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2024 Recap · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:23
  SPEAKER_00: Today is January 3rd of 2025.
• 0:26
  SPEAKER_00: I've got Pat back with us here today.
• 0:27
  SPEAKER_00: How's it going, Pat?
• 0:28
  SPEAKER_01: Good, Mike.
• 0:29
  SPEAKER_01: How are you today?
• 0:30
  SPEAKER_00: Very good.
• 0:30
  SPEAKER_00: Well, this is the first podcast of 2025, so I thought we better wrap up 24 and just talk about what the market did, what type of cycles we were in, and kind of what just maybe end this podcast with a little bit of an outlook at where we are now in these commodities, Pat.
• 0:46
  SPEAKER_01: Sounds good.
• 0:47
  SPEAKER_00: All right, let's start with uh the grain markets to start off with.
• 0:50
  SPEAKER_00: I think it's uh pretty easy to discuss the corn in particular here and the stage of the cycle that we've been in and how the year went for it, for example.
• 1:00
  SPEAKER_00: So uh December corn, like if we look at just in general where prices are at today, uh December corn has ended the year lower than it began seven out of the last ten years.
• 1:11
  SPEAKER_00: So the typical cycle would be we normally trade or close lower, seven out of the last ten years.
• 1:18
  SPEAKER_00: Now, the only three years that it's finished higher in November than the first day of trading in January was 2020, 2021, and 2022.
• 1:28
  SPEAKER_00: So 23 and now 24, the the those were the last two that we closed lower, but those three years were the only ones that we had closed higher.
• 1:38
  SPEAKER_00: Now today's open at uh about four or yesterday's open at 443 on March corn was 50 cents lower than what we had last year at this time, Pat.
• 1:49
  SPEAKER_00: So that was the l fourth large or fourth highest uh December corn trade that we've had in the past decade as well.
• 1:56
  SPEAKER_00: So we're 50 cents below where we started last year out at, but we're still at the fourth highest price on December corn that we've had in the last decade.
• 2:05
  SPEAKER_00: So yeah, yeah, I thought it was very interesting that we talk about cycles in these commodity markets a lot, right?
• 2:11
  SPEAKER_00: Um, you know, the balance sheet gets really low on ending stocks, not a lot of corn around, price stays high for a couple years, and then we rebuild our balance sheet back, right?
• 2:20
  SPEAKER_00: And there you really see it out of the last ten years, the only three years that we saw prices go up in that year was all right in a row, right when we had tight ending stocks, and it kind of looks like now in 24 we've started to work our way out of that, haven't we?
• 2:36
  SPEAKER_01: Yeah, certainly does, and it's uh that's an interesting recap, and I think a uh a unique, interesting way to sort of to think about all of that as well.
• 2:45
  SPEAKER_01: And then and the obvious question that all of our listeners have, Mike, is uh you know, are we gonna be down another 50 cents a year from now or another buck or something like that?
• 2:54
  SPEAKER_01: And that's a little bit hard for us uh to imagine, and by the way, we don't know the answer to that for for whatever it's worth.
• 3:02
  SPEAKER_01: Yeah, yeah.
• 3:03
  SPEAKER_01: But but but it's a little bit hard to imagine, especially given the challenging margin environment today that real crop producers are faced with, that uh um that you could you could go to eight out of ten years or something like that, where you where you where you end up finishing lower year over year.
• 3:20
  SPEAKER_01: But I don't think there's any question, Mike, about about what the story for 2024 was or is, was, is which is that that clearly a transition year, right?
• 3:32
  SPEAKER_01: We just we spent the three years or so prior to that um with relative extreme volatility, with relatively tight ending stocks, with a relatively uh interesting marketplace because of uh of tight balance sheet.
• 3:50
  SPEAKER_01: And and there's no doubt that from 2023 through 2024 and now into 2025, the the balance sheet for all three major commodities are much more comfortable than they've been for a while, right?
• 4:03
  SPEAKER_01: And and uh and so you know what I've been really driving towards with our team and and and the the grain producers that we have um the opportunity to interact with is is we we've been through this stage before.
• 4:20
  SPEAKER_01: Um what we're likely going to be seeing as we think about 2025 and forward is a more comfortable balance sheet situation and less volatility in the markets, and therefore the importance of managing some more detailed things, like making sure that that the investment that you've made in space is paying its way, knowing how to manage spreads, knowing how to manage carry, understanding the opportunity cost of money, um, trading basis in a way that makes sense for your operation, and reminding ourselves that the pennies matter.
• 4:57
  SPEAKER_01: And, you know, as I think about uh you know the the uh the years that I've been uh involved in in grain trading, grain merchandising, and risk management, uh uh working with producers and merchandisers and elevators alike, um, you know, there's been plenty of times since the mid-90s where where we've gone through these three and four year stretches of of uh of tighter margins and uh and and the need to ensure that we're that we're managing the the littler opportunities and and not so much the the bigger ones because we're just not getting those as often, right, Mike?
• 5:35
  SPEAKER_01: And so and so for me, at least on the grain side of the thing, that's really the key here is for us to just recognize what stage of the cycle that we're in.
• 5:44
  SPEAKER_00: And it's important to so if you look from a broad perspective, overall commodities have been held back in 2024 a little bit by weak demand in China, and that's especially for the soybean markets here.
• 5:57
  SPEAKER_00: Uh that's really hit that hard.
• 5:59
  SPEAKER_00: So uh if we look the broad commodity index overall delivered like a 5.4% return.
• 6:05
  SPEAKER_00: So commodities in general up a little bit.
• 6:08
  SPEAKER_00: Um the soybeans took a little hit because China pulled back, uh renewable diesel hasn't come on as strong.
• 6:15
  SPEAKER_00: But corn demand turned on really quick on this cycle on a lower price lower.
• 6:20
  SPEAKER_00: Um now if we transition that to the the hog market, let's say, um and see on the protein side of where the consumers are sitting, what the real story was, uh there it was more about a demand story for the proteins, wasn't it, Pat?
• 6:37
  SPEAKER_00: I mean, if you look on cattle, for example, the US is uh estimated to consume the most beef per person since 2009.
• 6:45
  SPEAKER_00: So you know, that's with prices at record levels, um, you know, really high prices uh for these consumers, but we still really like beef.
• 6:54
  SPEAKER_00: So uh where do you want to transition into livestock back?
• 6:57
  SPEAKER_01: Yeah, I appreciate that.
• 6:58
  SPEAKER_01: But before we move to protein, I do want to mention on the green side of the equation that at the the beginning of this this being termed as the beginning of the more uh comfortable, burdensome, higher-ending stocks projection situation that we're in today.
• 7:16
  SPEAKER_01: What has been impressive, and even really over the last couple months, is our ability to flex into, particularly on the corn side of the equation, uh flex into some additional demand here.
• 7:28
  SPEAKER_01: And I don't know how much capacity there is for additional flex, but I do want to just mention uh just my observation relative to the beginning of you know previous cycles that we've seen through the years on this, it does appear as though that there's a little bit bit better um elasticity of demand, at least on the corn side of things.
• 7:49
  SPEAKER_01: So that's that's good news from the crop producers' perspective.
• 7:53
  SPEAKER_01: Um as we transition to the protein side of things, um, there's all kinds of things that are happening there that have creating some nice opportunity, not the least of which is the limited expansion in in animal numbers globally because of high input prices the last three or four years, right?
• 8:13
  SPEAKER_01: And so as we transition this conversation from grains to to cattle and hogs specifically, um, the the higher grain prices is a big component of that.
• 8:25
  SPEAKER_01: And and what is interesting so now as as the as the grain side of the cycle seems to be settling into lower prices, lower volatility, the the hog and cattle side of the thing seems to be working the other direction.
• 8:41
  SPEAKER_01: More volatility, better prices, better projected margins, those sorts of things.
• 8:46
  SPEAKER_01: And primarily because of uh tighter supplies, or we at least we haven't been in increasing supplies at the rate at which we had been doing that previously to the last three or four years.
• 8:58
  SPEAKER_01: And so as we look at that complex, to your point, the retail side or the consumer side seems to be very strong here.
• 9:06
  SPEAKER_01: The U.S.
• 9:07
  SPEAKER_01: economy, all things considered, doing pretty well.
• 9:10
  SPEAKER_01: Globally, all things considered, post-COVID, all of that stuff, doing pretty well, and protein demand has reacted favorably to that.
• 9:19
  SPEAKER_01: And so, and so while optimistic about what that margin opportunity presents on the protein side of things as we look into 2025, we certainly would look back on 2024 and see that as a transition year as well.
• 9:35
  SPEAKER_01: And so um, again, we have the pleasure to to work with with producers of all sizes and shapes and uh and commodities that they care the the most about.
• 9:47
  SPEAKER_01: And it's and and and as the grain side of the equation is has sort of settled into again a a bit more of a challenging margin environment, um, the opportunity uh for for uh being able to hedge some some uh some good margins uh on the protein side of things is has really expressed itself.
• 10:06
  SPEAKER_01: And so quite optimistic, frankly, as it relates to 2025 and the ability um for those markets to provide opportunities that that uh have better than what we've we've seen for a while.
• 10:18
  SPEAKER_01: And then when I just think about that, Mike, just from a little bit bigger picture, longer term perspective, um in previous stages of this cycle, we probably would have been seeing uh some uh animal numbers uh uh starting to be added here.
• 10:34
  SPEAKER_01: Um, some heifers being retained uh, you know, for for breeding, maybe some expansion in the hog industry, poultry industry, those sorts of things.
• 10:41
  SPEAKER_01: Um and there there does appear to be a few more uh barriers to entry in this stage of the cycle, this time, if that makes sense.
• 10:50
  SPEAKER_01: It's just uh it's uh uh there not the least of which is a very challenging margin environment over the last three or four years.
• 10:56
  SPEAKER_01: And so and so we'll see how that plays out in 2025.
• 11:00
  SPEAKER_01: But that's going to be the storyline here.
• 11:02
  SPEAKER_01: I think as we work through this this year, we're gonna care an awful lot about weather, just like we always do, right?
• 11:07
  SPEAKER_01: And and and uh and what happens from uh um from a grain production perspective.
• 11:13
  SPEAKER_01: But we're also going to be watching uh consumer behavior as it relates to protein consumption uh and ethanol, gasoline consumption, all of those things, right?
• 11:22
  SPEAKER_01: And and then we'll also be looking to the supply side uh on on uh on animal numbers to see uh what can happen there as it relates to to potential changes in supply in 2025.
• 11:34
  SPEAKER_00: Still high inflation, still high uh interest costs, uh lumber, building costs, everything's expensive still.
• 11:45
  SPEAKER_00: Yeah, that expansion, it's gonna take a little bit this time around.
• 11:48
  SPEAKER_01: Yeah, and I just and and and so we can kind of big picture and then then then smaller um upfront sort of things that's going on here.
• 11:56
  SPEAKER_01: We've got you know the US dollar trading at some historically high levels, right?
• 12:01
  SPEAKER_01: So, and then new administration as well.
• 12:03
  SPEAKER_01: And so what impact both of those things could have on trade.
• 12:07
  SPEAKER_01: We also have a pending uh you know deal on on uh on a port strike and and labor disagreements and and deals that need to be cut there as well.
• 12:17
  SPEAKER_01: And so, you know, so as we think about bigger picture, what can happen in 2025, we also have to be aware of like what's up front and right in front of us today in terms of some some some real potential issues um as it relates to trade, which we all know is critically important for agriculture.
• 12:34
  SPEAKER_00: In a lot of these markets, we've ended the year with pretty low volatility, which isn't irregular.
• 12:39
  SPEAKER_00: A lot of the time it that's at a dead time kind of so uh it but looking forward, there's a lot of balls that are gonna be in the air here soon, isn't there, Pat?
• 12:46
  SPEAKER_01: No doubt about it.
• 12:47
  SPEAKER_01: So thank you everyone for uh for engaging with us in 2024, and we look forward to a prosperous uh uh 2025.
• 12:55
  SPEAKER_00: All right, thank you, Pat.
• 12:56
  SPEAKER_00: And thank you to all our listeners.
• 12:58
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 13:02
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 13:07
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 13:13
  SPEAKER_00: See you next time.