The Bears are winning — in football and the grain markets

Manage weeds early in your Canola cereals and pulses with Conqueror Gold Wing Thunderhawk and Blackhawk Evo powered by Duplassin technology, advancing the unstoppable superpower of pre seed burn down from nufarm. We got a USDA report out on Monday and lots of ways to describe it. I think maybe the most accurate is it's pretty bearish, baby. Here at Break It all down is Ted Seaford from Zaner Egg Hedge, based out of Chicago, Illinois, the home of the greatest football team on earth. And everyone's just finally realising it, the Chicago Bears. Ted, how we doing? Oh yeah, we're doing good, Shaun. Go Bears. That is like the best thing that we've got going on right now because as you mentioned, wow, that was a very bearish report, Right? So I mean, bears are on a roll in lots of different, in lots of different facets, I suppose. But man, you know, this is one of those reports where you had so many different data points, right? And so you're going through quarterly grain stocks, you're going through last year's production, you're going through changes in demand, you're going through South America, you're going through, you know, ending stocks. And everywhere you looked, everywhere you looked, it was just bearish number after bearish number. There really wasn't really anything positive to take away from this report. I think the only silver lining I could come up with, and this is a stretch because you can look at it multiple ways, but if you look at the quarterly grain stocks number, we had the largest it's demand but indicated disappearance for September through the end of November for corn that we've ever seen by a pretty big margin, right? That demand number increased 710 million bushels from the same quarter last year. So you can say that demand for corn is really, really hot. And while the USDA was not able to increase export demand on this report, they actually trimmed FSI slightly without reducing ethanol, which is kind of a rare thing, but they did that and they did add to feed and residual. Yeah, feed and residual, which is the one everybody thought, oh, they're going to have to cut that. But also everybody thought that we were going to see a lower yield. Not one single analyst was looking for an increase in the national average corn yield. And that's exactly what we got. So I guess, yeah, you could say, wow, we had a lot of demand in that quarter, ok? But on the other side of that you could also say, well, maybe a lot of this demand is coming at a different time of year than it normally would be in particular looking at exports because the USA did not raise the export demand. Whenever the USDA raises production, they look to find other ways to sort of offset that a little bit by raising demand. They did raise demand, but it was in feed and residual. They couldn't raise the export number. That was really rather disappointing to go along with really all the other things. The big shock, aside from yield also was in production, another 1.3 million harvested acres. Oh boy. I mean, look, the production number came in 450/ million bushels higher than the average trade gas. And when you have something like that, Shaun, there's really no way around it. I mean, this is just a shockingly bearish and unfortunately probably game changing report. So. Game changing to what? There's lots of stuff to break down here, but I want to tee off on that. Like, game change to what? Yeah, well, look, corn has been trading absolutely sideways in a fairly tight range since October with the idea of, well, we got to wait till we get to this January report because with all the reports of southern rust and with all the, well, with the dryness that we saw in August and September. We remember a year ago on this January 25th report where the USDA had to lower yields pretty aggressively. And we say, well, we had a pretty similar finish to the growing season this year as, as we did the year before when they lowered yield and then add the rust in on top of that. Well, you know, there's a good chance that we're going to see the USA lower yield pretty aggressively on this report. And then what do they do with exports? And you know, are we going to have like a 1.7 or 1.8 billion bushel carryover? Is that going to be bullish? And so you had funds that were really flat going into this report, waiting for direction coming from this report. And unfortunately, Shaun, that direction was really negative. Right. So it changed the game and it got rid of the question of, well, our yield is going to drop. Do we have a tighter balance sheet? The answer is a resounding no. And so, you know, I mean, we had about 100,000 contracts in volume in the first minute and a half after that report came out. And that's not speculators reading the report that quickly and then putting a position on yes, you are running some stops. But I mean that's mostly the algorithms that took the report saw that was negative. They process this stuff a lot faster than humans. That was a lot of fun selling. I think that happened there in the first couple of minutes. I really do think the funds really, I mean they were slightly, I mean ever so slightly from what we could tell, ever so slightly going into this report. But I think today was the beginning of them maybe building a bigger short position. They've been waiting, they've been waiting for that direction. They've been waiting for a chart to tell them what to do. This big breakout to the downside that we had today based on what the report said, I think gives them that direction unfortunately. And they've got a lot of room to run if they really choose to build on that short position. The one thing that we do have going for us is seasonality. Maybe that keeps them from really pushing the envelope as far as their fund short position. But after, after multiple months of consolidation and sideways trade, there's a lot of pent up momentum in this market and this breakout to the downside is not a good sign. Yeah. So if you look across the contract months on corn, what. And I'm not going to ask you to tell me the bottom here Ted, but what levels are we looking at a potential trade to. As you talk to some of your customers. Yeah. So the big one, I mean March is going to be the leader and in a big move to the downside, it's usually the front month that leads. Especially when we're talking about big old crop supplies. When it comes to December, we still have a growing season in front of us. Yes, we are likely going to have a big beginning stocks number for the next crop but we still got to get that crop planted. So that's going to be, I'm not going to say resilient, Shaun. It's just not going to be the leader to the downside. The leader is going to be the front. And so when I look at that March contract, you know we held 420 for the low today but man, it does really feel like we should go and test that $4 mark. 3.90 is a big target. So yeah, I don't know. I will say that we got really oversold in corn in just one day. I mean that was a big move for corn. We went from being at like 54% on a relative strength index to being in the 30s in just one day. So maybe we don't have. Yeah, that's wild. So maybe we don't have another massive down day tomorrow. I don't know. I'm just, like I said, I'm pulling at straws here to try to find something friendly. Yeah. Market carefully everybody. It's it. You got to Think that we're going to test some A3 handle on that, on that, on that front month. What about soybeans? The crop size barely changed, carry out jumped. What shifted in the soybean storey here compared to, we contrasted with corn? Yeah, I mean look, the big bearish report was corn and yields going higher. Right. Soybean yields didn't go higher, they just stayed the same, which was disappointing for the trade, even though the average trade guest was only looking for 3, 10 of a reduction on yield. And I think there was a lot of people in the trade that was looking for a similar reduction to what we saw last year, you know, closer to that two bushel an acre reduction. And when that didn't happen, that's, that's pretty unfriendly. In the meantime, the USDA raised the Brazilian production number by 3 million metric tonnes. Now the really interesting thing about that John, is that, you know, last year they really drugged their heels all the way until well after that Brazilian, that Brazilian soybean crop had been harvested to raise their production. And that was based on seeing the proof in their exports. And oh yeah, that must have been a bigger crop. Even though so many reporting agencies in Brazil and private agencies had been saying that Brazilian number is higher. So for the fact that they're doing it this early, I mean they're not even, they're just barely getting into harvest there. The fact that they're raising that Brazilian number already, that's not a good sign. That was their justification to cut our exports by 60 million bushels. It was interesting that their language didn't have anything to do with China or really anything about that. It was just, oh well, bigger South American crop, bigger South American exports, that's going to lower our competitiveness. So 350 million bushel carryover for soybeans isn't equivalently, it's not the equivalent of a 2 point, almost a 2.2.25 billion bushel carryover in corn. But it's definitely not friendly. And I think the trend of a bigger South American crop, the trend of them lowering our exports make a lot of analysts feel like, oh well, 350 could turn into 400 or 450 pretty soon. If that's the case, we got to find some more business and the only way to do that is to try to find some lower prices. Yeah, at least, you know, at least in corn there's product moving, exports have been strong. And so like that may be like this non report base, but it does give you a little bit of like and thank goodness there has been a lot of exports because, yes, boy, this would be a much darker club, but soybeans, it's, it's kind of a different storey on those sales numbers. Yeah, well, you know, I always looking for silver linings here, Shaun. And the one that we might find for soybeans could be maybe this is encouragement for China to come in and buy more than that 12 million metric tonnes of soybeans. Maybe prices will get cheap enough that they do and if they end, if they do and keep our ending stocks level closer to 300 or 350 like USDA said today. All right, well, you know, maybe there's not a whole lot of justification for soybeans to go too much lower if the Chinese start or keep buying fairly aggressively. But if they stop, if 12 million metric tonnes is, that's it. Oh, man, I still think there's about, you know, at least 50, if not closer to 100 million bushels to come off that export number now that the production numbers pretty much set in stone at this point, at least until we get to the September quarterly grain stocks report. Man, you know, I don't know. So, Ted, with these, with these, with these, like, with this inventory, this carry out, we've kind of moved. We need to sort of like, you know, in a retail store they move stuff, you know, they move inventory to the outlet. We need to move some soybeans and corn to the outlet. We got to clear out some inventory here. We've been looking at these markets like, hey, we need to get these prices higher so that we can, you know, put some profitability back in farmer's jeans and that's more of a longer term storey now. We got to clear out some inventory. We do. And look, we've been selling a lot of corn like, like, like I was talking about when we were talking about the quarterly grain stocks being by far record for that time frame. And like you were just saying, you know, exports have been fantastic. The concern that I have is that, you know, global demand at any given time probably has a ceiling. You know, it isn't infinite. Even if prices continue to go lower, it's hard to find more demand for things at some point. Right. And you wonder if we really are maxing out demand again. I keep harping on the fact that the USDA was unable to increase exports even though our shipments have been so fantastic and they raised production. That's, that's a red carpet for them to raise exports. And they didn't do that. That's a big red Flag for them to be raising the feed and feed and residual. That's basically the USDA saying, look, this is the only category that at this point we can raise. I think that was a sign or a signal from the USDA saying, we feel like we've maxed out as much demand as we can get here. And so clearing out the inventory might take some work. And it really makes you wonder what this is going to mean for the acreage mix for this upcoming growing season. I mean, I don't know. Up until today, I think a lot of us were thinking, yeah, okay, maybe there could be a million or 2 million acres shift back towards soybeans, but we're still going to have something in the mid-90s for corn. Another really big corn crop or planted acreage number for corn. But I mean, this balance sheet is telling you we don't need that. Yes, demand is good, but we're going to have massive beginning stocks, apparently. And so, yeah, I don't know. Normally we have this seasonal kind of rally into planting in order to encourage acres, but if we don't start to have a big weather problem in South America, we might do the counter seasonal thing of market asking for, hey, guys, maybe don't plant these acres. Don't max out the acres this year. And that, that brings us to, oh, what does that mean for our February average? That is our crop insurance pricing. Oh, man. I mean, look, this is not a great setup, right? This is not a great setup. I guess the only thing that I can say, aside from, look, we got pretty oversold just after one day, was maybe once the dust settles, and I don't think it has. But once the dust settles on this report in a few days, are we going to look back and say, all right, that's out of the way. That's going to be the worst news that we get maybe all year. Maybe it might not be, but hopefully. But hopefully that's the worst news that we're going to get maybe all year. And then maybe we start to say, well, you know, what if that rust comes earlier this year? You know, I mean, look, that's the thing. When we were out on crops, you were with Chip and I was on the west, and I'm usually on the West all but two years in my 11 years I've been on the West. Any we were covered with rust coming out of fields on the third week of August. Yeah. And when I was talking to my guys in Texas about it, they're like, it's too late. You know, that rust Came too late. That crop or that that corn up there is pretty much done. Might take something off test weight, but it's not going to have a profound impact on yields. In the meantime, you've got agronomists in Iowa saying 30% reduction. And I couldn't really kind of put the two together to reconcile it, to say, well, this is exactly what happened. I didn't know. We had to see what the USDA finally came up with here on this report. And it turns out that that rust didn't have a profound effect. Yes, they did lower Illinois and they did lower Iowa, but the increases that we saw everywhere else offset that. And so it came late, ultimately didn't have that profound effect that we thought it might have. But what if this, this coming year, that rust starts to show up in end of June or into July, and really, you know, that could be a problem. I'm not saying it will, Shaun. I don't know. I'm not an agronomist. But these are the things that the market at some point should start to question, right? Like, we just came off of a record yield by a long shot. Can we do this two years in a row? I don't know. Are disease issues going to actually have a major impact this year? Yeah, I don't know. So those unknowns, those what ifs, and those concerns at some point might start to be more of a focus than the big shock of, oh, my gosh, we had a record yield by a tonne and that yield didn't come down and any stocks didn't come down, and now we're well over 2 billion bushel, 2.2 billion bushel carryover. And yeah, that's what the market is focused on today, because that's the news that we got today. But at some point, I'm hoping that we focus more on not necessarily the positive, but the unknown. And unknown uncertainty generally leads to higher prices. And so we do have a better idea. Yeah, I got to sneak a question about wheat. I think we had acres higher. What's the thought on wheat? Well, acres were higher than the trade guesses. And by the way, they were pretty spot on to what the my Zane or hedge guesses were, But I mean, still about a half million acre higher than what the rest of the market was thinking. And I understand the market thinking of, wow, wheat prices are not good. Why are we planting so much wheat? I don't know. The problem with wheat, Shaun, is that, okay, acres went higher, so therefore carryover went higher. Our domestic carryover, you know, 930 million bushel. It's a, we got a lot of wheat, you know. And yes, our exports have been good, but the USDA made it pretty clear today that they don't expect our exports to really be a lot higher than what their estimate is. And the reason for that is because they have to keep, or they have had to keep raising the global production on wheat to the tune of over 20 million metric tonnes at this point. Because we haven't had any sort of production issues really in any of the major exporters this year. It is that rare year where everybody, sure there's pockets and things like that, but you know, everybody, everybody is doing better than expected on production really everywhere. There's a lot of wheat in the world. That global carryover is, has really ballooned over the past few reports and that's just going to keep a lid on the wheat, you know, I mean, our domestic carryovers big. The global carryover is big. Production has been big. Argentina production was whopper. And that's just tough. Right? And I thought the biggest hope that we had was for the row crops to lead the way higher and to see some short coverage because the funds are really rather short. Funds were really short in wheat coming into this report. They weren't really short in corn or beans. So I figured if we could get a rally in corn and beans, maybe we'll start to see that short covering happening in wheat. And you got to at least an attempted, you had an attempt at a bottoming formation in wheat. So I was a little bit optimistic. But after what we did today and after really kind of taking away a near term bullish storey for the row crops, man, it's a tough argument to say wheat needs to go higher. And again, the weight, the mentality, you got to think the mentality of those kind of traders, those funds, they're looking for the momentum. So it's a pile in sort of mentality, right. You try to move that market in your direction and you need reasons to lift those positions. And today was not it, was not it at all. Okay, final question here. Bring it back to the kind of the farm gate level. What's the kind of a marketing adjustment for producers to keep in mind that are listening here? Based on what we heard after this. Report, I think the time to wait and be patient, it's over, right? I mean the hope was that we had lower yields and tighter balance sheets on this report and we would go higher. You would have a breakout to the upside finally in corn and soybeans would build off this near term low that they have and hey, bigger recovery and that seasonality that we have for higher prices. I think today you had outside reversal lower days. I mean we got above the previous day's high, closed below the previous day's low. Some technicians will call that a key reversal in my book. It's not technically that because we didn't set contract highs. But either way you had sweeping outside reversal down days in all three major wheat, corn and beans. That tells you that look, the time to wait is over. We need to be looking for opportunities to get more sold. Hopefully we had something in place, bought puts, mark gold, something in place. But if we didn't, we need to be looking for those opportunities because I think again that hope for a bullish report that's behind us, the hope for seasonality. This report gives us a reason to feel like seasonality might not be a strong correlation this year. So looking for any balances to sell cash HTA or sell futures, any of those one way or another sell rather than buying puts. And then we can create a synthetic put by re ownership calls, buying calls, looking for that summer rally, looking for some reason to see some higher prices. But at this point I think we need to the time to wait is over. I think we need to be more aggressive with our sales unfortunately. Yeah, we got a crop to put in coming up quick here. Create some cash flow and live to fight another day. Ted, really do appreciate you joining us here today. All the best to you keeping the great work at Zaynor Ag Hedge and of course man. Go Bears. Go Bears, brother. Woohoo. For the latest ag news, agronomic advice and more, cheque out real agriculture.com and RealAg Radio.