Todd Gleason: 00:00

This is the January 16 edition of Commodity Week.

announcer: 00:09

Todd Gleason services are made available to WILL by University of Illinois Extension.

Todd Gleason: 00:15

Welcome to Commodity Week. I am Todd Gleason. Our panelist for the day include Ellen Dearden.

Todd Gleason: 00:20

She's at AG Review out of Morton, Illinois. Brian Stark is here from the Andersons. He's based in Mansfield, Illinois, but helps to manage some food grade corn for the Sydney plants as well as, the Logansport ethanol plant in Indiana. And Mike Suslow is here. He's with Globalcomresearch.com and out of Atchison, Kansas.

Todd Gleason: 00:41

Commodity week is a production of Illinois Public Media. We're online at willag.org, at willag.org. Ellen Dearden, I'll start with you today to get a few items that we should discuss. What's on your list?

Ellen Dearden: 00:57

Transportation problems. We've got, some pretty cold weather facing us next week, and the river, the Illinois River, Mississippi, Ohio River's already low, and that's gonna book that up. So I would expect that rail and truck and everything will be boogered up next week, and it won't just affect grains. But I'm also thinking about livestock.

Todd Gleason: 01:21

And Brian Stark of the Andersons on your list?

Brian Stark: 01:24

I think the biggest thing is, what we were kinda talking about before we joined, the soybean complex and how the farmer probably needs to play a little more defensive posture, with old crop soybeans, maybe compared to old crop corn.

Todd Gleason: 01:38

And Mike Zozulo from Atchison, Kansas.

Mike Zuzolo: 01:40

Todd, I tell you, I've got this huge deja vu feeling of 2012 for the Argentine farmers right now. I feel like it's late May, early June in Argentina right now, and they're about ready to lose a crop or save a crop. And what's kinda even more interesting is that it does feel kinda like Memorial Day and that we've got a 3 day holiday coming. So holiday, weather market, and inauguration.

Todd Gleason: 02:03

Yeah. Actually, those last 2 were on my list of 3 day holiday and the inauguration of President Donald Trump into his second term. Let's start there, Mike, with that 3 day holiday this week. Had a rough day on Thursday in the soy complex. What does the 3 day holiday mean to you for that and other things?

Mike Zuzolo: 02:24

Well, a couple things, pinging off of what Brian just talked about in the soy complex, I I I would say if someone asked me if we have a correction on place or a high in place, I'd feel better saying a high in place a week from today because I'll have a lot more information a lot more information about tariffs, a lot more information about Southern Brazil, a lot more information about Argentina and the meal market. And I also feel like technically the way we closed Thursday, Todd, and I know we have Friday's trade to go through, as we tape this, but we hit the gap that we started the week out at of 1018 and a half in lead month beans. We filled that gap, didn't do anything more to the charts. So while we're lower on the week, we haven't really done any damage yet, in my opinion. So that's kinda how I'm framing it with clients and subscribers at this stage.

Todd Gleason: 03:16

Ellen Dearden, I wanna follow-up just a little bit on the technical side because we did trade below the 100 day moving average, settled below that too in the lead option March soybeans. How do you see the marketplace?

Ellen Dearden: 03:28

That 10 20, the 100 day moving average at 10:20 on March is gonna be maybe a little resistance here for a while, and I think that, where we close on Friday is gonna be very, very important.

Todd Gleason: 03:41

And so you and Mike are both let's see Friday, maybe let's see next week. Brian, you're playing defense in the soybean complex?

Brian Stark: 03:49

Yeah. I think, to what Mike and Ellen have kind of highlighted, I agree with Mike a 100%. In a week, we'll all be a little smarter after inauguration, but I think a lot of things are working against the soybean complex. The uncertainty in future of 45Z and what that means for some of the products. You have obviously potential tariffs.

Brian Stark: 04:09

We have a Brazilian crop that looks pretty good. Argentina, as Mike said, that is kind of on a make or break type scenario, but most people we talk to think Brazil's production could offset that. There's a lot of defensive posture in the soybean complex that certainly got a generous boost for some friendly corn and soybean data this past Friday. And what we've been telling producers is we at least have to manage the futures component, the board price and protect against the downward trajectory because being certainly have the most downside with a fairly sizable crop coming in the uncertainty of what the new administration may employ with tariffs.

Todd Gleason: 04:48

Mike, another item within that soy complex, I think there was an awful lot of buying that took place by the funds. You can let me know whether that was truly the case or not from your opinion. It stopped, I believe. What impact does that have? I I think it has

Mike Zuzolo: 05:05

a huge impact, Todd, because that's probably the major feature as to why we would continue to go higher in what I think would be a futures led rally on a weather market. Brian made a huge point about 45 z, and I'm no expert on this. But 45 z is the clean fuel production credit. It replaces the now expend expired blenders tax credit. So when we talk 45z, we're really talking about what do blenders get for blending biofuel.

Mike Zuzolo: 05:32

And the Chicago colleagues I work with said yesterday when this all came out on Wednesday, I should say, that bean oil is a feedstock for them. They see it maybe not getting much more than 40¢ a gallon, for biodiesel out of a buck 75 a gallon. And biodiesel for SAF, the sustainable aviation fuel, they put that down around 20¢ a gallon in terms of, what kind of fuel credit you could get. And that is not an incentive to go out and build new plants, if you ask me. So you've got a soybean oil problem.

Mike Zuzolo: 06:04

You've got a meal problem, technically speaking. And now you've got Mato Grosso starting to harvest soybeans. And so there's continues to be a huge dynamic difference between the soybean fundamentals and the corn fundamentals.

Todd Gleason: 06:18

Yeah. So I I wanna follow-up, Ryan, and start with you on the 45 z because I suspect that the you've seen some things through the ethanol side, and the Anderson slash marathon. What did they say about yesterday's announcement, the Wednesday announcement of 45z?

Brian Stark: 06:34

Well, not to disappoint you. I think we're still trying to digest the information like everyone else, and there's a lot of uncertainty, regarding what the, interim rules are gonna be. And I think that's the key interim. And I think the industry is, in our opinion, or at least in my opinion, more confusion here until we can get the new administration in place and see exactly how they're going to apply things moving forward. Certainly a lot of things to be digested, but to Mike's point, I don't think it's very friendly to soybean oil into the products.

Brian Stark: 07:05

And that's all the more reason why growers need to be protecting the bean downside risk. I will say on a positive note though, when you think about the demand perspective, we all know that pretty soon South America is going to take over the lead and export share as Brazil starts to harvest their soybeans, which is typical of any of our crop years. But I do think the crusher, if the products can have some sort of a baseline, that's a big if, because margins aren't that great right now, but they're very uncovered, from outside the spot months. So if the board were to break, and this is another reason why I'm highlighting the future side of the grower protecting the futures, I do think basis as we approach spring summer is going to have to do a lot of heavy lifting to get the domestic crusher, the beans it needs. The producers done a very, very good job here since the report catching up on corn sales.

Brian Stark: 08:04

The one thing we've not noticed is the same amount of interest in soybeans. And I think potentially that could be a mistake, at least on the board side, given some of the bearish fundamentals we may be dealing with here moving forward.

Todd Gleason: 08:18

You mean old and new crop or just old crop on ketchup?

Brian Stark: 08:23

I would focus on old specifically with my comments right now. But new may have a little bit of a different flavor. I think not to switch over to corn too early, but I do think if you look at the ratio, the market certainly sending a signal that we're going to want to plant more corn acres. So there might be a little bit more friendliness on the back end of the soybean complex, but again, unknown of what demand is going to look like in the future. But I'm certainly more concerned with old crop soybeans on marketed right now than maybe unnecessarily the new crop.

Todd Gleason: 08:54

Okay. So let's just deal with old crop soybeans that are unmarketed. We know what Brian is thinking. And he's telling producers despite the fact that they're well off of the highs at the moment, that now is still the time. Ellen Dearden, are you in that same situation?

Ellen Dearden: 09:13

I am, and I have been selling old crop beans in here anytime we saw these nearby beans up in that, 10.40 range or higher, and I still think that's the way to look at this. There's a lot of unpriced inventory. There's a lot of unpriced inventory that's accruing storage charges. I think that needs to go.

Todd Gleason: 09:37

So you're at 10:40. Just to be clear, Brian, you're now. Right?

Brian Stark: 09:41

Yeah. I I I think, you know, maybe not necessarily on a down day, but certainly the next time we see an upside, move, correction, I'd definitely be selling something.

Mike Zuzolo: 09:50

And, Mike? Yeah. Right after the report came out, did some more incremental sales. Now it's 70 to 80 on the 24, generally speaking, broad brushing it for compliance, and then, 20% broad brushing it for compliance on 25 sales. That's the cash side.

Todd Gleason: 10:06

Okay. So Mike, how does the weather play, in this? Because we're at a point where soybeans, I think, could go either way. Do they lean heavier to the downside at this point? Are we still enough worried about the weather in South America, as you pointed out for the Argentine producer, that that could move the whole of the marketplace?

Mike Zuzolo: 10:31

I may be oversimplifying it, but I feel like Argentina is about corn and meal, Todd, as far as strength due to weather. If we're gonna talk about soybeans, especially with Agroconsult coming out on Thursday and pegging their production 172.4 well above USDA, makes me feel like that you're going to have to have a significant problem in southern Brazil because that's where the bean yield loss potential is. Northern Brazil is actually the exact opposite. It's actually getting more favorable, price friendly to safrinha corn because they're not getting the beans out of the fields. And that could create some quality.

Mike Zuzolo: 11:07

But is that really going to hurt the yield side of the equation? So that's kinda I feel like Argentina is the key. That's corn and meal. If I can't see that meal start to shake and move, especially as much as it's been pummeled this last 3 months, it's gonna really concern me on the soy complex.

Todd Gleason: 11:23

One more thing, Mike, before I move on to corn and, Alan, I'll come to you at that point. As it's related to Argentina, because I know you pay attention to the macro economics. I read a story from the IMF, about the loans that they had made to Argentina. It appears that under the last president, they weren't very happy about that process and were clearly worried about a default. Less so, I think, today under the relatively new president, a year or so maybe.

Todd Gleason: 11:56

Can you tell me where you think they are economically today?

Mike Zuzolo: 11:59

Yeah. I mean, they're better than they were, but it's funny you asked that, Todd, because Thursday, the Argentine farmers have come out and asked for tax relief because of their crops and because of their prices.

Brian Stark: 12:08

And so

Mike Zuzolo: 12:09

I think it's part of the big ball that they've had to deal with for, you know, upwards of 3 or 4 years. My take based upon just talking to somebody in Argentina this past week is that we needed to worry about the government actually lowering the export tax in order to generate more US dollars through ag exports if they didn't have a drought. Now that's being taken off the table, a, the farmers won't sell anyway, and, b, the government's unlikely to lower the export tax if they've got a shortfall, in this in the corn and soy production side of the equation anyway. So the longer the drought goes on, I think it's more favorable for the US farmer as far as Argentina competing against us or farmer related sales in Argentina.

Todd Gleason: 12:53

Alan, if you have anything more to add on soybean, that would be great. Otherwise, you can move to Cornyn. I do wanna hear what you have to say about the transportation issues since you're there at Morton, not very far from the Illinois River.

Ellen Dearden: 13:05

I really don't have a lot to add on the bean side of things. I think the Argentina dryness and heat is probably, I don't say it's a thing of the past, but it's probably the worst that's behind us. And with, Brazil having such a big crop, will Argentina matter all that much? However, looking at the corn side of things, I still have some concerns about the safrinha crop corn in Brazil, from the standpoint that it looks like it's going to get planted in Matagrosso and in the North Central region a little bit later than normal that can yield grower at times. Corn out of Argentina probably is down, but not tremendously lower.

Ellen Dearden: 13:59

So I think that the big problem with prices is going to focus on the bean side rather than the corn side of things.

Todd Gleason: 14:09

And then you mentioned the transportation issues. If you could follow-up with, just a bit on your concerns there. I know it's about closing of the river and what that probably means to domestic basis levels.

Ellen Dearden: 14:21

Well, it it it boogers up this area because it sends more grain to railheads or further south. And, the river levels are low already Mississippi, on the Illinois, and on the Ohio. So that makes this cold snap river problems, just balloon. And, it just seems to me that, we're gonna see some truck problems next week, probably rail problems as well, and that will be detrimental to basis. I have not seen anything very locally that says that the basis has fallen apart, but, anecdotally, I'm hearing it from 5 to 10¢ on on beans and and really a a nickel on the corn right right now.

Todd Gleason: 15:13

Brian Stark, as an elevator manager, you would deal with these kinds of logistical issues. What kinds of problems do you foresee?

Brian Stark: 15:20

Well, I think the the old adage is you never get bullish, basis on bad logistics. And Ellen hit the nail on the head saying that a lot of the railheads, when you have issues on the river, tend to have to ship rail units down to the Gulf and all you're doing is robbing Peter to pay Paul kicking the can down the road. So I do think the overarching theme since Friday's report is heavier farmers selling ketchup selling from being undersold and old crop corn as the board has rallied basis is certainly weaker, I would say interiorly $0.05 to $0.10 since last Friday. And I imagine the market's going to feel heavy, at least until the farmer gets enough sales caught up that could last into the middle of February. I am friendly corn basis as you get out further down the curve, April, May, June, I think is where you could see some fireworks.

Brian Stark: 16:12

Once the farmer gets his cash flow needs met, and goes to the field thinking about planting. That's seasonally a time we generally see an uptick in basis, but even more so with a tighter carryout. I just want to point out to listeners that at a 154 carryout today, we're not exactly to a point where we have to ration demand on corn, but we certainly have to keep the market elevated enough to decrease any additional demand. If the carryout in demand were to grow and we dropped sub 5, you might see another leg in the board. But I do think at some point in the spring and early summer, if we don't get the acres for new crop that we need to be planted and we get off to a little rough start that there's an outside chance demand July contracts could trade to $5.

Todd Gleason: 16:59

So I do, Mike, want to turn to you really quickly because I know farmers are looking at that 1,540,000,000 bushel carryout, and they're probably thinking back over time. And if they know the numbers or they watched Joe Janssen on Thursday with his webinar from the FarmDoc team, they will have seen a 1.36 from the 2022 season, with a $6.54 average cash price for the season. 4.25 today. And the difference between the stocks to use ratio isn't that big. 9.9% in 2022, 10.2% today.

Todd Gleason: 17:40

But on the ground, there's just a big difference in how much supply there is. I think it comes on the global front as much as anything. Can you kind of put all of that into perspective as to where you think the corn market might be headed?

Mike Zuzolo: 17:52

Yeah. It comes into that, and I think it comes into the fact that we had a soft red wheat range from 702, up to 1425 in 2022 calendar year, Todd. And that was the heart and soul of the high average prices for everything. And that's the missing link if you want for me in terms of why isn't corn sitting at $5. Number 1, we've discussed the beans.

Mike Zuzolo: 18:19

Number 2, it's because the wheat market has been flat as a pancake, and we really need to see some moving and shaking in that wheat market with the wheat corn spread now in the 60¢ level. It's a feed grain at this point, and that's going to hurt us down the road in the marketing year. So after inauguration, if we have these minimal incremental tariff increases of 2% to 5% per month as we negotiate with our major ag trading partners, which I think the trade is playing and trading right now. They're starting to open up to the idea it's not going to be as bad as it could have been, and we've seen some weakness in dollar. In fact, we've got maybe a sell signal in the charts on the monthly dollar, a buy signal in the monthly Brazilian real.

Mike Zuzolo: 19:03

So that's the other facet in this diamond, in this matrix of where the prices go. If we get a wheat led rally from the dollar, we see the ruble, the yuan, the real, and a couple other, the peso, Canadian dollar. All these things start to move up and we reverse the Trump trade and the currency markets, we actually could, I think, hold on to some decent premiums in the beans while wheat and corn carry the load. So that's a key element to post inauguration next week and the week after.

Todd Gleason: 19:33

Dan, one of the big differences, Alan and Dearden, between now and that time frame, just to kind of put a cap on this, would have been we were still not quite, but almost into the Ukraine Russia war a full year, and logistics for wheat had not been figured out. Clearly, logistics, as we know from Ukraine, for wheat and corn have both been figured out this tie at this time and and reconfigured across the planet as well, so it doesn't play the role it did then.

Ellen Dearden: 20:03

Yes. I would say yes. And in 2022, we were still getting over COVID. I mean, that was that was kinda the end of that deal, but that that changed a lot of things with, I think, the logistics in the world.

Todd Gleason: 20:18

Brian Stark, what is your opinion on corn today?

Brian Stark: 20:22

I I think the front end is gonna continue to be, met with selling pressure from the producer. Obviously, as the board rallies, wherever that stopping point maybe, I know recent targets, they started 4.50 cash, 4.60 cash, the next targets 4.75 cash in some places and end users you might be able to get an option basis, 0 basis, not very many today, but prior to the report you could have. So I think the market is going to continue to feel heavy as the farmer moves seasonally corn over beans in the next 60 days. And then eventually, I think you're going to get focused towards planting as I was mentioning earlier, like we normally do. And then it will be interesting to see, have we really slowed the corn demand side down as we see some of that lack of movement with the producer focused on planting and does basis do heavy lifting?

Brian Stark: 21:19

I certainly feel like corn has the more upside. To Mike's point, I do think wheat does need to help support it to make the next leg higher. But I still feel confident that May or July corn could trade $5 here at some point. We weren't that far off early in the week in the mid-4.90s. So I think to me that's a sale.

Brian Stark: 21:40

I don't see today a point where corn needs to work much higher than 5.5.25 on the board. So that would be kind of a top end target for me. But I do think it certainly has more upside than the beam complex does.

Todd Gleason: 21:53

Mike, can wheat play that supportive role in the world marketplace?

Mike Zuzolo: 21:57

I think it can, Todd, if we keep the commodity rotation with the investors. We've seen a 6 month high in the crude oil. We've seen almost a 2 month high in the copper and that's been relatively quickly that these moves have been made. I feel like the world stocks to use levels and the world stocks as a whole and the vulnerability of both our winter wheat crop, very cold, relatively dry in the longer term models, and very cold and relatively dry in the Baltic. It's got the recipe.

Mike Zuzolo: 22:27

It's got the the pieces of the puzzle. It really does go back to, I think, where do we stand with Russia and the ruble after inauguration.

Todd Gleason: 22:36

Ellen Deardon, I want to talk about new crop corn in particular, and I'd like to hear from Brian and Mike on this subject as well. It was fairly easy for quite a quite a few years just to wait, and sell later. That made a higher price. There's a difference when we're in a downtrending marketplace or a transitioning marketplace. The producers need to have a marketing plan that includes making sales or covering corn for new crop in some way sooner rather than later?

Ellen Dearden: 23:10

That's an easy answer. I think that we are still in a downtrending market, and we will see the best prices come here for new crops barring any kind of a major, major problem in the U. S. Getting corn planted, I. E.

Ellen Dearden: 23:29

With a very wet spring. It seems to me that this 450 area has kind of been an area that's pulled December futures towards it. And when we get above that, we don't seem to stay there very long. So that 4.50 to 4.70 range in December futures, I think, should be tripping some sales. I don't think that we want to sell the basis yet on that.

Ellen Dearden: 23:57

So I'm looking at board positions.

Todd Gleason: 23:59

And then you wanted to talk a little bit about livestock. I think I'll insert this here, Brian. I'll get to you in a second on new crop corn. But was that as it relates to the livestock itself or the inputs that they need to price and whether they do that now or later?

Ellen Dearden: 24:15

No. Really, I wanted to talk about livestock from a transportation standpoint with and with cold weather. I know on our farm with cattle, we're really getting ready for next week. And I think that, that will be the case. I'm also hearing, and just throw this one out, that pasture rents that were very high last year, those have completely fallen apart.

Ellen Dearden: 24:40

And my guess is that that those are falling apart because there's just not the animals to put out on pasture.

Todd Gleason: 24:48

Is that across the nation, mostly in the west where?

Ellen Dearden: 24:52

In the west in general. And I'm hearing that out of Colorado, Nebraska, and Kansas.

Todd Gleason: 24:58

So we'll need to worry about feed usage?

Ellen Dearden: 25:02

I don't think we're gonna I just don't think we're gonna see that herd rebuilding come as early as what we think, but there but the, herd size will remain rather stagnant, perhaps for another year.

Todd Gleason: 25:16

Brian Stark. Now turning your attention back to making some kind of coverage on new crop corn, sooner or later?

Brian Stark: 25:23

I think obviously, I'm a little patient on the new crop side. I will point out that it's we have to be nimble a little bit, starting to think about maybe protecting some floors. But keep in mind, we're just a couple of weeks away from starting to establish our revenue, crop insurance price. And obviously, that's the cheapest revenue floor we can get on the marketplace. So hopefully the market can stay somewhat supported.

Brian Stark: 25:47

But the 200 day moving average on the these contract has been a challenge and it has not regularly traded above it since the middle of May of 24. So we're going almost a year and we've butted up against it briefly traded above it here on Tuesday. And obviously we're back below it here tonight. As Ellen mentioned, it's been kind of a sticking point that 4.50 mark. I'm not opposed to growers starting to put some floors in at 4.50.

Brian Stark: 26:15

But I do think we've got some time on our hands as we get into spring, see how corn demand evolves and does the old crop eventually start to pull up new crop values, it gives us a chance to maybe sell closer to 4.75.

Todd Gleason: 26:28

And Mike Zuzula, your thoughts on new crop corn?

Mike Zuzolo: 26:31

Yeah. I'm in agreement with, Ellen and Brian. I think the thing that I would introduce is the idea that there in my mindset and my research, Todd, I think there's a greater likelihood than not that China will play hardball with the US if we don't have an immediate friendly relationship generated within the first 60 days or so of the new Trump administration. And the reason that they would not play hardball with us, I think, really is only because weather keeps alternative supplies tight. And so I think we have to, with corn, follow what the wheat and the beans do and treat them all the same at this time of year with new South American supplies coming on board.

Mike Zuzolo: 27:19

I could see, and I'm not ready to go there yet, but I could see a correction in everything. But then we resume a move higher and maybe even take out these recent highs, whatever they may be in the spring if there's no quick planning here in the United States for corn. And so that 445 deese25 support level is pretty critical for me. I wouldn't wanna see that taken out on a weekly close, especially if the beans and wheat were giving up.

Todd Gleason: 27:47

On the Wednesday edition of the closing market Report, when we were talking to Drew Lerner, we did discuss China as it's related to its cropping system. Of course, the winter months in the northern areas. There is, however, some drought in the rape seed producing or oilseed producing areas of the southern part of that nation. Some, he wasn't terribly concerned, but we'll keep that, in mind as we continue to talk with the meteorologist on our daily programming. You can find that at will ag.org.

Todd Gleason: 28:17

Let's get a final word now from our panelist here. Brian Stark of The Andersons, we'll start with you. Your final word for the day.

Brian Stark: 28:25

I think it's important even in the weaker tone, in the cash grain market on the corn front and and maybe even on soybeans today to kind of highlight making additional sales. If you've got your cash flow needs met, there's nothing wrong with extending those sale coverages with HTA contracts and setting good floors on the future side and allowing basis to potentially appreciate and get a better bid here down the road.

Todd Gleason: 28:52

Mike Zuzla, globalcomresearch.com out of Atchison, Kansas. Your final word?

Mike Zuzolo: 28:56

Yeah. I just started out with a 2012 type mindset for Argentina right now, Todd. And one of the key pieces of the puzzle for me anecdotally was the Rosario exchange came out and said that their estimate of 7,800,000 hectares planted, about 1,300,000 of that would not be harvested for commercial grain. So both boots on the ground and some of the anecdotal evidence, high frequency information would suggest there is already damage. Crop is coming down.

Mike Zuzolo: 29:21

It could really slide in the next 7 to 10 days from what I'm hearing.

Todd Gleason: 29:24

Ellen Dearden of AG Review out of Morton, Illinois.

Ellen Dearden: 29:27

Keep watching Neil. We certainly technically haven't had, much, good things to talk about. Last week, Neil was down $10, and we've down again this week. So keep watching that, Neil. I think it will be a tip-off to the weather beans are able to rally again.

Todd Gleason: 29:45

Commodity week is a production of Illinois Public Media. It's public radio for the farming world. Our thanks go to our panelists, including Ellen Dearden, Brian Stark, and Mike Zuzelow. You can always hear the program again on our website anytime you'd like at willag.org. I'm University of Illinois Extensions, Todd Quisen.