Latest / Commodity Week / Jun 25 | Commodity Week
Transcript
- cw260625 The June 25 edition of Commodity Week featured analysis from Arlan Suderman of StoneX, Curt Kimmel of AgMarket .net, and Greg Johnson of Total Grain Marketing. The panel evaluated the impending June 30 USDA acreage and quarterly grain stocks reports, noting that these figures, alongside developing weather patterns, will establish the primary direction for the markets. Expectations for corn acreage generally reflect a slight decrease from March intentions, while soybean acreage is anticipated to be marginally higher. Weather remains a dominant factor as the corn crop approaches its critical July pollination window. Elevated temperatures will accelerate growing degree days, but sustained heat combined with high overnight temperatures could negatively impact final yields. The panel also highlighted specific agronomic risks moving into the latter half of the summer. These include the eastward drift of smoke from western wildfires and the potential for southern mold spores to increase disease pressure, making fungicide application decisions crucial for producers this season (CropProtectionNetwork.org). Significant uncertainty persists regarding international trade commitments on the demand side. The market is closely monitoring China's purchasing pace to determine if the nation will meet its stated targets by the end of the calendar year. Additionally, potential agricultural shipments to Iran, facilitated by the use of frozen assets, represent another unresolved variable that could substantially tighten the overall balance sheet. Until these international demand factors and late-season weather impacts are clarified, producers are exhibiting notable reluctance to make new crop sales at current price levels. Panelists - Greg Johnson, Total Grain Marketing - Curt Kimmel, AgMarket.net - Arlan Suderman, StoneX announce: This is the June 25 edition of Commodity Week. Todd Gleason’s services are made available to WILL by University of Illinois Extension. Todd Gleason: Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Arlan Suderman, he’s with StoneX, along with Curt Kimmel of AgMarket.net, and Greg Johnson at Total Grain Marketing. 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. Let’s start where we always do by getting a list of items that we should discuss for the day. Greg Johnson, we’ll begin with you. What’s on your list? Greg Johnson: I think the most pressing question that’s going to be answered in about four days is what will the USDA tell us on Tuesday, June 30th. Will they throw us another surprise like they did last year and increase acres in pretty much all commodities, or will they, in fact, lower corn acres a little bit from the March number based on higher input costs and other factors? There’s a quarterly stocks report as well, which the market will pay attention to, but I think, first and foremost, the corn acres have people very concerned and interested in what the USDA has to say. Todd Gleason: So Curt, Greg is concerned and worried about the USDA acreage report. What’s on your mind? Curt Kimmel: That’s front and center, but the news item now is probably the weather—too wet, too dry, too hot, too cold. The weather is going to be the key here as it affects yield once we see what the acreage numbers are. And the other part would be if China actually showed up today or not. Todd Gleason: And Arlan Suderman from StoneX. Arlan Suderman: I’d agree with that. As I was thinking about your question, first is acreage and stocks numbers coming out. The second was rendering into that typical seasonal weather thing. Third, I would say, was what Curt hinted at there: the big unknowns on the demand side that could have huge implications for the balance sheet going forward. Unfortunately, we won’t have the answers for a while yet to the extent of it, but one and two would be the supposed deal where the Trump administration would force the Iranian government to use frozen assets on purchasing medical supplies and U.S. ag commodities for the people of Iran. And the second would be the degree to which China keeps its promise to buy U.S. ag commodities. Those two things and how they work together could have huge either bullish or bearish implications for the balance sheet longer term. Todd Gleason: Let’s start there, Curt Kimmel. You suggested that the Chinese might have been in buying again. It was just a rumor; how much do we know, and if anybody else has a good idea, you can jump in on this one. Curt Kimmel: When you look at the weekly export sales report this morning, there were 200,000 confirmed and maybe 300,000 of the unknown destination from last week, but commercial guys kind of indicated there’s some interest out there on it. The significance of this is, basically, if they’re going to be committed to 25 million metric tons, the year is just about over. So they’ll need to buy 1 to 1.2 million metric tons a week like clockwork. That’s going to be the exciting thing to actually see some confirmation whether this process has started. Not to change the subject too much on China’s demand here, if El Niño stays intact going into this fall and winter, that’s going to affect that Southern Hemisphere weather a lot more than it does here in the Midwest as far as being hot, dry, or production concerns. That could put a little fire under them to maybe get some business on the books. Now, whether they actually take it and ship it into 2027 or not, that’s to be seen, but it’s kind of exciting to maybe see some confirmation here in the next few days. Todd Gleason: Curt, just a quick clarification. When you said “through the end of the year,” you’re thinking 25 million metric tons by the end of the calendar year, and that’s the calculation you’re doing? Curt Kimmel: That’s the way I understand it, yes. By year-end, which would be the year half over, so basically about 1 million metric tons a week. Todd Gleason: Arlan Suderman, anything to add on this part of the discussion regarding whether China will be into the marketplace? Arlan Suderman: We believe that they leave ambiguity for a purpose. We believe China interprets it as a marketing year, so that does make a big difference. What we’re hearing on the ground in China is that the government is looking at buying 15 million metric tons by the end of the calendar year as an indication of their desire to keep their commitment of the 25 million metric tons during the marketing year. Fifteen million metric tons looks like about what the USDA has penciled into their balance sheet. So if they buy 15 million metric tons, that would leave us pretty much where the USDA is at, assuming nothing new to Iran. If they go closer to 25 million metric tons, that significantly tightens up the balance sheet. If they do 10, then it loosens it up quite a bit. We would expect them to be buying now, particularly after the big price break we had. They are very value-conscious. It would be state buyers primarily who would be buying it, since we’re more expensive than Brazilian beans landed at the port. We would expect it, and the question is going to be how much: is it 15 by the end of the calendar year, or do they go beyond that or less? Todd Gleason: Greg Johnson, on the ground in East Central Illinois, what difference does this make? Greg Johnson: Well, if China does show up regularly here each week or at least before fall harvest starts, that will provide an outlet for country elevators to move beans out of the elevator and provide more space for corn. So that should have a positive impact on basis. Maybe not a positive impact, but at least it keeps it from being super negative. If you remember in 2018, the first time Trump was in power and we had the first trade war go around, China stopped buying beans, and bean basis got really, really ugly, really weak for quite some time until they worked something out. We know what can happen if China does not show up to buy beans to take some of the pressure off the space demands in the fall. If they show up, that’s great; basis levels will probably just reflect the supply of the crop, which we’ll know more about in July and August based on the weather. But if they do not show up, I just don’t think the grain system is set up to store the entire corn and soybean crop, and you would expect basis levels to weaken if that would happen to be the case. Todd Gleason: I want to follow up with you on that note. Did producers at all take advantage of the 20-cent rally in soybeans on Thursday? Greg Johnson: No. They’re very disappointed and disinterested at this point. A 90-cent to a dollar drop and a 20-cent rally did not get them excited. It’s going to be now more the calendar or a bigger price increase than what we’ve seen so far. We still have the entire growing season ahead of us; July and August are the two most critical months. I think farmers are of the opinion, “If I’ve held on to it this long, I’m going to hold on to it for a little bit longer.” Todd Gleason: Do you think they should have? And are you talking new crop or old crop? I was talking about new crop, which one are you discussing? Greg Johnson: Same thing. Most of the old crop beans are gone, so there’s no real talk there. But there’s still probably 20% to 25% of old crop corn, so farmers still have to get rid of that last 20% to 25% of old crop corn. In addition, the new crop. Like I said, we were $5.05 in December and we went all the way down to $4.35 before we bounced a little bit this week. Farmers are not interested in selling $4.35 corn at this point. As we get closer to fall harvest, they may just have to take whatever they can get if they don’t want to pay storage charges or if they don’t have their own storage. But I think at this point, farmers are waiting for a little bit more of a bounce, waiting to see whether we get some kind of a weather scare in July and August. No, to answer your question, farmers did not even bother to pick up the phone and call in today with the rally in corn and beans. Todd Gleason: So Curt Kimmel, as I think about this, old and new crop both, and I’m looking at new crop in particular. I believe December corn made a contract high in May and it made a contract low in June. Soybean charts don’t look nearly so bad. You have a rally, you’re still above $11 cash. What are you telling producers, and what do the charts tell you, or what is Brian Split from your crew thinking about? Curt Kimmel: Technically, today was a real encouraging day, particularly in the corn. We had a key price reversal to the upside, we made a new contract low, and closed above the previous day’s high. It was pretty good volume also. The key now is to kind of follow through. The soybeans, we saw some pretty good technical action there. The July had an outside up day, and the November’s also closed above the last high here. Technically, the market is in the position here to move north as long as we hold today’s lows on some follow-through buying. Hopefully, that’ll give us enough oomph in here for those needing to make catch-up sales to take place. If you’re bullish, you buy it and put a stop under today’s low, Todd. Todd Gleason: Arlan Suderman, how do you see this marketplace unfolding? Arlan Suderman: I think the bottom line here is that we’ve come down a long ways and we’ve reached a level where end users see some value, and the fund managers are watching that. Does that mean that we can’t go any lower? No, it doesn’t. But for now, that value is kind of being defined. Now, we talked about the stocks reports, the acreage reports coming out next week, the weather forecast; all of that can change the sentiment one way or the other. But for now, we’re finding an area of stability, and as far as the funds, they’re not going to sit here. Funds don’t make money in a stagnant market. They’re going to find a way to move it one way or the other. If we look to next week’s reports, and that’s also when we see the weather forecast deep into the pollination time, that’s going to be really the determiner that shapes which direction we go from here. Todd Gleason: I do have a follow-up question for you on the weather, Arlan. Next week, when you look at the weather, it’s really hot. Particularly the evening lows or overnight lows, they stay in the 70s. It doesn’t seem that this has scared the marketplace very much. I suppose part of it is because we’re still only in late June, very early parts of July. But we’re getting deeper into the season; should it pay more attention? Arlan Suderman: Obviously, it’s going to depend on where you’re at relative to pollination, but basically the bulk of the U.S. crop is going to pollinate between July 10 and July 30. I’ve seen some pollinating corn under pretty ideal conditions already in the southwestern belt this year. But once it starts pollinating, I hate to see those overnight low temperatures in the upper 60s or higher. That starts to have an impact. The agronomists I’m talking to so far are saying we’re really looking forward to this warmth because we need to catch up on some growing degree days, and the timing is good right now as long as it doesn’t lock in, and that’s the concern this time of year. There are those forecasters who are worried about this locking in, but the analysis that I’ve seen from Commodity Weather Group indicates that as they’ve looked back at other years with strong El Niños, it’s very hard to lock in that high pressure over the Midwest in a strong El Niño year. When you get periods of heat, they tend to be very transitory and not long enough to really hurt the crop. That’s my bias at this point until proven otherwise: we’ll take the heat, it’s not going to be long enough to really do any significant damage because we currently have, anyway, more rains and moderate temperatures in the forecast right behind this. Todd Gleason: So Curt, if you could follow up on that weather train of thought. How good or bad—and it’s actually good, the crop really looks across the United States—and what your expectations might be? Curt Kimmel: Arlan pretty well summed it up fairly well there. In an El Niño year, it’s hard to see some real weather concerns. Matt and Eric Snodgrass put out a video here just the other day, and Eric at that time was looking for the heat to intensify but looking for that ridge to move back to the west here and see some ridge riders take place and continue to get some moisture here in the eastern belt. I mean, there are some pretty rough areas out there, but we’ll see how this heat helps the corn here. I believe most analysts are around on corn yield around this 185 to 186 bushel to the acre, and beans around 53 bushels per acre. That’s the neat part of this time of the year: everybody continues to put these inputs into their yield model and see what type of yield we have. It’s going to be highly variable. As you talk to guys around, there are some areas that are really saturated, other areas just dry. That’s going to be what the market has to determine here over the next few months of growth. One thing that Brian Split was kind of following, some analog years, and you can pick several different ones: 2014, 2024, even last year for the most part. If it’s following some of these analog years in through here, it kind of gives an indication that we can have a little recovery here going into the first part of July, but after that, if the weather cooperates, we’re still subject to some downside risk. Todd Gleason: Yes, so you just told me 1994—you didn’t say that one, but 1994, 2004, 2014, and 2024—everybody will recognize those as very large yield years. And then acreage, Curt, makes a big, big difference. What are you working with for acreage, and how does that number calculate into the supply and demand table at this point for AgMarket.net? Curt Kimmel: On the acreage, the team is looking at 94.9 million on corn; that’s down 400,000 acres from the USDA intentions. Bean acreage up about 85.3 million, that’s up 600,000 acres from the planting intentions report from the USDA. As far as the new supply and demand balance sheet and what it does to that bottom line, I have not seen the update on that there on what the team is looking at. Todd Gleason: Greg Johnson, I know you keep S&D tables in front of you. How are you looking at the acreage figures next week? Greg Johnson: I guess it’s more wishful thinking on my part than an expectation, but if we could get 800,000 less acres and only plant 94.5 million acres, that might have an impact on the price. If we get Curt’s number with just a couple hundred thousand, a few hundred thousand less, I don’t know that that’s enough to get the market mentality changed. So if we have a 94.5 million acre planted crop with a 182, shaving a bushel off the yield, that gives us 15.8 billion bushels of production. I think demand is very strong; I don’t look for that to get lowered even with a slightly smaller crop. So 16.1 to 16.2 billion bushels of demand on a 15.8 supply gets your carryout down 400 million, so you can get it down from 2.0 to 1.6 billion. Unfortunately, even with a 1.6 carryout, that’s still plenty of corn left over. We might get a 30-cent rally during a weather scare in July or August, but I’m afraid that still means new contract lows this fall. Todd Gleason: And Arlan Suderman, I believe StoneX released their numbers. I must say that I saw some work that suggested there might be more acres of corn and soybeans both at one time. What are the numbers you’ve been working with? Arlan Suderman: We’re looking for 94.65 million acres of corn, 85.35 million acres of soybeans. That’s really pretty close to where we were at the March 31 planning intentions estimate. We feel like that’s going to prove pretty close, but you know, that’s what surprises are made out of. Obviously, that does tend to shift the balance sheet somewhat if we get that, but if, in fact, that’s where the numbers are, I don’t think that’s a big market mover. The other question is going to be whether we get any surprises on the stock side. We still feel like the USDA is too high on their feed usage number. Will we see stocks that prove that? Or, you could say it another way: maybe USDA, the last stocks report came in below what we thought, so maybe they pushed their yield too high last year. They’re not going to adjust last year’s yield with this report, they will in September. Will we see more evidence that they need to downward adjust last year’s crop in September with this report? Todd Gleason: Arlan, this is a question that I asked Dan O’Brien. He did not know the answer to it because he was talking about the same thing, and I wondered about the efficiencies on the production side. When the ethanol plant reports, whether its boilerplate total yearly production or annual production has been upped based on its efficiencies, does that make a difference? Or, what were you thinking about when you calculate that capacity? Arlan Suderman: I think the boilerplate numbers are pretty much what it was designed for, but then they start running above that level, and that’s not very uncommon to just run above it when they’re able to increase the output and increase their efficiencies. We’ll take it. Todd Gleason: I think the point though was that, say we’re running at 90% capacity, that’s at the boilerplate capacity, but there might be a whole lot more production that could still come online above that, simply because of the efficiencies. Arlan Suderman: Yeah, and as I talk to our ethanol team, they say we could go a little higher than what we are now, but they feel like we’re pretty close to—I mean, you can never run sustained levels at 100% capacity; it’s always something below that because the closer you run to capacity, the more maintenance issues you start to have. Todd Gleason: What should we watch for after the USDA acreage and grain stocks are released throughout the rest of the summer? And Greg Johnson, why don’t I start with you? Greg Johnson: Obviously, I think the weather is going to be the critical issue. Going back and doing a little research, the June 22nd crop ratings have absolutely no correlation to the final U.S. yield. As every old farmer will tell you, it’s not how you start, it’s how you finish. The corn crop is made in July, the bean crop is made in August. Both of those old adages reiterate the fact that even though U.S. corn ratings are 68%, which is exactly where we’ve been for the last 10 years on this date, by the end of the year, the last 10 years we’ve averaged 61%. So we’ve lost 7% of the good to excellent rating from now until the harvest time. But yet, we’ve had bumper crops every year except for 2019. So, nine of the last 10 years, the crop just continues to get bigger and bigger regardless of what the crop ratings do. I really think that we don’t need to watch the June ratings, probably not even the July ratings, and probably not even the August ratings. It really boils down to what kind of weather we get. If we get an inch of rain a week, maybe even half an inch of rain a week, and stay away from the high temperatures, chances are we’re going to have another big crop. Todd Gleason: Curt Kimmel, your thoughts? Curt Kimmel: Well, smoke from the west. I guess these fires are starting to put quite a bit of smoke in the atmosphere, and that’s moving eastward here. Two, a year ago we saw this issue: we’ll be watching the mold spores coming up from the south. So we’ll be dealing with fungus and disease pressure, and if it stays wet, will these guys be able to get stuff sprayed? There are some moving parts here, weather-wise and agronomical-wise, to watch. Todd Gleason: Arlan Suderman, kind of your final word for the day, please. Arlan Suderman: I’d agree with those comments. And just from the data we saw last year on those who treated with fungicide versus those who didn’t, or maybe those who treated once but not twice, and the huge yield implications, I think farmers will really be watching that this year. Even with the lower price, when you’re talking about the potential for a 50, 60, or 70 bushel in some cases difference in yield, once we get past the reports, it’s definitely weather; that’s going to be the big thing. Longer term, it’s going to be: if we actually see some ships loaded with ag products for Iran, that’s an indication that the Trump administration is enforcing that requirement. That would be a big positive. I think there are a lot of question marks around that. Iran doesn’t want to buy from us, but if we see ships loaded, that would be an indication. And then the speed at which China buys, and what mix do they buy—soybeans, corn, wheat, or what? Todd Gleason: You’ve been listening to Commodity Week, it is a production of Illinois Public Media. I’m University of Illinois Extension’s Todd Gleason.