Episode Number
1880
Episode Show Notes / Description
The November 12 edition of Commodity Week, hosted by Todd Gleason, features panelists Greg Johnson, Logan Kimmel, and Brian Stark discussing agricultural market dynamics and marketing strategies following the USDA's November Supply and Demand report. The experts highlight the exceptionally strong cash grain basis for corn, which is being driven by reduced regional yields and producers holding onto their stored crops until prices improve or cash flow is needed. While corn futures appear to have limited downside risk and are awaiting a demand catalyst—such as Chinese purchasing—to trigger a rally, soybeans face greater volatility and downside risk depending on speculative fund positioning and South American weather developments. Ultimately, the panel advises farmers to capitalize on the currently firm basis levels, manage their storage carefully, and proactively place target orders above the market to capture potential seasonal rallies around the holidays. The panel also recommended monitoring shifting livestock market sentiments and developing biofuel policies, such as the 45Z tax credit, for additional market impacts.
Panelists
- Greg Johnson, Total Grain Marketing
- Logan Kimmel, Roach Ag
- Brian Stark, The Andersons
Panelists
- Greg Johnson, Total Grain Marketing
- Logan Kimmel, Roach Ag
- Brian Stark, The Andersons
Transcript
cw261112
The November 12 edition of Commodity Week, hosted by Todd Gleason, features panelists Greg Johnson, Logan Kimmel, and Brian Stark discussing agricultural market dynamics and marketing strategies following the USDA's November Supply and Demand report. The experts highlight the exceptionally strong cash grain basis for corn, which is being driven by reduced regional yields and producers holding onto their stored crops until prices improve or cash flow is needed. While corn futures appear to have limited downside risk and are awaiting a demand catalyst—such as Chinese purchasing—to trigger a rally, soybeans face greater volatility and downside risk depending on speculative fund positioning and South American weather developments. Ultimately, the panel advises farmers to capitalize on the currently firm basis levels, manage their storage carefully, and proactively place target orders above the market to capture potential seasonal rallies around the holidays. The panel also recommended monitoring shifting livestock market sentiments and developing biofuel policies, such as the 45Z tax credit, for additional market impacts.
Panelists
- Greg Johnson, Total Grain Marketing
- Logan Kimmel, Roach Ag
- Brian Stark, The Andersons
---
Todd Gleason: This is the November 12 edition of Commodity Week.
Announce: Todd Gleason’s services are made available to WILL by University of Illinois Extension.
Todd Gleason: Welcome to Commodity Week. I’m Todd Gleason. Our panelists for the day include Greg Johnson. He’s at TGM, that’s Total Grain Marketing, here in Champaign, Illinois. Logan Kimmel joins us from Roach Ag, and he is in Naperville, Illinois. Brian Stark is here from The Andersons out of Mansfield, Illinois. Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world, online and on demand at willag.org. That’s willag.org, where today you can sign up for the winter meeting season IFAS series, the Illinois Farm Economics Summit. These are the meetings that the Farmdoc team, the ag economists from the University of Illinois, put on each and every December. We’ll be on the road that month to Mount Vernon, Sherman, DeKalb, and East Peoria. You can join us. Sign up today at willag.org; registration is right there on the homepage, willag.org. Let’s get a list of items we should talk about today from Greg Johnson. Let’s start with you. Hi, Greg, thanks for being with us. What’s on your list for Commodity Week?
Greg Johnson: Well, I think we should talk about the USDA November supply and demand report, and once we do that, then what else is there? What’s the next thing that’s going to move this market once we fully digest that November report?
Todd Gleason: I feel like there are lots of “what’s nexts” in this month and through January, but we can talk about them. Logan Kimmel from Roach Ag out of Naperville, Illinois, what’s on your list?
Logan Kimmel: I think there’s been a lot of folks looking for ideas and marketing in the short term—what to be doing right now, whether that be for overflow storage needs or cash flow needs. Also, it’s a good time of the year to maybe sit down and look at a longer-term marketing plan, where to consider putting some orders in for the winter. Both a short and longer-term marketing approach this time of the year.
Todd Gleason: Brian Stark of The Andersons, your list?
Brian Stark: I think the biggest one obviously is cash grain basis. As we finish harvest, we’ve seen it firm in a dramatic way in the East Central part of the Corn Belt for sure. Producers obviously need to look at that really hard as the carry, and the cash grain carry, starts to get taken out of the market.
Todd Gleason: So Brian, let’s continue on with this basis conversation to begin with. Particularly for corn, I take it in Indiana—there may be other places too across the Midwest—that corn basis is doing quite a bit of work.
Brian Stark: Yeah, it has to. I think we’ll talk about the USDA report this week, as Greg alluded to here in a little bit, but with the lack of futures movement and harvest essentially over, crop is down at least 10% in East Central Illinois and West Central Indiana from a corn crop perspective year over year. Obviously, the end user doesn’t have extended coverage, especially ones that don’t have a lot of space at their facilities. They’re trying to find a cash price that encourages the grower to engage. Unfortunately, when you think about where growers are today, most did not have the overflow they normally do to bring to town. We’ve talked to quite a few throughout the harvest season; most farmers had a good enough crop to fill their on-farm space. So what’s that price that triggers that movement? A lot of it is going to be in that $4.75 to $5.00 cash range. We’ve seen end users from three weeks ago at a harvest-type level of 20 to 25 under quickly appreciate to posted values 10 to 15 over, and payables for volume we’ve heard trade anywhere from 25 to 35 over the December futures contract, which kind of gets you into that cash range of $4.80 to $5.00. Right now, the end user’s objective is saying, ‘I need grain continuously the next 45 days into the end of the year,’ where maybe producers don’t need to market anything. They’ve got their cash flow needs met, especially with the potential diesel payment from the government. A lot of farmers can afford to potentially sit back and wait for a board rally which doesn’t seem to be coming. You’ve got kind of a meeting of the heads of end users needing supply, and while the supply may still be comfortable on a balance sheet perspective, short-term it feels extremely tight.
Todd Gleason: Greg, is this what you’re hearing and seeing too in East Central Illinois?
Greg Johnson: Oh yeah, I second everything that Brian said. The yields were every bit of 10% lower, which is 25 bushels to the acre in our area, if not 15% lower, which is 40 bushels to the acre. We remind farmers that you can’t market based off your own backyard. There’s no doubt that Illinois yields were down—USDA confirmed that in the report—but Minnesota was good, Iowa was good, the Dakotas were good. So we don’t want to just say corn has to go to $5.00 just because here in Illinois our yields are down. Nevertheless, farmers really aren’t going to give it away at $4.25 or $4.50. I’ve jokingly said, but I kind of really believe this, that farmers are not going to sell corn until it gets to $5.00 or until they need the money, whichever comes first. As Brian alluded to, if we don’t get something positive in the way of market developments, it may be the latter. We may have to sell when we need the money before we get to the $5.00 price.
Todd Gleason: Do you believe that too, Brian? Are you of that mind that they’ll get to the point where they need the money to pay for next year’s inputs or things that happen still from this past year before we get back to $5.00?
Brian Stark: Yeah, I agree 100%. Today, if we can’t get a more positive reaction from a 1.6 bushel decrease nationally, it’s going to be hard to find ammunition for the funds or anyone to want to buy and push the market high enough to get to that $5.00 level. That’s why you’re seeing specific end users, where there’s a lot of processor-centric demand in Indiana, that are really aggressive. They are trying to stretch to get to that point where you take out not just the board carry but the cash carry to JFM to get producers closer to that price. Otherwise, I agree with Greg. I think it’s a calendar play. That’s the interesting thing farmers need to really think about: how long do we wait for that price, or do we just wait until we have to make sales, which typically is that March 1st timeframe when nationally there’s a lot of bills due? That’s why you see heavier movement in Jan/Feb. What we’ve tried to coach growers on is that if you’re friendly to the board and basis is extremely strong, it doesn’t mean basis will be this strong once we get to Jan and Feb. You have to sell it when the end user wants it, not necessarily when we need to move it. So maybe market basis and futures potentially independently.
Todd Gleason: Okay, Logan Kimmel, that brings me to you and overflow storage to begin with, and then some of your short-term marketing ideas.
Logan Kimmel: Well, I 100% agree, and I think as we look at right here right now, the basis would be the opportunity for any marketing to be done with the increase or the surge we’ve seen. I think that comes off of a couple of things in the market. The corn market has dropped a dollar since September. Not a lot is going to change, as we know, between now and the January report. Maybe a catalyst would be South American weather, but farmers are holding tight to their corn right now after a dollar break if they don’t need to sell, which is causing basis increases and opportunities to maybe market that in. On the flip side, one idea or conversation we’re having is if folks are having better soybean yields and maybe don’t like to store beans. With $12 beans, if you’ve got larger yields, a sale here might not be the worst thing in the world. Beans could be volatile going forward; they could drop another dollar, it seems. But if South America has weather, there could be some upside. In the short term for corn basis here, locking that in is an opportunity. For beans, if you need cash flow or logistically need to sell some beans at these prices, it isn’t terrible if your yields are there. So I think in the short term, there are some opportunities out there that have arisen here in the last few weeks. Now a little longer term, if you’re going to store your corn, having orders in above the market and same for the beans. If you’re going to go through storing it, shop the carry in the market, utilize your bins, but put a plan together now as fieldwork has quieted down. A lot can change by January, but you’ve got to have orders in place and end up making the sale if you’re going to go through storing the grain.
Todd Gleason: So Greg Johnson, can you walk me through the supply and demand tables as you saw them come out from USDA on Monday, and their impact, and how that turns into the discussion we’ve already had?
Greg Johnson: Sure. The government lowered the yield by 1.6. That’s a 140 million bushel decline. But as they do in almost every report, when they raise the production, they raise the demand. When they lower the production, as they did this time, they lowered the demand. They took feed down 25 million, they took exports down 25 million. That’s 50 million off the demand side, and 141 off the supply side. So the net reduction was 91 million. Instead of having a 1.85 carryout, we have a 1.75 carryout. Still plenty. Nothing to get excited about. It’s comfortable. Bottom line for corn, we need to see some more demand show up. Or we need to see the USDA drop the yield in the January report another bushel or two. I’m not ruling that out, but that’s not what I would bet the farm on. I would hold onto corn because I think the demand may show up, and that demand would come in the form of China. China does what’s best for China. China exports trillions of dollars of goods to the United States. They would love to see those tariffs reduced. If I’m the president of China, I would agree to buy some corn and beans from the United States, which might be billions of dollars, in exchange for getting tariffs lowered on trillions of dollars. So I am going to wait and see how the talks between President Trump and President Xi work out here over the next month or so. If I’m wrong, I think as was alluded to earlier, corn has already lost a dollar. How much lower can it go? I really think worst-case scenario for corn is we just plod along sideways for a while. Best-case scenario is we rally 40, 50 cents if there’s some demand that shows up. I think with corn, there’s not much incentive to sell at these prices. You’ll be able to sell at these prices a month or two from now if nothing changes. I just don’t see corn going a whole lot lower. Beans are a little bit different story, I’m sure we’ll talk about that later. As far as the supply and demand tables for corn, it’s just comfortable. It’s not as tight as it is for beans, but it’s not burdensome either. It’s nothing that a little bit of demand wouldn’t take care of, so at this point we’re just going to have to sit back and wait.
Todd Gleason: Logan, a couple of things. How have sales of soybeans to China been going? And then the Chinese government just today was making the argument with the US government that it should lower its tariffs ahead of the Chinese making those extra 17 billion dollars worth of agricultural goods purchases. Can you put those two things into context across the board and start with Chinese soybean exports?
Logan Kimmel: Yeah, it picked up here. We’ve seen some daily flash sales come across even here this morning to China. Whether that be the time of the year or the price drop, I think that’s helped. Overall, I think you’d want to see bigger amounts on these Chinese purchases on the beans, or more frequent. Obviously, if reducing tariffs would incentivize more purchases or more volume, that’d be a positive. On the China front as well, they were shopping around and have been buying some wheat. If they’re shopping around for wheat, I think that’s a positive. As Greg mentioned, I want to keep an eye on if they shop around and buy some US corn. Certainly would help, as Mexico has been buying, but just not enough it seems. China buying corn would be a very good positive, and we need to see larger amounts on the soybeans. But they are coming across the screen, they are getting daily flash sales. We just got to keep that up.
Todd Gleason: Brian, if I could turn your attention to 45Z, which would have to do with corn and ethanol, but maybe at this point more to do with soybean oil. There has been movement this week from the Gulf States. Arkansas, Louisiana, Texas probably would all be involved as it relates to 45Z and how much that’s impacting their business. And then of course, what kind of changes they might ask for. The Farmdoc team, including Todd Hubbs out of Oklahoma State University, and Scott Irwin wrote an article yesterday that was posted to the website. I checked with them on the bottom line as to how much they think things could change as 45Z continues to be hashed out in Washington DC, and the numbers are astounding. Like 160 million bushels in change, up to 450 million bushels in change, from usage to not. I’m wondering how worried you might be about that usage.
Brian Stark: You know, I think it’s too early to tell. I haven’t had a chance to read Dr. Irwin’s article, but I know he does a lot of good work following along with some of these changes. Just like anything in the marketplace, you have to be prepared for anything that could be politicized from any type of mandate or policy. Given some of the things that we’ve seen in the industry, I think it’s too early to tell. Like you said, there’s a lot of moving parts, and we’re all kind of following along as we go trying to plan out what this could all mean from processor demand. I can tell you today, as things stand, until something changes, things are very good from a demand standpoint. I think it’s only a friendly thing here short term with the current environment. Obviously, if something were to change, it sure could have some negative impact, but I think it’s too early to tell based on what we’ve learned so far.
Todd Gleason: Let’s get a final word now from each of you. I’ll start Logan Kimmel with you from Roach Ag.
Logan Kimmel: Yeah, I think we did a good job covering what to be doing now in the grain markets. One thing to keep an eye on or why it’s important for risk management is the livestock markets. Keep an eye on these hogs. Usually find a bottom here this time of the year, but we’ve had a pretty bearish sentiment for the last few years or few months and drawing new shorts into the market. They’ve dominated the money flow and really dropped hog prices in a scary way. If that were to take place in the cattle market, and funds liquidating longs and going short, whether that be off of just sentiment or an economy shift, it might be important for livestock producers on the cattle side to lock in levels that make sense and consider downside risk. We’ve seen that play out in the hog market and the money flow is awful powerful. If that takes place in the cattle, there could be some downside.
Todd Gleason: Greg Johnson from TGM, your final word for the day?
Greg Johnson: Well, one thing we didn’t mention was the spec fund position. The spec funds went from a record long position in corn to now they’re modestly short corn. Obviously that’s what caused a big portion of the dollar drop. But the bad news is already in in my opinion. About soybeans, on the other hand, the funds have bailed out of maybe a third to not quite half of their position. They’re still maintaining a very long position. That just reinforces my earlier comments that beans could go down if the funds decide to get out for whatever reason. The beans could go down a dollar; on the other hand, if China shows up or there’s some other unexpected demand or we have a weather problem in South America, they could go up a dollar. I just want to differentiate the two marketing strategies between corn and soybeans. With soybeans, some kind of a min-max strategy probably is the thing to be looking at.
Todd Gleason: And finally Brian Stark of The Andersons, your final word?
Brian Stark: Yeah, while the futures market hasn’t given us much hope, I think we also have to remember that seasonally as we approach the holidays, the bulls and bears fight over which holiday each one gets to be fed at. There may be some opportunities strictly based on seasonal tendencies for the market to rally around Thanksgiving and or Christmas. I think reiterating the point I’ve made throughout the entire call today, take advantage of really firm basis, and then put orders in at price levels you’d be a willing seller, have those orders working around the holidays in case there is a rally in corn or beans that you can take advantage of getting an order sold before it’s quick lifted.
Todd Gleason: Commodity Week of course is a production of Illinois Public Media. May hear and listen to the whole of the program anytime you’d like at willag.org. w-i-l-l-a-g.org. Our thanks go out to our panelists this week including Greg Johnson, Logan Kimmel, and Brian Stark. I’m Illinois Extension’s Todd Gleason.
The November 12 edition of Commodity Week, hosted by Todd Gleason, features panelists Greg Johnson, Logan Kimmel, and Brian Stark discussing agricultural market dynamics and marketing strategies following the USDA's November Supply and Demand report. The experts highlight the exceptionally strong cash grain basis for corn, which is being driven by reduced regional yields and producers holding onto their stored crops until prices improve or cash flow is needed. While corn futures appear to have limited downside risk and are awaiting a demand catalyst—such as Chinese purchasing—to trigger a rally, soybeans face greater volatility and downside risk depending on speculative fund positioning and South American weather developments. Ultimately, the panel advises farmers to capitalize on the currently firm basis levels, manage their storage carefully, and proactively place target orders above the market to capture potential seasonal rallies around the holidays. The panel also recommended monitoring shifting livestock market sentiments and developing biofuel policies, such as the 45Z tax credit, for additional market impacts.
Panelists
- Greg Johnson, Total Grain Marketing
- Logan Kimmel, Roach Ag
- Brian Stark, The Andersons
---
Todd Gleason: This is the November 12 edition of Commodity Week.
Announce: Todd Gleason’s services are made available to WILL by University of Illinois Extension.
Todd Gleason: Welcome to Commodity Week. I’m Todd Gleason. Our panelists for the day include Greg Johnson. He’s at TGM, that’s Total Grain Marketing, here in Champaign, Illinois. Logan Kimmel joins us from Roach Ag, and he is in Naperville, Illinois. Brian Stark is here from The Andersons out of Mansfield, Illinois. Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world, online and on demand at willag.org. That’s willag.org, where today you can sign up for the winter meeting season IFAS series, the Illinois Farm Economics Summit. These are the meetings that the Farmdoc team, the ag economists from the University of Illinois, put on each and every December. We’ll be on the road that month to Mount Vernon, Sherman, DeKalb, and East Peoria. You can join us. Sign up today at willag.org; registration is right there on the homepage, willag.org. Let’s get a list of items we should talk about today from Greg Johnson. Let’s start with you. Hi, Greg, thanks for being with us. What’s on your list for Commodity Week?
Greg Johnson: Well, I think we should talk about the USDA November supply and demand report, and once we do that, then what else is there? What’s the next thing that’s going to move this market once we fully digest that November report?
Todd Gleason: I feel like there are lots of “what’s nexts” in this month and through January, but we can talk about them. Logan Kimmel from Roach Ag out of Naperville, Illinois, what’s on your list?
Logan Kimmel: I think there’s been a lot of folks looking for ideas and marketing in the short term—what to be doing right now, whether that be for overflow storage needs or cash flow needs. Also, it’s a good time of the year to maybe sit down and look at a longer-term marketing plan, where to consider putting some orders in for the winter. Both a short and longer-term marketing approach this time of the year.
Todd Gleason: Brian Stark of The Andersons, your list?
Brian Stark: I think the biggest one obviously is cash grain basis. As we finish harvest, we’ve seen it firm in a dramatic way in the East Central part of the Corn Belt for sure. Producers obviously need to look at that really hard as the carry, and the cash grain carry, starts to get taken out of the market.
Todd Gleason: So Brian, let’s continue on with this basis conversation to begin with. Particularly for corn, I take it in Indiana—there may be other places too across the Midwest—that corn basis is doing quite a bit of work.
Brian Stark: Yeah, it has to. I think we’ll talk about the USDA report this week, as Greg alluded to here in a little bit, but with the lack of futures movement and harvest essentially over, crop is down at least 10% in East Central Illinois and West Central Indiana from a corn crop perspective year over year. Obviously, the end user doesn’t have extended coverage, especially ones that don’t have a lot of space at their facilities. They’re trying to find a cash price that encourages the grower to engage. Unfortunately, when you think about where growers are today, most did not have the overflow they normally do to bring to town. We’ve talked to quite a few throughout the harvest season; most farmers had a good enough crop to fill their on-farm space. So what’s that price that triggers that movement? A lot of it is going to be in that $4.75 to $5.00 cash range. We’ve seen end users from three weeks ago at a harvest-type level of 20 to 25 under quickly appreciate to posted values 10 to 15 over, and payables for volume we’ve heard trade anywhere from 25 to 35 over the December futures contract, which kind of gets you into that cash range of $4.80 to $5.00. Right now, the end user’s objective is saying, ‘I need grain continuously the next 45 days into the end of the year,’ where maybe producers don’t need to market anything. They’ve got their cash flow needs met, especially with the potential diesel payment from the government. A lot of farmers can afford to potentially sit back and wait for a board rally which doesn’t seem to be coming. You’ve got kind of a meeting of the heads of end users needing supply, and while the supply may still be comfortable on a balance sheet perspective, short-term it feels extremely tight.
Todd Gleason: Greg, is this what you’re hearing and seeing too in East Central Illinois?
Greg Johnson: Oh yeah, I second everything that Brian said. The yields were every bit of 10% lower, which is 25 bushels to the acre in our area, if not 15% lower, which is 40 bushels to the acre. We remind farmers that you can’t market based off your own backyard. There’s no doubt that Illinois yields were down—USDA confirmed that in the report—but Minnesota was good, Iowa was good, the Dakotas were good. So we don’t want to just say corn has to go to $5.00 just because here in Illinois our yields are down. Nevertheless, farmers really aren’t going to give it away at $4.25 or $4.50. I’ve jokingly said, but I kind of really believe this, that farmers are not going to sell corn until it gets to $5.00 or until they need the money, whichever comes first. As Brian alluded to, if we don’t get something positive in the way of market developments, it may be the latter. We may have to sell when we need the money before we get to the $5.00 price.
Todd Gleason: Do you believe that too, Brian? Are you of that mind that they’ll get to the point where they need the money to pay for next year’s inputs or things that happen still from this past year before we get back to $5.00?
Brian Stark: Yeah, I agree 100%. Today, if we can’t get a more positive reaction from a 1.6 bushel decrease nationally, it’s going to be hard to find ammunition for the funds or anyone to want to buy and push the market high enough to get to that $5.00 level. That’s why you’re seeing specific end users, where there’s a lot of processor-centric demand in Indiana, that are really aggressive. They are trying to stretch to get to that point where you take out not just the board carry but the cash carry to JFM to get producers closer to that price. Otherwise, I agree with Greg. I think it’s a calendar play. That’s the interesting thing farmers need to really think about: how long do we wait for that price, or do we just wait until we have to make sales, which typically is that March 1st timeframe when nationally there’s a lot of bills due? That’s why you see heavier movement in Jan/Feb. What we’ve tried to coach growers on is that if you’re friendly to the board and basis is extremely strong, it doesn’t mean basis will be this strong once we get to Jan and Feb. You have to sell it when the end user wants it, not necessarily when we need to move it. So maybe market basis and futures potentially independently.
Todd Gleason: Okay, Logan Kimmel, that brings me to you and overflow storage to begin with, and then some of your short-term marketing ideas.
Logan Kimmel: Well, I 100% agree, and I think as we look at right here right now, the basis would be the opportunity for any marketing to be done with the increase or the surge we’ve seen. I think that comes off of a couple of things in the market. The corn market has dropped a dollar since September. Not a lot is going to change, as we know, between now and the January report. Maybe a catalyst would be South American weather, but farmers are holding tight to their corn right now after a dollar break if they don’t need to sell, which is causing basis increases and opportunities to maybe market that in. On the flip side, one idea or conversation we’re having is if folks are having better soybean yields and maybe don’t like to store beans. With $12 beans, if you’ve got larger yields, a sale here might not be the worst thing in the world. Beans could be volatile going forward; they could drop another dollar, it seems. But if South America has weather, there could be some upside. In the short term for corn basis here, locking that in is an opportunity. For beans, if you need cash flow or logistically need to sell some beans at these prices, it isn’t terrible if your yields are there. So I think in the short term, there are some opportunities out there that have arisen here in the last few weeks. Now a little longer term, if you’re going to store your corn, having orders in above the market and same for the beans. If you’re going to go through storing it, shop the carry in the market, utilize your bins, but put a plan together now as fieldwork has quieted down. A lot can change by January, but you’ve got to have orders in place and end up making the sale if you’re going to go through storing the grain.
Todd Gleason: So Greg Johnson, can you walk me through the supply and demand tables as you saw them come out from USDA on Monday, and their impact, and how that turns into the discussion we’ve already had?
Greg Johnson: Sure. The government lowered the yield by 1.6. That’s a 140 million bushel decline. But as they do in almost every report, when they raise the production, they raise the demand. When they lower the production, as they did this time, they lowered the demand. They took feed down 25 million, they took exports down 25 million. That’s 50 million off the demand side, and 141 off the supply side. So the net reduction was 91 million. Instead of having a 1.85 carryout, we have a 1.75 carryout. Still plenty. Nothing to get excited about. It’s comfortable. Bottom line for corn, we need to see some more demand show up. Or we need to see the USDA drop the yield in the January report another bushel or two. I’m not ruling that out, but that’s not what I would bet the farm on. I would hold onto corn because I think the demand may show up, and that demand would come in the form of China. China does what’s best for China. China exports trillions of dollars of goods to the United States. They would love to see those tariffs reduced. If I’m the president of China, I would agree to buy some corn and beans from the United States, which might be billions of dollars, in exchange for getting tariffs lowered on trillions of dollars. So I am going to wait and see how the talks between President Trump and President Xi work out here over the next month or so. If I’m wrong, I think as was alluded to earlier, corn has already lost a dollar. How much lower can it go? I really think worst-case scenario for corn is we just plod along sideways for a while. Best-case scenario is we rally 40, 50 cents if there’s some demand that shows up. I think with corn, there’s not much incentive to sell at these prices. You’ll be able to sell at these prices a month or two from now if nothing changes. I just don’t see corn going a whole lot lower. Beans are a little bit different story, I’m sure we’ll talk about that later. As far as the supply and demand tables for corn, it’s just comfortable. It’s not as tight as it is for beans, but it’s not burdensome either. It’s nothing that a little bit of demand wouldn’t take care of, so at this point we’re just going to have to sit back and wait.
Todd Gleason: Logan, a couple of things. How have sales of soybeans to China been going? And then the Chinese government just today was making the argument with the US government that it should lower its tariffs ahead of the Chinese making those extra 17 billion dollars worth of agricultural goods purchases. Can you put those two things into context across the board and start with Chinese soybean exports?
Logan Kimmel: Yeah, it picked up here. We’ve seen some daily flash sales come across even here this morning to China. Whether that be the time of the year or the price drop, I think that’s helped. Overall, I think you’d want to see bigger amounts on these Chinese purchases on the beans, or more frequent. Obviously, if reducing tariffs would incentivize more purchases or more volume, that’d be a positive. On the China front as well, they were shopping around and have been buying some wheat. If they’re shopping around for wheat, I think that’s a positive. As Greg mentioned, I want to keep an eye on if they shop around and buy some US corn. Certainly would help, as Mexico has been buying, but just not enough it seems. China buying corn would be a very good positive, and we need to see larger amounts on the soybeans. But they are coming across the screen, they are getting daily flash sales. We just got to keep that up.
Todd Gleason: Brian, if I could turn your attention to 45Z, which would have to do with corn and ethanol, but maybe at this point more to do with soybean oil. There has been movement this week from the Gulf States. Arkansas, Louisiana, Texas probably would all be involved as it relates to 45Z and how much that’s impacting their business. And then of course, what kind of changes they might ask for. The Farmdoc team, including Todd Hubbs out of Oklahoma State University, and Scott Irwin wrote an article yesterday that was posted to the website. I checked with them on the bottom line as to how much they think things could change as 45Z continues to be hashed out in Washington DC, and the numbers are astounding. Like 160 million bushels in change, up to 450 million bushels in change, from usage to not. I’m wondering how worried you might be about that usage.
Brian Stark: You know, I think it’s too early to tell. I haven’t had a chance to read Dr. Irwin’s article, but I know he does a lot of good work following along with some of these changes. Just like anything in the marketplace, you have to be prepared for anything that could be politicized from any type of mandate or policy. Given some of the things that we’ve seen in the industry, I think it’s too early to tell. Like you said, there’s a lot of moving parts, and we’re all kind of following along as we go trying to plan out what this could all mean from processor demand. I can tell you today, as things stand, until something changes, things are very good from a demand standpoint. I think it’s only a friendly thing here short term with the current environment. Obviously, if something were to change, it sure could have some negative impact, but I think it’s too early to tell based on what we’ve learned so far.
Todd Gleason: Let’s get a final word now from each of you. I’ll start Logan Kimmel with you from Roach Ag.
Logan Kimmel: Yeah, I think we did a good job covering what to be doing now in the grain markets. One thing to keep an eye on or why it’s important for risk management is the livestock markets. Keep an eye on these hogs. Usually find a bottom here this time of the year, but we’ve had a pretty bearish sentiment for the last few years or few months and drawing new shorts into the market. They’ve dominated the money flow and really dropped hog prices in a scary way. If that were to take place in the cattle market, and funds liquidating longs and going short, whether that be off of just sentiment or an economy shift, it might be important for livestock producers on the cattle side to lock in levels that make sense and consider downside risk. We’ve seen that play out in the hog market and the money flow is awful powerful. If that takes place in the cattle, there could be some downside.
Todd Gleason: Greg Johnson from TGM, your final word for the day?
Greg Johnson: Well, one thing we didn’t mention was the spec fund position. The spec funds went from a record long position in corn to now they’re modestly short corn. Obviously that’s what caused a big portion of the dollar drop. But the bad news is already in in my opinion. About soybeans, on the other hand, the funds have bailed out of maybe a third to not quite half of their position. They’re still maintaining a very long position. That just reinforces my earlier comments that beans could go down if the funds decide to get out for whatever reason. The beans could go down a dollar; on the other hand, if China shows up or there’s some other unexpected demand or we have a weather problem in South America, they could go up a dollar. I just want to differentiate the two marketing strategies between corn and soybeans. With soybeans, some kind of a min-max strategy probably is the thing to be looking at.
Todd Gleason: And finally Brian Stark of The Andersons, your final word?
Brian Stark: Yeah, while the futures market hasn’t given us much hope, I think we also have to remember that seasonally as we approach the holidays, the bulls and bears fight over which holiday each one gets to be fed at. There may be some opportunities strictly based on seasonal tendencies for the market to rally around Thanksgiving and or Christmas. I think reiterating the point I’ve made throughout the entire call today, take advantage of really firm basis, and then put orders in at price levels you’d be a willing seller, have those orders working around the holidays in case there is a rally in corn or beans that you can take advantage of getting an order sold before it’s quick lifted.
Todd Gleason: Commodity Week of course is a production of Illinois Public Media. May hear and listen to the whole of the program anytime you’d like at willag.org. w-i-l-l-a-g.org. Our thanks go out to our panelists this week including Greg Johnson, Logan Kimmel, and Brian Stark. I’m Illinois Extension’s Todd Gleason.