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Margin Protection · 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 involves 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 August 16th.
• 0:25
  SPEAKER_01: We're back in the office here for this podcast today.
• 0:28
  SPEAKER_01: I've got Lucas Peters with us.
• 0:29
  SPEAKER_01: How's it going, Lucas?
• 0:30
  SPEAKER_00: It's going well, Mike.
• 0:32
  SPEAKER_01: Awesome.
• 0:32
  SPEAKER_01: Well, we have had a rough week in the grain markets.
• 0:36
  SPEAKER_01: Corn here on Monday.
• 0:37
  SPEAKER_01: We started the week off with the WASDAE report, which I'll just skimp through that real quickly.
• 0:43
  SPEAKER_01: Here we had a raised corn yield to 183 plus, so a record corn yield projected for the United States for this crop, Lucas.
• 0:52
  SPEAKER_01: We did take acres down a little bit, and we took demand up quite a bit on the export, so actually ending stocks out of this Wazdair port dropped a little bit on corn.
• 1:02
  SPEAKER_01: The soybean side, however, not quite as friendly.
• 1:06
  SPEAKER_01: We raised yield up a little bit, and we raised acres another million, and uh demand just couldn't keep up, Lucas.
• 1:13
  SPEAKER_01: So we had a bearish WASDAir port on the soybeans, and it seemed like that really set the tone the rest of the week.
• 1:18
  SPEAKER_01: Double digit losses uh what seemed or felt like every day this week, anyways, um trickled through the soybean market.
• 1:25
  SPEAKER_01: So we did bump down to a low today at 9.55 on those November soybeans, and the December corn's been hovering right around four bucks, but we did get down to about 390 again today, kind of securing a double bottom there, anyways, from today's level and then Monday's level as well.
• 1:42
  SPEAKER_01: So that's kind of what the WASD brought us.
• 1:44
  SPEAKER_01: Any final thoughts on that?
• 1:45
  SPEAKER_00: Yeah, you know, they did come out uh, I know at one of the conversations we had earlier this summer, I think on a podcast, maybe it was just sitting around talking, was prevent plant acres.
• 1:54
  SPEAKER_00: And you know, last year prevent plant acres, as in 2023, were historically low for the United States.
• 2:00
  SPEAKER_00: Uh historical prevent plant across the U.S.
• 2:03
  SPEAKER_00: is right around 3 million acres.
• 2:05
  SPEAKER_00: Um, and that's kind of exactly where they came in for 2024.
• 2:09
  SPEAKER_00: I know at one time we thought they might be a little higher than that.
• 2:13
  SPEAKER_00: Uh, looks like a lot of those acres that were wet still ended up getting planted, according to the FSA and crop insurance.
• 2:21
  SPEAKER_00: And that's what uh the next topic is, and they must have been planted to soybeans because they went up a million acres.
• 2:26
  SPEAKER_01: On the crop tour, I saw quite a few of those acres, those low drown out spots.
• 2:30
  SPEAKER_01: Yeah.
• 2:30
  SPEAKER_01: They put soybeans in them.
• 2:32
  SPEAKER_00: What about uh one thing on the crop tour?
• 2:34
  SPEAKER_00: Did you see much double crop soybeans?
• 2:36
  SPEAKER_01: Yeah, we did.
• 2:36
  SPEAKER_01: We did.
• 2:37
  SPEAKER_01: It looked pretty good, I thought.
• 2:38
  SPEAKER_01: There are a lot of years where you go through and they didn't get a chance to put the soybeans back in, or it just looks like crap.
• 2:44
  SPEAKER_01: I thought they looked pretty good this year.
• 2:45
  SPEAKER_00: Yeah, you know, and and I guess that's probably why the corn market wants to go down every day, too, because of the weather that supports double crop soybeans also supports really good corn yields, right?
• 2:55
  SPEAKER_00: Makes sense.
• 2:56
  SPEAKER_00: Moisture in the late summer, cool temps, and that's kind of what we've got.
• 3:00
  SPEAKER_00: Uh and the other thing I wanted to say on the soybean uh demand.
• 3:03
  SPEAKER_00: I had the opportunity to be at a Minnesota soybean meeting this week, and you know, we talk a lot about demand, and last year at this time we were talking about uh the expansion of uh renewable diesel, right?
• 3:16
  SPEAKER_00: That was a hot topic uh a year ago, and ever we were building plants all over the place, and uh I know somebody was out there saying we were gonna have to grow a hundred million acres of soybeans to keep up with demand.
• 3:28
  SPEAKER_00: Uh seemed a little ridiculous at the time.
• 3:31
  SPEAKER_00: Sure seems like it today.
• 3:32
  SPEAKER_00: And boy, that's sure that's we're a long ways from that conversation today.
• 3:35
  SPEAKER_00: And and one of the things we talked about at that meeting, or we had somebody talk about, was uh this used cooking oil topic.
• 3:42
  SPEAKER_00: I know uh that's been, at least in the uh uh egg-based uh social media, has been a hot topic um of especially in California, right?
• 3:52
  SPEAKER_00: They came out this week with a proposal that uh of the renewable diesel and biodiesel uh that they use in California, no more than 20% can come from seed oils, mainly soybeans and canola.
• 4:06
  SPEAKER_00: Uh, not exactly the news.
• 4:08
  SPEAKER_00: That's a big ouch.
• 4:09
  SPEAKER_00: Yeah.
• 4:09
  SPEAKER_00: You know, when when everything's kind of looking negative on the soybean market, and then you get that throwing on top of it, not good.
• 4:15
  SPEAKER_00: Um, you know, I I've always wondered this used cooking oil market and how big it actually is.
• 4:22
  SPEAKER_00: Uh one of the statistics they said at the meeting this week, which uh I find real interesting, is the amount of used cooking oil coming into the US in 2023.
• 4:34
  SPEAKER_00: So this this is gonna get larger going forward, uh, can replace 12 Midwest soybean crush plants.
• 4:40
  SPEAKER_00: Like that's an incredible amount of oil they're shipping in to replace the oil that we thought we were gonna get to use uh in the Midwest, right?
• 4:50
  SPEAKER_00: We were gonna crush all these soybeans and ship the oil to California, uh, make biodiesel or renewable diesel, and that's how we were going to solve California's problems in the Midwest.
• 5:00
  SPEAKER_00: And now that seems to be coming in on a uh on a ship from China uh in the form of used cooking oil.
• 5:07
  SPEAKER_00: So kind of some disappointing news there, and I guess probably not surprising on why uh the soybean market wants to go down double digits every day.
• 5:15
  SPEAKER_01: That cooking oil kind of comes from Brazil in another way, Ralph.
• 5:18
  SPEAKER_01: Yeah, explain that.
• 5:19
  SPEAKER_00: Yeah, that's the other part of the conversation that's not really fun to have is you know, uh uh especially you look at soybean exports, right?
• 5:26
  SPEAKER_00: They're pretty minimal to China compared to where they have been, because they are getting their soybeans from Brazil.
• 5:33
  SPEAKER_00: And so they ship up the soybeans from Brazil to China, they crush them uh and fry some chicken nuggets or something in them, and then ship that oil back to the United States uh and get a tax credit uh for doing it as well.
• 5:48
  SPEAKER_00: So uh kind of an interesting uh uh information that came out of that meeting.
• 5:54
  SPEAKER_00: Uh interesting, not very friendly for a soybean producer, but uh kind of be an interesting story to watch develop here over the next year.
• 6:02
  SPEAKER_00: So don't didn't mean to get off uh tangent there, but uh it it all kind of plays together on why these commodity markets just can't find any good news in the country from a production, because the production's really good, uh, or a demand uh which is pretty negative right now.
• 6:18
  SPEAKER_01: Well, you mentioned next year.
• 6:19
  SPEAKER_01: Let's get uh talking about 2025 in today's podcast.
• 6:24
  SPEAKER_01: Uh I think this is a very uh relevant conversation because we are getting a lot of questions on probably uh a handful of topics, but I'd say these kind of kick them off.
• 6:34
  SPEAKER_01: I'd say one, fertilizer.
• 6:36
  SPEAKER_01: I'm getting a lot of questions on, two, um, corn versus soybeans.
• 6:40
  SPEAKER_01: Yep.
• 6:41
  SPEAKER_01: And then uh probably three margin protection uh here really recently.
• 6:46
  SPEAKER_00: But so this is the fun part that we get to start talking crop insurance for 2025 in in August of 2024.
• 6:54
  SPEAKER_00: So uh like you said, Mike, th those are some key uh considerations farmers are having right now as they look forward to the 2025 growing season and and margin protection.
• 7:05
  SPEAKER_00: The reason why we start talking about it now uh is it has to be written by September 30th, uh, but the averaging period for our corn, soybeans, wheat, and our inputs of fertilizer, uh diesel fuel, and interest all start their averaging period, or they started at uh August 15th.
• 7:23
  SPEAKER_00: Uh so we're very early stages of this averaging period.
• 7:28
  SPEAKER_00: Um and and I guess the obvious thing is let's look at crop prices, right?
• 7:34
  SPEAKER_00: Crop prices are a lot lower uh this year as we start it compared to last year.
• 7:39
  SPEAKER_00: Um, you know, I just looking at some numbers here today, it's kind of staggering.
• 7:44
  SPEAKER_00: Uh last year when we finished the averaging period, uh corn was 509 and soybeans were twelve ninety-five.
• 7:52
  SPEAKER_00: As we start this year, corn is four thirty-nine.
• 7:55
  SPEAKER_00: So meh, it's lower, but not substantially.
• 7:59
  SPEAKER_00: Yeah.
• 7:59
  SPEAKER_00: Uh soybeans is ten twenty-five.
• 8:02
  SPEAKER_00: So we're uh 10 uh, excuse me, we're two dollars and seventy cents lower on a soybean bushel uh when as we start the margin protection averaging period.
• 8:13
  SPEAKER_00: So um, you know, that kind of plays into the discussion.
• 8:16
  SPEAKER_00: Uh your other points of the discussion that we're having is do I plant corn or soybeans?
• 8:22
  SPEAKER_00: Do I book fertilizer now or later?
• 8:25
  SPEAKER_00: And so with the margin protection, we get our first look at uh you know ensuring that margin of fertilizer cost and and crop prices and trying to develop these decisions of what crop we're gonna grow.
• 8:39
  SPEAKER_00: Uh so I know on our farm we struggled this year on making that fertilizer decision to buy it when we normally do, like in July, August, right?
• 8:51
  SPEAKER_00: Yes.
• 8:51
  SPEAKER_00: And and I know you and I have talked and customers we've talked through this with.
• 8:55
  SPEAKER_00: Um and it's hard because the fertilizer prices are pretty flat this year compared to last year.
• 9:03
  SPEAKER_00: Crop prices are down a lot.
• 9:04
  SPEAKER_00: Fertilizer is pretty flat.
• 9:06
  SPEAKER_01: To a little higher.
• 9:08
  SPEAKER_00: Yeah, some products even being a little higher.
• 9:10
  SPEAKER_00: And and so that doesn't lend itself to writing a check uh for input costs right now very easily.
• 9:16
  SPEAKER_00: So one thing uh we did here today, and we put it in the uh the grain um summary that you'll send out later here, Mike, um, is kind of compare those fertilizer prices off the margin protection, because that'd be a a price, it's off of the uh board of trade price, so it's gonna be the same for everybody.
• 9:34
  SPEAKER_00: Of course, in everybody's local area and local fertilizer dealer, the prices are gonna be different, so it's hard to compare this apples to apples, but at least looking at the margin protection prices, uh, we kind of compared the actual cost of N, the actual cost of P205, and the actual cost of potash uh per pound compared to previous years, and then compared that to a percentage of corn price.
• 10:01
  SPEAKER_00: Okay.
• 10:02
  SPEAKER_00: And not surprisingly, uh the first one that stands out is the P205 price.
• 10:08
  SPEAKER_00: Because I know when we've priced some map or DAP for our farm this year, we were surprised to see it was a little higher than last year, and that's kind of where the margin protection suggests it is as well.
• 10:17
  SPEAKER_00: And in fact, when you look at the numbers for corn, a ratio-wise, it's the highest P205 has cost per the price of corn uh in the last, well, since 2018, so the last seven years.
• 10:32
  SPEAKER_00: Uh, even in the high price years, uh, when I we think back to high fertilizer prices like 2023, uh, it was close uh right to where we are now as far as that ratio, but this year is worse.
• 10:45
  SPEAKER_00: And that doesn't make me want to jump on and buy a bunch of phosphorus right now, does it do you, Mike?
• 10:50
  SPEAKER_01: Not necessarily, no.
• 10:52
  SPEAKER_00: Yeah, so uh looking at the other products, uh potash is higher than last year, uh, but not as high as it was in 2023 and 2022.
• 11:02
  SPEAKER_00: So probably uh okay there.
• 11:05
  SPEAKER_00: Uh would like to see it come down a little bit.
• 11:07
  SPEAKER_00: Um, and corn is actually uh kind of right in line where uh excuse me, your uh nitrogen, uh urea specifically, is kind of right in line where it was in 2024 uh and even back into 2021 and 2020, about the same.
• 11:23
  SPEAKER_00: So I'd feel better if I was going to lock in some fertilizer prices, I'd feel better about doing my nitrogen now.
• 11:29
  SPEAKER_00: I'd feel better about doing some potash.
• 11:31
  SPEAKER_00: Uh, I don't know if I'd pull the trigger on all my my phosphorus.
• 11:35
  SPEAKER_00: Makes sense, I guess.
• 11:36
  SPEAKER_00: And so knowing all that, um, as we start thinking about margin protection insurance, generally, if prices are high, they don't go higher, right?
• 11:47
  SPEAKER_00: So at least with the way the margin policy works.
• 11:51
  SPEAKER_00: Um the prices are historically high compared to where crop prices are at.
• 11:56
  SPEAKER_00: And the inputs, the input prices, the the fertilizer specifically.
• 12:00
  SPEAKER_00: And so if I was looking to buy margin insurance to protect against high fertilizer prices, I'm not sure that's my best reason to buy margin insurance this year.
• 12:11
  SPEAKER_01: This year.
• 12:11
  SPEAKER_00: This year, right?
• 12:12
  SPEAKER_00: So I I'd go out and buy my night nitrogen.
• 12:15
  SPEAKER_00: I think phosphorus is a little uh out of whack on the ratio.
• 12:18
  SPEAKER_00: So either price has to come up, uh, corn or soybean price has to come up, or fertilizer price has to come down to make that ratio a little more in line.
• 12:27
  SPEAKER_00: Uh, not sure if any of those things are gonna happen, but not sure I want to spend uh 40, 50 bucks an acre on margin protection insurance to protect it.
• 12:35
  SPEAKER_00: So uh I think there's some other reasons to look at margin protection, kind of for what you were talking about earlier.
• 12:40
  SPEAKER_00: One of those being uh putting a floor under some of these prices uh before um before we give the opportunity for them to go even lower.
• 12:49
  SPEAKER_01: So what you're saying is if you're gonna buy margin protection, buy it for price coverage, not so much of the input coverage side this year.
• 12:57
  SPEAKER_00: I would say as we sit today, yes.
• 13:00
  SPEAKER_00: And now granted, we are on the very beginning of the price averaging period.
• 13:04
  SPEAKER_00: Uh this will go through mid-September.
• 13:06
  SPEAKER_00: We can revisit it uh at any time to see where it changes.
• 13:09
  SPEAKER_00: Uh, but as of today, I don't think I'm buying margin to protect against rising fertilizer prices.
• 13:15
  SPEAKER_00: I think there might be some other reasons to buy it, and I would guess we'll be talking about those in future episodes.
• 13:21
  SPEAKER_01: Awesome.
• 13:22
  SPEAKER_01: Uh, anything else you can think of here before we kind of wrap up with this discussion on margin protection today?
• 13:27
  SPEAKER_01: And one of the I would call this the first part of our series here over the next month.
• 13:31
  SPEAKER_00: Yeah, I I think you know this is a good time of year to start looking forward to 2025.
• 13:36
  SPEAKER_00: Uh, the margin insurance is one of the reasons to make us all focus on it and think about how we want to uh put together a risk management plan for 2025.
• 13:46
  SPEAKER_00: Uh, whether that's with insurance or with options or futures or however we're gonna do it, um, 2025 looks like it's going to be a pretty tough year for the cash grain farmer.
• 13:58
  SPEAKER_00: And so anything we can do to make sure we don't let an opportunity slip by, uh, we need to spend a little bit of time evaluating, looking at.
• 14:07
  SPEAKER_00: And all I would say on that is as our our listeners are thinking about 25, if they want specific numbers ran for their farm or discussions, call the office, talk to myself, talk to you, Mike.
• 14:18
  SPEAKER_00: Uh, we're here to help uh make these decisions and put a plan together to try to make 2025 as successful as it can be.
• 14:26
  SPEAKER_01: That's the other thing about margin, too.
• 14:28
  SPEAKER_01: I mean, you're looking at pretty poor margin environment time frame right now for 25, and this product is to protect margin.
• 14:36
  SPEAKER_01: So maybe it's not the best idea to protect margin when it's not at a very good level.
• 14:40
  SPEAKER_00: It's not a very good level, just simply it's just the thought in all of our heads is what if it gets worse?
• 14:45
  SPEAKER_01: Yep.
• 14:45
  SPEAKER_01: All right.
• 14:46
  SPEAKER_01: Well, thank you, Luke.
• 14:47
  SPEAKER_01: And thank you to all our listeners.
• 14:49
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 14:52
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 14:58
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:04
  SPEAKER_01: See you next time.