Latest / Commodity Week / Sep 25 | Commodity Week

Transcript

Sep 25 | Commodity Week · Commodity Week

• cw260925 This edition of *Commodity Week*, hosted by Todd Gleason, features market analysts Arlan Suderman, Dave Chatterton, and Ted Seifried evaluating current grain marketing dynamics, harvest progress, and geopolitical trade developments. The panel examines the recent US-China summit, anticipating official details regarding China’s 25-million-metric-ton soybean commitment, proposed agricultural tariff exemptions, and a $17 billion purchase agreement. Discussion also covers yield projections, with Suderman modeling the national corn yield at 181.1 bushels per acre amidst harvest-related basis pressure and tight global shipping logistics. Chatterton highlights fuel price volatility and reminds producers of upcoming crop insurance and Farm Bill ARC/PLC deadlines. Finally, Seifried previews the September 30 USDA Grain Stocks report, projecting steady carryover figures, and advises utilizing synthetic puts to lock in profitable cash sales while maintaining upside exposure to potential early 2027 South American weather risks. Panelists - Arlan Suderman, StoneX - Dave Chatterton, Strategic Farm Marketing - Ted Seifried, Zaner Ag Hedge --- Todd Gleason: This edition of Commodity Week was recorded Friday morning, September 25. announce: Todd Gleason’s services are made available to WILL by University of Illinois Extension. Todd Gleason: Welcome to Commodity Week; I am Todd Gleason. Our panelists for the day include Dave Chatterton of Strategic Farm Marketing, Arlan Suderman of StoneX, and Ted Seifried of Zaner Ag Hedge. Commodity Week is a production of Illinois Public Media. It is public radio for the farming world, available online on demand at willag.org. You may still find the “Will Give” button at the top of the page to donate and support agricultural programming, which we would appreciate. Otherwise, we are here for you each day on willag.org with the closing market report, offering a daily look at the marketplace featuring top brokers and analysts and the best weather segment available. You can find the closing market report online on demand at willag.org or by searching for it by name in your favorite podcast applications. Arlan Suderman from StoneX now joins us. Thank you, Arlan, for taking time with us during a very busy week. Let’s start with the US-China summit between President Trump and President Xi that took place Thursday. It appears there were not any major agricultural takeaways; were there? Arlan Suderman: We will find out on Monday whether there were. I am confident China will keep their commitment on the 25 million metric tons of soybeans, and I am cautiously optimistic they will increase purchases of other commodities. Both President Trump and President Xi had a vested interest in reaching an agreement to address issues within their respective countries. They have a relationship where they can negotiate, despite having different long-term objectives, but they know they need each other to reach those goals. China needs our chips and access to our large consumer market. Spending a couple hundred million extra on our commodities compared to what they would pay Brazil makes little difference to them in securing access to hundreds of billions of dollars in our consumer market. They also need our concessions on Taiwan. We need concessions from them as well, particularly ahead of the midterm elections, so I fully expect a positive outcome. The funds were disappointed there was no immediate announcement, although we saw the same pattern a year ago in October and again in May—no announcement during the meeting, followed by a White House agreement a couple of days later. China never publicly clarifies or agrees, but they simply follow through on their commitments, at least regarding the 25 million metric tons of soybeans. Todd Gleason: When do you expect an announcement to come? Arlan Suderman: We are being told to expect a release on Monday. Information might leak over the weekend, but the trade representative has indicated a release on Monday. Todd Gleason: Given that timeline, and speaking early Friday morning shortly after the market open, has the trade damaged the charts in any way? How do you see this playing out through harvest? Arlan Suderman: It is a money flow issue. Corn is currently riding on top of significant chart support. It is harvest time, a period when we seasonally experience pressure. The funds held near-record large long positions, making the market vulnerable. I stated last week that a significant pullback would not surprise me, though it does not change my longer-term outlook. I feel most comfortable with soybeans because I expect China to purchase the 25 million metric tons. We maintain a strong Renewable Volume Obligation program for biofuel, and if we achieve the crop size the USDA forecasts, demand rationing will be necessary. Price will need to shift non-China business to Brazil, which has not happened yet, keeping me confident in soybeans. Long term, I also feel positive about corn and the commodity sector as a whole because we have two ongoing wars affecting commodity logistics. Despite movement toward negotiations, resolving these logistical risks will take a long time, similar to taking a trip to Hawaii and only making it to Salina, Kansas. Todd Gleason: You have only made it to Salina; that is not very far. Arlan Suderman: That is exactly how I feel about their current progress. Todd Gleason: The follow-up question regarding corn relates mostly to yield at this point. Farmers are just getting started, and they are not convinced the corn crop is as large as estimated. Although they rarely claim it is terrible, they are convinced everyone else’s crop must be awful. What do you think? Arlan Suderman: That is an accurate assessment. In my four decades in this business, I have learned not to trust anecdotal stories. I currently model the crop size at 181.1 bushels per acre. Our September customer survey indicated 182.7, and we will release another survey on October 1. Customers are now in the fields and will have a better assessment. Ultimately, the combined results matter. While some areas argue the crop is much smaller, we are also seeing excellent yields that are not widely discussed. Discounting modern hybrids and technology usually leads to trouble, so I will stick with my model until the actual numbers prove me wrong. Todd Gleason: I learned that discounting hybrids back during a flash drought—I believe in 2008, or perhaps 2017—was a mistake. Arlan Suderman: Yes, 2017 as well. I experienced that firsthand in northern Illinois. Todd Gleason: Rain functions differently now. The discussion currently focuses on nitrogen and whether there was enough to maximize the crop’s potential. We will find out. Arlan Suderman: Exactly. The longer-term story remains demand, rather than the crop size. Once the crop size is determined, focus will shift back to global demand trends. Todd Gleason: It would have been encouraging for producers and the industry to see ethanol addressed regarding China and exports. Is it possible ethanol could be part of the $17 billion package, or is it excluded? Arlan Suderman: I anticipate any further announcements will be part of the $17 billion package. Ethanol and DDGs are possibilities. There have been rumors of movement on DDGs, and our DDG prices into China are highly competitive compared to Brazil, which recently opened its market. Todd Gleason: Joe Janzen, an agricultural economist at the University of Illinois, recently wrote about basis during a five-week trough from late October through early November. He estimated corn basis could drop by an average of 19 cents. Based on your knowledge of the industry, how much basis pressure might occur during the harvest season? Arlan Suderman: It depends on harvest progress. Areas missing the rain will see basis pressure earlier. In areas receiving rain, the basis drop will be delayed. If the harvest drags on due to continuous wet conditions, the basis break may not occur. This is especially true for soybeans; some crushing plants are scaling back because they cannot source beans. Booking a train when harvest is happening, only to fill storage with expensive beans before the local harvest opens, forces a pause. This creates a premium on basis. The national average soybean basis is dropping, indicating more areas are harvesting than not, and this trend will likely spread over the next week unless weather forecasts hold. Todd Gleason: Do you have any recommendations for producers? Arlan Suderman: Focus on long-term margins. Diesel remains your highest cost, and fertilizer concerns persist. Six months ago, there was a large inverse market for fall harvest diesel where deferred contracts were cheaper. Now, prices are at record highs, but the large inverse remains, offering cheaper deferred contracts. Consider the carry in current grain prices and try to lock in profitable margins by combining deferred input costs with crop sales. Securing a profitable margin prevents financial failure. Todd Gleason: Thank you very much. Arlan Suderman: Thank you. Todd Gleason: Arlan Suderman is with StoneX. Now let’s turn our attention to Dave Chatterton with Strategic Farm Marketing, right here in Champaign. Hello Dave, thank you for being with us. As Arlan discussed managing diesel fuel needs for deferred months alongside crop sales, how do you view diesel fuel right now? You follow agricultural energies closely. Dave Chatterton: Volatility is the first word that comes to mind. This applies to grain markets as well, but specifically regarding events in the Middle East and the Black Sea, Russian distillate exports are heavily influencing the mix. Geopolitically, there were hopes for a Black Sea resolution or phase-one reopening of the Strait of Hormuz, but nothing concrete has materialized. Distillate inventories in the US and globally are well below average. As we enter the highest demand period of the year this winter, there is no quick fix for these supply issues. We must endure this current phase. Looking forward to next spring and summer, there is a large inverse in the marketplace. For example, the nearby contract trading at $4.75 this morning drops closer to $3.70 for next year’s average, and Q2 of next year is below $3.90. While I do not love those numbers, they are better than recent prices. Producers should discuss next spring’s prices with their fuel suppliers and remain opportunistic, treating any substantial correction as a buying opportunity. Todd Gleason: Let’s discuss crop safety net programs, such as ARC, PLC, and crop insurance. What are you discussing with producers regarding these programs? Dave Chatterton: We have a September 30 deadline to secure winter wheat insurance, which is not major in our immediate area but applies to parts of southern Illinois, Missouri, and Kentucky. Ensure you speak with your agent about that. We also have a fall crop insurance program called Margin Coverage Option, which replaces Margin Protection. It is gaining traction due to current prices. With a $5.25 fall discovery price for corn and $12.33 for soybeans, deciding whether to lock in those values now versus waiting until February involves debate. Some producers are willing to pay a per-acre premium to secure these levels rather than risk what might happen next spring. Reach out to your agent for information. Additionally, we received notice from the RMA and FSA that the sign-up deadline for the 2026 crop we are currently harvesting will be December 11. We have three ongoing processes: the 2025 payments issued in early October, the delayed 2026 crop sign-up moving to December 11, and the spring 2027 crop sign-up returning to its normal March 15 deadline. Due to changes in the Farm Bill, the better option between ARC and PLC is automatically applied for the 2025 payments. The December 11 deadline gives us a look-back capability to decide between ARC or PLC. For issues in central Illinois regarding wind damage and specific field problems, ARC Individual Coverage may benefit some producers. This must be evaluated on a farm-by-farm basis, so ensure you meet the December 11 deadline. Todd Gleason: To clarify the December 11 ARC and PLC deadline: if a producer has already made an election, can they still change it? Dave Chatterton: Yes, if you have made an election and wish to change it, you have until December 11 to do so. The FSA offices are urging producers to make this decision to finalize the paperwork. Todd Gleason: Let’s focus on the current market, which did not respond strongly to the recent summit. How do you view the situation? Dave Chatterton: Not much new information emerged from the summit, which aligns with market positioning. The market was hoping for positive news, receiving only a reaffirmation of what we already knew. Combined with geopolitical events like the potential reopening of the Strait of Hormuz and efforts by Turkey and Egypt to resolve Black Sea shipping issues, there is no positive commodity news. We await a fact sheet from the administration regarding the additional $17 billion in agricultural purchases, but China will likely remain secretive about the details. We are facing a correction as funds reduce historical long positions. The underlying supply and demand fundamentals, yields, and geopolitical issues in South America and Europe remain unchanged, requiring patience during market fluctuations. Todd Gleason: Given the funds’ partial exit from positions, it remains a cash-driven market. How much downside risk exists, considering the strong support? Dave Chatterton: Money flow creates extremes on both the upside and downside. There is an open gap in the December corn contract between $5.06 and $5.10, which is a logical downside target. Soybeans have solid support below the $13 mark. I do not anticipate prices spending much time below that level given current demand and crush figures. Cash markets have heated up in the western Corn Belt due to harvest delays, with processors posting substantial over-basis bids for quick shipment. Cash deals are available if you have the grain positioned correctly. It will require managing both futures prices and basis levels. Todd Gleason: Looking ahead to October, there is another USDA crop production report. Do you anticipate yield adjustments? Dave Chatterton: Keep in mind we also have a September 30 stocks report before the next USDA report. Historically, after adjustments in August and September, the October change is usually minor, likely less than a bushel per acre for corn. Early harvest reports in our area indicate more disappointment than expected. Whether the USDA reflects this in October remains uncertain. Yields likely need to come down, but a true adjustment may not happen until the end of the year. Todd Gleason: Thank you very much, Dave. Dave Chatterton: Thank you, Todd. Todd Gleason: That is Dave Chatterton; he is with Strategic Farm Marketing. Ted Seifried joins us now from Chicago and Zaner Ag Hedge. Hi, Ted. Thank you for being with us and taking some time on Friday morning to talk about the marketplace. Ted Seifried: Hi, Todd. The pleasure’s mine, and it’s great to be on the show. I appreciate it. Todd Gleason: Dave just mentioned next week’s USDA Grain Stocks report, which is due out on Wednesday at 11:00 AM Central. Those figures will be posted to our website at willag.org under the USDA tab shortly after release. This is one of the more interesting reports because it represents the final tally of the previous marketing year, and the ending stocks numbers for the 2025/2026 crop year will roll forward directly into the October WASDE balance sheets. What are your expectations? Ted Seifried: I have corn stocks coming down slightly. As you noted, these represent old-crop ending stocks for the fourth quarter. I project corn stocks decreasing a bit, while soybean stocks may rise slightly. Interestingly, this is the narrowest range of trade guesses for corn that we have seen in seven years. Ever since the USDA reported a 17-billion-bushel corn crop last year, many analysts—including some on the program today—have argued that feed and residual demand is overstated and that last year’s production figure requires a sharp downward revision. Having run the math repeatedly, I disagree. The USDA’s feed and residual figures remain well within standard statistical parameters. Historically, feed and residual accounts for 35% to 38% of production, or 32% to 34% of total supply (beginning stocks plus imports and production). Last year’s figure settled right in that zone at 37.2% of production. Furthermore, the implied fourth-quarter feed and residual usage reflects one of the smallest year-over-year increases on record. The USDA could potentially revise usage lower for the first or second quarter—the periods when the bulk of feed and residual demand occurs—but absent that, I do not see the justification for a major cut. Exports have performed somewhat stronger than USDA projections. My corn carryover estimate is 1.890 billion bushels, compared to the USDA’s previous estimate of 1.920 billion and an average trade guess of 1.918 billion. The trade is not anticipating any significant adjustment there. For soybeans, the trade expects ending stocks at 324 million bushels, down 1 million from the previous USDA figure. I am slightly higher at 333 million bushels, as crush came in slightly below the USDA target. Overall, neither I nor the trade expect major surprises from this release. However, that consensus is often when unexpected revisions occur. The USDA retains the ability to alter previous production estimates or prior quarterly stocks numbers, making this report an inherent wildcard amid an already volatile geopolitical climate. Todd Gleason: We will return to the crush figures shortly, but staying with geopolitics: we discussed expectations regarding Thursday’s meeting between President Trump and President Xi with Arlan and Dave. Few direct agricultural outcomes have emerged so far, though announcements could follow next week. How do you see that developing? Ted Seifried: A similar pattern occurred in May during their previous Thursday meeting: few immediate details were shared, the market dropped sharply, and a comprehensive fact sheet was released over the weekend detailing $17 billion in agricultural commitments, which propelled the market higher the following week. We may see a comparable setup now. Officials indicated that a fact sheet will be issued on Monday, though it could surface over the weekend. Reports emerged today indicating the US and China plan to announce tariff exemptions covering agricultural, medical, and low-tech goods. That represents a positive development, as reducing or removing China’s 10% tariff on US agriculture addresses one of the primary market objectives. The second key objective is obtaining clarity on the $17 billion in agricultural purchases. To date, there has been little evidence of China fulfilling that portion of the trade agreement. They currently have approximately $3.6 billion of non-soybean agricultural products booked, which is below normal seasonal volumes for a non-trade-war year. The trade requires reassurance that the $17 billion commitment will be realized, ideally with specific volumetric breakdowns for commodities like corn and wheat. Indications of progress on tariffs provided mild support off Friday morning’s lows, but the market is holding out for concrete details. Todd Gleason: Expanding on your earlier point about crush, why do you expect the final marketing-year number to fall below USDA projections? Ted Seifried: August crush performance fell short of expectations. That said, domestic crush remained strong throughout the year, with multiple months setting historical records. However, repeated upward revisions by the USDA elevated expectations to unsustainable levels. While the official USDA August crush figure is not yet out, applying standard deviations to the NOPA data suggests total marketing-year crush will fall roughly 5 to 10 million bushels short of the agency’s target. That deficit is relatively minor. A marginal adjustment in previous crop production—such as the 7.4-million-bushel increase the USDA implemented in this same report last year—would easily offset it. Because export and crush totals are largely known quantities at this stage, calculating carryover is largely an arithmetic exercise; the primary variable remains whether the USDA adjusts last year’s production total. Todd Gleason: Considering NOPA (National Oilseed Processors Association) operations, did maintenance shutdowns and low pipeline supplies cause the August crush slowdown, and how should producers approach marketing for both corn and soybeans across the board? Ted Seifried: Expectations for August NOPA crush were simply set too high. August is a traditional window for plant maintenance due to favorable weather and the seasonal depletion of old-crop soybean inventories, which makes sourcing cash beans difficult. As cash prices rallied in August amid weather and yield concerns, remaining on-farm stocks stayed largely locked away. Processors faced supply constraints, planned seasonal downtimes, and daily crush paces that fell below the trade’s elevated models. Regarding producer marketing, current uncertainty is high. If announcements arrive Monday showing China expanding soybean purchases by 10 million metric tons or committing to 20 million metric tons of corn within the $17 billion package, aggressive cash sales right now would look premature. Conversely, current price boards reflect historically strong opportunities that demand attention: January soybeans around $13.00 to $13.25 and March corn near $5.37. A practical strategy in this environment is a synthetic put—selling cash grain or futures to lock in current price levels while purchasing call options to retain upside exposure if policy developments spark a rally. If Monday passes without substantial, market-friendly trade announcements, the combination of harvest pressure from producers and profit-taking by funds holding near-record long positions could trigger a deeper seasonal market correction. That potential dip would present a re-ownership opportunity heading into winter, when risks surrounding a South American Super El Niño, European supply constraints, and Black Sea shipping issues could establish higher price targets in early 2027. However, long-range El Niño forecasts do not always materialize into crop damage. South American planting conditions currently feature favorable subsoil moisture in Mato Grosso, with no immediate weather threats. If those benign conditions persist through December, the weather premium currently supporting the market could evaporate. Given that current prices remain attractive, disciplined and proactive marketing remains essential. Todd Gleason: Thank you very much, Ted. Ted Seifried: My pleasure; thanks, Todd. Todd Gleason: That is Ted Seifried with Zaner Ag Hedge. You have been listening to Commodity Week from Illinois Public Media, public radio for the farming world, available online on demand at willag.org, where you can access our programming in its entirety at any time. Our thanks again to Ted Seifried of Zaner Ag Hedge, Dave Chatterton of Strategic Farm Marketing, and Arlan Suderman of StoneX. For University of Illinois Extension, I’m Todd Gleason.