Pearson: This is the Friday, June 16, 2017 version of the Market Plus segment. Joining us now is Ted Seifried. Ted, welcome back.

Seifried: Thanks for having me.

Pearson: We're glad to have you. We did not get a chance again this week to discuss cotton on the program. Big move, big drop to the downside. What happened?

Seifried: I thought that was going to be your first question. A number of things, the rising U.S. dollar is a problem for cotton. Good crops in India, Pakistan and the U.S., also a problem. You also had a fairly large speculative position there, about 100,000 contracts between the large and small speculators, long, that I think we flushed a fair amount of that out because you look at open interest, it's the lowest that we've seen since September. So a lot of it was technical, there was certainly a trigger for it, the higher dollar and good looking crops. But now I think we've kind of hit sort of midterm support, or at least we've gotten very oversold. So I would kind of see, I would expect to see another retest to see if we can get back over 70. But then I wonder if it's a sell because we're at a 50% Fibonacci retracement from lows to highs. I think this max is something that might see a little bit of a deeper retracement, we're close to 66%. My downside target is $67.50 in the December. So I would look for a little bit of a technical sort of relief bounce. I'd be looking to sell it.

Pearson: Okay, producers take advantage of it when that relief bounce comes, if you haven't already taken advantage of everything you want to sell so far. Alright, first question from our followers on Twitter. This one is from Ethan in Nebraska. He's on Twitter @EthanBruland. Ethan wants to know, like we talked about on the program, cash cattle slipped again this week, packers are pulling bids. What do you expect from packers to finish the June futures trading? We've been expecting a convergence and just when cash starts to converge with futures, futures fall out of bed.

Seifried: Hi, Ethan. Great question. It seems like we have kind of found a new norm where we're just expecting an $8, $9, $10 premium in futures to cash, which I don't understand that and I don't really like it. So we'll see. But, cash softened pretty significantly last week, the board softened pretty significantly as well. Part of that though, as far as the board is concerned, is just like we talked about in cotton, you're seeing open interest come down, it's the lowest it has been since April. So on the big run up you've got your speculators involved and things like that. So the packers watch the board come down and when you've got your speculative crowd getting out they figure, okay, the board prices aren't going to continue to have that sort of pull up effect on the cash. So I don't know. I think, and you said, packers pulling bids, I think they're going to test the waters with that for a little while and see what happens. Again, you've done some pretty decent damage on the charts. I don't know, we'll see. If, again, next week the cash market starts getting hot and heavy again the key to me is how quickly we're going to market. If we're going to market with low weights then the supply doesn't look terribly large. But if we're, like last week, gaining 11 pounds in the dress, on dress steers, that's a big problem with the amount of animals that we have. So we'll see. If packers stay aggressive that's really the only reason why I could see cattle turning around and going higher. But if they're going to keep pulling their bids and test the waters with that for a while and see what happens, I get a little nervous about the cattle market.

Pearson: Now, looking on the cash side, Ted, this last week was the first time I think I've ever seen cash bids drop so much during the day. We dropped from $134 early in the day down to $133, I think we ended trading the day at $129 on cash, $128, $129. How many times do you remember has that happened that cash has dropped that strongly during the day?

Seifried: Listen, it's a very volatile cash market right now. What is it, three or four weeks ago we saw it go the other way, like $9 or something like that. So when you see that move in one direction you kind of expect to see it in the other direction at some point. And volatility, this is an old saying, I don't like clichés but this is one that I use fairly often, but volatility sometimes is indicative of a top. So you look at this, or a bottom, or an extreme really. Volatility is sometimes indicative of an extreme. And you wonder if this sort of volatile cash trade that we're seeing is sort of indicative of a high. That's my concern at least.

Pearson: Okay. Now, our next question is from our good buddy Phil up in Ontario, Canada. He's on Twitter @AgriDome. He's got two questions for you, Ted. What major global weather event is incubating now? Is there an El Nino or a La Nina type event in the window today?

Seifried: Hi, Phil. Not a weather guy. Although I'm an amateur weather guy. I've been doing this for 15 years and in those 15 years I certainly have watched a lot of radar and certainly read a lot about weather. Here's my best answer for you, Phil. At the moment it's pretty neutral. The models were trying to put in the potential of an El Nino towards the end of September into October. That has sort of softened. The models keep trying to put it in but it keeps pulling it back down below zero. We're really fairly neutral right now. I don't really see anything major in the mix for El Nino or La Nina at the moment.

Pearson: Nothing, no market chatter going on El Nino, La Nina today?

Seifried: No. Again, the last we talked about that was back in January, February timeframe and that's when the models were kind of suggesting more of an El Nino, but right now it's more neutral.

Pearson: Alright. His next question, end of this month, June 30th, USDA, we get crop estimates. Does, Ted Seifried or does Zaner Ag have corn, bean acreage estimates yet?

Seifried: It's a very good question. We don't have any, we haven't published our numbers yet. That will come either at the end of next week or earlier the following week. We are still compiling data and we are still doing statistical analysis. In fact, one of our members has a project for this weekend to do with that. But I can tell you where I'm leaning. Now, I can be swayed by numbers so this is not our final number. But I can tell you what my general feel is right now. I wouldn't be surprised to see corn acres just a little bit higher than what everybody is expecting. I'm thinking somewhere 90.6, 90.8, just under 91 million. And I think soybean acres I don't think lose very much at all. I think soybean acres are pretty right on the money. I'm thinking 89.4, 89.6, somewhere in that neighborhood. Again, if I were just throwing numbers out there without the data, that's kind of where I'd be. We'll see when the data comes in if that either confirms or denies what I'm looking at now and they may change by the time we put our numbers out, but that's kind of where I'm leaning.

Pearson: Okay. And this kind of leads us right into our next question. This is from Matt in Northeast Michigan. He's on Twitter @SchwabMatt. He wants to know, what is the realistic amount of corn acres lost to water or flood damage this spring?

Seifried: Yeah. So that’s a struggle. That's what we're all trying to figure out and have been trying to figure out for a while because if we lost flood acres did we replant them or not? And the answer I think for the most part is yes. So, will those replant acres, how will that fare after the heat that we had? That's a very good question. I will say this, we've seen I think a record amount of replant in Illinois and Indiana and possibly a bunch of other places as well. But the thing is, here's my stance and to take Phil's question a little further too, I really thought that if we got off to a hot and heavy start to planting that we were going to see 92 million acres of corn. We didn't do that. So for me that just kept us pretty close to the 90. But I think when you look at how the USDA does this, because if we planted it and it got flooded out, even if it didn't get replanted, that's still planted acreage. So I think that planted acreage number is going to be north of 90 million.

Pearson: Okay. That makes sense. We've got another question here. You talked on the program about the big shock coming out of NOPA this week and bean oil stocks being drawn down while bean oil production has been very strong. And there is currently a suit from the National Biodiesel Board against Argentine dumping of biodiesel onto the American market. So, Jason on Twitter, @jason11thomas wants to know, what would a 20% import tariff on Argentine biodiesel do to the domestic bean oil prices?

Seifried: Yeah. Hi, Jason. That would obviously be fairly bullish. We're already seeing that demand is rather strong. I'm very impressed to see that crush came in 6 million bushels above expectations, well above, and that ended up being almost 10 million bushels above what we were doing last month yet our oil stocks didn't increase. That is very impressive. That means domestic demand, or overall demand, there's export in there although we haven't seen anything super exciting on the export wires for soybean oil. Domestic demand is really very good. So yeah, if we do that you think that we're going to run through those oil stocks pretty quickly. And then potentially are we crushing for oil?

Pearson: That's the thing. One of those other clichés that we hear a lot in trading is bean oil can't lead a bean rally, or at least not for very long. It certainly sounds like we've got a situation, particularly if this 20% tariff were to be applied, that bean oil could be a fairly substantial driver on the bean market.

Seifried: It could, it could, although I wonder if we'd be importing bean oil from Brazil, for example.

Pearson: Just go to a different source.

Seifried: Yeah. So we'll see. Canola oil, that's the thing, when you look at the different oils --

Pearson: Palm oil, there's a lot of substitutability.

Seifried: There's a lot of alternatives. It's not like soybean meal where it's either soybean meal -- that sort of protein, it's pretty specific. So it's an interesting question. Certainly it would be bullish for the market but you wonder how bullish or how far we'd go before we would find some sort of alternative.

Pearson: How strong bullish would we see it in our pocketbooks on the producer side.

Seifried: Either way the prices we're at I think it's friendly. And I think the NOPA crush numbers were friendly and you saw bean oil quite a bit, since we've seen that number bean oil has been quite strong.

Pearson: Yes. Now, Ted, before we let you go we have been taking questions from Iowa State students, ag students. We've been getting them on video and we encourage any of you if you are an ag student or just a person interested in learning more, get out your phone, shoot us a video and send us a question, we'll get you on here. You can learn more about this project if you listen to the MtoM podcast #143. So, Ted, here is the latest installment of our college level ag student questions.

Cody: At what debt to asset ratio should a farmer be looking at buying more land?

Seifried: Well, what was his name, Cody?

Pearson: He was Cody, yes.

Seifried: Cody, I think that is a very personal question that everybody is going to have to answer on their own and they're going to sit down with their banker and that is a family pow-wow because I know of people that don't even really consider that. But generally speaking debt to assets, I don't like to see guys over 50%. Most are. But that's, in this climate, there are times to be more aggressive than others and in this climate I don't want to see that really high. When things are really good and we're talking $5, $6 corn and the opportunity is really there to have good profit margins, you can work yourself out of debt very quickly, that's a different story. Right now profit margins are very thin so you want to be very careful with that.

Pearson: Those thin margins and we're in an interest rate environment that is increasing.

Seifried: Is slowly --

Pearson: Slowly increasing. But, before we let you go, Ted, are we going to see two more rate hikes this year?

Seifried: No, not two I don't think.

Pearson: You think one?

Seifried: I think one but the market doesn't agree with me right now. We're not pricing in the high likelihood of that happening.

Pearson: Well, so Cody, talk to your family, talk to your banker, really put some thought into that debt to asset question. With that, Ted Seifried, we'll let you go. Thanks so much for taking the time to join us here on Market Plus.

Seifried: Always a pleasure.

Pearson: And join us again next week when Naomi Blohm will sit across from me at the Market to Market table and we explore how new shipping concepts are colliding with aging infrastructure. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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