Market Plus: Arlan Suderman

Howell: This is the
Friday, January 24, 2020 version of the
Market Plus segment. Joining us once again
is Arlan Suderman. Arlan, welcome back. Suderman: Good to be back. Howell: You’ve got your
first Market to Market broadcast under your
belt now, very exciting. Suderman: I feel
like a veteran. Howell: (laughs) Well, you
definitely are when it comes to analyzing the
commodity markets. One commodity we did not
get to touch on during the main program, Arlan,
was the cotton markets. They’ve had kind of a
down week this week being really beat up it seems. Suderman: It was a rough
week for the cotton market and trading around that
70 cent level now on the board. And there’s a couple of
stories that are related that are really impacting
this market is farmers in the South are getting
really close to finalizing those planting decisions. And certainly one would be
the Phase One trade deal with China. China is definitely going
to play a role in the global cotton market. How much are they
going to be purchasing? And what are we going to
see them purchase from the United States? But related to that is
the coronavirus story. If coronavirus becomes a
significant problem in China a couple of aspects
that plays into it, first of all means that it slows
down commerce in China, is a drag on their economy
which is struggling anyway, could pull them
into a recessionary situation and some of
those purchases that contain cotton in them
would be considered maybe discretionary purchases,
might slow down as purchases. You also look at the crude
oil market that broke hard this last week, partially
because of coronavirus, because if people aren’t
traveling they’re not consuming oil, they’re not
consuming energy and we obviously know that one of
the big alternatives to cotton is the polyesters
and some of the manmade fibers. And so as they become
cheaper then that becomes more competition
for the cotton. So really China related,
coronavirus related, need to keep an eye on
what’s happening there. Howell: Okay. And you also mentioned
that we’re waiting to see kind of where acres sum
up for the 2020 year. It’s crazy that we’re
already talking acreage when we still don’t have
some acres harvested in the Dakotas and what not. But Arlan, what are you
looking at, I know Informa released some acreage
numbers that seemed pretty high compared to
other expectations. Where are you putting
acres for corn, soybeans, wheat and cotton for the
2020 growing season? Suderman: I think we could
see cotton come up a little bit in here again
those final few percentage points can shift depending
on what the market does here over the
coming weeks. But when we look at corn
and soybeans between those two crops we have really
been right around 178.7 million bushels acres for
the two combined over many recent years with the
exception of last year obviously. I anticipate us trying to
get back to that level. And I was at about 92.2
million acres, then December corn hit the $4
level and I raised up to 94 million, which
is lower than some. But I’m not quite as
aggressive, I don’t think farmers are going to be as
quick to expand above that as what some do. That puts soybeans at
about 84.6 million bushels, million
acres combined. So that increases the
soybean supply, increases corn supply, puts the
requirement that we do get some more demand in there
in order to have a reason to sustain a rally, be
looking to China for that. Wheat I thought we would
come down a little bit more than what USDA says. I was about a half million
acres below where USDA said. I think we still
may see that. We’ve got a lot of
problems still in the Southwestern Plains where
we may not get harvested, some wheat still trying
to sprout or waiting for moisture to sprout, could
be a problem and we’ll really need to see what
happens in the spring wheat belt as
far as acres. You mentioned the corn
that is still not harvested in the Northern
Plains, we could end up with the heavy snow pack
they have some of that maybe not be harvested
until April or even May if some of the weather
forecasts we see kind of hold out true. I hope that’s
not the case. Howell: Yeah, I hope so
too for those farmers’ sakes. But Arlan, you mentioned
USDA there, so we’ve got a question talking
about just that. We’ve got a question here
from Ken in Nebraska. He said, what is your take
on the revisions USDA did with corn, feed and
residual from previous growing seasons and what
it might mean for grain markets moving forward? Suderman: Yeah, I’ve been
a big defender of USDA NASS. There’s two divisions
of USDA to put out the numbers. There’s WASDE, which is
given permission to use judgment and we’ll argue
with the judgment at times. USDA NASS is really stuck
behind their numbers. I may disagree at times
with the processes they use to get those numbers
but they had a system in place and they’ve always
tried to stick to the integrity of the process
and report the numbers as they come. They deviated from that
somewhat in this last report when they went and
backward revised down the September 30 stocks report
107 million bushels because they thought the
feed usage number needed to come down. They didn’t really have
data to back that up, that came from surveys, they
just thought it needed to be so they used judgment
and that is a deviation. And I asked Lance Honig,
head of the crops division, when is the last
time this has happened to this extent. He says, well I can’t
remember another time when we did. And that makes it more
difficult to defend them in that process. I would rather they stuck
with what the numbers said. I do think that WASDE is
underreporting feed usage, a lot of people want to
say last year’s crop, or the ’18 crop was smaller
than what USDA reported. I think the bigger issue
is the size of demand. I think feed usage is
actually larger and that means that tighter stocks
to use ratio and would have a better more
positive impact on prices. Howell: Arlan, since you
mentioned demand there obviously that is one of
the biggest drivers of prices and we’ve got a
question here from Steve on Twitter wanting to know
what will be the signs of real demand in
corn and soybeans? Suderman: On soybeans
first I think if we’re going to have hope of real
demand in the next six months we need to look to
the domestic market for the crush. The problems with the
crusher in Argentina having financial problems
is sending more business our way. We are seeing
tighter oil supplies. And then related to this,
I’ll move over to corn now, I don’t expect to see
massive sales of corn to China. It could happen but I
don’t expect that, maybe 1 or 2 million metric ton,
which would be 40 to 80 million bushels. That is really not going
to change the marketplace. But the opportunity is
there for significant ethanol and DDG
sales to China. If they do that that would
obviously help margins in the ethanol industry. But we were exporting
really a couple of years prior to the trade war we
were exporting up to 7 million metric tons
of DDG’s to China. If we would go back
anywhere close to that level that would
dramatically increase the demand for soy meal here
in the United States. So that’s what I’m
really watching for. I think that is the key
is watching for DDG and ethanol exports to China,
that will help both corn and soybeans. Howell: Arlan, I know you
guys have a lot of offices all over the world. Tell me a little bit more
about why you don’t think China will be
importing any U.S. corn any time soon. Suderman: Well, China
first of all doesn’t want to if they don’t have to
because one of their main objectives is raising the
income level of their rural population. So they want higher prices
in China and they have been looking at $7, $8,
$9 corn prices there. They want to keep that. If they flood the
market with U.S. corn then that suppresses
their prices and farmers quit producing. But the other hand is
African swine fever is hurting demand. They are still consuming
more than they produce and so their supplies
are coming down. USDA a little over a year
ago upwardly revised the size of China’s stocks, we
had talked to them prior to that, they overdid
it, went too far. We believe the size of
China’s reserve is about 56 million metric tons,
about 2.2 billion bushels, similar to U.S. stocks and that is really
pretty small relative to demand and I think once
they start stabilizing livestock production there
demand is going to be there but also
demand for ethanol. Howell: So there’s
definitely some differing of opinions between the
USDA and the commercials, that is indicated with
basis and a little bit with what you’re
saying as well. We’ve got a question here
from Mitch in Hull, Iowa. He said, if we really
produced the corn crop the USDA says we did why are
cash basis levels so tight? Suderman: Well, one reason
cash basis level is so tight, the other argument
would be is that farmers are cash flush from the
government so they don’t have to sell
so they’re not. And we need to have over
250 million bushels per week to feed the
supply pipeline. But I think it’s both. I think the crop is
smaller but we can’t focus our marketing decisions on
what we think, the market is going to trade
what USDA says. Going back to 2009 we had
another late, wet, low test weight crop and in
that year in the June 30th stocks report we had a
bullish surprise in the stocks report that
inferred that feed usage was over a half billion
bushels larger than normal during that
preceding quarter. And I think we’re looking
at a similar surprise in either the June 30th or
the September 30th report or maybe split between
the two this year because first of all you take a
wet, low test weight crop, and I presented this to
USDA back at that time and they actually did a study
to see if they wanted to change their procedures
and I talked to Lance Honig in November, he
said no we didn’t change anything, we’re just going
to do the best we can again. You take a low test
weight, wet crop and put it in the bin, you take
a lot fewer bushels out because there’s a lot of
shrinkage in that bin than when you dry it. And so farmers are
reporting more production than they really
had in actuality. The other factor is it’s
low test weight because it has a low starch content. That requires more bushels
to make the livestock gain or the ethanol produced. One livestock producer is
telling me he’s having to feed 2% more corn in order
to get the gain that he needs and I think we’re
going to see that and that wasn’t even the lowest
test weight corn. I think we’re going to see
higher demand and lower stocks come out as we
go through the year. Howell: Okay, Arlan,
I’ve got a good kind of softball question then to
end things on for today. We’ve got a question from
Matt in Amherst, Wisconsin wanting to know which
commodity has the most hope and which has the
least hope for the 2020 season? Suderman: I put that
question out in one of our Twitter surveys and it
came out pretty well evenly split among farmers
and what they think. Because of African swine
fever I’m less optimistic about soybeans unless we
can sell a lot of DDG’s to China and increase
consumption of soy meal here in the United States
sufficiently and continue to have problems
in Argentina. Wheat I think will see
some increased business but we’ve got a bigger
supply there and a lot of competition in
the Black Sea. So I think corn has the
best opportunity and what I’m really watching for
again is whether China makes large
purchases of ethanol. Our ethanol freighted to
China is a little over $2 a gallon. That is almost half
their gasoline prices. So the math works
for them to do it. It’s just will they do it. And we know our buyers
over there saying they want our DDG’s if China
will just allow them to have it. Howell: All right, Arlan
Suderman, thank you so much. Suderman: Thank you. Howell: Join us next week
when we’ll look at how a group of beekeepers are
using groundbreaking methods to fight colony
collapse disorder and Elaine Kub will sit across
from me at the Market to Market table. Until then, thanks for
watching, listening or reading. I’m Delaney Howell. Have a great week!

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