Market Analysis with Angie Setzer

The anticipation of what might be in the August Supply and Demand report, wet weather and warm temperatures continue to push corn and beans lower. A note here - we are recording on Thursday due to changes in our production schedule. For the week, the nearby wheat contract gained 9 cents and the September corn contract lost 13 cents. The soybean market continues to move lower as the trade positions itself for the August Supply and Demand report that will include USDA’s estimate of acres planted. The September soybean contract cut 33 cents while September meal dropped $6.30 per ton. December cotton added a nickel per hundredweight. Over in the dairy parlor, September Class Three milk futures fell 14 cents. The livestock market was in the red. October cattle shed $4.82. September feeders fell $7.80. And the October lean hog contract lost $1.17. In the currency markets, the US dollar index found 12 ticks. September crude oil lost 61 cents per barrel. COMEX gold improved $53.60 per ounce. And the Goldman Sachs Commodity Index added almost 3 points, to settle at 549.50.

Kohlsdorf: Joining us now is one of our regular market analysts Angie Setzer, although I should say that it's been a minute since you've been here, right?

Setzer: Regular is a relative term, but I'll take regular. I'm glad to be back.

Kohlsdorf: We love having you. I'm glad that I could be here with you today. So, we haven't had a lot of market friendly news. I guess that's sort of an understatement this week. Last week at this time we were talking about a forecast that looked pretty friendly, it was hot and dry, that all changed. We got a lot of rain, at least in the Midwest we did. So, with the markets losing a lot of ground this week, was that weather or was it a supply issue?

Setzer: I think it was a whole host of issues. You have a continuation of the speculator wanting to sell commodities. You just look at a broad spectrum of commodities from lumber, you saw cotton is down off from its relatively decent levels that we had seen earlier this year, you've got copper, everyone says copper is a great indicator of what is going to happen economically speaking and you've seen copper just completely fall out of bed. So, it's really one of those things where I feel like we have this sort of idea that everything is so bearish in grains and we're just going to continue to sell. It's almost turned into an echo chamber. I've used that phrase more than once here over the last couple, three weeks. But everyone just keeps feeding off from each other when it comes to well this is negative, that is negative. And the reality is we've pretty much, there's a point in time where you can throw so many negative things at the market and eventually you’re going to see it kind of shrug them off. And I think we're getting there. I thought we were getting there for a while, I thought we would have seen the speculators at least move to kind of add some length versus sitting short, but obviously the weather has been relatively benign across the U.S., so I think that was a factor. I think you've got Argentina talking about rolling back export taxes, which would have a huge influence on what global market prices could look like. You obviously had some of this unexpected rain with an 11 to 15 day forecast turning off a little cooler and wetter than what was anticipated. And so, it was just kind of this whole gathering of fun things to really continue to pressure the market. But honestly, yes, we traded to a new low in September corn, which is a little bit frustrating. But we really have slowed the momentum of the downward pressure that we've seen. We've seen wheat really start to hold its lows, which is somewhat supportive, especially for corn, if we can kind of work to grind out this bottom. And so really, we're just trying to figure out how to turn the Titanic right now really and that's not an easy thing to do.

Kohlsdorf: Okay, so speaking of wheat, U.S. wheat is as cheap as any other country right now, right? So, does that mean more people are going to be buying from us? And will that help?

Setzer: I think you will see that. I think that we've already seen a decent start to the export market structure for the year. We have seen a little bit of a slowdown, but that feels more like the consumer is not necessarily as engaged as what you would typically see. Traditionally we would see the end user come in and work to get really aggressively covered for Q3, Q4. We didn't see that this year. We've just seen them go really hand to mouth, China being one of the bigger reasons. Now we are seeing conversation that China is going to look to expand their government wheat reserves and China did. They had a really great high-quality wheat crop this year that they didn't have last year. Last year they lost a third to 40% of their crop due to bad conditions at harvest. It rained, they had sprouts, they had other things that turned into feed wheat. You don't have that this year so you don't really have that drive or that competitive sort of feel on the end user side and that is keeping some of that demand slow. But from an overall standpoint we are going to see a continuation of buying, the U.S. should benefit, especially as we remain cheap. If we see the dollar start to turn under pressure or anything like that, we have the highest quality, easily accessible supply in the world right now, and I think that will benefit us long-term.

Kohlsdorf: Okay, so you mentioned December corn futures went below $4 this week. So, have we seen the lows? What is going to change that? What is going to be the thing to turn that around?

Setzer: I'd like to say that we've seen the lows. I think we should be getting close, like I said. I feel like we're working to kind of grind out what that is, and that takes some time. But I do think when you start to pay attention to the other global factors like I feel like we're ignoring the drought and the heat and the production problems that we have in Ukraine. You take a look at what is going on in Eastern Europe, Romania is looking at cutting 5 million metric ton from their crop. You add in 5, 6, 7, 8 million metric ton loss from the Ukrainian crop, you start to talk about what we're looking at with Argentina's overall production, Brazil's second crop harvest happened at almost double their normal pace and basis continues to rally. That's something in the cash market if harvest happens faster than normal and basis continues to strengthen throughout harvest, that tells me as a cash trader there is something wrong with what we think is happening from a supply standpoint. So, to me I do feel like eventually low prices are going to help to bring in that global demand that we're looking at. The U.S. is the cheapest. The U.S. is the most accessible. The U.S. is the highest quality. And those things matter. And so, to me the biggest thing that we're waiting for right now is just to see the Chinese buyer get engaged because I think it takes China to spook the rest of the world consumer that the price isn't going to continue to the basement forever.

Kohlsdorf: Okay, our next question about corn comes from social media. So, it's a long one. We have an extremely strong summer basis in eastern Nebraska, the kind you find in a small carryout year. Is the strong basis as strong in other parts of the country? If so, the basis is telling me the USDA is overestimating the carryout, looking for a husker harvest days surprise on the carryout.

Setzer: I think that's something to pay attention to. That has been one of the conversations that we've been having for a while. You've seen spread action firm up. Now lately in corn you've definitely seen spreads relax, you've seen basis start to back off from some of the highs and I feel like people have found that they're covered. I do think though there is a real potential that we could be overestimating the numbers based on the June figures. If you talk to Lance from NASS, he'll tell you that the response rate this year was about 40%. And so, if you look at a farmer response rate to drive a survey number, like you're looking at a number that the trade is using with a 40% response rate, for a lot of other polls or any sort of statistical analysis you'd almost look to throw that out. Now I'm not going to say that we'll do that but to me if you start to question what the numbers are or whether or not they're truly accurate you want to look at the cash market for signs. And so, we have seen some versions in the market structure which would indicate that supply is not quite feeding the market like you would want it to. We've seen some strong basis. Now is that a function of a strong farmer holding onto bushels? Is that a function of the grain not moving? That's been a question. But I feel like it's a little bit of both. I don't think the farmer has strong enough hands to fundamentally change the way that the cash market structure works. But I do think that there is enough grain that is starting to move now that you're starting to see basis calm, you've seen the Sept/Dec spread widen out to 15, 16 cents, which is historically wider than what you would have seen over the last five years or so. So, the thought that the carryout is probably close to what the USDA is projecting right now is accurate. But could we find 150 or 200 million bushels less of corn potentially as we get into that September number or maybe find that we have 50 million or so less of beans on hand? For sure. Does that markedly change the overall outlook? Not necessarily with decent production. But it could if that compounds with a surprise in demand.

Kohlsdorf: Okay, let's talk soybeans. We had an almost two year low. I think October '22 was the last time we saw this low, beans this low. So, that is going to rescue that market?

Setzer: China, honestly. It's China or La Nina, a weather issue in South America. And so, we've got La Nina coming in, we've had tremendous dryness in Argentina and in central Brazil, it's part of the reason that their harvest has gone so well, it's part of the reason that I think their crop is probably smaller than what we're anticipating on second crop. So, they're coming into the year, normally they do anyway, relatively dry. We're six weeks away from Brazil being able to turn wheels and start planting their soybeans. And so, it's getting to the point now where here in the next couple, three weeks we're going to be able to start to look at those long-term forecasts. Currently they are concerning that they're going to stay really dry. And so, if they go into the planting season dry and stay dry where we have a late La Nina or a late rain start to develop that could have long-term implications on our export program because right now Brazil has been actively shorting February and March beans far below U.S. values. So, they need to have their crop get off, get started, all of these things. There's plenty of fodder to be had potentially in the soybean market when you look at renewable diesel, you look at increased crush around the world, increased blend rates, there's a lot of things that are positive and so it's hard right now simply because we don't have that export book on that we would like to see from China. If that were to change, we have seen them come in, they were pretty heavy buyers last night, it would matter.

Kohlsdorf: Okay, let's get to cattle because I think we have about a minute left here.

Setzer: Thank goodness.

Kohlsdorf: Oh, okay. Well, so cattle producers have fared a little better than grain producers this week. So, where do you see that live market and the feeder market headed, in a minute?

Setzer: Well, I think you have to be careful in that side. I think that is one of those situations where we're talking like a year ago in corn where maybe you think that there is some potential upside because of the smaller cattle herds and some of these conversations that we've had about being short cattle for an extended period of time. I think we just have to be careful if we are heading into a recession or are running into any sort of situation where you could see the consumer slow down or see to where we could bring in outside supplies possibly to offset some of our domestic demand, just make sure that you are looking at different ways to manage your risk and don't put yourself in a situation where a corn farmer is today where I wish I would have looked to lock in that profit when I had the chance or at least put in that floor to make sure that I'm not trying to figure out how to fix a problem when it becomes somewhat unfixable.

Kohlsdorf: Okay. Angie, we covered some ground. Thank you so much. We'll talk more in Market Plus because I think you have a lot to say. We are going to pause this analysis and continue our discussion about these markets in our Market Plus segment, as you heard. You can find both Analysis and Plus on our website of markettomarket.org. The first place this program appears is on our YouTube channel. Stay in the loop by subscribing to our feed, clicking on the bell to get notifications about new content and let the technology work for you.  Find us at Market to Market on YouTube. Next week, we take a look at a series of new laws aimed at limiting foreign land ownership in the U.S. Thank you so much for watching. Have a great week.

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