Market Plus: Ted Seifried

Aug 5, 2016  | 12 min  | Ep4150 | Podcast

Podcast

Pearson: This is the Friday, August 5, 2016 version of the Market Plus segment. Joining us now is Ted Seifried. Ted, welcome back.

Seifried: Hey, thanks for having me.

Pearson: We are glad to have you. And before we get too far into it, I wanted to pick up where we left off on the show. We promised to talk about corn demand and you had mentioned we are expected to see some corn sales going into Brazil. When and how much? What kind of a market impact would that have?

Seifried: Well, the when is a good question because they're currently working and trying to get the approval to import GMO corn. And it's fairly obvious that they're doing that to be able to import our corn. How much is a great question. From the peak of where their estimates were back in March they lost almost, the equivalent of 560 million bushels of corn off what they thought they had for production. So at this point they are not making any sales of corn because they may have overextended themselves already. And they're going to need corn for feed. So you think it could be at least a few million metric tons of corn if not quite a bit more than that. So that is a very positive thing. It could give us a significant boost to our exports here for this coming year. But not only that, they're also likely to source a fair amount of the corn needs from Argentina, they usually do, a lot of that is regional, the southern half of Brazil in particular. So that might take Argentina off the global export market to a big extent as well, which might leave us as really being the main player in the global export market, aside from the Black Sea region. So yeah, on a lot of different levels that really does speak well to the potential for our exports here this year and even just in the last few weeks we've seen some very strong export sales in corn without Brazilian demand into that because they're not quite ready for that yet. And then you look at ethanol and ethanol maybe for me is just as interesting, maybe even more interesting of a story. Just like the corn crop in Brazil with the late season dryness has a significant downgrade, so did their sugar cane crop. And with sugar prices being as high as they are, a lot of that sugar cane that would normally be used for ethanol, is now actually getting used to produce sugar and a lot of that sugar is going for export. So they're going to have a hard time keeping up with the massive ethanol demand that they have down in Brazil because they're very dependent on ethanol. So there are some thoughts that up to 500 million liters of ethanol, which translates to about 135, 140 million gallon of ethanol deficit that they're going to need to fill and it's very likely going to be from our corn ethanol. So that is going to keep ethanol plants, ethanol demand strong. You've got export demand for corn potentially being strong. You've got very good on-feed numbers. Weights are probably going to stay up with cheap corn inputs, with cheap corn prices and cheap input costs. So across the board corn demand is maybe looking the best that it has ever been right now.

Pearson: But that sets up, as we watch those things develop, as we watch corn demand and ethanol demand particularly from Brazil, that is a fascinating story, that's going to play out here as we get post-harvest. That's going to be December, January. In the meantime, let's go back to the FC Stone 175 bushel an acre number. Where are we going to put all this corn? And how much is storage going to impact farmers' bottom lines as we get into harvest?

Seifried: Yeah, that's a tough question. Where are we going to put this corn is a good question. There's going to be a lot of corn piles this year. Hopefully guys have been aggressive and priced things so it's maybe not their problem so much because if you've got 60% of your corn crop priced, we were talking about back in January and December, or January, February, March, for our clients we had a target of cash prices, start selling at $4.05 but be 60% sold by $4.44. That was our target, drew a big red marker around it in all the presentations we were giving earlier this year. And that worked well. We didn't have a reason as far as why we go up there, there was a lot of weather talk, but from a technical perspective that is where we thought we'd go. So, but if you don't have much sold and you've got to store everything on-farm or look at commercial storage that is a really tough nut to crack because everybody is going to be competing for storage this year.

Pearson: Right. Start making those plans today if you haven't yet already.

Seifried: Absolutely.

Pearson: Next question I want to get to we didn't get to on the show was cotton, saw another $2.70 higher on cotton. That market has been on fire for three weeks. What is your next target?

Seifried: Well, it's a weather market so we don't really, we kind of throw targets out the window. It's more of a price action thing and an overbought, oversold sort of thing than it is a specific number. But you look at the cotton market, it's very much a weather market. You've got two major growing regions in the U.S. that are under pressure right now, you've got Texas and you've got the Southeast, both in drought type conditions, and that along with the fact that cotton prices have been low for a long enough period of time that global production and the global carryover has come down as well. So it's sort of a perfect storm. It kind of eventually would hope would happen in the grain markets. But we didn't cut production in corn this year. But anyway, cotton you've got guys stuck short both commercials and speculators, this could get really interesting. Now, something that could throw a very wet blanket on it literally would be a much wetter forecast than Texas, for example, or a significant drop in the global stock markets, global economy concerns, things like that. But for right now you've got to love the price action that you're seeing in cotton and you've got to think there's more upside potential short of a big change in the weather outlook or a big change in the global economy.

Pearson: Alright. I want to get to some of our questions here from our Twitter and Facebook followers. We did this last week, we did a rapid fire with Angie Setzer. We want to do the same thing, Ted. We're going to move right through them. We've got a lot of people curious about a lot of things. Start with Rodger, we've touched on this before. Rodger says, all the hype about the grain markets, grain crop markets makes the price fall before one kernel is harvested. He's asking, is the farmer getting the shaft gain? Or, my follow-up is, we're pricing in all of these huge yields, does that give us an opportunity?

Seifried: Well, it's all about perspective, it's all about perception. Yes, when USDA has 76% good to excellent and when everybody is talking about how huge this corn crop is potentially you're going to start hearing these big yield estimates. I would love to hear a 178, 179. I'm not saying that, I'd like somebody else to say that. I'd like to factor in something ridiculous like that and keep corn above $3.25 because if we can do that and then like in '14 when we started talking 176, 177 and ended up with 171 we had a very nice rally come October. I think very much like '14 we're going to factor in a much bigger number than what the reality is and then we can have an early or maybe even pre-harvest rally like we did in '14 and have a nice recovery. That recovery is going to be spurred by all the demand we've talked about. That demand there is not something anybody is paying attention to right now. But once we get this yield situation out of the way and as long as it's not much bigger, as long as that number doesn't actually keep growing and doesn't end up being bigger than what we're all thinking right now, I think you have a very nice pop in store for the corn market at some point.

Pearson: We're setting the stage.

Seifried: Setting the stage, I like how we're doing that.

Pearson: Next question, DuWayne in Britton, South Dakota wants to know, is it safe to buy December hogs yet?

Seifried: Good job, DuWayne. Yeah, we kind of touched on that too. I'm not so sure about that. We keep trying to say that we're extremely oversold and it's safe to get in the water at this point, but every time we do that, I keep telling DuWayne we need to keep tight stops and we keep getting stomped out. So from a speculative point of view, every time we make new lows in RSI and every time we make new lows in the hog market it gets more and more attractive. But gosh, I don't know DuWayne, we're going to have to spin that question back onto you next time we talk.

Pearson: How pricey are calls here in the lean hog market?

Seifried: Yeah, see that's the thing, we've sucked a lot of the premium out of calls at this point. So if you're going to, just like we were talking about in wheat, a way to approach that might be by using call options. The only thing is that every time you buy call options within a couple of days they're worthless because we've moved so far away from them. So yeah, but that being said, we said that about buying puts in corn or buying puts in soybeans when we were up near our highs just a couple of months ago. When you have violent moves a lot of times they're answered with violent moves and you could see something like that in hogs, especially this area we were talking about earlier where China is gaming the market and does come in and make significant purchases, all of a sudden we've got a brand new scenario, brand new narrative for hogs and that could get very interesting. So it's not a bad way to approach it.

Pearson: Okay. Phil in Ontario, Canada asked us several questions. I want to go to his second one. How low do corn prices need to go for American farmers to plant less in 2017?

Seifried: Yeah, well, that's a great question, Phil. We were asking ourselves that question last year and it went the other way by 5 million acres or so, according to the USDA. It's going to be tough. How do you tell a firefighter to stop fighting fires? How do you tell a police officer to stop being a police officer? Producers are producers, we're going to produce a crop one way or another. I guess there's a scenario that exists where soybean prices are trading $12 and corn prices are trading $2.80, maybe that does something like that. But it's hard to say what it will take to reduce acres significantly.

Pearson: Until we start to see those acres decline. It's one of those, it's an individual farm basis.

Seifried: It's got to, I think more than anything it's got to come from the banking side of things. If we can't get the financing to do it then there's the issue. But until that happens we're going to plant the acres, we're going to plant the acres, anything we can really.

Pearson: Alright. Final question for you, Ted, we've been doing our Market Plus educational sessions. We want you to answer, what is a black swan when we talk about that in relation to the markets?

Seifried: Sure. A black swan event, and that's a word that I first remember hearing that term five or six years ago and it's something we talked about a lot when we were hitting our highs in 2012. And in this case there has been some talk about, contrary to everything we just talked about, about corn demand falling apart and things like that. A black swan event is something that can very negatively impact a market, but not just a market, maybe an industry as a whole that we don't see coming or usually don't have a lot of foresight to see coming and obviously has a very negative impact and it's something that we don't want to see. But there's black swan events all the time when it comes to --

Pearson: Sub-prime mortgage crisis in 2008 was --

Seifried: Exactly. Black swan event. Didn't have anything to do with grain markets but certainly had a huge impact on prices. That's a fantastic example.

Pearson: Alright. Well, Ted Seifried, thank you so much for taking the time to join us.

Seifried: Always a pleasure. Thanks for having me.

Pearson: Thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we will get expert analysis right to you. Thanks for watching and have a great week.

 

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