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 Steve Ring, Senior Advisor with Ever.Ag. How are US crops faring after an ideal growing season? What might this week’s WASDE report hold? And how are grain markets moving? Phil and Steve discuss those topics and a whole lot more.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
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00;00;00;13 – 00;00;16;24
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00;00;16;27 – 00;00;38;04
Hello and welcome to From the Furrow, brought to you by Ever AG Insights. Each week we talk with subject matter experts about news and topics affecting the grain markets. I’m your host, Phil Plourde, to get us started today. Let’s take a quick look at the markets. It’s Tuesday, October 8th at about 10:30 a.m.. Nearby corn trading at 422 per bushel, down about $0.04 on the day.
00;00;38;05 – 00;00;57;20
Soybeans $10.16, down 18 from yesterday. And yesterday was not a great day for the soybean market. So soybeans taking it on the chin a little bit. We’ll talk about soybeans and more with Steve Ring. We’re excited to have him along for a conversation today. Steve is senior advisor in the Ever AG Livestock group, working with clients on livestock and grain risk management.
00;00;57;21 – 00;01;15;25
Steve, thanks for joining us today. You know, saw yesterday that harvest is running ahead of schedule. The weather has been really good for harvest and is from my in expert position. It’s like the first year in a while that we’re getting a look at what yields can be and what’s been a pretty perfect environment right past couple years.
00;01;15;25 – 00;01;28;12
We’ve had drought issues or, you know, there’s been like a lot of fits and starts with the growing season. This year was pretty close to perfect. So how do these great seeds do in pristine conditions? We know they’re good and bad conditions. How good are they in pristine conditions?
00;01;28;12 – 00;02;01;22
You hit a spot on. We’re seeing yields that are surpassing, I’m guessing, some of the greatest expectations by these seed companies. A lot of yields, record farm yields record field yields yields 300 plus bushels. And even 260 to 290 is not an unusual yield in the good states. Iowa, Illinois, Missouri is one that has had the best rating, and I’m anxious to see how they end up shaking out because they’ve had some 280 to 290 bushel yields in soil that’s not quite as fertile as Illinois and Iowa.
00;02;01;24 – 00;02;02;18
00;02;02;21 – 00;02;04;24
I mean, that’s unheard of right in Missouri now.
00;02;04;24 – 00;02;22;00
So it’s going to be interesting to see how we shake. The only thing I would just follow up on is we had challenges throughout the growing season. We had pockets that had too much rain early in northern Iowa, southern Minnesota, and then late in the season we turned dry. And that’s going to be interesting to see how we finish early.
00;02;22;00 – 00;02;44;11
Yields have been really good, and we’re going to see in the areas that missed showers how those come out. Because the other thing that we’re seeing is a quick dry down on some of this grain. In fact, you’ve got beans coming in at, you know, 10% or lower. So the farmers are losing yield in the field because you can take 13 to 13 a half percent moisture beans without any discount.
00;02;44;11 – 00;03;06;24
So when you’re down at 1,011% moisture, you’re missing out on some of that yield. So it’s a good start. If I were going to handicap right now based on the yields that I’ve seen, I think Iowa could very well be too low. I think Illinois looks reasonable at 222, and I wouldn’t have guessed that earlier in the growing season, with some downs that we’ve seen throughout the growing season.
00;03;06;26 – 00;03;13;25
And like I mentioned on Missouri, with them having the best overall crop rating throughout the year, how good they’re you’ll see come in.
00;03;14;00 – 00;03;34;01
So overall though yeah pocket of this and that. They’ll be some you know hey look at this. 300 bushel corn is something to get excited about. Sometimes we don’t get the bad news isn’t right away, but overall seems pretty spectacular on the crop. The last time around, USDA put yield at 183.6 bushels per acre. That’s the price to the upside.
00;03;34;01 – 00;03;39;29
If I recall correctly, this Friday we get another crack at it. What are you seeing out there in terms of estimates and what are your own opinions?
00;03;40;00 – 00;04;03;23
Yeah, the trade estimates, as you’ve noted, came in slightly below their 183 four and got a range from 181 6 to 184 five. My biases. While we may not see it on this report, I think we could possibly see it a little bit higher than that, because how good the yields have been in some of these areas. On the soybean side, USDA was at 53 two in September.
00;04;04;00 – 00;04;27;05
The trade guess guesses 53 one. The one thing with the lack of moisture in some of these areas and a little bit smaller seeds, I wouldn’t be surprised if we don’t come in a little bit below that, because we are 47% through harvest on been, so there’s been quite a few yields already reported. And the other thing is we had over 13 million acres that went in in mid-June or beyond.
00;04;27;05 – 00;04;45;11
So you don’t often get great yields planting that late. So I think that could be one thing that could still pull down. And maybe I don’t think it’ll show up on Friday, but I could see a small downtick and then maybe a little bit smaller yields as we move into this one or as USDA releases future reports.
00;04;45;11 – 00;04;49;19
But anything in the 53 neighborhood is going to be a record. Right. For beans.
00;04;49;19 – 00;05;13;15
Yes, absolutely. 52 seven, I think is the previous record. So yeah, anything 53 or above, we will have an increase carryout. In fact, the trade guess is for about 549 million bushel carryout on soybeans. And the USDA, with their grain Stocks report are showing a current of about 342 million. So we’re a gain a little over 200 million bushels at this pace.
00;05;13;18 – 00;05;17;06
And that’s with still relatively healthy export market.
00;05;17;09 – 00;05;35;05
And just for the record, corn all time high, 170 7.3 bushels per acre, I believe last year. So 183 and change would be a pretty significant uptick in that regard. So Steve, the yield numbers are fine. The production numbers are fun. When the report lands at 11 a.m. central time on Friday morning, where’s your eye going to go first.
00;05;35;05 – 00;05;41;09
Is it stocks production exports. Talk about first for corn and then for beans. And talk about the implications certainly.
00;05;41;09 – 00;06;09;00
So I always look at the carryout number. That’s ultimately what’s going to drive prices is what do we have projected carryout. The USDA had 2.057. That was in the September was the and the trade guess is to be below 2 billion or something psychological about, you know, 2 billion or greater, although 1.9 would still be a large carryout as long as we stay somewhere in that range, I don’t think we’ll see any major price reactions.
00;06;09;00 – 00;06;34;24
You know, you look at the bottom line first and then more importantly, how does the trade react to it? How does manage money and the growers and users respond to what the report might say? So the information’s important, but really the more critical thing that moves the price is the reaction to the report on soybeans. Again, the carry outnumber as long as we stay 450 million bushels or greater on the carryout.
00;06;34;24 – 00;06;49;15
I think the trade will continue to look thin at South American weather. And that’d be the other thing I would look at in the report. Secondary is, has USDA made any major changes on world production and world demand on corn beans?
00;06;49;15 – 00;07;12;15
Are we before we switch back to corn for a second, let’s stay in that soybean group for a second. You mentioned Brazil. We always talk about China and soybeans. It seems like Brazil was dry, not unusually so, or severely so, but it tends to be dry there late September. And now the Ranger coming in October. Are we expecting to see relief and the season get going, or what’s the Brazil situation then let’s talk about China and its appetites for soybeans.
00;07;12;21 – 00;07;37;01
Certainly start with Brazil. They were extremely dry during the dry season. October kicks into the rainy season. That’s effectively April in South America. I know there were some concerns not having the rain early because Brazil can begin planting in early September, and there weren’t a lot of early beans planted because of lack of moisture. They were about 4.5% planted.
00;07;37;01 – 00;07;58;22
As of last week. Normal would be about 10%, and I went back and was looking at the pace of planting, and one of the fastest paces that we’ve seen in Brazil in the last five years was the 20 1819 crop, and they would have been 27% planted that year as of last week. And interestingly, that was one of the lower yield.
00;07;58;22 – 00;08;24;12
The following year was the second slowest in the last five years, the 20 1920 crop. And yet they produced 126 million metric tons, so 9 million tons more than they did with the fastest planning pace. So with soybeans, it’s not always the fastest being the best. It’s the growing season. And we always joke here in the United States, you know, July, August rains make the soybeans so late July early August beans.
00;08;24;12 – 00;08;32;24
And it’s no different in South America. Those late rains at the key sea development stage makes a difference in the final production. Yeah.
00;08;32;24 – 00;08;48;20
One of the first things I learned about soybeans was they are a crop of August. I was told when I was a youngster coming to the business. Still true today? China? Yes, certainly. Things are messy there economically. We’ve seen the big stimulus all kinds of things we could talk about there, but specifically its appetite for U.S. grain imports, specifically soybeans.
00;08;48;20 – 00;08;52;29
What’s been the story there? Do we have any expectations for changes or good? Bad, indifferent?
00;08;52;29 – 00;09;15;09
I was looking at the report several weeks ago that showed that China had one of its largest imports of soybeans in August, the month of August. Most of those came out of South America. China has been buying from the United States, depending on where you shake out there being demand, Brazil cannot raise enough beans right now to supply all of China’s needs.
00;09;15;09 – 00;09;39;29
So China still relies on the US for some of their being imports. So on the bean exports, the USDA currently has 1.85 billion projected, a large percentage of that will be China. We’ll see if China retains the appetite. I was also looking at the seasonal pattern and China after the large increase in the late summers. They’re buying South American beans.
00;09;39;29 – 00;10;11;19
They tend to tail off, which actually surprised me. I would have thought, you know, during our harvest would have also been Chinese imports. But they do pick up after the first of the year. Usually Brazil will begin harvest the week of Christmas and with a little slower planting pace, it’s going to be about 30 days later than normal before China can buy beans from Brazil, so I expect to have at least a month’s worth of exports that month of January and possible and early February that could still impact our total export demand.
00;10;11;22 – 00;10;31;21
Let’s talk about corn again. So I don’t know where the line of demarcation should be, but let’s say we’re at 422, been in a nice little recovery rally. What would be the couple of things that might take corn above 450, let’s say, or a couple of things that would take corn below 350 in the field the next few months.
00;10;31;21 – 00;11;00;26
The 450 is a lot easier. Obviously China demand coming in and buying us corn. We don’t have much forecast for China to come in and buy corn from the United States. They’ve been getting any corn needs from other parts of the world, you know, Ukraine, South America. That would be a change. And if you would all of a sudden tip that carryout from one 9 to 1 8 or 1 seven, that would raise price and certainly push it towards 450.
00;11;00;26 – 00;11;28;04
Keep in mind that manage money is still sitting on a net short position. They’re short 61,000 contracts as of last night, and normal for them would be this time of year to be long, almost 108,000 contracts. So just money flow from net short to net long would influence that too. The flip side is you still got growers that are about 850 million bushels behind where they would normally be with a bigger crop than three year average.
00;11;28;04 – 00;11;50;10
So you got that whole dynamic. I think the lack of farmers selling keeps it from getting much above 450, because I think if we got December corn to 450, that would put March corn at four 65th May corn, possibly for 75. And those are price targets that growers should be looking at the stick in additional hedges and probably have some offers out there at those levels.
00;11;50;12 – 00;11;59;00
Well, let’s make it 375 since we’re so close to 422, what about 375, you know, or even, dare we say, 350? What would take the market into that kind of a downtick?
00;11;59;00 – 00;12;26;03
I’m not sure. This particular crop year would see a 375 without a major surprise in the production, like if we would all of a sudden, instead of a 183 and change, go to a 185 or 186 where you had larger supplies and didn’t increase the demand. Or the flip side is if we would see exports slide or revision on the feed use, that’s currently at 5.8 to 5 billion bushels.
00;12;26;03 – 00;12;54;17
If you have a health outbreak, avian influenza in broilers or one of the larger in beef consumption, where, you know, beef is such a large user of corn, if we’d see some disease come in and affect those demand side. So I think that’s a minor possibility at this point. But if we would get the acres I know S&P global, which is the old informed advisory, they had come out with 92.7 million acres.
00;12;54;17 – 00;13;16;05
And if we got a trend line yield and just lowered usage 250 million bushels, that would take the carryout ratio up to the point that would get you a 350. So it makes a pretty big number next year. That would be a better possibility, as next fall if we have a good growing season, get a few extra corn acres and see a dip in demand.
00;13;16;07 – 00;13;34;02
All right, before we go, Steve, today can’t help myself. You and I often trade emails at odd hours over the weekends about macro indicators. We’re kind of junkies on the economic scene. Certainly no shortage of interesting macro things to discuss these days. What do you like watching day to day or month to month in terms of the macro indicators?
00;13;34;02 – 00;13;45;28
And maybe, you know, if they have a tie back to the grain markets or the markets we cover, any favorites out there for you? Anything that you like? Hey, it’s retail sales day. This is going to be a good one or what gets you really engaged. On the macro side.
00;13;46;02 – 00;14;13;28
I look at a number of different things. You never know what might impact the overall economy that eventually spills down into the ag commodities. You know, certainly the inflation. I mean, there’s the whole debate about inflation, you know, are we going to see another round? We certainly saw recently what union the longshoremen’s request for a 77% pay increase and a potential settlement that over 60%.
00;14;13;28 – 00;14;38;04
The one thing whatever you do have, inflation and wages aren’t keeping up. Workers become disenchanted. They’ll move for a raise if they can get it, and employers then are forced with the issue that they could lose employees if they don’t raise wages. So you often when you have high inflation, get a second round due to inflated wage, you you’re trying to play catch up from the first round of inflation.
00;14;38;04 – 00;15;01;02
So I think the whole inflation deflation is an interesting conversation. And especially when you’ve got deflation in China, and because they stayed closed for so long due to Covid. And now you reference China’s stimulus program where they’re going to infuse $1.4 trillion into the economy to try to spur, demand on China steps in and wants to buy anything.
00;15;01;02 – 00;15;21;12
They have a large enough demand base that they can certainly move prices. And whether that’s energy, commodities like grains, I don’t think we’ll see it on the meat side. You know, you look at their pork production, while it may be down as far as numbers, with them having more confinement type operations, they are raising heavier hogs and what they did in the past.
00;15;21;12 – 00;15;52;26
So you don’t need as many hogs to produce the same amount of pork. So you know, you’ve got that. And then what happens with change in Washington DC? Do we see changes in policies? I’m not necessarily a political junkie, but I do pay attention, especially during election years, on any potential changes in policies. Again, whether it’s related to energy or just the overall world market, especially when you’ve got some of the issues that are going on in Ukraine, Russia and Israel with what’s going on there and the potential for any escalation.
00;15;53;02 – 00;16;12;14
Well, let’s just say this, Steve, you don’t live in a swing state. And so you should be grateful because, you know, here in Wisconsin and our friends, our peers in Iowa are getting full on advertising assaults every minute of every day. Well, thank you so much for joining us today. And we’ll be back in a couple of weeks with another edition of From the Furrow.
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