Market Plus with Angie Setzer

Brooke Kohlsdorf: Welcome in to the Friday, August 2nd, 2024 installment of Market Plus. And joining us now is Angie Setzer. To kind of leave off where we are to begin where we left off during the main segment because we had a lot to talk about. So we've got some more questions from social media. And you kind of discussed this and talked about this in the main segment, but Art in Washington is wondering when the wheat market will ever find a bottom.

Angie Setzer: Yeah, I think there is a couple of things like we had talked about it, obviously China's not really spurring the world to get out and cover their physical short that they have. We're also waiting. Turkey had announced an import ban, through October to try to support their domestic prices. That really put a big hole in Russia's export program and kind of created this sort of negative attitude overall, there's been talk that India could come in and look to start importing some bushels. and that would be helpful. Like basically from an overall standpoint, when it comes down to it, and we have a ton of issues around the world with wheat production. We have the Russian crop that we're really not certain what that looks like. They're starting to talk about washouts. If the exporters are experiencing in Russia, where they're just not able to get the quality of wheat that they want in order to be able to ship, it's French, the French crop, you know, France and Germany are one of the largest exporters into the world of soft red wheat, which is, you know, you're eastern, U.S. wheat supply. And they're struggling with issues. Their crop sizes, already reduced heavily because of rain. And now they're talking that we could be down in that 26 to 28 million metric ton range, like 10 to 15 million metric tons lower than what traders were anticipating in the beginning. So there are a lot of things, but really, when it comes down to it, like the supply is still adequate because much of the crop has been harvested. But as the world end user comes in and works to cover their, their short position because the world end user is physically short, I think you start to see that spur the market a bit higher. We tend to see a planting push like we have to encourage, because right now no one's going to plant wheat at these levels for next year. So we have that side of things like I think there are a lot of things that are lining up and wheat. I have joked about it a few different times. The wheats, the grain that's got to lead corn to the promised land. We can't have corn rally without wheat, and we need wheat probably to lead the way, as it has for so many other times. It really is that indicator, and I think we're close, but we need to see that sort of it. Does Turkey step in? Does India step in? Does China work to step in and import wheat to help fill their reserves? And so we're getting there. We're just not there yet.

Brooke Kohlsdorf: Come on wheat. Yeah. All right. Robert in Iowa is wondering, since the corn market is in the tank, what do you think the alfalfa market is going to do thus far?

Angie Setzer: Well, I mean, from an overall standpoint, obviously, you're going to have access to more feed and you're going to have to take a look at it from a ration value in alfalfa and things like that. Long term wise, obviously you're not going to go out next spring and everyone's just going to decide to put alfalfa, and it's not really something that you're just going to, to decide to roll into. But we have seen in the past when grain prices are low, folks look to switch back into other crops or other things that they know can make money. And alfalfa, especially if you've seen the local market get strong because folks have backed away, or you've had drought issues or something like that, you're probably going to encourage an increase in production.

Angie Setzer :And so just kind of watch what you're doing there. Never jump. I call it chicken in the yard. You know, like how if you throw a handful of corn chickens run from one side of the yard to the other, don't do that as a farmer. And but they tend to do it where it's like, okay, well, there's money in oats. I'm going to plant oats. And then they can't figure out why there's no money in oats come harvest, you know. And so those are the types of things that I think we could see where, like, your, your specialized crops and your specialized crop programs, we'll probably see more in the way of production coming up, just simply because folks aren't making money growing corn, soybeans or wheat.

Brooke Kohlsdorf : Yeah. Okay. Let's see, Phil in Ontario is wondering, managed funds have sent grain prices lower than I expected. We've lost $0.95 on December 24th. Corn, $2 on November 24th. Soybeans since mid-May. When did the funds cover the shorts? And are these a new type of fund player?

Angie Setzer: The hardest part about the funds being forced out of a position in a Carey market is they don't have to. So basically, for me to sit here and say on August 30th, they're going to depart, I have no idea. No one does. and it doesn't cost them. It is not punitive for them to just be short and roll this position forward, because the market structure has Carey in it and it works. They can maintain the short position for as long as they feel like. I do feel like I've said before, and in the wheat side of things, that the world end user is physically short. The world consumer has been told that prices need to continue to move lower. Everything you read currently tells you why prices need to continue to move lower. Say we have more than enough supply and all of these things. And so I think if you start to see the world consumer get engaged, which is what happened, really, you're the inflation trade. Yes. But you really saw the world consumer get engaged in late 2020 to start the market higher. That pushed the speculators to cover their position. And so that's really what we're looking at. It's either going to take a production issue in South America with the La Nina like we talked about during the show, or it's going to take an end user getting engaged in a big way to make the funds have to cover that position.

Brooke Kohlsdorf: All right. So Trent in Iowa is asking is our only hope for a short term market rally solely point based on it being an election year? It's even possible.

Angie Setzer: Yeah. Well, no, to me, I don't think so. And I know that we've had this conversation about every election year in the past being a rally year causation or correlation and is not causation, right. Like just because we've had a rally and the election years, in the past, most of them have been fundamentally fueled in this instance too. I think much of the same, I think that the fundamentals end up being supportive. I think the narrative right now is that we have an overabundance of grain. But if you look, we had a private estimate released this week that's really a bushel to the acre higher than the USDA. It is not as shocking as what folks thought once we started going out and surveying and so I feel like, you know, when it comes down to it, we're overestimating supply, underestimating demand, and those are things that eventually change. But it's just going to take that time.

Brooke Kohlsdorf: So it's not about who's running, who's running.

Angie Setzer: I mean, obviously we have this conversation about the trade war and some of these other things that is going to matter, but China is going to buy from the most cost effective, reliable supplier. Plain and simple. They showed us that during the trade war a B soybean exports are already at trade war levels. Like we're not really looking at seeing a significant decline now, you could argue that we have no book on, but I would tell you that we've also learned over the last couple of years that the Chinese, groups that operate within the US have learned that they don't have to report these flash sales. There's a different way about U.S. export sales reporting that's been going they've been mandated to report for 50 years. And no one has ever been fined for not reporting. It's a toothless act. And so for us to sit here and say that we have no sales on or anything like that, we haven't seen them. Now, do we have this massive book that we get from an export standpoint on soybeans? Not likely. You know, I don't think we're going to sniff 2 billion bushels. And I hope me saying that publicly means that we export 2.3 next year. But the fact of the matter is, the election itself is not going to be a driver either way. simply because in the end, yes, our leader is important, but there's not going to be something that they're going to come in on January, whatever next year, and everything's just going to be flipped on its head.

Brooke Kohlsdorf: Head to be able to reverse the thing that's already been done. Yep. Okay. Good answer. And, let's see, can we expect oh, we already said that. Can we can you explain the extreme drop in soybeans. And you kind of covered that in the main segment? Yeah.

Angie Setzer: Yeah, I would say, you know, obviously we had some surprise rain. We had a cooler last half of August forecast come into play, much different than what it was at the start of Friday. And then some of the other underlying things that a lot of folks hadn't talked about was Argentina was talking about rolling back their export taxes, which would make them more competitive in the global market and potentially take some of our market share away during harvest that doesn't look like it's anything that's really going to be able to happen here in the short term, simply because the IMF doesn't want Argentina to be pulling funny things. You know, when it comes to building, getting revenue in and some of these other factors at play. And so you just you have this continuation of negativity. Obviously, a good portion of it was influenced by whether everyone can kind of reiterate that whole like China lack of China buying. And then you had the possibility of Argentina coming in and kind of raining on our parade. You know, to me, I think there's enough going on in the world vegetable oil market that should be supportive to soybeans long term, but it's going to take some time for us to realize, you know, how that all is going to shake out and what we're going to have happen there.

Brooke Kohlsdorf: All right, Eric, in Ohio, do you see the wheat market rebounding any time in the third quarter?

Angie Setzer: Yes I do, yeah, I definitely do. I think it already has started. I mean you saw it today, again. We tested the low side on Thursday only to rebound back. We closed $0.14 off the low there. You know we're at what would typically be what is a historical low end at least for Chicago wheat. Like in one of those situations where like I said, you're going to have to incentivize planting for next year because 550 wheat doesn't cut it.

Brooke Kohlsdorf: All right. And then er or excuse me, Craig in Minnesota is asking do you see any interest rates. Do they or are you going to see them get cut. This year. I, I think the fed made a decision that they were going to make a decision in September maybe. Okay. Yeah.

Angie Setzer: Yeah. That's what it looks like right now is we'll probably see a cut in September. I wouldn't be the least bit surprised to see more than one after that. I think that the inflation data that we're seeing is, is cooling enough to where the fed feels comfortable. And I think the more than the inflation data side, I think we're seeing signs that the consumer is starting to feel a pinch and so I think the fed knows that they have to try to work to maybe loosen up monetary conditions. But the thing is, I don't know if the consumer is truly feeling the pinch from higher interest rates or if the consumer is feeling the pinch from the high costs. Because just because we say inflation is cooling doesn't mean that all of a sudden we're cheaper, like we're just gaining in price at a slower rate. and so I think that those are things that we have to pay attention to and watch. But I do think you'll see Powell come in and make some adjustments potentially in September, probably a small one and maybe another 1 or 2 before the end of the year. And then probably hold for a while to see what happens.

Angie Setzer: Okay.

Brooke Kohlsdorf: Well, you discussed earlier, how the election could or may not impact the markets. We have seen some developments in the Middle East this week. If that escalates, will that impact the markets?

Angie Setzer: That one is there's a conflicting sort of feeling that honestly just because of the fact that it should be supportive to oil and anything that it tends to be supportive to oil tends to be. I have to be careful saying that because oil going up doesn't necessarily translate to corn and soybeans going up, but typically anything that is supportive to oil, you should see support your, your biodiesel, your biofuels. However, you know, Egypt is a major wheat importer. You've got other neighbors around that are major, major importers. And so if you have displaced people, if you have an uncertainty over what the situation is going to be when it comes to safety in the future and some of these other things, that's part of the reason why you see the world consumer or the consumer in that region slower to make some purchases. And so it kind of is a little bit of a yin yang and a yang, so to speak. But I do think it's one of those that we're going to have to continue to watch. It should help to continue to support the demand that we're seeing for biofuels. I would say because of the higher oil prices that are likely to come from it. But I do question what it will do to influence demand in the region going forward, just simply because any sort of logistical headaches, increased costs that gets passed on to the citizen, like we have a lot of problems that could come from a major outbreak of war in the region if it were, you know, and hopefully cooler heads will prevail. But, unfortunately, it doesn't look to be the case at this point. So I guess we'll  see what happens next.

Brooke Kohlsdorf: Angie, you've unpacked a lot. Thanks for coming back. We hope you'll come back again.

Angie Setzer: Sometimes I will, I definitely will. Thank you for having me.

Brooke Kohlsdorf: All right, well, next week, we take a look at a series of new laws aimed at limiting foreign ownership of U.S. farmland. And Sean Hackett will analyze the markets. Thanks for joining us and have a great week.

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