Market Plus: Angie Setzer

Jan 12, 2018  | 15 min  | Ep4321 | Podcast


Yeager: This is the Friday, January 12, 2018 version of the Market Plus segment. Joining us now in studio, Angie Setzer. And she is so popular everybody. Angie, hold up your questions for the camera to see.

Setzer: I have two pages.

Yeager: We had so many good questions. And these are just the ones fit to print.

Setzer: Appropriate.

Yeager: You can respond about your favorite Taylor Swift and unicorns on Twitter if you like, just not right now. Okay, we needed to start with cotton. I told you we were going to discuss that. That's the market, that thing keeps going up. Does it keep having an up to it?

Setzer: Until we start talking about acreage in the spring. I mean, the USDA numbers today were quite what you could call almost neutral, unnecessarily so, exports have been really strong, the USDA did nothing with those. So I think over the next few years, next few months into the spring and summer we see the exports start to go higher, carryout will start to go lower. But then you'll have the weight of how many acres do we get and some folks in Texas right now are already saying that if they have to choose between sorghum, corn, whatever, it's going to be cotton.

Yeager: Almost an $18 run since November. Okay, one of the issues with cotton years ago was they took acres out of cotton, they would be called fringe acres, and put them into corn. Where is fringe playing in this discussion in cotton and then some of the other markets?

Setzer: Fringe is playing in everything because everyone thinks that someone else should quit growing corn first.

Yeager: And it's a dare, you do it, not me.

Setzer: Yeah, and that’s a reality that has been common in agriculture for years and years and years. We saw it in winter wheat seedings today, right, so we thought it would be the record low and everyone thought their neighbor wasn't going to plant wheat so that would drive the market higher for them next year for the wheat that they planted. And so it's the same thing, we took fringe acres of cotton production out, put it into corn, we'll probably see it roll back into cotton. So that's what I'm saying is the cotton market will have wheels on it, old crop is going to probably have a bullish supply and demand outlook but new crop then suddenly we start to talk about all of these people who have decided that they're going to plant cotton again and then it will probably weigh heavy on the market structure as we move ahead. Of course we'll have to see what spring weather does because that will trump everything.

Yeager: Of the commodities that we've chatted about is there anything that you would want to make a sale right now when the markets reopen? Is cotton the only one you'd want to make a sale on?

Setzer: Cotton I think you want to start looking at protecting your risk if you have old crop that is unpriced, of course. And honestly I think in the hog side of things if you have the ability to protect your downside risk there I wouldn't be afraid. And I'm not saying that doesn't mean we don't move higher but I really think this current market structure that we're in is one where if you don't protect that risk, like I said in the show, you may end up sad in another week or so.

Yeager: Okay. Before we get started on all these Twitter questions I want to say a special thank you to Tiffany who does the transcribing. She's going to hear this and type her own name and I'm saying thank you because this segment is about to get going. We will try to buzz through some of these. Let's start with Ben in Owensboro, Kentucky. He is @ottoscholl. And he's asking, with 176.6 in the record books, what do we use as a trendline for 2018?

Setzer: Infinity, infinity yields, forever we're going to grow infinity yields.

Yeager: Is that how that looks? Could you paint how you described what that is?

Setzer: A little dab here, a little dab there, monster yields. No, I think we'll probably start, I would imagine a 172 would be a reasonable number. We think 168 was considered trend a year ago, I wouldn't be surprised to see 172 be a number that the USDA picks and thinks is comfy as we look ahead.

Yeager: Alright, that's a good Twitter question. By the way, you can find Angie @goddessofgrain on Twitter. You can find us @MarkettoMarket. Adam in Kindred, North Dakota, you'll be up there soon I understand, so the '17 crop was better than '16. What area was it better in is what he's asking. Most I've talked to have had a better '16. This is a common thing you see on Twitter day in and day out.

Setzer: This is the fun part about why some people are not fans of the USDA numbers is just because they say we had a 176.6 in '17 doesn't necessarily mean that isn't really what happened in '16 and that we finished the year last year with a much higher carryout than what was projected. Perhaps we did have a smaller crop. Unfortunately it is what it is and here we are. It's all crop now, you know what I mean. So it's one of those things where it will probably raise the trend yield like Ben asked or what Ben was talking about to where that trendline yield will be higher because we know we can do more. That doesn't necessarily mean that we had that size of crop. But the one thing the USDA did today that was fun is they reduced harvested acreage by 400,000 so it did allow for that little bit of bump in yield because you took the zero production -- so it allowed that bump in yield and we only saw 23 million I think bushel increase in overall production even with that 1.2 bushel per acre increase.

Yeager: If only they would have done that with my batting average I wouldn't be here. That would have made me a 300, 400 hitter or maybe a 200 hitter. Another one, Casey in Detroit Lakes, Minnesota. You are popular in Minnesota, you would think that's where you're from. But Casey wants to know, what should we do with all this dang corn?

Setzer: Is drink it a reasonable -- that was an option. We'll use it. It would be really nice if we could see E12, E15 floated, to kind of raise some of the ethanol values because those have really been struggling even with higher crude, we've seen ethanol margins really struggle, with is weighed on basis. So if we could get our representatives to maybe fix that co-op loophole with an ethanol blend increase everything would be perfect then. But we'll use it, we'll chew through it. Globally we're seeing stocks start to decline a little bit. We have eight months of the marketing year left to see what happens with exports and things like that. We're going to chew through it, it's just going to take us some time.

Yeager: You mentioned the co-op thing. I do want to get to that. I'm not going to get to it right now. That's a tease, what we call it in the business. We'll have that in a moment. But I want to talk about this Robert fella in Michigan. See, somebody in Michigan is paying attention.

Setzer: Yeah, he has to, he signs my paychecks.

Yeager: He has a great question, right? Or I'm saying it's a great question, not you. Will there be more acres of beans than corn in 2018?

Setzer: I'll go out on a limb and say no. Maybe in Michigan. I have a few customers there that are like why on Earth would anyone want to plant corn when you have the opportunity of $9.85 to $10 beans, $9.25 cash? We can make money on that. Well, we can't guarantee 200 bushel to the acre corn like they can out here in a lot of spots and so it's a bit different, in different areas it's a little bit different. Beans may be your moneymaker and that may be where you want to go. But based on the amount of anhydrous I saw going on this fall we're going to see corn acres I think kick higher in Iowa and throughout a lot of the I states out there because, and I'm trying to remember the exact way someone put it, but you want to roll the dice and hope you get 200, $3.75, $4 or $4.50 corn because that's a heck of a lot better in the revenue standpoint than -- good beans are 50, great beans are 50, poor beans are 48, you know what I mean, it's just one of those things. So with corn you can really kick it up a notch and hope that prices go higher. Hope is not a marketing strategy.

Yeager: Maybe that's how we got into this problem in the first place.

Setzer: It's how we're here, yeah, really when it comes down to it. But I don't think there will be more beans than corn overall. I think the one thing that we have kind of lurking in the wings could be an increase in corn acres from a year ago unfortunately.

Yeager: Okay. We have another Twitter question and this one is from Brian in Galva, Illinois. Hello, Quad Cities. Brian wants to know, what do you see basis doing over the next three months? We had a couple of questions about basis. We know it's a regional driven thing. Thanks to James as well for your question similar in nature.

Setzer: Basis is a function of local supply and demand. Poor Brian in Illinois and anyone in Illinois, you are one of the few states in the Corn Belt that actually saw a significant increase in quarterly stocks from last December, about 100 million bushel. You're already carrying a significant amount over but you definitely kicked it up a notch by having record corn production in the state this past year. So congratulations, you're really good at your job, unfortunately. I do not anticipate that to mean that basis will strengthen too much more if you're in that neck of the woods. I have a few guys that I talk to, we chat with pretty regularly about what's going on there and they have started to lock in some basis values just because I think what will happen is folks will see that this report didn't generate the rally they were hoping for, they have bills to pay, you're going to start to see the grain move in on top of that. If you do see a significant push in basis your commercials are going to step in. And so if you're in Illinois specifically where your quarterly stocks --

Yeager: He's not that far from the Mississippi.

Setzer: Which is a great, at least then he's not in an area that has ridiculously poor basis values like some folks that I talk to. But reality is basis isn't going to go too far away from a year ago. And the one thing to keep in mind is that a year ago ethanol values were much better so your margins were improved. Right now ethanol margins are pretty poor so some plants will come up with the decision eventually to either pay up or back down on grind and I think we've seen that the last couple of weeks that the back down on grind is taking place.

Yeager: I got a message via our Instagram feed today talking about the Ohio River and the problem that they're having with basis. And you've got the Illinois River that is iced up and that has made a whole mess of things.

Setzer: Yeah and it will continue to do so. The one thing that has helped, weather makes the river market a beast because you can't move anything because everything is iced up. It also helps because no one wants to get out and try to start the tractor or run the lag when it's five below or ten below. But if you see a break in weather, which they have been anticipating for weeks now, maybe someday, March I'm hopeful, people will start to move grain and move it quickly. And I can tell you today we had a reasonably good day in Iowa in my travel from North Central to Johnston here, hoppers everywhere. So grain is moving.

Yeager: Alright, let's do a quick one here. Howard in Waseca wants to know how many of these HRW acres will be double cropped with soybeans? Do you think a lot?

Setzer: It will depend on what the soybean price is doing once you get to June, May-June timeframe.

Yeager: Alright. Let's get to Phil in Dresden, Ontario, Canada. And he's @agridome, Phil a loyal viewer, always appreciate that. How much of an issue ae low protein U.S. soybeans versus South American soybeans going to China? Or will China demand just render all of that mute?

Setzer: Yeah, I think it's really kind of an issue that was blown out of proportion, probably one of those that really helped to generate that downward move a little bit more. Everyone has kind of forgotten that the Argentine soybean crop had the lowest protein in the last 20 years as well. Weather doesn't help. And I saw some folks in conversation of was it weather or are we not focusing on protein in our bean technology? It was weather. We have a food grade bean variety that we focus entirely on protein and even that was a bit of a struggle to generate. So it's not a long-term effect, it's not something that we just suddenly forgot to be concerned about when we introduce new bean seed or something like that. And it really overall, China is not going to be, you're looking at a point or two of protein if that and we did carry over enough beans that you can help to offset that if you truly have someone that is concerned about that protein level.

Yeager: Okay. One last question. This is from 1/2 Face Man in Iowa and he's @HarvestTrader on Twitter. This is the one we've kind of just danced around, we did a segment on it earlier on the show. Thoughts on the potential change in the tax law with co-ops?

Setzer: Oh yeah, I want to be clear I love co-ops. I'm married to a co-op man and neither one of us want to be in the doghouse because it was minus 10 last night in Algona, Iowa. So really when it comes down to it something needs to change, it is dangerous. We're a small private elevator so some of these bigger players in the industry may be able to withstand some of that competition. There's a lot of small pieces that may or may not matter. How many times does a farmer really want to draw a 1099 from anyone? But the fact is that the idea that they could receive a 20% deduction on net income by working through a co-op will push business that way whether or not that have a net income. So it definitely gives an advantage to some groups that others won't see. A lot of folks say I have nothing to worry about as a small private elevator because the fix will come and it will be quick. Well, this will be the first time in the history of time that an act of Congress has worked quickly. So I'm hopeful that a fix comes and I'm hopeful that we can remedy it. I don't want to see something taken away. That has been the argument of the co-op is that you're going to remove this gift given to the farmer because we are selfish or something of that nature as a private operation and that's not the case. It makes it unfair for us to be able to compete. It's not a market change, it's not something like more demand has come in or we have to be more competitive because of an increase or a reduction in supply or something of that nature. This is something that can push business in one direction and so for the small private entities out there it is, we have three choices, become a co-op, merge with a co-op or shut your doors if a fix doesn't happen and that is the reality that we are currently facing.

Yeager: And that is a reality that is across a wide swath of area, that's not just local to you, that is something that is going on. Angie, I appreciate that insight. I thank you so much for sticking through all those questions. I appreciate all the traffic you generate for us as well.

Setzer: Thank you.

Yeager: Angie Setzer, everybody. And that will do it for the end of this Market Plus segment. We always appreciate having her in here. And you can find her on Twitter @goddessofgrain. And join us next week when we'll explore how rural America is dealing with this opioid epidemic and Darin Newsom will sit across from me at the Market to Market table. So for everyone here, we appreciate you for watching, listening or reading. I'm Paul Yeager. Have a great week. 

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