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May 14 | Commodity Week · Commodity Week

• cw260514 Panelist - Greg Johnson, TGM Total Grain Marketing - Chip Nellinger, Blue Reef Agri-Marketing - Brian Stark, The Andersons Todd Gleason: This is the May 14 edition of Commodity Week. Announcer: Todd Gleason's ervices are made available to WILL by University of Illinois Extension. Now welcome to Commodity Week. Todd Gleason: I am Todd Gleason. Our panelists for the day include Greg Johnson, he's the TGM, that's totalgrainmarketing.com out of Champaign, Illinois. Chip Nellinger is here from Blue Reef Agri-Marketing in Morton, Illinois, and Brian Stark joins us from The Andersons. He travels between Mansfield, Illinois, and Logansport, Indiana. 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. Let's begin with the list of items that we should discuss for the day. Brian Stark will pick up with you. What are you thinking about? Brian Stark: Yeah, I think the biggest thing I'd say so what, now what, uh, when it comes to the market break today. I think producers uh want to know kind of what the next move they should have for their old crop and new crop, and I think as always uh highlight uh cash basis direction I think on both of those commodities. Todd Gleason: Of course, we are recording on Thursday afternoon, May the 14th after a large break in the marketplace. Chip Nellinger and Blue Reef Agri-Marketing, what's on your list? Chip Nellinger: Well, I think obviously the, uh, the China situation, right? We don't have any clarity on that yet, but the market's starting to assume a few things. Still have to go back on crude oil. I think that very quickly we're going to have uh, you know, a little more clarity on what the direction is with Iran and the Strait of Hormuz, and uh, obviously uh, you know, weather is uh starting to take front and center uh as well and will be for the next few few months here. So uh, no shortage of things to talk about here this week. Todd Gleason: Greg Johnson from TGM, anything to add? Greg Johnson: Yes, in addition to all those things, USDA came out with their monthly supply and demand report, which included the first estimates for this year's crop, the 26/27 crop, and I think there's some uh interesting numbers to uh look at and we can go through some what ifs. Todd Gleason: Oh my gosh, that seems like such a long time ago this week. There's been so much happening. We should probably start with that, Greg, because it did happen Tuesday at 11:00. It was the first big item of the week. What did USDA tell us about new crop? Greg Johnson: Well, they told us that uh, we're going to plant uh 3 million less acres of corn, uh, that's based on the March survey. I personally think that might be a million acres too high. Uh, then they're using a 183 yield. Um, last year we had a record 186.5. We're certainly not off to a record start by any stretch. Uh, too dry in places, too wet in other places. So, um, not predicting a draft or a disaster by any stretch, but even if we shave a few bushels off of that 183, uh, the government uh estimate was an ending stocks number of 1.95. Uh, it wouldn't be too hard to imagine getting that down to a 1.6, 1.7, and uh, that uh certainly supports corn and uh could make it interesting later on this summer. Todd Gleason: Ooh, that's the weather thing we need to talk about eventually, Chip, but not just yet, Mr. Nellinger. So uh, what was your assessment of the WASDE report? Chip Nellinger: Yeah, I agree uh totally with that. I thought a couple other things jumped out at me. Um, total corn demand, uh, you know, 150 million bushels less than a year ago. Total bean demand up a couple hundred million. A little bit of a head scratcher to me. Uh, also world corn carryout uh just shy of 20 million metric tons smaller from the new crop position. So, you know, back to the previous point, there is no margin for error on any of these crops. Um, particularly corn. Uh, I know all the arguments about um, you know, South American production is going to be bigger and uh we're going to lose our demand base, but uh on paper there is just no margin for error on these crops uh going forward. Todd Gleason: And then Brian Stark from The Andersons, any thoughts from you on that particular data? Brian Stark: Well, I think uh obviously uh we spend a lot of time East in my area focused on corn and soybeans, but we all know that uh the wheat market uh the expectation of the decline in in some of the all wheat production specifically in uh the plains from a hard red perspective given the drought they've been in and a high abandonment acreage uh looking at the harvested acres uh down almost 4 million. Um, certainly some abandonment there and certainly while it may be mostly a hard red wheat problem and a Kansas City futures problem, we all know a lot of the liquidity lies in Chicago soft red wheat market and I think that certainly uh spurred things uh the day the report came out and and to me, wheat could be a leader uh coupled with what Greg and Chip said on the corn side that could also help support higher corn prices depending on how the growing season weather shakes out. Todd Gleason: It seems like a long time ago that we did have that move in the wheat market. Uh, however, I do want to talk about it just a bit more with you, Brian, because we do have the issues with the hard red winter wheat, soft red winter wheat looks great. Spring wheat, according to the meteorologists we tweet, might be in trouble in those uh Great Plains states uh because it's dry there, they're running late and behind too. That one was the one that led things really to the highest levels ever for wheat at one point in the not so too distant past. Uh, it's a very small crop and and very defined so when it's short it does create issues. How does that double up with what's happening with the hard red winter wheat? Brian Stark: Well I think it certainly could be an accelerant. I think it really what it comes down to, Todd, is you know does $7.50 Kansas City wheat futures, you know if you get to that point does that slow down export on some of these um specific classes and how we ration that. I think if you think about it the world still has plenty of all wheat supply so obviously we're we're discussing a class issue and to your point uh when one class uh tends to lead, the others follow simply as a fund investment play. So um certainly could be uh prices moving to maybe beyond fundamentals would dictate in some stage and again to my point I think it certainly is a supportive factor overall to the other feed grain markets uh depending on how that production shakes out. Todd Gleason: Now let's turn our attention to uh what has happened overseas over the last couple of ah well a few hours really, with the meeting between President Trump and President Xi. Not a lot of details. Uh, Secretary Bessent um really simply saying hey, what we've got is what already is what we're going to get. The trade didn't seem to take that very well, Greg Johnson, during the day today in Chicago. Greg Johnson: Really, should we have been surprised? Uh, I mean Brazil soybeans are 75 cents cheaper uh than US beans. Uh, China has invested a lot of money in the infrastructure down in Brazil. Um, you know they're going to ship beans out of Brazil to China. Um, the only possible reason why China would want to buy more beans is basically to throw President Trump a bone and say you know we'll give you this if if you think this will help your Midwest farmers, but in exchange we want lower tariffs, uh, and so maybe they're willing to spend a few extra million dollars to save billions in tariffs, but that would be the only reason that from an economic point of view, China really shouldn't buy any more beans from the United States. Todd Gleason: Chip Nellinger, anything to follow up on this US-China uh detente in in Beijing this week and what I suppose didn't take place? Chip Nellinger: Yeah, I think that a couple things stood out to me. I think the market was um a little bit disappointed um that a lot of the um meetings looked to be um kind of pomp and circumstance and photo ops um instead of multiple days of talks. Um, I would tell you though that as we're recording this, you know there is another couple hours of meetings scheduled um for the morning in uh China, which is somewhere in the overnight hours here, and I'm sure on the plane back that the President Trump is still going to have supportive things to say about it. So I don't think we've heard the end of it, but I think the market was a little bit disappointed that there weren't some immediate details in that um you know in that first full day of talks. Also there was some stories uh that may have been a little bit old and recycled that President Trump um had offered an invitation to President Xi to come to Washington um in September. So I think that there was an assumption, and I don't know that this means it necessarily, there was an assumption the market thought well this isn't going to be uh you know an overnight fix here, this is going to last for several more rounds it may take till fall to get something um you know done here. So uh you know, I don't think the news cycle's over, we could get plenty of tweets overnight uh that are just as supportive as today's action was negative, but uh you know sometimes where there's smoke there's fire and right now the market really doesn't seem very hopeful that there's going to be immediate um you know concrete bushel amounts of um of agreed bushels that China is going to purchase in the short run and the market action today was uh pretty pretty ugly to say the least. Todd Gleason: Again, we are recording at about 2:30 on Thursday afternoon. So things may have changed, uh particularly if the president had anything to say uh on the flight back from China or if there were other releases from those additional meetings that have yet to take place. So let's turn our attention to a couple of other items that are in the marketplace. Uh, when the president returns, Chip Nellinger, I'll stay with you uh because this is on your list, uh we will be hearing of course about the Iran war again. Uh, and we did not hear anything to this point at least about what the Chinese had to say as it was related to the Strait of Hormuz. Uh that's going to be back into the marketplace uh and I don't know in what way, probably we'll talk about fertilizer of course, but what else are you thinking about? Chip Nellinger: Yeah, I think it was probably purposeful that we didn't see much this week ahead of these trade talks in relation to China and I think that's the other thing, it's not like that agriculture is the only thing they have to talk about. Uh the Iran situation is probably high on the list, the Taiwan issue is probably high on the list, the fentanyl uh trade into the United States is probably high on the list, and so I I really think this is just my gut that once we get into next week we're going to find a little more clarity on um what the goal, what the objectives are going forward as far as Iran and the Strait of Hormuz. Obviously, crude oil just seems kind of pegged right at the $100 a barrel level. That's too high. I mean if we stay that that level or higher for very much longer, um you know I I think there's already cracks in the world economy and the US economy, it will only get worse. So I think we're going to see a little more I would suspect we'll see a little more detail on what the plan would be this coming week after these Chinese talks to me it seemed like things kind of quieted down on purpose going into these talks and we'll see what what came of it and what the president's attitude is towards Iran I think in short order. Todd Gleason: Brian Stark, anything to add on that subject matter? Brian Stark: Yeah, I think it's interesting. I think some of the uh commentary uh that's came out this afternoon, although Chip's right we we need to get some more specifics, but uh certainly talked about um maybe the president's gave a little bit of a clue to his long-term direction of trying to get a little bit of pressure from China to uh apply pressure to uh Iran to help open the strait, but also maybe pivoting a different direction in in exchange of potentially China buying uh more US oil uh to reduce their reliance strictly on the Middle East for some of their energy needs. So I think it'll be interesting here in the coming days and weeks uh to gauge exactly what came of the meeting. Um a lot of different directives other than the lack of information on the ag side of things, but I think that's going to have certainly impact uh as the world economy goes and obviously will spill down into commodity prices here as time goes on as well. Todd Gleason: Greg Johnson has disappeared for just a bit. Uh some technical issues there. Hopefully he'll be able to return to our program. We'll see whether that takes place or not. I do want to follow up on the cash basis levels that you've been following, Brian, and you wanted to talk about. What things do you have on your mind today? Brian Stark: Yeah, I think, you know, we've talked about this in the past month, six weeks, uh both during the show and then also directly with a lot of farmers in uh East Central Illinois, West Central Indiana. I think, you know, in the heart of the Corn Belt, basis tends to strengthen as the farmer's been focused on field work. I think that still maintains itself. Um, given a lot of end-user demand has been hand-to-mouth with some of the the rally in the board futures price as well as um you know the higher basis levels that we've seen over the last four to six weeks. There's a lot of coverage that still needs to be had, and typically speaking, some of the best basis opportunity for producers and and commercial facilities uh happens during this May to first part of June time frame, and as busy as we've been uh especially in the last week to 10 days when we finally got an open window in the east to resume planting in a big way. I just want to mention to the producer, for those that still have unpriced uh stocks sitting on farm, which year over year based on our last stocks report are higher, um we certainly don't want to miss an opportunity where some of the best basis levels may occur. Uh we know that another wave of grain movement is coming uh post-planting whether that be late June or or or post-pollination in mid-July. So we need to take advantage of those levels and um while the end user is hungry to lock in coverage. Todd Gleason: Uh, Chip Nellinger, that will be a big ask, I would think, from farmers. It is unlikely that they will uh decide that that's what they want to do mostly because they've held on for this long. Should they though really think more about moving some of the old crop grain that they have in storage off the farm? Chip Nellinger: Well, I I think if they haven't uh to this point, to your point earlier, they may be resigned to the fact that they're going to hold it um through summer to see if there's a weather problem. Um, but should they or not I think is your question. I I think today is a perfect example. We don't get quite the right uh news uh from China, and or crude oil would take a uh drop back towards the 80s or below, you're going to relax a lot of the inflation type money that's flown into our ag markets. You're going to probably uh reduce the fund long position, and you're going to have a correction that uh may be a little bit hard to sit through. Um, I think it does depend on where you're at, the further east you go in the Corn Belt the better corn basis has been. Almost feels like they're out of stocks over in the far eastern Corn Belt. Far western Corn Belt, uh still sitting 35 to 40 under. Doesn't seem like it's uh you know there's any shortage at all, and you know here in Illinois we're kind of sitting right in the middle of it with some some okay basis. So I think it depends on where you're at. Um, I think we are at the point though. I mean you look at a normal uh seasonal, whether you cut it 5 years or 15 years or 30 years, uh we are basically a few days past when we typically put a spring peak in. It doesn't mean we can't revisit it or go higher this summer, but um you know I think producers just need to be prepared that if things don't fall in on a bullish tone here, you could see a pretty healthy correction even if there's ultimate higher highs coming. It may be a gut check to sit through that if we see that if we have any kind of weather issues at all later on this summer. Todd Gleason: Greg Johnson has returned to our conversation. Thank you for coming back, Greg. I know yesterday on Wednesday when you and I talked during the closing market report, we had $12 uh November soybeans and $5 December corn futures and you reminded farmers then that they probably should take advantage of that. Basis levels remain fairly good as Brian Stark has told us, but it depends on where you are as Chip said, uh across the Midwest. What are you telling producers right here in East Central Illinois today? Greg Johnson: I think you have to look at the big picture. The big picture is we probably are going to plant more soybean acres. We have to wait till June 30th to get that acreage number, but I think we're a million acres too high on corn, I think we're a million acres too low on beans. If that's the case, uh we want to be a little bit quicker on the trigger to get beans sold. Um, I think beans, November beans are in a 10.50 to 12.50 type of range, and as you said we hit $12 this week, so that's closer to the top end of the range than the lower end of the range. So I am encouraging producers to reward this rally, anything close to $12 futures probably is not a bad place to sell beans. Um corn on the other hand, a million less acres of corn, some potential weather problems, um you know I I think uh December corn could be a 4.50 to 5.50. I'm not predicting that it's going to go to 5.50, but if we have weather issues, we could see that. So we're at 4.91 right now, we're kind of right in the middle. So not as urgent of a situation to sell corn. There's nothing wrong with getting a percentage of corn sold, and again old crop corn is a little bit different than new crop because you're probably going to have to hold on for another couple of months to see uh if anything changes. There's plenty of stocks out there right now, so it's probably going to boil down to a weather problem, and we aren't going to get a weather problem in May, and probably not in June. It's going to be a July-August type of thing. So depending on how long you want to hold on to corn, old crop corn, it may pay to hold on to. New crop corn I think you can afford to be patient. If you haven't sold anything, there's nothing wrong with selling something at $5, um but uh I do think uh at some point in time we'll see something better than $5 if we have any kind of weather issues at all later on this summer. Todd Gleason: Brian Stark, I have a question about ethanol. The Andersons of course have been heavily involved in that part of the marketplace this week. The House of Representatives passed uh permanent year-round E15 legislation, still needs to get through the Senate, not completely clear that that's an easy path forward, may very well not be. Uh however, some numbers that get uh touted on this issue seem to be very out of line to me, for instance 2.4 billion bushels more use of corn uh at full adoption. What is the likelihood of full adoption of E15, I would think that would mean it's in every gallon of gasoline that is used in the automobile fleet in the United States. Uh what number is a better number to think about do you suppose? Brian Stark: Well, I think the way I would look at it, Todd, and obviously everybody has a different opinion. I think one, let's talk about uh what you mentioned with E15, passing, which is a great thing uh for potential future corn demand, uh but it only passed by 12 votes. And I think to your point that the Senate is going to be a little tougher sell, maybe a flat exchange, the president has said obviously he would sign the law into place if it does, but I think it's something from an infrastructure standpoint that is going to take time to implement because to your point I think that's probably right that it's every gallon, and we know that the US and the infrastructure takes time. Could it be five years down the road, seven years down the road, certainly isn't going to be as big of an impact immediately as maybe as a lot of people have calculated. Uh as far as from a corn demand perspective, but you know maybe it's an 11% or a 12% um overall blend as you start to stairstep into it, but it's going to take time to get to E15, you know nationwide. And so I think some of the the initial demand while it is certainly positive, I don't want our listeners not to to think that it's not, it is, it's not something that you know immediately you're going to wake up the next day and we're going to have an additional 2 billion bushels of corn demand. Todd Gleason: Let's get to some final thoughts from each of you now. Chip Nellinger at Blue Reef Agri-Marketing, I'll start with you for the day. Chip Nellinger: Well, Todd, sometimes I feel like I'm a I'm a broken record sometimes, but um I I think that as producers uh obviously are busy in the field right now, um don't take your eye off the ball on the markets. Um, I think a lot of producers have, you know, rewarded the rallies, cleaned up some old crop, have a good start on new crop. We do see a sharp break into the end of May, it offers some opportunities to uh maybe come back in and create some minimum price contracts or buy some calls against some previous sales to roll puts down. My point is use the volatility to maneuver in this and don't be handcuffed by it. And don't be afraid if we keep going higher. Remember where we were last fall and last January. It felt like we would never see 4.50 again, uh now we've seen $5. Don't let that slip past our fingers if we were to continue to go higher on some additional volatility into the end of May here. Don't be afraid of the volatility, use it to your advantage as much as possible. Todd Gleason: Greg Johnson, your final word for the day? Greg Johnson: I'm going to speak to the three or four producers that grow wheat... in this area. Maybe there's a few more now, but uh I realize wheat's not a big deal, but uh wheat prices have really rallied. Even with the sell-off this week, um we saw 6.75 uh July 26 futures. And I'm not a big proponent usually of looking a year ahead, but July 27 wheat was trading at 7.22. 7.22. Um, you know you could probably get pretty close to $7 cash uh right out of the field for July 27 delivery. So uh don't take your eye off of the 27 crop. I think the market is offering us some pretty good incentives to not only grow wheat but to sell wheat at these higher levels. Todd Gleason: On that note, I do follow a spring wheat grower in the far northwestern part of Minnesota who today on X said, "sell wheat and be happy about it". So it might be something of interest there as well. Brian Stark of The Andersons, your final word? Brian Stark: Yeah, I'll tag on a little bit to what Chip said. I think ultimately this this period from between now and the third week of June, seasonally we tend to put in uh our best opportunities to uh sell whether it's old or new crop uh remaining stocks or thinking ahead to the crop you just planted. And I I just want to highlight and tag on to my earlier comments, I think even if you're friendly and and find it hard after a big sell-off like this week to lock in futures, you can manage your basis and futures independently. And I think that's the point I was trying to make, that basis is important on old crop stocks to protect when the end user is hungry even when you're busy planting, thinking ahead, locking those in. But also remain fluid. I think, you know, floor ceiling strategies make a ton of sense when you're dealing with a lot of volatility and I don't think volatility isn't going to go away anytime soon during the growing season. So that's what my recommendations would be. 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 at WILLag.org. Our thanks go to our panelists this week, including Brian Stark of The Andersons, Chip Nellinger at Blue Reef Agri-Marketing, and Greg Johnson at TGM, that's Total Grain Marketing. I'm University of Illinois Extension's Todd Gleason.