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Grains: Support Lines and China · 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 involve 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 17th.
• 0:25
  SPEAKER_01: I've got Jaden with us here today.
• 0:27
  SPEAKER_01: How's it going, Jaden?
• 0:28
  SPEAKER_00: It's going good, Mike.
• 0:29
  SPEAKER_00: How about yourself?
• 0:30
  SPEAKER_01: Not too bad.
• 0:31
  SPEAKER_01: We've got a bundle full of things to talk about today.
• 0:34
  SPEAKER_01: We just covered the cattle market in the podcast earlier today with Jay.
• 0:38
  SPEAKER_01: So it was a fantastic one, if you can catch that.
• 0:40
  SPEAKER_01: Today we're going to talk about the grain markets.
• 0:42
  SPEAKER_01: You and I, Jaden, we're going to talk about the rally first off, then we're going to talk about yields, talk about uh the China situation quite a bit here, it looks like, and how soybeans are sitting compared to where they should be.
• 0:54
  SPEAKER_01: So let's kick it off with the recent rally we've had, Jaden.
• 0:58
  SPEAKER_01: Uh we closed up just about a penny today, D's 25 corn, 422 and a half, up about a penny.
• 1:04
  SPEAKER_01: Uh what can you tell us about these last four days that has sparked a little bit of a buying spree in these grain markets?
• 1:11
  SPEAKER_00: Yeah, Mike, so earlier in the week we it wasn't looking too pretty on the corn uh charts.
• 1:17
  SPEAKER_00: We we found that 410 area seemed like we found some support there and kind of just have rallied since then.
• 1:23
  SPEAKER_00: Um kind of multiple factors there, um, some weakness in the US dollar there.
• 1:28
  SPEAKER_00: Um not a lot of um, you know, news to trade on this corn market.
• 1:32
  SPEAKER_00: We do have, I guess, harvest to trade, but not a lot of government reports due to the government shutdowns.
• 1:39
  SPEAKER_00: So, I mean, we have heard some disappointing yields in Iowa and Illinois and Indiana and places like that, but I would say those are kind of the reasons for for us to find support around that 410 area.
• 1:51
  SPEAKER_01: For sure.
• 1:52
  SPEAKER_01: You mentioned that uh that yield being pulled back a little bit.
• 1:56
  SPEAKER_01: Actually, I read something today that it looks like some are estimating that U.S.
• 2:00
  SPEAKER_01: corn yields could be dropping below 177, which uh that would be well below last year's record yield as well.
• 2:08
  SPEAKER_01: Nonetheless, the WASDA estimates going into this report that we did not get in uh in October, uh, we were at 185, so that'd still be a heck of a lot to pull off uh until that 177.
• 2:20
  SPEAKER_01: Nonetheless, it seems like the yields are shrinking in the state of Iowa and Illinois and Indiana from the sounds of it, and that's giving us a little bit of a support here.
• 2:29
  SPEAKER_01: Uh, you looked at uh the December corn that held a key support level and bounced on flunt short covering near 416, found new buying above that 420 to 421.
• 2:39
  SPEAKER_01: Our close above 420 type area, around that 20-day moving average, was fantastic.
• 2:45
  SPEAKER_01: They think uh, you know, further buying could be triggered if we closed above that 425 again.
• 2:50
  SPEAKER_01: So keep an area an eye around this area.
• 2:53
  SPEAKER_01: We got right up to 425.
• 2:54
  SPEAKER_01: I would have liked to close above that today.
• 2:56
  SPEAKER_01: Today, we didn't even trade it, so that that could have been a little bit more friendly.
• 3:00
  SPEAKER_01: Soybeans as well, that 1014 area.
• 3:02
  SPEAKER_01: Pretty key support there.
• 3:03
  SPEAKER_01: That triggered some fun short covering as well.
• 3:06
  SPEAKER_01: The trade over the 20-day moving average uh uh near that uh near that level helped some uh some new tech buying as well.
• 3:14
  SPEAKER_01: So some very interesting stuff there lately on the on the corn and soybeans.
• 3:19
  SPEAKER_01: Looked like bean oil too.
• 3:20
  SPEAKER_01: That stuck between the 20 and the 100-day moving averages.
• 3:23
  SPEAKER_01: Uh Trump's tweet that U.S.
• 3:25
  SPEAKER_01: may stop business with China from the cooking oil imports, that helped uh some of the crush company's stock values there this week as well.
• 3:32
  SPEAKER_01: So when we when we take a little bit of a picture at the short covering that had ensued there, you know, since the last time that we saw that report, we don't see much different.
• 3:43
  SPEAKER_01: On September 23rd, the last time we got the commitment of traders report, that was showing us 1012 futures on Nove Beans.
• 3:50
  SPEAKER_01: We're sitting about 1020 today.
• 3:52
  SPEAKER_01: Uh, they're only about 29,000 short.
• 3:55
  SPEAKER_01: Today they think they're probably about 8,000 long after all of this.
• 3:58
  SPEAKER_01: So maybe a little bit got covered there.
• 4:01
  SPEAKER_01: The corn side, we were 426 before we're trading 422 today, so a very similar price there as well.
• 4:08
  SPEAKER_01: Uh, they think we're in a very similar spot when it comes to fund short covering.
• 4:12
  SPEAKER_01: We're at 94,000 in that last report.
• 4:15
  SPEAKER_01: They think we're just shy of 100 right now, so very similar short covering position.
• 4:19
  SPEAKER_00: And Mike, you you probably think the reason for the fund difference between corn and beans, do you think it's just more of a we don't want to be short ahead of a trade deal kind of thing?
• 4:29
  SPEAKER_01: 100%.
• 4:30
  SPEAKER_01: I mean, if you get a trade deal done with China, uh, you immediately rally this market, and the funds just don't want to get caught ahead of that.
• 4:37
  SPEAKER_01: Um we just haven't seen enough on the soybean side to say that yield of production was low enough to really warrant massive short covering, so they haven't quite done that.
• 4:48
  SPEAKER_01: They've done a little bit of it, but uh at the same time, they probably would have had a few more shorts on uh in this marketplace if they were aware that there was gonna be no China trade deal to be had.
• 4:58
  SPEAKER_01: But nonetheless, that's gonna take us to a couple points here, I think, that are worth mentioning.
• 5:04
  SPEAKER_01: We're gonna talk about what we have priced in to the soybean market based on China trade.
• 5:10
  SPEAKER_01: The price today being at 1020 November soybeans, Jaden.
• 5:14
  SPEAKER_01: Does that include China not buying anything going forward or not?
• 5:19
  SPEAKER_01: Or do you think this has China eventually coming back into the marketplace at that price?
• 5:25
  SPEAKER_00: Well, Mike, I I like to draw a trend line across your last three lows on the soybeans, and I I think, you know, we maybe have downside risk of that 960, 980 area on the NOV beans, but I I don't think it's a lot more downside risk.
• 5:40
  SPEAKER_00: If you look at, you know, our stocks to use globally we're we're a lot more fuller on beans, you know, this year compared to the 1819 trade war.
• 5:49
  SPEAKER_00: And from a Chinese standpoint, they also are sitting on a lot more supplies.
• 5:54
  SPEAKER_00: So they're gonna they're gonna need more soybeans than they did in the the past trade war.
• 5:59
  SPEAKER_01: Yes, so they uh global stocks are higher right now than they were last time.
• 6:04
  SPEAKER_01: Chinese stocks are higher than they were last time.
• 6:07
  SPEAKER_01: Uh the USA actually down a little bit from where we were going into the trade war last time, uh sitting right about around that 330 uh million bushels of ending stocks.
• 6:19
  SPEAKER_01: So your stocks to use ratio was a little higher then, but nonetheless, uh at this point, the big comparison I'm looking at is the the problem is when you compare stocks-to-use ratio and price on soybeans, there's not a very good relationship historically.
• 6:36
  SPEAKER_01: But you can draw clusters, and we'll include this in our grain rack this week.
• 6:40
  SPEAKER_01: If you don't get that, please reach out to us and we'll send it to you.
• 6:44
  SPEAKER_01: If you look at the clusters of prices, when you look at a similar stocks to use situation around this type of an area, you historically don't want to trade anywhere outside of like 950 to 1050 is kind of the area.
• 7:02
  SPEAKER_01: To go to an upper echelon of 12 or higher, it seems like that that's a huge difference.
• 7:09
  SPEAKER_01: With there's a lot of trade between 1050 and lower to about that nine and a half, and then there's the 12 and higher echelons.
• 7:17
  SPEAKER_01: So you could put those two in a category all by themselves in two different buckets.
• 7:21
  SPEAKER_01: Now, during the trade war last time, we had$9.7 on the day of the January WASDA report for the 2018-2019 crop in the trade war.
• 7:31
  SPEAKER_01: It it was bad.
• 7:32
  SPEAKER_01: We had nearly a billion bushels of ending stocks, it was 900 in change, so very weak fundamentals, all the way outlier over that side of the category.
• 7:42
  SPEAKER_01: That 907 it was a much worse situation.
• 7:46
  SPEAKER_01: You planted nearly 10 million more acres on soybeans, you uh you just didn't have as good of fundamentals.
• 7:54
  SPEAKER_01: Um, I would argue at this point, if you are not factoring China into this thing, you get mid to low nines on the soybean market.
• 8:03
  SPEAKER_01: If you told told the market today they're not gonna buy anything for the rest of the year going forward, uh you'd get into the low mid-low nines pretty easily, it looks like, given history.
• 8:13
  SPEAKER_01: If at this point, given what we know, it doesn't want to trade much below that, it looks like.
• 8:20
  SPEAKER_01: And that trend line that you talked about there from a technical perspective is something for them to focus on.
• 8:25
  SPEAKER_01: So keep an eye on that around that upper 980s, up lower 990s type area on November soybeans as we move forward through the winter months here.
• 8:35
  SPEAKER_01: This is a moving target, but I would just say given history, given the information we have on the soybean market today, what they have priced in it, I think it's gonna be very tough to get below that trend line if it does, not much.
• 8:48
  SPEAKER_01: And the top side of this thing, you get up to about 10.5 or so, but it gets pretty dicey.
• 8:54
  SPEAKER_01: It seems like you gotta take that next leg lower to get in the 12s, and that's something else.
• 8:59
  SPEAKER_01: That's yields were way smaller than what we expected, and we made a giant phase three trade deal with China, and they're gonna buy a ton in excess.
• 9:07
  SPEAKER_01: So at that point, that's kind of what it brings us to, I think, in some of the differences between this trade war and the last one.
• 9:14
  SPEAKER_01: Um, keep an eye on other things as well, like government payments.
• 9:17
  SPEAKER_01: If Trump is gonna give us a government payment, at this point it doesn't look like we're gonna get a Chinese trade deal right alongside of that.
• 9:25
  SPEAKER_01: Think about that.
• 9:27
  SPEAKER_01: He needs to pay us if we don't have a trade deal.
• 9:29
  SPEAKER_01: If we have a trade deal, then soybeans rally, he doesn't feel as inclined to give us$10 billion, especially$7.3 billion to just soybeans.
• 9:36
  SPEAKER_01: So that is something worth monitoring as well, I think, going forward, Jaden.
• 9:40
  SPEAKER_01: Any final thoughts on the trading range that we have given what we know about China today and soybeans?
• 9:47
  SPEAKER_00: Yeah, I would just hit on your point again that we we're definitely better off than we were in our first trade war.
• 9:52
  SPEAKER_00: I mean, our domestic crush, you know, it's like four million bushels higher.
• 9:56
  SPEAKER_00: Um we are our exports that you know, obviously we don't have China, but our exports to other countries are really not that bad.
• 10:03
  SPEAKER_00: And we we planted seven million less acres.
• 10:05
  SPEAKER_00: So just looking at all that and a payment um could be in uh in the near future there too.
• 10:12
  SPEAKER_00: So I I think just keeping an op optimistic point of view is uh is a big thing for the U.S.
• 10:16
  SPEAKER_00: farmer.
• 10:17
  SPEAKER_01: Last time around, China sourced a lot of their soybeans from Brazil, correct?
• 10:22
  SPEAKER_01: Yes.
• 10:23
  SPEAKER_01: What m what was it?
• 10:24
  SPEAKER_01: You had some percentages on that, I believe, didn't you?
• 10:26
  SPEAKER_00: Yeah, it was like 80%.
• 10:28
  SPEAKER_01: 80% of the soybeans that they had bought came from Brazil in that time frame.
• 10:32
  SPEAKER_01: Makes sense, right?
• 10:33
  SPEAKER_01: And uh they've been leaning more heavily towards their exports anyways in the past few years because of that.
• 10:39
  SPEAKER_01: They've got their hooks in deeper in that community.
• 10:42
  SPEAKER_01: Um they've got more ingrained in that business.
• 10:45
  SPEAKER_01: So that's been a normal, normal growth for both acres and production out of the uh out of South America, and those have naturally been flowing to China anyways.
• 10:55
  SPEAKER_01: If you looked at our price today out of the United States with no tariffs, are we competitive to go to China today versus Brazil and Argentina?
• 11:04
  SPEAKER_00: Yeah, with no tariffs, we are competitive, but uh there's a lot of gray area with what actually is our tariff percentage on on U.S.
• 11:12
  SPEAKER_00: soybeans, but with no tariffs, yeah, we are competitive.
• 11:16
  SPEAKER_01: So with tariffs, we're not competitive with 10% added on top of that.
• 11:20
  SPEAKER_01: If you took those off, we would be sending soybeans there likely today at a cheaper level, especially at this time of the year, Jaden.
• 11:28
  SPEAKER_01: All right.
• 11:28
  SPEAKER_01: Thank you for your time today.
• 11:30
  SPEAKER_01: If you guys have any questions on any of the topics, provided we created an outline send out in the grain rack this week, please reach out.
• 11:37
  SPEAKER_01: If you have any questions on this 26 crop year coming ahead of us, please we have uh already some marketing plans laid out.
• 11:44
  SPEAKER_01: I want to talk with each and every one of you about your business and a tailored marketing plan for it.
• 11:49
  SPEAKER_01: Also, if you have any questions about the crop you're getting rid of right now and any re ownership opportunities, I want to walk through those as well.
• 11:56
  SPEAKER_01: So please give us an opportunity.
• 11:58
  SPEAKER_01: We would love to chat with you.
• 12:00
  SPEAKER_01: Thanks.
• 12:00
  SPEAKER_01: Have a great weekend.