Ed Usset: Grain Marketing is Simple (it's just not easy)
Good day, and welcome to the University of Minnesota Extension Cropcast podcast. I'm your host Dave Nicolai with University Minnesota. I'm an extension educator in field crops. I'm here along with my cohost, doctor Seth Nave. Seth is University of Minnesota Extension Soybean Specialist.
Speaker 1:And Seth, we're really lucky today because we have in the studio here an esteemed guest in terms of Grain Marketing and, that would be Ed Usett. So, Ed, why don't you give us a little bit of an introduction about yourself, in terms of your title here and what things you're up to here at the University of Minnesota?
Speaker 2:Well, first Dave and Seth, thank you for inviting me to be along today. I am a grain market economist with the Center For Farm Financial Management here at the University of Minnesota. I teach a couple of courses. I taught this morning. Commodity marketing is in the fall, futures and options markets in the spring.
Speaker 2:I write for Farm Futures Magazine. I run a website called Commodity Challenge. Great place, for listeners to go learn about, commodity marketing and, and the pricing tools you need. And I travel and speak on the topic of grain markets all the time. I've even got a book out there titled Grain Marketing is Simple.
Speaker 2:It's Just Not Easy.
Speaker 1:Well, certainly, I know that you've been around the the circuit, so to speak, for many years here in Minnesota. I have a privilege to be on extension programs with you, so we really appreciate you taking the time to be with us today. So I'm just gonna jump right into it. This week, the USDA came out and talked a little bit about the net farm income in the United States. Now granted this would be not just green, but would be, you know, livestock as well.
Speaker 1:But as a whole, net farm income, they're forecasting at least in the neighborhood of perhaps 7% less net farm income this year in 2024 than the previous year. Now obviously, you know, livestock is involved in here, but we certainly had some challenges in regards to that in terms of our commodity pricing and particularly some of those crops that you work with in terms of corn and and soybeans. And so, of course, you know, the question is, is it is it matter of the market themselves? Is it matter of some of the choices that, producers are making in terms of marketing, but are are there a combination of things out here?
Speaker 2:Well, prices are down. And in fact, I think, your average crop producer out there would be thrilled if their income was only down 7% this year. I think the livestock and dairy are actually having a good year. I'm happy for them, and that's bringing the the average up. Because I'm looking at, wheat, soybean, and corn prices throughout Minnesota.
Speaker 2:Probably in the area, all 3 of them, $2 a bushel less than a year ago at this time. I'd like to tell you, Dave and Seth, I'd like to tell you I predicted this. I did not. I did not predict it. I did feel that we should get something done early in terms of, selling pricing, if you will, new crop 2024 grain.
Speaker 2:But I'm afraid a lot of people didn't get that done.
Speaker 1:So we're up against the fall harvest here, not too far in terms of timing here. It's almost gonna be the middle of September. Well, it is. What advice, you know, we can't go back in time, would you give to growers and their number one is maybe they have some grain in storage and that can vary obviously. And of course the other impulse is, well, should I sell it off the combine or should I just, you know, put it in my storage and hope for the best and then, you know, fall in the winter?
Speaker 2:Well, we have 2 different questions going on. When we talk about the crop and storage, that's from last year. That's the 2023 crop. And I was pounding that drum all year, not knowing where prices were going, but I I like to share the 11th commandment of grain marketing, which is thou shall not hold unpriced grain in the bin after July 1. Now people wonder how can you put a bright line on one day of the year on the calendar.
Speaker 2:And I do that, all you have to do is look at a long term seasonal price trend in corn and soybeans, and you will see that prices on average are lowest at harvest and highest in the spring. Okay? And just based on that simple graph I show all the time, it says you ought to be out by the end of June. Win, lose, or draw, get out by the end of June. Now I hate doing this to the listeners that's like, well, geez, your hindsight's 2020 yet.
Speaker 2:But it's something to remember next year too. People are going to put new crop corn and soybeans in the bin, and I will tell them the same thing next year, they ought to be empty by the end of June. And I can hear the listeners now, Dave, they're saying, yeah, but I remember when that worked. Yes, it does work. Yes.
Speaker 2:It does. Occasionally, it it works to hold that grain longer. Roughly 1 out of 5 years it works. Okay? It's the other 4 out of 5 years we don't want to talk about.
Speaker 2:And this is one of those 4 out of 5 years. Now the other issue you brought up, should I sell grain at harvest? Should I store it? This is a little bit inside baseball, but we've had something come back to the corn market and the wheat market, and soybeans to a degree. We've got carries back in the market, that is the nearby price, the deferred price, the bids for May corn, July corn 2025 delivery are higher than the nearby December contract.
Speaker 2:That's called a positive carry. That means that if you store that grain, you can price it for delivery out next April, May, June at a pre at a higher price. That's a great option. If someone had enough had the courage or the wisdom to price some grain earlier in this year, maybe in January or during the May rally, you got something priced with a hedge to arrive. It's a great opportunity to roll that hedge out to the May or July contract.
Speaker 2:You'll pick up that carry. If you haven't done that, you still have a chance to get that carry. But, so I'm I'm not keen on, selling at harvest. We're going to be at low prices. But if you're going to store that grain and wait, and you haven't sold the carry, I will remind you of the 11th commandment of grain marketing.
Speaker 2:And I'll also say, you know, if you do that, right now, corn prices in Minnesota, southern Minnesota, 375 give or take, put some numbers on what you're waiting for. Are you waiting for 4 and a quarter? Are you waiting for 4 and a half? What number are you waiting for? Because this happens too often.
Speaker 2:We're waiting I know you're waiting for a higher price. That's why you put the grain in the bin. But how much higher? And how often have we watched it go 50, 70¢, maybe even a dollar higher? And we're still waiting as we watch it collapse back down.
Speaker 2:So put some numbers on it, act on it, and treat that, 11th commandment as sort of a drop dead.
Speaker 3:I I do, have to jump in here. I think this is a tangent, but it is interesting to think about farmer psychology, of course, and and also the dynamics of the market. I mean, we know that farmers really invested a lot of their dollars, with the high high prices that we had a few years ago into storage. Yes. So there is there is on farm storage.
Speaker 3:So I know farmers well enough to know that if they've got storage, that they want to utilize it in some way. And so I'm sure that somewhere in the back of some minds that this is driving some of this some of this equation, and it may it may frustrate you in some ways, is that these folks that have room to store, come hell or high water, they're gonna store some in there whether they should or shouldn't. So I know that that may be part of the whole whole psychology behind this.
Speaker 2:I I have very, mixed feelings about storage on the farm. It's a wonderful tool. I mean, you you get your harvest done quicker. A lot of times, I would say most times, the listeners here, they didn't build storage because they're trying to, you know, market differently. They built it because the local elevators closed, and they need it to harvest the grain quicker.
Speaker 2:They have their own drying operation. But my mixed feelings are this, we get that grain in the bin, or the storage alternative is there, and let's say 5 months before harvest, you see a good opportunity to price grain. It's like, yeah, we've had a rally, and I could price it, and we're thinking about it. It's a good price. But then it it it there's always someone else out there saying, yeah, but we're going higher, we're going higher.
Speaker 2:The person without storage won't pass on that opportunity because they don't have a plan b. But the person with storage, it's this plan b, and they struggle with that early sale and they say, have a heck with it. If I'm wrong, I'll just put it in the bin and and wait till later in the year. And I don't like that.
Speaker 3:I don't like that. And there I just don't think you can discount the the physical commodity and the impact that has on the psychology of a farmer is that that that grain is sitting there. They they made that grain. That has so much personal tie to them. And I know I'm I'm oversimplifying and maybe, under undervaluing farmers' business sense in some ways here.
Speaker 3:But there is there's some very baseline crude you know, this goes back to caveman evolution kind of stuff. It's that we store stuff. We we create we create this food source, and we store it up. And we don't we don't wanna just get rid of it. So, anyway, I I think we skipped ahead a little bit here, Dave, is that we didn't really talk about how we got to this place in the market because I think we need if if we wanna look to the future, I think we're gonna have to talk about how we got to this low point here.
Speaker 3:So is that is that appropriate, Dave, that we back up a little bit and see how we got here?
Speaker 1:I think we should talk a little bit about that because, you know, every year, you know, we look at the USDA numbers as a trend line on that yield that incrementally it it's going to increase over time for both,
Speaker 3:you know,
Speaker 1:corn yield across the US, you know, soybeans. Now one thing that you've talked about before, Ed, is more soybean crush plants coming online in the US and so forth on on with that. But, going back to demand and and supply to some extent and we have competition, like it or not, from other countries.
Speaker 2:Mhmm.
Speaker 1:And we have the demand, you know, from China and other places. Are are we in a such a worldwide market that, you know, we're we're some not dependent upon, you know, whether to rally, the the market here. But if you dilute it in such a big geography, like, yeah, you have poor weather here, you have good weather over here, when the day is done, the volume is is it ever creasing above and beyond faster than the demand picture would normally pull it back down?
Speaker 2:Well, we I I always got to think of the 3 major crops, corn, soybeans, and wheat, and think of the US perspective and world perspective on that. I'll start with the bullish one, and that's wheat, believe it or not. I look at the worldwide stocks and stocks relative to use, and you take China out of the picture. Now what why would I take China out of the picture? They're doing their own thing.
Speaker 2:In the world of wheat, they've been building their wheat stocks, but they're not building that for you and I or the the rest of the world. They've got their own concerns. You take China out of the picture. And the latest numbers from USDA put our stocks to use ratio worldwide at the 3rd lowest in the last 65 years. The first being o seven zero eight when we had $20 wheat, the the second being, 95, 96 when we had $4 corn for the first time.
Speaker 2:Now before you all sprout horns and get too bullish for me, yeah, what well, if this is true, why isn't the wheat market going crazy? We've got Russia and Ukraine at war. Both of them are heavy exporters of wheat and corn, and they need to keep exporting because that's their source of hard money. And they regardless of what's going on, they're moving their wheat surpluses and keeping the price low. The bottom line for the US, last year, I think our exports were at a 50 year low.
Speaker 2:World stocks may not be plentiful, our stocks are. We're holding them all. So that hangs like a wet blanket over the market. I look at corn. Again, you you take China out of the picture, the corn stocks situation worldwide is not necessarily, burdensome in any way.
Speaker 2:We keep we get hung up on this, US carryout being more than 2,000,000,000 bushels, like there's something magical about that number. I'm not so sure that's so important anymore. But the fact is, our stocks are comfortable. The demand side of our our corn market has been good, but not outstanding, not not jumping off the page. You know, we're we're we're producing a lot of ethanol, but there's not a lot of room to produce more.
Speaker 2:The bare in all this is soybeans, and and corn and soybeans share this problem. We've we've been butting heads with China on trade issues for for several years now. China has made a decision. We'll do they're doing all they can to go to South America, and Brazil has the Brazil and Argentina have the ability to produce more soybeans and corn and, ship them there. So it's not good to see our market drifting to South America.
Speaker 2:And, you mentioned the soybean crush, and that's a story unto itself. We have had 6 crushing facilities open this year or in the last 2 years. Four more, I believe, in the year ahead will open. And I think we're getting out over our skis because I don't think the mandates for renewable diesel and the the tax incentives and that that at the federal and the state level, you add them all up, and it's a big number. Unfortunately, the supply our ability to supply that soybean oil is even bigger.
Speaker 2:So we have an issue there. Yeah. I'm I don't we probably could certainly could talk about, soybean and renewable fuels, all hour. But it it, the one thing that, you know, as a
Speaker 3:as a very as a just a pure agronomist and not as an economist, I just look at this and and wonder, how can, how can the petroleum companies get into this so big? I mean, they're talking 1,000,000,000 of dollars for these, refiners to make renewable diesels and other other fuels out of out of the crude soybean oil. Those guys are in this market. They're betting on it. It just seems like it's a sure thing once they get in.
Speaker 3:I can see I can see Cargill and ADM and Bunge all throwing up an extra plan here or there. But but when the big refiners put in the money that they have into these this operation, it just seems like there's gonna
Speaker 2:be a pull here. So it it just makes me think that someday this is gonna come through, but but maybe they're all maybe we're all wrong in this whole deal. I don't know. You're dealing with government policy. I'm I'm not an expert in that area.
Speaker 2:I don't know how the sausage is made in Washington. All I know is that the the smart people who are who are adding it up, it just doesn't quite add up at this point.
Speaker 1:You talk about smart people. I I'm gonna take you back to the classroom because that's another job that you have here at the University of Minnesota. And in the classroom situation one of the things that you're charged to do is obviously provide a grade for the student, for students and so forth. So let's just take that one step farther and talk about our growers here in Minnesota, specifically in Minnesota. And you know what it's gonna cost for the carry and what kind of margin and so forth it's going to take here and spread.
Speaker 1:What kind of a grade or how what does a farmer need to do from as far as you're concerned to get at least a grade of a B, maybe not an A, but a B or an A in terms of forward pricing and we talked about it a little bit at the beginning here, you know, you've got the crop and you're maybe gonna price out to April or whatever farther down there. Would you give them a grade of a B or A if they were able to come up a nickel a bushel or a dime or when the dust settles? What kind of a number nowadays would in your mind qualify for them to get a better grade from yourself?
Speaker 2:Well you ask hard questions, David.
Speaker 3:I don't know what that question is. I try to try to tell that one.
Speaker 1:I want to get a grade, a B or A. What is it what do I have to be where do I have to be in terms of given that soybean prices and the corn prices, to to get that get that better grade so you know I was successful in my marketing technique?
Speaker 2:I I have an image of all these podcast listeners leaning into the speaker to see if Ed's gonna flunk them right now. Right.
Speaker 1:There you go. There
Speaker 2:you go. You know, the goal in my mind, the goal in in pricing grain, I think, you know, we talk about marketing grain. It's Mhmm. It's really about pricing grain.
Speaker 1:Right. Yeah.
Speaker 2:The goal I tell people and this is gonna sound so so minimal or average, but your goal is a good average price, and that's gonna change every year. You're not gonna sell the high in the market. Okay? If you live long enough, you might stumble on it with a few truckloads here and there. You're not gonna sell the high.
Speaker 2:Mhmm. You're looking for a good average. So there are things I recommend doing that get you closer to that. For example, look for opportunities to price early. Not everything, you're looking for a good average.
Speaker 2:I felt that, I'll be honest, I was kinda stubborn myself this year. I'm like, you know, in February March when prices were down, I was don't do anything, don't do anything. I felt we'd get a rally in May or June. We did. Yeah.
Speaker 2:Sometimes it's rare, Seth, but sometimes I get it right. We got a rally and there was your shot to get something done. I'm not I'm not gonna second guess someone and say, oh, why didn't you sell all of it then? That's not fair, but did you get 25% sold, 30%, 40%. Look for early opportunities, avoid holding grain too long.
Speaker 2:I'm telling you this this holding grain beyond July 1, every year it pays off, you got 4 years, it's killing it. It's handing your head to you. And by the way, this sounds that you hear that and you say, yeah, but the the pros don't make that mistake. I'm following a a major news letter that goes out to most of the listeners here. They just recommended that people get out of their corn and soybeans from last year at the end of August.
Speaker 2:We're talking about 30 to 40% of their crop. They held it down $2 too. I hate second guessing, but look ahead, look and plan ahead, look for early opportunities, and don't hold that grain too long.
Speaker 3:Yes, sir. I have I have a clarific point of clarification. So you talk about a good average. So you're talking about the average price for that farmer, and you're just saying good. How does that good I'm trying to I'm trying to bail Dave out of his favor.
Speaker 1:You're doing good.
Speaker 3:How does that average fit with the average crop price for the year? Are you saying good means above the average crop for the year, or is there a measure how much better the farmer's average should be than the average crop Yeah. Price over the year? Does that make sense?
Speaker 2:Yeah. I
Speaker 1:was gonna throw in the cost of production in there, but I don't know if
Speaker 3:you wanna go there. Start pricing.
Speaker 1:Okay. Alright. Okay.
Speaker 2:Well, I'm trying to avoid the harvest lows. Prices are often often lowest at harvest. Even though, guess what, last year, your best opportunity this year was at harvest. And that that happens now and again. It happens 1 or 2 times in a decade.
Speaker 2:I'm not I'm looking at the crappier average price. Yep. If you can find yourself, 10, 20, 30¢ above that, you've done a hell of a job. Great. Okay?
Speaker 2:That's that's what I was looking for. Now is that gonna cover your cost of production? No guarantee. I'm telling you, this year, you're it unless something changes, in the next 4 or 5 months, the price you'll get this year coming up relative to cost of production is not gonna be pretty. But that's production agriculture.
Speaker 2:Sometimes you do very well, and sometimes you have to survive for a couple of years.
Speaker 1:See, it sounds like you're gonna give at least a b if it's at 20 or 30¢.
Speaker 2:Oh, yeah. Oh, yeah. Oh, yeah.
Speaker 1:See, that's what I wanted from you. Okay. I just needed a number here, you know, to earn that better grade in class.
Speaker 2:Just understand yeah. Just understand I'm pulling that number out of the air.
Speaker 1:That's fine.
Speaker 2:Yeah.
Speaker 1:Well, in terms of going forward here, we talked a little bit about, you know, supplying and we think about our Minnesota growers here and so forth, you know, we have an advantage. We send Seth Knave overseas to help, you know, United States, but certainly Minnesota growers. We, you know, trade mission and so forth. Over the time, are we incrementally building demand here or, you know, and so forth? I wanna know how good of a job Seth is doing.
Speaker 2:Well, exports are very important to US agriculture, not just corn, soybeans, and wheat, but we are exporters of beef, we're exporters of, pork. We're exporters of, broilers. Or mainly a lot of lot of thighs go out the door. A lot of hams go down to Mexico. We want to have good relations with everyone throughout the world.
Speaker 2:It's very it's it's disturbing to not get along with China at this point because they are the number 1, 2, 3, 4, and 5 soybean importer in the world. They're just they they just dwarf everyone else, and you wanna stay you wanna keep that market. We need to keep that market, for the for the sake of soybeans as we go ahead. Exports, I I I used to give a talk a couple of years ago when the trade war war broke out, just reminding people how important exports are. We export dairy.
Speaker 2:We export nonfat dried milk. We, you know, we we export whey protein. These markets are very important to us, and we we get into trade wars. I I remind producers, you know, if it's a trade war you want, you're on the front line. You're gonna take the first shot because it's that important to agriculture.
Speaker 3:Yeah. I don't I don't wanna be political here, but I I do I I would I think it's a good reminder that farmers are very intent on the farm bill and farm policy and and and and payment structures and risk management and things like that. But what you're talking about is the impact on pricing directly of our products based on exports. And not only the exports of, you know, our grains, but what you mentioned is really, really critical, these value added components. I mean, we once we move once we move our corn and soybeans through an animal, then we've got an extra value add here that we're selling overseas.
Speaker 3:So we're not only utilizing those grains, but we're selling a higher value product overseas. And those things are all really, really critical. We I think a lot of us get hung up on, you know, China and and and soybeans specifically because those are 2 very, very I mean, the the numbers are incredible when we talk about China. But the reality is is that if China doesn't buy and they buy from South America, then that op opens up another opportunity for us to sell soybeans into other countries that may have been buying soybeans from Brazil or Argentina. So so there is some movement around, but I think overall, we just back to my political point here is that we need to stay focused and keep our government focused on these kind of more free trade issues that allow us to export.
Speaker 3:You know, of course, there's monetary policy and strong dollar and all that that gets very complicated around trade, but I think just the the free trade side of it is really a critical piece. Yeah.
Speaker 1:I I wanted to bring up one other, commodity we didn't spend as much time on, soybeans, and that is just a little bit on corn. Now corn is a different situation obviously from its domestic use, its ethanol use and and so on. What is your feeling, you know, with sometimes we feel that maybe we're we're at the lows here getting into harvest on on soybeans and we've kind of talked about that a little bit even before we started the podcast today. But, any thoughts on on where we're at with corn and, the volume? I know that we're not going to necessarily have a yield in Minnesota because of the weather this year situation, but, you know, it's the corn market's bigger than Minnesota and certainly in some of these other areas.
Speaker 1:What does it look like right now?
Speaker 2:Well, prices are couple dollars lower. I I will tell you that I estimate that working with my, colleagues at the Center For Farm Financial Management, we figured that production costs this year would be about $5 a bushel for corn. The current price out in Southern Minnesota is somewhere around 375. That doesn't feel good. I just put out a a little questionnaire to my colleagues.
Speaker 2:Do we think the cost of production will be much different in the year ahead? And I'm afraid the answer is not much different, maybe modestly lower, but not a dollar a bushel lower. You know? So stay tuned on that. Demand for corn in the US right now is pretty good.
Speaker 2:You know, we've got decent exports. The ethanol plants are running well. The livestock and dairy industries are in good shape. But despite all that, we've got we we're we're gonna build stocks in the year ahead, unless there's some surprise in the next month or so. We're gonna build stocks, and so we're gonna be on the defensive price wise, for the rest of the year.
Speaker 2:That hurts to hear here in Minnesota where our crop is very subdued. It's a poor crop in some areas, but, that's the reality of where we're going in the year ahead.
Speaker 3:Yeah. And then, you know, you talk about individual. I I think a lot of us, especially agronomists, talk generalize about the state a lot, and we talk about average farmers. But we know that there's no farmer that's really average. No.
Speaker 3:And those farmers that were really hurt by excess rainfall and weren't able to get extra anon, their cost of production is actually gonna be higher than that $5 because they're not gonna have the the bushels to cover those. And so if you're talking about a 375 and you're talking about a significantly higher than $5 a a bushel production cost, that's a that's a real painful, painful pill to swallow for those folks.
Speaker 2:Yeah. Crop insurance is gonna play a role here this year. The payouts, hopefully are significant for Minnesota farmers.
Speaker 1:So that's the last point I wanted to bring up is crop insurance can mitigate some of this. But no matter what size crop that you're pulling in here in Minnesota, you still have to look at those opportunities to market and not just put it in the bin and say, boy, I'm going to sleep soundly this winter. You need to do some things here.
Speaker 2:Yeah. You you crop insurance is wonderful, but, as I as I like to remind people, if, anytime you have an accident with your car, you you can get a couple $1,000 from your insurance agent, You didn't have a good year. You didn't have a good event. Insurance is just to keep you upright moving forward. It's not a a profit center.
Speaker 3:Yeah. You either pay them more in premiums for your car or you, your, APH goes down over time. So there's there's no there's no winners in collecting No. Collecting money for sure.
Speaker 1:Yeah. Marketing is gonna require some strategy. You know, I wouldn't say crop insurance is the market goal that you want
Speaker 2:to have,
Speaker 1:obviously. So, there are other considerations. Well, Ed, we are approaching the end of our allotted time here today. We do appreciate that you were able to stop by and visit with us. Certainly, we'll we'd like to do it again and, we will certainly contact you.
Speaker 1:We know where to find you, you know, in in terms of here on things on campus and you'll be around the state of Minnesota with other types of programming, I know for sure and so forth. And if not, they they can catch you in some of the local media. I'm sure doing that that. So any last words or any last thoughts before we sign off?
Speaker 2:Well, I'm I'm a little concerned, Dave. You mentioned you know where to find me.
Speaker 3:That that can be read several ways. I appreciate the opportunity to come on with you today. Well, let's let's give Ed another chance to plug any of his outlets, that he he wishes. I don't know which which one of those, if he wants wants to sell more books or if he wants to get more people to his website. But maybe, Ed, if
Speaker 2:you wanna Well, commodity challenge.com, if you want to, get engaged with a, very realistic game. It's being used by several 100 high schools and colleges throughout the country every year. And, my book is Grain Marketing is Simple. It's just not easy. You order it online, Google it.
Speaker 2:Don't buy look for the 3rd edition. Don't buy someone's used first or second edition. And by the way, all the funds go to the University of Minnesota.
Speaker 1:Great. Well, thank you very much. We'll we'll look forward to that. I'm waiting for the audio version so that I can listen to it on going down the street on the car.
Speaker 2:So Okay. Thank you.
Speaker 1:Alright, thank you very much. So this has been University of Minnesota Extension podcast, Minnesota Cropcast. I've been your host Dave Nicolai with University of Minnesota Extension along with my co host Doctor. Seth Nave, University of Minnesota Extension Soybean Specialist. Our special guest, today in the studio has been Ed Usett with the Center of Farm Financial Management in specializing in grain marketing.
Speaker 1:So thanks for listening and we'll catch you next time. Thank you.
