Market Plus: Ted Seifried, Naomi Blohm, and Matt Bennett

Yeager: Welcome in to the Friday, April 1, 2022 Market Plus. Joining us at the table again, Naomi Blohm, Matthew Bennett and Ted Seifried. And I appreciate the three of you doing this again. I know we've kind of revamped this a little bit and there was only a little bit of disagreement between this side of the table and you, Ted. Do you feel okay with how that main show went?

Seifried: Yeah, no I think it was good. For the most part, I think a lot of us recognize that the activity that happened at the end of the week was just sort of money flow driven, more than actual fundamental driven. If you know what these numbers mean and you know how to apply them to balance sheets and things like that, you come away with a much different feeling than what the markets felt like at the end of the week.

Yeager: Well, I seem to remember I think probably the last time we gathered this was the big benchmark, but we also didn't anticipate a war in Ukraine. We thought it was possible. But Ted, how much did Ukraine, what impacted balance sheets the most? First, give me some balance sheets you want to talk about and what do you think was the biggest influence on them?

Seifried: The only balance sheet that we have for the new crop comes from the Ag Outlook Forum, that was done back in February before Ukraine. That's a big point that we'll get to in a second. But that carryover number that they had back in February was a 1.965 billion bushel carryover, almost 2 billion bushels, which is not typically a bullish story in corn. However, that was at 92 million acres. You put in this new acreage, 89.5, and also you take beginning stocks down which have come down since that report came out in February, your new ending stocks number right now in corn is a 1.44 billion bushel carryover, which is exactly the same as where we are right now. We lost a half a billion bushels between lower beginning stocks and lower acres. Now, that is assuming a 181 national average yield. As Matt said during the normal show, because of where the acres are we could see some better, you would expect to see higher yields because we have the heart of our good acres are into corn. But I think a lot of that is offset by high input costs. You're going to have, not everybody, not most, but you're going to have some people that are taking a little bit of shortcuts and finding ways to try to save a little bit of money. So if that 181 national average yield is a 179, you drop to right about a billion bushels, 1.14 billion bushels. Wow, okay, so now we're talking pretty darn bullish. And a 179, by the way, that is pretty much the record that we have. We're going to have to have pretty much record corn yields to save us from having a sub-billion bushel carryover. And that is before we talk about what happens with Ukraine. If Ukraine does only get 60% or 70% of this corn crop, if we have to make up for 200 million acres of Ukraine production, or 200 million bushel of Ukraine production, which I Think is a very conservative estimate, you're at an 800 million bushel carryover in corn. That is unsustainable at this time.

Yeager: Yeah and I won't say dangerous but it puts us in an extremely volatile situation. Does his math pencil out?

Bennett: Yes it does. And I'll tell you, just to further it, we didn't talk about quarterly stocks on the main show, which it's not as sexy a thing to talk about, I understand that. But I'll tell you what, you don't want to go and ignore it too much. So, you look at usage in the second quarter, it's the strongest usage that we've ever seen and it was about 250 million bushels above the normal pace. And so if you continue to see this kind of pace, which ethanol grind has been fantastic, cattle on feed is good so you can expect feed usage to go down, and there's a lot of folks that think that you're going to see exports pick up significantly, especially in the absence of Ukraine. So if they're not able to put corn on the world market I could see a carryout or next year's carry in, which would affect what Ted was just talking about significantly, I could see that carryout shrinking substantially. So if we're in a situation here where you get down to last year's carryout, for instance, and you don't plant over 90 million acres, I'll tell you what, you better have ideal weather this summer.

Blohm: Yeah, and if you want to have any more corn acres planted, the Twitter question that I know they wanted to answer that I'm going to so steal --

Yeager: Oh right now, you're going to steal Glen's question?

Blohm: Stealing it. Stealing it. Stealing it.

Yeager: Let me set you up, Naomi. Glen in Ohio, sorry I set this up before the show started. This is on me. The gloves are off right now. Glen is asking, will the current low corn-soybean ratio for the new crop ultimately drive the market to expand the acres of corn grown in the key corn producing states? Would this be more of a technical or fundamental response to the report? Matt. No, I'm just kidding.

Blohm: Okay, so here's my thought. So what these guys were saying earlier is that if the bean price comes down does that make the corn ratio that much different? And is that going to make more corn acres? Here's my take. Dec corn is going to go fill that gap at $7.05, that has been there since 2012. But if this corn market wants to buy more acres, you're going to need to see the price of new crop corn go higher than $7. So I don't think that that's going to happen right now by any means. But don't think that just because the price of beans comes down that's going to make people with that ratio going to be wanting to plant corn. If anything, with the story I was trying to explain earlier with how this new demand for soybeans is going to be coming on, the end users need to be buying, the demand is there for soybeans going for the rest of this year and into next year as well. But now I'll let you guys answer. Go ahead.

Bennett: It's a complicated question because the producer has got a lot of money in their pocket. 2021 for a lot of producers in the U.S. was the most profitable year they've ever seen. And so a person from the outside looking in says, well why are we so worried about putting costs out on the table if you can pencil more money on corn than what you can on soybeans? But there's a lot of producers, for instance, in Iowa where the derecho was, a lot of those folks were forced into planting soybeans this last year after several years straight of corn and then they had 90 bushel beans. They're like hmm, I don't mind cutting 90 bushel beans at $14. So I think a lot of folks are looking at this a little bit differently. Yes, you can still pencil more profit on corn in most situations. But it's not enough more than what you're penciling on soybeans whenever you're looking at the fact that your risk factor is so much lower putting a bean crop in the ground than it is corn because it costs you significantly less to put that bean crop in the ground. So I don't see the ratio changing significantly. I think that a producer has to have an extremely strong production history for them to be able to make that decision and spend $1650 on anhydrous this spring.

Yeager: Ted, you can answer the question too or agree or disagree with them.

Seifried: Well, we didn't touch on the first part of that question here, at least we did during the normal show. Everything that just happened since the report came out, I don't think it was fundamentally driven. These are money managers that, again, they look at numbers to see if it's close to what the expectations were and whatever, but they don't know what these numbers actually do to a balance sheet and things like that so you have this flush out and then you create this technical damage and then it's just a money flow thing, it's funds liquidating their positions because they don't know what this is, they don't know what they're looking at. But ultimately when we do the balance sheets like we just did you realize, wow, this is actually a really bullish situation. I like the fact that it's more bullish for corn now and still rather bullish for soybeans because now we have everything, reasons for everything to go higher. We have a ton of weather risk. So I really like what we're looking at going into the first half of the growing season. We look at a drought monitor that is really scary. So there is a very fine razor thin edge that we have to have this production, we have to put in a whole lot of weather risk. We need that production.

Yeager: One of the things we talked about before we rolled the first show was there wasn't any questions about is the top in? Ted, listening to what you just said, you don't think we've seen the top for the foreseeable future.

Seifried: Okay, so but here --

Yeager: Am I taking something out of context?

Seifried: Listen, Paul, what the last five years has taught us is that anything can and probably will happen and we see things coming out of left field all the time it seems like now. You can't say that the top is not in because hey, let's say China invades Taiwan tomorrow, now I don't think they will because they had the opportunity to do that when Russia invaded Ukraine and the fact that they didn't do that to me says they're not done stockpiling, which I think is a good thing for agriculture for the next couple of years. Either way, something like that, unpredictable, can happen and completely take away any sort of upside potential. Grain fundamental standpoint, I think there's more upside potential, we usually hit our highs in June or July. I think there is just as much of a reason this year to think that can happen. But again, there can always be that black swan event coming out of anywhere. So you do have to still do your marketing. The other thing too, inflationary bubbles, when they burst it gets nasty. And even with really bullish grain fundamentals, that inflationary bubble burst we're going to be sharply lower, i.e. 2008. If you want to remember what that looks like, go look at a chart in 2008 and 2009.

Yeager: We'll hold on that one.

Bennett: I'll tell you what, thanks for the set up there. And again, I like it when we don't agree more, but we do agree a little bit more today. 2008 a lot of folks are sitting here thinking this market, I heard people say we're not going under $5 again, we've hit a new plateau and all this. Here's the deal, in 2008, I was still in the grain business and we were still in the grain business in 2012 and those two years are very important distinctions because in 2008 we sat on our hands far too long and that new plateau that we said we had, we stepped off the side of it after pollination hit and all of a sudden you drop the corn market on December corn almost $5 from pollination to the time Dec went off the board. So in 2012 you're sitting here saying, well I'm not going to let that happen again, I'm going to go ahead and sell into this rally. And so what Ted's talking about, you've still got to do your marketing, but here's the deal, if you do what a lot of folks did in 2012 and you keep selling into the rally because you're seeing prices you only dreamed of the last few years and then you get oversold, in 2012 a lot of folks should have had their best year ever and some folks went broke because the bottom line is they sold too much. They had that 2008 mindset in the back of their mind. But what you've got to understand, there's so much tools out there we can use that allow us to set a floor into this market, keep flexibility just in case this thing goes parabolic because I think it's got the opportunity to do so if the drought occurs. I don't know where prices are going. But it certainly will be significantly higher.

Seifried: The art is in the management is what you're saying.

Bennett: Absolutely.

Yeager: All right, Tiffany is already going to be upset with me because this Market Plus has gone long. So I need to close with cotton, talking dry. Why the acre 4% gain in acreage? What does that mean? Did cotton successfully buy enough acres?

Blohm: I think cotton did get the acres that it was looking for but now cotton is in the same weather market that we are because it's so dry in Texas. And the cotton demand is so strong right now, we are sending our cotton to China, we are sending it to Pakistan, to places around the world where the demand is there and our ending stocks were cut in half from year ago levels because of strong demand last year and not the best production. So cotton I think got the acres it needed but if there is a production issue the story is not done.

Yeager: Okay. Naomi Blohm, thank you so very much for the time. Matthew Bennett, appreciate it as well. Ted Seifried, better luck next time. No, it was great, I appreciate it. Thank you for all your help, by the way, during Festival. If you haven't donated yet, thanks to Ted for all of our help there. Thank you all. And next week we are going to look at the work of scientists as they look to uncover clues to a possible COVID-19 treatment from pig cells and Chris Robinson will be here to break down the commodity markets. Thank you so much for watching. Have a great week.

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