Market Analysis: Angie Setzer (July 7, 2018)

Market Analysis: Angie Setzer (July 7, 2018)

Jul 6, 2018  | Ep4346 | Podcast

Podcast

The trade appears to be counting on big yields and a trade war as mostly weather moved the commodity markets. For the week, September wheat gained 14 cents, while the nearby corn contract increased a penny. A big Friday rally helped the soy complex avoid another losing week as the August soybean contract expanded 14 cents. August meal improved $7.10 per ton. In the softs, December cotton stretched 53 cents per hundred weight. Over in the dairy parlor, July Class III milk futures lost 39 cents. A mixed week in the livestock sector, as the August cattle contract shed 35 cents. August feeders put on 87 cents. And the August lean hog contract dropped $1.02. In the currency markets, the U.S. Dollar index lost 58 ticks. Crude oil declined 35 cents per barrel. COMEX Gold improved $1.30 per ounce. And the Goldman Sachs Commodity Index fell 6 points to settle at 480.80. Joining us now to offer insight on these and other trends is one of our regular market analysts, Angie Setzer. Angie, welcome back.

Setzer: Thanks for having me.

Howell: I think the big question we have to ask right off the top here as the tariffs went into effect at 12:01a.m. on Friday morning is, is the tariff story put to bed yet?

Setzer: Well, it's definitely not put to bed yet. We have a long way to go before that comes into play, the whole putting it to bed, because once we solve our China issue we have to worry about the EU and then we have to look at what's going to happen with the NAFTA countries. But I think we're kind of generally recognizing that world demand for soybeans did not change last night at 12:01a.m. We saw in this morning's report that China have cancelled some old crop purchases as we had expected, but all of those had been picked up by other countries and I think that's an important thing to keep in mind and something that I've been talking about since the initial talk of tariffs was introduced that global demand is there. And even if China is going to look to source all of their beans from Brazil, which they can't possibly do, other countries are going to need soybeans as well. The growth in global demand for protein continues to be exponential, just looking at developing countries alone, and they will turn. Obviously right now soybeans are a blue light special unfortunately for the farmers that have to sell them, but for the countries that are looking to buy them they will look to purchase. And we saw China last week make moves where it had been talked about prior to the whole tariff issue arising, but China had made moves in order to take some tariff free imports from other countries surrounding them, which happened to show up on these weekly export sales, these other countries are the buyers of these beans that China had in fact cancelled. So we have a long way to go before the tariff issue is put to bed. But I think maybe the market is coming to the realization that you can't push beans to zero because global demand will remain in play as we move ahead.

Howell: Absolutely. And I'm sure that will be sprinkled into the rest of our discussion. But I want to move on and go ahead and talk about wheat. Angie, we got two pages of questions this week from social media, which folks you can find us on Facebook and Twitter and Instagram, of course if you want to send in your commodity questions. But I want to start with one here from a wheat perspective. Baloo said, just to give some context, looking ahead to the July wheat '19 contract, it looks like there is a little money to be made considering what we've seen in soybeans and corn. Do you expect to see some shifts in acreage back to wheat or have the wheat acres pretty much stabilized with folks this year and next year and continuing forward?

Setzer: No, we'll see a shift back. We had the opportunity above $6 futures for a lot of folks in the Chicago wheat market, Kansas City wheat was equally strong, Minneapolis may have been a little bit more beleaguered here that we've seen for the past year just with the idea of spring wheat acres increasing and what you have going on from an overall supply and demand structure in that market. But I have a lot of customers that locked in quite a bit of wheat looking ahead into next year because they know $6 futures work. A lot of folks in the Southern Plains will say, I'm still not making money at that. And I understand their yields are nowhere near what we can expect in the soft red wheat belt a lot of times. My Michigan producers are looking at 80 to 100 bushel per acre of wheat yield. And so at $6 if basis stays even or even firms up a little bit more, which we've seen here recently, they're able to make some money. So some folks have locked that in. Of course Mother Nature will be the final determining factor when it comes to increases in wheat acres. But I wouldn't be surprised to see with the strength in the wheat market some folks return to wheat plantings. You just, once you grow wheat you can't get away from it. It's like Hotel California of commodities.

Howell: Hotel California of commodities, all right, I like that. Let's talk about weather markets. When we look at it from a corn perspective we're getting into the hot and dry, typically hot and dry season here moving forward. What are you hearing from your customers about germination or how their crop is looking?

Setzer: I traveled back to Michigan this past week and was very sad to see what I saw in my trade territory specifically. We've been really dry. If you look back, Michigan suffered through a pretty wet May. We had some delayed plantings, we had a lot of replant, we had some compaction issues and so we've had some heat and the corn was already rolled up pretty tight here. We're not used to 90 degrees in Michigan. Lake Michigan is in the mid-70s already, that's quite high temperature wise for July. But when you get out into other areas of course right now we're driving through I-80, once we got into Waterloo out of Algona coming south and heading out to Michigan and got away from some of the water issues it was really, it looks great. But I will say that the agronomists that I talk to, I basically will delegate to them on what we're looking at from an overall crop production outlook and the agronomists that I talk to are saying that there are some issues that are developing. The crop can look great from the road but once you get out into it you start to realize that there are issues and I won't even try to get into details because I will make myself sound terrible.

Howell: Absolutely, but with all that being said, what are we expecting or what is the market factoring in for yield this year?

Setzer: Oh gosh, I think the market is factoring in a record crop. I think well above 180 right now is, if you talk to anyone about the corn crop they'll tell you how fantastic it looks. And I can tell you on I-80 yeah, it looks really great. But I can also tell you that in Kossuth County and other areas in the northern two-thirds of Iowa it doesn't look so hot in a lot of those areas, southern Minnesota, parts of South Dakota. You can draw an oval in areas that are not looking as great as what those areas in Illinois are looking. So I think the market is really factoring in that garden area, parts of Indiana look great and I think we're kind of forgetting what warm overnight temperatures can do. We had a very warm overnight stretch throughout June, it looks like the first half of July is going to be exceptionally warm as well. When you have those wetter soils it's not as easy to get cooler in the evening, which we need in order to really maximize that production. And so I think there's a lot of issues there, not to mention the fact that once you tassle, once you pollinate you've got 60 days. And so last year we pollinated towards the tail end of July and had a very cool and wet August. At my house in Kossuth County we had over 7 inches of rain throughout the month of August and we had temperatures that I don't think broke much about 85 if at all. And so I think there's some real issues that could develop from the fact that we have the second fastest pace of silking that we've seen, the first fastest was 2012. So I think there's some issues there I think the market is really factoring in the crop has made it in the bin and we're a long, long way away from that.

Howell: We absolutely are. Let's talk about soybeans. We had a huge rally here on Friday, I think 38 cents in the new crop contract. What's going on there? Some optimism?

Setzer: I think it's optimism, I think we've been selling the rumor and unfortunately we have to buy the fact with the tariff issue. I think perhaps folks are realizing that we've really kind of beat that dead horse beyond recognition at this point. There's a lot of talk in outside markets that in order to protect perhaps your equity longs you needed to short beans because if the tariff came about and we had some issues in equities then of course soybeans would also move lower because of that. So there's conversation on Twitter as well that funds move in herds. And so once we started triggering back up to the upside I think we saw that and I think if you were to really take a tour around the Corn Belt, corn isn't struggling nears as much in northern Iowa, southern Minnesota, those areas, as soybeans are. They look terrible. I'm trying to remind myself that out here folks tend to spray a pretty strong herbicide around this time and it can look worse and they usually bounce back. But right now they look pretty bad. And as you move east they also look pretty bad. So I think we're a long way from having that soybean crop made. And I think if we continue to see heat and struggling with beans and their wet feet we could get some production conversation coming in because I think the market was factoring in above 50 there as well and so there's just a lot of moves that we've made that have seemed pretty premature to me when it seems to thinking that the crop is made or in the bin.

Howell: Absolutely. There's still a lot of time weather wise. Let's talk about cattle. We've been seeing exports up 13% for the year in cattle. Can we sustain these levels? And if we don't what does that mean for our increased supply and production that we're sitting on?

Setzer: You know, my friend Naomi said it best, there's no replacement for beef, right. So once you start entering, putting beef into your diet it's very difficult to pull it out. I've said that a thousand times over, we don't celebrate life's accomplishments with chicken breasts, sorry poultry guys, but we don't. And so I think the demand for beef is there and pretty solid. I think it is helping to eat into that wall of cattle that we keep waiting for. Obviously we have a reasonably strong supply but we have very, very strong demand. If we can work through some of these trade hiccups as well, that's in the face of trade uncertainty that we're seeing, if we can work through some of those trade concerns and continue on I think we'll see the beef demand stay pretty strong. And we're going to have this ebb and flow. Seasonally we do tend to start to look towards the end of grilling season they say as we work our way ahead so it is possible that we could start to see a little bit of that demand kind of creep back. So it's something to keep in mind. But I think we'll just continue, the cattle market seems very, it's in love with a range, it will establish a range and we'll see it go from low to high and back and forth all over again.

Howell: Really quick here, your 15 second thoughts on the feeder cattle market. We've closed about $150. Where do we go from here?

Setzer: Oh gosh, the sky could be the limit, it could back off. It's really one of those things that we'll have to see what happens when the buyers come back in. This week has really been a funky week of lack of interest.

Howell: Absolutely. Angie Setzer, thank you so much. We'll continue this discussion in Market Plus.

Setzer: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at iptv.org/mtom. Our Facebook page was full of pictures from you out standing in your fields, showing us your high, showing us how high your corn was on Independence Day. See those images and other dispatches on our Facebook page of IPTV Market. Join us again next week when we begin our profile of a family starting a new life by returning to their roots. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa Public Television which is solely responsible for its content.

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN