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Mexico and Wheat · 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: I have Pat on for the second time this week.
• 0:26
  SPEAKER_00: It's an honor.
• 0:27
  SPEAKER_00: How's it going?
• 0:28
  SPEAKER_01: Good, Mike.
• 0:28
  SPEAKER_01: How are you today?
• 0:30
  SPEAKER_00: Very good.
• 0:30
  SPEAKER_00: Well, uh following up uh Thanksgiving, uh, you know, in that week, anyways, we've uh seen a few different topics to talk about.
• 0:37
  SPEAKER_00: But Pat, uh, here, I want to start off with Mexico.
• 0:40
  SPEAKER_00: They uh seem to be picking up a lot of news recently here.
• 0:43
  SPEAKER_00: Uh just let's start about uh some of the things that they've had uh going on economically speaking, so the state of their country uh from an economic perspective, some of the boom they saw, uh how we could see some problems looking ahead and potential tariff problems as well.
• 1:02
  SPEAKER_00: So uh at this point, Mexico, uh their GDP growth has been picking up really recently, in like 23, for example, but uh yeah um we are seeing um uh problems stemming uh from a few different areas.
• 1:17
  SPEAKER_00: So one would be uh their president, uh their new president, uh, and some of the things that she's pushed with radical reforms, whether it's uh the energy sector in particular and the lack of uh investment or growth there that they've seen because of them pushing towards uh more state-owned um energy uh sectors.
• 1:38
  SPEAKER_00: The also, if you look at recently here, uh some of the different plans that she's had, like Plan C, which has been uh introducing uh elected judges and uh kind of dismantling some of their regulatory bodies.
• 1:53
  SPEAKER_00: But uh some of those things they've had problems with in their fiscal deficit is is a problem as well.
• 1:58
  SPEAKER_00: They've been spending too much money.
• 1:59
  SPEAKER_00: Um they haven't seen an any growth really uh compared to their spending.
• 2:04
  SPEAKER_00: So those are a few of the problems.
• 2:06
  SPEAKER_00: But then, you know, you could start to talk about some of their external pressures now, which mainly is gonna come back to the United States at this point.
• 2:13
  SPEAKER_00: Twenty potential twenty-five percent tariffs that Trump seems to be implementing.
• 2:17
  SPEAKER_00: So just I know I haven't directly talked about it on the podcast before, but give me your opinion or stance on uh Mexico and how important they are to us in in the United States, but how important we are to them as well, Pat, and how that impacts commodity prices.
• 2:35
  SPEAKER_01: Yeah, exactly right.
• 2:36
  SPEAKER_01: And I appreciate uh I appreciate the topic, and it certainly has been front of mind here recently, um, with uh you know coming off of of election and and uh um I uh I w we were talking internally here this week and we were reminded uh um as uh uh Trudeau from Canada you know flew down to uh Florida over Thanksgiving weekend uh to have a conversation with uh um President elect Trump and and uh uh Mexico's uh leader.
• 3:11
  SPEAKER_01: She's also been in in uh in conversations with them.
• 3:15
  SPEAKER_01: And so it's a reminder that um that uh the the United States has a significant amount of influence and it creates an awful lot of concern uh in both Mexico and Canada when Trump starts uh rattling the cages a little bit here.
• 3:33
  SPEAKER_01: And for those of us in agriculture, we are we are concerned about that because obviously we're we're trying to export uh um we're trying to export commodities to to both of those countries.
• 3:46
  SPEAKER_01: But but what Trump is addressing is the significant trade deficit that that that we are engaging today on on both sides of the things.
• 3:55
  SPEAKER_01: We just happen to be on the credit side of that ledger, if you will.
• 3:57
  SPEAKER_01: And so I would just say that uh um uh it's easy for us to forget a little bit, especially after you went through the last four years of the previous administration, uh, about the amount of influence that we do have, right?
• 4:10
  SPEAKER_01: And and and the importance to them that that they get something figured out here.
• 4:16
  SPEAKER_01: And would just say that there's a bit of a roadmap here in terms of how this can go and how it did go uh with China in Trump's first um uh presidency there.
• 4:29
  SPEAKER_01: And and uh if if the folks down in Mexico would just take a little bit of look at at GDP activity in China, um like pre-Trump, post-Trump, um, they they would uh um they would would easily recognize, right, that there's uh there's there there's reasons for their concern, right?
• 4:50
  SPEAKER_01: And and and China's economy is is is struggling today.
• 4:54
  SPEAKER_01: And I would argue that there's a there's a pretty good a pretty good reason why is because of of some of the changes in trade activity with those folks from from 2016 forward.
• 5:06
  SPEAKER_00: It's pretty easy to see that even going back to the the administration Trump used and during the China trade war, same administration almost, or parts of it back in even Japan in the 80s.
• 5:18
  SPEAKER_00: So we limited their GP essentially with some of the trade um tariffs, things like that, and then we did the same to China here, and now Mexico is experiencing kind of almost that first phase of their boom now, aren't they?
• 5:31
  SPEAKER_00: Like China saw in the nineties, for example.
• 5:34
  SPEAKER_00: Right.
• 5:34
  SPEAKER_00: And they're a lot more geographically aligned with us, obviously being right next to us, same with Canada.
• 5:40
  SPEAKER_00: Um so a lot of potential uh out of Mexico from that perspective.
• 5:44
  SPEAKER_00: So we're it seems like we're getting ahead of trade with them pretty early in the in the stage of the game.
• 5:48
  SPEAKER_01: Yeah, absolutely.
• 5:49
  SPEAKER_01: And and then and then we we say I say all of that, and then and then also am reminded of this.
• 5:55
  SPEAKER_01: I mean, I um Canada and Mexico are are two are two tremendous trade partners for us, right?
• 6:02
  SPEAKER_01: And and the you know the the access to energy and and natural resources that Canada provides and and and Mexico um you know the advantages that they provide as it relates to access to to um um labor and production and all of those things are are are very common or very uh good reasons, right, to have have healthy relationships uh going forward and have had for a long time and all those sorts of things.
• 6:30
  SPEAKER_01: And so, yeah, we're gonna end up with a little bit of a change introductory here, likely, but nothing that that should be incredibly earth-shattering.
• 6:37
  SPEAKER_01: And so, you know, we we again we just we talk about all of that stuff and it it's sort of top of mind here, and maybe we talk about it a little bit more than normal because the grain markets are kind of quiet here, right, Mike?
• 6:48
  SPEAKER_01: Like there isn't a whole lot else going on.
• 6:50
  SPEAKER_01: But but before we you know before we we move on to the next thing in in our daily lives, we should talk about what is going on fundamentally and and and generally um the the perception is at least that weather in South America is pretty good right now, right?
• 7:06
  SPEAKER_00: Yeah, weather in South America is good.
• 7:08
  SPEAKER_00: Some very high production estimates for Brazil now have been thrown out there.
• 7:12
  SPEAKER_00: Things like 170 million metric tons of production for soybeans for Brazil versus 153 last year.
• 7:19
  SPEAKER_00: So another record crop looming, it looks like here.
• 7:22
  SPEAKER_00: And I would from the pictures that people have sent me from down there, I mean it's green, it looks great, you know, it um it's kind of in that stage of the year, too, where it's pretty hard maybe for a crop to look bad at this stage, too.
• 7:34
  SPEAKER_00: So I mean they're you know, July type time frame.
• 7:37
  SPEAKER_00: Early harvest will start in January, middle harvest kind of feb and wrap up in March.
• 7:43
  SPEAKER_00: So um we we normally see some volatility kind of the end of December, I would argue, Pat out of South American weather here.
• 7:50
  SPEAKER_00: And uh yeah, it can be tough because uh a drought normally doesn't uh sustain in uh rainforest.
• 7:57
  SPEAKER_00: You you always used to tell me when I started here, at least it it seems to always find rain.
• 8:02
  SPEAKER_00: But they also have a soil type that like you can get two inches of rain and go plant the next day.
• 8:06
  SPEAKER_00: Yeah.
• 8:07
  SPEAKER_00: I mean it drain it it dries up pretty quick.
• 8:09
  SPEAKER_00: They can be in a drought in two weeks from any time.
• 8:11
  SPEAKER_00: So uh continue to watch that one.
• 8:14
  SPEAKER_00: That's probably one of the most volatile reasons for moving the soybean market going forward the rest of December, I'd argue, to watch for.
• 8:21
  SPEAKER_00: And then obviously Mexico as well.
• 8:23
  SPEAKER_00: You know, we talked about how there's not a lot going on, but at this point, Mexico has been buying a lot of corn from us, and they buy 41% of our total corn exports right now.
• 8:32
  SPEAKER_00: Now, that corn export number isn't as big of a deal as like it is for soybeans for us, but for good demand recently and this little uptrend we've had in corn, you know, uh 41% of our exports is important.
• 8:45
  SPEAKER_01: Absolutely it is, and and especially when we're in this situation of of uh a building stock situation year over year uh on uh on really all major commodities, uh soybeans a little bit more than corn.
• 8:59
  SPEAKER_01: Um what do you what are you uh what are you hearing recently about wheat?
• 9:03
  SPEAKER_01: That's been kind of quiet, but but uh from a market activity perspective, but a little bit surprising given what we think is going on over in Russia.
• 9:12
  SPEAKER_00: Yeah, so the Russian winter wheat crop is uh is really considered at one of its worst states ever.
• 9:17
  SPEAKER_00: I mean, uh we uh the share of winter wheat crops in Russia right now for this 2025 harvest coming forward is in very poor condition, and uh uh they have not really um uh had fantastic ratings out of that from multiple sources.
• 9:33
  SPEAKER_00: So uh they've had some problems in production here.
• 9:36
  SPEAKER_00: They're also running towards uh very declining stock six situation for exportable wheat.
• 9:43
  SPEAKER_00: They've been holding uh, you know, around$225 a metric ton for export price, and their stocks continue to fall.
• 9:53
  SPEAKER_00: So they there's been talks of them raising their export prices, but they really haven't done it as aggressive as they thought they would have.
• 10:00
  SPEAKER_00: So at this point going forward, you know, they've been exporting really aggressively, really hard.
• 10:05
  SPEAKER_00: Their stocks are dropping, and now they've got a pretty poor wheat crop coming at us.
• 10:09
  SPEAKER_00: And this is happening at a time frame where you know US futures board prices for all three wheat complexes are at very low historical levels.
• 10:19
  SPEAKER_00: For us to get below five dollars on the board, um, especially when we've got you know four and a half, four dollar corn is is incredibly low.
• 10:28
  SPEAKER_00: So that's that spread is starting to get quite tight as well, Pat.
• 10:32
  SPEAKER_01: Absolutely.
• 10:33
  SPEAKER_01: And so you know we get back home here and we and and look at what's going on in the corn market here.
• 10:37
  SPEAKER_01: We've I guess a little bit quietly put a dime or so on this corn market here over the last week or so.
• 10:44
  SPEAKER_01: And and uh those aren't the type of moves that we've been accustomed to, but um maybe in this environment they're they're the type of moves we need to start thinking just a little bit more about.
• 10:55
  SPEAKER_01: And so as we work through the month of December here, we'd also just just point out that um we do seem to be seeing some um fairly attractive uh basis offerings, especially here in the Western Corn Belt, Mike.
• 11:09
  SPEAKER_01: And so um would just challenge you know all of our rook crop producers to continue to be to be looking for those little opportunities because it's um we we it certainly appears as though we're at a stage of the cycle where those bigger opportunities are a little tougher to come by.
• 11:24
  SPEAKER_00: Especially when spreads have narrowed up as much as they have on corn and soybeans here.
• 11:28
  SPEAKER_00: It it's markets kind of telling you that you should look at moving something, isn't it?
• 11:32
  SPEAKER_01: Absolutely.
• 11:33
  SPEAKER_00: All right, thank you for your time, Pat.
• 11:34
  SPEAKER_00: Thank you.
• 11:35
  SPEAKER_00: And thank you to all our listeners.
• 11:37
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 11:40
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 11:46
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:52
  SPEAKER_00: See you next time.