Latest / Commodity Week / Jul 30 | Commodity Week

Transcript

Jul 30 | Commodity Week · Commodity Week

• cw260730 The July 30 edition of Commodity Week features agricultural market analysis from panelists Matt Bennett, Chip Nellinger, and Jason Winter. The discussion centers on the immediate threat of severe heat and dry weather to crop yields in the Dakotas, alongside a sustained regional shift from wheat to corn and soybean acreage. Jason Winter highlights strong ongoing corn demand from the Pacific Northwest and intensified local soybean competition driven by newly constructed processing plants in North Dakota. The analysts concur that while short-term market movements will be dictated by impending weather forecasts, long-term prices will likely remain supported by shrinking global stocks and robust domestic demand. Additionally, geopolitical conflicts in the Black Sea and Middle East are identified as key drivers sustaining elevated energy and fertilizer costs. Consequently, the panel recommends that producers leverage on-farm storage to maintain long-term crop ownership while pragmatically pricing essential harvest sales. Panelists - Matt Bennett, AgMarket.net - Chip Nellinger, Blue Reef Agri-Marketing - Jason Winter, Columbia Grain International --- Announce: This is the July 30 edition of Commodity Week. Todd Gleason 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 Matt Bennett; he’s at AgMarket.net out of Windsor, Illinois. Chip Nellinger is here from Blue Reef Agri-Marketing in Morton, Illinois, and Jason Winter, our special guest today. He’s from Columbia Grain International in Valley City, North Dakota. That’s about 60 to 65 miles due west of Fargo on Interstate 94. Thank you all for being with us. 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. Now Jason, this is not the first time you have been on Commodity Week. It’s been a few years now, but I do want to ask you about the facility that you work in and at Columbia Grain International. Can you tell me a bit about it, where it’s located, and primarily what the operation is like? Jason Winter: Yes, like you mentioned, we’re about 60 miles straight west of Fargo on 94. I work at the Valley City location, but we do have two other grain elevators in this area: one in Jamestown and one in Rogers. We have about nine elevators mostly in central to eastern North Dakota, from here up towards the Canadian border. We have about 14 locations in Montana which do a lot of wheat and edible pulses. Actually, in Valley City here, the last year or two, we have a new edible bean facility. We handle edible beans from here in this area, and they bring down edible beans from the Grand Forks area where they’ve got a couple other plants. Primarily what I do is in origination, buying, and merchandising for the Valley City location. We have been primarily corn and soybeans the last few years. The wheat acres continue to go down, but we still do see some wheat throughout the year in this area. As I said, the acres have been going down the last year or two, and this year with all the heat we’ve had, we’re just starting to see some samples come in. We haven’t dumped any loads yet, but just talking to farmers, it sounds like our wheat yields are going to be down quite a bit from the last year or two where we’ve been in the 70s, and now we’re looking maybe more like 45 to 50, and a lot higher protein. So it’s going to be interesting to see what this wheat crop looks like, and it probably gives us a good indication of what corn and beans will be like as well going forward. Todd Gleason: I want to come back to that in just a moment, but I do want to understand some more about the facility. If you take a look at it on Google Maps, there are two grain elevators there located directly next to each other, both with their own rail spurs, and there are three lines on each of those spurs. Where do you ship to? Jason Winter: We primarily ship out west. We continue to handle more corn every year. Acres have been going up; last year acres were up quite significantly, and this year I don’t think we lost any corn acres. I think we actually gained some. But most of the corn that we handle out of this facility and out of the Jamestown and Rogers facilities go West Coast to the PNW. There’s been a strong market out there really since last winter and spring. We continue to see good demand on corn going to the PNW, and of course that goes over into the Asian countries like South Korea and others over there. As for soybeans, we used to handle a lot more soybeans on shuttle trains going West Coast, and of course, those were always going mostly to China. But within the last couple of years, we’ve had two soybean plants built: one in Casselton, Green Bison, and the other one over by Jamestown, North Dakota Soybean Processors. Now it’s always kind of a battle at harvest to try to get in between and try to still handle as many beans as we can. Like most people have talked over the last year, soybean demand to China wasn’t as significant as it’s been in other years, but right now this year it looks like we’ve got some good sales into China, and we’ve been selling shuttles of soybeans to the PNW this year. Todd Gleason: Matt, do you have questions given the background that he’s given you and things that you might be thinking about as it’s related to that facility or to the broader commodities in general for Jason? Matt Bennett: Yeah, a couple of things come to mind. First of all, what are you posting for basis? We know basis has been kind of a problem. How much corn are you holding onto right now? Because clearly, we’re hearing a lot about, especially in North and South Dakota, that their basis is wide. The other thing is we have an office up in Almont, North Dakota, and I know that the crop in their area looks rough. You alluded to that a little bit. How bad do you think the crop has been hurt so far? If the weather does change and you do get this abatement in temperatures, what kind of potential do you think that you’re going to have if Mother Nature finally decides to cooperate? Jason Winter: So the first question on the basis, currently we’re posted at 55 under, and like I said, we’re still selling late summer trains to the PNW and making that all work. To back up, there was a lot of good corn production. Like I mentioned, we had a lot more acres this year, and the yield last year in North Dakota was 158 versus 149 the year previous. We did have a lot of corn acres, but between the ethanol plants that we have on both sides of us and the ethanol plants in South Dakota, our basis was a lot wider earlier. I think we’re at a more typical, more normal basis now, but a lot of the ethanol plants in the area were big buyers earlier on and got filled up on that first initial rally that we had back in March, April, and May. Whatever corn is left out there, we’ve been working on getting those bushels into the elevator and moving them onto trains going West Coast. As far as the crop goes, that’s going to be the interesting factor going forward here. We had about five or six inches of rain since May 1st, but the last significant rain we had in this Fargo to Valley City area was an inch back on July 9th. We’ve had almost 16 days of 90-degree weather. I think we’re second or third now for that many days in July, so this heat is really going to start to take a toll on these crops. They’ve been holding on actually quite well, but I know chances of rain here the next day and maybe on Monday—anybody could use these million-dollar rains if somebody can get anything significant now. Todd Gleason: Chip, do you have questions that you want to ask of Jason or shall we move on? Chip Nellinger: Matt stole my thunder a little bit there. Obviously, in the middle of a weather market here, I was interested in what the crop looks like out that way. You also alluded to this kind of emerging biodiesel, renewable diesel demand. How do you see that going forward? Is that going to be something that really tightens up basis longer term, especially with China now back in the game and beans going out the Pacific Northwest? Jason Winter: With both of these, we saw it with the ethanol plants first, back however many years ago when they started to pop up in the Dakotas and western Minnesota, how that helped our corn basis back then. With both these two bean plants chasing after bushels that usually went to the PNW and over to China for how many years now—with both these two plants, and with crush margins especially good, they are just buying any beans that they can get their hands on. So it’s tough from an elevator standpoint, and Columbia Grain, to try to stay in the middle of some of these bushels, especially this time of year when supplies are getting tight. They were wide last fall with most of the markets, but they were the first ones to kind of firm in into the new year. Recently, they’ve been optioned to pay an over to try to continue to buy beans to get to harvest, basically. Todd Gleason: If I remember correctly, the Casselton plant may be relatively new. I don’t know about the Jamestown one, but both of them have come online, much like the build-out of ethanol in that northwestern part of the United States, which began a whole new demand area for you. Are there more processing plants, more capacity coming online in your area or in North Dakota that are notable? Jason Winter: I know there is one up towards Grand Forks. I haven’t heard much recently on it, but I know there was a possibility of maybe a bean plant going in up that direction. I don’t think it was supposed to be as big as either of these two plants. Both these two plants crush close to 120,000 a day, I believe. They were both built within the last two or three years. Todd Gleason: And so when we started this conversation, you alluded to the fact that you were mostly bringing corn into the elevator now. That had to do with the two soybean processing plants, one to your east, one to your west. Has the acreage changed for those crops? Maybe both soybeans and corn have gone up and wheat has gone down? Jason Winter: This just didn’t happen overnight. It’s been happening over the last 5, 10, 15 years where this area used to be a lot of wheat and then some beans, and eventually with corn moving in, corn acres just continue to grow really across North Dakota. It’s been established here for quite a few years now. Corn and soybeans are up, and the wheat acres continue to go backwards. Last year and this year we’ve actually seen some more canola acres come in, just because on some of this not-so-good ground, they’ve struggled to get really decent soybean yields. They’ve tried canola, and that seemed to turn out last year, but this year might be a different story with the heat. We’ll just have to wait; time will tell on that. But the corn acres in North Dakota have just continued to move north and west really the last five years. Todd Gleason: Is your estimate that there is a great deal of corn still in storage on the farm in North Dakota? Jason Winter: I think there’s some yet, but I think a lot of what might still be out there might be already sold to ethanol plants or other elevators. I think we’re getting down to bin bottoms and some bins that are swept out. So I’m not sure there’s as much left in ending stocks than what the government’s already showing. Todd Gleason: Okay, let’s turn our attention to the marketplace directly. Chip Nellinger, I think I’ll start with you. When you think about what’s happened over the last week in the commodity markets, what is top of mind for you? Chip Nellinger: I think two things. You said top of mind, inferring one thing, but obviously the weather is very uncertain right now. Some pockets of dry weather; it’s not ideal anywhere. It looks a little varied from good, to as good as last year, to half a crop compared to a year ago, and everything in between. This weather is the big question and going to be the immediate direction the market takes depending on how these rains are the next 36 hours and the extended forecast. I think demand takes a back seat. I think that’s something that’s totally different than maybe what we’ve seen the last two or three years. So even with big crops out here, it doesn’t mean we can’t go lower into harvest, but I think we maintain a higher level just because world stocks are shrinking. Demand is so good on corn and beans both that I just think there will be a good commercial appetite under this, keeping us maybe higher than what people expect at fall. But certainly in the short run, the top of the list is the weather and what happens with rainfall over the next three days. Todd Gleason: And Matt, is that the same for you, is it all about the weather now, or are there other factors that you really have to worry about? Matt Bennett: There’s no doubt there’s a lot about the weather. Obviously, you came in today and wheat markets skyrocketed on what’s going on in the Black Sea, and it lent a little support, but you see corn settle six and a half, seven cents off the highs. A lot of that is due to that wheat market kind of leaking off. But I’m with Chip here. If we do get decent weather to finish this crop out—and maybe not everyone does well, but if you get a good system that comes through—I just struggle to think that the market will rally much heading into harvest. But the one thing I’ve continued to say is that the story is far from over. When I look at the corn market, you got record world demand, record U.S. demand. Stocks to use on a world basis is the lowest we’ve seen since 2013. That works good until it doesn’t. At some point if you do have a massive issue, and you can’t discount what a typical El Niño does to Brazil’s growing season—they’re usually dry in the northern half of their growing region. With this being a super El Niño, there’s no doubt that there is some risk here to world production. I just feel like storage is going to pay some dividends for those growers that have it. On the bean side of things, this domestic demand has just been flat-out fantastic. Chip talked a little bit before about China back in the market. If they actually do buy 25 million tons of beans, we really need to see this 53-bushel yield come to pass. I think anything much below that, and you’re going to see a very well-supported market. Weather over the next three to four weeks is going to be super important. Todd Gleason: Jason, because you do ship to the PNW, has corn demand really been good this year for your facility? Jason Winter: Yes, like I said, we’ve shipped a lot of shuttles on mostly BNSF, but we’ve got a couple CP locations as well. The demand for corn has actually been pretty strong all the way since last January. We’ve seen good corn demand going out to the West Coast and into that Asian realm for almost a year and a half now, and it looks like it just continues to roll forward. New crop bids really haven’t stepped up, but we’ve still been selling some old crop trains. Versus last year where we didn’t have much of a soybean program at all, I think it’s probably a question mark on what China really bought off either the Gulf or the PNW, but for surely they’re buying something and there’s bids, which is very encouraging to both the elevator and to the farmer in the area. Todd Gleason: Chip, I want to turn your attention back to the Black Sea, the Middle East, the issues that are happening there, particularly related to the price of crude oil, soybeans, and corn. What did you think of the current price jump in the crude oil market and the lack of the ability of grains to follow in the last couple of days? Chip Nellinger: I think it depends on the forecast. The forecast and the weather in the short run have kind of pushed and pulled this market. Longer term, it’s getting unfortunately a little more apparent each day that this Strait of Hormuz issue is going to be here for a while. Inventory of crude oil in many areas of the world is kind of scraping bottom right now. To me, that means crude oil and other energy prices are going to stay relatively elevated here. Eighty dollars is all you need. Hopefully, we don’t see 95, 100, 110, but if we stay at $80 for an extended period of time, I think that just continues to breathe life into profitability on ethanol and renewable diesel, maybe some inflation talk again. That area—the Middle East, the Black Sea—is definitely something that is probably longer-term supportive rather than negative at this point in time, just due to the fact that both of those regions look to stay in flux and in tension for longer. Todd Gleason: Matt, I want you to put your farmer hat on just for a second. Think about your MAP and DAP or your dry fertilizer that you might normally put on in the fall. How worried are you about phosphate, and how much do you believe that producers will cut back? Matt Bennett: I’ve actually talked with Josh about this, Todd, and he came on and did a webinar with us not too long ago. Some of your nitrogen sources certainly backed off there for a little bit. Urea—India came in and bought I believe 1.7 million tons of urea yesterday, which is probably not going to do anything to help us on urea prices. The combination of N, P, and K, whenever you’re looking for instance at December ’27 corn trading just a shade under 4.90, you throw all your costs in there. A lot of folks in this part of the world are 250, 250 DAP and potash mix. So I think that that’s not going to happen once again this fall. I know a lot of growers backed off a little bit last year. After ’21 and ’22, I do believe a lot of growers did not only a maintenance program but a buildup program, which was good. You get in here to a year like this, you’ve had three straight tough years, if a producer didn’t get much sold, I think they’re very concerned about what their profit margins are going to be like. There’s still just not a ton of meat on the bone if you didn’t raise a big crop. How concerned am I about DAP prices? Yes, it’s concerning, I think it’s going to affect what producers do as far as their application rates. I think a couple of things are going to happen when you get into prepay time frame: a lot of the ag chem retailers are going to report that once again their volumes are off. We dropped three and a half million acres of corn this year. What’s the incentive of the grower going to be to go back to 97 or 98 million acres of corn if we don’t see a little more of a rally here versus what our input costs are? December ’27 corn needs to see some appreciation if you’re going to get the kind of acres we’re going to need given what demand we’ve got right now. Todd Gleason: Yes, producers in that northwestern part of the Corn Belt will be under a lot of pressure because they don’t use anhydrous ammonia; they are urea users. That’s the one that will be in short supply across the whole of the planet because much of it does come out of the Mid East and has to travel through the Strait of Hormuz. Now let’s talk about what producers should do with their marketing plans. Chip, have you changed how you’re considering the second half of this calendar year at least, and what producers should do with their marketing plans after the rally that we did have and now looking forward into the fall? Chip Nellinger: Yes, Todd, we’ve changed a little bit just from the standpoint that with world stocks shrinking like we talked about earlier, even trendline yields are going to be met with good demand after harvest. I think you’ve got to break it down into two things: bushels that need a home and you don’t have storage for at fall, that probably bears some sort of action, whether that’s selling or buying some puts. If you’ve got storage and can hold this crop longer term, I think storage will pay. On-farm storage is supposed to be meant to capture better basis, but we want some ownership longer term just for everything we’ve talked about: the Black Sea, the Middle East, we were talking about DAP and MAP and nitrogen prices, and probably the biggest wildcard isn’t North America, it’s Brazil. There’s just so many things lined up. We think that ownership longer term, whether it’s physical or on paper, out into winter, next spring, and early summer, will pay good dividends. Todd Gleason: Matt Bennett, your thoughts going forward? Matt Bennett: I hate to say this, but I can’t disagree with anything Chip just said there. Yes, we’re a big fan of using your storage at home there. I gotta think that corn’s going to be a really good property on down the road. World stocks are one thing, but U.S. stocks clearly are going to take a pretty big hit this year simply due to how many acres we dropped. As far as what you do right now though, I couldn’t agree with Chip more. We need to be making some decisions here soon for those bushels going across the scale. Commercial storage is not cheap by any stretch of the imagination, so it depends on what the grower needs for finances during the harvest, but I would certainly be making some decisions here pretty quick and probably getting some of this corn priced, getting some worst-case scenarios locked in. If you want to have ownership on some of those bushels, I do think over the next six, eight weeks you’ll probably have an opportunity maybe to get some cheap call coverage. Todd Gleason: And finally, Jason Winter at Columbia Grain International. What are you telling producers today? Jason Winter: Yes, continue to watch your cash markets, a.k.a. your basis. We have quite a few producers already that work with marketing firms; continue to work with them on getting a plan for harvest. If you need one, search one out and find one that works for you. Along with buying grain at the elevator here from farmers and producers, Columbia Grain does also offer what we call Columbia Grain Producer Solutions, which is another marketing alternative for those that are interested, and that basically uses options and derivatives to help manage risk on corn, soybeans, and wheat. Todd Gleason: I know that Matt and Chip would both be available if folks are looking for some place that they would like to have a marketing plan put together. I thank all of you for joining us today. I do appreciate that. Is there a final word that each of you would like to talk about for the day, and maybe it might be on soybeans because we mostly took up corn in that last segment. I’ll start, Matt, with you. Matt Bennett: Ultimately, Todd, I think this is an important time frame. We know weather can cause some very big, volatile changes in the market, and so if you’re a grower that has bushels that gotta go, whether it’s corn or soybeans, we got to be making a decision soon. As far as soybeans go, demand has just been phenomenal. They’ve been super resilient. Yes, it’s not been a great week for beans, but if most growers would have known a year ago they were going to be looking at pushing $12 beans still at this time frame with more acres this year, I think they would have thought you were nuts. We do have some blessings even though it’s been a rough week. Todd Gleason: Chip Nellinger of Blue Reef Agri-Marketing? Chip Nellinger: Beans to me, Todd, I’m scary bullish on them, and I’m not sure that’s saying much. Maybe you should do the opposite of me because I’ve been bearish for three years. They haven’t gone as low as what I would have thought with the massive crops out of Brazil. If we would happen to end up just marginally below trendline with the demand that we have, all these issues that we’ve talked about—the Black Sea, the Middle East, the Strait of Hormuz, the super El Niño—it could be scary what beans could do down the road here. Doesn’t mean we can’t go a dollar lower in the short run, but of any market out there, I think beans potentially have the puzzle pieces lined up. Todd Gleason: And Jason Winter, I’ll leave the final word for you. Anything on soybeans? Jason Winter: On soybeans, just you know, last year our corn crop was awesome but our bean crop was just so-so. This year we’re looking at another so-so crop here, especially if we don’t get these rains like they’re talking up for us. Going forward on beans, it’s going to continue to be interesting to see the battle between China’s demand and the PNW, and both these bean plants if we end up with a so-so bean crop again. Todd Gleason: Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world. You may hear the whole of the program anytime you’d like on our website at willag.org or search it out by name, Commodity Week, in your favorite podcast applications, including Apple, Spotify, and YouTube. Thanks go to our panelists this week, including Jason Winter; he’s at Columbia Grain International out of Valley City, North Dakota, along with Matt Bennett of AgMarket.net in Windsor, Illinois, and Chip Nellinger of Blue Reef Agri-Marketing; he is in Morton, Illinois. I’m University of Illinois Extension’s Todd Gleason.