Market Plus: Angie Setzer

Yeager: Welcome in to the Friday, April 15, 2022 Market Plus. Joining us again is Angie Setzer. Angie, good to have you again. In this remote world it makes it real easy for you to sit there and answer all these questions. All your Twitter mentions, I don't know how you do it.

Setzer: I don't know either.

Yeager: Uh-oh, I've got her laughing and I can't get her to answer a question. We've won already right there. I want to start, we're going to get to cotton in a moment, but first this is a question a little bit about corn spreads. Chris in Omaha asked this on Twitter. He asked, why have corn spreads declined so much since March 1?

Setzer: Oh goodness. Yeah, I think you've had a whole lot of uncertainty and I think you had a whole lot of additional speculative buying interest that came into the corn market there when we had the whole entire invasion take place on February 24th. So the 24th we were limit up, then limit down, then we came back in that last couple of days of February and the first part of March there and just everything got way out of whack. And so I've always kind of said that cash always wins, and you can see it especially in the wheat market with how spreads kind of really got out of whack there and have come back in since. And so the market with a 50 cent May to July inversion was forcing supplies into the pipeline far earlier than the pipeline is going to be able to handle them. So you saw basis absolutely collapse as a result and then in addition to that you saw folks kind of start to recognize that hey, wait a minute, maybe the risk premium should be more in new crop than old. And so you saw a whole host of things really kind of culminate into the May/July going from a 4 cent inverse to a 50 cent inverse and back to yesterday it traded down to a 2.5 cent and I think today it closed around 7. So just a lot of things that happen in the cash market combined with speculative interests kind of unwinding to a certain extent.

Yeager: You kind of talked about this at our television side of this discussion where you, I was going to follow up and ask you, it seems like all the traditional rules, I'll put rules loosely in quotes, the guidelines of the way some things move and react have just for the last at least two years have been thrown out the window. I assume that makes your job harder. But it also makes it ridiculously hard for someone who is not following it every moment. What are you telling someone that says, Angie, what on Earth do I do?

Setzer: What is going on? Yeah, and what do I do? The biggest thing that I've been pushing and I will continue to push is that you take what you have unsold and break it into small manageable increments and then you take advantage of the market as it gives you more opportunity to sell at higher prices with the hope that when all is said and done and the dust settles you find yourself in the top half, top third, top quarter of the market and move on. It really helps to remove the emotion. And target orders help to provide you the ability to just step away for a little bit. And so the majority of farmers when it comes to new crop production I think are kicking themselves in a lot of ways because they started aggressively between $5, $5.50, $6 because the last thing they wanted to do is watch that go away. And so there was a lot of concern between November and January, especially of this year and into February, that what happens if I pay this much for all of these inputs and this market does fall apart on me? We got to breathe a little easier once we got the crop insurance price set in place there the tail end of February, it was $5.90 and we thought great, and then people stopped. I would say that the majority of farmers right now probably have a good portion of their crop contracted between $5 and $6 and did very little between $6 and $7 because the time it took us to get there was extremely short.

Yeager: It was like a day it seemed.

Setzer: Basically, that's how I feel. But so now everyone is sitting here like well why would I see more? I started at $5, it was wrong. I did some more at $5.50, it's wrong. And I did some at $6 or $6.30 or whatever and it was wrong. But the fact of the matter is if you're only sitting on 20% sold you have 80% of your crop that you're long on and that gives you, if you do a 10% breakdown, 10% increment and do a 40 cent range it still gives you a $4 high side between now and where we're at. That's $11 corn. And so to break stuff down into small pieces and take advantage of the market as it moves higher by using target orders, and you can spread them out and you can take breaks and you can do all kinds of different things, but you need to be looking at doing something if you're not sitting in a situation to where you've managed -- I get we have no idea, we haven't turned a wheel and so you don't want to get much beyond half. So you're going to have to be measured. But you want to make sure you're not focusing on where this market goes and focusing more on what it means for your operation than anything else.

Yeager: Okay. Well one of the things for your operation is the high fertilizer prices. And Rugger was asking us, he asked you about four questions and I picked one of them, sorry, you just had a lot of good ones. But this one, are soybeans going to have oversupply issues due to fertilizer prices because people are flipping from corn to soybeans?

Setzer: Not in the front half of the year. If we have oversupply issues it's going to be more the last half, the second half of next year. So, it's not going to impact a grower because if we have too much that's just going to be a basis issue. Yeah, it'll influence futures but we're going to have to convince ourselves that South America has produced the crop after the disaster we had this year. So it's going to be more of a last half cash grain marketing year problem for next year. We're going to have a way to go before we feel comfortable with the global supply and demand situation after the last couple of years.

Yeager: All right, so we have a global situation with cotton. It was a jump of 7.4% higher this week. What's going on there?

Setzer: Well, what isn't going on it cotton, right? In the eastern Cotton Belt you're too wet, in the western Cotton Belt you're too dry, exports remain solid. And you still have the inflation trade. We still are looking to wear things and do things, especially if you have to go back in the office now and have to buy all new jeans because the ones you have are too tight, not speaking from experience. But when it comes down to it you've got to continue to keep the incentive in front of folks to plant when conditions are less than ideal and right now you could say conditions are less than ideal for cotton planting in both parts of the country that plant cotton.

Yeager: Well, let's talk acreage because cotton was also part of this question with Mike in Carleton, Nebraska. Any acreage shifts from beans to corn since the latest WASDE?

Setzer: I haven't heard anyone say that they would go to beans versus corn. We've seen some folks say that they'll probably maybe lean towards corn versus beans or maybe they dispute the acreage number. But Mother Nature will have the final say in that. If we get to the end of May and we're still whatever, which I'm not even going to say it out loud, then maybe we do see some more switch over to beans. But for now I think financial -- $7 corn says a lot of words that $15 beans can't. So we'll just have to see what happens there. But yeah, I don't think since the last WASDE that has influenced much of anything.

Yeager: Sometimes when you say things like that, we can't say those words on television, I think we can say the ones you were referring to there.

Setzer: In this instance you can, yeah.

Yeager: All right, let's talk about weather though. Gary in Franksville, Wisconsin, he's had a couple of good questions here in a row and this one keeps on that streak. With the 10 day forecast looking cool and damp that could slow planting progress further, do we start taking one to two tenths of a bushel off the USDA corn yield yet?

Setzer: We're not there yet but talk to me after Mother's Day.

Yeager: So we have a month window is what you're saying?

Setzer: Yeah, we have a few more weeks. We're still early. Now, there could be places in the South that are like wait, it's getting too late for me, and I get that part. But for the majority of the Corn Belt, the states that make up a good lion's share of the national yield, let's see where we're at the 10th of May and then that will be a conversation that we may want to start having.

Yeager: Let's take corn and move it into the livestock sector. I kind of had to fly through that a little bit. I need a follow up here with Bradley in Upland, Nebraska. His weather question is a little bit different, Angie. It is, did the mild winter in the Plains decrease corn feed use for cattle and increase slaughter weights?

Setzer: It's possible. I think the old line has always been you feed $7 corn with a teaspoon and you feed $3 corn with a scoop shovel. So I'm going to guess that everyone out there no matter what the winter looked like, within the parameters of good animal husbandry because no one is going to cut corners when it comes to taking care of their animals. But could you see some adjustments made and things like that? Potentially. One of the concerns that you have is that you didn't really have much in the way of wheat, in the drier areas you didn't have anywhere to really kind of graze, hay supplies are short, small grain supplies are short, you don't really have that substitution we would typically have when wheat was cheap. So that's about the only thing that really kind of keeps me hesitant as to whether or not you saw corn feeding decrease. We did see that issue with lysine, the inability to get a hold of lysine, that pressured distiller's prices. So could you see a little bit more in the way of some feeders leaning in that direction? Perhaps they got lucky and booked some decent values there. That is possible. But yeah, overall everyone is going to do everything they can to minimize or try to protect themselves from these continuing to grow feed costs. But there really aren't many ways to get cute with what you're going to feed. Everything is expensive.

Yeager: Right. Speaking of expensive, I mentioned this during the TV show, I think the average AAA -- see I knew the dog was going to make it. That's still not even on your best reel yet, Angie. The crude oil price -- we're going to get to crude oil in a moment but let's talk gas prices. $4.32 I think was the average a month ago. Right now we're just above $4. Crude oil went back above $100. Everything being even, what does this run back up in crude oil mean for everything else?

Setzer: I think it just kind of continues to show we had talked about before, and my dog has an opinion about crude oil so I apologize --

Yeager: Was that two barks for higher I think I heard?

Setzer: I think so. I think she said she's bullish the lack of supply in the stagnant demand. But I think really when it comes down to it inflation is not going anywhere. And so this inflation trade is going to stay prevalent in the market, we're going to stay supported, we haven't fixed our supply and demand issue in crude. We talked about bringing Iran production back in if that nuclear deal got done. We haven't seen that. We're seeing the EU talk about phasing out gradually their need of Russian energy supplies. And so you're going to see kind of this continuation of strong prices until we figure out what the heck we're going to do about the imbalance. We truly have an imbalance when it comes to supply and demand currently from an overall standpoint and now we're just waiting to see what kind of demand destruction we potentially see out of China with the COVID lockdowns and things like that. But for now you're going to see prices stay supported.

Yeager: All right, Angie Setzer, thank you so much, appreciate your time. Good to see you.

Setzer: Thanks for having me. He says hi.

Yeager: It's okay. We knew that was going to happen and it's okay.

Setzer: The dogs say hi. I'm just glad it wasn't during the show.

Yeager: And this makes the Plus that much more entertaining.

Setzer: You always know I'm here for entertainment. I appreciate you guys having me.

Yeager: All right, thanks, Angie.

Setzer: Thank you.

Yeager: All right, before we go I need to let you know about the guy that helps, it's kind of funny that we have the dog barking -- audio is an important part of television. We know with the podcasts and what you watch on television there has been one person who has been at the center of a lot of what you hear on Iowa PBS and Market to Market for almost 37 years. Jim Leasure, this is his last Market to Market show that he has been a part of. He mixes all the features that you hear to make sure everything does not distort or interrupt your viewing, in fact enhances it. Jim has been a valuable asset to us here at the station and we could not do what we've done for so many things here when it comes to audio and just in general without him. So Jim, best of luck to you in the future and hopefully you can come back and listen and go easy on us as how we make it sound in your absence. Next week we are going to push through the potential pitfalls of urban farming and Jeff French will sit right there and join us to break down the commodity markets. Thank you so very much for watching and have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.