Latest / AG Bull / AEI.ag | Producers Shift Acres When Profits Change, So The Corn-Bean Battle Heats Up

Transcript

AEI.ag | Producers Shift Acres When Profits Change, So The Corn-Bean Battle Heats Up · AG Bull

• 0:21
  SPEAKER_01: Well, we're getting to the end of the year.
• 0:23
  SPEAKER_01: Tommy Gersafi, Eggbow Media, Eggbowl, Trading the Eggbow Podcast.
• 0:27
  SPEAKER_01: We have the one and only Mr.
• 0:28
  SPEAKER_01: David Whitmer.
• 0:29
  SPEAKER_01: He's got uh I took a little sneak peek at his PowerPoint.
• 0:32
  SPEAKER_01: He's got some delicious charts in there.
• 0:35
  SPEAKER_01: Merry Christmas, my friend.
• 0:36
  SPEAKER_01: This is it for you, huh?
• 0:38
  SPEAKER_00: Merry Christmas, Tommy.
• 0:39
  SPEAKER_00: Yeah, we're getting close to the end of the year, and I'm sneaking out.
• 0:42
  SPEAKER_01: Well, uh, that's a good thing.
• 0:44
  SPEAKER_01: Adult X doesn't cut a lot of wood.
• 0:47
  SPEAKER_01: All right.
• 0:48
  SPEAKER_01: There's you.
• 0:49
  SPEAKER_01: There's you and your PowerPoint.
• 0:52
  SPEAKER_01: And stage is yours.
• 0:54
  SPEAKER_01: Let's blow that up.
• 0:55
  SPEAKER_00: Well, this is the chart that we've been sharing with a lot of producers as we're wrapping up this year.
• 1:01
  SPEAKER_00: And one of the things that we're saying is if there's a big surprise in the commodity markets this year, this in 2026, it's probably going to be captured in one of these two charts.
• 1:13
  SPEAKER_00: The chart on the left is all U.S.
• 1:16
  SPEAKER_00: ending stocks for the 13 primary crops.
• 1:18
  SPEAKER_00: So this isn't corn bushels or soybean bushels or bales of cotton, which you can't add together.
• 1:24
  SPEAKER_00: We said, what's the acre's worth of corn and the acres worth of soybeans?
• 1:28
  SPEAKER_00: And we went through all 13 primary crops.
• 1:30
  SPEAKER_00: And as we head into the 26th marketing year, there's 40 million acres worth of ending stocks.
• 1:36
  SPEAKER_00: That's up from about 30 million a couple of years ago.
• 1:39
  SPEAKER_00: That's that headwind the commodity markets have been dealing with.
• 1:41
  SPEAKER_00: But I think the positive takeaway from this is that we are not in 2019 and 2018 levels.
• 1:48
  SPEAKER_00: That was at 60 million acres worth of ending stocks.
• 1:50
  SPEAKER_00: So yes, we've had the trade war disputes.
• 1:52
  SPEAKER_00: Yes, we've had big crops, but overall, the factory is not drowning in ending stocks at this point.
• 1:59
  SPEAKER_00: You can see this start to tighten.
• 2:01
  SPEAKER_00: On the right, this is that split screen.
• 2:03
  SPEAKER_00: This is the world measure, and we've taken out China because China is a net consumer.
• 2:10
  SPEAKER_00: They're not making those bushels or stocks available for trade.
• 2:13
  SPEAKER_00: So world less China, what's what's the acre's worth of ending stocks?
• 2:17
  SPEAKER_00: And you can see that's been getting tighter over the last several years.
• 2:21
  SPEAKER_00: About 12.8% of harvest of ending stocks are equal to 12.8% of all the global harvested crops.
• 2:29
  SPEAKER_00: We were above 14% before 2020.
• 2:32
  SPEAKER_00: So again, that's a situation where we're on the tighter side on a global story.
• 2:37
  SPEAKER_01: Absolutely.
• 2:39
  SPEAKER_01: All right.
• 2:40
  SPEAKER_01: This is interesting.
• 2:41
  SPEAKER_01: This caught my attention.
• 2:43
  SPEAKER_00: Okay.
• 2:43
  SPEAKER_00: Well, Tommy, you know, from econ 101, if something isn't profitable, producers will plant less of it.
• 2:50
  SPEAKER_00: And the paradox here is then why did corn and soybean producers plant more corn and soybeans in 2025?
• 2:58
  SPEAKER_00: 180.3 million reported acres up from the 2019-2024 average of 178 million.
• 3:06
  SPEAKER_00: So the chart shows actual USDA data in blue.
• 3:10
  SPEAKER_00: In orange, we have said what's that factory size if we say this year had normal prevent planting.
• 3:18
  SPEAKER_00: So you see 2019, really small planted acreage, but it was prevented planting.
• 3:23
  SPEAKER_00: And so that prevent plant factory size stayed the same.
• 3:26
  SPEAKER_00: Look at where we are in 2025.
• 3:28
  SPEAKER_00: We actually had above normal prevent plant year.
• 3:31
  SPEAKER_00: So the factory size expanded.
• 3:33
  SPEAKER_00: Why did this happen?
• 3:34
  SPEAKER_00: It's because the alternatives, wheat and cotton, were less optimistic.
• 3:39
  SPEAKER_00: And so that econ 101 lesson is still true.
• 3:42
  SPEAKER_00: But we have to think about not just corn and soybeans, but what's the other crop that producers have to plant?
• 3:47
  SPEAKER_00: They don't leave these acres unplanted.
• 3:49
  SPEAKER_00: They have to do something with them.
• 3:51
  SPEAKER_00: And so relative budget conditions matter.
• 3:53
  SPEAKER_00: The last big expansion we saw was from 15 to 17.
• 3:56
  SPEAKER_00: The unfortunate reality is whenever conditions are lean in the farm economy, corn and soybeans tend to pick up more acreage from those other crops.
• 4:06
  SPEAKER_01: That's interesting.
• 4:07
  SPEAKER_01: So let's take North Dakota, something I'm familiar with, uh, where they plant like edibles and spring wheat and canola, and what other unique things?
• 4:19
  SPEAKER_01: Sugar beet industry got an ass kick in this year.
• 4:22
  SPEAKER_01: All those could go down a little bit, and we'll lean harder on the things we don't need as much of, which is corn and beans, because you could lose less there.
• 4:30
  SPEAKER_01: Is that what we're looking at?
• 4:32
  SPEAKER_00: Right.
• 4:32
  SPEAKER_00: Producers have to allocate their rotation based on the profits.
• 4:36
  SPEAKER_00: And so they're looking at corn and soybeans, which don't look great from a historic standpoint, but might look better relative to those other crops they have.
• 4:44
  SPEAKER_00: So you're in the the southern Great Plains, and this is where we're really seeing it show up in western Kansas.
• 4:50
  SPEAKER_00: All these corn acres, these dryland corn acres, and it was because of the alternative of wheat is just not all that appealing.
• 4:59
  SPEAKER_00: Cotton is a huge cotton's really the big change over the last couple of years.
• 5:02
  SPEAKER_00: Wheat has been, you know, losing acres, but also cotton.
• 5:06
  SPEAKER_00: I think the other thing that sometimes gets misappreciated or misrepresented is crop insurance.
• 5:12
  SPEAKER_00: So when you think about crop insurance for planting dryland corn in some of these low moisture areas, the crop insurance makes that maybe a little more attractive than it would if we didn't have crop insurance.
• 5:24
  SPEAKER_01: Oh, great point.
• 5:25
  SPEAKER_01: Great point.
• 5:26
  SPEAKER_01: All right, let's move to slide number three, my friend.
• 5:28
  SPEAKER_00: Well, I'm setting the stage here for the 26 acreage battle.
• 5:33
  SPEAKER_00: Winter wheat, of course, is already been planted.
• 5:36
  SPEAKER_00: We'll see what that looks like in that January report.
• 5:39
  SPEAKER_00: But take a look at the chart on the left.
• 5:41
  SPEAKER_00: This is where the crop ratio, the soybean corn price ratio is as of today, 2.36.
• 5:48
  SPEAKER_00: It's a big increase from last year at crop insurance time.
• 5:53
  SPEAKER_00: But if you look throughout history, it's not nearly high enough, like with that 2.7 that we saw in 17 and 18, or that 2.59 we saw in 2021.
• 6:02
  SPEAKER_00: That's when corn and soybeans are about 50-50 allocation.
• 6:05
  SPEAKER_00: So half the crop to corn, half the crop to soybeans.
• 6:08
  SPEAKER_00: So we're not going to see soybeans really edging corn out in a big way, but it's more competitive.
• 6:14
  SPEAKER_00: Take a look at the chart on the right.
• 6:18
  SPEAKER_00: This is the corn soybean price ratio on the bottom side.
• 6:21
  SPEAKER_00: That black line is where we are today.
• 6:23
  SPEAKER_00: And then the vertical axis tells us what share of the crop.
• 6:27
  SPEAKER_00: So soybeans are somewhere around 47% of the total allocation.
• 6:32
  SPEAKER_00: That's how we're thinking about it.
• 6:33
  SPEAKER_00: It's a noisy forecast.
• 6:35
  SPEAKER_00: It's early.
• 6:36
  SPEAKER_00: There can a lot can change between now and then.
• 6:38
  SPEAKER_00: But this is giving you an idea that we're not nearly as high as it takes to get 50-50 all the way to the right of that trend line, but we're quite a bit improved from a year ago.
• 6:49
  SPEAKER_00: And this, of course, is I think the chart that gets lost in the background.
• 6:54
  SPEAKER_00: Every time the price ratio moves, 0.1.
• 6:58
  SPEAKER_00: So 2.3 to 2.4 is 0.1.
• 7:02
  SPEAKER_00: That is a 2.2 million acre total war between corn and soybeans.
• 7:07
  SPEAKER_00: So from July to mid-August, soybeans bought 2.2 million additional acres of crop and they took it from soybeans.
• 7:16
  SPEAKER_00: And then as the trade war got really concerning, soybeans gave those 2.2 million acres back to corn.
• 7:22
  SPEAKER_00: And then whenever we got a framework agreement, corn gave those bakers back to soybeans.
• 7:27
  SPEAKER_00: And now we've seen over the last couple of weeks, soybeans have given back some of those acres.
• 7:31
  SPEAKER_00: 2.36 is where we stand today.
• 7:33
  SPEAKER_00: My point here is that we're going to plant less corn, all signs look like, at least at this point, we're going to plant less corn than we did last year, but we're moving around quite a bit.
• 7:41
  SPEAKER_00: I think it's really hard for producers to nail this thing down.
• 7:45
  SPEAKER_00: Sure, they're probably going to plant, you know, 80% the same they did last year, but it's that final 20%.
• 7:51
  SPEAKER_00: Make sure producers have the current budget projections when they're making their estimates and their forecasts and their own rotation decisions.
• 8:00
  SPEAKER_00: It's just that this is moving a lot over the last six months.
• 8:03
  SPEAKER_00: And so that we need to keep on our toes.
• 8:05
  SPEAKER_00: And frankly, Tommy, I don't know what's going to happen in the first three months of the 2026 with respect to trade.
• 8:12
  SPEAKER_00: I don't know if we're going to see lots of ships go to China or if this thing's going to turn ugly, but this ratio is going to be capturing that.
• 8:19
  SPEAKER_01: Yeah.
• 8:19
  SPEAKER_01: And folks are right now getting ready to prepay for some seeds.
• 8:22
  SPEAKER_01: So they're probably starting to make that corn soybean decision right now.
• 8:26
  SPEAKER_01: All right.
• 8:26
  SPEAKER_01: Last chart of the day, then we'll talk a little bit, my friend.
• 8:29
  SPEAKER_01: How might 94 million and 86 million allocate?
• 8:34
  SPEAKER_00: Well, I'm just pulling numbers out of thin air here.
• 8:36
  SPEAKER_00: Actually, I'm pulling them out of those models.
• 8:38
  SPEAKER_00: All models are wrong, but some are useful.
• 8:40
  SPEAKER_00: So my point here is that if we hypothetically planted 94 million acres of corn, 86 million acres of soybeans, we have a model at AEI that says where are those counties going to put those acres in.
• 8:50
  SPEAKER_00: So if you're out there and you're thinking about what's going to happen to the corn that you buy or the corn that you're using or the corn that you're planting, we're going to see probably a lot of swing in corn acreage, not in the corn belt, but in the Great Plains, North Dakota, South Dakota, parts of Kansas, Nebraska, those are where those corn acres are going to start to leave, even the southern parts of that Mississippi Delta.
• 9:13
  SPEAKER_00: If we're going to add soybeans next year, look at central Kansas, look at parts of the Dakotas, a little bit more intensification on that rotation as we move back into Iowa, Illinois, Indiana.
• 9:24
  SPEAKER_00: And of course, the Delta is going to be looking to add a lot of corn as well.
• 9:28
  SPEAKER_00: Or excuse me, a lot of soybeans as well.
• 9:30
  SPEAKER_00: So the takeaway here is when we move acreage at the national level, we don't move them uniformly across every county or state.
• 9:39
  SPEAKER_00: We move them in the areas that swing the most.
• 9:41
  SPEAKER_00: And we're going to see the most swing going into 2026 in these areas.
• 9:46
  SPEAKER_01: All right.
• 9:47
  SPEAKER_01: Bring it on home.
• 9:48
  SPEAKER_01: That's it for our little PowerPoint presentation.
• 9:50
  SPEAKER_01: Not our yours.
• 9:52
  SPEAKER_01: You're on the speaking circuit here.
• 9:55
  SPEAKER_01: And uh, you need to get a drink of water.
• 9:57
  SPEAKER_01: I am going to grab one real quick.
• 9:58
  SPEAKER_01: That's yeah, I'll go full screen on me.
• 10:00
  SPEAKER_01: I want to thank you from the bottom of my heart of being a contributor here.
• 10:04
  SPEAKER_01: This is David Whidmar.
• 10:06
  SPEAKER_01: He's with AEI.ag.
• 10:09
  SPEAKER_01: And David, at the beginning of the year, these shows will be just for premium clients, people who are clients of Ag Bull Trading and Ag Bull Media side.
• 10:17
  SPEAKER_01: Then, of course, I believe you hook them to your newsletter.
• 10:20
  SPEAKER_00: So well, and thank you for having me, Tommy.
• 10:23
  SPEAKER_00: Thanks for hosting this.
• 10:24
  SPEAKER_00: You do a great job of producing these, and I'm glad that we can share these with our premium subscribers as well.
• 10:28
  SPEAKER_00: So thank you for doing all the important legwork for the media empire that you're pulling together here.
• 10:35
  SPEAKER_01: The media empire.
• 10:36
  SPEAKER_01: I I yeah, I thank you.
• 10:39
  SPEAKER_01: You're making me blush.
• 10:40
  SPEAKER_01: Tell us about the speaking circuit you got going on here.
• 10:43
  SPEAKER_01: January is usually crazy for people like yourself.
• 10:46
  SPEAKER_00: Yeah, we we're pretty busy January and February of this year.
• 10:49
  SPEAKER_00: We're talking to producers a lot about management strategies that they can use in these lean financial times.
• 10:57
  SPEAKER_00: We've been talking about an idea called operating margin leverage.
• 11:00
  SPEAKER_00: And the idea here is that it takes more revenue to get$200 worth of contribution margin.
• 11:07
  SPEAKER_00: Two contribution margin is what we use to pay our fixed expenses, like land and labor and debt payments.
• 11:13
  SPEAKER_00: And so it takes more revenue to get that dollar of contribution margin today than it did 10 years ago or 20 years ago.
• 11:19
  SPEAKER_00: And that means more risk.
• 11:20
  SPEAKER_00: And so that means good marketing plans.
• 11:22
  SPEAKER_00: That means really good risk management plan.
• 11:24
  SPEAKER_00: So that's the starting point of our conversation, and we're wrapping it up with a lot of conversation around risk management.
• 11:29
  SPEAKER_00: So lots of government payments in the ad hoc category, more payments coming from ARC and PLC, and you got to really think about that SEO and ECO decision.
• 11:39
  SPEAKER_00: So it's a difficult time in the farm economy.
• 11:41
  SPEAKER_00: The safety net's getting better, and hopefully, producers are using these payments as an opportunity to write the ship.
• 11:49
  SPEAKER_00: I love it.
• 11:50
  SPEAKER_00: See you next year, my friend.
• 11:51
  SPEAKER_00: Thank you.
• 11:51
  SPEAKER_00: Take care.
• 11:52
  SPEAKER_00: Thank you.