Latest / Commodity Week / Apr 23 | Commodity Week
Transcript
- cw260423 Panelist - Brian Stark, AndersonsGrain.com - Curt Kimmel, AgMarket.net - Dave Chatterton, SFarmMarketing.com Todd Gleason: This is the April 23 edition of Commodity Week. Todd Gleason services are made available to WILL by University of Illinois Extension. Well, welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Brian Stark. He is with the Andersons in Mansfield, Illinois. We're joined by Curt Kimmel of agmarket.net out of Normal, Illinois, and here from Champaign, Illinois is Dave Chatterton; it's Strategic Farm Marketing. Commodity Week, of course, is a production of Illinois Public Media. It's public radio for the farming world. Thank you to those who have made contributions over the last week to our programming during the spring fund drive. We appreciate that greatly. You still can if you'd like to at 217-244-9455 or online at willgive.org. Our theme music is written, performed, and produced courtesy of Logan County, Illinois farmer Tim Gleason. Let's get a list of items that we should discuss for the day. And we'll start with you, Brian Stark. What's on your list? Brian Stark: I think the biggest thing is, as we get to the field and see producers focused on planting, the strengthening corn and bean basis we've seen over the last couple of weeks. Not unexpected, but I think the producer who's focused in the field also needs to take advantage potentially of some of the strengthening basis that could happen over the next four to six weeks before he does get finished out of the field. Todd Gleason: Curt Kimmel from agmarket.net? Curt Kimmel: Yeah, what do we do now? We're quite a bit off the lows that we've seen. Headline news and, of course, weather and planting progress. Todd Gleason: And finally from Dave Chatterton. Dave Chatterton: Yeah, Todd. I mean, it's been kind of an interesting market, a little bit of a sideways pattern here of late, kind of a choppy market I guess I should say. I think there's three big factors that we have to look at going forward. One is the meeting coming up with China; that's still not quite two weeks or a little bit more than two weeks away, I should say. We obviously have the situation with the Strait of Hormuz, and it has a very long tail in terms of what that means for fertilizer, fuel, and perhaps acreage this fall and next spring. And I think the third thing, of course, is going to be just spring planting weather and where we're at. We've seen what's happened in the wheat market here of late, the drought that's being talked about in places like Kansas, Nebraska, etc., to wet in Iowa. So, how things shape up going forward, I think, are going to be our board pricing influences here over the next 30 days. Todd Gleason: Is your concern, Brian Stark, with the strengthening basis that farmers will misconstrue that as greater demand? Brian Stark: Yes, I think that's kind of what I wanted to point out. I think seasonally you see this happen every year, especially when the end users live in the spot market. Demand is fairly uncovered, but it's not infinite. So I think the producer, while he may be friendly to board prices for whatever reason—and there may be some reasons that Curt and Dave had mentioned as we discuss more here today for future potential upside—I think the basis upside potential on both corn and beans is strictly due to the lack of movement. And I think there is stocks, based on our March report, that are higher year over year that we have to take into account. At some point, the calendar starts to work against the producer. So I think it's important that he does focus in on looking and locking in strengthening basis here before he gets done planting. Todd Gleason: Before I let you go on this note and planting, and I'll check with the other two as well, you've been traveling back and forth to Logansport, Indiana. What have conditions been like, and how fast or slow do you think producers are moving? Brian Stark: I think we've seen some big progress here over the last week. I think the biggest thing, we were wet in some areas especially to the north of our draw territory on both the Illinois and Indiana side. Those producers are just now getting started, but most of the central part of our coverage area in West Central Indiana has been going for a week. I would say bean planting is probably approaching 40%. Corn is probably 25 to 30%. It's been a wide-open week and obviously windy conditions to help dry things out. Todd Gleason: And I'll check with each of you. We'll start with you, Curt Kimmel; what have you been hearing, or where have you been, and what have you seen? Curt Kimmel: Yeah, you take Central Illinois, Bloomington on east, as Brian said, it's kind of fairly aggressive. Yeah, there's going to be some guys done with beans here if the weather cooperates here in the next few days. They were kind of hesitant to put the corn in just with the forecast of cold wet rain, you know, just kind of pull back the reins on that. Northwest, they're going; got going here this week. Then, of course, you go South, West, they're fairly far along. You take Decatur over to Jacksonville, there's a big pocket in there. I think bean planting progress is much further along than what's being indicated. Todd Gleason: And finally, Dave, any estimate from you? Dave Chatterton: Yeah, I think, to Curt's point, Illinois is kind of a tale of three regions. In the south, let's say south of 70, they're finishing up. In our part of the world, we're north of 50% on beans and probably getting to be north of 25% on corn, and it's going to go really quickly. You get into that northwest region where it's been wet; they're getting some progress made but struggling. And then, yeah, you take that conversation a little bit wider, you know, we had the Indiana comment here, but when you look at things, Nebraska is finishing up and had very dry weather, got their crop in very quickly, running irrigation at certain points trying to get corn up and get it going. And then Iowa is a struggle; it's been too wet, but they are making some progress. So overall, I think planting pace is going to continue to be at or above what we call average or normal pace. Todd Gleason: That brings me to the May World Agricultural Supply and Demand estimates. USDA can, based on crop progress, change acreage at that point. If we were to continue to plant at a record pace, particularly for soybeans I think early on, would that change anything in your mind? And if we were to be able to plant both corn and soybeans at a relatively record pace, how much does that change the acreage in your mind? Brian Stark: I think, well, valid points. I think the issues, as Dave mentioned, with the Strait of Hormuz, present enough uncertainty the USDA may not adjust, even with a fast pace, their acreage projections until we get to June to see how this plays out. Based on our conversations with our growers across Illinois and Indiana, I don't see much change. Most of the fertilizer inputs, 80 to 85%, were locked in before the war started. You're not going to see a lot of acreage switching. But I think it's in the fringe areas where they don't have as much inputs locked in where you could see some switching, but there's so much unknown with the flow of fertilizer out of the strait right now; it's too hard to gauge what that impact is going to be here in the next couple of weeks. Curt Kimmel: Yeah, I just ran across one guy who was thinking about corn, but with $1,200 nitrogen, he probably planted beans. But it's like 40 acres, so I think everyone's fairly well dialed in. But I think it's going to affect other countries more than here in the US, and then lastly too, we all well know it's probably 2027. Todd Gleason: And Dave, do you have a comment on that, and of course USDA coming out this week saying, hey, we didn't get as many responses as we wanted for the March prospective plantings report, we're going to up that number kind of substantially going into the June acreage report. Dave Chatterton: Yeah, I mean USDA obviously addressing the survey situation and hopefully, you know, will get the data to be as reliable as we can in a survey like that. But to Curt's point, I think corn acres probably overperformed to a small degree versus what we had initially from the USDA. I don't think too many people are changing. Talked to a few clients in North Dakota, I was a little bit surprised that even with the issues up there—and they're one of those areas that doesn't tend to have a lot of pre-booked fertilizer—they're still leaning on corn. They still remember that dollar, $1.50, $1.75 under bean basis and the problems that we've had. So even with the China deal brewing, I just don't see those corn acres really coming down. The fertilizer, you know, is available; it's a cost issue. I think also to Curt's point, it's really going to be an interesting unfold. The longer the strait stays closed, the bigger these issues become, particularly for South America. When you look at how much the US imports in terms of fertilizer, let's just call it 15% on average over N, P, and K. When you look at Brazil, that number is closer to 85%. So they're going to go plant a soybean crop here, you know, September, October, November, December, and they're going to need some fertilizer. They've got the first crop corn that's going in there as well. So definitely some things to look at going down the road here. Todd Gleason: How telling is it for you that North Dakota farmers who are using urea more likely than not rather than anhydrous ammonia—which would be the more expensive of the two products, very expensive in fact, the one that is under pressure mostly from the Strait of Hormuz—that they are considering still switching acres to corn? Dave Chatterton: Well, I think that tells you that, you know, farmers love to grow corn. And you can look at the margins on paper, but we're creatures of habit, right? And I guess the point I was trying to make is they remember the sting of not having a market for beans; in some cases, no bid for beans. And who wants to go harvest a crop where I have nowhere to go with it? I have no storage and nowhere to go with this crop. So, a lot of that can get worked out. We have the China meeting scheduled to come up between Trump and President Xi of China in mid-May, and hopefully, we get some positive results from that. But I don't think it's a guarantee, and I think right now they see the safer bet is, you know, I'll pay a little bit more for fertilizer, I'll bet on yield and the market, and I'll take my chances. Todd Gleason: One of the things that Darrel Good taught many of us over time was that if you make a decision based on price, that you need to sell that decision. Correct? So you have to have that many bushels sold if you decide to plant more acres. Dave Chatterton: Well, yeah, and it's a challenge right now because of identifying what those future costs are going to be. But if you look at where we're at just in terms of pricing right now, I mean, we're above the spring crop insurance guarantees. We're well above the PLC price floors. So selling here at $11.50, $11.70, $11.75 against November beans, or $4.60 or $4.70 against new crop December corn, can or can't be profitable depending on your operation and how you pencil things out and associate your costs. But it is improving your floor. And I think we have been aggressive sellers of new crop, or maybe I should state that in a way that says we're ahead of where we would normally be at this time of the year, call that 35, maybe 40, and even 45% in some cases for both corn and soybeans because of all the unknowns that are out here and because of what's happening. And these can be very polar types of things that could happen: China either buys no US beans and the deal comes apart, or China might buy 25 million metric tons of beans. Who knows? The strait may be closed for the rest of the year, the strait may open tomorrow. And all those have very different outcomes. So that uncertainty, I think, warrants being aggressive with hedging opportunities when they present themselves. Todd Gleason: Are you telling me that you're expecting risk premium to stay in the marketplace until this is settled, and that that will hold the market rather than turning it downward based on fundamentals of supply? Dave Chatterton: I think it provides an element of support. Funds are long in the grain complex, but not to the degree that maybe we have seen in oil. Now they have pressed up, and they're at some levels here that would make you a little bit nervous, but I think they're willing to hold that because if oil takes another leg higher, it's hard to envision a situation where grains don't at least see some benefit from that. There's been a detachment here, but it's not a 100% detachment, and they're not going in opposite directions. Brian Stark: Yeah, I agree with Dave. I think even though the funds have a long position, we have to be cognizant of that. And I just go back and reiterate, that's why it's so important, at least in my opinion, when talking to growers that we don't become price-fixed in this environment. Because I do agree if oil does take another leg higher, it'll be very hard for grains not to follow to some extent. And I think most growers are fearful of that, but at the same time, when you look at the fundamental picture, it's not exactly a bullish scenario today. So I think locking in floors is the appropriate strategy, whether that's financed with a fence of some sort or wide open, but that's the way we approach the risk management piece right now. Todd Gleason: On the soybean oil side of this, do the funds which are long soybean oil at this point, do they follow along, do they buy more in that case? And does it become a drag on that marketplace? Brian Stark: No, I think they're already loaded up long, and I think that there's another thing that I may not be quite an expert in, but we do know that in an El Nino year that tends to be a downward pressure on palm oil production. So that just adds another layer of upside potential for soybean oil, not to mention some of the RVO support that we've seen here over the last couple of months. So I do think that oil could be a leader in the bean complex to help drag beans higher. The meal component is what's going to be the drag on that. Todd Gleason: You'll be watching soybean oil through the summer months? Curt Kimmel: Oh yeah, yeah. We're at a point here, the 70 cent seems to be the magic number of resistance here; we'll see if it's due for a correction here. But even though we've got ample supply stocks of bean oil at the present time, there's still a lot of optimism. The funds like being long bean oil, short meal on the spread. Crushing plants, man the crush margins are huge, so they're going to keep crushing until they turn negative. Todd Gleason: Let's turn your attention for just a bit to the wheat market. It has been strong, hard red winter wheat seems to be in actual trouble, and it surely looks like it might be having a really tough year. Dave Chatterton: Yeah Todd, I mean we talk about wheat, of course specifically we're talking about Western Kansas and the hard red wheat crop; the Kansas City contract is in the lead in that situation, and the market rallied strongly today there because of that. But you know, wheat as you mentioned, maybe nine lives for wheat, but we might be on about eight and a half here. So a little bit of rain in the forecast, and we could improve things to a degree. So a lot of talk in analyst circles about seeing that hard red wheat crop probably dip down, maybe 630, maybe 625 million, maybe as low as 600 million. So you're talking about a 20 to a 25% year-over-year reduction. The issue is that makes some headlines, that gets some fund length into the market, but where can it go? And I'm just not convinced that it can go a lot further than where we're at. We're hearing stories today of East Coast millers importing wheat from Poland, 120,000 metric tons, which is not a small amount. We're seeing Russian wheat work its way into Brazil, which is typically a market that we would capture. And so we're pricing ourselves—every day we rally, we're pricing ourselves further out of the export market, and even if we get that kind of a crop loss here in the US, we're starting with a stocks to use ratio of old crop that's almost 50%. So we're not going to run out of wheat. Brian Stark: I agree with Dave again. I think even though the funds have a long position, the only sentiment I would add is that river stocks seem to be pretty low, so I think there's certainly some export demand component. But like Dave said, the higher we go in Chicago tends to lean or follow Kansas City's direction. I think we've been encouraging growers to hedge. In fact, about a month ago when we really surged into this low $6, $6.25 area, we were hedging not only July '26 but a little bit of July '27, simply because we're not going to run out of wheat, it feels like today. Todd Gleason: It does take pressure off the corn market though. Curt Kimmel: Yeah, definitely there's some spread activity there and supportive spillover support, but we've got two different crops as Dave kind of hinted on here. Here in the east, soft red winter wheat looks great. I mean it's fantastic, it's riding the coattails of KC. Our guys out in Kansas say it's definitely short, it's definitely hurt, and so that's what the rodeo is all about. Technically here, that July KC wheat has a target of maybe 7 bucks to the upside here if we keep the momentum going. Todd Gleason: What other things are you talking mostly to producers about, other than the things that we've covered today? What is the other concern they have maybe heading forward? Is it looking forward to 2027? The price of anhydrous in the fall? Diesel fuel? What kinds of things are you discussing with them? Curt Kimmel: Well, our conversations have actually been quite light to be honest with you. What happened was basically on the marketing side, they got aggressive, sold a lot of beans off the combine last fall, wishing they wouldn't have done that. The market just continues to climb the wall of worry. So the main focus of course has just been on the floor strategy, that way they leave their upside open. Other than that, it's just a matter of what type of progress and keeping in touch on what type of conditions they have in their area. Dave Chatterton: Yeah Todd, I mean a number of different factors there, but really tough for producers to identify any kind of fall or even next spring value on fertilizer or even fuel just because of the way these markets are working. So not a lot to be done there. We are watching the bean basis to Brian's point; when you have a 3 dollar plus board crush, when you have D4 RINs trading at $1.90 a gallon, those crushers are going to continue to look for beans wherever they can find them and run those plants absolutely as hard as they can. The downside of that is they can't run them much harder than they already are, and additional demand is going to be tough to come by in that sense. I think for right now, as tough as this is for me to say, we're really sitting on our hands a little bit. If we're 40% marketed for new crop and we're down to our last small chunk on old crop, I think I'm happy with where I'm at, and there's so many unknowns here, I'm going to give it a little bit of time and just see what unfolds here. But don't take that as bury your head in the sand. I think you have to be ready with offers, you have to realize where your profitability levels are, and taking risk off the table at a profitable level is something we are very interested in doing. Todd Gleason: As an end user with the ethanol plant, I'm wondering how covered do you think ethanol plants are across the United States, and what does that portend going into the next month, month and a half? Brian Stark: I think coverage is fairly good in a general sense across the central Illinois to west central Indiana area in the spot 30 days. The end users as a whole, even if you extend out to the southeast customer, the livestock rail consumer, have been living hand to mouth because they just simply don't like paying some of these high basis levels. And they also know that the stocks numbers we've seen from the government have shown a higher percentage of corn and soybeans on farm year over year. So at some point that wave comes. I think again, to my earlier point when we first started the conversation today, growers are seeing that kind of surge in basis. So our conversations have simply been focused on remaining old crop bushels. If you don't like the flat price, then I think you at least have to look at locking in basis and then putting some offers against those to price those contracts. In many areas, not necessarily in the areas I cover, but the further east you go into eastern Indiana and western Ohio, where Ohio's crop was smaller last year, you're seeing really strong basis, 35, 40 over where growers can get close to $5 cash on old crop. That's a sale in my opinion, and we've been pushing guys in that general direction to do so. Todd Gleason: So ethanol crush probably stays very high I would think; well, maybe good news going into summer, but eventually there will be kind of a wall of corn that still has to come in out of the bin I would think. Curt Kimmel: Well, a lot of it's been moved, a lot of it's been cleaned up, there's always going to be some corn out there when you've got a two billion bushel carry out. But these high fuel prices kind of woke up some of these other countries' alternative sources of fuel or energy, and Brian hinted on there, I think China might even be looking at some ethanol from the US. Todd Gleason: Let's get a final comment now from each of you. I think Dave Chatterton I'll start with you from Strategic Farm Marketing. Dave Chatterton: Yeah Todd, I think we did a good job of covering what's relevant today, and unfortunately if we have this conversation in two weeks or a month from now, it could be a much different marketplace. But you know, you have to deal with that proactively as a risk manager and, to Brian's point, whether it's floors, however you want to look at that, but don't fall asleep at the switch. I guess the other thing I'll say, we've covered a lot of ground today, I think we did a good job, just be safe out there. Pricing and profitability don't mean anything if you're going to get hurt. So just, it's a busy time of year, there's a lot going on, everybody gets in a hurry, I've done it, we've all done it, so be careful. Todd Gleason: Brian Stark from the Andersons? Brian Stark: Yeah, I think it's just reiterating my point that I made at the beginning, I think this is the time of the year where we can't fall asleep literally at the wheel. To Dave's point, safety is of the utmost importance, but at the same time, we have to stay connected to your advisors, to your grain merchants, to your brokers to make sure you're paying attention to the cash markets right now, because they're going to strengthen and continue to strengthen until coverage is had through the month of May. And while you may not be able to execute on delivery at that time, I think it's important to look at seeing if there's opportunity to lock in some summer month delivery, because once you get there, at some point this wave of grain, as you mentioned earlier Todd, is going to have to come to the market. Todd Gleason: And Curt Kimmel from agmarket.net. Curt Kimmel: Giddy up, it's the year of the fire horse. Volatility is not going to go away, geopolitical news is uncertain near term; tomorrow May options are expiring so most of the volume is around the May 450, so keep an eye on that. If you're looking for a full moon high, that's next Friday, Dave. Todd Gleason: That's Curt Kimmel and Dave Chatterton joining us here on Commodity Week along with Brian Stark. We do have an addendum to our program today. A special guest joined us, Wayne Nelson, who was with L&M Commodities for years and on WILL Tuesday afternoons. Thank you Wayne, what is your special message for the day? Wayne Nelson: Well Todd, it's always a great time to come over and get together with all my old friends. You know, I've been retired a few years, but it's just so much fun to see and get along with everybody. But what I really wanted to say was congratulations, Todd. You know, last Monday night we went to a big ceremony where we gave out a lot of very special awards to alumni of the University of Illinois. And one of the big recipients was Todd Gleason. And I was so proud to be sitting at his table and to be his friend, and to see all the things that he had done over the years. And I just wanted all of you to know how impressed all of us are and how happy we are to see Todd finally being recognized. And I think you know, with the passing of Orion Samuelson, Todd is the voice of agriculture for the Midwest. Todd Gleason: Thank you, I'm so humbled Wayne, and congratulations to you too. Wayne Nelson, of course, is also a College of ACES Award of Merit winner.