- Chip Nellinger, Blue Reef Agri-Marketing
- Brian Stark, The Andersons
- Arlan Suderman, StoneX
This is the January 22 edition of Commodity Week.
Announce: 00:10Todd Gleason's services are made available to WILL by University of Illinois Extension.
Todd Gleason: 00:15Well, welcome to commodity week. I am Todd Gleason. Don't forget that coming up on the March, you can join us for all day ag outlook at the Beef House in Covington, Indiana. If it's not there yet, it will be soon. Information on how to register at willag.org, willag.org.
Todd Gleason: 00:35This is our thirty sixth annual event. Let's turn our attention now to the marketplace. Chip Nellinger is with us today from Blue Reef Agra Marketing. He's out of Morton, Illinois. Brian Stark joins us from the Andersons in Mansfield, Illinois, and Arlen Suderman is with us from Stonax in Kansas City, Missouri.
Todd Gleason: 00:54Let's get a list of items that we should take up. I think, Arlen, we'll start with you. What's on your mind this week that we should discuss?
Arlan Suderman: 01:01Yeah. I think now that China's confirmed that they've bought the 12,000,000 metric tons of soybeans, even though USDA hasn't confirmed it yet, our cash sources do. I think the question, what's next for China? What can we expect next is probably worthy of some discussion with some implications for the ag commodities.
Todd Gleason: 01:18Brian Sark of The Andersons on your list.
Brian Stark: 01:21I think the biggest one, not to highlight something that's we've talked about before is repeat, but obviously given last week's major surprise bearish surprise USDA report, what that means for cash basis here as we proceed forward. I think certainly probably has to do a lot more heavy lifting with plenty supply in the futures market depressed.
Todd Gleason: 01:45And Chip Dallinger at Blue Reef Agri Marketing.
Chip Nellinger: 01:49Yeah. I'd I'd kind of dovetail with what Arlen said. I I think technically the bean market is at a very, interesting, important kind of inflection point. So you got the the China fundamental stuff going on. I think technically we're at an important point on the bean chart, as well here right ahead of the South American bean harvest picking up the pace.
Todd Gleason: 02:10Okay. So I do want to start with corn. Brian Stark, I'll pick up with you, as it relates to the USDA report. A lot more corn around than had been expected, some 17,000,000,000 bushels in The US harvest this year. How has cash basis held up in the face of that number over the past two weeks?
Brian Stark: 02:33I think it's been relatively flat. I think the end user went into the report, maybe focused on spot needs, and I think they come out of the report still living in that hand to mouth arena. We don't see a lot of coverage out beyond the current seasonal movement we typically see after the January 1. The producer did a pretty good job, insulating himself a little bit for what he needed to move in the short term prior to, the January 12 crop report. And I think that's bought him a little bit of time.
Brian Stark: 03:07But certainly from an end user perspective, as we look across, it does not feel like, there's a lot of deferred coverage and rightfully so because the producer wanted to see, expecting maybe a friendly report January 12. So I do think that there will be some stability, call it over the next thirty to forty five days on the corn side. The producer has chosen to move corn to generate cash here short term, held off maybe a little longer on soybeans. And we can tie that into what Chip and Arlen were talking about maybe where the bean market's going to go. But I think from a corn perspective, basis is probably going to have to do some heavy lifting as we approach March and the spring months, where there is not a lot of coverage done.
Brian Stark: 03:55So I'm I'm fairly friendly to corn basis here in East Central Illinois, West Central Indiana once you get past the February time frame.
Todd Gleason: 04:03Arlen Suderman, I'd like to stay in the near term for just a moment related to basis. Export market for corn has been really good. Corn exports start to pick up this time of year, generally speaking. I'm wondering if you will if you think that will happen. And then I do have a question to follow-up as well.
Todd Gleason: 04:21As it's related to the Mississippi River, the Saint Louis, draft has just dropped dramatically in the last nine days. And, of course, it's that time of year when ice shuts things down on the Upper Mississippi River as well. How are you viewing all those things put together? So, the export market itself for corn and then the the river system in the middle part of The United States.
Arlan Suderman: 04:48Yeah. The cold air coming down in the winter storm and ice and the snow, particularly Midwest is cold and snow. It certainly isn't gonna help transportation either, whether it be river truck or rail for that matter. So that's going to be problematic for for moving grain going forward. Certainly helping to keep the tight supply and farmers aren't going to be excited about getting in and opening those bin doors either in the near term.
Arlan Suderman: 05:14When you look at export demand, it's been impressively strong. We know that Mexico is a solid customer. We anticipate the border remaining closed indefinitely regarding the new world screw worm. Don't see that opening anytime soon. That means we're further developing the cattle industry there.
Arlan Suderman: 05:34They're investing up to a billion dollars now in building packing facilities there. So they're going to be expanding long term the cattle industry in Mexico, and that means more corn demand. They've not been able to really increase their domestic production that much. It means more from us. So that's a positive.
Arlan Suderman: 05:52But it's really impressive how much of our corn exports are going to Southeast Asia. Some of it because of some of the trade deals reached over the last year are switching demand from Brazil to The United States. Excuse me. And even to Europe, where we're seeing increases in corn, that appears to be solid demand for the time being. As you said, we normally pick up the pace.
Arlan Suderman: 06:19This is normally when we're just starting our strong export season. So does it continue? When you look at marketing year to date sales and shipments trending over 300,000,000 bushels above where we need to be versus a ten year seasonal for hitting USDA's target. So I do think that there is more upside potential whether we hit that or not a probably have. Be heavily dependent upon Brazil if their winter corn crop looks to be a bumper crop, then we may see some people kind of hold off for cheaper Brazil corn.
Arlan Suderman: 06:55But their ethanol demand is increased consumption of their corn by about a billion bushels over the last year And, so that's absorbing quite a bit more of it down there and why I continue to be supportive for corn export demand.
Todd Gleason: 07:08I'd like to follow-up with you for just a bit, but Chip Nellinger, if you can jump in on this as it's related to corn usage export demand to Mexico, the cattle market. I'm wondering, and we have talked about this before, whether some of this is just an offset because of the screwworm. I know it is, but we still haven't really seen that much of an adjustment in domestic usage. Heavier weights, I guess. We do have a plant that's now shut down, a processing plant in Nebraska.
Todd Gleason: 07:41They're they're all related. Can you give me your overview of that, Arlen? And, Chip, if you could pick up as it's related to how beef producers and cattlemen should respond in The United States, if at all, in increasing or decreasing their herd size in your opinion?
Arlan Suderman: 07:59Well, you you mentioned the price being elevated, but yet demand holding. And, certainly, we have a a very unique dynamic going on in America right now. Just sitting at home in the evening watching TV and the various restaurant commercials or food company commercials or whatever. It used to be this dish has no more than this many calories. Well, now it's this dish has at least this many grams of protein.
Arlan Suderman: 08:28Protein is the focus, particularly with the advent of GLP-one drugs and protein is the rage. And Kansas State University did a study where they determined that 86 of the increase in the price of beef is due to increased demand, which is 14% of it being due to the decrease in supply. So it's very much a demand driven market right now.
Todd Gleason: 08:55Okay. And then, Chip, if you could pick up on how producers should respond. I know that even in the Midwest, producers are really looking at cattle and saying, hey. I might need to diversify back out with just a few head. I don't know whether you're hearing that from your producers or not and whether that's something on the margin that should be considered.
Chip Nellinger: 09:16Well, I haven't heard that a lot from people that haven't been already, you know, in the cattle industry actively. I do think though that particularly in Iowa, Southern Minnesota, the Dakotas, there is that thought process that, hey, I can, and it always has been, even in, you know, the non record type, beef prices and cattle prices that we're seeing, that does happen normally in that part of the Corn Belt, the Western Corn Belt is producers take the mindset, hey, if I'm looking at cheap corn prices, I can add value to it through feeding cattle. And so I I think that that's probably going to continue. I haven't heard a lot of people that, know, say fed cattle ten, fifteen, twenty years ago, getting back into it because there's a, there's a large capital outlay, you know, with where the price of feeders are, currently. I, I think the, the cattle industry, you mentioned the, the plant closures, we've had that in the past, there's a, immediate disruption, and then it seems like the industry adjusts and are able to, you know, put some of that, through other plants and pick up the slack, and I think that's probably going to happen, currently.
Chip Nellinger: 10:40You know, the cattle people, obviously have seen, cheaper meal prices, cheaper wheat prices, cheaper corn prices. That's a little bit of shot in the arm for them. And so from a, from a usage standpoint, you know, I don't see, feed demand going a lot lower. There's always the question there. Is it overstated based on, you know, some faulty assumptions, but I see feed demand is, is fairly strong, and and I think the cattle people, especially in the Western Corn Belt, are gonna keep feeding cattle and maybe even feeding more to add some value to their corn crop.
Todd Gleason: 11:18Brian Stark, have you heard from anybody or have any thoughts on this part of the conversation at all as it's related to what I'll call freezer beef? Maybe, you know, six to 10 head of cattle, maybe fewer actually, on on a farm.
Brian Stark: 11:32I have not, Todd, but I will agree with what Chip and Arnold had said. I think there's certainly opportunity for cheap inputs now for cattle to potentially increase. We certainly need the numbers to increase given beef prices, pork prices at the grocery store, and certainly keeping stability in the corn market at these levels is important to boost demand. I think that's what we're looking at, here moving forward. And and certainly the livestock sector, is is a is a place where we could grow demand, for corn, similar to what we're seeing on the export side today.
Todd Gleason: 12:15And, Arlen, I may be just chasing something that is a phantom, but as I host winter meetings and there are livestock folks up front, they get more questions, than they have ever in the past, and it just seems to me that this is the reason.
Arlan Suderman: 12:30Yeah. I think it's a big factor. And if you look at where we sit with the grain situation globally, we are no longer the low cost producer in the world. It's gonna be very difficult to compete with a country that can grow two and sometimes three crops in a single year on the same ground in Brazil. And with a cheap currency that makes it more cost effective to buy from them when they do have it.
Arlan Suderman: 12:54So why not use what the technology we have to sell value added products that be through our meat industry or through biofuels? And the meat industry is well established without being dependent upon political subsidies like biofuel is for the most part. And as as an opportunity there, global this is a global trend. This isn't just The United States. Demand for meat, protein, as well as dairy protein is rising globally, and I think presents some real opportunities long term.
Todd Gleason: 13:29Brian Stark, because, Arlen mentioned biofuels, the corn growers are honked off clearly, and they made it well known today. They were not happy with congress evading the e fifteen year round structures in any piece of legislation that they have for funding the government at the moment. How big a play is it really in The US biofuels sector to have your round e 15? And how did you see the developments that took place today?
Brian Stark: 14:06Well, like everyone else, I think, rumors started to float around today about the e 15 legislation being omitted in the funding bill that congress is considering in the house. And certainly, I think that's the potential low hanging fruit to grow biofuel demand. How big of an impact, know, given some of the infrastructure that needs to take place is yet to be seen. But I think overall it's definitely supportive for more corn usage. And certainly, hopefully we won't go back to the drawing board.
Brian Stark: 14:41I know there's been talk of Congress wanting to establish a rural energy council, which pretty much goes back to the ground level. And I know there's been a lot of effort from the biofuels industry with the petroleum industry in coordination with a lot of them to get year round E15. So hopefully we'll continue to see some positive momentum even with a potential temporary setback. But that's certainly the first focal point that we see is the ability to grow biofuel demand for corn usage here in the short term, as we look for expanding our overall demand, base for corn and the plentiful supply we have.
Todd Gleason: 15:26We'll include, soybeans and soy diesel and such in the biofuels discussion in just a moment, but I do wanna just turn to soybeans and that marketplace. Chip Nellinger, you wanted to take a look at the technicals in it. Tell me about them.
Chip Nellinger: 15:42Yeah. I think we're at a, a unique inflection point here, you know, for a multitude of reasons, dry weather in Argentina maybe, expanding crush margins, rising soy oil market. We've kind of faced a little bit of a bounce here that took us right up to the two hundred day moving average. We pushed above it for a little bit of time. Haven't really closed above it.
Chip Nellinger: 16:08We're back below it today. Oftentimes, that's kind of your line in the sand for funds and and funds have a small net long position built up. If we can see a weekly close above the 200 moving average and some follow through next week, that could drive momentum to the upside in spite of fundamentals. But I also know that sometimes when you get to these levels and you can't push through and the market fails from the two hundred day moving average, it can it can result in a whole new move away from that to the downside. So, I think we need to be on high alert, you know, with the close this week and early trade next week being pretty important for the near term direction, of the corn market tech or the bean market, technically.
Chip Nellinger: 16:57Technically.
Todd Gleason: 16:57So there are a couple of things, Arlen Suderman, that we probably ought to take up. I'll work with you on the demand side as opposed to the supply side from South America at the moment. You mentioned that China has now met their 12,000,000 metric ton goal for the Trump administration, and that's what they expected to bring through the marketplace in this, I guess, marketing year. It's not clear marketing year, calendar year. How how how do you see the rest of our marketing year through the August going as it's related to China and any more imports of soybeans?
Arlan Suderman: 17:42Yeah. We do know. I think the good news is is that, president Trump and president Xi want to meet again face to face later this year. And so, typically, when heads of state meet, they want something to agree to make headlines with. And so the negotiators met briefly at Davos this week at the World Economic Forum, and we're working on setting up additional follow-up meetings going forward to get prepared, whatever that'll be.
Arlan Suderman: 18:13Don't expect them to buy 25,000,000 metric tons. I think that's just totally impractical for them from a logistical standpoint. From the size of the Brazil crop, kind of space. The reserves are ready, probably at least a half year supply. How much bigger are they willing to build storage in order to get it to that point, but I do think we will see, trying to come up with something else to create headlines, maybe in other ag commodities, know, whether that's beef, whether that's wheat or corn.
Arlan Suderman: 19:02Corn is off the radar right now for China. Some of those other possibilities that brings you back to the soybean thing, though. If we get a positive final regulation read from the EPA for biomass diesel production, then this demand from for soybeans from China and the export market as small as it is relative to history can serve as simply a bridge toward us transitioning toward domestic demand, replacing that. And I do believe that USDA is way understating their crush demand estimate for this year. If in fact we get that positive crush through the first third of the marketing year is 38,000,000 bushels above the pace the seasonal pace needed to hit USDA target.
Arlan Suderman: 19:51There's more upside potential there. But it comes down to EPA. And if EPA comes through for us, then we don't necessarily need China and it provides what they have bought provides the transition to help us get the biofeel domestic demand going, and we can focus more on that going forward. So, Spence, if you want to look at it through rosy glasses or negative glasses, I tend to be a glass half full guy, and so that's kind of the way I look at it.
Todd Gleason: 20:21On the negative side, Brian Stark, I wonder because the the corn growers clearly think the administration and at least the oil industry had something to do with E15 year round not being approved or being put into the funding mechanisms for the government. Is there much concern that EPA simply won't come up with a number for renewable diesel and, biomass based fuels, the advanced fuels that really makes, what we've been talking about in the soybean market fly?
Brian Stark: 20:59I think there's always concern when you it comes down to governmental policy, and certainly, we have to try to do our best to forecast, you know, what that may look like into the future. But more importantly, as we talk holistically about what it means for the producer, I think we have to manage risk knowing what we know today, which isn't very much as we await final rule regulation around that. But so to get back to your question, certainly there's concern the longer that it's delayed of knowing what that demand or those policies may look like breeds uncertainty. We know the market doesn't like uncertainty. And I think when focusing on soybeans at the producer level, I think just looking today, we've got, we've all talked about the demand and the positives there.
Brian Stark: 21:52And in order to paint a better outlook from a price perspective, we have to rebalance either finding additional demand and or correct the supply component. And certainly I think for the bean market, while the technical points that Chip pointed out are something to watch, also want to pay attention to the ratio as we think about acreage moving forward here in the next ninety days and what the producer in these fringe areas of the Corn Belt is going to do. The new crop ratio today is still around 2.39. Obviously we don't want to see, the market doesn't want to see another 94, 95,000,000 acres of corn planted to potentially print a 3,000,000,000 bushel carry out. I think the job of the market, certainly there's more upside in my opinion today for soybeans or at least holding steady to where we are maybe at the expense of a decline in corn to realign those acreage numbers that we need to see.
Brian Stark: 22:57So that gives some, I guess, some support to the bean complex, notwithstanding the unknowns with the EPA's decisions relative to biofuel demand on the soybean oil side.
Todd Gleason: 23:09So, Chip, how do you see acreage laying out? So it and just to make it simple, roughly speaking, between corn and soybeans, it's usually about a 180,000,000 bushels. If the trade currently is thinking 95 for corn and 85, I suppose, for soybeans, do you think it could be pushed, and would the market do this so that the ratio sets up for eighty seven and ninety three instead?
Chip Nellinger: 23:36Yeah, Todd. I I think, in in thirty plus years that this is the, most confusing acreage battle, acreage talk that I ever remember. Brian was right. The ratio is gonna matter. I think it depends on where you're at.
Chip Nellinger: 23:56The, you know, lower producing ground, maybe in the South, corn doesn't pencil. We have producers across the I States and the highest producing, type of ground that are, planning on additional corn acres just because it's easier to yield your way to profitability versus beans. I think the producer's usually three, four million acres at a minimum that can swing in the Dakotas and North Dakota. They had the best yields they've ever had in North Dakota and remember, they also were selling beans at fall deep into the eights with a dollar 50, dollars 70 under basis. That leaves a sour taste in in their mouth to beans.
Chip Nellinger: 24:38So, I think you can argue both ways and and I'm also really I've never been a fan of the March acreage report. I don't think there's a lot of accuracy to it. So, I think we're wide open to wild variants of of, estimates, arguments I can make logical both ways, more corn, less corn. I think the door's open for some big shocks on the March acreage report.
Todd Gleason: 25:06Arlen Suderman, corn could go down in price to make the ratio change in favor of soybeans. Soybean price could go up. Which way do you think it'll happen?
Arlan Suderman: 25:17Well, we've talked about soybean technicals, and I'm certainly not the, wouldn't label myself as a technical analyst, but I look at the corn chart and I say, Okay, is this a base building or is this a bear flag on the corn or look at USDA currently forecasting a 13.6% stocks to use ratio. Typically, the last half half dozen times or so, we've had similar stocks to use. We saw prices more in the $350 to $4 area. It doesn't mean we have to be there. We may not go there.
Arlan Suderman: 25:48I would suggest that some of the risk. So in all likelihood, it'll probably be due to a combination of firmer soybeans, weaker corn. The other piece of the equation though is input costs. And certainly with fertilizer prices, etcetera, input costs favor beans over corn in many areas. And that's the other aspect.
Arlan Suderman: 26:10When you chart out the soybean corn price ratio, it's pretty scattered, scattered plot, so to speak. That scattering comes because of the differences in input cost to a great extent.
Todd Gleason: 26:21Have you been able, Arlen, to suss out, on the need for processing of oil in The United States, whether that demand is internal or external to The US?
Arlan Suderman: 26:34Well, the the market was built on expectations of the biofuel and domestic demand. But then when the regulations got delayed, we've been looking at suppressed production of the biomass diesels. And so that's given us a surplus of oil. So we've been looking to the export market to get rid of it. The thinking is if we do get a positive final regulation from the EPA that we will move toward soy oil, canola oil, domestically, the economics of it will drive it toward the biofeel industry and the food industry may even be looking at some imports of edible oils to supply their need.
Arlan Suderman: 27:17That that's the way the economics will tend to work, with exports pretty well drying up for those oils.
Todd Gleason: 27:24Okay, Brian. Then my last question is whether the president did enough damage in Davos this week as it's related to the European Union, which has been the primary driver of sustainable aviation fuel, which quite likely would come from soybean oil in The United States, that they might actually turn to Brazil, if Brazil can manage to do SAF, out of ethanol instead, and whether that's an issue.
Brian Stark: 27:58Well, I think cooler heads tend to prevail. I think most of us that have followed president Trump around, he has interesting negotiation tactics to kind of accomplish what he wants. And I think, obviously, tariffs on the EU from an agricultural standpoint would not be good. Interesting enough, one renewable energy company forecasted here recently that the EU will potentially suspend its SAF mandate due to its unworkability. I even had time to really dig too deep into it, but their logic was airlines don't want to pay four times more for it than classic jet fuel.
Brian Stark: 28:35I think there's still some uncertainty relative to cost as we go forward. But back to your reference of the EU, we certainly need the EU as a trading partner on a world stage. I think we hopefully have had some of that resolved, maybe by not being as forceful in some of the rhetoric at the conference as what we thought might happen, going into it.
Todd Gleason: 29:00Let's get a final word now from each of you. Chip Nellinger at Blue Reef Agra Marketing. We'll start with you. Your final word for the day.
Chip Nellinger: 29:07Well, I I think that, from a producer standpoint, you know, have a have a plan of attack here especially on grain that you know needs to move between now and say that the March, the opportunity there is probably not as great as what we have out in front of us. Plenty of reasons from a demand standpoint. The geopolitical other issues to to expect some rallies but you know, again, we're in a much different situation than, you know, some of the bullish years we've seen prior. So, as always, I I I tend to push this, have a plan, have offers working above the market at at key resistance and at sales points, and get ready to to sharpen your pencil and have a plan for the 2026 crop. We may have opportunities there sooner rather than later, and it's important to, to to have a plan of attack.
Todd Gleason: 30:04Brian Stark of The Andersons out of Mensfield, Illinois. Your final word for the day.
Brian Stark: 30:09I've gotta tag along what Chip said. I think, you know, looking at the market, really doing, cost analysis, determine what you have to move on the old crop side here in the next sixty days. March soybeans got up to $10.72 There might be some opportunity in the next sixty days for producers in certain areas to be able to clear $11 cash to the processor that might generate and be a good sale relative to where corn prices have declined since the January 12 crop report might buy a little bit more time where corn basis could be firmer as we go into the March, April, May timeframe as we head towards the fields. And then also thinking about the February guarantees, I'm a big believer on crop insurance is the first spot where you guarantee your revenue. We're going to start determining those guarantees here this coming month, and then we can leverage, some of our new crop sales where we get, potential opportunities seasonally from that April to June time frame.
Todd Gleason: 31:10Arlen Suderman from Stonex. What is your final word for the day?
Arlan Suderman: 31:15Yeah. I think building on the comments that, heard from Chip and Brian to this point, and that's we're basically talking margins. And I heard a presentation this last week from the farmer from Georgia who won the soybean yield contest over 200 bushels per acre. How did it all start? Realizing he was just losing money and started looking at, Okay, which of my input costs are generating a revenue for me, which are increasing production inputs, which are getting the highest return.
Arlan Suderman: 31:47And really focusing on that, getting micro managing his whole balance sheet of what goes into producing a crop. And these are times for making those decisions for knowing what your break even costs are looking at each piece of equipment. How much is this contributing versus the cost of maintaining this equipment fertilizer other products itself we put on This is a time for just kind of focusing on staying in business. We will see better days. The cycle always comes around, but this is a time for being defensive and for treating it like a business and really focusing on what can I do in my operation to better survive and be here for when that cycle turns around?
Todd Gleason: 32:32Commodity week, of course, is a production of Illinois Public Media. You may find us online at wilag.org, willag.org. You may hear the whole of the program anytime you'd like there. Our thanks go to our panelists this week including Chip Nellinger at Blue Reef Agrimarketing, Arlen Suderman from Stonax, and Brian Stark of The Andersons. On University of Illinois Extension's Todd Gleason.