- Bill Lapp, Advanced Economic Solutions
- John Zanker, Risk Management Commodities
This is the May 9 edition of Commodity Week.
Speaker 2: 00:08Todd Gleason's services are made available to WILL by University of Illinois Extension.
Speaker 1: 00:13Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Bill Lapp. He's with Advanced Economic Solutions out of Omaha, Nebraska, where he specializes in the food ingredient side or the end user side of the agricultural marketplace. We'll talk with him in just a few moments but we'll start with John Zanker who is with risk management commodities out of Lafayette Indiana.
Speaker 1: 00:44John Zanker now joins us. He's with Risk Management Commodities out of, Lafayette, Indiana. We'll be entering his forty fifth year in the business next week. Congratulations to you, John. Thanks for being with us today too.
Speaker 3: 00:58Well, it's nice to be here. Just just to be here. You know?
Speaker 1: 01:05Well, just being here is always good. It really is.
Speaker 3: 01:08And now she threw the forty five years thing, and I've been yeah. It's, it's been a fun ride for the most part, and, we'll see how this year turns out.
Speaker 1: 01:19What are your takeaways from that forty five years of helping farmers to manage their marketing?
Speaker 3: 01:25I I I think the first thing would be that it's not getting any easier. You know? You know, you and I were chatting about the weather just before we got started here. And, you know, we we haven't seen a significant improvement in weather forecasting over the last forty five years. And that's that's just, I I think, more about a shifting climate perhaps than anything else.
Speaker 3: 01:54But we just we we the computer models that are generated every day, They change every day, and, it's a tough job for meteorologists, and and that makes it a tough job for farmers and marketing advisers. And, you know, we deal we deal with it as best we can, But, that's never going to change. Mother nature is never going to be entirely predictable. And, so we just have to, manage that the best that we can, and, we'll continue to do that.
Speaker 1: 02:26Let's talk about this growing season to begin with based on what you've seen from the crop conditions report, and I suppose a recent trip you took from Lafayette out to Omaha. What do you believe is happening and how that impacts this year's crop sizes?
Speaker 3: 02:44Well, I'm originally from the Omaha area, and so I've been making this trip out and back two, three times a year for the last forty four years. And so I kinda just you know, I I've got a pretty good memory bank of of of how we've gotten started in most years and certainly how we finished. And, this is an impressive start. I I went out through, up 74 to the quad cities across Iowa on 80 and then down in Eastern Nebraska for ways. And then when I came back yesterday, it's across Missouri on 36 and then 72 in the Illinois.
Speaker 3: 03:22Iowa crossed I 80. Just amazingly good progress there. Eastern Nebraska, almost all the corn's up and looking good. Missouri kinda mixed, but for the most part, you know, on average or ahead of average. And Illinois, looks pretty darn good.
Speaker 3: 03:41I I wouldn't say they're well ahead of average by any means, but, you know, it's it's going to be a good start and certainly, the kind of start that could end up giving giving us some massive yields if mother nature is kind to us this summer.
Speaker 1: 03:56It's funny that farm boys will make a trip, a long trip, and then do a longer trip one way or the other just to see more of the country so that they could get a better idea of what what what's happening across the whole place. I do the same thing, and I know many, many people do or at least, that are involved in agriculture of a weird little fact. So when you look forward, not very far,
Speaker 2: 04:19just Monday at 11:00 central time, noon, your time when USDA releases this world agricultural supply and demand estimate.
Speaker 1: 04:27It will be the first time that they bring out new crop numbers. What hesitations or expectations do you have?
Speaker 3: 04:35I don't I don't think those numbers will be big market movers. You know, the USDA has been using trend line yields the last several years, and we've we've had a hard time getting to those, either corn or soybeans. Jeez. You know, we were just talking earlier. 02/2016 was our last record yield in beans, and we know we've made really some tremendous progress in, you know, the potential for those yields, and we're seeing those yields.
Speaker 3: 05:06We just can't get the whole country to do it at the same time. And kind of the same thing with corn. So I think the USDA will come in with, yields that, don't really throw those ending carryout numbers into any kind of, you know, bearish the area of bearishness. But at the same time, we're not going to see anything that's going to get the bulls fired up. So we'll we'll take a look at those numbers.
Speaker 3: 05:32Hopefully, the USDA raises export, for corn again and get that carryout down under 1,400,000,000.0. We need something to prop this corn market up. It's just been, depressingly, sad here in in the in the last month or so.
Speaker 1: 05:51Well, can I ask about the corn yield? Because USDA used one eighty one. That's not a trend line yield. It's below what the trend has, even below what they had in their 2024 ag form. I think that was one eighty one and a half.
Speaker 1: 06:07So it should be probably one eighty two and a half maybe on the trend. When you think about the good start, are you sure because of the travels you've had that they won't drop in a larger yield number?
Speaker 3: 06:21I I you know, there's been some chatter that was since we've been struggling to get to that, that maybe we're starting to see these yields peak and that the USDA would back off of that a little bit. I'm not in that camp. I think, you know, we have to go back to 02/2004 since we saw that next to perfect, you know, near perfect growing season start to finish from Grand Island, Nebraska to Pennsylvania. And I I I think the potential yields in the upper one eighties, if not even better than that, if we can have that type of growing season. 02/2009 was pretty close, but we got off to a slow start with the planting.
Speaker 3: 07:03So but I so I I I'm not in that camp that yields are starting to top out. I just think we can't finish these crops off. Or, you know, last year, we had some, a rough start, in in Northwest Iowa and Minnesota with the flooding and so on. So so if we can get a good growing season, one of those near perfect growing seasons that don't come around very often, You know, I I I think the USDA is gonna be way, way, way light eventually, and we could see a big shock next fall. But that's a super big if.
Speaker 3: 07:36We have a lot of a lot of weather in between here and there.
Speaker 1: 07:39So you're of the mind that since, the last crop, progress report showed we're basically on pace for corn planting or normal, that they'll just use the one eighty one and leaving the door open for a much larger move in the marketplace should the growing season be normal or good, I suppose.
Speaker 2: 07:59Yes.
Speaker 1: 07:59Yeah. Okay. Yes. Yeah. Yeah.
Speaker 1: 08:01How about for soybeans?
Speaker 3: 08:02Well, same thing there. They've you know, 52 five's kind of been a number that keeps popping up here early in the season, and I think we're on our way to 54, 50 five last, this past season. But, of course, it stopped raining in in August and September, and we had a, you know, highly disappointing final yield number. But so I I think they'll start off light. Maybe they'll do 52, 50 two five, something like that.
Speaker 3: 08:30And, again, that's very doable. With the reduction in acres, we, you know, we're not gonna see a carryout that's frightening. But I, I think there's some lingering things here with, the trade war and, Chinese usage and, you know, the potential again for a big yield explosion. There's some bearishness that we need to be really concerned about here as we move forward.
Speaker 1: 08:58So USDA has said, and Seth Meyer, who's the chief economist this week to the National Association of Farm Broadcasting, who was sitting in the room with him at, the headquarters in Washington DC that this Monday's report will use the current policies that are in in place. They have written notes on top of the WASDE that said not only that, but if that policy doesn't have an end date, it will be used for the whole fiscal year. So let's say that means that China has a 125 tariff in on soybeans coming into that country unless something changes be between now and Monday could because they're meeting in, Switzerland this weekend. What does that mean for ending stocks?
Speaker 3: 09:47Well, I I I think, in general, the trade's been optimistic of what demand is going to be next year for soybeans. And I I think the most bullish thing that we have going for us is the acreage, you know, being down. Arlo and Suderman had this in his comments yesterday with Stonex. Let's see. April April imports from China, April imports into China of soybeans from all of up from all, from all destinations, down 30% from last year.
Speaker 3: 10:31And we've got this super huge combined crop, out of Argentina and Brazil, you know, largest South American crop by a pretty good margin. And, you know, Arlen Suderman's also talked about this that, Sino Grain has been buying US beans for for, the reserve, and they can buy those without the tariff, of course, since it's the government. And, you know, he's believed and we believe that they're they're storing beans with the idea that, come fall, they may not be a very big buyer, and that's really going to hit us hard. If we have a really good yield, finish this crop off, you know, the downside potential in soybean futures significant.
Speaker 1: 11:23Yeah. So two important notes that you made there. One is that, Sunnograin, which is owned by the communist government is stockpiling. The second is that the government in China has said and has a goal of reducing soybean imports and becoming far more independent and has been working on that. I suppose the stockpiles probably are part of that goal so that they have some time as well.
Speaker 1: 11:48It'll be interesting to see how that all works out. So how should farmers, at this point think about new crop marketing? Let's say they're behind at, I don't know, five or 10% marketed as opposed to 15 or 20 or 25%. What should they be considering?
Speaker 3: 12:08I I would consider and and and I am there. I'm a % hedged basically between sales and options and, sometimes dipping into the futures. But, you know, I I think the downside's easily $9 in the fall if if we're still stumbling at all with with a trade war with China in particular. But, we could get the $9 without a trade war just because of, you know, a surge in yield. And, China's just not buying, the amount of beans that we've seen them buy in the past.
Speaker 3: 12:47We're certainly not seeing that yearly increase that we've lived off of for the last twenty five or thirty years. So, I think the downside's significant. I would take, I would make moves to protect that $10 level, via the options market via puts. And, you know, at the same time, with lower acreage, we get into a drought scenario of significance. And again, a lot of these forecasters, a lot of these meteorologists are they're looking at, the European model in particular and saying, this could be kind of a nasty summer.
Speaker 3: 13:23I saw one weather forecaster say, the hottest, June, July in history for the Corn Belt. So, you know, that so we're we're kinda talking about a price range of $9 to $15 or $16. And so, you know, what do you do? And I I think puts are probably probably the best way of saying, hey. Let's put in some downside protection, but leave that upside in case things get crazy.
Speaker 3: 13:54And that's kind of the way we're looking at it. We can we can cover, cash sales with, with calls, kind of set a higher floor than we can with puts, but and and stay in stay in the game in case this thing gets crazy to the upside because as soon as we throw in the towel, you know, we've you and I both been around a long time. And as soon as you throw in the towel and start selling, $4.75 corn, it goes to $6.75. And we'll have a fast track. Interestingly, if if the USDA cuts the ending carry out by another hundred million bushels over the next couple of months, and I think that's possible because there's still a hundred million bushels light on exports.
Speaker 3: 14:42That takes the stocks to usage ratio down to 8.9%. That's the second tightest one since the 02/1213 marketing year, which was, of course, the drought. So, I think that eight point nine percent's, more reflective of $6 futures than it is of the current $4.41 that I'm looking at here. So, we just need to spark and things could get crazy in a hurry. So we have to be careful.
Speaker 3: 15:13You know, we held off pricing corn last year far longer than I wanted to, but it ends up working Okay. But mother nature bailed us out of that one. It wasn't due to anything brilliant on the marketing side. But it sure is hard to think about pricing corn here under $4.50. And another interesting statistic, the spring price, for, corn is $4.70.
Speaker 3: 15:40The average of these features in February. The last time that we did not come back and exceed the February average for December corn was forty three years ago. So I think there's some things here, Todd, that are saying, hey. We can be patient on corn. We'll likely have a scare.
Speaker 3: 16:00Demand is exceptional. You know? We're heading for the biggest demand year in history, the second biggest export year in history. There's some good things going on, and corn's not being hit near as hard from the tariff situation either. So, I I think I can be friendly corn and berry soybeans, and, of course, we can't be both of those for very long.
Speaker 3: 16:23So, something has to give.
Speaker 1: 16:25Thank you very much. I appreciate it. It was a good talk.
Speaker 3: 16:27As always. Thank you, Todd.
Speaker 1: 16:29John Zanker is with risk management commodities. He's out of Lafayette, Indiana. We're now joined by Bill Lapp here on commodity week with advanced economic solutions. He founded that in 02/2005. He's from Omaha, Nebraska and has some real experience, with the food industry.
Speaker 1: 16:50Bill, thank you for being with us. Can you remind us of your background within the food and food ingredient industry?
Speaker 2: 16:57So I, graduated from Conagra, as you mentioned, some thirty years ago in Omaha and started this firm Advanced Economic Solutions. And our primary focus is on providing economic analysis and commodity price forecasts for end users. So that would be everyone from restaurant chains to grocery stores to food manufacturers. So we we kinda cover the gamut on the end user side and have a keen interest in what's going on with regard to anything that goes in the back door of a restaurant would be fair game for us. Certainly the tariff trauma has brought about a great deal of potential upheaval.
Speaker 1: 17:51Yeah. So the proteins that are going in the back door, the meats, are generally fed with both corn and soybeans in one form or another. So that's why we talk to you from time to time. You called it tariff trauma. How much concern does the end user have?
Speaker 2: 18:08Well, you're waking up each day with a a new, challenge or uncertainty facing you. If there was a greater deal of certainty that things were either going to happen or not happen with regard to each of these, it would be a lot less difficult. But because you don't know if there's going to be a for example, the current situation, any kind of favorable negotiation between China and The US that will significantly bring down tariff rates or allow for a resumption of large scale US sales to China. That would be very big. It'd have a big impact on the soybean market and and consequently soybean meal as well if that happens.
Speaker 2: 19:00We just don't know where it stands on that. We and and with from a negotiator's perspective, this is a attack being used by the president, which is his prerogative, but it creates a great deal of uncertainty. I think it you know, the the short term, it's creates upheaval in markets where prices have a difficult time finding an equilibrium. But it also probably leads to some underinvestment. It's a real big challenge to think about the long term when you're not certain whether there's going to be more imports to compete with or there's going to be more onshoring, as it's called.
Speaker 2: 19:51So it's it's created probably a slowdown in the economy that we have yet to fully feel the effect of. I think that the one thing that over the next month, probably by the time we get into June and maybe early July, we're going to see whether there really is an impact from containerships slowing down their the volume moving into The US. If this creates some product shortages, you might wanna get your fireworks early this year.
Speaker 1: 20:26I hadn't thought about that, but certainly that would be the case, which brings me to an interesting point. And I was thinking about this a little earlier in the week. If you are an end user and you're looking at the tariffs on and particularly with China, as it relates to soybean and you need to purchase a vegetable oil or you need to use bean meal, in a a cake or something along those lines, you might want to not purchase ahead as opposed to try to front load it simply because the price is likely to go down. And I would think that that is just as hard on the buyers to try to think through as anything else. I mean, you're mostly, we're thinking about higher prices going up, but it's certainly for ingredients in house domestically that they could go down, and there's a difference.
Speaker 1: 21:17Right?
Speaker 2: 21:17Oh, you're absolutely right. When you're, an end user, when you're a buyer, same same as if you're a producer, you you don't, the the end user does not want to buy when the market's going to go lower or if it does go lower. That's that's not very satisfying either. And generally speaking, the agricultural products and the trade that The US has with China would be one that would be if we're going to have a de facto embargo with China, it's gonna be negative on prices. We I don't think we've felt the full ramifications in the soybean market of an extended period where we do limited no volume of business with China.
Speaker 2: 22:03The the the positive spin you could try to put on it is that if Brazil's gonna take our place and ship more soybeans to China, that means Brazil is leaving another market open for The US to sell to. And today, we saw a a flash announcement of sales of US soybeans to Pakistan, which may be part of that. So some of that, you get a little bit of an offset, but your thesis that, the the trade war with China that we're have right now is generally negative for, commodity prices. And and you can tell that that's the case by the fact that, secretary Rollins and the president both talked about, potentially providing additional substance or or support to farmers, in the form of some type of payment like we did in 02/2018.
Speaker 1: 23:00So I'm wondering, about yesterday's announcement from the White House and how you viewed that, as it relates to The United Kingdom and the broader context of what you do. I would think the fact that the 10% tariff that was imposed on The UK, which has a balance of trade or did have a balance of trade with The United States, but was imposed on Liberation Day stayed in place with this particular deal that hasn't quite been done, that that would cause some concern because that means the price of almost everything else that goes into the backdoor of a restaurant probably will go up if that is, if that is the foundation of what those trade deals are going to look like across the board.
Speaker 2: 23:48Yes. That's that's absolutely true. You you have to take the exception of Canada and Mexico, which is a a big part of the product mix that we import into The US vegetables, fruit, and and other items coming in from Canada. So you you you would take those out of the equation because we 'd pro I would doubt we would go back to 10% with Canada and Mexico, but the remainder of them, this kind of sets the precedent for us to continue to have minimally 10% tariffs on products coming in from The US. And, you know, it's Friday today, and the biggest product The UK sells us is distilled spirits, $1,500,000,000.
Speaker 2: 24:36So I don't know if we're going to try to onshore scotch production into The US, but that's a a problem with with regard to that. But you're you're right. I it it keeping the 10% on is is probably a something that people did not want to see. It it would be the the small side of it. I think that The UK is not in the top 10 either in imports or exports of US products.
Speaker 2: 25:11It was something on the nature of two point in calendar twenty four in dollar value. The UK exported $2,800,000,000 worth of products to us, and we imported $2,200,000,000 from from from The UK. So the trade balance is somewhere in the order of $60,000,000, not a not a not a huge amount, but, nonetheless, it's it's worth watching in terms of what kind of precedent we have going forward.
Speaker 1: 25:44What other concerns do you hear from the ingredient buyers that you talk with from food companies? For instance, most agricultural food production, a lot of it anyway, is done by an immigrant workforce.
Speaker 2: 26:00Yes. There's a high degree of dependence on immigrant labor, and that could be a problem going forward. It hasn't shown up in great measure yet, but that could be something that once we get past the tariff trauma, and I think this will settle down during the last half, probably Q3 of this year, we there there may be greater focus on, making strides towards the goals that were previously announced towards immigrant labor.
Speaker 1: 26:37Anything else that has been on your mind as it's related to the food ingredient side of the agricultural trade?
Speaker 2: 26:44Well, it's almost as if I've taken a break here for a minute talk less about what's going on with biofuel policy because of all the other issues that have arisen, and that's still a large unknown. It will be difficult to have some of the components of 45Z if they cost the taxpayer money because we have a strong push towards reducing outlays. So, I mean, some of the tax credits are they're completely uncertain. I think we do get sometime in the next, I'm gonna say, thirty or forty five days, we'll get an announcement of the mandates for 02/1926 and '27. The renewable volume obligations or RVOs should be announced by then.
Speaker 2: 27:38Another issue with regard to that is what level of small refinery exemptions will we see as a result of that? And will they be announced sooner or rather than later? Because there's a large number of requests for exemptions placed in by the small refineries. And if that's the case, it will create less seed. I'm anticipating a fairly large RVO to be announced.
Speaker 2: 28:10I don't think there's much pushback on that. It may drive up the price of soybean oil, but I think that the that that is negative for the consumer, but positive for producers who, you know, with prices where they are now, they already have corn and soybean values under their cost production for the most part.
Speaker 1: 28:33Bill, thank you. I appreciate you taking so much time with me today.
Speaker 2: 28:36Glad to do it. I always enjoy it. We'll look forward to just talking to you again soon.
Speaker 1: 28:40Bill App is with AES. That's Advanced Economic Solutions out of Omaha, Nebraska. Joined our commodity week discussion for May along with John Zanker of Risk Management Commodities. You can always hear the whole of the program again anytime you'd like on our website at wilag.org. That's willag.0rg.
Speaker 1: 29:02I'm Illinois Extension's Todd Gleason.