Market Plus with Arlan Suderman

Paul Yeager: Welcome to the table for the Friday, November 1st, 2024 installment of Market Plus. Arlan Suderman is back with us now. We left off at the election, which, you know, we could spend the whole time. So let's just take Gary in Wisconsin’s question before I get off line and say something that will get me in trouble. Arlan, Gary wants to know, are the export numbers up because of the country's positioning before the election, or is demand strong? Could some of these end up in cancellations?

Arlan Suderman: Yeah, I wish I had a dollar for every time I've been asked that question over the last few weeks, but I just don't see the evidence of it. If you look at corn, they're strong because Mexico is an aggressive buyer. But if you look at the pace of Mexico bought last year, we're just incrementally above that. So they're following the pace that each year buying more and more. They're kind of following that pace. If you look at soybeans we've seen an increase in soybean buying. But it's still, it's largely Chinese buying. But it's still well below the pace where they have been in the past. And each year over the last 5 to 6 years, they've been buying less and less and they're continuing that pattern. So I don't think we can say it's elections. You might make the argument that they're buying less now, even more than they did a year ago, in a slower to make those purchases because they want to influence the election. But that's kind of a tough case, too. If you ask the Chinese buyers, they say we're buying at the pace we are so as not to influence the election. But the bottom line is they're moving away from U.S. soybeans. They have been doing that for years. As South America produces more, their currency exchange rates make it cheaper. The US is the adversary of China, so they have that reason. But most of it comes down to cost. And that's going to continue unfortunately for U.S. soybeans.

Paul Yeager: It's like the charts of times. It's the path of least resistance.

Arlan Suderman:Absolutely.

Paul Yeager: So does China see a winner in either candidate?

Arlan Suderman: I think China's more concerned about what might happen to accelerate the deleveraging of the United States, Canada and Europe. We're deleveraging regardless of who wins the trade policies toward China are very similar. With a Trump victory that simply may accelerate some. I think that's a separate issue from commodities. I think that has to do more with how much we buy from them. And it has a big impact on Taiwan. And Xi Jinping, president of China, has promised that he will deal with Taiwan while he's in office. He's at least 71 years old now. He waits another four years, he'll be 75 going on 76. So when does he do that? Relative to who's in office. Who would he rather deal with in office when he does it? I think that's the key question.

Paul Yeager: Well, let's also talk about one of the key election issues here and that is inflation. So Craig in Minnesota asked us on Facebook, where do you see interest rates going after the election?

Arlan Suderman: I've said for a long time that I think longer term we're moving back toward the interest rates we saw in much the 90s in the early 2000s. It's not going to be a straight path. I think it's going to be a volatile time, but particularly the longer term rates, we're seeing greater strength in them. The near term near term is more heavily influenced. In fact, the overnight is controlled by the Federal Reserve. Longer term, they just try to influence it. And I think that's more being driven by congressional spending, which is driving the stimulates the economy and it's driving up debt. The Treasury Department has now confirmed we're paying $1 trillion per year in interest payments. We're starting to see signs that we're squeezing our credit markets. The early signs of that, we're seeing a greater supply of debt certificates being offered on to the market than what we have buyers for that. There's many reasons for that. But when you increase the supply of something, particularly debt certificates, that means yields go up. So I do see upside risk for medium and longer term interest rates.

Paul Yeager: Is that a, something that lasts as long as the 90s in the 2000s? Does it go on for a decade?

Arlan Suderman: Until we get control of our government spending? Yes, I do believe so. Unless you have a total collapse of the economy. But I don't see either party doing what we need to in order to get control of our fiscal spending.

Paul Yeager: Should we go back to commodities for a little bit? Let's go to agriculture. Let's go to soybean production. It's all tied. It, it really is. Mitch in Iowa wants to know for a big soybean production year, the November-January spread doesn't seem to be correlating. What is driving the volatility there? Are the bushels there but not for sale at these prices?

Arlan Suderman: They're there. But farmers are obviously reluctant sellers. And remember it's not just U.S. farmers. Brazil farmers have big production to sell on our market as well. They're down to less than 10% or what we would call play bushels of their old crop now. But they've started unloading some of those, now the rains are falling down there and they're feeling better about their new crop possibility. So they're cleaning the beans, so to speak. As far as new crop, there are, about a fourth of it has been priced, so they've got three fourths of a price here to go. That's a lot of bushels yet to be sold here over the next few months or whenever they choose to sell it. So that's going to make it more difficult to sustain rallies, particularly if there's no weather threat that really comes up. And with Argentina acres up 10% in Brazil looking at a big crop as well.

Paul Yeager: Speaking of yields, soybeans in the United States. Stone X number pretty close? It's going to hold?

Arlan Suderman: It's pretty close. We will be releasing our, our November customer survey on Monday. So we'll see. One thing some are anxious to see as we know is a dry finish to the growing season. What did that impact most? The latest maturing corn and soybeans. So how much of a yield drag did we get on those. The last crops that were harvested, the latest maturing crops.

Arlan Suderman: That's a key. And I'm most concerned about whether we see more drag on soybeans are more concerned about that on soybeans than corn.

Paul Yeager: Well, and then I was going to ask you, so corn, same factors, I'm guessing, or not as big of a factor?

Arlan Suderman: Not as big. I feel better about the corn overall. I know there's lots of anecdotal stories of where it impacted, but nationally, we have some huge yields out there that are offsetting some of that.

Paul Yeager: Well, yeah. I was going to ask you, where are these piles and where are you seeing? I mean, where are we? Is it Indiana? Is it Kansas? I mean, who had the big who had the big, meters moving.

Arlan Suderman: Illinois up to the Dakotas.

Paul Yeager: Yeah, it's a big place. It's a big path. You look at Iowa, the farther you went north from what we hear, you go to anecdotal stories, the less the crop especially get into southern Minnesota. That is, that has been a big production area of the last couple of years. Is it going to be enough of a loss to pull down or at least keep in check? High yield?

Arlan Suderman: Yeah, that really goes back to those, ridiculously heavy rains and flooding we had in late June. And, and the impact area overall is about 10% of the belt. It's a very highly productive 10%. One of my employees farms in that area. And, he would tell you that, the hills really yielded well. It was in the low areas, obviously, where the problems were.

Arlan Suderman: So that does drag the overall yield down. But, he felt good about how well things did, considering how bad it looked in late June.

Paul Yeager: Is that one of those conversations where it's, like, embargoed this information? I don't need you telling anybody more. But let's talk about, Rodney in Wisconsin's question, because it's a little bit tied on back to the livestock, and it's will low corn prices pull down the high price of fat and feeder cattle?

Arlan Suderman: What we're seeing instead is feeding longer. Well, I guess you can look at it is a chicken or an egg question. We, we know that we have a shortage of cattle because we've been calling the herd and we had all those problems. But you look at the supply of beef right now, it's at near record high levels overall supply beef. Imports are high, but carcass weights are records, as I mentioned earlier. And so the two imports and carcass weights are making up for it. And the carcass weights are high because feed is cheap enough to pencil out to to keep them on feed longer. Doing the same thing with hogs essentially, but especially beef. So cheap feed prices are creating more feed demand, and that's another way that we're consuming more corn and soy meal.

Paul Yeager: Therefore, not as much might be exported then, because there will be more domestic.

Arlan Suderman: You know, we've got enough to do both, unfortunately, right now. But my ending stocks estimate for corn is $1.862. USDA is essentially at 2 billion. So we need to get closer to $1.5 billion before we really can justify sustaining a rally in corn. But we have that opportunity to do that.

Paul Yeager: Well, you could make a case that the argument of we were going to have this ridiculous large carryout, and then it kind of went away. So now it sounds a little more in flux. So that'd be one of those, check marks of why a market might move higher than possibly. All right. lastly on cotton, that had that is kind of been stuck in a little bit of a pattern. But why is that thing moving lower now?

Arlan Suderman: It really comes back same thing with soybeans is we're seeing Brazil expand production. Another alternative crop that they have. You talked about soybeans and corn, and taking that business away from us for China, China, buying more and more cotton from Brazil versus from us.

Paul Yeager: Crude, is that fall over?

Arlan Suderman: Crude oil right now is tied to the Middle East. We have an oversupply problem, just like we do for corn and soybeans. And in wheat domestically. once the economy gets going, Chinese economy is a big factor there. And we need to get China's economy turned around to consume more crude oil. That would certainly boost. We know OPEC plus could bring on about 5.5 million barrels per day if they want to. They can't bring that all right back all at one point. That's how much are cuts. We're getting support now from fears of another Iranian attack on Iraq... through Iraq. I'm sorry, on Israel. In possibly escalating the war in that region to possibly impact infrastructure. As those fears ebb and flow, so goes the price ebb and flow. But it does look like we're getting some support now from OPEC. Plus saying maybe they won't increase output in December, as they had said.

Paul Yeager: And the dollar is that thing going to stay elevated.

Arlan Suderman: The dollar's problem is twofold. One, with inflation pressures coming back, that means interest rates may not fall so far. The other thing is the euro has problems because Europe's economy is hurting more than is the U.S., and it's difficult for both the euro and the dollar to both go down.

Paul Yeager: In the big 12 title game, Kansas State beats Iowa State by how much?

Arlan Suderman: You're assuming that we're both going to be having a repeat performance, playing back to back weeks. I'm not sure either one of us want that.

Paul Yeager:  I don't think. And there's possibility both don’t make it.

Arlan Suderman: It is a possibility.

Paul Yeager:  Yeah a lot of season to go. All right Arlan good to see you again. Thank you so much for the time.

Arlan Suderman: Thank you.

Paul Yeager: Arlan Suderman from Stone X. A reminder to get signed up for our new free newsletter at Market to market.org next week. A small insect makes a big impression on the landscape, and we'll have the commodity market analysis with Matthew Bennett. Thanks for joining us. Have a great week.

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