Mar 26 | Commodity Week

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Todd Gleason: This is the March 26 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 Dave Chatterton. He's at strategic farm marketing from Champaign Illinois. Curt Kimmel is here from agmarket.net. He is in Normal Illinois and Greg Johnson also from Champaign Illinois joins us from TGM that's total grain marketing.com. Commodity week of course is a production of Illinois Public Media. Our theme music is written performed produced and courtesy of Logan County farmer Tim Gleason. Let's get a list of items that we should discuss for the day I think Dave Chatterton I'll start with you. What's on your list?

Dave Chatterton: Yeah Todd I mean it can be a long list I guess the question is where to start. We have an RVO SRE you know announcement hopefully tomorrow or by the end of the month according to the Trump administration. We've got a key USDA report with the quarterly stocks and acreage coming up next Tuesday. In the meantime of course we're watching what's happening in the Iran US conflict and the headlines that go there we're watching what potentially may happen with the China negotiations now that a date has been set. And of course in the background we got weather and and you know some improvement in the drought situation in Central Illinois but um something that certainly needs to be still be watched. I think the most important of those Todd is still the headline risk and what's going on with Iran and it has a grip on the commodity markets here that has led by the oil complex but certainly has bled its way to the grain complex as well.

Todd Gleason: I'm not sure Curt Kimmel if he left much that we should discuss out of that list anything that you can come up with?

Curt Kimmel: No I think we're probably pretty good.

Todd Gleason: I bet there were some things on the cash grain side Greg that he did not get to. What uh do you want to talk about for the day?

Greg Johnson: Well I think uh the fund position uh Dave Dave kind of referred to uh the headline risk and that kind of ties into the the fund position but I think we want to keep that in mind talk about that a little bit. And then also uh farmer selling um has been fairly heavy on this rally as farmers finally got a chance to sell something at maybe close to above break even prices on old crop corn and beans but uh new crop corn and bean sales remain very stagnant very low so maybe that's something we can uh delve into as well.

Todd Gleason: Okay I want to pull all of you very quickly just yes or no. Should farmers be making new crop corn sales we'll talk about uh how much and soybeans for that matter. Yes or no Curt Kimmel.

Curt Kimmel: Yeah we feel that uh this rally needs to be rewarded and continued to sell into it here not heavily but uh when you look at where we are for the February spring price and where we are now uh it's definitely better and we'd like to try to do better than break even and as we approach five dollars in dec corn and hopefully twelve dollars in november beans I think it gives producers an opportunity to uh do a little bit better than what we were looking at here last January.

Todd Gleason: Dave Chatterton new crop sales?

Dave Chatterton: Yeah Todd I mean just to your point the answers yes I think as Curt mentioned the the level I think is important but uh the answer is yes.

Todd Gleason: And Greg Johnson.

Greg Johnson: Yes. Uh maybe even a little heavier beans uh maybe being 40 50 percent sold on beans versus 25 30 on corn. Just because I think the acreage number could be heavy on beans higher on beans a little bit lighter on corn uh plus we got the big South American crop this year and even more acres next year so for all those reasons I like to be a little bit more heavily sold on beans than corn.

Todd Gleason: And so the why is you believe prices will be lower in November because of those two items you just mentioned.

Greg Johnson: Unless you tell me it's going to be a a very dry summer which could very well happen we don't have the subsoil moisture. So again if I thought if I knew it was going to rain this summer and everybody's going to have a good crop I would say we would need to be a hundred percent sold but uh we don't know that. That's why we're talking about maybe 30 or 40 percent being sold.

Todd Gleason: Okay Dave back to you on this uh tell me some of the whys for the new crop sales in your opinion.

Dave Chatterton: Yeah I think I think Curt hit on it you know we're at levels now we're above crop insurance guarantees Todd we're hitting levels that are profitable on a number of producers balance sheets and the unpredictability and the volatility of this marketplace if you haven't got that into your head by now and and what's happened here of late you know I don't know what to tell you. But that volatility has been working for us here of late uh primarily led by what's gone on as I mentioned with the war in Iran and the general kind of money flow into commodities and I think Greg talked about that. We've had some very uh aggressive fund buying in the ag space um and and getting to levels here that are that are very stretched. When I look at this we've seen funds since February 1st buy almost 3 billion bushels across the complex corn beans and wheat and we're getting getting fairly stretched on that that you know holistic view of where we're at. And you know to Greg's point we don't know what's going to happen with weather this summer certainly that could be a factor. But I think the political you know landscape here at some point we are we have to realize that the inflationary element that's been brought into the marketplace uh led by oils but also you know bleeding over into the ag markets at some point becomes a negative in terms of economic growth. And not only in the US but globally I think there's you know some talk about things that may happen. And so high freight rates I think are slowing trade and availability of diesel and bunker fuel on the marine side so there's just some a few concerns here. It doesn't mean sell everything it doesn't mean we can't go higher Todd but I think you have to be a prudent risk manager and just admit to yourself we don't know how this is going to turn out. We don't have a template for what's going on in the Mideast right now uh let alone the China negotiations and you know and the weather that comes after it.

Todd Gleason: I was on a farm doc webinar earlier today Curt and they were comparing things to the start of the Ukraine war in 2022 and then again in 2023 uh some differences at the start of the Ukraine war the price of corn was eight dollars. By the time we got to the fall it was seven dollars um kind of remained there and then by the time we got to the next fall we were down at six dollars in 2023 but we'd been down as low as four dollars and eighty cents. There is a difference between this war and that one. It's that Ukraine and Russia pushing us to eight bucks was really because it was a production area. The Middle East is not known for producing corn or soybeans though they do produce a little wheat. So how do producers handle those place think about those price those prices in context of the war today?

Curt Kimmel: I just wait for seven bucks and take that I guess. Uh at the at that upper end there that was huge huge uh profitability there so uh you know we're extreme we're overbought but now we've spent what last two three years down the lower end of the sector here oversold and when you get inflation and you look at overvalued and undervalued commodities corn and beans have basically been undervalued in my opinion. So from an investment point of view it's worth taking a stab at it. That's why the funds are probably long over 200,000 corn over 200,000 contracts of soybeans waiting for something to happen. But as producer what we've been doing and most advisory services has been doing is stepping into this thing getting some downside protection several different ways but have a price floor leave your upside open I guess the the old wordage adage back in the days has been hedge and defend uh so you know exactly where you are you got some you have some flexibility to work with because as Dave said you know headline news we don't know it wasn't that what a week ago week and a half ago coming in here beans were down limit and before it's over with we'll probably be up limit. So the volatility is going to continue to run rampant in through here and and there's some opportunities to uh capture something here if you want uh when you look at over a 10 year span uh there's probably one to two years you have a chance to make some pretty good money. And if things get juiced up here on inflation or weather uh I think there's a chance to improve our bottom line from what we were looking at the last one.

Todd Gleason: Dave Chatterton you put the RVO and SRE announcement that's renewable volume obligations and small refinery exemptions on your list. The president on Thursday afternoon when we were recording this saying uh on uh his truth social posts that there will be an announcement of some sort uh for ag day on Friday so that probably is out by the time that most people are hearing this live on the air at the radio stations. Um what's your expectation of that announcement?

Dave Chatterton: Yeah Todd I guess a little bit um you know concerned I don't have any any better insight I don't think than anyone else about what the Trump administration is going to do. The rumors have said that it will be similar to the to the path that we have seen forward so I guess your your over under is around that 5.4 to 5.6 on the on the um on the RVO you know mandate it's probably 75 percent on the reallocation. And so certainly you know we'll watch to see what happens. My concern would be when you look at bean oil and to a lesser degree the bean complex and the way that we've rallied coming into this announcement I think the the build up into the announcement Todd the natural miss here is probably to be disappointed whether it's a miss in the numbers or whether it's simply a buy the rumor sell the fact type of reaction. Once that number's on paper we're moving forward I think you know certainly if if that 75 percent number is accurate for the um the small refinery exemptions I think certainly on the reallocation side certainly there's going to be some some court and and lawsuits that follow uh and it may take a while to straighten that out. So we'll take the numbers as they go but I you know again I think we've built a lot of expectation and positive expectation into what um what we're going to see tomorrow or or by the end of the month. Trump also mentioning today that he's going to announce actions to a number of actions that will quote unquote help US farmers so we'll have to wait and see what that is as well.

Todd Gleason: And Greg Johnson as you're thinking about this in the larger context of what producers uh should be considering um Greg suggesting that it could be a a buy the rumor sell the fact event what are you thinking?

Greg Johnson: Oh I I agree with what Dave just said uh 5.4 to 5.6 uh is kind of baked into the RVO number uh the funds have really established a long position not only in soybeans but in soybean oil so that's probably going to have to be quite a bit higher uh in order to get even more money to to come into this marketplace. Um you know it it just reminds me that the gold and silver before the war had rallied so much and then the war happened uh at the end of February and everybody thought war is usually bullish for precious metals and we've lost anywhere from 18 to 38 percent. Gold's down 18 percent silver's down 38 percent since the war started. So um you know and it was the fact that the the market had run up so much the funds had bought so much that they basically just ran out of buyers. Now I'm not saying that were to that extent in corn and beans there's a lot of you know a lot more room for people to buy corn but the soybean position for funds is the third largest ever so not that they can't buy some more but uh you know it's that risk reward thing you know there there's probably more chance of the funds you know having already bought the rumor selling the fact versus buying even more so as Dave said uh you know you have to be a risk manager and ask yourself is there more of a chance of it going up or going down um and uh with the rally we've had I think a lot of that good news might already be baked in.

Todd Gleason: Curt Kimmel next Tuesday USDA will release the acreage and grain stocks figures what numbers are you expecting uh from both of those at this point and which will play more into the marketplace?

Curt Kimmel: I'm going to say it again uh back in the day they said buy land because they're not making any more but uh last couple reports they found uh more planted acres so I think it's a moving target uh but benchmark wise the ag market teams at 94.4 million corn acres it might be 95 uh bean acres at teams at 86 uh point one but a lot of that's to the natural rotation of the crops from uh corn to beans uh we're in a position though where there's some areas that uh maybe go into what's a little bit more economical uh the ideas bean acres could be up a little bit more due to the finances but I visited with a couple guys that beans aren't quite there yet so it depends on your bean yield. So it's a moving target uh I think uh it's going to be have to be outside the trade ranges to be a significant uh market maker. But the grain stocks report that's going to be our uh first uh benchmark to look at to gauge usage uh about nine billion bushels the average trade guess on corn. Soybean is 2.063 uh a little bit more stocks than a year ago but with uncertainty around the world and uh ethanol margins real strong uh and this demand just really not going away for the moment in through here uh we'll we'll see what those numbers come in at.

Todd Gleason: Dave Chatterton you will have spent a good portion of the month of February half of the month of March thinking about crop insurance and discussing acreage with producers what did they tell you then and do you think today they will hold to what those uh outlooks might have been?

Dave Chatterton: Yeah Todd it's a really interesting question. I think you know our initial read on acres was that that 94.5 kind of middle of the road expectation on corn you know down from last year's um you know 90 year high I guess was probably going to be a little bit low and that farmers were leaning a little bit more towards corn. As we've rallied a little bit I think a couple of things have happened. One is certainly the the fertilizer element and the cost structure on the input side has entered the equation on corn. Now I mean you can you can put a moving target on it farmers have locked up 75 80 85 percent of their fertilizer needs before this really got started and going. But there are some open acres out there that that look to us like they're backing into beans particularly in Southern Illinois or in places like the Dakotas where they don't tend to do a lot of pre-buy or a lot of winter applications. So I think that number is coming down. I still think it will be above the 94.5 I think you know we've seen a few numbers you know in the surveys here as high as 97 I don't think it will be that high but um we're going to to Curt's point we tend to find those acres in the spring um and assuming you know that that we have a good spring and that we're not interrupted or not late I think that that that number that we get uh next week probably has some upside to it um from the USDA. I think last thing keep in mind those surveys went out in late Feb and early March kind of before a lot of this latest I'll say push on the energy and the urea and the the nitrogen side of the complex really got going.

Todd Gleason: And then Greg I finally saw my first planter running for the season in Champaign County your elevator is in the background by the way. I'm wondering when you talk to producers I know I'm wondering when you talk to producers what they have been telling you?

Greg Johnson: Well they've been telling me that the ground conditions are very good uh we've had uh three and a half four five inches of rain uh in the month of March uh that follows 12 to 14 months of extremely dry below normal precipitation so the topsoil moisture uh is adequate uh we have we still haven't replenished the subsoil moisture but we do have enough moisture to uh get the crop planted. So farmers are anxious to go um I think they're going to since it's only you know late March and not April I think we'll see people wait uh uh in general there's always a few that'll get going here early but uh I think farmers are optimistic boy there's a uh obvious statement right farmers are always optimistic but I think farmers are optimistic about getting off to an early start and getting both the corn and the beans planted uh earlier than normal this year.

Todd Gleason: Well then the next thing uh if we get an early start uh there is an old adage that says if a farmer's planting corn they're likely to continue to plant corn. Given the high price of fertilizer will that be the case this year?

Greg Johnson: I guess I don't think so. I I think we're going to see 94 million acres of corn um and 86 million acres of beans um maybe you know that number may go up in June but but as far as the uh March report I don't think you'll see uh a lot more than 94 maybe 94 and a half but if you use 94 and use a 183 yield that's a 15.7 billion bushel corn crop what add the two billion carried over from this year that's 17.7 and demand probably won't quite be 16 billion like it was this year so 177 minus 158 that gives you a 1.9 carry out uh tighter than this year but not by much and not the recipe for five or six or seven dollar corn. So it just kind of takes us all back to the bottom line that you know the prices probably aren't going to be much above five dollars uh unless you tell me it's not going to rain very much in June July and August and we have to go with the odds seven years out of eight we do get enough rain in those three months that we have a decent crop so um you know farmers probably need to sell corn as it gets close to that five dollar range because uh you know it could be four dollars by the time we get to fall four and a quarter anyway. So at 425 to 5 is the range and we're at 490 today um it might be you know prudent to uh at least get offers in just in case that report on Tuesday is friendly for all of 35 seconds. So I've I've been encouraging farmers to get offers in because you just never know where this market will go answers how long it'll stay there.

Todd Gleason: Curt Kimmel I'll let you follow up on that offers in from farmers for new crop?

Curt Kimmel: Yeah we've scaled into it uh 499 and three quarters is a popular benchmark to avoid the even five but uh you know 505 scale it up to uh 550 something would happen you could lay into it but uh but the main thing is uh a lot of guys have been leaning a little bit more heavier towards the price floor or hedge and and defend uh type but whenever you see an explosive type of market uh even like silver for example yeah it'll go to the extreme but it'll come right back down too. So you gotta uh have some covered positions so you have some staying power. What I've seen over the years a guy make one margin call he'll make a second margin call the third margin call he'll say get me out and that's when the hedge works so have some staying power.

Todd Gleason: And then Dave Chatterton uh because Greg mentioned the weather conditions in the Eastern Corn Belt uh seem to be pretty good today a month ago they were not. You wanted to talk about the weather I bet it's Texas, Oklahoma, Kansas, and Nebraska that you're concerned about.

Dave Chatterton: Well you know I think certainly we need to keep an eye on those those areas Todd and that's primarily a wheat argument I think to a large degree and maybe a milo or you know small grains but I think we're still solving that moisture deficit in the Midwest and though it's started to rain in the I states we have a long way to go to really get back to a normal soil moisture profile. Looking at the long range forecasts and you know stuff from the you know Eric Snodgrass and similar I mean there's a few different opinions out there but it looks like the gravitation from a La Nina towards an El Nino type of a situation by late this summer favors you know a decent rainfall in the periods that Greg had mentioned. But I think there's still an open you know open question that we could get pretty dry pretty quickly here and um you know farmers who are planting this week I've got a few guys who are on their third day of soybean planting in in Central Illinois but it doesn't look like a very friendly weekend we're going to get awfully cold tonight maybe some hail and storms going to stay cold over the weekend with more rain early next week and you know we're we're getting off to a start so I I think you know weather is always a concern Todd it's the you know the old saying you know is whether Trump's all else you know can Trump everything else and I think that's still true to a large degree. We need the production we need to assure ourselves that we have that supply especially with the things going on around the world here that that kind of put a lot of question marks in in a number of other buckets.

Todd Gleason: Okay so let's uh finish up our conversation I think by discussing the war and war's impact on the grain markets uh you all of course have been through the beginning of the Ukraine war so you have some context with which to put the war in Iran at this time uh and I'll start with you Dave on on how you see um the commodity markets between now and the fall because we have the Ukraine war I've given you some of those numbers already uh and and what may or may not happen uh in the intermediary intermediate time I feel like that you're all going to tell me it's likely to be a lower price but I want to make sure that's actually the case.

Dave Chatterton: Yeah Todd I mean I I would say that's a safe assumption assuming that we get our arms around the situation in Iran and that the the conflict or you know a ceasefire is declared the conflict ends we're able to reopen transport in the in the Gulf of Hormuz um and and you know infrastructure starts being repaired that's been damaged. But that's a big if I think unfortunately right now I guess my view Todd and it might be a little different from the others from the others we don't really have a template for what's going on right now we've never seen the straits closed in this way we've never seen you know um you know military threats that that have been carried out here and it doesn't take a lot to scare off shipping and you know and and transport through that region. It's you know you know a drone here or a air strike there and and the insurance carriers and the ship owners do not want to enter that regardless of military escorts or whatever the case might be. So you know I think we have support for our marketplace here and we have the potential to go higher particularly in the oil complex that will have a drag on energies so long as that situation is not resolved. Now I think there you know the other side of that there is a lot of pressure on the Trump administration to get this solved and get it solved quickly it's bad for the inflation or bad for the economy bad for inflation bad for the election bad for the Republicans and a number of different fronts but in general you know the world needs oil and you need economic growth and um so it's a it's kind of unprecedented water here and I don't think I would assume too much right now I think you have to feel your way through day by day and if you feel like the war is going to come to a conclusion you need to be more aggressive in the way that your marketing grain but until that point I think I'm a little bit more hands off.

Todd Gleason: Greg Johnson if the war to were to be settled it seems that the uh destruction that has taken place uh within the Middle East of the nitrogen production facilities three to five years they're saying to bring up the 17% that was lost in uh one of the attacks uh the uh gas and oil fields have been hit um and particularly the ends of the pipelines so the places that export uh feels like that might take some time to rebuild don't know how long on it I've not seen something um but point I suppose is even if we were to settle uh the issue nitrogen might be high priced or at least supplies come off the marketplace diesel fuel probably will remain much higher priced I would think how do you think about this in context of what uh corn soybeans and profits look like for farmers?

Greg Johnson: I I think Dave hit it right on the head. I think uh if you knew when this war was going to end you would want to be a little bit more aggressive and up your sales but uh you know there's been myriads and myriads of Middle East wars and if we get this one done in a month or less that would be the first time. I I just have a feeling this could drag on you know for for longer you have to have an opinion and and as of today my opinion is this is not going to get resolved um in in a matter of weeks it's probably going to take months. And so if that's the case you probably don't have to be as aggressive on new crop corn sales um you know they'll follow the oil prices um but eventually hopefully we get it solved um as far as uh inputs for next year um there's talk about uh removing the uh variable uh tax on uh Moroccan phosphate exports that would help. Uh we can produce nitrogen here in the United States natural gas is much much cheaper than it is overseas so you know whether the companies choose to do that or not uh that remains a big question because quite frankly they can make more money by producing not as much and keeping the price high so there has to be some either government uh push or a very big economic incentive for them to really increase production that can happen but it would probably occur at a higher price or under some political pressure. So um I I guess I don't see the oil price falling out of bed tomorrow I think this could take months but uh again I I don't have any inside information I wish I did but uh everybody has to have an opinion and uh I just like getting some sales on the books just because I fully uh recognize that that nobody knows so uh you know we have to get some sold and we hope that's our lowest sale and and we'll sell some more if in fact it does go higher.

Todd Gleason: And finally Curt Kimmel of agmarket.net your final word.

Curt Kimmel: Yeah as Dave mentioned the headline news it feels like the wild wild west all over again here I mean when you see a energy market and a stock market move millions and millions of dollars in a defensive mode then a tweet comes out here 5 10 minutes later to justify you you can't fight that there's no way you can predict that uh hopefully has some transparency and look into it. Then as Greg mentioned the weather you look out west through here the wheat crop is deteriorating quite a bit so these crop condition reports for wheat's going to be watched real closely and boy if that uh heat dryness moves to the east watch out.

Todd Gleason: You've been listening of course to commodity week it is a production of Illinois Public Media. You may find and listen to the whole of the program anytime you'd like on our website at willag.org w-i-l-l-a-g dot o-r-g. Our thanks go to our panelists this week including Curt Kimmel from agmarket.net, Greg Johnson from total grain marketing and Dave Chatterton of strategic farm marketing. I'm University of Illinois Extension's Todd Gleason.