May 01 | Commodity Week

Todd Gleason: 00:00

This is the May 1 edition of Commodity Week. Todd Gleason services are made available to WILL by University of Illinois Extension. Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Ellen Dearden.

Todd Gleason: 00:18

She's at AgReview in Morton, Illinois. Logan Kimmel joins us from Naperville, Illinois in Roach Ag. And Brian Stark is here from The Andersons. He's in Mansfield, Illinois. Commodity Week is a production of Illinois public media.

Todd Gleason: 00:31

It is public radio for the farming world where we are in the middle of our spring fun drive. You can help us out right now. Dial in with your pledge of financial support at (217) 244-9455. That's 217 or you can go online to willgive.0rg. In either case, I like the hundred and $20 level.

Todd Gleason: 00:58

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Todd Gleason: 01:22

Ellen Deirden, thank you for being with us. What's on your list?

Ellen Dearden: 01:27

I'd like to talk about the farm bill, and, it seems like we keep pushing towards the brink and then nothing happens. So I'd like to address that a little bit.

Todd Gleason: 01:37

Logan Kimmel of Roach Ag out of Naperville, Illinois. Your thoughts.

Logan Kimmel: 01:41

Yeah. As we're, most folks caught some rain here, maybe have a little downtime, possibly go over some marketing ideas and strategies into the seasonal time frame, where we usually have our best opportunities and maybe some target orders on new crop corn and beans.

Todd Gleason: 01:59

And Brian Stark of the Andersons.

Brian Stark: 02:01

I think along the lines with Logan, I think on the cash grain side, the producer continues to advance rapidly during planting, and the window looks wide open the next couple of weeks. We can't lose sight that during that same time frame, the end user's hungry basis is firming in a big way on the corn and bean side, and we need to take advantage with any old crop we have remaining on farm.

Todd Gleason: 02:21

Okay. So we have some strategies that we need to go through for old and new crop, but I do wanna get to the Farm Bill conversation. Ellen Dearden, what's on your mind?

Ellen Dearden: 02:30

Well, it seems to me that, we have a couple of sticking points and there seems to be a lot of very loud rhetoric about yes and no, particularly as it pertains to SNAP, the food safety net for people, and also for reference prices. That seems to be two different sticking points. SNAP is very widespread used. It's the people as well as urban areas certainly understand the concept of it and the growth that came during COVID hasn't really slowed down. The Republican attempt is to just keep that thing on an even keel and not let it grow tremendously.

Ellen Dearden: 03:20

Nobody seems to be very interested in talking about reference prices, but again, it's a rural issue and not an urban issue, but reference prices certainly need to be jacked up. The last Farm Bill, the 02/2018 Farm Bill, has had a couple extensions now, and we're really working off very old data. It's, data from the early part of the teens. And so we need we need to, get, work underway on this farm bill, and I think we will continue to see a big push towards that.

Todd Gleason: 03:57

Some of the work that the agricultural economist on the campus, the University of Illinois have done on the reference price and that you can find on the PharmDoc Daily website that you would have to search for reference price because it's been some time ago that they have posted these, is about how those rest reference prices provide a floor for the marketplace. Soybeans particularly, if I remember correctly, is down around about $8.30 or something like that, Ellen. And so the question then that can be asked when you think about those reference prices is when you bring them up, what does that really mean? And eventually, is it simply a transfer of wealth into the rural community, related to the price of farmland? This is something that Carl Zuloff had written about in the last week or so.

Todd Gleason: 04:56

And how do you unwind that if that is the case? I I don't I'm not suggesting it is, but it is something to consider and probably how, Washington is thinking about reference prices. And then, of course, the SNAP program does feed many people across The United States, and and it is the larger part of the whole of the farm bill. Then there, of course, are the conservation dollars, which this week, I believe, Republicans have suggested, and this was something that the Democrats had wanted at some point, the numbers that came out of the Biden administration, that were part of a piece of bipartisan legislation that was passed to be pulled in, to the mega bill, the omnibus bill. So we'll see how all of that works, things that people really need to consider going, through the field this this weekend to talk to their their congresspeople about.

Todd Gleason: 05:50

So, good thing. Thank you for for talking about that, Ellen. I appreciate that. Logan Kimmel, as farmers have a little downtime, because of the rainfall, and they have done some planting in both the Western and the Eastern Corn Belt as, USDA showed us on Monday that corn planting was ahead of schedule. You'd like them to think about some seasonal targets.

Todd Gleason: 06:14

I suppose that would be May and June for the seasonals, So what kinds of targets are you discussing with Roach Ag?

Logan Kimmel: 06:20

Yeah, that's good points. We've seen a pretty good push here on planting up until your last few days. So right now, think if we look at these new crop and even old crop contracts, really, we're at support. We don't really have a story at the moment here with not a ton of planting issues or delays to get the market excited or rallied up here. But we are right in front of seasonally when we usually do between Mother's Day and Father's Day.

Logan Kimmel: 06:56

Generally speaking, we see some volatility in the market. We still have to grow the crop. So as a producer, as you're getting a little more comfortable with what you've gotten in the ground or here in the next week will get into the ground, it might be worth looking at some targets above the market. If you have some levels that make sense, I look at new crop corn here on December. I kind of like the area between four seventy and the February highs as a possible level if we had some weather develop into the May or June, where it might make sense to layer in some target orders above the market.

Logan Kimmel: 07:36

Sometimes that can happen quick. It can happen when folks are busy, maybe on an overnight open. But as we see it here today, I don't view this area on new crop corn or beans as a spot to do a lot of marketing work. I think more focus is getting on the crop in the ground. But we are ahead of that two, two and a half month window.

Logan Kimmel: 08:01

Historically, where the market could give us some opportunities, especially in the corn with a fairly tight balance sheet coming in here with the old crop. There isn't a ton of room in our opinion for, any crop issues or failures. So, that is something folks can consider here if you got a little downtime. And same would go for the soybeans. I think if you saw volatility and a weather story developing the corn, I think you see this new crop bean contract spend a little time above the two hundred day moving average.

Logan Kimmel: 08:35

I'd look back to the February highs as well. So that would be something a producer could do here at the moment. Makes sense for their operation and their risk tolerance to have a plan in place for the next, call it three months.

Todd Gleason: 08:50

Brian Stark, can you talk a little bit about new crop sales and then we'll get to old crop. Logan pegged a $4.70 range. That is where crop insurance, was pegged in that February time frame for the December contract. Producers probably are not going to be overwhelmed with joy by that number. But is it a figure that they should be considering, for new crop corn sales?

Brian Stark: 09:18

I I think given, the experience we've seen over years where we've advanced planning progress fast, and it looks like it's going to the majority of the Corn Belt could be planted in the next two weeks given the current forecast of warm and dry conditions. I think there tends to be a lean, potentially more corn acres. Time will tell. We're not going know that until the June in the final plantings report, along with the third quarter stocks, which creates a little more volatility. But I agree with Logan, I think seasonally the last few years we've seen the market give us opportunity barring any major weather issues through the June, that Father's Day window, right before you get to that major report to get some sales on.

Brian Stark: 10:04

And I think, also historically, going back quite a few years, it's been a long time since the new crop contract has not at least given us a chance to trade what our spring guarantee was, which should be that $4.70 mark. If the producer doesn't like that level per se as a fixed price, then there's some minimum price type strategies, where you could buy and put, sell out of the money call and creates some sort of upside to cheapen up that floor strategy to supplement with your insurance. And kind of tying into what Alan said with the Farm Bill, I think, until we know more about what that looks like, the good news is for all producers today, the prices we have through insurance that we've talked about with the new crop sales is our revenue floor and that's the baseline for all our risk management strategies. But we internally, I think when we talk to producers like if you feel like you've got a good start, the crop looks good heading into June 1, I think that 40% to 50% sold of expected production makes a ton of sense. And you can do that a variety of different ways, whether it's a straight HTA or if it's a minimum price type strategy, it's just really no one size fits all.

Brian Stark: 11:19

But I do agree if we get up into that upper $4 area, I think creating some floors against a percentage of production makes a lot of sense, simply because it feels like barring any weather issues in the next sixty days, it feels like the lean or the risk could be slightly more corn acres when the June 30 crop report comes out.

Todd Gleason: 11:40

Ellen Dearden, do you agree that the lean at the risk is more corn acres across the whole of The United States? And what does that mean, as you think about new crop sales?

Ellen Dearden: 11:50

Well, I would agree that, we will see on this June 30 report, we will see more corn show up. Historically speaking, when we've added corn acres in March, we add more corn acres in June. So I'm gonna go with the odds, but I think that's pretty logical to have seen happen. The other thing that I see is that if we're adding acres, are we going to be adding them in the Central I States? And if so, I think we have.

Ellen Dearden: 12:23

And if so, then maybe the yield expectation at 181 that USDA is holding isn't all that blue sky. It, you know, we've been talking about since we've added so many acres in fringe areas on the March report that that would be way too high, but that may not be the case.

Todd Gleason: 12:45

And what are you thinking about for old crop at this point? I know that we'll come back and and talk to Brian about this a bit as well, but when you think about that crop that they have left yet to sell, are you willing to hang on to that for longer?

Ellen Dearden: 12:59

You've held on to it way too long already in my estimation, but, I think that anytime we see any kind of little basis pop, you got to just move it, and I think you close your eyes and do it, both corn and beans.

Todd Gleason: 13:15

Brian, what are your considerations for old crop?

Brian Stark: 13:17

I think right now we've seen, naturally the seasonality of when the producers in the field, the grain movement stops to the end user. And so we've seen depreciating basis in a big way. Most of the end users in West Central Indiana and East Central Illinois have given the carry, meaning if as an example, if they were bidding option price to May, their new bid for spot deliveries option to July, they've already appreciated by the May July corn spread in their basis and they continue to work to find that equilibrium. I think for producers that we talk to, most of them are 70% to 80% sold. They're holding on to the last 20% or 30%.

Brian Stark: 13:59

I think corn and beans for me is a little different on old crop. I think as the bean market has also seen a recent surge in their basis against the July. I think the closer you get to that $10.75 to $11 mark, I think that's where we have to execute and just be done with the beans. The corn, I think growers can be a little more patient. I think they need to pay attention to the basis side of the equation because this is when the end user is going to push as hard as they can to give movement.

Brian Stark: 14:30

When the farmer's focused in on the field, when they come out of the field, the producer, especially if his new crop looks good, tends to want to move and liquidate the rest of their old crop. And so that could bring a little weakness in basis, but the balance sheet's tight. We've talked about that for the last couple of months and it doesn't feel like the export market is going to slow down until Brazil and Argentina's safrinha crop comes to the market, which is still probably another thirty to sixty days. And I think it could get tighter. The million dollar question that the producer needs to be prepared for though is, are we offsetting some of that higher than expected export demand with less feeding given the narrow corn wheat relationship over the past month.

Brian Stark: 15:15

So that quarterly stocks report at June is always a wild one. But given, the tightness of the balance sheet, I'm more inclined, to lock in a strong basis and be a little patient on futures given the fact this past winter, July corn went to $5.2 I think if we continue to have strong export demand that we could test that level again over the next sixty days. But barring the risk of the stocks report at the June, I think the producer still needs to be bear in mind of kind of having a calendar type sale just to mitigate his risk and his unpriced bushels. But corn, I think he'd be a little more patient on beans. I think, you need to be a little quicker to the trigger.

Todd Gleason: 15:57

Logan Kimmel, on that note about when the safrinha corn crop will come into the marketplace in thirty to sixty days. Ed, us at Agricultural Economist at University of Minnesota has a rule, hard and fast, thou shall not carry old crop grain, he means corn particularly, but soybeans too, into the month of July. So when do producers need to pull that trigger? I think everybody's in the same boat at this point, but I want to make sure, that you're there as well.

Logan Kimmel: 16:28

Yeah. We look at the the next thirty, sixty days and I'm in line with Brian's comments. And I think calendar wise that would time up. And just looking back, usually by August, it's not paid to hold on your opportunities at the end of the summer farm progress show time of year have already come and gone. So as a producer, if you're in that camp and corn, for an example, still holding on, look for those opportunities and maybe it starts in the basis.

Logan Kimmel: 17:02

But then again, on the future side, if we do have some weather premium built in on new crop, you might see that in the July, use those opportunities between now and June to get the rest cleaned up. History would show holding on until August or when you got to clean out your bins for the new crop that last minute first notice day, it usually isn't the best time. So we're right in front of that window on old crop. Might have another opportunity or two here very fast.

Ellen Dearden: 17:35

Todd, one thing I would point out that verifies what Logan's saying and also Brian, The September futures on corn are a dime under December. Usually, if we're going to have a big pop in movement or want to entice movement at the end of the summer, we'll see the September corn futures, you know, connect with the D's and that is not the case. The market structure is already telling you to move corn before the end of the summer.

Todd Gleason: 18:09

I want to turn our attention to the demand side of the marketplace. I'll start with you Ellen. As it's related to feed, do we think still that the hog numbers, the poultry numbers and the beef numbers are large enough that they're consuming as much as USDA says is the case.

Ellen Dearden: 18:31

Poultry numbers are rising and so that's gonna be a big factor, But the beef numbers are declining. So I think USDA may have to shave back that feed number a little bit.

Todd Gleason: 18:44

And then from the ethanol side, I'd like to hear Brian from you about the difference between the Eastern and the Western Corn Belt. There has been a stronger pull from the ethanol plants in the West, but I think that's changed over the last month. Can you tell me about it?

Brian Stark: 19:00

Yeah. Excuse me. With the Southeast crop being, historically small, there's a bigger pull, into the Southeast from the Eastern Corn Belt, into those poultry and hog farms, from the rail perspective. In addition to that, Ohio's crop last year was also subpar and they're low on stock. So there's been a natural transition back where the East has actually been the stronger pull from a basis standpoint in the interior domestic crusher, whether that be the ethanol plant or the feed user and the West has been a little bit on the cheaper side.

Brian Stark: 19:40

And the question becomes, will you get enough of a pull to pull over Chicago from the West into the East if some of those stocks remain tight as we approach that into June type timeframe. So again, that's another reason why I think basis has continued to be firm. Some of its timing based on where the farmer is in engagement, where his interests lie currently, but also the fact that we've seen a very dry quick harvest that ended maybe three weeks earlier than normal this past fall. And so we've shifted up the movement out of the bin by probably three to four weeks. And so I think that transition, while the board, I agree with Ellen, the board is certainly showing it does not pay to hold your crop into late August given where the CEP D spread is today showing a carry.

Brian Stark: 20:36

I do think from a basis perspective, it's going to be interesting to watch how the cash inverse plays out given the need for the grain now versus later in bridging that gap to new crop. The good news is because of the fast start to planting, there's a chance that you can narrow that bridge of this inverse and that's where the risk lies and why all three of us are on the same page of liquidating corn stocks earlier even though there may be some late summer basis fireworks simply because the new crop in some of these deficit areas like the Southeast local crop, the delta, they're going to start to come off earlier or maybe more normal than they did the last couple years just given how, fast we started off planting this year.

Todd Gleason: 21:19

Alan, as it relates to the December futures contract, and let's just say that the crop insurance number at $4.70 is the target, for new crop sales. How much do you have to rely on knowing what your local basis is and then kind of forward figuring so that your local basis is tighter by 10¢ than it normally would be? Do you subtract that off and say a $4.60 price is good enough to make that sale?

Ellen Dearden: 21:52

I don't know. You know, new crop basis is gonna jump around all over the place, and your basis is just gonna reflect your, you know, location. I think what what I'm looking at that, $4.70 insurance price, I'm always thinking whether I have one location to go to or three or four. So I think I'm I'm more apt to be looking at different locations where I can get the tightest bases against that $4.70.

Todd Gleason: 22:25

Let's get a final word, I think, from each of you. Now Logan Kimmel from Roach Ag, I'll start with you for the day.

Logan Kimmel: 22:32

Yes. We're coming into a window here that grain producers might have some opportunities. I think we've covered that and being proactive in your marketing plan. One other market that we're watching and have pointed out to folks is the month of April was pretty steady market for the meats in cattle and hogs. So if you're a livestock producer, take a look at the board here.

Logan Kimmel: 22:59

If these prices on on cattle or hogs make sense, it might be worth defending prices after a pretty strong month of April in in the meat markets.

Todd Gleason: 23:08

Brian Stark of The Andersons, your final word?

Brian Stark: 23:11

I think we just need to to stay disciplined here the next thirty to sixty days, especially if you're approaching the end of planning, take advantage of strong basis markets, specifically on corn, and then on beans. I'm more of a flat price bean seller on whole crop at these levels given the strength in basis and you've got a little bit of time to be patient on corn, again, trying to liquidate most of your remaining old crop, I think is important prior to the June 30 crop report. And then also be disciplined enough if we do get that weather premium push or seasonality to advance your new crop sales in some sort of minimum price strategy if we get closer to that $4.70 mark.

Todd Gleason: 23:51

And Ellen Dearden of Ag Review.

Ellen Dearden: 23:54

Keep watching. There's been some rumors all week that India and The US are close making some type of a trade deal. That will be interesting to see if it develops because if it would, it would definitely be a benefit to soybeans and bean oil. India needs vegetable oils. Also, watch both some May and June WASDE reports.

Ellen Dearden: 24:15

They're gonna be the outset of looking at new crop than the June acreage report. So we got a lot of lot ahead of us to get something done.

Todd Gleason: 24:24

Commodity week is a production of Illinois Public Media. You may listen to the whole of the program anytime you'd like on our website at willag.org. That's willag.0rg. And there you can also find a link to make a donation in support of our spring fund drive or you can call this number (217) 244-9455. Our thanks go to our panelists this week including Brian Stark, Ellen Dearden and Logan Kimmel.

Todd Gleason: 24:51

I'm University of Illinois Extension's Todd Gleeson.