Market Plus: Angie Setzer

Oct 13, 2017  | 14 min  | Ep4308 | Podcast


Pearson: This is the Friday, October 13, 2017 version of the Market Plus segment. Joining us now is Angie Setzer. Angie, thanks for joining us on Friday the 13th.

Setzer: Well, thanks for having me. I didn't realize I had agreed to Friday the 13th until I was like halfway down here and then I thought about going home, but I didn't, I persevered.

Pearson: The lights have all stayed in the ceiling.

Setzer: Yeah, she persisted. Here I am.

Pearson: Okay. Angie Setzer, before we get too far into it, the cotton market we did not get a chance to discuss on the show. We saw a little bit of a drop, 22 cents to the downside, relative stability. What's going on?

Setzer: You look at the chart and it's like corn, if you have a hard time putting a baby to sleep show them a cotton chart or show them a corn chart. It's pretty boring. We have that blip to the upside when we had some significant concerns with hurricane damage. We did see some production loss because of that, I would venture because of that from the latest USDA numbers this week. We still are expecting carryout to just about double. However, the USDA has reduced export expectations, which most folks are kind of wondering if that's adequate or if that's realistic or not. China has basically purchased three times the amount of cotton so far this year than they had last year at this point. So it indicates that there is some demand there and so we just have to wait and see how the year plays out. We're just getting ready to run into harvest on it. We've got to see what production looks like, if there was some damage done that is unexpected, and we really can't get our hands on what was damaged that was sitting in the hands of the gins at that point in time. We're a long way, we're only five weeks removed so that market structure or knowing what is out there, we're a long way from knowing it. But reality is we've got the support, we've got our upside, if you're trying to figure out what to do here in the short-term buy low, sell high kind of deal. It's pretty stuck.

Pearson: I was talking to an insurance guy from Lubbock, Texas and he said they're just getting ready to launch really full bore into harvest. He said, we can't catch a dry day, just constant rain, constant rain and he's getting a little concerned about quality. So that could be another factor that certainly plays into this cotton market at some point.

Setzer: Yes, definitely.

Pearson: Now, Matthew in Illinois on Twitter @HustonMatthew sent us a question and you talked briefly about this on the program. He wants an answer hard and fast, Angie Setzer. Is the contract low in for December corn?

Setzer: For December corn, sure. Yeah. It's only got like six weeks left so as long as Friday the 13th doesn't hit it I would say that we pretty much don't have much in the way of room for a significant surprise. Now having said that it will probably open the door. But yeah, to me I think the low is in. I think we have buyers that return to the market in the mid-to-low $3.40 range.

Pearson: As you look out to some of the deferred months, and March is the next one on the board, can we say the low is in for March this early? We're in the glut of harvest.

Setzer: Without some sort of significant surprise I would say yeah. We obviously have taken in all of the bearish information that we possibly can at this point in time. Now, granted, could the USDA raise the yield by a bushel or two? Sure. But really the reality is once you're up to 2.4 billion what's another 150 million or so, which anyone that listens to this, any other market analysts their heads will explode because they're all loaded with bearish fever. But when it comes down to it we've got to see how the market progresses now. We really aren't working our way through harvest yet. That's pretty slow. But it's important to remember harvest delays are local, they do something for basis, they don't do anything for your overall futures. But we'll just want to keep an eye on it. But yeah, I would venture that the low side has been put in.

Pearson: Alright. We've got a question here from Jerid in Iowa. Jerid is on Twitter @jaridmark. And he wants to know, can we start calling market advisors charlatans instead?

Setzer: You know why they made market advisors?

Pearson: I don't, Angie.

Setzer: To make meteorologists look good. So, I guess you could say that. Reality is myself, anyone like me, we have access to basically the same information that you do. We try to devise what that might mean for the market structure but as time goes on, anyone can tell you that's in the outside equity market, in commodity markets, anything like that, you can take a look at the information and have an idea of what the market should do. It will prove to you that you're wrong in some way or another. I don't really think that anyone this year was too far out. Well, the end of July everyone really got kind of excited about this lack of yield. There were quite a few that were like calm down, hold up a little bit. And so maybe we did get a little bit excited about bullish enthusiasm there when we shouldn't have. But aside from that really --

Pearson: There was nobody this year calling for $6 or $6.50 corn. Everybody kind of recognized carryout is big, yields are going to be big enough.

Setzer: Yeah, we're pretty much stuck. We've established our new trading ranges. When I started trading 13 years ago it was $1.40 to $2.70 on corn. I think now we're about $3.25, maybe $3 on the very downside that we saw last year, upwards of $4.25 or so. It's a wider range, it's a little bit more volatile you could say because of the global pieces that play into it. But the reality is now we're really, it's not going to be all that exciting I don't think. And so yeah, some people are going to want to come out and try to fire up some excitement or maybe generate some interest in something. But for the most part I would say most market advisors or folks that you're working with, at least I hope so, if you're not I guess we'll have a conversation about it, but they should be looking for your best interest.

Pearson: You bet. Now, Jeremy in Illinois on Twittter @JFlikkema, he comments that we are still adjusting acres four months after planting. So how often is the January final yield really final?

Setzer: It's always final.

Pearson: Because it's the final yield from the USDA.

Setzer: They may come in and change carryout as a result of some sort of other change that has been put into the pipeline. But the USDA will always call that their, that will be the yield that they use, whether they increase residual usage to draw down stocks or lower residual usage to increase stocks, final yield is final yield. Now, acres are up in the air of course until January. We get the FSA info, that really don't amount to a whole lot. It's kind of funny to me that the FSA info when bullish is completely ignored, when it has potential bearish implications all of a sudden everyone is talking about it. But overall final yield is always final in January. The USDA is like your wife, she may not admit she's wrong, but you'll have a nice breakfast the next day.

Pearson: Okay. Our next question comes from Phil in Ontario on Twitter @Agridome. Phil wants to know, for corn not sold what is the best path ahead for farmers to replace with paper, cash sales? And then he wants to know what's your outlook for the March and May of '18  futures?

Setzer: Well, it all depends on where you're at from an ability to hold. Do you have to deliver at harvest time? If you have to deliver at harvest time the lack of volatility in the market has allowed for some cheap call option opportunities out there. I don't look at them every day because it's really not my job to sell options but I know the May $3.70 I believe was around 17 cents. So to have storage, to pay for commercial storage out that far it's going to cost you far more than that 17 cents. So to put the cash in your pocket now and maybe spend that money on the likelihood of seeing some upside, if you have to deliver here in the short-term, is not a bad idea. At least then you know your risk. If you have bins, the carry in the market set up is very nice. We are anticipating, or I am anticipating with my growers, that we'll see some opportunities on March futures around $3.80 to $3.90. That would put your May $3.90 to $4 or so. Definitely watch where you're at for basis. If you're sitting in an area that you know those folks in Illinois, commercials are sitting on 144 million bushels more corn than what they were a year ago, that came out in the quarterly stocks numbers. You're going to be competing with elevators when it comes to good basis opportunities. So if you can look out right now and see basis levels that are consistent with these last couple of years or maybe slightly better don't be afraid to lock in some deferred values. Speak for your space, know that you're going to generate cash flow at that point in time and then have your targets put in, the same day you lock in that basis put in your futures targets in order to turn those into cash. You can implicate a very solid plan using a basis contract if you use discipline. But for those of you that have bins, definitely be aware that basis levels this year are unlikely to get overly crazy because you are competing with other farmers and other commercials throughout much of the Corn Belt. So just be aware of that for one. Futures opportunity wise though have your targets in place, look for that $3.80 to $3.90 and definitely be aware of what a good cash price is when you're able to sell it.

Pearson: And having those targets in every so often we get a USDA report like this one and boom, all of a sudden if you had targets sitting in there, well maybe you sold and now you regret it, but at least you got those sales in.

Setzer: And the selling and regret it side, you're never going to sell 100% of your crop because you're perpetually long unless you're getting out of farming, you're going to grow another crop at some point in time. And the other thing is you never walk out of the casino complaining that you missed out on that, oh I lost $100,000. Well, how did you lost $100,000? Well, I didn't win the jackpot. So you've got to be aware that you're making decisions, and the same could be said right now for soybeans off the combine, you're making decisions in order to ensure black ink on your P&L. Your bankers shouldn't chastise you for maybe missing out on an extra 20 cents when you locked in black ink and didn't sell at the low of the market.

Pearson: And the conversations I've had with lenders, they're going to be plenty happy to see black ink this year. So be proactive. Great point. Phil has another question for you. He wants to know, do soybean futures have the best potential for higher prices versus corn and wheat going into 2018? How high can this ratio between corn and beans actually get to, Angie?

Setzer: Well, it can do anything it wants to. The reality is though, yeah, that's going to be the hardest thing. I think corn and wheat, I think wheat especially has more upside potential right now than anything. I've said that a couple of times and I'm waiting for people to throw rotten tomatoes at me. But I really believe that the, if you look at the supply and demand or the stocks to use ratio of your major exporter/importer folks, if you take China out you reduce overall ending stocks by 48% of the world, globally. So you go from having too much to suddenly you're within where you need to be to supply the demand that is out there. So to me I think wheat has some good upside. I think soybeans could trade a bit higher, especially if we were to see more of that hot and dry weather continue into Brazil. We already are anticipating a reduction in yields down there, they are expected to increase acres, but we are expecting the crop to fall 5 million metric ton from a year ago. If we start to see talk that that Brazilian crop could dip below 103 to 100 million metric ton or lower then soybeans are probably going to act like they were shot out of a canon. Unfortunately, that's not going to come until January or February. So that may be opportunity for new crop. It's not something that if I were in anyone's shoes I would roll the dice on just because my concern of it being 50, 60, 75 cents worth of downside in your soybean future is far greater than oh you missed out on 40 cents to the up.

Pearson: Right. Now, for the growers that are just going ahead and making bean sales right off the combine, options in that bean market are also reasonably affordable. Would you look out for a summer contract for a percentage?

Setzer: Yeah, you can but you've got to remember what you're doing when you buy an option, you're ensuring that if something crazy were to happen you're going to be able to take part in it. So if you're going to spend 20 cents on a May call or something like that, that's fine, that's great. But keep an eye on it, know what you're trying to achieve. And there's a reason that options, 90 some percent of the time, expire worthless. It's not because the opportunity doesn't show up, it's just because it's never there with a neon sign saying, this is your opportunity. So you've got to know what you're trying to accomplish if you're going to spend that money to make it happen.

Pearson: You bet. And watch for those January numbers potentially out of South America and be ready to move that option if you get the opportunity.

Setzer: Yes, exactly.

Pearson: Angie Setzer, thank you so much for taking the time to join us, always appreciate your insight and expertise.

Setzer: Thanks for having me, always love it.

Pearson: Now, our drought continues for your questions on the basics of trading and trends in the marketplace. So join in and send us your questions in video form. You can direct message us on Twitter or send an email to for details. So, folks, join us again next week when we'll examine solutions to food insecurity in America offered up by five former U.S. Secretaries of Agriculture and Darin Newsom will sit across from me at the Market to Market table. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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