Market to Market (October 4, 2019)

Coming up on Market to
Market — a slow start to harvest collides
with a USDA surprise. Our analysts discuss
the details at our fall roundtable, next. Pioneer Hi-Bred
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Friday, October 4 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. The USDA has been the
subject of scorn and mockery over the 2019 crop
but, at the end of the day, the commodity market
still chews on the information the
government provides. We’ve assembled our Fall
Roundtable to breakdown the most recent numbers. Joining me is Naomi Blohm
with Total Farm Marketing. Elaine Kub, author of
Mastering the Grain Markets. Ted Seifried of
the Zaner Group. And Darin Newsom of
Darin Newsom Analysis. Everyone, welcome. But before we get to
that, let’s look at what happened this week. Howell: The global economy
is slowing down and U.S. analysts are waiting
to see if the domestic economy will follow suit. Last month, 136,000 jobs
were created as the unemployment rate fell to
3.5 percent, a 50 year low. New orders for
manufactured goods slipped last month. Shipment of those goods
has declined for the past two months. The trade gap is now $430
billion, 7 percent larger than 2018. The economic news put
pressure on the commodity market rally that started
with Monday’s quarterly stocks report. For the week, December
wheat gained 3 cents while the nearby corn contract
jumped 13 cents. Fund buyers worried
about a slowing U.S. economy went up against
bullish USDA data as the November soybean contract
rocketed 33 cents. December meal bumped
up $8.60 per ton. December cotton gained 77
cents per hundredweight. Over in the dairy parlor,
November Class III milk futures lost a nickel. Livestock was mixed as
December cattle added 20 cents. November feeders
cut $1.60. And the December lean hog
contract dropped $2.60. In the currency
markets, the U.S. Dollar index
lost 26 ticks. November crude oil
shed $3.13 per barrel. COMEX Gold gained
$7.30 per ounce. And the Goldman Sachs
Commodity Index plummeted more than 12 points
to finish at 398.50. Ladies and gentlemen, on
that background we start our discussion. Darin, you are not going
to be allowed to answer this question. But I want your quick
tweets as we use sometimes on the show of this week’s
quarterly stocks report. Naomi, I’ll
start with you. Blohm: The quarterly
stocks report was friendly as far as corn and
soybeans go, nice surprises there. And as far as the wheat
number not a big surprise. Overall the market
is supportive. Howell: Ted? Seifried: Yeah, we lost
some corn or there was some corn that wasn’t
there I suppose. That’s not a big surprise. We talk about tightness
in the cash market. That goes some way
to explaining that. There’s a lot of corn that
is still stored on-farm, there’s a lot of soybeans
that are still stored on-farm so that is a
little bit of a headwind in the next couple of
weeks as we get into the bulk of harvest. But longer term this does
improve our new crop balance sheets
just a little bit. So we’ll see that
reflected on the WASDE hopefully next week. Howell: Elaine? Kub: Yeah, it has been
nice the timing of it, it’s interesting to see
that we’ve been talking about there’s going to
be this harvest rally, harvest rally, it’s
coming, it’s coming and maybe this was
the kickoff to it. It was very nice to see
this pop up this week. Howell: Okay, Darin, do
you have anything to add? I know the quarterly
stocks report, I know you’re not a big fan of
the USDA reports, that comes as no surprise to
anybody, but this report you maybe hold with a
little more weight than some of the others? Newsom: It’s a little less
stupid than the others. So you take that
for what it is. It’s not supportive, it’s
not bullish, that’s crazy. We still have 913 million
bushels supposedly on hand. We still have over 2
billion bushels of corn. Like Ted said, we just
lost somewhere half a billion bushels of corn. It wasn’t what pushed
soybeans higher this week, there’s a lot of other
things going on. So it was a report, it’s
not what everyone makes it out to be, we move on. Seifried: So there are a
lot of things going on for soybeans right now. However, you’ve got to say
when you have a smaller supply than what we had
before the narrative starts to change a little
bit especially when you start questioning yield
and production numbers and you have dryness in South
America and — Newsom: That’s the story. Seifried: It’s all kind
of coming together at the same time. What we’re talking
about right now is very different than what we
were talking about in July. Newsom: We have no idea
what acres are, we have no idea what yield is going
to be, we don’t know what production is going to be,
we don’t know what demand is going to be. Right now it looks dismal. China is doing this —
no one is surprised that they’re in buying a little
bit at a time here at the end of the year. So they’re buying a little
bit of soybeans and everybody gets all excited
about it, 5, 6,7 million bushels here and there. We’ve still got 900
million bushels carried over. The big thing is it’s
still dry in Brazil. We don’t know what we have
here because we may not get harvest
done this fall. It may go into
next spring. So there’s a lot of things
going on and it has nothing to do with the
quarterly stocks report which still, again, I will
say it showed 900 and some odd million bushels
still out there. Howell: I want to
talk about that. But I have one
question first. Maybe Naomi and Elaine
can jump in here too. Talking about where those
bushels went in the corn markets because the trade
estimates were extremely off. We’ve got a question here
from Phil in Dresden, Ontario, Canada. I know some of you
interact with him on Twitter. But he said, where did the
old crop corn go, like 500 million bushels worth? Blohm: I think part of it
was my guess is that as we did the recounts for acres
and things like that I think it stirred up old
pots and old information. So we have a fresh start
with data, some of it is in terms of the yield I
don’t think being as high as it was last year based
on producers I talked to. Going forward this does
set the stage for the market to turn around
because the market perception is that when
ending stocks start to get smaller prices go higher. Yes, Darin, there’s a lot
of grain out there right now. However, when we look at
this upcoming USDA report on Thursday we’re going
to come in with carryout numbers that are a little
bit smaller than last month and then as we start
to put in the pieces of acreage and more pieces of
yield, which is from the people I’m talking
to 10% lower on corn consistently, anywhere
from 10% to 50% lower on soybeans. It was the starting point
to turn the market higher. Howell: Elaine, do you
have something to add there? Kub: Just to Naomi’s point
about going back to last year’s yields even being
reflected in this most recent grain
stocks report. Think about how long it
will take for the official data to reflect what could
be going on right now in the harvest that we’re
seeing now and the acres that we’re seeing now. It could be a very long
time before these supply and demand tables fully
reflect the information that the market is
trading right now. Howell: Okay, Darin, I see
you scoffing over there. Newsom: What the heck. It seems like everyone is
going to try to take these supply and demand reports
seriously next week. Think about it, if you
just step back and think about it for a second,
what are they going to do? They’re going to change
all the numbers with make believe fabricated numbers
now equal these new ending stocks. That’s all it is, it’s
made up numbers now and this really
highlights that. But yet we’re sitting
around here talking about this is going to be so
serious and so important. They’re all fabricated
numbers and they’ve got to do that to make these
numbers come out now to their new bottom line. Blohm: That is a strong
statement to say. Newsom: But that’s as
dumb as anything that is possible. Blohm: What we need to
do is help the producers navigate numbers —
Newsom: Okay, so let’s do that by talking about what
is really going on and it has nothing to do
with the numbers. Let’s talk about what is
going on in the markets and not with what USDA
always is making up and wanting everybody to
believe and everybody here promoting. Let’s talk about what the
farmers really need to be paying attention to and
that is what is going on in the markets. Howell: Well let’s
talk about that. Blohm: Absolutely. Seifried: The markets
follow, whether you like it or not it dictates —
Newsom: No it does not. If you think that the USDA
is completely in charge of what goes on in the
markets you’re sadly mistaken. Seifried: Nobody
said completely. You’re making
up words now. Newsom: That’s what you
just said, that’s wat you just said is that the USDA
sets the tone and directs what the market does. Seifried: To what these
balance sheets say. Sure, it is a piece of
information that the market takes
very seriously. Howell: I said on Twitter
this was going to be a cage match and I guess
I’m right this week. But I know that maybe a
report we all can agree holds some weight in the
marketplace is the export sales that come
out each week. I want to talk first of
all starting with the wheat export sales this
week because they had really positive numbers. Does that change the
outlook for the wheat markets? Is it showing that
globally there’s maybe a reduction in
production elsewhere? Kub: I don’t necessarily
think that this week’s export sales number for
wheat, which was good, upwards of 300,000 metric
tons, that’s fine but I think pricewise wheat
already had that rally in the past couple of weeks
and is now going to pull back because the rally
wasn’t necessarily related to reality. If you have quality
problems or protein problems that shouldn’t
necessarily be reflected in the futures
price on the charts. That should be reflected
in your premiums and your discounts when you go
to the actual scale. So I believe that the
futures chart is going to have to pull back
regardless of that nice bullish export
sales report. Blohm: And we also had a
sale to China, 130,000 metric tons of
the white wheat. That was really supportive
in general to get the marketplace to work
a little bit higher. The funds are starting
to exit those short positions. If you look at a Chicago
daily chart of wheat there is an inverted head and
shoulders formation. If we can get some
additional friendly news this upcoming week from
any facet of life, perhaps how delayed the harvest is
going still in Montana and North Dakota and how
delayed it is still in parts of Canada, my
opinion the inverted head and shoulders formation
points to a 50 cent rally on futures for the
Chicago wheat market. So there will be some
pricing opportunities for the producers and that’s
what we’re here to discuss. Newsom: But that would
be the spring wheat. Kub: It’s more likely to
show up, like I mentioned, in the premiums and
discounts rather than the futures necessarily
because if the milling market has to come in
and get the spring wheat necessarily and the white
wheat that’s where they’re going to buy it, not
necessarily off of the futures price
in my opinion. Seifried: Right, and
as long as the U.S. dollar is strong, which it
is very strong, it’s going to be an upward headwind
for the wheat and that is going to, I don’t see any
weakness in the dollar coming any time soon. Kub: And potentially
some really explosive upwardness if you have
Brexit problems, if you have lots of international
things could come on and — Seifried: The stock
market looks shaky as it is right now,
absolutely agree. Howell: So, Naomi, I want
to go back, and Ted I think you’ve mentioned
it too, and that is the Chinese purchases. I think it’s somewhere
upwards of 2 million bushels plus of U.S. grains here since
September when we started to pick trade
talks back up. Do you see those sales to
China as an olive branch? Or do you think there’s
something else the Chinese government is planning? Seifried: I absolutely
think that this is a cover for them to come in and
buy cheap soybeans because I think they feel like
this soybean crop that we have is smaller than what
the USDA is currently saying. I feel like they’re a
little bit worried about some dryness down in
Brazil and that might be an issue. So they’re figuring hey,
the price of soybeans is really good, we haven’t
really seen the price react to what the reality
might actually be yet so we’re going to get in
front of that and it’s so easy to say hey, we’re
doing this because of a trade deal we’re trying to
facilitate these talks. But in reality it’s like
hey, let’s take those beans, we know we’re
going to need them. That’s my thought. Blohm: I think they
understand how the crop is struggling here in our
country and how delayed this harvest is going to
be and absolutely, it’s on sale, so they
should be buying. Kub: To put a line
under how cheap it is necessarily you’re looking
at basis prices in the western part of the Corn
Belt, so any of these soybeans that would move
by rail to the Pacific Northwest you’re still
looking at a sub-$8 cash price so it’s absolutely
on sale to China. Howell: Darin, do you want
me to let you out of the penalty box now? Newsom: Since we’re
talking about export sales, when you talk about
export sales it’s like getting a really nice ice
cream cone and talking about the cone and just
kind of dumping the ice cream because what really
matters, we can sit here and talk about export
sales, these are great, everybody gets excited
about them every Thursday. They don’t make any
difference, these can be canceled, they can
be rolled over. What are shipments doing? Are we moving anything? Blohm: Actually two
cargos left the Pacific Northwest, one to China,
one to Bangladesh. Newsom: We did see some
decent export shipments this past week. We actually saw some
pretty decent movement over the last quarter
which is one of the reasons why we saw a
smaller quarterly stocks number in soybeans. Corn has been abysmal. We know that. Wheat doesn’t hardly even
exist, I don’t care what the sales are, shipments
aren’t going anywhere. So yeah, is China a
little bit nervous? Of course they are over
the Brazilian situation. But what I find
interesting is Vlad, President Trump’s buddy
Vlad is out there saying the very same things that
he is, that China is offering to buy all the
soybeans that Russia and the Black Sea
region can produce. Seifried: They produce
about two weeks’ worth of Chinese demand. Newsom: Exactly,
it’s not a lot. So they’re in
there buying. Yeah, let’s get all
excited about that. Howell: Let’s talk about
the soybean market because we’ve seen a lot of
producers getting excited now back above $9 in the
new crop in November and January is now at
$9.30 I think roughly. Is this a time to start
rewarding those sales? Or do you think, reports
aside, the crop is not out of the ground yet. There’s still maybe the
potential for another rally. Is now a time to start
rewarding those rallies or wait? Seifried: No, I’m waiting. I’m watching the
Brazilian situation. If they continue to stay
dry I think there’s more upside potential. I still think the
production number is going to come down for soybeans. We just saw them lower
production, we just saw them lower yield on the
quarterly grain stocks report from last year and
if we were at a 50.6 last year I find it hard to
believe we’re at a 48 this year going out and all the
crop tours that I’ve done this year I just don’t
see it out there. So I think that production
number will continue to come down. The business that we’re
doing with China, albeit maybe not what we were
doing years ago, it’s more than what we were really
expecting so that is increasing our exports. I think the soybean
situation could actually get really rather tight. I think we’ve got a
dollar rally in soybeans potentially. Blohm: Let me add
onto what he’s saying mathematically wise in
terms of reports and what to be watching
for next week. So our last USDA report
had carryout at 640 million bushels and now if
we take the 92 off that we saw from the quarterly
stocks report we’re coming into the marketplace with
close to 548 million bushel carryout. So then we’re going to see
soybean yield being taken off as we go forward. And again it’s the
perception that the ending stocks are
getting smaller. And there’s going to be
twists and turns along the way. But we will most likely
see a nice post-harvest rally continue. Technically speaking the
next target higher for the November futures, $9.25,
if it can march through there $9.50 is the upside
which would match the summer high and then we’ll
probably take a good pause. So as we continue to see
prices increase reward it as we go higher but I do
agree that there is just probably a little bit
more upside first in the short-term. Kub: On the subject of
selling though I’d like to direct attention even
farther down the road to 2020. If you look at November
2020 you’ve got futures above $9.60 so assume that
we’re still going to have pretty weak basis but 60
under, but a lot of folks can make money, you can
lock in a profit growing $9 beans. So it’s pretty early to
be thinking about that. Most people would rather
harvest this crop rather than worry about marketing
the next crop but keep that in mind when you
do start making sales. Howell: Darin, what are
your, I know you’re a spreads guy, tell me what
your spreads are saying. Newsom: I was just going
to ask, everybody here is so interested in the
farmers paying attention to what the market is
doing but yet all you’re talking about
is headlines. What are the markets
telling them to do? Which crop is more
bullish, corn or soybeans according to what the
markets is telling us? Blohm: Well, I think the
soybean market — Newsom: No, way off, way off. You had a 50% chance
and you missed. It’s corn. Corn has a very narrow,
has a very weak carry in its forward curve. You’re less than 33% and
yes this is using the new storage rates by the CME,
but still you have a very, very small carry. There’s a great deal of
concern out there about corn, soybeans it’s still
pretty wide, it’s still sitting around 45%, 50%
and that’s with the 8 cents per bushel
per month. Seifried: That’s a
reflection of what is happening in
the cash market. Newsom: That’s a
reflection of the long-term view of
supply and demand. Seifried: There’s a lot
of corn being held on — Blohm: Corn and soybeans
are becoming quite friendly. Seifried: There’s a lot of
corn that is being held on-farm and that’s
the problem. Newsom: Bullish and
bearish, friendly and not friendly are two
different terms. Bullish and bearish, corn
is more bullish than soybeans right now. Yes I agree with you
that I think the U.S. production is going to
continue to come down and as we’ve seen it can come
down next year at this point they can
reduce it again. So I do think
that is out there. But I think the real
question is how much tighter is the corn
situation going to get and that is what the market is
telling us, that is where the market is really
concerned is how tight is this U.S. corn situation
going to be? Seifried: Again, it’s the
tightness in the cash market that we’re seeing
right now because we’re very, very tight holding
on because we’re expecting to see this big rally. Newsom: If you look
historically which one is stronger historically
versus what it normally is? Blohm: Corn right now. Newsom: Okay, so corn
basis is stronger, corn spreads are stronger, but
soybeans are more bullish right? Blohm: I think the picture
is going to turn to be more bullish. The story coming down the
road and that is what the futures market is
indicative of, the future. Seifried: And we had the
huge narrative for corn in the spring with the
delayed planting and we weren’t going to get the
acreage in and so on and so forth. And you see some of that
is still reflected and guys are holding on very
tightly to on-farm stocks. This is what the cash
market is reflecting. It’s what spreads
are reflecting. But spreads aren’t
necessarily indicative of what’s going to happen,
they’re indicative of what has and is happening. Newsom: They’re indicative
of what the picture is right now. Blohm: And guys aren’t
selling because they don’t know what they’re
going to grow. Seifried: What we’re
talking about is where we could be going from here. Newsom: Okay, so if we’re
going to talk about what’s going to happen in the
future it’s too bad that Angie isn’t here because
we could talk about the Lions winning the Super
Bowl or the Bears, the Bears winning the Super
Bowl, I’ll bring up the Bears, they could
win the Super Bowl. If we’re going to talk
about far out things in the future let’s talk
about that because it makes just as much sense. Seifried: Just because the
Chiefs are having a good year doesn’t mean we can
start talking football. Howell: Darin, if you
are so friendly the corn market we’ve got a
question here, I think you saw it on Twitter, it’s
one I wanted to make sure we wove into today’s
discussion from Scott in Illinois. The years 2014, 2015,
2016, 2017 and 2018 Dec corn has gone off
the board under $4. Is there any reason not
to think that the 2019 contract does the same? Newsom: Yeah, I think we
could see Dec 2019 corn go off above $4 namely
because again you’ve got a very strong
basis right now. You’ve got huge questions
about production. How much are we even going
to get harvested this year? I think if you’ve got some
money and you had the non-commercial side, I
didn’t see today’s CFTC report but up until the
previous week they were still short, they started
covering, they may look to rebuild a position because
again of the fundamentals. This could push Dec
corn back above $4. Seifried: Yeah I think
it’s possible but I don’t know if there’s a whole
lot of upside potential beyond that. There’s at least the
bullish narrative out there of people that are
really wanting to cut production aggressively
and if you look at some of the guesses for ending
stocks numbers for this WASDE and I’m assuming
that these are their final ending stocks numbers, but
under 1.4, 1.3 billion bushels for corn coming
down from a 2.1. So there is that bullish
sentiment still out there for corn. I don’t think it ends
up anywhere that low, anywhere near that low. But yeah, can Dec
corn go off of $4? We’re not far
away from it. This is the timeframe of
the year where this is usually our second biggest
rally of the year, yeah I think it’s
certainly possible. Howell: Naomi, since we
have you on the show we did have one dairy
question and anybody else can feel free to jump in
too but I know that’s maybe a little more
of your sweet spot. From Adam in Wisconsin, he
said what about the dairy markets? We’ve had up limit, down
limit, terrible conditions for forage harvest,
questionable feed quality going forward. What’s going on? Blohm: Three
particular items. First, the nearby
contracts have had a nice rally primarily over the
past couple of weeks due to cheese demand. That has been a strong
factor and cheese disappearance has been
pushing the October contract, we got up to
$19.80, we were just at really, really
strong prices. Then the reality sets
in that milk production overall is down in a sense
from where we were a year ago but still quite
strong in general. So that is why the
deferred contracts are still in the $16 to
$17 price point area. Then we have the reality
coming that our forage situation in Wisconsin was
horrific, beyond horrific. And so when you have an
animal that is used to getting ultimate nutrition
she’s not going to be able to produce as much milk
when she is going to have to start eating this
lesser quality. So going into first
quarter and second quarter of next year I think there
is still upside for the milk market because
production I feel is going to be coming down because
of the lack of quality feed that is going
to be happening. Kub: And this has been
hidden, we’ve seen wonderful pasture and
range conditions all throughout cattle country
most of the summer, only now are we starting to see
this drought building in Kentucky and Texas. But that hides the fact
that if you can’t get out to the meadows to create
the hay, yeah, the availability is just not
going to be there to go out and buy that in. Howell: So since you
led us into the cattle discussion let’s go ahead
and open that one up as well. We’ve seen now kind of a
recovery since the Kansas fires. Where do we
head from here? Seifried: Yeah, we had a
job to do when we had the Tyson plant fire we
lost a decent chunk of production. So then we had to find
that production somewhere else. So to do that we made
packers margins as good as we possibly could. We pushed the board down,
we pushed cash down, boxed beef prices stayed okay
for a little while. Margins were good, that
production came back, that allowed us to bounce off
the lows on futures, let cash move higher, but now
we’re starting to get into levels that we’re going to
start questioning is the shrinking packers margins
going to start taking that production back
out or not? And so the market is kind
of testing the area right now to see if
that’s the case. Now we did see cash cattle
advance slightly here this week. Cash is going
to be the key. If cash continues to
advance that is saying that okay, packers are
fine, they’re going to continue to pay up,
production is going to stay up there and we have
room to move higher. But I’m very skeptical
that’s going to be the case. I’m worried that we’re
going to start pulling some of that production
back out of the market if cash cattle continues to
advance, if the board continues to advance, so
I’m worried that we might see a bit of a correction
here sometime fairly soon. Kub: I’m much more
optimistic than you, Ted. I think the cash market
this week was great, we had $5 gains, $107 sort of
basis Nebraska live basis. So that is a big jump and
it’s a much bigger jump than the futures market
made and I think that could continue because it
suggests that the feedlots have found their numbers
where they want it to be. And $107, that’s not
something that is going to challenge the packers
especially when you’ve got a good economy and folks
going out to eat and good retail sales. So I think there’s more
room for — Seifried: Why is the board not
following then? Kub: Well, you get into
a big topic there about people not happy about the
futures market reflecting the reality of the cash
market to begin with but it kind of doesn’t matter,
it kind of doesn’t matter if you have the reality of
being able to go out there and get those prices
from the packers. Blohm: The funds had also
been record short as far as cattle goes and so
they’re just starting to ease up on those
positions as well. I would agree with your
assessment down the road. I think there’s further
upside yet for the cattle market. Newsom: I’m going to throw
you a curve ball here and I’m going to quote the
USDA report, latest cattle on feed, the September
number was the smallest September number that
they’ve had on record. Kub: It’s not because the
cattle weren’t there. Newsom: Just not on feed. Kub: Right. Newsom: Right. So there was, that was
helpful to the market early this week or
whenever that thing came out, the last
couple of weeks. That did bring some
buying back in. As Naomi said, funds had
been short buying into the headlines, they were able
to push the market up a little bit. Howell: Ted Seifried,
Naomi Blohm, each of you get one answer. Hogs, deferred contract
heading up or down from here? Seifried: Tell me if China
is going to buy more pork or not. Blohm: Exactly. Kub: How deferred? Seifried: We keep thinking
that China is going to come in and buy and we’re
expressing that in the deferred contracts and
we keep pushing it back, pushing it back because
we’re not seeing it happen on our export
sales reports. So until that happens
it’s really tough to get terribly bullish hogs. I will say this, we are
having decent export sales on a weekly basis despite
China — Howell: Ted, I’m going to cut
you off there. We’re going to save
this for Market Plus. I hate to do it but that
wraps up our discussion. We will continue this in
Market Plus which you can catch online
at our website, Watch this week’s program
again and check out some online exclusives via our
YouTube channel of Market to Market. Join us again next week
when we’ll explore how one coalition continues to
push back against wind energy expansion. So until then,
thanks for watching. I’m Delaney Howell. Have a great week. ♪♪ ♪♪ ♪♪ ♪♪ Market to Market is a production of Iowa
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