Welcome in to the Friday, December 1, 2023 Market Plus.

Arlan Suderman is back with us again.

Arlan, if we really recorded on everything we talked about, we do We could do a whole 20 minutes on just sports.

Watching Kansas State, Iowa State, do you call it Farmageddon?

Yeah, we do have a protest there.

We've got a memo because of the weather that is going to be flag football.

So, you know, we do have a protest.

Oh, well, great.

The Iowa State fans are going to start writing you now.

Good.

Congratulations.

Let's start with livestock.

I mentioned we have some good questions here.

And let's start with Eric in Iowa.

And he wants to know USDA says profits bred cow at 11.91 for 2022.

Yet, questions flow about why heifers aren't being retained to rebuild already decimated.

Cowherd, you talked about this on the main show.

Here's his question: "“How can ranch sector profits be so poor while packer margins are universally good?

Unless competition is lacking and markets are broken?

"” Yeah, and that's the age old question.

The battle between the feeders and the packers.

And we went through quite a period where the packers just pretty well controlled the market and had the big margins over this last year.

It's actually been the opposite.

The feeders have had a lot more leverage and control of it.

And so the packers have been working with negative margins.

Now they view in the last week or two of kind of evened out and started going positive again.

So it ebbs and flows.

I know the feeders would like to have that leverage a lot more often than what they do.

But unfortunately, with the situation we have now, it's what we have.

All right.

Well, I have another one, similar question, but this one I need you really to to to do something different.

Jason in Iowa wants to know: "“cattle herds are shrinking.

Heifer retention is very low.

Similar concept here.

Explain to me like I'm in kindergarten without using the word technical, why cattle producers lost $50 in one short week and that numbers then that number looks to stay"” Give me some solid reasons why producers can't for once make a solid profit on their hard work.

Well, the profits seem to vary depending on the segment of of whether you're the cow calf man or whether you're the feeder or the backgrounder or somewhere in between.

And rarely do we have profits all the way through.

Usually it's at the expense of one of the other segments.

We have had some cattlemen with some profits here of late.

It depends on your operations, it depends on your availability of feed and the margins...the pack.

Most of our feedlots are in the high plains historically where we've had a couple of years of short crop.

So we've had very strong corn basis and that's been a real, real problem.

But where they've had feed, they've been able to do a little bit better and we've been seeing that feeding area move to the north, move up in Iowa, in the South Dakota where we've had a cheaper supply of corn, we're basis is far cheaper.

I mean, just it hadn't been that long ago.

We had $2 over basis down in the southwestern plains and we don't feed as many cattle down there anymore as a result.

Yeah, that's a whole big discussion.

I think Darrell Peele needs to be a podcast guest again and get his thoughts on some of this.

Let's now we're going to Ken asked us one question from Saskatchewan.

Got another one from Ken here for you.

Arlen, are any acreage predictions for next year?

Are you ready to give those?

And are we going to see a significant increase in soybean acreage?

And who in their right mind is eating wheat at these prices?

Let's give acreage predictions first.

Yeah, As we look at acreage, we're basically looking at winter wheat acreage to be probably pretty similar right now in the plains states may be down a little bit, a few percentage points in the Midwest on the soft red winter wheat.

In there, it's more rotations than it is the profitability of wheat.

And in the plains, it's if you have moisture you plant in, if it's the fall and you have moisture, you plant wheat.

In some cases, they don't even have much option as far as alternative crops.

The question is then, how much of that actually gets harvested or versus grazed out or put another crop in the spring?

Looking at corn, I'm looking for corn to pull back from two at least and about 92 million acres this next year.

And soybeans to bump up about three and a half million acres.

So a lot of that, though, is going to depend on where we end up coming out in Brazil.

If we have a shorter than expected soybean crop in Brazil than soybeans will buy some of those more of those acres.

If it ends up being a bigger crop than expected, then soybean market's probably going to start breaking lower toward corn.

And at that point, it's not going to be able to buy as many acres back away from corn.

The changes in the acreage will not be in the core the Midwest.

It'll be in the surrounding areas in the South and in the plains.

That's where we get most of our variation in shifts in acreage.

And at what point do we see that shift?

You mentioned the depends on Brazil.

Are we going to have to wait until like January end of January before we see any discussion or February?

Yeah, usually the January 12th crop report is usually kind of a pivot point for the focus of the market as well, because by that time we know a lot about the Brazilian crop and the markets are ready pricing it in by that point.

All right.

I have another I just want to say, Sara, we asked a lot of your questions on the hogs, so go back to our analysis segment.

That was a great question.

But Scott, Wisconsin has one for you, Arlan: "“Which crop do you see has the greatest upside for 2024?

"” For 2024, if if Brazil has a shorter than expected crop, in other words, shorter than I now expected, if I'm surprised by how short it is, then I'd have to say soybeans, because we have the tightest balance sheet now.

There's not as much room to give.

But if we have the crop that I expect out of Brazil, then I have to say corn toward the end of 2024, probably because the crop in South America, as I said in the earlier segment, that's most at risk is the winter corn crop.

But that really doesn't positively impact our exports until next marketing year.

So if I'm surprised to the downside on soybeans in Brazil, that means our exports really pop in July and August.

That's when we get the real strength there and we'll probably go sideways, top sideways until then.

On the corn side, maybe it's next fall where we see surprising strength through the harvest and that's where we see the strength.

You mentioned the long tail.

And on the TV show you also we're talking about the long tail in livestock.

Is this when's the last time you've seen such a long tail in all of these crops like this?

Yeah, I think that that's an excellent question.

I had to think back on that because we typically do have a long tail in cattle.

We talked about in the previous segment how far we've come down, but yet we still probably have our tightest fundamentals ahead.

If demand holds up and the consumer stays with us and that's dependent on the economy, what the economy does.

And if that's the case, we still have a much more story yet to go in the cattle market in 2024.

So that's going to come down to the consumer.

If the consumer stays healthy, we've got a much bigger story to tell on the cattle in 2024.

If not, then that demand shifts down to the pork and to the poultry.

Bradley in Nebraska is always a loyal question asker.

This week, Patricia, his mother, this is her question for you, Arlan: "“Years ago, a corn contract was traded 20 times more than the actual physical bushels.

What is that number today?

"” You can figure it different ways.

I simply look at open interest and what the variation in open interest does.

And actually corn now as much as we produce a 15 to 16 billion bushel crop and looking at open interest were trading about 10 billion or so.

So it's less than the total corn crop at any one time.

The one that's really the surprise perhaps is Chicago wheat, where we trade 5 to 8 multiples of the actual size of the crop at any one time.

So that's the one that kind of makes you scratch your head and we start looking at open interest and that relative to the size of the crop.

Go back and hit rewind and listen to that again, because Arlan has a fan online that says they take a notebook out when he's on the show and they think they just had it they had hit rewind there to hear you say that again.

I Dan in Oregon, we already asked your question a little bit about when does the South American weather start to matter.

Let's go to Joe in Wisconsin now with with and he's asking about corn to soy ratios.

You've kind of talked a little bit about this, but not in this context yet: "“With the soy, the current ratio of 2.9, what would be more likely for corn to drag soybeans down or soybeans to lift corn higher?

"” Well, I wouldn't necessarily say it's corn drag in soybeans down, I think it's if the market finds that the soybean crop in Brazil is adequate to meet demand, that we don't need to ration U.S. demand with prices, then I think soybeans go down to join corn.

If, on the other hand, soybeans do take off, I do think that they have the capability to help pull corn up, especially once we get past that January 12th report and we start thinking about acreage for next year.

That's a new crop that's in the deferred contracts where most of that action would take place.

Okay.

Yes, And that's always the time of year, though those get a little confusing.

I want to close with Robert in South Dakota and yes, I know we've kind of talked about this one, but I want to put this on the record one more time.

And this is about the carry out.

He Robert says, I keep hearing about the 2 billion bushel carry out, but my math says that's only 13% of total production.

It seems like an overused excuse if you make at home with 13% gas left in the tank, it's considered cutting it close.

Philosophically, the markets operate on big comfortable with just in time supply.

That changed a little bit when Russia invaded Ukraine.

But we've become back to just in time supply again.

So what is just in time supply?

The market historically has been comfortable with 5% stocks to use, so that's quite a bit smaller than 13% in actual bushels.

I remember the day when I was early in my career, if corn stocks are below 500 million bushels, that was really tight and then it was 800, then it was a billion, then 1.2.

1.5 billion is kind of now if it gets below that, the market thinks it's tight, it still thinks 2 billion is big and it's perception is reality.

What's the biggest perception or reality that maybe we need to debunk as we end the year?

Well, I really think we need to pay attention to what the money flow thinks.

The money flow for the last year and a half has felt like we were heading into a global recession when demand for commodities is going to decline, so therefore be short the commodities.

And I expect that to turn the corner in 2024.

And at that point, as we look back at history, we find that that actually changes the price you receive all the way to the farm gate, the cash price and how the money flow perceives, whether we're in an inflationary period or deflationary period.

And I think we will switch again to an inflationary period.

The last consumer sentiment survey showed that American consumers also think that we're going to go back into inflation next year.

But how much is a guy with numbers do you put into to sentiment?

Because sentiment is more of an opinion than than based in numbers.

You're saying that facts matter more than sentiment.

And I understand what you're saying.

But to the markets, perception is reality.

And so if the emotions if the sentiment is something that will dominate over the facts themselves.

Yeah, well.

Period of time anyway We appreciate your sentiment, your facts, your commentary and everything else, Arlan.

Thank you.

Good to see you.

Arlan Suderman, everybody.

Next week, we are going to check on a homegrown industry that's at the crossroads of commerce and conservation.

And we'll have the commodity market analysis of Elaine Kub.

Thank you for joining us.

Have a great week.