In The Grain Feed, guest host Phil Plourd is joined by a rotating cast of analysts to discuss what dairy and livestock producers can be doing to manage their risk.
Questions or comments? Topics you’d like to see discussed? Contact us at Insights@Ever.Ag or give us a call at (312) 492-4200.
Transcript (Auto-generated):
00:00:00:21 – 00:00:09:13
VOICEOVER
Futures trading involves risk and is not suitable for all investors. Contact provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.
00:00:09:16 – 00:00:30:08
PHIL
Hello Feed Fanatics and Grain Geeks. Welcome to another edition of the Grain Feed brought to you by Ever.ag. Each week we bring you updates on the markets with unique perspectives from our amazing team of analysts with the intention of helping livestock feeders and dairy farmers manage risk. I’m Phil Plourd, filling in for Jim Matthews, who’s on assignment this week.
00:00:30:10 – 00:00:43:22
PHIL
That’s the bad news. The good news is that we have two exceptional panelists on board for the ride. First, from somewhere near the DFW metroplex, Jake Kingsley, Ever.Ag’s director of Feed Procurement. Hey, Jake.
00:00:43:23 – 00:00:45:00
JAKE
Good morning, Phil.
00:00:45:02 – 00:00:56:24
PHIL
And second, 80 miles to my west in beautiful Platteville, Wisconsin, we have Mike North, president of every producer division and a longtime student of the grain and dairy markets. Hi, Mike.
00:00:56:29 – 00:00:58:14
MIKE
Hey, good morning.
00:00:58:15 – 00:01:31:20
PHIL
Paige, let’s go ahead and timestamp this episode. It’s 8:30 a.m. Central Time on Thursday, June 15th. Looking at our grain and feed markets, yesterday nearby corn closed at $6.08 per bushel, up 1% from a week ago. Nearby, soybeans 1388, up 2% and soybean meal $390 per ton, down 4%. Over the course of the past week, we’ve been digesting the USDA WASDE report that came out last Friday morning.
00:01:31:23 – 00:01:40:16
PHIL
There are some mild surprises in there on the ending stocks figures for corn. Mike, what was the big news out of WASDE and what caught your attention?
00:01:40:23 – 00:02:11:27
MIKE
So, there was a let’s call it a swap that took place between Argentina and Brazil. Small crop keeps getting smaller in Argentina. Big crop keeps getting bigger in Brazil. 2 million metric tons moving across the line from Argentina to Brazil, leaving Argentina with a 25 million metric ton crop that hits the smallest estimates that ever got put forward through the season.
00:02:12:00 – 00:02:41:10
MIKE
Brazil moving into 155 million metric tons. Another sizable and record crop coming out of there that impacting world balance sheets coupled with some cuts on the U.S. side of things where we saw the U.S. balance sheet moves to move north of 300 million bushels. Corn saw a little bit of a cut to old crop exports. Not a big surprise if you’ve been watching export pace and then coupled with a change in imports.
00:02:41:17 – 00:03:01:21
MIKE
It left our ending stocks number 35 million bushels higher, which carried over into the new crop balance sheet. Just in time for us to start having these weather conversations as we head toward summer. So, building up a little excess reserve as we walk into this next phase of the growing season.
00:03:01:25 – 00:03:19:11
PHIL
Yeah. And speaking of the concerns about the crop, new drought map came out this morning. It looked a little crispier for sure. In key growth regions of the Midwest. It rained a little bit over the weekend and this week in parts, but not nearly enough to cure the problems. What are we looking at in terms of the weather market today?
00:03:19:14 – 00:03:48:00
MIKE
Well, markets are responding in kind to your comments. Corn up $0.13-$0.14. Beans up 25-26. And it’s incredibly evident that as we’ve walked forward over the last month, we’ve shrunk the drought stress in terms of its extreme nature in the southern plains. But that seems to have migrated now a little bit north now and stretched across a good chunk of the Corn Belt, where the “I” states now are really starting to come into focus.
00:03:48:02 – 00:04:12:08
MIKE
And with the crop in, you know, as early of a stage as it is, it’s not a huge, huge concern at this point, but a growing concern as we work our way into the calendar and this crop reaches critical vegetative development states. So that’s what’s gaining interest in the marketplace. And certainly, with rain in the forecast, everybody’s wondering how this is going to play out.
00:04:12:09 – 00:04:24:07
MIKE
So a lot of back and forth, very tenuous trade over the last few days as we trade forecasts and wait to see if this rain that’s expected this weekend actually comes to fruition.
00:04:24:11 – 00:04:36:02
PHIL
Yeah, I mean, when’s the trip wire? You know, when you talk about the vegetative development. Is it do we have a week? Do we have two weeks? What are we talking about here in terms of the critical time window to get some rain?
00:04:36:04 – 00:05:12:12
MIKE
Well, that’s been interesting this year because if you followed the planting pace and the germination pace, we were way out ahead of schedule and just as quickly as we got seed in the ground, crop conditions scores have fallen to levels that we typically see by the third week of July. And if you understand crop conditions scoring, ultimately, we generally see it deteriorate through the growing season as it matures, as it continues to kind of carry the ongoing baggage of heat, stress and just overall weather strain on the crop.
00:05:12:15 – 00:05:34:14
MIKE
Bottom line, though, is we’re at the place today in the third week, or, in the second week of June that we would ordinarily be in the third week of July on a normal year. And so, as we look at these next couple of weeks, the real key is going to be, you know, if you’re steeped in the agronomy world, this be seven stages where all the magic starts to happen.
00:05:34:14 – 00:05:58:06
MIKE
That’s the node for the where the ear is essentially formed. And as we move from there all the way out into pollination, that’s where you ultimately are going to see heat and drought play a bigger role in final yield numbers. And, you know, we’re quickly getting there by this time next week, you’ll see a big chunk of the crop crossing that trip wire that you allude to.
00:05:58:13 – 00:06:26:02
MIKE
And as we fast forward through a pollination, if we can continue this dry, hot type of forecast, it’s really going to start taking yield off of this crop. However, I always caution everybody, we do have room to give given the balance sheet we have, given the state of demand, given the competition over South America- that’s another discussion. But yeah, that ultimately is going to become a hot button in these next couple of weeks as we get into these key development stages.
00:06:26:03 – 00:06:28:12
PHIL
Jake, how is this playing out in the feed world?
00:06:28:15 – 00:06:50:08
JAKE
Well, we’re not seeing it reflected quite as dramatically in the feed world, especially on the basis side. I mean, obviously the run up in futures is being felt in cash prices new crop wise. But basis on corn has been stagnant here for a while. There’s still been some risk premium built in there. I haven’t seen any increase in risk premium yet.
00:06:50:11 – 00:07:17:21
JAKE
Our folks to the western half of the U.S., all of our rail dependent markets, still stand to benefit from, as Mike noted, this easing of drought in the plains states there. That’s where a lot of their product comes from, and they’ve been catching some timely rain. So, we haven’t seen basis pop there. We have the Midwest still being fairly quiet on new crop offers on corn out to the dairy producer and other end users.
00:07:17:25 – 00:07:52:10
JAKE
It’s been interesting in the old crop realm there where we’ve seen the roll from July to September futures. Now you’re starting to see these 130 to 150 basis numbers. That’s just a huge spread between the two futures months. But folks do seem to be getting a little bit aggressive as far as putting out higher bids as ethanol plants and that sort of thing, trying to get the last bit of corn here for the tail end of summer so that if this crop does burn up and lose a significant portion of the yield, they’ll have enough to get through to harvest until some new grain starts to hit the pipeline.
00:07:52:13 – 00:08:19:02
JAKE
On the protein side, we had seen canola basis numbers really drift lower there in April and part of May and they’ve since kind of flatlined well within what I would call the historically average range or very near to the high end of the range, in a lot of places. Soybean meal was a little slower to respond, but over the last couple of weeks, we have seen some soybean meal numbers drop $5-$10 a tonne
00:08:19:02 – 00:08:45:01
JAKE
on the basis front, there. So, I think those are actually some pretty attractive numbers. We’ve been out here encouraging folks to maybe get a little bit of their October to March protein needs bought up with basis down here again towards historically average ranges and futures down towards the low end of an 18-month range. So, a little bit of activity on that front.
00:08:45:03 – 00:09:05:28
JAKE
Otherwise on the feed side, really, we’ve been trying to just manage these futures. We had quite a few folks get in there and cover some topside risk with corn, December corn down around that $5 mark, and be patient on the basis for new crop for a moment. It’ll start to, it’ll start to get a little interesting. As Mike said, over the next couple of weeks, we get into some critical stages.
00:09:05:28 – 00:09:16:22
JAKE
If we don’t start to catch some rain, then we’ll have to start to take some of these stronger basis numbers with a little bit of risk premium in them and put them on the books, I think. So, we’re not there yet.
00:09:16:23 – 00:09:27:24
PHIL
Jake, with dairy prices heading south fast, how does that factor into the equation around decision making for food procurement nearby? And on a medium term basis.
00:09:27:26 – 00:09:52:20
JAKE
It certainly makes these folks a lot more reluctant to just lock in a cash price. They’ve got to have the downside open if they’re going to do anything, because right now, breakeven is tough if it’s there at all. So, these guys are even with the break in and cash feed values. Over the last couple of months, milk seems to have run lower, quicker.
00:09:52:20 – 00:09:59:18
JAKE
And so, the profitability is just not there. So, they’ve got to have some hope and opportunity to the downside in this feed market if they’re going to do anything.
00:09:59:18 – 00:10:18:22
PHIL
It’s a real tricky situation, Mike, right? Because, you know, if it doesn’t rain in the next two weeks, let’s say, you know, you don’t want to be exposed to higher corn prices if that materializes. But do you want to be locked in at, you know, 550 if the market’s going to 500? Right. So, what do you see price wise unfolding over the next couple of weeks?
00:10:18:23 – 00:10:43:26
MIKE
Well, I think you’re going to have a lot of choppy trade ahead of this June 30th acreage report. There’s still some discussion out there about what the wet spring in the Dakotas meant, specifically North Dakota. Some analysts guessing maybe half a million acres lost there. You know, you couple that with with some yield loss and, you know, people are pretty excited about what that June 30th number could be.
00:10:43:26 – 00:11:07:04
MIKE
So I would expect some choppier trade. Obviously, weather forecasts are going to be played out hour by hour, day by day. Every ounce of rain they put in the forecast will weigh on price while any drying of that forecast puts premium back into this. And we’re seeing that already this week with the up and down nature of the forecast.
00:11:07:04 – 00:11:25:27
MIKE
We’ve had an equally up and down trade in the market, but the bias been mostly upward because of some of that lost yield potential that’s in everybody’s mind right now. So I would look for sideways, choppy, very volatile but slightly upward trade over the course of the next couple of weeks.
00:11:25:29 – 00:11:35:28
PHIL
Not to make light of the situation, but it does get fun when you have competing weather models. You know, the noon run of this said this and the European model said that and we kind of twist ourselves into knots every day in the marketplace.
00:11:36:02 – 00:12:02:05
MIKE
Yeah, No, no doubt it is a wrestling match of fundamentals right now. And it’s always interesting to see which one is on top at the moment because it seems to go back and forth quite quickly as we get out into the end of June, though, we will have a pretty good grasp because of the early stage of this crop to ultimately see where we’re going to be.
00:12:02:07 – 00:12:14:06
MIKE
We’ll be able to frame this thing up pretty well by way of weather forecasts out into the middle part of July and where the crop sits at the moment. So these next couple of weeks are going to be very interesting.
00:12:14:06 – 00:12:35:19
PHIL
Thanks, guys. That’s a wrap for this week’s show. Thanks to the staff here at Ever.Ag insights for the data and charts. Kudos to Korri, our coordinating producer, for making the trains run on time. And thanks especially to Paige, our media magician, for making us look good. Before we go, I’d like to invite you to check out the new Ever.Ag Insights portal at Insights.Ever.Ag.
00:12:35:21 – 00:12:49:24
PHIL
There you can find all our publications and links to past episodes of the Grain Feed and a whole lot more. Last but not least, thanks to you, our viewers, for tuning in. As Jim likes to say, we love your FEEDback. Contact information is on the screen.
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