Nov 28 | Closing Market Report

Todd Gleason: 00:00

This is the November 26 edition of Commodity Week. Todd Gleason's 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 Mike D'Souzalo.

Todd Gleason: 00:18

He's a globalcomresearch.com out of Atchison, Kansas. And Aaron Curtis joins us from Midco in Bloomington, Illinois. Commodity Week, of course, a production of Illinois Public Medium. Public radio for the farming world online on demand at willag.org, where today, right now, you can purchase and don't wait, do it today. Your ticket for the Farm Assets Conference, it's coming up in Bloomington at the Agris Center on the December, just a couple of weeks away.

Todd Gleason: 00:49

The cost is $80 including your noon hour meal. This is different than most of the things we do. The farm doc team will be there along with analysts from both the Illinois corn and Illinois soybean associations and a few others. I think the things you'll want to hear have to do with bioprocessing, hear about that is. We'll have a representative from some of the research here on campus, IBRL, the Integrated Bioprocessing Research Lab.

Todd Gleason: 01:17

Vijay Singh will be with us. And on the other end of that will be Premiant out of Decatur, Illinois and the IFPROOF system. They're hoping to have a corridor between Illinois, U of I, Champaign, and Decatur to develop different types of bioproducts in the future. I think you'll wanna hear that. And then Scott Irwin should join us as well.

Todd Gleason: 01:43

He'll talk about renewable diesel, the RFS, SREs, and RINs. It should be a great day. So much more, you can find all the details online at willag.org and purchase your ticket there as well. Let's turn our attention to commodity week and the panelists we have with us, Mike Zuzlow and Aaron Curtis. And a bit later, we'll catch up with a third panelist from Kipler.

Todd Gleason: 02:09

I think you will find him a real interest. We'll introduce him as the time comes. But, Mike and Aaron, let's start with you. Mike, what things should we talk about today?

Mike Zuzolo: 02:19

Well, I think, you know, trying to blend together what happened on Wednesday, it wasn't, I don't think, all about supply demand fundamentals and and South American weather. I think there's a couple other things that have been kinda simmering in the background that maybe need to be discussed so that we can be ready for next week's trade, especially. I know we come back Friday for part of the day, but next week's trade, when it comes to the, the in case the South American weather doesn't pan out.

Todd Gleason: 02:44

And Aaron Curtis on your list.

Aaron Curtis: 02:47

Yeah. We've seen futures back off of the highs, and that's really slowed down producer selling for the most part, Todd. So, you know, producer, we estimate to be about 35 to 40% sold on corn and 55% sold on beans. So what should they be doing now here with, like I said, futures off the highs, should we be doing much here or be patient? So I'd like to maybe dive into that a little bit.

Todd Gleason: 03:12

Now we talked to Gray Johnson, from TGM on Wednesday. I know he would be a colleague of yours through kind of the Midco relationship. He suggested that producers, were needing to make some moves at this point via who were on basis contracts and that they really were willing to wait it out. I'm wondering if that's across the whole of what you see in the system or not.

Aaron Curtis: 03:34

Yeah. So a lot of base contracts against the December futures and with four first notice day on Friday, which is a little weird this week, Todd, because you got the Thanksgiving holiday in a short day. So, you gotta kinda pay attention a little bit this week because these holiday weeks kinda get chopped up. So a lot of decisions had to be made the last couple days on what to do with, basis contracts that were based versus the December. So I would say a large portion of them got rolled, Todd, to the March.

Aaron Curtis: 04:04

Now the spread weakened out here a little bit to $0.15 actually $0.16 here today for a short time. So spread didn't necessarily go in the producer's favor there as we headed towards cleaning up those last few positions. But I'd say majority of them got rolled. And I think that's partly due to the fact that futures have come off their highs. I think if we were still sitting here like we were ten days ago with with futures at closer to the high, maybe a few more of those would have been priced, but, we did see a lion's share of them get rolled.

Todd Gleason: 04:35

Mike Sislow, as you take a look at this and think about the corn market in general, producers rolling to the March make sense to you, or do they need to consider other options?

Mike Zuzolo: 04:47

I I don't think it makes a lot of sense, and it's maybe too late to really talk about this when it comes to the December. If you've if you've not locked in you're you're or if you've already locked in your basis, Todd, I think giving up that, as Aaron talked about, that 16¢ or 15¢. And sometimes you have to get know, go another penny or 2 in addition in terms of the roll fee. Sometimes not. I guess I would rather put that back into a futures position, I.

Mike Zuzolo: 05:16

E. A bought call that's very much in the money or right with the money, and even maybe potentially sell a call above it so that you're locking in like a 50¢ trading range. I think this is a time period where you really have to be managing the risk very, very closely because I would say 65, 70% of the time, especially if we lose our weather market in South America and given that we're running seven straight weeks higher in soybeans, I really like corn. I think it has more upside potential, but it needs to have help, it doesn't need to have soybeans break it hard to the down the beans that break hard to the downside if that would happen. And so, think when you do a paper position, are managing it a lot better as opposed to letting it sit with the cash side.

Mike Zuzolo: 06:10

And especially if it starts to roll over on you and you take out some key support levels, most of the producers I've worked with in the past would say, well, I'm gonna wait till it comes back. You don't have to worry about that with the option. So I think there's a lot to be said about taking the risk away from the cash market into the paper if you've locked in basis. Exact opposite position would be my my thought. If you didn't have basis locked in, rolling it, I think, makes some sense because then you can pick up probably a better basis because we're gonna just get tighter and tighter and tighter in supplies.

Mike Zuzolo: 06:44

And if you don't have your basis locked in and we stay dry in either Argentina or Southern Brazil, that could help us quite a bit, I think.

Todd Gleason: 06:52

You keep foreshadowing that weather thing coming up next week and the following week, I suppose. I'll get back to you, but, Aaron, I do wanna talk a little bit about looking forward. And today as well, basis clearly for corn has tightened up. Are are supplies that short, or is it just that producers aren't allowing corn to move?

Aaron Curtis: 07:13

Yeah. I think we've had some pockets of the Midwest where things are tighter than maybe normal. You get into areas like Southern Indiana where they've had some very strong basis really all fall. So there's some areas down there that are probably gonna be a little tight all year just because of some production. You move a little further east where they've had some production issues versus maybe what they've had the last couple of years, plenty of corn out West, Kansas, Nebraska, the Dakota.

Aaron Curtis: 07:41

So their basis levels are weaker in comparison. And so Iowa, Illinois are kind of the transition areas between the East and the West right now. So I, but I think a large portion of that is the fact that the farmer has kind of tightened up his selling for the most part. Once harvest is over, the decisions are being made. And really it's hard, once storage is committed to January 1 or DP rates are committed, Sometimes it's harder to make that decision because you feel like you've already kind of paid for it to January 1.

Aaron Curtis: 08:14

So market would really have to rally to pull some of that grain out of storage or off a DP. And then, the farmer really hasn't been too inclined yet to move a whole lot off the farm yet. I think probably comes at the weather cooperates more in these Jan, but we've seen a bigger share of farmers selling across the scale Todd this year than we have seen the last couple of years. I think that speaks a little bit to just the financial situation. Things are obviously tighter here after these last couple of years with these lower prices and higher input costs.

Aaron Curtis: 08:50

So maybe a little more money in their pocket right now. We're still waiting to see what the government may or may not pay them here next month. That'll probably influence a few decisions. But for the most part, I think like they've sold enough, got enough money in their pocket, they're probably okay just sitting here waiting a little bit, especially with these markets off their highs. But we definitely know that the farmer is stock full at home, both corn and soybeans.

Aaron Curtis: 09:17

So a lot of stuff went home. There's a lot of bags around. There's a lot of full storage. So there's some marketing decisions to come, but it looks like, barring any sort of unforeseen rally, it's gonna be a pretty quiet period for a little while here.

Todd Gleason: 09:30

Turn your attention, Mike Souzlow, to that unforeseen rally. I suppose it's related to weather in South America?

Mike Zuzolo: 09:37

In part. I did bring up the weather a lot, Todd, in the beginning because I think we've pulled the weather market ahead by about two or three weeks. So my memory, while it continues to get more faulty as I get older, would suggest, you know, we really don't talk about South American weather till we get closer to the Christmas holiday. But the trade really has bit into that as of mid late last week. I think it's probably because of The US China trading deal being made, but also probably because we have issues in both major countries.

Mike Zuzolo: 10:09

And the trade's putting together the idea, and I think it's a good idea and a correct idea, that while China may not buy what they say they were gonna buy on paper in terms of what they really need, because I I do think there is a kind of a glut or an oversupply of many commodities in China. They probably will buy what they've committed if there's drought problems, especially in Brazil. And I think with Argentina on the table, then that introduces the corn drought potential. So we pulled the drought forward, and therefore it's a higher level of importance coming back from Thanksgiving. But I would also argue that, and we've talked about this on the closing market report the past few weeks on and off, we've had this situation where the wheat and the crude oil just continue to weaken, and they're the best candidates, and the trade's focused on them as the biggest problems with oversupply.

Mike Zuzolo: 11:00

And people are surprised when I tell them this week, that this week our weekly low in soft red wheat was only about $0.30 away from the mid October low, which was a four year low. And in crude oil, we got down to $57.10. Department of Energy is giving us a 51 and a quarter average price for 2026. So we could go lower, but that $57.10 low we made this week is only about $2 a barrel from the April lows that again was a four or five year low. And so you can see very clearly the wheat and the crude oil pressuring the market, and I think it's pinned down until midweek this week, the corn market.

Mike Zuzolo: 11:39

And several things happened very briefly. The currencies flipped. The Chinese currency strengthened. The Russian ruble strengthened. That goes to, I think, the Russian trade deal and the market thinking that Russia has got an upper hand now.

Mike Zuzolo: 11:54

We also saw some negative economic data in that. We had a stronger producer price index than the trade was expecting. We also had some weak consumption data. So the trade kind of funneled into the idea after making a new monthly high in the dollar index, we're too high in the dollar. Let's sell it again because the Federal Reserve's probably going to give us a rate cut in December.

Mike Zuzolo: 12:14

So all of a sudden these two things that were pinning down, the corn market especially, kinda got off the got off the back of the corn and allowed it to go, in my opinion, along with this weather.

Todd Gleason: 12:25

Given all of that, Aaron, fundamentally on the ground, and you've told us there's an awful lot of grain that is remains in the hands of producers. First, is there more than usual? I think there may be. Where is it located generally? I think you're telling me mostly at home, maybe in both places.

Todd Gleason: 12:49

And how does that change what you see going forward?

Aaron Curtis: 12:52

Well, I think it's probably gonna have the largest impact probably on what we do with basis and spreads here for the most part. Futures are typically the third piece that wheel or three legged stool. So futures are usually slower to react if the farmers are slow sellers. So I think we'd continue to see basis firm up here a little bit if the farmer stays uninterested because we still got some in the elevator. There's no doubt about that.

Aaron Curtis: 13:19

Still do some decisions to be made there, but the question will be when does some of this stuff off the farm start to move? Weather's gonna have some impact on that the way it looks this right? Probably not gonna be too excited to get out and move much, but I think mostly it'll have, it'll keep the river continue to be relatively strong. It's been relatively firm because we've got a pretty strong export program. Would expect that to continue to carry over now into January, February, March as some of those sales continue to roll forward into the new year.

Aaron Curtis: 13:54

So I think the river continues to say somewhat stout historically. We've got fairly decent Southeast rail bids because we continue to see that pull to the Southeast based on some lower crops in Indiana, Ohio and Michigan. And then on the opposite side of that basis, Far West probably stays weaker in comparison. So as we look at where grain flows this year, it looks like it's gonna, there's probably not gonna be a lot of Eastern corn goes West this year, which has been a little bit of a case the last two or three years. So that makes Illinois obviously an interesting play here from the basis side.

Aaron Curtis: 14:38

But overall, I think the river stays fairly firm. Southeast rail continues to pull some grain that direction. So if a farmer continues to stay somewhat uninterested, probably more of a function of keeping basis somewhat firm because ethanol margins have been good all fall. Ethanol crush has been strong, soybean crushes, obviously it continues to see records through the expansion. So the domestic usage continues to be a positive story.

Aaron Curtis: 15:05

And if the farmer doesn't continue to feed that usage on a consistent basis, then basis continues to have to do a work. So I think that's where we'll see a lot of the movement if the farmer stays uninterested because we have to look back to what happened last year, just as a reminder, from mid December to mid February, the farmer sold about 50% of their crop. And we saw basis kind of fall apart there in January, early February, and the spreads widened. So if we don't see that kind of action this year, I think we will see basis continue to hang in there and spreads, try to stay on the furnish side, Doug.

Todd Gleason: 15:47

Yeah. By that, you mean you don't see the sales, correct?

Aaron Curtis: 15:50

Yeah. I don't we don't see the producers selling as much. Right. And I still think, you know, you look at a 15¢ off the higher where we're at today, I think that has a lot to do with it right, I think. Their next sale wants to be a better sale than the last one they made so if we stay below those levels.

Aaron Curtis: 16:10

I think it stays slow because there used to be an old adage, Todd, back in the old days, because I'm kind of old right now, but you know, where you you'd buy more grain on down days, right? Because, know, when the market was going higher, producer didn't wanna miss out, down days would cause a little more sell. We just don't see that anymore. Down days, it's Deadsville. And that's what the case has been here this fall when we have some down days and we pulled off the highs, farmer selling just slows completely up.

Todd Gleason: 16:41

Mike, he mentioned in the Southeast that there was a draw there that and we know that their yields were not as good. I'm wondering, when you look forward to the USDA January report and the yield survey that they are taking now or will be in December of farmers, what you think that they will find and how producers ought to use that data.

Mike Zuzolo: 17:07

Yeah. I'm so glad you brought that up because, you know, Aaron brings up a lot of really good points. And and just the two quick points that he made that need to be reinforced for the listener, I think, from my desk is your basis could be a make or break situation this year in profitability last year at this time. In other words, we're about the same price as we were last year at this time here in Atchison, around $4.4 for cash corn. That's about $0.30 plus off the lows, Todd.

Mike Zuzolo: 17:33

And between the November to early February, we jumped and had about four days where we went into the mid fives because of some of the local things that were going on plus the support of the overall market. But it happened quick, it was over quick. And I think this is extremely important to kind of replicate the idea of how high of priority you need to make that basis in the next sixty days. So that goes to your question. If we looked at corn between now and the January crop report, what will we know or feel like we know that the market has to contend with?

Mike Zuzolo: 18:10

We'll probably know about the South American weather. We'll probably know whether the yield is close to my one eighty two, one eighty two and a half, and we'll probably know how bad Ukraine is. That was one of the key things that I was talking about that was simmering in the Baltic. We're near a two year high on the Baltic index right now. Doesn't look like it's because of iron ore or anything like that.

Mike Zuzolo: 18:33

It looks like it's grains. Russia says they wanna get rid of the Black Sea grain deal on Wednesday. And all of sudden, we're hearing now from the Ukrainians, hey. Look. Our seaport loadouts are running six weeks instead of two.

Mike Zuzolo: 18:46

That's why our exports are down 50% both October and now November, and December looks to be the same versus last those three months last year. There's a lot coming together for corn, and I'm talking about corn in a vacuum right now, but that's why I go back to the soybeans and that seven week higher, straight seven week higher gap below us on the weekly chart. What could derail me from getting a really nice opportunity to sell into the January report? Because it's starting to look that way to me right now. And, obviously, South American weather is a big deal because, again, I'll reiterate, that's probably where China will make the decision whether they wanna buy a lot from us or not.

Todd Gleason: 19:24

So you pin this on what you know about the Baltic Sea freight rates. Correct?

Mike Zuzolo: 19:29

And what the Ukrainian government themselves said this week and that Putin and Russia said, we don't need this black seed grain deal anymore. It just seemed to me that several things came together that suggested there may not be the supply there from Ukraine as, what, the third largest corn exporter in the world that we have been used to during this war. That's just it's just something on my list, kinda like the 3,000,000 metric ton ending stocks reduction that USDA did for China for 2526. That's on my list.

Todd Gleason: 20:00

And when you look at that one on your list, what does it tell you about the marketplace?

Mike Zuzolo: 20:04

Not a lot. They did some of the beginning stocks, but they really didn't do much on the other supply demand baseline numbers. But I remember, maybe Aaron can chime in on this and give a viewpoint even if it's opposing. I remember some areas had a lot of hot, dry weather. A lot of areas had a lot of super flooding weather as well during the growing season in different parts.

Aaron Curtis: 20:25

Yeah. I kinda remember it the same way. It's what Mike said. So we'll see where it kinda comes, together here as we learn more information, but don't have anything different to, to what Mike said.

Todd Gleason: 20:40

Yeah. So the thing we'll have to watch is to see China is generally not into the corn They are when they need to be because of their need and want to be self sufficient, I suppose. So we'll have to watch that. I suppose time to get a final word from each of you before we talk to the folks at Kipler. And we'll begin.

Todd Gleason: 21:02

Mike Suzlow with you.

Mike Zuzolo: 21:03

I I think the big thing to I that that this market has shown me over the last few months, Todd, is the funds have stayed absent the long side, and looks like by the new COT data have maybe even added to their net shorts in corn in an environment when the world stocks to use levels are at their lowest since 2012. And I wake up every day saying, why aren't we trading $60.70 cents higher in corn? Well, it's because corn doesn't live in a vacuum. And that vacuum includes crude oil and wheat especially. And so that's really for me, the next three weeks, that's really a big deal along with South American weather.

Todd Gleason: 21:40

And Aaron Curtis, your final word for the day.

Aaron Curtis: 21:42

Todd, I still got a little friendly bias to corn. I still think there's upside there. I think we gotta keep in mind though what levels kind of engage the farmer again because that's gonna have some impact on what we see with basis and probably limit the upside a little bit. I think that's probably, somewhere, closer to that, $4.75 area in March corn. So $20.30 cents higher is probably gonna engage the farmer again.

Aaron Curtis: 22:05

So I'd keep that in mind here if this market, does a little bit, does bounce a little bit. But overall, I think there's some decent support underneath the corn market as we move into the winter.

Todd Gleason: 22:15

Aaron Curtis is with Midco. He and Mike Zuzlow, globalcommresearch.com, joined us for our commodity week recording on Wednesday afternoon along with Matt Darrow, who is with Kipler. Matt, we used yesterday during the closing market report. If you're looking to hear from just him, you can find that on our website at willag.org in the podcast section, or just search out the closing market report in your favorite podcast applications, and you can always hear the whole thing, including Matt and Aaron and Mike in our commodity week program online. Again, that's at willag.or.

Todd Gleason: 22:54

You've been listening to agricultural programming from Illinois Public Media on this Friday afternoon. We hope you had a very good holiday season, and we'll be back to talk with you again on Monday. I'm Illinois Extension's Todd Gleeson.