From the Furrow – July 26, 2023 – Jake Kinglsey

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VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.

00;00;08;22 – 00;00;32;05
BRITT
Hello and welcome to From the Furrow brought to you by ever.ag Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Brett O’Connell. Let’s get started with a review of the market. Today is Wednesday, July 26. December 23 corn is down $0.18, trading 547 and a quarter with new crop November 23.

00;00;32;05 – 00;00;45;21
BRITT
Soybeans trading down two and a quarter cents at 1417 and a half. Joining us today, it’s our privilege to have Jake Kingsley, director of Feed Procurement For ever.ag. Thanks for joining us again today, Jake.

00;00;45;27 – 00;00;47;25
JAKE
Thanks for having me. It’s a pleasure to be here.

00;00;47;26 – 00;01;16;06
BRITT
Jake, markets have been wild the last week, week and a half or so. And one of the things that the markets have been buzzing about is Russia’s exit from the Black Sea trade deal. As we think about the implications that that may have on global markets, how do you see that potentially playing out and how could that have an impact on U.S. exports, an area that the market has already begin to challenge the current USDA projection?

00;01;16;09 – 00;01;16;17
BRITT
Well, I.

00;01;16;17 – 00;01;43;21
JAKE
Think first things first, a lot of the concern around the Black Sea had already been built into the markets, by and large. I mean, we’ve been dealing with this for, what, a year and a half now? And the market has already been cautious of everything that’s happening over there and built in some fairly sizable premium. I think what we’ve seen driven more than anything here recently, probably wheat values getting a little bit stronger with concern of shipments coming out of there.

00;01;43;21 – 00;02;12;03
JAKE
And that’s been supportive to everything else we’ve seen, as you mentioned, Corn and and soybeans really rally here in the last week or two. A little bit on the tail of wheat and also on some hot and dry weather forecasts in the Midwest. So I think there’s definitely going to be some long term ramifications of shipping capacity out of the Black Sea because Russia is now damaging what I would call critical infrastructure there at the ports.

00;02;12;04 – 00;02;35;09
JAKE
But for this year, Ukraine really operates on a very similar crop cycle to us. So they’ve largely shipped most of what they were going to ship for this crop year. Question will be just how bad is the damage and what does this shipping lane look like When we get into, say, October and November when maybe they have another crop coming off and have the ability to fill that pipeline?

00;02;35;14 – 00;02;38;15
JAKE
How are they able to execute on exports at that point?

00;02;38;17 – 00;03;12;11
BRITT
Jake, you brought forward a really good point. A lot of the Ukrainian corn has been exported and some of the other products that they push out into the global market. So we do have maybe a bit of time here before harvest happens and the rest of the world is looking for exports out of Ukraine as we look at export business out of the US, do you think there’s a chance that we could see U.S. exports pick up something that might be somewhat supportive to prices, or do you think that globally we’ve seen a downtick enough in demand and supplies are ample enough to cover the needs of the world?

00;03;12;12 – 00;03;42;25
JAKE
I think there’s certainly the chance that other buyers could come in and source some grain from us the displace what they’re going to lose out of Ukraine. But I think our balance sheets at the moment account for a little bit of that. And so then the question becomes how far ahead on their inventories are countries such as China and other places in Southeast Asia with their current shipping programs out of South America so that we can measure, okay, how much do they actually have to displace from Ukraine and come and get from us?

00;03;42;28 – 00;04;12;02
JAKE
And then do they have enough stored away that they can get by with minimal usage from the U.S. and wait it out for another South American crop early next spring to fill some of that void? So I think those are a couple of questions we have to answer first to really know. But there certainly is a chance that if this escalation continues in the Black Sea and that pipeline is completely shut down, then sure, we could see some demand come back to our market here.

00;04;12;04 – 00;04;34;15
BRITT
One of the other things that’s really had the market vacillating higher and lower has been weather, and that’s pretty normal for this time of year as the market’s trying to reconcile perceived production against perceived demand. How are forecast shaping up and how might you see this playing out in crop conditions being impacted and ultimately yields?

00;04;34;16 – 00;04;55;27
JAKE
Well, I think first, yields are very pretty heavily in question. Just from the poor start we had there in May and June. So it’s really kind of a little bit of a guessing game at this point as to what kind of damage that has already done to the crop. But forecasts, I think, have been trending a little hotter and drier, particularly moving into the Midwest over the course of this weekend.

00;04;55;28 – 00;05;22;14
JAKE
I know a lot of folks are pollinating and the crop already looks fairly uneven from a height perspective. And as well as how testing has progressed across the country. So put in some hot, dry weather to this thing. While we already don’t have much subsoil moisture is just going to strain this thing further. And I think that’s probably one of the bigger reasons why we’ve seen this run and grain futures over the course of the last week or two.

00;05;22;14 – 00;05;29;26
JAKE
I know we’re off pretty heavily in corn here today, but it’s still very much a strong market here. In the short term, it feels like.

00;05;29;29 – 00;05;59;28
BRITT
Jake, it seems like everybody’s got the same thoughts running through their head. Everybody wants to believe that in the last decade since the big drought of 2012, we’ve seen a massive increase in the amount of technology that has been bred into these various hybrids. Certainly we’ve improved our agronomic practices in the last decade, but yet there’s part of us in our gut that knows, based upon history, that it’s hard to work through these challenging weather environments without having some kind of impact on the yield.

00;05;59;28 – 00;06;10;23
BRITT
And I think that all of this is yet to be seen and to be played out. But it does seem like that is impacting volatility and we’re getting a lot of this year in year as a result.

00;06;10;24 – 00;06;34;23
JAKE
Yeah, I think so. I mean, the fact of the matter is we just have not had a situation like this before. You can reflect on 2011 and 2012 and see some parallels there. But we flat out did not get the rain back then and it killed the crop. And we have ten year better genetics now and it looks like the crop bounced back and responded really well when we did start to get some rains there at the end of June and start of July.

00;06;34;25 – 00;06;55;22
JAKE
The question now becomes how does that affect the ear on the corn crop? Right. I think beans have a little bit more grace in their growing season. They hit their critical points a little later in the year and start to really determine yield a little bit later on in the process. And so they look better than corn, relatively speaking.

00;06;55;22 – 00;07;02;25
JAKE
But at the end of the day, I don’t think anybody’s really going to know what we have out there until you’re running a combine through the field.

00;07;02;29 – 00;07;31;24
BRITT
I think you’re right. And I think that’s why we we would expect volatility could stay really high in both of these markets until we do have more certainty around that. That yield component. I think the other thing that’s interesting and different about 2012 versus this year is that we had a lot more heat earlier in the season during 2012, whereas this is really the the largest extended period of heat across most of the Corn Belt that we’ve seen this year.

00;07;31;24 – 00;07;36;15
BRITT
And so I think that has given this crop a little bit more of a fighting chance, if you will.

00;07;36;17 – 00;07;57;12
JAKE
Yeah, I think so. I agree with you. I mean, like I said, it definitely looked like it bounced back quite a bit from that rain that we did catch. Is that a weather deal early on as a matter of genetics improving? It’s it’s tough to say you’re a better agronomist than I am. So so I’ll let you make the final guess on it before we actually go to harvest here this fall.

00;07;57;14 – 00;08;18;17
BRITT
Well, we’ll leave that to the pros for sure, but it’ll be interesting to see as we move into this August WASDEE what the USDA does with yield. I think there’s going to be a lot of eyes watching both corn and soybean yield as we move closer to that report. Certainly a report that has historically brought some change to the yield front, both higher and lower depending on the growing season.

00;08;18;19 – 00;08;47;05
JAKE
And if I were to guess, I would I would imagine that they do something similar to what they did last month in corn and trim yield maybe a little bit and also trimmed demand a little bit and maybe apply a similar approach to beans, kind of give this market a chance to absorb some of these changes a little bit at a time and not totally upset the apple cart here, but definitely indicate that the crop is not going to be the record that we were hoping for when we started.

00;08;47;05 – 00;09;17;09
BRITT
The season definitely seems to be shaping up that way. Jake, You spend your time and energy studying and navigating the feed markets. When we think about the feed markets, what’s kind of top of your mind right now and what are some of the things that you’re looking at on the horizon that could have an impact on the direction that these feed markets go, not just from a futures perspective, but also on the basis side, because I think that’s a big component to this flat price that ends up getting paid at the farm gate.

00;09;17;11 – 00;09;33;20
JAKE
I think we’ve seen a little bit of a flip, especially in the basis market from what we had last year. The West was in really poor shape and paying quite a bit of premium to get feed out there and East felt like they had the better crop of the two halves. And we sort of flip that this year.

00;09;33;20 – 00;09;50;29
JAKE
You know, you get Illinois and Indiana and on east of there and those folks are the ones that seem to be struggling the most. As far as as crop conditions go. And you get to the west and really to the far edges of the west. And those folks, California, Arizona, Texas, some of those places started to catch some rain and put up some forages.

00;09;50;29 – 00;10;13;28
JAKE
So they’ve been able to drive basis lower. Now we have to be fairly diligent, say, hey, okay, is this the time to step in and get something bought here? We’re nearing historically average numbers on some of these basis values. We’re not quite there yet. Do we ever make a return to those historical ranges or is now a good time to step in and then try to pair up some futures on a nice break with that to get the best overall price?

00;10;13;28 – 00;10;31;11
JAKE
I think the risk is we’re just going to continue to see this volatility primarily driven by weather move this market fairly extremely over the course of a week or two, as we’ve just seen here. So you’ve got to be ready to take advantage of the opportunities when they’re there and protect against these rallies that we’re we’re seeing here.

00;10;31;11 – 00;10;34;09
JAKE
When forecasts start to shift a little bit hotter and drier.

00;10;34;14 – 00;10;47;20
BRITT
Jake, certainly appreciate your insights on this. And before you go, Jake, what’s a quick update on what’s going on in South America? We haven’t got an update on those folks. Can you give us a little bit of insight on what’s going on down south?

00;10;47;26 – 00;11;14;11
JAKE
Yeah. So I think last report, they had cut Argentine yields yet again here to kind of wrap up their crop year. But the anticipation is for this coming growing season that both Argentina and Brazil will again increase acres a little bit, as they tend to do and have a good chance to bounce back to normal production, hopefully in both countries and really help pad these global balance sheets.

00;11;14;17 – 00;11;25;17
JAKE
The shift into El Nino should be beneficial to Argentine weather patterns and hopefully help them break a little bit of this drought cycle they’ve been in for a couple of years now.

00;11;25;18 – 00;11;46;03
BRITT
Excellent. Well, we’ll continue to monitor that situation as well, because we know more than ever we’re involved in a global market and things that are happening around the world have a huge impact on prices here domestically. Thanks for joining us again today, Jake. We certainly appreciate your insights. If you’ve enjoyed listening to From the Furrow, please subscribe to our podcast.

00;11;46;07 – 00;11;55;19
BRITT
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Speaker 4
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