Market to Market (March 29, 2019)


Coming up on
Market to Market. The impact of weather
is revealed in the government’s acre picture. We have assembled a panel
of experts to break down those numbers with Naomi
Blohm, Darin Newsom, Ted Seifried and
Don Roose, next. Pioneer Hybrid
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accusteel.com. (music) This is the
Friday, March 29 edition of Market to Market, the
Weekly Journal of Rural America. (music) Hello. I’m Delaney Howell. U.S. trade negotiations went to
China this week to meet face-to-face with their
counterparts as the two economic superpowers try
to find common ground. Widespread flooding still
engulfs major portions of Nebraska, Iowa and
Missouri, plus locations along the
Mississippi River. These two topics could be
enough for a full program of discussion. However, USDA also
released their planting intentions and what is
left in the bins of American farmers. We are breaking format and
have assembled a panel of our regular
market analysts. Naomi Blohm, Senior
Market Advisor for Stewart-Peterson. Don Roose, Founder of U.S. Commodities. Darin Newsom, President
of Darrin Newsom Analysis Inc.. Ted Seifried, Vice
President of Zaner Ag Hedge. We’ll hear from all of
you in just a moment. But first, the numbers. For the week, May wheat
shed 8 cents, while the nearby corn contract
dropped 22 cents. White House Economic
Advisor Larry Kudlow poured a little water on
trade optimism with China. And the May soybean
contract declined 20 cents. May meal fell
$8.50 per ton. May cotton increased
$1.03 per hundredweight. Over in the dairy parlor,
April Class III milk futures added 26 cents. The livestock
market rebalanced. June cattle dropped $4.50. May feeders
weakened $5.27. And the June lean hog
contract plunged $7.13. In the currency
markets, the U.S. Dollar Index
increased 20 ticks. May crude oil added
$1.30 per barrel. COMEX Gold declined
$21.70 per ounce. And the Goldman Sachs
Commodity Index stayed steady to finish
at 433.80. Welcome back to everyone. Blohm: Thank you. Seifried: Thanks for
having us, Delaney. Howell: All right, folks,
I want to get your quick Twitter 180 character
thoughts on today’s prospective plantings
reports, except for Darin. I’m going to leave you out
of that because I think we all know how you feel
about that report. Naomi, I’ll
start with you. Blohm: The report today
gave trade a big surprise as far as bigger corn
acres, less soybean acres, which was supportive,
but overall we are still looking at large stocks
and that is what weighed on the market
prices today. Howell: Don? Roose: Yeah, I think when
you look at the report it was a decisively
negative report. But hopefully we’ve got
the worst news dialed in, very similar to
what we had in 2016. That is yet to be seen. You’ve got huge
commitments on the negative side. So is this the worst news
we’re going to see here for the next few months? That’s the real question. Seifried: With the corn
stocks number coming in 270 million bushels above
expectations that means that we have to beat last
year’s pace of exports and ethanol consumption
between now and the end of the marketing year at a
time where we have South American crops looking
very good and ethanol really kind of
falling apart. It doesn’t look like
that’s going to happen. So I think we’re looking
at a 2 billion bushel carryover for this year
and we could be looking at something bigger than
that for next year. Howell: Okay, Darin, I’ll
let you answer a question now. We also have the quarterly
grain stocks reports. I know that that’s one you
place with a little higher value. What were your overall
thoughts about that report? Newsom: Well, I’m in
agreement with what everybody else said,
particularly with Ted’s point that what this
does is now we can all recalculate what looks to
be, what path we’re on to reach ending stocks. Corn ending stocks now
look to be well over 2 billion. Wheat we’re going to go
over the 1.1, it looks like we should go over the
1.1 billion bushel mark. But the real interesting
thing to me was what they said about soybeans and
the fact that it didn’t react much today was that
we could almost double what USDA is projecting
right now from its 900 million based on what we
saw in today’s reports. If you do the math looking
out over just average demand over the second
half of the marketing year we’d be looking at about
1.6 billion bushels of ending stocks of soybeans. So, again, it
was impressive. But why didn’t
soybeans react? Howell: Were today’s
market closes, we had closes down in all
commodities, livestock included. But in the grains markets
were today’s closes just because of the reports
today or is there something else maybe
end of the month? Anything like that? Blohm: I think you saw in
the corn market once the sell stops got triggered
you saw additional selling happen which turned
into technical selling. We went and touched a
big support line to the downside and that even was
breached and taken out again. So with the funds being as
short as they are, over 200,000 contracts short,
they’re going to continue to stay short until they
finally get either their technical objective met to
the downside, which could be another 10 cents, or
until we can get some friendly fundamental news
to get them to justify why they should start backing
out of their short positions. Seifried: We had a double
negative for the corn market today. We had quarterly grain
stocks coming in way above expectations. That’s a huge miss. 270
million bushels is a huge amount and it really begs
the question of where that’s coming from. Howell: That was going to
be my question too is how did trade — Seifried: We
have a good idea on what exports were. We have a good idea of
what ethanol usage was in that timeframe. Feed is the one we really
don’t know but I don’t think we missed feed by
270 million bushels. To me that smells like
residual which could be suggesting there was more
corn than what we were expecting, maybe the yield
last year was a little bit higher. But that’s a big miss. And
then you put that together with the higher acreage
number, I think you had sort of a game changing
event in corn based on that report. It wasn’t just a bearish
report, it was a change your perspective report. I think we’ve been seeing
things happening in corn that have made some of us
worried about the demand side of the corn equation
for a little while and I think today’s report was
a confirmation of that. And it really makes you
wonder about what is going to happen going forward. Newsom: Delaney, you bring
up a point about what the market thought of it. Well, the market has
been bearish all along. All we’ve got to do is
look at the May-July spread, we’ve been running
at 74%, 75%, 76% of calculated full
commercial carry. So the market has been
telling us it’s bearish. It has been bearish. It was more bearish than
what USDA’s recent ending stocks guesses were. So to Ted’s point, we
could see this building, we could see that
obviously there was some demand problems out there,
the market was telling us there were some demand
problems out there, funds were just loading up on
the short side and Naomi mentioned their technical
objective or their non-commercial objective,
could be zero. We don’t know what
that might be. But it may not just
be 10 cents down. If we’re going to be
talking about over 2 billion bushels of ending
stocks, an as Ted’s point is no demand, I think we
may have some room to the downside yet. Seifried: But to your
point, though, Darin, I get the feeling that the
funds had an idea that this was all coming. I think a lot of people
got caught by surprise by this, by the quarterly
grain stocks number. But I don’t think
the funds did. I think that’s the reason
they’ve been selling and been getting as
short as they are. Roose: But if you look at
it, in the markets you’ve got big carries
in the market. And so it wasn’t
like a no brainer. We haven’t been able to
earn the carry so far. In fact, actually
it’s the other way. Remember December corn
went off the board at $3.76 and three-quarters,
March goes off at $3.61 and a half and now you
have May sitting here at $3.56 and three-quarters. So that is the problem is
we have too much grain, the carries are too big
and we haven’t been able to earn those carries and
then we’ve had the demand sink and then we had a
change in the fundamentals with the ending stocks
now I’m sure everybody is going to be doing the
balance table like we’re talking about and is going
to be 2.1, 2.2 billion bushels, so we
have to shrink it. Naomi: To build on what
Don said earlier, about how maybe they have put in
the worst case scenario right now. The USDA a lot of times in
this March report, they don’t stray too far
from what they said in February, and so the trade
expectations going into this, I think, were
overzealous from the standpoint of hoping it
would be smaller yields, or smaller acres. We’re using data that’s
weeks old already. The realistic flooding
situation that is in our countryside has not yet
been accounted for, so there’s a lot that’s going
to be changing in the coming weeks and in the
coming months, so I agree with Don, I think this is
the worst case scenario, and that it can,
in this instance- Don: If you look at it,
from a timing standpoint, I mean there are
seasonalities and stuff, this is one of the worst
times of year to start to turn bearish. Just like I mentioned in
2016, almost the same, on this report we ended up
over 14 cents lower, we missed the acres, and then
we started to have too wet in April, then it turned
dry, the second hottest year on record, and boom
we rallied 70 cents from this report. Weather is a great
equalizer and you can’t forget that. Delaney: And we had a lot
of weather questions. Naomi, you opened the gate
and they are flooding in. This poses the question,
not only does this report matter because of the
weather issues we’ve seen in Nebraska, Iowa,
South Dakota, etcetera. We have a very specific
question here that came in on Twitter from
@jeff_berggren. He said: ” How many acres
do not have a chance to be planted because of the
flooding, or as of today due to flooding? Do you think the prevent
plant acres will be bigger than 2011? ” He also said “I know
it’s only the end of March.” Still a little ahead of
our time, but what do you think, guys? Darin: Well, it’s
interesting that everyone says that prospective
plantings are so important, but yet they
come back with the next sentence and say the
weather is going to change everything. So- why is prospective
plantings important, then? Ted: Darin, It’s good to
have a baseline for what guys are originally
thinking. Darin: For what reason? Ted: Then we’re going to
see what weather does to sort of change that. Then we have a
baseline to start from. But look, I think it’s
everyone’s point. We could lose a million
acres of planted acreage in corn, from flooding- Darin: But we could gain
some acres in soybeans. If this is the worst case
scenario, they must be talking about corn. In soybeans we could
certainly add acres in soybeans, because the
northern plains are still trying to get out from
underneath the snow. They were thinking they
were going to go into more spring wheat, and now they
are thinking about more canola, more pulse crop,
possibly more soybeans. So what I mean is what is
the worse case scenario, is it just for corn or
is it for everything? To me, beans could get
even more bearish, and we don’t have any clue what
actual acres are going to be. Ted: I think soybeans
will get more bearish. But even if you take a
million acres off the corn planted number, you are
still in a position where we’re gonna, with demand
where it is , if it stays that way, we’re still in a
position where we will be two billion plus
carryover for next year. Howell: What about? Roose: If you look at
this report in the major grains, we’re 4 million
acres short, right? And then history tells us
80 percent of the time in the last 12 years, we’ve
actually gained 1.3 million acres of soybeans. And we’ve gained about
650,000 in corn, so what I’m saying is history
tells us we have a chance to add acres, that’s all
left up to the weather and we’re 4 million short
on the report, so. Howell: But does this
report take into account those bins that are lost
when we saw so many pictures and footage
of the grain bins that exploded, grain
unsalvageable, etc. Does the market factor that in? Does it care? Blohm: No, it’s
not factored in. I think the market will
care in the short-term. It is the adage of it is
too soon yet to know for sure, because it is the
end of March and I don’t think the market will be
overly concerned about what is and what is not
planted until Mother’s Day in May. Because we’ve seen this
country get half their crop planted in two weeks. So I think the traders
are probably assuming the traders think that can
happen but this year may truly may be something
different where it is going to drag on and be
delayed and we are going to see different crops
planted in different areas and there’s a lot of fall
field work that didn’t get done so those guys don’t
exactly have to push to get the corn in, they
maybe can switch it to a different crop. I think there’s a lot up
in the air yet and you really have to be on your
toes for what can unfold in the weeks and
months ahead. Newsom: I’m going to shock
everybody and disagree a bit. I think the market has
taken it into account – the bursting bins,
emotional pictures of this disaster in Nebraska
and Iowa with the grain floating down
rivers and all this. I think the market
factored it in and said, “so what?” . Well, we’ve got 8.6
billion bushels. We had 8.6 billion bushels
at the beginning of March, we’ve got a disaster over
this part of the country. We’ve still got
plenty of corn. Blohm: Maybe that’s
something that localized basis will help that
story of that issue. Newsom: That’s
exactly where it is. It is in localized basis,
but the market as a whole has already registered
it’s not that it’s waiting to see exactly what
develops, right now it has registered it’s opinion,
we still have plenty. Roose: Well, is it. The estimates are around
the 100, 150 million bushels. So, by all told, that’s
not a big amount. Seifried: We just found
270 million bushels of corn. And 40 million
bushels of soybeans. I can’t imagine it
is more than that. In fact, the 100, 150
bushels is unfathomable to me. Maybe 40? I don’t know. Those are some numbers
that I can’t find. Blohm: You know something
to think about, too, is the severe winter we had,
I think that USDA needs to account for more feed that
was feed through to the livestock. I know my clients were
telling me they were feeding 10 percent more,
and they were not getting the weight gain. So in some areas, you’re
going to see the feed demand increase for the
short-term from the harsh winter we had in Wisconsin
in what we feed to our dairy animals. Roose. Well, like Ted said,
it is a head scratcher, realistically they
probably understated the crop, or since it was
such a slow year and our exports were slow. They were able to account
for stuff easier. Cause you think about all
this stuff in transit, we’ve missed that. What well year,
was it that? 2010 they missed it by 400
million and it was because the transit, you
know, so yeah. Howell:Okay. We’ve spent a lot of time
talking about those two reports. I want to move on and
let’s talk about the wheat markets because they had
some export sales news this week? We saw, sales to Egypt and
I believe Iraq, which was unusual. Is it now our turn to
maybe take advantage of Russia and some of those
other countries not exporting as much wheat? Seifried:Yeah. You know, our dollar
is still very strong. That’s the problem
that wheat has had. Uh for the fact that our
nontraditional buyer, Egypt and Iraq coming in,
Iraq two days in a row coming, with tenders. Um, that would suggest to
me that the Black Sea area is kind of drying
up right now. So that could be really
pretty good for wheat, for the next couple of months. Now keep in mind we’ve got
another crop coming soon and so do they, uh, but
we might have a window of opportunity here for wheat
for next couple of months. I think really of the
three grains that we like to talk about, I think
wheat might have the most upside potential, but corn
might, the anchor is the problem Howell:Darrin,
it looks like, uh, disagreeing? Roose: It was, it was 5.5
million bushels to, to, to Iraq. Okay. That’s something. Seifried:It’s something,
Newsom: I mean, it’s still wheat. There’s still
too much of it. We’ve, we’ve still got
ending stocks to use projecting now of up
almost fifty eight percent. We’re not going to
run out of wheat. We’re not going to tighten
the supply and demand situation. As Ted said, we got
another crop coming. Even if it’s not looking
good, coming out of dormancy, who cares? We’ve got enough wheat
on hand right now. It’s not going to
take off and run. Yes, to Ted’s point, it
might be the most bullish, but by being the most
bullish, it just might mean it’s the least
bearish at this point. So, yeah, I mean, we’re
making some sales. We’re not going to
displace Russia. We’re not going to
displace the Black Sea region out of exports. That’s- they’re the
number one region. Now nobody wants our
wheat, they only buy it when they
absolutely have to. Roose: Well, and along
that line, really we’re only 7% of the world
production, so we’re not, we’re not the dominant
issue like we were on corn and beans. We’re thirty three,
thirty four percent. But you know, the Russian
interior prices have been making new highs and so
the, so that’s one of the reasons that the export,
they can’t get it out of the interior
to the export. So we got to, like you’re
saying this little window, Ted, like you said,
possibly, Seifried:right. Roose: Ya, know? Howell:Absolutely. Naomi, anything
to add to that? Blohm: I noticed that we
had been this week the cheapest out there. And again, it goes along
with this to say with what was happening
within Russia. So it’s an opportunity
seasonally. A lot of times you get
a little bit of a push higher in the coming weeks
and month, but that’ll be your opportunity to be
making some sales because to Darren’s point,
there’s a lot of wheat. Howell:There is. Guys, just if you have any
other quick, again, 180 character thoughts on the
corn and soybean markets. I feel like we pretty,
covered those pretty well and I want to move on to
livestock because they had some volatile weeks here
over the last two weeks really. But does anybody have any
other quick thoughts on the corn or
soybean markets? Seifried:I mean I, I feel
like I’m beating a dead horse here, but ethanol is
a problem for corn, right? And it really comes down
to what the EPA is doing with the RFS and granting
for more than four hundred percent more than what we
were doing three years ago. These SRE’s. The small refiner
exemptions were basically handicapping or cutting
the RFS RFS dramatically. And it’s destroying
RIN values. It’s showing
ethanol prices. It’s destroying ethanol
profit margins, which means we’re not, we’re not
as motivated to use corn to make ethanol. And it’s a big problem. And it’s a shame because
ethanol has been the bright spot of a corn
balance sheet for so long now since 2010 and with
this current EPA that’s really falling apart
in front of our faces. And it’s, it’s really a
shame if nothing’s done about that we’re going to
have a major problem with corn going forward. Roose: Was that part of
the reason that you stated earlier that you think
corn is a game changer now? Roose: Well, I, this has
been happening since last October. Most people haven’t really
been seeing that as we’re kind of flying under the
radar and I think because a lot of people don’t
really understand what SRE’s are and, and how
that works and how RIN’s work and and so
on and so forth. But you know, look at
what’s happening with our corn demand for ethanol. Each week we’re falling
well, short of the USDA’s target that we need to
hit to hit their current estimate. And again, ethanol profit
margins are under a tremendous amount
of pressure. Again, this is a problem
I, its something that we need to learn more about. We need to understand and
we need to start yelling at the EPA to say hey,
live up to your promises of the RFS and to the
Trump administration. Live up to your promises
of, you know, keeping the RFS. Good. We need the E15 although
that won’t fix it by itself. We need more exports,
ethanol, so a trade deal with China could help,
but that won’t fix it by itself. We need, we need to fix
the RFS, Howell:Don? Roose: Yeah, that’s it. You know, I was just going
to say, along with Ted, is that really your banking
a bit on a lot of these, commodities on China
and ethanol demand. But I, I guess I would say
it’s the time of the year to keep your
eye on the sky. Howell:Okay. Let’s talk livestock. I want to first address,
of course, the flooding that may or may not have
an impact in the cattle markets. Again, I’m going to ask,
is that being factored in right now? How we already
factored it in. Are we going to
factor that in? Blohm: I think you see
that come in for fourth quarter. Um, you know, there’s a
lot of different opinions about what the
death loss has been. One article stated
potentially a million. Howell:I saw you
shared that today. Blohm: Um, a million
calves lost. Um, but there’s not a for
sure number out there. But the market is mostly
Focused though on right now is the reality
that there’s plenty of production, there’s
plenty of supply. We’ve got second quarter
production expected to be higher. Uh 420 million
pounds higher. And so there’s, there’s
not an issue of, of product right now for
those, the short term. Coming down the road,
that might be something different with, with the
death loss that’s there. Um, but I’m curious to
see, if the boxed beef values can hang in there
and if, um, the choice product is going
to be there or not. Because some are thinking
with the, the winter that we’ve had that the choice
product is not going to be there. So maybe we see that
market place stay higher and keep cattle
supportive. Um, bottom line cattle
continue to be in an uptrend. We could even drop another
two or three bucks and still be a long
term uptrend. Um, but it’s the deferred
contracts that I’m, I’m very curious in the, in
the months ahead once we get a better handle on
what actually has happened because of the
flooding and the loss. Seifried:The feeder cattle
market has reflected that pretty well. Blohm: Yeah. Seifried:But seasonally we
tend to have a bit of a Blohm: pull back? Seifried:Pull back. Blohm: Yep. Roose: Well and that’s
because demand softens a bit between now and full
on grilling season. I think the, the strength
and the hogs and the weather has kept catalog
a little bit longer than maybe it should. But we’ve already started
to see cash slide a little bit. I think we’re due for a
bit more of a correction in cattle. Longer term. I’m still really bullish
for protein in the United States, uh, because I
think we’re going to be competing with China
for our own product. But yeah, I think now is
the time for a bit more of a pull back there
for the cattle. Howell:Don, I’m going to
turn to you for African swine fever specifically. Have we priced that
out of the hog markets? We had I think $2 and 30
cents in the deferred today on Friday close. We done there? Roose: I tell you the
hog market, it’s a very interesting one because
everybody’s trying to compare it to the ped
virus, which is true. That was a domestic issue. This is an export issue
and I think people forget that China has to buy the
pork first and I’m not so sure. I mean when you get into
these places, I mean the refrigeration capacity, I
mean, how are you going to get to some of these rural
areas on a motorcycle with a, uh, you know
with a freezer? I mean it’s, it’s tough. It’s a logistic issue. And I would say that you’d
be, you gotta be very careful with that. The trade basically has
been wrong the whole time. And they factored in,
a big rally got caught because they found out
there was liquidation. Then you know, they got
pounded because the liquidation
hit the market. Now everybody’s fired back
up because China’s going to buy. They bought two weeks
in a row this last week. And they shot us
up this last week. They bought nothing and
its pounded us down. You’re a–the government
saying 50 to 56, uh, on the fourth quarter. We’re up around it, you
know, eighty, eighty one here on October hog. So I’d be careful. Howell:Anybody, any other
different thoughts, similar thoughts on that? Blohm: I’d be curious to
see how the exports are going forward. I’m sure that, I’m
wondering if the Chinese will find a different type
of a substitute for pork. Because I’ve learned my
lesson thinking, oh, they don’t need soybeans. Or you know, they’ll
always need to buy soybeans. I’ve learned that lesson,
so I’m like, okay, what’s the substitute? Is it, like you said,
poultry, is it going to be going into rice? Is it going to be seafood? Um, so I’m, I’m not overly
excited about the Chinese and their hope that
they’re going to continue to buy pork from us. I think that they’ll buy
what they need, but it’s not going to be our saving
grace to get through this. There’s still ample,
ample, ample hogs out there. We saw that on the
hogs and pigs report. Everything one hundred and
two percent on the whole Shebang and there’s
plenty of hog out there. Plenty of product. Roose: Yeah. I mean if you look at it,
nine years expansion on the breeding herd,
Blohm: Right, Roose: I mean it’s and your back,
to all these numbers. Back- largest you know
largest herd herd, the since 1980 81 on a
lot of these numbers. Seifried:But it could have
all been leading to this. Right. I mean, look, your
assessment of what has happened in the hog
market is dead on. You know what I mean? Everybody got excited
about ASF and thought it should go sky high. But what they didn’t
realize is that 40% of the producers in China are
smaller mom and pop shops and they run to market
when something like that happens because they don’t
want a contract ASF and they don’t want to
lose their herd. And so there’s
that liquidation. So that caught the market
on the wrong side. But now, you know, China’s
buying despite a 60% tariff, that
show’s real need. Now is it going
to be every week? Maybe not. I mean, we saw
that this week. The potential for China
to buy all of the hogs is certainly there. Roose: Oh yeah. Seifried:Um, we’ll see. Right. But I dunno, I think we
were due for a pullback. We’d gotten really
very overbought. We’re seeing that here
at the end of this week. It could be a little bit
further, but I’m still fairly friendly
hogs going forward. Roose: Yeah, but from
a risk management standpoint, which is what
I think we’re talking about. You’ve got to be very,
very careful because if you get African
Swine Fever here. Seifried:Right. Roose: You’re
in big trouble. So what do you do? Do you forward contract? Do you sell or not sell? Do you buy puts. A lot of things
to think about. Howell:I’m going
to stop you there. Hold that thought. Naomi Bloom. Don Rowe, Ted Seifried,
and Darrin Newsom we will continue this discussion. Thank you all so much. Thank you. Thank you. That wraps up the
broadcast portion, but this conversation is going
to continue on market plus where we’ll continue
to answer more of your questions. You can find it on our
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