Market Plus with Jeff French and Ross Baldwin

Brooke Kohlsdorf: Welcome in to the Friday, July 26th, 2024 installment of Market Plus. Joining us now, Jeff French, Ross Baldwin, thank you both for being here again. we've got some more to talk about. I guess we're going to start with some social media questions. So, let's fire them away. So this first one comes from Boyce, who's in North Dakota and it's, a somewhat political question. So he says, I remember that after the 2016 election, the stock market surged. If Trump were to win this fall, is there any in danger, any danger, that investors could pull money out of commodities and put it into the stock market and thus hurt commodity prices at the end of the year, or vice versa if Kamala wins? So, Ross, I'll give you that question.

Ross Baldwin: I think that risk is always out there for sure. I struggle today to worry about investors pulling money out of commodities and in the stock market. When you have the funds, the manage money crowd record short corn and soybeans today and you have the stock market cranking out new all time highs. Yes, we have reversed in the last week and in seeing some, some, selloff across the equity markets. But I don't see that risk today. I guess just given the environment that we're in, I think I don't know how much more downside there is for corn and soybeans, but I think honestly, you could maybe see the opposite happening at some point. Maybe if commodity sell off far enough, maybe they're more of a safe haven than the than the Dow being at 40,000 points. And you know the S&P at 5500 where they're trading at.

Jeff French: Stock market in 2024 has made new all time highs 40 days in the first seven and a half months. I mean that has never been seen before. So you have to look at where we're starting from. And we're starting at a very high some would say overpriced stock market. So, Tuesday we had one of our worst sell off since 2022. Is that a sign that we're starting to peak out? I mean, we'll have to see, but, we are starting that very elevated prices here with a new administration potentially taking the reins.

Brooke Kohlsdorf: Okay. All right, Jeff, our second question comes from Tom. So he wants to know about fertilizer prices. Are they ever going to come down?

Jeff French: Oh I would think certainly. I mean these prices that we're seeing right now certainly don't work with $4 corn. so I mean, you know, I know guys will lay fertilizer out there, but there will be places if these prices stay that they will skimp. I mean, it's just it does not make economical sense with these prices here. So I would anticipate, fully that, fertilizer prices come down, especially if you would see a, Trump presidency because he's, been out there talking about drill, baby, drill, since day one. So lower energy prices will definitely reflect lower fertilizer prices.

Brooke Kohlsdorf: Okay, Ross. Update on Black Sea shipping and exports. This question is from Tim in North Dakota.

Ross Baldwin: They still remain the most competitive market for wheat. I don't see that changing right now. They're the Black Sea values for corn. They have been rising recently, but just due to some weather concerns over there. But it is far as anything major happening, I there hasn't been anything huge and I don't see it changing in a meaningful way moving forward right now.

Jeff French: The market is so, you know, this story is going on a year and a half, two years old. I mean, the market is it's it's kind of desensitized to this. it's something that you don't see big price movements off of anymore, like we did, back a couple years ago. So, I don't see it. I mean, the wheat market looks like now that, you know, Trump, if he were to get the presidency, that there would be an end to that conflict. just look at what futures have done here recently. So, I don't think it's much of a story right now.

Brooke Kohlsdorf: Okay. All right. Jeff, will China ever step in and buy our cheap pork and grains before the election?

Jeff French: You know, I think the, pork is going to have a harder climb. I just don't see, you know, right now that they need to be buying our pork. I mean, they show up. But, you know, Mexico continues to be our number one purchaser of pork products. The beans, you know, that's a question mark. I mean, certainly with the price action we have seen here recently, you would think so. And we've seen them. I mean, they bought 4 to 6 cargoes here this week. It was to unknown, but most everybody anticipates that's going to be China. But yeah, it's for the sales on the books for the new crop, the new marketing year. We are at very low, commitments. So we'll have to see. But, we're not starting off very strong.

Brooke Kohlsdorf: Okay. All right, Ross, since you're a cattle guy, we were talking kind of during the break about some things that are on the producers minds. How should they be navigating these high prices that you said this is a conversation you're having with a lot of guys.

Ross Baldwin: I think cattle feeders got to just be looking at going from point to point, turn to turn of cattle, you know, buy some feeder cattle. There's no question feeders are expensive. The break evens are high. The struggle with feeder cattle prices is these feeders are bringing in auctions. The prices that they're bringing is reflective of all time record high cash prices. It's not necessarily reflective of where the cattle curve, the live cattle curve is at. And so the these break evens are running. They've been running well above where the futures market is has been at now. Futures are catching up here this week which is a great sign to see. But I think guys have to. They've got to be mindful of if you are buying some of these cattle. Just like a year ago when the farmer was putting the most expensive crop into the ground that they'd ever planted cattle feeders, they're putting the most expensive feeder cattle on feed that they have ever purchased in their life. Right now, I think you at a minimum, you need to be looking at having some put options. Now, if you go buy some puts today with what are some of these feeder cattle are selling for your flooring in a loss. But I think you got to really look back, take a step back and look at the amount of money you've made these last few years feeding cattle. I mean, the cattle feeder has been wildly profitable these last two years. And just look at if you lock in a $50 loss with some put options. And that's just if you buy a put that don't involve, you know, you can cheapen it up by selling an overhead call, which makes it a marginal position. But locking in a small loss might not be the worst thing in the world, especially when you take a step back and look at what you've made over these last couple of years. So I think risk management is as prudent as ever moving forward. I think the cattle market has more room to run higher. Do I think do I think $1.90 to $2 fat cattle is a new norm or here to stay. No I don't I think eventually I the fundamentals don't shift anytime soon. They stay tight. But that don't mean the market stays up here forever. It could be. It could be a US meltdown in the stock market or something that could change the sentiment and we could go down to, you know, drastically lower prices. So I think guys got to be managing risk here.

Brooke Kohlsdorf: Okay.

Jeff French: Absolutely. I mean, there's just too much risk right now in the cattle industry. You have to have downside protection. I agree, I don't think you'll see the cattle break come from the supply side or the demand. Beef demand remains exceptional. and again, I bring that back. You know, I know it seems easy, but, you know, the stock market's been making new highs after new highs and new highs. I think that's a direct reflect on cattle prices and demand. but yeah it can change in a heartbeat. We all we've all seen it. we've all experienced it. If you've been around the cattle business long enough. yeah. I think right now with the amount of money that's at stake, you got to have some puts in place.

Ross Baldwin: And to add one more thing, when you think back on 2014, 15, 16, them losses for the cattle feeder got so large back in 15 and 16. And the peak back then was about a $1.74, $1.75 on live cattle prices. We've traded as high as $1.98 up here in the north, there was some small numbers of $2, but the fat cattle market has went $20 higher than what we got to the previous record highs back in 14. And them losses were tremendous. So whenever, if and when this thing decides to roll over and with these massive limits that the CME has in place for live cattle and feeder cattle, it could the sell off could happen so fast, like you just you got to be prepared and have some protection underneath this thing.

Brooke Kohlsdorf: Yeah. All right. Last cattle question. So heifer retention. Who wants to talk about that? We were talking about it during the break.

Jeff French: Well, it's it's something that I talked to my clients, you know, almost every day here, especially as we're entering the fall period where you would see some heifer retain, you know, it's it's one of those questions I think will be discussed at the, you know, family kitchen table. I mean, the prices are so good. It's hard to hold back heifers, in my opinion.

Jeff French: I mean, but, you know, if you go down to the southwest, they've had their best grass and hay that they've seen in the last 5 to 6 years. So that could be a start of it. I just think with these high prices, it's going to be hard to see. I don't know if you have a different opinion, but.

Ross Baldwin: I agree with Jeff. We still have. In the last cattle on feed report, this one showed a breakdown of of on feed numbers between steers and heifers. We still have 60% steers on feed, 40% heifers, 40% heifers on feed is about as large as you get, which indicates you are not having retention in a meaningful way. I with the record high feeder cattle prices and you throw in 8 to 9% interest, it doesn't make sense to retain heifers in a meaningful way. Call your older cows and keep some heifers back. Yes, that makes sense, I get that. But, to set in and think we're going to expand this herd with these prices and interest rates, I don't see it. This year. 25 is maybe a different story, especially as the fed were to start lowering interest rates. But for right now, I don't see it in a meaningful way.

Brooke Kohlsdorf: Okay, Ross. Thank you Jeff. Thank you. It's been a pleasure.

Jeff French: Thank you. Thank you.

Brooke Kohlsdorf: All right, next week, we take a look at the story of the nation's first almost forgotten female veterinarian. Thanks for joining us and have a great week.

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