Apr 03 | Commodity Week

Todd Gleason: 00:00

This is the April 3 edition of commodity week. Welcome to commodity week. I am Tug Gleason. Our panelists for the day include Matt Bennett from AgMarket.net. He's in Windsor, Illinois.

Todd Gleason: 00:16

Logan Kimmel joins us from Naperville. He's at Roach Ag, that's roachag.com online, and Mike Zuzlow's at GlobalComResearch.com in Acheson, Kansas. Commodity Week is a production of Illinois Public Media. It's public radio for the farming world online on demand anytime you'd like to listen to us at willag.org w I l l a g 0 r g. There you'll find our daily agricultural programming from the opening market report to the closing market report and all things in between along with information from the crop scientists, the agricultural economist, the animal scientist on the Urbana Champaign campus of the University of Illinois.

Todd Gleason: 00:56

Let's get a list of items that we should take up for the day. I'll start with Mike Zusalo at GlobalComResearch.com. Hi, Mike. I hope things are going well in Atchison. What's on your list for the day?

Mike Zuzolo: 01:07

You know, I guess since we don't have much to talk about, I was wondering if we could maybe talk about the chartreuse rooster tail and your spring fishing tackle box and the best

Mike Zuzolo: 01:16

uses for that.

Mike Zuzolo: 01:18

No. I guess we'll talk about tariffs. We'll talk about planting. Whatever the other guys wanna talk about, we could talk about too.

Todd Gleason: 01:25

Alright. Logan Kimmel, anything additional on your mind that you've been watching?

Logan Kimmel: 01:29

Handful of moving parts here last twenty four hours. I think volatility's the name of the game here. Something we could discuss is, amidst all that, we didn't have all crop markets closed too badly here today. So what opportunities will be out there as we get into planting and the heart of the growing season upon us.

Todd Gleason: 01:50

And Matt Bennett.

Matt Bennett: 01:51

Yes. I I think they've covered it, just the tariffs and reaction today and what we might expect moving forward. And then what the acreage in quarterly stocks that we got there on Monday, how that might impact the market? Will those numbers come to pass? Or could we add a few acres here and there?

Matt Bennett: 02:10

Or what the combination of those acres look like?

Todd Gleason: 02:13

There has been so much that happened in the last twenty four hours. I had nearly forgotten that we had both the green stocks and the acreage or prospective plantings report released on Monday. Let's go through it by calendar events, And we'll begin, Mike Souzlo, with you on the grain stocks figures. Not too many surprises there. What did you think of them?

Mike Zuzolo: 02:35

No. Not at all. And and I think, you know, given the fact that we do have some weather to talk about in both The United States and still in South America and maybe some other places around the world, Todd, I felt like that the supply side was what we got early in the week from the acreage and stocks report. Having the second lowest wheat acres since 1919 was a real boost fundamentally to the bigger stocks number. And you could see with the corn and beans as well, like on farm stocks of corn and beans being so much lower than year ago levels really helps support the idea that, yes, we have big corn acres, but they're not planted yet.

Mike Zuzolo: 03:13

Soybeans obviously finding the best, I think, in both reports, both stocks and acres. But that was kind of mitigated by the harvest. So I felt taking a look at everything in its totality when you incorporated the supply side and the weather in these reports, we didn't chase the bowl away. I think that we are still tight enough in supplies that if the demand is there, we could still have weather led rallies.

Todd Gleason: 03:37

Logan Kimmel, would you agree just on the simple supply and demand tables that the reports on Monday made things feel and continue to feel just a bit positive?

Logan Kimmel: 03:47

I think so. I I think for the week that was actually part of more of the quiet end of things with all the trade coming in right at about the estimates, including the acreage. So still sitting fairly tight here in the corn market. I guess the only surprise, not surprise, but something I'll keep an eye on to me was the spring wheat acreage coming in at the very low end of expectations and about 500,000 acres below the average trade guests. So that to me seems pretty low.

Logan Kimmel: 04:21

You throw in a little weather problem here. That spring wheat acreage number seemed to me fairly low.

Todd Gleason: 04:27

There are fewer soybeans being to be planted apparently, met Bennett across the Midwest, in the primary states, the I states, as well as others, North Dakota. Did that surprise you, given the number of acres of corn, you were thinking would be put into the ground prior to this report?

Matt Bennett: 04:50

Yeah. I wasn't surprised by bean acres being down. I mean, essentially, corn is not going in the ground necessarily this year because it's wildly profitable. It's going in the ground because soybeans are not profitable. And so we talked to a lot of growers, and these guys I'm sure did, that said we just can't make $10 beans work on our farm in certain areas.

Matt Bennett: 05:11

I know in Central Illinois, there's some awfully good yields we've seen here the last few years and a lot of 75, 80 bushel beans, and that might work okay with the kind of price action we've seen. But at the same time, you get out of this area where APHs are ten, fifteen bushels lower, and it's just pretty tough to call it a profit. And so to me, I thought that the bean acreage number at 83.5 could have even been a little bit lower. It wouldn't have surprised me if it was. But by all means, I think that it makes a lot of sense you know, you're down 3.6 versus a year ago, and it'll be interesting to see if all those beans get planted, depending on what the spring looks like.

Todd Gleason: 05:50

What do you think the supply side of the S and D table will tell us going through the season and looking forward?

Matt Bennett: 05:57

I think a couple of things. I suppose you're talking both corn and beans here. But I think whenever we look at this from a corn standpoint, quarterly stocks tells us that, that really strong disappearance of corn is actually going on. Some were a little bit concerned that maybe you'd get a bearish quarterly stocks number. I don't know that I've ever seen a quarterly stocks average analyst guess come in right at the number.

Matt Bennett: 06:23

I mean that's just that is not a common occurrence. And so that was pretty interesting. But yes, it confirmed really strong demand. You look at soybeans, and it came in basically at the gas as well, which would confirm that we're still going to have plenty of soybeans. So I think moving forward, what I really want to watch is, what's the USDA do with exports?

Matt Bennett: 06:44

Could they maybe trim a little feed usage? I don't think there's any doubt that they could do that. But seeing the kind of 200,000,000 bushels less than what we saw a year ago at this point, definitely would lend credence to $154,000,000 may have to come down just a shade. And then on soybeans, I think a lot of it's going to depend upon stuff we're going to talk about moving forward, like with the tariffs and whatnot. Is China going to go ahead and take all the beans that they purchased off of us because there's still a fair amount of unshipped sales?

Matt Bennett: 07:13

So if they would cancel some of those, especially with crush backing off here lately, as far as how much we've been crushing, crush margins have actually improved this week with the soil prices. But bottom line is if they would cancel some of these, I'll tell you, it would be a little problematic for the balance sheet.

Todd Gleason: 07:31

And then Mike Susolo, can you pick up on that as it's related to crush in soybeans? The potential, for renewable diesel to pick up and for there be a to be a lot more demand for soybean oil, but a lot more bean meal around and what needs to be done in The United States or in the export markets in order to handle all of those products and how the soybeans react.

Mike Zuzolo: 07:57

Yeah, that's a good point because that was another piece of the puzzle this week was the EPA meeting with Big Oil and Big Biofuel and the USDA Ag Secretary talking in Iowa about working hard with EPA on the biofuel policy. Think we are moving towards a higher level of sustainable aviation fuel. It it goes back to how quickly can we do that, and and it's sorely needed. I think that's what your major point is between the meal being the leader to the downside, the short side of spreads, and and the potential, as Matt said, about losing some soybean demand to China, especially with this trade issue. It it seems to me, Todd, that when everything's all unpacked, not knowing what China's response is yet, and that's a big one, and we're not we're not near done on knowing what the demand side is because we still haven't heard from China.

Mike Zuzolo: 08:51

I I think we're sitting in a situation where we're still looking in on in our offices. The beans are still the leader to the downside, whether it's the export market, export sales were horrible for the products this week. The Brazil supplies are coming on. They're not going to be small. Corn may be able to be ticked down and move some metric, several metric tons lower in production, but beans look like they're going to be there.

Mike Zuzolo: 09:16

And then this China trade relationship and then where do you go with the domestic demand to offset the export demand? And I don't think there's a good place there even though we did hear from the EPA that they're talking about, you know, going from 3,500,000,000 gallons to upwards of 5,750,000,000 gallons of sustainable aviation fuel. It's almost a 70% increase, but again, it's gonna take some time to get there, I think.

Todd Gleason: 09:39

Do you think and maybe I can ask all of you because I don't know who will know the answer to this question. When they're talking about sustainable aviation fuel, do you suppose that there is a differentiation, in the definition, on the ag side as opposed to the oil side so that the oil industry has already invested in the soybean processing plants, the renewable diesel, or added on the ability to create renewable diesel, which they could also manage to use at some point for as SAF or sustainable aviation fuel. And so is oil looking the question really is oil looking at soybeans and the plants they have in place or or and is corn looking at ethanol and the plants that they have on in place and how does that play out because it can be made from either. Oftentimes, it's more likely it's made from an oil base as opposed to an alcohol base, and it just I I'm just thinking that through and wondering what that really means for the marketplace. Anybody have thoughts on this one or have you read very much about it?

Mike Zuzolo: 10:51

I'll just say real quickly I met a fellow last winter that was talking about this to me and you know he was saying California was the place to go because in his mind it was about 30% of the total amount that the whole US would consume initially. It was the best place to start and it was the place that was leading the way. We saw where that got us. I think that is, to my earlier point, is how long will it take? Will a state like California not accept biofuel that is soybean based?

Mike Zuzolo: 11:19

And will Europe then change their regulations and not want any kind of our biofuel because of the trade negotiations? So seems very cloudy to me, very muddy waters right now as far as being able to replace that lost potential export demand.

Todd Gleason: 11:34

Logan Kimmel, this is part of the volatility you suggested that is the name of the game, including the tariffs that were announced on Wednesday Wednesday by president Trump. How do producers take advantage of volatility during the planting season?

Logan Kimmel: 11:51

Well, I think today was a pretty good example here in the last twenty four hours as the announcements were coming out. We saw multiple markets last night trading sharply lower led by the financials and the energies. Well, that led to a lower open last night and the grain markets gapping down. And I think it took until the day session to really see it out and ended up finding some buyers here in the corn and wheat markets. Is that partly due to Mexico and Canada not being on the reciprocal tariff list?

Logan Kimmel: 12:28

I think so. But I think in times like that, it shows having a plan in place and not to get wrapped up in the emotion with the headline news that comes out and moves the markets. I think we're going to continue to see that going forward here. It seems to be the tactic or the approach of the administration using the tariffs for a couple of few things. One is negotiating, two is a revenue source and three protecting national security.

Logan Kimmel: 13:00

So when headline announcements come out and move the markets, the grain market specifically, it'd be advantageous not to get wrapped up in the emotion, even though it's very easy to, because I think if we zoom out big picture, there are other factors that could be friendly here to our crop prices heading into planting, including extreme weather, flooding in most of in some parts of the Corn Belt, especially Southern parts. So I think there'll be other headline news opportunities where marketing, better prices might come about. And today was a good example of actually having a decent close here on the corn market and the wheat. So keeping the emotion out, having a plan in place as we navigate tariff talks, negotiations. I think that's going to continue here going forward.

Todd Gleason: 13:56

I was thinking about the tariffs and wondering, Matt Bennett, about the reciprocals, versus the 10%. And I think just for clarification's sake, the reciprocals are are not additive to the 10% when you saw those numbers that were on the placard the president was holding in the Rose Garden. Those were the total tariff amounts, including the 10% to the best of my knowledge. Still, the two are are separated, and I'm wondering if the reciprocals or the negotiation and, to Logan's point, the 10%, and Logan didn't quite put it this way, but the 10% are the revenue generation that the president wants to use of to make tax cuts going forward and how that impacts US trade if they simply do not come off?

Matt Bennett: 14:51

You said a lot there, first of all, Todd. I mean, to be honest, I don't know that anybody knows exactly how this is gonna work. One thing that was noted today is China came out and basically demanded that we drop the new tariffs that he proposed on them immediately. And they said, but we'd like to essentially, we're going to talk about it. They also said that they're a long ways away and that they're not confident that something's going to be resolved there.

Matt Bennett: 15:22

But how he's instituting them, who exactly is getting tariffed, he said that you're going to basically 10% across the board here. And so in my opinion, I guess we've got a lot to learn here. To be totally honest, Todd, it's a fluid situation. It's hard to understand as a producer, like Logan said. I'll tell you what, you don't want to be reactive to this type of news, if you will.

Matt Bennett: 15:54

You don't want to get scared into making sales whenever you wake up and the markets gapped lower and you're all of a sudden looking at lower price, you're thinking, what are we going to do if we go down another $0.50 Yes, to me, I think you've got to let the dust settle on this, see exactly what all this information means and then wait and see because I also, unlike Logan, in thinking that there's a lot of things here that could actually be beneficial to us moving forward. I want to look at what is the big picture situation? What does world supply and demand look like? What's the balance sheet here in The U. S.

Matt Bennett: 16:32

Look like? Because ultimately, if I'm a grain originator, those are the things that are going to be helping me make decisions on how aggressive I want to be moving forward. You run into some weather this summer, and we could have a very dynamic market.

Todd Gleason: 16:45

So Mike Zuslow from the macroeconomic side, and I read this off of the USTR's or United States Trade Representative's website related to the reciprocal calculations, that their view was that economic theory as it relates to tariffs, has been wrong for the last fifty years and something else is afoot and that's why they're using them. I suspect you've been thinking about this for a while. I'm not sure you've been thinking about it in in that form, but but how do you put this into context of, the economic theory that had that that, we followed, after Smoot Hawley, and and the experience there. And actually, nearly a decade before that, a rise in tariff prices in 1922, legislated as well. So what are your thoughts, about these tariffs going forward?

Mike Zuzolo: 17:52

Yeah, I think, know, your question about macro theory is really the heart and soul of currency policy when you think about the four major players in President Trump's administration doing his policy. I had seen an article last night that I respect the person that writes it. They do a really good job, grain analyst, and they talked about how it's going to get worse and worse and we're going lose more export share in grains because of these tariffs. I could make a counter argument, I probably will with my clients and subscribers through some research over the next sixty days. I could make a counter argument, I think, that it was precisely the strong dollar policy that allowed globalization to take hold to let us lose all of our factory jobs but buy a lot of cheap goods.

Mike Zuzolo: 18:41

That also helped create an environment where not only did we build bigger competitors internationally against us in agriculture, but then they had less buying power to buy our grain and traded with one another. So my bringing us back to today and what the other guys talked about, Todd, is as we talked about at the beef house, where president Trump's been very consistent. He said 60% tariffs on the campaign trail with China. They're at 54 now. The real heart and soul of his trade policy, and I say his foreign policy, and I think that's what Logan was saying as well, I'm not misunderstanding, is is about The US and China.

Mike Zuzolo: 19:22

And I think the administration played it very smartly in keeping USMCA and the North American trading pact together because China would not play ball. In other words, The US wanted a fresh plaza accord like we did with Japan to get their currency off the floor and make it go up and the dollar go down. Japan said yes. I'm guessing that what people have started to say in Washington was called a Mar A Lago accord did not happen because China said no. We're in a better spot than Japan was back in the eighties, and you're not gonna stop us at this point.

Mike Zuzolo: 19:58

So that's why we got 54% tariffs, and that's why president Trump would be my bet is why we went ahead with what we went ahead with yesterday. So what that means is his policy is to weaken the dollar, and that's working. And that's why we I think we had such a great price action in corn and wheat compared to all these other commodities out there. We made fresh $20.25 lows in the dollar. We're not far from the 24 and 23 lows in the dollar index.

Mike Zuzolo: 20:26

So what would wake me up at night and make me want to go hedge immediately if I had one thing out there? It continues to be that dollar index because the dollar index going down not only helps our products, but it also keeps interest rates low. And that keeps us out of recession or better protects us against recession in The United States and keeps those commodity funds buying risky assets. That's how I see it right now. Again, China has not said anything.

Mike Zuzolo: 20:54

I don't want to get out over my skis because this is a fifty year old shift in policy and that's the whole point of your question about the macro theory.

Todd Gleason: 21:02

Yeah. So, Matt Bennett, if the if this policy were to, cause the dollar to inflate or increase in price as, people around the world look for a safer haven for currencies. Well, what what issue does that create, and how likely do you think that might be?

Matt Bennett: 21:26

I don't know how likely I think that it might be at this stage of the game. I mean, clearly, we're significantly off the highs we saw, you know, just a couple months ago. So, I mean, you look at this dollar chart, and, I mean, you just go back and I believe we topped out right around the January, '1 hundred '10 million dollars currently looking at today, actually, we were looking at 101 and change got a little bit above or a little bit below it. If you take this thing back up, I would certainly or even take a new high, it's certainly going to make our products more expensive on the world market. To me, we've got enough playing against us already that it would be super problematic for our exports.

Matt Bennett: 22:18

And so what do you do with that information? I mean, clearly, it's a tough game. For me as a grower, if I'm sitting here looking at this and I'm worried about something like that, there's always something that you can do. You can always put a floor in under this market. But gosh, most people are putting themselves in the spot right now this early in the marketing year in the growing season to where if they're locking something in down here, a vast majority of growers are actually going to be in red.

Matt Bennett: 22:49

So you've got to leave yourself a very flexible type position if that's what your fear is and you're trying to protect against it. So I think that, again, being reactionary to bearish news hasn't been a good plan in the past as far as I've been concerned. And so I think that we have to let cooler heads prevail and hopefully let them prevail you know, and maybe turn around and see what happens here moving forward. Give us just a little bit of time.

Todd Gleason: 23:20

To be clear, I wasn't suggesting, and I know you know this, but I was not suggesting the dollar would move higher or that it would become a safe haven, but that it it seemed to me that it was a possible option. Logan Kimmel, you've been listening to the conversation. You probably understand or you I'm sure you do understand that producers are not very far along on their marketing of their new crop. Is standing aside and waiting for the moment the right thing to do?

Logan Kimmel: 23:47

Well, I think at this point, with where we're sitting here today on on both old and new crop, it might be an area, yeah, to to hang tight. Like Matt said, see where the dust settles. But I think before things get really busy, here in the next few weeks, when the rain stops and guys get in the field, this might be a good time now though, to look at your marketing, sit down, take a run at your P and L and put some orders in and have some targets. So if we see some volatility play into the market, maybe the other direction, and we get some headline news that maybe get some funds to step back into buying some grains or out of the equities into commodities. And we do see a push on some of these new crop prices.

Logan Kimmel: 24:37

If you're busy and you've got orders in at levels above the market that maybe right now don't seem attainable. I think right now that'd be an appropriate thing to sit down and do. Because I think it's so early in the game. We, even on old crop, I think there's still time where we we gotta plant the crop. We still gotta grow it.

Logan Kimmel: 24:58

So I don't know if the opportunity is right now to be a marketer, but you certainly can have orders in, have a plan in place, for for the next two to four months, in my opinion.

Todd Gleason: 25:09

The tariffs will go into place, Mike Sislow, on Saturday, April 5, and again on Wednesday, April 9. Reaction from the world probably won't come until this. They have been implemented. I don't think. What what will you be watching in those retaliatory tariffs if they come that gives you pause?

Mike Zuzolo: 25:36

Boy, that's a really hard one because the energy markets are so important to the soy complex and the corn complex and that's one of the things that I think we're just short term seeing some longs pull out of the crude oil and the energies because we didn't hit Canada as hard. I think generally speaking, Todd, and I'll get back to your question, Wall Street handled this terribly compared to LaSalle Street as far as expecting tariffs coming in. Fact, New York copper made a new all time record high. It was more valuable than gold earlier this week. It was partly, I think, and almost mainly because they were thinking that we would really not be able to import hardly anything, but metals and energies were excluded in the tariff news.

Mike Zuzolo: 26:20

Think that gives us some leeway that the reciprocity doesn't have to be as bad. What I would say to you, to answer your question at this early stage is, what I am gaming out right now is more of a geopolitical issue between Iran, Russia, Ukraine, and China doing these massive military drills in Taiwan. Where is the dollar going to become a safe haven again? Is it going to be because of the financial markets? That seems a lot less likely if the Wall Streeters keep selling and the bonds keep going up and we see the bonds as a safe haven.

Mike Zuzolo: 26:56

I think the more likely scenario would be the dollar comes in as a safe haven. And so does the reciprocity lead to some kind of move geopolitically is what I'm looking at right now. And I know that's a it's a very vague answer, but that's the best I can do right now.

Todd Gleason: 27:10

Let's get a final word now then from each of you. Matt Bennett from AgMarket.net. I'll start with you for the day.

Matt Bennett: 27:17

Yeah. I think that looking at the start of the week, things looked a heck of a lot better than when we talked on Thursday. Of course, Thursday, we're talking more about tariffs. On Monday, we're talking more about fundamentals. We're talking about world supply, U.

Matt Bennett: 27:30

S. Supply and acres. And I think that that's where I want to put my focus moving forward. Certainly, we want to be on our toes and watch the news and make sure that we have a good handle on, potential ramifications. But at the same time, again, it's early in the year.

Matt Bennett: 27:47

I wanna be pretty patient and kinda hold on, for a little bit and see how the dust settles.

Todd Gleason: 27:52

Logan Kimmel from Roach Ag. Your final word for the day?

Logan Kimmel: 27:56

Oh, seen a lot of volatility here, across the board, financials, energies. One market to keep an eye on for folks out there with cattle, still at some awfully lofty levels here. But if we do see an unwinding money flow, I would be cautious. If you're a producer in the cattle markets, you could see some pretty sizable moves here after a really, really good run. So cattle prices, in my opinion, are something to watch up here at these levels.

Todd Gleason: 28:25

And finally, Mike Zislow, GlobalComm Research dot com out of Atchison, Kansas.

Mike Zuzolo: 28:30

Well, the first two things for me, Todd, is to watch if we can make new lows in the dollar again on Friday, and if that can stimulate maybe breaking above some big resistance lines in the weekly grain charts because we were up against those earlier this week. The other thing I'll leave you with is the idea is maybe we've seen the top corn acreage number and the low bean acreage number because of this weather pattern. I know we have bigger machinery than we did back in 02/2009, but it sure looks like an issue as far as getting that corn in the ground and maybe having to switch some corn acres to beans in the big key valleys that we grow in.

Todd Gleason: 29:01

Commodity Week is a production of Illinois Public Media. It is public radio for the farming world. Find us online. Listen to us on demand anytime you'd like at willag.org. Our thanks go to our panelists for the week including Mike Zuzlow at GlobalComResearch.com.

Todd Gleason: 29:16

He's in Atchison, Kansas. Logan Kimmeluk, Roach Ag, that's roachag.com online, and Naperville, Illinois, and Matt Bennett of AgMarket.net. He is in Windsor, Illinois on University of Illinois Extension's Todd Gleason. Doctor. Gazelka: