Latest / Professional Ag Marketing Podcast / Crushing It: Soybean Processor Margins Explode Higher

Transcript

Crushing It: Soybean Processor Margins Explode Higher · Professional Ag Marketing Podcast

• 0:03
  SPEAKER_01: You're locked in to the Grain Market Talk Podcast.
• 0:06
  SPEAKER_01: Fast updates, market movers, and the green news you need right now.
• 0:12
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: All right, I've got Jordan here with me today.
• 0:23
  SPEAKER_00: How's it going, Jordan?
• 0:24
  SPEAKER_00: Good.
• 0:24
  SPEAKER_00: How are you, Mike?
• 0:25
  SPEAKER_00: Pretty good.
• 0:26
  SPEAKER_00: We're gonna talk a little bit about the Wazd Airport that we had yesterday.
• 0:30
  SPEAKER_00: We're gonna talk about weather, basis, the Iran situation.
• 0:33
  SPEAKER_00: We're gonna cover it all on the grain market.
• 0:35
  SPEAKER_00: How's that sound?
• 0:36
  SPEAKER_00: That sounds awesome.
• 0:37
  SPEAKER_00: All right, Jordan, tell me a little bit about what you're seeing on the WASD Airport yesterday.
• 0:42
  SPEAKER_02: Yeah, so the USDA released their monthly WASD Airport, their June report, which historically is um a pretty quiet report.
• 0:51
  SPEAKER_02: You know, we don't normally see too much from a June report.
• 0:54
  SPEAKER_02: Um a couple of years ago, I believe it was that we did actually see a little bit of a bump on yield, and that was really surprising.
• 1:01
  SPEAKER_02: Um, we just got off to such an amazing start that year, corn planted so early that we did see a little bit of a bump there.
• 1:08
  SPEAKER_02: This report, we didn't see any of that.
• 1:10
  SPEAKER_02: Um, you know, really didn't see much change at all on the US side as far as corn and soybeans.
• 1:15
  SPEAKER_02: Ending stocks on corn came in at a 2145, that's old crop on soybeans.
• 1:20
  SPEAKER_02: It was 340 million, so not much of a change.
• 1:24
  SPEAKER_02: Uh exports were raised on corn, which um needed to happen.
• 1:30
  SPEAKER_02: And with how robust demand has been, exports you know, being very significant, we will probably see a little bit more of a bump there as we kind of move through the summer here.
• 1:40
  SPEAKER_02: Um, but still, you know, burden some ending stocks here at uh 2145, right?
• 1:46
  SPEAKER_02: Uh as you kind of look forward to the new crop, the USDA is estimating a 196 on new crop corn, soybeans 310.
• 1:54
  SPEAKER_02: So narrowing of ending stocks on both both corn and soybeans for new crop.
• 2:00
  SPEAKER_02: So not didn't see any change there.
• 2:03
  SPEAKER_02: Um as we kind of look forward, we um are gonna start to see you know some debate on what acres look like because we'll have the June quarterly stocks and acreage report.
• 2:14
  SPEAKER_02: That tends to be a big report.
• 2:16
  SPEAKER_02: So we're about three weeks out from that one.
• 2:18
  SPEAKER_02: That's the one that's gonna have a lot of eyeballs looking at.
• 2:21
  SPEAKER_02: Now, this report did turn out to be a little bit bearish, not necessarily on that US side because you know things were really not adjusted a whole lot, but on the world side.
• 2:31
  SPEAKER_02: So world ending stocks were moved a little bit higher because the Argentina crop and the Brazilian crop were were raised there.
• 2:38
  SPEAKER_00: Something that probably could have been done a while ago, but they've just been catching up.
• 2:42
  SPEAKER_00: There's a pretty big spread between their agencies and the US now for quite a while.
• 2:46
  SPEAKER_00: So good to see those get a little bit closer, at least it seems like for the world numbers.
• 2:51
  SPEAKER_02: Yep, yep, exactly.
• 2:52
  SPEAKER_02: So, you know, the report came out, didn't really see much of a change, but as we kind of headed to the market close, we did see that corn market go down and test uh old lows there on December corn, traded below 438, but did actually uh close above it.
• 3:06
  SPEAKER_00: One of the things worth mentioning here that's also probably added to a little bit of the weakness in the grain markets weather.
• 3:13
  SPEAKER_00: We've had a pretty tame drought map.
• 3:15
  SPEAKER_00: I know uh the drought map on the screen there, you can basically see a little bit in northern Illinois, but that was welcomed.
• 3:22
  SPEAKER_00: I mean, they were fine with a little bit of drought just to finish up planning through in kind of northern Illinois, Indiana, and Ohio here, uh just over a week ago.
• 3:30
  SPEAKER_00: Otherwise, it's all in the Western Corn Belt, you know, Nebraska, South Dakota, very, very dry in the western corn belt, all the way down to Texas.
• 3:39
  SPEAKER_00: So at this point, uh dryness is a concern to the West, but basically for the majority of the entire Corn Belt, not much of a problem.
• 3:47
  SPEAKER_00: And uh when you look at the weather forecast going forward, sure, we've got a little bit of rain forecasted for Iowa, Illinois, maybe a little bit south now, it looks like for the next five days.
• 3:59
  SPEAKER_00: What do you got to say about weather and and how we're set up there?
• 4:03
  SPEAKER_02: Yes.
• 4:04
  SPEAKER_02: So, you know, right now, um, as you kind of look at this crop, you know, we got it planted early.
• 4:08
  SPEAKER_02: And um, you know, as that USDA report finished up, I flipped over and you know started looking at precipitation maps.
• 4:15
  SPEAKER_02: And, you know, over the the last two days, we've really seen some really beneficial rainfall, you know, kind of falling in those areas that were of the biggest need.
• 4:24
  SPEAKER_02: So, you know, a little bit of rain in Nebraska, across Iowa, Illinois, Missouri, you know, all kind of seeing that half inch to an inch of rain, with some places even seeing closer to three.
• 4:35
  SPEAKER_02: Um, you know, getting that kind of rain here, timely rain there in June is really beneficial and should really push uh these crop conditions.
• 4:43
  SPEAKER_02: Um, one thing I've noticed uh, you know, just locally, uh soybeans looking really, really good there also.
• 4:50
  SPEAKER_02: And not only the corn, but but soybeans are starting to really, really look good.
• 4:54
  SPEAKER_00: I think so.
• 4:55
  SPEAKER_00: That's definitely been a bearish weather uh story here as of late.
• 5:00
  SPEAKER_00: Uh it's gonna take a while probably for us to get anything too new, weather-wise, now report-wise as well, because no delayed planning problems anywhere, basically.
• 5:10
  SPEAKER_00: Uh, you have no condition problems for the most part through most of the United States.
• 5:14
  SPEAKER_00: So, not much of a weather story or crop condition or report story, really, until that acreage report, like you said, at the end of this month.
• 5:23
  SPEAKER_02: Yeah, exactly.
• 5:24
  SPEAKER_02: And I think that's exactly what the funds were looking at over the past two weeks, right?
• 5:28
  SPEAKER_02: You know, just getting off to a great start and you know, not much there to kind of look at.
• 5:33
  SPEAKER_02: And when they had a record net long, um, easy to liquidate, and we've seen that over the past two weeks, right, Mike.
• 5:39
  SPEAKER_00: That we have uh one of the one of the things we could also add to this, I'll just skip to it here.
• 5:44
  SPEAKER_00: The U.S.
• 5:45
  SPEAKER_00: on Iran are working towards an agreement.
• 5:48
  SPEAKER_00: There's been so many back and forth headlines.
• 5:51
  SPEAKER_00: Is there a deal?
• 5:51
  SPEAKER_00: Is there not a deal?
• 5:52
  SPEAKER_00: Are we gonna sign a deal?
• 5:53
  SPEAKER_00: Trump keeps saying that they're so close to a deal, they're gonna sign a deal.
• 5:57
  SPEAKER_00: And just the same story all over again.
• 6:00
  SPEAKER_00: Um, going to last night, they're supposed to be dropping bombs on Iran.
• 6:03
  SPEAKER_00: Then Trump says, no, we're that close to a deal, we're not gonna do that now.
• 6:07
  SPEAKER_00: Um, so the crude oil market's been all over the board, and uh today sounds like it was leaked.
• 6:13
  SPEAKER_00: Maybe Pakistan leaked it, that most of the terms, some of the final texts were agreed upon, and that a deal is supposed to get signed next week during the G7 summit.
• 6:23
  SPEAKER_00: So we'll see how that all looks.
• 6:25
  SPEAKER_00: I but one thing I do know is this is a crude oil chart, and we've really taken off a lot on this crude oil chart uh here over the past couple weeks.
• 6:33
  SPEAKER_00: And when I look at this is July specifically, June there, we were able to get back up uh originally there in the month of May, up to about that 120 mark.
• 6:43
  SPEAKER_00: But as of late, now pulled it back to new lows for the move, 84 under that mark.
• 6:49
  SPEAKER_00: Uh really weakness going through most of the energy complex.
• 6:52
  SPEAKER_00: That's probably spilled over into the grains too, through that same time frame.
• 6:56
  SPEAKER_00: We peaked crude oil about the middle of May.
• 7:00
  SPEAKER_00: And if I pull up the corn chart here along with it as well, right at that same time frame is about when we peaked corn as well, as you can see in this chart.
• 7:08
  SPEAKER_00: Corn's pulled off quite a bit here in a chunk too.
• 7:11
  SPEAKER_00: We put in new lows on the move here, below old contract lows, as you can see in this chart going all the way back to 2024.
• 7:19
  SPEAKER_00: We'll see what happens with Iran in this situation.
• 7:22
  SPEAKER_00: It's probably not over with.
• 7:23
  SPEAKER_00: Who knows what deal will get signed next week?
• 7:26
  SPEAKER_00: But there is long-term probably production disruptions in the supply chain.
• 7:32
  SPEAKER_00: But this week, especially, you're seeing a lot more things in the crude oil market, specifically about how we've been able to hold this crude oil market together with things like US exports, ramped up production from us.
• 7:46
  SPEAKER_00: We started it with high reserves.
• 7:48
  SPEAKER_00: We've been able to kind of keep this thing at bay just using short-term solutions.
• 7:54
  SPEAKER_00: Longer term here, if it goes on much longer, it'll be interesting to see if we can hold this oil market back.
• 8:00
  SPEAKER_02: Yeah, I would agree.
• 8:01
  SPEAKER_02: And that's kind of the the things that I've been hearing this week too is you know, if this thing goes on a whole lot longer, we could definitely see a little bit of a shift in it, right?
• 8:10
  SPEAKER_02: But for now, we've seen this sell-off on crude, and and that seems to be another bearish factor to to corn.
• 8:16
  SPEAKER_02: Um, one thing to note is over the past week, we are seeing uh fertilizer prices, urea specifically, really taking a hit and uh you know starting to pull back, which is uh good news for grain farmers, right?
• 8:30
  SPEAKER_00: And fuel prices as well.
• 8:31
  SPEAKER_00: Diesel fuels got a little bit cheaper, at least for the time being.
• 8:34
  SPEAKER_00: So hopefully we see it on the retail side of fertilizer, at least.
• 8:38
  SPEAKER_00: I know it's actually cheaper now at the Gulf than it was even pre-war.
• 8:41
  SPEAKER_00: So we'll see if it can reflect that on the retail side or not.
• 8:46
  SPEAKER_00: And I know it's kind of out of season now.
• 8:47
  SPEAKER_00: Most people are done side dressing, so you know we'll see how much of an impact that has going forward.
• 8:53
  SPEAKER_00: I know some of the prices, phosphorus, that has gone up a lot lately, too.
• 8:58
  SPEAKER_02: Correct.
• 8:58
  SPEAKER_02: Yep.
• 8:59
  SPEAKER_02: And I think that's gonna stay up there.
• 9:00
  SPEAKER_02: Yeah.
• 9:01
  SPEAKER_02: But the urea side, I think, uh, will continue to pull that back closer to last year's values.
• 9:06
  SPEAKER_00: Yep.
• 9:07
  SPEAKER_00: One of the other things we wanted to talk about here was how the market's been reacting to this and in a more fundamental cash perspective.
• 9:14
  SPEAKER_00: Uh, one of the things we realized, and we we had county yields come out here uh on uh on the United States for corn and soybeans.
• 9:22
  SPEAKER_00: So we got a better look at it, but we realized huge corn crop in the Western corn belt.
• 9:27
  SPEAKER_00: We had a subpar to an average soybean yield, at least compared to corn.
• 9:34
  SPEAKER_00: Uh, a lot of soybeans got sold right off the combine into town because they had so much corn they had to store, uh, fundamentally just cash-wise.
• 9:42
  SPEAKER_00: They needed to get rid of the soybeans pretty early in the year.
• 9:45
  SPEAKER_00: We got a big rally right after we got done combining, so that pushed a lot of soybeans out of out of the way.
• 9:50
  SPEAKER_00: We're starting to see the cash market really reflect this as of late.
• 9:54
  SPEAKER_00: You have massive crush margins of$4 a bushel on soybeans that they can make profit at these processors.
• 10:01
  SPEAKER_00: And there's not a lot of farmer bushels left.
• 10:04
  SPEAKER_00: And if they do have it left, they've been pretty strong holders of that soybean.
• 10:08
  SPEAKER_00: So I feel like as of the last week or two, I've really seen soybean basis skyrocket as of late here.
• 10:15
  SPEAKER_00: This is uh Cargill Sioux City's bid, for example, posted five over now, but what a huge shift from where they were just at, Jordan.
• 10:24
  SPEAKER_02: Yeah, you're spot on there, Mike.
• 10:25
  SPEAKER_02: Um, you know, the the soybean side has really kind of taken off.
• 10:28
  SPEAKER_02: There's a lot of beans that moved, like you said.
• 10:31
  SPEAKER_02: And, you know, with this board uh falling back, farmers selling on both corn and soybeans has really dried up, and um you're seeing it in the in the basis, and it's and it's uh kind of drastic.
• 10:43
  SPEAKER_02: So soybeans moving uh, you know, probably 45 cents locally is what we're seeing.
• 10:49
  SPEAKER_02: And then on corn, um, you know, just just uh right down the road here, you know, seeing moves of 25 to 30 cents.
• 10:58
  SPEAKER_02: Um so that is uh um very um concerning as you go forward is what does that basis kind of look like?
• 11:07
  SPEAKER_02: Um lot of a lot of grain farmers are kind of looking for that four dollar cash number right now, and with uh July futures down around 415, it's gonna take basis to do a lot of work to kind of get back to that level.
• 11:20
  SPEAKER_00: For sure.
• 11:20
  SPEAKER_00: All right.
• 11:21
  SPEAKER_00: Any other final thoughts for our listeners this week uh before they go onto the weekend?
• 11:26
  SPEAKER_02: Yeah, it uh it's a nice looking weekend as you kind of move forward.
• 11:30
  SPEAKER_02: The weather looks to be very advantageous to kind of grow some crops now, right?
• 11:35
  SPEAKER_02: You know, we had 90 degree heat there, um, was was pretty warm.
• 11:39
  SPEAKER_02: Now, as you kind of look forward for the next uh seven to ten days, you're kind of back into that 75 to 80 degree weather, should really be kind of beneficial.
• 11:47
  SPEAKER_00: All right.
• 11:47
  SPEAKER_00: Well, I'm curious to see if the corn market's gonna try to hold at this level for a little bit or if seasonals will just completely trump any of these minor support levels that we've had here.
• 11:57
  SPEAKER_00: Iran, see how those talks go through the weekend here.
• 12:00
  SPEAKER_00: And if we can catch a rain in Nebraska and South Dakota, that crop would sure benefit.
• 12:04
  SPEAKER_00: So thank you everyone for tuning in.
• 12:06
  SPEAKER_00: Please click the link on the description below.
• 12:08
  SPEAKER_00: Uh, please hit subscribe button and then go to our website at professional.com.
• 12:13
  SPEAKER_00: We'll see you next time.