Jun 12 | Commodity Week

Todd Gleason: 00:00

This is the June 12 edition of Commodity Week. 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 Greg Johnson.

Todd Gleason: 00:20

He's a totalgrainmarketing.com out of Champaign, Illinois. Logan Kimmel joins us from Roach Ag at RoachAg@.com in Naperville, Illinois. And Mike Sussolo at at globalcomresearch dot com out of Atchison, Kansas is here as well. Commodity Week is a production of Illinois Public Media. It's public radio for the farming world online on demand@willag.org.

Todd Gleason: 00:44

Let's get a list of items that each of you think we should discuss for the day. Of course, we'll take up this morning's USDA WASDE numbers. Greg Johnson, what else is on your list?

Greg Johnson: 00:55

I think all the uncertainty over the Trump trade talks and tariffs with not only China, but, also, we've got the renewable biodiesel, decision that may or may not come out tomorrow. So I think a lot of the government policy issues probably we need to talk about.

Todd Gleason: 01:13

Logan Kimmel, from Roach Ag on your list.

Logan Kimmel: 01:16

Yeah. As we're looking at the calendar here, June, typically, it's that time of the year where, the market provides marketing opportunities. So been fielding a lot of questions here on folks hanging on to a little old crop, but also searching for some ideas maybe on some new crop marketing now that we're in that calendar window here. So possibly going over some targets and some ideas for the next oh, thirty to sixty days on, old and new crop marketing.

Todd Gleason: 01:45

And Mike Souzla, globalcomresearch.com.

Mike Zuzolo: 01:48

The only thing to add to those great comments are the ideas that maybe the funds are finally gonna be seen as out of position by being long beans and short corn after the report came out this week, Todd.

Todd Gleason: 01:59

Why do you think that will be the case?

Mike Zuzolo: 02:01

Well, I think the big thing is is that we just aren't backing down on corn demand. And the domestic number going back down to 1,365,000,000 bushels takes us down to levels not seen since twenty two-twenty three, when we were at 1,360,000,000. Probably even more stark and more important is the the world ending stocks and stocks to use ratios were 2012 was razor thin. I would call what we saw on Thursday's report a thin situation because we're now at 21.6% stocks to use in for June corn globally. 2012 was 16.5, and yet the funds were over a 150,000 contracts net short as of last Friday in the CFTC update.

Mike Zuzolo: 02:49

So I I continue to feel like that they're way out of position. They've bought in South America's Brazilian corn crops specifically is gonna come in here and really wreak havoc on our demand. I I think, you know, U of I have has done some really great research on, yes, they may have a bigger crop, but their exports are probably gonna actually be down because of their ethanol and domestic demand usage increasing so much over the past few years. So I I think between the the trade and tariffs and what Greg alluded to, and this week, we've built some premium in the soybeans. We'll see if we take it out this next month.

Todd Gleason: 03:27

Greg, tell me a little bit about the uncertainty within the trade talks and the tariffs and what that means to you?

Greg Johnson: 03:34

Well, the the report, you know, the, Newswire report says that things are going smoothly and China and The US are getting along great and everything's perfect. And I think, I don't know, I've been doing this long enough, I guess I'm jaded. I just don't think it's going to happen as quickly as what it makes the newswire reports make it out to be. Yes, we've agreed on letting Chinese students attend our universities. And yes, it sounds like China is going to release some rare earth minerals.

Greg Johnson: 04:02

But as far as trade, as far as corn and soybeans and wheat, I think that's weeks, if not months, still in negotiations. And so, if we're looking for a quick fix there, I think we're going to be disappointed. I think that's going to take longer than what it may sound like today. And then the other thing is with the renewable biodiesel mandates, the devil will be in the details, and I just wonder how many details we'll get tomorrow. It may be one of these framework type announcements where if we don't know how many small refinery exceptions there are, it's really going to be hard to put a dollars and cents number on the impact tomorrow.

Greg Johnson: 04:42

So maybe just more uncertainty is what I'm afraid of, I guess.

Todd Gleason: 04:46

So the RVOs, the renewable volume obligations are expected to be announced. US EPA should get those, but you're just worried that the, well, the supply side, relatively speaking, if you're thinking about it in that way, may be offset in a different way by the demand side or, the exemptions, for the small refineries. And you're worried, I guess, that those won't be announced at the same time. So it'd be very difficult to really understand how much might be used in the coming year, particularly for soybean, oil, ethanol as well, I would suppose.

Greg Johnson: 05:22

Exactly. I mean, it it could work to our favor. It could it could be a somewhat friendly report or it could be a negative report. I guess my assumption is, expectation is that it won't be bullish or bearish, it'll be uncertain. And so we'll continue to trade sideways like we have, at least that part of the news will not have a market impact.

Greg Johnson: 05:45

We'll have to look to the weather. We'll have to look to the funds. We'll have to look to some other items to get the market to move one way or the other. I'm just not sure that the announcement tomorrow will be the big market mover that it could potentially be if we get all the details. I just don't think that'll happen tomorrow.

Todd Gleason: 05:59

So, Logan, if you could go through some of the numbers, from USDA WASDE that you thought were important. Mike talked a little bit about the global numbers. What about the domestic numbers? Was there much that changed that would mean anything to producers today?

Logan Kimmel: 06:14

Well, I think there's just more confirmation of the corn ending stocks getting smaller due to an increase in exports of the demand pace that we're on. And it is a little frustrating going back to last year's June WASDE for this crop where they started at a 2.1 carryout. Here we are today, almost a little over 700,000,000 bushel lower than that. And it seems like this market's not reacting because I look at the numbers today, at least on the corn side, justified increases in exports and cuts to the carry out. But yet, those numbers came out and the market seemed like it's just back to trading and focusing on the weather and the demand and maybe focusing on the U.

Logan Kimmel: 07:06

S. Dollar. So I think when you look at the report today, kind of came in as we thought, but more focus coming in on the end of the month here with the June numbers and further progression of the South American crop. So I don't think it's anything to ignore though how tight of stocks on this old crop are coming into new. And that just makes the weather here for the rest of this growing season still important.

Logan Kimmel: 07:33

So I kind of agree with Mike, I wonder what the spec fund positioning does if you do have a little bit of a scare maybe into July and August with the lower stocks to use and ending stocks, that big of a short position, you got to figure out you get some covering, if not maybe a net long move here from the funds on the corn side of things.

Todd Gleason: 07:57

So Mike, I have to ask you, because we often talk about a weather premium being built into the marketplace. Is there a tariff premium or a trade premium built into this marketplace at at today, because of the president's policies?

Mike Zuzolo: 08:17

I would word it this way, Todd. I think that the soybeans and the S and P 500 have priced in a premium assuming that everything will go smoothly and that we'll come out on the other side of this unscathed in terms of demand in the in the soybeans and in terms of no recession in The United States and or China. Kinda dovetailing with what Greg was talking about. I I just right before we jumped on and start taping, I was listening to Jameson Greer, the US trade representative on a Fox program being interviewed. And these are almost his exact words.

Mike Zuzolo: 08:56

President Trump likes the tariffs. He wants the tariffs. I I will go back to what we talked about way back in February at the at the beef house meeting. President Trump's policy is to bring manufacturing back to The United States. No if, ands, or buts.

Mike Zuzolo: 09:10

And I think this is where that uncertainty that Greg's talking about, it's not going to go away because our policy is to bring manufacturing back. And so what I've told clients and subscribers the last thirty to forty five days is I'm an old fashioned risk manager. I grew up in the mid nineties before China joined the WTO. There were still set aside. There were still what was the old term where you had the price underneath the price for for USDA average prices that you were able to be compensated for.

Mike Zuzolo: 09:45

To me, the beans, because of the policy and the cattle, because of the screwworm and the policy at the border, I think they're near perfect examples of why you'd want to buy puts here and have floors in place. Maybe in both of them, you're not making a lot of money. Maybe in some cases, you're not even breaking through a cost of production situation, but that doesn't stop you from potentially gaining profit and adding to your eventual net selling price. And I would stress in the area of of WILL and especially south towards Olney and Bone Gap and Belleville and on south. I think there's a major basis play potentially coming around because of the planting issues and the replanting issues.

Mike Zuzolo: 10:30

So I see a pathway to profitability this year, but I think it starts with the beans and and the cattle and having some puts in place in case these policies, you know, end up creating a push to the downside, and and we do pull out that theoretical tariff premium.

Todd Gleason: 10:45

I have to admit, Greg Johnson, that I had meant to ask Mike about a suppression rather than a premium in the marketplace related to trade. He did tell us there was a premium there, but I do wanna know about suppressed prices.

Greg Johnson: 11:01

I don't know if it's suppressing the the market or not because you could make an argument that, Trump could come out with a trade agreement with China that requires them to buy so many metric million metric tons of US soybeans and that would be friendly or he could come up with an RVO number that's higher than what the trade is expecting or he could not allow the SREs, small refinery exemptions and all of those would be potentially bullish. But you could just easily make the case the other way that China is going to push back and hold out for the best possible deal, which could take several months. And with the big South American soybean crop and potentially big South American corn crop, we could lose some export business. So it can go either way and unfortunately we just don't know yet. And so I think we're kind of sitting in the middle.

Greg Johnson: 11:54

Is there a premium in there? Well, yes, if things don't work out as well as what we would hope, corn and bean prices could go substantially lower. But on the other hand, if we can get something worked out to benefit agriculture, then we could, especially with the soybeans, the potential is there because the spending stocks number is tight. And so any increase in demand via RVO, via soybean oil trickling down to soybeans would certainly be friendly. I don't know that that's priced into the market yet necessarily, but I don't know that China not buying any soybeans is priced into the market either.

Greg Johnson: 12:33

So I know that's kind of a wishy washy answer, but I think the market just doesn't know what's gonna happen. And so not only do we have to try to outguess the weather, we have to try to outguess trade policy as well.

Todd Gleason: 12:45

It is something that could be both, a suppression and in the near term, depending on what you think of as the near term, I suppose, Greg, if there if the president really is holding out for a metric tons deal like phase one in his administration, which the Chinese might really drag their feet upon, but once agreed upon would put a real up push in the marketplace. I'm wondering, Logan Kimmel, as you think about these marketing plans and ideas, what should producers do and consider as it's related to new and old crop?

Logan Kimmel: 13:30

Yeah. To Greg's point, if we do get some positive news, here here in the coming weeks to months, and maybe that catalyst, is a trade deal or a weather event. I think for producers wanting to know what to do, maybe on their last bit of old crop, call it gambling bushels, that probably is your opportunity. The window is closing here and maybe pick up paces, swings or opportunities and be a marketer now that we're already through the almost June. As we look to new crop, I think any opportunities we get probably are wise to get caught up on sales.

Logan Kimmel: 14:13

I think the new crop marketing, some producers might feel a little behind just because we haven't had a very good market this to the most part on new crop this far into the marketing year. So, put options underneath production, even just to limit losses might not be a bad idea also on a weather rally. Right now, might not be the best marketing spot here today. I guess on the other side for the old crop, what kind of generated some questions too here yesterday is big Central Illinois bean processor dropping their bid off July over to the new crop November now, which isn't the news we want to see, especially if you're hanging on to old crops. I think that's just an example of marketing, market rallies are probably ones to be aggressive on, get caught up, and we still have time, there still is a crop to grow, but use any headline, any positive news to be a seller and get caught up on marketing.

Todd Gleason: 15:19

Mike Zuslow, I'm gonna turn your attention back to South America. You mentioned, some of the work that, had been done by the PharmDoc team, Joanna Colucci and others, considering the domestic usage of corn there for both the livestock and ethanol sectors. And while there's a larger crop of, and in total there, more of it will be staying put, less of it will be exported. Does that offer an opportunity for corn exports to increase from The United States in the next marketing year?

Mike Zuzolo: 15:56

I really think so, Todd. And I think this is where because we have so much good coming from Mexico as our our primary buyer. And because the dollar just made a new, what, thirty eight or thirty nine month low on the index against a basket of currencies on Thursday, if you have any kind of issues with other countries, we are still I think I haven't seen the Argentine price lately. But I think the last time I looked at it a few days ago, we were still the cheapest as far as where we were going out of the Gulf Of Mexico. And I I think that we have still very strong upside price fundamentals in the corn.

Mike Zuzolo: 16:38

The the biggest issue remains the wheat. We've seen that once again. Last week, we were making new monthly highs on China drought. This week, we're making new monthly lows on a great big fat Russian crop. Meanwhile, I'm looking at satellite data, soil moisture profiles, looking at Moscow Times putting out news updates of an agriculture drought emergency in the Rostov oblast, which is part of the the part of the country that represents 30 plus percent of of Russia's wheat crop.

Mike Zuzolo: 17:12

But we we just continue to be hamstrung by the wheat market, and it's more of a sentiment mindset than it is supply demand. Because even even today excuse me. Thursday's crop report, to see the domestic wheat number and and the fact that, you know, we've got an average price that actually went up on 25,000,000 more bushels of exports, and we're now at $5.40, and Toledo's at $5.00 9. I really wonder how much more downside could we have. I mean, the old lows at around $4.90, $4.95 area.

Mike Zuzolo: 17:44

Yeah. Maybe. But, yeah, it's harvest seasonal, but I still think the wheat's gotta do its job in bottoming before anything else can in in the big picture unless you wanna talk about a a corn and bean weather rally.

Todd Gleason: 17:56

No, Greg. Let's talk a bit about marketing, what producers should do. And I wanna focus on new crop, something we discussed with Matt Bennett, in this week as well, and that producers are well aware of, particularly when we're in the midst of a growing season and the price is low. And over the past five years, they have quite likely increased their, coverage levels for crop insurance. How should they consider that?

Todd Gleason: 18:29

I know that, you know, with within their within the financial system, the banks feel better if crop insurance is in place, and producers, I think, have gotten used to buying greater amounts of crop insurance. Is this something that they can use to their advantage as they look forward to October?

Greg Johnson: 18:53

Yeah, the higher levels of insurance protect them so they don't have to be quite as aggressive when it comes to making sales because they have a little bit more protection on the crop insurance, but that still doesn't excuse anybody from not having a marketing plan in place and we do want to get it sold. And we're at $4.4 December corn today and last year corn was as low as $3.9 in the fall and $4.9 at the high. So we're right in the middle. We could go $0.50 higher, $0.00 lower. I agree with Mike and Logan, we have some potentially friendly things out there.

Greg Johnson: 19:33

The funds are short, the export demand is good, South America even with the big crop is probably going to keep a lot of that there. So that gives us more of the export market. I still think the weather, even though corn's only a foot tall in a lot of places and we don't need a lot of rain, if you look at the subsoil moisture maps, Northern Illinois, Iowa, two pretty big areas, are deficit subsoil moisture. Now you can't see it looking at the crops today because the small crops quite frankly don't need moisture, but you know, will we get timely rains? I guess that's what that boils down to.

Greg Johnson: 20:10

So I guess my point is I still think there's an opportunity for a rally whether the funds cover a little bit for whatever reason, some weather premium, some continued good export demand. There's some friendly potential things out there. But in the same breath, we want to take advantage of that because if we have anything close to a normal crop, you know, we could be pushing $4 corn. So at 4.4 I'm not real crazy about encouraging farmers to sell corn, but let's say we get a $0.25 to $0.30 rally. That seems like a big wish, a big ask today, but historically that's not unheard of, especially in in late June, early July if we get any kind of a weather scare at all.

Greg Johnson: 20:50

And there are forecasters out there that are saying, especially West Of The Mississippi River, that we could be in for some hotter and drier weather. So I would encourage farmers you know, maybe not necessarily sell anything today, but at least to have a plan in place to take advantage of any small rallies we might get here in the next thirty to forty five days.

Todd Gleason: 21:09

Logan, when was the last time for corn, wheat, or soybeans that roach ag threw a sell signal? Do you recall?

Logan Kimmel: 21:17

We had a couple of opportunities on the soybeans in May. We most recently had one and also in the corn market. And the wheat market actually gave us some opportunities in June as it kind of came off the mat and rallied up. So we've had a handful of opportunities, not anything we were super excited about since May. And really the focus was cleaning up old crop on those and slightly increasing new crop percentages just because we're in the camp also that you still got some time on this new crop.

Logan Kimmel: 22:04

We are not excited about these prices here, but small opportunities, 5% sale here for folks that will want to get more in the books on this new crop. We've had a couple. But again, I think patients here see this out and if we do get a rally, I think again, it's important to have a plan and maybe that's have orders in place. To Greg's point, if we get, say a 30 or 40¢ rally, right now it does seem like a tall order. That would put us back up to maybe the April or February highs on corn.

Logan Kimmel: 22:44

But I find myself thinking this sometimes too, if it run up to 4.8 well hey, it looks like it might go to $5 let's wait and sell. If we fall short of that and you don't get anything done on a later summer weather rally, we do end up having a halfway decent crop and we're well below this price at fall, I don't want to be kicking ourselves for not capturing a market move between now and harvest. So that's where I think having a plan and orders in place if we do climb up here and start getting some positive news in the market, don't let that go by the wayside and get caught up with where the market maybe could keep going to because we are in that seasonal window. Usually this is some of the better opportunities. So that's kind of our thoughts here on on new crop marketing.

Todd Gleason: 23:38

Hey, Mike. What else have you been watching across the planet, whether it's a macroeconomic issue, the dollar, the price of gold, the recovering price of crude oil. What what's on your list?

Mike Zuzolo: 23:52

Yeah. You know, this is a little bit of an out there one, Todd, but I think it has to be talked about a little bit anyway. But for the time in twenty one years, the nuclear watchdog agency that has been monitoring Iran came out for the time this week and said they're not living up to their their agreement in terms of enrichment. And a lot of the Middle Eastern sources that I look at are really in very strong mindset that we will see some type of attack on Iran in the very, very short term, meaning the next couple weeks. And, you know, this harkens back to what we've talked about amongst us all, but, you know, especially on Friday afternoons, you and I have talked a lot about this being a lot like the mid seventies through the mid eighties.

Mike Zuzolo: 24:42

We're we're really just fighting a lot of geopolitical issues, and we've really just come off of in in the wheat and in the crude oil, you know, essentially three plus year lows in the not too distant past. So I don't think the market until this week was really prepared for anything like that. They're trying to play catch up, but, you know, we we, I think, still have issues that could bring us into weather slash supply side surprises or factors that could give us quick flash moves to the upside that would get us in into profitable territories in the grains. The only other thing I'd mention is the cattle. We still have the screwworm issue.

Mike Zuzolo: 25:25

But once that is settled, I'm really nervous that we're gonna pull back pretty dramatically because the funds are so short corn, and they're so long, the feeder cattle. They've been playing that feeder corn ratio since I think last spring of twenty four. And at some point, I think that's gonna unwind itself.

Todd Gleason: 25:42

The undertow of what you're hearing about Iran, is that, an Israel issue, a b b Netanyahu issue, or does it include The United States in some way?

Mike Zuzolo: 25:52

In some of the Middle Eastern papers, it includes The United States, and Iran has come out as of Thursday of this week and suggested that they will attack even our partners in the Middle East if anything would happen. And and what I'm trying to put together here is is one plus one equals two that if if Israel attacks, the Iranians are probably gonna assume The United States gave them the okay. And so my opinion would be that the gloves then could come off in The Middle East, kinda like what we've all been worried about for the last couple years. And then, obviously, what's going on with Russia and Ukraine is still red hot too.

Todd Gleason: 26:29

It'll be interesting to follow suit with all of that. When I was listening, Mike, to, the German Marshall Fund Conference taking place in Brussels this week, and we ran some information, some comments from the CEO of ExxonMobil. But in some of the other sessions that were available, there was a lot of discussion about The US's role across the planet and particularly the role of Turkey, as it relates to the Middle East. What are you what are you thinking about that, and how, it is the gateway from Russia and the Black Sea area into, the Middle East for wheat and other products.

Mike Zuzolo: 27:18

Yeah. Historically, if you if you talk to somebody at U of I, I bet that's a a historian, they would probably say that Turkey has been involved in almost every major issue in the world history ever since the seventeen hundreds. And so Turkey is something you wanna keep your eye on. I I think this issue of this conference you're talking about, and it kinda harkens back to what Greg was talking about, what I was thinking about while he was talking, and that is the dedollarization mindset is growing. The the Asian countries are trying to figure out a way to probably trade more with each other and less with us.

Mike Zuzolo: 27:54

And and I'm not trying to be anti anybody right now. I'm just trying to call it as I see it with what I see in some of the Asian news. And and Asian news that is typically very pro American, I'll I'll add to that. So I I do think that time is of the essence, and I'll I'll remain on the same side as I've always been at this point until I'm proven wrong that I'm I'm less worried about '25, much more worried about '26 and '27 when it comes to agriculture if we don't, you know, bring this situation back around.

Todd Gleason: 28:24

Yeah. On that note, India, and you can talk about whether that's Asia or not, but India was at this conference, and they certainly were discussing the free trade agreement that they are now in the middle of negotiating with the European Union.

Mike Zuzolo: 28:41

Yeah. And they were very unhappy, from the Indian press that I look at, very unhappy with the crackdown on on Indian students, and and they weren't real happy with how we took a neutral role with the Pakistan India border issue, even though I feel like it was the right thing to do. Peace is always the right way to go, at least as a try. But I I told another group of people, I really wish we'd get a deal with India before China because I think that changed everything.

Todd Gleason: 29:09

Alright. Let's get a final word now from each of you. Greg Johnson from Total Grain Marketing, the elevator system that belongs or elevator that belongs to the system within Growmark and FS. Can you give me your thoughts please?

Greg Johnson: 29:24

Sure. I just want to touch on one or emphasize one thing that Mike touched on and that is that correlation between crude oil prices and corn. It's tough for corn to do much when crude oil prices are in the mid-60s. But if we do have any kind of tensions in The Middle East that would cause crude oil prices to go up and counteract some of the previous administration's emphasis on EVs, which hurt crude oil. You know, that could help crude oil prices, which in turn would help corn prices.

Greg Johnson: 29:54

So I think we've got thirty to forty five days here of basically the weather, giving us an opportunity to hopefully get a little bit of a small rally. And so I think farmers want to take advantage of that. Typically the funds are long this time of year. So if the funds were long like they typically are, would probably be more aggressive in getting farmers sold, more heavily sold. But since the funds are short at this point, I think there's more of a chance that we get a bump up rather than a bump down over the next thirty days.

Todd Gleason: 30:25

Logan Kimmel in Naperville at Roach Ag, your final word for the day?

Logan Kimmel: 30:28

One comment that might apply to some of the listeners out there, it's a sector that we're watching here, livestock, and Mike touched on it there with the cattle, but one market that's been very hot and caught a lot of buying here is the hog market. We've seen these prices since April do nothing but go up and that would include the back months too. That's driven on the spec funds nearly doubling their long position in the hog market. So what we've seen and what we've noticed here is that's given hog producers some of the best margins since 2014. So I think if you're a producer and we've seen what we've seen here from June, July all the way out to even the winter months, these levels might warrant layering in a floor and locking in some of these profits because it's been a market that is screaming higher for a reason, but you're in a position now that I think warrants taking action if you can put a little bit of a floor underneath these great prices.

Logan Kimmel: 31:37

It's one market that's been heavily bought and moving sharply higher, so something to consider.

Todd Gleason: 31:44

And finally, Mike Zuzla, globalcomresearch.com out of Atchison, Kansas. Your final word for the day.

Mike Zuzolo: 31:50

Well, we made new monthly lows in the soft red wheat after the crop report. I'm hoping we can heal these charts up on Friday, Todd. If not, looks like we're heading into a seasonal break to the downside on Northern Hemisphere harvest. Having said that, the the typical lows could come right around that July 4 time period. And I I would look for that given the fact that our stocks below two sixty three million metric tons is the smallest since 2015.

Mike Zuzolo: 32:15

We're just underplaying this wheat market if you ask me.

Todd Gleason: 32:18

Commodity week, of course, is a production of Illinois Public Media. You may listen to the whole of the program anytime you'd like at willag.org, willag.0rg. Our thanks go to our panelists this week including Mike Zuzolo, Logan Kimmel, and Greg Johnson. I'm University of Illinois Extension's Todd Gleeson.