Podcast

Howell: This is the Friday, July 6, 2018 version of the Market Plus segment. Joining us now is Angie Setzer. Angie, welcome back.

Setzer: Hi.

Howell: We had a lot to talk about during the main portion of the show so we didn't get to touch on cotton and hogs so we want to make sure we work those in here. Looking at a cotton market perspective, China already cancelled quite a few cotton contracts moving forward. Are you bullish or bearish with cotton moving forward keeping that in mind?

Setzer: I think it's important to take a look at what we've got going on in our production side of things. You look at what's happening, and I'm talking new crop specifically and I think the USDA has already been, when you're looking at old crop, already been slow to follow what has been taking place from an expert standpoint. So yeah, China can cancel a few contracts here or there and maybe you'll end up in line with where the USDA is currently forecasting versus the increase that was likely necessary based on the numbers that a lot of folks had been kind of tossing back and forth. But looking at the new crop production side of things, Texas' crop was 31% poor to very poor, a lot of places they did get it planted but they got it basically dusted in. There has been a lot of real significant issues that have taken place in the cotton crop in Texas. I think 22% to 25% of Oklahoma's crop looks poor. Texas is of course our big producer that we pay attention to. So looking at that and looking at some of the issues that you're seeing with delayed plantings in the Delta and areas that have remained pretty wet and other issues I'm far from a cotton expert but I would say that the market should see some support. We could see some ebb and flow, some back and forth going forward. But the reality is we've got to see what kind of production we're going to have before we can get too shook up about any sort of demand issue with China, especially because China has been playing games with us for years now when it comes to cotton.

Howell: With all of those factors in mind, looking ahead to acreage estimates for '19 and '20 growing seasons, we had quite a bit of acres shift this year to cotton, do you anticipate to see the same amount of acres in cotton production next year?

Setzer: I wouldn't be surprised if prices stay supported to see folks kind of lean in that direction. Once you get into cotton production it's not like you can really kind of shift away from it, it's not that easy from what I understand. So I wouldn't be surprised to see acreage stay relatively stable, maybe some slight increases in certain states, some slight decreases in others and of course it's all going to depend on what Mother Nature does not only this year but next spring.

Howell: Absolutely. Mother Nature you can never predict her.

Setzer: Exactly.

Howell: Let's talk about the lean hog market. We saw significant strength in both lean hogs and the feeder cattle and live cattle markets here on Friday up until basically the close of the market. What was going on there in the lean hog market?

Setzer: It seems like there was some profit-taking I would say. The one thing to pay attention to in lean hogs is the inversion of the market. You're really looking at some pretty steep reductions in value as you work into the August of course and even further into the October contract. So I think there's some issues there, some folks really questioning what that's going to mean, perhaps it could be just lack of volume, trade interest, concern over what's going to take place with demand as we move ahead, something of that nature and you could see those deferred markets start to firm back up a little bit. But most folks are, if you're watching the July, are saying don't be surprised by some sort of significant selloff as we work our way towards expiration in that market structure.

Howell: What are you looking for price wise in the October and the August contracts for lean hogs?

Setzer: I was really surprised that we maintained in the 70s there in the July and even traded up from there, especially since we hadn't seen that sort of strength in the months previous for quite some time. So I wouldn't be surprised to see some firming. The demand has stayed pretty strong. Of course there's a lot of concern over what it looks like as we move ahead with trade because pork, exports are such a major factor. But I wouldn't be surprised to see the market firm up as we work our way into the fall.

Howell: Okay, something to keep an eye on. Angie, as I mentioned in the main part, we had two pages of questions this week because everybody wants to ask you their opinion, or wants to ask you their opinion, wants to ask their opinion of you. So let's take some of these questions here. Shane in Bloomfield, Nebraska said, with nothing much we can do to stop the trade wars going on, what do the 1 year and 5 year outlooks look like for the grain markets?

Setzer: Really when it comes down to it I think the most important thing Shane said in that is there's not much we can do, right. And I've said that since the announcement of the tariffs, we've jumped out of the airplane, now we just have to hope that our leadership, our parachute, works. And so for me I think the 1 and 5 year, I think once we work our way through this I think we have issues, I think there are concerns, I think trade policies could cause some major waves in the market, it already has obviously. I'm speaking in terms of the obvious. I wouldn't be the least bit surprised to see us start to recognize the fact that global carryout is reduced, our carryout looking ahead into '18, '19 is reduced. The one thing that I cannot wrap my mind around right now is why no one is talking about the fact that new crop soybean exports, the best we've seen since the '14, '15 crop year.

Howell: Why is that? What's going on there?

Setzer: Well, because it doesn't fit the market narrative. Tariffs are going to be the end of the American farmer and you can't say that tariffs are going to be the end of the American farmer and then out of the corner of your mouth say, oh by the way, exports are the best they've been in four years. So it is really one of those things that we have to keep in mind that the developing nations are continuing to grow. Their population is expected to grow around 5%. Those developing nations are also getting richer, their diet is changing, it's getting better, they need protein whether it's to feed animals, whether it's to feed our animals that we're going to export that meat overseas or whether it's to eat themselves or to feed the animals they have in their country. The growth is there. Now, a lot of folks will say we are encouraging other areas to grow more soybeans by pulling this tariff stunt. True. But they were also going to grow more soybeans whether we had done this or not because they wanted to compete, the money is there, the Brazilian farmer sees that he can make, he or she can make great money when it comes to growing soybeans. Obviously we've seen their crop grow from 80 million metric ton to 120 million metric ton in 5 years. It's going to continue, they have a lot of arable land and so really when it comes down to it that was already going to happen. So the American farmer has to continue to reinvent themselves. Yes, the tariff kind of expedites that, yes, it makes it a little bit more difficult, but when you're looking at 1 to 5 year I wouldn't be the least bit surprised to see prices, pricing opportunities for the 2018, 2019, next year's crop back up above $10 at some point in time and everyone is going to forget the gnashing of teeth that we had in July of 2018. Five year out, same thing, I think you're going to see prices stabilize, I think we're going to get comfortable with the fact that demand is there, demand continues to grow, the supply is going to grow and shrink depending on what the weather does and you're going to have pricing opportunities as we move ahead. You just have to take advantage of them when the market gives them to you.

Howell: Absolutely. This seems like a really pivotal time in agriculture and I think this leads to another great social media question. Let me find it here. So talking about President Trump a lot of people are or for or against him, whatever your opinion may be, we have Paul in Nebraska wants to know, if President Trump actually fixes the trade problems with China and grains go up, will those in the ag industry give him credit? Your opinion.

Setzer: I hope so. I hope so. I am not a Trump fan. I am a third party person. I have to make that clear because if I say I didn't vote for him then suddenly everyone pounces on me for voting for the other candidate. There were three that you could vote for. I have not been a fan because I didn't like the rhetoric about trade during the election. I was not a fan during the primary, I was not a fan during the election.

Howell: He has done what he said he was going to do.

Setzer: He has done exactly what he said he was going to do and he said, he has made it very clear, he wants global free trade. I would say that there is no person on this Earth crazy enough to push China to the brink of economic collapse or to the point of where they say Uncle except for President Trump. And so I feel that he is going to push and push and push and I think the rest of the world is very clear that they do not want a global economic disaster that would come from a collapse in China or other areas. And I think suddenly you're going to start to see people, and it might be behind the scenes, say what do we have to do to get you to calm down? And he's going to say exactly what he's been saying, we need to remove tariffs. And so it's very funny because a lot of people get very upset about the fact that he has put these tariffs in place, which he obviously has for a reason. I'm not, again, I'm not a fan. I wish we were sitting here not talking about it, just leave it alone. But there's things that need to be fixed. The forced intellectual property theft that is taking place when it comes to working with the Chinese right now is not right in a global market structure. You said it during the show, they're a developing nation, they're no longer a developing nation, they're the second strongest economy in the world if not the strongest. And we're still treating them with the World Trade Organization as if they're a developing nation. So there's a lot of things that need to be changed. Am I a fan of how we're doing it? Absolutely not. But as I've said before we have jumped out of the airplane. This idea that we suddenly are just going to walk away from this I don't think makes things better. In fact, I think it makes it worse long-term. So I think a lot of people will come at me and say, well you're just being political because you're a Trump fan. Not a Trump fan, believe me. But I am an America fan, I'm a fan of America, I'm a fan of doing things that will help us do better along the way and all I can do right now is trust that the things that he's doing will hopefully do that for us. And if they do, I would hope that folks would recognize that and give the accolades that are necessary. But unfortunately after spending 20 hours on the road and listening to the rhetoric on both sides I don't think we'll, I hope we would, but I don't know if we ever will.

Howell: Okay. I want to switch tracks here and ask you one final question about ethanol because we had the EPA Administrator turn in his resignation this week, we have China now saying 2020 is when they want to have their cars all converted to ethanol, don't know if that's going to happen with what is going on in the trade. Lexi in Iowa, Lexi Freund, said with ethanol production increasing rapidly in the United States, what repercussions might be seen from the industry from a Chinese tariff standpoint? And will Pruitt's resignation have any impact on the market?

Setzer: It will, Pruitt's resignation I've been calling for him to go for quite some time and so I hope that it does. The new guy, whose name is slipping my mind --

Howell: Andrew Wheeler.

Setzer: Yes, I almost called him Andrew Miller so I'm glad you spoke up. Andrew Wheeler said that the RFS is the law of the land and the EPA will stick to it. So if that's the case then that is good news at this point because the RFS would call for that increase in blend and increase in production and also we wouldn't have to worry about the RINs and the waivers and all of that. So that would be good. I think China is going to try to continue doing what they're doing with the 10% ethanol. They may be importing it elsewhere. I think Brazil right now has seen a significant increase in their production capacity. They're looking to switch over to use a lot more of their corn. Their sugar production this year was a bit higher as far as we've seen. So Brazil could kind of step in and be China's sugar daddy maybe when it comes to that. But from an overall standpoint I think the ethanol market has created demand in a way and I think we'll see that continuation of domestic demand. I think we have global demand. I think we know it's a clean burning fuel that provides great octane and we just have to kind of keep beating that drum. And I think the demand will continue to follow.

Howell: Angie Setzer, I'm glad we could end it on a high note here. Thank you so much for joining me.

Setzer: Thanks for having me.

Howell: Join us again next week when we follow a family starting a new life by going back to the family farm. 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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