: Yeah, nice little rally.
• 0:46
  SPEAKER_00: Uh uh both old and new crop corn, but December corn as we uh speak here uh Friday afternoon uh uh around that 450 level after uh trading as low as uh uh four thirty-five.
• 1:03
  SPEAKER_00: And uh so what do you suppose, Mike?
• 1:05
  SPEAKER_00: What are the what are the heavy hitters?
• 1:07
  SPEAKER_00: What are the reasons for uh a little bit of run here in corn this week?
• 1:11
  SPEAKER_01: So I've got a handful of different things that it could be.
• 1:14
  SPEAKER_01: Now that's a thing.
• 1:15
  SPEAKER_01: There was no direct one thing that, you know, dry weather forecast, boom, 20 cents like that, right?
• 1:21
  SPEAKER_01: That makes sense.
• 1:22
  SPEAKER_01: But the one that kind of started getting talked about right away because it correlated well with we got a bunch of rain last weekend and then all of a sudden the rally kind of started across the US.
• 1:33
  SPEAKER_01: So rainfall probably delaying a little bit of finishing up on planting makes the question of do we end up with as many acres of corn as maybe what the market was anticipating, which many people have been talking about this market anticipating something more like a ninety-six million acres rather than ninety-five that they had posted.
• 1:51
  SPEAKER_01: So that was one thing.
• 1:52
  SPEAKER_01: Maybe the weather, some rain recently is gonna cut down on acres or the stuff that's delayed on the last 10, 20% of what's gotta go in.
• 2:01
  SPEAKER_01: And then two, we've had this big beautiful bill that came out, and basically, in as I if I could put this as simple as I possibly could, this would be the bill would cut taxes.
• 2:14
  SPEAKER_01: Taxes getting freed up would be more money in our pockets to spend, which makes inflation higher.
• 2:21
  SPEAKER_01: And to combat higher inflation, they usually buy commodities like corn.
• 2:26
  SPEAKER_01: So, like that'd be the most simple way of how that, in my opinion, could impact the corn market.
• 2:31
  SPEAKER_01: And then we've also had some short covering just from very historical lows.
• 2:35
  SPEAKER_01: You had five-year lows on wheat markets, massive short position there, a record.
• 2:40
  SPEAKER_01: So some of those got covered up on the grains, corn you could kind of throw in there too, because there was a lot of short positions put on last week and the week before.
• 2:48
  SPEAKER_01: So uh maybe just some short covering, and part of that short covering could have done with China, Russia, US weather premium getting put back in this market a little bit, all the way across the board for both mainly corn and and wheat in that example.
• 3:02
  SPEAKER_01: Um and then uh really that that would be the most of the big four things I I would argue at least for some of the strength in the in the corn market.
• 3:12
  SPEAKER_00: Makes sense.
• 3:13
  SPEAKER_00: And I and and you know, I would also just I mean, it's it's also the end of May, and it's not uncommon, right, for us to to to see uh uh a bit of a seasonal move in terms of attempting to build a little bit of weather premium to this market, potentially in in in anticipation of some of some weather problems developing as we go through the the the growing season.
• 3:35
  SPEAKER_00: And and as we all know, I mean there we haven't done any damage of any significance to this crop.
• 3:41
  SPEAKER_00: It's also not in the bin, right?
• 3:42
  SPEAKER_00: So and and that that is also something that we could say on May 23rd of every year.
• 3:47
  SPEAKER_00: And and and so um and so just generally to have what would be I I would suggest characterized as is little to no weather premium uh built into this market in the third week of May probably is a little uncommon.
• 4:01
  SPEAKER_00: And and uh and you know, Mike, I mean I I think we we may have even talked about this a little bit last week, but but um you know when you start talking about 95 million-ish uh acres getting getting planted, uh uh, you know, the March intentions number and and uh um and a in a trend line yield at 181 or or a projected ending stocks at 18 or 190 in that in that general area, um 440 corn's a little cheap relative to to those numbers in history.
• 4:32
  SPEAKER_00: And so, and and and so you know, putting a little bit of of weather premium back into this thing is is is logical.
• 4:40
  SPEAKER_00: Um, and maybe we don't even need a reason today to do that.
• 4:44
  SPEAKER_00: Um but the four you described there, I I is are as good as anything.
• 4:48
  SPEAKER_00: And I I would just just say that that that there is a um you know from an outside market influence perspective, this this whole you know um issue idea this week of not only you know the big beautiful bill getting at least through the house today, as you mentioned, or this week, um, but also you know the the uh um the the downturn in credit ratings that that happened uh um to start out the week.
• 5:15
  SPEAKER_00: Um all of those things could be considered is how does the Fed react to such thing?
• 5:21
  SPEAKER_00: Do they start to print money?
• 5:23
  SPEAKER_00: Um is that inflationary?
• 5:24
  SPEAKER_00: Is it appropriate to own commodities in an inflationary sort of environment?
• 5:29
  SPEAKER_00: Um all of that could very easily be um the just the issue or opportunity of money flow.
• 5:35
  SPEAKER_00: And and uh, you know, as as uh as stewards of these commodity markets, uh students of these commodity markets that that we've been uh um engaged in for quite a few years, um we know that uh um that volatility creates opportunity.
• 5:52
  SPEAKER_00: And and uh you know, we do think that a very relatively low vol, you know, that was that was that we were experiencing last week and and in the beginning of this week, um, probably did create a nice little at least short-term, maybe longer term opportunity for end users.
• 6:08
  SPEAKER_00: And and now, you know, maybe we'll get just a little bit of weather premium built into this thing and start to create a better opportunity as it relates to you know for our row crop producers.
• 6:18
  SPEAKER_00: And so um, what do you think?
• 6:20
  SPEAKER_00: How about uh why don't you talk a little bit about spreads a little bit too, Mike, and the impact or at least the indication that that might be making for us?
• 6:29
  SPEAKER_01: Yeah, so I mean when I look at the spreads on corn, just to keep it in in that market here, to keep it a little bit more simple, um the the spreads are quite wide relative to history.
• 6:42
  SPEAKER_01: Now, I have to put a little disclaimer in there because you know we've had a pretty tight balance sheet in the corn market the last, let's say, five years, like back to 2020.
• 6:51
  SPEAKER_01: And since 2020, that's been where we've increased interest rates.
• 6:56
  SPEAKER_01: So we haven't last year was probably the first year we finally got to trade again, like big spreads with big interest rates, big warehouse fees that we put into this market now.
• 7:08
  SPEAKER_01: So we're still at this point where we really don't know what even full carry is.
• 7:12
  SPEAKER_01: We haven't even tried to trade it yet almost.
• 7:15
  SPEAKER_01: Um so sure, the spreads are pretty big, but they're probably not that big relative to what they could potentially run to on full carry.
• 7:23
  SPEAKER_01: But when we look at spread activity, it's generally a very good determining factor of the direction of the markets or how they're feeling, typically.
• 7:32
  SPEAKER_01: That's one of the first things or the the first momentum indicators that you can follow to say, oh, we can see some tightening in the balance sheet coming because they're buying the front month's futures faster than the the back month futures.
• 7:45
  SPEAKER_01: So recently they've been bear spreading the core market, they've been selling the front months and buying the back months, and that's put a larger spread in this thing.
• 7:54
  SPEAKER_01: And I think that when you look at like December to March, for example, that's already 15 cents of carry today.
• 8:01
  SPEAKER_01: And normal, I mean, we'd normally shoot for like 13 cents of carry between the December and the March to take advantage of rolling short positions out.
• 8:10
  SPEAKER_01: So it's it's not too bad of an attractive level to, you know, let's say let's go to the March with a s with a sale instead of the D' today, especially ahead of a potential rally going into the spring.
• 8:22
  SPEAKER_01: So just positioning yourselves, you know, is something you'll have to call us on and we can work through your positions and whatnot.
• 8:28
  SPEAKER_01: But from what the market's telling us with spreads, I think is the really cool part right now is that they, in my opinion, we have pretty tight ending stocks and the spreads yet are telling us, you know what, we're okay, we got ninety-six million acres of corn coming at us.
• 8:45
  SPEAKER_01: You know, if demand really is that good, it's not December's problem, it's probably July's problem next year.
• 8:51
  SPEAKER_01: So it the spreads right now feel like they're not quite telling the whole story of what could be at the end of the year.
• 8:58
  SPEAKER_01: Right.
• 8:59
  SPEAKER_01: But what do you think about it?
• 9:00
  SPEAKER_00: Yeah, no, I think uh uh you did a nice job of of describing the situation there today.
• 9:06
  SPEAKER_00: And I I I think the takeaway on all of that, Mike, is is that um all right, so flat price started to show a little bit of an indication here, right?
• 9:15
  SPEAKER_00: Started to rally off of its lows from what we just attempted to describe, is maybe well, certainly from a historical, a recent historical perspective for some relatively cheap or attractive levels from an end user's perspective.
• 9:30
  SPEAKER_00: Um so flat prices started to show a little bit of life here.
• 9:33
  SPEAKER_00: What you're saying is that so far spreads haven't really, right?
• 9:36
  SPEAKER_00: Haven't started to show much life here at all.
• 9:38
  SPEAKER_00: It's just something to keep an eye on.
• 9:40
  SPEAKER_00: Maybe that could be our next indication that that instead of there just being three, four, or five what-ifs here, that there actually is a developing story as it relates to um to tightening balance sheets.
• 9:53
  SPEAKER_00: And and and if we wanted to go down a rabbit hole or if we wanted to go down a path that would potentially describe what that developing story is, it could be something as relatively simple as, you know what, nationwide planning progress um is on average slightly better than normal.
• 10:14
  SPEAKER_00: Um, you know what, the amount of of uh of uh of of the growing area in the US that is in a uh um moderate to severe drought isn't of of any material significance on on uh on on average or based upon historics.
• 10:34
  SPEAKER_00: But is there a developing story that the standard deviation or that the range from average is greater than normal while the average planning progress for the country is is uh is on pace.
• 10:48
  SPEAKER_00: What we really have is some drier areas of of the western corn belt that have have have exceeded significantly planning progress.
• 10:55
  SPEAKER_00: And we've got some parts of of the country in the eastern corn belt that are severely behind.
• 11:00
  SPEAKER_00: And and uh both of those areas, when we combine them, don't look so bad, but um maybe both of them have a higher than normal probability of concern.
• 11:11
  SPEAKER_00: And I would say that that's true for us around here.
• 11:14
  SPEAKER_00: We all feel much better about our crop prospects this Friday compared to last Friday because we just got uh you know close to two inches of rain, which is uh very welcome, but welcome, but very needed as well.
• 11:27
  SPEAKER_00: And so we're sitting around here today with with two inches of rain and no water sitting and still not not really of any significance as it relates to tile lines running and those sorts of things.
• 11:36
  SPEAKER_00: And and all of that's fine for today, no issues at all as relates to crop development, but those are gonna have to keep coming.
• 11:43
  SPEAKER_00: And and and if they don't, um we're gonna struggle in order to achieve you know trend line yield events.
• 11:48
  SPEAKER_00: And so the same thing I I suspect can be an argument made for the Eastern Corn belt.
• 11:52
  SPEAKER_00: Yeah, we were able to sneak the crop in between rain events, and some of it didn't get put into the best the the best type of crop conditions and or soil conditions, and maybe got mudded in just a little bit, and and uh now they're gonna continue to need to get moisture to avoid compaction, all those sorts of things.
• 12:09
  SPEAKER_00: And and again, would just revert back to this crop isn't made today and it isn't broke today, right?
• 12:16
  SPEAKER_00: Neither one of those things are the case, but it's the futures market's job to try to price some of that in, and just maybe week over week, it feels like it needs to price in a little bit more weather risk premium.
• 12:27
  SPEAKER_00: And again, it can be just as simple as I own a calendar, this is what happens this time of year.
• 12:32
  SPEAKER_00: But there also might be a developing story that's occurring here, is and maybe it's just the the the range from average in terms of of uh of of crop development versus concerns today is a little bit wider than what we normally would see.
• 12:47
  SPEAKER_00: So we'll see how that plays out.
• 12:48
  SPEAKER_00: And again, I um if it's helpful at all, one of the things that we will keep an eye on to it to the to the point we just made a few minutes ago, which is as it relates to spread, sometimes there's a little bit of a of of information uh dictated in that, so something else to keep an eye on.
• 13:02
  SPEAKER_01: And I believe like good uh excellent conditions, crop progress, that starts next week, I think, doesn't it?
• 13:08
  SPEAKER_01: So we'll start to at least put some numbers to it.
• 13:11
  SPEAKER_01: But a perfect example of what you just described is Ohio is 34% planted as of Monday's report, and their normal progress is forty-eight percent.
• 13:19
  SPEAKER_01: So they're behind, you know, 14-15% planted.
• 13:22
  SPEAKER_01: Where South Dakota, where I'm from, 85% planted versus 66% normal.
• 13:28
  SPEAKER_01: Right.
• 13:28
  SPEAKER_01: So it's like too dry in the west and in the east, real, real spotty.
• 13:33
  SPEAKER_01: So it tail of two cities, but neither city's necessarily perfect situation.
• 13:38
  SPEAKER_01: Now, Mike Fitzgerald in Eastern Iowa, they're always perfect.
• 13:41
  SPEAKER_01: That's right.
• 13:41
  SPEAKER_01: But yeah, so we'll leave him out of it, I guess, for now.
• 13:44
  SPEAKER_01: So look forward to Monday's report.
• 13:46
  SPEAKER_01: Look forward to uh putting a little a few more numbers to it than just saying an average number and how dangerous that can be in this world.
• 13:54
  SPEAKER_01: So any final thoughts for our listeners?
• 13:56
  SPEAKER_00: Perfect.
• 13:56
  SPEAKER_00: Have a great weekend, everyone.
• 13:57
  SPEAKER_00: Enjoy the long weekend.
• 13:59
  SPEAKER_00: Uh, no markets on Monday.
• 14:00
  SPEAKER_00: Talk to you on Tuesday.
• 14:01
  SPEAKER_01: Thank you, Pat.
• 14:02
  SPEAKER_01: And thank you to all our listeners.
• 14:04
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 14:07
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:13
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 14:19
  SPEAKER_01: See you next time.