Latest / Professional Ag Marketing Podcast / Protecting 2023 Row Crop Margins

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Protecting 2023 Row Crop Margins · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg 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.
• 0:24
  SPEAKER_00: Today is September 2nd.
• 0:25
  SPEAKER_00: I've got Jordan with us here today from ProAg.
• 0:28
  SPEAKER_00: How's it going?
• 0:28
  SPEAKER_01: Good.
• 0:29
  SPEAKER_01: How are you, Mike?
• 0:30
  SPEAKER_00: Oh, we're doing pretty good.
• 0:31
  SPEAKER_00: We've got a long weekend here ahead of us.
• 0:34
  SPEAKER_00: So uh we're gonna talk a little bit about what happened this last week.
• 0:37
  SPEAKER_00: We're gonna talk about locking in some margin on 2023 and mainly gonna have a grain talk today.
• 0:43
  SPEAKER_00: How's that sound?
• 0:44
  SPEAKER_01: That sounds good, yeah.
• 0:45
  SPEAKER_01: With uh silage uh starting here this weekend, it's uh that time of year, isn't it?
• 0:50
  SPEAKER_00: Yeah, silage kicking off uh a little bit ahead of schedule compared to what we were expecting a couple weeks ago, I would say.
• 0:57
  SPEAKER_00: But uh yeah, it maybe this crop is starting to come around a little bit faster than what I gave it credit for a month or so ago with some of these hot days in September here.
• 1:06
  SPEAKER_00: Uh could see this turning a little bit harder than I was expecting.
• 1:09
  SPEAKER_01: Yeah, that's for sure.
• 1:10
  SPEAKER_01: And you know, maybe next week on this podcast we can maybe uh start talking about some yield estimates out of the field on some of these silage reports.
• 1:18
  SPEAKER_01: So it's exciting time of the year, right?
• 1:20
  SPEAKER_00: I even heard some people combining down by Lake Lincoln, Nebraska.
• 1:23
  SPEAKER_00: And yeah, I heard some I hadn't heard that one.
• 1:26
  SPEAKER_00: That was uh the first one I heard, but I would believe it with uh some of the pictures I've seen too.
• 1:31
  SPEAKER_00: So this week the grain markets here, December corn did close up just uh two cents, the November soybeans on uh on the opposite side, down 41 cents on the week here.
• 1:43
  SPEAKER_00: So a little bit of a rough week on the soybeans makes sense for the trend we've been seeing with crop tour estimates.
• 1:48
  SPEAKER_00: Stone X came out again this week with 173 on the corn, so a little bit lower than the USDA here, but in between the pro farmer numbers and uh where the USDA is at.
• 1:59
  SPEAKER_00: However, on the soybeans, they still stayed up near the USDA estimate.
• 2:03
  SPEAKER_00: There was a 51.8, I think, or seven, something like that.
• 2:06
  SPEAKER_01: Right around that 51.7, 51.8.
• 2:08
  SPEAKER_01: So I mean that kind of seems to be the trend here on these um crop tours, right?
• 2:13
  SPEAKER_01: And with this extra rainfall kind of coming here at the end of August, the bean crop is is getting a little bit bigger, isn't it?
• 2:19
  SPEAKER_00: It is.
• 2:19
  SPEAKER_00: So uh on the green side, I would say we continue to have this tail of two cities.
• 2:24
  SPEAKER_00: You see the soybean market that's got a good supply situation, wanting to pull down the corn market a little bit, like you saw, uh trading 41 cents lower last week.
• 2:33
  SPEAKER_00: The corn, a little bit better support, getting a lot of support from these uh from from ProFarmers, some of the crop tours, just lower crop uh conditions out there as they continue to slip it again this week.
• 2:46
  SPEAKER_00: Um, you know, crude oil bounced a little bit this week as well, but mainly here you're talking about uh Attila 2 cities.
• 2:55
  SPEAKER_00: And when you look at what we're gonna be worried about going forward, now we talked about it a little bit earlier this week, Jordan, but I think you're starting to show signs of this corn market kind of putting the hat on the rack here on the crop tour estimates and stuff like that and supply side and focus a little bit more about demand.
• 3:13
  SPEAKER_00: I heard a lot of people talk about demand short weakness in the corn market this week.
• 3:18
  SPEAKER_01: Yeah, it sure feels like that.
• 3:19
  SPEAKER_01: Um, you know, the dollar is back up there on highs again, um, and ethanol grind has kind of been slowing down.
• 3:27
  SPEAKER_01: I think you pointed that out earlier in the week too.
• 3:29
  SPEAKER_01: So the demand side is definitely weakening.
• 3:32
  SPEAKER_01: And, you know, I I think the farmer is starting to realize that he's probably gonna be disappointed here a little bit into harvest that you know, pro farmer out there at 168 um, you know, really got this market excited there last week.
• 3:44
  SPEAKER_01: But you know, as we head into the September WASI report and the October WASE report, it's more than likely gonna be a little bit difficult for the USDA to kind of lower yields to get them down to where Pro Farmer is.
• 3:56
  SPEAKER_01: Um, normally they deviate what a half bushel to a bushel off the August report.
• 4:02
  SPEAKER_01: So I mean if you're at a 174 by the time you get to October, I think that'd kind of be the the lowest number, right?
• 4:09
  SPEAKER_01: Exactly.
• 4:10
  SPEAKER_01: Yeah and and to go along with that, you know, these August rains, there's a lot of talk about extended grain fill.
• 4:15
  SPEAKER_01: So I mean we could be talking about adding a bushel or two back onto this crop too, with that.
• 4:20
  SPEAKER_00: Yeah.
• 4:21
  SPEAKER_00: Gas demand down to levels from 2020, so that's really slipping.
• 4:26
  SPEAKER_00: It'll be interesting to see uh how the funds treat this going forward here.
• 4:31
  SPEAKER_00: On the uh main talking point today, Jordan, I I want to talk about locking in or protecting some of the 2023 margin.
• 4:39
  SPEAKER_00: Start talking about that discussion because we have to start making decisions like uh selling 23 futures today or buying margin protection.
• 4:47
  SPEAKER_00: Um it's something we don't want to sleep on.
• 4:49
  SPEAKER_00: So I'm gonna pick your brain today on what you think the best uh route to go about a few of those things are.
• 4:55
  SPEAKER_00: And uh no one size fits all here, but we do have a lot of different options this year, I think, compared to normal, uh, because we've got such good margin in the 2023 corn crop right now, uh sitting there that it gives us a lot of flexibility, right?
• 5:10
  SPEAKER_01: Yeah, that's exactly right, and it's that time of year that we need to kind of start thinking about that.
• 5:15
  SPEAKER_01: You know, there's a lot of sales to be done on the 2022 crop, but on the 2023 crop, you know, now's the time of year where, you know, you start thinking a little bit about rents, right?
• 5:26
  SPEAKER_01: And fertilizer prices to kind of piggyback off uh your and uh Lucas discussion there last week on the podcast.
• 5:33
  SPEAKER_01: It's a lot a lot are looking at locking in fertilizer today, right?
• 5:38
  SPEAKER_01: And they're at record levels.
• 5:40
  SPEAKER_01: You know, it's been a long time since we've kind of seen these fertilizer values, the way they're where they're at, and rents are going to be more expensive.
• 5:47
  SPEAKER_01: So um, you know, from my chair, I think you gotta think long and hard about trying to protect the revenue side, right?
• 5:56
  SPEAKER_00: Which, so you're looking at a lot of levels that have you between like four fifty to cash, five dollar break-evens coming up this next year for a lot of general producers.
• 6:08
  SPEAKER_00: That would be sitting with uh, you know, around what five eighty cash price today you want to use for twenty-three with where futures are at at the close here.
• 6:18
  SPEAKER_01: Yep, that's exactly right.
• 6:20
  SPEAKER_00: So you're looking at$150 an acre.
• 6:23
  SPEAKER_01: Depending on yield.
• 6:24
  SPEAKER_00: Yeah, depending on yield with normal yield.
• 6:26
  SPEAKER_01: Yep, yep.
• 6:27
  SPEAKER_01: So one of the things that I like to talk about is, you know, as you're looking at making these um decisions with fertilizer prices being as volatile as they are, right?
• 6:36
  SPEAKER_01: And talk is that they're gonna move higher here, or at least uh, you know, the nitrogen side is over the next six months, um, we should be thinking about locking that up, right?
• 6:47
  SPEAKER_01: On the livestock side, we talk a lot about crushing livestock, right?
• 6:51
  SPEAKER_01: Um, selling hogs or cattle, buying corn and meal to protect that crush margin.
• 6:57
  SPEAKER_01: On the grain side, we should be thinking about that today too.
• 7:01
  SPEAKER_01: So we're locking in a high priced input on fertilizer and rent.
• 7:06
  SPEAKER_01: We should sell corn to offset that, right?
• 7:10
  SPEAKER_01: And we can, you know, do that a number of different ways.
• 7:12
  SPEAKER_01: We can do that with margin protection, like you've guys talked about.
• 7:15
  SPEAKER_01: We can do it, you know, buying puts and selling calls, maybe look at a six-dollar put and a seven dollar call and try to get that in to protect it, or sell futures, right?
• 7:25
  SPEAKER_01: Either way, you know, whichever way that kind of best fits your operation, I think it should be done today.
• 7:32
  SPEAKER_01: Because you are taking on a lot of risk when we're talking about these high priced inputs.
• 7:41
  SPEAKER_01: Um you know, the worst thing that could happen is you get to next fall, and uh, you know, we have a 2008 discussion all over again, right?
• 7:50
  SPEAKER_01: Where you know the market just kind of kept falling away all the way through, and yet you still had these high price inputs that you locked in the year before.
• 7:56
  SPEAKER_01: Um and today, like you mentioned, you know, you're you're locking in 150 bucks an acre profit, even with these high-priced inputs.
• 8:07
  SPEAKER_01: So, you know, that's that's one of the discussions that I think is is very important today.
• 8:11
  SPEAKER_00: And from a seasonal perspective, December 23 futures now until probably around the first of October, maybe a little bit later there, from a seasonal perspective.
• 8:21
  SPEAKER_00: This is kind of the time frame to make a decision.
• 8:24
  SPEAKER_00: Either I'm gonna sell it now or I'm gonna wait until we get to next May to sell it from a seasonal perspective.
• 8:30
  SPEAKER_00: So that helps put some things in perspective too.
• 8:33
  SPEAKER_00: Uh, you know, waiting for, well, do we take advantage of it right now, around the September time frame using something like margin, or do we want to wait until we get to uh spring time frame to lock in our our revenue aspect on crop uh insurance?
• 8:50
  SPEAKER_00: And I I would say that uh a general consensus from our group then would be uh depending on what situation you pick, right, you have to offset it with options one way or another, right?
• 9:03
  SPEAKER_00: So if you choose to wait until spring to put on crop insurance and don't do margin this fall, it it's pretty recommended right now, in our opinion, to buy put in one way or another, maybe sell a call over it, something more specific like that.
• 9:20
  SPEAKER_01: Yes, I would agree with that.
• 9:21
  SPEAKER_01: I I don't think you want to take the risk over the next five, six months of not having any pr any protection.
• 9:26
  SPEAKER_00: Do one or the other.
• 9:27
  SPEAKER_01: Do one or the other.
• 9:28
  SPEAKER_00: I mean Yeah, but don't boop don't probably do both, but do one or the other.
• 9:32
  SPEAKER_01: Correct.
• 9:32
  SPEAKER_01: And I don't I don't think you need to narrow it down that far either, you know, between margin or doing options to get you to um crop insurance into February.
• 9:43
  SPEAKER_01: We can just sell the corn too.
• 9:45
  SPEAKER_01: You know, um you know this is a this is a good price that I don't I don't think we should forget about when you're talking 620, 610 futures.
• 9:54
  SPEAKER_01: You're you're talking some very nice levels on on the grain side.
• 9:59
  SPEAKER_01: Yes, we the high has been six eighty, but six twenty is a is a very good price, so don't forget about that either.
• 10:06
  SPEAKER_00: Yeah.
• 10:07
  SPEAKER_00: Any other uh talking points you want to discuss today, Jordan, before we uh hop off.
• 10:13
  SPEAKER_01: Um so that that's kind of the the main thing that I wanted to look at today.
• 10:19
  SPEAKER_01: Um, you know, we do have a ROI sheet that we use um from time to time, so that was maybe one of the other things that I wanted to kind of mention that uh you know just kind of give us a call and we can kind of run through that.
• 10:32
  SPEAKER_01: But basically that sheet um you know just kind of um helps you, you know, organize your thoughts a little bit per se, right?
• 10:40
  SPEAKER_01: It uh you know, when you start paying for some of these inputs, um in that sheet we kind of take it from a known input or sorry, an unknown input into a known input, and that's when we should be making um some decisions on how we should protect revenue.
• 10:58
  SPEAKER_01: And I think uh with this um fertilizer discussion, I think that's a that's a good good sheet to be using for this uh discussion.
• 11:07
  SPEAKER_00: So we have this sheet available to anyone who wants to use it.
• 11:10
  SPEAKER_00: Please uh take a look at our grain recommendation this week.
• 11:13
  SPEAKER_00: If you want to get thrown on that, please give us an email and we could get you some of those slides as well.
• 11:19
  SPEAKER_00: Uh please reach out if you have any questions about the sheet or how to use it.
• 11:23
  SPEAKER_00: Uh, we would be interested to hear uh what you've got to say about it as well.
• 11:27
  SPEAKER_00: Thank you, Jordan, for coming on the show today, and uh we'll catch you next time.
• 11:31
  SPEAKER_00: Thanks, Mike.
• 11:32
  SPEAKER_00: And thank you to all our listeners.
• 11:34
  SPEAKER_00: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 11:46
  SPEAKER_00: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.