Pearson: This is the Friday, January 6, 2017 version of the Market Plus segment. Joining us now is Ted Seifried. Ted, welcome back.
Seifried: Thanks for having me.
Pearson: I had a hard time saying 2017. Hard to believe we're already in the New Year.
Seifried: Try it on, see if it feels comfortable.
Pearson: I'm going to keep dating my checks 2016 and see how long I can get away with that. New year, rally in cotton, up $3.34 on the week. What does that tell you, Ted?
Seifried: I think the rally in the Chinese Yuan had something to do with that, so purchasing power there. And also you talk about soybeans just dominating the acreage mix this year, which I'm not so sure, I've talked to a lot of producers, both clients but also on various shows and things like that, trying to get a good feel for what we might actually see because we can do the math on pen and paper and see what happens. but the perception is that soybeans are going to dominate acreage and gain from everywhere, so cotton might be fighting back to try to secure some of that acreages and keep some of that locked down. But also, again, currency moves have had something to do with that. We've broken out of the range to the upside a little bit. I'm very curious to see if that's going to extend at this point or not or if that's just sort of a head fake break out and then we come back down.
Pearson: Given how fickle cotton has been here for the past year do you want to make some sales on this nice little breakout?
Seifried: I think so yeah. You've got to reward higher prices. And when we talk about making sales it's not like we're going to go in and make 100% of sales right away, right off the bat. We're going to scale into things. I think right now is a great place to start scaling in a little bit, especially to maybe improve some of the sales that were previously made.
Pearson: Ted, you mentioned you've been talking to a lot of farmers, talking to a lot of growers trying to get a feel on this acreage battle as we get into spring. What is your feel? Are we going to plant 90 million acres of soybeans in this country?
Seifried: I think we're going to see more soybean acres but I don't know if it's going to be quite as big as what everybody is talking about. I've heard anywhere from 3 to almost 6 million acre shift. Right now I'm sitting at like 2.5 is kind of where I'm thinking.
Pearson: So 86 and change?
Seifried: Maybe 87 but I don't see much more than that because I do think you're going to see a lot of, I hate the term fringe acres because what's fringe acres anymore when you're getting good yields --
Pearson: Nobody's fringe on Market to Market.
Seifried: I absolutely agree with that, absolutely agree with that. But when we talk about fringe acres a lot of times we're talking about in North Dakota, for example, North Dakota made the switch quite a while ago to bean acres in a big, big way because corn basis was terrible and still is not that great. So we've seen a lot of those moves. I think the I states we're going to see some more bean acres but you're not going to see a huge tinkering with the rotation. So I think we’re going to see more acres. Let's go down to the Delta too. We saw a big shift to bean acres last year because of all the wetness, 14 inches of rain in 3 days, so we had a lot of corn acres that didn't get planted that ended up bean acres anyway. So are we going to see that much more? Talking to guys in Texas we're going to see more beans in Texas, there are going to be areas where we're going to see more beans. And I think when it all comes together you've got 2 to 3 million more acres of beans but I don't think you're losing a huge amount of corn acres in the meantime. Yes, corn acres I think will be down, but I think we're still well above 90 million for corn.
Pearson: Okay. And we're going to see cotton acres come down a little bit. We'll see the rest of it coming out of small grains, coming out of --
Seifried: Milo, sorghum stands to lose a little bit. That Chinese demand has kind of fallen and so we went into an overproduction mode there for what the real demand was versus perceived demand. So there's a couple of areas, rice is another one. So there's a couple of areas where we're going to be losing some acreage that's going to be headed towards beans. But, like I said, I don't know if it's as big as what some of the talk has been.
Pearson: And that sets us up I think really well. As we're sitting at the start of a New Year everybody starts to dream of what this year could bring. And Phil in Ontario, @Argidome, our friend Phil --
Seifried: Hi, Phil.
Pearson: He wants to know, is there a compelling reason to be bullish corn in 2017? Does this massive shift in beans mean that corn has got some opportunity?
Seifried: The best thing I can say, Phil, is that when you have low prices for an extended period of time like we've had and you start cutting acres out of the mix and you start building that demand base in a big way, it always sets us up for the potential for something like that if there is a weather issue somewhere. But just the way things are going in South American right now -- it's going to be tough to see an extended rally. When I say that I'm talking better than $4.75, $5. I think we can hit somewhere in the mid-to-low $4's pretty easily just on acreage mix and normal --
Pearson: And you're talking on December '17 corn.
Pearson: And we're at $3.86 today.
Seifried: Right. But in order to get those higher numbers, let's call it above $5, we're going to have to have a big weather issue somewhere or more likely something in South America followed by something here. So I think as time goes by there's more and more reason to think there's less reason for corn to down by much and there's more reason to think that there could be that spark at some point that sends corn sharply higher. But I think with 2.4 billion and even if that number comes down to 2.1 or 2.2, which would be very aggressive by the USDA on this January report, but even if that number comes down it's tough to justify anything above $5 without a weather issue somewhere.
Pearson: Okay. A prolonged, sustained weather issue.
Pearson: Our next question, same story, and you answered half of it actually. Jeanine in Illinois, @AgNews_Otto wants to know, how much longer until we see $8 corn or $15 beans? We've talked about corn. But the bean side, demand, global demand has been truly phenomenal, so has global production. What's going to win out in the long-term?
Seifried: First of all, hi Jeanine. And second of all, yeah, we've struggled on the production side of things to keep up with increasing global demand. We've had to do it by really throwing acres and acres and acres globally into soybeans. So that really sets up a powder keg. If we get a weather issue for soybeans, a big one, let’s say this, I think it's easier to see $15 soybeans than it is to see $6 corn mainly because with demand being as strong as it is production is such a fragile thing that if we were to have a problem we could be there. So how long do we have to wait? This is a question that, where are the weather guys last year that were talking about $6.50 corn? I think they'd rather answer that question than I would. But I'll say this, while I do think that all the acreage that we've put into soybeans and the fragility of the growing season and in the past it has been not very difficult and sometimes we don't really see it until we get into harvest that these beans aren't as good as what we're expecting, I will say that I do feel like bean yields have gotten better. That's obvious, but I guess what I mean by that is bean genetics have gotten better. We talk about trendline yield in corn, it has really been going higher, higher, higher since the early 2000s but beans had kind of stalled out for a while. I think bean genetics are now kind of catching up with that corn curve. I think corn will start to level off at some point. But if we keep growing these bean crops like we have I don't know, it could be some time before we see numbers like that, even with this strong demand. It really all boils down to where is the weather problem, when is the weather problem and how bad is it?
Pearson: We talked on the program about the wheat market, Chicago wheat, but we did have another question earlier in the week again from Tim in Minnesota. He wanted us to talk a little bit about Minneapolis wheat, Minneapolis, Kansas City, when we look at this mill quality wheat it isn't nearly as bleak a picture as the Chicago wheat picture is. Tell us a little bit about what you expect to happen there.
Seifried: If you look at the Chicago-Minneapolis wheat spread and we went from I believe Minneapolis back in September, October was about 80 over and then it went out to almost 160 and now it's back to 140 or so, 130s. You're going to keep a premium in the premium wheats. Protein is part of it but there's a lot of wheat in the world but not a lot of quality milling wheat in the world. There's going to be demand for that here domestically and globally. So that is going to be sort of an area of strength. That spread has been wacky to watch, it has been taking wild swings. But I like to think of that similar to when we had our stock market crash in 2008 and 2009 your cheaper things got cheaper but your high end things stayed pretty constant. And that's kind of what you're looking at. If you want to make the comparison to cars, your BMWs, Mercedes Benz or Cadillacs, Lincolns, those prices are pretty inelastic let's call it regardless of what's going on economically and globally.
Pearson: The people that can afford them can still afford them.
Seifried: Yes, and the demand is always going to sort of be there whereas the cheaper things, the sheer amount of not great quality wheat in the world is really what has been the problem for Chicago wheat. And I don't see that really changing in the near future. Well, in the near future. In the broader picture we are lowering acreage. So we're doing what we need to do. Low prices are the cure for low prices because we start pulling acreage out, we start lowering production and recently we're seeing state-by-state conditions decline. So maybe we are turning that corner in wheat potentially. But we've got massive stockpiles to chew through and most of it is not the good, high quality wheat which is, again, why Minneapolis is holding the premium.
Pearson: Given the spread and the volatility in the spread and the potential for another cold snap to come through the Great Plains region, would you be wanting to sell that spread, Minneapolis-Chicago spread today? Or do you just stand back because it's been too volatile?
Seifried: Seriously you’re going to call me out on the widow maker aren't you?
Pearson: I am.
Seifried: I'm not making recommendations, I'm not going to touch that with a ten foot pole right now.
Pearson: The risk of trading involves substantial loss or whatever the disclosure is.
Seifried: Not everybody is suitable for trading and blah, blah, blah.
Pearson: We've got a final question for you, Ted. We've talked about it a lot particularly since the election and then again since the Federal Reserve moved rates up a quarter of a tick. This is our commodity definition of the week. Help people who don't live in the commodity world like you do. Who benefits from a strong dollar and why?
Seifried: That's a great question. So a strong dollar, what that does is it gives us a lot of purchasing power. So a strong dollar means that we can go, from an individual perspective I can take my currency and I can go to Europe or I can go to South America and my purchasing power is huge. From a national perspective we get to buy goods and services from that country with, we've got strong purchasing power.
Pearson: Your BMW could get cheaper in U.S. dollars.
Seifried: Talk about Swiss watches, although --
Pearson: Again it's luxury goods there.
Seifried: Yeah, that and also they left, they're not tied to the Euro anymore so that kind of changes things a little bit too. So our purchasing power is very good right now. It also makes foreign investment somewhat attractive too. Where it's bad is that it makes our exports expensive compared to other places in the world. It's also not very good for commodities as a whole because what it shows is if that dollar is worth more the next day then you need less of that dollar to buy the same amount of commodities. So a strong dollar is generally, not just from the export side of things, is not necessarily good for the commodities markets. But I'm a pro-strong dollar guy. It's not great for our commodity exports in corn, wheat and soybeans and I'd love to see the dollar back down from where it is right now but I don't want to see it go to the other end because then we start risking inflation in a big way. So I'd like to keep the dollar in the low 90s to the mid-80s, that sort of range and I think ultimately that's where we see it, once the rest of the world catches up with raising interest rates and the economic health gets better.
Pearson: Alright. Ted, thank you so much for taking the time to join us this week.
Seifried: Always a pleasure, Mike.
Pearson: Join us next week when Brian Roach joins me at the new Market to Market table. Plus we'll look at how a wood pellet company is finding new overseas markets. And if you find value in our work please consider clicking the donate now button on our website. So until then, thanks for watching or listening. I'm Mike Pearson. Have a great week.
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