Market Plus: Jeff French

Sep 6, 2019  | 11 min  | Ep4503 | Podcast

Podcast

Howell: This is the Friday, September 6, 2019 version of the Market Plus segment. Joining us once again is market analyst Jeff French. Jeff, welcome back to the table.

French: Great to be here, thank you.

Howell: Jeff, you've done a great job so far. This is your first time so I just want to give you some shout out for that.

French: Thank you very much.

Howell: Okay, Jeff, so during the Market Plus segment we like to ask our social media questions. And we were finishing up our discussion there at the end of the show talking about the U.S. dollar. We've got a question here from Chris in Wisconsin that came to us on Instagram saying, with the U.S. dollar reversing does that give us an indication of a seasonal low in the grains?

French: It could. But with the demand, the export demand the way it is right now I just don't see the dollar is going to be that much of an impact. And it's really not that high. It has been higher. It's high but it could definitely go higher. The one thing I would like to say, the corn and beans with this selloff we are competitive on the world market. Corn out of the Gulf is probably $5 to $15 a ton cheaper than South America. So even with the strong dollar you will see some demand and the export inspections, that is what is actually leaving your country, in the beans this week were really friendly. It was 1.2 million metric tons, most of it going to China. So these lower prices, even with the strong dollar, will attract demand.

Howell: Jeff, you mentioned there the export inspections are the ones that are actually going out of the country. Have we started to see an uptick in soybean purchases from China heading out?

French: The purchases, no. They are -- President Trump says they are required to and he wants them to buy beans, but we have not seen big Chinese purchases. So they are buying these cheap beans. It would be foolish if they aren't. They are on sale. But yeah, we have seen a little bit of uptick of what's leaving the country, but actual export sales not so much.

Howell: Okay, since we're talking about beans here we've got a question from Tim in Altamont, Illinois. He said, should I cash out my November soybean put?

French: Well, I'd like to know what strike level it's at and has it doubled, tripled in value? From a risk management standpoint we can roll it down, take profits, have less value into those puts. But I would not sell outright that put until you actually contract your physical beans because if you do that and prices go lower you're going to lose that value. So don't sell it until you actually sell your cash soybeans.

Howell: Since we're talking about the sales here I want to talk about old crop and new crop sales. First let's talk about old crop because I know some producers are still sitting on some old crop soybeans, old crop corn. Should they be looking to get rid of that crop in lieu of harvest season starting up here?

French: Well, they're probably going to have to, to make space. And unfortunately if they're doing it now they're going to be doing it at maybe not the bottoms but it looks like it's a bottom. It's definitely on a big selloff here. I mean, $1.20 selloff in the corn, I can't advise selling cash at those levels. This is a market where that type of selloff you might be looking for places to purchase corn for a long-term. But yeah, it's going to be tough. If you have old crop still in the bin and you're forced to sell it to make room I would just definitely reown it with the cheap calls, they're just very cheap right now as the market has tanked here recently. So I would definitely reown it out to March. You want to get at least out to March to get through the final crop report in January. That’s when we'll have the final yield, the final acres and the final tally of how big this, or how small this crop actually is. So if you're going to sell it get it reowned.

Howell: What about new crop, Jeff? We've got a question here from Jon in Ohio. He said, should we be locking on corn on futures for January/February of 2020 already?

French: Not at these levels, I'm not advising it, and I kind of touched on it before. I don't like selling a market after a $1.20 selloff. That type of action is probably meant to be bought. We're actively rolling down puts, puts have gained a lot of value obviously on this selloff. If you don't plan to sell it and you want protection buy that weekly option, that gets you through that September USDA report. They're 3 to 5 cents a bushel. And have the downside locked in because if for some reason they increase the yield, who knows, it's the USDA, so that would lead to another leg lower and you will be glad that you have those puts underneath your unsold bushels.

Howell: Hopefully the USDA doesn't mess with the market that much and increase yields, but let's say they don't, we continue to see them either keep yields are this level, maybe change them a bushel or two lower. Jeff, can we make back that $1.20 that we've seen from our recent highs? Will we make that back ever?

French: That's going to be challenging. That rally was on a perceived shortage of supply. That perception is gone. Could we have a smaller crop? Yeah, but we're still going to produce a sizeable, good crop. And with current demand right now we'd have to get all those trade deals done and we'd have to have a much smaller crop than what is out there. I'm not going to say never but it's going to be unlikely.

Howell: What is a more realistic rally that we could see after the combines start rolling here?

French: I don't think 40 or 50 cents in the corn, 60, 70 cents in the beans, I don't think that's unrealistic at all. We've beat this market up pretty good down here and I think we could rally.

Howell: Okay, the next question then is not how much we're going to rally but when we're going to rally. We've got Gary in Wilton, Iowa wants to know how soon after those combines report poor yield will the markets respond?

French: I think once we get halfway harvested is realistic. But you've got to look at history, this is a late year, it's going to take a while to get this crop in and if you look at other late years, which we do, it's pretty close to 1993. That was a late crop maturing year. The USDA didn't start dropping yields until November of that year and that is really when that market took off. So it might be until November or until we get 50%, 60% harvested and those yield tallies are just simply not there but we'll see here soon.

Howell: Jeff, if I'm a producer and I have some corn that I haven't sold ahead should I be looking at some commercial storage hoping to wait for a rally?

French: If you do that definitely keep something in place below, be long a put in case this thing goes. But yeah, I don't want to turn too bearish down here. We've had a good selloff here and again, I'm using this selloff for my end users and for my livestock producers to actually buy some corn and buy the physical feed needs. So I don't like selling into this downturn right now.

Howell: We had another interesting question, Jeff, and that was, with these lower grain prices why haven’t the meat markets been rallying on these attractive feed prices?

French: But there's something to say, obviously the cattle is something different right now with the plant closure, there's too many animals right now for our capacity and we are holding back animals here. We're going to work through that but it's going to take some time. I've been around cattle a long time, it's the same cheap corn, cheap cattle, that typically goes hand in hand. The cattle I know we've had a pretty messy selloff here lately but we're in a year where we've had record number of cattle on feed for now six straight months. So we were pretty current, this fire has stopped that, and we might have a little bit more pressure to the downside here.

Howell: Okay. Jeff, I've got a little bit of a softball question for you for the last one here coming to us from Scott in Augusta, Wisconsin. He said, when will the good old days of farming come back again? Is there a future for young farmers?

French: Yeah there is, always there is. But we need to start moving this supply. We have a lot of it and the demand right now is very low. But yeah there's a future, there's always going to be a future, people need to eat, American farmers feed the world so I don't see that stopping. Yeah, I'm optimistic. There can't be too much more negative news that can be built into this market I hope. So yeah, there's definitely a future for young farmers.

Howell: Jeff French, thank you so much for joining us.

French: Thanks for having me.

Howell: Join us again next week when we’ll look at a family business that has found the right ingredient and Ted Seifried will join us 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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