May 29 | Commodity Week

Todd Gleason: 00:00

This is the May 29 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 Alan Brugler.

Todd Gleason: 00:20

He's at A and N Economics out of Omaha, Nebraska. We'll ask him about that in a moment. Shane Holtorf is here from Logic Ag Marketing. He's in Alta, Iowa. And Chip Nellinger joins us from Blue Reef Agrimarketing out of Morton, Illinois.

Todd Gleason: 00:35

Commodity Week is a production of Illinois Public Media. This is public radio for the farming world online, on demand anytime you'd like to listen at willag.0rg or in your favorite podcast applications. Alan Brugler, let's begin with you. Brugler marketing and management still exist, although I take it about a year ago you stepped away just a bit and operate more at arm's length. Can you tell me about this transition?

Alan Brugler: 01:06

Yeah. Basically, I turned 70 and maxed out my Social Security and I said it's time to get away from the day to day operations. So I I sold the burglar operating rights, naming rights, product names, subscriber base, all that to Austin Schroeder. He'd been an employee of mine for about eight years and is very good at duplicating everything I I did. I'm still affiliated with Brugler marketing.

Alan Brugler: 01:34

You'll see it some places on the Internet. I write columns for them occasionally, consult on on hedging positions and so forth and do do speeches. But A and N economics is is the place to to park money and and if somebody wants to reach me for a speech or whatever. But I'm still still involved in the markets, but, more of an on arm's length and, more consulting base rather than day to day advice.

Todd Gleason: 02:01

That may be good in this year, and congratulations, by the way. So what are the things that you're watching most closely and that we should maybe talk about today?

Alan Brugler: 02:10

Well, I I I think the tariff situation definitely is is top of mind again with that trade court ruling saying that many of the Trump tariffs are illegal. I think that's a very important shift here in terms of it's not immediate because there's going to be some appeals and so forth. But I think it does change the leverage that the administration has, and it does have some implications for our commodity marketing. You know, weather is another one, I think, concerns about too wet down south and any prevent plant, that type of thing.

Todd Gleason: 02:46

Shane Holtorf from Logic Ag Marketing. What's on your mind that we should discuss this week?

Shane Holtorf: 02:51

Yeah. So, obviously, we, we saw the May out, and, we tightened everything up a little bit. You know, I don't I don't think we have a lot of room for a mistake throughout this year. You know, we've shrunk the global balance sheet to the tightest it's been on the corn side in over ten years, and beans don't have a lot of breathing room either. So we're going to need to get off to a good start and keep our foot on our gas growing these growing these crops.

Todd Gleason: 03:21

And finally, Chip Nellinger of Blue Reef AgriMarketing. Anything you'd like to add before we get started?

Chip Nellinger: 03:26

Yeah. I I think in addition to what was talked about previously, one thing that I'm watching pretty closely is the soy oil market is looking very heavy right now. Really disappointment with a lack of clarity or any answers as it relates to the biodiesel situation and what or what might not be taking place on the mandate side there. So the soil oil market, if you overlay that against the bean market, it's been a pretty perfect correlation. And it looks to me like the soil oil market has a lot of fund links.

Chip Nellinger: 03:59

We stopped making higher highs. We're starting to violate some of the key moving averages and that market without clarity into what the future demand may be looks a little potentially top heavy to me.

Todd Gleason: 04:10

Let's start with trade and tariffs, Alan Brugler. There were two courts actually this week, the Court of International Trade and then a second one that was dealing with some toy companies that both said the Trump administration's use of a 1977 law was unlawful in terms of imposing a tariff that covered everything on Liberation Day, which was the 10% plus reciprocals, and it also backtracked to the Mexico and Canada and China tariffs that were imposed prior to that. What issues do you expect the marketplace to have to deal with, and what have you been thinking about as it relates to this particular subject matter?

Alan Brugler: 05:02

Well, obviously, that's been a key part of the negotiating strategy for the administration. They're trying to raise revenue from the tariffs to help pay for some of the other tax cuts. They're trying to enforce some changes in non trade behavior in some of these other countries, intellectual property rights and that sort of thing. So it's definitely impaired that a little bit because those countries can say, well, we don't know if you really have the stick anymore that you're trying to beat us with. No.

Alan Brugler: 05:36

I do think that these rulings are are not the be all and end all. I think you're gonna immediately see the administration appeal them. You're gonna go to a higher court. It could eventually end up at the Supreme Court. The key that I'm watching relative to the to the tariff ruling is when it goes to that through that appeals process, does the next court issue any kind of stay or injunction?

Alan Brugler: 06:00

Can the administration continue to implement the tariffs until the appeals are done? Or do they put a hold on them until the appeal is process is done? Now, does it affect soybean exports in the summer of twenty twenty five? Probably not because seasonally we don't do much right here. I think you the big issue though, is it does change the leverage.

Alan Brugler: 06:27

And I think you also have to remember that it does not affect as you alluded to earlier, does not affect steel and aluminum. Those were implemented under one of the other laws and those tariffs are still in place. So, you know, anything that's, relying on imported steel prices is still gonna be more expensive.

Todd Gleason: 06:45

Let's stay with Washington DC, Shane Holtorf, but we'll move to USDA and the monthly reports. What expectations do you have when we transition from the May WASDE to the June World Ag Supply and Demand Estimates?

Shane Holtorf: 07:03

Sure. Well, we're certainly off to a blazing start when you look at the planning progress. You know, we've blown the last five years out of the water. On the corn planting progress, you know, I'm from Northwest Iowa. And, you know, when we talked last time, we were off to a really quick start, got off to an early finish.

Shane Holtorf: 07:24

Things are looking great here, but I think Chip was the one that alluded to, that may not all be rosy in other areas. And so as you start to talk about the potential for prevent plant, are we going to see some acres that we had originally thought were going to corn because of the quick planting progress, maybe not make its way to corn or find its way to beans? I've also got a question, you know, as time starts to delay, what happens to this, you know, 181 bushel yield that we're, you know, that we're starting out with. And so if we, knock a bushel or two here or there off of the corn balance sheet and trim up those acres, we go from a very, very comfortable position to maybe a little less comfort as we look at the balance sheet. You know, on the bean side, you know, kind of the same thing, but if if we see a little acreage shift over to the the bean side of the market, You know, we're we we've always just kinda tow that line, right, on 300,000,000 bushel carryout, and I think that's that's kinda where we're gonna be here.

Shane Holtorf: 08:38

And so, you know, I won't steal Chip's Thunder, but I think a lot has to do with on the bean side, more the SAF focal points and what we're gonna do with some of these rulings.

Todd Gleason: 08:50

We'll get to Chip in just a second. I do wanna ask both you and Alan because you're in that area, Northwest Iowa and then West Central Iowa, speaking, as it relates to Omaha, Nebraska. Did the corn planters just continue to roll there? And are do you both think that at this point you're off to such a good start that you have a really good chance at having exceptional yields in those areas? So Shane, did the farmers continue to plant corn, and is the crop looking really good?

Shane Holtorf: 09:24

Yeah. So I would say, you know, based upon the farmers that that we talked with, you know, there wasn't a lot that that switched over to continue into that corn planting side of things. You know, there might have been a a 40 switch tier and 80 there. You know? But it seems by and large, by the time the planters start to roll, the decisions gotta be made because, you know, they've got their chemicals, you know, on farm fertilizer being spread, and you don't wanna mess up the ballet, so to speak.

Shane Holtorf: 09:56

And so what I I don't think we saw as much switches, you know, what we're originally thinking or anticipating. But as far as the crops being off to a really good start, you you can walk out these fields and do a stand count, and everything that was planted came up. You know, there was a few guys that spiked in, you know, one or two plant dates where they had a little issue with emergence. But by and large, the emergence is great. We've been getting some timely rains.

Shane Holtorf: 10:26

We needed some heat. We needed some sun. We're gonna get that for the next four or five days, and then it's looking like it's going to rain again. So things here are looking pretty good.

Todd Gleason: 10:37

And then, Alan, if you could follow-up because the West Central Crop Reporting District in Iowa is its largest production district. What have you seen when you've been out driving?

Alan Brugler: 10:50

Yeah, got a pretty good perspective of the whole Corn Belt. As a week and a half ago, I drove from Ohio or Omaha to Ohio, in fact. And, you know, in general, Nebraska and Iowa looked great. Everything was in, everything was up pretty much on the corn side. Beans were a little further behind.

Alan Brugler: 11:08

Obviously you got into Illinois, it had obviously just been planted Indiana. They've done the field work, but nothing was up yet in Ohio. They were waiting on it to dry out enough to plant. And you saw that in this week's planning progress that Ohio's way behind along with some of the states to the south where they've got some flooding issues. I will say that the crop yield potential right now in the Western Corn Belt is tremendous because we've got excellent stands here, right in the Omaha and Western Iowa area.

Alan Brugler: 11:42

We miss some of those rains that they got in the Northwest. Omaha itself is two and a half inches below normal for the month of May with a couple of days left here. And I think about the same for the year to date. So, you know, a little more water in the non irrigated areas would be very welcome. We had some of the Nebraska producers actually ran their irrigation just to get their germination where they wanted it.

Alan Brugler: 12:09

They didn't want to keep doing that. It's too early in the season, but they had to just activate the chemicals and get the seed up. But yeah, the biggest problem is problems that I see in the Corn Belt are mostly Ohio and Indiana being behind because it'd be in too wet. Then, you know, the smaller acreage states in the South could lose a few corn acres to beans. But because of that rapid plant progress, I'm also concerned we might have picked up a few extra acres in the Western Hornbelt.

Todd Gleason: 12:39

And just, so that the numbers are there, you are correct. It's about two and a half inches behind. For year to date, I don't know about the month of May, but since April 1, only 3.51 inches of rainfall in Omaha, Nebraska. Those are aggrable numbers. Chip Nellinger, I wanna turn to you, and ask about the Eastern Corn Belt, what you're hearing as it's related, and we just had a firsthand look at it with Alan, but how far really are they behind, and do you think the prevent plant that might show up there would be enough to offset the really big numbers that could come out of Illinois and Iowa?

Chip Nellinger: 13:23

Yeah, Todd, that's a loaded question. I think it depends on where you're at. I think a couple things are at work here. As you get through Illinois, Indiana, Illinois especially, North of Interstate 70, things are pretty good. Things got in early.

Chip Nellinger: 13:41

South of there, it's been a disastrous spring, and I think the market's somewhat overlooking that. So there's still areas that are finished up planting. They're getting too much rain. They're waiting on things to dry out. As you get into Kentucky and Tennessee, it's even more disastrous on some of these acres.

Chip Nellinger: 13:58

There's been floods, in in some of the, you know, Mississippi River bottom areas. So we talked to producers there that have really struggled to get stuff in the ground. I think the early planting, I think the market saw the early planting pace and said all things are perfect, things are great, we're going to get this crop in the ground and it's going to be awesome. And I would argue that at least in Illinois, the northern two thirds of Illinois, yeah, there might have been some early planting, but then it got overcast, really cool, little bit of rain, and that seed just sat there. And and even if it was a merge, we just sat there and did nothing.

Chip Nellinger: 14:33

So I'd I'd argue, and I'm not an agronomist, this is just my opinion, that we've kinda lost a lot of benefit of that early planting and things are, you know, more of a normal planting pace because they sat there for so long. So I I think there's a lot of things that work there. I I think also there's areas, the old I I don't necessarily buy the old argument that early planting and good planting leads to more corn acres because so many farmers now, especially the last three years, start on beans, right? And so at least through the heart of the Corn Belt, which is where some of those acres you would expect to swing, farmers started on beans. And that's kind of the majority in that area.

Chip Nellinger: 15:14

In fact, it's across our client base, the people that started on corn and then finished corn and then did beans would be a small, small minority this year. So to me that maybe caps the window for having a massive increase in corn acres. So I think there's going to be the potential for a big surprise on the one way or the other on the June crop report, the acreage report. And I think we've lost some of the benefit of the early planting. I think the market's looking past some of the problems that we've had.

Chip Nellinger: 15:48

There'll be invariably some prevent plant in some of those southern areas. So I think there's a little bit of everything in there, Todd. And and to me, it says that it's not perfect everywhere. In fact, there's probably few places. Maybe Iowa would be the bull's eye of where it's perfect, but it it's far from perfect as you get out of outside of Iowa and still probably 180, 80 one potential is there, but I'd say that it's getting to be a higher and higher bar, barring something that's just perfect from here on out and you know, that's tall order.

Chip Nellinger: 16:23

So there should be some uncertainty ahead of us, I think, in our book.

Todd Gleason: 16:27

I wanna go back through some of the rainfall numbers and these are from the beginning of the year just for comparison's sake. Omaha, Nebraska, which I said has since April 1 had 3.51 inches, normally would have about 10. They're around seven and a half for the year so far. That's total for the year. Springfield, Illinois 9 Point 1 inches since April 1.

Todd Gleason: 16:51

Normally for the year to date around 14 and a half inches and they're right at 14 inches. And then there's some other numbers for instance in Illinois Mount Vernon twenty six point six inches of rainfall since the beginning of the year in Mount Vernon, Illinois, and they normally get this would have had 19 inches there in April and May '16 and a half inches. And then on the other end of the state at Freeport, Illinois, which is in Far Northern Illinois up on the Wisconsin line. They had 3.85 inches of rainfall since April 1. They've had 6.8 since the beginning of the year and normally at 14.3 inches.

Todd Gleason: 17:35

So they too are behind. That's kind of the spread of what things look like across the state of Illinois in comparison to Omaha, Nebraska as well. Chip, I do want you to talk a little bit about soybean oil as it relates to policies in Washington DC. What concerns do you have? And then Shane can jump in after that.

Chip Nellinger: 17:55

Yeah, I think maybe the easiest way I could put it is there isn't a policy. The market needs some clarity on the policy and there isn't one and there wasn't much in this bill that's going through the Senate, at least at this point, maybe some wording can get added. But I think the soil market has gotten a little ahead of itself, expecting by this point on the calendar that we'd have some clarity. We have not only do we not have clarity, it's just a total black hole of information. And without that, there's some potential demand that could be lost there domestically.

Chip Nellinger: 18:33

And I think the soil oil market is ripe for a correction. I don't want to see it because I think it's really going to cap the potential of beans in the short run too. That's unfortunate because if you just throw out everything fundamentally and look at a bean chart, up until recently, it looked good. It looked like that we were above that some of the key moving averages and the funds might really take an interest in getting long beans, but if you overlay a soy oil chart over beans, it pretty much mirrored each other and now the oil market, soy oil market is starting to break down. Very concerning, no market likes uncertainty and I think that that soil market is full of uncertainty.

Chip Nellinger: 19:17

There's very little certainty there and my fear is that you could see the funds maybe start liquidating some of the longs because of the lack of information on that renewable diesel standpoint.

Todd Gleason: 19:29

Shane, so that you don't think that I don't follow what's happening in your area of rainfall, Fort Dodge is the closest place I have for you since April 1, six point four six inches of rain. Normally, have eleven. You're running ahead at twelve and twelve point nine three. I would think things would look really good there, as you've already suggested they have. But tell me about your thoughts as it's related to the soybean oil situation as well.

Shane Holtorf: 19:55

Yeah. I mean, I'm gonna echo a lot of those same thoughts if we think back here to, you know, a week a week ago, you know, beans beans seem like maybe they had caught their breath and, from a chart perspective, kinda turned around, and then we get the potential to, you know, roll back some of these credits, and we see beans, you know, set back again. And, you know, we we can talk tariffs. We can talk, you know, the the soybean oil policy. And I think the biggest thing is is just the uncertainty around it.

Shane Holtorf: 20:30

You know, we've gotta we've gotta know where we land on this, and then I think the market will provide some more direction. And, you know, until then, we're going to, chase headlines much like we've done with these tariffs and and have a yo yo effect.

Todd Gleason: 20:46

Alan Brugler, I would like to delve into your wisdom on this marketplace as it relates to, well, time that you've been trading and what you're thinking this looks like and how farmers need to manage tariffs, ag policies, a global marketplace that is in the midst of change.

Alan Brugler: 21:12

Well, the first thing is change. We always have change. Okay? You you got the hype machine, the Internet, the social media, the AI is trying to make it look like there's multiple more more crises than we've ever had before. I don't buy that.

Alan Brugler: 21:31

Okay. I've seen enough of these cycles to know that. Yeah, the flavor is different with the tariff war. Certainly I was preaching last winter at some seminars and speeches I gave that this trade war was not going to play out like the twenty seventeen-eighteen one. And I think that's been accurate to date.

Alan Brugler: 21:51

One thing I would remind people is what I call my planet earth theory, which is simply that crop production and for that matter, livestock production doesn't leave the planet and neither does the consumption. So all this trade friction essentially displaces where the trade flows are going, but it doesn't just as long as the demand aggregate demand for the world holds up, all you're doing is shifting who's selling what to who. All right. Brazil sells more to China. We sell more to whoever Brazil used to sell to.

Alan Brugler: 22:26

The only rub there is if you're in surplus stock situations, then you don't wanna be the one holding the carryover for an extra six months. But so what I'm saying is you have to just let some of that news flow just go on by you. Okay. Now having said that, the world stocks use ratios, I think are very important here. As was pointed out earlier, globally corn stocks have come down.

Alan Brugler: 22:55

Wheat stocks use ratio as of the May was, he was still coming down for the fourth or fifth year in a row. Beans are a little different situation, 125,000,000 tons or so. That's surplus. That's too many to have much upward leverage on prices. But again, I think that the key is kind of sit back and say, number one, know what your cost production is.

Alan Brugler: 23:26

That's an old saying, but it's still true. Don't let prices get below that without getting some forward contracts on the books. Look at your average annual trading ranges to say what you might be able to see over a twelve month period, which in beans is something with a 9 in front of it, 9.25 to $12 would be a typical range for a marketing year. All right, where are you at in that right now? We're in the middle, But keep that in the back of your head.

Alan Brugler: 23:58

How could how good could it get? How bad could it get?

Todd Gleason: 24:01

On old stock corn, I would like to talk with each of you just a little bit about that because farmers will be looking at the export figures hearing about ethanol usage and demand, the summer driving, the fact that, cars are really moving, already did so over the Memorial Day weekend and thinking, hey, I did the right thing. I'm gonna hold on. How long do they have before they really ought to market? And I suppose I'll take you in order, Alan, Shane, and then Chip. Alan, how long?

Alan Brugler: 24:35

Well, seasonal tendency would be for new crop to print high in May, June or July, many years. By implication, if it's doing that old crop would be as well. By mid July, definitely got to be thinking, Hey, I gotta have this thing emptied out or at least nowhere that where I'm going to. Having said that, you do have a big corn crop coming on and in years where you are looking at record production or record yield, that top tends to come early. So I think the biggest question over the next six weeks is how's that crop faring?

Alan Brugler: 25:18

And if the condition ratings start to creep up and June 30 doesn't result in any major change in acreage, you have to move up that calendar for getting rid of the old crop.

Shane Holtorf: 25:30

I would tend to agree with some of that. We tightened up our stocks to use ratio a little bit. You know, we're we're below our five year average. It's the lowest we've looked at in three years. But if we wanna talk about how July corn's traded over the last, you know, three, four weeks, we could look at the July, December spreads to to illustrate that.

Shane Holtorf: 25:52

You know, we've seen it go out to to 30 back into zero and then even in even in inverse here. And so that tells me that, our focus is going to start to shift to what December corn is doing. And can we continue to be off to a great start in the West to help to pull out our struggles in the East? And I think July corn is probably going to benefit the most from some sort of a new crop issue and just seeing the entire corn complex rise versus, you know, any sort of excitement, in July futures in and of themselves. So, I would echo that, you know, over the course of the next thirty to sixty days, when opportunity strikes, take advantage of it.

Shane Holtorf: 26:39

You know, we've got some really good basis in our neck of the woods, and so I would I would lean into that a little bit and look for the opportunity on these rallies to just start pricing.

Todd Gleason: 26:51

And, Chip, old crop corn stocks, what do you do with them?

Chip Nellinger: 26:53

Yeah. You know, I I think six weeks ago, if you were ask me that, Todd, I would say you have till about the June 20. I think because of this issue I talked about earlier where in spite of some early planting, the weather maybe has slowed this crop down. Also, think we could be setting up for kind of a counter seasonal type of a year where the the normal high comes in later, rather than, you know, that late June time frame. So, I I would agree with the basis.

Chip Nellinger: 27:23

You know, there's some really attractive basis around right now. Consider, you know, putting a basis contract maybe against the December. The September contract is always kind of an in betweener and hard to figure out. So, you know, that ought to give you, because of still inverted markets, a really good basis against December. I do think that in short order, December is going to pick up more volume and open interest and kind of be the lead month.

Chip Nellinger: 27:49

But I do think that we have to kind of at this point still think about maybe pushing that back into like mid to late July to figure out how we're going to get through pollination and whether there's any dry pockets that have, popped up across the corn belt.

Todd Gleason: 28:03

Let's get a final word from each of you now. I think Shane Holthorff, I'll start with you. You can cover livestock, corn, soybeans, wheat. What things have we not talked about that you wanted to talk about today?

Shane Holtorf: 28:15

I think we did a pretty good job hitting on the grains. We could we could talk for another forty five minutes about, you know, the livestock side of the business. And so if we take a peek over there, we haven't touched on that much today. What a ride that's been. We saw earlier in the week, was it Tuesday, start talking about the new world screwworm and we saw how fast this market can react to adverse news.

Shane Holtorf: 28:46

Come to find out it was a false flag and we've recovered and actually today rallied pretty good. I was just looking, got a message while we were sitting on this call. We've got some cash cattle trade out to 02:35 you know, sitting here on Thursday afternoon. And so that market, although we're sitting up here at all time highs, doesn't show a lot of opportunity to slow down. We're seeing these, cash side of the business still continue to push.

Todd Gleason: 29:19

Alan Brugler at A and N Economics, your final word for the day?

Alan Brugler: 29:23

Well, I'd emphasize the cattle situation again. We're still in the tightest part of the cattle cycle. In fact, from a feedlots standpoint, things get even tighter when you start to put heifers on grass because they've been in the feedlots for the last year and a half, two years. The placed against numbers, the cattle that will actually be ready for slaughter are running at decade lows for July, August and September. And so the feedlots still have some leverage here.

Alan Brugler: 29:56

There's gonna be $8 to $10 swings from time to time just because of funds getting in and out of these big moves. And don't panic if you see a sell off like we saw the other day with the Screwworm report. I'd also remind people that we've got the dollar has something to do with this and the interest rates have something to do with the dollar. And I do see some buy signals on the treasury charts right now. The the flows all how interest rates are going up, but the treasury futures don't show that.

Alan Brugler: 30:29

And, I think that's something to keep an eye on.

Todd Gleason: 30:31

And finally, Chip Nellinger at Blue Reef AGRA Marketing. Your final word.

Chip Nellinger: 30:36

Yeah. I would, echo that on the the cattle side, man. What a a bull market, but it's getting along in the tooth. And sometimes markets top on the most bullish news. So I I think if you're a feedlot, listen to this.

Chip Nellinger: 30:48

Don't get queued and try to get long, stay hedged, stay protected because you'll never be able to pick the top of this thing. On the row crop side, I think we have to take the long view. Remember where your crop insurance guarantees come in, be ready to sell rallies. I think rallies can still come, but it don't fall asleep on these markets. Grain markets are kind of stuck in the middle of a range here in a long term range.

Chip Nellinger: 31:16

To Alan's point earlier, you're about in the middle of what the the yearly expected range is on beans. And it's easy to get complacent, but, you know, when the rally comes, it's going to, necessitate a lot of action. So get ready for that, have your orders working, and it may be a case where obviously scale into sales, but they may come fast and furious if we get the the right type of, you know, weather scare generated later this summer.

Todd Gleason: 31:44

Commodity Week, of course, is a production of Illinois Public Media. You may find and listen to the whole of the program anytime you'd like at willag.0rg or in your favorite podcast applications. Our thanks go to our panelists this week, including Alan Brugler, Shane Holtorf, and Chip Nellinger on University of Illinois Extension's Todd Gleason.