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WASDE Beatdown · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:23
  SPEAKER_01: Today is January 12th.
• 0:25
  SPEAKER_01: We got Mike Miner and Lucas Peters with you here today.
• 0:28
  SPEAKER_01: How's it going, Lucas?
• 0:29
  SPEAKER_01: It's going pretty well, Mike.
• 0:32
  SPEAKER_00: Can't be that great.
• 0:33
  SPEAKER_00: Let's see.
• 0:34
  SPEAKER_00: It's below zero outside, snowing, and the grain market sure didn't respond very well to the report today, Mike.
• 0:42
  SPEAKER_01: Yeah, if you're a grain producer, today was not your day.
• 0:44
  SPEAKER_01: If you were a livestock producer, maybe this is what you've been waiting for in some sense, or end user.
• 0:49
  SPEAKER_01: The to to kind of put things into perspective here, you're looking at a front month soybean futures that is currently trading about twelve twenty-four.
• 1:02
  SPEAKER_01: That would be the lowest soybean price we've had since going back to the end of 21 December.
• 1:08
  SPEAKER_01: If it gets below about 1170, then you'd have to go all the way back to about the end of 2020, to when you had front month soybean futures this low.
• 1:19
  SPEAKER_01: Corn, same exact story.
• 1:21
  SPEAKER_01: You have not seen anything at or below this price since you called it the end pretty much of uh 2020.
• 1:30
  SPEAKER_01: Man.
• 1:31
  SPEAKER_01: So we're on a rough streak here.
• 1:33
  SPEAKER_01: We've uh taken off some uh some incredible prices here lately.
• 1:38
  SPEAKER_01: So looking at that, today was a big day because we had the January crop report.
• 1:43
  SPEAKER_01: So uh what we uh caught out of that report, Lucas, was the the big one going into the report was a lot of focus on South American production.
• 1:52
  SPEAKER_01: And Brazil came out at 157 million metric tons of production, which I thought was probably likely because the USDA was expected a 156.
• 2:03
  SPEAKER_01: Conab came out and they were at a 155 to start off our week.
• 2:06
  SPEAKER_01: So I knew right away those two numbers are too close.
• 2:09
  SPEAKER_01: Conab needed to be like a 150 or below for us to end up anywhere near 156.
• 2:14
  SPEAKER_01: So a little disappointment there, but that was definitely not the story today.
• 2:18
  SPEAKER_01: The the big story was more on the corn side, I would argue, with uh this idea that you had a yield get bumped up to 177.3, Lucas.
• 2:30
  SPEAKER_00: Yeah, two point four bushel bump today.
• 2:33
  SPEAKER_01: And how big is that relative to history?
• 2:36
  SPEAKER_00: Like Well, I we just did a little bit of quick searching before we started this, and I the January report has never had, or that we could see, that big of bump in final yield.
• 2:49
  SPEAKER_00: And to bump the final yield to the highest ever US corn yield.
• 2:54
  SPEAKER_01: That's a statement.
• 2:55
  SPEAKER_00: I think that's the I'm pretty sure that's the reaction the market saw right away, right?
• 3:01
  SPEAKER_00: Yeah.
• 3:01
  SPEAKER_00: Because that number stuck out, I mean, grabbed everybody's attention and said, Whoa, what is going on here?
• 3:08
  SPEAKER_00: And the market reacted, didn't it?
• 3:11
  SPEAKER_01: Yep, it definitely did.
• 3:12
  SPEAKER_01: You cut away some harvested acres a little bit from both corn and soybeans to help out a little bit, but still, uh, you're looking at 2.16 billion bushel ending stocks on corn, it's quite the number.
• 3:23
  SPEAKER_00: Yeah, but I I think that's where if you're gonna try to find a silver lining, and and maybe that's what I'm trying to do as a uh grain producer that hasn't sold all of his corn yet, Mike, is okay, so the the final yield comes out to the highest yield ever, 2.4 bushel bump.
• 3:41
  SPEAKER_00: Um, but they did uh increase usage 70 million bushels, they cut harvested acres, and so although the the carryout number is really, really big compared to where we've been the last uh I guess in recent history, uh it's still only 30 million bushels above where we started the day, right?
• 4:02
  SPEAKER_00: Yep.
• 4:02
  SPEAKER_00: So not great, don't get me wrong.
• 4:06
  SPEAKER_00: There you're not gonna turn this into a uh uh neutral to bullish report by any means.
• 4:11
  SPEAKER_00: But it was definitely bearish for the corn and soybean grower, but uh but all in all, maybe the the headline of 177 uh isn't as bad as when you read the rest of the story and you're like, okay, well, here's a few other things they did to offset that number a little bit.
• 4:31
  SPEAKER_01: That usage bump coming from 50 million out of ethanol, and then a little bit of a bump from feed and residual as well, somehow.
• 4:38
  SPEAKER_01: Uh whatever, I guess.
• 4:40
  SPEAKER_01: The uh US was not the only problem, though, with the corn balance sheet.
• 4:43
  SPEAKER_01: You're looking at the world carry-out number coming in at 325 million metric tons.
• 4:49
  SPEAKER_01: That up from 313 was expected, so way above the top end of the range of estimates.
• 4:55
  SPEAKER_01: And uh our uh our comrades over in China are uh to blame for that one, a 9 million metric ton increase there.
• 5:03
  SPEAKER_01: That was quite the feat out of them for their corn crop.
• 5:07
  SPEAKER_01: And and if you really want to dive into their number, I mean uh it it uh it was interesting, I'd say, from their production aspect.
• 5:16
  SPEAKER_01: You were looking at, oh, where was it here?
• 5:19
  SPEAKER_01: China, 288.8 million tons was a record for China corn production here that they raised that estimate to.
• 5:28
  SPEAKER_01: So they were definitely part of the problem in this report, too.
• 5:31
  SPEAKER_00: So China set a record and the US set a record for production.
• 5:34
  SPEAKER_00: Seems important.
• 5:35
  SPEAKER_00: That does seem kind of important, and it also seems like a pretty big hurdle going forward if we want prices to rally much.
• 5:42
  SPEAKER_01: Yep, it puts a pretty good cap on things for the most part.
• 5:46
  SPEAKER_01: The soybean um uh complex as well, 280 million bushel ending stocks there, so that did get bumped up from 245.
• 5:54
  SPEAKER_01: So a little bit of a raise in production there with yield at 50.6.
• 5:58
  SPEAKER_00: Yeah, they bumped the yield 0.7 bushels on beans, even.
• 6:02
  SPEAKER_00: It yeah.
• 6:02
  SPEAKER_00: It it makes you wonder, like, I guess for most of the customers that we work with, like their yields were good, right?
• 6:11
  SPEAKER_00: Yeah, but you know, we didn't have anybody I shouldn't say anybody, but most of our guys weren't setting records on any crops.
• 6:17
  SPEAKER_00: Um so to have that big of jump in corn and beans in a January report uh is the is the headline.
• 6:26
  SPEAKER_00: It's a surprise.
• 6:27
  SPEAKER_00: Not the surprise that I know some grain farmers were were looking for or hoping for, but uh boy, it's gonna take a while to chew through that number and kind of settle back into a range, isn't it, Mike?
• 6:38
  SPEAKER_00: A little bit.
• 6:39
  SPEAKER_01: The good news out of it I'd have is that the back months haven't really trailed off too far that much yet.
• 6:45
  SPEAKER_01: So you go out to December 24 corn, um, you know, 481.
• 6:51
  SPEAKER_01: So that's off about 10 cents, not quite.
• 6:53
  SPEAKER_01: December 25 off about four cents, that's still about 488.
• 6:57
  SPEAKER_01: And then you go into D'26, that was only down, or that was only down a penny today.
• 7:01
  SPEAKER_01: So some of those back months didn't quite have as strong of a reaction, anyways.
• 7:06
  SPEAKER_01: But it felt like a it it wasn't necessarily a pivot report, but it sure seemed like a good push in one direction.
• 7:13
  SPEAKER_01: Yeah.
• 7:13
  SPEAKER_01: And that would be this idea that the last three, four years in the United States, you've done a really good job of killing corn demand.
• 7:21
  SPEAKER_01: Um, nobody's building a cell unit, nobody's adding to the cattle herd.
• 7:27
  SPEAKER_01: You haven't increased demand uh in the United States from the ethanol aspect as well.
• 7:33
  SPEAKER_01: I think we're down to like 187 ethanol plants from the peak at 192.
• 7:38
  SPEAKER_01: Um now go domestically, China's in the same boat as us, so the whole globe, nobody's really expanding any production needs for corn right now.
• 7:48
  SPEAKER_00: Yep.
• 7:48
  SPEAKER_00: Live livestock's pretty flat.
• 7:50
  SPEAKER_00: Yeah.
• 7:50
  SPEAKER_00: It's gonna be hard to boost ethanol production drastically in the in an environment of electric vehicles and and uh and yeah, political pressure on renewable fuel standards.
• 8:01
  SPEAKER_01: So you've killed demand over the last three years with really high corn prices and strong basis levels.
• 8:07
  SPEAKER_01: And now going forward, uh this year it was a really it should be an eye-opening discussion because we raised an above trend line crop or right at trend line.
• 8:19
  SPEAKER_01: Like once that puts you right at about 178.
• 8:22
  SPEAKER_01: That'd be what most trend lines would be suggesting going into this year.
• 8:25
  SPEAKER_01: Um USDS was like 181, but that was a little bit special math to make that happen.
• 8:30
  SPEAKER_01: Real trend line closer to 178.
• 8:32
  SPEAKER_01: So you raised almost a trend line yield, I should say, uh, with below trend line weather.
• 8:38
  SPEAKER_00: Yeah, that's that's what's interesting.
• 8:40
  SPEAKER_00: When when we think back to the growing season, I mean we all and we get a little bit backyard itist when we think about weather, right, Mike?
• 8:47
  SPEAKER_00: We remember what happened on our own farm or in our own towns.
• 8:51
  SPEAKER_00: And for the most part, what happened in our area happened across the Corn Belt.
• 8:56
  SPEAKER_00: It went very extreme and very spotty.
• 8:59
  SPEAKER_00: Um and in important areas.
• 9:01
  SPEAKER_00: Yeah, so so when we uh just kind of looking at some some numbers here after the report came out and and trying to uh quantify this yield and weather story, like the uh so looking at precipitation data for the U.S.
• 9:18
  SPEAKER_00: for 2023, uh you had the state, the entire state of Iowa, uh the southeast part of Minnesota, uh northeast Nebraska, and central Illinois.
• 9:30
  SPEAKER_00: Pretty important areas for corn production.
• 9:33
  SPEAKER_00: I would say so.
• 9:34
  SPEAKER_00: Like those those are the areas the market watches.
• 9:36
  SPEAKER_00: On average, that entire area was an inch to an inch and a half below precipitation.
• 9:43
  SPEAKER_00: And if you're gonna raise, which we did, a record corn yield, you gotta have good yields out of those areas, right?
• 9:49
  SPEAKER_00: Yep.
• 9:50
  SPEAKER_00: So obviously those areas yielded very well on below normal precipitation.
• 9:57
  SPEAKER_00: And like think back to uh July 4th.
• 10:01
  SPEAKER_00: Um I was just looking at a drought monitor from July 4th.
• 10:04
  SPEAKER_00: Like, we were all excited because Iowa and Illinois were in, you know, D2 to D3 drought.
• 10:12
  SPEAKER_00: Um, you know, the market actually reacted there, right, for a little bit, and then it started raining, and maybe this is the story of man, in a in a stressful rainfall year, uh below normal in key growing areas, that we can raise this big a crop, the technology, the agronomy, everything, the seed uh that we plant, all of that has come together to make us halfway weather resistant.
• 10:40
  SPEAKER_00: Boy, the scary thought is Mike, what if that area would have had good weather this year?
• 10:45
  SPEAKER_00: Right?
• 10:46
  SPEAKER_00: Yep.
• 10:46
  SPEAKER_00: Like, where would we be at if we did grow an outlook number from last year of 181?
• 10:52
  SPEAKER_01: Just normal weather.
• 10:53
  SPEAKER_00: Normal weather.
• 10:54
  SPEAKER_00: It I mean we probably go at least trend line or a little above, right?
• 10:57
  SPEAKER_00: Tier 178 or 178 and a half.
• 11:00
  SPEAKER_00: And so, like, that is the stuff that as we sit here in 2024 looking ahead, you know, the the the 24 corn price and bean price are are lower, don't get me wrong, but uh they aren't quite as low as the front months.
• 11:14
  SPEAKER_00: And so as we look at planting intentions going forward and we start thinking, man, what would happen if we have good weather?
• 11:21
  SPEAKER_00: I suppose that means we should take some action now to to do some things and and protect maybe what margin uh is there.
• 11:29
  SPEAKER_01: And even at a 175 yield next year, you're you're growing the balance sheet even that much more.
• 11:35
  SPEAKER_01: So it it's important to recognize what this means for cycles.
• 11:40
  SPEAKER_01: The last three years you destroy demand, and that'll impact you for the next five years with the lack of demand growth.
• 11:49
  SPEAKER_01: And uh that that's a very real thing.
• 11:51
  SPEAKER_01: It's why we experience what we do over the course of history when it comes to corn prices, demand production, all of the above.
• 12:00
  SPEAKER_01: So I think it's important to recognize what stage of the cycle we're in, and it's coming off of good times into bad.
• 12:06
  SPEAKER_01: So just recognize what's coming, recognize a premium further out in 24, 25, 26, and uh just protect yourself with a blanketed coverage.
• 12:17
  SPEAKER_01: Call us.
• 12:17
  SPEAKER_01: We can talk about a put call option strategy that can work for your business, and don't tie your hands with you know these uh premium added contracts where the elevator is telling you to sell a call, and if it goes up above this, you'll get$5 cash.
• 12:32
  SPEAKER_01: But if it if it goes down, uh you know, you don't have to bring us bushels.
• 12:36
  SPEAKER_01: It it ties your hands on these bushels that you can't market in an efficient manner and uh really truly protect yourself.
• 12:44
  SPEAKER_01: Uh, you're better marketers than that.
• 12:46
  SPEAKER_01: Uh really dive through it's the time of the year normally, especially in equity preservation times, to put a plan together during January and February here for your marketing plan.
• 12:57
  SPEAKER_01: So thank you for joining us this week, Luke.
• 12:59
  SPEAKER_01: Uh uh we're gonna have a good podcast right after this one.
• 13:02
  SPEAKER_01: Sounds good, Mike.
• 13:03
  SPEAKER_01: And thank you to all our listeners.
• 13:05
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 13:09
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 13:20
  SPEAKER_01: See you next time.