Market Plus: Ted Seifried

Oct 27, 2017  | 11 min  | Ep4310 | Podcast


Pearson: This is the Friday, October 27, 2017 version of the Market Plus segment. Joining us now is Ted Seifried. Ted, welcome back.

Seifried: Hey, thanks for having me, Mike.

Pearson: Well, we're glad to have you. We apologize, we did not get a chance to discuss cotton on the program, up $1.32 on the week, kind of a bounce off the bottom of that range, isn't it?

Seifried: Yes, that's exactly what it was, from my perspective. We found support and profit-taking for the most part. So it was a nice bounce. And it might be suggesting that, okay, we're just going to continue to hold this range for now. But it was a good bounce, it was fun to watch.

Pearson: It was, it was. And I imagine the USDA is probably going to make some changes again to the cotton crop. Do we ever anticipate them to incorporate the damage from Irma and Harvey and all these other hurricanes?

Seifried: Yeah, and I think we will see that. But the problem is, is you look at the world balance sheet for cotton and it's pretty robust. So if we lose some of our production here it's just not, in my opinion, going to make that big of a difference to really make cotton prices go sharply higher. Here domestically if we started seeing quite a bit more demand, especially from China, that export demand, that would maybe change things a bit. But for now I think it was more of a technical bounce than anything else.

Pearson: Okay, let's get into our questions here from our followers on Twitter and on Facebook. Our first one comes from Robert in Sanborn, New York. Thank you, Robert, for tuning into Market to Market. He's there @RealBobmills on Twitter. He says, hard red wheat acres, planted acres are down again this fall. Will this matter anything to the market?

Seifried: Well, Robert, it's a great question. Thank you. The answer to that is yes at some point. Is it now? I don't know. Look at what happened with our spring wheat crop and while we did have a flash in the pan rally there it's just not able to really hold onto or resume any sort of that strength. Again, world wheat numbers are just so large right now and we're trying to, we're I'd say more than halfway through the process of, at least in this country, cutting back production fairly aggressively on wheat and at some point that will make a difference on our domestic market even if we're not seeing huge exports. So yes, it will at some point. I don't know if this is the year though.

Pearson: Alright, we need the rest of the world to cut down their acreage. Alright, our next question comes from Jeremy in Lanark, Illinois on Twitter @JFlikkema. Thank you, Jeremy. Jeremy asks, why do we have to believe that the funds will leave the equities and come to commodities?

Seifried: That's a good question, Jeremy. Why do we have to believe that the funds will leave equities and come to commodities?

Pearson: And let's unpack it a little bit, what is the probability that in the next, before January 1, funds are going to leave equities?

Seifried: Okay, so that's a different question, but that's more of a forecasting question on what I think equities are going to do. But, to get to Jeremy's question, and then to that, the relationship that equities and commodities have, right, if there is a market, like the equities have been for so long, that's just very gracefully trending higher without too many hiccups, a lot of the speculative money wants to go there because it considers it a safe way of building revenue. So, while that, if that continues to happen then a lot of the speculative money likes to play on that side of things. If there starts to become a lot more volatility in the equities markets you will have investors wanting to get out of that and look for something else, and in particular they'll look for commodities that are near five year lows, for example, and corn and wheat are good ones for that. So, that's the relationship that we have there. Now, there's other, there's lots of different types of funds. There's other funds that are just strictly commodity funds and they're always rebalancing their portfolio and how much of one commodity they have in it or not but they're usually in most of the bigger commodities. And we talked about on the program that funds are, in my analysis, either at or very close to record short in corn and also wheat. So those funds, they're in the markets, they're just short. And the fact that they are short, it kind of makes a bit of a powder keg because if something happens to get them out of the markets then there's a lot of buying potential there. And I like it better that the funds are at record shorts now because they can, records are made to be broken, they can increase that, but they're not halfway to the record, they're not going to double their short position at this point, at least most likely.

Pearson: Right, it would have to be some very, very bearish news to get them to double their short position.

Seifried: Absolutely. So, I guess that's the best way I can answer the question about the relationship between the funds and commodities in equities. Now, to your question, there are a lot of things happening both domestically and globally that could cause more uncertainty for the equity markets going forward. Raising rates is part of that, and as we said, right now the market is not really anticipating much in the way of rate hikes in the first probably two quarters of next year. If that were to start happening that would probably put a damper on the U.S. stock market. Again, all the different conflicts that we have going on all over the world, if something were to heat up with that, especially if we're involved, again North Korea probably being most likely. Any of these things can put a lot of pressure on the stock market. And we've started to see a little bit of signs even this week that okay, maybe there is going to be some more volatility creep back into this market. So we'll see. I've many times thought that, okay, we're overvalued in the stock market and we should be in for a deeper correction sometime in the relatively near future and that has never happened. So I've gotten tired of and have completely stopped making bets against the stock market at this point. But if we were to see something like that, then yes, absolutely you could see a lot of the speculative money that is absent from commodities right now come in and start wanting to own commodities, specifically the ones that are down near their lows or five year average lows.

Pearson: The value priced commodities.

Seifried: The value priced commodities, yes.

Pearson: Well, now Jeremy has a second question for us. Jeremy, thank you very much. Jeremy wants to know, can we believe past year price performance will be a template for this upcoming year? And he says, as an example we've got ample supply and demand structure.

Seifried: Well, the disclaimers are always past performance is not indicative of future performance. Okay, to some extent though I think you do, you look at the last three years and the way we've traded. Last year we didn't put a whole lot of weather premium in for the U.S. growing season because we had ample supplies and we've had a couple of years here where we've had a little bit of scares but at the end yields come out very well. I think that could be a similar situation for this year where we don't really pump a whole lot of weather premium into the market in spring. So that's a concern. I don't like that. And then yeah, you look at spread trade, that for the last few years has been showing ample supply up front and really encouraging carry. I think this right now is probably one of the widest we've seen with that, so that's just a reflection of the times and I think that holds true unless something changes. So yeah, I do think that there's a pretty good template from the last couple of years to apply to this year. But that's the thing, we trade futures, not todays, right. Something can always happen. I know there was one of my friends who was talking last week about the possibility of China coming back in for U.S. corn because a  big chunk of their reserves, actually it sounds like the vast majority of their reserves, can't really be used for much of anything.

Pearson: Quality is a major concern.

Seifried: Extreme concern. And with their push to want to really move towards corn based ethanol in a much bigger way, well who is going to fill that? Now, they have relationships with the Ukraine and that has been their main thing and then also South America and with our trade relations I think they're going to try to avoid us. But I don't know if they're going to be able to fill all of their needs. So that is a possibility that is something that could come down the road. Here our ethanol situation seems to be taking a turn where EPA wanted to kind of taper off the RFS mandates but now Trump is sort of pushing back on that. So that could be a longer-term positive. But I don't know if we're going to see like a real big spark that's really going to change these markets from the sort of pattern that we've been seeing in the last three years. But that’s the point, we don't know, that's why they're futures.

Pearson: Exactly, where there's risk there is reward, sometimes. Now, Ted, before we let you go, we mentioned on the program crude oil has been in I guess you'd call it an uptrend. We put $4 in here over the past two weeks. Is crude now, is $50 our floor?

Seifried: Ooh, I don't think indefinitely $50 is our floor. No, you look at the Permian, the crude oil fundamentals, supply fundamentals of crude oil are much better than what we thought years ago.

Pearson: Meaning we've got ample supplies. It's like the grains.

Seifried: Yes, absolutely. So here's the thing, crude in the 60s for me brings on too much production here in the U.S. so I don't know how much further this uptrend is going to go. But here this week even the Saudi oil minister is saying that they're going to do whatever it takes to get stocks back down to five year averages. And then that followed up a day or two later by the Saudi prince saying that he's backing the idea of extending cuts to the end of 2018. So that has worked so far. If that's going to continue on I think we've got a floor underneath us, I don't know if that's $50 but I think it's closer to maybe $40. But it's going to keep some support underneath the market. Now, U.S. exports have been the strongest we've ever seen. You start pushing that dollar higher again our domestic stocks start to grow. So, again, just reasons why $50 might not be the floor. But for the time being and the way we ended the week on Friday it does look like we're going to continue to be in an uptrend and the main concern is what OPEC is doing and their plans for continuing to freeze production.

Pearson: Alright, well Ted Seifried, thank you so much for taking the time to talk to us this week.

Seifried: Always a pleasure, bud.

Pearson: We enjoy it. Now, folks, our drought continues for your questions on the basics of trading or trends in the marketplace. So join in, send us your questions in video form, we'll teach you how to do that just direct message us on Twitter, or send an email to for details. Ted, thanks again for joining us. Folks, join us again next week when we'll look at a new apple that may revolutionize the orchard and Naomi Blohm 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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