In The Grain Feed, Jim Matthews 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.
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VOICEOVER
Future trading involves risk and it’s not suitable for all. Investor contact provided in the strike is meant for educational purposes and is not a solicitation to buy or sell commodities.
00:00:09:18 – 00:00:41:09
JIM
Hello and welcome to another edition of the grain feed brought to you by Ever.Ag your weekly news feed for all things grain and all things feed. Each week we bring you updates on the markets with unique perspectives from amazing team of analysts with the intention of helping dairy and livestock producers manage the risk. I’m your host, Jim Matthews, reporting from the Chicago office during what has been a very wet week here in the Midwest, providing some needed rainfall across some of the drier areas of the Eastern Corn Belt.
00:00:41:12 – 00:01:07:08
JIM
Assuming those areas do not get flooded or derail or whatever else might have happened to our farmers this summer so far. Joining me today to help said farmers, as always in Texas, director of food procurement, Mr. Jake Kingsley. And from way down in Atlanta, Illinois, director of buyer Relations Verl. No doubt. Prather. Team, how are we today?
00:01:07:10 – 00:01:08:27
JAKE
Pretty good this morning, Jim. How are you.
00:01:08:27 – 00:01:10:05
JIM
I’m doing fantastic.
00:01:10:07 – 00:01:11:09
VERL
Great to be back Jim.
00:01:11:14 – 00:01:31:21
JIM
We’re very excited to have you back. I truly I have family members. We’re at their block party last week and they asked, when is Verl back? I said, You just wait. I said, No doubt they’ll be back soon. So great to have you both here. Paige, if you would kindly timestamp the broadcast, it is Thursday morning.
00:01:31:21 – 00:01:59:20
JIM
It is a shortened trading week in Chicago because of the holiday. On Tuesday, we hope everyone had a wonderful 4th of July. We’ve had a lot to report since our last recording. Not just the crazy weather we’ve had now in parts of the Midwest, but that stunning USDA report from Friday morning of last week that shattered expectations and altered the landscape literally and figuratively going forward.
00:01:59:25 – 00:02:04:24
JIM
So let’s turn to Verl. Verl. What on earth happened with that report last week?
00:02:04:25 – 00:02:46:24
VERL
Yeah, as you mentioned, Jim, you know, this acreage report that was released last Friday had massive fundamental changes to the landscape of both the corn and soybean markets. And that 2 million additional corn acres certainly adds a big buffer for national yields to be lighter than the trend at this point. Right. And the USDA didn’t mention in the report, which I thought was interesting, that the average difference between the June acreage reported in the January WASDE report is 800,000 acres of corn and the January corn planted acres number came in lower than the June estimate 15 times over the last 20 years.
00:02:46:28 – 00:03:09:21
VERL
So stay tuned. The corn acres or this thing’s not over yet. On top of that, the dry weather across the Corn Belt to start the growing season here has raised a heck of a lot of concerns about how much potential has been knocked off the top end of realistic expectations for the national yield number. The range of guesses is pretty wide at this point.
00:03:09:21 – 00:03:38:08
VERL
Some analysts still believe that that the damage is probably more so minimal. And on the other end of the spectrum, we have folks that think we could expect a 10% cut to yield. And in all likelihood, right, we probably end up somewhere in between those extremes. But the rain events that you kind of mentioned here from the last week certainly weren’t sufficient enough to consider that this crop is made.
00:03:38:12 – 00:04:00:16
VERL
Right. We still got pollination, we still got grain still coming at us is going to continue to be important to receive some some timely rainfall across the corn Belt. Nonetheless, be on the lookout for your cut on next week’s USDA WASDE report, although there is a good chance that a cut to demand could outweigh that change in yield.
00:04:00:18 – 00:04:31:02
VERL
The soybean market has also had plenty of volatility lately, with a massive 4 million acre cut to plant. And so in last week’s report, and that was certainly a shock to the market, the soybean balance sheet was really already treading lightly as a loss of the single bushel. A national yield would have resulted in a significantly tighter balance sheet, and this acreage surprise is only amplified the importance of having a trim line yield or better production of soybean domestically.
00:04:31:02 – 00:04:57:06
VERL
As you can see here on this chart, over 80% of the soybean production area in the U.S. remains in abnormally dry or drought conditions. And this is after the rainfall over the course of last week and last weekend. Many believe that soybeans are still pretty resilient to drought in this stage. And it is certainly possible that the damage to yield prospects at this point for beans is minimal.
00:04:57:08 – 00:05:05:11
VERL
The trade is certainly going to continue to watch for for timely rain to hit the soybean crop during the last half of July. And also in August.
00:05:05:13 – 00:05:32:14
JIM
Good deal Verl the and that the soybean numbers specifically and in terms of how they affect some of those viewing or listening that are feeding meal right to their animals. So the result of that report Friday when beans skyrocketed on that reduced acreage number. You mentioned December meal futures also rallied like crazy. They went from the three seventies area up to $415 per ton.
00:05:32:15 – 00:05:55:27
JIM
It has since eased. We’re currently trading around 390 as we record, but that soy number was very impactful for the protein market. So very important for each side of the industry to be watching what happens to beans this summer. You also noted some of these drought figures and numbers that we have just to reference where these are coming from.
00:05:55:27 – 00:06:20:13
JIM
For those viewing these on the screen and listening, we’ve got some very amazing drought focused charts and analysis on our awesome insights portal. That is, that insights that ever.ag. Very impressive work being done by Shelby and her team. So please tune in to that site for some of the charts that Verl has referenced here, because as Verl noted, we had some very severe conditions here.
00:06:20:13 – 00:06:42:28
JIM
The first part of this summer, Verl referenced the rains that we’ve had over the last week. But were they sufficient and maybe an inch, inch and a half of rainfall in some spots is more than welcome. But did it do enough? And we have to really pay attention to some of the potential upside risk despite the buffer that you also referenced, rural with this increased corn acreage.
00:06:43:00 – 00:06:53:04
JIM
So that all being said, Jake, let’s turn this to you. How does the landscape change on your side, the physical cash feed side after these numbers we saw last Friday?
00:06:53:04 – 00:07:22:24
JAKE
Well, we’ve had a little bit of help on the corn feed price here. We’ve seen this nice break in futures, as everybody knows, back down to $5. It really seems like it’s struggling to maintain that number, maybe a chance to drift a little lower here. And then the basis portion of that, we’re seeing different pockets around the country that have now broken anywhere from 15 to $0.30 off of where they had been since first offers came out earlier this spring.
00:07:22:27 – 00:07:46:25
JAKE
We’ve been kind of holding out, waiting for that break. And it hasn’t been it hasn’t covered the entire marketplace. But there are certainly pockets across the Western US, these rail dependent places that are going to be pulling product from the Western Corn Belt and the Plains states that are starting to see this move lower in basis. So I think it’s a good opportunity to step into the market and get a little bit of something done there.
00:07:46:26 – 00:08:22:12
JAKE
I would probably advise keeping it somewhere in the shorter term on contracts, you know, the October to March timeframe, give South America a chance to put a crop together this winter and get to harvesting next spring. But there’s certainly opportunity on the table here. Now, the interesting part of this corn futures move is if you take a look back at a monthly or quarterly chart on futures, tend to live between the five and a half and $8 range and then down at the three and a quarter to four and a quarter range, we’re now at the bottom edge of that higher range.
00:08:22:18 – 00:08:41:15
JAKE
So we’re living on a little bit of a knife’s edge again. Okay. What is yield come out to be? Do we run this thing back up to the sixes or do we somehow break this thing down into close to $4? I think the thing to do right now is to create some sort of a hedge that protects you from the upside and leaves you wide open to the downside.
00:08:41:15 – 00:09:03:17
JAKE
We’re early enough in the year that you can do it in a cost effective way to still give you plenty of flexibility, especially with milk prices where they are. That’s going to be extremely important for a lot of these folks panels this year. If you take a look over at the protein side, haven’t got quite the break. As we said, we lost quite a few acres and we were already kind of walking on eggshells in that part of the ration.
00:09:03:17 – 00:09:24:18
JAKE
And so now we’re going to need some help. Their futures have kind of bounced back. The basis seemed like it bottomed out a little bit over the last few weeks and now it’s maybe even perked up five or $10 a ton in some spots. I don’t think this is the end for that market either. The Canadian balance sheet had rebounded, as we know.
00:09:24:20 – 00:09:58:19
JAKE
We’re adding crushed capacity across the US and Canada. That could help buffer some of this bean price and still drive meal values lower. And we’ve seen soy oil rally back. That helps out again on the meal portion of their crush. So there’s there’s some opportunities still out in front of us. We just need to manage it well. And then on some other ingredients out there, this volatility that we’ve seen over the last, what, month and a half now is starting to really have an effect on things like cottonseed and distillers and some of those other byproducts.
00:09:58:26 – 00:10:19:19
JAKE
They had kind of fallen off when futures were suppressed The first time and then futures rallied back and they kind of jumped back up with them and they haven’t come back down here with this latest break, particularly in corn. So I think we’re going to need to start to really prove out the crops before we see these things hold long term pressure.
00:10:19:24 – 00:10:59:03
JAKE
But one of the good things that we’ve seen is one of the highest inclusions in the ration is forage. California’s got silage growing out their ears. We’ve hearing that the rains across the western part of the belt and the plains states is starting to really have this alfalfa and hay crop look pretty, pretty nice. So forage values continue to drift lower and folks are talking more and more about putting more forage into and roughage into the ration and eliminating some of these concentrates and grains and even some folks that haven’t had the opportunity in a long time might be able put away some very attractively priced silage is for this year and a good chunk
00:10:59:03 – 00:11:03:26
JAKE
of next year. So there’s opportunity out there with all this volatility. Okay.
00:11:04:01 – 00:11:27:05
JIM
Thank you for that, Jake. The the soy balance sheet that you noted there, I mean, that is tight, right? So the soybean prices are going to remain potentially elevated. But then to address what you addressed, the protein availability here in the U.S. in terms of the crush capacity, as you noted, we’re still building these processing plants, these blending facilities.
00:11:27:05 – 00:11:53:14
JIM
So the demand to crush soybeans for the sake of soybean oil is still going to be there. So the big question now, the guessing game kind of the rest of this year and into 2024 will be how does that impact all of that meal that comes to market? Will beans elevate enough to bring the rising tide of the soy complex with it, or does it naturally then kind of keep meals suppressed If the demand for oil stays elevated?
00:11:53:21 – 00:12:11:27
JIM
There’s just a lot going on here. The USDA really threw us a wrench last week on Friday with some of these changes. So there’s a lot to keep track of. Please reach out if you have questions on these markets. A lot of folks really need to step in at some of these opportunities for their new crop feed years.
00:12:12:03 – 00:12:34:04
JIM
So please let us know how we can help. Gents, before I let you guys go today, we’re going to have to do some bold predictions. We just came off a big ol report on Friday. We’ve got the WASDE next week. We’re going to borrow from Phil and Kathleen from their dairy download podcast Bold Predictions. Next week’s WASDE the Corn Yield Verl.
00:12:34:11 – 00:12:38:23
JIM
What will the corn yield number be On next week’s report.
00:12:38:25 – 00:12:43:00
VERL
I’m going to take five bushels off, Jim. I’m going to say we’re going to 176 and a half.
00:12:43:00 – 00:12:57:19
JIM
176 and a half. So we’re taking five bushels per acre off the trend line yield number that the government gave us just a couple of months ago, five bushels per acre off that, Jake. Bold prediction corn yield next week’s WASDE?
00:12:57:24 – 00:13:12:05
JAKE
I think they’re going to hit it harder than that Verl. I think they’re going to come down to a 172 and a half. We’ve got a lot of new acres. They’re going to be fringe acres. We’ve done some damage. So I think they come in a little closer to where we ended with last year’s yield.
00:13:12:05 – 00:13:13:10
JIM
It’s a big boy cut.
00:13:13:12 – 00:13:15:23
JAKE
I think we’ve got room to make it. Good for you, man.
00:13:15:27 – 00:13:24:18
JIM
Excellent. Okay. That’s a bold prediction. Both Clay’s bold predictions. Let’s look at beans. What about being yield for next week? Verl.
00:13:24:20 – 00:13:28:12
VERL
They’ll leave the same unchanged. No damage done yet for beans.
00:13:28:16 – 00:13:31:27
JIM
You’re an animal, Verl. You’re just an animal. What about you, Jake?
00:13:31:29 – 00:13:52:03
JAKE
I think I have to agree with the Verl. They beat it up bad enough on the acreage report last week. They’ve got to let this thing stabilize a little bit. I think maybe. Maybe they allow the meal balance sheet to improve just a little bit as they shift from fewer beans to better crush.
00:13:52:06 – 00:14:14:21
JIM
Boy, I heard you guys are saying they got to play an accounting game with our ending stocks on soybeans. So if we start to cut yields, too much now, we’ll truly be hand-to-mouth. When it comes to the balance sheet here in the U.S., I’m going to take Corn yield. I want to split the difference with you guys. I want to take 174 and a half on the corn yield on bean yield.
00:14:14:21 – 00:14:18:29
JIM
They’re going to go to 50. They’re going to take her to 50.
00:14:19:06 – 00:14:20:16
JAKE
That’s going to be a tight one.
00:14:20:17 – 00:14:39:13
JIM
It’s going to be a tight one. Bold predictions. One more of you guys before we go is the last one. December corn futures are currently trading at $5 as we record at the moment, they’re at 502. Let’s just say December corn futures are at $5. So huge swings over the last 3 to 4 weeks with this weather market.
00:14:39:13 – 00:14:54:02
JIM
And then this USDA report last Friday. We’ve seen lows near 480. We’ve seen highs near 630. It’s been a wild stretch here. But going forward, we’re trading at $5. What will we hit first, 550 or 450?
00:14:54:02 – 00:14:58:24
JAKE
550 for Sure. We’ll probably get there next week.
00:14:58:26 – 00:15:08:08
VERL
450. Yeah, I think it’s going to be pretty tough to get back. 550 We’ve got some weather issues here. We have some.
00:15:08:08 – 00:15:08:27
JIM
Other issues.
00:15:09:02 – 00:15:10:15
VERL
Weather to keep an eye on, nonetheless.
00:15:10:15 – 00:15:20:11
JIM
Okay, so you guys are playing your own yield numbers then, right? So essentially, based on these assets, I mean, that yield number for you, Jake, we’re going to find 550 for sure.
00:15:20:11 – 00:15:21:10
JAKE
I think so.
00:15:21:12 – 00:15:30:04
JIM
Okay. And world 176 and a half. It’s a cut. It’s necessary, but nothing too crazy. Bigger acreage, bigger balance sheet. We’re going to put you down for anything.
00:15:30:07 – 00:15:31:22
VERL
That’s right.
00:15:31:24 – 00:15:53:18
JIM
No doubt. We’ll see what we add up. Yes, We love this stuff, gents. Well, excellent work to you both. Thank you very much for being here. A big thanks to Verl, no doubt Prather for making my cousin Hailey and her husband Lawrence, very happy, returning to the show. They’re huge fans. Great to have your insights today. We’d also like to thank Korrie and the Everard Insights Group for their support.
00:15:53:23 – 00:16:06:18
JIM
Thank you. Paige for her production magic. Thank you to the viewers for watching the Grain Feed. Contact information is on the screen. We greatly appreciate your feedback. That’s all for today. See you next time on the Grain Feed.
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