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Grain Market Update · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the egg 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 August 18th, and I've got Pat here with us.
• 0:26
  SPEAKER_00: How's it going, Pat?
• 0:27
  SPEAKER_01: Good, Mike.
• 0:28
  SPEAKER_01: How are you this afternoon?
• 0:29
  SPEAKER_00: Doing very good.
• 0:30
  SPEAKER_00: Catching up after last week's uh long travels in Dakota Fest this week.
• 0:34
  SPEAKER_00: So we're getting back into the office.
• 0:36
  SPEAKER_00: And uh, what are you seeing out of the Ukraine markets here this week, Pat?
• 0:41
  SPEAKER_01: You know, it continues to be an issue over there, of course.
• 0:44
  SPEAKER_01: I mean, we're we're uh uh struggling, I think, with uh in that event that's been taking place for an extended period of time.
• 0:52
  SPEAKER_01: Um I do think there was some compromise or solutions that maybe were put in place towards the middle of the week as it relates to to you know some movement, but no doubt it continues to be an issue.
• 1:04
  SPEAKER_00: Definitely.
• 1:05
  SPEAKER_00: The uh grain market here continuing to struggle around this 490 area.
• 1:10
  SPEAKER_00: Uh give me a couple reasons why you think it's stuck here and hasn't been more of a, you know, you hear the old adage of staircase up and elevator down.
• 1:20
  SPEAKER_00: It seemed like this elevator down's gone a lot slower this year for carrying a balance sheet that's 2.2 billion bushels still all the way into August.
• 1:29
  SPEAKER_01: Yeah, you know, Mike, there's there's uh um I would have guessed when we took out that 480 area on December corn uh earlier this week, um, that that we would have seen a more significant sell-off than that, frankly, right?
• 1:46
  SPEAKER_01: It wouldn't have been uh at all uncommon, especially this time of year, especially after a little bit of moisture in August, uh, for us to take out a low that had stopped uh you know the market from working lower two previous times this summer to take that out and then sell off pretty hard.
• 2:04
  SPEAKER_01: And and this market didn't do that this week.
• 2:07
  SPEAKER_01: It did set a new low for the move, but rebounded quickly.
• 2:10
  SPEAKER_01: And frankly, you know, we've got this market now trading back up to uh the the same level that it was trading at at the beginning of the month.
• 2:17
  SPEAKER_01: And so um so there does seem to be a bit of resilience in there.
• 2:20
  SPEAKER_01: I think to your point, and in terms of of your explanation there as you're asking that question, it's very real.
• 2:25
  SPEAKER_01: I mean, I you know add 175 bushel to the acre with 94 million acres, and even frankly, with some some uh uh forecast or expectation of increased exports, um, we still have a significantly different balance sheet projected for next year than what we've experienced for the last two or three.
• 2:46
  SPEAKER_01: And and uh it seems as though uh you know a 2 billion bushel plus ending stocks number or a 15% stocks to use ratio is pretty probably here in that 175, 176 uh forecasted yield range, and the market certainly isn't trading that today.
• 3:04
  SPEAKER_01: And so, so I don't so the market either is is pricing a a smaller crop than than than than the mid-win 70s, or there's something else at play here.
• 3:16
  SPEAKER_01: And it's possible that that something else at play here has some more to do with the demand side of the equation.
• 3:24
  SPEAKER_01: It's possible that um the concerns as it relates to the Russian-Ukraine region, you know, your first question and the support that's having in the wheat complex it has is is also supporting the corn market.
• 3:38
  SPEAKER_01: It's possible that there's money flow into commodities um just because, right?
• 3:44
  SPEAKER_01: It's possible that uh, you know, that that some traders outside of the world of of commodities is is uh is sending some money this direction as a little bit of a hedge against you know inflation just this just staying pretty tough here.
• 3:59
  SPEAKER_01: And I and you could argue that uh um you know as we've gone through the last month or two that it's uh I guess the the a higher probability that the the feds are are not done raising interest rates um because because uh uh fixing this inflation thing uh issue is has been a little bit harder than than maybe what than maybe what they had forecasted to do.
• 4:22
  SPEAKER_01: And and and maybe uh consumer demand for for products is is in a little bit better spot today than what it was, and and and maybe all of that is is a reason for some money flow into these markets.
• 4:35
  SPEAKER_01: I the last thing I would just mention on that is you know there's there's plenty of question marks, I think, about the size of the of the Chinese corn crop, and and there's some concern about some weather issues over there.
• 4:47
  SPEAKER_01: So so maybe that's also providing some support here.
• 4:50
  SPEAKER_01: But I mean that's a that's a long-winded answer, but I I think all of those things are possibilities of uh of a U.S.
• 4:56
  SPEAKER_01: crop that seems to be pretty good, better than last year, and more again, more acres and all that.
• 5:03
  SPEAKER_01: So it it's you know, all of those things would would suggest at least that that the cord market could um could have continued to sell off here earlier this week when it when it tried to do so and it just couldn't.
• 5:16
  SPEAKER_01: And so and so you start to I guess examine some of those other possibilities.
• 5:20
  SPEAKER_00: A couple of those things do really stand out, right?
• 5:23
  SPEAKER_00: So we've got uh crude oil currently trading around eighty, eighty-one dollars, and you can see the impact of that being a little bit higher with sub-five dollar corn now, with you know, for example, us grinding 107 to 109 million bushels of corn every single week now, it seems like for ethanol.
• 5:41
  SPEAKER_00: And for a while there, it it had spent a lot of time below 100.
• 5:45
  SPEAKER_01: Yeah, so just math on that real quick, just to your point.
• 5:47
  SPEAKER_01: I mean, I if if uh we're doing 107 a week instead of 97, 10 million fifty-two weeks, five hundred and twenty million, um, ninety or so uh uh acres, uh, you know, that's uh five bushels.
• 5:59
  SPEAKER_01: Yeah.
• 6:00
  SPEAKER_01: Yeah.
• 6:00
  SPEAKER_01: I mean it's a real difference.
• 6:01
  SPEAKER_01: That makes up a difference.
• 6:02
  SPEAKER_00: Right.
• 6:02
  SPEAKER_00: So that'd be the one thing I see and when it comes to money flow with that too.
• 6:06
  SPEAKER_00: If if crude oil continues to go up, corn's just gonna get some of that money alongside of it.
• 6:11
  SPEAKER_00: The second one that you mentioned, uh China, and uh their impact as a global buyer, what crop size they have, the the significant uh production problems they're going through right now with their uh kind of midway through their growing season, uh that's gonna create some fund money flow back into this thing a little bit.
• 6:30
  SPEAKER_00: Um and that's more recent news, probably both of them.
• 6:33
  SPEAKER_00: The ethanol one's been building a little bit, but the the China one I think has been a little bit more recent.
• 6:39
  SPEAKER_00: And then obviously we have warm weather here the next 10 days or so that maybe gave us just a more short-term little pop here.
• 6:48
  SPEAKER_00: But I agree, once we broke through some of those support levels, I was expecting some more stops to hit, more of a really blow-away, just runaway train to the downside.
• 6:58
  SPEAKER_00: And we've caught a little bounce here.
• 7:00
  SPEAKER_00: So it, you know, we'll see if it's just a little pop here in the meantime and a little bit of money flow or if this is uh more of a a nice level to plateau going into harvest here.
• 7:12
  SPEAKER_00: But from a seasonal perspective, you know, August and September we usually do try to find a low in these grain markets.
• 7:18
  SPEAKER_00: So I'll be curious if uh if we can really try to reach down for a uh, you know, really stab into uh a nice low here over the next pretty much month, I'd give it ahead of our uh crop harvest here, Pat.
• 7:32
  SPEAKER_01: Be interesting to see.
• 7:33
  SPEAKER_01: What are you expecting from uh the pro farmer tour next week?
• 7:37
  SPEAKER_00: I'm thinking they're gonna run into more variability this year, more pockets, more holes in places.
• 7:43
  SPEAKER_00: It it's really tough.
• 7:44
  SPEAKER_00: You know, the Illinois crop is really hard to judge because it uh it was a crop that got too hot, too dry early, and then it it healed up at the end.
• 7:53
  SPEAKER_00: And normally that goes completely against what you're used to seeing.
• 7:56
  SPEAKER_00: If the crop's gonna be dry, it's gonna struggle at the end of its growing season.
• 8:00
  SPEAKER_00: So it's hard to judge.
• 8:02
  SPEAKER_00: And other places too, um, you know, Nebraska, they're having a similar thing, their crops finishing off really well.
• 8:11
  SPEAKER_00: And it was hard for me because the last two years have looked so bad in Nebraska that them having any good crop at all in Nebraska was like, whoa, that's a good crop.
• 8:21
  SPEAKER_00: You know, so it but them having the possibility of doing a 180 plus yield now is uh very realistic, and I think that's gonna matter a lot.
• 8:29
  SPEAKER_00: So something we saw the last two years was the Western Corn Belt as a whole just struggled in a big way.
• 8:35
  SPEAKER_00: We were well below trend in a lot of places in a lot of states, and you could easily see that with just looking at a basis map and the strong basis levels in Kansas and Oklahoma.
• 8:47
  SPEAKER_00: This year already you're not seeing that.
• 8:49
  SPEAKER_00: Like Kansas basis levels are back to almost normal already, and they've had a lot of rainfall.
• 8:54
  SPEAKER_00: And you just don't have like that whole area of the United States that's just super short on corn, or they're gonna be super short on corn.
• 9:03
  SPEAKER_00: So I just I struggle for them to find too much wrong with it.
• 9:07
  SPEAKER_00: Sure, it could be 174 or 178, somewhere in there wherever, you know, they typically like to be about a bushel below where the USDA comes at, you know.
• 9:17
  SPEAKER_00: So sure, you'd do something like that, but it's not enough to really get the markets rolling and saying we have a short enough crop out there to get fund activity to go buy it.
• 9:28
  SPEAKER_00: That's what I expect them to see, but we'll we'll find out here this very next week.
• 9:33
  SPEAKER_01: So it'll be interesting to see.
• 9:34
  SPEAKER_01: I I also was was just struck by the, you know, as you guys did your crop tour last week, um, you're fighting mud and and and enjoyed cooler temps.
• 9:46
  SPEAKER_01: And then next week uh during the pro farmer tour, it's gonna be 105 degrees.
• 9:51
  SPEAKER_01: And and uh I mean that that has to uh what whatever uh subjectivity is sort of involved in in the measurement process has to has to impact, don't you think?
• 10:00
  SPEAKER_00: Definitely, because a lot of our numbers have to deal with how the crop's gonna finish out.
• 10:04
  SPEAKER_00: Right.
• 10:05
  SPEAKER_00: And both of those numbers of finishing out are pretty subjective.
• 10:10
  SPEAKER_00: That's right.
• 10:10
  SPEAKER_00: So it'll be interesting to see what happens there.
• 10:12
  SPEAKER_00: But I mean, locally here, you're uh you're getting towards that enough of the end here where we're gonna start cutting silage, I've heard, in the area Tuesday, you know, this next week.
• 10:22
  SPEAKER_00: And some of the most recent rains, so guys that got four plus inches, they're gonna be pushed back a little bit further now.
• 10:28
  SPEAKER_00: But uh this crop is nearing the end very quickly, I think, in in our area specifically and many others too.
• 10:35
  SPEAKER_01: Indeed.
• 10:35
  SPEAKER_01: Any takeaways from um Dakota Fest this week?
• 10:38
  SPEAKER_00: It was good turnout, you know, during um during COVID, we had lost a lot of vendor activity.
• 10:44
  SPEAKER_00: The tents were really open, a lot of booths open.
• 10:47
  SPEAKER_00: A lot of that was filled up this year.
• 10:49
  SPEAKER_00: Um, so it was nice to see a lot of those guys come back.
• 10:52
  SPEAKER_00: Um Seed Row wasn't maybe as full or as big of a deal as what it used to be, I noticed.
• 10:58
  SPEAKER_00: But a lot of people came this year I compared to the last couple of years.
• 11:02
  SPEAKER_00: Farmers were generally happy, probably happier than the last couple of years in that part of the world with a little bit better crops.
• 11:09
  SPEAKER_00: There's areas that are struggling, but you know, I I didn't really hear anybody firing up the bale or anything like that out of that part of the world, which usually is a good sign um for their corn crops.
• 11:20
  SPEAKER_01: Yeah, so South Dakota is uh the the the amount of moisture is is a significant improvement this year compared to the last couple, and and uh that certainly always helps.
• 11:30
  SPEAKER_01: Um I'm reminded as I as we sort of think about uh basis levels and timing and all of that stuff that we're discussing here, especially from our perspective here in the Northwest Corn Belt, about not only how different it is when South Dakota, Nebraska, Kansas is starting to get moisture, like you said, you're starting to to see the impacts of that already on corn basis levels.
• 11:53
  SPEAKER_01: But also the I'll just call it the counterweight, right?
• 11:58
  SPEAKER_01: Like last year, Illinois harvested 214 bushel to the acre.
• 12:04
  SPEAKER_01: Not only was that a record, but it was a record by four bushels.
• 12:07
  SPEAKER_01: And at the same time, uh South Dakota and Nebraska are harvesting their worst crop in ten years.
• 12:13
  SPEAKER_01: And so that's part of the the the dichotomy of the of of why basis levels are so firm here in the West, and really yet to this day, right, in terms of of breaking that old crop corn inverse.
• 12:28
  SPEAKER_01: But we'll just make the observation, uh, Mike, that that almost the exact opposite, not maybe to the degree, but we're definitely flipping it now this year, right?
• 12:39
  SPEAKER_01: I mean, um probably some of the best crops you saw um in in as you went through last week was in the Northwest Corn Belt.
• 12:47
  SPEAKER_01: Yep.
• 12:47
  SPEAKER_01: And and more if if there's more variability, as you said, it's in that Illinois crop, uh, trib the river system, trib the delivery markets for the for the Chicago Board of Trade.
• 12:57
  SPEAKER_01: And so I just make that observation to to because I I I think you know, anybody that's that's merchandise or traded green and in uh especially in the Western Corn Belt, I I think that observation will resonate with the at least the possibility of some pretty significant basis volatility year over year.
• 13:15
  SPEAKER_00: What do you got to say about the river market and uh what you see out of the eastern corn belt?
• 13:21
  SPEAKER_00: You know, last year they had all the dryness problems and the river was really low.
• 13:25
  SPEAKER_00: Uh that influenced basis levels as well when you saw them super uh super hot in the Western Corn Belt like Kansas.
• 13:33
  SPEAKER_00: Um you know, this year Indiana was like the only state I thought that could probably or probably will do a record, but it wasn't anything crazy like that.
• 13:42
  SPEAKER_00: What what do you got to say about just basis levels, uh particularly around the river and uh the impact that could have this year?
• 13:51
  SPEAKER_01: Well, I think first of all, the infrastructure is more normalized, right?
• 13:54
  SPEAKER_01: Like I don't I mean the the traffic is normal on on the Mississippi River as an example.
• 14:00
  SPEAKER_01: I think the real uh the real discussion there is what the potential is for exports.
• 14:07
  SPEAKER_01: And today you would say, well, you know, Brazil had a huge crop.
• 14:13
  SPEAKER_01: They're going to be the primary supplier for a while here as it relates to world world feed grain uh needs.
• 14:20
  SPEAKER_01: Um another, I guess, bearish observation would be that globally, you know, animal numbers aren't going up.
• 14:28
  SPEAKER_01: We're not adding renewable fuel capacity globally, those sorts of things.
• 14:32
  SPEAKER_01: So the so the demand side of the balance sheet is kind of stuck.
• 14:36
  SPEAKER_01: Um you know, on the bull side of things, uh again, you know, you're gonna continue to hear issues as it relates to the size of the Chinese corn crop.
• 14:44
  SPEAKER_01: And and so, you know, at this point, if if they started to uh need or or show some some in improved uh demand out of that region of the world, um that's probably the biggest driver as it relates to what impact that not only would have on basis levels in the river system, but frankly the U.S.
• 15:03
  SPEAKER_01: balance sheet in total, right?
• 15:05
  SPEAKER_01: I mean, you know, that that's that's the that'd be the the the biggest driver when when it's all said and done there.
• 15:11
  SPEAKER_01: And and if I try to reflect that back to what we're talking about as relates to basis levels in the West, if those are supportive to futures, while you're harvesting a much bigger crop here in the West, you know, you could have uh uh again a very significant change in basis levels from one year to the next in this region.
• 15:30
  SPEAKER_00: Well, continue to watch that going forward into the harvest, and uh, thank you here, Pat, for joining us this week.
• 15:36
  SPEAKER_01: Thank you, Mike.
• 15:37
  SPEAKER_00: And thank you to all our listeners.
• 15:39
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 15:42
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 15:48
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:54
  SPEAKER_00: See you next time.