Market Analysis: Ted Seifried

Market Analysis: Ted Seifried

Sep 13, 2019  | Ep4504 | Podcast

Podcast

The trade fed on goodwill gestures between China and the United States, a USDA report, and drier weather conditions. For the week, December wheat was up 20 cents while the nearby corn contract gained 13 cents. China’s removal of a 30 percent tariff on U.S. soybeans helped extend a rally in the soy complex. The November soybean contract rocketed higher 41 cents. December meal added $8.50 per ton. December cotton improved $3.70 per hundredweight. Over in the dairy parlor, October Class III milk futures gained $1.44. The livestock sector ended in the green as October cattle improved $3.20. October feeders put on $3.68. And the October lean hog contract rallied $2.98. In the currency markets, the U.S. Dollar index lost 10 ticks. October crude oil declined $1.83 per barrel. COMEX Gold dropped $22.90 per ounce. And the Goldman Sachs Commodity Index gained a point to finish at 405.15. Joining us now to offer insight on these and other trends is one of our regular market analysts, Ted Seifried. Ted, welcome back.

Seifried: Hi, Delaney, thanks for having me.

Howell: Ted, let's talk briefly here about wheat. They had a very impressive 4% move in December futures over last week. What happened there? What was going on?

Seifried: Yeah, wheat for the most part was a follower for corn and soybeans. And when you have row crops improving, wheat likes to follow along with, we're a little bit concerned about the quality and harvest delays that we're seeing with the spring wheat crop. But, again, it's mostly following what the row crops are doing. And we had a report there on Thursday, it was extremely benign for the wheat, came out almost exactly as far as expectations were concerned for both U.S. and world, really nothing to see there.

Howell: So let's talk about the report as it pertains to the corn markets, Ted. Was there anything to write home about there?

Seifried: There's a number of different things going on in that corn report. For one, we saw a big increase in old crop ending stocks therefore new crop beginning stocks and that offset a smaller yield. Ending stocks came in higher than what the trade was expecting, yield came in higher than what the trade was expecting, so it was a bit of a bearish report for corn. We had the knee jerk reaction lower, we were down 5 or 6 cents or so, and then we closed the day up 7 cents. So you had a reversal higher day at a timeframe where we're usually looking to put in this sort of harvest or seasonal low. So that sort of reversal action on a negative report is really very good news. Now I'll say this, I think some of us were worried that corn report could have been a lot worse than what it really was. Some people thought maybe they'll raise the yield. So the fact that they didn't do that I think is a good thing. We're looking at, the USDA does ear counts but they don't do ear weights on the September report. So we're looking at ear counts being down basically at levels we haven't seen since 2012 but ear weights are still rather strong. And the question is, is that ear weight number going to come down as we get into harvest? And I have a sneaking suspicion it might. So I do think that there could be a lower yield. I also think harvested acreage could be lower. One or the other I think has to take a fairly large cut. So for me the production number will continue to come down. I'm very curious to see what quarterly grain stocks look like at the end of September because I'm a little bit skeptical about this big carryover that we're seeing for old crop. I think feed and residual numbers might be higher than what the USDA is currently looking at. But we'll see. I think there's maybe some positive headwinds coming for corn at least now between the end of the year, early January.

Howell: Ted, I want to go back to something you said earlier on there about the key reversal we put on this week and the seasonal tendencies to form a bottom now. With the reversal that we had does that indicate that a bottom is in or still need to put that in?

Seifried: First of all, not quite a key reversal because we didn't set a new contract low on Thursday. But a lot of time these sorts of reversals are indicative of either a bottoming formation or the beginning of a bottoming formation. When we started the no planting rally back in the spring we had a key reversal on that day and then we never looked back. That could be the case here. I think a lot of it depends on soybeans. But either way I do feel like corn has reached a price level, a timeframe, and sort of a fundamental outlook that now would be a time where I think we could bottom and I do think we'll have a halfway decent harvest recovery.

Howell: Ted, before we get to the soybean discussion I want to ask a question here from Pete in Frost, Minnesota since you're kind of our ethanol guy. He said, what is long range effect of refinery waivers on the ethanol and 2020 corn price?

Seifried: Okay, Pete, I hope you've got about 30 minutes for this answer. No, look, yes RE's are not a good thing for the ethanol industry, we've seen I think 23 plants close in the last few months, that's not great, closed or idled in the last few months, that's not great. The thing is that a lot of these plants that are being idled they're coming from companies that have other more efficient facilities that are kind of picking up some of that slack. We haven't seen a huge drop in ethanol production but it's not a good feeling going into next year. It's not great when you see the USDA cut 25 million bushels off of new crop ethanol usage. So ethanol is a problem. And when we get into this winter and se start talking about elections you feel like this administration right now is really poking its constituency by the trade deal with China and also the ethanol issue. I feel like one or both of those need to get fixed before we go back to the ballots. I think the easier fix would be ethanol and I'm optimistic that something gets done with that. But I'm, I want to be optimistic about our ethanol export demand. Again, a trade deal would help with that. I think ethanol, the rest of the world is coming along, maybe we're not domestically as much, we need to really be pushing E85 more. But I'm optimistic for ethanol. However, we need to fix the RIN problem and the SRE problem.

Howell: I always know I can count on you to be pro-ethanol, pushing that E85. Ted, let's move on and talk a little bit about what happened in the soybean markets this week. There was a lot of news that sparked some excitement here at the end of the week. Opening up Monday do we have legs to continue higher?

Seifried: Well, I think so, with one little kind of asterisk there. A lot of this is coming from South American weather and I think that's getting kind of overlooked a little bit because we're talking about the USDA report, we're talking about how pod weights are so high, the USDA is using record pod weights for this current crop and all of us are saying no, I think that number is going to come down. So the general outlook I think after we see this report, after we saw this report on Thursday we looked at pod count, which really kind of confirmed what we had seen on the Pro Farmer Crop Tour, pod counts are down sharply, lowest that we've seen in four or five years, more. But the pod weights are off the charts. And we understand why the USDA does that. The idea is less competition so the plant is going to give more resources to each individual pod to add onto weight. The problem is, is that with a lot of these soybeans being planted really late or really, really late the plants aren't just going to continue to pack on weight like corn would because soybeans are more dependent on daylight rather than temperatures. So I figure that these late planted soybeans aren't going to really see these huge pod weight numbers. I think that number is going to come down. I'm worried that our national average yield in soybeans ends up 45 or below. So I think there is bullish reason to think longer term for the soybeans. But right now the trade deal with China, who knows, we could come in on Monday and that could all blow up in our face, it's happened before. So we've got to kind of really be on edge about that. But South American weather for me is maybe one of the bigger drivers right now. They're really quite dry right now and they don't have a lot of rain in their forecast.

Howell: Ted, I also want to ask, the report this week lowered ending stocks and new crop stocks for soybeans and you're mentioning maybe pod weights are lower or bean sizes are lower so yields could be lower. What does that do for our carryout? We were talking about a billion bushels maybe this time last year. Now the story seems to be changed.

Seifried: Okay, so in July, the July WASDE report we were looking for an over a billion bushel carryover. Now we're down to 640 million. So that's a significant reduction in just a couple of months. If yield continues to drop I think those ending stocks are going to drop almost the equivalent amount because I don't see a whole lot of fat to trim off of the demand side of the balance sheet. As far as exports are concerned we've been so pessimistic about that for so long that we're not really looking at high expectations for exports anyway. And then as far as the crush is concerned, crush margins are good. I don't see any reason why we would want to cut the crush more than 20 to 40 million bushels at most even on higher prices. So if you start taking away from that production number, 80%, 90% of that I think comes off the ending stocks and if we get down to levels like I was talking about, 45, 44, 44.5, even 45.5 for a national average yield, pretty quickly we're going to be talking about something close to between a 400 and a 500 million bushel carryover. And then if we do start to get a hint of a trade deal or a trade truce with China and China starts buying more soybeans like they were doing on Thursday, all of a sudden we always have to worry about running out of soybeans here. So I think I've been saying it for a while, the story of the spring was the corn, the story of the fall is the soybeans and that story is just starting to play out now. I think there's a lot more upside potential for soybeans.

Howell: Ted, we're going to save dairy for our Market Plus segment. Folks, you can catch that at markettomarket.org. We've got to talk about the live cattle and feeder cattle this week. There are some gaps in the charts on both feeders and live cattle. Are we starting to go back up and maybe fill some of those gaps that we've placed?

Seifried: Yeah, so on Friday we saw the feeder cattle take a little bit of a step back. With December corn closing over that $3.67, a very key technical resistance, now we're going to be a support level, I think the feeder cattle market is getting the feeling that corn has more upside potential and that kind of spooked a little bit on Friday. But overall, yeah, we had that gap lower based on the Tyson plant fire. The cattle market had a job to do when that happened. When that fire happened we had to make packers margins very enticing for that production to get offset by other facilities. And for the most part it has been. So boxed beef prices seem to be stabilizing. We are in sort of that time of year where demand kind of softens a little bit as we get out of the key grilling season. But it starts to pick up again as we get into the holidays. So it's just a short period of time. I think domestic demand stays strong. I think our export demand stays strong. I think we're currently in a bottoming, overall bottoming formation. I think we'll go and minimally fill those gaps. But into the end of the year I'm looking for strength in cattle.

Howell: Okay, Ted, I was traveling around the state of Iowa this week talking to all sorts of Iowa pork producers and I promised we would make sure and spend an adequate amount of times talking about the hogs, especially this week. Is this a turnaround week for the lean hog markets?

Seifried: Turnaround is an understatement. We were limit up on Thursday and then expanded limit up on Friday. That's as far as you can move in 2 days. No, that's fantastic. Again, a lot of this is all China news, really all China news. We had been very disappointed in the hog market or from our pork exports to China because China had not really been coming in and buying like we had anticipated they would with the ASF problems that they've been having. So we rallied on ASF but then when they weren't buying we took all the ASF premium and then some out of the market. Well now that we have China waiving tariffs on pork, we saw on Thursday that they had already come in and bought 11,000 metric tons of pork, there were rumors on Thursday morning that they were buying more aggressively and we might see that on the export sales sheet next Thursday. So now we're back to the idea of ASF is going to cause a whole lot more demand. So now we're reacting to that, we're trying to get back to the pricing that we probably should have been or stayed at in the first place. I think there's more upside potential as long as China does follow through on their purchases.

Howell: So, Ted, with that being said, we don't know, China is a wild card right now. For those independent producing, pork producing friends that we have out there watching the show should they be rewarding this rally?

Seifried: I don't think we're quite there yet. After 2 limit up days, limit up and expanded limit up, yeah you could have a setback at any point. We're leaving gaps on the chart on the way up. But really I think the work to do is what we do over Friday's high. Maybe $4 or $5. If we're expanded limit up again o Monday then I would start to make sales. But for right now I'm going to let this situation kind of play itself out.

Howell: And opening up Monday where do we think that trade is going to open?

Seifried: There was still a fairly decent size pool and the synthetics were trading higher. Ask me again Sunday night because who knows what sort of political news we're going to get or trade war news that we're going to get over the weekend so I don't want to get too aggressive with that. But I would think that we would be higher if not sharply higher on Monday.

Howell: Sharply higher on Monday.

Seifried: We're going to try.

Howell: All right, Ted Seifried, we're going to continue this discussion on Market Plus. Thank you so much for joining.

Seifried: The pleasure's always mine, Delaney.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Fall foliage and harvest season are drawing near. Search IPTVMarket on Instagram and keep track of the great images we capture in the field in addition to finding behind-the-scenes images from our producers. Join us again next week when we’ll look at an industry facing winds of change. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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