Kohlsdorf: This is the Friday, March 17, 2023 installment of Market Plus.

Joining us now for more conversation is Arlan Suderman.

Thanks for joining us again.

All right, so Arlan, looking back on the wheat combined with this big banking story, are we in a risk-off environment would you say?

Suderman: Yeah, we really are and you can see it just in how some of the major commodity indices lost value this last week.

And in some cases, it was to cover losses in the equity markets for the funds or something like that.

One thing we have to be concerned about is some of these hedge funds.

If they start to go under because of their attachment to these banks they may have to liquidate positions in the markets, in the commodities.

Now, if they're short or sold the commodities that means a lot of buying to get out of the positions, but if they're long and have a lot of ownership it may mean liquidating or selling those positions with downward pressure.

So, we could have some unexplained movement in the market that may be simply because of a hedge fund trying to get out of its positions because of that.

That is one thing to watch.

Also, with the Federal Reserve meeting this coming week they've got a very fine line to walk.

If they give a sense of panic in pulling back that could create more market volatility.

If they go forward with the rate hikes that could create both fear and confidence.

We saw that with the European Central Bank where they went up 50 basis points and first the market went lower across the board pretty much and then it went higher like, oh, well maybe the banks are okay, they felt like they could do this.

It seemed to give confidence to the markets.

So, not only their actions but the words they speak, every word they speak in the press conference afterwards will be parsed and could have an impact on the commodity markets for days to come.

Kohlsdorf: Okay, and they're going to be doing a lot of work in the meantime trying to figure out what to do, right?

Suderman: They really are.

I'm sure they're working now to assess the health of all the regional banks, see if they can withstand another rate hike because from the standpoint of bringing down and reaching their 2% inflation mandate they don't have much choice but to inflict more pain on the economy.

But at the same time, whether it's their fault or not, they can't afford to see a collapse in the regional banks.

And so, they have to be able to walk that fine line taking interest rates up high enough to slow the economy down, to bring wage inflation down because right now much of wage inflation is in shelter, as you mentioned earlier, and in the service sector, the service sector is very labor intensive.

And the only way, the only tools that the Fed has to bring wage inflation down is to slow the economy enough in order to bring the number of people looking for work in line with the number of job openings.

And right now we've got roughly 2 job openings for every person looking for a job.

So, companies are just bidding against each other to get those employees.

And so, the Fed, by nature, has to inflict pain on the economy.

They wouldn't say that, but that's really what they have to do.

And if this banking problem causes them to have to pull back from that, that wage inflation will just simply get a stronger hold requiring them to do even more pain down the road in order to get it under control.

Kohlsdorf: Okay.

Let's go to social media for a couple of our questions.

So, this first one is from Philip in Canada, Ontario.

He says, how short is China on corn?

They bought slightly over 75 million -- you said that has been a little more since this was probably posted, about 80 million maybe -- over the last three days.

Does this continue until safrinha corn comes online in July?

How will it affect May and July corn futures?

Suderman: Yeah, I do think that China will continue to be buying, they'll probably buy the breaks more than anything.

But they also have a tendency to chase markets once they start taking off.

So, if we see a market that starts a bull run they have a tendency to chase those markets and buy more as well.

So, that is one thing to watch.

The safrinha corn, we probably won't have a real good handle on that crop size until we get into May or June.

And so, I think there will be a lot of uncertainty until then.

We'll also see probably very narrow planting windows in the eastern Midwest, east of the Mississippi River this year, the mid-South up into the eastern Midwest.

That could create some concern in the marketplace as well.

China has got their eyes on that.

And so, if these concerns continue here over the next 30 to 60 days we could see China continue to buy.

Kohlsdorf: Okay.

The next question, did China's purchase of corn show that the market could be bottoming because the safrinha crop is getting so late?

Actually, I think we asked that one earlier.

I'm sorry.

We already got to that one, sorry.

Let's see, so the fat cattle market, has it topped out?

Suderman: The fat cattle market has a job to do and that is to ration demand as the numbers of cattle get smaller and smaller.

So, that's going to be a function of both supply and demand.

On the supply side that is going to continue to get smaller here over the next one to two years.

So, that would suggest the market has more work to do on the demand side.

Demand will also be affected by the consumer and the consumer's confidence in the economy and how much they're willing to pay for those higher cuts of meat.

We would suggest that with the supply and demand fundamentals we have that we would ordinarily expect higher prices at some point in the future.

But I think when we get those is going to hinge on when we see stability in the economy.

Kohlsdorf: Okay.

How much do people pay for beef?

At what point will they stop buying it as much?

Suderman: That's obviously a question of people's socioeconomic level of health, so to speak, because once the budget gets tight we start going down the value chain from beef down to pork down to poultry.

And so, someone at the lower end of the economic spectrum is going to do that quicker than someone at the upper end of the economic structure.

But we've already seen some of that happening and as the economy comes under more pressure we simply see that shift moving up the economic ladder.

Kohlsdorf: Okay.

All right, so next question, will corn exports catch up to the USDA projections?

Are soybean exports going to dwindle to nothing going forward?

Suderman: Corn exports I think USDA overdid it with its cuts of its export target.

As I said earlier, I expected China to come in and do some buying and because of the short Argentine crop the market has been trading Argentine drought in the soybean market and I think it should have been trading it in the corn market.

I think that is where we have more opportunities.

We are now the cheaper source of corn in the world whereas soybeans we've got a massive crop in Brazil to replace those shortages in Argentina.

So, I do think that we will catch up and we will probably exceed USDA's current target for corn.

On soybeans, we typically see an increase in soybean exports late in the marketing year when Brazil runs out.

And originally I didn't think we would see that increase because Brazil would have so many soybeans.

But with the Argentine crop getting as small as it is now, we may actually see that again this year and so we may further tighten up old crop supplies.

But if we go into El Nino this year like the models are now suggesting the odds favor that we'll have a very big corn and soybean crop in the United States.

This is more of an old crop story than it is a new crop.

Kohlsdorf: Okay.

So, next question, this is Troy from Tama.

When will the market acknowledge that South America isn't going to have the bumper crop they expected?

Suderman: That depends on what part of South America.

Argentina it's like a half a soybean crop and 60% of a normal corn crop.

In Brazil, the increase in production in soybeans this year in Brazil is almost equal to what we sent to China this last year.

We sent to China 30 million metric tons of soybeans.

That's a massive amount.

Brazil's soybean crop is going to increase by almost 27 million metric tons.

That's a huge increase in production in one year.

So, it's feast or famine in South America depending on where you're at.

Kohlsdorf: Okay.

In our last question, what happens to the old corn crop if WASDE prints a 91 million acre prospective plantings report?

Suderman: Well, if the market deems that the new crop won't be big enough then they'll start raising old crop prices to ration demand to carry over more to the new crop.

So that's the thing to watch.

The question is, is 91 million enough?

And I would say if the market sees 91 million it will feel like that's probably about right, probably not much reaction to it.

If we see 94 million it will probably say that's too much.

But remember, this is planting intentions as of March 1st.

We have a lot of corn that should be planted in the mid-South.

They can't because it's too wet.

Will they be able to get that planted that they intended to plant?

And then the other thing is the Northern Plains hasn't been able to plant as much corn as they've wanted for three years because of poor springs.

This year will be no exception.

We have a huge snow pack now in the Northern Plains, northwestern Midwest.

Over the last 10 to 15 years we've shifted a lot of our corn production north and west into that area.

And if they can't get that planted we may have several million acres of prevent plant that doesn't get planted.

So, it's going to be a big difference between what USDA reports on March 31 for planting intentions and what we actually are able to get planted this year or could be a big difference.

And I think the market will start recognizing that here in the weeks ahead.

Kohlsdorf: All right, I lied, we have one last question.

So, this is a long question that I'm actually going to try to condense here.

So, recent futures selloff in corn and soybeans look more bearish going forward, yet local basis bids keep getting stronger into the summer in a region that didn't see production issues last year.

So, what are the end users seeing that Chicago seems unphased by when the '23 crop isn't even planted yet?

Suderman: There's an old saying in the markets that the markets can trade illogically longer than you can stay liquid.

In other words, there are times when they can trade illogical relative to the supply and demand fundamentals.

And with the bulk of our trading now done by computers, computer generated trades, algorithms that read chart signals and headlines, we're very headline sensitive now and once the market starts in a certain direction then we add on buy orders or sell orders.

And I would say the last selloff we had of about 75 cents in corn was less about fundamentals and just about this money flow driven by computers and eventually it will come back to trading supply and demand fundamentals.

But this year the cash market has been doing the better job of managing supply and demand.

Kohlsdorf: Okay.

Arlan, thank you so much.

We appreciate your time here on Market Plus.

All right, next week we look at a Minnesota group putting pets under the spotlight in the war against antibiotic resistance and we'll have commodity market analysis with Dan Hueber.

Thanks for joining us and have a great week.