Pearson: This is the Friday, July 28, 2017
version of the Market Plus segment.
Joining us now is Ted Seifried.
Ted, welcome back.
Seifried: Thanks for having me.
Pearson: We're always glad to have you.
And we're going to kick this right off, we've got
a lot of questions, people want to pick Ted's brain.
So we'll start with Devin Marion in North Dakota.
He's on Twitter @SaratogaFarm.
Devin notes that hard red spring is inverted past
December of '17.
Does the trade already expect higher acres in
'18?
And can it add carry through harvest?
Seifried: Those are great questions, Devin.
So, first of all, the reason why we have an
inverted market almost always is because we're in
a bull market.
And when you've had such a large move and obviously
we're off highs by a fair amount now, but when
you've had such a large move then yes, we
generally go inverted.
One of the reasons we do that is because we started
thinking okay, what does high price do to this
market?
Well, it very likely will add acres.
And I've been talking to a lot of guys who likely are
going to be adding acres.
So, to answer that question, yes, absolutely.
Now, as far as what we do during harvest is really
going to depend on what we find out there.
If we start seeing yield come in 38, 40 or above
then we've got an issue and then that inversion is
going to kind of come away.
But that's not necessarily a good thing because that
just means prices are coming down and the front
is coming down faster than the back.
If we're finding issues and we're seeing bigger
problems than what the recent crop tour has
suggested and certainly what the USDA has
suggested that inversion is going to get stronger
because again, yes, we're probably going to add more
acres and we're going to price out some demand at
higher prices.
So that is why you get that inversion in the
market and it's all going to depend on which way the
market goes from here.
Pearson: Now, as a rule of thumb, when you see a
market that is inverted, we saw it in corn,
soybeans, 2012.
How aggressively do you want to be selling that
next year's crop during that inversion?
Seifried: Well, it depends on what the situation is
that put us there and how long we're expecting it to
last.
In 2012, hindsight is always 20/20, but I was in
North Dakota at Big Iron in September of 2012
saying, hey we need to look, I know it's not the
same price as what we're seeing in the front
months, but we need to look at selling our next
year's crop, the year after that and the year
after that because if it's a crop issue very quickly
we can fix that problem by adding more acres the
following year and also demand destruction.
We had both of those in 2012.
So you really want to be looking at those deferred
months because when the pendulum swings back a lot
of times it can be fairly violent as well.
Pearson: You bet because that is a story that
brings in outside money, let's sell these markets
that are in a downtrend.
Seifried: Yeah, that and the touchy one is demand
destruction.
If we're able to destroy demand it takes a lot to
buy that demand back.
We have to see low prices for an extended period of
time in order to do that.
Pearson: Okay.
Our next question is from Tim in Crookston,
Minnesota.
Tim is asking a question that a lot of folks in
North Dakota and South Dakota want to know the
answer to.
I know you're not a meteorologist, Ted, but
Tim wants to know, will it ever rain again?
Seifried: Yes, Tim, it will rain again at some
point, yes.
When I can't tell you.
And when it does that will have a fairly big bearing
on the market, although I've seen a lot of things
in North and South Dakota that I don't think are
coming back.
And if they do they're not producing much.
So yes, Tim, it will rain again at some point.
Pearson: It will rain, but we will see movement.
We've seen that every time a front has come through.
Jeremy in Lanark, Illinois wants to know, he's on
Twitter @JFlikkema.
Jeremy notes, and we talked about this on the
program a little bit but now you get to expand.
Jeremy says, as yield move to the 160, 165 area, how
much demand do we need to take off the balance
sheet?
And does the balance sheet not look as tight with
that reduction?
Seifried: Okay.
I love that question, Jeremy.
First of all, I don't know if we need to take demand
off the balance sheet if we see that yield come
down to the low 160s, mainly because, well
actually two reasons.
One, we've still got fairly big stocks and it's
not going to put us in a super tight position.
So I don't think we have to start destroying
demand, we're talking a lot about demand
destruction today, I don't think we need to start
destroying demand after three years of record
crops really, even if we see yield head down
towards that lower 160.
Now, the second point there is that we're
already seeing demand destruction happening in
other ways and that is coming from South America.
Right now the USDA has got export demand year over
year dropping 350 million bushel.
That's a fairly sizeable drop from one year to the
next.
I'm a little skeptical that that happens.
You look at the commitments that we have
with Mexico right now and they're pretty much on par
for what we've seen in years past, despite all
the concerns about building a wall and things
like that.
So, we'll see if that 350 million bushel less on
exports is actually there or not, we'll see.
That being said, where does that put us as far as
a carryover?
If we get down to a 161?
Well, 161 would be 10 bushels off of what the
USDA is at currently.
When you look at the acreage that we have,
harvested acreage is going to be around 83 million,
83.5 million.
Pearson: Even with the drought in North and South
Dakota you think we're going to be 83?
Seifried: We were just talking about the
statistical analysis that the USDA uses at this
point.
So I can give you a range of harvested acreage but
right now let's just use 83 for a number.
So every bushel we take off of yield, we're taking
83 million bushels off the balance sheet.
If you do that 10 times then we're taking 830
million bushels off the balance sheet.
You do that, that's going to put us right at a 1.5
billion bushel carryover if we leave everything
else unchanged, which there would be some small
changes there for sure.
But I'm already wondering if we might be a little
bit low on demand as it is.
So I think to some extent that turns out to be a
wash.
If we're at a 161 I think likely we'll be at a 1.6,
1.65 billion bushel carryover when all is said
and done at the end of the year.
Pearson: Okay.
And that puts corn prices at?
Seifried: Well, that's another great question.
Pearson: $4.25?
Seifried: No.
No I don't think so.
That would be one of the tighter balances, not that
it's tight, but that would be one of the smaller
balance sheets that we've seen for a while and we've
seen this recent trend of less corn acreage.
So then we have to start talking about buying
acreage.
So I would say that if we get down to a 161 national
average yield and we do in fact hold onto the demand
reasonably well and we end up with a 1.6, even a 1.7
billion bushel carryover, I think that's $4.50 corn,
maybe $4.65, somewhere in that neighborhood.
Pearson: $5 then pretty quick on a weather scare
early in 2018?
Seifried: Yeah, it's possible.
$5 is going to be a very difficult nut to crack and
a lot of it is going to depend on acreage.
I'm wondering if acreage is going to increase by a
fair amount next year when I look at fuel and fert
costs, I think the window is there or the
opportunity is there to see more corn acres for
next year so let's not get there quite yet.
But yeah, I'm talking about this new crop where
we could get -- again, if we're at a 161, 162
national average yield I think we're north of, or
at least going to test $4.50 and maybe get above
that by a little bit.
Pearson: Alright.
Now, we had a couple of questions about the cotton
market and I just want to ask you in general since
we didn't get a chance to discuss it on the program,
cotton moved a little bit higher this week, we did
see the dollar come down.
I haven't kept up this week on cotton exports.
Seifried: Exports were good this week.
Pearson: Exports were good, okay.
Seifried: Exports were good this week and we
tried to kind of run with that.
The other new story this week was that there's some
flooding in India which could be potentially a
problem.
We'll see how long that persists.
But it's really kind of difficult to get terribly
excited cotton when you've got pretty decent rains
down in Texas and forecasts for another inch
to two inches again.
So yeah, we'll see, weather market there too
on multiple fronts.
We'll see how that plays out.
The lower dollar isn't hurting cotton but we'll
see if we can continue with the better exports.
If those better exports continue though I'm
starting to get more friendly cotton longer
term.
Pearson: Okay.
Now we've got a couple of questions here from our
good friend Philip in Ontario, Canada on Twitter
@Agridome.
And his first question, we talked about it but I
think we can get into a little more detail.
We noted that soybeans are moving into the critical
pod stage here in August.
Phil wants to know, what timeline are we looking
for where rains will or will not make this crop?
Seifried: Yeah.
Pearson: Wet spring?
What's the trade logic?
Seifried: It's a good question, Phil, because of
the year we've had so far and we've got a lot that
are behind.
We had soybeans that, especially when you look
at the Dakotas, didn't make any progress at all
for 10, 15 days and then finally got a rain and now
they're kind of coming on.
You worry about how late we might be this year and,
I'm not saying we will have an early frost or if
that's even on the radar right now, but an early
frost would be a very interesting thing this
year.
I think normally we'd be looking at the first
couple of weeks of August.
Now I think we're looking at second to third,
possibly fourth week of August as being the most
critical timeframe.
But then also September.
If we continue to do well we'll keep adding pods,
we'll keep adding -- the next two months really is
critical for soybeans and especially with the fact
that we're a bit behind.
So just keep that in mind and we'll see what weather
we have.
And as I was saying earlier, I don't think
above normal temperatures and normal precip are
going to do it for this soybean crop.
I think we need to have either normal temperatures
and normal precip or above normal temperatures and
above normal precip but either way we're coming
from a deficit in a lot of areas so we need to fix
that in order to have a really fantastic soybean
crop.
Pearson: Flip question, Phil's second question is,
does the corn market believe that crop is
already made?
You've talked about how we haven't been able to
maintain any kind of a weather premium.
They just believe we're there, we're at 168 or
something, some number and we're there.
Seifried: Right, so after all the weather talk that
we had last year that got the market all excited and
then we had to come crashing down when we
realized wettest drought ever and ended up with
record yields.
So this year we've been very reluctant to put any
sort of weather premium in from the get-go.
So if you want to say that a different way you could
kind of say that the market has believed this
corn crop has been made since before we even
planted it.
And then we threw a little bit of extra acreages on
top of that, which I've been saying, I'm not
surprised by where we ended up with acreage.
So we've seen a couple of little blips where the
market has had to throw a little bit of weather
premium in but we've taken it away pretty quickly
once we get a rain somewhere.
I think the weather market, weather premium,
everything like that, we're just going to go
without this year and then we're going to start
figuring out okay, we're actually doing ear counts
and everything like that, we're actually getting a
better idea of what yield might be here at this
point and when we start penciling in that number
then we'll see what that does to a balance sheet
and see where we go from there.
But we really haven't put that weather premium in.
And, again, I think another way of saying that
is saying we've pretty much acted or factored in
this crop as being made since the get-go this
year.
Pearson: Alright, so crop tour is end of August, Pro
Farmer Tour and the others, plus harvest is
what is going to move this market if anything will?
Seifried: Well, the first thing is we really want to
see what the USDA's statistical models or what
they're saying for the August report.
We should probably see, well who knows with the
USDA -- Pearson: You expect to see --
Seifried: I expect to see a reduction on yield.
It's just a question of how much.
And if they go a little further than what the
average trade is guessing or if they drop it below a
166 I think we've got something there already.
I think that market will start to respond to that
because they'll say, hey there's a problem here and
this could get worse.
Pearson: They'll have a bone to chew on.
Seifried: There you go.
Pearson: Well, Ted, before we let you go we do have a
question from an Iowa State student who wants to
ask you about the future of agriculture.
We encourage questions from any students of any
age and you can learn more about this project by
listening to the MtoM podcast #143.
So Ted, here is the latest installment of our college
level ag student questions.
Mikayla: As a future agriculturalist how do we
plan to educate the next generation of
agriculturalists?
Seifried: It's a great question, Mikayla.
How's it going, Mikayla?
We do a fair amount, and us as a firm, Zaner,
something that we have always really kind of
prided ourselves on is being educational brokers
and we have for the last six years had our program
where we try to give back to higher education.
So we have gone to Iowa State, we've gone to
Virginia Tech, we've gone to University of Nebraska,
we've gone to North Dakota, NDSU, North Dakota
State University to get into classrooms and talk
about what it is we do and how to get into the
business and what we do for our clients and things
like that.
But a large part of it has to be based on the next
generation wanting to learn these things because
we do a lot of this stuff outside of the classroom
as well.
So come to where we're speaking.
A lot of these shows and fairs that we're going to,
they're educational from a whole, not just from a
marketing perspective, just from everything, all
agriculture and I think it's very important for
the younger generation to do to really learn.
And then finally, learn from your folks and from
your relatives.
They've been doing it for a long time, they know
what they're doing.
They've got a lot of knowledge.
I know the younger generation doesn't like to
hear that and, dad knows more than I do.
No, but realize that and the older you get the more
you will realize that.
Pearson: That's true, that's true.
Yeah, my appreciation of my parents has only grown
with time.
That's a fact.
Well, Ted Seifried, thank you so much for taking the
time to talk to us, always appreciate your insight.
Seifried: Hey, always a pleasure to be here.
Pearson: Join us again next week when Mark Gold
will sit across from me at the Market to Market table
and we will look at the drought slowly creeping
across the country.
Until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week.
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