- Joe Janzen, University of Illinois
- Curt Kimmel, AgMarket.net
- Greg Johnson, TotalGrainMarketing.com
This is the July 25 edition of Commodity Week.
announce: 00:07Todd Gleason's services are made available to WILL by University of Illinois
Todd Gleason: 00:13Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Joe Jansen, agricultural economist here on the Urbana Champaign campus of the U of I'm along with Kirk Kimmel from agmarket.net and Greg Johnson from TGM. Commodity week of course it's a production of Illinois public medium. It is public radio for the farming world online on demand at willag.org.
Todd Gleason: 00:39We'll start with a conversation I had with Joe Jansen about the article he wrote for the Farm Doc Daily website you can also find it on our website. The title is The Corn Market Works to Explain Itself. In it, Joe, you work through ending stocks and the stocks to use ratios. To begin with, can you define both those sets of terms for me, please?
Joe Janzen: 01:03Absolutely. Yeah. The ending stocks to use and the stocks to use ratio are really just kind of ways that we try and summarize everything we know about the state of supply and demand in a particular commodity market. So for corn right now, we wanna get a sense of, like, is is available supply tight? Does the market need higher prices to kind of ration that supply out?
Joe Janzen: 01:23And the way that we the best indicator that we have, if we don't want to put try and put one number on it, is that ending stocks to use ratio. And there's been kind of a little bit of confusion because that ending stocks to use ratio for the the 2425 marketing year, the one that we're just about to the end of now, has decreased substantially since the start of the '24 crop. So we used to think that the '24 crop was really going to fill up the balance sheet, really, you know, abundant supplies. We needed really low prices. That has sort of changed because last year's crop wasn't quite as big as we thought and because, you know, corn usage has been especially strong this year, particularly in the export market.
Joe Janzen: 02:04But we're still kind of stuck with a corn price now and a new crop corn price on the board about, you know, in the range of $4.10 to $4.30 a bushel.
Todd Gleason: 02:12Why is it that you suppose that the market never has gotten to a place during the current crop marketing year that it need to push prices into that $5 range given what the current ending stocks are?
Joe Janzen: 02:29Yeah. I think this part of it has to do with, you know, we thought there was, you know, abundant supply. And so if you you you think there's, you know, plenty of corn around, you don't go out paying a particularly high price. And then the other part is we've always kind of expected that even if we didn't have a lot of corn right at this very minute, we would have more in the future. And that's certainly our expectation for this coming 2025 crop in The United States.
Joe Janzen: 02:56And really for the the corn crop that they harvested in Brazil in the last few months. So both of those things have kind of said, hey. You know, in the world, at least, there is you know, there's going to be enough corn. We don't really need high prices to to ration currently available supply.
Todd Gleason: 03:14So the current ending stocks to use ratio is 8.7. Anything below 10% is considered to start to get to that point where it might need to be rationed. 8.7, I think, by your numbers, it actually should. But the marketplace is looking forward to what in the coming marketing year that causes this not to be the case.
Joe Janzen: 03:38I think that's right. And I think the other part is sort of we're kind of at a unique time in the corn calendar where the ending in USDA data, most of the time, is like a really good and reliable indicator. But there's some times where some things aren't totally built into the numbers that USDA is putting out. And I think the big one right now is obviously the corn yield figure for The United States. USDA has produced a trend line yield estimate that's a 181 bushels per acre as a national average yield.
Joe Janzen: 04:08I think almost everyone in the marketplace would expect that as of right now, based on what we know about the twenty twenty five US corn crop, that number is going to have to go up. But USDA typically doesn't adjust that number until its August crop report. And so we're kind of in a situation where the market maybe knows a little bit more than those USDA numbers and is building in the expectation of a bigger corn crop.
Todd Gleason: 04:36On that note, it it would be why the price of futures may not move as much as the old crop cash basis, which would be searching out for corn depending on where you are.
Joe Janzen: 04:48That's absolutely right. We're in a situation when we get down to the end of the marketing year, things can get kind of highly variable because just because of, you know, there's this very, like, temporary short term imbalance between maybe supply and demand in particular locations and at specific moments in time.
Todd Gleason: 05:03Is there a relationship between corn ending stocks and price over time? Season's average cash price.
Joe Janzen: 05:11Yeah. Whether you whatever indicator of price you use, we think there is a reasonably strong correlation between ending stocks to use, that is that summary measure of available supply, and and prices. And you are not going to get a high stocks to use ratio and high prices. And you are not going to get a very low stocks to use ratio at very low prices. But we can get we're kind of in this in between point where we're kind of, you know, prices that are, you know, a price with a four on it.
Joe Janzen: 05:42You know, if we look at sort of the last twenty years of corn pricing, a season average cash price of above $4 is reasonably high. I mean, it's not sort of you know, we've certainly seen years where that at that average price was in the threes. But we're kind of at, you know, relatively tight stocks for a $4 corn price. And I think, again, this is all a story of expectations. And we expect that there will be corn coming to market by the time we get to harvest.
Joe Janzen: 06:10And that's going to change the supply and demand picture substantially.
Todd Gleason: 06:13This timeframe is not the only outlying year with this kind of indication where you have a shorter crop coming into what is expected to be a very large crop.
Joe Janzen: 06:22Yeah, I think if you go back to 2013, 2014, or coming out of the 2012 drought, that was a period where, you know, corn supplies weren't, you know, sort of totally abundant yet. The balance sheet hadn't been totally filled up, and that stocks to use ratio wasn't necessarily particularly high. But everyone expected that bigger crops would be coming in the future. Available supply would would sort of get built be built back up. We're in a stock building period, and and that is what happened back then.
Todd Gleason: 06:51What happens if you plug in the biggest numbers that you can capture from the commercial side that I think is a stone x figure well over about 187 for average yield around the nation?
Joe Janzen: 07:06Yeah, they came out with this number, I guess this is now, you know, about ten days ago of 187 national average yield. You put that into the balance sheet, that really sort of fills things back up very quickly. So you put that you put that into the balance sheet, you get to a 14% stocks to use ratio. And all of a sudden, you know, a $4 corn price looks reasonably good when we have that level of available supply. In part, that's that's in part because, you know, the big yields are are filling things up in part because we have a lot of corn acres planted, or we we think we have a lot of corn acres planted.
Joe Janzen: 07:42My, you know, anecdotal tour of of the The US Midwest this summer suggests that that's the case. And those corn crops look pretty good. So you do that, you fill the balance sheet up pretty quick.
Todd Gleason: 07:55You are in Nebraska today. Where have you traveled in the last week?
Joe Janzen: 07:59Last few weeks, I mean, we we've been up to Canada and back down to Nebraska. So we've kind of seen the the outer the outer northern edge of of the Corn Belt, Wisconsin, Minnesota, North Dakota, South Dakota. And, you know, this is not the Pro Farmer crop tour. It's like the Me and My Kids crop tour. But that crop tour didn't find a lot of bad cornfields.
Joe Janzen: 08:21And so, you know, I don't I certainly believe that, you know, a number a a national average yield number above one eighty one is is totally reasonable at this point in time given what we know about the size of the crop.
Todd Gleason: 08:33Given that you believe that the trade has built this into the marketplace, what does that mean for the USDA crop production report in the month of August, the first one?
Joe Janzen: 08:41It'll it will be very interesting to see. I mean, I think if they come out with a yield number in the, you know, one eighty three, one eighty four, one eighty five, I think the market will shrug at a number like that. I mean, if it was a number that's bigger than that, that could, you know, lead to that could be pretty bearish for for the corn market. But I think the market is pricing in something in that range already.
Todd Gleason: 09:05For those who have followed you and understood from other articles you've written and posted to the PharmDoc Daily website that the April, May, June, July timeframe are usually the best marketing timeframes for both corn and soybeans in any given year prior to the harvest of the crop. And they're well behind, maybe have not marketed anything at this point. Is there any advice as it's related to what can be done going forward?
Joe Janzen: 09:36Yeah. I think think you have to think seriously about spreading pricing, you know, that timing risk across time. And so you it historically is I mean, there are years where this is not the case. But historically, it pays to have some portion of that of that crop marketed prior to harvest. Now, that's not the only strategy.
Joe Janzen: 10:02And one could think about, you know, pricing strategies for post harvest grain marketing. But that's, you know, potentially entails a risk and a cost of holding that grain. That's the nice thing about pre harvest marketing is you kind of eliminate some of those storage costs, and you spread that timing risk out over time. So, you know, we encourage farmers to think about, you know, what is going to get you to sell? If we see some rallies based on weather news in the next few weeks, and that's, you know, certainly something that happens at this time of year as the market's watching watching the weather very closely, take advantage of of those kinds of pricing opportunities to to, again, not necessarily hit that home run, but to spread price risk out across time.
Todd Gleason: 10:46Lower your expectations and have a quick trigger finger?
Joe Janzen: 10:51You know, I I I hesitate to say have a quick trigger finger. I mean, I think have a plan that commits you to to action, you know, a specific plan that has realistic goals.
Todd Gleason: 11:02Joe Jansen is with the University of Illinois, an agricultural economist, a member of the PharmDoc team. We closed out our conversation by talking about cash basis and the need for it to do, quote, the heavy lifting into the end of this year. When I spoke with both Greg Johnson and Kurt Kimmel, we took up this topic. I asked Greg from the Andersons if we'd arrived at the time of the year where cash basis really had to react in order to finish bringing old crop out of the farmers' hands despite futures being lower.
Greg Johnson: 11:40Yes, we have. It's extremely localized. We've seen some markets drop their basis anticipating getting having enough going into fall harvest. We've seen other markets really pushing the bid for corn. So, for example, here in Central Illinois, corn basis is getting better.
Greg Johnson: 12:00But some rail lines, CSX, for example, the NS market, those markets have weakened a little bit. But the CN market, the export market is very strong. So that's to be expected with a 1.3 carryout. That's extremely tight, but it's not tight everywhere. It's tight in some some areas, some zones, and it's not so tight in other zones.
Greg Johnson: 12:25So, yes, we have seen basis improve in our area, but not that's not everywhere.
Todd Gleason: 12:29How do you see basis and futures working in tandem to price cash corn over the next couple of months?
Greg Johnson: 12:36Yeah, I I think corn there there's a chance for a quick shipment bid and first if you have corn ready for first half September. So you may not want to lock the basis in on that part of your production if that has to come to town. But if you have corn that has to come to town and it won't be ready till later in September or October, it sure feels like we're going to fill up and there'll be piles of corn on the ground. And so basis levels probably will get weaker as we get into the gut slot of harvest. As far as soybeans are concerned, we certainly hope China will show up and buy U.
Greg Johnson: 13:09S. Beans at some point in time because the last time that they did not buy beans in the fall, we saw basis levels get extremely weak. So I think as a defensive measure, it wouldn't hurt producers to lock in bean basis now and for corn basis to get that locked in for what's going to come in later in the harvest. But for what comes in early in the harvest, maybe hold off on that and see if we can get some quick shipment premiums.
Todd Gleason: 13:32Kurt Kimmel following up on this note. How are you advising producers and what is JSA saying about this marketplace?
Curt Kimmel: 13:40Yeah they say take advantage of it because basically it's kind of a gift in through here. Several things to look at, one is Texas is harvesting, the Delta's starting to harvest so we're gonna start to see some harvest activity in the South to pick up here to kind of ease that. So yeah, we're all in on capturing that. They kind of feel basis risk is quite large here as we go through the fall, the fact that producers just aren't sold up. So this is an excellent opportunity to clean up some old crop if you still have some to move and depending on where you are in new crop.
Greg Johnson: 14:15Remember that Southern Illinois, Southern Indiana, Southern Ohio, which typically supplies that feeder market in the Southeastern United States, was extremely wet in the spring and extremely delayed. So that's where we think the shortage may come in or short delay. And so that's where we may be able to take advantage of a quick shipment premium. Kurt's right. There's other areas, Texas and the Far South that we'll be harvesting soon if they haven't started already.
Greg Johnson: 14:44But that feeder market in the Carolinas and Georgia, that's typically supplied by Southern Illinois, Indiana, Ohio, Kentucky, Tennessee. All those areas were extremely wet this spring, and so it may be a little late before they can get corn down into the Southeast.
Todd Gleason: 15:01This will provide producers in the southern third of the state of Illinois and parts of Indiana, Missouri some opportunities. But you if you live further to the North, what are you thinking?
Greg Johnson: 15:11Yep. The base is is probably gonna be stronger in the South and the East, and it'll work its way north. So the the guys in Northern Illinois, Iowa, they may not be able to take advantage of it near as much. It might have a little bit of a supportive effect. You know, they might get a 5 or a 10¢ bump in the basis.
Greg Johnson: 15:26But the farther south you are, I think the better your chances are of getting better basis levels.
Todd Gleason: 15:31Friday afternoon, USDA will release a couple of important cattle reports. To this point, the herd size has continued to drop. What are your expectations, and will demand remain strong for feed usage of corn by the beef cattle industry?
Curt Kimmel: 15:50Well, feed demand's debatable. Feed demand's actually a miscellaneous category. You got taught true feed demand. And yes, with lower cattle numbers, that's an issue, but they are feeding to heavier weights. So I think the feed demand in general is going to remain fairly strong.
Curt Kimmel: 16:10The thing is on feed demand, heifer retention is just not there. Why feed out something when you can get a ton of money for it and why risk something dying on you? So heifer retention is just not there. This cattle and feed report here on Friday is actually gonna probably come in 98% at the top end, 96 on the marketing. So we'll see how that unfolds.
Curt Kimmel: 16:34As far as feed demand goes, the main item this week on feed demand is China's hog herd. Pork supply is relatively high. They wanna probably take steps to curb some sows, bring down some production to prop up prices so there's profitability for their producers. So what does that do with soybeans coming in to be in crushed future demand and feed demand in China is a question.
Todd Gleason: 17:00Let's stay with the beef cattle for just a moment. If they're being fed to heavier weights it will take more corn for each pound that is put on than the previous pound. I would think that that would be good for demand going forward.
Greg Johnson: 17:13I do personally. I you know, you hear analysts say cattle are too high priced and we're due for a break and we probably are due for a break. But as long as produce, as long as consumers are willing to pay, you know, dollars 6 a pound for hamburger and $15 a pound for steak, the demand is still going to be there. You know, the cattle and feed number is probably going to be low, like Curt said, 98%, 99%. So we're already at seventy two year lows and that doesn't look like we're going to rebound anytime soon as far as the numbers are concerned.
Greg Johnson: 17:45But as Kurt said, we're feeding them to heavier weights. So there's still more feed. That's a little bit more feed. But overall, far as from a corn point of view, we're not increasing the demand for corn. We're just trying to keep it steady and not losing, you you would think we'd be losing feed demand based on the lower number of cattle, but I think we're kind of keeping it steady.
Greg Johnson: 18:06But that's the good news. The bad news is we're not increasing feed demand.
Todd Gleason: 18:09What a producer is telling you and TGM about the size of the crop in our part of the world and through the southern part of the state of Illinois, and maybe Kirk, you can jump in with other places as well.
Greg Johnson: 18:21From basically Interstate 70 North, the crop is in great shape. We haven't had a lot of rain in certain areas, but we've had just enough rain to get by. So even though there may be some lawns that look a little yellowish brownish, the corn itself is still that deep, dark green color. So I would say the potential is still there in the northern two thirds of the state of Illinois on into Iowa, Minnesota, Wisconsin. Now southern third of Illinois, you get South of Interstate 70, it's a different story.
Greg Johnson: 18:51They were planted late. They've had plenty of rain once, but you can't get over the fact that they planted it a month late. And so you cannot expect normal yields out of the southern third of Illinois, I don't believe. But we can have certainly above average yields in the northern two thirds of the state.
Curt Kimmel: 19:07Well, it's a couple weeks ago we had about four inches in town and a quarter inch to east of town. So, yeah, hit and miss. But overall, there's been some general coverage rain. Producers are quite well comfortable with the crop prospects and the ants are up in the yield as a nation. Mean how you average all that all out we're not going to know until next year.
Curt Kimmel: 19:30Now with the rain the biggest thing producers are going through when do I spray? How do I get the longevity of the spray? There's different funguses showing up. So that's kind of the main emphasis in here to keep eye on things so we don't lose thirty, forty, 50 bushels to the acre on some surprise.
Todd Gleason: 19:47On that note, if you're watching for diseases like tar spot or southern rust, which has made its way northward into both Illinois and Indiana, Iowa as well. You can find out more about the diseases, where they are, and what the expectations for the disease to develop in your field might be at the cropprotectionnetwork.org website. That's all one word cropprotectionnetwork.org. This is operated by the plant pathologists across the land grant university system along with the weed scientist as well. Check it out today.
Todd Gleason: 20:25Under resources you can find a map with the counties and where the diseases are. Under the tools you'll be able to find a crop disease development tool. It's all at cropprotectionnetwork.org. Now let's talk about diseases and the impact that they might have, Greg, on the quality of a crop coming to the elevator. How much of a concern might this be for you?
Greg Johnson: 20:51Yeah, if it's an extremely hot and dry year, the seeds tend to crack and then you get moisture in there and that's where you get the disease pressure. So far, haven't had that this year. We've had ample rain. If we get too much rain, we may see leaf diseases, as Kurt was talking about, but that usually doesn't impact the quality of the colonel as much as what a hot and dry summer would. So at this point, I think we're gonna be in very good shape, quality wise.
Todd Gleason: 21:27Kurt Kimmel, now let's turn your attention to international politics, the trade deals that President Trump is trying to negotiate with countries across the planet. There have been some announced, others not yet. What is it that the trade is paying attention to? It really at this point doesn't appear to have reacted very much to any of the announced agreements.
Curt Kimmel: 21:53Well that's a tough one. Everybody likes to talk yield and production now. Nobody wants to talk touch demand just the uncertainty on how this tariff issue is going to unfold. But Greg, I think you hit the nail on the head here. China, this bean demand going into this fall, that is just huge and that's the main concern.
Curt Kimmel: 22:10What we're seeing though is August 1, China's going to be extended till November 12. So I think it's gonna be keep putting back, little by little here over time. But we gotta see some new crop purchases come on the books because we're in a time window frame here where the logistic wise, you gotta get those ships lined up.
Greg Johnson: 22:31There have been five trade deals announced. You know, 19% tariffs with Philippines, 19% with Indonesia, 15% Japan, 10% UK, 20% Vietnam. But there's the two biggest ones are the EU and China, and those are going to take time. Those are going to take weeks. You know, the EU will probably be announced in August.
Greg Johnson: 22:55I hope the Chinese trade agreement is announced in August, but I could see that, you know, bleeding on out into September and October. And like I said, if we don't have an agreement done by the time the soybeans start rolling in, that's really gonna affect soybean basis. So, you know, those two countries, the EU and the, and the Chinese trade agreement are are huge.
Todd Gleason: 23:15Those trade agreements, of course, with China and the European Union are big and important. Japan too is important primarily because they are the number two importer of US corn.
Greg Johnson: 23:28They are. And the devil's in details. I mean, there there's some talk that, you know, China wants, you know, we want them to buy rice and corn. China obviously produces a lot of rice. They're trying to protect their farmers.
Greg Johnson: 23:40So, you know, there's, you know, we want to see the details. Do they really have to buy rice? They've agreed to buy X number of billions of dollars of U. S. Agricultural products.
Greg Johnson: 23:49But does that include corn and rice or are those other products? So we'll have to, you know, kind of sift through the details and see see if how friendly, in fact, this deal is for The United States.
Todd Gleason: 24:01And we're still waiting on trade agreements with Canada and Mexico. There is a USMCA or The United States Mexico Canada trade agreement that's in place. The Trump administration admittedly says it wants to renegotiate it next year, but the tariffs that are there in place today really need to be negotiated away in some form. What do we know as it's related to those tariffs?
Curt Kimmel: 24:28Yeah, they are our most logistically best trade partners there is. And we really benefited this last year of Mexico and corn particularly in their drought situation. Now they're receiving some relief from that. But two, there's I don't know if it's true or not. There's social media saying that Mexico and Brazil are starting to push the pencil on what they can do to get around some of these tariffs with The US.
Todd Gleason: 24:51On that note, logistically, Brazil to Mexico is by ship, and from The United States to Mexico is mostly simply a train across the border.
Greg Johnson: 25:03And one thing to keep in mind, the the tariffs that, president Trump has threatened to put on Mexico and Canada, those apply to a lot of products, but not to corn and soybeans. Anything that was covered under the USMCA agreement, does not get affected by any new tariffs. So corn and soybeans, for example, is not affected. So I suppose we could alienate these other countries enough that, you know, they might try to. But, you know, the bottom line is, corn and soybean exports to Mexico, for example, should not be affected.
Todd Gleason: 25:37Secretary Howard Lutnick last weekend on the Sunday shows reminded the American population that 75% of the trade between The United States, Mexico, and Canada is covered by the USMCA. Again, expectations is that that agreement will be renegotiated next year. But really that only trade of about 25% is being argued and tariffed and negotiated at this time among all three countries. Let's get a final word from each of you now. We'll start with you, Kurt Kimmel from agmarket.net.
Curt Kimmel: 26:15Well, if we got the cattle herd at nineteen sixty levels, shouldn't the methane in the atmosphere be at nineteen sixty levels? Just asking. But anyway, I'm kind of excited about the August crop report to kind of see what that says. But more importantly, I always enjoy chip marching across the fields here, August 18 to the twenty, twenty second like that to actually get a visual survey from their crop participants.
Todd Gleason: 26:43As usual, we will cover the Midwest crop tour in detail throughout the week. You can listen for that on the daily updates during the closing market report at 02:06 or on the podcast. Search it out at Closing Market Report each and every day of that week. Greg Johnson from TGM, that's totalgrainmarketing.com. What's your final word for the day?
Greg Johnson: 27:05Well, the good to excellent ratings that come out every week from USDA, Some analysts have extrapolated that that it's so good that we could have 186 bushel national yield. Now I don't know that anybody really thinks that but 183 is probably what's being traded right now. Last month the USDA was 181. So my point is we probably aren't going to see this yield drop below 181 anytime soon. So we probably need to get it below 181 in order to get some excitement in the corn market.
Greg Johnson: 27:38Otherwise, we may drift lower into fall. And then for farmers that have storage, you know, higher input costs will need higher prices of corn next year to encourage corn planting. But for people that don't have storage, take advantage of any $10.15 cent rallies in corn, because if you don't, you're gonna have to hold on to it an awful long time, and the storage charges will probably eat up any gains that you see, post harvest.
Todd Gleason: 28:02You've been listening to Commodity Week from Illinois Public Media. It is public radio for the farming world. You may find and listen to the whole of the program anytime you'd like at willag.org. That's willag.0rg. Our thanks go to our panelists this week including Greg Johnson from TGM totalgrainmarketing dot com that's the elevator in the system that belongs to FS Growmark covering a good third of the state of Illinois including the elevator here in Champaign County.
Todd Gleason: 28:33We were also joined by Kurt Kimmel from agmarket.net. He is in Normal, Illinois and our show began with a conversation I held with Joe Jansen, agricultural economist at the University of Illinois. You may find more from him on the article we discussed on our website at willag.org. What is the corn market trying to explain now? Look for that article.
Todd Gleason: 29:00Oh there will be one other article there as well that is important. It's entitled Empowering Illinois Soybean Producers. There is a webinar next week. If you sign up for it today and you're one of the first 25 registrants, you will have an opportunity for a $350 honorarium. You can see that on our website again.
Todd Gleason: 29:25Look for Empowering Illinois Soybean Producers. This is sponsored by the United Soybean Board. All the details online at willag.0rg. You've been listening to Commodity Week on University of Illinois Extensions, Todd Gleeson.