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ProFarmer, Urea, Margin Protection · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: Today is August 26th.
• 0:26
  SPEAKER_01: I've got Lucas Peters with ProAG here with us today.
• 0:29
  SPEAKER_00: How's it going, Lucas?
• 0:30
  SPEAKER_00: Well, it's finally Friday, so it's good to be with you, Mike.
• 0:34
  SPEAKER_01: That it is.
• 0:34
  SPEAKER_01: It was a long week in these commodities.
• 0:36
  SPEAKER_01: We saw a about a 41 cent week increase or uh 40 cent increase from last week on the December corn.
• 0:45
  SPEAKER_01: We closed at 664 this week.
• 0:48
  SPEAKER_01: November soybeans up about 30 cents on the week.
• 0:51
  SPEAKER_01: The grains were really a main talking point uh through the week here.
• 0:55
  SPEAKER_01: Hog Market as well kind of fought back to some support areas there.
• 0:59
  SPEAKER_01: We'll see if those can hold kind of the wrong time to be hoping for much of a rally there, but we did get some hopeful technical buyers today at the break uh closer to 81 on the December.
• 1:11
  SPEAKER_01: We'll see if we can get a little bit more of that before uh we continue to see some of the seasonal decline.
• 1:16
  SPEAKER_01: But uh our main focuses on today's podcast are gonna be the Pro Farmer Crop Tour that came out here just at 1.30 a couple hours ago.
• 1:24
  SPEAKER_01: We're gonna talk about urea prices and some of the stuff going on in Europe today, and then uh cap off a little bit with uh some recommendations, talk about margin insurance, some things like that.
• 1:35
  SPEAKER_01: So tune in to find some of those.
• 1:37
  SPEAKER_01: But let's get started on the pro farmer crop tour.
• 1:39
  SPEAKER_01: That was one of the main talking points this week is that a lot of people were excited to see that.
• 1:44
  SPEAKER_01: Uh a lot of the bulls, I should say, in the room were excited to see that.
• 1:49
  SPEAKER_01: They came out with a 168 record or a 168 yield on the corn and a 51.7 on the beans.
• 1:56
  SPEAKER_01: So if we look at that on the soybean side, because that's an easy one to start with, uh, they did come in very close to the USDA number.
• 2:04
  SPEAKER_01: They're 51.9, not a lot of changes, still a really big crop out of the soybeans.
• 2:08
  SPEAKER_01: I think from the the samples they took, the pod counts were kind of all over the board, but uh for the majority, uh, I think uh there was a pretty decent soybean crop out there.
• 2:17
  SPEAKER_01: Did you see anything that is worth talking about on soybeans on their crop tour?
• 2:22
  SPEAKER_00: Yeah, I guess the uh I was kind of surprised that they came out that high with looking at the pod counts.
• 2:27
  SPEAKER_00: I seemed like they were tracking a little lower than maybe I thought they were going to.
• 2:33
  SPEAKER_00: Um, you know, looking specifically maybe in our backyard at Minnesota and South Dakota, uh, I'm kind of surprised.
• 2:41
  SPEAKER_00: I thought South Dakota would be a little higher.
• 2:43
  SPEAKER_00: Uh I know we're we're dry in in southern South Dakota and things, but we're starting to get the rains, and August has been pretty pretty good for growing any sort of crop.
• 2:54
  SPEAKER_00: Um, and they came in with a 41 for South Dakota, Iowa at 60.
• 2:59
  SPEAKER_00: I guess that's a pretty high number.
• 3:01
  SPEAKER_00: So uh I mean that all in all, not uh that surprising.
• 3:05
  SPEAKER_00: Maybe uh, you know, it kind of aligned with USDA there.
• 3:07
  SPEAKER_00: Like, I mean, you drove across the United States uh what three weeks ago?
• 3:13
  SPEAKER_00: W at that time, what'd you think of the soybeans?
• 3:15
  SPEAKER_01: It was a lot of up-down soybeans.
• 3:16
  SPEAKER_01: It was still early enough where uh August wasn't really fully upon us yet, and we've had perfect weather, it seems like from that point on.
• 3:24
  SPEAKER_01: But up until that point, I mean the soybeans seemed up and down, kind of short.
• 3:29
  SPEAKER_01: Uh not that fantastic, but soybeans will do you then do that to you.
• 3:33
  SPEAKER_00: Yeah, and I I think with soybeans, I mean the general consensus locally, uh, you know, talking to some farmers is we're behind, right?
• 3:41
  SPEAKER_00: Uh, you know, we're gonna be at the first of September next week, and these look beans look green and healthy and tall, and and with the little recent rain still putting on pods and flowering again.
• 3:54
  SPEAKER_00: Uh we might turn the soybean discussion into a can we get this thing done before it freezes?
• 4:02
  SPEAKER_00: But that's for another time, and then about a month from now we'll probably have that podcast discussion.
• 4:06
  SPEAKER_01: Yeah, a couple uh couple weeks out from some of the early freeze dates, which are typically what the 22nd of SEP to like the first of October kind of range.
• 4:15
  SPEAKER_00: Yep, that's gonna be your average frost date, and then your uh killing freeze will be the first part of October for a lot of our listening area, which it's gonna be close, but we should be okay.
• 4:26
  SPEAKER_00: Uh things were planted late, but not significantly late in for the most part.
• 4:30
  SPEAKER_00: So uh soybeans know when to turn it off.
• 4:33
  SPEAKER_00: Yeah, they they'll figure it out, right?
• 4:34
  SPEAKER_00: Like they're photosynthetic or photo uh a sensitive plant, so they'll figure it out and get it going.
• 4:40
  SPEAKER_00: And and like I said, they from far pro farmer found good beans, USDA thinks good beans, and the more and more I look at beans around here, I think it's a good thing.
• 4:48
  SPEAKER_01: Man, if Pro Farmer can find good soybeans, anybody can.
• 4:51
  SPEAKER_01: All right, 168 on the corn here.
• 4:54
  SPEAKER_01: That was not really surprising looking at uh their samples.
• 4:57
  SPEAKER_01: They had lower, significantly lower yield samples out of every state, but basically Minnesota.
• 5:03
  SPEAKER_01: They did find a decent yield here in our backyard, which uh most of us would agree with, besides that small area between uh basically Marshall.
• 5:11
  SPEAKER_01: Um however, uh 168, holy cow, we're at 175.4 out of the USDA, so they're significantly lower.
• 5:19
  SPEAKER_01: USDA really hasn't got out of the car yet, so to speak.
• 5:23
  SPEAKER_01: They've been more satellite imagery.
• 5:25
  SPEAKER_01: Um those have been running a little bit lower as well.
• 5:28
  SPEAKER_01: Grow intelligence is closer to that 170 mark.
• 5:31
  SPEAKER_01: Uh the crop condition rating scores from Stonex, that uh program is running about 171.
• 5:39
  SPEAKER_01: Going back in time, just for history's sake here, from 2003 to last year, the ProFarmer has averaged 1.8 bushels too low compared to the USDA's final estimate.
• 5:52
  SPEAKER_00: Yep.
• 5:52
  SPEAKER_00: So So that still does it only gets us to what, like 170?
• 5:56
  SPEAKER_00: Yeah.
• 5:57
  SPEAKER_01: The problem is if we plug in a 168 in the balance sheet, that's gonna take off enough to get us well under a hundred or uh well enough under a billion bushels on our balance sheet.
• 6:07
  SPEAKER_01: We're gonna see some uh pretty extreme rationing by that point.
• 6:12
  SPEAKER_01: So that puts you into a different uh discussion altogether at that point.
• 6:17
  SPEAKER_00: But I I don't know.
• 6:19
  SPEAKER_00: You know, we followed the tour on Twitter like everybody else did this week, and you're getting uh uh pictures of those ears, you know, they start out in South Dakota and like the worst part of South Dakota in 2022.
• 6:32
  SPEAKER_00: Uh so that got everybody jacked up, but it kind of continued through the whole week of you know just not seeing the the ear pictures or the final uh estimates as high as I I expected.
• 6:45
  SPEAKER_00: Uh you look state by state, uh, you know, there's South Dakota number 122.
• 6:50
  SPEAKER_00: I I think that's too low.
• 6:52
  SPEAKER_00: I mean, I uh having looked at South Dakota and done the crop tour there, a lot of those acres in South Dakota uh are in the north.
• 7:01
  SPEAKER_00: Um, and you know, I'm having one conversation this week, like if you're gonna put the epicenter of corn acres in South Dakota, where where is that dot?
• 7:13
  SPEAKER_00: Um it's probably north of Huron, right?
• 7:17
  SPEAKER_00: So uh in historically, where they go is the highest producing or one of the higher producing areas, it's not 23.
• 7:25
  SPEAKER_00: I just don't think uh that area is gonna be bad enough to drag the whole state down to 122.
• 7:30
  SPEAKER_01: Um back last year was 135, 2012 was 101.
• 7:37
  SPEAKER_00: Yeah, so it's I don't know.
• 7:39
  SPEAKER_00: It's uh it it was we knew it was gonna be a low number.
• 7:43
  SPEAKER_00: I didn't think it would be below 170 myself.
• 7:46
  SPEAKER_00: I think they're a little low, but uh I guess maybe the consensus is since you were driving around uh the first week of August, has the crop lost uh two, three, four bushel an acre, Mike?
• 8:00
  SPEAKER_01: In smaller pockets, yes, for sure.
• 8:02
  SPEAKER_01: Uh some areas have still been getting quite a bit of rain and still look fine, you know, especially in our backyard.
• 8:08
  SPEAKER_00: Um that's what's uh maybe maybe it's hard for for me to let this sink in because when I go uh in through southern Minnesota, uh eastern South Dakota, farm in northern South Dakota, uh travel around you know, northern Minnesota, like that crop looks green, it's healthy, it's been great August weather for adding kernel size, test weight.
• 8:34
  SPEAKER_00: We've had a few rains uh to keep the moisture profile good, temperature has not been extreme.
• 8:40
  SPEAKER_00: We've been cool getting cool at night.
• 8:42
  SPEAKER_00: I mean, if you're talking about how you pack starch into a kernel, this is the perfect recipe for it.
• 8:47
  SPEAKER_00: Yeah, so you're gonna get bigger kernels, heavier corn, all that'll help uh help this crop bushel up locally.
• 8:55
  SPEAKER_00: And I'll be honest, I haven't been through uh southern Iowa where we see that their deficit uh on rainfall the last 90 days is significant.
• 9:04
  SPEAKER_00: Um so maybe that's just I'm having trouble getting that through my mind, Mike.
• 9:08
  SPEAKER_01: Yeah, the Iowa number at 198 last year was 205.
• 9:11
  SPEAKER_01: Looking at a drought map, you would say, well, there's no way we're gonna have a worse crop in Iowa this year based upon uh significantly less drought in their corn production area.
• 9:20
  SPEAKER_01: You can check that map out as well in our uh in our chart deck.
• 9:25
  SPEAKER_01: But um on Nebraska, I mean, you start to move that thing, you can move that all over the board.
• 9:30
  SPEAKER_01: They came in at 164.
• 9:32
  SPEAKER_01: I mean, it's kind of a shot in the dark.
• 9:33
  SPEAKER_01: Is it it isn't 190 that it could be, and it's not probably the 142 it was in 12 anywhere in between.
• 9:41
  SPEAKER_01: So you start to move that thing, you bump it all over the board for this yield, I think, and uh that's gonna be a tough one for the USDA to grasp right away, especially in September, I think.
• 9:50
  SPEAKER_00: Yeah, and I guess that's where when I look at their numbers state by state, I I have a hard time f thinking of one state that could be lower than the number that they put out.
• 10:02
  SPEAKER_01: That's a good way to put it.
• 10:03
  SPEAKER_00: Right?
• 10:03
  SPEAKER_00: Like like South Dakota, I don't think is going below 122.
• 10:07
  SPEAKER_00: Nebraska, I don't think is going below 164.
• 10:10
  SPEAKER_00: I know there is some bad areas in Nebraska, but there's a lot of irrigated stuff.
• 10:14
  SPEAKER_00: Iowa, I even 198, I think it's got more upside than down.
• 10:19
  SPEAKER_00: Uh Illinois at 198.
• 10:21
  SPEAKER_00: I I don't know.
• 10:23
  SPEAKER_00: I when I try to find where it could go down, okay.
• 10:25
  SPEAKER_00: Minnesota's 191, that's really high for for a state of Minnesota, but it looks pretty good, and that's where we where we live and farm.
• 10:33
  SPEAKER_00: So um I I'm kind of uh in the mindset of maybe this is the the low um low yield, and yeah, we'll just kind of build it back.
• 10:44
  SPEAKER_01: Five year average on corn yields for the United States, 173.8.
• 10:50
  SPEAKER_01: We'll see uh where we come in on for that anyways.
• 10:54
  SPEAKER_01: The uh September Wazir report will be coming out in a couple of weeks.
• 10:59
  SPEAKER_01: That'll have a lot of anticipation building up into that as well.
• 11:03
  SPEAKER_01: How about urea?
• 11:04
  SPEAKER_01: Um, let's break into that conversation here.
• 11:06
  SPEAKER_01: That had a very active week this week as well.
• 11:09
  SPEAKER_01: A lot of news out of Europe about uh nuclear plants not being able to run, uh gas shortages because of the Russia-Ukraine situation.
• 11:18
  SPEAKER_01: It's been really hot in Europe.
• 11:21
  SPEAKER_01: Um that entire situation escalated a lot this week, like right now.
• 11:25
  SPEAKER_01: Yep.
• 11:26
  SPEAKER_01: What do you got to say about uh urea prices?
• 11:28
  SPEAKER_00: You know, we uh we watch them jump up because you know, one thing we'll talk about a little bit was margin protection.
• 11:34
  SPEAKER_00: We're setting this projected price uh for urea for the margin protection policy right now.
• 11:41
  SPEAKER_00: We started setting that August 15th, and urea was$6.15, and this is using a May Futures uh urea contract.
• 11:49
  SPEAKER_00: Uh$615 then uh uh yesterday we closed at$722.50.
• 11:56
  SPEAKER_00: So we've gone up$110 uh in a little over 10 days.
• 12:02
  SPEAKER_00: Um I guess it's not surprising when you look at what's going on over in Europe and the news, and and it's easy to get that price excited and urea is just like any other commodity, you get a little excitement and price moves quickly.
• 12:15
  SPEAKER_00: Um, you know, talking with uh I was talking with one of a uh uh guy that works for CHS uh in the fertilizer department uh this week, you know, locally retail prices uh are starting to go up a little bit, but they're not taking a hundred dollar a ton jumps yet.
• 12:31
  SPEAKER_01: Yeah.
• 12:32
  SPEAKER_00: Um, you know, they got their sheds full, they got product to sell.
• 12:35
  SPEAKER_00: It'll be more expensive though when they run out and have to get more.
• 12:39
  SPEAKER_00: So uh maybe start considering uh locking in some of those prices.
• 12:43
  SPEAKER_00: Um, you know, one topic that he brought up to me and and I hadn't considered is even though urea, uh, I mean, I know on your farm, Mike, like you've talked about you know, looking and booking some uh fertilizer pricing.
• 12:56
  SPEAKER_00: Um he said the United States urea price is the lowest in the world.
• 13:03
  SPEAKER_00: And if you're a big corporation, where do you want to sell your product?
• 13:08
  SPEAKER_00: In the lowest price or the highest price?
• 13:11
  SPEAKER_01: Yeah.
• 13:12
  SPEAKER_00: The highest price, right?
• 13:14
  SPEAKER_00: So there is and he floated this out there.
• 13:17
  SPEAKER_00: He said this is this is no, he's got not a top secret guy.
• 13:21
  SPEAKER_00: But one of the thoughts he had was if I'm making urea in the United States, why am I going to sell it to an American farmer for$200 less per ton than I could put it on a barge and ship it somewhere else?
• 13:36
  SPEAKER_00: And I th I I hadn't ever considered that.
• 13:40
  SPEAKER_00: And the backlash, of course, would be very big, but these are corporations that want to make it.
• 13:45
  SPEAKER_00: Yeah, like uh that's something kind of scary to think about of like, well, geez, maybe I I know after talking to them, I thought I better get start getting some quotes and and looking at your uh booking these fertilizer because if we are that much cheaper in the United States right now, um I don't know what's gonna change that uh going forward.
• 14:06
  SPEAKER_00: And the possibility is yeah, they're gonna sell it into a more expensive market because they are uh in business to make money.
• 14:14
  SPEAKER_01: And before this week, it was nice because urea was the one of the three that actually dropped.
• 14:18
  SPEAKER_01: You know, Pod Ash was still rolling around 800 and didn't drop much.
• 14:23
  SPEAKER_01: Dab Map was around 900 plus still.
• 14:26
  SPEAKER_01: You know, urea was the one that came from that really strong peak up at what was it, like eight.
• 14:32
  SPEAKER_01: Oh, yeah.
• 14:32
  SPEAKER_00: I mean, I remember in season you were getting uh$900 ton urea.
• 14:37
  SPEAKER_01: And that was down in the 550s range.
• 14:39
  SPEAKER_01: Now a lot of retail, pretty much lowest it got it looked like was 570 or 580 or whatever.
• 14:44
  SPEAKER_00: But yeah, now you're gonna have a hard time finding urea for 650.
• 14:48
  SPEAKER_00: Yeah, 650 to 7, I think, is where you're gonna find a lot of it right now.
• 14:52
  SPEAKER_00: Next week it's probably goes up to seven, right?
• 14:54
  SPEAKER_00: That's just the way it works.
• 14:56
  SPEAKER_01: So the recommendation isn't necessarily go buy all your fertilizer right now.
• 15:00
  SPEAKER_01: I think the main point here is typically you will see that in the past years be higher in the spring than it is today.
• 15:07
  SPEAKER_01: Yes.
• 15:07
  SPEAKER_01: Most days.
• 15:08
  SPEAKER_01: If you do lock it in today, something like oh wait, if we remember that, we all locked in fertilizer prices, everybody got bullish, nobody sold anything, prices went down forever, and that really sucked.
• 15:18
  SPEAKER_01: Yep.
• 15:19
  SPEAKER_01: So if we are going to be locking in some fertilizer prices and putting our cash break-evens, especially with higher rent and seed chemical, um, you're floating upwards of close to five dollars cash break-evens for this next year in 23 already.
• 15:33
  SPEAKER_01: Uh maybe just start looking at one way or another to take some risk off the table, whether it's buying a put and selling a call and giving yourself some upside of 650, something like that.
• 15:43
  SPEAKER_01: Um, or something like margin protection.
• 15:45
  SPEAKER_00: Yeah, or or you could uh buy an insurance product.
• 15:48
  SPEAKER_01: Exactly.
• 15:48
  SPEAKER_00: It's uh, you know, we talked margin protection last year.
• 15:51
  SPEAKER_00: We'll do uh another webinar and and probably a meeting locally uh on margin protection this year as well.
• 15:57
  SPEAKER_00: Uh sales closing date isn't until September 30th, so we have some time.
• 16:02
  SPEAKER_00: We'll set the final prices for uh the 2023 margin policy uh in mid-September.
• 16:08
  SPEAKER_00: Uh so that includes December 2023 corn, urea, DAP, potash, uh, interest in diesel fuel.
• 16:15
  SPEAKER_00: And the margin policy does give you some protection against falling prices, just like what you were talking about, Mike, of at least we have some protection uh if the December 23 corn price goes from um well, I know we're above six bucks, uh, aren't we?
• 16:30
  SPEAKER_00: So, I mean, we got a long time before that fall price is set for that 23 policy.
• 16:35
  SPEAKER_00: It's a way to protect that.
• 16:36
  SPEAKER_00: It's also a way to protect against rising input prices like urea.
• 16:41
  SPEAKER_00: Uh, you know, we were looking at some of the historic urea prices from you know, setting this projected price now to spring, and for the last couple years, that's been a big jump.
• 16:52
  SPEAKER_00: Yep.
• 16:52
  SPEAKER_00: Now, if we do a big jump this year, uh, you're gonna be talking about thousand to eleven hundred dollar urea, uh, which nobody's gonna want to pay for, and it's really gonna cut into the margins for a corn farmer.
• 17:05
  SPEAKER_00: Um, this is one way to both protect corn price from going down and input prices from going up.
• 17:11
  SPEAKER_00: Uh, it also includes a yield component, so you you get a county yield coverage, and you can get it at 95%.
• 17:18
  SPEAKER_00: So the advantages are there of high coverage levels, good yield protection, good price protection, and input protection.
• 17:26
  SPEAKER_00: It sounds really good.
• 17:28
  SPEAKER_00: The problem is yeah, it's not free.
• 17:31
  SPEAKER_00: And anytime you start getting into a market with higher volatility and higher prices, uh the premiums are gonna go up.
• 17:39
  SPEAKER_00: So this year, uh compared to last year, your margin premium is probably 10 to 20 to 25 dollars an acre higher.
• 17:47
  SPEAKER_00: Um, you know, so in eastern South Dakota, you're probably in that$65 to$70 an acre range.
• 17:54
  SPEAKER_00: Southern Minnesota, you're gonna be pushing$80 an acre for margin protection at 95%, 100% price protection uh with the harvest price option.
• 18:05
  SPEAKER_00: Now there's lots of other little twerks we can do to cheapen up premium, but now you're gonna give up coverage as well.
• 18:11
  SPEAKER_00: So uh I'm not saying it's a silver bullet, it does provide a lot of protection.
• 18:16
  SPEAKER_00: Um, if you are a grain farmer looking to kind of protect all your bases with that, this is a good way to do it.
• 18:22
  SPEAKER_00: Especially if you want to stay bullish.
• 18:24
  SPEAKER_00: If you want to stay bullish and not lock in uh bushels and have some protection if the worst happens, this is a way to do it.
• 18:31
  SPEAKER_00: It's just gonna be more expensive.
• 18:33
  SPEAKER_01: All right.
• 18:33
  SPEAKER_01: Well, thank you for your time today, Lucas.
• 18:35
  SPEAKER_01: I appreciate it.
• 18:36
  SPEAKER_01: You bet.
• 18:37
  SPEAKER_01: And thank you to all our listeners.
• 18:39
  SPEAKER_01: Please reach out to us from our website at professionalegmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 18:50
  SPEAKER_01: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.