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Established 1988
Commodity Week is a weekly wrap-up of the CME Group grain markets with analysis and guest interviews. The program is generally recorded Thursday afternoons and posted online by 7:00 p.m. central. It airs on WILL AM580 during the 2:00 p.m. hour each Friday. Commodity Week is a production of University of Illinois Extension and Illinois Public Media. Like the daily Closing Market Report, it is hosted by University of Illinois Extension Farm Broadcaster Todd Gleason.
website: willag.org
twitter: @commodityweek
Panelists
- Matt Bennett, AgMarket.net
- Chip Nellinger, Blue Reef Agri-Marketing
- Mike Zuzolo, GlobalCommResearch.com
Todd Gleason: This is the April 2 edition of Commodity Week. Welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Matt Bennett. He's at agmarket.net out of Windsor, Illinois. Chip Nellinger is here from Blue Reef Agri-Marketing in Morton, Illinois, and Mike Zuzolo joins us from Global Comm Research.com out of Atchison, Kansas. Commodity Week is a production of Illinois Public Media. Our theme music is written, performed, produced, and courtesy of Logan County, Illinois farmer Tim Gleason. You may always find and listen to the whole of the program anytime you'd like at willag.org. That's W-I-L-L-A-G.O-R-G. I think we'll dispense with the list of items that we should discuss because we know what we want to take up, or at least to begin with. And that would be the reports from the United States Department of Agriculture released Monday. Both the prospective plantings and the grain stocks numbers. Mike Zuzolo, why don't you take up one or both of those to begin with and then get an idea from Chip and Matt where they think those are headed in the May USDA WASDE report once it's released for new crop.
Mike Zuzolo: You bet, it nice to be with everybody, happy Easter to everybody if I don't get a chance to tell you all that. Um, the big thing I think to address for me personally, Todd, is the big bean, small corn acreage number that I presented at the outlook meeting back in February. And I still feel fairly comfortable with a 93.5 corn number. I don't feel as comfortable with an 87 million bean number, even though that's what we did, 87.5 in 2022 and 87.3 in 2024. But I do feel as though after looking at the numbers, looking at the survey respondents, seeing the percentage of respondents back from early, uh, very early March, very late February, um, that the, the good till date on that report is especially noteworthy for me. And I feel as though that we've got a situation developing where the soybeans are getting a ton of good press and good news fundamentally. And it's just a question of how much more can they receive to be able to keep going higher, and that I think goes back to the crude oil number. But I feel like that the corn number can come down and the bean number can go up versus USDA. The other thing I would note that's, that's very important to the analysis in the next 30 days is the idea that the record low winter wheat acres, along with the drought conditions we're facing, I'm hoping we can see the wheat and the crude oil team up again together and take the whole grain complex higher, uh, as we come back from the Easter holiday or shortly thereafter.
Todd Gleason: Chip Nellinger, your thoughts on the prospective plantings and the grain stocks numbers and since we don't have them just yet, the prospective plantings report showed 95.33 million acres for corn and 84.7 for soybeans, Chip?
Chip Nellinger: Yeah, I, I agree with Mike. I think that on the June 30th report, uh, you're going to see that corn number come down on acreage, uh, go up on beans. Uh, a little bit of a head scratcher, that cotton acreage was up from a year ago, so to Mike's point earlier, uh, you know, I think it was a, a little bit of a, of an old data situation. Uh, nitrogen fertilizer screaming higher since the start of this Iran conflict. I think that'll bring corn and cotton acres down. I think maybe, um, something a little bit, um, underscored or, or overlooked at by the market, maybe, was the stocks, uh, side. Um, you know, a little bit friendly compared to expectations on corn stocks. I think the focus was, it's still 900 million bushels bigger than a year ago at this time, but it came in 100 million bushels, or 90 million bushels below the average estimate, kind of shooting the in the foot the people that think that, uh, demand is overstated. I think on the bean side though, uh, at 2.1 billion bushels, that was, uh, you know, well over the average trade estimate, just 20 million, um, off of the high estimate. To me, that says that, uh, there is no reason at all for the USDA to lower corn demand. There's probably a reason why they could maybe start decreasing bean demand, however, I think they would have done it last month if it weren't for some of the buzz around the potential big purchases from China that have yet to materialize on the bean side.
Todd Gleason: Matt Bennett, your thoughts on these two reports?
Matt Bennett: Yeah, I have a hard time disagreeing with these guys on the acreage situation. I felt like from the get-go that if one of these could climb, it would certainly be soybeans. Uh, for corn, it's hard for me to believe that, you know, we won't kind of see that scale back as Chip, uh, talked about with, uh, you know, anhydrous prices. I mean, you, you know, you look at urea prices and there's no doubt that you're, you're kind of in a situation here where it's pretty tough for a grower who was late, uh, or maybe just waiting on spring. You know, actually, it looked like fertilizer prices were going to give them a little bit of a gift, uh, before this conflict started, a little bit cheaper than what we were last fall, and then you come in here and you see this happen and obviously everything screamed higher. So, uh, maybe that is only 10 to 20% of acres, you know, and maybe you only lose a portion of that, but just losing a portion of it's going to make a pretty big impact, especially at a time whenever corn demand is so strong. So, in the situation, um, you know, of the May WASDE report, I've got to assume that, uh, you know, we're going to be looking at, for old crop anyway, bean carry should go higher. Uh, I agree with what Chip was saying there, you know, I think we came out with a 365, and so, you know, I can see that even a little higher yet, exports should probably get, uh, reduced. Uh, whenever I look at the new crop balance sheet, uh, using these acreage numbers is probably not going to get too carried away, but I think eventually, uh, as far as beans are concerned, uh, you could be looking at a much more robust, uh, stocks number. On the corn side of things, I think it does get interesting even with a 95.3. Uh, you know, what the USDA is going to do. If you looked at the usage, you know, you could actually back this thing into the number of 6.2 on feed and residual, which doesn't make sense to a lot of folks. I don't know if it makes sense to me, but the residual category is always that outlier that you're not sure exactly what the USDA is doing with it. So, you know, if they do keep demand anywhere close to 16.4, uh, you're going to be looking at, uh, you know, a much tighter situation than what we've been working with, uh, just simply due to the fact that we lost three and a half million acres of corn.
Todd Gleason: So Matt, I'm going to stay with you for a second, and Mike, I think I'd like you to address this question as well. On the day of the report, the University of Illinois Ag Economist Farmdoc team held a webinar in which they were talking about the grain stocks figures, uh, in respect to, uh, where they were today, uh, and this demand usage. And the suggestion was that one of two things had happened, and they dismissed pretty much, I'm quite certain, uh, the idea that acreage was or that total production for last year was off, and, and that that was the issue. But suggested that the third quarter, when they look back over time, tends to change things for that grain stocks number. And I'm wondering what you think of those data sets. If you've watched them enough to know, uh, second and third quarter, second tends to be wonky, third quarter a little bit so, but maybe fixing what happened in the third quarter. Do you think that's the case?
Matt Bennett: I mean it's certainly, we've seen this type of thing happen before. You know, I know that a lot of folks called me and said, hey, due to usage being where it's at, uh, you can make one of two assumptions. Of course, a lot of people want to make the assumption that production was off. If they're eliminating that, uh, then in my opinion, it's, it's pretty tough for me to step in here and say that demand isn't actually a heck of a lot closer to what the USDA, you know, has said than, than, uh, what some people have, have doubted, if you will. And so once you get into June, uh, there's no doubt that if this export pace continues where it's at, um, you know, if ethanol doesn't back off much, which I don't expect it to, I mean, this week wasn't the best week, but, uh, at the same time, uh, I've got to assume that your June quarterly stocks numbers are still going to show excellent disappearance. You know, is it going to equate to the same type of demand USDA was forecasting, maybe it's not exact, but by all means, it's definitely the best demand we've ever seen. So I expect that June will still show a very strong disappearance.
Todd Gleason: And then Mike you can just follow up on your thoughts as it's related to that grain stocks report or the idea that the farmdoc team is putting forward.
Mike Zuzolo: Yeah, I'm with, uh, everything that Matt was talking about there, and I would reemphasize the idea that the summer, uh, E15 is going to help us quite a bit, even if we would lose some, uh, export demand, uh, because of the, the sharp price rally. Um, in, in the crude oil market, I don't see that yet, though, because we're still, other than maybe the up river Argentina price, we're still the cheapest corn out there in the world from the charts that I look at, Todd. The, the key, I think, for the grain stocks report, as it relates to corn, was who's holding those stocks, and the commercials down 2% from last year, as far as what they're holding, and the, and the on-farm storage is up 21% from last year. On-farm is 60% of the total. That's a very high number, and so if this demand does stay strong, it would suggest the commercials don't have that coverage in place. They did not buy extra. They are still running a JIT type mindset, and I really question that given the economic environment and the interest rate environment that we're heading into. So it'll be interesting to see if we don't see a little bit more of a CYA type mindset by the end users instead of JIT.
Todd Gleason: So, Chip Nellinger, I want you to turn your attention to soybeans in particular. One of the things that we talked about during last week's Commodity Week program, but before it was released, was that the RVO could be a "buy the rumor, sell the fact" event. That was the case. It does not negate, however, the idea or the factual ground truth that going forward the renewable volume obligations for biomass-based, uh, fuels like renewable diesel and even FAME, uh, or regular soy diesel are going to increase dramatically in the second half of this year and again into 2027. How much of a lift to the marketplace do you suppose that will be in the crush for soybeans?
Chip Nellinger: Yeah Todd, we've already seen a nice increase in crush, right? We're well over 200 million, uh, bushels a month now. And that is, uh, directly tied to the fact that some of these, uh, new plants that have come online, uh, you know, the last 6 to 12 months. I, I think that it is good news longer term. I do think it would have been a bigger buy the rumor, sell the fact if you didn't have $110 crude oil for the last two weeks, or at least north of 100, uh, helping support, uh, soy oil. So, you know, gotta understand we rallied, uh, really sharply over the last four weeks, uh, or, I should say, four months, in soy oil. So it, it didn't come out any different than expectations. To your point, though, 27, 28, it's going to get really good. Question becomes, like we talked earlier, uh, how much, um, lower do we adjust these exports in the short run, uh, due to lack of Chinese business and the big Brazilian bean crop. That's going to be the case, right? Longer term, I, I think we've got good support, good demand. Um, in the short run, though, have we kind of played that out and is that old news right now, especially if, uh, we happen to see the USDA start pulling back, uh, bean demand on the export side, uh, and increasing the carryout. Funds have a big long position. So, you know, sometimes when you're talking a year and two out, that gets overshadowed by some of the short-run movements from the funds, and they're not record, but they are record long in soy oil, they're close to record long in beans, that's getting a little bit burdensome and is part of my fear about a bigger break coming in beans here in the short run.
Todd Gleason: Well Matt Bennett, I want to follow up with you just a bit on the fundamentals here. Of course, uh, Chip suggesting, rightfully so, that, uh, the increases in the crush for, uh, biomass-based, uh, fuels, uh, might be offset by a lack of exports for soybeans, uh, in part because of the trade war between the United States and China, but mostly because it would result in a higher internal price, quite likely, for soybeans. And then, of course, there's the other flip side of that one, which is we're already running close to capacity, uh, in the United States, and I don't know how quickly, uh, more capacity can be put into place, or how much we have left on capacity. But we'll run it at 100% or better I would think in the second half of the year. What are your thoughts?
Matt Bennett: Yeah, I mean there's no doubt we are at capacity. Uh, I don't think that there's a whole lot of room for upward movement. You look at these monthly crush rates, and as Chip suggested, a couple hundred million. I mean, you look at, every month we've posted a new record for the last several months, and, uh, the bottom line is you're going to have a heck of a time, uh, being able to crush more beans when we don't have the facilities to do so. So, uh, the problem I see, you know, is that, uh, I don't see any upward revision, uh, for crush, uh, to speak of, but at the same time, uh, you should be able to revise this, uh, uh, export number lower. I don't see us exporting a whole lot of beans, uh, in the current situation that we're in. So I know there's a lot of excitement about what soybean demand's going to look like on down the road. Uh, crush demand obviously with the RVO, and that's certainly going to be a feather in our cap moving forward, but at the same time, uh, it's pretty tough to distance ourself from a 180 million, uh, metric ton, you know, crop out of Brazil first of all. And obviously it, uh, you know, it looks like South American production in total is going to be robust. And so, you know, I've got to think we're going to really struggle to be competitive on the export front, and overall, I think that you're going to look at a world balance sheet that's going to be more than adequate. So, you know, I'm with Chip, I do think that there's the potential here that, uh, unless we get some massive help, I mean, that's the, that's the outlier that Mike spoke about before, you know, if this, uh, situation propels crude oil to go sharply higher, you know, and if we see, uh, the situation with wheat continue on an upward move, it can certainly support us. But, uh, with all things, uh, not changing, and, uh, crude oil staying, uh, maybe back in the range, uh, uh, previous to the war, you know, if you would get back to that level due to things cooling down, I would be very concerned about bean price trajectory.
Todd Gleason: Now this was where I was headed with you Mike to begin with, so let's do follow up on that. You can bring wheat into the conversation. I would think understanding both the, uh, issues that are, uh, appearing in the hard red winter wheat growing regions of the United States and what global supplies look like will be important, and then comparing, uh, how the Ukraine-Russia drop, uh, might be imposed within, uh, and prices after, uh, the initial shock, uh, imposed within the, uh, trade at this point in time for the Middle East war. How do you see a couple of those things going? Let's start with the wheat and then we'll turn to the war.
Mike Zuzolo: Yeah, my mindset is pretty simple at this point Todd, is we need to see the market put premium back into the wheat complex on tightening supplies. This is still a negative supply shock, a demand rationing type event that we've seen, but never to this extent. And what I mean by that is the International Energy Agency said earlier this week that if you combine the 73-74 oil crisis in the Middle East with the 79-80 crisis in the Middle East, that we're still doing more damage in terms of lost production per day from the Strait of Hormuz being shut down. And we don't even know how much production per day we're really going to lose, depending on how much more conflict arises, and President Trump talking about going after energy facilities specifically out of Iran. Um, we're, we're very early into this, and so I think the premium in the market, in commodities, is just not there, especially the ag commodities, maybe minus the soybean oil. Um, one thing that I think is, is really apparent to me after the president spoke this week on Wednesday night was the market on Thursday realized just how far apart the key players still are in opening up the Strait of Hormuz, and essentially the market understands now we're not going to get the US out of that conflict until the strait opens up, and especially the way the US wants it to open up. People are talking in Asia already about seeing 30 to 80% increases in prices, whether it's liquid propane gas coming out of Saudi Arabia. Uh, the Asian oil price was just raised by Saudi Aramco by 20 to 40% starting this month. Um, there's a pretty large, uh, pork producer in Japan has been approached that, uh, this is coming from Nikkei, is saying that they're going to get a 20 to 30%, uh, increase in their, in their costs because of fuel, uh, as far as delivering feed to that pork producer. Um, we are at a stage, I think, where we really start to need to start thinking about where the, the price should be in corn and wheat if this, if this continues on. And I, I've told clients that every 30 days this goes on, I'll raise the floor on my crude oil price, my support level, uh, $15 every 30 days. So we're at 80 bucks for support now. On April 15th we'll be at $95 support, and so on and so forth. So for the wheat market and, and the fact that we're looking at a drought situation of, of 14% of the winter wheat not in drought, that's the lowest, uh, that I've seen. It's going all the way back to 2021. And if you look at D3, D4 drought, you're talking about 27%, uh, back in 2023. This past week we came in at 9%. And, and so I think we're really getting to a point where the winter wheat crop and the, the Western Corn Belt, uh, is at a situation where it could be dire in 30 to 45 days, and I think the market honestly is walking past the graveyard right now.
Todd Gleason: And I'll wrap up by allowing Chip and Matt to give their thoughts on where producers should have themselves positioned and we'll close the program out. Chip, your thought?
Chip Nellinger: Yeah, Todd, we've been taking advantage of essentially sold out of beans from an old crop perspective, maybe have a few old crop bushels of corn laying around where I've recommended 20, 25% priced in new crop corn. Some additional puts above and beyond that about the same in beans. Maybe a little even more aggressive on new crop beans up to a third price, another third with some puts so that we have some upside potential on this corn. If we see a break into planting timeframe, down into the low 460s versus December, we'd look to buy some calls on some of the sales that we made from higher levels. To Matt's point earlier, expect a lot of volatility, it's going to lead to opportunity but it's not going to be a fun ride, it hasn't been yet and it's probably going to get worse before it gets better.
Matt Bennett: Yeah, I mean we're pretty much in the same boat on old crop as what Chip was talking. I want to keep hedges in place and then keep those hedges covered at least on a decent portion of them especially the more aggressive a grower gets in their sales program.
Todd Gleason: Commodity Week of course is a production of Illinois Public Media. You may find and listen to the whole of the program anytime you'd like. It willag.org that's w i l l a g.org. Our thanks go to our panelists this week including Mike Zuzolo at globalcommresearch.com, Chip Nellinger from Blue Reef Agri-Marketing, and Matt Bennett of agmarket.net. I'm Illinois Extension's Todd Gleason.