Apr 30 | Commodity Week

cw260430

Panelists
- Ellen Dearden, AgReview
- Logan Kimmel, Roach Ag
- Arlan Suderman, StoneX

Todd Gleason: Todd Gleason services are made available to WILL by University of Illinois Extension. Well welcome to Commodity Week I am Todd Gleason our panelists for the day include Logan Kimmel, he's at Pro Ag. Arlan Suderman too joins us, he is at StoneX. And Ellen Dearden is here from Ag Review. Commodity Week of course is a production of Illinois Public Media, it's public radio for the farming world our theme music is written performed produced and courtesy of Logan County Illinois farmer Tim Gleason. Let's get a list of items that we ought to take up for the day, Logan Kimmel I'll start with you. What's on your list?

Logan Kimmel: As we're finishing out the month of April here, a busy time for producers... ranges have come across but a lot of activity in the fields and I think it's important to see where these grain markets have come here in the last two weeks. There's some opportunities out there for folks that need to maybe catch up on some marketing or put together some ideas on some further out contracts that have recently presented themselves that we haven't really quite seen in the last few years so be happy to go over that on marketing.

Todd Gleason: Ellen Dearden, what's on your list for the day?

Ellen Dearden: Well, funds have been continuing to plow money into the long side of corn, wheat, and soybeans. I'll be curious whether that continues particularly as we get into the middle of the month meeting between the Chinese President and the US President. I think that money flow is really a big factor in these markets anymore we look at commodities now as investment tools similar to what we look at as equities or bonds.

Todd Gleason: And Arlan Suderman from StoneX, your list includes?

Arlan Suderman: Yeah, it's hard not to talk about what is the current status of the Iranian war and what are the implications for these markets but I think the next significant chapter may be the meeting of President Trump going to Beijing and usually they don't have a summit without some type of an agreement what could be in that agreement and what are the implications for the commodity markets going forward.

Todd Gleason: Let's start there because I believe and you can correct me it is set for mid-May the 14th sticks in my mind but I'm not certain that's the date.

Arlan Suderman: Correct.

Todd Gleason: It is still on or has not been at least cancelled at this point do you think that it will take place?

Arlan Suderman: I do unless the Iranian war is in a position at that time where President Trump feels like he needs to be in the situation room managing it if we're still status quo where we are now I think it'll happen I believe that President Trump and President Xi both have a vested interest in it happening and also in a trade agreement I believe that President Xi really wants some concessions from President Trump to ease the pressure on his economy and he knows that the ag sector is something that has been dear to President Trump and so I think he will have an offer there in order to try to get some concessions from President Trump I think negotiators are working on this on probably a daily basis now even though formal negotiations aren't on a daily basis as I look at it I do not see any evidence that soybeans are getting any discussion for the current marketing year perhaps a bigger issue with soybeans is do they renegotiate the 25 million metric tons for next year A China doesn't have room in their reserve for 25 million metric tons additional B I don't think with our biofuel program that we'll have the 25 million metric tons to sell them my balance sheet right now I've got about 12 million metric tons similar to what they took this year I think they would buy beef because if they're not going to buy soybeans they're going to have to offer something else so what would it be I think they would buy beef but I don't think President Trump wants to give up any more beef to tighten our supplies and raise our prices ahead of the midterm elections they're already buying pork perhaps they buy a little bit more but I think possibilities really are wheat milling quality wheat particularly they're currently trying to roll about 40 million metric tons of older wheat out of their reserve they may want to replace some of that with some milling quality wheat perhaps add to the grain sorghum they're buying but I think there's a possibility corn and or ethanol could be involved in there that's something the market is not counting on right now that's not a prediction but I think that's a possibility that would have significant implications for the balance sheet if it were to happen.

Todd Gleason: Do you think that the used cooking oil that was coming in from China I think that happened this week might be in that bargaining chip because the renewable volume obligations that were updated don't really exclude them or keep them out they go to a half rent so they're not as valuable until 2028 and would that be some way that the Chinese would be looking to push product here and trade for sales of beef or corn or those kinds of things back to that nation?

Arlan Suderman: It's a possibility yeah now the 45Z does punish used cooking oil coming from China but the door is still open and frankly if you look at how big the RVO is we're in a position where we'll use up our domestic feed stock plus we'll need imported feed stock and we'll need imported finished fuel in order to meet the RVO as well so the market's now trying to find that blend between all the subsidies and the tax credits of how much foreign feed stock do we let in produce and re-export perhaps plus importing finished feed stock finished fuel but I think it could be part of those discussions as well ironically we could end up importing finished biodiesel produced by Chinese companies maybe not in China maybe not maybe disguised so it doesn't look like China but we may end up seeing some Chinese owned companies that export finished product to us to help us meet our our RVO this year.

Todd Gleason: Yeah so for the RVO it is it won't be until 2028 including even that biodiesel from other nations might not come in to help meet that need that probably I would think Logan Kimmel keep a lid on prices for soybeans particularly as you listen to what Arlan has laid out as as the need for soybeans going into China our number one export or had been our number one export marketplace how do you see that playing out for the crop year that's taking place starting with this crop going into the ground now?

Logan Kimmel: Yeah that's Arlan brings up a handful of good points and I think when we look at the beans and just in regards to the meeting potentially with China what does that mean for what's left of the old crop but also the new crop and I think the price action here on beans has told the story we've had really two months of sideways consolidating in old crop soybeans since the large limit down day in the middle of March that the market has stabilized and just gone absolutely sideways nowhere for two months with today and yesterday's price action putting us just at the very top of that range I think what that's saying is the possibility of China coming in and buying more beans for old crop the market doesn't see that amidst the recent corn and wheat rally and even the new crop soybean rally where you've seen these further out deferred contracts actually approach their highs from March and I think that the price action or traders are at least you know kind of positioning for there might be a meeting and there probably will be but the likelihood of old crop purchases is getting fairly slim here whereas you look out to the deferreds they build a little more premium in I do think it's interesting or agree with Arlan on the corn commentary with potentially if that's a possibility in the trade agreement I wonder if you've got to build a little premium in this corn market that that's not priced in at these levels or with ethanol so it's gonna be headline driven and it has been but that unless a barring a big change in the Iranian war which could happen I think that is what the market will be looking for here in the next two weeks is what happens going into that meeting and what do they come away with.

Todd Gleason: Ellen Dearden I'll bring you into the conversation now you've been listening along as we've talked about the Iran war some of the implications there and how the two presidents Xi and Trump might deal with each other in China what kinds of things do you think they will discuss?

Ellen Dearden: I think that they will discuss more than just ag commodities I think there will be a lot of time spent on other other goods or and or services and not as much on ag goods as we farmers would like I think that these markets are kind of in a wait and see mode new crop certainly got some gains on these old crop months particularly on the bean side of things but I have to admit that the corn upside that we've seen in the last week's time really the last two weeks time has outpaced my expectations for this time frame but we are in a seasonal time frame to look to see new crop months work higher.

Todd Gleason: Well I'll have to ask each of you at this point about new crop sales for corn as the December contract did make new contract highs this week producers are in the field well they're probably out of the field in many places at the moment might have some time to think about making sales the question is should they and as they look at the marketplace they may be not as excited about that kind of move particularly given the price of fertilizer now and what they expect it will be in the fall Ellen should producers sell now new crop or wait?

Ellen Dearden: Um on the corn side we're a little tentative at this stage of the game if December corn should get above five dollars and we came within a quarter of a cent of that on Thursday your next upside objectives in that 520 to 525 range so I'm a little hesitant to push sales beyond where we are we're already at 35% sold on the bean side of things 1180 has been an upside target for a lot of people basically the November futures thing is the basis is really really wide on new crop fall sales so even though we are at 50% sold at this stage of the game I'm not real anxious to be selling anymore until we see something new we are using hedge to arrive sales.

Todd Gleason: Logan Kimmel your thoughts?

Logan Kimmel: Yeah I would agree we've as the corn market started has moved along here over the last two weeks we've advised incrementing up on sales that would include folks still holding on to old crop your 2026 production is an area that we've advised getting some work done December corn just falling shy of five bucks here on the board is an area to consider but one other thing for folks that are going to utilize their bin space and have their inputs locked in here for this coming year can start to look out to some of the further out months just point out March of 2027 507 and a quarter May at 514 and a half and July corn at 518 those areas if depending on storage and interest in your inputs it's going to be different from operation to operation but they are providing some opportunities that we you know haven't seen here in the past few years for this time of the year so we're in the seasonal time frame on the grain markets between now and the 4th of July we do still have some upside targets but I think having orders in along the way same would go for the soybeans the November contract new crop poked above the March high here today I think if you're looking out that far HTAs with the wide basis makes sense here at this point so while it is a busy time of the year we've seen new crop markets move up and provide some opportunities to at least consider on incremental sales we did put out our first 2027 small recommendation here on corn today and the reason being is that far out with the tensions in the Middle East I think producers need to give some time and thought here on you know where are my inputs going to be for 2027 the December contract did settle at five bucks here today so very small recommendations there just if you don't have a fertilizer bid yet the unknowns that far out you know warrant going slow but certainly something to keep an eye on here for grain producers not just on 2026 but starting to look at 2027.

Todd Gleason: And Arlan Suderman, your thoughts?

Arlan Suderman: Yeah Ellen and Logan have made some excellent points and I agree with them what I would add is the fact that I think there's a large number of farmers out there who do not have marketing advisors working with them who basically based on the evidence we've seen are sold levels far below what they have both indicated those are the ones who I'd want to speak to now particularly in light of the fact that we're moving into a what appears is going to be a strong El Nino year and while 1983 was an exception nearly every other year tended to have very good growing conditions and in fact Commodity Weather Group just released their outlook for the growing season and it's looking mild and wet for the Midwest and by wet I don't mean excessively wet but good rains and that could have high yields so what I'm saying is you may have more bushels than you think to sell and that means we may be looking at much lower prices as the summer starts to unfold so if you have lower sales on the books than what both Ellen and Logan have indicated you probably need to be more aggressive at these price levels at getting started and hope that you sell the rest of the crop for more.

Todd Gleason: Arlan how should producers think about their crop insurance that they've taken particularly if they've taken the 90 or 95% or maybe particularly if they've got a much lower number and they are the folks that you're talking about which have not made any decisions at this point or who are not working with somebody like Ellen or Logan many of the analysts that you hear here on WILL the bulk actually of producers do not and or do not trade I would say cash sales are a different function probably however you know 85% don't actually play in the marketplace what advice do you give to them as it's related to the put that they do have in place the underlying floor at this time?

Arlan Suderman: Yeah that's an excellent question because as you indicated most all of them have the insurance and they think oh that's my put option that'll protect my bottom side therefore I don't need to do anything now but we're looking at prices above where those insurance rates were established and that's a revenue meaning bushels times price and if we do see the increased bushels above trend yield this year that means it'll net out to an even lower price once you figure the revenue and on a per bushel basis and so that's you know why give up something that's offered to you now that's above where that put option is at and so I think that that's even more of an argument that you need to be doing something now when you can lock in revenue that is greater than what that insurance guarantees you.

Todd Gleason: Ellen I want to come back to you you mentioned something I think that is very important there's a lot of money on the planet the CME group over the years has garnered much much more of it they are still a very small player in the very very large money flow how does that impact corn and soybeans in your opinion as the funds move in and out of them?

Ellen Dearden: I think that a volume that funds provide gives opportunities as well as takes away opportunities and it does move prices in bigger moves when they come so maybe this upside we've seen in the corn market is a bit bigger than what we what the fundamentals could support over the last two weeks time because of this investment money I think that we sometimes grumble and moan about the funds but I need to keep reminding folks that they do provide liquidity and they provide action to markets which otherwise maybe even the bean market which has been pretty steady has had some higher highs and maybe some lower lows as well because of funds.

Todd Gleason: Logan Kimmel I would expect that your training told you that these moves probably have greater volatility how long will it take them to fall back do you suppose once the funds stop making the investments?

Logan Kimmel: Well I think that's right now as we discussed the volatility that's still in place in the Middle East certainly kept the spec fund money interested in the commodities you know whether that be looking at the heating oil RBOB crude oil and our grains and I think to look at markets and view opportunities but yeah you might be in the midst of that with the funds holding long positions on the grains one other market to view fund money in right now is the cattle market where they're heavily net long and providing opportunities there along with fundamental reasons but that can be taken away too and we've actually seen that in the hog market the spec funds building up a large long position and actually since February cut that position and we've seen a decrease in hog prices with money flow leaving so it's just a good example of while you see week over week COT reports you know spec funds adding or staying long grains you look at the price and as we discussed opportunities maybe to do some marketing off of that handful of big rains throughout June and July if the crop gets planted I'm guessing they might view that as a market to shed length or and as we've seen them maybe go net short usually that's going to be associated with lower prices so it's something that the producers need to keep in the back of their head on while they're helping out the producer so to speak right now or friendly we've seen them go the other way and short aggressively on the grain side and usually the opportunities for marketing are not associated with funds going short grains.

Todd Gleason: Arlan Suderman I'd like to come back to the Mid East and the straight of Hormuz the issues that it creates across the planet particularly related to the fuel supply energy in general fertilizers are one thing however fuel supply is having an impact in the airline industry already even the price of fuel in the United States is up sharply for airliners there will be at some point a slowdown I think in the economy because of continued prices how much of a concern should farmers have about this?

Arlan Suderman: Yeah it's kind of give and take there the good and the bad what's been impressive is some of the recent economic data coming out showing how the economy has been gaining momentum during the war now I don't think we have fully factored in the price increases for fuel yet and the impact on the economy so that'll probably mitigate that to some extent as we get go forward but I think one of the things that's important to understand is as high as fuel prices are here in the United States they're much higher elsewhere in the world and it's having an implications it's having an implications for our markets for example and it's been two or three weeks since I heard this that France is planning on reducing corn acres this year not only because of high fertilizer prices but because diesel prices are over ten dollars a gallon and like I said that was two or three weeks ago and so we're looking at not just high prices overseas especially in Asia and to some extent Europe but the lack of availability of fuel and fertilizer we see airlines canceling half of their flights in some cases in Asia because of lack of jet fuel or jet fuel just so plain expensive it doesn't make sense to fly and what happens when you get that kind of arbitrage between high prices in Asia and to some extent Europe and the United States is the United States increases exports and that increases US prices and so that gives us further risks of higher prices going forward it's also an inflationary matter so when you have inflation as what we've heard Ellen talk about and I fully agree with her comments there the funds want to own those commodity sectors that have the highest correlation with inflation the consumer price index and over the last ten years based on our studies that's been the grain and oil seeds followed by the energy prices and so there is that inflation premium that's currently in there as long as the funds believe that inflation is going higher if the war ends tomorrow that expectation could end I don't expect it to end tomorrow but whenever it does they're suddenly gonna say oh that is ending and then they'll start selling but for now that's helping to elevate the floor under these markets and fertilizers probably going to be a one to two year longer term story energy is now more immediate fertilizer is more long term reducing the amount of production we have globally and starting to tighten up the global supplies right now global supplies are ample but that's probably going to be starting to shrink down and that's also a factor in helping to support those new crop prices.

Todd Gleason: Ellen could you help me out maybe play the devil's advocate with me on this one and talk about instead of increasing exports to the rest of the world demand destruction that might take place as the rest of the world is spending so very much money on energy that they cut back on their food supply in general and what they're purchasing?

Ellen Dearden: Well you have to think about the politics of letting people not have enough food I mean it's just lethal and I think that we will continue to see exports of grains and or meats but maybe not to the same extent that we're seeing right now but I believe that that will be the case we are working in a deglobalized type marketplace having come since COVID but I think that could actually speed up some but that doesn't mean that we're out of the export business it's just going to be a softer side of demand.

Todd Gleason: Logan Kimmel any thoughts from you on this topic area?

Logan Kimmel: I think it's bigger picture longer term yeah something to keep an eye on from a global perspective you know week to week I still look at the export sales and you know at least on the corn side things look still pretty steady so you know keeping an eye on that week over week and see how that progresses tied into the conflict in the Middle East and energy prices certainly something to keep in mind.

Todd Gleason: Arlan I'll return to you but not put it in terms of demand destruction what if it's stagflation instead with higher energy prices but level prices for commodities?

Arlan Suderman: Well I don't think we necessarily have anything here that justifies a bull market I think we've increased the chances of a bull market with the developments we've had but we haven't determined yet a bull market but we have elevated the floor and that has me a little less worried about the future at least until the war is over and the funds start selling and liquidating positions demand destruction tends to start with the protein sector as we move from protein to a more starch diet because starches tend to be cheaper so that tends to support demand for the grains particularly the food grains while starting to hurt demand for the proteins ironically here in the United States demand for protein is at record levels and as much inflation as we have the consumer continues to pay up for it the steakhouses are still full we haven't found that point yet where the consumers really pulled back yet that point may be there and coming and that would make sense but we haven't got there yet we will reach that point in other places of the world much sooner than we will here.

Todd Gleason: So wheat and rice in either case might have upward potential soybeans maybe even still because it's used in so many different products corn less so because it would primarily be feeding a domestic and global supply herds of cattle and poultry and hogs I suppose is that correct?

Arlan Suderman: Yeah that's the way I would look at it exactly now the biofuel program plays into there with decreased supplies of fossil fuels you're seeing a significant increase globally in interest in biofuels to try to stretch the fossil fuel supplies at this point and so that's also creating some demand for corn as well as for the oil seeds you know how long will that last that will last as long as the fossil fuel situation is tight and then that will go away.

Todd Gleason: Ellen Dearden I know you watch the beef cattle very closely and the livestock in general what can you tell me about that market today?

Ellen Dearden: It's pretty darn high I know that especially the feeder cattle we had April live cattle and April feeders go off the board today so you kind of have to throw those out the window but this beef cattle live cattle futures have just outpaced I think most everyone's expectation and it may be a function of the long side of funds still being involved in live cattle and feeder cattle not so much in the hogs I'm just flabbergasted every time I look at cattle.

Todd Gleason: Let's get a final word from each of you Logan Kimmel from Pro Ag I'll start with you today.

Logan Kimmel: Yeah grain producers take a look at the time of the year seasonality and like we've talked about the opportunities that I think we're in the middle of right now I know it's a busy time of the year but there there's certainly some chances to get caught up if you're if you feel you're in that camp and start penciling in looking at your new crop for strategies and opportunities here in the marketplace as we enter the growing season where there very well could be more opportunities in the next two or three months but right now we've seen an increase in prices and one we should probably take advantage of.

Todd Gleason: Ellen Dearden from Ag Review your final thoughts for the day?

Ellen Dearden: We'd all been thinking that the way that we would quote solve the excessive amounts of global grains would be with a big weather problem and maybe the lack of fertilizer is going to get part of that job done even this year but it may not be a one-year problem maybe more than one maybe more than two year situation.

Todd Gleason: Interesting. Arlan Suderman, your thoughts and final words?

Arlan Suderman: Yeah I would agree with that and build on that because that's exactly where I was gonna go is our fertilizer people are saying their biggest concern is supplies for planting the 2027 crop so keep that in mind from a long-term planning standpoint not only from a price of corn standpoint as we're seeing global acreage start to decrease and maybe yields start to decrease but also from any opportunities you may have on price dips along the way to perhaps price in some 2027 fertilizer supplies for putting on this fall after harvest or whatever it may be.

Todd Gleason: Commodity Week of course is a production of Illinois Public Media you may listen to the whole of the program anytime you'd like you can do that at willag.org that's w i l l a g.org our thanks go to our panelists this week including Ellen Dearden Logan Kimmel and Arlan Suderman. I'm University of Illinois Extension's Todd Gleason.