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29 Apr 2022
Agriculture, Corn, Cotton, Dow Jones, Grain, Market Commentary, Market Updates, Other News, Podcast, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: APRIL 21 – 28

Corn continues to move higher as planting has gotten off to a slow start in the US and Brazil’s safrinha crop is facing drought conditions, shrinking their crop. The wet and cool forecasts remain into May for the north and eastern corn belt which will make it unlikely to see much planting progress in those areas. The rain will be welcome in the western corn belt that has been dry and making slow progress in planting, but the rain will be welcome for the soil even if it slows planting for a day or two. The ongoing conflict in Ukraine continues to decimate their infrastructure as Russia destroys ports and has seized stored corn to sell as their own. China was a buyer of corn this week and will hopefully continue to show up on exports as demand from other buyers has slowed. Limits have been increased at the CBOT for some commodities and corn will now have a 50 cent limit starting May 1 from the current 35 cent limit.

Via Barchart

Soybeans had a small dip this week after its nice run higher from the previous dip at the end of March. Soyoil prices continue their move higher pulling beans with it while meal struggles. Indonesia placed a palm oil ban on both refined and unrefined product. The slow start to planting will ultimately roll into affecting soybeans like corn but we aren’t at panic mode yet. The start to the year has been less than ideal when the world stocks need a great year. Beans daily trading limit will move up to $1.15 effective May 1st.

Via Barchart

Cotton

July cotton traded limit up (7 cents) on Thursday to set a new contract high at $1.4768. Export data from last week was better than the last few weeks. Cotton’s problem appears to be a lack of world supply mixed with (so far) not ideal growing conditions in Texas. Forecasts for rain in Texas are very welcome but will need to be widespread and a large amount to help the drought. (See drought map below)

Dow Jones

The Dow was down this week as volatility continues to be in the markets as earnings continue to come across with some large companies getting crushed and others posting solid numbers. Tech companies have had a good week after getting run over the past couple months. This may not be the bottom for tech but it is nice to see some good numbers and some support.

Via Barchart

Drought Monitor

The drought monitor below shows where we stand week to week.

Podcast

RCM Ag Services put a unique spin on National Agriculture Day by going international. That’s right, we jumped right into international waters with Maria Dorsett from USDA’s Foreign Agriculture Services for an interesting discussion about linking U.S. agriculture to the rest of the world.

Each year, March 22 represents a special day to increase public awareness of the U.S.’s agricultural role in society, so why not take it one step further by bringing in a global component? As the world population soars, there’s an even greater demand for producing food, fiber, and renewable resources. That’s why we’re taking a deeper dive into the USDA’s trade finance programs, like the GSM-102, which supports sales of U.S. agricultural products in overseas markets and supports export growth in areas of the world that are seeing some of the fastest population growth.

So, jump aboard (no passport needed), as Maria discusses how U.S. companies use GSM-102, what the program features, and the benefits that it offers!

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

10 Mar 2022
Lumber rcmagserv 0 comment

The Leonard Lumber Report: The Commodity Index’s Hit Decades Highs

Last week the commodity funds saw a massive influx of capital as the investment community tried to take advantage of a booming commodity cycle. The commodity index’s hit decades highs. How will this affect lumber futures? I’ll try to navigate all the features of the industry today. I’m pretty sure you can take the word lumber out and insert a different commodity because the issues look the same. Keep that in mind.

Factors pressuring the lumber market:

First is transportation, especially rail. Not only does it cause the jobsite supply to be late, but it is also complicating the whole process from logging to production. This organic slowdown in production will create shortfalls.

Next is COVID and labor. A labor shortage has been the industry’s nemesis for years now. Now COVID has placed a limit on how many days an entire crew is in place. Add to that a shrinking labor pool and the fact that production now looks different, and you get a builder that can’t get the production curve past 70%. It has kept the completion numbers down and the backlogs growing. 

Another factor is the new 2-week pricing and the just-in-time inventory management. There was a major shift in inventory management after 2018’s run-up that has now grown to the number one choice of the distribution chain: contracts and VMI’s. A bullish demand cycle creates a large void in the chain, and many are forced into the market more often, creating bottlenecks.

These are the three dominant economic reasons for the lack of supply. A few others are:

  • Current demand and a 1.9 building permit number
  • The fact that another 700,000 workings were added to the economy
  • A push to buy as rates begin to rise

If you alleviate any of those factors, you will not solve the shortage issue. Only the lessening of demand will turn the market. Again, only the lessening of demand will turn the market.

 

Today, the marketplace is micro-focused on each factor, and any change will lead to selling. The market saw the result of that selling back in late January. We expect transportation to get better, and that change will take it from a horrible situation to bad. This will add some relief but not solve the problem. So, the mess continues. 

 

An eventual pullback:

Where it can pull back to is a tough call. The first factor to look at is the new quarterly pricing. That will be a high number. This last quarter was manageable because the trade was able to mix in $600 cars with the new $1,200 cars making the number look good. This time the trade is paying the high of the year with nowhere to hide. Those same traders that were willing buyers on the last break at $800 are now at higher levels. It will create an artificial bottom again. The other issue is the trade refusing to pay up, thus sitting short in a rising market. That hasn’t been a good strategy and ends up bottoming any sell-off. 

 

Factors to watch:

The appalling devastation Russia is causing in Ukraine adds to the logistics mess throughout Asia and Europe. Those issues will continue to disrupt the flow of lumber, bullish in a tight market. It also could be the tipping point to turn consumer sentiment down. We are already fighting massive increases in the cost of a home and major inflation on a personal level. We know the Fed has to push the economy into a recession to slow it. They have been reluctant to do that, causing even more pressure. The stock market is losing some steam. Those buying the second home with a loan from their portfolio are starting to push back. Any one of these factors can change the demand picture drastically. But each one has its own very slow-moving dynamics. There is no flip of the switch item there.

What could be a “flip the switch cause” is the drastic rise in limits, and historically that stopped a market trend which was its purpose.

 

Final word: 

Only J. Powell and the old-timers think this market is going back to $300. It isn’t, and in fact, this market will be a tough go in the 1,000s for some time. Sell-offs will push the market lower, but buyers can’t wait on that today. If the funds start to show up down here, futures will hit $2,000. If they don’t, $400 up and $400 down will be the norm. Buy cash and buy a put… 

 

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Before You Go…

A special guest joins us for this episode of The Hedged Edge, who is well known for his many titles, which include Doctor, Editor-in-Chief, Dean, and Chief Academic Officer, just to name a few. Dr. Channa S. Prakash, Dean of the College of Arts and Sciences (CAS) at Tuskegee University, has served as faculty since 1989 and is a professor of crop genetics, biotechnology, and genomics. He is also well recognized for mentoring underrepresented minority students.

Tune in as biotech guru Dr. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between. And as a bonus, we find out what sport he would be interested in playing if he went professional.

 

01 Mar 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

The Leonard Lumber Report: The Difficulty of Managing Inventories in Today’s Marketplace

This week’s back and forth trading in futures highlighted just how difficult it is to manage inventories in today’s marketplace. The problem is insufficient real-time data to read supply or demand accurately. We saw the industry going from a too much wood attitude on Monday to a now enough by Friday. That type of uncertainty has plagued this industry for years. In the recent past, many took to contracts, which has taken out some of the emotion but has also reduced margins. This buy sides self-prescribed shrinking of margins causes voids in the market. 

The reluctance of other buyers and pure demand also adds to the voids. So, where are we going with this? We can’t keep this beast full in a rising market. 

The marketplace continues to argue about business. 1899 is a big permit number and too large to produce for. We hear all about the actual completion number, labor, windows, yada, yada, yada. The permit number is either business for today, potential business, or soon to be postponed business. Most economists were in the same camp for years that we couldn’t build 1.5 because of labor, and we couldn’t produce 1.5 because of log issues. If the industry can’t complete 1.5 and there isn’t enough wood available for 1.5, why are permits rising to almost 1.9? The simple answer is increasing demand. Covid, the Fed, and the stock market have hyperbole the housing sector. 

The Fed flooded the system with cash that sent the stock market to new highs giving many a large windfall. Throw the urban bail into the mix, and here we are. From here, the question becomes whether these levels are sustainable, and the quick answer is no. The longer answer is that the world has changed, and attitudes towards money have changed, as has investing. It will take years for this industry to get a read on the net result of that change. History has shown that industries learn to be more efficient, but higher prices stay.

Too many or not enough issues are the primary cause of our large swings as it “encourages” the algo’s to push the market. The market experiences temporary slowdowns in purchases which negatively impacts prices in futures. We saw early last week how quickly the market focuses on supply and shuts off. As we look towards better shipping and more Euro wood, I expect the industry to take a large step back. Prices will fall sharply, but with 1.9 permits, it won’t stay down for long.

 

Let’s Get Technical:

There are two views diverging views of the current lumber chart. The non-lumber technicians see a market consolidating to go sharply higher, and it is a pattern of a market cliff dwelling to seasoned lumber technicians. Who is seeing it correctly? The issue today is that lumber has historically been a pure momentum-driven market, and it corrects but rarely will it maintain a flat trading area at a top or bottom. 

We have two weeks of a flat market hit by a shutdown announcement and a Russian invasion. Our first takeaway is that the marketplace is accepting these higher prices levels, and it is a market looking for the middle. That said, as a seasoned lumber technician, I would not be too exposed to a possible cliff in front of us.

 

Weekly Round-Up:

First and foremost, betting on cheaper wood is not a good business strategy. July is sitting close to $1,000, which is $300 under March futures and cash. I am looking for a spring selloff, but the math indicates a continued tight market for months. The entire industry will sell in May and go away after last year will keep inventories very low. As the technical section says, the industry is trying to find some middle ground for pricing but keeps getting caught in the logistics. There is a better cash trade, and the industry is adding a few hedges along the way. The funds are adding a few longs on every spike, but nothing could lead to a trend. 

 

About The Leonard Report

The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Before You Go…

A special guest joins us for this episode of The Hedged Edge, who is well known for his many titles, which include Doctor, Editor-in-Chief, Dean, and Chief Academic Officer, just to name a few. Dr. Channa S. Prakash, Dean of the College of Arts and Sciences (CAS) at Tuskegee University, has served as faculty since 1989 and is a professor of crop genetics, biotechnology, and genomics. He is also well recognized for mentoring underrepresented minority students.

Tune in as biotech guru Dr. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between. And as a bonus, we find out what sport he would be interested in playing if he went professional.

17 Feb 2022
Lumber, Market Commentary, Market Updates rcmagserv 0 comment

Leonard Lumber Report: This is a Supply-Side Industry

We tend to focus on fires, rail, a wall of wood, etc. Then one day a month, we look at housing starts. Today it is too easy to say that shipping issues are running prices up again. We hear daily from the trade that the company has too high of inventories on one day, and they don’t have enough in less than 24 hours. That is a demand issue. The other feature on the demand side is that the late cars’ fill-ins are not increasing inventories. Follow-through buying keeps the buy-side underbought. We saw this same dynamic last February. The mills have a lot of sold inventory to ship. Will new buying stay at this pace?

We must stay focused on the global economic picture. After yesterday’s booming PPI number, we now have the sense that the inflation push is unsustainable. That doesn’t indicate a pullback in prices but suggests that the trajectory will ease. What that means for housing is that production costs will remain high, and that will keep home prices high and affordability an issue for some time. 

Let’s Get Technical:

There are two markets today, March and the back months. March keeps pace with the cash trade while the back months reluctantly stay above $1000. We have even seen some algo type trading as far out as July as it sets up for the rollover. The key driver remains March, and a close over the last high sets it up for a run, which will drag the back months higher. 

Weekly Round-Up:

Anything bought today has to be hedged. Most refuse to sell a discount to hedge. Today you must look at the sell as a wood product trade, not a pure hedge. Puts are the way to go but are very expensive. Everyone from the local yard to the computer running the options knows we are going down at some point.

Open Interest and Commitment of Traders:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

About The Leonard Report
The Leonard Lumber Report is a new column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

Before You Go…
A special guest joins us for this episode of The Hedged Edge, who is well known for his many titles, which include Doctor, Editor-in-Chief, Dean, and Chief Academic Officer, just to name a few. Dr. Channa S. Prakash, Dean of the College of Arts and Sciences (CAS) at Tuskegee University, has served as faculty since 1989 and is a professor of crop genetics, biotechnology, and genomics. He is also well recognized for mentoring underrepresented minority students.

Tune in as biotech guru Dr. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between. And as a bonus, we find out what sport he would be interested in playing if he went professional.

25 Jan 2022
Agriculture, Market Commentary, Podcast rcmagserv 0 comment

The Future of “Feeding the World” with Ag Technology featuring Dr. Channa Prakash

A special guest joins us for this episode of The Hedged Edge, who is well known for his many titles, which include Doctor, Editor-in-Chief, Dean, and Chief Academic Officer, just to name a few. Dr. Channa S. Prakash, Dean of the College of Arts and Sciences (CAS) at Tuskegee University, has served as faculty since 1989 and is a professor of crop genetics, biotechnology, and genomics. He is also well recognized for mentoring underrepresented minority students.

Tune in as biotech guru Dr. Prakash discusses everything from Alabama football, genetics as one of the most extensive agricultural advancements, the most significant risk factors to feeding the world over the next 30-50 years, plus everything in between. And as a bonus, we find out what sport he would be interested in playing if he went professional.

Highlights from this week’s episode include:

  • The science that has provided our farmers with better varieties of crop lines by using some of the most sophisticated technology on Earth
  • Why producing crop plants with a much gentler footprint on the natural resources will help feed the growing population
  • How 75% of the world’s patents in agriculture gene editing are coming out of China
  • Understanding that trying to impose restrictions on our ability to grow food can be a considerable risk to agriculture and more!

 

Quick links from the episode:

  • Follow Dr. Prakash on Twitter @AgBioWorld here
Listen or watch:

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