In our weekly series From the Furrow, host Phil Plourd and fellow grain geeks shed light on current market conditions and how grain producers can take action to manage their risk.
This week, Phil is joined by Karen Braun, Global Agriculture Markets Columnist with Reuters. How could tariffs impact US grain shipments in the coming years? What’s South America’s crop outlook? And is insight do we have into managed money positions? Phil and Karen discuss those topics and a whole lot more.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Listen NowShow Transcript
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Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.
00;00;17;06 – 00;00;36;20
PHIL
Hello and welcome to you From the Furrow, brought to you by Ever AG Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Phil Lord. Today is Wednesday, December 4th, 2024. Turning to our guest this week. It’s our privilege to have Karen Brown with us. Karen is a market analyst for Reuters.
00;00;36;21 – 00;00;46;20
PHIL
She has a big following among analysts and on Twitter. Karen, I see your tweets post charts that you post on Twitter all over the place. Very popular. Welcome to From the Furrow.
00;00;46;23 – 00;00;48;09
KAREN
Thanks for having me. I’m glad to be here.
00;00;48;10 – 00;01;05;14
PHIL
Rarely a dull moment. The grain markets. But you know, sometimes post harvest things get a little bit quiet. I would say that’s not the case this year. We could start in any number of areas, but let’s start with this U.S. grain exports. How are they shaping up? How are we progressing? What do you see on that front? Where’s the news there?
00;01;05;20 – 00;01;23;07
KAREN
You know, we’ve had a couple years here of pretty low export sales. When you’re talking about corn, soybeans, even wheat, because we had pretty high prices there a couple years ago. But now that we we’re seeing, you know, multi-year low prices, that’s kind of stirring up some demand. So we’ve seen some really good export sales, especially with the corn.
00;01;23;07 – 00;01;44;09
KAREN
And I know that there have been some, I guess you could say, concerns that maybe this is buyers front loading ahead of the US election and then, you know, the inauguration in January. And you never really can say for sure. But the corn sales have been really, really strong. You know, Mexico is a big buyer there with definitely a record amount for the date purchased.
00;01;44;09 – 00;02;07;12
KAREN
And so we’ve really seen some good corn demand. Soybean demand is okay actually I think right now it looks on track to meet what USDA is expecting. But the big problem there is that China’s involvement is smaller than even, say, last year. So, you know, I know that, you know, we’re very worried about what could happen with China and U.S. relations, you know, coming into the second Trump term.
00;02;07;12 – 00;02;28;13
KAREN
But right now, it’s already in a very poor state. China and Brazil are very cozy. So that could really be a roadblock ahead for the U.S. soybean export program. You know, China turns to Brazil come January, February, and we can’t find any buyers. Then we could see very low, dismal export sales potentially kind of through early to mid next year.
00;02;28;13 – 00;02;29;13
KAREN
00;02;29;17 – 00;02;47;10
PHIL
So stay on soybeans staying on Brazil. And we’ll get to the China dimension in a second. But from a crop development perspective things got off to a slow start with planting the rain cane we planted. My impression is that conditions are still not ideal, but they’re okay. What’s your take on the Brazilian crop and where that sits and where it’s going?
00;02;47;10 – 00;03;08;20
KAREN
Yeah, I mean, we had those concerns with historic dryness in Mato Grosso back in September and October. Finally, the rains came. They got planted really quickly, and now it kind of looks like things are going well. And I mean, remember, you can have below average rainfall in Brazil and still have plenty of rain for soybeans to grow and flourish, really.
00;03;08;20 – 00;03;28;13
KAREN
So you just have to keep that in mind that it rains a lot in a rainforest or near a rainforest. So seeing the forecast right now, it looks like things are a pretty good track in Brazil. Argentina has also had some rain recently after being pretty dry for most of the year. But you know, Argentina is only half planted with their corn and soybeans, so they still have a ways to go.
00;03;28;13 – 00;03;35;23
KAREN
And we’re going to be looking more about February March timeframe. That’s when we really need to see the good weather come for Argentina. So the jury’s still out in Argentina.
00;03;35;23 – 00;04;05;09
PHIL
So you mentioned that Brazil seems to be China’s favorite supplier of beans at the moment. And maybe for the long run, the first Trump administration we saw, you know, tariffs, reprisals. We saw U.S. ag exports basically cut in half between 2016 and 2018. But then, you know, we kind of cut a deal and on the other side of that deal, U.S. ag exports, you know, ended up being the highest ever 19 and 20 soybeans couldn’t get over nine bucks for basically two years.
00;04;05;09 – 00;04;12;23
PHIL
Is this going to be a remake or a sequel? I mean, it seems like we already danced the China dance. China has other options. How do you see this playing out?
00;04;12;28 – 00;04;34;28
KAREN
You know, we’re going to dance a much different dance the first time, I think, because think about it this way. I just talked about how the soybean sales to China out of the U.S. are relatively low compared with recent levels. I mean, it’s historic levels in general. But back in 2016 to 17, that was the period where we thought, oh my gosh, China’s soybean imports are headed to the moon.
00;04;34;28 – 00;04;58;03
KAREN
We can barely keep up with their demand. We came in 2017, planted 90 million acres of soybeans, came in again, did it in 2018. And so when you think about just the very different scenarios from which work descending, our eyes are open to it. Now, we see China’s demand at that time kind of coming into 20 1617, the rate of increase, it was definitely tapering a bit.
00;04;58;03 – 00;05;18;04
KAREN
And I don’t think that we saw it at the time. And then we also didn’t know that in 2018, you know, 40% of China’s hogs were dying of African swine fever. We did not know that when the trade war was initiated, and we only really found out that extent in 2019. So there was a series of events that was, you know, a bit peculiar there that did allow China to avoid US beans for that period of time.
00;05;18;04 – 00;05;39;14
KAREN
Now coming into, you know, 2019 and then 2020, when, you know, Trump and Z struck the phase one trade deal in January of 2020, I think that China definitely knew that Covid was coming. They absolutely know that their corn stocks were depleted. They knew what was ahead, and we didn’t. The rest of the world didn’t know. So China is kind of always negotiating, at least when it comes to AG.
00;05;39;15 – 00;05;57;22
KAREN
The situation recently, I mean, they’ve been kind of negotiating from a power position. You know, they are always 1 or 2 steps ahead. But now, given that everything’s kind of dreary to begin with coming in, I’m just not sure that we’re going to shock the market with any kind of tariff stuff as it pertains to China, anywhere near as much as we did the first time.
00;05;57;28 – 00;06;22;02
PHIL
So let’s go to Mexico. Not so much of a soybean story, but very much a corn story, not to mention dairy livestock. Other things call shame. But we have a new sheriff in town versus where we were in 2016. Clearly, the border is an inflammatory issue. Throw in a little fentanyl talk. We got a little table pounding. How do you see the story playing out with Mexico, which is a huge customer for U.S. corn, right.
00;06;22;02 – 00;06;49;06
KAREN
You know, it’s interesting because back in Trump’s first term, there were constantly the threat of tariffs against Mexico. And I know that actually the steel and aluminum tariffs did come into play with Mexico. You know, Mexico was ready to retaliate against agriculture and or other U.S. exports, but it never really came to that. So throughout that time, though, Mexico continued to purchase very large volumes of U.S. commodities, especially corn.
00;06;49;06 – 00;07;15;24
KAREN
And, you know, we’re seeing that again now. And our proximity to Mexico versus, say, Brazil, Argentina just gives us such an advantage with Mexican corn trade that, you know, you would really have to see some steep tariffs and then, you know, even more barriers to probably drive Mexico, you know, truly away from U.S. corn. So I know that last week I think it was on Thanksgiving, actually, the Mexican president and president elect Trump had a phone call talking about these issues briefly.
00;07;15;24 – 00;07;33;25
KAREN
And, you know, both sides said it was pretty friendly. And they want to avoid conflict. They want to avoid the worst case scenario. So, you know, right now I know everyone’s talking about, well, what happens when he comes in and goes all these tariffs. But I do think that they’re kind of getting on it early. And I don’t think that any of the leaders really want to go the worst case scenario route.
00;07;33;25 – 00;07;46;12
KAREN
So it is good to just keep in mind what the possibilities are. But again, I really would doubt that we’re going to see some, you know, massive disruption to the Mexican purchasing of U.S. corn.
00;07;46;15 – 00;08;11;28
PHIL
Look, I mean here’s my opinion. Donald Trump believe that China, Mexico and Canada need the US more than the US needs China, Mexico, Canada. I think that’s the starting point. And same thing. We’ve gotten all of the Asian quote unquote, out of the way five weeks before the inauguration. I mean, I think we pounded the table. We called him out, and he’s talking and making nice to your point, whatever my opinion is worth, I don’t think President Trump is wrong about Mexico.
00;08;11;29 – 00;08;19;18
PHIL
You know, I mean, it’s certainly important to the US, but how do you feed a country from further away than America with any reliability and cost savings? I think that’s a stretch.
00;08;19;23 – 00;08;39;22
KAREN
Right? I would agree with that. And I think that, again, like I was saying earlier, the shock value of the impact or the threat of tariffs, I just don’t think is here this time around just because we are all talking about it early. We know what it was like the first time around and didn’t get to the worst case scenario last time, not with buyers that were not China.
00;08;39;22 – 00;08;59;00
KAREN
Right? So I do think that it is good that we’re talking about this early. We’re exploring the possibilities, and it’s good to hear that the leaders are having peaceful discussions, constructive discussions. But again, you know, come January 20th, we’re all going to be watching very closely to see just how this unfolds, because he has pledged to make pretty, you know, quick turnaround on his promises.
00;08;59;01 – 00;09;10;12
PHIL
I’m not sure that I would recommend it as literature. But after 2016 election, I went and read the Art of the deal again. I’d read it as a youngster, published in 1987. It’s all right. That’s all right there. On paper.
00;09;10;14 – 00;09;16;04
KAREN
Yeah. He doesn’t hide what he’s thinking, right? He definitely doesn’t. So he will tell you what he’s going to do there is that and.
00;09;16;07 – 00;09;17;01
PHIL
00;09;17;03 – 00;09;17;22
KAREN
00;09;17;24 – 00;09;39;19
PHIL
Okay. So let’s just go back to basics US corn crop. If we all wondered what could happen with these seeds in good conditions, we saw a big corn crop. But the balance sheet there doesn’t seem to be as overburdened, let’s say, as potentially with soybeans. Is there hope for the corn bulls? Some that say, look, we’re exporting a bunch ethanol demands.
00;09;39;19 – 00;09;45;16
PHIL
Good. There’s not as much of wheat from South America there. How do you see the corn market shaping up and what are you following there? Yeah.
00;09;45;16 – 00;10;04;09
KAREN
You know, I think it’s interesting that you just have to see the period of low prices before you can really spark demand. So, you know, we’re talking about great demand, but we’re still, you know, 2 billion bushels on the balance sheet for ending stocks. And that is pretty comfortable. But I think that, you know, kind of our next step here, it’ll be interesting to see what the US acreage mixes for 2025.
00;10;04;09 – 00;10;25;04
KAREN
Because, you know, we planted a lot of corn in 2023, scaled that back quite a bit for 2024. And soybeans kind of went the opposite way. And so now we’re finding a fairly burdensome soybean balance sheet relative to corn. And with the soybeans, you have the threat of a 170 million metric ton Brazilian soybean crop about to come at us.
00;10;25;05 – 00;10;44;20
KAREN
And you don’t see Chinese demand increasing to meet that increase in the Brazilian crop. So where are those beans going to go? Right. And then how does the U.S. supply fit in the picture. So that’s really the risk for beans. Corn is a different story because the U.S. is still the main exporter of corn. And Brazil supplies were lower last year.
00;10;44;20 – 00;11;04;12
KAREN
So until they plant their second crop, which is going to be right after they start harvesting the soybeans, which starts in January, you know, until that next corn crop comes online, the U.S. is really going to be in a very advantageous position as a global exporter. And same for Argentina. You know, they didn’t have their best corn crop last year because they had that leaf hopper pest problem.
00;11;04;12 – 00;11;30;11
KAREN
But, you know, Argentina’s current crop, again, it’ll be coming online kind of in the first few months. Kind of more maybe mid 2025. So for now though, the U.S. is in pretty good shape. So I think that that does keep the balance sheet just any time you can get it under that 2 billion bushel mark, even if it’s 1.99, it’s just a psychological level that we can say, hey, if something were to unfold globally, watch out, because this could tighten up in a hurry.
00;11;30;11 – 00;11;40;00
KAREN
Right? And then of course you have a whole U.S growing season ahead of you in 2025. So much can happen, and especially on the demand side with just kind of how the geopolitical relations are unfolding right now.
00;11;40;00 – 00;11;57;28
PHIL
And look, you know, as kind of stocks to use ratios. We’re talking about 4 or 5 months ago, you look back in history, it said 375 corn ish, right. More or less. So that number that, you know, the stock numbers come down, as you know, that ratio has gotten a little less oppressive. And we have 450 corn for 75 corn.
00;11;57;28 – 00;12;09;23
PHIL
I mean, it’s not like none of it makes sense, right? I mean, it’s a little bit better if we are at 1.7 billion, we’d be at six bucks again, right? I mean, I don’t see that anything’s really out of round. Maybe a little surprising that the wheat didn’t stay.
00;12;09;23 – 00;12;32;04
KAREN
But yeah, I know that’s true. And then also the other factor there is just kind of the inflationary aspect to of historically, you know, if you want to call it 12%, 13% stocks to use, I can’t remember exactly where we’re at, but something in the double digits and historically that may lend to 350 corn, but is 350 corn in 2015 the same as 350 corn in 2025?
00;12;32;04 – 00;12;37;04
KAREN
Inflation would say no, but how do you really measure that? It’s very tough to measure that.
00;12;37;09 – 00;12;47;11
PHIL
Yeah, it depends how fine you want to shift it. Right. I was thinking 15% somewhere in that neighborhood. Right. Yeah. I had a client say this months ago. Well, yeah, for 25 is the new 375, if you just think about it.
00;12;47;11 – 00;13;00;17
KAREN
That’s exactly right. Yeah. Especially with cost the way costs are looking inputs, you know, those have not come down the way that corn prices have. So that’s another big part of it is that, you know, $4 corn is no longer the benchmark. Right. It’s something above $4.
00;13;00;19 – 00;13;18;28
PHIL
And I’m guessing we would have to your point about acreage and shifting around. And, you know, the balance sheet doesn’t look so great. I mean, I think we’re another year of moderate to low corn prices away from having some harder discussions about farm finance and all those things. I mean, we’ve kind of skated through a little bit here on this go around back to back might be a little bit different story.
00;13;18;28 – 00;13;39;05
KAREN
Yeah. That is true. That’s a good point. And I think the other thing that could be coming back into play, because during Trump’s first term, he did give out payments to farmers any time that trade was disrupted. Those payments, you know, while those were very helpful obviously, to farmers during the price slump that did artificially inflated prices and it did have impacts on planting decisions.
00;13;39;05 – 00;13;49;15
KAREN
So, you know, once those payments went away, you do have to consider that dynamic could come back. And it does kind of make my job as an analyst a little bit tougher because it is a new variable coming in, I’m sure.
00;13;49;15 – 00;13;53;28
PHIL
Oh, nothing like for a little politics and global intrigue into the forecasting pile.
00;13;54;01 – 00;13;58;11
KAREN
I don’t even like politics, so it’s not very fun for me. But you know what? It’s a necessity right now.
00;13;58;12 – 00;14;17;11
PHIL
Here we are. Right? So one of the things that I think you’re known for, we see it all over the place. Follow the funds very closely. Managed money published great graphs every week of the long term histories of where the funds have been. Or over the past year, we’ve seen corn money managers be as short corn as we’ve ever seen them kind of come back to flattish.
00;14;17;11 – 00;14;24;11
PHIL
Where do you see the funds? What do you think they’re trading and looking at, and how would you gauge their influence today just generally speaking?
00;14;24;12 – 00;14;46;15
KAREN
Yeah. Well, I think that, you know, right now as it stands, you know, end of November, the data showed that funds were about a hundred thousand contracts net long. She bought corn futures and options and then everything else, I mean, except for soybean oil, which they are kind of on the downtrend. They’re, you know, they’re still net long there, but they’ve really sold off in the last couple of weeks.
00;14;46;15 – 00;15;09;03
KAREN
Everything else, you know, soybeans, wheat, soybean meal, they’re nearly record short soybean meal right now. So but they’re short soybeans. They’re short wheat. And they have been all year. So I think that it just kind of reflects this dynamic that we were talking about just a few minutes ago with the corn versus the soybeans, and just looking at how the balance sheets are, you know, just a little bit more friendly when you look at corn versus soybeans.
00;15;09;03 – 00;15;35;08
KAREN
And just I think that that massive Brazilian crop just really presents a problem because, you know, last year we saw the Brazilian crop kind of shrink a little bit because of some dry weather, and even the shrunken crop was still plenty for what the world needed. And so I think now looking at a crop, that’s almost I mean, that could be 20 million tons larger if global demand has not increased by that 20 million tons, you know, you’ve got a problem.
00;15;35;08 – 00;15;53;08
KAREN
So I think the fun see that for sure in the soy complex. And I think we it’s one of those things where they actually have not been bullish wheat since mid 2022. So it’s no new story for wheat. They love being short wheat. Wheat is nobody’s friend I guess. And then you just got corn. So yeah I think they’re just they’re looking at the export sales that we were talking about.
00;15;53;08 – 00;16;12;25
KAREN
They’re just kind of looking at you know, the lower supply in Brazil, Argentina and even Ukraine. Now actually, speaking of Ukraine, because we’ve not mentioned them yet. They’re also one of the big four corn exporters. It looks like farmers there might be favoring corn plantings this spring, more so than last year. So Ukraine could actually have a boost in their corn harvest this year.
00;16;12;25 – 00;16;31;00
KAREN
And that’s just because of the price dynamics between grains and oilseeds. So they’re going to cut back on some of the oilseeds and plant corn in favor. So that would definitely dial up the competition with the US. But that’s what I think that the funds right now are looking at. And again, I’m not really sure how long they’re going to stay, you know, bullish corn or if they’re still actively feeling bullish today.
00;16;31;00 – 00;16;43;00
KAREN
But you know it’s a tough time of year to get things moving when you’ve got no real weather concerns in South America to speak of. But again, you’ve got a lot of uncertainties coming up with the US presidential inauguration in January.
00;16;43;02 – 00;16;56;16
PHIL
I don’t know, I used to read Dennis Gartman every morning and and I don’t know anything about wheat other than it goes into bread and pizza. It’s a market I don’t know much about, but I always were describing, always said wheat is a wheat, always going to grow somewhere. And maybe that’s like one of the reasons it’s out of favor.
00;16;56;16 – 00;17;12;15
KAREN
It is super hard to kill wheat. You’re right about that. But I just actually saw a story today that says that Russia’s winter crops are in the worst condition ever. That’s interesting. Now, we did not really take that news too seriously today in the trade. But that is something to note because Russia obviously is the major exporter of wheat.
00;17;12;15 – 00;17;30;27
KAREN
They pretty much have the market cornered when it comes to prices lately. I mean, you know, they’re kind of offering wheat cheaper than anyone else, and they seem to have a bunch of it. So so that’s definitely something to watch the next couple of months. Because if Russia has a wheat problem that could lift corn prices as well, because, you know, wheat and corn can kind of move in tandem and lift all tide, so to speak.
00;17;30;28 – 00;17;33;29
PHIL
I just wonder if the markets trust what Russia says.
00;17;34;01 – 00;17;50;29
KAREN
I guess that’s the prospect. They’re just like China, right? Like what is China saying? Well, actually, now China doesn’t really tell us anything. They try not to. So it’s very hard to get really good data out of China and Russia. But the fact that they are reporting this, this is just based on analyst it says analysts say so analysts have been working with the data.
00;17;50;29 – 00;18;07;22
KAREN
Russia didn’t come out and say, hey, are we crap is in peril. So but I feel like they would not let that data out. I mean, all these governments, they know what they’re doing. You know, countries like Russia, China, they absolutely know what they’re doing, releasing data or just allowing information to get out. So, you know, you just keeping that in mind, you know, what is the plan here.
00;18;07;23 – 00;18;14;12
KAREN
You know what’s really going on. We just got to watch it. They can’t lie about the weather. So we can track that. And that’ll be something that I’ll be watching coming March April.
00;18;14;12 – 00;18;24;02
PHIL
Well Karen, it’s always a pleasure to read your stuff on Reuters to see your somewhat prolific and wonderful tweets and to have you on From The Furrow. So thank you very much for being here today.
00;18;24;03 – 00;18;26;20
KAREN
Yeah, no, thank you guys so much. It’s been really fun. Okay.
00;18;26;20 – 00;18;35;09
PHIL
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