Market Plus: Ted Seifried

Nov 25, 2016  | 14 min  | Ep4214 | Podcast

Podcast

Pearson:  This is the Friday, November 25, 2016 version of the Market Plus segment.  Joining us now is Ted Seifried.  Ted welcome back.

Seifried:  Thanks for having me. 

Pearson:  Hey we are glad to have you and we were excited you were here this week.  You are resident gear head here on Market to Market and for those of you that are also gear heads and you want to dig in a little deeper on that Timeless Tractor story and hear more about Megan Miller visit the website at iptv.org/timelesstractors.  We had a crew and Megan with a Go Pro, we followed her around for a year as she and her brother restored an International 4166.  The big old four wheel drive.  It is a very cool tractor.  Go in and check that out iptv.org/timelesstractors.  Now we are back to Ted.  We didn't get a chance to discuss cotton on the program.  Broke a little bit this week, down 68 cents, are we just - obviously we are still within the range, are we heading back down to test to low side?

Seifried:  Yes, so we softened a little bit.  Yield results coming out of Texas have been really quite good and quality has been really good partially due to - very much due to the phenomenal extended growing season that we have had this year.  So that has put a little bit of pressure on us, but longer term the outlook is pretty favorable.  You were talking early in the show about existing home sales and home sales in general being very strong.  Well, I just bought a house and the new couch which is covered in cotton and - so that is helpful for demand.  I think cotton has good reason to be where it is right now.  I think there is a pullback that we saw this week and then we can get a little deeper with that, but longer term I am pretty optimistic.

Pearson:  Mid 70s seems like the next maybe point to make some sales.  
  
Seifried:  Yes, psychological 75 is going to be right around where you want to take a look at that.  

Pearson:  All right.  Now we do have a lot of questions from our followers on Facebook and on Twitter and this is one that we have a question from Paul in Iowa @NeIowaFarmer on Twitter but I hear this a lot, I know you hear this a lot when you are out speaking to groups.  As a small producer, he grows 8000 bushel a year, how do I best take advantage of this rally for 17 crop beans?

Seifried:  Ok. That is a great question.  There are two things we talk to you guys - first of all everybody says they are a small farmer even if they are 30,000 acres, but there are two things that we would recommend for that sort of odd number that 8000, we can't really fit two contracts in there of futures.  So, you had the mini contract that is available. If you wanted to go 100 percent on production which I wouldn't recommend right now Paul but you could do a few - regular sized futures size contract and then three of the minis that would equal your 8000 bushel.

Pearson:  Are the minis as well traded as the main future?

Seifried:  There is enough volume in there that it is liquid enough.  
Pearson:  You can get in and out.  

Seifried:  The other way you can do it if you want to match up directly with that 8000 bushels you can use delta in options and you can use puts for that.  But I think the best thing for Paul to do is look at those puts, don't be too afraid to spend a little bit to get close to the money on it because for all you are probably only going to need one for the time being anyways and see if you can get yourself a ten dollar put for something relatively reasonable and have that $10 floor going into growing season, South America's growing season, our growing season.  That is a great floor to have I think. 

Pearson:  And you would be comfortable buying a put with that 11 months of time value in it? On a one put, on a one contract deal?

Seifried:  If it is a single contract I think - whether it is one contract or 100 you look at how much you spending and yes, certainly for bigger operations that we worry about how much are we cutting in operational costs and things like that.  So, we look at put spread and so on, but for smaller bushels like that I think it is a lot more palatable to come in and own the one.  There are things we can do.
  
Pearson:  Where would rough numbers - I don't know if you checked before the program to buy a $10 put today are we 40 cents-ish?

Seifried:  Yes, I think somewhere in that area.  I was doing from $9.80/$9.00 put spreads for - I don't remember but that would be reasonable.  Right around 9.50/9.60 break even on something like that is probably what you would want to expect.  You can go a little further out on the money and you can also sell a call further away to offset some of that time value, but I wouldn't for that amount of bushels I don't think I would go in and sell a regular futures contract.  One I would be - you be a lot more sold than I would recommend at this point and two you have to worry about margin and things like that.

Pearson:  Right and at 8000 bushel - spend the 50 cents ballpark it.  

Seifried:  You are probably not watching the market every day and -

Pearson:  You don’t' want to call that banker with the margin call loan.

Seifried:  Owning an out is a very easy way to set it and forget it and have that floor in there.

Pearson:  At least you have got a little protection if you feel like selling some cash.  If you feel like doing whatever you need to do.  Next question Trinity Ranch in Kansas wants to know how long does the rally in cattle last and what is your outlook on beef for 2017? We talked about it on the show.  Expand on it a little bit Ted.

Sefried:  Right.  I think for the time being we could be getting towards the end of the cattle rally.  I am very curious to see what cash does next week.  We saw bids getting strong here late on Wednesday and a little surprised by that.  This is sort of the time where we expect that better demand as we transition from Turkey to beef.  So beef demand could be strong here through the end of the year especially with the holidays but these are all reasons why we are kind of up here in the first place.  I get the feeling that with the amount of cold storage that we have right now that packers sometimes very quickly get less aggressive on their bids as they should.  If you see that cash starting to fade then I think there is a very good chance that cattle do pull back. Now longer term I don't really think we need to go much lower than where we were about a month and a half ago.  

Pearson:  98/99.

Seifried:  96 and - right.  I think these are levels that we pretty much priced in the negative fundamentals at that point.  I do think some sideways trade can be on the table for some time unless China does come in as a bigger importer of U.S. beef.  If that were to happen we can get significantly higher depending on how aggressive they are.  China likes to manipulate markets, likes to play games.  They said earlier that they were going to be bringing in U.S. cattle before the end of the calendar year.  They haven't done that yet.  They might have been setting the market up for disappointment so that we went down and then at some point they could come in.  We will keep an eye on that.  But short of that big uptake in demand I think there is some sideways trade on the table.

Pearson:  We are still looking at large volumes.  Even the weights have come down.  There is just a lot of beef. So for Christmas, for Thanksgiving make a prime rib.  

Seifried: Let's eat some steaks guys.

Pearson:  Let's do that.  Now I want to jump down here.  We had a question.  You were talking about Chinese manipulation of the markets and we had a question from Former Farm Boy in Iowa and he is on Twitter @ruralmidiowa.  He is asking in the bean market is China buying for long term need or are they manipulating this bean market.  

Seifried:  That is a great question and really the only way to answer that is China.  We don't know. We will see if they cancel some of these or not.  With what happened in South America last year where the tail end of the growing season is where we ran into problems.  Everything looked good leading up to that and the estimates dropped dramatically from mid-season to the end of the season.  So, I think they may be hedging some of their bets with maybe overbooking U.S. and we will see if we do get these cancellations further on down the road.  The other idea is that maybe they are very aggressively buying U.S. beans now because they are concerned about what might happen when Trump actually does get into office.  So, we will see if this demand has all been front loaded and if they're strategy for them behind this or not but I will say in the last few years we have speculated or argued that this is all front loaded and we are going to see a ton of cancellations and those cancellations don't really come.  

Pearson:  Right and you look at the export pace of beans so far this year.  We are not just selling a lot intentionally.  We are shipping a lot.

Seifried:  We have shipped - we have shipped - the size of the carryover which a lot of people will say is a big carryover for soybeans that we are estimating this year, we have shipped more than that in the last five weeks.  Five weeks is what it would take to get rid of all our soybean carryover if there was a South American crop.

Pearson:  And we are looking based on my understanding for it at least two to three perhaps another four weeks of that pace of bean shipments.

Seifried:  It seems that way and we have already passed the peak shipment week.  That was four or five weeks ago.  So the fact that that's continued to extend on is great but again you wonder is this - are they going to try and get everything shipped out before January or before February and then their done with us?  I don't know we will see but it has been very impressive so far.  Ultimately I think the way it feels to me is that there is really no price where China says the price of beans is too high.  They want them.  They need them.  They are going to keep buying them.  They will write the check. So, I think they are buying them to buy them.  I don't think there is games being played here.  I do think there could be games being played in the cattle market but I think with soybeans it is just a function of they need them, they are going to pay the price. 

Pearson:  Beef in China would be a luxury item.  Beans are not.  It is food. We have talked a lot about China.  We talked a lot about China on the program this week.  There is talk of China, Trump and China and so on.  As we look out to the broader world we have got a question here from Martin on Twitter @martin_danner.  He is asking is India going to be an emerging export market for U.S. goods.  

Seifried:  That is an interesting question.  They do - India as far as wheat right?

Pearson:  Wheat, beef, pork - do we see any----

Seifried:  So beef and pork might be a possibility.  Usually when we talk about India we talk about wheat because they are sometimes importers of wheat and they are also exporters of wheat and in fact they will do both in the same year most years.  We don't ever look at them as being big potential for our wheat market and if we look at the global wheat fundamentals there is a lot of closer places that they would pay less shipping to get similar quality wheat from.  So, I don't see that.  Beef isn't really a staple food in India.  So maybe not unless they're tastes become more Westernized and things like that, but pork is a possibility.  So far we haven't really seen that but certainly population is there and it is possible.  Again I think when most people ask that question they are curious about wheat.  I don't think that they are incapable of importing U.S. wheat.  I just don't see it being a big factor.
  
Pearson:  The value isn't there for them to write that check and you don't see them jumping into corn or beans as China has done any time soon?

Seifried:  No, not really.    

Pearson:  They have got a ways to grow. Now Phil up in Ontario, Canada - thank you Phil for a question.  Phil is asking with bean prices where they are do we see that shift to beans for 2017.  Ted, are you a more than 4 million acres going to beans in 2017?

Seifried:  Addition 4 million?  Pearson:  Yes. 

Seifried:  Yes Phil possibly.  I don't think we are there yet.  I think if you get $11 beans then we are very much so.  I should say if we get $11 dollar beans and 360 corn well then yes we are certainly going to see that shift.  If you look at new crop beans again 1018, 1019 was the high here so far and that has been high for a while, I don't know if it does it to that extent.  

Pearson:  And new crop corn Dec corn this week at 380.  

Seifried:  Yes, in that general area.  You know I wouldn't be surprised at some point you see harvested acreage for corn and beans line up pretty close to each other.  We might - this might be the year but I think beans - I don't think we have gotten to that price level yet where we are going to say ok four to five million acres shift to beans.  I think somewhere in the two to three is what we are looking at.

Pearson:  Pushing up towards 86 million planted.

Seifried:  But we will see.  Again South America has a weather problem and we get beans rocking and rolling then we are going to plant a lot more beans this year. 
  
Pearson:  All right Ted.  It is Thanksgiving week.  Stuffing or dressing?  Tim in Crookston, Minnesota wants to know.

Seifried:  I know what stuffing is.  I am not sure what dressing is.  

Pearson:  It is ranch.  I am an Iowa boy.  You put ranch as the dressing.

Seifried:  I like that.  I do like ranch dressing but I don't stuff it in a turkey.  
  
Pearson:  You are welcome America.  Right it is stuffing.

Seifried:  I have not heard it called dressing before.  
  
Pearson:  I haven't either.  Those Minnesotans.  

Seifried:  But yes to stuffing.  Call it what you want.  I will eat it.

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

Seifried:  Pleasure is mine.  Anytime.

Pearson:  Thanks to all of you for sending in your questions via Facebook and Twitter.  Please continue to do so and we hope you have a very safe and fun Thanksgiving.  Thanks for watching.

    

Market analyst Ted Seifried discusses the commodity markets with host Mike Pearson in a special web-only feature.

 

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