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Its A Soy World · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag 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.
• 0:23
  SPEAKER_00: Today is November 17th.
• 0:25
  SPEAKER_00: How's it going, Pat?
• 0:26
  SPEAKER_01: Good, Mike.
• 0:27
  SPEAKER_01: How are you today?
• 0:28
  SPEAKER_00: Very good.
• 0:29
  SPEAKER_00: So, Elon Musk, I've been uh hearing a few different things now about the Cybertruck that's coming out that he's got.
• 0:36
  SPEAKER_00: And uh so they started testing it the other day.
• 0:39
  SPEAKER_00: And uh what it sounds like is the the pickup is gonna weigh around 10,000 pounds on the longer range model.
• 0:48
  SPEAKER_00: So for example, on the off-road testing they were trying to do, Pat, the pickup weighed so much it couldn't get out of its own way, essentially.
• 0:57
  SPEAKER_00: It was trying to go up a gradual incline of just gravel and basically it was digging a hole.
• 1:03
  SPEAKER_00: Um so it's gonna be very interesting as they try to move towards electric vehicles and try to keep their weights down, especially like semis and things like that.
• 1:14
  SPEAKER_00: But that cyber truck was supposed to be so performance friendly, but at the same time, uh from an off-road perspective, it's struggling really, really hard uh on that aspect.
• 1:26
  SPEAKER_00: So I thought I'd kick that off with the podcast because we're gonna talk mainly about how corn is living in a soybean market right now and how soybean market is really pushing around these grain markets in a focus of discussion.
• 1:39
  SPEAKER_00: And I saw an interesting statistic the other day from Egg Resource Pat and it was that uh California consumes 99% of the US renewable diesel until this point.
• 1:52
  SPEAKER_00: So that's a really high percentage.
• 1:54
  SPEAKER_00: Like I knew it was high, but I didn't know it was that high.
• 1:57
  SPEAKER_01: California consumes 99% of the the country's renewable diesel, but it's still 0.2% of the total fuel supply or something.
• 2:07
  SPEAKER_01: I'm sure it's higher than that.
• 2:08
  SPEAKER_01: But it's right.
• 2:09
  SPEAKER_01: It's pretty small, yeah.
• 2:10
  SPEAKER_01: Yeah.
• 2:10
  SPEAKER_01: Yeah.
• 2:10
  SPEAKER_01: So the whole renewable diesel um um industry is because of California today.
• 2:17
  SPEAKER_00: Completely.
• 2:18
  SPEAKER_00: Way more than I was initially giving it credit for.
• 2:22
  SPEAKER_00: So it um other states haven't quite adopted that use uh quite as fast anyway.
• 2:27
  SPEAKER_00: So how do you feel about Califor your soybean demand uh for renewable diesel in this expansion at this point solely being in the hands of California consumers?
• 2:38
  SPEAKER_01: Well, a couple um random thoughts.
• 2:40
  SPEAKER_01: The first first random thought is that your whole story about um you know uh uh about a battery-powered truck, I mean, there's basic physics at play there, right?
• 2:52
  SPEAKER_01: There's there we can figure out uh what torque and horsepower is for electricity, but how many pounds of battery it essentially takes to generate the thing is an issue that has yet to be resolved, but likely will at some point in the future.
• 3:07
  SPEAKER_01: That's the first point.
• 3:08
  SPEAKER_01: The second point is that one of my three sons thinks that Elon Musk might be an alien.
• 3:15
  SPEAKER_01: I don't know which uh understood.
• 3:18
  SPEAKER_01: I've heard crazier things, which uh um isn't maybe quite as crazy as uh what is going on in California today.
• 3:26
  SPEAKER_01: And and so um they're uh uh certainly are isolated as it re as it relates to their mandates as it require as it as it relates to requirement for for renewable diesel.
• 3:40
  SPEAKER_01: And as a pork producer and being engaged in the pork industry, um their quirkiness for is about the nicest word that comes to my mind, yeah, is is uh um is is well on display with its uh uh leading the they would also be 98% of the of the uh uh pork that's produced in this country of 24 square foot gestation for sows also goes into that market.
• 4:06
  SPEAKER_01: Yeah, exactly.
• 4:07
  SPEAKER_01: And so so um someday it's uh I I I'm hopeful, I suppose is the right way to say that, that all of the things that California does to make their economy uncompetitive, um, at least when a person believes in free market uh uh free market enterprises, that uh sooner or later that'll catch up to them, right?
• 4:32
  SPEAKER_01: In terms of if they continue to um mandate uh uneconomic things, sooner or later it's gonna create some deficits and population change and and money flow and all of those things that's that to that's that's gonna make it a little bit tougher for that economy to go.
• 4:47
  SPEAKER_01: And you can make some arguments that's happening already, right?
• 4:50
  SPEAKER_01: Yeah.
• 4:50
  SPEAKER_01: And so anyway, I'm not sure if if that's all where you wanted to go with all of that, but it is it is interesting, and it is also interesting to um acknowledge, recognize, observe uh the uh uh that soybean oil stocks are at record low levels in spite of crush levels being at record.
• 5:10
  SPEAKER_01: At record, yes.
• 5:11
  SPEAKER_01: Correct?
• 5:11
  SPEAKER_01: And so so there's no doubt that influence, um, whether we agree with policy or not, is having uh an impact, at least on soybean oil stocks.
• 5:23
  SPEAKER_01: When I think about that from the impact that it might have on balance sheets, whether that be corn, soybeans, soybean products, wheat, any other commodity that you're talking about, um, the good news is is that there's uh the uh the impact that California's um uh appetite for soybean oil, there it will be limited to crushing capacity.
• 5:51
  SPEAKER_01: Yeah.
• 5:51
  SPEAKER_01: Right?
• 5:52
  SPEAKER_01: And so I just say that be just to remind us that we know, like we know how many how much um soybeans are going to be processed this next year within a reasonable range, yeah, because the the facilities are effectively at capacity, and we know what's under construction today, and we know how much um uh processing capacity will be coming online this year, next year, and you got a pretty good idea for three years out.
• 6:21
  SPEAKER_01: And and so I just say that because there's plenty of times where um other market analysts would be talking about uh boy, this is a uh a huge thing and it's unknown.
• 6:33
  SPEAKER_01: We don't know what's gonna happen to corn and sabine balance sheets because of of renewable diesel.
• 6:39
  SPEAKER_01: Okay, it's a it has the opportunity to change balance sheets uh as we go forward here, but it's a known, not an unknown.
• 6:48
  SPEAKER_01: We know what's happening as it relates to additional processing capacity being constructed.
• 6:54
  SPEAKER_01: And frankly, the same thing was true as we went through the ethanol expansion era, right?
• 6:58
  SPEAKER_01: We talked about, well, this plant's under construction, these guys are doing this thing, that sort of thing.
• 7:02
  SPEAKER_01: And so um, so um it's all good stuff, and and we might have to fly by the controls a little bit here, just watch things as it relates to the impact that it has on the on the commodities that we most care about, frankly.
• 7:15
  SPEAKER_01: Um, and it's uh it'll be interesting to see too what impact that has on um producers' planning intentions going forward, corn versus soybeans, you know, all of those sorts of things.
• 7:26
  SPEAKER_00: I'm interested too to see the differences between, you know, we had this food versus fuel debate on corn.
• 7:34
  SPEAKER_00: It's gonna be a very similar debate on soybeans, but I am interested to see where it differs.
• 7:40
  SPEAKER_00: For instance, Pat, uh do you think for a hog producer or a cattle producer that this won't be as big of a negative impact as maybe what corn versus or food versus fuel was for like corn, how basis was going uh has strengthened a lot in in some areas of the world, uh like ours probably here because of ethanol um availability of corn's tighter.
• 8:04
  SPEAKER_00: Um you know uh what about on the soybean side?
• 8:08
  SPEAKER_00: Because you're gonna be uh producing a lot of meal just like you were with DDGs from corn, but I feel like an end user would maybe benefit more from soybeans in this debate than you would have in the corn side, maybe.
• 8:20
  SPEAKER_01: Well, potentially, but there's that there's it's potentially possible.
• 8:24
  SPEAKER_01: It should it should all things being equal, right?
• 8:28
  SPEAKER_01: It should create more meal availability in the in the domestic market.
• 8:34
  SPEAKER_01: That's your point.
• 8:35
  SPEAKER_01: Yes, right?
• 8:36
  SPEAKER_01: Um and and while that's true on the surface, I would just say that again, there's a whole bunch of different levers that can be pulled.
• 8:45
  SPEAKER_01: As an example, um maybe we don't export as many soybeans and we do export more meal.
• 8:54
  SPEAKER_01: Maybe we import, maybe California imports palm oil from somewhere instead of you know buying uh you know soybean oil from the US.
• 9:03
  SPEAKER_01: Um maybe there's uh there's a change in in uh in feed rations that allows for um you know less uh less disappearance on the feed grain side and more on the oilseed side, right?
• 9:15
  SPEAKER_01: So there's all kinds of different adjustments that can be made, and those adjustments will end up might being it'll matter by region as well, right?
• 9:24
  SPEAKER_01: And so again, those are all things that um can happen and likely will to some extent, but it'll be a it'll be a function of again sort of flying by the controls.
• 9:35
  SPEAKER_01: We don't have to try to like look out the front window of this thing and guess, right?
• 9:40
  SPEAKER_01: We can we can see the math.
• 9:41
  SPEAKER_01: We can the real crop producer can see the the relationship between new crop corn and new crop soybeans, make a decision.
• 9:49
  SPEAKER_01: The uh end user can look at the cash price of soybean meal and the cash price of DDGs and corn and make a decision, right?
• 9:55
  SPEAKER_01: And so all of those things will be able to fly by the fly by the the controls, if you will.
• 10:00
  SPEAKER_01: The last part I just say about this is we sort of think about it from a um from a more from a longer term perspective.
• 10:07
  SPEAKER_01: When we went through the food versus fuel transition debate and and uh you know committed uh uh 40% of the corn production at the time to to uh producing ethanol, um there wasn't a whole lot of talk about the the the first part of this conversation today.
• 10:28
  SPEAKER_01: There wasn't much talk about you know the the uh transportation industry you know moving uh to to EV.
• 10:36
  SPEAKER_01: And so that's a very obvious apparent thing.
• 10:39
  SPEAKER_01: So it's fascinating that that we bring this up today, right?
• 10:42
  SPEAKER_01: That that you started the the the podcast with, well, what about this electronic battery-powered truck, and then we start talking about renewable diesel.
• 10:52
  SPEAKER_01: If the first thing happens, or whenever the first thing happens, then renewable diesel isn't much of a play.
• 11:01
  SPEAKER_01: And so it gets a little bit interesting to me that you're gonna be upgrading, building, um, executing on a whole bunch of technology to uh transform soybean oil into renewable diesel for one state for a few years.
• 11:17
  SPEAKER_00: Yep.
• 11:18
  SPEAKER_01: It gets interesting in terms of of how much sense it makes to spend that kind of money in in terms of transforming that industry into something that that may be a fleeting sling.
• 11:28
  SPEAKER_00: Well, the energy market has definitely had its impact here recently on commodity prices, the uh uh surrounding it, U.S.
• 11:36
  SPEAKER_00: crude oil production here, we're holding at about a record of 13.2 million barrels a day, Pat.
• 11:42
  SPEAKER_00: And uh OPEC is gonna continue to cut their production through the end of this year, but uh we are looking at retail sales really pulling back the first time in seven months, and we haven't had a large anticipated Q4 draw yet, so we do have uh really high stocks right now on crude oil per uh all of a sudden because of the output.
• 12:03
  SPEAKER_00: So uh we are uh having a little bit of a sell-off in the energy sector here that I believe uh spilled over into things like corn as well.
• 12:11
  SPEAKER_00: We put a new fresh low in at 461 on December corn the other day.
• 12:15
  SPEAKER_00: Uh some of these commodity markets in general have just had a little bit of a risk-off attitude pat in in general here.
• 12:22
  SPEAKER_00: Live cattle had a really rough streak there for a bit.
• 12:26
  SPEAKER_00: Curd oil was getting hit, corn took a little hit, um, soybeans have down been down a little bit.
• 12:32
  SPEAKER_00: Uh pretty much all of the e commodities, one way or another, have uh been put under some pressure here, haven't they?
• 12:38
  SPEAKER_01: That's right.
• 12:39
  SPEAKER_01: It's a challenging time.
• 12:40
  SPEAKER_01: And you uh I characterize this nicely this week about how we've um is is bad economic news good for commodities, or is good economic news bad for commodities and the Fed raising or not raising interest rates in the middle of all that, frankly, gets a little confusing, right?
• 12:58
  SPEAKER_01: And and so I think that's a little bit of of crude oil's problem today, is is that uh it uh it wanted to rally on a war, which it normally would, especially in the Middle East, right?
• 13:10
  SPEAKER_01: Um, and it wanted to sell off on this inventory build or or internal dynamics, but but it still is is also there's also money flow in and out of that crude oil complex, sort of based upon whatever your latest guess is on whether or not interest rates need to uh uh stay unchanged and does that create a soft landing sort of a thing.
• 13:32
  SPEAKER_01: So there's an awful lot of of I guess confusion, but for sure uncertainty surrounding all of that, and it's definitely adding some more volatility here lately.
• 13:43
  SPEAKER_01: And frankly, the corn market has the same uh guess quote unquote issue, right?
• 13:48
  SPEAKER_01: I mean, we're it feels like we're adding a little more volatility to this thing.
• 13:53
  SPEAKER_01: We haven't done an incredible amount of of damage as it relates to breaking out of this trading range that we've been in, but it seems like we're bouncing a little bit harder inside of it.
• 14:05
  SPEAKER_01: Talk about a market that needs some volatility.
• 14:07
  SPEAKER_01: Indeed.
• 14:07
  SPEAKER_01: It's been a while, right?
• 14:09
  SPEAKER_01: And and but I I do think that we're still at a little bit of a standstill here.
• 14:14
  SPEAKER_01: I mean, we're we we are increasing U.S.
• 14:17
  SPEAKER_01: crop size.
• 14:18
  SPEAKER_01: Um, and even inside of the U.S.
• 14:22
  SPEAKER_01: balance sheet here, we're seeing um incredibly wide basis levels in the Eastern Corn Belt.
• 14:28
  SPEAKER_01: We're seeing incredibly narrow basis levels in the Western Corn Belt, and so even that sort of offsets itself a little bit from a futures um price market perspective.
• 14:39
  SPEAKER_01: And then when you sort of layer on top of that, the challenges um well, not the best start to to Brazil and Argentina, right, in terms of their growing season.
• 14:49
  SPEAKER_01: And so I don't know, Mike.
• 14:51
  SPEAKER_01: I I it again it feels like we're at we're starting to add a little more volatility to this thing.
• 14:56
  SPEAKER_01: And my guess is is that what happens with South America weather as they get into their growing season is is what's gonna push us out of this range uh one direction or the other.
• 15:08
  SPEAKER_00: That'll be the leader.
• 15:09
  SPEAKER_00: But volatility, we are gonna welcome it, especially in in the corn market and some of these other ones to, you know, in corn's case, farmers have been incredibly slow sellers so far this fall, and uh a little spike in volatility is gonna provide some hopeful selling opportunities in that complex to shake some corn loose.
• 15:27
  SPEAKER_00: So thank you for your time today, Pat.
• 15:29
  SPEAKER_00: And if you need anything else, please give us a call at the office.
• 15:32
  SPEAKER_00: Thank you.
• 15:33
  SPEAKER_01: Thanks, everyone.
• 15:34
  SPEAKER_00: And thank you to all our listeners.
• 15:36
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 15:40
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 15:45
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:51
  SPEAKER_00: See you next time.