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2025 ADAO | Grain Market Fundamentals · Closing Market Report

• 0:00
  Todd Gleason: University of Illinois agricultural economist Joe Janzen made the following presentation 03/04/2025 at the Beef House in Covington, Indiana during the all day ag outlook.
• 0:11
  Joe Janzen: I'm gonna just sort of talk through the situation as it stands where we're at. I think the watch word, of the day would be uncertainty. I think a lot of people have sort of heard that word sort of thrown around a lot. There are these like market sentiment or consumer sentiment indices you'll hear about these. These kind of always make news when they get released.
• 0:33
  Basically, what they do is they ask, you know, sort of what what is your opinion on the current situation in business or employment or sort of consumer spend you know, your own spending, your own sort of personal financial situation. And it's usually sort of like they ask a person, they say, is it positive, neutral, or negative? And, you know, people weigh in and we aggregate that across lots and lots of people and we kinda get a sense of, you know, sort of how are people feeling about the economy. A lot of you may have seen Purdue does something very similar for ag, the folks over in Purdue AgEcon, which is a useful and interesting thing I kind of I look at it, I don't know what what it really means. Eight years ago, it spiked in November of twenty sixteen.
• 1:20
  It did that again last November. And we'll I've I'm very interested to sort of see where we go with that sort of idea of, like, sentiment. But I think there's a sort of a sense in which, like, a lot of our ag economy is kind of, you know, driven by sort of sentiment and vibes, at the moment. And I think, hopefully, we wanna put some something a little more solid, some some more meat on those bones. So, I'm gonna talk a little bit just sort of about where we how we've got here in terms of price history, talk about sort of like, we sort of think about both on the supply side, what does production look like next year and how do how does sort of how does production news play into, the market situation that we're going to see.
• 2:03
  And then I think the the a lot of uncertainty also on the usage side and sort of how do we use up the crops that we grow. I imagine I mean, we we saw USDA put out their Aga look for numbers. Now, for for next year, last week, and, I mean, we are going to plant a corn and soybean crop in this country. What how are we gonna use that all up? And then we'll sort of think about, what sort of other stuff might be sort of on the horizon.
• 2:30
  And then I think ultimately, the the last part of it is sort of how do we react to or sort of, you know, the fact that none of us really has control over where where markets will go. But we all know that those prices, those two numbers, the price of corn and the price of beans, really affect the bottom lines, of many people, in this part of the world. And we really wanna understand, sort of, okay, how do we react to it? What sort of, how do we sort of market grain in the current marketing environment? So I'll start just through thinking about a little bit of price history.
• 3:01
  You know, obviously, last spring, prices fell, into the into the summer, with sort of a few things. I think one being sort of, just there was, you know, adequate grain supply in the world broadly speaking. Maybe it's a US crop, maybe sort of slightly, you know, kind of came in. We thought we had sort of maybe an a trend line yield crop and we may became in slightly below that. But, given the world supply situation, there is there was plenty of of corn and beans around.
• 3:34
  That put us into what I think of is kind of like the long run low ish price levels that we should see when the market is adequately supplied. So that's something like low $4 corn and approximately $10 beans. That's where we were And then we really saw strength particularly in corn demand, through through the through the fall and even into even into January, really strong corn export demand, that really created some marketing opportunities for corn. I think we've moved a lot of that old crop corn. Hopefully, we started to think about marketing new crop, and that's one sort of thing I'll say is the one thing that we can do in the current marketing environment when marketing is particularly challenging is just is just stretch that marketing window as wide as possible and take advantage of all the opportunities that we have to sell grain.
• 4:28
  But there was really strong corn demand and where did that corn demand come from? That was really a Latin American story, and we know that in the last month or two there have been sort of particular challenges with our relationships with trading partners in Latin America. So our two two of our biggest corn buyers, the biggest by far is Mexico. They have been buying aggressively buying US corn this year. We've seen really strong export numbers, and and that's sort of, I think, the big reason why we saw corn kinda get to close to sort of $5 on the board and kind of be there, and hang in in a bunch of in spite of a whole bunch of sort of negative news, the speculation of a trade war, etcetera.
• 5:12
  We got there because of, you know, really strong demand for for exports from our, trading partners in in Latin America. The other thing that we've seen, I think, sort of so in terms of that, that's the price level story. Obviously, the last two weeks, in the corner market have sort of turned that all around, and, we can we'll we'll talk sort of broadly speaking about where do we go, but obviously, a lot a a really strong downward move, in corn prices, the shine is sort of off, in in the corn market. The bean market obviously did not rally to the same degree. We haven't seen the same sort of export sales strength in beans.
• 5:54
  And so we've kind of been hanging around that $10 bean mark with some, you know, with some some fluctuations around that point. The other thing I I look, closely at obviously are spreads and basis. The one thing that we have seen and spreads really tell the story of the spreads and basis really tell the story of movement of grain through the supply chain. We had really seen particularly in like short term corn spreads, a a really strong carry build up. So March to May, that spread widened out pretty far.
• 6:27
  It was about 15¢. I mean, as that March contracts rolling off the board now, it's almost moving, I think, closer to 20¢. Really, what that's telling me is that, you know, we have moved a significant amount of, particularly corn through corn and beans through the the grain handling and supply chain. We've moved that. The market seems to be pretty pretty well filled.
• 6:49
  The belly of, the market is is pretty full at the moment. There's not a strong incentive to move a lot more grain in the short run, and markets are sending that signal. We saw, yeah, again, both that sort of short run spreads kind of really widen out. And then basis particularly about sort of in January, sort of some weak, you know, at move against the seasonal trend in basis to sort of, weaker basis levels. Really saying, I mean, there's not a big incentive to move grain.
• 7:21
  So that's sort of where we're at. And so we've and then in the last two weeks, this sort of corn market collapse, we can talk about what that is. So I want to talk about sort of fundamentals, really need to think about how do we use up the crop that we have. And it's sort of important to kind of like set our sort of view of you know, the demand pie, if you will. So what are the biggest shares of that pie and sort of as this all this news affects, you know, there's a whole bunch of sort of big picture global geopolitical kind of factors affecting our markets.
• 7:54
  I'll I'll talk about those in a second. But before we can really dig in on those, it's important to think about sort of the the relative sizes of the demand pie. You know, for corn, it's really this is a a largely domestic market. I think that's sort of a trend that we have seen is sort of the idea that, you know, we want to be masters of our own house. We want to sort of, have strong domestic demand for corn and soybeans, given the importance of those two crops to our ag economy.
• 8:25
  For corn that's, I mean that's largely the case, with you know feed and ethanol demand kind of each being about 35 to 40% of that pie. So that that gets you roughly to, you know, between 7080% of the demand pie in any given year is ethanol and and, ethanol and feed demand. Obviously, we've seen cattle markets continue to sort of keep keep their strength and the question is sort of when does that finally trigger a rebuild in the cattle herd. Given that we haven't got there yet and it hasn't happened, I don't I I think USDA and and all sort of any sort of fundamental analysis are saying that that feed demand will continue to very slowly grow over time. That's That's kind of baked baked into our expectations of demand already.
• 9:14
  The ethanol but those two pieces that those feed and ethanol pieces tend to be pretty stable. Where we get sort of the most flexibility is particularly on the export side for corn. And I've already talked a little bit about that is a really a a Latin America story at this point. We had seen really strong corn demand from from Asia in the last maybe three, four years ago. But really, our biggest trade partners, for corn are are in Latin America.
• 9:43
  So that's the corn demand pie. And then we think about that soybean demand pie. And the the the two are very different. So think about, domestic meal production is about 45%. So some of that that meal maybe got exported, but 45% of it is domestic meal production.
• 10:02
  About 10 to 15% is domestic oil production. So you think about we're, you know, we're we've moved towards more domestic crushing. We've all seen the build out in crush capacity that's happened in the last few years. A lot of that is driven by biofuels demand for soybean oil, but that soybean oil demand is maybe five or 6% of the pie. So it's roughly half of the soybean oil that we use in this country, now moving moving up over time, but about half of the soybean oil that we produce, from domestic from domestic crushers is used for biofuels.
• 10:38
  I think there's again, a lot of uncertainty about the continued demand for soybean oil as a feedstock in biofuels production. And then the other part, the sort of the other 45% of that soybean demand pie is exports. So exports really critical. China is obviously our biggest export partner. We've long known that.
• 10:57
  So think about roughly 20% of the beans in this country is going to China. We've had some negative news about that. So that's sort of the demand pie. We think about, okay, how do different sort of demand new different new demand news, how does it affect that? Well, we obviously we can talk about the prospects of a trade war.
• 11:18
  We've talked about that I think for the last few months, the prospects of a trade war ever since the election in November. President Trump told us he was going to initiate this kind of this trade war and I think today, this morning, it's finally here. The United States, imposed tariffs on Canada, Mexico, China, and those countries swiftly announced a set of retaliatory tariffs on The United States. The numbers that I saw were 15% tariffs from China on corn and wheat, a 10 an additional 10 tariff on US soybeans going into China. What do I think about that?
• 11:56
  In the short run, I think the the pain will be relatively limited in the sense that we've moved a lot of the soybeans that we were planning to sell to China. A lot of those have already moved. We have very very, you know, not a whole lot of outstanding sales of soybeans to China still on the books that would need to get, need to get filled and subject to the tariffs that were announced today. So really this is a sort of next year story and and what does this do to demand for US soybeans given the importance of exports? We're gonna try and find alternative markets.
• 12:30
  What we saw during trade war one point o, I don't view that as like the this is how it will go again. The world is a different place than it was in 2018 when we when we had the last the the last sort of version of this. But I think it's instructive to think about sort of how does how does the how did the market process this news then? And what we did see was, you know, some trade diversion. We started moving beans to other countries, but we can't replace, our largest buyer.
• 13:05
  That just simply it does not sort of fit into the global supply and demand picture. To sort of put that kind of barrier to trade, this is a boon for, this is absolutely a boon for Brazil and and Argentina, as the other main sellers of of soybeans to China. Every sense that we have though, I think roughly, you know, in terms of how does this fit into demand supply and demand for US corn and soybeans. Everything that would say, they have a reasonably good sized crop coming. Lots of news, weather sort of news is coming out of South America.
• 13:39
  Is Is it raining in Argentina this week? I try not to get too up and down about that stuff, but I do look at it and say, okay, broadly speaking, the crop is gonna be there in South America. The global supply and demand picture is gonna get filled up by a reasonably good sized crop there. Maybe there's a little bit more uncertainty about the corn crop coming out of South America just because we're still later or earlier in the calendar. A lot of that corn won't get harvested until, until June, July.
• 14:10
  But, given that we sort of one, we we we don't sort of see anything that's sort of particularly threatening on the the weather news side for that that South American crop, That's, so I think we should we move forward with the expectation that they will fill up their share of the global supply picture. The other part of this again, we saw tariffs on trade with Canada and Mexico. I can say that I think I mean, those two countries particularly on corn and beans particularly for Mexico, but Canada is also a a massive trading partner for agricultural commodities with The United States. We have roughly, you know, fairly balanced trade in agriculture with those two countries relative to China. We export a ton of stuff to China.
• 15:00
  We import very few agricultural products from there. Right? That's why ag is a target. Right? With China, it's really obvious.
• 15:07
  Ag is a target because we sell them a lot of ag ag products and they sell us almost nothing. We buy a lot of other stuff from them, but but not ag products. With Canada and Mexico, we have relatively balanced trade, and so this is gonna hurt us both from sort of we import a lot of diverse set of ag products from those countries. The tariffs are gonna hurt US consumers, who buy a lot of a lot of the stuff that we we buy at the grocery store comes comes from Canada and Mexico. And then, again, Mexico is our biggest corn buyer.
• 15:42
  There's a sense in which I think, why has Mexican corn demand been particularly strong because of the threat of a trade war and we've and the and the desire to get out ahead of that. I can say so as, you know, I I do speak to people in Canada quite frequently. My dad and my brother actually farm up there. And I think there's a real sense in which the the very long standing trading relationship that had has been very open and and relatively free with the exception of a few products, things like dairy from Canada. That, you know, there's a sense in which that trading relationship is being seriously damaged.
• 16:19
  And I mean, I think you can see, you know, a very much an acceptance of like, okay, we need to fight back against this in a way that maybe wasn't as true during trade war one point o. That's kind of that's kind of, like, what I hear from the people I talk to up there is, like, okay, I think, you know, we don't like this situation. This is not where we wanted to go, but, we have to fight, back against this. So that doesn't sort of help. It certainly doesn't help the situation.
• 16:49
  Canada being sort of not just from a sort of corn and beans perspective, but a corn and soybean products perspective. Canada is a huge customer for US or for US ethanol. I would sort of view that ethanol export demand as maybe potentially problematic going forward. Okay. So that's that's the trade war, and I I I see very honestly, very little positive there in part because the effects, you know, on prices in the short run.
• 17:15
  I mean, we saw the the the bean market maybe off 15¢ this morning. I think the corn market was off 7. So the market didn't sort of say, okay, this is in the short run very very bad, but it just does not give us a lot of upside as we go into 2025. Other things on the demand side we wanna think about, I think the other part when we said uncertainty is kind of the watchword. Uncertainty about biofuels demand, we've seen, you know, moves by the EPA to expand e 15.
• 17:45
  That's sort of an ethanol demand positive. But without sort of really strong policy certainty, and my colleague Scott Irwin will talk about this this afternoon, I am sure. I mean, the ethanol market, the biodiesel market, the renewable diesel market are all policy based markets. And there has been a tremendous amount of policy uncertainty in terms of what specific tax credit, other sort of real financial incentives, not just sort of like we will loosen up and allow farmer allow the the fuels industry to use e 15, but like what sort of monetary incentives will be there. There's been a lot of uncertainty.
• 18:25
  So with tax credits first things like sustainable aviation fuel, the Biden administration never sort of got there and left it sort of hanging, and then I think we've gotten really no more uncertainty. And we're starting to see things like, you know, airlines Southwest Airlines last week said, you know, we're basically tamping down, shutting down a lot of our sustainability initiatives. I view that as again, possibly a a negative for biofuels demand. There's just not a good strong reason to think, you know, if people are gonna only make those investment decisions when they have a little bit more policy uncertainty and that is does not sort of seem to be in the cards in the short run. So I won't sort of go too far down the biofuels road.
• 19:14
  It's, you know, Scott is Scott will be here, later this afternoon. I think I'm sure he'll have thoughts on that. The last piece is sort of like, okay, we are gonna plant a crop in The United States. USDA came out last week with their Ag Outlook Forum numbers, which I don't think were particularly surprising to the market. I mean, the market did react a little bit.
• 19:31
  That's part of you could argue what is driving some of this, like, short run negative move in the corn market, this sort of 50¢ maybe $50.60 cents that we've seen come off of corn prices in the last two weeks. Some of it had to do with the idea that we're gonna plant significantly more corn acres in The United States than we did a year ago. USDA's projection was 94,000,000 acres of corn. The trade was sort of maybe on average saying, thinking something maybe a tiny bit above that. So I think a lot of that was sort of to be expected.
• 20:06
  Everyone knew we're going to see more corn acres. Relative prices for corn and beans for new crop, you know, say, new crop, futures, the ratio of corn to beans was screaming for more corn acres, to an extent that we haven't probably seen in fifteen to twenty years or more. So that ratio of corn, of soybean prices to corn being, you know, down around 2.2, that's well below sort of longer on average levels. That was again saying, The US Farmers being incentivized to plant more corn, they're responding, that's filling up the the corn balance sheet, in a way that like, you know, I think the corn balance sheet had, you know, from USDA has still has reasonably rosy expectations for usage of corn next year. So they're projecting, you know, increases in feed demand, relatively stable use for ethanol, which is I think, again, both of those things totally reasonable to expect.
• 21:10
  And then I think a pretty decent sort of projection for exports that we'd only drop about 50,000,000 bushels out of US corn exports next year relative to this year. And I think again, you have to imagine that there's a lot of uncertainty around that corn export number, given all of the stuff that we've seen in the last twenty four hours. That doesn't make me sort of necessarily any more, you know, that I there's again not not much to be sort of particularly optimistic about on the corn balance sheet. Soybean balance sheet is another story because those acres have to come from somewhere and the bulk of the move, you know, people will look at sort of things like sort of aggregate acres and our our farmers sort of bringing, you know, we do see sort of at the margins. These things are relatively small.
• 21:56
  They're not happening right here in Indiana and Illinois certainly. That's not the place that we get acreage expansion or bringing acres into production one year that weren't in a production last year. That acreage flex is happening in places like the Northern Great Plains. So places like North Dakota, South Dakota, Montana. It's happening in places like Kansas, where you can flex between a lot more crops.
• 22:22
  So we're so some of that will sort of some of those those bigger corn acres are coming particularly from soybeans and then sort of at the margins from other places. USDA is saying 84,000,000 acres of soybeans next year, that is going to kind of, I think, underpin the bean market and kind of keep us at this, you know, around this $10 level. There's the the one thing to sort of say about I think both markets given the sort of production news is, is that, you know, there's relatively, you know, not as far to fall because we're at sort of those long run low ish price levels. The last thing to think about are sort of on the production side and how many how much time I got? Five minutes?
• 23:06
  Okay. We'll leave some time for questions here too, Todd. Just acreage projections I think around this time of year we get a lot of skepticism about USDA or sorry, yield projections. A lot of skepticism about USDA yield projections. If you go back and sort of look at the long run long run yield trends in The United States, it is to me incredibly surprising in spite of all the stuff that we do in terms of like the the yield challenges that we faced.
• 23:37
  You know, I think of herbicide resistance or, you know, all kinds of weather is you know, sort of changing weather patterns, all this stuff. All the technology that we brought to bear to deal with those challenges, and what we see is essentially a long run straight line linear trend in yields that has persisted now for certainly, you know, for for a really long time. And the last few years, sort of since maybe 2016, '20 '17, we've seen sort of slightly below trend yields for corn and soybeans nationally. So we don't quite get to that linear trend line and USDA is building that into their expectations certainly. They came out last week and said a one eighty one US corn yield, that's again indeed slightly kind of below what the long run trend would have been if you start to start to project it.
• 24:33
  USDA, a long run trend says basically we will build about one and a half to two bushels per acre for corn nationally into yield every year. We didn't quite get we haven't we haven't got there the last few years, but if you keep projecting that trend out, we should be at something like a one eighty two, one 80 three yield, based on a sort of thirty, forty year trend. And USDA has kinda said, well, maybe we're not getting there and so their projections at one eighty one right now. But even still, that would be kind of a bigger national corn yield than we've ever seen in The United States. So a lot of skepticism about can we even get to that number, But if you sort of fact it again, you're fighting against a very long run and very stable trend, that you sort of have to believe it's something in the very short run that's not sort of just statistical noise, is, is not gonna sort of play out in in the year ahead.
• 25:31
  The same thing is true for beans. I mean, a lot of people saying 52 and a half, bushels per acre is a national bean yield, is incredibly optimistic given again, we've never seen that before. But that's what those sort of long run trends mean. So recapping that, what do we how do we sort of react to this? I think the two things that we can do in terms of how do we market grain in this kind of low price environment where I and I've kind of told you a lot of negative stories, is to think about one, expanding the marketing window as wide as possible.
• 26:03
  Think about all the marketing opportunities. All the research that we've done suggest that farmers market a lot of grain later in the year relative to earlier. My thing is to to to think about and sort of as we think about what's gonna drive that yield number and ultimately the size of The US corn and soybean crop, maybe not a weather event that sort of plays out, but like a weather scare, and those tends to come along in June and July, May, June, July, August. Those are grain marketing opportunities that, need to be seriously considered by the farmer. So that's one piece.
• 26:38
  And then the other piece is just sort of, again, try and be as consistent as possible, have a marketing plan that commits you to action, as we go through both the pre harvest and then post harvest kind of marketing windows. So that sets up the conversation for the day. Not particularly, with rose colored glasses on, but that's never kind of been my thing, Todd, as you know.
• 27:05
  Todd Gleason: Indeed. I know. So the, barometer that you talked about, from Purdue you started with, it just came out this morning.
• 27:12
  Joe Janzen: Oh, good.
• 27:13
  Todd Gleason: Month over month, did it go up or down? Do farmers feel better or worse this month? Who thinks they feel better this month than they did last month? So it was for the month of February versus the month of January. Who thinks farmers felt better?
• 27:30
  You guys are not very good at getting what per Purdue gets out of their farmers. Purdue's number went up 11 points to one fifty two this time around. The range runs from about over the full time from 88 to around a 85. So farmers feeling pretty optimistic, at least when Purdue
• 27:52
  Joe Janzen: Survey them back in early February.
• 27:54
  Todd Gleason: When But
• 27:55
  Joe Janzen: so with that caveat. Right? Like, that's like maybe with a lag. But, that's super interesting to think that, yeah, we y'all are more optimistic than I am. That's that's that's good lately.
• 28:06
  Probably good. I mean, you'll probably get through life, and you'll feel a lot better about yourself.
• 28:10
  Todd Gleason: In your supply demand tables, did you give them seasons average cash prices, what your expectations are?
• 28:16
  Joe Janzen: I did not, Todd.
• 28:17
  Todd Gleason: I didn't think you did. I mean What are your expectations for new crop? Four and ten.