Turner’s Take Podcast | Debt Ceiling Can Kicked to December

New Podcast

This week we go over the latest US jobs report, the sort term debt ceiling deal, and the inflation in energy and food prices.  We talk about our price ranges for crude oil and natural gas and why we see elevated prices at least until spring 2022. We also go into the record prices in oats, the impact soybean oil will have on soybeans and meal, and what a fertilizer shortage could mean for 2022 new crop acres.  Make sure you take a listen to the latest Turner’s Take Podcast!

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Macro Markets

Stocks are on the rebound and interest rates are lower after the US Senate agreed on a temporary increase to the debt ceiling.  This is a short term solution that will come up again in December.  The September Employment Report was a big miss to the downside. Economists were looking for about 500K jobs and the number was just under 200K.  Unemployment is now at 4.8% which was better than expected, but the decrease was largely due to people no longer looking for work. In the eye’s of the US government, if you are not looking for work then you are not unemployed.  The August report was revised to show an increase of jobs by over 100K.

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Energy

I’ve been talking a lot about Natural Gas lately but lets not forget about Crude Oil.  Nov Crude hit $80 early today and we haven’t traded this high in years.  Some analyst are calling for a $90 target.  $65 should be very strong support. If we are in an energy crunch and economic growth stays strong, then the new range for crude could be $65 to $90.

In the past it was in OPEC’s best interest to start pumping more oil when it got to these prices to A) capture additional market share and B) discourage increased production from high cost producers.  Things have changed in the past few years.  Many developed nations are moving away from coal and petroleum energy sources to clean and green alternatives.  The cleanest fossil fuel is natural gas.  The green energy of choice seems to be renewable biodiesel which is bullish for vegetable oils.  OPEC doesn’t fear the crude oil exploration and new technology development as it did five or ten years ago.  Recent US and Western Europe energy policies have actually be detrimental to new crude oil exploration and development.  If that is the case, then will OPEC be more willing to see higher crude oil prices going forward?

As for natural gas, we have two charts below the crude oil chart. The daily natural gas shows how big a rally we’ve seen this year since February. The next chart is US natural gas vs UK natural gas.  That chart is correct and so are the price.  UK natural gas has traded at the equivalent of $40/MMbtu while in the US we are currently in the high $5s.  Also note that UK and US natural gas were around the same price in the summer of 2020!

Daily Crude Oil

Daily Natural Gas

US Natural Gas vs UK Natural Gas

Grains & Oilseeds

Since we are transitioning from NG I’ll start this section off with fertilizer.  Natural gas can make up 60% to 90% of fertilizer costs.  The market isn’t talking about it a lot right now but what do these high prices mean for 2022 new crop production in the US and South America?  The good news is the majority of farmers in North and South America have locked in most of their fertilizer cost for 2022.  The bad news is for the 20 to 30% that still needs to be price, how are they going to get it and if fertilizer is available could it become cost prohibitive?  It is too ring the alarm bells but it is a big question heading into the next crop cycle.

We are in the thick of harvest and I’m hearing a lot about great looking soybeans and mildly disappointing corn yields.  The USDA will release their October WASDE on Tuesday the 12th next week at 11 am. I’m expecting corn yields to come down and soybean yields to go higher.  Soy probably has support at $12 since soybean oil is above 60 cents and we have very tight global vegetable oil stocks.  I do think Meal has a chance to trade sub $300/mt if the US gets into a trend of crushing soybeans for oil.  That would lead to the US eventually being a bigger exporter of meal but that kind of exporting business development doesn’t happen overnight.  We could see some pressure on meal before the industry finds buyers on the export market.

Finally, I want to touch on Oats. I’m not a big fan of trading oats from the spec side (it is a thin market), but it is a commercial market with some pretty big players and a viable contract for hedgers.  Oats are at all time highs.  Oats are trading over corn by more than $1, another all time high.  There is a serious shortage in the market and the commercials are not discouraged by the high prices. They are coming in and buying.  They are not looking for substitutes.  The market is trying to price ration Oats and that has just not happened yet. It is a good example of how commercial demand can send a market higher than most would have expected.  I don’t intent to trade oats but it is something to keep an eye on.

About Turner’s Take Podcast and Newsletter

If you are having trouble listening to the podcast, please click here for Turner’s Take Podcast episodes! Craig Turner – Commodity Futures Broker 312-706-7610 cturner@danielstrading.com Turner’s Take Ag Marketing: https://www.turnerstakeag.com Turner’s Take Spec: https://www.turnerstake.com Twitter: @Turners_Take Contact Craig Turner