Market Plus: Angie Setzer

Apr 13, 2018  | 15 min  | Ep4334 | Podcast


Howell: This is the Friday, April 13, 2018 version of the Market Plus segment. Joining us now is Angie Setzer. Angie, welcome back.

Setzer: Thanks for having me.

Howell: Well we got cut off there right at the end of the program about hogs so I wanted to make sure we gave some time to our hog producers, even though most of them are contracted out, there are still a few folks that play the markets. We were kind of finishing up the discussion of the spread here between the April and June contract months. Is it normal or is it unusual to have a spread that $20, $22?

Setzer: Obviously with how we traded on the April market it was considered pretty bearish so a significant amount of carry tends to be indicative of market structure. So in a bearish market you will see that increase in carry and in hogs of course I don't trade in them quite often of course but it would be about as close to full carry as you can anticipate I would imagine. So the one concern that you always have in a big carry market is that typically once the front month goes off that month that was trading so low you will see eventually the next months in line kind of fall back into line with where that front month went off. So that will be something you want to watch. I think we have some short-term support. I think the market has factored in all of the concerns that we have over the Chinese tariffs. I feel that's been what the market had been trading lower on for the last couple of months or at least the last month. So we'll factor that in. I think we'll have the Argentina story coming into play. And so there will be some short-term support but it's definitely something in the back of my mind to pay attention to that that June market could start to see some weakness once the April is done for, which I think today was its last trading day.

Howell: And so with that being said, when are you looking to see the June, the deferred contract months pull back to meet where April is falling off the board?

Setzer: It will depend on trader sentiment of course. If it's going to happen though it will probably start to happen over the next couple of weeks. But we'll have to see how next week trades out and see if that strength comes back in just to see how that market develops and trades.

Howell: Absolutely. Let's also make sure we touch on cotton to get our cotton producer friends in the loop here. With the export sales numbers 108% over where USDA forecasted to be at this time of year but we did have the lowest export sales numbers since the beginning of January. Where do we go from here?

Setzer: Well, what we saw in that was a significant cancellation by another buyer. So our overall, our gross sales were actually still in line with where they had been, it had just been a cancellation that had kind of come in and took the market's legs out from underneath it from a net standpoint for a minute. I think as we go forward the shipment pace has been extraordinary and we continue to see strong shipment pace. So at this rate if we continue to see what we've been seeing for the last couple of months when it comes to the shipments and sales side of things we could potentially see the USDA actually have to come back in and raise exports again. The idea though is of course we're seeing some pretty solid pricing levels out there. The question is when will we get planted because the areas that want to put cotton in of course have been quite wet as of late. So it will definitely be a battle between bullish old crop expectations and potential bearish new if we see the acreage planted. But if we get into a standpoint to where okay some of these areas aren't going to end up planting these acres we thought they were then you could see some of that continued support. But really when it comes down to it in cotton it has always been one of those markets where if you're going to make a decision on increasing acres or increasing your production based on pricing levels similar to soybeans you want to be protecting that risk by locking in some pretty solid pricing opportunities.

Howell: Absolutely. We had some big news this week with the TPP or CPTPP as I think it's now referred to. If we do start to, or we are starting to re-examine that, but if we do end up deciding yes we want back into this trade deal what is that going to do for commodities? Do you see strength in any of the commodities in particular?

Setzer: Yeah I think it could definitely, one of the louder groups that have been proclaiming that we needed to be in TPP to begin with has been the wheat growers whether it's in the Pacific Northwest or in the Southern Plains or just basically across the country the wheat dynamics are such to where we need to be able to have open access, especially to Japan and other South Korea, some other countries in that respect. And so right now what TPP would allow us to do is be competitive with Canada who is our biggest competitor in that set up, in that group of countries. And so we definitely to get back into it, it never hurts to have access to free trade in my opinion and in the opinion of most commodity groups. So I think we'd see a benefit across the board, especially because it would level the playing field between us and that group of countries that have put that together. But I think at this point based on what I've seen from the commodity groups out there on concern over loss and business or something like that wheat would be the one that would definitely come out maybe a little bit more of a winner than the others, at least in the early onset of the agreement.

Howell: But still too early price wise to see any excitement over the news of potentially rejoining?

Setzer: Yeah, yeah. There's so many other factors going on right now, TPP is just another one. This has really been one of the loudest periods of time I've ever traded in. It seems like there's a new news story every day. And some are bullish and exciting and some are bearish and disappointing and so it's just a constant battle of which one wins out each day it seems.

Howell: Absolutely. Well let's make sure we take some social media questions which you can of course find us online, Facebook, Twitter, Instagram @MarkettoMarket. Let's start here with Brian from Illinois. He said, with Argentina having 33% of the world's soybean stocks why would they be purchasing U.S. soybeans?

Setzer: Yeah. Well it has been something that I've been bringing up for a while now. The Argentina story was picking up steam with the consideration of drought and the reduction in production which is a major issue. However, because of their export taxes that have been in play and their lack of desire of course or lack of ability from a farmer's standpoint, at one point their export tax was like 35% on a bushel of soybeans to ship out, so they've been sitting on those beans, storing them in bags across the countryside really and you've seen in part of protests people opening, cutting open the bags and things like that. So the USDA has put Argentina ending stocks at I think 800 million, close to a billion bushel. And I've always been kind of questioning that because of course it has been found in our global ending stocks numbers. So we'll have to see what happens and one of the best ways to see what a country really has, especially if they're considered to be stockpiling supply, is to have a production issue. So now we'll want to see what Argentina actually has in play. The one thing to be aware of is that the purchases, the Argentina purchases are a big deal considering the fact that they're the first that we've seen in 10 years and the largest that we've seen in almost 20. But they're new crop so we have a long way before they actually kind of, yeah, before we see them get set to ship. And secondly, it could have easily been something to where what you saw happen here over the last week since the announcements of those purchases is that the Argentina domestic price has completely fallen out of bed. So because of the drought you saw prices creep up higher and higher and higher and crushers have had a hard time sourcing beans as a result of what has happened. And so one of the easiest ways of course to kind of beat your own farmers at their game I guess you could say in Latin America is to say all right, well we're going to buy them elsewhere. So it will definitely be something that we'll want to watch and see how it plays out. But it's interesting for sure and there's a lot left to that Argentina story over the next six to ten months.

Howell: And we'll have to watch and see how that plays out. Next question here from Bill in North Dakota. He wants to know, has Argentine drought reduced Brazilian soybean carryout enough to inoculate American beans from a tariff war?

Setzer: The conversation is such, yeah, this is the worst time for China to kind of say that they're going to back away from American beans simply because we did see that reduction in Argentina production. We did see an increase in Brazil, Brazil does look as though they're going to produce another record crop.

Howell: And does that make it a wash then?

Setzer: The overall what was expected from Argentina production standpoint versus what is probably going to come out of Brazil, no. The global stocks are seeing a bit of a reduction. But if we were to see U.S. acreage increase above the 89 million acres projected in March then globally it would be a wash. But we're a long way from seeing that happen. And so as a result the cash market itself what you're seeing and we talked about on the show is the Brazilian basis firmed, the offers coming out of Brazil kind of went away. Argentina of course is not in a huge hurry to export their beans because they're not a whole product exporter. And so one of the most interesting things I think we saw is I work out of Michigan and so the Ontario market, the export market in Ontario exploded to the upside as well. And so you're seeing people kind of fight for this opportunity to have a position in play and of course the U.S. will benefit from that somehow. Either it's going to be my beans in Michigan end up going into Canadian crushers because the Canadian beans are going to China or something of that nature. So it's definitely going to be interesting to see how the global market plays out and that is one of the most fun parts about trading cash is that where there's a will there's a way and the market will find a way to cover the demand that is out there because price will be the vehicle to make that happen.

Howell: Where there's a will there's a way. Jerod in Oklahoma would like to know, this is a funly worded question, will we see some good old fashioned inflation in commodity markets?

Setzer: I think we're seeing it, honestly. I think we've seen a pretty substantial run up in price and you could argue that from a fundamental standpoint corn, December corn being within a half a cent or a penny of the contract highs put in place for December '17 corn a year ago, it took us until June, it was July 10th I think when we hit the high for December '17 corn. So it took us a weather scare in order to see the market move up to that level. Now of course there's other factors at play but you also have seen soybeans stay relatively supported with some of the news. Of course the cash market has been part of the reason. But funds do not want to give up their position at this point and a lot of that I think is because the fed has been saying continuously that we're going to see inflation, we're going to see inflation, so the classic inflationary play is to come in and buy commodities. You've seen crude move higher, of course there's concerns over what is going on in the Middle East but it was higher before that, you've seen gold, the metals have regained traction in the market and it was only a year ago where you couldn't give them away. So I think you've seen that inflationary pressure come in and really help to kind of drive the market up to levels that we haven't seen in a while at least this early in the year and keep them supported from there.

Howell: All right. We're going to do kind of a lightning round here to make sure we get all of the commodity questions in that people have sent in. Phil in Dresden, Ontario @AgriDome is asking, with onerous stocks in both corn and soybeans, when do the bears win the day?

Setzer: When we guarantee production this year is another record. Honestly at this point in time we're going to have to see what weather does, we're going to have to see how the crop gets planted and it will be 4th of July for corn to see what we're looking at pollination wise and the middle to end of August in soybeans before the bears are able to step in and really have their lunch if they can.

Howell: And Glen in Bryan, Ohio says, will basis levels for new crop soybeans and corn weaken sooner this year considering the projected carryover stocks and current trade discussions?

Setzer: The basis level in soybeans you've already seen weaken. The Toledo market has been one that has backed off pretty big on the idea that we were going to see a withdrawal in interest. Corn has been a more interesting discussion but I think that a lot of folks have held onto corn. Of course the market has moved higher earlier and so what is needed to have been sold has been and so now the end users are going to have to try to wedge some of those harder to buy, the easy stuff is gone, at least in the short-term. So you may see some basis firming up but I think the one thing to pay attention to is what happened last year. Once the crop is confirmed it will be pretty easy to see folks kind of back off if the crop is confirmed. We have a long way to go there. But you could see basis weaken again in the last half of the summer. So if you're seeing basis opportunities present themselves when you're in the field don't be afraid to be a seller.

Howell: Make some sales, absolutely. Marty in Buxton, North Dakota wants to know, what do the soybean crush spreads mean to soybean prices today and historically?

Setzer: They mean everything. It's one of those deals where meal and oil will lead your soybean price. It definitely will help the crusher be able to buy more beans or pay more for them. So it's definitely something to watch. And old timer once told me always be aware of a byproduct led soybean rally which is so always be afraid of oil and meal are the ones dragging beans along.

Howell: Which has been what is happening.

Setzer: Which exactly has been what is happening but obviously we saw meal back off a bit, we've seen some other things happen and soybeans this week were like yeah we're cool with it. So it will definitely be something to watch simply because things have changed so much because of the livestock demand, the meat demand around the world. So it's something to watch but it's definitely you always want to pay attention because it does mean pretty much everything to the market structure.

Howell: Angie, we want to wrap it up here by asking kind of an educational standpoint for our producers that are watching. We talked about it a little bit in the show. But can you explain what the term arbitrage means?

Setzer: Arbitrage is an interesting thing that can happen in the cash market where one, two people may agree to buy and sell and someone in the middle ends up being the provider of the goods. So that's not the dictionary definition by any means but a perfect example of it is I sold wheat to buyer A and we're delivering it into a feed mill that buyer A had actually sold that product to. So it's one of those things where two people can agree and they can source it from all kinds of different people to make it happen and so you could easily see us sell beans to Argentina and ship them to China if it were to, the market were to develop as such.

Howell: Perfect, I appreciate the real world application example. I think that helps solidify it for farmers.

Setzer: Thank you.

Howell: Angie Setzer, thank you so much for being here.

Setzer: Thanks for having me.

Howell: Join us again next week when we examine how the dairy industry is weathering another year of low prices and Ted Seifried will sit across from me at the Market to Market table. Until then, thanks for watching, listening or reading. I'm Delaney Howell. Have a great week.

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