Latest / Commodity Week / Dec 11 | Commodity Week

Transcript

Dec 11 | Commodity Week · Commodity Week

• 0:00
  Todd Gleason: This is the December 11 edition of Commodity Week. Todd Gleason's services are made available to WILL by University of Illinois Extension. Welcome to Commodity Week. I am University of Illinois Extension's Todd Gleason. Our panelists for the day include Mike Zuzalo.
• 0:21
  He's at globalcomresearch.com out of Atchison, Kansas, and we'll also hear from Logan Kimmel at Roach Ag. Along the way, a special guest will be joined by Eric Snodgrass from Nutrien Ag Solutions and Agrabal. He's a meteorologist. Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world online on demand at willag.org.
• 0:49
  Mike Zuzalo at globalcommresearch.com out of Atchison, Kansas now joins us. Hi, Mike. Thank you very much. One of the things that I have not yet discussed on the air is an outside market function. This was the Venezuelan oil tanker that the military intercepted, the US military, that is, coming out of Venezuela.
• 1:14
  These are gallons of oil that have been sanctioned by The US, and apparently, they're from both Venezuela and Iran, and they were on their way to Cuba. How does this, if at all, play into the commodity markets for agriculture?
• 1:32
  Mike Zuzolo: Yeah. Was hoping we could talk about this, Todd, because I do think that there is a very strong relationship we need to keep track of. Certainly, this is what I'm telling my clients and subscribers between the crude oil and the wheat. And so whenever something like this happens in the crude oil market, for instance, something that you would think would be very price friendly and, quote, bullish, and the exact opposite occurs where you make new monthly lows in crude oil, you kinda gotta scratch your head and wonder what's happening. And I think it fits very well into the analysis that the crude oil and the soft red wheat, especially, are globally looked upon as we go into 2026 as the two major commodities that are in such significant oversupply or will be in such significant oversupply.
• 2:20
  It's gonna spill over into other commodities, excluding probably precious metals and excluding the copper, which those three, silver, copper, gold, probably running their own fundamentals associated with AI and some of the other factors out there looming. But when we saw that price reaction, I thought it was very useful to come back in and say, okay, one of the things that was put out other than the Federal Reserve report and other than the WASDE report was a brand new energy outlook by the Department of Energy. And they talked about how they see in 2026 a persistent problem with about 2,000,000 barrels a day extra supply that demand won't meet or won't be met by demand. And so I I think you can really categorize the wheat, which is looking at 3,000,000,000 metric tons production in the world now with USDA's update this week and the United Nations FAO number that was put out maybe a couple weeks ago. We have now a 3,000,000,000 metric ton wheat production number.
• 3:27
  And so these two oversupply commodity leaders, I think, are really important as we go into our 2026 marketing plan and building up, you know, how we hedge.
• 3:37
  Todd Gleason: Oftentimes when I think of the marketplace, particularly of crude oil, I market down as the primary energy source, and then I think of all other commodities as energy sources, whether food crops or feed crops, one of the two, and that crude oil, if it goes lower, can depress prices. You're also telling me that wheat will be in oversupply. How do you see that playing out in 2026?
• 4:07
  Mike Zuzolo: Well, it says very clearly for both of them, and this is where the Federal Reserve report came in on Wednesday, and we saw it on Thursday's trade, and I hope we see it through the close of the week, that a new six, seven month low in the dollar after the Federal Reserve comes out suggests that, a, the Federal Reserve was dovish b, they're gonna keep the money supply high and c) they're going to come in maybe in 2026 and do more than just one rate cut, even though they say they're not right now. I looked at the commentary. I listened to the chairman's commentary during a press conference, and I get the sense, and maybe it's just me because I'm nervous about it, but I get the sense that the loss of jobs potentially from AI in 2026 is a great big question mark. And I think they're ready at this point, thankfully, to lower rates more if they see problems arise in the jobs and labor market, and they're not going to just be completely honed in on inflation. So I think that's good.
• 5:06
  And so that, to answer your question, like 2025, if the dollar can keep going down, then we can keep garnering market share even in the wheat. I mean, look at the weekly export sales that came out on Thursday year to date inspections or excuse me, commitments, I should say, tell a tale. And this is why I've always liked the grains more than the soy, generally speaking, because the supply demand fundamentals, especially the demand. And, you know, corn is up 30% year to date, wheat up 23%, soybeans down 41%, and meal down 8%. Soybean oil also, soybeans, down 39%.
• 5:43
  So export demand has really helped the grain markets even in this tariff environment, and that's in large part thanks to the situation with the dollar. And so I think this is really a good piece of of the puzzle when it comes to how you market in 2026, sticking with a similar game plan depending on what South American weather comes and shakes out here in the next thirty days. Maybe be a little bit more friendly on the corn side and a little bit less friendly on the soybeans, and don't make a lot of changes in your marketing plan yet.
• 6:14
  Todd Gleason: So all things being equal as it's related to supply, if the Federal Reserve continues to lower rates and the dollar continues to come down, what you're saying is that there will be larger exports potentially of commodities out of The US, I think. And I'm wondering what price does in that case. Do we simply have more exports at current price, or do we have a price increase somewhere along the way?
• 6:48
  Mike Zuzolo: Yeah. That's an excellent question. I don't think anybody can really say yet because we still have a lot of shoes to drop, I. E. South American weather.
• 6:55
  And again, on Thursday, the models turned a little bit drier on week two, it seemed to me, and I think that really shored up the price action in the overall market. I'll put it to you this way, going back to that wheat and soft red wheat and crude oil market, if you look at a monthly chart of both of those or a weekly chart of both of those, Todd, you can see where soft red wheat made a major four year low right at the September, October 1, and it wasn't one week or two weeks later, the crude oil also went down and got close to its April low, which was also a four year low. These are the lows that I think we need to bounce off of, and I think the most likely scenario, based upon the analysis I've done, is we do that before the end of the 2026. So if those if we go down to those lows, those lows hold, that's the answer that I can give you right now is there's no need to hedge at that point because we factored in and we're at multiyear lows, and therefore, the market is in balance, and we can keep the demand going.
• 7:56
  Todd Gleason: Can soybeans continue to go lower even if we bounce with wheat and crude oil?
• 8:03
  Mike Zuzolo: I think they'll stay about the same, but you know we're moving in that acreage shift mindset I think already in the trade, and rightfully so with bigger bean acres on the horizon. I still go back to 2018 as kind of one of my model years to keep myself out of trouble and keep my clients out of trouble. We went from about a 300,000,000 bushel carryover in twenty sixteen-twenty seventeen time frame all the way up to almost a 900,000,000 bushel carryover by 2018, and that was in large part because of the lack of Chinese demand and that first go around with the tariffs. So I think that's what we have to watch out for, is what do they actually buy. We don't have to worry as much about what they actually buy.
• 8:45
  I don't think, Todd, if we have South American weather to talk about after the Christmas holiday, because at that point, China, I think, will realize, okay. I'm probably more gonna have to play defense. I can't play offense anymore.
• 8:58
  Todd Gleason: Okay. And then speaking of China and soybeans, they did sell from their stocks through sinograin, that is, an auction an auction of soybeans this week, simply kind of swapping in what's en route to them from The United States, I guess. What difference does that make, if any?
• 9:16
  Mike Zuzolo: I think it was a necessary piece of the puzzle that had to happen right here, right now to keep us in at least the hunt to keep Chinese demand and purchases going. And it was followed up with some fresh purchases on Thursday from both China and unknown destinations. And we also had an unknown destination of corn. And I'll interested to see if we ever find that out because it could be China. I took note in the WASDE report while we gained 7,000,000 tons of wheat production in most of our major competitors, USDA did take the Ukrainian corn number down.
• 9:51
  And so if that January yield decline in corn comes, which I think it should, especially in Illinois and Iowa, then I think, you know, we could be in a situation where what we've talked about in wheat and crude oil is oversupply. What we've talked about in soybeans is not enough demand, but in corn, it's it's almost looking like we need to start rationing demand at this point. But the the yield for The United States will probably dictate whether that's the case or not.
• 10:17
  Todd Gleason: Okay. We'll have to watch the January reports, include many reports. WASDE crop reduction and grain stocks among them along with the winter wheat seedings report. Other reports we will be keeping track of, and I know that you watch closely, the cattle on feed numbers. I'm wondering what you're seeing in that marketplace and how it might trade out through the 2026.
• 10:43
  Mike Zuzolo: Yeah. I don't think that we need to go and take out the old highs in cattle unless we have a very rough calving weather seasonal. And so I'm going to put cattle kind of in a grain market situation where the weather is going to be huge, in my opinion, in February and March. And some of my cow calf fellows and gals are already telling me they're going to start dropping by the January 1 because they've moved up their schedules over the last few years just so they're not in the heart of the winter weather. So January, February, March are going to be really important.
• 11:17
  If we do have a bad calf crop, I think we could take out the old highs in feeders and fats. Otherwise, I think the supply and demand are pretty well in balance right now, and if the stock market would make a big correction, it would probably be really tough on the cattle market at this point. So I think mostly sideways from the recent ranges, but watching that weather.
• 11:38
  Todd Gleason: On that note, we'll ask Eric Snodgrass about the winter weather and what January and February might look like. Thanks much, Mike. Appreciate it.
• 11:47
  Mike Zuzolo: Thanks, Todd.
• 11:47
  Todd Gleason: That's Mike Suzlow. He's at globalcommresearch.com out of Acheson, Kansas. Let's check-in on the weather forecast now with Eric Snodgrass. He's with Nutrient Ag Solutions and Agribal. We're talking, of course, on Thursday because I'm hosting the farm assets conference in Bloomington at the Agris Center today.
• 12:12
  Speaking of which, I'm going to guess, Eric, that I skated into the Agra Center on Friday morning. I hope I made it perfectly fine. I'm sure I did. However, there was quite a bit of snow that was forecast for Thursday evening. What was that expectation like when we talked?
• 12:29
  Eric Snodgrass: Yeah. To you know, we might get up three to five inches of snow out of this. And then there's another round coming on Saturday. It's kinda fun. We call these systems Alberta Clippers.
• 12:38
  They get their name because they start in Alberta, and they clip through the Northern tier of The United States real fast, bring a little skiffs of snow, and then head out east. They're a lot different from the big monster storm systems like the Colorado lows or the Panhandle Hookers or even the Gulf lows that can come through, which tend to ride on Southwest jet stream flow rather than Northwest jet stream flow. So long story short, we get these little systems that hit us, and they bring in some snow. We we saw the one on Thanksgiving, of course, and then we saw, a little bit more snow after that. And now we have two more rounds of it, the next one coming on Saturday.
• 13:09
  The good news is, Todd, you know, earlier in this week, we warmed up, and a lot of that snow melted. So now our top four inches of soil have a little bit of water in it. Now there's still some drier conditions the farther down you go, of course, and we're gonna have to probably wait on spring to revive those soil moisture values. But the good news is is that melt, while it made things slushy and muddy and gross, was exactly what our soil needed before we pile a little bit more snow on top of it. So, yeah, we're locked into it, and be prepared for some brutal cold weather this weekend.
• 13:41
  I think we might struggle to get above minus seven for our low temperatures as we work our way from Saturday night to Sunday morning. So very, very cold air on this next Clipper.
• 13:50
  Todd Gleason: Oh, that's gonna make next week feel really warm later in the week, I think. I did see warm conditions right there late week next week.
• 13:59
  Eric Snodgrass: So I I was just looking at this this morning, and I was talking to my wife about it because we're trying to figure out, like, oh, what what's Christmas travel gonna look like? And some of the models are right now this is this is nuts, Todd, and it'll change, but some of the models came in with a high of 67 on Christmas Eve.
• 14:16
  Now now now remember, let's just say it gets close to that. That is actually a signal that you better be prepared for the week between Christmas and New Year's. We bring in that much mild air. We're likely gonna shock it back into normal with a big low pressure system some point between Christmas and New Year's. So I I you know, it's it's it's short lived.
• 14:34
  We've had we've had plenty of access to cold air this year. We know that the polar vortex is still a huge mess. I mean, we understand that the atmosphere as we watch La Nina Fate is gonna be prepared to give us more shots of this really cold weather this winter. But, boy, there is a warm up coming, and it's kinda got two two two bits to it. One next week, and then one as we get into the week of Christmas.
• 14:55
  Todd Gleason: Is this roller coaster going to continue through the winter into the January and February time frame?
• 15:00
  Eric Snodgrass: I think it is. I think we're gonna have a pretty volatile winter in terms of temperatures, but that's pretty typical for Illinois. So I I wouldn't tell anybody that, you know, anything's way out of whack. I would just say, hey. This is kind of what we get when we walk into a La Nina type winter, and I think we should expect pretty violent swings in temperature, to be honest with you.
• 15:20
  But the only thing I can say, and I mentioned it a minute ago, is that the polar vortex is off. It's weakened. It's been displaced. It's forecast to split in two. And, normally, that that tells us that when we get our Arctic outbreaks, they just tend to have a bit more of a punch.
• 15:35
  So that's why I said pretty volatile temperature pattern I expect not just to finish December, but most of January and February as well.
• 15:42
  Todd Gleason: Now I know on Thursday afternoon, you were talking to the folks at Strategic Farm Marketing, the conference they held at the iHotel. What were your expectations for springtime during that meeting?
• 15:54
  Eric Snodgrass: Yeah. We we had to dig into that. And so I I threw out a word of caution in that when you look historically at years that finished a La Nina in early winter and then built in even El Nino conditions by summer, those years are a bit of a mixed bag. You have years like 2009 in there, which is like, hey, fantastic. Love that.
• 16:15
  But we also had 2023 was in there. So 2009 was a cool summer, huge yields. We had great conditions. 2003 was bone dry in spring, but then storm like mad in in July. So the point here is that there is some risk.
• 16:30
  It's about a 60% risk that we see some drier conditions during the spring. So I'm now talking about April, May, and June, and that's not a problem. A little bit drier spring is fine for our crops. It's just the big question mark, and I'll explain this. You know?
• 16:45
  I'm talking to these guys about it. What does it look like when we get into those critical months of July and August? And we're just too far out to make a, you know, a really educated guess on that at this point.
• 16:54
  Todd Gleason: Okay. Now turn your attention to South America for me. What's your best educated guess about the crops there?
• 17:00
  Eric Snodgrass: Yeah. The I think the issue was they had a deep low that went through some of the driest parts of Brazil, even hit some of par some parts in Northern Argentina, which were dry. And that low brought in rains that were needed in those areas. And so put a bit of a a hold on any sort of a weather issue in in, most of South America, be honest with you. The thing we're gonna be watching is you know, a lot of folks always talk about drought, drought, drought.
• 17:24
  If we just get drought in Brazil, that that's not how we have big problems on a Brazilian crop. The big problems with the Brazilian crop is if you can get it to stay wet, very, very wet in January into February. That is what delays the harvest of soybeans and causes some issues with quality. So to be honest with you, I'm trying to see if that is anywhere in the forecast going into late January, and there are some hints of it that they could be wet going into harvest. And that's good for soybeans, but it's really good for corn.
• 17:54
  So if you wanna be watching something in Brazil, watch across the Serrado to see if they get really wet in about forty five days. Really, really wet.
• 18:02
  Todd Gleason: Okay. So I really would prefer that you watch and just tell me if that's alright.
• 18:06
  Eric Snodgrass: Deal. I I I could handle that.
• 18:08
  Todd Gleason: Alright. Thanks a lot. Eric Stotgrass, of course, is with NutriNA Ag Solutions and Agrabal. Don't forget to join us next week for the Illinois Farm Economic Summits. We'll be in DeKalb on Monday, Peoria on Tuesday, and Mount Vernon on Wednesday.
• 18:24
  You can get yourself registered right now at willag.org or farmdocdaily.illinois.edu. Let's turn our attention now to Logan Kimmel. He is with Roach Ag in Naperville, Illinois. Hi, Logan. Thank you for taking some time with us.
• 18:40
  As we begin our conversation, I'd like to start with winter marketing, where you and Roach Ag believe farmers should be and what they ought to be looking at with, both old and new crop corn and soybean sales.
• 18:56
  Logan Kimmel: Yeah, think as we look back this weeks, the big has been the soybean markets coming down sharply from a ties that it posted there in the November. So right now the soybean markets in a correction mode and it might be a good opportunity to sit down and work on a marketing plan if you're holding on to old crop beans and maybe want to increment up your sales. We've got a market that was operating off headline news that had a nice run from the October lows to about $11.7 on the January bean market. But since then it's pulled back below $11 there's still quite a bit of time here with potential Chinese purchases, but the entire South American growing season ahead of us. So I think if you're a producer this looking forward, if you didn't get enough sold or you want to get some more incremental bean sales in the books, I'd look for opportunities in the next three months and have a plan in place, put target orders in.
• 20:09
  We've seen how quick this B market can move to the downside just from the beginning of this month. So while I'm still optimistic, you still got some time here in the beans and some opportunities. I do think it's a good time of the year to sit down and put together a plan. As we look at the corn market, we've really been in consolidation mode here. The price of March corn really has been in a range from the October to the November high, and we're smack dab in the middle of that right now.
• 20:39
  So we'd recommend hanging tight on the corn market for now. And if you do see some price action above the two hundred day moving average, which has been coming down and really been kind of a magnet here to this market, if you get some positive news and a move above that, Same with the corn, maybe have a plan in place for old crop inventory as the first of the year is coming along. But I guess right now hanging off on being sales in this corrective mode and corn really been consolidating and, you know, coming close to this two hundred day moving average.
• 21:18
  Todd Gleason: When you talk about putting the plan in place, and I know you discussed this with the producers you work with, how is it that you expect them to put a plan in place? What are the pieces that they might need? And then how often do you talk to them about follow through and whether they've really met the goals of the plan? So start with kind of the pieces that you wanna know from a producer and how they might put those marketing plans together?
• 21:45
  Logan Kimmel: Well, now that we're beyond harvest and folks have an inventory of now old crop and starting to look at inputs for new crop, I think it's a good time of the year to look at what we have on hand, what we want to have sold in the coming months, whether that be for storage logistical reasons, cash flow needs. But then secondly, what are we looking at for 2026 and start to plug in breakevens and where can you put a stake in the ground if you haven't already? Look back to, I believe it was early November last time when I was on the panel with Greg and Sherman and, you know, we had a bean market. I think we all three were in, agreeance of a good opportunity to make some sales on the soybean market and have orders in. And I think you can look back to those levels now and hey, if you missed the boat, that's okay.
• 22:46
  But there's nothing wrong with having cash offers in at targets above the market. So if you do have positive news and you meet those objectives that you have in place and stick to a plan that's written down, I think when the market corrects, like we've seen, it's a nice feeling to have inventory sold on market rallies. So it's a good time of the year, I think, to be and same would go for the corn market too. Take a look at what you have on hand, what you want to have sold over the next few months and work some of those orders in. Those can be adjusted.
• 23:23
  And then I think another topic that should be discussed, especially after the first of the year is, what are we looking at for 2026 as folks are making those decisions here now?
• 23:34
  Todd Gleason: Okay. So there are a couple of things I wanna talk about. Actually, a few things that I wanna talk about. They're all government payments, and I wonder how you discuss those with producers as it's related to their breakevens because there are some pretty good estimates out there. You have the cap payments that came in earlier in the year that they may have taken advantage of or were able to able to have pushed into their bank accounts, the current set, the $11,000,000,000, that was announced this week by the Trump administration, and then looking forward another $13,000,000,000 to come, in the fall with the ARC and the PLC.
• 24:15
  Those are the safety net programs that they're already signed up for. And all of that money will be part of farm income, but I'm not certain the producers actually think about it in a way that helps their marketing plans out? Do you put them into that mode and really start to think about what is that breakeven and how far above it do we need to be in terms of price given what our estimates are for other dollars that will be coming into their bank accounts?
• 24:48
  Logan Kimmel: Yeah, and that's a good question and kind of an interesting topic, just folks have mixed emotions on those payments, some, you know, pro and some against. I think the tricky thing is just basing an entire marketing plan off of that just because a lot of things right now with the government or the administration, There isn't a ton that's set in stone. I mean, we've gotten these announcements and the payments are coming, but to build a multi year marketing plan banking on that is difficult. So I think what you look at is if you do get the payments and factor that in, maybe it does make it a little bit easier than to sell, say soybeans for an example, at a price you might not be extremely happy with, but if you are getting a payment and it allows you to make soybean sales, I think that's one way to view it. Also think for folks that are looking at operating notes and have the flexibility to use some of that to pay off some debt.
• 25:59
  That might be one idea to consider. I just wouldn't going forward, year after year, it's tough to assume and bank on that. I would view it as you do get it and it looks like we are, it might allow you to make easier marketing decisions knowing that you've got money coming into account.
• 26:19
  Todd Gleason: On the outside markets, which is roughly speaking something that you might be looking at as it's related to the, government income, could be simply pushed into the price of seed and fertilizer for certain. So that's the other part of that. Not only is there income there, but it may go out as outflow as well. But other outside markets that you have been watching and considering, what are they? And how do you think producers should think about them?
• 26:49
  Logan Kimmel: Yeah. Those have actually the outside markets have been far bigger movers here percentage wise than the grains this week. The grain trade has been awfully slow. But you have seen a drawdown here in some of the energy prices, crude oil, RBOB, heating oil. I think that's a positive, from a producer standpoint, needing the input on the fuel side.
• 27:15
  But other outside markets have certainly moved the other direction. Looking at the Fed rate cut here this week, you've seen the metals market sharply, sharply higher, as well as the equities and the Dow putting in an all time high here today. Those markets have been attracting a lot of money flow. And secondly, I think a lot of these outside markets, are moving in unison with the U. S.
• 27:41
  Dollar selling off sharply here, three sell off weeks in a row. I think that's something to watch in the outside money flow. But also when you look at, okay, we're hoping to make it on China to come in and start buying some more products from us. I think the US dollar weakening might be a bright spot or at least help that narrative. So that's just another outside market to keep an eye on this US dollar selling off versus other currencies.
• 28:16
  Todd Gleason: Hey. We thank you much, Logan, for taking time with us.
• 28:19
  Logan Kimmel: Yep. Thanks for having me.
• 28:20
  Todd Gleason: Logan Kimmel is with Roach Ag. He and Mike Zuzlow, globalcommresearch.com, joined us for our commodity week program. You may listen to it again anytime you'd like at willag.org, willag.org. Don't forget that coming up next week, you can join us on the road with the Parm Doc team. We'll be in East Peoria and DeKalb and Mount Vernon on Monday, Tuesday, and Wednesday next week, not in that order, but DeKalb first and East Peoria second followed by Mount Vernon on Wednesday.
• 28:51
  For the Illinois Farm Economic Summit, these are half day events with the Farm Doc team. You should join them because your banker most assuredly is likely to be in the audience. You'll want to hear what they're hearing as well. Make sure you visit our website wilag.org or farmdocdaily.illinois.du to sign up and register today. The Illinois Farm Economic Summit's part of the Farm Doc team's annual winter season.
• 29:20
  Thank
• 29:21
  Eric Snodgrass: you for
• 29:21
  Todd Gleason: joining us on Commodity Week on University of Illinois Extension's Todd Gleeson.