Oct 07 | Closing Market Report

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Hosted by Todd Gleason from the Land Grant University in Urbana-Champaign, this edition of the Closing Market Report broadcasts from the Independent Grocer Summit in Carterville, Illinois, providing updates on agricultural commodities, rural grocery operations, and global weather. Greg Johnson of TGM reports that the Illinois soybean harvest is progressing swiftly with strong yields, whereas corn yields are proving disappointing due to prior weather damage. Johnson also notes a midday market sell-off as traders await the upcoming USDA crop production report. Shifting to rural food systems, Sean Park from the Illinois Institute for Rural Affairs highlights the challenging operational landscape for independent grocery stores, which average an exceptionally slim 1% net profit margin. Park emphasizes that these rural grocers can remain competitive against large retailers by strictly monitoring unsold inventory, embedding themselves in the community, and developing destination-worthy meat departments. Finally, World Weather Inc. meteorologist Drew Lerner forecasts that Tropical Storm Delta will rapidly intensify into a hurricane before making landfall on the Gulf Coast, bringing severe flooding to southern regions and eventual beneficial rains to the Midwest. Lerner also anticipates a cold front bringing the season's first snow to the northern plains and notes that excessive rain is currently delaying agricultural fieldwork in southern Brazil.

00:30 Ag Markets with Greg Johnson, TGM
08:41 Extension's Independent Grocer Summit
16:46 Ag Weather with Drew Lerner, World Weather Inc

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Todd Gleason: From the Land Grant University in Urbana-Champaign, Illinois, this is the Closing Market Report for the 7th of October. I am Extension’s Todd Gleason coming to you today from the Independent Grocer Summit taking place in Carterville, Illinois. That’s in the deep southern part of the state. We’ll hear more about that a bit later. We’ll also talk to Greg Johnson today, as well as Drew Lerner on this edition of the Closing Market Report.

00:30 Ag Markets with Greg Johnson, TGM
Todd Gleason: Greg Johnson from TGM, that’s totalgrainmarketing.com, now joins us to take a look at the marketplace for the day. Hello, Greg. Thanks so much. It’s a beautiful day. I suspect around 10:00 you got really busy today.

Greg Johnson: Exactly. We’re in the middle of bean harvest. This is the bean harvest week, and we’ve got a little bit of dew first thing in the morning. But once that burns off, people get going on beans hot and heavy, and we anticipate that to be the case really for the rest of the week into the weekend. No chance of rain until Saturday night or Sunday, so we should get a lot of beans cut over the next three or four days.

Todd Gleason: If it goes as fast as you think it does, how far along do you think you’ll be in the area by the time we get to Monday and the crop progress report?

Greg Johnson: Well, in Central Illinois, we’ll probably be close to 70% done with beans, I would think, by the weekend. The state of Illinois is probably 50%, and that’s going to be divided up into 90% done in the southern third, 50–60% done here in the central part, and then just getting a good start in the northern third. The northern third of Illinois and Iowa have been inundated with rain, and that’s not only delayed the harvest but also has raised some quality concerns as well. So I think we’ll be close to two-thirds done here in Central Illinois, but that’s not going to be for the whole state, obviously.

Todd Gleason: I can confirm, because I am in deep southern Illinois, that you are correct. Soybeans are mostly gone here. You can see much further. A lot of corn, too, actually, is gone in this area. What did the market do today? Has it taken a look and made any moves ahead of this Friday USDA crop production report?

Greg Johnson: We had a nice rally yesterday on Tuesday. There were several supportive factors yesterday, and we followed through for a while this morning. Beans were up three to five cents, corn was up a penny or two. But just here in the last hour, as we approach midday, we’ve seen a pretty much a sell-off. Corn is now down five to six, and beans are down six to seven. Wheat is the big loser, leading us down; we’re down 17 cents in wheat midday. So no follow-through right now. There’s a lot of uncertainty about what the USDA report will say Friday. Traders are looking for maybe a one-bushel, some people think two-bushel drop in the corn yield. Bean yields, early indications are they’re good, so I don’t think too many people are looking for a drop in the bean yield from USDA, but maybe a one to two-bushel drop in corn. Which sounds friendly until you remember that they found 170 million extra bushels compared to what traders were looking for in the stocks report last Wednesday, which works out to about two bushels. So you gain two bushels an acre on the stocks report, you lose one or two bushels in this supply and demand report on Friday, and bottom line is we’re right back to where we started.

Todd Gleason: Clearly, you have had enough beans come across the scale that you’ll know whether farmers are happy or unhappy in the east-central Illinois area. I take it they’re happy with that crop?

Greg Johnson: Yes, they are. We were a little concerned obviously with all the rain we had in June, and then again in August, multiple rains with four or five inches at a time in places. But basically, I think the rule or the standard we’ve seen so far is if the beans didn’t drown out, they’re doing really well. We’re seeing a lot of 75 to 82 bushel soybeans, which is a bushel or two or three better than where we were last year. Corn, on the other hand—and maybe this is just early-planted corn, we haven’t gotten very far into the corn here in Central Illinois—but the early-planted corn did not seem to handle the water nearly as well as the beans did. We’re seeing corn yields down 15 to 20 bushels an acre compared to last year, five bushels below their APH, maybe 10 bushels below APH. And if you had wind damage, it’s not even making 200 bushels. So hopefully that wind-damaged area is not a real big area, but I know there were some pretty wide swaths where that storm went through. So corn yields so far are below last year by 15–20 bushels, but the bean yields are probably three or four bushels better than last year.

Todd Gleason: Yeah, by both of those measures, for corn last year, which was an extraordinary year, and the APH, this is not a corn crop that they feel bad about, but it’s not going to be one of their better corn crops in recent years, I would take it.

Greg Johnson: Yeah, I hate to characterize it as disappointing, because it all depends on what you were expecting. But if a farmer was expecting yields similar or better to last year, he’s happy with beans, but with corn, I guess I would have to call it disappointing if he was looking for better yields because we’re just not seeing that for the most part. Now, there are places that didn’t get drowned out and that’s well-tiled and didn’t have the heavy rains. There are some good yields out there, but I think by and large we’re not seeing that very commonly. So in general, I would say we’re probably looking at corn that if last year it made 240, then this year it’s making 225. If it made 225 last year, it’s making 210 this year.

Todd Gleason: How has basis been holding up as you went through the glut of soybeans and then the beginning of corn harvest?

Greg Johnson: So far, the bean basis has held in there extremely well. Thank goodness for an export program. China has been buying a few boatloads here and there, enough to keep the export business strong, so we have not seen a decline in bean basis yet. Sometimes when you get into that second half of the crop, once everything fills up and farmers fill their contracts, if they want to sell more, we might see basis weakness then. But to me, it feels like the farmers are very content to hold onto what they’ve got left, and they’re going to try to sock everything away that they can and hope for higher prices down the road.

Todd Gleason: And for corn?

Greg Johnson: Corn, same way, especially with the disappointing yields. With the hope that China comes in and buys some corn at some point in time, with the lower yield results, with this higher stocks number kind of putting a wet blanket on some of the bullishness, but in general, I think farmers are still very friendly, thinking prices can work higher for the corn price. It may take until January or February, but I think they’re willing to hang on until then and see what happens.

Todd Gleason: You’ve been fairly wary about the Chinese being in the market, particularly for corn, and the $17 billion worth of extra agricultural products. Have you changed your mind at all?

Greg Johnson: Well, if I believe President Trump, I am. Monday, before the farmers in Nebraska, he said that at one point the Chinese would buy lots more US commodities. Another time he said double. Now obviously he’s being optimistic, probably won’t see that much, but even if there’s any percentage of that that China buys, they haven’t bought corn from the US in several, several years. So any purchases of US corn would have to be considered friendly, tighten up the ending stocks table a little bit more, and so yeah, I think if I’m a trader, I think there’s more reward to the upside versus risk to the downside. So I think that’s why the funds are hanging onto their long positions, almost record long corn positions, and I think they’re waiting to see how the Chinese situation plays out.

Todd Gleason: A change of position for you, and hopefully that will come true. We’ll see how that happens. Hey, thank you much. Oh, before I let you go, the crop production report again, what do you think happens on Friday?

Greg Johnson: I don’t think they change the bean yield at all. I think the bean yields are good enough they keep that unchanged. Corn yield, I know traders are looking for one to two bushels lower; I’m going to go with just one bushel. One bushel lower would be my expectation.

Todd Gleason: Thank you much, Greg.

Greg Johnson: Thanks, Todd.

Todd Gleason: That’s Greg Johnson; he is with TGM, that’s totalgrainmarketing.com.

08:41 Extension’s Independent Grocer Summit
Todd Gleason: I’m University of Illinois Extension’s Todd Gleason. We’re now joined by Sean Park. He’s at the Illinois Institute for Rural Affairs at Western Illinois University in Macomb, but today is in deep southern Illinois at a grocery summit, and he was talking to those that were gathered—some of them are grocery store operators, mostly independent store operators—about the things that they should be watching on their bank statements, on how well they happen to be running. I wanted to know about a couple of things that really surprised me. I did not know, for instance, how thin of a margin that grocery store owners operate on. It appears to me, and maybe I’ve gotten this wrong, that nationally it’s about two, two and a half cents for every dollar sold, and the independent is less than that, more like one and a half cents?

Sean Park: Yeah, so it’s about 2.5% before all your financing costs. So it’s kind of skewed a little bit. If you just had to purchase a whole bunch of refrigeration and you’ve got a large loan, that cuts that 2.5% down. So on average, it’s really about 1% is what you end up with.

Todd Gleason: This is an extraordinarily slim margin. It tells you a lot about why independent grocery stores in very rural areas probably have a difficult time remaining in business. There’s just not a lot of profit for the number of employees and owners that need to be there as often as that store is open.

Sean Park: Yeah, it really is. You may have even your small grocery stores that have 15 employees, maybe doing $2.5 million in sales, but it’s a game of inches by the time you get done with it.

Todd Gleason: What do you study mostly, and what kinds of things do you talk about at the Illinois Institute for Rural Affairs?

Sean Park: Well, we’re a little bit like Extension in that we do a lot of different areas. My particular area is mostly food systems, so we talk about local foods, how to get those into grocery stores, but as a grocery store owner, that’s usually my strong suit.

Todd Gleason: Tell me about operating a grocery store. Do you still operate a grocery store as well?

Sean Park: No, not anymore. I sold that and went into some corporate work. I miss it a lot. As tough as it is, there’s nothing like it too. You have control of the ship, so that’s a lot of fun.

Todd Gleason: You operated a store in a town of 3,000. There were two stores apparently within the area; I don’t know whether it was within the town. That seems like a fairly large number of stores, must have been fairly rural. When you talk to operators who are independent operators in these rural areas, where there might be, if they’re not there, what the government would call a food desert, what are the things that they need to keep an eye on day in and day out about those stores?

Sean Park: It is such a thin margin. Nobody gets into this for an investment, so most folks make their money by being the manager themselves. So they are creating their own job, creating another 14 or 15 jobs. It is that daily walk-through where you’re checking all your receiving, everything like that. We get so busy, it’s hard to catch those little things and remember to do them all the time, but that’s where that little difference is made.

Todd Gleason: Tell me about the items that sit on the shelf that may not sell, and how often store owners should check them, and how often maybe they do check them.

Sean Park: Your point of sale system at the front register now can tell you so much data about what’s going on with your inventory and other items, but you can pull up no-sales. It’ll give you a report as to how many items have not sold within the last 30 to 60 days. At that point, say 60 to 90 days, I’d start marking it down. It’s painful to do because you’re not getting full margin on it and you’re thinking money’s tight, but it’s really important to get that out the door, get that money back in as much as you can, so you can buy something that will sell.

Todd Gleason: How does an independent grocery store in a small rural area avoid becoming the place where folks pick up cottage cheese and milk and daily things as opposed to going in and buying their groceries?

Sean Park: There are a couple of different ways that you can at least improve on that. It’s really tough with Amazon and Walmart; folks tend to take a weekend trip and go into town and buy most of the things. But one of those things is really being embedded in the community, being part of the community. Oftentimes your store manager or owner has kids in the same school, things like that. We sponsor little league teams; that’s not something corporate guys do. Another thing that’s possible, it’s not easy, is to make it a destination store. What sets yours apart? And sometimes that’s the meat department; that’s been a really strong category for independent grocers. Because your box stores, they’re not cutting stuff inside, they’re ordering it, it’s coming in pre-packed. It’s just not the same quality. People can tell, so a good meat department really can make it a destination store as well.

Todd Gleason: There is an issue there, and that is the number of butchers that are available, quality folks that can work behind that counter; they are aging out at this time.

Sean Park: Yeah, my dad was a meat cutter for 35, 40 years, I think, in our store. But yes, they are aging out. So we’re putting together a training program, we just did a pilot on it. It was really interesting because one of the stores down here in southern Illinois sent a kid—I say a kid, he’s probably in his 20s—to come and learn because their meat cutter is 75 years old. So this is his chance to get some training, to keep that store stocked so they don’t have to go to the pre-pack stuff. And we’re hoping to grow that. There’s such an opportunity; like you say, it’s kind of a dying art.

Todd Gleason: My primary audience, of course, are farmers. Mostly they would be corn and soybean producers, but there are those who are beef producers. How do they make contact with an independent grocery so that they might supply that meat case, or bring other products in during the season?

Sean Park: Especially for a lot of your local food guys making those connections, we’re seasonal here in Illinois, so it is a little difficult, and we’re not bringing in bananas that we’re growing, so they have to have that warehouse to bring it in. But the quality is so much better on what we grow. And even your local ranchers, with different USDA licensing, taking it somewhere where you’re having it processed, they can break it down into primals, which are larger cuts, or sub-primals. And then your grocery store can cut that down even further into steaks and roasts. Some of your processors can actually do that, and they do a really good job at the packaging too. So then you just bring it in pre-cut. If you can do pre-cut, that’s the way to do it with local beef.

Todd Gleason: Finally, what is the most important thing, from your point of view, that a grocery store owner-manager needs to keep track of?

Sean Park: Oh boy, one thing is tough. I always say I try to find somebody that’s a great bookkeeper because it’s not my strong suit, but that person that has to have every penny balance, man, they’re critical to the business. Because of all those little things, you know, are we getting what we’re supposed to get in allowances, are we being charged what we’re supposed to get, how’s the register running, how are the new people doing? That’s all stuff that takes up a lot of the owner’s time so they can’t run the store. Having somebody like that is huge.

Todd Gleason: Thank you very much.

Sean Park: You’re welcome.

Todd Gleason: That’s Sean Park, he is with the Illinois Institute for Rural Affairs at Western Illinois University coming to you from the Independent Grocery Store Summit in deep southern Illinois today.

16:46 Ag Weather with Drew Lerner, World Weather Inc
Todd Gleason: Let’s turn our attention now to the weather forecast. Drew Lerner is here from World Weather Incorporated in Kansas City to help us explore the global growing regions. Hi, Drew. Thank you much for being with us. Where shall we start today?

Drew Lerner: Well, we’ve got a little excitement in the Gulf of America, so maybe that’s a good place to start. We have a tropical storm, Delta, that formed earlier this morning, and it is going to very quickly intensify. It will eventually be a Category 2 hurricane, our first hurricane of the Atlantic basin season, and it will move fairly quickly towards the central US Gulf of America coast. And this will likely occur by Friday, late Friday, early Saturday, somewhere in that timeframe. The system will probably come inland somewhere close to the Florida-Alabama border area and work its way northward. And it, like I said, will come in as maybe a Category 2. There’s gonna be some wind shear at the last moment, so it probably will weaken a little bit before it comes inland. It’s a relatively small storm, but there will definitely be some flooding rain. And over this past week, we’ve already had some flooding rain in northern Florida, parts of southern Georgia, and southern Alabama. The cotton crop in that region’s been beat up pretty good, and this rain is just going to make that situation worse. But as the storm comes farther to the north, it’ll, of course, weaken and become just a rain event. And there will be disruptions to farming activity throughout the Delta, the Tennessee River basin, and the Ohio River basin. Now, I should back up a minute and say that the Delta, it’s mostly going to be rain in the northern part of the Delta, and it looks like it’ll be more beneficial than detrimental. If you recall, it’s been a very hot, dry year in that particular area. So that’ll be good for them. And the delays to summer crop harvesting in the Midwest and Tennessee basin shouldn’t last more than a few days, and we’ll get right back at it. It should get drier after that, a little cooler perhaps, too.

Todd Gleason: So I am not actually very far from the convergence of the Ohio and the Mississippi River in deep southern Illinois here. Will this area pick up some rainfall from that event?

Drew Lerner: It will, yes. It’s not likely to be heavy, but we will get a little bit of moisture there; I would imagine an inch or two at the most will occur by that point in time. The system will be sheared pretty seriously, and the greater rains will probably be more eastern Kentucky into Ohio. But there will be a remnant of the core of the storm that will come up over southern Illinois, and so there will be some rain there.

Todd Gleason: Anything of difference in the rest of the corn belt north of those regions?

Drew Lerner: You know, not really. I think we’ll get a little bit of shower activity in the southern Great Lakes region, but it’s not going to be much. The next weather event that occurs in those areas and farther to the west will be a cold front that will come up as we get into the middle part of next week, and it will bring in a chance for some rain at that point in time. A lot of cool air in Canada when it comes. So we may see some interesting weather changes in the northern US plains, maybe a little mix of rain and snow with Montana, maybe parts of Alberta, southwestern Saskatchewan, maybe getting some accumulating snow for a brief period of time.

Todd Gleason: Turn your attention to the hard red winter wheat growing regions, please.

Drew Lerner: Yeah, in that area, we did do a really good job in putting moisture back into the soil across a large part of that region in late September. The area has been drying down here recently, but that’s a good thing. And aggressive fieldwork is underway, and it’s warm out there. Every day is going to be in the 80s this week, and that is going to not only firm the soil, but it’s also going to stimulate some very quick germination and emergence. So these producers can expect to see their crop get caught up after being maybe a little slow going into the soil because of dryness earlier on. So I fully expect to see a pretty good stand of wheat when we get down the road a few weeks.

Todd Gleason: Now you mentioned the northern plains. Once in a while, we get snowstorms in the month of October. I think actually fairly often. Have we seen any snowfall there yet?

Drew Lerner: Not yet, but as I mentioned, I think we will see that develop as we get out into the weekend coming up. It looks at this point in time that it’s going to be one of those situations where the temperatures drop pretty quickly, and the ground is so warm, it’s going to be hard to keep the snow on the ground for any length of time. But it might be a little stressful for some livestock up that way because we will see temperatures in the 80s in the next couple of days, and then we’re going to turn around and bring those low temperatures down into some 20s. So it will get fairly stressful for some of the animals there. But the snow itself that’s going to occur, it will be the first of the season. And I imagine central Montana into Alberta will probably pick up a few inches of snow. But you get into eastern Montana, northwestern North Dakota, it’ll just be snow in the air and just a little bit of accumulation in grassy areas for a short period of time.

Todd Gleason: A quick word on South America before I let you go.

Drew Lerner: Yeah, it still looks like southern Brazil is still looking at a very wet scenario. A lot of rain coming up over the next two weeks. That is going to create some delay in farming activity. Field progress is really moving along fairly swiftly in that area up to this point, so we’ll see what happens as we go forward through the next two weeks. Center-west Brazil, though, still needs a better drink of water. They’ve been getting some scattered showers; it’s just been erratic and light. And if they can’t get a more generalized rain, we’re going to end up with some rather uneven emergence and early development—not a crisis, but it just puts an extra pressure on for better rains later in the month of October or in November.

Todd Gleason: Hey, thank you much. Have a good day.

Drew Lerner: You too.

Todd Gleason: That’s Drew Lerner. He is with World Weather Incorporated in Kansas City, and helped us wrap up this Wednesday edition of the Closing Market Report. I’m coming to you today from the John A. Logan Community College and the Independent Grocery Summit in deep southern Illinois. Thank you for staying with us. Be safe on those back roads across all of rural America. Watch out for the farmers and their equipment, and they’ll be looking out for you. I’m Extension’s Todd Gleason.