Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't all so, Joe? Uh?
Speaker 1: I know there's been a lot going on this year.
Speaker 1: You know, we obviously have a new US president, we
Speaker 1: had the game stop saga in markets. But I think
Speaker 1: we can all agree that the big news of has
Speaker 1: been that China's new live hog futures started trading. Yeah.
Speaker 1: I mean that's obviously what I was going to say
Speaker 1: as well. I mean that's how you know, that's sort
Speaker 1: of the big thing that everyone is talking about so
Speaker 1: far this year. Yeah, okay, so clearly we are joking,
Speaker 1: but I will say these new futures contracts were something
Speaker 1: like twenty years in the making. Um, so they took
Speaker 1: a really long time to get here. One of the
Speaker 1: reasons that so interested in starting futures contracts for pork
Speaker 1: is because they've basically had their pigs supply absolutely decimated
Speaker 1: in recent years by African swine fever. So the whole
Speaker 1: idea is that the futures contract will come in, it
Speaker 1: will allow some standardization of pigs, and it will allow
Speaker 1: farmers to hedge and things like that, and they'll be
Speaker 1: able to rebuild their pork supply m standardization of pigs.
Speaker 1: I'm a, I'm I'm very intrigued by this. Yes, okay,
Speaker 1: welcome to agricultural all thoughts. Um, So, we're gonna be
Speaker 1: talking about the pig futures contract, but we're gonna be
Speaker 1: talking about food price inflation more generally, because of course
Speaker 1: we've seen pork prices in China absolutely surge recently. It's
Speaker 1: starting to come down now, but but globally, as you know, Joe,
Speaker 1: there's been a massive rise in food prices. Yeah. And
Speaker 1: I would say if I were to actually from an
Speaker 1: eco standpoint, if I were to say what is the
Speaker 1: biggest story in or in the economy right now, it
Speaker 1: would be all of the different bottlenecks price increases we're
Speaker 1: seeing at the producers side. We've talked about it with shipping,
Speaker 1: and we've talked about it with semiconductors, where we've talked
Speaker 1: about it with Jeff Curry, with industrial commodities, and of
Speaker 1: course we're also seeing it in agriculture commodities. You know,
Speaker 1: if you look at the last year in the US
Speaker 1: soy futures up from nine hundred, I guess it's for
Speaker 1: futures contract for bushel dred corner is up by a lot,
Speaker 1: Hogs are up by a lot, cattle is up by
Speaker 1: a lot. So there's almost you know, all these different
Speaker 1: categories we're seeing this upward price pressure issues relating to
Speaker 1: of course, uh, supply chain disruption still doing with COVID,
Speaker 1: massive recovery and demand around the world, particularly in China,
Speaker 1: but elsewhere where. And now as of the time that
Speaker 1: we're recording this, and I think we're going to talk
Speaker 1: about it too. Uh, the extraordinary scenes that we're seeing
Speaker 1: out of Texas and the freeze which is really disrupting
Speaker 1: the economy of the entire central part of the United States. Yeah,
Speaker 1: a perfect storm of factors coming together to increased food prices.
Speaker 1: Storm might not be the right phrase there, but it is.
Speaker 1: I mean, you are starting to see actual impacts of this.
Speaker 1: So here in Hong Kong, McDonald's isn't offering hash Browns
Speaker 1: and its breakfast anymore. So you know, things are very serious.
Speaker 1: More seriously, we've seen some countries starting to talk about
Speaker 1: putting a price caps on food prices. I think Russia
Speaker 1: is already doing it. The UAE was talking about doing
Speaker 1: it as well, So it is beginning to affect people's lives,
Speaker 1: and it is causing problems for some governments. So we're
Speaker 1: going to dive into the whole issue of food price
Speaker 1: inflation as well as the new Dallian hog futures contract.
Speaker 1: By popular request, we're gonna be speaking to Scott Irwin.
Speaker 1: He's an agricultural economist at the University of Illinois. Scott,
Speaker 1: Welcome to the show. I'm glad to be here. So, Scott,
Speaker 1: in addition to being an agricultural economist, you're also an
Speaker 1: actual farmer from Iowa. Is that correct? Well, it's probably
Speaker 1: technically speaking. Um, I don't actually get much tractor driving
Speaker 1: and physical participation, but I it's an interesting situation. I
Speaker 1: from the landlord side of my family's farm out in Iowa.
Speaker 1: My eighty five year old mother and I provide the
Speaker 1: management and do all the marketing of the crops. So
Speaker 1: I lived through the ups and downs of the grain
Speaker 1: markets like everybody else. Plus I get to try to
Speaker 1: work the markets with my card playing eighty five year
Speaker 1: old mother. That sounds that sounds extremely satisfying and fun.
Speaker 1: You know right now, you know sort of mentioned this
Speaker 1: rally that we're seeing. It's pretty intent across various soft commodities,
Speaker 1: agriculture commodity. Why do you give us the sort of
Speaker 1: basic big picture of what's going on, what's driving this
Speaker 1: bid China perfect? Is that as six existent as you Yeah,
Speaker 1: it's not the only factor, of course, but in the
Speaker 1: egg markets, that's the number one driving force. We've seen
Speaker 1: a just a explosion in grain exports to China basically
Speaker 1: started about last July and has shown little signs of
Speaker 1: cooling off. Some of that related to their Phase one
Speaker 1: trade agreement that was negotiated in the previous Trump administration.
Speaker 1: Some of it also related to rebuilding of the hug
Speaker 1: herd because of the African swine fever, and then some
Speaker 1: of it is also related to just their desire to
Speaker 1: rebuild some of their reserve stocks as well. But that's
Speaker 1: the number one fact. So one thing I always wondered about.
Speaker 1: You see these headlines that China is building up it's
Speaker 1: grain reserves, and I don't know, I can I can
Speaker 1: kind of see why countries would do that, but I
Speaker 1: always wonder how useful those reserves are over the long
Speaker 1: term and how they actually use them. Can you give
Speaker 1: us a sort of like potted summary of what building
Speaker 1: up preserves actually means. Well. It's classic example of something
Speaker 1: that sounds good in theory and rarely works well in practice.
Speaker 1: We have many decades of experience with different kinds of
Speaker 1: reserve schemes here in the US UM they've tried it metals, grains,
Speaker 1: and all sorts of commodities, soft commodities over the years.
Speaker 1: So they're called buffer stock ski seames. And the problem is,
Speaker 1: you know, the idea is that you build it up.
Speaker 1: You know, it's kind of the seven fat years in
Speaker 1: the seven lean years biblical example put in practice, and
Speaker 1: so that all sounds good in theory, but it all
Speaker 1: becomes very political, and governments have a tendency to not
Speaker 1: want to release the buffer stocks when they really ought
Speaker 1: to to uh you know, maybe calm markets down, because
Speaker 1: then farmers are mad because you're driving the price down.
Speaker 1: And so it's just it's a deeply political and it
Speaker 1: rarely works as well as it sounds in theory. So
Speaker 1: why did they do it and when do they do it?
Speaker 1: So if these if this is a scheme or this
Speaker 1: idea of building up huge reserves is not even really
Speaker 1: particularly sound and doesn't working well in practice, as maybe
Speaker 1: they think what why do they occasionally do this? Because
Speaker 1: I think I was just looking at a chart. I
Speaker 1: think like in eleven, didn't they like buy a crazy
Speaker 1: amount of cotton, sending the cotton prices soaring? What catalyzes
Speaker 1: them at one moment or another to say, Okay, we're
Speaker 1: really just going to go out in the market and
Speaker 1: buy fear. It's just driven. You'll see that those kinds
Speaker 1: of big build ups and reserves typically follow price spikes.
Speaker 1: I think of the US Strategic Petroleum Reserve. When is
Speaker 1: their intense pressure to build that up started in oh six,
Speaker 1: oh seven o eight when crude oil prices were spiking,
Speaker 1: And that's the typical pattern. And you know, the other
Speaker 1: thing is is with China, they have huge stocks, which
Speaker 1: I'm not even sure that the Chinese government really knows
Speaker 1: the size of their stocks of basic commodities. We know
Speaker 1: that their statistics are way off. I mean the U
Speaker 1: s d A and other international organizations try to track these,
Speaker 1: and grains will occasionally just go through these massive revisions.
Speaker 1: You wake up and China has you know, a hundred
Speaker 1: million less tons of feet grains on hand then you
Speaker 1: thought they did yesterday based on the official statistics. So
Speaker 1: On top of I think the difficulty of making those
Speaker 1: work really well in practice in China, you have the
Speaker 1: extra problem of trying to figure out what the real
Speaker 1: number is. So one thing I've always wondered, you know,
Speaker 1: when we talk about food prices being at a six
Speaker 1: year high, do farmers actually benefit from that? Well, I
Speaker 1: think when you uh see something like that headline of
Speaker 1: food prices at a six year high, we have to
Speaker 1: be really careful because that's reflecting various indices of the
Speaker 1: cost of what I call farm level prices. So it's
Speaker 1: like the price of corn and soybeans in central Illinois
Speaker 1: that farmers here can sell their corn and soybeans for,
Speaker 1: or hogs or or anything. At the farm level. There's
Speaker 1: a vast difference between that price and the price you
Speaker 1: pay in your local growth try store. And a rough
Speaker 1: rule of thumb is that about only of what you
Speaker 1: come home with from the grocery store that's food, is
Speaker 1: represented by the farm level share of the cost. So
Speaker 1: you can have a six year high in the raw
Speaker 1: price of most foods and it doesn't budge the grocery
Speaker 1: or retail level price all that much. Now, that's not
Speaker 1: strictly true for all Uh. Commodities, things like milk, meat,
Speaker 1: and eggs are most directly related to the price at
Speaker 1: the farm level because they're obviously very perishable and consumed
Speaker 1: close to the raw form. The more processing you have,
Speaker 1: the more that that distance from retail price or grocery
Speaker 1: store price to the farm price gets. And I'm going
Speaker 1: to ask another very remedial question about commodity economic and
Speaker 1: into this, which is that when people talk about the
Speaker 1: existence of the futures market, and I quoted some soy
Speaker 1: futures and con future prices in the intro, it's like
Speaker 1: they're like, well, the farmer has to hedge their production
Speaker 1: because they don't know what the weather is going to
Speaker 1: be like, and the buyer wants to hedge, etcetera because
Speaker 1: they don't know this, and that's why the future market
Speaker 1: exists and so on. Does the futures market actually work
Speaker 1: as such in practice such that farmers who are out
Speaker 1: there on the land and some level or another use
Speaker 1: it to actually um manage risks. Great question. That's the
Speaker 1: classic textbook example that everyone uh from the exchanges on
Speaker 1: used to motivate futures markets and white people hedge, and
Speaker 1: it actually isn't a very good picture of how those
Speaker 1: markets actually work. Most producers here in the US, been
Speaker 1: the most sophisticated ones, don't use the futures markets directly
Speaker 1: themselves very much. They do it indirectly through something called
Speaker 1: forward contracting with the books, say their local grain elevator.
Speaker 1: But even then they might maybe at most um sell
Speaker 1: forward of their production. So the vast majority of the
Speaker 1: trading volume on what we would call the commercial or
Speaker 1: hedging side is actually done by what I like to
Speaker 1: call grain merchants. These are the big and the small
Speaker 1: companies that are involved in the basic transformation of a
Speaker 1: commodity in time, form, and space. Those are the people
Speaker 1: that really use the futures markets. That's that's the core community.
Speaker 1: So this is something that I actually wanted to ask
Speaker 1: you about, which is we have all these different futures
Speaker 1: contracts out there. So you know, the CM famously had
Speaker 1: its physically delivered contract for live hogs and then that
Speaker 1: got converted into cash settlement. What actually makes a successful
Speaker 1: futures contract and how do you judge success? Well, you
Speaker 1: can look at it the way an economist looks at it,
Speaker 1: but the simplest way to look at it from exchange
Speaker 1: and traders at a futures exchange is simple volume. That's
Speaker 1: their measure of success. It's easy. Uh, do people want
Speaker 1: to trade it? And are there rising and large volumes
Speaker 1: of contracts exchanged? Very simple objective function. From their perspective,
Speaker 1: An economist looks at a little bit more broadly and asked,
Speaker 1: does the contract fulfill an important role in helping to
Speaker 1: discover prices for that commodity? Uh? And is it a
Speaker 1: good vehicle that a broad swath of people in that
Speaker 1: commodity sector can use to manage their risks? So those
Speaker 1: are the two economic functions that we look at as
Speaker 1: an economist, but exchange looks at it very simply. You
Speaker 1: don't I really like about this podcast is like ostensibly
Speaker 1: we're like, oh, what's going on in grains and food
Speaker 1: and everything? But I love that we just get to
Speaker 1: use this as a time to ask really basic questions
Speaker 1: that like, we would probably never ask in any other form,
Speaker 1: like how does the futures market work? And who actually
Speaker 1: trades it? Because I can't think of any other opportunity
Speaker 1: where I would like get to ask that question except
Speaker 1: this podcast. So I just want to say, is one
Speaker 1: reason I really enjoyed doing it, so Tracy, Uh, I know,
Speaker 1: it's really great, and I'm just like, when else would
Speaker 1: I get to do this? Like if I said this
Speaker 1: on air on TV, I would be laughed at and
Speaker 1: I wouldn't have the time. Okay, so let's get to
Speaker 1: the big question, which is why should we care about, say,
Speaker 1: the introduction of China's new live hog futures, which have
Speaker 1: been trade for just over a month. It looks like, well,
Speaker 1: there you get to the real basic question of you know,
Speaker 1: what's the purpose in the largest sense, what's the value
Speaker 1: of commodity futures markets to an economy and to a society,
Speaker 1: And if it's doing its job right, it basically makes
Speaker 1: the marketing system more efficient. In other words, producers will
Speaker 1: get higher prices and consumers will pay lower prices. That
Speaker 1: margin between the farm price and the ultimate consumer price
Speaker 1: gets a little bit more efficient, a little more competitive
Speaker 1: and cost efficient. That's the core value of a futures
Speaker 1: market that's working well. So one thing I wanted to
Speaker 1: ask you about is how the Dalian contract actually works.
Speaker 1: So I think the size is for sixteen tons of pork,
Speaker 1: which is about sixteen tons of pigs, I should say,
Speaker 1: which apparently is equal to one truck full of hogs. Um.
Speaker 1: So again, like this kind of gets to the standardization element,
Speaker 1: but how are they actually taking delivery of actual hogs?
Speaker 1: And do you think it will help standardize China's pork market? Again,
Speaker 1: you know, I'm not an expert on that particular future contract,
Speaker 1: and what I've read is it seems like the size
Speaker 1: is comparable to what the CME Lane hog contract is
Speaker 1: in terms of the number of hogs it represents. Roughly
Speaker 1: a truckload is kind of a common size, so that
Speaker 1: that makes sense. I think China's challenge will be is
Speaker 1: that there pork sector is far less industrialized than stay
Speaker 1: here in the US, in that they have millions upon
Speaker 1: millions of very very small pork producers and they're not
Speaker 1: going to use the futures market. A futures market will
Speaker 1: be used by the very large industrialized pork operations China,
Speaker 1: which are growing rapidly, but there's still a relatively small
Speaker 1: share of that country's total pork production. And you'll see
Speaker 1: slaughtering plants and you know what I'd like to call that,
Speaker 1: those middle operators or what I call merchants, those will
Speaker 1: almost every futures market tend to be the biggest users,
Speaker 1: and so that's the community I would look to to
Speaker 1: see if it's going to be successful. So I'm really
Speaker 1: fascinated by this point about the sort of uh, the
Speaker 1: inconsistency of the I guess diversity, the inconsistency of the
Speaker 1: domestic pork operations, and how that fits into I guess,
Speaker 1: you know, a standardized futures contract. You buy a uh,
Speaker 1: you know, however, many tons of hogs, and you expect
Speaker 1: a certain like quality and consistency. But I guess that's
Speaker 1: that must be an issue across all futures always, whether
Speaker 1: it's corn or soy, you buy a certain amount, you
Speaker 1: expect a certain grade, a certain quality, and every ear
Speaker 1: of corn I guess it could theoretically be slightly different.
Speaker 1: How do commodity future or commodity traders across the futures
Speaker 1: markets and sort of commercial buyers of them? How does
Speaker 1: that get worked out over time such that the deliveries
Speaker 1: of the actual goods become predictable and standard, And how
Speaker 1: does the futures contract except self is Tracy alluded to
Speaker 1: in the intro sort of accelerate that predictable news, right, Well,
Speaker 1: the first thing to remember is that the vast majority
Speaker 1: of futures contracts are never fulfilled by physical delivery. Like
Speaker 1: in the grains, maybe one or two percent of all
Speaker 1: the contracts that are traded actually end up resulting in
Speaker 1: physical delivery, and that's by design. That doesn't mean there's
Speaker 1: something wrong with the contract, because the futures market is,
Speaker 1: in simplest terms, designed to be a parallel market organization
Speaker 1: or vehicle where you can play side bets if you're
Speaker 1: a producer or a middle operator, and those side bets
Speaker 1: allow you to in essence, manage your price risk. So
Speaker 1: you're here in the futures markets taking long and short
Speaker 1: positions to manage the price risk of whatever is your
Speaker 1: underlying cash position. And what you really are interested in
Speaker 1: then is do my cash prices and my futures prices
Speaker 1: go roughly in parallel, so that if I'm long in
Speaker 1: the cash and I go short in the futures, then
Speaker 1: the price movements roughly offset one another. And that's all
Speaker 1: you care about. You're not using it as a merchandising
Speaker 1: vehicle to actually get the physical commodity. But at the
Speaker 1: same time, why the terms of the contracts, the things
Speaker 1: you were talking about are critical because if you're going
Speaker 1: to manage your risk over here in the cash market
Speaker 1: side with the futures contract, you need a futures contract
Speaker 1: that has terms and reflects the prices as closely as
Speaker 1: you can get to what you're doing over here in
Speaker 1: the cash market. M I wanted to widen out the
Speaker 1: conversation once and talk more about agricultural prices generally. So
Speaker 1: we are seeing lots of talk about agflation. I guess
Speaker 1: my question is what could be done at this moment
Speaker 1: in time, in your opinion, to bring food prices down. Well,
Speaker 1: I don't think that there's probably a lot that governments
Speaker 1: can do around the world because there aren't large excess
Speaker 1: stocks laying around, you know, in these kind of buffer
Speaker 1: stock schemes, except maybe inside China. I'm not myself very
Speaker 1: concerned at this point about I love the term you
Speaker 1: had inflation. We have seen large increases in prices, but
Speaker 1: let's just kind of wait, and you know, coming on
Speaker 1: the other side of this is going to be a
Speaker 1: monstrous supply response around the world, and things like born
Speaker 1: ands a beans and then the livestock, and you just
Speaker 1: kind of gotta give the system a little time. I mean,
Speaker 1: it's very important to remember, like, standing around mid August,
Speaker 1: we thought here in Illinois we were going to have
Speaker 1: one of the worst years we've had for a long
Speaker 1: long time on income, and it wasn't very long ago.
Speaker 1: And then corn and soybean prices started shooting up, and
Speaker 1: we're gonna see a big excrease in acreage. Farmers are
Speaker 1: going to pour the inputs in, and if we get
Speaker 1: any kind of decent weather here in the US, we're
Speaker 1: gonna have a big crop. And it looks like for
Speaker 1: you know, the first cut at the big price high
Speaker 1: prices was in South America, and other than maybe some
Speaker 1: problems in Argentina, they look like they're going to have
Speaker 1: pretty good crops. So I don't see anything in this
Speaker 1: yet that that really deeply concerns me about long term inflation.
Speaker 1: So is there a way to sort of anticipate the
Speaker 1: how long the stocking cycle goes? So obviously you will
Speaker 1: get this and hopefully we get a robust supply response
Speaker 1: to the demand. What about the demand side itself? Can economists?
Speaker 1: Can you anticipate how much more China has left to
Speaker 1: buy before it will be satisfied with its attempts to
Speaker 1: sort of build up a buffer or is that inherently
Speaker 1: unpredictable due to how political it is. With China in particular,
Speaker 1: that is wildly hard to predict because you're purely predicting,
Speaker 1: you know, inside the Chinese Communist Party, what are going
Speaker 1: to be their political decisions on these key kinds of variables,
Speaker 1: And the data is just so poor at least in
Speaker 1: the public domain. Give you an idea of how hard
Speaker 1: this thing is to assess in China. I have some
Speaker 1: colleagues that working hedge funds, and when the African swine
Speaker 1: fever started taking off, you know, there's a huge hedge fund.
Speaker 1: They had no idea, so they started having regular calls
Speaker 1: with veterinarians they could get ahold of insight China directly,
Speaker 1: and they just try to build up a network and
Speaker 1: start talking to people. So it's very hard. You know,
Speaker 1: it's very volatile and uncertain situation when the world's largest
Speaker 1: consumer is this kind of opaque. There's one other big
Speaker 1: thing going on at the moment where that has the
Speaker 1: potential to actually happen um and impact food prices and
Speaker 1: the farming community, and that's the new US President Biden
Speaker 1: coming in presumably with some sort of new agricultural policy.
Speaker 1: He definitely seems to have a focus on climate change UM,
Speaker 1: which would impact things like story beans. How do you
Speaker 1: see that playing out? Well, I think that's going to
Speaker 1: be very interesting, UM and it's going to be layered
Speaker 1: on top of and our ongoing what I call RFS
Speaker 1: swars here in the US politically over the renewable fuels
Speaker 1: mandates that we already have UH here in the US
Speaker 1: by law. So we have that that's ongoing, and then
Speaker 1: you have layered on top of that things like the
Speaker 1: California Low Carbon Fuel Standard, some talk of that being
Speaker 1: expanded going forward. You have something called renewable diesel plants
Speaker 1: being built at a wild pace right now in responding
Speaker 1: to these policy incentives. So this is definitely an area
Speaker 1: that I'm paying really close attention to and I think
Speaker 1: has the potential to be probably the biggest demand game changer,
Speaker 1: both negatively and positively for egg in the next few years.
Speaker 1: Can you can you actually explain that a little bit
Speaker 1: further one could change policy wise that's on the horizon,
Speaker 1: making it making either agg demand go sharply higher or lower. Well,
Speaker 1: probably the first thing I'd come up is, you know,
Speaker 1: what's the Biden administration going to do with ethanol you know? Um,
Speaker 1: I hear chatter that there's certainly the groups are going
Speaker 1: to really be pushing moving from a de facto ten
Speaker 1: standard on gasoline. Would a Biden administration for climate change
Speaker 1: reasons and domestic political reasons go along with that? That
Speaker 1: could be huge. Secondly, what is the new Biden administration's
Speaker 1: position going to be in terms of how we implement
Speaker 1: our renewable fuel mandates? Under the Trump administration, who was
Speaker 1: very closely allied with the crude oil refiners, basically their
Speaker 1: entire strategy was to give it as big a haircut
Speaker 1: as possible, you know, reduce it. We're still kind of
Speaker 1: trying to find out where the Biden administration is going
Speaker 1: to fall on all of these. Plus we have a
Speaker 1: big case in front of the Supreme Court on the
Speaker 1: rentable field standards, so there's a lot of moving pieces
Speaker 1: on that right now. So one of the few things
Speaker 1: I know about the farming community is that they seem
Speaker 1: to be uh, how do I how do I put this? Like,
Speaker 1: for the past few years, they seem to be um.
Speaker 1: They seem to feel bad. What will would it take
Speaker 1: to get um? I guess the sort of like happy days, uh,
Speaker 1: sentiment back into the farming community in the US. Oh. Now,
Speaker 1: there's always a lot of things that contribute to farmers grumpiness,
Speaker 1: having grown up and being kind of technically one myself.
Speaker 1: So that's that's a complicated question on a personal level.
Speaker 1: But more seriously, high prices. That always takes care of it,
Speaker 1: doesn't it high prices, So you know, I can give
Speaker 1: you some round numbers that would help here in Illinois.
Speaker 1: If you could assure Illinois farmers of four dollar corn
Speaker 1: and eleven or twelfth dollar soybeans, there'd be a lot
Speaker 1: of smiles. And what do we at right now? We're
Speaker 1: actually above those levels right now. Uh, in terms of
Speaker 1: the cash prices um there. Look, you know, quite a
Speaker 1: bit higher than that. We're looking at over five dollar
Speaker 1: corn and uh what I just check. I think right
Speaker 1: around thirteen dollars for beads. So farmers are very happy
Speaker 1: with those prices right now. So the other thing that's
Speaker 1: going on, obviously this sort of horrific arctic blast that's
Speaker 1: really affecting the entire central part of the United States,
Speaker 1: actually a huge swath of the country, particularly brutally in Texas.
Speaker 1: All kinds of spillovers. Recording this may very seventeenth. Did
Speaker 1: an hour or two ago I saw the Texas Governor
Speaker 1: declaring no natural gas exports would be allowed from the stage,
Speaker 1: so it's gonna spill over into other states, and so
Speaker 1: other issues with getting the feedstock to the ethanol ethanol
Speaker 1: plants due to the freeze. What are some of the
Speaker 1: implications that you're already seeing as a result of this,
Speaker 1: and how long could we be sort of dealing with
Speaker 1: the aftermath even if it warms up in the next
Speaker 1: couple of days. I don't think that the natural gas
Speaker 1: related disruptions that we've seen will last very long, simply
Speaker 1: because it's gonna warm up stretch in a week. It's
Speaker 1: just that's not going to last too long. Probably in
Speaker 1: an egg side the I would say that would be
Speaker 1: two main impacts that will have to be assessed to
Speaker 1: see how long lasting. First off, I mean, this was
Speaker 1: a absolutely brutally cold event that went right straight down
Speaker 1: the middle of the Great Plains. So what kind of
Speaker 1: losses are we looking at in cattle feed yards and
Speaker 1: uh literally death and freezing or calf operations and slow
Speaker 1: down in rates of game things like that. Those those
Speaker 1: are gonna play out for a while. Hogs are almost
Speaker 1: entirely in confinement buildings, so there's not gonna be chickens
Speaker 1: the same way. Not not much. One that's really only
Speaker 1: now I think, you know, the futures market has been
Speaker 1: thinking about it. But one of the ones that might
Speaker 1: have a long the longest lasting impacts is what did
Speaker 1: this do to the winter wheat production here in the US.
Speaker 1: You know, normally it's extremely hardy crops, Like a friend
Speaker 1: of mine says, you know, you can kill the wheat
Speaker 1: crops seven times a year with bad weather. But this
Speaker 1: was a length of low temperatures that was extraordinarily long,
Speaker 1: even by Greats standards. And you know, dormant wheat is
Speaker 1: supposed to be very hardy. You know, it's literally dormant,
Speaker 1: but it can still be killed if the temperatures are
Speaker 1: low enough long enough, and so there's a lot of
Speaker 1: debate about that. That's that's the one I would really
Speaker 1: be looking for long run, is to see, you know,
Speaker 1: how much what they call winter killed did we really
Speaker 1: get with the U S winter wheak. Carl, I think
Speaker 1: that was fantastic. I learned a lot from that. Well,
Speaker 1: hopefully I'm not too worthy that professors tend to do that.
Speaker 1: I know now it's perfect. Thanks so much, Scott, right,
Speaker 1: take care of Scott, Joe. I'd love talking about commodities.
Speaker 1: I think, I think, I secret we always wanted to
Speaker 1: be a commodities reporter and I never really got the chance.
Speaker 1: Do you know, Tracy, I meant to tell you speaking
Speaker 1: of being a reporter, remember a while back on one
Speaker 1: of our episodes, you said if you were starting UM
Speaker 1: as a journalist now, you would be a semiconductor reporter.
Speaker 1: Oh yeah. Someone d m me the other day and
Speaker 1: said they heard that and they were inspired and they
Speaker 1: wanted to get into They heard you say that, and
Speaker 1: they were going to get like, start writing about semiconductor.
Speaker 1: So you you may have launched someone falling the whole
Speaker 1: generation of semiconductor reporters. Let's chill out at least one
Speaker 1: maybe one? All right, um, but commodities. So here. The thing.
Speaker 1: The thing I like about commodities, I think is it
Speaker 1: brings a lot of these sort of market ideas and
Speaker 1: market structure theories to life, right, because you're talking about
Speaker 1: an actual product and you can think about holding up
Speaker 1: well maybe not a live pig in your hand. But
Speaker 1: you could think about holding corn or soybeans in your hand,
Speaker 1: and you can actually connect that to the way the
Speaker 1: futures market works and to the way markets generally function. Tracy,
Speaker 1: you're gonna take delivery of a live pagram, I can
Speaker 1: see that. Yeah, I know you would. No, I'm not,
Speaker 1: but I totally would actually if I had a place
Speaker 1: to to put it. But you see what I mean, right,
Speaker 1: Like the aspect of the commodities market, Okay, totally. And
Speaker 1: I actually thought that was a really interesting point he
Speaker 1: said about the goal of a commodities market is not
Speaker 1: about taking delivery of the physical commodity itself via the
Speaker 1: end commercial buyer of the future, but about having a
Speaker 1: contract running parallel to the cash market such that the
Speaker 1: fluctuation should be in the same direction. So you could
Speaker 1: get a delivery of pigs, and maybe they're a little
Speaker 1: bit inconsistent, but as long as sort of directionally the
Speaker 1: cost of the actual cash pigs I guess, and the
Speaker 1: pig futures are moving in the same way, then the
Speaker 1: futures market serves its purpose for the participants, which I
Speaker 1: thought was interesting. But then, of course, you know, you
Speaker 1: could see how over time the desire to I guess,
Speaker 1: I guess you would are the cash what is? What
Speaker 1: are the cash future spread would encourage participants to start
Speaker 1: delivering pigs or any other commodity that are, you know,
Speaker 1: in line with the the specs the specification, so you
Speaker 1: can see how it serves that purpose. I was just
Speaker 1: thinking it'd be funny if you saw live hog prices
Speaker 1: or lean hog prices go negative and suddenly everyone had
Speaker 1: to take delivery of a bunch of pigs like oil.
Speaker 1: The other thing I liked is I finally got to
Speaker 1: ask the question about whether the hedging farmer is a myth,
Speaker 1: because I've always sort of suspected that farmers don't really hedge,
Speaker 1: like doing the textbooks. And I'm glad he confirmed that.
Speaker 1: But that was a great That was great. I really
Speaker 1: I could actually could have listened to him for a
Speaker 1: lot longer. Well, we'll happen back on for sure. The
Speaker 1: next time we have a big agricultural development, we'll start
Speaker 1: our all thoughts farming spin off. I like, I like
Speaker 1: when you're asking what would make farmers happy, and he's
Speaker 1: just like higher prices. That was good. Well, it's a look.
Speaker 1: I feel entitled to ask that question because actually My
Speaker 1: granddad in Texas was a cattle farmer. Um, and they
Speaker 1: tend to be I mean, Scott's use of the word
Speaker 1: grumpy was correct. As far as I could tell. They
Speaker 1: tend to be a pretty pessimistic bunch um. And of
Speaker 1: course we've seen them complain a lot over the years.
Speaker 1: So I'm genuinely curious, like, what what do they want
Speaker 1: to see? There's always a drought, right, There's always a drought, right,
Speaker 1: There's always consolidation, and probably the large industrial egg factory
Speaker 1: farmers are probably are always sort of making life miserable,
Speaker 1: and somewhere or another for the small farmer, there's probably
Speaker 1: and we could have gotten into this, but I have
Speaker 1: to imagine um and maybe we could even do another
Speaker 1: episode concentration, particularly when it comes to and I remember
Speaker 1: this was an issue this past summer in spring, but
Speaker 1: the coronavirus, but sort of the concentrated buying power of
Speaker 1: the slaughterhouses as a form of leverage over the farmer essentially,
Speaker 1: So if you don't have, you know, if you have
Speaker 1: sort of this monopsyony buyer of of your wares, of
Speaker 1: your your cows, then that's an issue. So I think
Speaker 1: in addition to higher low prices. There's all kinds of
Speaker 1: structural things that probably um upset the sort of the
Speaker 1: day to day farmer. Okay, look well, Episode one of
Speaker 1: All Thoughts Farming series will be why are Farmers so Grumpy?
Speaker 1: I'm into it. This has been another episode of the
Speaker 1: Thoughts podcast. I'm Racy Allowitt. You can follow me on
Speaker 1: Twitter at Tracy All the Way, and I am Joe
Speaker 1: wi isn't Thal. You could follow me on Twitter at
Speaker 1: the Stalwart. Follow our guest Scott Irwin on Twitter. He's
Speaker 1: at Scott Irwin U. I follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson. Followed the Bloomberg head of podcast,
Speaker 1: Francesco Levi at Francesca Today, and check out all of
Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks
Speaker 1: for listening.