cw261022

In this October 22 edition of Commodity Week, host Todd Gleason and panelists Ted Seifried and Mike Castle examine the recent sluggish price action in the corn and soybean markets. The conversation highlights a recent surge in U.S. export sales largely driven by Chinese purchases and an unexpected flash sale to Spain, though the analysts express concern over lagging non-China global demand. Domestically, they emphasize that robust soybean crush demand, fueled heavily by the biofuel sector, has maintained unexpectedly strong basis levels during the harvest window. The panel concludes by evaluating how macroeconomic factors, such as inflation and Federal Reserve interest rate policies, alongside South American weather conditions, will likely dictate future commodity price movements.

Panelists
- Mike Castle, StoneX
- Ted Seifried, Zaner Ag Hedge

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announce: This is the October 22 edition of Commodity Week. Todd Gleason services are made available to WILL by University of Illinois Extension.

Todd Gleason: Well welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Mike Castle, he’s at StoneX out of Kansas City, Missouri. Ted Seifried is here too from Zaner Ag Hedge, he is in Chicago, Illinois. Thank you both for being with us. Commodity Week of course is a production of Illinois Public Media. It is public radio for the farming world, online on demand at willag.org, that’s willag.org where you can find the latest information on the markets as well as what the agricultural economists, the crop scientists, and the animal scientists at the University of Illinois have on their minds as they write articles that are posted directly to the website. Again that’s willag.org. Mike and Ted, it’s good to have you on. I feel like, you know, Kansas City and Chicago we might need to have a battle of some sort, but I don’t know whether it’s about commodity markets. Maybe Ted you already won because the Kansas City Board of Trade got usurped at some point in time. But I do want to know what each of you want to talk about today. So Ted, let’s start with you. Tell me what’s on your mind this week.

Ted Seifried: I mean if we’re if we’re talking Kansas City versus Chicago the obvious thing that comes to my mind for this time of year is let’s play some football. And I think this is a year where we’d actually maybe stack up against Kansas City. Recent years past it would not have been a very fun thing for Chicago. But this year could be interesting. I think they’re both good. But yeah as far as commodity markets are concerned Todd, um you know it was kind of a mixed day here today on Thursday. The disappointment was that corn was not able to follow through to the upside after the nice little reversal off of a new recent low that it had on Wednesday. It was a really nice bounce off the low, a positive close on the day. You had the feeling that if we could keep that momentum going through Thursday and hopefully into Friday that we could start maybe singing the praises of a temporary low or a seasonal low in corn for now. But it just didn’t really get that feeling there on Thursday. It might turn into that, Todd, but it just wasn’t the bullish follow-through that you wanted to see. In the meantime, you know, soybeans did try to find some strength, which was nice to see, but they really faded by the end of the day too. So a bit of a disappointing day on Thursday. Maybe this is just the fits and starts of a seasonal low, um but it could have been better. Definitely left some to be wanted at the end of the day on Thursday.

Todd Gleason: Mike are you Chiefs, Royals, or maybe you’re a soccer fan after the summer time.

Mike Castle: I you know I have not much of a soccer guy even though we’ve got two teams now, but I am a diehard Chiefs fan. Royals, Huskers, I mean, Chicago’s definitely got us beat on the baseball side at this point. Even the White Sox made the playoffs, so even the White Sox you’re making us look bad. But at least the Chiefs are back this year as long as they can keep everybody healthy. I won’t even dive into my Huskers, that’s just too sad.

Todd Gleason: What’s on your mind as it’s related to the marketplace.

Mike Castle: I think you know following Ted’s comments like it is good to see. Again you’d like to see more of a bounce after it seemingly kind of running into some areas of support what’s going to happen next. But really I think the most interesting thing that I was looking at today is the fact that our export sales data that got released is for the week ending 10/15. That means that’s the first week we’re capturing that post-Oct WASDE break lower in prices finally bringing some demand back to the table. I think that’s encouraging as a longer-term signal. I think obviously we’re lagging in corn sales pretty notably at this point if we’re going to get to that 3.3 billion bushel target, but there are certainly a lot of supportive factors globally for US corn export demand in the year ahead. So it’s good to see us hit a six-week high in sales just over 60 million bushels. I wouldn’t be shocked to continue to see some strength in the next couple weeks just given how cheap we’ve gotten. I know a lot of our domestic end-use customers have kind of gotten a lot of coverage priced in. It does feel like there was a lot of demand kind of sitting on the sidelines watching the price go up, finally got that break lower for them, and seeing them step back in is encouraging. But really the strength was on the soybean side as it has been in all of the 26/27 marketing year from the export perspective again. Over 100 million bushels, 104.4, it was our biggest single week of soybean export sales since the fall of 2023. So a three-year high, 80 million of that was to China. Obviously they are driving this far and away, they’re getting pretty aggressive in these purchases. That is an encouraging sign as well obviously. I do think the reality of them getting to 25 million tons is starting to feel more feasible, again primarily just driven by political favor at this point. But it is encouraging to see them stepping forward in the actual hard data. Obviously we’ve had seven straight business days of daily flash sales announced as well on the soybean side. China’s been the vast majority of that, unknown destinations that we assume also just China making their way in. But it was also encouraging to see a flash sale to Spain on the soybean side. So it’s not just one destination driving all of it even though it is the majority of it. Again seeing soybean prices break, it’s good to see the demand kind of step in to meet that. So overall I do think the bigger intrigue is going to kind of be on the demand side of the balance sheet as we kind of get through the tail end of harvest here. Obviously has been easier said than done this year. But I do think that’s an encouraging sign. I was very, you know as kind of a commodity fundamentals nerd, excited to see today’s export sales report and it really didn’t disappoint on the corn and soybean side of things.

Todd Gleason: Hey Ted, when you think about this, as he said, China was in sort of as a favor. It’s part of the negotiations that the Trump administration has had with President Xi, the 25 million metric tons they promised to buy usually done by the state-owned facilities COFCO and others. I’m wondering if you’re worried that longer term this still doesn’t really bode well for the United States and its exports to China. And if that is just a China turning to Brazil, a China having a smaller herd for hogs, a more efficient one, a smaller and declining population, how do you view that marketplace?

Ted Seifried: Yeah Todd, I mean there’s a lot of things to unpack about exports right now. You know as Mike said, I think the trade is feeling rather comfortable that China is going to hit that 25 million metric tons of soybeans that they agreed upon last October. They’re well on their way. You know I’ve got them probably at about 17 million metric tons at this point. But the rest of the world business is what’s really lagging behind. Yeah, it was really interesting to see Spain in there the other day. I’m still waiting to see if that’s going to get corrected by the USDA. I would not be surprised in the least if it does. I mean that’s the first bean sale to Spain that we’ve had since 24, and they really wasn’t much in front of that. I mean there’s really just been a handful of sales to Spain for US soybeans in the last decade or so. So we’ll see about that one, but the rest of the world business is really suffering. And that’s because you have what’s called demand displacement. When you’re pushing China to buy US soybeans for political reasons and you have prices higher than they were in previous years and you have lower prices in South America, Brazil in particular, the rest of the world is going to go do that business in Brazil. And so my worry longer term when it comes to the US export program is, yeah, what happens when this deal is over and China does the 12 million and then three years of 25 million, which by the way anything can happen at any time for that to fall apart too. But when the deal is over, have we effectively pushed a lot of the rest of the world business market share down to Brazil and Argentina? Are we hurting ourselves by creating this artificial politically driven market to China to try to make things feel like normal again at the expense of longer term losses, right? And I just don’t get the feeling that the long term relationship with China is there. I don’t think China is ever going to be buying our soybeans because they like us. But who knows, I mean the world’s a crazy place, things change all the time. It just doesn’t get that feeling right now and again I’m worried about the damage we’re doing to that rest of the world business because this is a really bad year so far. And on the corn side of things, man, we look so different at this time of the year. Yeah, the sales here today were a little bit better than expectations, or a little bit better than the high end of expectations. It was good to finally see a good number for corn. But I mean look at what we were doing this time last year. I mean we were off to the races, on pace counter seasonally on pace for an absolute record export year which we did have. But then you look at the USDA’s outlook and it’s just a modest increase year over year of 25 million bushels. But based on the pace we have right now, there’s no way we can get there. It’s got to be a South American weather problem, there’s got to be this super El Nino effect that really hurts both the Brazilian second season safrinha corn crop and the Argentinian crop to push that world business here. Or we just have to get cheap enough. And those aren’t really great outlooks. So I don’t know. You know I have to be worried about the export business. You do wonder if the USDA is considering that reported trade deal that we had back in May of the 17 billion dollars of US ag and ag related products that China was going to buy from us if they were figuring that a good portion of that would be corn. But we’ve seen no indication of that coming to fruition, and at some point we might have to give up on that idea.

Todd Gleason: Mike I want to talk about the imports into China and the impact it may or may not have longer term. I think it’s important to recall that China still has a 10% tariff on soybeans coming into that country from the United States. They’re buying as you mentioned kind of as a nicety at this point out of a 10% tariff. So even if it’s a lower price it’s still higher than the world market price. Are you worried too about the long-term impact?

Mike Castle: Oh absolutely. I think it’s kind of the situation where it’s obviously a positive from a commodity fundamentals perspective to see them return with these purchases for political favor. But again once that runs out you’re kind of left being a price competitor versus South America, who is obviously going to continue expanding at this point. We’ve seen record crop after record crop, they’re off to a fantastic start this year. Like Ted kind of alluded to you need to see that super El Nino actually do something in terms of a detrimental effect on the South American crop and it’s just not been the case. Center West Brazil had their wettest September since 2009, they’ve been very wet in October as well. The crops, like our Brazil folks will send pictures along from Mato Grosso, things look phenomenal. You really couldn’t have had more of an ideal start. And I do think to Ted’s point about losing that rest of world business, it is worth pointing out we’re kind of tracking with three years ago at this point. Of our 963 million bushels of cumulative sales on soybeans in 26/27, 702 million of that is to China or unknown destinations, only 261 remains to the rest of the world. And again that’s pretty close to in line with 23/24, and for what it’s worth our non-China exports that year ended up at 786 million bushels. Right now with what USDA has plugged in at 1.695 billion, if you subtract that 25 million tons of China business, it’s 919 million bushels. That leaves you at 776. So realistically that’s pretty much right in line with what USDA already has factored in. So I guess the concern there is you’d lose the opportunity to see that target move much higher unless you’re able to pick up more non-China demand. I do think actually I’m kind of interested Ted, do you think USDA would change that Spain flash sale? Are you saying like maybe that’s corn instead or just the wrong destination? Because we do typically sell about 40 to 70 million bushels of soybeans to Spain.

Ted Seifried: Yeah no, I think it could be a different destination. I don’t think it’s corn, I think it is soybeans. I wonder if it’s either should have been flagged as unknown or China. Again, I don’t think it’s… well, I guess anything would… nothing would surprise me. But I would get the feeling that it is soybeans, it’s just not, maybe not Spain. Again, you know we’ve not done a ton of soybean business with Spain, the last time we did anything of note or a daily flash sale to Spain was December 17th, 24. And that we’ve only seen six flash sales to Spain in over a decade. So you know to see a number like that, it’s just, it just doesn’t fit right. It certainly could be, you know, I’m not saying 100% that the USDA is going to come back and change that, I just wouldn’t be surprised if they did.

Todd Gleason: Gotcha. I mean we do sell them, like we sold them 43 million last year in the 70s the couple years prior to that, and this is kind of the time they normally step in. But yeah seeing something big enough it gets caught in the daily flash sales, it’s maybe we’re grasping at straws for excitement here and it is just a mistake. But I do think it’s good to see other destinations get thrown into the mix because of that reason right, of that non-China demand being this soft.

Ted Seifried: And to your point though Mike, yes we do do some business with Spain. But if that 165 metric tons to Spain is correct that might be the extent of the business that we’re going to do with Spain. That’s sort of the problem. So maybe it’s not as exciting as it sounds.

Todd Gleason: Speaking of exciting, the market has been the undercurrent really has been domestic usage. I think bean meal exports have kind of like to talk about that if either one of you want to take that up as well. But bean oil domestic usage 45Z which hasn’t completely been flushed out, flushed out that is, and the RVO all in one big bundle. Maybe Ted if you could pick up that internal domestic usage how much demand there really is and if it can support a move back higher out of these harvest, and I don’t know if you’re calling them harvest lows yet or not, but whether this harvest time pushed down in the marketplace.

Ted Seifried: Well you know it’s a different thing when we talking about soybean oil demand and prices versus what it means for soybeans right, because if we can’t crush it then it doesn’t help the flat price of soybeans. But soybean oil demand does I mean it is extremely strong. We are feeling a renaissance of soybean demand through the crush because of soybean oil demand, because of SAF and 45Z, and that’s fantastic. It’s added a whole new dynamic to crush margins which are really fantastic. 50 cents to a dollar higher from where they’ve been at this point the last couple of years. The crush demand should remain really strong. The September crush was less than expected, part of that was maintenance downtime carrying over from August into September, but really that first couple weeks of harvest were slow and sloppy and even transportation during that timeframe was sloppy. So that cut into that September forecast, but crush margins are saying that the crush is going to be here to stay. We’re going to keep crushing at a very elevated level. We again September was disappointing, it was the first time in well over a year in 18 months that we had seen a month from 26 be below a month in the same month in 25, but again I think that’s just a one off. You look at crush it looks crush margins look great, that should continue. But the thing is you know we’re limited by capacity right and we are adding to capacity every year because those crush margins are very good but it takes time. You know we can’t replace our export program with crush, we just don’t have the ability to do that and at some point the concern for me is soybean meal. You know at some point we have more meal than we really know what to do with so we have to keep proliferating our soybean meal export program. It’s been decent, we saw another you know halfway decent number for soybean meal today. Again ultimately we’re going to need to see double these but you know almost 250,000 here this last week. Again both the products are contributing to those very strong crush margins, crush is going to keep running very strongly. We’re going to keep setting these monthly records I think now that we’re past you know the delayed harvest issues that we were having. And it looks great you know but we need the exports to go along with it until we can fully you know expand that crush capacity another billion bushels or so.

Todd Gleason: Mike what are you thinking about this side of the marketplace as it relates to support of both corn and soybeans and I guess I’m thinking really across the whole biofuels sector.

Mike Castle: Yeah I do think like the big picture story into 27 obviously we’re still in this global energy shock. You can kind of look at what you know crude’s doing on the screen but like physical costs of refined products are still wildly high so everyone globally is incentivized to find cheaper alternatives and there’s kind of more and more incentive to continue that. Like Brazil obviously is the prime example on them going from E30 on the corn based ethanol side up to E32 and now they’re already testing E35 it sounds like that kind of has momentum. So that means automatically less corn available for them to export right, they’re keeping more at home that makes the US look more competitive in the export market. On the actual corn side the other thing that’s kind of worth watching is how stronger ethanol exports have been. You know USDA does have a slight year on year uptick in their corn use for ethanol and I really don’t think that’s all that reflective of domestic demand right. We’re pulling teeth just to allow year round sales of E15 mandate pretty much stuck for the foreseeable future. But other places around the world especially in big markets are doing this right. India is moving to higher ethanol on the corn side of things, looking at the other edible oils in terms of biofuels Southeast Asia there is a ton of palm oil being used to produce biofuels even domestically like Ted said these crush margins have been fantastic. These crushers are running full out to take advantage of this because we have such lofty biofuel mandates now. This is our first marketing year in history that the biggest demand category for soybean oil in America is biofuel, so it is kind of a fundamental shift in what the crop is used for. It gives us a much steadier ongoing demand base and kind of to that point of the soft September crush that we saw I think a big part of that is a function of physically not being able to find the beans. I know a lot of the crushers around us were paying like a dollar fifty 225 over just to find soybeans through the tail end of August and into September not just because of the harvest delays. But again you’re inherently crushing more in that late summer window than you ever have right. Our export program is primarily centered on the fall and winter before Brazilian harvest starts and we just have more consistent late season demand so you kind of have to figure out a way to pay commercial space to carry those beans or these crushers are going to continue to be in this spot. So obviously this year especially if you look you know some of the places with the biggest crush capacity right, Iowa even Eastern Nebraska where they had this extremely delayed soybean harvest that certainly exacerbates the problem. But the underlying issue is still there right, we have this new demand that we historically didn’t right. We’re not as reliant on exports, over 60% of our total soy demand is used domestically because of this expansion to crush. So nobody at the elevator level as someone who started their career at the elevator level wants to hear we need to carry soybeans. But eventually we’re going to have to figure out a way to do it or you’re going to see these crushers either have to really dramatically cut back and you know hey we’re this is maintenance we’re not doing this just because we can’t find the beans. And see those softer late summer months early fall months of crush. But again to kind of hit that target it is worth noting that seeing that September disappointment does kind of put us in having to play catch up here in the year ahead. So that I think also kind of takes some of the steam out about the potential for seeing those demand side targets move higher. Again we kind of already mentioned it on the export side but now it feels that much harder to get past that 2.78 billion crush target not to say that we can’t but I don’t think it’s by a huge amount because of exactly what Ted’s alluding to there about we do have the restriction of capacity right.

Ted Seifried: Yeah hey Mike you know as far as inflation is concerned and the funds maybe wanting to stay long commodities for inflation and then also commodities for conflict. For one I you know I think the funds did really start to get long some of these things commodities for conflict but I don’t think they’d really seen the returns that they were hoping for. So I wonder if that is something that they’re still looking at and if the Fed is going to continue to raise interest rates and the way they’re talking they’re showing a propensity and a want and a willingness to do that and maybe even more aggressively. So if you’re a fund yeah okay you can say well I see more inflation showing up in PPI but with the Fed wanting to and willing to fight inflation and raise interest rates do you want to be involved in futures? Do you want to be involved in things that are reflecting the future if you feel like the Fed is going to fight it?

Todd Gleason: Do you have an answer Mike.

Mike Castle: It’s one thing to talk about your commitment to a 2.0% inflation mandate it’s another thing to actually do what it takes to get there. I guess that is I mean it’s a good way to look at it right the question is does it keep any of them around in that environment if you do see a more hawkish a more aggressive fed maybe that takes it out. And again that kind of adds an additional layer of downside risk especially like Ted already mentioned they’re still holding pretty sizable longs even though they’ve trimmed off a lot.

Todd Gleason: Let’s get a final word from each of you. Ted I’ll start with you.

Ted Seifried: Yeah you know I think the question you asked about what do I feel about prices going forward and you know a lot of my brain wants to think that we’ve overshot the mark to the downside. But I think we also have to be cognizant of the here and now and the other things that give us indications of where we’re going. So I think the narrative that we started with in corn harvest was oh wow this crop’s got is way less than expected the USDA is crazy with the numbers that they’re giving us it’s got to come down either November or January or both. I think that’s now getting tempered a little bit. And I worry that as we move along with that harvest if that is in fact the case that maybe we’re going to stabilize yield and oh by the way the basis gets full well or the sorry the pipeline gets full well then basis is going to fall and you combine a falling basis with the idea that crop isn’t shrinking anymore that could potentially put a lot of pressure on futures.

Todd Gleason: Mike what are you hearing on this subject.

Mike Castle: Yeah I would agree wholeheartedly. And we have seen like especially in the KC area in Kansas or working up into Nebraska and Iowa like a lot of the huge front-end premiums being paid specifically in the soybean market is just a function of those crushers needing to find the beans and it’s physically not being done quick enough or we’re not harvesting fast enough to satiate that immediate pipeline demand. And I would echo that exact same sentiment of once you kind of pass that tipping point what all of a sudden that incentive is gone right as harvest plays catch up that front end scarcity disappears and those premiums get violently yanked out of the market.

Todd Gleason: I would say that the ag economist to this point have said this is not like the ethanol build out. That it is much smaller and will have less of an impact. Though it was an undercurrent in the marketplace in their opinion and certainly supportive and Ted I wanna speak speaking of supportive I wanna ask you about basis for both corn and soybeans they’ve been really good through the gut slot of harvest now. I’m wondering whether that means that basis will appreciate and if it does where are futures going will they rebound as well or is basis going to do the heavy lift on the back end of this.

Ted Seifried: Yeah basis has been kind of wild as far as location right I mean it’s been very very varied over geography and a lot of that’s coming from where the harvest delays are. It’s just very widely varied right and we have to see if that ends up fixing itself as harvest gets rolling or if that tells us something bigger picture down the line I think it’s probably the former, but it’s been something to definitely keep an eye on.

Todd Gleason: Mike Castle out of Kansas City Ted Seifried out of Chicago gentlemen thank you both for being with us today on Commodity Week. Commodity Week of course is a production of Illinois Public Media.

announce: This is the October 22 edition of Commodity Week. Todd Gleason services are made available to WILL by University of Illinois Extension.

Todd Gleason: Well welcome to Commodity Week. I am Todd Gleason. Our panelists for the day include Mike Castle, he’s at StoneX out of Kansas City, Missouri. Ted Seifried is here too from Zaner Ag Hedge, he is in Chicago, Illinois. Thank you both for being with us. Commodity Week of course is a production of Illinois Public Media. It is public radio for the farming world, online on demand at willag.org, that’s willag.org where you can find the latest information on the markets as well as what the agricultural economists, the crop scientists, and the animal scientists at the University of Illinois have on their minds as they write articles that are posted directly to the website. Again that’s willag.org. Mike and Ted, it’s good to have you on. I feel like, you know, Kansas City and Chicago we might need to have a battle of some sort, but I don’t know whether it’s about commodity markets. Maybe Ted you already won because the Kansas City Board of Trade got usurped at some point in time. But I do want to know what each of you want to talk about today. So Ted, let’s start with you. Tell me what’s on your mind this week.

Ted Seifried: I mean if we’re if we’re talking Kansas City versus Chicago the obvious thing that comes to my mind for this time of year is let’s play some football. And I think this is a year where we’d actually maybe stack up against Kansas City. Recent years past it would not have been a very fun thing for Chicago. But this year could be interesting. I think they’re both good. But yeah as far as commodity markets are concerned Todd, um you know it was kind of a mixed day here today on Thursday. The disappointment was that corn was not able to follow through to the upside after the nice little reversal off of a new recent low that it had on Wednesday. It was a really nice bounce off the low, a positive close on the day. You had the feeling that if we could keep that momentum going through Thursday and hopefully into Friday that we could start maybe singing the praises of a temporary low or a seasonal low in corn for now. But it just didn’t really get that feeling there on Thursday. It might turn into that, Todd, but it just wasn’t the bullish follow-through that you wanted to see. In the meantime, you know, soybeans did try to find some strength, which was nice to see, but they really faded by the end of the day too. So a bit of a disappointing day on Thursday. Maybe this is just the fits and starts of a seasonal low, um but it could have been better. Definitely left some to be wanted at the end of the day on Thursday.

Todd Gleason: Mike are you Chiefs, Royals, or maybe you’re a soccer fan after the summer time.

Mike Castle: I you know I have not much of a soccer guy even though we’ve got two teams now, but I am a diehard Chiefs fan. Royals, Huskers, I mean, Chicago’s definitely got us beat on the baseball side at this point. Even the White Sox made the playoffs, so even the White Sox you’re making us look bad. But at least the Chiefs are back this year as long as they can keep everybody healthy. I won’t even dive into my Huskers, that’s just too sad.

Todd Gleason: What’s on your mind as it’s related to the marketplace.

Mike Castle: I think you know following Ted’s comments like it is good to see. Again you’d like to see more of a bounce after it seemingly kind of running into some areas of support what’s going to happen next. But really I think the most interesting thing that I was looking at today is the fact that our export sales data that got released is for the week ending 10/15. That means that’s the first week we’re capturing that post-Oct WASDE break lower in prices finally bringing some demand back to the table. I think that’s encouraging as a longer-term signal. I think obviously we’re lagging in corn sales pretty notably at this point if we’re going to get to that 3.3 billion bushel target, but there are certainly a lot of supportive factors globally for US corn export demand in the year ahead. So it’s good to see us hit a six-week high in sales just over 60 million bushels. I wouldn’t be shocked to continue to see some strength in the next couple weeks just given how cheap we’ve gotten. I know a lot of our domestic end-use customers have kind of gotten a lot of coverage priced in. It does feel like there was a lot of demand kind of sitting on the sidelines watching the price go up, finally got that break lower for them, and seeing them step back in is encouraging. But really the strength was on the soybean side as it has been in all of the 26/27 marketing year from the export perspective again. Over 100 million bushels, 104.4, it was our biggest single week of soybean export sales since the fall of 2023. So a three-year high, 80 million of that was to China. Obviously they are driving this far and away, they’re getting pretty aggressive in these purchases. That is an encouraging sign as well obviously. I do think the reality of them getting to 25 million tons is starting to feel more feasible, again primarily just driven by political favor at this point. But it is encouraging to see them stepping forward in the actual hard data. Obviously we’ve had seven straight business days of daily flash sales announced as well on the soybean side. China’s been the vast majority of that, unknown destinations that we assume also just China making their way in. But it was also encouraging to see a flash sale to Spain on the soybean side. So it’s not just one destination driving all of it even though it is the majority of it. Again seeing soybean prices break, it’s good to see the demand kind of step in to meet that. So overall I do think the bigger intrigue is going to kind of be on the demand side of the balance sheet as we kind of get through the tail end of harvest here. Obviously has been easier said than done this year. But I do think that’s an encouraging sign. I was very, you know as kind of a commodity fundamentals nerd, excited to see today’s export sales report and it really didn’t disappoint on the corn and soybean side of things.

Todd Gleason: Hey Ted, when you think about this, as he said, China was in sort of as a favor. It’s part of the negotiations that the Trump administration has had with President Xi, the 25 million metric tons they promised to buy usually done by the state-owned facilities COFCO and others. I’m wondering if you’re worried that longer term this still doesn’t really bode well for the United States and its exports to China. And if that is just a China turning to Brazil, a China having a smaller herd for hogs, a more efficient one, a smaller and declining population, how do you view that marketplace?

Ted Seifried: Yeah Todd, I mean there’s a lot of things to unpack about exports right now. You know as Mike said, I think the trade is feeling rather comfortable that China is going to hit that 25 million metric tons of soybeans that they agreed upon last October. They’re well on their way. You know I’ve got them probably at about 17 million metric tons at this point. But the rest of the world business is what’s really lagging behind. Yeah, it was really interesting to see Spain in there the other day. I’m still waiting to see if that’s going to get corrected by the USDA. I would not be surprised in the least if it does. I mean that’s the first bean sale to Spain that we’ve had since 24, and they really wasn’t much in front of that. I mean there’s really just been a handful of sales to Spain for US soybeans in the last decade or so. So we’ll see about that one, but the rest of the world business is really suffering. And that’s because you have what’s called demand displacement. When you’re pushing China to buy US soybeans for political reasons and you have prices higher than they were in previous years and you have lower prices in South America, Brazil in particular, the rest of the world is going to go do that business in Brazil. And so my worry longer term when it comes to the US export program is, yeah, what happens when this deal is over and China does the 12 million and then three years of 25 million, which by the way anything can happen at any time for that to fall apart too. But when the deal is over, have we effectively pushed a lot of the rest of the world business market share down to Brazil and Argentina? Are we hurting ourselves by creating this artificial politically driven market to China to try to make things feel like normal again at the expense of longer term losses, right? And I just don’t get the feeling that the long term relationship with China is there. I don’t think China is ever going to be buying our soybeans because they like us. But who knows, I mean the world’s a crazy place, things change all the time. It just doesn’t get that feeling right now and again I’m worried about the damage we’re doing to that rest of the world business because this is a really bad year so far. And on the corn side of things, man, we look so different at this time of the year. Yeah, the sales here today were a little bit better than expectations, or a little bit better than the high end of expectations. It was good to finally see a good number for corn. But I mean look at what we were doing this time last year. I mean we were off to the races, on pace counter seasonally on pace for an absolute record export year which we did have. But then you look at the USDA’s outlook and it’s just a modest increase year over year of 25 million bushels. But based on the pace we have right now, there’s no way we can get there. It’s got to be a South American weather problem, there’s got to be this super El Nino effect that really hurts both the Brazilian second season safrinha corn crop and the Argentinian crop to push that world business here. Or we just have to get cheap enough. And those aren’t really great outlooks. So I don’t know. You know I have to be worried about the export business. You do wonder if the USDA is considering that reported trade deal that we had back in May of the 17 billion dollars of US ag and ag related products that China was going to buy from us if they were figuring that a good portion of that would be corn. But we’ve seen no indication of that coming to fruition, and at some point we might have to give up on that idea.

Todd Gleason: Mike I want to talk about the imports into China and the impact it may or may not have longer term. I think it’s important to recall that China still has a 10% tariff on soybeans coming into that country from the United States. They’re buying as you mentioned kind of as a nicety at this point out of a 10% tariff. So even if it’s a lower price it’s still higher than the world market price. Are you worried too about the long-term impact?

Mike Castle: Oh absolutely. I think it’s kind of the situation where it’s obviously a positive from a commodity fundamentals perspective to see them return with these purchases for political favor. But again once that runs out you’re kind of left being a price competitor versus South America, who is obviously going to continue expanding at this point. We’ve seen record crop after record crop, they’re off to a fantastic start this year. Like Ted kind of alluded to you need to see that super El Nino actually do something in terms of a detrimental effect on the South American crop and it’s just not been the case. Center West Brazil had their wettest September since 2009, they’ve been very wet in October as well. The crops, like our Brazil folks will send pictures along from Mato Grosso, things look phenomenal. You really couldn’t have had more of an ideal start. And I do think to Ted’s point about losing that rest of world business, it is worth pointing out we’re kind of tracking with three years ago at this point. Of our 963 million bushels of cumulative sales on soybeans in 26/27, 702 million of that is to China or unknown destinations, only 261 remains to the rest of the world. And again that’s pretty close to in line with 23/24, and for what it’s worth our non-China exports that year ended up at 786 million bushels. Right now with what USDA has plugged in at 1.695 billion, if you subtract that 25 million tons of China business, it’s 919 million bushels. That leaves you at 776. So realistically that’s pretty much right in line with what USDA already has factored in. So I guess the concern there is you’d lose the opportunity to see that target move much higher unless you’re able to pick up more non-China demand. I do think actually I’m kind of interested Ted, do you think USDA would change that Spain flash sale? Are you saying like maybe that’s corn instead or just the wrong destination? Because we do typically sell about 40 to 70 million bushels of soybeans to Spain.

Ted Seifried: Yeah no, I think it could be a different destination. I don’t think it’s corn, I think it is soybeans. I wonder if it’s either should have been flagged as unknown or China. Again, I don’t think it’s… well, I guess anything would… nothing would surprise me. But I would get the feeling that it is soybeans, it’s just not, maybe not Spain. Again, you know we’ve not done a ton of soybean business with Spain, the last time we did anything of note or a daily flash sale to Spain was December 17th, 24. And that we’ve only seen six flash sales to Spain in over a decade. So you know to see a number like that, it’s just, it just doesn’t fit right. It certainly could be, you know, I’m not saying 100% that the USDA is going to come back and change that, I just wouldn’t be surprised if they did.

Todd Gleason: Gotcha. I mean we do sell them, like we sold them 43 million last year in the 70s the couple years prior to that, and this is kind of the time they normally step in. But yeah seeing something big enough it gets caught in the daily flash sales, it’s maybe we’re grasping at straws for excitement here and it is just a mistake. But I do think it’s good to see other destinations get thrown into the mix because of that reason right, of that non-China demand being this soft.

Ted Seifried: And to your point though Mike, yes we do do some business with Spain. But if that 165 metric tons to Spain is correct that might be the extent of the business that we’re going to do with Spain. That’s sort of the problem. So maybe it’s not as exciting as it sounds.

Todd Gleason: Speaking of exciting, the market has been the undercurrent really has been domestic usage. I think bean meal exports have kind of like to talk about that if either one of you want to take that up as well. But bean oil domestic usage 45Z which hasn’t completely been flushed out, flushed out that is, and the RVO all in one big bundle. Maybe Ted if you could pick up that internal domestic usage how much demand there really is and if it can support a move back higher out of these harvest, and I don’t know if you’re calling them harvest lows yet or not, but whether this harvest time pushed down in the marketplace.

Ted Seifried: Well you know it’s a different thing when we talking about soybean oil demand and prices versus what it means for soybeans right, because if we can’t crush it then it doesn’t help the flat price of soybeans. But soybean oil demand does I mean it is extremely strong. We are feeling a renaissance of soybean demand through the crush because of soybean oil demand, because of SAF and 45Z, and that’s fantastic. It’s added a whole new dynamic to crush margins which are really fantastic. 50 cents to a dollar higher from where they’ve been at this point the last couple of years. The crush demand should remain really strong. The September crush was less than expected, part of that was maintenance downtime carrying over from August into September, but really that first couple weeks of harvest were slow and sloppy and even transportation during that timeframe was sloppy. So that cut into that September forecast, but crush margins are saying that the crush is going to be here to stay. We’re going to keep crushing at a very elevated level. We again September was disappointing, it was the first time in well over a year in 18 months that we had seen a month from 26 be below a month in the same month in 25, but again I think that’s just a one off. You look at crush it looks crush margins look great, that should continue. But the thing is you know we’re limited by capacity right and we are adding to capacity every year because those crush margins are very good but it takes time. You know we can’t replace our export program with crush, we just don’t have the ability to do that and at some point the concern for me is soybean meal. You know at some point we have more meal than we really know what to do with so we have to keep proliferating our soybean meal export program. It’s been decent, we saw another you know halfway decent number for soybean meal today. Again ultimately we’re going to need to see double these but you know almost 250,000 here this last week. Again both the products are contributing to those very strong crush margins, crush is going to keep running very strongly. We’re going to keep setting these monthly records I think now that we’re past you know the delayed harvest issues that we were having. And it looks great you know but we need the exports to go along with it until we can fully you know expand that crush capacity another billion bushels or so.

Todd Gleason: Mike what are you thinking about this side of the marketplace as it relates to support of both corn and soybeans and I guess I’m thinking really across the whole biofuels sector.

Mike Castle: Yeah I do think like the big picture story into 27 obviously we’re still in this global energy shock. You can kind of look at what you know crude’s doing on the screen but like physical costs of refined products are still wildly high so everyone globally is incentivized to find cheaper alternatives and there’s kind of more and more incentive to continue that. Like Brazil obviously is the prime example on them going from E30 on the corn based ethanol side up to E32 and now they’re already testing E35 it sounds like that kind of has momentum. So that means automatically less corn available for them to export right, they’re keeping more at home that makes the US look more competitive in the export market. On the actual corn side the other thing that’s kind of worth watching is how stronger ethanol exports have been. You know USDA does have a slight year on year uptick in their corn use for ethanol and I really don’t think that’s all that reflective of domestic demand right. We’re pulling teeth just to allow year round sales of E15 mandate pretty much stuck for the foreseeable future. But other places around the world especially in big markets are doing this right. India is moving to higher ethanol on the corn side of things, looking at the other edible oils in terms of biofuels Southeast Asia there is a ton of palm oil being used to produce biofuels even domestically like Ted said these crush margins have been fantastic. These crushers are running full out to take advantage of this because we have such lofty biofuel mandates now. This is our first marketing year in history that the biggest demand category for soybean oil in America is biofuel, so it is kind of a fundamental shift in what the crop is used for. It gives us a much steadier ongoing demand base and kind of to that point of the soft September crush that we saw I think a big part of that is a function of physically not being able to find the beans. I know a lot of the crushers around us were paying like a dollar fifty 225 over just to find soybeans through the tail end of August and into September not just because of the harvest delays. But again you’re inherently crushing more in that late summer window than you ever have right. Our export program is primarily centered on the fall and winter before Brazilian harvest starts and we just have more consistent late season demand so you kind of have to figure out a way to pay commercial space to carry those beans or these crushers are going to continue to be in this spot. So obviously this year especially if you look you know some of the places with the biggest crush capacity right, Iowa even Eastern Nebraska where they had this extremely delayed soybean harvest that certainly exacerbates the problem. But the underlying issue is still there right, we have this new demand that we historically didn’t right. We’re not as reliant on exports, over 60% of our total soy demand is used domestically because of this expansion to crush. So nobody at the elevator level as someone who started their career at the elevator level wants to hear we need to carry soybeans. But eventually we’re going to have to figure out a way to do it or you’re going to see these crushers either have to really dramatically cut back and you know hey we’re this is maintenance we’re not doing this just because we can’t find the beans. And see those softer late summer months early fall months of crush. But again to kind of hit that target it is worth noting that seeing that September disappointment does kind of put us in having to play catch up here in the year ahead. So that I think also kind of takes some of the steam out about the potential for seeing those demand side targets move higher. Again we kind of already mentioned it on the export side but now it feels that much harder to get past that 2.78 billion crush target not to say that we can’t but I don’t think it’s by a huge amount because of exactly what Ted’s alluding to there about we do have the restriction of capacity right.

Ted Seifried: Yeah hey Mike you know as far as inflation is concerned and the funds maybe wanting to stay long commodities for inflation and then also commodities for conflict. For one I you know I think the funds did really start to get long some of these things commodities for conflict but I don’t think they’d really seen the returns that they were hoping for. So I wonder if that is something that they’re still looking at and if the Fed is going to continue to raise interest rates and the way they’re talking they’re showing a propensity and a want and a willingness to do that and maybe even more aggressively. So if you’re a fund yeah okay you can say well I see more inflation showing up in PPI but with the Fed wanting to and willing to fight inflation and raise interest rates do you want to be involved in futures? Do you want to be involved in things that are reflecting the future if you feel like the Fed is going to fight it?

Todd Gleason: Do you have an answer Mike.

Mike Castle: It’s one thing to talk about your commitment to a 2.0% inflation mandate it’s another thing to actually do what it takes to get there. I guess that is I mean it’s a good way to look at it right the question is does it keep any of them around in that environment if you do see a more hawkish a more aggressive fed maybe that takes it out. And again that kind of adds an additional layer of downside risk especially like Ted already mentioned they’re still holding pretty sizable longs even though they’ve trimmed off a lot.

Todd Gleason: Let’s get a final word from each of you. Ted I’ll start with you.

Ted Seifried: Yeah you know I think the question you asked about what do I feel about prices going forward and you know a lot of my brain wants to think that we’ve overshot the mark to the downside. But I think we also have to be cognizant of the here and now and the other things that give us indications of where we’re going. So I think the narrative that we started with in corn harvest was oh wow this crop’s got is way less than expected the USDA is crazy with the numbers that they’re giving us it’s got to come down either November or January or both. I think that’s now getting tempered a little bit. And I worry that as we move along with that harvest if that is in fact the case that maybe we’re going to stabilize yield and oh by the way the basis gets full well or the sorry the pipeline gets full well then basis is going to fall and you combine a falling basis with the idea that crop isn’t shrinking anymore that could potentially put a lot of pressure on futures.

Todd Gleason: Mike what are you hearing on this subject.

Mike Castle: Yeah I would agree wholeheartedly. And we have seen like especially in the KC area in Kansas or working up into Nebraska and Iowa like a lot of the huge front-end premiums being paid specifically in the soybean market is just a function of those crushers needing to find the beans and it’s physically not being done quick enough or we’re not harvesting fast enough to satiate that immediate pipeline demand. And I would echo that exact same sentiment of once you kind of pass that tipping point what all of a sudden that incentive is gone right as harvest plays catch up that front end scarcity disappears and those premiums get violently yanked out of the market.

Todd Gleason: I would say that the ag economist to this point have said this is not like the ethanol build out. That it is much smaller and will have less of an impact. Though it was an undercurrent in the marketplace in their opinion and certainly supportive and Ted I wanna speak speaking of supportive I wanna ask you about basis for both corn and soybeans they’ve been really good through the gut slot of harvest now. I’m wondering whether that means that basis will appreciate and if it does where are futures going will they rebound as well or is basis going to do the heavy lift on the back end of this.

Ted Seifried: Yeah basis has been kind of wild as far as location right I mean it’s been very very varied over geography and a lot of that’s coming from where the harvest delays are. It’s just very widely varied right and we have to see if that ends up fixing itself as harvest gets rolling or if that tells us something bigger picture down the line I think it’s probably the former, but it’s been something to definitely keep an eye on.

Todd Gleason: Mike Castle out of Kansas City Ted Seifried out of Chicago gentlemen thank you both for being with us today on Commodity Week. Commodity Week of course is a production of Illinois Public Media.