Paul Yeager: Welcome into the Friday, April 26, 2024 in style in a market. Plus Arlan Suderman still with us. I did tease one thing. We’ll get to it in a moment. Arlan, anything economically on your mind? The PCE came out today. Inflation continues to be. I said stubborn, sticky. We’re still buying. There was a term this week about called hate spending. The American consumer just keeps going and buying stuff. How does the inflation has that changed and how it impacts commodities and the American farmer?
Arlan Suderman: It really really does. Because if we look back, we’ve got a stone ex commodity index, which tracks a basket of commodities, and we also have subtract here for each sector of commodities, because if we look at the broad picture of commodities, the correlation, anything statistically above 0.7 is considered strong correlation between the five year breakeven inflation rate and what the market thinks inflation is going to be doing in the years ahead is .87. That’s a very strong correlation over the last ten years. And so when we see the market environment think inflation’s going up, they generally want to be long. The commodities are not short, and they’re short right now. And so they’re starting to flip that position over. Now, if an individual commodity just has a really bearish, they’ll stay short or when the opposite is true as well. But we’re starting to see that transition now. So it elevates the level at which the market manages supply and demand. Doesn’t mean you get a bull market. You can still have a bear market condition but is still manage it at a higher price level than it otherwise would.
Paul Yeager: If I look at my closed sheet for each week, Peter, our producer, put this together because talking about copper, copper has continued to track higher. Then you look at the dollar we talked about at the end of the show. Then you look at crude oil. Every time, always headed to 100. It comes back. We’ve not been able to. Are all of those commodities in this same discussion influence that same discussion that you’re saying they really are?
Arlan Suderman: The grain and oilseeds has been the weak link going lower against the tide until this last week. And then they started turning reluctantly coming with the rest of it was really kind of the leader of that. Now, history does not mean that that’s the way things have to happen in the future. But the correlation has been just amazingly strong. And when you look at the correlation between the commodities and the CPI, even though there’s a lot of other things that go into the consumer price index, that correlation is like point 89 or so, it’s even stronger.
Paul Yeager: Let’s get into another fun topic, whether we have some great questions that came via X and Facebook each week we ask you. Here is the first one, Mitch in Iowa. He has two questions this week. The first one. Do you expect this to be a La Nina year and what effect would it have on new crop marketing opportunities if it is?
Arlan Suderman: Well, the reason he’s probably asking that is because La Nina tend to increase the risk of drought in the Midwest, and they also tend to increase the risks of drought in Argentina in the following growing season in southern Brazil and sometimes even into other parts of Brazil. So that’s why farmers always kind of want to know about that. The models seem to be in agreement that we’re moving to La Nina. The question is how fast will that happen? When are the timings and be relative to our growing season? And then how intense will it be? And several of the models were very aggressive a couple of months ago, even a month ago, moving as very rapidly to a moderate to strong La Nina by July, which would really increase our odds of being in a hot, dry period in the Midwest by the reproductive time for corn and soybeans. Those models have backed off. They’re still calling for a weak La Nina by the end, and they may change again. They may slip. But the current trend is that they’re backing off. They’re still calling for the move, but they’re slowing it, pushing it into the fall, which makes it more of a South American event.
Paul Yeager: And you look at the weather. We did talk a little bit about the way the spring planting could be impacted this week. But you look at the Eastern Corn Belt, which was wet to average moisture last year, some delayed planting and that looks like it’s backing up more towards Illinois. I know in eastern Iowa they would love to see some more rains. The drought monitor improve there. So, yeah, always something to look at. How about this? This is more of a technical or pattern question. Mitch, a second question. What analog year or years are you following for new crop corn soybean marketing this year? Are you into that?
Arlan Suderman: I’m really not because each year is different and I know that we sometimes track years that have similar price patterns, but there really isn’t one right now that I’m comfortable saying, even with a similar price pattern that I’d want to put too much hopes in because the dynamics that are driving the market are so different this year than I think any other year. Been doing this for four plus decades. And it’s just very unique type of a situation.
Paul Yeager: All right. We’ve talked weather. Now let’s talk politics. That’s more fun isn’t it Arlan? This is another question that came in. Kevin, why would it appear the Chinese are buying more agricultural goods from South America?
Arlan Suderman: Two reasons. The first one everyone thinks of is because they’re mad at us and frankly, they are. I mean, tensions, I think, between the United States and the Chinese. The Communist Party of China are probably at an all time high, despite what the politicians saying about them easing. I think they’re at an all time high. They have stated that they want to be the number one economy and then one military in the world. I remember when we were kids, we’d play king of the Hill and try to push each other off the hill. You don’t win that game by helping the other one back up. And so they would rather not be sending us their money. They will buy from us what they need. But they’re moving toward trying to be independent of us by improving their seed technology and developing other market sources. And the BRICS coalition has some of those sources, especially in Brazil, with corn and soybeans and Russia with wheat. And so they’re rapidly building that so they can be dependent upon who they consider friends. Other part of it is price. They’re buyers, as we talked to them, are very price sensitive, always have been. And when Brazil soybeans are a dollar and a half a bushel cheaper or a dollar a bushel cheaper, landed at the port in China. Where do you think they’re going to buy in because of currency exchange rates? That’s the case.
Paul Yeager: Well, that’s I was going to follow up with you were talking about currencies during the main program, talking about if the real continues to have challenges, does that change any of the dynamics in that discussion?
Arlan Suderman: Yeah, it just keeps them buying from Brazil. So they will buy everything they can from Brazil till Brazil’s ran out and then they’ll come to us to buy the rest of what they need. But their production in Brazil has changed so much expanded so much that now they’re exporting 12 months out of the year. And so that’s really hurt us. Our peak time for selling soybeans, shipping soybeans to all two customers. China’s main one is October to February, October to February. This marketing year, Chinese imports of US soybeans are down 10 million metric tons. That’s about, what, 370 million bushels, roughly. Their imports of Brazilian soybeans during that same time period were 12 million metric tons, up 12 million from last year.
Paul Yeager: And then you said there’s nothing on the books there.
Arlan Suderman: Nothing on the books, essentially from May through August of this year.
Paul Yeager: And is that.
Arlan Suderman: From the U.S.? They’re buying from Brazil.
Paul Yeager: But my follow up question then wanted to be, is that a huge departure from normal?
Arlan Suderman: That’s a huge departure from normal because usually historically, Brazil would run out of soybeans to export their bases would get to strong domestic buyers, would lock up the market by sometime in July in China would have to come back to us to buy old crop before we start harvesting a new crop. Right now, that doesn’t look likely. The basis is so weak all the way through the summer months in Brazil.
Paul Yeager: Let’s stick to beans. Julie, I’m going out of order. I apologize. Bradley’s question in Nebraska is why I want to go, because he has a follow up about the stocks that is of interest there of maybe some alternative markets for these places. Soybean oil and meal stocks are becoming burdensome. Will they reach a point where soybean crush starts to decline? And the reason I ask that is because the crush has been seen as the savior in the United States to if China dries up.
Arlan Suderman: Well, a good example to maybe the answer to that question is this week we saw something happen. We are seeing renewable diesel plants. It’s new technology, not function as well as what we’d like. We’ll get it figured out in this country. But it’s a new technology and we’re figuring out how to get these plants productive, but therefore we’re not using as much oil as we expected. So it was backing up a little bit. So we dump it on the export market. So we used to be big in the export market. We went down to almost zero. Now we’re putting some more back on. So we’re still crushing these new plants. They have invested interest in keeping them going and I think we’re going to keep going. There will slow down a little bit, but we’re still going to, I think, end up with about 35 million bushels more than USDA currently has. Is its target for this year. So I think we’ve seen the most bearish ending stocks estimate for all crop that we’re going to see.
Paul Yeager: Let’s talk spreads. There was a question that you saw online, and I didn’t say we had it, but we actually did. My apologies. Josh in Missouri wants to know Ireland. He wants your thoughts on the Chicago wheat spreads widening into larger carry, while the July 24 contract continues to rally. His question should you sell this carry?
Arlan Suderman: Well, we’re structured in a way that under Dodd-Frank that I can’t predict derivatives are brokers can, but I provide the information to them. But what I can say is this a market builds carry when you have a surplus supplies because it’s trying to move toward full carry to pay the bill to encourage you to keep storing it because it says we don’t need those supplies when the supplies are tight and that compresses the carry or even inverse. Is it to try to encourage you to deliver now, because at once the supplies and what we’re looking at, I think he asked about Chicago soft red winter. That crop is looking real good right now. If you look at the condition ratings, they’ve been improving. The crops look good. Looks like we’re going to have a big crop, big supplies. It comes down to Russia again. If Russia is able to produce a decent sized crop, that we’re probably going to have excessive supplies. And that means we’ve got to move toward full carry in order to discourage delivery.
Paul Yeager: And I know this next question, this last one is also a little troublesome for you to walk the line. And I know you will living the dream. Our friend, Northeast Iowa farmer, are you buying calls to cover old crop corn sales made on this rally?
Arlan Suderman: When you look at the premium, you have to look at what you’re getting, the risk benefit of that. And right now, here’s what it would take to sustain a rally to make those calls pay off. We have about a 15 million metric ton surplus, about 600 million bushels surplus of supplies before the market starts to care here. And I’d say 2.1 billion bushel carryout Argentina’s crop. Looks like with the disease problems there. My sources tell me the crop might be 7 to 10 million metric tons smaller. That’s a might because they’re still learning about the effects of the disease. Brazil Mato Grasso. It looks really good right now. Mato Grasso dul Sul are some of those areas. We’re seeing pockets where it’s under tremendous stress, where they’re not even going to harvest the corn, they’re not setting ears. How widespread is that? What we’re trying to ascertain right now, we’ll be doing a customer survey middle of this next week to get a better feel for that. But let’s say they’re down 7 to 10 million metric tons suddenly, then you’re starting to import more U.S. corn next year. But by then we will have grown another crop. And if we grow another crop on the acreage, USDA says, and if it’s a trend yield, we’ll have even more surplus supplies. So you have to have this combination to sustain a rally. Argentina lose 7 to 10 million metric tonnes, very possible. Brazil lose seven or 10 million metric tonnes, very possible. Now the third thing has to fall into place and that is La Nina shortening the US crop. If we pull that back 5% now we’ve got a justification for taking prices higher. That would ration demand.
Paul Yeager: It’s a cliffhanger. You’re going to have to answer for yourself when you come back next time. Okay. All right. All right, Arlene, good to see you.
Arlan Suderman: You bet. Good to be here.
Paul Yeager: All right, Arlan Suderman, everyone, thank you. Next week, we are going to discuss the challenges and the stressors of agriculture and we’ll have the commodity market analysis with Sue Martin. Thanks for joining us and have a great week.
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