Episode Number
1874
Episode Show Notes / Description
In this edition of Commodity Week, host Todd Gleason and market analysts Dave Chatterton and Garrett Toay break down the fallout from the USDA Grain Stocks report, trade relations with China, and harvest marketing strategies. The discussion centers on the USDA's surprise addition of roughly 173 million bushels of corn to ending stocks, shifting balance sheets ahead of the next WASDE report where the panelists anticipate yields may stay steady or drift slightly lower due to quality issues in the western Corn Belt. Turning to global trade, the analysts assess China's continued tariff leverage on U.S. soybeans, the pace of its 25-million-metric-ton purchasing target, and growing export competition from Brazil and Argentina. Finally, they advise producers to leverage basis opportunities, carries, and on-farm storage—noting that farmers are largely cash-flow insulated for now—while cautioning that elevated diesel costs, strained refining capacity, and geopolitical tensions will likely maintain a tight-margin environment for the next 18 to 24 months.
Panelists
- Dave Chatterton, SFarmMarketing.com
- Garrett Toay, AgTraderTalk.com
Panelists
- Dave Chatterton, SFarmMarketing.com
- Garrett Toay, AgTraderTalk.com
Transcript
cw261001
In this edition of *Commodity Week*, host Todd Gleason and market analysts Dave Chatterton and Garrett Toay break down the fallout from the USDA Grain Stocks report, trade relations with China, and harvest marketing strategies. The discussion centers on the USDA's surprise addition of roughly 173 million bushels of corn to ending stocks, shifting balance sheets ahead of the next WASDE report where the panelists anticipate yields may stay steady or drift slightly lower due to quality issues in the western Corn Belt. Turning to global trade, the analysts assess China's continued tariff leverage on U.S. soybeans, the pace of its 25-million-metric-ton purchasing target, and growing export competition from Brazil and Argentina. Finally, they advise producers to leverage basis opportunities, carries, and on-farm storage—noting that farmers are largely cash-flow insulated for now—while cautioning that elevated diesel costs, strained refining capacity, and geopolitical tensions will likely maintain a tight-margin environment for the next 18 to 24 months.
Panelists
- Dave Chatterton, SFarmMarketing.com
- Garrett Toay, AgTraderTalk.com
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Todd Gleason: This is the October 1 edition of commodity week.
announce: Todd Gleason services are made available to WILL by University of Illinois Extension.
Todd Gleason: Well, welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Dave Chatterton. He’s at Strategic Farm Marketing in Champaign, Illinois, and Garrett Toay of AgTraderTalk.com out of Stockton, Illinois. Thank you gentlemen for being with us.
Todd Gleason: Dave I think I want to turn back just to the grain stocks report earlier in this week and let you run through those numbers for me. Some of the changes that they’ve made, and then we’ll let Garrett push them forward into what the WASDE could look like in the crop production report that is due out next week. So let’s start with the grain stocks report. What did the numbers tell us, Dave?
Dave Chatterton: Yeah, Todd, well obviously, you know, the big surprise there was in the corn and USDA, you know, a stroke of a pen similar to what we’ve seen them do in the September report before, found 173 million bushels of corn that they didn’t see two weeks ago on the S&D report and, you know, we could make some arguments that last year’s yield was overstated, we did not get that, we got a small reduction in harvested acres for corn but we got no yield reduction. So at the end of the day, we’re adding carryout to our, you know, to the bottom line of the old crop that’s carrying over to the new crop and all of a sudden there’s a readjustment underway in the trade among analysts to what are we gonna do with this extra 175 million bushels of corn and and mostly it’s going straight to the bottom line. So it changed the narrative and in a sentiment certainly in a way that as funds have built into some pretty substantial length in the marketplace here not just corn but across the board, you know, we need to continue to find ways to to, you know, to feed that bull if you will and certainly didn’t get that on the report. Now we have a USDA report or WASDE S&D I should say excuse me coming up uh next Friday, so we’ll see how the USDA wants to handle that with, you know, demand numbers etc. but right now we’re dealing with more corn supply than what we thought we were going to be and the changes were very you know mostly minor in in in the beans, a small decline there in the overall stock situation but really not enough to move the needle Todd and wheat no changes of of substance at all here. So really the focus has been on the corn, we’ve seen, you know, liquidation by funds in both corn, soy and soybeans here, we’ve gone a long and technically we’re starting to break this market down a little bit. So I think that’s where we we push it forward into what the what we’re going to be looking at going forward and maybe maybe Garrett has an an opinion on that.
Todd Gleason: So Garrett, let’s take those numbers as they came to us from the grain stocks report. Ending stocks for old crop corn now at 2.094 billion bushels, soybeans at 315 million. Those get pushed right into the new crop supply and demand balance sheets as the beginning numbers. Uh if we don’t change anything and you can correct me Garrett if I’m wrong but I think that puts the October projection if they nothing changed at the balance sheet at 1.739 billion for a carryover for corn and about 300 million for soybeans. How do you see those numbers fitting into the balance sheet and what changes might come from USDA to make them uh to change them off of that that mark I suppose?
Garrett Toay: Well obviously when you have a stocks report, um, you know, the adjustments that they make, you know, analysts automatically start thinking about what it means to the new crop feed and residual number. And um, you know, I think it’s important to point out that the USDA cut feed and residual by 150 million bushel uh last month. So, you know, Dave and I had this conversation in February about, you know, how does this, you know, 6.4 billion bushel old crop feed and residual number work when we’ve got lower cattle numbers and, you know, higher feed weights and and that sort of thing and and there was, you know, we could make it work with the exception of 200 million bushel. And so, you know, this is what we talked about in our winter meetings, that sort of thing is, you know, that there’s this pocket there that um, you know, that we can’t account for. Um, the thing was is that the June WASDE or the June stocks report kind of um, you know, messed with our mind if you will because um, that kind of implied that, you know, the 2025 crop was was overstated. But um, you know, here we are at the end of the day, you know, we’re back to what we talked about in February. Um, so but going back is that, you know, if you look at feed and residual numbers over the last 10 years, that 6.4 number just stuck out like a sore thumb. And part of that was because of just the sheer size of that crop last year of 17 billion bushels. So what the 150 million bushel cut already, um, you know, I don’t think it necessarily changes I don’t think the USDA is going to come in and slash feed and residual uh next week uh that much more. I mean and and if we’re at a 1.7 carryout, um, you know, the last time we had that uh was was 23 24 and farm price was 4.55, this year we’re at 4.80. And we’ve got $93 crude and high, you know, record diesel prices. Uh I don’t think that there’s much in here but you know like Dave said, um, you know, the the market’s extremely long, you know, they’ve built this long position based off of um, you know, US production issues, um, Black Sea, you know, Ukraine Russia war that’s been going on. Um expectations of uh purchases from the Xi Trump meetings. Um and and El Nino and South American weather and you know the South American weather’s been kind of okay. Um, you know Ukraine’s getting some trains out to the EU at a cheap level. Uh and we haven’t really seen anything yet uh outside of the 25 or you know moving towards that 25 million metric tons of soybeans. Um that suggests that corn uh, you know, the economics don’t work, but there’s no forced mechanism of like a phase one trade deal to make sure them they’re going to buy corn or or anything else. So um so now we’re just back to US yield concerns. It’s been a wet fall, we’ve seen the sprouting pictures and everything else. Um, you know, that’s what the fund length is is built on at this point. So I mean we’re sitting on a chair that, you know, maybe only has three legs.
Todd Gleason: Are you of mind that USDA will change the yield for corn next week?
Garrett Toay: I think if next week’s based off of the yield reports that I’ve seen, um, it’ll be probably unchanged to slightly lower. I don’t see a sub 170 number that’s being bantered around on social media. Um, I don’t think we’re as low as like the pro farmer numbers were. Um, you know, 175 to 178 is kind of where my mind is at right now.
Todd Gleason: Dave, what are you thinking?
Dave Chatterton: Yeah, Todd, I’m leaning a little bit, I think the USDA ultimately has to come down with their corn yield. I think the bean yield, you know, we can debate that a little bit more, but we’re in-house, we’ve been using, you know, for the last month a 177 national yield. I actually want to lean a little bit lower on that at this particular point, but it’s really a needle in a haystack. What, you know, I think what Garrett alluded to and I think what we’re both seeing is that some of these quality issues coming forward in corn are more widespread than what we thought, these recent rains in the western corn belt, particularly parts of Nebraska and Iowa are not doing any favors here. We’ve got corn that’s sprouting in the ear, we’ve got a damage issue, some test weight, uh probably some toxins in those corn whether it’s aflatoxin, vomitoxin, fumonisin, you know take your pick. But um it’s a slow it’s death by a thousand paper cuts in terms of the challenges that the corn crop has faced. And I think the USDA does have to bring their number down. Are they going to do that next week in a big way? I kind of doubt that that’s the case. I think they’ll take their time and walk into it and probably in January and again this time next year we’ll be talking about okay what was that final crop and what was the yield and they’ll be making a residual adjustment that that true things up if you will. But I think you have to look at it in the trade sense. If I’m if I’m trying to you know what are we going to do on Friday when we get those numbers, if you talk about you know let let’s say we get a 173 yield, then you’re talking about pushing a carryout level for new crop down into that maybe 1.35 billion bushel type of a range. On the other side of that let’s say you get a 178 and you’re going to allow those ending stocks to maybe go up to like 1.75 or 1.8. Those are two very different price outcomes uh from from from that standpoint. But to Garrett’s point, if you look at the comparative years of where we’re at and you talk about you know what’s going on and we still have the potential China may or may not buy some corn. There’s not a forced mechanism there, but China producing I don’t know 300 million metric tons of corn a year, it’s not a big deal for them to probably come in and buy 5 or 10 or 15 million metric tons, just you know with the idea that at the end of the day they want to honor the 17 billion, they want to honor the 25 million metric tons as a way to keep their tariffs low and keep their half a trillion dollars in exports to the US at the lowest possible tariff rate. So you know maybe circling back to where we’re at, I don’t think anything in in the stocks report should have been that big a surprise. We talked about this feed you know boogeyman in the feed number all along to Garrett’s point since February of last year. They finally made the adjustment, now we’re probably back where we should be. We’re on equal footing and we have to go forward. But we had a lot of optimistic enthusiasm and and speculative funds in those marketplace. Inflation was part of that, two wars were part of that. But the fundamentals of the grain market were part of that too, this talk of lower yield and higher demand and we’ve softened that a little bit, but we certainly haven’t knocked the the stool out from underneath the market if you will.
Todd Gleason: Speaking of knocking the stool out from under the marketplace, since the tree the uh the two presidents met and didn’t really talk about agriculture uh and only pointed back to the May and the last fall numbers um but didn’t mention them other than that, uh is there concern that the Chinese may not purchase the rest of the 25 million metric ton by the end of the calendar year do you suppose Garrett?
Garrett Toay: I my take on it is that the negotiations are still ongoing. I mean we go back to February we go to March or May, you know as Dave said, you know soybeans are taken care of. You know it was the 17 billion that of additional purchases that got everybody’s hopes up. Um and we still go back to again February is that remember there was another 8 million metric ton that President Trump had mentioned that you know never really kind of developed anywhere, you know, and so um you know my comment off of the meeting last week is that okay hey, the trade wanted the tariffs removed from soybeans. We want a normalization of trade um just resumption the way it was because you know we’re still 40 dollars a ton more expensive than South American beans with this 10% tariff. Well what happened? Tariffs are removed on everything but soybeans. So what that tells me is that um you know that that all the purchases that are being made by China are being made by the state-owned enterprises. And with that tariff still in place on soybeans, that is their leverage um in negotiations to um you know move ahead further because um you know that way they kind of can keep the private crusher out. Um they they control what’s purchased, um if things don’t go their way then the 25 million metric ton won’t happen, but at this point there’s no really inclination that it won’t happen. But I think that that’s their way of maintaining leverage. For the rest of the markets where we’re getting back to free markets again and um you know tariffs are removed, corn economics don’t work, wheat they may purchase a a little, um it’s a big win for sorghum producers, you know. Um but you know and maybe some beef, they’ve got record record beef prices, but um at the end of the day, um you know like I said earlier is that without that phase one trade deal forced mechanism, they really don’t have to buy anything other than soybeans that they’ve committed to. And um you know even then it doesn’t work for them and they’re struggling with poor crush margins and and you know big hog numbers that they’re trying to control their herd, so.
Todd Gleason: It it seems to me, Garrett, that that the Chinese on the 25 million metric ton have been purchasing through their state-owned entities which they don’t have to pay the tariff and then they’re just auctioning off supplies that they have in house for those who are within the country that are commercial side to purchase uh so that they can control exactly the 25 million metric tons and when it is purchased.
Garrett Toay: Right, exactly. And whose to say who’s the say they’re actually paying the tariff. I mean it’s it’s basically the keep oh in house probably not I don’t think you know they’re just keeping the private crushers out of the market so that they can control the negotiations.
Todd Gleason: So how does that when you when you think about that Dave, how does that reflect going through the end of this calendar year? Does it mean anything other than well they’ll probably buy the 25 million metric tons as long as they need to show good faith uh because there are two more meetings that are scheduled between President Xi and President Trump.
Dave Chatterton: Yeah, Todd, I mean next meeting scheduled in December and you know I think it’s exactly what Garrett said. They’re gonna they’re gonna continue to hold as much leverage as they can. Negotiations I think should always be seen as ongoing now we’re on the track roughly speaking right now that the purchases that they’ve made we’re roughly on a pace to get to that 25 million metric ton level before the end of the year purchase level before the end of the year. But keep in mind that you know very few of those soybeans have shipped to this point. So we have a lot left on the table, a lot of games that could be played potentially down the road of cancellations, switching, whatever it might be. Got a midterm election coming up that China will be watching very very closely in terms of what it means for um the effective I guess power of the Trump administration to enforce their trade will uh on China and and what it might mean. Um so you know look, China’s always going to play the long game. I don’t think anything they’ve done here is is out of line for China, out of character for China or couldn’t be predicted. Holding the 10% tariff, I don’t think they were ever going to give that up because that’s the way that they control the process and keep things going. And they wouldn’t be you know good negotiating good trade people if they didn’t do that. I think the whole idea of the 17 billion being so flexible if you will and not having the phase one type assignments of this much corn, this much wheat, this much this much sorghum gives them a you know exactly what they wanted. They can buy what they need beans regardless, they’re going to have to import them. They don’t always import corn but they can if they want to. They don’t always import sorghum but they can if they want to. But things like cotton, things like the the timber and lumber side of what’s going on can make up a big portion of that 17 billion. And they’re going to do exactly what they’ve always done which is just enough to keep those tariffs in check. Now whether that equals exactly 17 billion or maybe 15 or 14 and whether that’s exactly 25 million metric tons or maybe 23 or 22 or 21, you know I think they feel their way through that but they’re not you know they’re not going to go um I don’t think we’re going to go I wouldn’t bet the over on those numbers is maybe the way I’d say it.
Todd Gleason: I think Garrett it was a Reuters report that I saw uh that put their other purchases of ag and it was ag, I don’t think it was ag and other, at 17 billion usually we use about 3.94 billion um because we’re counting the things that we see as ag but by some accounts they may have met that uh possibly, that seems unlikely, but who knows. Uh beyond that I do want to talk about China’s long-term goals. We’ve known for a very long time, it’s been written I think since 2015 in their strategic plans that they would like to shorten up the supply chain. Uh I think that’s also shorthand for cut the US out of the supply chain if they can. Um this long-term goal seems like it I I don’t know we’re coming to the end of that rope at some point.
Garrett Toay: Yeah, you know I want to go back to the the Chinese comment off of the the last round of negotiations between Washington and Beijing is that that that for the Chinese side was it was basically you know we want to be partners with the United States. We will have long mutual respect for each other, we want to have a anti-adversarial relationship with each other. And to in my mind, I it really feels to me like the difference between the negotiations this go round versus the phase one is it really feels like something’s being lost in translation. Like the Chinese people are very literal people. And and when you know goal posts get moved and things of that sort they’re like they want to do what we want them to do, they just don’t know what that is sort of thing, you know if that makes sense. But I think the long term you know again versus the phase one trade deal where we kind of held their proverbial feet to the fire and forced them to make purchases, the Chinese are very smart traders. You know if they need something they’ll buy the cheapest supply. And then because they know they’re so big that if they come in and disrupt things then everything blows up and prices explode and they cost themselves in the long run. So they always you know they’re always looking for alternatives, they’re always looking for cheapest origin of supply. Um you know I think that ultimately you know they’ve I wouldn’t say they’re trying to cut out the US. I would say that they were they realized this trade war forced them to realize that they need to diversify their suppliers. And they had became too reliant on US soybeans. So then the trade war and how the South American agriculture has developed over the last 10 to 15 years, they became cheaper suppliers. And so that shifted back to them. But what did they do? They haven’t diversified their suppliers, they just became more reliant on Brazil. So at the end of the day they haven’t really moved anywhere closer towards their long-term goals. Um it’s just how everything has shifted in the last 5 to 10 years.
Todd Gleason: And and finally and I’ll stay on this subject one last time, Dave, about the economy of China particularly its production of pork, it seems that they have uh been backing away from that probably because less red meat is being purchased. Is that what you’re hearing from the economic side?
Dave Chatterton: Well I think, you know, it’s natural for any economy that continues to grow to to move more towards the beef end of the protein spectrum and I think there’s some of that underway. It’s it’s not necessarily the the biggest factor in the room. I think you know they have Garrett talked about the transition in the trade war of you know relying on the US now relying on South America now trying to spread that out. I think what they found out with with all with their recent go round with the hog disease is that you know they couldn’t they had to get rid of these backyard small producers and they had to you know to put these into integrated you know operations and they’ve done that and they’ve done it so well that they ended up with too much production. And and by doing so they depressed the local market and these people are very sensitive to that. Um you know the margins have to be there. So they’re they’re also trying to control what’s happening domestically and and keep you know enough margin in there to keep everybody solvent but not too much to to continue to grow the the industry. So it’s a little bit of a of a back and forth um you know type of a situation. I think the overall economy of China gets a lot of I want to say negative press in in on our side or on the US side about how poorly it is and the property issues and what’s what’s happening but when you talk to people directly in China, they don’t seem to quite see it that way. They seem to think the economy that that’s doing okay, uh maybe not great, I think the US still has probably the strongest economy in the world but China’s not necessarily imploding by any means with these property values or some of the other things that got talked about. And you know we have we have our issues too here as well in the debt and you know probably the winner of the ugly contest however you want to state that but I think there has been uh some shift if you will to to Garrett’s point in the the powers that be around the world and the super powers that be around the world and mainly we’re talking about Russia, the US and China, I’ll put it that way. Europe is certainly you know out there but they’re not proactive but I think Trump you know a lot of them hate him and I’m not making any political comment but his willingness to um confront China, to confront Iran, to move in Venezuela, to buck Canada and Mexico and all these different disrupt trade I guess is in a very um non-traditional way I think has got their attention. And I think President Xi has finally realized that he you know he has the goal to be the superpower you know to make China the superpower of the world, have the strongest military, have the best AI, have the strongest you know economy, have the reserve currency, same goals that the US has. But right now at least in the in the near term so we’re talking the next 5, 10, 15 years, he’s going to have to find a way to live with and work with the US. Now we’re going to get the Trump administration is going to be gone in another two years and we’ll see you know what the next administration brings forward but I think there’s been a kind of a bigger macro thing set in motion here that to Garrett’s point we we’re going to have to find a way to kind of get along if you will and and there are some mutual benefits to doing that.
Todd Gleason: When you think about how the shift in trade across the planet is happening, does the United States benefit long-term or is it an issue for it where other nations, and you can see this happening to some extent, decide to look other places? Canada is a good example as it has turned to Europe. Canada has a very close relationship of course with the United Kingdom.
Garrett Toay: Um, I don’t think we have enough time to delve into this, Todd, I mean, you know, I I I think that yes, I do think the United States has a play. I mean but it doesn’t necessarily have to do with trade wars, it it actually has the more to do with real wars and changes in policies. I mean you go back 10 years ago and you had all this investment in agriculture into Ukraine. And they became the cheapest supplier of the world, they don’t have the grain bins, they don’t have the storage. At harvest time everything comes to the market. And everybody put their eggs in Ukraine’s basket. And now that Russia invaded Ukraine and now they’re not a reliable supplier supplier anymore. We’ve got four major corn exporters in the world, US, Brazil, Argentina, and Ukraine. Ukraine’s limited potential. European Union had a drought this year so they’re kind of sweating a little bit as far as where they’re going to source their corn from. Now let’s shift to Brazil where they learned that they can grow a second crop of corn that could be directly uh compete against the US export program. But the changes in their policies between biofuels, um they’ve changed their cattle feeding policies, they’re they’re more directly, the bigger threat in Brazil right now um than soybeans is cattle feeding. Is that you know they’re they’re using this corn at home, they’re feeding cattle the way we feed cattle in the United States. Um and that’s where the competitions come from. The difference is they’ve also built a ton of corn-based ethanol plants um that thankfully knock on wood they’re not competing against us on the export market, they’re consuming it themselves because their ethanol blends are 30% higher percentage because they’re a warm weather climate and they can push those percentages. So um you know so the fact that you know in a traditional sense did the trade wars, did the trade policies change? Um I think that you know if we can open the doors for some of these you know peripheral markets like ethanol into India, you know and open up some of these more export markets that are they’re non-traditional, um I think it benefits. But I think that you know there’s we’re kind of being impacted by other policies, the war the Black Sea, Brazil’s biofuel policy, um and then really I mean our biggest competitor is is really right now is Argentina. You know and they’ve solved their debt situation, the IMF has made comments today that you know they they’ve calmed inflation and they’re moving kind of in the right direction as far as the IMF uh is is concerned. And they’ve grown a lot of corn this year that’s part of the reason our exports have have kind of struggled the last three four weeks is that they’re really undercutting us.
Todd Gleason: Okay, let’s talk about what producers should do on the combine or off the combine I suppose with the grain. Uh start with you, Dave, what what are your thoughts at this time?
Dave Chatterton: Yeah, Todd, I think, you know, producers are in a very neutral marketing mode right now. I think you know this year differ is different than last year in a couple of different ways. One is that the producer was more aggressive early in the crop year in terms of of marketing grain, corn and soybeans both. And probably more aggressive early on corn than than than soybeans to be fair. We’re now in a situation where because of yields are a little bit more questionable I think and and in many cases below where they were a year ago, those percent sold figures are going up because you know production is going down. And so farmers a combination of higher grain prices of 13 dollar beans off the combine that you know at least in some cases were able to be sold uh and good bean yields creating a lot of cash flow in addition to an ARC and PLC payment that’s coming up you know in the next coming out probably next week and be hitting farmers you know accounts or mailboxes in the first 10 days of October. They’re going to be pretty well cash flow insulated I guess is what I’ll say. And there’s not a big need to sell store there’s a lot of empty storage in the countryside and I think farmers do what farmers do and they’re going to put a good degree of that crop away and I think merchants are well aware of that if you look at the the difference between October and November bids, I mean it can be stunning. In some cases you flip a calendar and you get 40 more cents you know in your pocket the next day type of a deal. So you know producers need to be paying attention. I I don’t you know I’m not an outright bull, I’m not an outright bear, I think we’re going to have somewhat of a of a sideways range bound market here for a little bit. I wouldn’t be surprised if we don’t back off a little bit more here you know during the harvest period, but we do have you know the fundamentals after the stocks report really haven’t changed all that greatly I think if you were if you were paying attention. Uh it’s a question of what USDA does with the yield and where our demand is going to be and to to to Garrett’s point, Argentina had a record crop, they’re pushing that out in the market right now and they’re going to be very competitive but they’re going to run out of that crop at some point. So our demand is still going to be there, it’s it’s maybe not going to be as robust as what we had hoped for earlier in the year but um certainly we’re not in a bad situation I think commodity markets I think you concentrate that prices are at profitable levels, look at your carries and your market uh you know and your basis opportunities and and be paying attention.
Todd Gleason: Garrett, the fundamentals simply did not change, USDA said we had a 17 billion bushel corn crop harvested last fall. They maintained that all year long. What do you think going forward?
Garrett Toay: Yeah, I mean I I really think you know a couple points we hit on but we never really delved that much into but um if there is a a widespread quality issue this fall um sprouting things of that sort, that may most likely won’t have a major impact on flat price. Um what that would do is it’ll create a two-tier cash system where you’ve got one bid for quality corn, one bid for poor quality corn. And the spreads will reflect that because it’ll pull the carries out because quality issues make the crop feel smaller than what it really is. Um as from a producer standpoint, I agree with Dave. I mean, you know, we had an opportunity to sell $5.47 Dec futures, if you didn’t sell it, you know, um, you know, that’s that’s your prerogative. Um so you know now you can sit there and wait and see if you’ve got on-farm storage, again high barge freight values are kind of punishing the producer that doesn’t have the on-farm storage and has to sell out of the field. Um but you know if you made you’ve had a chance to sell $5 to $5 almost $5.50 corn, um you can sit there and either roll those HTAs away uh forward depending on what kind of carries the market shows or basis premiums you’re seeing, you’re kind of sitting in the catbird seat. Um as far as beans, you know producers do tend to sell beans out of the field but um you know with the increasing we’ve got another crush plant that’s coming on or starting built being built up here, um you know I think that there’s going to be demand for crush, you see it with this the late harvest in the western corn belt, these quick ship bids of a dollar over, um you know they need the beans, you know domestically. But uh I will say the one thing we didn’t talk about is is Dave alluded to it, maybe we didn’t follow through on, is that you know if China doesn’t buy these 25 million metric tons, um and the the fact that the the tariffs are still there, uh the South Americans starting in February are eating our lunch as far as FOB premiums are concerned. I mean it’s $40-$50 a ton cheaper. So um you know China we kind of need China to fulfill this 25 million metric ton over the next three months because after that you know it it kind of you know it kind of falls off the table as far as export demand is concerned. But I’m not sure it necessarily matters because you know this market is more focused on soybean oil, diesel, you know soybeans are an energy market essentially. Um and um you know that’s kind of led the curve here.
Todd Gleason: Any final word from each of you because you brought energy up we haven’t talked about $100 Brent crude oil prices still and what’s happening in the Middle East. You can take that up or any other item. I think Dave Chatterton, uh start with you.
Dave Chatterton: Yeah, Todd, we talked earlier in the week on the ag energy segment and you know it’s you know it’s a situation here that isn’t going to be solved anytime soon. We have seen the inventories in the US start to stabilize a little bit. There’s been the talk of this export ban um you know or restriction from the US, that could have some marginal effect I don’t think it’s a very good long-term solution. Uh it looks like for the moment we’re getting more boats or more oil cargos out of the Strait of Hormuz. How long that will last and how robust that will be or durable I should say is a pretty big question mark I think going forward. But um you know diesel fuel right now is a situation where you just have to bite it off when you need it. Um I don’t think there’s a big use in waiting around here other than this export and potentially this export ban. But I wouldn’t be contracting for next spring at this particular point. You know a lot of things can change in that in that situation. Um you know going forward and you know I’m not sure from the grain I think from the grain standpoint that’s one of the supportive factors that we have to uh to Garrett’s point here and um you know I think I’ll leave it at that.
Todd Gleason: Thank you very much. Garrett, your final word for the day.
Garrett Toay: Yeah, I I’m gonna leave the energy side to Dave um because he’s traded more energy in his lifetime than I’ve ever thought about trading. So um you know I just you know I’m tired. You know, we’ve we’ve dealt with trade wars, we’ve dealt with real wars. Um you you never know uh where the next headlines or supply shock is going to come from. Um you’ve got to be vigilant and um you need to be able to um you know make marketing decisions. Unfortunately, you know, what looked like we were going to have a good year this year and then diesel reared its ugly head. So um I I do think that you know ultimately as Dave alluded to earlier is that you know we’ve changing up the global mindset uh of of this administration. um is that you know with that there’s been a lot of government intervention. And um it it’s kind of skewed a lot of markets that um you know aren’t acting like they normally would. Um and but I do think that you know just the re the strained capacity we have on the refining front, you know I agree with Dave you kind of kind of remain hand to mouth and not forward contract, but I think you have to mentally prepare that you know we’ve shut the strait down for 200 days, um you know once the war is over, this is going to take a long time, this is just like COVID. If you shut a factory down for 300 days, you when that factory reopens, you’ve got to produce you know 115% of capacity just to get back to where you were for those 300 days that you’re missing. So I think you need to be mentally prepared that you know these higher prices last longer than what we really think. Um there’s been some banks out this week that suggested you know it could be 2027 end of 2027 into 2028 before um you know diesel prices return to to what we consider normal. um and that’s if everything ends today. So um you know it’s it’s going to be a tight margin environment I believe um for the next 18 to 24 months.
Todd Gleason: Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world, you may find and listen to the program anytime you’d like in its entirety online at willag.org. That’s w i l l a g dot org. Our thanks go to our panelists this week including Garrett Toay with agtradertalk.com out of Stockton, Illinois, and Dave Chatterton from strategicfarmmarketing.com. He is in Champaign, Illinois. I’m University of Illinois Extension’s Todd Gleason.
In this edition of *Commodity Week*, host Todd Gleason and market analysts Dave Chatterton and Garrett Toay break down the fallout from the USDA Grain Stocks report, trade relations with China, and harvest marketing strategies. The discussion centers on the USDA's surprise addition of roughly 173 million bushels of corn to ending stocks, shifting balance sheets ahead of the next WASDE report where the panelists anticipate yields may stay steady or drift slightly lower due to quality issues in the western Corn Belt. Turning to global trade, the analysts assess China's continued tariff leverage on U.S. soybeans, the pace of its 25-million-metric-ton purchasing target, and growing export competition from Brazil and Argentina. Finally, they advise producers to leverage basis opportunities, carries, and on-farm storage—noting that farmers are largely cash-flow insulated for now—while cautioning that elevated diesel costs, strained refining capacity, and geopolitical tensions will likely maintain a tight-margin environment for the next 18 to 24 months.
Panelists
- Dave Chatterton, SFarmMarketing.com
- Garrett Toay, AgTraderTalk.com
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Todd Gleason: This is the October 1 edition of commodity week.
announce: Todd Gleason services are made available to WILL by University of Illinois Extension.
Todd Gleason: Well, welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Dave Chatterton. He’s at Strategic Farm Marketing in Champaign, Illinois, and Garrett Toay of AgTraderTalk.com out of Stockton, Illinois. Thank you gentlemen for being with us.
Todd Gleason: Dave I think I want to turn back just to the grain stocks report earlier in this week and let you run through those numbers for me. Some of the changes that they’ve made, and then we’ll let Garrett push them forward into what the WASDE could look like in the crop production report that is due out next week. So let’s start with the grain stocks report. What did the numbers tell us, Dave?
Dave Chatterton: Yeah, Todd, well obviously, you know, the big surprise there was in the corn and USDA, you know, a stroke of a pen similar to what we’ve seen them do in the September report before, found 173 million bushels of corn that they didn’t see two weeks ago on the S&D report and, you know, we could make some arguments that last year’s yield was overstated, we did not get that, we got a small reduction in harvested acres for corn but we got no yield reduction. So at the end of the day, we’re adding carryout to our, you know, to the bottom line of the old crop that’s carrying over to the new crop and all of a sudden there’s a readjustment underway in the trade among analysts to what are we gonna do with this extra 175 million bushels of corn and and mostly it’s going straight to the bottom line. So it changed the narrative and in a sentiment certainly in a way that as funds have built into some pretty substantial length in the marketplace here not just corn but across the board, you know, we need to continue to find ways to to, you know, to feed that bull if you will and certainly didn’t get that on the report. Now we have a USDA report or WASDE S&D I should say excuse me coming up uh next Friday, so we’ll see how the USDA wants to handle that with, you know, demand numbers etc. but right now we’re dealing with more corn supply than what we thought we were going to be and the changes were very you know mostly minor in in in the beans, a small decline there in the overall stock situation but really not enough to move the needle Todd and wheat no changes of of substance at all here. So really the focus has been on the corn, we’ve seen, you know, liquidation by funds in both corn, soy and soybeans here, we’ve gone a long and technically we’re starting to break this market down a little bit. So I think that’s where we we push it forward into what the what we’re going to be looking at going forward and maybe maybe Garrett has an an opinion on that.
Todd Gleason: So Garrett, let’s take those numbers as they came to us from the grain stocks report. Ending stocks for old crop corn now at 2.094 billion bushels, soybeans at 315 million. Those get pushed right into the new crop supply and demand balance sheets as the beginning numbers. Uh if we don’t change anything and you can correct me Garrett if I’m wrong but I think that puts the October projection if they nothing changed at the balance sheet at 1.739 billion for a carryover for corn and about 300 million for soybeans. How do you see those numbers fitting into the balance sheet and what changes might come from USDA to make them uh to change them off of that that mark I suppose?
Garrett Toay: Well obviously when you have a stocks report, um, you know, the adjustments that they make, you know, analysts automatically start thinking about what it means to the new crop feed and residual number. And um, you know, I think it’s important to point out that the USDA cut feed and residual by 150 million bushel uh last month. So, you know, Dave and I had this conversation in February about, you know, how does this, you know, 6.4 billion bushel old crop feed and residual number work when we’ve got lower cattle numbers and, you know, higher feed weights and and that sort of thing and and there was, you know, we could make it work with the exception of 200 million bushel. And so, you know, this is what we talked about in our winter meetings, that sort of thing is, you know, that there’s this pocket there that um, you know, that we can’t account for. Um, the thing was is that the June WASDE or the June stocks report kind of um, you know, messed with our mind if you will because um, that kind of implied that, you know, the 2025 crop was was overstated. But um, you know, here we are at the end of the day, you know, we’re back to what we talked about in February. Um, so but going back is that, you know, if you look at feed and residual numbers over the last 10 years, that 6.4 number just stuck out like a sore thumb. And part of that was because of just the sheer size of that crop last year of 17 billion bushels. So what the 150 million bushel cut already, um, you know, I don’t think it necessarily changes I don’t think the USDA is going to come in and slash feed and residual uh next week uh that much more. I mean and and if we’re at a 1.7 carryout, um, you know, the last time we had that uh was was 23 24 and farm price was 4.55, this year we’re at 4.80. And we’ve got $93 crude and high, you know, record diesel prices. Uh I don’t think that there’s much in here but you know like Dave said, um, you know, the the market’s extremely long, you know, they’ve built this long position based off of um, you know, US production issues, um, Black Sea, you know, Ukraine Russia war that’s been going on. Um expectations of uh purchases from the Xi Trump meetings. Um and and El Nino and South American weather and you know the South American weather’s been kind of okay. Um, you know Ukraine’s getting some trains out to the EU at a cheap level. Uh and we haven’t really seen anything yet uh outside of the 25 or you know moving towards that 25 million metric tons of soybeans. Um that suggests that corn uh, you know, the economics don’t work, but there’s no forced mechanism of like a phase one trade deal to make sure them they’re going to buy corn or or anything else. So um so now we’re just back to US yield concerns. It’s been a wet fall, we’ve seen the sprouting pictures and everything else. Um, you know, that’s what the fund length is is built on at this point. So I mean we’re sitting on a chair that, you know, maybe only has three legs.
Todd Gleason: Are you of mind that USDA will change the yield for corn next week?
Garrett Toay: I think if next week’s based off of the yield reports that I’ve seen, um, it’ll be probably unchanged to slightly lower. I don’t see a sub 170 number that’s being bantered around on social media. Um, I don’t think we’re as low as like the pro farmer numbers were. Um, you know, 175 to 178 is kind of where my mind is at right now.
Todd Gleason: Dave, what are you thinking?
Dave Chatterton: Yeah, Todd, I’m leaning a little bit, I think the USDA ultimately has to come down with their corn yield. I think the bean yield, you know, we can debate that a little bit more, but we’re in-house, we’ve been using, you know, for the last month a 177 national yield. I actually want to lean a little bit lower on that at this particular point, but it’s really a needle in a haystack. What, you know, I think what Garrett alluded to and I think what we’re both seeing is that some of these quality issues coming forward in corn are more widespread than what we thought, these recent rains in the western corn belt, particularly parts of Nebraska and Iowa are not doing any favors here. We’ve got corn that’s sprouting in the ear, we’ve got a damage issue, some test weight, uh probably some toxins in those corn whether it’s aflatoxin, vomitoxin, fumonisin, you know take your pick. But um it’s a slow it’s death by a thousand paper cuts in terms of the challenges that the corn crop has faced. And I think the USDA does have to bring their number down. Are they going to do that next week in a big way? I kind of doubt that that’s the case. I think they’ll take their time and walk into it and probably in January and again this time next year we’ll be talking about okay what was that final crop and what was the yield and they’ll be making a residual adjustment that that true things up if you will. But I think you have to look at it in the trade sense. If I’m if I’m trying to you know what are we going to do on Friday when we get those numbers, if you talk about you know let let’s say we get a 173 yield, then you’re talking about pushing a carryout level for new crop down into that maybe 1.35 billion bushel type of a range. On the other side of that let’s say you get a 178 and you’re going to allow those ending stocks to maybe go up to like 1.75 or 1.8. Those are two very different price outcomes uh from from from that standpoint. But to Garrett’s point, if you look at the comparative years of where we’re at and you talk about you know what’s going on and we still have the potential China may or may not buy some corn. There’s not a forced mechanism there, but China producing I don’t know 300 million metric tons of corn a year, it’s not a big deal for them to probably come in and buy 5 or 10 or 15 million metric tons, just you know with the idea that at the end of the day they want to honor the 17 billion, they want to honor the 25 million metric tons as a way to keep their tariffs low and keep their half a trillion dollars in exports to the US at the lowest possible tariff rate. So you know maybe circling back to where we’re at, I don’t think anything in in the stocks report should have been that big a surprise. We talked about this feed you know boogeyman in the feed number all along to Garrett’s point since February of last year. They finally made the adjustment, now we’re probably back where we should be. We’re on equal footing and we have to go forward. But we had a lot of optimistic enthusiasm and and speculative funds in those marketplace. Inflation was part of that, two wars were part of that. But the fundamentals of the grain market were part of that too, this talk of lower yield and higher demand and we’ve softened that a little bit, but we certainly haven’t knocked the the stool out from underneath the market if you will.
Todd Gleason: Speaking of knocking the stool out from under the marketplace, since the tree the uh the two presidents met and didn’t really talk about agriculture uh and only pointed back to the May and the last fall numbers um but didn’t mention them other than that, uh is there concern that the Chinese may not purchase the rest of the 25 million metric ton by the end of the calendar year do you suppose Garrett?
Garrett Toay: I my take on it is that the negotiations are still ongoing. I mean we go back to February we go to March or May, you know as Dave said, you know soybeans are taken care of. You know it was the 17 billion that of additional purchases that got everybody’s hopes up. Um and we still go back to again February is that remember there was another 8 million metric ton that President Trump had mentioned that you know never really kind of developed anywhere, you know, and so um you know my comment off of the meeting last week is that okay hey, the trade wanted the tariffs removed from soybeans. We want a normalization of trade um just resumption the way it was because you know we’re still 40 dollars a ton more expensive than South American beans with this 10% tariff. Well what happened? Tariffs are removed on everything but soybeans. So what that tells me is that um you know that that all the purchases that are being made by China are being made by the state-owned enterprises. And with that tariff still in place on soybeans, that is their leverage um in negotiations to um you know move ahead further because um you know that way they kind of can keep the private crusher out. Um they they control what’s purchased, um if things don’t go their way then the 25 million metric ton won’t happen, but at this point there’s no really inclination that it won’t happen. But I think that that’s their way of maintaining leverage. For the rest of the markets where we’re getting back to free markets again and um you know tariffs are removed, corn economics don’t work, wheat they may purchase a a little, um it’s a big win for sorghum producers, you know. Um but you know and maybe some beef, they’ve got record record beef prices, but um at the end of the day, um you know like I said earlier is that without that phase one trade deal forced mechanism, they really don’t have to buy anything other than soybeans that they’ve committed to. And um you know even then it doesn’t work for them and they’re struggling with poor crush margins and and you know big hog numbers that they’re trying to control their herd, so.
Todd Gleason: It it seems to me, Garrett, that that the Chinese on the 25 million metric ton have been purchasing through their state-owned entities which they don’t have to pay the tariff and then they’re just auctioning off supplies that they have in house for those who are within the country that are commercial side to purchase uh so that they can control exactly the 25 million metric tons and when it is purchased.
Garrett Toay: Right, exactly. And whose to say who’s the say they’re actually paying the tariff. I mean it’s it’s basically the keep oh in house probably not I don’t think you know they’re just keeping the private crushers out of the market so that they can control the negotiations.
Todd Gleason: So how does that when you when you think about that Dave, how does that reflect going through the end of this calendar year? Does it mean anything other than well they’ll probably buy the 25 million metric tons as long as they need to show good faith uh because there are two more meetings that are scheduled between President Xi and President Trump.
Dave Chatterton: Yeah, Todd, I mean next meeting scheduled in December and you know I think it’s exactly what Garrett said. They’re gonna they’re gonna continue to hold as much leverage as they can. Negotiations I think should always be seen as ongoing now we’re on the track roughly speaking right now that the purchases that they’ve made we’re roughly on a pace to get to that 25 million metric ton level before the end of the year purchase level before the end of the year. But keep in mind that you know very few of those soybeans have shipped to this point. So we have a lot left on the table, a lot of games that could be played potentially down the road of cancellations, switching, whatever it might be. Got a midterm election coming up that China will be watching very very closely in terms of what it means for um the effective I guess power of the Trump administration to enforce their trade will uh on China and and what it might mean. Um so you know look, China’s always going to play the long game. I don’t think anything they’ve done here is is out of line for China, out of character for China or couldn’t be predicted. Holding the 10% tariff, I don’t think they were ever going to give that up because that’s the way that they control the process and keep things going. And they wouldn’t be you know good negotiating good trade people if they didn’t do that. I think the whole idea of the 17 billion being so flexible if you will and not having the phase one type assignments of this much corn, this much wheat, this much this much sorghum gives them a you know exactly what they wanted. They can buy what they need beans regardless, they’re going to have to import them. They don’t always import corn but they can if they want to. They don’t always import sorghum but they can if they want to. But things like cotton, things like the the timber and lumber side of what’s going on can make up a big portion of that 17 billion. And they’re going to do exactly what they’ve always done which is just enough to keep those tariffs in check. Now whether that equals exactly 17 billion or maybe 15 or 14 and whether that’s exactly 25 million metric tons or maybe 23 or 22 or 21, you know I think they feel their way through that but they’re not you know they’re not going to go um I don’t think we’re going to go I wouldn’t bet the over on those numbers is maybe the way I’d say it.
Todd Gleason: I think Garrett it was a Reuters report that I saw uh that put their other purchases of ag and it was ag, I don’t think it was ag and other, at 17 billion usually we use about 3.94 billion um because we’re counting the things that we see as ag but by some accounts they may have met that uh possibly, that seems unlikely, but who knows. Uh beyond that I do want to talk about China’s long-term goals. We’ve known for a very long time, it’s been written I think since 2015 in their strategic plans that they would like to shorten up the supply chain. Uh I think that’s also shorthand for cut the US out of the supply chain if they can. Um this long-term goal seems like it I I don’t know we’re coming to the end of that rope at some point.
Garrett Toay: Yeah, you know I want to go back to the the Chinese comment off of the the last round of negotiations between Washington and Beijing is that that that for the Chinese side was it was basically you know we want to be partners with the United States. We will have long mutual respect for each other, we want to have a anti-adversarial relationship with each other. And to in my mind, I it really feels to me like the difference between the negotiations this go round versus the phase one is it really feels like something’s being lost in translation. Like the Chinese people are very literal people. And and when you know goal posts get moved and things of that sort they’re like they want to do what we want them to do, they just don’t know what that is sort of thing, you know if that makes sense. But I think the long term you know again versus the phase one trade deal where we kind of held their proverbial feet to the fire and forced them to make purchases, the Chinese are very smart traders. You know if they need something they’ll buy the cheapest supply. And then because they know they’re so big that if they come in and disrupt things then everything blows up and prices explode and they cost themselves in the long run. So they always you know they’re always looking for alternatives, they’re always looking for cheapest origin of supply. Um you know I think that ultimately you know they’ve I wouldn’t say they’re trying to cut out the US. I would say that they were they realized this trade war forced them to realize that they need to diversify their suppliers. And they had became too reliant on US soybeans. So then the trade war and how the South American agriculture has developed over the last 10 to 15 years, they became cheaper suppliers. And so that shifted back to them. But what did they do? They haven’t diversified their suppliers, they just became more reliant on Brazil. So at the end of the day they haven’t really moved anywhere closer towards their long-term goals. Um it’s just how everything has shifted in the last 5 to 10 years.
Todd Gleason: And and finally and I’ll stay on this subject one last time, Dave, about the economy of China particularly its production of pork, it seems that they have uh been backing away from that probably because less red meat is being purchased. Is that what you’re hearing from the economic side?
Dave Chatterton: Well I think, you know, it’s natural for any economy that continues to grow to to move more towards the beef end of the protein spectrum and I think there’s some of that underway. It’s it’s not necessarily the the biggest factor in the room. I think you know they have Garrett talked about the transition in the trade war of you know relying on the US now relying on South America now trying to spread that out. I think what they found out with with all with their recent go round with the hog disease is that you know they couldn’t they had to get rid of these backyard small producers and they had to you know to put these into integrated you know operations and they’ve done that and they’ve done it so well that they ended up with too much production. And and by doing so they depressed the local market and these people are very sensitive to that. Um you know the margins have to be there. So they’re they’re also trying to control what’s happening domestically and and keep you know enough margin in there to keep everybody solvent but not too much to to continue to grow the the industry. So it’s a little bit of a of a back and forth um you know type of a situation. I think the overall economy of China gets a lot of I want to say negative press in in on our side or on the US side about how poorly it is and the property issues and what’s what’s happening but when you talk to people directly in China, they don’t seem to quite see it that way. They seem to think the economy that that’s doing okay, uh maybe not great, I think the US still has probably the strongest economy in the world but China’s not necessarily imploding by any means with these property values or some of the other things that got talked about. And you know we have we have our issues too here as well in the debt and you know probably the winner of the ugly contest however you want to state that but I think there has been uh some shift if you will to to Garrett’s point in the the powers that be around the world and the super powers that be around the world and mainly we’re talking about Russia, the US and China, I’ll put it that way. Europe is certainly you know out there but they’re not proactive but I think Trump you know a lot of them hate him and I’m not making any political comment but his willingness to um confront China, to confront Iran, to move in Venezuela, to buck Canada and Mexico and all these different disrupt trade I guess is in a very um non-traditional way I think has got their attention. And I think President Xi has finally realized that he you know he has the goal to be the superpower you know to make China the superpower of the world, have the strongest military, have the best AI, have the strongest you know economy, have the reserve currency, same goals that the US has. But right now at least in the in the near term so we’re talking the next 5, 10, 15 years, he’s going to have to find a way to live with and work with the US. Now we’re going to get the Trump administration is going to be gone in another two years and we’ll see you know what the next administration brings forward but I think there’s been a kind of a bigger macro thing set in motion here that to Garrett’s point we we’re going to have to find a way to kind of get along if you will and and there are some mutual benefits to doing that.
Todd Gleason: When you think about how the shift in trade across the planet is happening, does the United States benefit long-term or is it an issue for it where other nations, and you can see this happening to some extent, decide to look other places? Canada is a good example as it has turned to Europe. Canada has a very close relationship of course with the United Kingdom.
Garrett Toay: Um, I don’t think we have enough time to delve into this, Todd, I mean, you know, I I I think that yes, I do think the United States has a play. I mean but it doesn’t necessarily have to do with trade wars, it it actually has the more to do with real wars and changes in policies. I mean you go back 10 years ago and you had all this investment in agriculture into Ukraine. And they became the cheapest supplier of the world, they don’t have the grain bins, they don’t have the storage. At harvest time everything comes to the market. And everybody put their eggs in Ukraine’s basket. And now that Russia invaded Ukraine and now they’re not a reliable supplier supplier anymore. We’ve got four major corn exporters in the world, US, Brazil, Argentina, and Ukraine. Ukraine’s limited potential. European Union had a drought this year so they’re kind of sweating a little bit as far as where they’re going to source their corn from. Now let’s shift to Brazil where they learned that they can grow a second crop of corn that could be directly uh compete against the US export program. But the changes in their policies between biofuels, um they’ve changed their cattle feeding policies, they’re they’re more directly, the bigger threat in Brazil right now um than soybeans is cattle feeding. Is that you know they’re they’re using this corn at home, they’re feeding cattle the way we feed cattle in the United States. Um and that’s where the competitions come from. The difference is they’ve also built a ton of corn-based ethanol plants um that thankfully knock on wood they’re not competing against us on the export market, they’re consuming it themselves because their ethanol blends are 30% higher percentage because they’re a warm weather climate and they can push those percentages. So um you know so the fact that you know in a traditional sense did the trade wars, did the trade policies change? Um I think that you know if we can open the doors for some of these you know peripheral markets like ethanol into India, you know and open up some of these more export markets that are they’re non-traditional, um I think it benefits. But I think that you know there’s we’re kind of being impacted by other policies, the war the Black Sea, Brazil’s biofuel policy, um and then really I mean our biggest competitor is is really right now is Argentina. You know and they’ve solved their debt situation, the IMF has made comments today that you know they they’ve calmed inflation and they’re moving kind of in the right direction as far as the IMF uh is is concerned. And they’ve grown a lot of corn this year that’s part of the reason our exports have have kind of struggled the last three four weeks is that they’re really undercutting us.
Todd Gleason: Okay, let’s talk about what producers should do on the combine or off the combine I suppose with the grain. Uh start with you, Dave, what what are your thoughts at this time?
Dave Chatterton: Yeah, Todd, I think, you know, producers are in a very neutral marketing mode right now. I think you know this year differ is different than last year in a couple of different ways. One is that the producer was more aggressive early in the crop year in terms of of marketing grain, corn and soybeans both. And probably more aggressive early on corn than than than soybeans to be fair. We’re now in a situation where because of yields are a little bit more questionable I think and and in many cases below where they were a year ago, those percent sold figures are going up because you know production is going down. And so farmers a combination of higher grain prices of 13 dollar beans off the combine that you know at least in some cases were able to be sold uh and good bean yields creating a lot of cash flow in addition to an ARC and PLC payment that’s coming up you know in the next coming out probably next week and be hitting farmers you know accounts or mailboxes in the first 10 days of October. They’re going to be pretty well cash flow insulated I guess is what I’ll say. And there’s not a big need to sell store there’s a lot of empty storage in the countryside and I think farmers do what farmers do and they’re going to put a good degree of that crop away and I think merchants are well aware of that if you look at the the difference between October and November bids, I mean it can be stunning. In some cases you flip a calendar and you get 40 more cents you know in your pocket the next day type of a deal. So you know producers need to be paying attention. I I don’t you know I’m not an outright bull, I’m not an outright bear, I think we’re going to have somewhat of a of a sideways range bound market here for a little bit. I wouldn’t be surprised if we don’t back off a little bit more here you know during the harvest period, but we do have you know the fundamentals after the stocks report really haven’t changed all that greatly I think if you were if you were paying attention. Uh it’s a question of what USDA does with the yield and where our demand is going to be and to to to Garrett’s point, Argentina had a record crop, they’re pushing that out in the market right now and they’re going to be very competitive but they’re going to run out of that crop at some point. So our demand is still going to be there, it’s it’s maybe not going to be as robust as what we had hoped for earlier in the year but um certainly we’re not in a bad situation I think commodity markets I think you concentrate that prices are at profitable levels, look at your carries and your market uh you know and your basis opportunities and and be paying attention.
Todd Gleason: Garrett, the fundamentals simply did not change, USDA said we had a 17 billion bushel corn crop harvested last fall. They maintained that all year long. What do you think going forward?
Garrett Toay: Yeah, I mean I I really think you know a couple points we hit on but we never really delved that much into but um if there is a a widespread quality issue this fall um sprouting things of that sort, that may most likely won’t have a major impact on flat price. Um what that would do is it’ll create a two-tier cash system where you’ve got one bid for quality corn, one bid for poor quality corn. And the spreads will reflect that because it’ll pull the carries out because quality issues make the crop feel smaller than what it really is. Um as from a producer standpoint, I agree with Dave. I mean, you know, we had an opportunity to sell $5.47 Dec futures, if you didn’t sell it, you know, um, you know, that’s that’s your prerogative. Um so you know now you can sit there and wait and see if you’ve got on-farm storage, again high barge freight values are kind of punishing the producer that doesn’t have the on-farm storage and has to sell out of the field. Um but you know if you made you’ve had a chance to sell $5 to $5 almost $5.50 corn, um you can sit there and either roll those HTAs away uh forward depending on what kind of carries the market shows or basis premiums you’re seeing, you’re kind of sitting in the catbird seat. Um as far as beans, you know producers do tend to sell beans out of the field but um you know with the increasing we’ve got another crush plant that’s coming on or starting built being built up here, um you know I think that there’s going to be demand for crush, you see it with this the late harvest in the western corn belt, these quick ship bids of a dollar over, um you know they need the beans, you know domestically. But uh I will say the one thing we didn’t talk about is is Dave alluded to it, maybe we didn’t follow through on, is that you know if China doesn’t buy these 25 million metric tons, um and the the fact that the the tariffs are still there, uh the South Americans starting in February are eating our lunch as far as FOB premiums are concerned. I mean it’s $40-$50 a ton cheaper. So um you know China we kind of need China to fulfill this 25 million metric ton over the next three months because after that you know it it kind of you know it kind of falls off the table as far as export demand is concerned. But I’m not sure it necessarily matters because you know this market is more focused on soybean oil, diesel, you know soybeans are an energy market essentially. Um and um you know that’s kind of led the curve here.
Todd Gleason: Any final word from each of you because you brought energy up we haven’t talked about $100 Brent crude oil prices still and what’s happening in the Middle East. You can take that up or any other item. I think Dave Chatterton, uh start with you.
Dave Chatterton: Yeah, Todd, we talked earlier in the week on the ag energy segment and you know it’s you know it’s a situation here that isn’t going to be solved anytime soon. We have seen the inventories in the US start to stabilize a little bit. There’s been the talk of this export ban um you know or restriction from the US, that could have some marginal effect I don’t think it’s a very good long-term solution. Uh it looks like for the moment we’re getting more boats or more oil cargos out of the Strait of Hormuz. How long that will last and how robust that will be or durable I should say is a pretty big question mark I think going forward. But um you know diesel fuel right now is a situation where you just have to bite it off when you need it. Um I don’t think there’s a big use in waiting around here other than this export and potentially this export ban. But I wouldn’t be contracting for next spring at this particular point. You know a lot of things can change in that in that situation. Um you know going forward and you know I’m not sure from the grain I think from the grain standpoint that’s one of the supportive factors that we have to uh to Garrett’s point here and um you know I think I’ll leave it at that.
Todd Gleason: Thank you very much. Garrett, your final word for the day.
Garrett Toay: Yeah, I I’m gonna leave the energy side to Dave um because he’s traded more energy in his lifetime than I’ve ever thought about trading. So um you know I just you know I’m tired. You know, we’ve we’ve dealt with trade wars, we’ve dealt with real wars. Um you you never know uh where the next headlines or supply shock is going to come from. Um you’ve got to be vigilant and um you need to be able to um you know make marketing decisions. Unfortunately, you know, what looked like we were going to have a good year this year and then diesel reared its ugly head. So um I I do think that you know ultimately as Dave alluded to earlier is that you know we’ve changing up the global mindset uh of of this administration. um is that you know with that there’s been a lot of government intervention. And um it it’s kind of skewed a lot of markets that um you know aren’t acting like they normally would. Um and but I do think that you know just the re the strained capacity we have on the refining front, you know I agree with Dave you kind of kind of remain hand to mouth and not forward contract, but I think you have to mentally prepare that you know we’ve shut the strait down for 200 days, um you know once the war is over, this is going to take a long time, this is just like COVID. If you shut a factory down for 300 days, you when that factory reopens, you’ve got to produce you know 115% of capacity just to get back to where you were for those 300 days that you’re missing. So I think you need to be mentally prepared that you know these higher prices last longer than what we really think. Um there’s been some banks out this week that suggested you know it could be 2027 end of 2027 into 2028 before um you know diesel prices return to to what we consider normal. um and that’s if everything ends today. So um you know it’s it’s going to be a tight margin environment I believe um for the next 18 to 24 months.
Todd Gleason: Commodity Week, of course, is a production of Illinois Public Media. It is public radio for the farming world, you may find and listen to the program anytime you’d like in its entirety online at willag.org. That’s w i l l a g dot org. Our thanks go to our panelists this week including Garrett Toay with agtradertalk.com out of Stockton, Illinois, and Dave Chatterton from strategicfarmmarketing.com. He is in Champaign, Illinois. I’m University of Illinois Extension’s Todd Gleason.