Market Analysis: Angie Setzer

The weather had two stories, drought and cold, impacting the holiday-shortened trade week. For the week, the nearby wheat contract strengthened 45 cents, while May corn improved 22 cents. Renewed Chinese buying stabilized the soy complex. The May soybean contract fell 7 cents. May meal dropped by $6.80 per ton. July cotton jumped $9.65 per hundredweight. Over in the dairy parlor, May Class III milk futures gained 52 cents. The livestock sector was up. June cattle expanded $2.60. May feeders added $2.40. And the June lean hog contract increased $3.90. In the currency markets, the U.S. Dollar index rallied 54 ticks. May crude oil jumped back over $100 with a gain of $8.47 per barrel. COMEX Gold strengthened $26.50 per ounce. And the Goldman Sachs Commodity Index improved almost 42 points to finish at 756 even.

Yeager: Joining us now to provide some insight is Angie Setzer. Hello, Angie.

Setzer: Hello. Thanks for having me.

Yeager: Good to have you back. I don't know if you were paying attention to that story before but I want to start with wheat and Cameron's piece specifically. He says, I'm going to plant more wheat. He can't get much more in the heart of the Wheat Belt where he is. Are more people going to be like Cameron and plant more wheat this year despite what USDA is saying?

Setzer: I think if they can, all you have left is spring wheat, so if you can I guess you may try but everything else is such a good price out there I don't know if people are going to really push the envelope on wheat necessarily. So what we have for winter wheat is what we have and maybe the market can still work to kind of incentivize some spring wheat planting. But I'm not sure it's going to be able to do so or compete as well as what you're seeing between corn and soybeans and other crops.

Yeager: I'm going to rewind to another piece earlier in the program and that was the snow in North Dakota on winter wheat crops. It's also going to slow their corn and soybean process. But let's talk about moisture specifically on that winter crop. Is that what is driving this rally right now?

Setzer: The moisture you mean in the --

Yeager: Any of the moisture or lack of it.

Setzer: I think so. I'm in the eastern Corn Belt so I'm sitting here like you mean the excessive moisture that we're experiencing and the fact that it's been highs in the mid-40s here in Michigan, which of course we're early yet, but to the south of here in the eastern Corn Belt to see this continuation of cold and wet isn't necessarily wanted. I read someone say today that you could erase or use White Out on the argument of early planting taking place. And so there's a lot of talk the folks in North Dakota where you've seen two feet plus of snow, it's going to be the first of May before they're able to get back in the fields without another storm system. So there's talk that there's other storm systems further out as we work into next week. And then of course you go south and it's the lack thereof. And your heart really goes out to those folks simply because they're watching everyone else complain about getting too much moisture and so it adds insult to injury. So yeah, the moisture story is definitely going to be the one that we pay the most attention to here over the next four weeks, six weeks and beyond because that's really going to be what is key in determining what our crop sizes are.

Yeager: On Tuesday I made a little road trip in Iowa, went a few places different ways, I saw in the 250 miles I drove one field planted. You mentioned early planting, that just doesn't seem to exist in certain areas. Again, weather, is that the big driver in corn right now?

Setzer: Yeah, well weather and then of course we saw some Chinese buying interest, we've seen some decent export sales. Ethanol got a decent story even though my friend Jordan as he highlighted you're really looking at 25 to maybe 40 million gallons of ethanol produced, which is going to be around 9 to 17, 15 to 17 million bushels of corn demand, so not a huge amount but still more demand. Exports have been good and then of course, yeah, you're looking at the concern over not only are we starting with reduced acres but now we're talking about could we see some losses in these areas that we're planning on those that we're going to put corn in, will they be convinced to go in a different direction if they have to wait too long to get rolling here?

Yeager: Really I asked you more of a new crop question than an old crop. Let's put a bow quick on old crop. IF you have any left should you be selling right now? That trendline sure looks like it keeps going up.

Setzer: It sure does. I guess it depends on your level of risk exposure. If we're talking your last 10%, 20% of the bushels in the bin honestly let's see what happens. I know that that's a bad piece of advice to come from a risk manager and most folks that have watched the show for an extended period of time are probably trying to call their grain buyer right now to sell because my track record hasn't been the greatest on telling you to hold off. But at this point I think the easy bushels, as a farmer for one in the quarterly stocks numbers, which those are old news at this point, but the lowest on-farm stocks since 2013 or the lowest percentage, excuse me, of on-farm stocks out of overall stocks. And so the easy bushels have been bought. Now it becomes a basis traders game because they're sitting in the hands of the commercials, the spreads have been a little bit crazy. And so honestly if you're not sitting on the lion's share of your corn, yeah you could kind of use those as your gambling bushels. Your gravy bushels is what I've called them in the past. If you're sitting on a good portion we need to start making some sort of plan. You've done great, yay. Could the price go higher? Sure. But you're getting into where we're in rare Earth. We settled today's highs the highest or today closed the highest that we've seen since September 2012. And so if you are sitting on a large amount of old crop corn you have to ask yourself what you're waiting for. If it is $8, cool, put in a target order. You don't have to sell it all and you won't. You're not going to nail the high by any means. But it's a matter of how much you have and there's a huge difference between livelihood and rolling the dice. And so just make sure you know where you fall in that department.

Yeager: You're not supposed to read all the Twitter comments about you being on the show and the rally. Sorry, Angie. All right, but speaking of Twitter we do have a question from there that I do want to ask you right now that came in this week. This one is from Charlie in Ohio. And he's asking you, with the bullish news recently, he's citing E15 for summer use, the export sales to China, Ukrainian planting intentions, and no large bounce, had the positive news been priced in already? And, are we running out of news to feed the bull market?

Setzer: I think we get a little bit slower. Yeah, the bull needs to be fed every day. I was talking to someone earlier this week and I said the most bearish piece of the market, insider market info that we have right now is that everyone is bullish. And so that tends to be what scares us the most. How many times have you seen a rally die when everyone is calling for $10 corn? Maybe this time is different. But yeah, eventually you price in, not only do you price in your worst case scenarios when it comes to a lack of supply, but you also start to price in a value high enough to where you're discouraging demand. And so a lot of folks right now are like well, we have no signs of demand destruction, and that's good, because once you see signs of demand destruction it's too late. We're constantly in an ever-swinging pendulum of trying to find that happy equilibrium between the right amount of supply for the right amount of demand. And once you recognize that we've gone too far, it's too late. So we can still kind of get ourselves back in with a good size crop.

Yeager: Well, then let's look at the soybean market because this week we're down and there's, it's been a bearish story a little bit since the report but we bounced but then this week we didn't. What's going on?

Setzer: Yeah, on the soybean side of things it had been bearish and then we had seen a recovery. We were really just kind of watching to see what happens there. We got that ratio out of whack, the corn bean spread should be in that 2.5 to 2.4 range give or take in a normal time period. I think we got down to just right above 2. So beans got quite a bit cheaper than what you would normally see compared to corn. And so we're going to kind of swing back and forth because we don't know what's going to happen with beans. We hit that point with export sales to where we're within shouting distance of the USDA numbers already, now we're waiting on shipments, carryouts looking like it will probably go down even a little bit more here in the months ahead. And so we won't know what bean production looks like until August. So it's even more risk premium we've got to throw in and then toss in a couple of other inflation trade ideas and things like that and here we are.

Yeager: I'm going to move you to let's go hogs first, they had the biggest rally this week. What is driving that?

Setzer: We've been down. Everything anymore right now from a commodity standpoint if you see a big selloff you're going to eventually get to a point where people are going to buy that dip and bring us back in. And so everything is going to kind of maintain some level of support. Maybe we don't see hogs make news highs or anything like that. But there are some concerns over reduction in the younger end of the herd and some of these things that we've seen with some disease concerns and some other factors at play. And so I think you'll see hogs remain supported. There's always going to be a little bit of a headwind that we're going to run into because we don't really have those Chinese imports that we can get excited about and Chinese hog margins are definitely something to keep an eye on. So that is going to keep a lid on any major rallies. But just inflation trade in general, just that sort of energy of oh anything that looks cheap we've got to buy, is going to help to kind of support these markets even if fundamentally they don't necessarily look like they need a huge amount of support.

Yeager: Does the beef market need any support? Live cattle first.

Setzer: Yeah, we always do. We've kind of seen that market ebb and flow as of late, move kind of high, move up really well and then all of a sudden kind of drop off a bit and we've kind of recovered a little bit. We are starting to see some concern over demand destruction. Obviously we are seeing some worry over what's going to happen. On the feeder side we've got drought conditions, we're moving into lots quite heavily there. And so the same thing as what I said, the inflation trade is going to kind of keep things supported, but there's obviously this concern that when you're making decisions at the grocery store with your family and you look at a roast right now, a round roast last week was like $22, I am fully encamped in team beef and I still thought twice before I hit add to cart. And so that is a factor at play, especially when the general population is struggling maybe with filling that gas tank and filling that grocery cart. And so that is going to keep us with that sort of cap on any real high side when it comes to the fat side of cattle. But that support is still going to remain in the sense that we have demand and we have inflation and we have all of these other factors at play.

Yeager: All right, Angie, I appreciate it. We have a few questions, you've kind of touched a little bit, I think maybe you peeked at what we have. But we'll talk about that in a moment. Thanks, Angie.

Setzer: Thank you.

Yeager: That will do it for this installment of Market to Market the TV show. We're going to talk more in our web show called Market Plus so you can join us there. Find that free on our website of MarketToMarket.org. Social media platforms have their ebbs and flows but our Facebook presence has remained constant with links, pictures and videos aimed at informing you about our program. Follow along at MarketToMarketShow on Facebook. Next week, pushing through the potential pitfalls of urban farming. Thank you for watching. Have a great week.

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