1 00:00:11,360 --> 00:00:15,040 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:15,160 --> 00:00:19,119 Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't all so, Joe? Uh? 3 00:00:19,239 --> 00:00:21,880 Speaker 1: I know there's been a lot going on this year. 4 00:00:22,400 --> 00:00:25,000 Speaker 1: You know, we obviously have a new US president, we 5 00:00:25,040 --> 00:00:29,080 Speaker 1: had the game stop saga in markets. But I think 6 00:00:29,080 --> 00:00:33,560 Speaker 1: we can all agree that the big news of has 7 00:00:33,600 --> 00:00:38,320 Speaker 1: been that China's new live hog futures started trading. Yeah. 8 00:00:38,360 --> 00:00:40,279 Speaker 1: I mean that's obviously what I was going to say 9 00:00:40,320 --> 00:00:42,720 Speaker 1: as well. I mean that's how you know, that's sort 10 00:00:42,720 --> 00:00:45,320 Speaker 1: of the big thing that everyone is talking about so 11 00:00:45,360 --> 00:00:48,600 Speaker 1: far this year. Yeah, okay, so clearly we are joking, 12 00:00:49,040 --> 00:00:52,400 Speaker 1: but I will say these new futures contracts were something 13 00:00:52,440 --> 00:00:56,160 Speaker 1: like twenty years in the making. Um, so they took 14 00:00:56,160 --> 00:00:58,800 Speaker 1: a really long time to get here. One of the 15 00:00:58,840 --> 00:01:04,080 Speaker 1: reasons that so interested in starting futures contracts for pork 16 00:01:04,200 --> 00:01:08,280 Speaker 1: is because they've basically had their pigs supply absolutely decimated 17 00:01:08,400 --> 00:01:11,720 Speaker 1: in recent years by African swine fever. So the whole 18 00:01:11,720 --> 00:01:14,480 Speaker 1: idea is that the futures contract will come in, it 19 00:01:14,520 --> 00:01:18,000 Speaker 1: will allow some standardization of pigs, and it will allow 20 00:01:18,080 --> 00:01:20,800 Speaker 1: farmers to hedge and things like that, and they'll be 21 00:01:20,840 --> 00:01:27,000 Speaker 1: able to rebuild their pork supply m standardization of pigs. 22 00:01:27,200 --> 00:01:32,520 Speaker 1: I'm a, I'm I'm very intrigued by this. Yes, okay, 23 00:01:32,560 --> 00:01:35,520 Speaker 1: welcome to agricultural all thoughts. Um, So, we're gonna be 24 00:01:35,560 --> 00:01:38,840 Speaker 1: talking about the pig futures contract, but we're gonna be 25 00:01:38,920 --> 00:01:42,040 Speaker 1: talking about food price inflation more generally, because of course 26 00:01:42,200 --> 00:01:47,200 Speaker 1: we've seen pork prices in China absolutely surge recently. It's 27 00:01:47,200 --> 00:01:50,640 Speaker 1: starting to come down now, but but globally, as you know, Joe, 28 00:01:50,880 --> 00:01:54,520 Speaker 1: there's been a massive rise in food prices. Yeah. And 29 00:01:54,560 --> 00:01:56,880 Speaker 1: I would say if I were to actually from an 30 00:01:56,880 --> 00:02:00,040 Speaker 1: eco standpoint, if I were to say what is the 31 00:02:00,040 --> 00:02:03,880 Speaker 1: biggest story in or in the economy right now, it 32 00:02:03,920 --> 00:02:08,959 Speaker 1: would be all of the different bottlenecks price increases we're 33 00:02:08,960 --> 00:02:12,880 Speaker 1: seeing at the producers side. We've talked about it with shipping, 34 00:02:12,919 --> 00:02:16,640 Speaker 1: and we've talked about it with semiconductors, where we've talked 35 00:02:16,639 --> 00:02:20,280 Speaker 1: about it with Jeff Curry, with industrial commodities, and of 36 00:02:20,320 --> 00:02:23,240 Speaker 1: course we're also seeing it in agriculture commodities. You know, 37 00:02:23,240 --> 00:02:24,720 Speaker 1: if you look at the last year in the US 38 00:02:24,760 --> 00:02:27,880 Speaker 1: soy futures up from nine hundred, I guess it's for 39 00:02:28,000 --> 00:02:32,520 Speaker 1: futures contract for bushel dred corner is up by a lot, 40 00:02:32,600 --> 00:02:34,480 Speaker 1: Hogs are up by a lot, cattle is up by 41 00:02:34,520 --> 00:02:37,640 Speaker 1: a lot. So there's almost you know, all these different 42 00:02:37,680 --> 00:02:42,520 Speaker 1: categories we're seeing this upward price pressure issues relating to 43 00:02:42,880 --> 00:02:46,320 Speaker 1: of course, uh, supply chain disruption still doing with COVID, 44 00:02:46,800 --> 00:02:51,120 Speaker 1: massive recovery and demand around the world, particularly in China, 45 00:02:51,160 --> 00:02:53,480 Speaker 1: but elsewhere where. And now as of the time that 46 00:02:53,520 --> 00:02:55,320 Speaker 1: we're recording this, and I think we're going to talk 47 00:02:55,360 --> 00:02:59,000 Speaker 1: about it too. Uh, the extraordinary scenes that we're seeing 48 00:02:59,000 --> 00:03:02,079 Speaker 1: out of Texas and the freeze which is really disrupting 49 00:03:02,639 --> 00:03:06,919 Speaker 1: the economy of the entire central part of the United States. Yeah, 50 00:03:06,960 --> 00:03:11,320 Speaker 1: a perfect storm of factors coming together to increased food prices. 51 00:03:11,800 --> 00:03:14,000 Speaker 1: Storm might not be the right phrase there, but it is. 52 00:03:14,560 --> 00:03:18,160 Speaker 1: I mean, you are starting to see actual impacts of this. 53 00:03:18,280 --> 00:03:22,640 Speaker 1: So here in Hong Kong, McDonald's isn't offering hash Browns 54 00:03:22,680 --> 00:03:26,480 Speaker 1: and its breakfast anymore. So you know, things are very serious. 55 00:03:26,880 --> 00:03:29,919 Speaker 1: More seriously, we've seen some countries starting to talk about 56 00:03:29,960 --> 00:03:33,200 Speaker 1: putting a price caps on food prices. I think Russia 57 00:03:33,280 --> 00:03:35,600 Speaker 1: is already doing it. The UAE was talking about doing 58 00:03:35,600 --> 00:03:39,080 Speaker 1: it as well, So it is beginning to affect people's lives, 59 00:03:39,080 --> 00:03:42,480 Speaker 1: and it is causing problems for some governments. So we're 60 00:03:42,480 --> 00:03:46,120 Speaker 1: going to dive into the whole issue of food price 61 00:03:46,120 --> 00:03:50,240 Speaker 1: inflation as well as the new Dallian hog futures contract. 62 00:03:50,320 --> 00:03:54,040 Speaker 1: By popular request, we're gonna be speaking to Scott Irwin. 63 00:03:54,240 --> 00:03:58,800 Speaker 1: He's an agricultural economist at the University of Illinois. Scott, 64 00:03:58,880 --> 00:04:03,520 Speaker 1: Welcome to the show. I'm glad to be here. So, Scott, 65 00:04:03,520 --> 00:04:08,680 Speaker 1: in addition to being an agricultural economist, you're also an 66 00:04:08,920 --> 00:04:13,720 Speaker 1: actual farmer from Iowa. Is that correct? Well, it's probably 67 00:04:13,760 --> 00:04:19,240 Speaker 1: technically speaking. Um, I don't actually get much tractor driving 68 00:04:19,320 --> 00:04:25,200 Speaker 1: and physical participation, but I it's an interesting situation. I 69 00:04:25,279 --> 00:04:28,520 Speaker 1: from the landlord side of my family's farm out in Iowa. 70 00:04:28,680 --> 00:04:31,680 Speaker 1: My eighty five year old mother and I provide the 71 00:04:31,720 --> 00:04:34,360 Speaker 1: management and do all the marketing of the crops. So 72 00:04:34,680 --> 00:04:36,640 Speaker 1: I lived through the ups and downs of the grain 73 00:04:36,760 --> 00:04:41,160 Speaker 1: markets like everybody else. Plus I get to try to 74 00:04:41,760 --> 00:04:44,560 Speaker 1: work the markets with my card playing eighty five year 75 00:04:44,560 --> 00:04:49,800 Speaker 1: old mother. That sounds that sounds extremely satisfying and fun. 76 00:04:50,279 --> 00:04:53,200 Speaker 1: You know right now, you know sort of mentioned this 77 00:04:53,400 --> 00:04:58,960 Speaker 1: rally that we're seeing. It's pretty intent across various soft commodities, 78 00:04:59,000 --> 00:05:01,479 Speaker 1: agriculture commodity. Why do you give us the sort of 79 00:05:01,560 --> 00:05:06,159 Speaker 1: basic big picture of what's going on, what's driving this 80 00:05:06,320 --> 00:05:13,000 Speaker 1: bid China perfect? Is that as six existent as you Yeah, 81 00:05:13,640 --> 00:05:17,640 Speaker 1: it's not the only factor, of course, but in the 82 00:05:17,680 --> 00:05:21,159 Speaker 1: egg markets, that's the number one driving force. We've seen 83 00:05:21,200 --> 00:05:28,520 Speaker 1: a just a explosion in grain exports to China basically 84 00:05:28,520 --> 00:05:33,599 Speaker 1: started about last July and has shown little signs of 85 00:05:33,680 --> 00:05:38,039 Speaker 1: cooling off. Some of that related to their Phase one 86 00:05:38,080 --> 00:05:42,960 Speaker 1: trade agreement that was negotiated in the previous Trump administration. 87 00:05:43,760 --> 00:05:47,479 Speaker 1: Some of it also related to rebuilding of the hug 88 00:05:47,560 --> 00:05:51,159 Speaker 1: herd because of the African swine fever, and then some 89 00:05:51,320 --> 00:05:55,279 Speaker 1: of it is also related to just their desire to 90 00:05:55,320 --> 00:05:58,240 Speaker 1: rebuild some of their reserve stocks as well. But that's 91 00:05:58,279 --> 00:06:01,640 Speaker 1: the number one fact. So one thing I always wondered about. 92 00:06:02,240 --> 00:06:05,600 Speaker 1: You see these headlines that China is building up it's 93 00:06:05,839 --> 00:06:08,880 Speaker 1: grain reserves, and I don't know, I can I can 94 00:06:08,920 --> 00:06:11,440 Speaker 1: kind of see why countries would do that, but I 95 00:06:11,760 --> 00:06:16,360 Speaker 1: always wonder how useful those reserves are over the long 96 00:06:16,480 --> 00:06:18,800 Speaker 1: term and how they actually use them. Can you give 97 00:06:18,880 --> 00:06:22,160 Speaker 1: us a sort of like potted summary of what building 98 00:06:22,200 --> 00:06:28,159 Speaker 1: up preserves actually means. Well. It's classic example of something 99 00:06:28,200 --> 00:06:31,919 Speaker 1: that sounds good in theory and rarely works well in practice. 100 00:06:32,600 --> 00:06:36,800 Speaker 1: We have many decades of experience with different kinds of 101 00:06:36,839 --> 00:06:42,640 Speaker 1: reserve schemes here in the US UM they've tried it metals, grains, 102 00:06:42,800 --> 00:06:46,640 Speaker 1: and all sorts of commodities, soft commodities over the years. 103 00:06:47,240 --> 00:06:51,560 Speaker 1: So they're called buffer stock ski seames. And the problem is, 104 00:06:51,720 --> 00:06:53,320 Speaker 1: you know, the idea is that you build it up. 105 00:06:53,520 --> 00:06:55,040 Speaker 1: You know, it's kind of the seven fat years in 106 00:06:55,080 --> 00:06:59,760 Speaker 1: the seven lean years biblical example put in practice, and 107 00:07:00,279 --> 00:07:02,720 Speaker 1: so that all sounds good in theory, but it all 108 00:07:02,800 --> 00:07:08,600 Speaker 1: becomes very political, and governments have a tendency to not 109 00:07:08,839 --> 00:07:11,880 Speaker 1: want to release the buffer stocks when they really ought 110 00:07:11,920 --> 00:07:15,880 Speaker 1: to to uh you know, maybe calm markets down, because 111 00:07:15,880 --> 00:07:18,520 Speaker 1: then farmers are mad because you're driving the price down. 112 00:07:19,160 --> 00:07:22,040 Speaker 1: And so it's just it's a deeply political and it 113 00:07:22,320 --> 00:07:27,600 Speaker 1: rarely works as well as it sounds in theory. So 114 00:07:28,440 --> 00:07:30,920 Speaker 1: why did they do it and when do they do it? 115 00:07:31,040 --> 00:07:33,800 Speaker 1: So if these if this is a scheme or this 116 00:07:33,920 --> 00:07:37,559 Speaker 1: idea of building up huge reserves is not even really 117 00:07:37,600 --> 00:07:41,800 Speaker 1: particularly sound and doesn't working well in practice, as maybe 118 00:07:41,800 --> 00:07:45,400 Speaker 1: they think what why do they occasionally do this? Because 119 00:07:45,440 --> 00:07:47,120 Speaker 1: I think I was just looking at a chart. I 120 00:07:47,120 --> 00:07:49,520 Speaker 1: think like in eleven, didn't they like buy a crazy 121 00:07:49,520 --> 00:07:55,160 Speaker 1: amount of cotton, sending the cotton prices soaring? What catalyzes 122 00:07:55,200 --> 00:07:58,440 Speaker 1: them at one moment or another to say, Okay, we're 123 00:07:58,440 --> 00:07:59,920 Speaker 1: really just going to go out in the market and 124 00:08:00,080 --> 00:08:06,400 Speaker 1: buy fear. It's just driven. You'll see that those kinds 125 00:08:06,440 --> 00:08:11,720 Speaker 1: of big build ups and reserves typically follow price spikes. 126 00:08:13,520 --> 00:08:17,400 Speaker 1: I think of the US Strategic Petroleum Reserve. When is 127 00:08:17,440 --> 00:08:21,560 Speaker 1: their intense pressure to build that up started in oh six, 128 00:08:21,600 --> 00:08:24,360 Speaker 1: oh seven o eight when crude oil prices were spiking, 129 00:08:25,440 --> 00:08:30,080 Speaker 1: And that's the typical pattern. And you know, the other 130 00:08:30,120 --> 00:08:33,920 Speaker 1: thing is is with China, they have huge stocks, which 131 00:08:33,920 --> 00:08:38,200 Speaker 1: I'm not even sure that the Chinese government really knows 132 00:08:38,400 --> 00:08:42,720 Speaker 1: the size of their stocks of basic commodities. We know 133 00:08:42,960 --> 00:08:47,040 Speaker 1: that their statistics are way off. I mean the U 134 00:08:47,160 --> 00:08:50,240 Speaker 1: s d A and other international organizations try to track these, 135 00:08:50,240 --> 00:08:53,439 Speaker 1: and grains will occasionally just go through these massive revisions. 136 00:08:53,440 --> 00:08:57,480 Speaker 1: You wake up and China has you know, a hundred 137 00:08:57,480 --> 00:09:00,360 Speaker 1: million less tons of feet grains on hand then you 138 00:09:00,520 --> 00:09:03,440 Speaker 1: thought they did yesterday based on the official statistics. So 139 00:09:04,120 --> 00:09:07,160 Speaker 1: On top of I think the difficulty of making those 140 00:09:07,200 --> 00:09:09,960 Speaker 1: work really well in practice in China, you have the 141 00:09:10,200 --> 00:09:13,439 Speaker 1: extra problem of trying to figure out what the real 142 00:09:13,520 --> 00:09:17,080 Speaker 1: number is. So one thing I've always wondered, you know, 143 00:09:17,160 --> 00:09:20,840 Speaker 1: when we talk about food prices being at a six 144 00:09:20,920 --> 00:09:27,200 Speaker 1: year high, do farmers actually benefit from that? Well, I 145 00:09:27,200 --> 00:09:31,760 Speaker 1: think when you uh see something like that headline of 146 00:09:32,080 --> 00:09:34,760 Speaker 1: food prices at a six year high, we have to 147 00:09:34,760 --> 00:09:40,040 Speaker 1: be really careful because that's reflecting various indices of the 148 00:09:40,080 --> 00:09:44,600 Speaker 1: cost of what I call farm level prices. So it's 149 00:09:44,640 --> 00:09:47,400 Speaker 1: like the price of corn and soybeans in central Illinois 150 00:09:47,520 --> 00:09:50,800 Speaker 1: that farmers here can sell their corn and soybeans for, 151 00:09:51,640 --> 00:09:54,880 Speaker 1: or hogs or or anything. At the farm level. There's 152 00:09:54,880 --> 00:09:58,800 Speaker 1: a vast difference between that price and the price you 153 00:09:58,840 --> 00:10:03,080 Speaker 1: pay in your local growth try store. And a rough 154 00:10:03,160 --> 00:10:08,720 Speaker 1: rule of thumb is that about only of what you 155 00:10:08,760 --> 00:10:13,040 Speaker 1: come home with from the grocery store that's food, is 156 00:10:13,080 --> 00:10:17,160 Speaker 1: represented by the farm level share of the cost. So 157 00:10:17,320 --> 00:10:20,480 Speaker 1: you can have a six year high in the raw 158 00:10:21,160 --> 00:10:25,599 Speaker 1: price of most foods and it doesn't budge the grocery 159 00:10:25,720 --> 00:10:28,280 Speaker 1: or retail level price all that much. Now, that's not 160 00:10:28,320 --> 00:10:32,040 Speaker 1: strictly true for all Uh. Commodities, things like milk, meat, 161 00:10:32,080 --> 00:10:37,920 Speaker 1: and eggs are most directly related to the price at 162 00:10:37,960 --> 00:10:41,880 Speaker 1: the farm level because they're obviously very perishable and consumed 163 00:10:41,960 --> 00:10:44,760 Speaker 1: close to the raw form. The more processing you have, 164 00:10:45,320 --> 00:10:50,439 Speaker 1: the more that that distance from retail price or grocery 165 00:10:50,440 --> 00:10:53,600 Speaker 1: store price to the farm price gets. And I'm going 166 00:10:53,679 --> 00:11:00,559 Speaker 1: to ask another very remedial question about commodity economic and 167 00:11:00,760 --> 00:11:03,440 Speaker 1: into this, which is that when people talk about the 168 00:11:03,480 --> 00:11:07,199 Speaker 1: existence of the futures market, and I quoted some soy 169 00:11:07,320 --> 00:11:11,720 Speaker 1: futures and con future prices in the intro, it's like 170 00:11:11,840 --> 00:11:14,960 Speaker 1: they're like, well, the farmer has to hedge their production 171 00:11:15,040 --> 00:11:16,400 Speaker 1: because they don't know what the weather is going to 172 00:11:16,480 --> 00:11:19,400 Speaker 1: be like, and the buyer wants to hedge, etcetera because 173 00:11:19,400 --> 00:11:22,199 Speaker 1: they don't know this, and that's why the future market 174 00:11:22,240 --> 00:11:25,880 Speaker 1: exists and so on. Does the futures market actually work 175 00:11:26,080 --> 00:11:31,080 Speaker 1: as such in practice such that farmers who are out 176 00:11:31,120 --> 00:11:34,040 Speaker 1: there on the land and some level or another use 177 00:11:34,120 --> 00:11:39,679 Speaker 1: it to actually um manage risks. Great question. That's the 178 00:11:39,720 --> 00:11:45,240 Speaker 1: classic textbook example that everyone uh from the exchanges on 179 00:11:46,240 --> 00:11:51,560 Speaker 1: used to motivate futures markets and white people hedge, and 180 00:11:51,880 --> 00:11:56,199 Speaker 1: it actually isn't a very good picture of how those 181 00:11:56,240 --> 00:12:00,160 Speaker 1: markets actually work. Most producers here in the US, been 182 00:12:00,160 --> 00:12:04,040 Speaker 1: the most sophisticated ones, don't use the futures markets directly 183 00:12:04,320 --> 00:12:08,680 Speaker 1: themselves very much. They do it indirectly through something called 184 00:12:08,720 --> 00:12:11,800 Speaker 1: forward contracting with the books, say their local grain elevator. 185 00:12:12,880 --> 00:12:18,559 Speaker 1: But even then they might maybe at most um sell 186 00:12:18,760 --> 00:12:27,160 Speaker 1: forward of their production. So the vast majority of the 187 00:12:27,200 --> 00:12:30,360 Speaker 1: trading volume on what we would call the commercial or 188 00:12:30,400 --> 00:12:33,120 Speaker 1: hedging side is actually done by what I like to 189 00:12:33,160 --> 00:12:36,680 Speaker 1: call grain merchants. These are the big and the small 190 00:12:36,720 --> 00:12:42,719 Speaker 1: companies that are involved in the basic transformation of a 191 00:12:42,880 --> 00:12:47,839 Speaker 1: commodity in time, form, and space. Those are the people 192 00:12:48,080 --> 00:12:52,719 Speaker 1: that really use the futures markets. That's that's the core community. 193 00:12:53,200 --> 00:12:55,040 Speaker 1: So this is something that I actually wanted to ask 194 00:12:55,080 --> 00:12:57,439 Speaker 1: you about, which is we have all these different futures 195 00:12:57,480 --> 00:13:00,880 Speaker 1: contracts out there. So you know, the CM famously had 196 00:13:00,920 --> 00:13:03,880 Speaker 1: its physically delivered contract for live hogs and then that 197 00:13:03,920 --> 00:13:09,120 Speaker 1: got converted into cash settlement. What actually makes a successful 198 00:13:09,440 --> 00:13:14,040 Speaker 1: futures contract and how do you judge success? Well, you 199 00:13:14,080 --> 00:13:16,560 Speaker 1: can look at it the way an economist looks at it, 200 00:13:16,600 --> 00:13:21,480 Speaker 1: but the simplest way to look at it from exchange 201 00:13:21,760 --> 00:13:27,040 Speaker 1: and traders at a futures exchange is simple volume. That's 202 00:13:27,080 --> 00:13:31,120 Speaker 1: their measure of success. It's easy. Uh, do people want 203 00:13:31,160 --> 00:13:35,040 Speaker 1: to trade it? And are there rising and large volumes 204 00:13:35,160 --> 00:13:40,520 Speaker 1: of contracts exchanged? Very simple objective function. From their perspective, 205 00:13:41,160 --> 00:13:43,760 Speaker 1: An economist looks at a little bit more broadly and asked, 206 00:13:44,400 --> 00:13:49,880 Speaker 1: does the contract fulfill an important role in helping to 207 00:13:49,960 --> 00:13:55,120 Speaker 1: discover prices for that commodity? Uh? And is it a 208 00:13:55,160 --> 00:13:58,440 Speaker 1: good vehicle that a broad swath of people in that 209 00:13:58,559 --> 00:14:02,320 Speaker 1: commodity sector can use to manage their risks? So those 210 00:14:02,320 --> 00:14:05,079 Speaker 1: are the two economic functions that we look at as 211 00:14:05,080 --> 00:14:09,040 Speaker 1: an economist, but exchange looks at it very simply. You 212 00:14:09,040 --> 00:14:12,200 Speaker 1: don't I really like about this podcast is like ostensibly 213 00:14:12,440 --> 00:14:14,880 Speaker 1: we're like, oh, what's going on in grains and food 214 00:14:15,000 --> 00:14:17,560 Speaker 1: and everything? But I love that we just get to 215 00:14:17,679 --> 00:14:20,200 Speaker 1: use this as a time to ask really basic questions 216 00:14:20,200 --> 00:14:22,360 Speaker 1: that like, we would probably never ask in any other form, 217 00:14:22,440 --> 00:14:25,480 Speaker 1: like how does the futures market work? And who actually 218 00:14:25,520 --> 00:14:29,160 Speaker 1: trades it? Because I can't think of any other opportunity 219 00:14:29,160 --> 00:14:31,200 Speaker 1: where I would like get to ask that question except 220 00:14:31,200 --> 00:14:33,680 Speaker 1: this podcast. So I just want to say, is one 221 00:14:33,720 --> 00:14:39,000 Speaker 1: reason I really enjoyed doing it, so Tracy, Uh, I know, 222 00:14:39,040 --> 00:14:41,160 Speaker 1: it's really great, and I'm just like, when else would 223 00:14:41,160 --> 00:14:42,640 Speaker 1: I get to do this? Like if I said this 224 00:14:42,720 --> 00:14:44,640 Speaker 1: on air on TV, I would be laughed at and 225 00:14:44,680 --> 00:14:47,760 Speaker 1: I wouldn't have the time. Okay, so let's get to 226 00:14:47,880 --> 00:14:53,120 Speaker 1: the big question, which is why should we care about, say, 227 00:14:53,280 --> 00:14:59,600 Speaker 1: the introduction of China's new live hog futures, which have 228 00:14:59,640 --> 00:15:03,000 Speaker 1: been trade for just over a month. It looks like, well, 229 00:15:03,040 --> 00:15:06,920 Speaker 1: there you get to the real basic question of you know, 230 00:15:07,000 --> 00:15:11,880 Speaker 1: what's the purpose in the largest sense, what's the value 231 00:15:12,440 --> 00:15:16,200 Speaker 1: of commodity futures markets to an economy and to a society, 232 00:15:17,200 --> 00:15:23,760 Speaker 1: And if it's doing its job right, it basically makes 233 00:15:24,520 --> 00:15:28,880 Speaker 1: the marketing system more efficient. In other words, producers will 234 00:15:28,920 --> 00:15:35,240 Speaker 1: get higher prices and consumers will pay lower prices. That 235 00:15:35,480 --> 00:15:39,960 Speaker 1: margin between the farm price and the ultimate consumer price 236 00:15:40,880 --> 00:15:43,760 Speaker 1: gets a little bit more efficient, a little more competitive 237 00:15:43,800 --> 00:15:47,800 Speaker 1: and cost efficient. That's the core value of a futures 238 00:15:47,840 --> 00:16:07,560 Speaker 1: market that's working well. So one thing I wanted to 239 00:16:07,600 --> 00:16:12,360 Speaker 1: ask you about is how the Dalian contract actually works. 240 00:16:12,440 --> 00:16:17,600 Speaker 1: So I think the size is for sixteen tons of pork, 241 00:16:17,720 --> 00:16:21,520 Speaker 1: which is about sixteen tons of pigs, I should say, 242 00:16:21,560 --> 00:16:27,760 Speaker 1: which apparently is equal to one truck full of hogs. Um. 243 00:16:27,760 --> 00:16:30,880 Speaker 1: So again, like this kind of gets to the standardization element, 244 00:16:30,920 --> 00:16:35,160 Speaker 1: but how are they actually taking delivery of actual hogs? 245 00:16:35,280 --> 00:16:41,400 Speaker 1: And do you think it will help standardize China's pork market? Again, 246 00:16:42,760 --> 00:16:47,000 Speaker 1: you know, I'm not an expert on that particular future contract, 247 00:16:47,200 --> 00:16:50,880 Speaker 1: and what I've read is it seems like the size 248 00:16:51,000 --> 00:16:55,840 Speaker 1: is comparable to what the CME Lane hog contract is 249 00:16:55,880 --> 00:17:00,400 Speaker 1: in terms of the number of hogs it represents. Roughly 250 00:17:00,560 --> 00:17:06,359 Speaker 1: a truckload is kind of a common size, so that 251 00:17:06,359 --> 00:17:11,000 Speaker 1: that makes sense. I think China's challenge will be is 252 00:17:11,119 --> 00:17:17,640 Speaker 1: that there pork sector is far less industrialized than stay 253 00:17:17,680 --> 00:17:22,680 Speaker 1: here in the US, in that they have millions upon 254 00:17:22,840 --> 00:17:28,439 Speaker 1: millions of very very small pork producers and they're not 255 00:17:28,560 --> 00:17:31,600 Speaker 1: going to use the futures market. A futures market will 256 00:17:31,640 --> 00:17:37,160 Speaker 1: be used by the very large industrialized pork operations China, 257 00:17:37,240 --> 00:17:40,840 Speaker 1: which are growing rapidly, but there's still a relatively small 258 00:17:40,920 --> 00:17:44,800 Speaker 1: share of that country's total pork production. And you'll see 259 00:17:44,960 --> 00:17:47,800 Speaker 1: slaughtering plants and you know what I'd like to call that, 260 00:17:47,920 --> 00:17:51,000 Speaker 1: those middle operators or what I call merchants, those will 261 00:17:52,000 --> 00:17:55,520 Speaker 1: almost every futures market tend to be the biggest users, 262 00:17:55,680 --> 00:17:59,240 Speaker 1: and so that's the community I would look to to 263 00:17:59,240 --> 00:18:02,119 Speaker 1: see if it's going to be successful. So I'm really 264 00:18:02,160 --> 00:18:05,919 Speaker 1: fascinated by this point about the sort of uh, the 265 00:18:06,080 --> 00:18:12,439 Speaker 1: inconsistency of the I guess diversity, the inconsistency of the 266 00:18:12,520 --> 00:18:16,880 Speaker 1: domestic pork operations, and how that fits into I guess, 267 00:18:16,880 --> 00:18:21,240 Speaker 1: you know, a standardized futures contract. You buy a uh, 268 00:18:21,320 --> 00:18:24,119 Speaker 1: you know, however, many tons of hogs, and you expect 269 00:18:24,119 --> 00:18:27,680 Speaker 1: a certain like quality and consistency. But I guess that's 270 00:18:27,840 --> 00:18:32,280 Speaker 1: that must be an issue across all futures always, whether 271 00:18:32,320 --> 00:18:34,720 Speaker 1: it's corn or soy, you buy a certain amount, you 272 00:18:34,760 --> 00:18:38,440 Speaker 1: expect a certain grade, a certain quality, and every ear 273 00:18:38,440 --> 00:18:41,600 Speaker 1: of corn I guess it could theoretically be slightly different. 274 00:18:42,119 --> 00:18:47,440 Speaker 1: How do commodity future or commodity traders across the futures 275 00:18:47,440 --> 00:18:50,840 Speaker 1: markets and sort of commercial buyers of them? How does 276 00:18:50,880 --> 00:18:53,840 Speaker 1: that get worked out over time such that the deliveries 277 00:18:53,840 --> 00:18:58,120 Speaker 1: of the actual goods become predictable and standard, And how 278 00:18:58,119 --> 00:19:01,560 Speaker 1: does the futures contract except self is Tracy alluded to 279 00:19:01,600 --> 00:19:07,040 Speaker 1: in the intro sort of accelerate that predictable news, right, Well, 280 00:19:07,040 --> 00:19:11,399 Speaker 1: the first thing to remember is that the vast majority 281 00:19:11,440 --> 00:19:18,560 Speaker 1: of futures contracts are never fulfilled by physical delivery. Like 282 00:19:18,640 --> 00:19:22,640 Speaker 1: in the grains, maybe one or two percent of all 283 00:19:22,680 --> 00:19:27,960 Speaker 1: the contracts that are traded actually end up resulting in 284 00:19:28,080 --> 00:19:32,359 Speaker 1: physical delivery, and that's by design. That doesn't mean there's 285 00:19:32,440 --> 00:19:36,840 Speaker 1: something wrong with the contract, because the futures market is, 286 00:19:37,560 --> 00:19:43,680 Speaker 1: in simplest terms, designed to be a parallel market organization 287 00:19:44,200 --> 00:19:48,800 Speaker 1: or vehicle where you can play side bets if you're 288 00:19:48,800 --> 00:19:53,439 Speaker 1: a producer or a middle operator, and those side bets 289 00:19:54,600 --> 00:19:59,600 Speaker 1: allow you to in essence, manage your price risk. So 290 00:19:59,680 --> 00:20:03,280 Speaker 1: you're here in the futures markets taking long and short 291 00:20:03,359 --> 00:20:07,120 Speaker 1: positions to manage the price risk of whatever is your 292 00:20:07,240 --> 00:20:11,520 Speaker 1: underlying cash position. And what you really are interested in 293 00:20:11,560 --> 00:20:14,880 Speaker 1: then is do my cash prices and my futures prices 294 00:20:15,280 --> 00:20:19,359 Speaker 1: go roughly in parallel, so that if I'm long in 295 00:20:19,400 --> 00:20:22,480 Speaker 1: the cash and I go short in the futures, then 296 00:20:22,640 --> 00:20:25,640 Speaker 1: the price movements roughly offset one another. And that's all 297 00:20:25,680 --> 00:20:29,200 Speaker 1: you care about. You're not using it as a merchandising 298 00:20:29,320 --> 00:20:33,960 Speaker 1: vehicle to actually get the physical commodity. But at the 299 00:20:34,000 --> 00:20:37,520 Speaker 1: same time, why the terms of the contracts, the things 300 00:20:37,520 --> 00:20:40,600 Speaker 1: you were talking about are critical because if you're going 301 00:20:40,600 --> 00:20:43,359 Speaker 1: to manage your risk over here in the cash market 302 00:20:43,400 --> 00:20:47,119 Speaker 1: side with the futures contract, you need a futures contract 303 00:20:47,600 --> 00:20:52,240 Speaker 1: that has terms and reflects the prices as closely as 304 00:20:52,280 --> 00:20:54,159 Speaker 1: you can get to what you're doing over here in 305 00:20:54,200 --> 00:20:59,080 Speaker 1: the cash market. M I wanted to widen out the 306 00:20:59,080 --> 00:21:03,840 Speaker 1: conversation once and talk more about agricultural prices generally. So 307 00:21:04,160 --> 00:21:09,280 Speaker 1: we are seeing lots of talk about agflation. I guess 308 00:21:09,320 --> 00:21:13,760 Speaker 1: my question is what could be done at this moment 309 00:21:13,800 --> 00:21:19,440 Speaker 1: in time, in your opinion, to bring food prices down. Well, 310 00:21:19,520 --> 00:21:26,760 Speaker 1: I don't think that there's probably a lot that governments 311 00:21:27,160 --> 00:21:31,720 Speaker 1: can do around the world because there aren't large excess 312 00:21:31,880 --> 00:21:35,679 Speaker 1: stocks laying around, you know, in these kind of buffer 313 00:21:35,720 --> 00:21:42,600 Speaker 1: stock schemes, except maybe inside China. I'm not myself very 314 00:21:42,680 --> 00:21:45,119 Speaker 1: concerned at this point about I love the term you 315 00:21:45,160 --> 00:21:49,760 Speaker 1: had inflation. We have seen large increases in prices, but 316 00:21:49,960 --> 00:21:53,239 Speaker 1: let's just kind of wait, and you know, coming on 317 00:21:53,280 --> 00:21:55,640 Speaker 1: the other side of this is going to be a 318 00:21:55,760 --> 00:21:59,680 Speaker 1: monstrous supply response around the world, and things like born 319 00:21:59,720 --> 00:22:02,359 Speaker 1: ands a beans and then the livestock, and you just 320 00:22:02,440 --> 00:22:05,560 Speaker 1: kind of gotta give the system a little time. I mean, 321 00:22:06,200 --> 00:22:10,960 Speaker 1: it's very important to remember, like, standing around mid August, 322 00:22:11,560 --> 00:22:13,600 Speaker 1: we thought here in Illinois we were going to have 323 00:22:15,119 --> 00:22:18,080 Speaker 1: one of the worst years we've had for a long 324 00:22:18,160 --> 00:22:20,800 Speaker 1: long time on income, and it wasn't very long ago. 325 00:22:21,200 --> 00:22:25,280 Speaker 1: And then corn and soybean prices started shooting up, and 326 00:22:26,200 --> 00:22:30,399 Speaker 1: we're gonna see a big excrease in acreage. Farmers are 327 00:22:30,400 --> 00:22:33,840 Speaker 1: going to pour the inputs in, and if we get 328 00:22:33,880 --> 00:22:36,000 Speaker 1: any kind of decent weather here in the US, we're 329 00:22:36,000 --> 00:22:37,639 Speaker 1: gonna have a big crop. And it looks like for 330 00:22:38,040 --> 00:22:39,960 Speaker 1: you know, the first cut at the big price high 331 00:22:39,960 --> 00:22:43,159 Speaker 1: prices was in South America, and other than maybe some 332 00:22:43,200 --> 00:22:45,560 Speaker 1: problems in Argentina, they look like they're going to have 333 00:22:45,600 --> 00:22:49,280 Speaker 1: pretty good crops. So I don't see anything in this 334 00:22:49,480 --> 00:22:54,920 Speaker 1: yet that that really deeply concerns me about long term inflation. 335 00:22:56,119 --> 00:23:00,480 Speaker 1: So is there a way to sort of anticipate the 336 00:23:01,400 --> 00:23:04,880 Speaker 1: how long the stocking cycle goes? So obviously you will 337 00:23:04,920 --> 00:23:08,359 Speaker 1: get this and hopefully we get a robust supply response 338 00:23:08,440 --> 00:23:13,480 Speaker 1: to the demand. What about the demand side itself? Can economists? 339 00:23:13,520 --> 00:23:17,560 Speaker 1: Can you anticipate how much more China has left to 340 00:23:17,640 --> 00:23:20,719 Speaker 1: buy before it will be satisfied with its attempts to 341 00:23:20,760 --> 00:23:23,520 Speaker 1: sort of build up a buffer or is that inherently 342 00:23:23,680 --> 00:23:29,560 Speaker 1: unpredictable due to how political it is. With China in particular, 343 00:23:29,600 --> 00:23:34,720 Speaker 1: that is wildly hard to predict because you're purely predicting, 344 00:23:35,280 --> 00:23:39,720 Speaker 1: you know, inside the Chinese Communist Party, what are going 345 00:23:39,760 --> 00:23:44,440 Speaker 1: to be their political decisions on these key kinds of variables, 346 00:23:44,520 --> 00:23:48,119 Speaker 1: And the data is just so poor at least in 347 00:23:48,160 --> 00:23:50,800 Speaker 1: the public domain. Give you an idea of how hard 348 00:23:50,880 --> 00:23:53,679 Speaker 1: this thing is to assess in China. I have some 349 00:23:54,359 --> 00:23:58,080 Speaker 1: colleagues that working hedge funds, and when the African swine 350 00:23:58,119 --> 00:24:03,600 Speaker 1: fever started taking off, you know, there's a huge hedge fund. 351 00:24:03,600 --> 00:24:06,840 Speaker 1: They had no idea, so they started having regular calls 352 00:24:06,920 --> 00:24:09,919 Speaker 1: with veterinarians they could get ahold of insight China directly, 353 00:24:10,000 --> 00:24:11,639 Speaker 1: and they just try to build up a network and 354 00:24:11,680 --> 00:24:15,840 Speaker 1: start talking to people. So it's very hard. You know, 355 00:24:15,880 --> 00:24:20,080 Speaker 1: it's very volatile and uncertain situation when the world's largest 356 00:24:20,119 --> 00:24:26,040 Speaker 1: consumer is this kind of opaque. There's one other big 357 00:24:26,080 --> 00:24:28,399 Speaker 1: thing going on at the moment where that has the 358 00:24:28,440 --> 00:24:32,239 Speaker 1: potential to actually happen um and impact food prices and 359 00:24:32,600 --> 00:24:36,080 Speaker 1: the farming community, and that's the new US President Biden 360 00:24:36,320 --> 00:24:40,280 Speaker 1: coming in presumably with some sort of new agricultural policy. 361 00:24:40,800 --> 00:24:45,400 Speaker 1: He definitely seems to have a focus on climate change UM, 362 00:24:45,440 --> 00:24:48,679 Speaker 1: which would impact things like story beans. How do you 363 00:24:48,720 --> 00:24:52,760 Speaker 1: see that playing out? Well, I think that's going to 364 00:24:52,800 --> 00:24:56,040 Speaker 1: be very interesting, UM and it's going to be layered 365 00:24:56,119 --> 00:24:59,920 Speaker 1: on top of and our ongoing what I call RFS 366 00:25:00,040 --> 00:25:03,080 Speaker 1: swars here in the US politically over the renewable fuels 367 00:25:03,119 --> 00:25:06,920 Speaker 1: mandates that we already have UH here in the US 368 00:25:07,000 --> 00:25:12,200 Speaker 1: by law. So we have that that's ongoing, and then 369 00:25:12,240 --> 00:25:14,480 Speaker 1: you have layered on top of that things like the 370 00:25:14,760 --> 00:25:19,600 Speaker 1: California Low Carbon Fuel Standard, some talk of that being 371 00:25:19,640 --> 00:25:25,280 Speaker 1: expanded going forward. You have something called renewable diesel plants 372 00:25:25,320 --> 00:25:30,680 Speaker 1: being built at a wild pace right now in responding 373 00:25:30,720 --> 00:25:35,040 Speaker 1: to these policy incentives. So this is definitely an area 374 00:25:35,080 --> 00:25:38,320 Speaker 1: that I'm paying really close attention to and I think 375 00:25:38,720 --> 00:25:46,400 Speaker 1: has the potential to be probably the biggest demand game changer, 376 00:25:46,600 --> 00:25:50,800 Speaker 1: both negatively and positively for egg in the next few years. 377 00:25:51,280 --> 00:25:53,480 Speaker 1: Can you can you actually explain that a little bit 378 00:25:53,600 --> 00:25:59,200 Speaker 1: further one could change policy wise that's on the horizon, 379 00:25:59,440 --> 00:26:05,520 Speaker 1: making it making either agg demand go sharply higher or lower. Well, 380 00:26:05,520 --> 00:26:08,760 Speaker 1: probably the first thing I'd come up is, you know, 381 00:26:08,840 --> 00:26:13,600 Speaker 1: what's the Biden administration going to do with ethanol you know? Um, 382 00:26:13,880 --> 00:26:17,239 Speaker 1: I hear chatter that there's certainly the groups are going 383 00:26:17,280 --> 00:26:21,120 Speaker 1: to really be pushing moving from a de facto ten 384 00:26:21,840 --> 00:26:28,040 Speaker 1: standard on gasoline. Would a Biden administration for climate change 385 00:26:28,680 --> 00:26:32,879 Speaker 1: reasons and domestic political reasons go along with that? That 386 00:26:32,960 --> 00:26:37,960 Speaker 1: could be huge. Secondly, what is the new Biden administration's 387 00:26:38,680 --> 00:26:41,840 Speaker 1: position going to be in terms of how we implement 388 00:26:42,359 --> 00:26:47,040 Speaker 1: our renewable fuel mandates? Under the Trump administration, who was 389 00:26:47,240 --> 00:26:51,280 Speaker 1: very closely allied with the crude oil refiners, basically their 390 00:26:51,440 --> 00:26:54,720 Speaker 1: entire strategy was to give it as big a haircut 391 00:26:54,760 --> 00:26:59,240 Speaker 1: as possible, you know, reduce it. We're still kind of 392 00:26:59,240 --> 00:27:01,320 Speaker 1: trying to find out where the Biden administration is going 393 00:27:01,359 --> 00:27:03,480 Speaker 1: to fall on all of these. Plus we have a 394 00:27:03,480 --> 00:27:05,920 Speaker 1: big case in front of the Supreme Court on the 395 00:27:05,920 --> 00:27:09,080 Speaker 1: rentable field standards, so there's a lot of moving pieces 396 00:27:09,080 --> 00:27:28,119 Speaker 1: on that right now. So one of the few things 397 00:27:28,160 --> 00:27:31,879 Speaker 1: I know about the farming community is that they seem 398 00:27:32,000 --> 00:27:34,919 Speaker 1: to be uh, how do I how do I put this? Like, 399 00:27:35,520 --> 00:27:39,320 Speaker 1: for the past few years, they seem to be um. 400 00:27:39,359 --> 00:27:42,280 Speaker 1: They seem to feel bad. What will would it take 401 00:27:42,359 --> 00:27:46,280 Speaker 1: to get um? I guess the sort of like happy days, uh, 402 00:27:46,680 --> 00:27:51,719 Speaker 1: sentiment back into the farming community in the US. Oh. Now, 403 00:27:51,760 --> 00:27:55,640 Speaker 1: there's always a lot of things that contribute to farmers grumpiness, 404 00:27:55,640 --> 00:27:58,640 Speaker 1: having grown up and being kind of technically one myself. 405 00:27:58,760 --> 00:28:02,040 Speaker 1: So that's that's a complicated question on a personal level. 406 00:28:02,320 --> 00:28:06,800 Speaker 1: But more seriously, high prices. That always takes care of it, 407 00:28:06,840 --> 00:28:10,520 Speaker 1: doesn't it high prices, So you know, I can give 408 00:28:10,560 --> 00:28:13,560 Speaker 1: you some round numbers that would help here in Illinois. 409 00:28:13,600 --> 00:28:17,840 Speaker 1: If you could assure Illinois farmers of four dollar corn 410 00:28:18,200 --> 00:28:21,960 Speaker 1: and eleven or twelfth dollar soybeans, there'd be a lot 411 00:28:22,000 --> 00:28:25,520 Speaker 1: of smiles. And what do we at right now? We're 412 00:28:25,520 --> 00:28:29,119 Speaker 1: actually above those levels right now. Uh, in terms of 413 00:28:29,160 --> 00:28:32,879 Speaker 1: the cash prices um there. Look, you know, quite a 414 00:28:32,960 --> 00:28:35,720 Speaker 1: bit higher than that. We're looking at over five dollar 415 00:28:35,800 --> 00:28:39,240 Speaker 1: corn and uh what I just check. I think right 416 00:28:39,280 --> 00:28:42,680 Speaker 1: around thirteen dollars for beads. So farmers are very happy 417 00:28:42,720 --> 00:28:45,680 Speaker 1: with those prices right now. So the other thing that's 418 00:28:45,680 --> 00:28:49,520 Speaker 1: going on, obviously this sort of horrific arctic blast that's 419 00:28:50,200 --> 00:28:52,560 Speaker 1: really affecting the entire central part of the United States, 420 00:28:52,600 --> 00:28:56,160 Speaker 1: actually a huge swath of the country, particularly brutally in Texas. 421 00:28:56,560 --> 00:29:00,160 Speaker 1: All kinds of spillovers. Recording this may very seventeenth. Did 422 00:29:00,200 --> 00:29:02,520 Speaker 1: an hour or two ago I saw the Texas Governor 423 00:29:02,560 --> 00:29:06,160 Speaker 1: declaring no natural gas exports would be allowed from the stage, 424 00:29:06,200 --> 00:29:08,400 Speaker 1: so it's gonna spill over into other states, and so 425 00:29:08,400 --> 00:29:12,760 Speaker 1: other issues with getting the feedstock to the ethanol ethanol 426 00:29:12,960 --> 00:29:16,640 Speaker 1: plants due to the freeze. What are some of the 427 00:29:16,680 --> 00:29:19,760 Speaker 1: implications that you're already seeing as a result of this, 428 00:29:20,280 --> 00:29:23,880 Speaker 1: and how long could we be sort of dealing with 429 00:29:23,960 --> 00:29:27,120 Speaker 1: the aftermath even if it warms up in the next 430 00:29:27,120 --> 00:29:32,080 Speaker 1: couple of days. I don't think that the natural gas 431 00:29:32,200 --> 00:29:37,560 Speaker 1: related disruptions that we've seen will last very long, simply 432 00:29:37,600 --> 00:29:39,720 Speaker 1: because it's gonna warm up stretch in a week. It's 433 00:29:39,720 --> 00:29:43,720 Speaker 1: just that's not going to last too long. Probably in 434 00:29:43,760 --> 00:29:46,800 Speaker 1: an egg side the I would say that would be 435 00:29:46,880 --> 00:29:50,320 Speaker 1: two main impacts that will have to be assessed to 436 00:29:50,360 --> 00:29:53,680 Speaker 1: see how long lasting. First off, I mean, this was 437 00:29:53,920 --> 00:30:00,760 Speaker 1: a absolutely brutally cold event that went right straight down 438 00:30:00,840 --> 00:30:04,280 Speaker 1: the middle of the Great Plains. So what kind of 439 00:30:05,440 --> 00:30:10,360 Speaker 1: losses are we looking at in cattle feed yards and 440 00:30:10,480 --> 00:30:16,240 Speaker 1: uh literally death and freezing or calf operations and slow 441 00:30:16,320 --> 00:30:19,000 Speaker 1: down in rates of game things like that. Those those 442 00:30:19,000 --> 00:30:21,520 Speaker 1: are gonna play out for a while. Hogs are almost 443 00:30:21,640 --> 00:30:24,280 Speaker 1: entirely in confinement buildings, so there's not gonna be chickens 444 00:30:24,320 --> 00:30:28,200 Speaker 1: the same way. Not not much. One that's really only 445 00:30:28,240 --> 00:30:30,800 Speaker 1: now I think, you know, the futures market has been 446 00:30:31,040 --> 00:30:34,240 Speaker 1: thinking about it. But one of the ones that might 447 00:30:34,320 --> 00:30:37,160 Speaker 1: have a long the longest lasting impacts is what did 448 00:30:37,200 --> 00:30:39,920 Speaker 1: this do to the winter wheat production here in the US. 449 00:30:40,600 --> 00:30:44,920 Speaker 1: You know, normally it's extremely hardy crops, Like a friend 450 00:30:44,960 --> 00:30:46,880 Speaker 1: of mine says, you know, you can kill the wheat 451 00:30:46,880 --> 00:30:51,200 Speaker 1: crops seven times a year with bad weather. But this 452 00:30:51,360 --> 00:30:58,000 Speaker 1: was a length of low temperatures that was extraordinarily long, 453 00:30:59,040 --> 00:31:03,960 Speaker 1: even by Greats standards. And you know, dormant wheat is 454 00:31:04,000 --> 00:31:06,920 Speaker 1: supposed to be very hardy. You know, it's literally dormant, 455 00:31:07,520 --> 00:31:11,280 Speaker 1: but it can still be killed if the temperatures are 456 00:31:11,280 --> 00:31:13,080 Speaker 1: low enough long enough, and so there's a lot of 457 00:31:13,080 --> 00:31:15,080 Speaker 1: debate about that. That's that's the one I would really 458 00:31:15,120 --> 00:31:18,600 Speaker 1: be looking for long run, is to see, you know, 459 00:31:18,680 --> 00:31:20,840 Speaker 1: how much what they call winter killed did we really 460 00:31:20,880 --> 00:31:24,440 Speaker 1: get with the U S winter wheak. Carl, I think 461 00:31:24,440 --> 00:31:27,479 Speaker 1: that was fantastic. I learned a lot from that. Well, 462 00:31:27,480 --> 00:31:30,400 Speaker 1: hopefully I'm not too worthy that professors tend to do that. 463 00:31:30,480 --> 00:31:36,080 Speaker 1: I know now it's perfect. Thanks so much, Scott, right, 464 00:31:36,760 --> 00:31:57,760 Speaker 1: take care of Scott, Joe. I'd love talking about commodities. 465 00:31:58,080 --> 00:32:00,880 Speaker 1: I think, I think, I secret we always wanted to 466 00:32:00,920 --> 00:32:03,480 Speaker 1: be a commodities reporter and I never really got the chance. 467 00:32:04,680 --> 00:32:06,920 Speaker 1: Do you know, Tracy, I meant to tell you speaking 468 00:32:06,960 --> 00:32:09,440 Speaker 1: of being a reporter, remember a while back on one 469 00:32:09,480 --> 00:32:12,160 Speaker 1: of our episodes, you said if you were starting UM 470 00:32:12,280 --> 00:32:14,719 Speaker 1: as a journalist now, you would be a semiconductor reporter. 471 00:32:16,000 --> 00:32:18,960 Speaker 1: Oh yeah. Someone d m me the other day and 472 00:32:19,040 --> 00:32:21,280 Speaker 1: said they heard that and they were inspired and they 473 00:32:21,320 --> 00:32:24,360 Speaker 1: wanted to get into They heard you say that, and 474 00:32:24,400 --> 00:32:27,040 Speaker 1: they were going to get like, start writing about semiconductor. 475 00:32:27,120 --> 00:32:32,160 Speaker 1: So you you may have launched someone falling the whole 476 00:32:32,200 --> 00:32:36,440 Speaker 1: generation of semiconductor reporters. Let's chill out at least one 477 00:32:36,880 --> 00:32:43,280 Speaker 1: maybe one? All right, um, but commodities. So here. The thing. 478 00:32:43,440 --> 00:32:46,000 Speaker 1: The thing I like about commodities, I think is it 479 00:32:46,080 --> 00:32:49,880 Speaker 1: brings a lot of these sort of market ideas and 480 00:32:50,000 --> 00:32:54,520 Speaker 1: market structure theories to life, right, because you're talking about 481 00:32:54,520 --> 00:32:58,160 Speaker 1: an actual product and you can think about holding up 482 00:32:58,160 --> 00:33:00,120 Speaker 1: well maybe not a live pig in your hand. But 483 00:33:00,120 --> 00:33:02,520 Speaker 1: you could think about holding corn or soybeans in your hand, 484 00:33:02,560 --> 00:33:04,920 Speaker 1: and you can actually connect that to the way the 485 00:33:04,920 --> 00:33:09,840 Speaker 1: futures market works and to the way markets generally function. Tracy, 486 00:33:09,840 --> 00:33:13,880 Speaker 1: you're gonna take delivery of a live pagram, I can 487 00:33:13,960 --> 00:33:18,400 Speaker 1: see that. Yeah, I know you would. No, I'm not, 488 00:33:18,520 --> 00:33:20,960 Speaker 1: but I totally would actually if I had a place 489 00:33:21,000 --> 00:33:23,760 Speaker 1: to to put it. But you see what I mean, right, 490 00:33:23,760 --> 00:33:27,479 Speaker 1: Like the aspect of the commodities market, Okay, totally. And 491 00:33:27,560 --> 00:33:30,160 Speaker 1: I actually thought that was a really interesting point he 492 00:33:30,240 --> 00:33:35,000 Speaker 1: said about the goal of a commodities market is not 493 00:33:35,240 --> 00:33:41,080 Speaker 1: about taking delivery of the physical commodity itself via the 494 00:33:41,240 --> 00:33:44,840 Speaker 1: end commercial buyer of the future, but about having a 495 00:33:44,920 --> 00:33:50,160 Speaker 1: contract running parallel to the cash market such that the 496 00:33:50,240 --> 00:33:53,360 Speaker 1: fluctuation should be in the same direction. So you could 497 00:33:53,440 --> 00:33:55,360 Speaker 1: get a delivery of pigs, and maybe they're a little 498 00:33:55,360 --> 00:33:59,000 Speaker 1: bit inconsistent, but as long as sort of directionally the 499 00:33:59,120 --> 00:34:02,680 Speaker 1: cost of the actual cash pigs I guess, and the 500 00:34:02,680 --> 00:34:05,480 Speaker 1: pig futures are moving in the same way, then the 501 00:34:05,520 --> 00:34:09,719 Speaker 1: futures market serves its purpose for the participants, which I 502 00:34:09,760 --> 00:34:13,200 Speaker 1: thought was interesting. But then, of course, you know, you 503 00:34:13,239 --> 00:34:17,160 Speaker 1: could see how over time the desire to I guess, 504 00:34:17,640 --> 00:34:20,400 Speaker 1: I guess you would are the cash what is? What 505 00:34:20,800 --> 00:34:27,320 Speaker 1: are the cash future spread would encourage participants to start 506 00:34:27,360 --> 00:34:31,719 Speaker 1: delivering pigs or any other commodity that are, you know, 507 00:34:31,840 --> 00:34:35,319 Speaker 1: in line with the the specs the specification, so you 508 00:34:35,320 --> 00:34:37,719 Speaker 1: can see how it serves that purpose. I was just 509 00:34:37,760 --> 00:34:41,440 Speaker 1: thinking it'd be funny if you saw live hog prices 510 00:34:42,239 --> 00:34:45,239 Speaker 1: or lean hog prices go negative and suddenly everyone had 511 00:34:45,280 --> 00:34:49,960 Speaker 1: to take delivery of a bunch of pigs like oil. 512 00:34:50,160 --> 00:34:52,360 Speaker 1: The other thing I liked is I finally got to 513 00:34:52,400 --> 00:34:55,239 Speaker 1: ask the question about whether the hedging farmer is a myth, 514 00:34:55,560 --> 00:34:59,760 Speaker 1: because I've always sort of suspected that farmers don't really hedge, 515 00:34:59,800 --> 00:35:03,960 Speaker 1: like doing the textbooks. And I'm glad he confirmed that. 516 00:35:04,040 --> 00:35:05,680 Speaker 1: But that was a great That was great. I really 517 00:35:05,680 --> 00:35:07,799 Speaker 1: I could actually could have listened to him for a 518 00:35:07,800 --> 00:35:10,600 Speaker 1: lot longer. Well, we'll happen back on for sure. The 519 00:35:10,640 --> 00:35:13,880 Speaker 1: next time we have a big agricultural development, we'll start 520 00:35:13,920 --> 00:35:17,960 Speaker 1: our all thoughts farming spin off. I like, I like 521 00:35:17,960 --> 00:35:20,160 Speaker 1: when you're asking what would make farmers happy, and he's 522 00:35:20,160 --> 00:35:24,600 Speaker 1: just like higher prices. That was good. Well, it's a look. 523 00:35:24,840 --> 00:35:27,480 Speaker 1: I feel entitled to ask that question because actually My 524 00:35:27,560 --> 00:35:31,799 Speaker 1: granddad in Texas was a cattle farmer. Um, and they 525 00:35:31,920 --> 00:35:33,960 Speaker 1: tend to be I mean, Scott's use of the word 526 00:35:33,960 --> 00:35:37,040 Speaker 1: grumpy was correct. As far as I could tell. They 527 00:35:37,120 --> 00:35:39,600 Speaker 1: tend to be a pretty pessimistic bunch um. And of 528 00:35:39,640 --> 00:35:43,319 Speaker 1: course we've seen them complain a lot over the years. 529 00:35:43,320 --> 00:35:45,719 Speaker 1: So I'm genuinely curious, like, what what do they want 530 00:35:45,760 --> 00:35:49,480 Speaker 1: to see? There's always a drought, right, There's always a drought, right, 531 00:35:49,880 --> 00:35:56,680 Speaker 1: There's always consolidation, and probably the large industrial egg factory 532 00:35:56,719 --> 00:36:00,200 Speaker 1: farmers are probably are always sort of making life miserable, 533 00:36:00,239 --> 00:36:03,520 Speaker 1: and somewhere or another for the small farmer, there's probably 534 00:36:03,560 --> 00:36:05,560 Speaker 1: and we could have gotten into this, but I have 535 00:36:05,680 --> 00:36:08,600 Speaker 1: to imagine um and maybe we could even do another 536 00:36:08,640 --> 00:36:13,400 Speaker 1: episode concentration, particularly when it comes to and I remember 537 00:36:13,480 --> 00:36:16,000 Speaker 1: this was an issue this past summer in spring, but 538 00:36:16,080 --> 00:36:20,400 Speaker 1: the coronavirus, but sort of the concentrated buying power of 539 00:36:20,480 --> 00:36:25,680 Speaker 1: the slaughterhouses as a form of leverage over the farmer essentially, 540 00:36:26,200 --> 00:36:27,400 Speaker 1: So if you don't have, you know, if you have 541 00:36:27,480 --> 00:36:31,319 Speaker 1: sort of this monopsyony buyer of of your wares, of 542 00:36:31,400 --> 00:36:34,359 Speaker 1: your your cows, then that's an issue. So I think 543 00:36:34,400 --> 00:36:37,600 Speaker 1: in addition to higher low prices. There's all kinds of 544 00:36:37,640 --> 00:36:41,920 Speaker 1: structural things that probably um upset the sort of the 545 00:36:42,000 --> 00:36:46,160 Speaker 1: day to day farmer. Okay, look well, Episode one of 546 00:36:46,280 --> 00:36:51,080 Speaker 1: All Thoughts Farming series will be why are Farmers so Grumpy? 547 00:36:51,440 --> 00:36:55,680 Speaker 1: I'm into it. This has been another episode of the 548 00:36:55,880 --> 00:36:58,839 Speaker 1: Thoughts podcast. I'm Racy Allowitt. You can follow me on 549 00:36:58,880 --> 00:37:01,439 Speaker 1: Twitter at Tracy All the Way, and I am Joe 550 00:37:01,480 --> 00:37:04,160 Speaker 1: wi isn't Thal. You could follow me on Twitter at 551 00:37:04,160 --> 00:37:08,040 Speaker 1: the Stalwart. Follow our guest Scott Irwin on Twitter. He's 552 00:37:08,120 --> 00:37:12,760 Speaker 1: at Scott Irwin U. I follow our producer Laura Carlson. 553 00:37:12,960 --> 00:37:16,880 Speaker 1: She's at Laura M. Carlson. Followed the Bloomberg head of podcast, 554 00:37:16,920 --> 00:37:20,799 Speaker 1: Francesco Levi at Francesca Today, and check out all of 555 00:37:20,840 --> 00:37:24,799 Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks 556 00:37:24,840 --> 00:37:25,320 Speaker 1: for listening.