Market Plus: Roundtable with Newsom, Seifried, Blohm and Roose

Sep 28, 2018  | 16 min  | Ep4406 | Podcast


Delaney Howell:               This is the Friday, September 28, 2018 version of the MarketPlus segment. Joining us now are Darin Newsom, Naomi Bloom, Ted Seifried, and Don Roose. We're going to kick it off here with a social media question right off the bat. We've got Alan in Minnesota. He wants to know basically here we're getting. We'll get to it here at the end, but is there anything positive to talk about anything at all? He said "prices of commodities are down, input costs are going up. The trade war doesn't seem to be resolving. It keeps raining and I can't get my soybeans harvested. I could really use some positive news." So maybe Darin, we won't start with you.

Ted Seifried:                      Yeah, you know, I think there are some positives. I mean, look, we look at this huge corn crop that we've got. I mean, the yields are going up. That's great. It's not necessarily good news for prices, but, you know, look, we've been out bushelling prices and that's what we've been doing. So, um, but longer term, um, yeah, I mean look at the amount of demand that we're building for corn. That's really fantastic. I think we are moving more to the model where we are the corn growers of the world and then maybe South America is gonna be more of the soybean growers in the world. It's not going to be a great transition, but over the longterm I think that's where we want to be in the first place. So yeah, I think there are some positives. Uh, it'd be great to see some sort of rally be great to get something on E15 to give us an opportunity to make some sales and then everybody would feel pretty good about things. But uh, things could be worse. Now I kick it over to you.

Don Roose:                         Well I think, you know, when you look at it from a producer standpoint, you know, the thing that you do have positive is the fact that you've got big carries in the market. You can get a 50 cent higher soybean price out into the June, July time frame. You can get a 25 cent higher corn price out in the June, July time frame. You know, just this week we weren't that far off of $4 on the July corn. So, I mean there's opportunities, uh, you know, after 22 cent rally, so I think they'll come again. So yeah, I think make sure you use the carries to your advantage, the basis to your advantage. And those are your pluses.

Delaney Howell:               How far in advance. We talked a little bit about this in the show, talking about marketing and our 2019 year, how much of your crop would you market when you can't? I mean at this point in time you don't know how many acres you're going to plant, what your yield is going to be. How much of your crop would you be marketing that far ahead?

Don Roose:                         Well, I mean, I think with the marketing tools that you have, you can get pretty aggressive in a particular at these prices. I mean, just this week you could have bought a $4, $4.10 December, 19 corn puts. You sort of could have sold $5 calls and you could have sold $3.50, $3.60 puts below it. So you could have a big window. I mean, do you think you can hit a target, uh, between $3.50 and $5 and have insurance at $4 to $4.10 you had that opportunity this last week?

Naomi Blohm:                   Hm. Good point.

Ted Seifried:                      Generally speaking, we have guys brought 25 percent sold by the time we get to the end of the calendar year for, for new crop. Uh, I think this year, especially on soybeans, we'd like to see guys closer to about 45 percent, but then again, like we were talking about in, in the regular portion of the show, soybeans are something that we always want to have upside potential for. So again, I'd rather lay off the risk of the physical, you know, I want to get the prices locked in and then I don't mind coming in and spending a little bit of money to have re-ownership in order to sustain or, or take part in a rally if we're going to get one. But I think, you know, making sales and being up to 45 percent sold that way. You know, you can leave a little room for your acreage judgment adjustments and things like that. But I think we need to be a bit more aggressive this year.

Delaney Howell:               We talked about soybeans in the main portion and I think that's still kind of the elephant in the room that a lot of producers are interested in hearing about. We've been seeing some sales from Argentina and Brazil go to China and now they're coming to the US to kind of replenish those stocks. What's that going to do for the U.S. bean market and is that going to add some some support?

Naomi Blohm:                   I think the answer is I don't know. And the reason is because yeah, it's great to keep our product moving. But one thing I've been reading recently is regarding soybean meal, soybean demand in China, they're going to start putting their hogs on a diet, right? So this is separate of the African Swine Flu or African Swine Fever. But if they take a 20 percent feed ration and then take it down to 12 percent, that actually decreases 27 million metric tons of demand. So we usually export to them 36 million metric tons. But now you have something where it maybe wouldn't just be the United States suffering, it is the soybean product itself losing out on 27 million metric tons. So which is, you know, almost nearly half of what we would export anyway. So that makes me fearful and there's a lot of uncertainty yet that we can't even count on or comprehend. Absolutely.

Ted Seifried:                      So I would, I wouldn't say that that's the long term plan for China and I think they'll potentially get there if, if things don't get better for us in our trade relationship relations, but at least just for this coming year, you know, I think they can maybe cut back their crush demand to where they were not last year, but the year before or right around the 88 million metric tons. Uh, currently the USDA has got to be 93.5. So that's another five and a half million metric tons so that they can come back. And I'm just looking for this next marketing year. If you take that out of the Chinese crush and take that out of their input imports, you know, it's not coming there. You know, we're not subtracting from Brazilian exports or Argentinian exports that's coming directly off of us. Right? So I think there's a very clear path for soybeans to see a billion bushels carry over this year. I think we're going to be there unless something gets done.

Darin Newsom:                 Think about what you just said there, Ted. Yeah, billion bushels him over here. Isn't that something? It's crazy. It's crazy. But it's. I mean, wouldn't it be something that that happened?

Naomi Blohm:                   Yeah, scary yet.

Ted Seifried:                      I still don't think that's, that's the worst stocks-to-use ratio we've ever seen in soybeans.

Darin Newsom:                 Depends on what the final demand number is. But if we lose that five and a half percent, if it does come from the bulk of the United States, right? Um, yeah, that's, I mean, because we already saw this last year, we saw ending stocks-to-use go back up into double digits according to the quarterly stocks report at the end of September. Now we've got you. So now is 10 percent plus going to be the norm after spending years, years below 10 percent? So now it looks like you know what you're, what you're saying. And I agree with, so we're going to start building this and we're going to see higher and higher ending stocks-to-use numbers and economics would say, even though I usually argue with them, that the higher the ending stocks to use the lower the price in this case I think is pretty valid argument.

Don Roose:                         You know, my experience tells me that low prices cure low prices. And we'd look at things and they change pretty fast and I mean we're always a one weather period away from just major changes in the market. I remember '83 when it was do or die, we're in an ag, depression, you know, the price would never come back. The government came up with a PIC program. We had a drought and we had a prices move back to uh, you know, the highest we've been in years. So, you know, I wouldn't give up on the market at a, at these levels, but I would keep my eyes open for opportunities. Yeah.

Delaney Howell:               Do you guys see us being in a cycle similar to the 80s? Have we hit that point yet?

Don Roose:                         I think we're back to the low cost producer and I think the United States is the low cost producer. I mean all things equal. I think that's what the government's trying to do. So we'll find out if a South America can produce at the levels we can. We'll find out if Russia can. If Europe can. My bet is. I don't think they can and I don't want to see a set-aside type I like we had in the 60s. I don't want to see a PIC program like we saw in the 80s. I would say, you know, this is 'game on' let's say who's low cost producer and I think it's us,

Darin Newsom:                 But if we're. I agree with you Don, that we could be the low cost producer, but if we have trade, I'm not going to call them wars, but trade spats with everybody who might be a potential buyer. It doesn't matter for the low cost producer because they're going to buy, they're going to go somewhere else

Don Roose:                         Or are they gonna? What we've found so far is this whole thing has been displaced and if you really look at the government's numbers, we're talking about how many exports we're going to lose. If you look at it, the government says we're going to lose 70 million. You know, that's not that many. So there's telling us right there that we're being...

Ted Seifried:                      Year-over-year, but they've cut like

Naomi Blohm:                   Like a big scary. It's not scary.

Ted Seifried:                      I think that's. I think that's understating what reality is. Like you were talking about earlier, the 5.5 million, I think that's still coming down maybe 200 million bushels.

Ted Seifried:                      So let's go beyond the make believe world of what the government is telling us and focus on what the market's telling us. It's telling us something completely different. I mean, it's telling us this, this thing's longterm, bearish, and to me, I don't care what USDA says, you all know I've said it so many times. I would rather see what the market's saying. And when you look and you were mentioning, you know, the strong carrys we've got in the forward curve for both corn and soybeans and wheat. Point. Yeah, I'm glad you didn't ask me the first question. Point to something bullish and all of that. There isn't anything from a supply and demand point of view. There's nothing there.

Naomi Blohm:                   We're going to see biodiesel demand increased. Maybe what, you know, maybe there'll be those types of things were low prices.

Don Roose:                         Well, this isn't going to happen really that quick, but I mean we are on a growth pattern from consumption because we're like, what, 7.6 billion people are going to 9 billion plus overtime. So I mean that's not going to cure them short term, but long term.

Delaney Howell:               What about to produce, we had the announcement this week of the potential negotiations for a bilateral trade deal with Japan. What, what market? I mean, how much of a market for...

Ted Seifried:                      We haven't changed from soybeans quite yet the only way to grow domestic consumption for soybeans, uh, seeing increased crush and we're going to offer, the market's going to offer really record crush margins for an extended period of time. So it'd be great to see our crush capacity grow, but you know, we don't, the crushers don't really want to kill their golden goose. I mean, they, they don't want to cut that and the question is can we sustain or can the market sustain that much more meal production? But I'm going to say it, it would be a lot easier for us to open our export markets to more meal then more soybeans. We can't really sell more soybeans to countries that don't have the crushing facilities to make the products. So I would love to see us increase our crush here domestically and do the value-add here in our country because I think there's a lot more opportunities for us to expand our soybean meal exports. So over a period of time, and this was a longer period of time. I think that's an opportunity that has presented itself to us. And I think ultimately it'd be great to say, 'Hey, China, we're using our own beans. We don't have the exports there for you as much anymore.' Um, so hopefully that is what comes around. And I know I've said it before and I, I, I, I'd like to see some sort of incentive program to help facilitate that and push that along. But even without that, the markets are offering some really fantastic profit margins for crushers right now.

Delaney Howell:               Yeah, absolutely. I want to go back to that question though about Naomi. I know you follow a lot of geopolitics and global trade issues or events. What is this, Japan or potential Japan do do for beef markets and other commodity markets.

Naomi Blohm:                   It continues to be helpful. It keeps the market to have some underlying, some support in that way. We have a deal that went through with Taiwan also with soybeans. Um, just little bits that add up. That's my thought.

Delaney Howell:               Darin?

Darin Newsom:                 I don't think it makes a bit of difference because we've seen this game before. Administration releases, 'Oh yeah. We were close to a deal here. We're close to a deal there and they're, they're coming around, they're going to agree with us on this and this and this.' What happens in the end? It all blows up. We tweet something, we say something and it all blows up. Until we have a signature on this Japan deal, I don't look at it is supportive at all. I mean, it's just, it's just more noise, more than what we're supposed to do as an ignore the noise. It's just noise. It needs to be ignored for now.

Ted Seifried:                      I don't know if we need it. I mean our domestic debate is really, really fantastic and our export demand has been really very good to. The thing with Japan is that they're going to want, if it were to get done, it'd be very premium cuts of meat. It's certainly not a bearish thing by any means, but I don't know if we need that to happen. Again. Consumer confidence, his confidence is the best it's been in 18 years. As Naomi was talking about, look at the restaurant parking lots. I mean we're going out, we're consuming beef and that's, that's a fantastic thing.

Don Roose:                         You know, really go into Ted's point, which is true. Ninety percent of our beef is consumed domestically and basically on our import export, we import 10 percent, but we export 10 percent. So it's a zero sum game, just the cuts we export. So this has really been all about the a strong consumer confidence at 18 year highs and the domestic consumption really. And that's really fooled the market as we're close to, we're close or in contract highs in the back months.

Delaney Howell:               The other final topic I want to end on, because I think it's going to garner some discussion for both soy beans and hog markets as the African Swine Fever. You guys, I think each of you has mentioned something about it and I was at a conference earlier this week that said if we call just five to 10 percent of China's heard, that wipes out the need for importing U.S. soybeans. Would you guys agree with that statement? I mean, what are your thoughts on African Swine Flu moving forward?

Ted Seifried:                      It's a combination of what Naomi was talking about. I mean, changing the rations in China and then also having a problem with culling part of their herd. I mean it's really kind of lining up in China's advantage that, well it's not going to align it to their advantage when they want their pork. Right? But it as far as cutting back their soybean consumption, it's all coming together for them. So yes, that is a problem for soybeans. Absolutely. Now, what does it mean for, for pork exports around the world. China is probably going to look elsewhere to buy pork. They're not going to be doing it from us at a 60 percent tariff, but that might display some demand back towards us. We've also seen the African Swine Flu in other countries too. If that spreads more than then we really have something to get excited about here for our exports.

Don Roose:                         But I tell you, you've got a huge bet on the hogs right now because we've just went up 35, 40 percent on hogs in a month. And we've got supplies that are huge. We had record supplies of hogs in the September report largest since the report began in '73. So we're overvalued. There's no doubt about it. The government's, uh, you know, we're basically $15 to $20 a hundred weight over the USDA projections. So that's what Kinda fluffs in the market. So it's all about 'do you think you're going to have African Swine Flu spread, Fever spread or not in? Are we going to go back to the large supplies?

Naomi Blohm:                   Well the problem though with it is that it doesn't, it's, it's the fever can kill at any age of animal and in 10 days they're dead. It's not like the PED virus here where it was just the babies. I mean they're loosing sows and that's breeding issue and if that thing spreads across the ocean or spreads any further, you've got a whole new ballgame. I don't think it's anything you can just just continue right now. But it's nothing to make us rally immediately. But you got to keep an eye on it.

Delaney Howell:               Darin, any final thoughts?

Speaker 3:                           I just like Don's using the word 'fluff', the hog market because there's nothing, there's nothing on a good sandwich like hog fluff. But yeah, I think it's obviously, I agree with Don, it's overvalued and if you've got, if you've got hog futures going up 30 to 40 percent, what does that mean to me? That means it can go down 40 to 50 percent because hogs hogs and that's just the way they trade. So, I think there's a lot of. I think there's a lot of downside risk at this point if, uh, if we don't kill enough of if a Swine Fever doesn't, uh, it doesn't spread fast enough, far enough. So I think there's definitely a little bit of downside risk in the market at this point.

Delaney Howell:               Well, it's definitely been a lively discussion. Thank you all so much. Thank you. Join us again next week when we'll explore how one nonprofit agency is feeding millions with food from overlooked sources. And John Roach will join 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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