Latest / Commodity Week / Mar 19 | Commodity Week

Transcript

Mar 19 | Commodity Week · Commodity Week

• 0:00
  Todd Gleason: This is the March 19 edition of Commodity Week.
• 0:08
  announce: Todd Gleason services are made available to WILL by University of Illinois Extension.
• 0:16
  Todd Gleason: Well, welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Greg Johnson. He's a TTM. That's total grain marketing right here in Champaign County, Illinois.
• 0:25
  Seth Vanderweide is here from Logic Ag Marketing. He's in Alton, Iowa. And Sherman Nolan joins us from Risk Management Commodities at Zaner Financial. He's in Hudsonville, Illinois. Commodity Week, of course, is a production of Illinois Public Media.
• 0:40
  It's public radio for the farming world online on demand @willag.org. Our theme music is written, performed, produced in courtesy of Logan County, Illinois farmer Tim Gleason. Well, Seth Vanderweide, thank you for joining us. This is your first time with us from Logique Ag Marketing out of Alton, Iowa. Generally, we do talk with one of your colleagues, Shane Holtor from time to time.
• 1:06
  I would like to know a little bit about you and how you came into the business.
• 1:10
  Seth Vander Weide: Sure. It's a great question. I guess how I came into the business was I was in public accounting for twenty years, In our neck of it was heavy in agriculture. I actually had helped a lot of my older clients retire, transition their farm plans to their kids, the next generation, all that. And it kind of left me looking around.
• 1:37
  My covers were pretty empty when it came to agricultural clients, and I love working in the ag world. I developed a kind of a passion for that doing taxes. And I was helping guys through feedlots and cost of production with some of their risk management already on the accounting side just with figuring out breakevens and things like that. So through a mutual friend, Shane Holtorf, a mutual friend of Shane and me, they were looking to add a new broker in our neck of the woods. And they approached me and asked me if that would be something I'd be willing to do.
• 2:12
  So it took me a little bit. I was a shareholder in our accounting practice, so it took me a little bit to exit that position. And I've been at this now for about three years, a little over three years now.
• 2:25
  Todd Gleason: So I will say that your neck of The Woods is an expensive neck of the woods in the Far Northwestern corner of Iowa. Why is that the case?
• 2:35
  Seth Vander Weide: Yeah. It's, well, to be honest with you, it's the case because there are so many different types of feedlots up here. We've got a lot of cattle feedlots, a lot of dairies, some bigger hog operations, and every neighborhood has competition for that land, and everyone's farming around that land. So there's enough livestock up here where for the part of their operation, guys are just outbidding each other. Know, you're kind of just you're fighting in the most expensive properties are in the neighborhoods with the largest deed lots usually.
• 3:06
  So and that's just how it happens. They just bid each other up. So
• 3:10
  Todd Gleason: It's about the livestock in that case. Let's turn our attention directly to the grains and oil seeds in commodity markets we normally discuss. Seth, I'll start with you. What's on your list to take up today?
• 3:23
  Seth Vander Weide: I guess for me, I guess the one thing I would talk about between old crop and new crop, kind of old crop lagging behind new crop soybeans. Another thing would be just the gray markets relative to the oil oil markets.
• 3:34
  Todd Gleason: Greg Johnson, on your list.
• 3:36
  Greg Johnson: Yeah. Not not only the high oil prices, you know, what kind of price can we associate with December corn, for example, if oil stays in the 100 to $120 a barrel range. But also, if this wart lingers on for months instead of weeks, what will the impact be on fertilizer? We already know fertilizer prices have gone up. Fortunately, a lot of farmers in the Midwest have locked in their input, but what impact will that have on those farmers that did not get inputs locked in?
• 4:09
  Will they pay the higher price or will they not plant as much corn? I think that's a good question to talk about.
• 4:16
  Todd Gleason: And finally, Sherman Newlin, your list.
• 4:19
  Sherman Newlin: Yeah. I think we got the March 31 planting intentions report coming up. I think it's starting to be on the topic or top of everybody's mind, know, going along with the what Greg was saying about the fertilizer situation. Know we're hearing some guys are switching acres going from going all beans and no corn. Locally we're hearing fertilizer prices were not booked for a lot of guys that typically do.
• 4:48
  So I think that's going to play into it. Mean not only that, but you're looking at again the Iran war. We have headlines every day, the crude oil market was up $3 now we're down $3 today. So that has an effect on not only fertilizer prices but diesel fuel prices that we're looking at for this spring. They have risen considerably since the January 1.
• 5:10
  So, you know, but when you boil it all down, I mean, what do we do about it as producers? I think, you know, we can get into that, you know, looking at some new crop prices here as well.
• 5:18
  Todd Gleason: Okay. So let's do that. We'll remind you that we're here talking on Commodity Week. Our guests today include Greg Johnson. He's at TGM in Champaign County, Illinois.
• 5:27
  Seth Vanderweiding is at Logic Ag Marketing. He's in Alton, Iowa. That's in the Northwestern part of the state, and Sherman Newland joins us from Risk Management Commodities. He's in Hudsonville, Illinois. That's across the river from, Terre Haute Horse thereabouts.
• 5:43
  Close enough. So I do wanna ask, Sherman, because you mentioned that, some folks were switching acres, out of corn entirely to soybeans. Is this regional or a one off? What do you think?
• 5:57
  Sherman Newlin: I don't know. Think it's a little bit everywhere. Mean, some guys in Northern Indiana are doing the same thing because of the prices of fertilizer and nitrogen. I mean, so it's not only just around our area, and I'm not saying it's widespread, but I think it is going to be something that we're going to have to try to contend with as we go on down the road because I don't think the plantings, I don't know, we will see, the report at the March, those were sent out and collected at the February pretty much I think. So will they capture some of this possibly late season switch as well as not only here in the Midwest, but what might be happening down in the Delta as well.
• 6:42
  You've got a little bit higher priced cotton. There might be a few guys, I talked to some in the South, that may plant more cotton acres this year. So the acreage mix is going to be very interesting, but I don't know, after this past year, Todd, can we really believe what's going to happen on the March 31 report because it'll probably change later on?
• 6:59
  Todd Gleason: Well, it tends to change later on anyway, but that's because farmers tend to change their acres, I think, from what they what they thought they were going to do. However, I will say, Greg Johnson, because you and I both studied at the University of Illinois, and they typically would say two things. One rotation kind of sticks around, particularly in the Ice States, and that farmers always get it planted no matter what's happening. So we're not at the second point, but I'm wondering what you are thinking about acreage.
• 7:29
  Greg Johnson: Yeah. I think we were gonna be 95,000,000 months ago just because the 'ninety eight, 'ninety nine was an aberration. I mean, if you take the five year average, it's 95. Then with the low corn price and the higher input, even before the war, I was moving down to 94,000,000 acres. And now with the extremely high prices of fertilizer, I think the farmers in the Mid South and the Deep South and probably the farmers in the Dakotas probably can't justify these higher input costs when they can only grow 185 bushel corn, let's say.
• 8:10
  Here, you are correct, I think I agree with you on the I States, where we can grow two thirty bushel corn, two forty bushel corn, we can probably spread out those higher input costs over more bushels. So I think it's just basically a rotation here in the I States. But I think you could see enough of a shift that I'm kind of wondering if that 94,000,000 acres number doesn't eventually get down to 93. And again, I agree with Sherman. The March 31 report is going to be based on a survey as of March 1, late February, and the inputs have done nothing but gone up since March 1.
• 8:49
  So that number probably isn't going to be the final number. We'll have to wait for the June 30 number. But I think there's potential for thinking that corn acres are going to be down and bean acres are going to be up, and that probably translates into, decisions that, farmers will need to make as far as marketing is concerned.
• 9:08
  Todd Gleason: And then finally, Seth Vandervoyde, if you're in the Northwestern corner of the state of Iowa, how far is North Dakota for from you? And I suspect South Dakota is way closer to you.
• 9:20
  Seth Vander Weide: South Dakota is probably 35 miles. North Dakota is gonna be just shy of a four hour drive.
• 9:26
  Todd Gleason: Right. So it it it's a pretty good drive to North Dakota. But South Dakota, when you think about, folks in that area and because you farm in Southern Iowa, let's call that closer to the Mid South, Do you see transitions happening in those areas and acreages?
• 9:43
  Seth Vander Weide: Yeah. That's a great question. And talking to, people that I know in those areas, we have not seen a lot of change from their initial plan off the rotation. Most people had booked their fertilizer ahead of time. I have heard very little change that's happening for the people that I've talked to in those areas as of right now.
• 10:04
  There are a few here or there that they're contemplating changing it, but they're having a hard time getting anything priced and getting anything booked at that point. So I probably agree with Greg and Sherman in those areas that we don't produce quite as good a corn. You get out into that South Dakota range. Last year was an anomaly out there and they did. But Southern Iowa doesn't quite produce as good a corn as it does in our neck of the woods or the rest of the state of Iowa.
• 10:32
  So I would say that's just real spotty and really depending on where those farms are at in those areas.
• 10:41
  Todd Gleason: Greg, I would like to ask you about, the price of crude oil. What happens if the, a war in Iran continues for months rather than weeks, and if that price is maintained higher, how does it impact the price of grains and oilseeds?
• 11:02
  Greg Johnson: There's been a pretty strong correlation this time around. It's not always that way, but this time around, there's a pretty strong correlation between crude oil prices and ethanol prices and hence corn prices. And then with us crushing more soybeans for the oil, there tends to be a pretty good correlation between crude oil and the soybean oil prices. Now that doesn't translate directly into soybeans, but because there's a lot more meal to be used than oil. But there still is a strong correlation.
• 11:31
  And so if you really believe that this war is going to continue for months instead of weeks, and if you really believe that crude oil prices could exceed $120 then you're probably in the camp that corn and bean prices are going to go higher as well. So I think it's that simple and it's that difficult. I mean, if we could predict how we where the price of crude oil is gonna go, then then we probably have some pretty good understanding of where corn and bean prices may go as well.
• 11:58
  Todd Gleason: And then, Sherman, that this has a direct impact on the price of inputs as well. I think diesel fuel rather than nitrogen at least at the moment, will be the primary issue, further deeper into the season, because most of the anhydrous will be on before, and has already been paid for probably. And there will be those who have not, and they'll have to deal with it. But how is it that that you think about those input prices? Diesel fuel, which I wanna say makes up 3%, if I remember right, the the cost of production from the farm dock tables.
• 12:42
  So it's not a big cost, but it's still $24.25 dollars an acre. So I I'm I'm just thinking about how how how it is that producers should consider it.
• 12:53
  Sherman Newlin: I mean, it's gonna be it is what it is. Right? I mean, when it comes to price of diesel, I mean, at the, first of the year, I think farm, you know, diesel was in the 2 sixties maybe, tractors, red dye diesel. Had a call just this week. It was over $4 at one point this week, but had backed down to the $3.90.
• 13:15
  So you're looking $1.30, $1.40, $1.50 higher than what we were just a few months ago. I mean guys will have to just either cut back on maybe tillage, maybe not make that extra pass. I mean that's a possibility, but for the most part I think they're just going to contend with it and do what they typically do as far as price of diesel goes. Now the price of ammonia, I don't know, I mean it's went up quite a bit. Mean I bought my ammonia I think at $835 at the end of the year.
• 13:43
  It is over $1,000 a ton now. Think it's about a thousand $25 in some locations. I plugged that into my spreadsheet just to see, you know, how much that was going to cost me more per acre. And if I just left the amount I was going to put on the same, that raised my cost of production over $14 an acre just right there. So, you know, I think that's just going to have to be something guys contend with if they haven't bought their nitrogen.
• 14:07
  Maybe they don't side dress with UAN or liquid because it is astronomically high. It's getting to be about just shy of a dollar per pound for a pound of nitrogen. I mean those are inputs that are going to be real. Guys are going to have to think about how they're going to do it and I think that has pushed some of them, at least in certain areas, to maybe go more soybeans.
• 14:29
  Todd Gleason: So when you think about this, Seth, the numbers, the inputs, and I know that you have done this on the accounting side, you still do it with your clientele today, what do you tell them?
• 14:39
  Seth Vander Weide: I try to usually base everything off that I work with my clients with is just what are your costs and what do you need on your farm to live? What do you need on your farm to make payments? And we go from there. So what do we talk about in these conversations? Making sure we're selling into these rallies and any old crop that we do have left.
• 15:03
  We had actually, priorly, talked about already locking in some diesel fuel costs. So hopefully, had some of those locked in ahead of time. And a big chunk of my clients, we did have some of that locked in. And then, you know, moving forward, kind of having these conversations a little bit like Greg was talking about here, just talking to them about these prices, new crop prices are moving higher, and we should look at maybe putting some floors in for some new crop as well. Just like to add, I guess, one thing to just thinking about this bigger picture is, and what I've been talking with my clients about some of these issues right now is just with the higher oil price due to Iran.
• 15:49
  Like Greg was talking about, the Bloomberg Commodity Index is up about 24% year to date when I looked at it yesterday. The subdivision of that, the ag division, is about 5% to 6%. So what I've been having conversations about is, all right, so some of this, the funds are adding positions into these grain markets right now. A lot of that has to do with oil. And it's due to the grain markets are relatively cheap comparison to oil.
• 16:16
  So I think the speculators and the funds are adding into the grains due to the relatively cheapness comparison to the rest of the commodity index that encapsulates oil, metals, and everything. The ag sector ag subdivision of that's cheap relative to the whole commodity sector. So and I think we're seeing some that drive up some of the grain prices. So
• 16:38
  Todd Gleason: Certainly, the funds had been piling into the marketplace. They can get spooked really quickly too, Greg, like they did on Monday. Couple of things happening there. One of them was the president saying, hey. I may not meet with, president Xi right away.
• 16:55
  We might have to hold that off for a month or so because of the Iran war. That spook them among other things, and that caused a big drop in the marketplace. The puns do play, though, Greg, in this marketplace. How do you see them moving into the markets going forward?
• 17:12
  Greg Johnson: Yeah. I I I think they're looking at the same headlines that that farmers are looking at, and they're placing their bets accordingly. The thing to keep in mind is the funds probably are the second longest that they've ever been, ever. You know, maybe third, but I think it might be the second longest that they've ever been. And that's fine.
• 17:33
  That's not to say they can't buy even more. If oil prices go above 120, for example, they'll probably add to their long position. But Monday was a perfect reminder that no matter how fast it goes up, seems like it can go down even faster. And, you know, it's almost impossible to try to pick the high of the market. So I try to encourage farmers to lock in profits.
• 17:56
  The February crop insurance average on beans was $11.09 We're in that $11.5 range right now, so we're above the crop insurance average on both corn and soybeans. And I just think there's a lot more potential downside than upside on soybeans. We know Brazil planted a big crop and they're two thirds harvested. We know we're going to plant more beans. The uncertainty about China on the demand side, I think that's the biggest question when it comes to soybeans is what kind of a demand number do you plug in for soybeans?
• 18:30
  With corn, I think you can plug in 16,000,000,000 bushels pretty easily. I don't think it's going to vary much from that. The uncertainty on the corn is the supply side. How many acres are we going to plant? Are farmers going to cut back on inputs?
• 18:43
  We haven't even talked about the weather yet. So, on on corn, the uncertainty comes on the supply side but on soybeans, the uncertainty comes on the demand side and unless you've got a hotline to President Xi, I guess I don't think anybody knows whether China's going to buy that extra those extra bushels or not or how that's all going to play out. So since we don't know, I think we go back to locking in profits. And if you can lock in a profit on soybeans, when I think there's more downside than upside, that's probably a good thing to do. I'm not ready to say that on corn yet.
• 19:18
  I think there's enough uncertainties in corn that we want to get some bushels sold, but I'm not willing to say get it all sold or get a big chunk of it sold because, you know, there there's just so many uncertainties on that supply side that I think the price will hang in there for a little bit longer than it will for soybeans.
• 19:34
  Todd Gleason: Then turn your attention, Sherman, to that prospective plantings report that's due out March 31. I think that's a Tuesday. Not next Tuesday, but the following one. We've heard some numbers. What are you using?
• 19:48
  Sherman Newlin: Well, we officially haven't come out with our numbers yet. We're working on them right now. But I think, you know, I think the 94 corn, you know, or 5,000,000 lower on corn, maybe four and a half million higher on soybeans is kind of where we're going to be looking at to start with, the way things are looking. But you're talking about the funds a second ago, Todd, I mean they added a lot of corn length last week when the COT number came out. So that was pretty shocking and the market didn't move that much.
• 20:20
  But I think now you're looking at a market with a higher energy prices. You're looking at inflation. I think you're seeing some money flow come out of the equity markets and metals markets. We've had a big run up in these metals. Now they're really having a big sell off.
• 20:39
  But I think funds are looking at corn and soybeans and Ag commodities in general right now as a place to put some money and the commitment of traders reports are kind of reflecting that as well. So I do think we have some more upside in these markets, but time will tell. I kind of agree with Greg on the soybean side of things. No guarantee on how many more beans China will buy, if any, but they could come in and buy some corn. And I think the trade is starting to maybe sniff that out as well because that's kind of what they said out of the meetings coming out of Paris last week, that they could buy some other ag commodities.
• 21:19
  So we're looking at thinking maybe they could add to their corn, you know, buy some corn, maybe not buy near as many beans, but we don't think maybe they're quite done buying things. So we think we have some more upside, But I, you know, agree. I think, you know, you got to start taking a look at some of these new crop soybeans up and take a look at making some sort of sales one way or the other where it's cash or using some put spreads or something.
• 21:44
  Todd Gleason: I would like, Seth, to talk a little bit about a different commodity, wheat in particular, how you view that commodity, the problems that are happening in Nebraska, Kansas, Oklahoma, what that might mean for the wheat market in The United States, then, of course, the fundamentals globally and how that might cap if it does. I don't know whether you think that's the case or not. Any particular movements in both, the the feed grains, wheat and corn?
• 22:15
  Seth Vander Weide: Wheat's been on a real tear here lately. A lot of that has to do with the weather. You know, we're coming from a deep freeze. It's been real dry. Now it's gonna get real hot.
• 22:24
  Don't really know what the status of this winter wheat is going to be. Plus then you get a lot of the global pressure from war with, you know, it's a hard one to judge what it's going to do from here, in my opinion. But it does feel like it has it's been really resilient. But I think a lot of it is more weather driven right now in the short term, pairing that with, what's going on globally as well.
• 22:55
  Todd Gleason: Greg Johnson, I will turn to you because, you do have a lot of experience within the wheat market, soft red in particular, and this is different this time around than, for instance, when Russia first invaded Ukraine and we had a huge spike up led by wheat because Russia and Ukraine are the place from the Black Sea area that production happens. We are in The Middle East this time around, and there is very little production that take place takes place there. They a lot of usage that that supply coming in. What difference does that make this time around for how you view, the impact of war?
• 23:37
  Greg Johnson: You you hit it right on the head. There's not a lot of wheat grown in The Middle East. So wars and disrupts supply chains disruptions don't affect the price of wheat near as much. I mean, it's a food commodity. And we're not affecting the supply side of that equation.
• 23:54
  Maybe we're affecting the demand side as people want to get a little bit, some of those countries want to get a little bit stored up just in case. But you have to remember, we've rallied almost $1 wheat to $6.2 on the board. And that's getting pretty close for farmers to be able to get $6 cash for their wheat. And I think a lot of farmers are gonna take advantage of $6 cash wheat if they get the opportunity.
• 24:17
  Todd Gleason: I wanna switch topics to next Friday, March 27 event in Washington DC. The president has invited farmers and farm organizations there to celebrate 250 of The United States. There is some expectation that there may or may not be, I suppose, policy announcements. It would seem unlikely, I think, Sherman, that there would be an e 15 policy announcement because that's in the hands of a congressional committee. But there's a lot of thought there could be an RVO policy announcement.
• 24:55
  That would seem to be a soybean thing this time around rather than a corn thing, but you tell me about that. It's it's mostly about renewable diesel, because ethanol itself is it's gonna be 10%, of whatever we use, plus whatever exports. But the RVO for, the other products, particularly the biomass based products like soy soybean diesel, renewable diesel could be there. Do you think an announcement will come?
• 25:28
  Sherman Newlin: I don't know. I mean, the trade sure thinks that it is at certain times. I'm afraid if there is an announcement, it's not going to be what the trade is hoping for because we seem like we have been disappointed on these so called announcements that we are supposed to be expecting to come and it is not what we were hoping for. And if it is, it is probably something we already have talked about and the bigger thing on the RVO will be what will they make the refiners continue to use, take and blend the blending part of it from 50% to 75% rate I think is kind of what's hopeful. I don't know.
• 26:12
  Honestly, I'll be shocked if we see something market bullish that's bullish from this announcement next Friday, honestly. And like you said, some are thinking, we talked about it today at our meeting, but some are thinking there could be something announced about E15, but again I don't expect that. That would be helpful for the corn market if it did, But that just seems to be a very big hurdle that Congress and EPA just can't get over.
• 26:42
  Todd Gleason: Let's turn our attention to your final thoughts for the day. I think Greg Johnson from TTM. I'll start with you. What's your final thought?
• 26:51
  Greg Johnson: Well, there's so much uncertainty in this marketplace. So I caution farmers not to get caught up in the day to day. Corn's up $0.10 today, beans are down $0.20 tomorrow. We have to focus on the big picture, and if we can make money, we need to lock in some prices. One thing to keep in mind, Allendale did a survey this week and they said that 70% of the farmers have got their old crop corn sold, or got 70% of their old crop corn sold, and 90% of the beans.
• 27:22
  But on new crop, farmers are only 9% sold on new crop corn and only 11% sold on new crop beans. Now that doesn't mean it can't go higher, but that does mean that there's a lot of bushels that farmers will sell into this market on any continued rally. So kind of keep that in the back of your mind that there's still a lot of selling that can happen. The funds are already long, a big chunk of beans, long a little bit of corn, but longer percentage wise on beans. So there's a lot of bullish news, good news already factored in.
• 27:55
  Still a lot of unknowns on the corn. I think that supports the corn price, but this might be an opportunity to get some soybean sales put on the books.
• 28:04
  Todd Gleason: Sherman Nuland, your final word?
• 28:06
  Sherman Newlin: Yeah, I mean I agree. I mean a lot of farmers have sold quite a bit of crop, but there's, you know, some still out there to be sold. I do think you need to use these, you know, rallies to be selling especially some old crop as we go up. Now we have been long corn calls for quite some time for guys for re ownership, and I think that's still warranted. But when you look at the COT report from last week, they went long corn 01/8000 contracts.
• 28:35
  I mean, I think the record was over 400 at one point in time. So there's still room for them to continue to buy corn if they want. But I mean you're looking at new crop corn at $4.94 and it's over $5 for March 27. I think those need you to be taking a look at to do a little bit if you haven't done anything. And hopefully it's your worst sale and the market goes up.
• 28:59
  We, you know, but on beans I'm a little bit more I want to get a little bit more done on the bean side, especially as we get into the March because we could see it, you know, that jump in acreage as well. So I'd like to, you know, be sold at least by 30% or more before we get to the field on soybeans.
• 29:19
  Todd Gleason: And finally, Seth Vanderweide, your final thought for the day.
• 29:23
  Seth Vander Weide: Yeah, kind of echoing with these guys. What Sherman and Greg have already said, risk does happen fast and you kind of have to be prepared for it. So having your breakevens, having knowing your cost of production ahead of time to make wise decisions. And I tend to agree with their assessment just when it comes to soybeans. We've broke through the initial range that we were last week's high.
• 29:43
  We're running up to that range. So we're in a higher we're at an elevated level right now. And you got to reward these markets when we have these positive moves up in these markets. Same thing that goes for corn. You know, we're I think we closed today as 4 or 5¢ off last week's high, so we've retraced kind of our move from Monday.
• 30:03
  We're on these positive levels. If you're profitable, I mean, don't be afraid to make sales.
• 30:08
  Todd Gleason: Commodity Week, of course, is a production of Illinois Public Media. You may find and listen to the whole of the program anytime you'd like. You can do that at willag.org. Our thanks go to our panelists this week, including Seth Vanderweiting. He's at Logic Ag Marketing out of Alton, Iowa.
• 30:25
  Sherman Newlin is here from Risk Management Commodity in Hudsonville, Illinois, and we're joined by Greg Johnson as well from TTM. That's Total Grain Marketing in Champaign, Illinois. I'm Yoavai Extensions, Todd Gleason.