Latest / Commodity Week / Apr 16 | Commodity Week
Transcript
- Panelists - Naomi Blohm, TotalFarmMarketing.com - Greg Johnson, TGM TotalGrainMarketing.com - Jim McCormick, AgMarket.net Todd Gleason: This is the April 16 edition of Commodity Week. Todd Gleason services are made available to WILL by University of Illinois Extension. Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Naomi Blohm. She is at Total Farm Marketing out of West Bend, Wisconsin. Greg Johnson at TGM, Total Grain Marketing in Champaign, Illinois, is here. Along with Jim McCormick of agmarket.net in Barrington, Illinois. The theme music for the Commodity Week program is written, performed, produced, and courtesy of my brother, Logan County Illinois farmer Tim Gleason. You can always find us online at willag.org. Let's begin by getting a list of items that we should discuss from our panelists for the day. Naomi Blohm, we'll start with you. What is on your mind? Naomi Blohm: I want to talk about that cattle market. We have had that market accelerate higher here recently and a little bit of a price pullback the last couple days ahead of the cattle on feed report tomorrow. Also news today that Secretary Rollins tomorrow is going to be having a news conference from Texas. We have quite a few things to be looking about with cattle. Todd Gleason: We will do that. Greg Johnson at TGM, on your mind? Greg Johnson: Even though the first USDA supply and demand report that incorporates the 2026 acres and yield isn't going to be released for another three weeks, I don't think it's too soon to start playing the what-if game. I think it's a good exercise to put some numbers in there and see where they come out. That will give farmers an idea of where to have offers in and what the price range may be this year. Todd Gleason: That should be fun. Jim McCormick of agmarket.net in Barrington, on your list? Jim McCormick: The one thing I'd like the group to talk about is the shift in acres. I have talked to several clients here in the last couple days, especially down in southern Illinois, southern Indiana, and Ohio, who said they are seeing quite a few farm producers and neighbors who are planning on planting corn shifting to beans because of the lack of fertilizer and the higher costs. I wanted to get the group's feedback if they think this is more of a regional problem or if this is something that's going to come up and we're going to be debating all spring and summer until we get the final certified acres. Todd Gleason: We will work our way from that to the new crop WASDE in the month of May, but Jim let's start with you because just this week there are a couple of things going on across the planet related to the Iran war and fertilizer availability. I talked with Ishan Banu, who is with the logistics consultancy company Kpler, earlier in the week. He looked, as we were on the phone at 9am on Wednesday morning, at how many ships had been loaded with fertilizers but were stuck inside the Persian Gulf behind the Strait of Hormuz. There were 42. They had arrived there and loaded after the closure, so they were somewhere between three weeks waiting and a couple of days, but that is not a small number. He said generally when he looks there are 15 to 18 of them potentially. Let's call it two and a quarter times the normal number. They are not going out yet. The other thing is that India has been in the marketplace tendering for fertilizers out of the United States, nitrogen in particular. I watched Josh Linville today and he made note that those tenders were above $900 on both the east and western coasts of the United States, or the ports from those two sides. Given all of that background, what kind of shift in acres might you think would come and how related is this to the availability of fertilizers, particularly nitrogen in the US? Jim McCormick: Todd, I think that really is the million dollar question. You had Secretary Rollins a few weeks ago, I believe she said 80% of the farmers' needs had been covered. Then you had that survey coming out from Farm Bureau that suggested that number was quite a bit lower in certain parts of the country. It is a situation where, even though a lot of that fertilizer is here in the Midwest or on its way state-side, we are pricing it on a world market. When you see India coming in and subsidizing their farmers on the fertilizer, you are now competing against a country for fertilizer that essentially is going to do what it needs to do to get the fertilizer because Modi's base is farmers. He is going to do everything he can to keep that base happy. It is the same thing with China. You are seeing China restricting the flow of fertilizer out, restricting the flow of sulfur out. You are seeing countries hoarding a major product to feed their people. Most governments, when you have changing government, it's not because people have plenty to eat. When you get a revolution and a lot of people nervous about what's going on in the political side, it is because of a shortage of food. This could become a real problem. You mentioned there are 40 plus boats sitting there. The real problem is a lot of that fertilizer being produced in the Middle East is just in time. They get the energy, produce the fertilizer, and ship it. Now once their boats are filled, they essentially have to stop the production of fertilizer until those boats leave and new ones come back. Even if we resolve that problem today, it could still take weeks to months to get this back up and running to where we have somewhat of a comfort zone. That is going to keep these fertilizer prices elevated. Then it comes back to what is that real number of producers that have actually locked in that number. To me it feels like it really depends on who you talk to. Todd Gleason: Naomi Blohm, when you talk to producers, are there many or are they just talking about their neighbors or their friends? Are you hearing that it is related to not being able to book nitrogen supplies and other fertilizers, phosphates in particular, for this season, or that they are just so high priced that they might switch to a different crop? Naomi Blohm: I am hearing all of the above. I definitely have some producers who have told me that they are going to be switching some of those acres to soybeans. I don't have a quantifiable amount on that yet, but it definitely continues to be top of mind. Over the weekend I was with a bunch of football moms at University of Wisconsin in Platteville, an agriculture school. There are a lot of moms whose husbands work in the industry, and one wife shared that her husband covers the territory between Rockford and the western suburbs. It has become a huge point of conversation, higher fertilizer costs in that region at his co-op, and looking at shifting some of those acres to soybeans. It is top of mind. I heard that from direct contact from someone from northeast and north-central Illinois, and also from clients throughout the Midwest. The higher price of fertilizer and diesel fuel is weighing on people. I think we are starting to see the December corn futures spread wake up a little bit. I am wondering if nearby December futures need to buy back some acres that are getting lost towards soybeans. It will be very interesting to continue to hear how this goes over the coming weeks as planting gets underway. Todd Gleason: Greg Johnson, what have you been hearing? Then you can talk about that May WASDE report and expectations looking forward to it. Expectations usually depend on weather and crop progress planting rates. They don't change acreage in that one from what the Ag Forum developed. What are you thinking? Greg Johnson: I have been asking producers if they are switching and if they did get their inputs locked in. I also asked them, since we are pretty heavy Farm Bureau territory around here, if they responded to the survey. It seems like the ones that had their inputs locked in already didn't bother to vote. I think the ones that didn't have their inputs locked in were more likely to vote, which might skew those results. I think Secretary Rollins' 80% is probably too high, but the number the Farm Bureau came out with is probably too low. The real number is probably in between. Keep in mind that USDA has a way of increasing these corn acres from the March intentions report in subsequent reports. I agree with Jim. This year, with the higher input costs not only in fertilizers but in diesel fuel, soybeans are going to be the cheaper crop to produce. As far as putting a number on it, USDA is at 95.3. That number could have gone up based on past years, but I am using 94.5. That is almost a million acres less, and 85.5 on the beans, which is almost a million acres more. Todd Gleason: Anybody else adjusting their balance sheets? Jim, I'll start with you. Jim McCormick: I am not going to argue at 94.4 to 95. I would guess it is going to be down a little bit. Where Naomi was talking about, I am in that band straight east of Rockford. I am literally about an hour straight east of Rockford and we just keep getting inundated with rain. The northern part of Illinois has had 8 inches of rain since the beginning of the year. That bled into parts of Wisconsin. If we don't dry out soon, it is going to compound some of these acres and make it very easy for some producers to justify moving away from expensive corn to beans. If that corn acreage ends up at 94.5, it would not be a surprise. The frustrating thing is going to be that we probably won't know that number until September. It's going to take multiple revisions, which will be very frustrating for the farmers and the traders out there. Todd Gleason: Naomi, as he suggested, that rainfall is a problem for farmers in parts of the northern areas of Illinois, Wisconsin, and Michigan. Is it big enough to make much of a difference? Naomi Blohm: Not in the short term, but potentially yes. I think everyone's big cutoff date would be May 1st in terms of getting twitchy about which way acres really ultimately fall. It is definitely soggy throughout portions of the Midwest. Talking with clients in Iowa, they have been getting about a quarter inch of rain every other day, just enough to keep them out of the field. There are a lot of producers out there who still have hog manure they need to spread. They have to get that done before they can even do planting. That has been top of mind. Here in Wisconsin, we are flooded out. It is really bad. That is going to be an issue for us. We don't usually get planting really until that first week of May anyway, but we are really underwater. I think Jim made a great point. It is going to take months, probably out to September, before we know what is or isn't. It is really going to affect the balance sheets. Even right now with what the USDA has for planted acres of corn, if you bring in the carry-in, if you have a 180 yield and no changes to demand, that actually makes ending stocks drop down near 1.5 billion bushels. It is going to be a touchy market this spring and summer. A lot more exciting than what we were all thinking back in January, just how much things have changed and shifted. You have to keep one eye on Mother Nature and another eye on the Middle East, and there is going to be a lot of volatility. Todd Gleason: That volatility will be there. Greg Johnson, I am wondering if it will be volatility surrounding the range that we're in at the moment or if there are options really for it to move higher dramatically at all. Or potentially lower still. Greg Johnson: Last year, December corn was in a $4 range at the low. Actually we went to $3.90, but let's just say $4 at the low. The high water mark last year was $4.80. We're already at $4.75. We're at the upper end of the range. We had a 2.1 carryout last year. That is what they were projecting early. It didn't end up that high, but basically we are projecting 2.1 right now. I agree with Jim. I think these numbers will change, but they are not going to change in the next two and a half months. It boils down to old crop versus new crop. How long do you want to hold onto old crop? That is costing you money. New crop, I think we can afford to be patient. I think we will see lower acres and lower yields. I think it will pay to hold onto corn for a little while, even if it goes sideways. Old crop corn, farmers have to be ready to hold onto that for a long time if they are waiting for higher prices. I am not sure in the next month or two that we are going to see anything come out from USDA or anywhere else that is really going to convince traders to run this market up. Keep in mind that the funds are already long both corn and beans. They really added to their corn position a few weeks ago. Not that they can't get longer yet, but some of that good news is already in the market and who is going to buy it to take it to the next round higher. I think there is a difference between old and new crop marketing strategies. Todd Gleason: Greg, just as a reminder, how much old corn do you think producers have yet to make sales on? Your draw area is about a 60-mile radius, or 120 miles across. You compete directly with ADM Decatur. Logan's Port is outside of that, but you probably bump up against the ethanol plant in Logan's Port as well. Do I have the geography right, and how much old crop corn do you think you still have yet to buy from producers? Greg Johnson: You are right. 60 miles to the east. I would say maybe 30 to 40 miles to the west indicator. Once we get west of Monticello, west of DeLand, that is pretty much Decatur draw territory then. 30 to 40 miles to the west, 60 miles to the east. I still think there is a good 30% to 35% of the old crop corn that has not been sold. The farmers have just not seen the prices that they think they need to see to reward the market. Soybeans are just the opposite. They have been heavy sellers of beans because we have had rallies to reward the market in soybeans, whereas corn we just haven't had the kind of rallies they would like to see. I still think there is 30% to 35% of the old crop corn left in farmers' hands. Todd Gleason: Jim McCormick, does that jive with what you're thinking about old crop sales that yet need to be made? Jim McCormick: Our numbers seem to be somewhere right around that 70% to 75% sold for the old crop. New crop was right around 10%, which is what we're hearing. I am cautioning clients to be very careful with the old crop corn. In general, I have been telling people when you get to that US Open weekend, Father's Day weekend, by the third week of June, if we're not having any kind of weather play or this crude oil market isn't going ballistic, I think you need to be wanting to get it moved. Remember last year, you're looking at a carryout of a lot more corn available than a year ago. We have several elevators that we deal with, and our cohorts at John Stewart deal with, telling us they think they will be full going into the fall. Probably more of a problem west of the Mississippi River, but it is going to be a bad situation for some people when they hold onto this old corn too long and walk into a situation where we have got a decent crop and the elevator is trying to handle two billion plus old bushels coming to market at the same time. They will take it off your hands, but they are not going to take it at a price you're going to want to give it to them. I am telling people to get more aggressive here the next couple weeks. Todd Gleason: Is JSA telling you the elevators are full at the moment or are they going to fill up? Jim McCormick: A lot of them got a big chunk of grain when this moved up early, Todd. This first run up here when you saw May corn spike back up to $4.75, they got a chunk of grain. Now there is a little bit of a bid here because everyone has tunnel vision trying to plant. They expect another flush of grain here as you get into that June timeframe, and some elevators will have 90 days worth of grain bought they figure, and that 90 days will get them into the fall. They won't need to buy any more old crop to get them to that bridge to the new crop potentially. That is why that window by late June where we're thinking you probably don't want to be holding onto corn too much. Even in the eastern belt I am a little worried because of what is going on in Argentina. I have no clue how accurate the Rosario Grain Exchange is, but they are telling us their crop is 15 million metric tons bigger than what the USDA is working with. If the crop is that much bigger, we could have quite a bit of competition on the export market in the latter part of summer as well. That is one more reason for me to tell people to move it and use the board if you want to play the what-if on a weather play. Todd Gleason: Naomi, if the growing season is normal and what we are hearing from Jim McCormick is correct, that would cause old crop basis to crash sometime at the end of July probably and carry on for new crop right into August and September, maybe October. Is this a fear that you have? Naomi Blohm: It is a very realistic concern. It would also follow in line with the seasonal tendency. By Father's Day weekend, if there is not any weather issue in sight on the longer-term forecast for July and pollination, we have lost our reason to see the market have a significant summer rally. Usually what happens is the middle of June, middle of July, and finally the middle of August is when things bottom out. If there is all that grain that needs to come to town and no weather or war issue in sight, we are talking about fundamentally a totally different story where corn futures for July currently trading closer to $4.60 maybe start to slither down towards the $4 handle. We are at this point with this market where we are all aware there are reasons why prices can work higher, and go higher than we anticipated. But it boils down to Mother Nature and what she has in store for us. You have to be prepared for either scenario. Todd Gleason: I am thinking about the war just a bit. If it were to drag on in some form that long, what impact might that have? Greg Johnson, as I am considering that, what I am coming up with, and Naomi you need to jump in here too, is that if the price of crude oil continued to spike, it probably would not carry corn with it given the number of bushels that would be around. The high price of gasoline, particularly diesel fuel, would slow the economy down. Anhydrous prices would be extraordinary in the fall at the same time. It could be a very ugly situation. How do you lay it out in your mind, Greg? Greg Johnson: I look at where we are this year and try to compare it to where we were last year. Last year on this date, May corn was $4.80. New crop December '25 corn was $4.65. We had a 15 cent inverse in the market. The market was telling farmers they wanted them to move that old crop corn. In our area they didn't because it was so dry farmers were convinced prices had to go higher. This year, May corn is at $4.50, July corn is at $4.60, but new crop December is $4.75. There is carry in the market this year. 25 cents, about 4 cents a month right now. Farmers aren't going to get hurt at this point. The Western guys west of the Mississippi probably have to be a lot more concerned because their basis could really slip. Here in the East, farmers can probably afford to hold on a little bit longer. You don't want to be the last one out the door. Todd Gleason: Proof once again that I tend to be too pessimistic in my outlook. How do you see the fall numbers playing out, Naomi? Naomi Blohm: What I am watching with crude oil is that $120 resistance area. That is the top of a 20-year downtrend line. If we have a fundamental reason for crude oil to trade through $120, I think it is just going to excite commodities for the short term and you are going to see the corn market push higher on fund trading activity. I think back to other years where we have had war conflicts, either Russia-Ukraine or years past in the Middle East, where we have that conflict and it drives crude oil prices. I don't recall this fertilizer thing being an issue like it is now in other years past. I am not sure how the market responds to this going forward. In the short term, if crude oil starts to limp along sideways, it has got really good support at $80. That might keep the corn market supported for now until we get to know more about the weather. Todd Gleason: Anything to add, Jim McCormick? Jim McCormick: I still think the trade is going to be transfixed on the crude oil and it will only carry you so far, Todd. For next fall, the world will be worried if the ceasefire gets brutal and Iranians start destroying infrastructure. That could slow down fertilizer production. Then you get a situation where the Southern Hemisphere panics and won't have fertilizer. That is where it gets scary, where panic sets in and the market jumps to play the food inflationary play. I do not believe that is going to happen. There is a lot of political pressure for the Chinese to get a deal done quickly. The Chinese need the price of energy to stay down. Todd Gleason: Commodity Week of course is a production of Illinois Public Media. Our thanks go to our panelists Naomi Blohm, Greg Johnson, and Jim McCormick. You may listen to the whole of the program anytime you'd like on our website at willag.org or look it up by name Commodity Week in your favorite podcast applications. I am University of Illinois Extension's Todd Gleason.