Will DOGE come after USDA next? - weekly market outlook: Feb. 10th-14th

Chris: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new week, the 10th through the 14th of February. We are in the middle of the price discovery period and we have with us today Pete Meyer. Pete, how's it going?

Pete

Meyer: Good, Chris. Yeah, actually, I actually had forgotten that it was, it was the, the price discovery period already. But yeah, so far, numbers in front of me, Sloan, just so far, so far so good, I guess, until today, maybe.

Chris: Yeah, I mean, as of right now, going into this week, the corn price is at $4.67. So it's a penny off of last year right now, or a penny ahead of last year. And soybeans are at $10.66. They're exactly a dollar off of last year. So beans got a lot of work to do if they're going to grab any acres. What do you think?

Pete

Meyer: They're not going to grab any acres. No, I mean, we're going to— we're looking at a record Brazilian crop. Argentina is going to Besides all the rhetoric that you hear out there, Argentina is going to harvest probably one of its largest crops. So I think that's a tough road to haul. I mean, your friend of mine, Joe Vaklovic, and I have a bet. I think it's around $10.80 or $10.88 or something like that. I don't know that we can, he thinks we can get above $10.88 or $10.80, maybe it was $10.80, I don't know. But yeah, it's gonna be hard to get up there because really, we live in a trading world that's dominated by headlines. And before you know it, we're gonna be at March 1st, and then we're gonna see what the tariffs that were put off of February 1st mean. And I'm not really sure that there's going to be a lot of interest in creating a big long position in soybeans.

In front of news like that, I mean, there's a massive corn position. We're recording this Friday afternoon. So I haven't seen the Commitment of Traders report yet. But it's going to be a record long in corn, I would easily imagine. So, but in soybeans, a little bit, a little bit less. So what we hear in the countryside is there's an abundance of meal. Soybean oil is kind of trading a little bit better, trading up to $0.46. Today, which would be Friday. So but that's trading mostly in tandem with crude oil. So yeah, I think it's— it doesn't surprise me we're a dollar lower, but we should be a dollar lower than where we were last year. I want to go back— corn being at the same price to me. Okay. You know, what do you—

Chris: that's what I want to hit you up on is, you know, What— so if we're going to see that many more acres of corn, theoretically, um, what, what is a good price? I mean, are we— I mean, what, what's gonna allow us to go significantly higher than we're at based on the rally that we've seen in the last few weeks? What's gonna— what, what's something out there that could give us strength? Or is there anything out there that you see that, that could help? Because aren't those acres gonna kind of pressure the market, or, or is there—

Pete

Meyer: or are the funds—

Chris: I need to come in and do some stuff?

Pete

Meyer: Yeah, I would think so. I mean, where, where do we close? Where are we close today? Like in the, in the low 460s, probably right around the number that you suggested for the average for the, uh, insurance price so far. Um, yeah, what's going to push it up? Boy, with this much length in the front, it's going to take something astronomical, you know, just catastrophic to happen in South America to push this thing up. On the back end, the only thing that could push up corn would be a rally in beans. And I just don't see that. I don't see that rally coming. So what's a good price? Certainly, if we plant 95 million acres and get a decent growing season, $4 is going to be a good price. So in the cash market, but we'll see. I mean, like I said, Chris, you know, we are, we are living in a headline-driven world.

I mean, if you, if you zoom out, though, at the corn market, we really haven't moved very far since the end of January. I think it was January, January 20th or something like that. I mean, it's just, you know, the fact that we can't get above $5 here in the prompt price, you know, languishing around that $4.97 level. A few times.

Chris: But, but the fund— the funds are pretty long, or do you see them going longer yet? Or, I mean, if they back away—

Pete

Meyer: record—

Chris: they're record long, right? There's a lot of pressure potentially the other way, isn't there? If—

Pete

Meyer: yeah, but then, you know, and that's, and that's what my partners and I try to figure out, right? So there is, there is this thing called the momentum stop. So when the momentum stops, that's when everybody, you know, kind of heads for the exit. Um, I don't know where that price is, you know, it's hard to say. I mean, they've been aggregators of long prompt corn for quite a while now. If I had to guess, I mean, I think they're probably long in that $4.60 zone somewhere because they certainly bought a lot earlier in the week this week too when we traded above $4.95. So every time the market goes higher and the quote-unquote algorithms follow the market on a momentum basis, they are increasing their cost basis. So I, I don't know. I mean, certainly I think, Chris, that if we traded down below $4.75 at this point, there would be pause for cause for, for a lot of these guys.

We don't, we don't see much movement in the cash market. Every time futures goes up, cash kind of languishes. It goes down a little bit as far as corn is concerned. So yeah, boy, it's tough.

Chris: So let me ask you a couple things on old crop. So it looks to me like Um, just been out at a lot of farm operations the last couple of weeks and a lot more of that to do yet. But the theme I'm hearing is there's still, you know, maybe 25, 30, 35% of old crop corn left, significantly less soybeans than that in inventory. What would be the reason, or is there a reason to hang on to that stuff, especially if people have a line of credit or bills coming or rents coming in March and stuff and can utilize that cash. Is there a reason to sit on that? I mean, basis has been pretty ugly because of the recent rally, right? Do we, you know, do we do some HTAs or something? And I'm not, you know, not advice here, but just, you know, navigating these last 25-35% of bushels yet to market and probably 7-10% yet on soybeans for some of these guys.

Do they you know, get rid of this stuff and have the cash? I mean, it's easier to stack $100 bills than grain. So what's your thought?

Pete

Meyer: I think the corn would, would probably give you the bigger bang for the buck if you want to hold on. But I would argue that, you know, there's probably a little bit more corn out there than we thought. Certainly, I struggle with trying to understand the farmer's mentality at this point. Maybe it's psychological, as you suggest. The cash markets are not following futures. So, you know, if futures get to $5, you know, we almost got there a few times this week. Is that going to be a psychological level for the farmer to hit the cash market? Probably not. So I don't know. I don't— I mean, personally, personally, I don't see any reason to hold it.

Chris: Yeah, well, I kind of struggle with that too. Just when I look at where working capital is at and look at the lack of liquidity or the burn rate that we've seen in a lot of operations, it's definitely, um, there's definitely need for the, for the liquidity. And yeah, way to get it, sell the grain, you know. And again, I don't, you know, I, I mean, I just kind of wonder what, what could give us more upside, if there is anything. That's kind of why I was asking that. And And, you know, and it just seems like when the upside comes, the basis takes it away in a lot of the areas. But if, you know, if we can get that priced in, if it does stay sideways or whatever, I would imagine the basis is going to get better in time.

Pete

Meyer: You know, yeah, yeah, a lot bought, but they're ready to buy more. I mean, you know, the market is absent a natural seller, but the buyers are not natural buyers. The buyers are speculative buyers. So, you know, can they push it? You know, will they try to push it? I mean, I spoke to a friend of mine who's a decent-sized hedge fund manager about 3 weeks ago or so at an event in New York City. And I said, you know, you're long corn. He goes, oh yeah. I said, fundamentals? He goes, no, momentum. So, you know, you really run the risk here of—

Chris: Are we running out of momentum?

Pete

Meyer: Well, that's— I see, I see that, that I don't know. But I mean, I think you run the risk of a couple bad headlines and you'll run out of momentum pretty fast because the natural buyer's just not, the natural buyer hasn't stepped in either. I mean, what we saw after the WASDE in January, and I mean, that's 3 weeks old now, is that the commercial bought a tremendous amount of corn and the end user is pretty full. So I'm sure that's not universal. And I'm sure there are some people that are listening to us today that said, ah, Pete's full of crap. My basis is good and my guys are still bidding for corn. Okay.

Chris: It's a regional thing.

Pete

Meyer: There's a lot of things. There's a lot of things that I worry about in the corn market. I mean, you know, on the ethanol side of things, again, we are talking on Friday the 7th. I mean, GPR announced earnings today. Stock just cratered. Stock— I mean, their market cap is down below $450 million as we talk. As we speak, I should say. They already closed a plant up in Fairmont, Minnesota about a month ago or so. You know, I— it's hard for me to get too excited about the, about the demand side. I'm a— although you've known me for a long time, Chris, I'm always a firm believer in you sell supply rallies and you, and you respect demand rallies. And this is not a demand rally unless you consider the hedge fund a demand.

Chris: Yeah, I mean, that's one of the things. The other thing I want to quiz you on a little bit here is, um, you know, the tariffs. You kind of mentioned that at the beginning of the conversation, but talk a little bit about, you know, what, what kind of impact is that going to have? Do you think we, you know, do we literally move forward with that stuff in a month? Is that, is that a real threat? Is it not a threat? I mean, what are you seeing? What are you hearing from your—

Pete

Meyer: Well, today, today we start to hear about retaliatory tariffs. So retaliate— what retaliatory tariffs mean is that If somebody were to come— so let's say, let's say you go to Canada, and let's say Canada doesn't want to play ball. And on March 1st, he says, okay, I'm putting 25% on Canada. And Canada says, okay, I'm coming back at, you know, 25% on the oil and everything, and are on any, any sort of imports. Okay, then Trump's going to say, okay, I'm going to 50%, and it just becomes a game of chicken. Sooner or later, I mean, you theoretically, there's no limit to how high the tariffs can go, right? We just don't stop at 100% tariff. We could go to 500% tariff. We've seen that over history where there are multiples of 100% tariff. So I guess that there are those that would argue that the tariffs are already baked in here, and that we are underpriced in corn.

I'm not smart enough to figure that out. But I do think, Chris, that we are at headline risk, you know, and we will be subjected to headline risk here for at least the next year. I mean, I know people are saying, well, we'll be subject to headline risk for 4 years until he gets out of office. I, I don't know. You would hope that things would, would calm down. But certainly dollar strength doesn't help here. Even without the tariffs, the ethanol business we just kind of talked about. Um, there's a lot of headwinds here.

Chris: Yeah. What about— let me ask—

Pete

Meyer: or strong headwind, I should say.

Chris: Right. So another area though is China, and there's been some discussion in the news about, you know, Trump or this administration holding China accountable to the original agreement that we had on the trade agreement back in his first term. So talk— is there anything there that you're hearing? Is that any possibility?

Pete

Meyer: Yeah, that's— no, I'm hearing exactly the same thing, same thing you are, but China fundamentally as a country is still struggling pretty much. The birth rate is extremely low. The birth rate, I think, just to keep up with mortality has to be around 1.9. I think it's down below 1.5. So you have a problem there. And that's not something that's just come up. You've had at least 2, maybe 3 rounds of trillions of dollars worth of stimulus there, and the economy is still kind of hurting. So I don't know really how much stuff you can shove down their throats. Yeah, that would be great. Yeah, we, you know, we still have tariffs on China. Um, yeah, you know, maybe try to, try to push them to— maybe, maybe it's a feel-good thing where they, where they're going to buy up what they, um, you know, what they need.

But at the end of the day, they're not stupid either, and they're sitting here looking at Well, we're pretty economical for them right now, aren't we? Yeah, we are, if you can get it downriver, right?

Chris: Yeah.

Pete

Meyer: I mean, that's, that's an issue as well. But, you know, Brazil starts harvesting their beans, it's pretty cheap. It's going to get cheap.

Chris: Yeah, real soon.

Pete

Meyer: Going to get cheap. Real, you know, like I said, dollar strength, real weakness. Yeah, a lot of headwinds.

Chris: Okay, another question for you as it relates to these commodity prices is our energy. And so like when you look at crude oil and you look at this administration and the drill baby drill and all the stuff, and he's— and Trump's doing about 18 different things every 6 or 7 minutes, so you never know what's happening. You know, you talked about headlines up and down and impact markets. Talk a little bit about energy and some of the things you're seeing there, because— and I want to mention this because two things Number one, we want to get our fuel bought. A lot of producers are sitting there thinking, well, do I get fuel bought now? Do I lock it in? Do I not? Is it going to go lower? It's pretty decent price. It's cheaper than it was. On the same token, if energy prices come down, that tends to, right, probably pull down some of the other commodity prices. So it's kind of the—

Pete

Meyer: right. Crude oil, I think, is probably maybe $6 above its low. I mean, I think it can trade down to $65. Certainly, it would depend on what happens with his tariffs with Canada. I mean, we import a tremendous amount of oil from Canada. That's going to weigh on it. But you notice that crude oil was trading $82 around the election. And then he came in and said, I'm going to put pressure on OPEC. And I'm going to do this. I'm going to do that. We're back down to $71 like it was nothing. So I don't necessarily know that I'd be in any rush to be putting any of my fuel hedges on. The Canadian thing might be a little bit of a knee-jerk reaction. But if I was a farmer, I'd be buying fuel hand to mouth until we get some clarity here. We really don't have any clarity on any sort of biofuels policy in this country.

And by that, I mean, I get it that renewable diesel and and other biofuels may not have that big of an impact on the total pool. But nonetheless, yeah, I'm not a $50 guy. I'm not a $60 guy as far as crude oil is concerned. But I certainly think that the gentleman who's sitting, who's sleeping at 1600 Pennsylvania Avenue, even though he doesn't sleep much apparently, He is certainly a $60 guy.

Chris: That's funny. So I guess the last couple of things, or last thing I want to hit you up on, is kind of circle back from talking about new crop sales. You know, the soybeans are kind of a no-brainer. It's pretty easy to sit on your hands and do nothing just because we're so far below the cost of production. It just really—

Pete

Meyer: $475, you let 25% go. $485, you let another 25% go. $5, you let the other 50% go. If we get there.

Chris: That sounds simple. All right, there you go.

Pete

Meyer: You asked, you asked, you asked for it. Thank you, everybody. That concludes today's Tool Talk.

Chris: Exactly. Yeah. No, I— it's, it's interesting because, I mean, we're, we're at that level right now where a lot of the operations we work with You know, we look at return to management as part of the cost production, which is paying yourself, paying your employees, all your overhead expenses and stuff. And we're pretty much there for a lot of operations. We're not there with everybody, but we're there with a lot. So you really got to question, you know, I can lock in paying myself, I can lock in, you know, all these things. But yet we're still— as we record this, we're still at the front end of this price discovery period. And there's a lot of stuff that can happen yet just in 2 weeks. Right, can affect where this, this floor level is. And then with that said, you know, you, you say those numbers and that's— it's probably right. It's funny, it's probably right too.

It's a little of both. Is there a way, or is there— or do you— would you say that maybe some guys should be at least locking the floor in on some of these bushels, you know, if you don't want to price some stuff? I mean, is there any any option strategies or anything there that you're looking at that would maybe be a, you know, and again, not a recommendation, but just some tools that maybe people should be thinking about as we—

Pete

Meyer: No, I think what worries me a little bit is if we get below $4.50 again, which is what, 14 or 15 cents from where we closed today. If we get down there, you know, there's going to be some panic in the market.

Chris: I would think. Your momentum's gone then.

Pete

Meyer: Yeah. Your momentum's totally gone.

Chris: That's probably the threat with the funds stepping away, do you think?

Pete

Meyer: Well, yeah. But I mean, when we turn full circle here and say, okay, if you believe me when I tell you that the market will remain at headline risk for the next year or so, I challenge somebody to tell me what the bullish headline is going to be.

Chris: Yeah.

Pete

Meyer: So, you know, and that worries me. Yeah.

Chris: I mean, we should throw a bone to the wheat growers too in here. Anything on wheat?

Pete

Meyer: Yeah, thank you for pulling up corn this week. Uh-huh. Exactly. We got Kansas City wheat back over $6 yesterday, traded up $6.1475 today at the close, lower. Chicago wheat is kind of sniffing around. I think that the corn market has been the beneficiary of some cheap wheat buying. You know, are we going to see wheat end up in rations? We hear about that all the time when wheat's cheap. I don't necessarily know it's going to end up in rations. And I don't necessarily know matters because when you look at the size of the cattle herd, there's no cattle out there. I mean, yeah, okay, the cattle market has kind of turned, gone south this week just because the funds again were record long cattle. So we have to be careful. We saw how quickly they hit the exit there.

Now granted, the cattle market or cattle futures market anyway is much thinner than the corn market, than the grains market, grain markets. But it's a cautionary tale.

Chris: Yeah. So I think we'll wrap it up here. But I want you to leave the producers with a nugget of wisdom. I didn't tell you I was gonna ask this. But, you know, what do people need to be thinking about in the next couple of weeks as we continue through this price discovery? What's the— what are the words of wisdom from an experienced, long, long-time ag expert?

Pete

Meyer: Well, I want to— if I can have a few minutes here, I just want to talk, you know, after your conference down in Fort Lauderdale, my partner Jared Creed and I were in Fort Lauderdale again earlier this week for something called the Commodity Markets Council. The Commodity Markets Council is a group based out of Washington. They do a lot of lobbying on behalf of commodity markets. And I was surprised at how much of the 3 days was built up with discussion about agriculture. Everybody is focused on agriculture. So who are the participants? There are really no traders. Traders there. There were no farmers there. The CFTC— the CFTC governors are there. A lot of politicians were there, including, you know, some from Iowa, some from— some from the big states.

But most importantly, the professional staffs for both the House of Representatives and the Senate were there and had some very, very interesting comments. So the first thing is that You know, people talk about Doge, right? And Elon Musk is out there and supposedly, you know, I, you know, okay, so USAID was his first thing. All right, I get that. Department of Education is now undergoing it, undergoing scrutiny. Supposedly he's going to Pentagon next. Is he going to the USDA after that? It's a good question. There is some discussion about The Commodity Futures Trading Commission, the CFTC, which is the regulatory body that oversees all futures trading and actually oversees all commodity trading, is going to be merging or merged in with the SEC. Supposedly Musk has made some, um, comments about that.

That seemed to be kind of dead in the water, so I don't necessarily know that's going to happen. I mean, a share of stock and a contract of corn or two diametrically opposed things. It just doesn't, doesn't work. Um, it did seem that everybody seems convinced that we're going to 24 hours a day, at least 6, maybe 7 days a week trading on all this stuff. Huh. That's a scary proposition in my opinion. And the reason for that is that we see so little liquidity at night. Who's going to make a market at 2 o'clock in the morning on a Saturday when somebody's out there looking for stops? So I, you know, that was interesting. There was a lot of discussion about carbon, a lot of— excuse me, a lot of discussion about regulating the carbon market. There has been some regulatory actions in the carbon market regarding fraud, but they are watching the carbon market.

And then when you get to the House of Representatives, one of the issues you have is that the leader of the Senate Ag Committee is from Arkansas. Nothing against Arkansas. The second in charge is Amy Klobuchar from Minnesota. The leader of the, um, of the House, uh, Agriculture Committee is from Pennsylvania. There's not really a lot— while there are other members, uh, representing the farm states, obviously there's, you know, the chairperson is the one that kind of drives the boat there. So there was some discussion about creating they're very well aware of the economic, the dire economic situation that US agriculture faces at the moment. And there was some discussion about continuing to work on a safety net. And by that, a safety net means it has to get worse before they'll step in.

There seemed to be very little discussion, and granted, it would be President Trump who would make this decision and not necessarily Congress, very little discussion about bailouts at this point, regardless of what happens on the tariffs. So what does a safety net look like? Hmm, higher subsidies for your crop insurance, maybe a higher price for some of these programs that underpin the market. But I was, you know, this group, there was a lot of discussion about agriculture. 3 of the CFTC commissioners were there, including the new chairman, chairperson Carolyn Pham. She looks like a no-bullshit type of person. So I will take her at her word. I had a sidebar with her as well as she sat on a panel where she did an interview with Jim Newsom, who's an ex-CFTC chairman.

And I think that the overall theme that I got out of this is they know that there's trouble out there, but they're not necessarily just willing to write the check anymore. And that may be, maybe, maybe the comment that I want to leave your farmers with, right? I mean, you cannot make any sort of marketing plans that are dependent on President Trump writing you writing you a check. Sure, the $10 billion got passed. That was before he got in there. Supposedly, the Republicans this weekend are going to announce their newest reconciliation plan. Maybe that has money in it, but the confidence seemed pretty low that there was going to be any, any sort of numbers like we saw between '16 and '20. So the point there is that You know, let's not rely on that. Let's kind of try to filter out the noise. Let's keep your head on a swivel.

Let's pay a lot of attention to what your crop insurance looks like, whether you have the enhanced coverage option or some of these other programs. Try to sit down and understand it. If you don't get the answers, go someplace else. Because I think that this is probably the time where we basically have to, have to protect. And not expand, right? Uh, one of the, one of the senior staffers, uh, for the House representative, I, I talked to him and I asked him about the safety net and the fact that there are probably those out there that should not be saved, right? Your marginal producer, why are you just, you know, prolonging the pain, so to speak? And he said, we're not in the business of saving farmers, we're in a business of saving communities. And I thought about that for a bit, and that That actually makes some sense. Now, he's from West Texas, okay? So I get it.

He did mention that in some areas that they're seeing, not in the I-states, not in the main areas, there just are no farmers around that are willing to pick up the slack in case somebody goes down. So yeah, yeah. You know, I've been— I just— it's a cautionary tale, Chris. And I think that, you know, obviously they're doing their best to create some sort of safety net as discussed, but I'm not necessarily sure that direct payments are coming. So plan your marketing accordingly. The bean market, I have a little bit less hope for than I do for the corn market. But I do wonder what exactly is going to happen when the funds kind of hit it there. The funds are doing a farmer a favor here now. I mean, yeah, okay, everybody hates the funds when they're short, but that's a backstop to the market, in my opinion. I actually like when the funds are short because that creates a backstop.

But now they've rallied the prices. Okay, December has not rallied lockstep with the front month. I get that. But they're actually helping your insurance price here. Yeah. And, you know, and then all of a sudden, maybe your, maybe your cost for insurance goes down. So I would, I would look pretty heavily at some of these, at the ECOS, and some of these other, other programs to protect, protect your revenue. Sorry, Chris, that was really long.

Chris: But I appreciate you. That's all really good. That's all excellent. I mean, it just comes down to, in a nutshell, you know, like you said, keep your head on a swivel, pay attention to what you can control, and know what's going on around you, and manage what you can manage. We'll be fine. And, and most of the operations we work with that— and a lot of the people that listen to this podcast are the ones that are going to be farming in 20 years, are the ones that are that are paying attention to the details, right? Ones that buy the crop insurance and they understand how to do risk mitigation, right? Understand how to market and, and really, really, I think, do a lot of the right things. But it's just, there's just a lot of stuff to watch now. There's more stuff to watch now than there maybe was a couple years ago even.

Pete

Meyer: And so it's, it's, yeah, you know, I mean, it's— I've already heard some whispers about weather problems in the US already, right? I mean, we're way too early for that.

Chris: Yeah. Yeah, that's, that's something we'll talk about here in a couple of months.

Pete

Meyer: But yeah, exactly right.

Chris: We'll be smarter. They can't— they have trouble predicting the weather 3 days out. So we'll see what happens.

Pete

Meyer: Head on a swivel and try to filter out the noise as best you can. Yeah, exactly. And you know what it is too, is it is that I think that unfortunately we've seen this for a while. This is nothing new. I mean, sometimes farmers who want to be bullish all the time and I totally get it. And look, nobody, nobody loves a market going, going up more than me. But try to get out of your comfort zone. Try not just to pay attention to the confirmation bias.

Chris: Yeah, for sure. It's going to be interesting. There'll be plenty to watch. Uh, Trump keeps it interesting for all of us too. So, yep. Yes. With that said, hey, uh, Pete, this has been a great conversation. I appreciate your words of wisdom. They are, they are good, and there's a lot of content there. So if you go back and listen to what you said again here, I'm probably gonna go back and listen to it again. There's a lot of good nuggets in there.

Pete

Meyer: So I appreciate your kind words.

Chris: Thanks, Chris. Well, thanks a lot, and we'll get you back again. We'll get, uh, get your partner Jared on here towards the end of the month, and we'll talk risk management in depth. But, uh, with that said, Pete, really appreciate your time.

Pete

Meyer: Thank you. Thank you, sir.

Chris: Yep, you bet. We'll catch everybody again next time on the Ag View Pitch.