Market Analysis: Ted Seifried, Naomi Blohm, Matt Bennett

Hello, I’m Paul Yeager. More of the nation is venturing out after cases of the Omicron variant have declined. Those returning to the workforce are finding jobs in sectors like restaurants, retail and manufacturing. Despite the highest jump in inflation in 40 years, America’s employers added 431,000 jobs in February. T number of jobs was below expectations but still enough to press the unemployment rate down to 3.6 percent, the lowest since the COVID pandemic began two years ago. The Personal Consumption Expenditures Index, an inflation gauge closely monitored by the Fed, jumped 6.4 percent for the 12 months between February 2021 and February 2022, the largest year-over-year rise since January of 1982. Planting Intentions and Quarterly stocks reports, two of USDA’s higher profile releases, were published this week. As the first day of crop insurance approaches for the I-states, we’ve assembled our panel to take a look at the big picture. Naomi Blohm is Senior Market Advisor for Total Farm Marketing. Ted Seifried is Chief Market Strategist at Zaner Ag Hedge. And Matthew Bennett is co-founder of AgMarket.net.

First though, the markets as government reports and Ukraine dominated the trade. For the week, the nearby wheat contract cut $1.18, while May corn dropped 19 cents. The soy complex followed the initial report reaction in the final session with the May soybean contract losing $1.28. May meal fell by $37.90 per ton. May cotton declined $1.35 per hundredweight. Over in the dairy parlor, May Class III milk futures lost 55 cents. The livestock sector was mixed. June cattle shed $1.53. May feeders put on 80 cents. And the April lean hog contract declined $5.40. In the currency markets, the U.S. Dollar index lost 21 ticks. May crude oil plunged $14.10 or 12 percent. COMEX Gold sank $30.90 per ounce. And the Goldman Sachs Commodity Index plummeted more nearly 45 points to finish at 721.20.

Yeager: To the three of you, welcome back. Good to have you all here. Easy question, Naomi Blohm. Were you surprised on Thursday's report?

Blohm: Some aspects yes and some no. We all were figuring we would see more soybean acres and less corn acres but I think the fact that the beans came in on the loftier side of things was a little bit of a surprise. And the quarterly stocks number coming in a little bit larger than I thought it might be for soybeans, that was surprising. But the market responded and had the big selloff then Thursday and Friday. Ultimately though with the selloff that we've had I think we're going to see some end users step up to the plate because we're far from over for having enough global supplies of grains and oil seeds for the world, especially with what is happening with Ukraine.

Yeager: Ted, you were surprised though.

Seifried: Well yeah, so go back to November or December we were talking about a big shift out of corn acres into soybeans. But then guys like us would start talking to a lot of our clients, which a lot of our clients are in Iowa or Indiana or Illinois. And those guys didn't really see much of a shift, there was only like 2% to 3% increase in Illinois and Iowa and Nebraska only 2%. It was the Tennessees that were up 20% in the soybean planting. So I think that's why we got a little bit off track as far as what we were going to see for switching acres. It was a big surprise for the market. There's no way around that. But really it comes down to what the funds saw because the liquidation was more for money managers than anything else. And basically they don't realize what these numbers mean, they don't put them into balance sheets, they just see okay here's what the market was expecting, here's what we got, that must be bearish, let's get out.

Yeager: Matt, given the trade earlier in the week, up, up, up, trade we've been having for weeks, up, up, up. Was Thursday a surprise for you?

Bennett: Given those things, I don't know, I guess whenever you look at soybeans for instance a 91 wasn't above the highest end of the range of guesses, which is surprising because 91 is actually the highest ever as far as soybean planted acreage goes. Was I surprised given what happened earlier in the week? No. I think that was a perfect opportunity for anybody who had been long the soybean market to take some money off the table and take off and run with it. I felt all along that bean acres would be very close to corn acres. Was I surprised that they were above corn acres? Yeah, a little bit surprised that they were above corn acres, but we've got to remember this was as of March 1st and I'll tell you what, a lot has happened since March 1st. You’ve seen the corn market, if you add the last trading day of February, rally over $1. In the month of March it was 78 cents. But we had a big day there at the end of February whereas soybeans haven't done hardly anything. And so you look at $14.33 for a February average for November beans, you look at $5.90 for corn and you're currently 90 cents above on corn and the bean market is below the February average.

Seifried: But Matt, I think it's important to point out that the biggest shift that we've seen outside of weather-related 2019 and trade war-related 2020 has been 1.5 million acres. So for the people that are expecting a big shift back out of soybean acres into corn, yeah you'll get some. I agree with you, a lot has changed, maybe 500,000 acres. But a 2 or 3 million acre shift back to corn, that's not going to happen.

Bennett: I totally agree with you and I've said this quite a bit actually here towards the end of the week is that bottom line is this, you can make quite a bit of money planting corn or beans this year. And so the producer who kind of sat on his hands, and rightfully so for some reasons, I didn't want to put anhydrous on maybe last fall, actually it didn't come around for us and the anhydrous prices are currently in that $1575 to $1650 range. And so if you didn't get your anhydrous on you're probably, especially if you're not in a really highly productive situation, you're probably going towards beans. So I totally agree. I'm just saying that as of March 1st I can see a little more of an argument for a few more bean acres than corn acres. But in the long run I still think you plant more beans than corn this year.

Yeager: Right, and I got back to your October appearance when we did this same three and that was the beginning of the fertilizer discussion. I remember you kind of talking off in the shadows about it. Here that story is still here. Naomi, I'm going to give you a question, something we haven't discussed with the bean process and it comes from Troy in Tama, Iowa via Facebook. He's asking, when is USDA going to acknowledge that South America is over a billion bushels short this year? They seem to be kicking it down the pipeline trying to ignore it. None of you have mentioned South America yet. Where are you?

Blohm: Well, actually the USDA has done a pretty decent job of being more forthright than in years past of how small that crop has been getting. We'll probably see another reduction on the report already coming up next Friday. And so the bigger thing right now for soybeans for me is that, like I said earlier, if you're an end user you need to be buying this break because the bigger picture is that we have the Ukraine sunflower seed crop that is not going to be planted in the capacity that it normally would. They're the number one exporter of sunflower oil. We have Russia who has said we are not exporting sunflower seeds of any kind from April 1st until August 31st. So the United States with our soybean oil production we are going to have more demand. And so I'm glad we have these more soybean acres because the demand is going to be there. Add to it we have how many more biodiesel and renewable diesel processing facilities that are getting built right now and that new demand is not yet reflected on USDA reports, it's coming up. So all of these acres we are going to need because the demand is going to be there to use it all. If you're an end user buy this break.

Bennett: I totally agree. I think what's going to happen if this bean market stays as hot as what it is and you end up drawing down your stocks like a few of us think we might see, quite frankly this export situation could make things pretty interesting later in the marketing year. I'm not so sure that a year from now we might be talking more food versus fuel situation at some point just simply due to the fact that how are you going to use all of these beans for renewable diesel? I've been talking about it all winter and I'm sure you guys have as well, this is a major demand driver moving forward. But at the same time if the Ukrainians do not get this sunflower seed, sunflower crop planted, I'll tell you what, you're looking at a veg oil situation that could be very explosive. And so I think that, I totally agree with her on the renewable diesel, I just think on down the road we may have to calm those thoughts just a little bit simply due to the fact that, I'll tell you what, we may get it too hot.

Yeager: Ted, it's the ethanol story now flipped over to soy diesel. If I'm a soybean producer I'm going to go in and plant those acres. What am I doing right now from a protection standpoint? What should I be doing?

Seifried: After the drop that we saw Thursday and Friday I don't know if you really do much of anything aside from hey, here's your reownership strategy opportunity. Hopefully you have gotten most of the old crop sold and you're pretty far along on the new crop at this point. Now you can come in and own those calls so you have that reownership, that upside potential once again. When we get a chance, Paul, I want to go into the numbers of the report and what the acreage numbers mean for the USDA's outlook balance sheet and whether this is a bullish or bearish situation for corn and soybeans going forward.

Yeager: All right, let's go, we'll stick with beans because then we need to move on. Do you want to give me some of the bean outlook there?

Seifried: So, on the outlook forum that we saw back in February, they gave us a 305 million bushel carryover and a 51.5 national average yield. We added a lot of acres and we've also drawn down beginning stocks a little bit. When you plug those two numbers into the balance sheet and leave everything unchanged, we get to a 405 million bushel carryover. That is not significantly bearish in my opinion, especially since the drop in corn acres we lost a half a billion bushels of corn. We only added a hundred million bushels of beans. Now that is at that 51.5 national average yield. Well, with these acres that we're adding, especially in places like Tennessee and places that aren't typically your high yielding acres, 51.5 seems like a harder target to hit, especially when you look at that drought monitor right now. So, that 405, I don't know, I would argue that should be somewhere between 320 and 360. Now, that is without talking about demand. Look at the record export sales we have for new crop already.

Yeager: You've awakened the other side of the table, Ted.

Blohm: Well, I just want to add onto what he's saying from the standpoint of if the ending stocks do come down, which I do think that they will even in spite of these larger acres, if you look at back 20 years and try to see where November soybean prices have been between first quarter and second quarter, 13 out of 20 years you get a bigger, higher price in the second quarter than whatever the high was in the first quarter. And the only years that did not have bigger numbers was years that we had large ending stocks on the verge of getting bigger. So again, 13 out of 20 years you have better chances of seeing higher November soybean prices come second quarter, the bulk of those years it comes in June.

Seifried: So, before this stocks and acreage report we had an unsustainably bullish soybean outlook but a kind of blah to maybe bearish corn at a 2 billion bushel carryover. Now we have potentially a really bullish corn story because a 181 national average yield, I don't know how we expect that right now, and a rather bullish yet soybean story. Two powder kegs better than one.

Yeager: I'm going to save you from wheat this time. Let's go to corn because Ted just opened the door.

Bennett: Here's the thing whenever you look at the corn balance sheet, you start plugging in the acreage that we just got, 89.5, stop and think about what carryout we're already talking about, a 144. And most people are going to say, well that could actually get a little bit smaller. You look at ethanol grind has been fantastic. You go ahead and start eating into these stocks maybe with an E-15 blend, which would be sure nice to see for some folks, then you start to change this balance sheet just a little bit. I came up with it on our S&D, we're going to need like a 178 yield this year with 89.5 just to stay above a billion bushels. So definitely a much more bullish situation than we were looking at previously. Yes, beans is not as bullish as what it was before. But on corn you're looking at a dynamic situation if you stay under 90 million acres.

Yeager: Right, I want to paint a little picture here. We have a drought, we have a couple of the drought monitors put together that we can show you and we'll go over it when you start talking, Naomi. It does get depressing in certain areas. A lot of the dry situation is a wheat story. Do you see the dry situation being a corn story at all?

Blohm: Time will tell and I believe most of the meteorologists are saying that the end of May is when we'll know for sure what kind of drought situation we'll have this spring or summer. But I think the bigger thing with corn is going to be more the fertilizer aspect because we need that fertilizer to have those record yields, not just good rain. So between what we could have here for probably not record yields along with what is happening with Ukraine, Ukraine is supposed to usually export 1.3 billion bushels of corn and if their production is going to be maybe in half this next year, now you're going to see the United States needing to step up to the plate and maybe our export market gets even stronger than what it has already been. So there's so many moving parts to this story that it's going to be extremely volatile.

Yeager: Well, there's three underlying factors we could write about pretty much every given week with this whether it is Ukraine, the weather or South America and the weather is here. So Matt, do you see which market is going to be impacted the most by weather in 2022 in the United States?

Bennett: I think if you get into the Western Corn Belt and you have a significant, you stay dry, for instance, I think obviously the wheat situation could be heavily impacted but I'm looking at corn. In my opinion, if you don't have, like I said, 178 to 180 bushel yield this year, now with some reduced acreage, some of the acreage is going to be where we really need it to be so you might have the tendency to post a little bit higher national average as far as corn yield is concerned. But if you don't, Paul, again it would be an extremely explosive situation, a big reason why we all along have been saying you've got to have flexibility here in '22 because yes, you want to quantify worst case scenarios, but you better have some flexibility because if you get oversold in a situation where you under produce, that's not where you want to be.

Yeager: So Ted, I had a conversation with a producer in Kansas this week and I asked him what is he going to plant given the sunflower story? Is he in an area for cotton, corn, soybeans? He said he's going to plant wheat. Do you buy what they're saying in Kansas that some are going to produce wheat? We have questions about it. Do you see wheat as a product that might emerge on that second crop, not the winter crop, it's already done or it's already in the ground?

Seifried: Yeah, Kansas likes wheat so it's not shocking. I guess the timing of the crop maybe. But personally I'm not a huge fan of the wheat market. You look at what happened with Russia and Ukraine, we had a huge reaction to that. That was more a short squeeze than anything else, by the way, Paul. That was how markets work, not really a fundamentally, it was a fundamental spark but the prices that we got to I don't think were fundamentally justified. They would be justified if we see this huge influx of export sales coming into the market. But guess what? The last USDA report the USDA acknowledged the Russia and Ukraine situation, lowered  both the Russian and Ukraine exports, but then also lowered the U.S. exports as well and we have not seen anything different from that to change to their minds. Unless we start seeing big exports on wheat I have a really hard time justifying these prices and I'll go back to the idea that the wheat balance sheet, while it is relatively tight, it's the corn and the soybeans and this upcoming growing season that really are going to have the profound upside potential if we're going to see some problems.

Yeager: All right. Naomi, I'm going to ask you a question that came in via Twitter. It's a little bit of what I asked Ted but this is actually in a concise manner, not the rambling that I did, sorry Ted. Jason in Nebraska is asking, what are your thoughts on spring wheat? With the amount of acres planted what happens if dryness forecasted for the region holds true? He's asking, how high do we go? I don't get the sense from Ted he's thinking we're going higher.

Blohm: Well, spring wheat is a little bit of a different animal because they had such a poor crop in North Dakota last year. And so the 11.2 million acres that is going to be planted for spring wheat this year is going to definitely be watched and scrutinized. And the western part of North Dakota is still quite dry, the eastern part of North Dakota is doing okay. So depending on how their production is this year prices could have a reason to work higher. So right now the new crop, I'm sorry, the nearby months are having some resistance near the $11 area. But if they can get through there then they can push up to the $12 mark, which is where we were just a few weeks back. But for prices to go any higher than that you're going to have to have a weather story like we had least year. So for right now probably see prices just trade in more of a sideways manner, but ultimately if that western North Dakota crop suffers like it did last year we have reasons to go higher than $12.

Yeager: I had Elaine answer a dairy question because there was a big story last week and I'm surprised she didn't call you. But let's talk to you now about dairy. The market was up and now this week we've given some of it back. Is the top in?

Blohm: Yeah, so short-term here the dairy market has had a huge run higher, up to the $25 level, which is outstanding, a new contract high area. And the reason that we've been pushing that high is because the production numbers have been down for the past two months and even further back from that. So it's a fundamental reason to be up at these values. Our butter exports are still on fire and strong. Our cheese exports have actually been okay. We're starting to see some end users across the world come in and buy their needs for fourth quarter. But now we're at that price point where okay, prices got up to those old highs, they needed to come back and set back lower. Going forward from here a lot of it depends on what the next milk production report says. Is there still more decline on production? And looking at the feed values, it's interesting to note that a lot of the dairy producers right now have their breakevens at like $21 and $22. So it's significant what is happening for the dairy industry. So even though you see these higher prices it's not necessarily all cash going to the dairy producers.

Yeager: Okay. Matt, we need to move into the meats. Continue with that dairy story. Let's start with live cattle. Two years ago the story was always about processing. I heard in Southern Illinois a meatpacking plant, a beef plant coming online. You hear about these smaller firms expanding capacity. Is it going to matter and do anything to this price?

Bennett: Well, first of all, thank God that we've got some folks coming online because in my part of the world there's people that are a year out if you want to try to get something butchered. So we absolutely need more capacity there. The demand for protein is very strong. And so like the hogs and pigs report, 98% across-the-board, that was pretty friendly. And look at the live cattle market here over the last few weeks, look at feeders over the last few weeks, you've had corn going up almost on a daily basis and we've held together very strong. It's a very good indication that demand is strong, consumers still want to eat beef especially and I think whenever you get into the summer months I think we've got better days ahead whenever it comes to these live cattle.

Yeager: Because, Ted, we were last week cattle on feed some viewed that as a bearish report and that was one of the only positives, right? Very bearish and we rallied on feeders. Why this week?

Seifried: Yeah, you need to replace cattle. I agree with a lot of what Matt just said, but I want to also add the upfront contracts in cattle kind of both me a little bit, because of the drought that we're having in the Plains you might get more cattle going to market sooner rather than later. So if I want to be bullish cattle I want to be a little bit further out in time. I am bullish feeders because if we do see that production, see that push to market, we're going to have to replace. We're going to need those feeder cattle. And so that is why I think that you're seeing strength in the feeders while seeing strength in the corn. I was a little curious on Friday how corn down a pretty significant amount and feeders really did not respond well to that.

Yeager: Whereas previously they have been reacting to it.

Seifried: Yeah, so you do get the feeling that there is a little bit of concern about demand. Now, I agree with you, I think the demand doubters are going to get proven very, very wrong as we get into this spring grilling season. But there is this concern that the ongoing issues between Russia and the Ukraine and the global economy shutdowns, lockdowns in Shanghai and China and there's concern about the stock market that got real kind of iffy there at the end of the week. So there is some of that. I'm not really buying it. I really do think domestic demand is going to be really good. I think there is more upside potential in live cattle. But I'm looking more August and beyond.

Yeager: Anything else on beef before I ask you about hogs?

Blohm: Dec contract is the one to be watching for the cattle market. Dec futures I think have the ability to really run higher for all the reasons that they just said. Demand is going to be there. And our export market right now for the first three months of the year are even stronger than they were last year and of course a lot of it heading to China. So the demand is there and the export market is strong.

Yeager: I think I've heard the three of you say, and pretty much anybody else who comes on this show, once China starts getting a taste for beef look out, right? Do you agree with that still?

Blohm: Oh without question, anyone gets a taste of beef watch out.

Bennett: They're the third largest buyer so far this year and that's a notable deal. I think it's just going to continue to grow.

Yeager: And then the strength of the Japan deal two weeks ago, that matters. All right, let's go to hogs. Also, again, China driven? Or is this all disease in Mexico? Where do you see the big pull on the market?

Blohm: So, the 98% number on the kept for breeding from that hogs and pigs report is what is significant. So we're not seeing producers increase their herd, they are mindful of prices right now, they're mindful that our exports for hogs are not what they had been the past couple of years. So they're being super smart about the situation. It's going to be friendly for the deferred contracts down the road and the demand right now for pork is strong. We are seeing of course lower production like you said Mexico with PED and then also having PERS virus issues so maybe they're going to be doing some more importing of our pork. And I think domestic pork demand is going to pick up as well.

Yeager: Hogs excite either of you?

Seifried: Yeah, we're already at some pretty lofty levels though so I don't know if you expect a big, big run from where we're at right now. But I don't think the highs are in. You had a key reversal on Thursday, a lot of people want to talk about key reversals being tops in the market, I don't really buy into that fact or that idea. I think we're going to go back and touch those highs, make new highs. But again, I think if you're a pork producer you've got to be mindful that we are at some pretty good prices right now. You do need to be making your marketing and buy puts, things like -- Mark Gold -- you need to be protecting prices.

Yeager: Go ahead.

Bennett: I hate to say this but I agree with everything Ted just said. I mean, I do think you could see some strength here but whenever I look and some of these contracts are trading $120 I'm like, boy I don't know, I have a hard time getting friendly there. But at the same time whenever you see that report this week you have a hard time wanting to get too bearish as well.

Yeager: All right, real quick, Ted, final seconds, crude closing below $100 on Friday. What's the significance of that in agriculture land?

Seifried: Yeah, well for agriculture land these are good things because lower input costs. When we're -- we use a lot of fuel to do everything we do so that's great. But let's talk, what is the crude oil market going to do in the long run? Any time we have these strategic oil reserve releases it's not a negative correlation to crude prices. Generally crude prices go up because we build the demand. The demand will offset. I don't think crude prices are done going up. The bigger factor there is inflation. I think the summer is going to be hot and heavy on that crude oil and we're going to make new highs and ultimately that is not a good thing for ag land, aside from the fact that it could and probably will bring in E-15. It should help the corn market as long as we don't really kill gasoline demand.

Yeager: That is Ted Seifried. Thank you so very much for your insight. And on this side of the table, Naomi Blohm and Matthew Bennett. Thank you very much. Ted has some homework he's going to show off in Market Plus so thank you very much for watching this installment of Market to Market the TV show. We'll talk more in Market Plus so join us there. Find that free on our website of MarketToMarket.org. Now, the site that is rooted in images is springing to life. As you head to the field, follow and then tag with MarketToMarketShow in your posts on Instagram so that we can see your photo and then share it with others. Next week, the work of scientists who uncover clues to possible COVID-19 treatments from pig cells. Thank you for watching. Have a great week.

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