Market Plus with Sean O'Leary

This is the February three, 2023 Market Plus segment

from market to market.

Joining us now, Sean O'Leary.

Shawn, how'd that first segment go? Are you.

I'm surprised you're still here.

I think you did pretty well. Well.

Because my words are on the screen.

Yours or not. Right.

We did a podcast a couple of months ago,

had a chance for some of your background from Carroll, Iowa.

Your father was in commodities.

You didn't study commodities in college.

You did you want this job?

I was actually kind of a studio guy, broadcast and film major

perfect lead into a commodities career parallel.

Just kidding.

But yeah,

born and raised in Carroll, Iowa,

attended the University of Iowa, graduated in 89

with communications studies degree, was looking

for a job and dad said, Well, where do you want to work?

What do you want to do?

Told him, I'd just like to work for a good sized company.

I never really understood what he did. But,

you know, two years of college brought me up a little bit.

He told me about it and I became very interested in it.

Been doing it ever since.

And now here you are on the show, getting asked questions.

Yeah.

You might not have wheat in your backyard,

but you have customers that pay attention to it.

So thank you for putting up with my 15 wheat questions.

That's just my

that's just the way I show love and affection.

How about. That? Appreciate it.

All right.

Well, let's start with it's a question with wheat in it.

So that's where I'm going.

Mark in Minnesota Sean wants to know,

with future prices for wheat, soybeans and corn

being rangebound, what is your forecast for basis

levels of these commodities for the first half of 2023?

Well, I think that's going to continue

to be quite variable and from region to region.

I mean, you can you can say that any time of year,

probably any given year with all of those, but it's

because it's been the case where there have been some

real big differences in basis levels. And

I think even though the markets are rangebound,

you're going to continue to see that play out.

And it comes down to areas that we're a little bit

short on the crops on long last fall,

and I think you'll see that

into the spring and probably early summer.

And I would imagine

the areas that are like you said, a shorter crop, but

maybe areas that need the end product more for livestock,

say North Dakota down to Texas, their basis

could really fluctuate wildly here.

Yeah, yeah, I would agree. I would agree.

So it's a that's a function of how

how aggressive the end user wants to be in there.

They're going to start turning to our own weather domestically

as soon as South America's weather talk is done.

Well, I'm out of wheat questions,

but I want to get you in the politics about that.

Paul in North Dakota wants to know, Sean,

if we go to war with China in 2025,

who will buy our corn, soybeans and pork?

Boy, very good question.

I don't know that there's any answer that is anything

other than not very pretty.

You know, China, it's great to have a big customer

like China unless you lose that big customer.

And unfortunately, they're kind of the tail of wags the dog.

And in both

the corn and bean markets, too, to a large extent,

there's a reason that they put money into infrastructure over

many, many years in south of South America.

So our political climate with them right now

is probably the worse it's been in several years.

You know, there's there's tension between

what how we've approached

bases in the Philippines and Guam, for example.

They're not real happy with that.

I don't know where all all of our product

would be exported to if not to China.

And that's been a discussion several people have had here

of, you know, China's buying ahead of a 2025 invasion.

But can't you say over the last now three years since COVID

started, I mean, the world dynamic can change.

So can the markets and who's buying and who's selling.

And we've seen China really not be as aggressive of a buyer

in the last, would you say, three, six months?

Yeah, I would say I would say that's the case.

You know, we we have a tight, tight balance sheet

on a lot of a lot of markets, corn and beans included.

China is usually,

I think, pretty shrewd as a buyer.

They have at times bought only what they've needed.

They have at times bought ahead.

It's kind of

hard to put a finger on what they're going to do.

Right.

They're they're they're good at kind of keeping

their cards close to the vest.

And as Don Rose likes to say,

they're the ones who taught everybody how to trade.

So, you know, we look to them for examples.

Okay. Here's one Ken in Michigan.

And I think you're like this question

when I read it to you before, many of your market

analysts recommend using options as a hedging tool.

Do they consider position delta

when making that recommendation?

Using Delta is probably the easiest of all the Greeks.

You can have an understanding of

every option or put or a call.

Long or short has a delta value.

The delta value is going to tell you

roughly

as a percentage what the option is going to do

relative to a move up or down on the board price.

So a put that has a delta value of 0.6

means that if corn goes down a dime.

Your put option if you own

it is going to increase by roughly $0.06.

The delta value is going to fluctuate from day to day.

It's going to change

as the market goes up and as the market goes down.

The delta value is also going to give you an idea

of the percentage chance of the option

finishing with value at expiration.

So if you buy a put out

a call that has a delta value 0.3,

I buy one with a delta value of 0.6.

I've got better odds of having value at expiration differences.

I might pay twice as much as you to have that,

but I think it's it's an important one to know.

Most most quote,

services or trading platforms are included.

It's going to list that delta value.

So it's a that's a good tool.

It's something I wouldn't ignore.

And if you're going to learn

anything about Greeks, that's step number one start.

It started as a base. Start at start. All right.

With Delta.

Okay. Well, let's start with Ryan in Iowa.

When it comes to natural gas,

why are NH three prices so high when it hits 1600 a ton?

Natural gas is up to 26 now.

Natural gas is 250 and NH three is still pushing 1200.

Sorry, NH three.

I read faster than I meant to be.

Yeah. What's the explanation?

You know, I can only imagine it's kind of like crude oil.

Crude oil moves down.

We don't see a lot on for quite some time.

I can only imagine the natural gas situation is the same way.

And unfortunately it's probably the case where

the producers of it, if

they can charge a higher price for a long enough time,

they'll get by with it as long as they can.

Well, natural gas

this week for the for the record, was off 16%.

Yeah.

So you're saying

it might be a little while before we see that reflection,

but this isn't the first time we've we've declined.

So I guess I'll take this a step further and tie

in one of the other questions.

Would you be buying any inputs right now,

or do I think that do you think that there is a price break

coming in some of these fertilizers and other inputs?

I think I would

I would dip my toe in the water on on on covering needs

for that.

If you

look at the nearby contracts of natural gas,

the futures contracts have lost a lot of value.

They have really gone down a lot.

There's a chance that those recover and the cash price

never really matches what the board price does.

So I would I would start covering costs here.

Yeah.

You may not get much more of a chance to later.

All right. Thank you.

So another opportunity that could be lost is old crop.

Tim in Iowa wants to know what should a person keep

on stringing out old crop sales of corn

or is it time to finish selling the old crop?

Some of the people in the chair before you have said, open up

that bean door and start selling. Okay.

I think

I think it varies from producer to producer depending on

how much of your old crop you have left.

If you are

undersold at this point relative to years

where you had been more aggressive on sales,

I think I'd,

you know, start to be a little bit more aggressive.

I had mentioned the planning intentions report.

You could save a little bit for that.

If you're

you know, if some of your sales

were made at more attractive prices.

You know, going back to,

you know, we're a fair amount off.

If you had made some sales early

on, maybe you can afford to be a little bit more aggressive

and hold for that report, hold for maybe a weather

scare in the planning or even the month of June.

Right.

You did talk a little bit about that

weather during the main show about.

Yeah, I,

I won't say they're fun bushels, but you're more of your.

If I lose, I lose.

But, man, if I hit it big, that'd be great.

Right. Okay. All right.

I guess I didn't fully give you the full heys on everything.

I didn't ask about the cotton market.

Cotton's been kind of stuck

in a sideways range for quite some time.

Talked to a couple of cotton people here recently.

They just don't see much interest

in planting any of that.

Do you see cotton buying acres or is this an accurate

story right now or is this a China story right now?

I think it's a combination of the two.

I looked at that earlier this week.

I was curious as to, you know, when you talk about cotton

acres, you also have to talk about soybean acres.

Cotton at the start of the Ukraine war

had a 20, 20% price increase.

Beans only went up seven and a half percent.

And I'm talking about the highs made in in July.

And I think I think Cotton actually peaked in June.

Beans in July.

Cotton and bottomed out in October.

Beans bottomed out a lot quicker.

But the from the contract high,

the cotton declined 45%

and is still 15% lower.

The beans after seven and a half percent rally right now

is still sitting at a five and a half percent gain.

That's a big swing between those two.

Price wise, the bean contract notional value,

a lot bigger contract than the cotton contract.

But I would say

the way

cotton looks, you might think you will have seen

that much of a decline relative to the bean price.

Is that a buying opportunity?

I, I don't know that it is.

Honestly, if if I were to approach it

that way,

I'd probably go back to

the options and maybe some some sort of option premium.

The cotton option market isn't nearly as liquid

as a bean option market is, but there might be.

And I, I did a Google search for a cotton soybean spread.

Yeah. Couldn't find anything.

Oh. Well, you're going to have to write it

then when you're done here.

Might be a crazy idea, but might be some opportunity there.

All right. Thank you so much, Sean. Appreciate it.

Thank you for your time. I appreciate it as well.

All right. Thank you, Sean.

Sean O'Leary, everybody. That's it for Marketplace.

Next week,

we are going to look at a startup

that's gaining momentum and preserving pollen.

And Matthew Bennett will be in to offer his analysis

on the markets.

Thank you so much for joining us and have a great week.