Todd Gleason: This is the March 26 edition of Commodity Week.

announce: Todd Gleason's 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 from Champaign, Illinois. Kurt Kimmel is here from agmarket.net.

He is in Normal, Illinois. And Greg Johnson, also from Champaign, Illinois, joins us from TGM. That's totalgrainmarketing.com. Commodity Week, of course, is a production of Illinois public media. Our theme music is written, performed, produced in courtesy of Logan County farmer, Tim Gleason.

Let's get a list of items that we should discuss for the day. I think, Dave Chatterton, I'll start with you. What's on your list?

Dave Chatterton: Yeah, Todd. I mean, it can be a long list. I guess the question is where to start. We have an RVUSRE, you know, announcement, hopefully, tomorrow or by the end of the month according to the Trump administration. We've got a key USDA report with the quarterly stocks and acreage coming up next, Tuesday.

In the meantime, of course, we're watching what's happening in the Iran US conflict and the headlines that go there. We're watching what potentially may happen with China negotiations now that the date has been set. And, of course, in the background, we got weather and and, you know, some improvement in the drought situation in Central Illinois, but some that certainly needs to still be washed. I think the most important of those, Todd, is still the headline risk and what's going on with Iran, and it has a grip on the commodity markets here that is led by the oil complex, but certainly has bled its way to the grain complex as well.

Todd Gleason: I'm not sure, Kurt Kimmel, if he left much that we should discuss out of that list. Anything that you can come up with? No. I think we're probably pretty good. I bet there were some things on the cash grain side, Craig, that he did not get to.

What do you wanna talk about for the day?

Greg Johnson: Well, I think the fund position, kind of referred to the headline risk, and that kind of ties into the fund position, but I think we wanna keep that in mind, talk about that a little bit. And then also, farmer selling has been fairly heavy on this rally as farmers finally got a chance to sell something that may be close to above breakeven prices on old crop corn and beans, but, new crop corn and bean sales remain very stagnant, very low. So maybe that's something we can delve into as well.

Todd Gleason: Okay. I wanna poll all of you very quickly. Just yes or no. Should farmers be making new crop corn sales? We'll talk about, how much and soybeans for that matter.

Yes or no? Kurt Kimmel.

Curt Kimmel: Yeah. We feel that, this rally needs to be rewarded and continue to sell into it here, not heavily, but, when you look at where we are for the February spring price and where we are now, it's definitely better, and we like to try to do better than breakeven. And as we approach $5 in December corn and hopefully $12 in November beans, I think it gives producers opportunity to do a little bit better than what we were looking at here last January.

Todd Gleason: Dave Chatterton, new crop sales?

Dave Chatterton: Yeah, Todd. I mean, just to your point, the answer is yes. I think as Kurt mentioned, the the level, I think, is important, but, the answer is yes.

Todd Gleason: And Greg Johnson.

Greg Johnson: Yes. Maybe even a little heavier beans, maybe being 40%, 50% sold on beans versus 25%, 30% on corn, just because I think the acreage number could be heavy on beans, higher on beans, a little bit lighter on corn. Plus, we've got the big South American crop this year and even more acres next year. So for all those reasons, I like to be a little bit more heavily sold on beans and corn.

Todd Gleason: And so the why is you believe prices will be lower in November because of those two items you just mentioned.

Greg Johnson: Unless you tell me it's gonna be a a very dry summer, which could very well happen. We don't have the subsoil moisture. So, again, if I thought if I knew it was gonna rain this summer and everybody's gonna have a good crop, I would say we would need to be a 100% but we don't know that. That's why we're talking about maybe 30 or 40% being sold.

Todd Gleason: Okay, Dave, back to you on this. Tell me some of the whys for the new crop sales in your opinion.

Dave Chatterton: Yeah. I think I think Kurt hit on it. You know, we're at levels now. We're above crop insurance guarantees. We're hitting levels that are profitable on a number of producers' balance sheets.

And the unpredictability and the volatility of this marketplace, if you haven't got that into your head by now and and what's happened here of late, you know, I I don't know what to tell you, but that volatility has been working for us here of late, primarily led by what's going on, as I mentioned, and then with the war in Iran and the general kind of money flow into commodities. I think Greg talked about that. We've had some very aggressive fund buying in the ag space, and and getting to levels here that are that are very stretched. When I look at this, we've seen funds since February 1 by almost 3,000,000,000 bushels across the complex corn, beans, and wheat. And we're getting getting fairly stretched on that that, you know, holistic view of where we're at.

And, you know, to Greg's point, we don't know what's gonna happen with weather this summer. Certainly, that could be a factor. But I think the political, you know, landscape here at at some point, we are we have to realize that the inflationary element that's been brought into the marketplace, led by oils, but also, you know, bleeding over into the ag markets, at some point becomes a negative in terms of economic growth. And not only in The US, but globally, I think there's, you know, some talk about things that may happen. And so high freight rates, I think are slowing trade and availability of diesel and bunker fuel on the marine side.

So there's just some, a few concerns here. It doesn't mean sell everything. It doesn't mean we can't go higher, Todd, but I think you have to be a prudent risk manager and just admit to yourself, we don't know how this is gonna turn out. We don't have a template for what's going on in The Mideast right now, let alone the China negotiations and, you know, and the weather that comes after.

Todd Gleason: And I was on a PharmDoc webinar earlier today, Kurt, and they were comparing things to the start of the Ukraine war in 2022 and then again in 2023, some differences. At the start of the Ukraine war, the price of corn was $8. By the time we got to the fall, it was $7, trying to remain there. And then by the time we got to the next fall, we were down at $6 in 2023, but we'd been down as low as $4.80. There is a difference between this war and that one.

It's that Ukraine and Russia pushing us to $8 was really because it was a production area. The Middle East is not known for producing corn or soybeans, though they do produce a little wheat. So how do producers handle those place think about those price those prices in context of the war today?

Curt Kimmel: I just wait for $7 and take that idea. At at the upper end there, that was huge, huge profitability there. So, you know, we're there extreme. We're overbought. Now we spent, what, the last two, three years down at the lower end of the sector here oversold.

When you get inflation and you look at overvalued and undervalued commodities, corn and beans have basically been undervalued in my opinion. So from an investment point of view, it's worth taking a stab at. That's why the funds are probably long over 200,000 corn, over 200,000 contracts of soybeans waiting for something to happen. But as a producer, what we've been doing and most advisory service has been doing is stepping into this thing, getting some downside protection in several different ways. But have a price floor, leave your upside open.

I guess the old wordage adage back in the day has been hedge and defend. So you know exactly where you are. You got some you have some flexibility to work with. Because as Dave said, you know, headline news, we don't know when that what? A week ago, week and a half ago, come in here, beans were down limit.

And before it's over with, we'll probably be up limit. So the volatility is gonna continue to run rapid in through here, and and there's some opportunities to capture something here if you want. When you look at over a 10 span, there's probably one to two years you have a chance to make some pretty good money. Then if things could get juiced up here on inflation or weather, I think there's a chance to improve our bottom line from what we were looking at the last one.

Todd Gleason: Dave Chatterton, you put the RVO and SRE announcement, so that's renewable volume obligations and small refinery exemptions on your list. The president on Thursday afternoon when we're recording this saying, on, his true social posts that there will be an announcement of some sort, for Ag Day on Friday, so that probably is out by the time that most people are hearing this live on the air at the radio stations. What's your expectation of that announcement?

Dave Chatterton: Yeah. Todd, I guess a little bit, you know, concerned. I don't have any any better insight. I don't think anyone else about what the Trump administration is gonna do. The rumors have said that it will be similar to the to the path that we've seen forward.

So I guess your your over under is around that five four to five six on the on the, on the s on the, RVO, you know, mandate. It's probably 75% on the reallocation. And so certainly, you know, we'll watch to see what happens. My concern would be when you look at bean oil and to a lesser degree, the bean complex and the way that we've rallied coming into this announcement, I think the the buildup into the announcement, Todd, the natural miss here is probably to be disappointed, whether it's a miss in the numbers or whether it's simply a buy the rumor, sell the fact type of a reaction. Once that number's on paper, we're moving forward.

I think, you know, we're certainly if if that 75% number is accurate for the, the small refinery exemptions, I think certainly on the reallocation side, certainly, there's going to be some some court and and lawsuits that follow, and it may take a while to straighten that out. So we'll take the numbers as they go, but, you know, again, I think we've built a lot of expectation and positive expectation into what, what we're going to see tomorrow or or by the end of the month. Trump also mentioning today that he's going to announce actions to a number of actions that will, quote, unquote, help US farmers. So we'll have to wait and see what that is as well.

Todd Gleason: And Greg Johnson, as you're thinking about this in the larger context of what producers, should be considering, Greg suggesting that it could be a buy the rumor, sell the fact event. What are you thinking?

Greg Johnson: Oh, I agree with what Dave just said. 5.4 to 5.6, it's kind of baked into the RVO number. The funds have really established a long position not only in soybeans, but in soybean oil. So that's probably going to have to be quite a bit higher in order to get even more money to come into this marketplace. It just reminds me that gold and silver, before the war had rallied so much and then the war happened at the February and everybody thought war is usually bullish for precious metals and we've lost anywhere from 18% to 38%.

Gold's down 18%, silver's down 38% since the war started. So and it was the fact that the market had run up so much, the funds had bought so much that they we basically just ran out of buyers. Now I'm not saying that we're to that extent in corn and beans. There's a lot of a lot more room for people to buy corn, but the soybean position for funds is the third largest ever. So not that they can't buy some more, but it's that risk reward thing.

There's probably more chance of the funds having already bought the room or selling the fact versus buying even more. So as Dave said, you have to be a risk manager and ask yourself, is there more of a chance of it going up or going down? And with the rally we've had, I think a lot of that good news might already be baked in.

Todd Gleason: Kirk Kimmel, next Tuesday, USDA will release the acreage and grain stocks figures. What numbers are you expecting from both of those at this point, and which will play more into the marketplace?

Curt Kimmel: Yeah. I'm gonna say it again. Back in the day, they said buy land because they're not making any more of it. Last couple of reports, they found more planted acres, so I think it's a moving target. Alright.

But benchmark wise, the ag market team's at 94,400,000 corn acres. It might be 95. Bean acres, the team's at 86.1. But a lot of that's to the natural rotation of the crop from corn to beans. We're in a position now where there's some areas that maybe go into what's a little bit more economical.

The idea is bean acres could be up a little bit more due to finances, but I visited a couple of guys that beans aren't quite there yet. So it depends on your bean yields. So it's a moving target. I think it's gonna be have to be outside the trade ranges to be a significant market maker. But the grain stocks report, that's gonna be our first benchmark to look at to gauge usage, about 9,000,000,000 bushels average trade gas on corn.

Soybeans, two point o six three. A little bit more stocks than a year ago, but with the uncertainty around the world and, ethanol margin's real strong, and this demand just really not going away from the moment into the year, we'll see what those numbers come in at.

Todd Gleason: Dave Chatterton, you will have spent a good portion of the month of February, half of the month of March thinking about crop insurance and discussing acreage with producers. What did they tell you then? And do you think today they will hold to what those outlooks might have been?

Dave Chatterton: Yeah. That's a really interesting question. I think, you know, our initial read on acres was that ninety four five kinda middle of the road expectation on corn, you know, down from last year's, you know, ninety year high, I guess, was probably gonna be a little bit low and that farmers were leaning a little bit more towards corn. As we rallied a little bit, I think a couple of things have happened. One is certainly the fertilizer element and the cost structure on the input side has entered the equation on corn.

Now, I I mean, you can you can put a moving target on farmers have locked up 75, 85% of their fertilizer needs before this really got started and going. But there are some open acres out there that that look to us like they're backing into beans, particularly in Southern Illinois or in places like the Dakotas where they don't tend to do a lot of pre buy or a lot of winter application. So I think that number is coming down. I still think it will be above the 94 or five. I think, you know, we've seen a few numbers, you know, in the surveys here as high as 97.

I don't think it will be that high, but, we're gonna to Kurt's point, we tend to find those acres in the spring. And assuming, you know, that that we have a good spring and that we're not interrupted or not late, I think that that that number that we get, next week probably has some upside to it, from USDA. I think last thing, keep in mind those surveys went out in late Feb and early March kind of before a lot of this latest, I'll say, push on the energy and the urea and the the nitrogen side of the complex really got going.

Todd Gleason: And then, Greg, I finally saw my first planter running for the season in Champaign County. Your elevator is in the background, by the way. I'm wondering when you talk to producers I know. I'm wondering when you talk to producers what they have been telling you.

Greg Johnson: Well, they've been telling me that the ground conditions are very good. We've had, three and a half, four, five inches of rain, in the month of March. That follows twelve to fourteen months of extremely dry, below normal precipitation. So the topsoil moisture is adequate. We still haven't replenished the subsoil moisture, but we do have enough moisture to get the crop planted.

So farmers are anxious to go. I think they're going to, since it's only late March and not April, I think we'll see people wait in general. There's always a few that'll get going here early, but I think farmers are optimistic. Well, there's obvious statement. Right?

Farmers are always optimistic. But I think farmers are optimistic about getting off to an early start and getting both the corn and the beans planted earlier than normal this year.

Todd Gleason: Then the next thing, if we get an early start, there is an old adage that says if a farmer is planting corn, they're likely to continue to plant corn. Given the high price of fertilizer, will that be the case this year?

Greg Johnson: I guess I don't think so. I I think we're gonna see 94,000,000 acres of corn and 86,000,000 acres of beans. That number may go up in June, but as far as the March report, I don't think you'll see a lot more than 94, maybe 94.5. But if you use 94 and use a 183 yield, that's a 15,700,000,000 bushel corn crop. Add the 2,000,000,000 carried over from this year, that's 17,700,000,000 and demand probably won't quite be 16,000,000,000 like it was this year.

So 17,700,000,000.0 minus 15,800,000,000.0 that gives you a 1,900,000,000 carryout. Tighter than this year, but not by much and not the recipe for $5 or $6 or $7 corn. So it just kind of takes us all back to the bottom line that, the prices probably aren't going to be much above $5 unless you tell me it's not going to rain very much in June, July and August. And we have to go with the odds, seven years out of eight we do get enough rain in those three months that we have a decent crop. Farmers probably need to sell corn as it gets close to that $5 range because it could be $4 by the time we get to fall, 4.25 anyway.

So if $4.25 to $5 is the range and we're at 4.9 today, it might be prudent to at least get offers in just in case that report on Tuesday is friendly for all of thirty five seconds. So I've been encouraging farmers to get offers in because you just never know where this market will go and for how long it'll stay there.

Todd Gleason: Kirk Kimmel, I'll let you follow-up on that. Offers in from farmers for new crop?

Curt Kimmel: Yeah, we scale into it four point nine nine and three quarters is a popular benchmark to avoid even five, but, you know, five zero five, scale it up to five fifty, if something would happen, you could lay into it. The main thing is a lot of guys have been leaning a little bit more heavier towards the price floor or hedge and defend type. But whenever you see an explosive type of market, even like silver, for example, yeah, it'll go to the extreme, but it'll come right back down too. So you gotta have some covered positions, so you have some staying power. What I've seen over the years, a guy make one margin call.

He'll make a second margin call. The third margin call, he'll say, get me out, and that's when the hedge works. So have some staying power.

Todd Gleason: And then Dave Chatterton, because Greg mentioned the weather conditions in the Eastern Corn Belt, seem to be pretty good today. A month ago, they were not. You wanted to talk about the weather. I bet it's Texas, Oklahoma, Kansas, and Nebraska that you're concerned about.

Dave Chatterton: Well, you know, I I think certainly we need keep an eye on those those areas, Todd, and that's a primarily a weed argument, I think, to a large degree and maybe a milo or, you know, small grains. But I think we're still solving that moisture deficit in the Midwest. And though it started to rain in The United States, we have a long way to go to really get back to a normal soil moisture profile. Looking at the long range forecasts and, you know, stuff from the, you know, Eric Snodgrass and similar, I mean, there's, you know, a few different opinions out there, but it looks like the gravitation from a a La Nina towards an El Nino type of the situation by late this summer favors, you know, decent rainfall in the periods that Greg had mentioned. But I think there's still an open, you know, open question that we could get pretty dry pretty quickly here.

And, you know, farmers who are planting this week, I've got a few guys who are on their third day of soybean planting in in Central Illinois, but doesn't look like a very friendly weekend. We're gonna get off the cold tonight, maybe some hail and storms. It's gonna stay cold over the weekend with more rain early next week, and, you know, we're getting off to a start. So I I think, you know, weather is always a concern, Todd. It's the, you know, the old saying, you know, is whether Trump's all ill, you know, can trump everything else.

And I think that's still true to a large degree. We need the production. We need to assure ourselves that we have that supply, especially with the things going on around the world here that that kind of put a lot of question marks in a in a number of other buckets.

Todd Gleason: Okay. So let's, finish up our conversation, I think, by discussing the war and war's impact on the grain markets. You all, of course, have been through the beginning of the Ukraine war, so you have some context with which to put the war in Iran at this time. And I'll start with you, Dave, on on how you see, the commodity markets between now and the fall because we have the Ukraine war. I've given you some of those numbers already.

And and what may or may not happen, in the intermediate intermediary time. I feel like that you're all gonna tell me it's likely to be a lower price, but I I wanna make sure that's actually the case.

Dave Chatterton: Yeah, Todd. I mean, I I would say that's a safe assumption assuming that we get our arms around the situation in Iran and that the the conflict or, you know, a ceasefire is declared and the conflict ends, we're able to reopen transport in the in the Gulf Of Hormuz and, you know, infrastructure starts being repaired that's been damaged. But that's a big if, I think. Unfortunately, right now, I guess my view, Todd, it might be a little different from the other from the others. We don't really have a template for what's going on right now.

We've never seen the strait closed in this way. We've never seen, you know, military threats that that have been carried out here. And it doesn't take a lot to scare off shipping and, you know, and transport through that region. It's, you know, you know, a drone here, a strip strike there, and and the insurance carriers and the ship owners do not wanna enter that regardless of military escorts or whatever the case might be. So, you know, I think we have support for our marketplace here, we have the potential to go higher, particularly in the oil complex that will have a drag on energies so long as that situation is not resolved.

Now I think there you know, the other side of that, there is a lot of pressure on the Trump administration to get this solved and get it solved quickly. It's bad for the inflation or or go ahead for the economy, bad for inflation, bad for the election, bad for the Republicans in a number of different fronts. But in general, you know, the world needs oil and we need economic growth. And so it's a it's kind of unprecedented water here, I don't think I would assume too much right now. I think you have to feel your way through day by day.

And you feel like the war is gonna come to a conclusion, you need to be more aggressive in the way that you're marketing grain. But until that point, I think I'm a little bit more hands off.

Todd Gleason: Greg Johnson, if the war war to were to be settled, it seems that the destruction that has taken place within the Middle East of the nitrogen production facilities, three to five years, they're saying to bring up the 17% that was lost in one of the attacks. The gas and oil fields have been hit, and particularly the ends of the pipeline. So the places that export feels like that might take some time to rebuild. Don't know how long on it. I've not seen something.

But the point, I suppose, is even if we were to settle, the issue, nitrogen might be high priced or at least supplies come off the marketplace. Diesel fuel probably will remain much higher priced, I would think. How do you think about this in context of what, corn, soybeans, and profits look like for farmers?

Greg Johnson: I I think Dave hit it right on the head. I think, if you knew when this war was gonna end, you would wanna be a little bit more aggressive and up your sales. But, you know, there's been myriads and myriads of Middle East Wars, and if we get this one done in a month or less, that could be the first time. I just have a feeling this could drag on, you know, for longer. You have to have an opinion.

And as of today, my opinion is this is not going to get resolved in a matter of weeks. It's probably going to take months. And so if that's the case, you probably don't have to be as aggressive on new crop corn sales. They'll follow the oil prices. But eventually, hopefully, we get it solved.

As far as inputs for next year, there's talk about removing the variable tax on Moroccan phosphate exports that would help. We can produce nitrogen here in The United States. Natural gas is much, much cheaper than it is overseas. So, you know, whether the companies choose to do that or not, that remains a big question because quite frankly, they can make more money by producing not as much and keeping the price high. So there has to be some either government push or a very big economic incentive for them to really increase production.

That can happen, but it would probably occur at a higher price or under some political pressure. So I guess I don't see the coil price falling out of bed tomorrow. I think this could take months, but again, I don't have any inside information. I wish I did, but everybody has to have an opinion. And I just like getting some sales on the books just because I fully recognize that nobody knows.

So, you know, we have to get some sold, and we hope that's our lowest sale, and and we'll we'll sell some more if, in fact, it does go higher.

Todd Gleason: And then, Kirk Kimmel, farmers will hear high price of oil likely to stay high, and they will be convinced that the price of corn will stay high along with it.

Curt Kimmel: Well, I hope so. But when comparing the two wars, when you look at the Ukraine war, that's more of a production concern, I think, than anything, whereas this is more of an input concern. And how to tie this together is when you look at the gray market, the gray market tank takes the stairs up and the elevator down. If you notice the energies and everything else, it takes the elevator straight up and the steps down. So, yeah, I agree with what's been said.

It's gonna be prolonged. It's gonna take quite a a bit of time for you to feel the relief at the gas pump or input costs. It's gonna be drawn out. And and I think, there's gonna be hesitation to really push the grain market a whole lot lower here until we move into summer and see how the crop matures.

Todd Gleason: Let's get a final word from each of you now. Greg Johnson from TTM Total Grain Marketing in Champaign, Illinois. Your final word for the day.

Greg Johnson: Well, the old rule of thumb is that spreads lead the way followed by basis then followed by flat price. The spreads are not indicating that we have a shortage or a tight, supply. Basis levels also aren't indicating that. So the flat price has gone up in reaction to some of the headline news, but the underlying fundamentals don't really argue for an extreme tightness in either corn or soybeans. So I I would say keep that in mind when it comes to time to determine where you're gonna make sales and at and at what levels.

Todd Gleason: Dave Chatterton from Strategic Farm Marketing, your final word?

Dave Chatterton: Yeah. I mean, just right on the tail of what Greg said. I think he's right. He's he's going, you know, exactly the direction that that we need to be looking, and that is that, you know, we've got a lot of fun linked in the marketplace here. We've had the benefit of a of a big spree of buying.

We're looking at the geopolitical landscape, and it's been supportive of our complex so far. But at the end of the day, we always gravitate back to those fundamentals. How long that will take is is an open question and we've discussed that. But at the end of the day, we're at prices that are somewhat elevated at least from where we started. We're in a situation where if you take all that geopolitical risk out or a good portion of it outside, we're still in what I'll call an oversupplied or a burden lease implied marketplace, you know, not only in The US but globally.

In the rally that we've seen to to to Greg's point, we we haven't seen cash fall in The US, but we haven't seen cash follow from our export competitors as well. So every day that the CBT is going up, we're seeing those Brazilian offers and those Ukrainian offers and those Argentine offers not really go up or to to a large degree. So we're getting less competitive on the export front. We're in a situation where we need to keep our demand profile as high as possible to kinda keep that stocks to use balance in check and keep prices somewhat close to where they're at in in a profitable level. So, again, I think it just comes down to be be a prudent risk manager.

We don't know what we don't know, but you can take steps to take some risk off the table and hopefully do so at a profitable level.

Todd Gleason: And finally, Kurt Kimmel of agmarket.net, your final word.

Curt Kimmel: Yeah. As Dave mentioned there, headline news. It feels like the wild wild west all over again here. I mean, you see energy market and the stock market move millions and millions of dollars in a defensive mode, then a tweet comes out here five, ten minutes later to justify. You can't fight that.

There's no way you can predict that. They'll hopefully have some transparency and look into it. As Greg mentioned, the weather. You look out west through here, the wheat crop is deteriorating quite a bit. So these crop conditions report for wheat's gonna be watched real closely.

And, boy, if that heat dried us moves to the east, watch out.

Todd Gleason: You've been listening, of course, to Commodity Week. It is production of Illinois Public Media. You may find and listen to the whole of the program anytime you'd like on our website at willag.org, willag.org. Our thanks go to our panelists this week, including Kurt Kimmel from agmarket.net, Greg Johnson from Total Grain Marketing, and Dave Chatterton of Strategic Farm Marketing on University of Illinois Extension's Todd Gleason.