Navigating Tight Margins through Grain Marketing with Ed Usset
Good day, and welcome to the University of Minnesota Extension and CFANS podcast, Minnesota CropCast. I'm Dave Nicolai, University of Minnesota Extension crops educator, along with my cohost Doctor. Seth Nave, University of Minnesota Extension soybean specialist. Well, back to the University of Minnesota podcast Minnesota CropCast. Our guest in the studio today is Ed Usset.
Dave Nicolai:Ed is University of Minnesota Grain Marketing Economist with Extension. He also has some teaching responsibilities here at the University of Minnesota. And again, I'm here with my co host Seth Nave, University of Minnesota Extension soybean specialist. And we add, we're into the month of April here. Turning the corner, we're finally gonna get some warm weather.
Dave Nicolai:People are thinking about planting but at the same time, there might be situations out there and it typically is every year where you have old crop in the bin. Whether it's corn, soybeans, maybe sometimes small grain, I don't know it all depends upon where you are in the state of Minnesota. But what should these folks be thinking about here? I mean, they're itching to get to the field, but at the same time, they know this crop they're planting, they gotta go with it someplace. What are some options and some things to logically safeguard this in today's economy?
Ed Usset:Well, I think they have to be looking about looking at the fact they they should empty those bins by the June. That's my eleventh commandment of grain marketing. Thou shall not hold unpriced grain in the bins after, July 1. It should be earlier for spring wheat, listeners, maybe maybe early to mid May, you ought to have those bins empty. The good news is, at least for soybeans, we've had we've had quite a rally.
Ed Usset:I just I I prepare for you guys, Dave, Seth. Excellent. Get ready. Yep. And, I'm looking at Southwestern Minnesota cash prices for soybeans at about $10.75 a bushel.
Ed Usset:Maybe not the greatest price we've seen in the last five years, but it beats the heck out of the, the low last October of $9.20 a bushel. We're a buck and a half off the lows. Not quite. We're we're also about 40¢ off our highs of three weeks ago. But that's a good opportunity to get something sold.
Dave Nicolai:What are folks going to do? Are they just gonna haul it in to take the cash price or can they do anything in terms of options, any other kind of marketing? We have a shorter time frame from your situation you're giving us, Not very long here until the month of June. What if they haven't priced it, is there anything in the in the short term that they can do?
Ed Usset:Well, they could look at I I note that our basis levels, corn, soybeans, and wheat are just frankly, they're awful all throughout the state, old crop and new crop. And if you had a sense that the basis could improve over the next three months, you might consider a futures contract. I'm not that keen on options right now. I know just a week ago, a major publication recommended a large new crop sale at but they they did it with put options and, you know, they may end up being right if this market rallies sharply, but, man, margins are thin, I'm not in the mood to spend 50 to 80¢ a bushel on options right now.
Dave Nicolai:Well what what would help to make a better basis at this point in time? Are we looking at anticipatory things of how things are doing in South America or continued demand or some rumored sales to China? What's gonna drive that basis?
Ed Usset:Well basis is really a local issue. Those things you mentioned are something that will drive the board, the futures price up or down. The weak basis simply tells me that corn buyers for ethanol plants, soybean buyers for the crush plants, they're not having a problem getting the the supplies they need. It tells me the grain is out there. You wonder, is there grain in storage?
Ed Usset:Yeah. There is. And it's too easy to buy. Now I like to think the basis will improve in the next few months. It often does, but we're starting at a very low level.
Ed Usset:That won't be driven by international events. That'll be local events and and how hard it is for that buyer to get ahold of grain.
Seth:Do you think there's any opportunity? Do you know anything about, the processors or the ethanol plants, whether they're running full capacity or if they can dial things up just, just slightly? Or are we already pretty much running capacity on I
Ed Usset:think ethanol is running at capacity. The soybean crushing, plants, we've had a major expansion throughout the country, not in Minnesota, but other, states in the country. Some major plants opening up, several, quite recently in North and South Dakota. And, this is all in anticipation of heavier demand for soybean oil, renewable diesel, and it's pretty impressive. I'm not you know, the the Minnesota plants, we've got five of them, two in Mankato, one in Fairmont, one in Brewster, just north of Worthington, and another one in Dawson in Western Minnesota.
Ed Usset:They don't tell you how hard they're running. And, but I'm guessing they're running pretty hard because soybean crushing margins are, well, they're off the map. That's right. We've been we've had good crush margins for quite some time. So those guys had the it was in their self interest to run as hard as they could.
Ed Usset:That's I had forgotten that this was that they had really good crush margins going into this over over a buck
Seth:a buck a bushel, I think, were looking at for these things.
Ed Usset:And they were Give you a little, thought on, crushing margins. I do this every year on October 1. I sort of look at the the board crushing margin implied by November soybean futures, December soybean oils, December soybean meal. And, you know, for years, that board crushing margin for twenty five years, it was 60¢ a bushel, give or take. Last five, six, seven years, it's been much better anywhere from a buck to $2 a bushel.
Ed Usset:I calculated it the other day using December December meal oil and, November futures, 2 and a half dollars. And here's the other interesting thing. Long term, the value of meal and oil has been sort of a $60.40 split. In other words, the value of the meal would be 60% of the value coming from the soybean. Oil would be 40%.
Ed Usset:Oil was 51% of the value. I mean, it's only one quarter. It's only 11 pounds out of a, you know, 60 bushel bushel. 60 pound bushel. Yep.
Seth:Yeah. And it's only gonna go that way a little further as we have crude prices creeping up here. So I think that's gonna push push things even harder. So I don't want to derail things in the soybean world, so I want you guys to keep on this. So do you think you wanna move on past the binned grain storage here we got, Dave?
Dave Nicolai:Well, yeah. I think some of the next things to talk about is obviously everyone is worried about input costs Ed. It's the talk of the town so to speak in terms of that if they can fertilize prices and some of the international effects having here in the costs. And so at the same time that growers are looking at that, what should we be doing or thinking about marketing already for this 2026 crop. Maybe we can go through the corn and soybeans and some of the other things that might factor in there.
Dave Nicolai:Obviously we don't know what the weather is gonna be. We get off to a good start and it appears, yes we're gonna have some rain here but we're still early. We're not in the middle of of May here. So if we get timely planting, and you know, we have have had some very good crops the last number of years. Your guidance, so to speak, on dealing with this 26 crop because it's gonna come one way or the other.
Ed Usset:Yeah. We'll we'll start with soybeans. We'll start with the good story. Okay. You've got November soybeans, eleven and a half dollars, eleven sixty a bushel for November, futures contracts.
Ed Usset:That rings a bell for me. And now I've been for months saying, keep an eye on that. It's creeping up. It's creeping up. Well, we're up there now.
Ed Usset:I think that's gonna cover production costs for most Minnesota farmers. It's a full dollar off its low from six months ago, dollar 10. It's a great opportunity to get started on pricing, new crop, soybeans. Corn boy, coins have been a real disappointment. It's currently the December 26 contract getting nudging up against $4.80 as as I speak.
Ed Usset:That's really only $30.35 cents off its low from six months ago and 15¢ off its high. But as we get close to the $5 mark and something tells me I should quit being so proud, I should take a look at today's price. Somewhere in this $4.80 to $5 mark, you gotta get started and, again, hope you're wrong. Here's what I wanna remind everyone of. December corn is trading close to $4.80 a bushel.
Ed Usset:In each of the last two years, the December contract has found a way to go below $4. This thing has a dollar on the downside if everything clicks as we think it could. November '26 soybean futures at $11.55, $11.60 a bushel. I wanna remind you that each of the last two years, the new crop contract found a way below $10. So we've got a lot of downside on this if another big crop develops.
Seth:So let's, the market you know, I'm not an economist. I am way out of my, my way out of my field here. But, you know, it sounds like the market is really looking for more soybeans. They got more in the planting intentions report back in March, but yet they're really the market's really asking for more beans yet. Right?
Ed Usset:I think so. I think so.
Seth:So given all of the geopolitical stuff going on in the in this past six weeks, we've got crude creeping up. That means we're gonna be pushing on nitrogen costs. The economics around farming is pretty tight anyway. That pushes us towards soybeans. So there's a number of factors that are leading towards soybeans.
Seth:We have pricing built in, and we have some, you know, some external factors that are kind of pushing on soybean. Is there is there a chance that we might overshoot this thing and plant way more soybeans than we than the market's really talking about? Or do you think the market has this thing nailed pretty well?
Ed Usset:No. I think I think we'll plant even a few more soybeans than were indicated by the, March, planting intentions report. Basically, that report showed that nationwide, we're gonna add about 3,000,000 acres of soybeans, and that'll come at the expense generally of corn, 3,000,000 acres less of corn. I could see that creeping up to 4,000,000 more acres. It's not we're not gonna add 10,000,000 more acres.
Ed Usset:It's not gonna be a wild change like that. And in fact, the market, frankly, a lot of people thought the intentions report would show 4,000,000 more acres. So we could we creep up higher still? Yes.
Dave Nicolai:What about our neighbors to the south? I'm thinking of Brazil and Argentina. And is that production been factored in here in terms of the market now. They sometimes if things turn dry, know it does impact you know even our local prices but at at this point in time, they're certainly gonna have the same acreage if not more. Correct?
Ed Usset:They've got a good crop coming. They've met frankly, they're they're they're they're harvesting it, almost done harvesting it. They've got a good, corn crop coming. Not perfect, but, certainly far from any sort of disaster down there. They've they've got more acres, a bigger crop.
Ed Usset:I read something this morning. Argentina was upping its estimate on corn production for this year. Everything's going quite smoothly in South America.
Dave Nicolai:And of course, other other countries are purchasing, you know, China knows how to actually bring their ships or bring product from there into into China per se. Politically, maybe things have calmed down a little bit in terms of China purchasing US product. Are we back to what we call a normal situation, so to speak, in that export demand?
Ed Usset:Oh, I don't think so. We've we've had good export demand for corn. Wheat has actually been pretty good, the export demand. Soybean export demand, it's really all about China. And here it was just, three weeks ago or so when this incursion aka a war with Iran started, the president announced that he was delaying a meeting with the Chinese premier, and the soybean market immediately went limit down 70¢ a bushel.
Ed Usset:Now we've gotten a bit of that back since then, but we are very tuned into that. The market is very tuned into the possibility of selling more or less soybeans to the Chinese.
Seth:Do you know, are we tied up with vessels? Are there any Panamax or larger boats tied up in in The Gulf here with with all this stuff going on with the Strait? Are we are we short of vessels? Have you heard anything about
Ed Usset:I have not heard any that's a good question.
Seth:But I haven't heard anything about that. No. I I know that there was some discussion that there was some, you know, there was some movement. We heard some rumors of some movement of some some crude along with with soybeans out of out of The Gulf. And so I didn't our Gulf on the in in New Orleans.
Seth:And so I I know that that's this is all playing into this big macroeconomics about the cost of fuel and things like that. The, you know, we have fuel here. We have crude here. But when the price goes up enough, then we can start exporting a little bit of it. Some of it's slipping out in some of these vessels that had been originally charted for soybean exports.
Seth:They put some bladders in and were hauling some soybean and some crude out. So Mhmm. There's some weird things going on. I just hope that the market can work its way around this and we can find we don't want these secondary factors like availability of vessels and things like this to screw us up anymore when we already have enough problems. No.
Dave Nicolai:No, you came in the studio and you definitely did your homework, and I noticed to add you brought a number of other pieces of will be a little old fashioned of what we call paper. Yes. Yes, not all on on the screen. What are some other items you'd like to share with us?
Ed Usset:Well, I I gotta get back to this basis issue. You know, here we've we've got a soybean market that is elevated. Prices are, you know, like I said, a dollar and a half off the harvest lows. Corn disappointingly, it it is off its harvest lows, but there really hasn't been a lot of movement in in the corn market. Yes.
Ed Usset:You know, Southwestern Minnesota, cash prices, $3.90 a bushel, 30¢ off their lows. Not a lot to cheer about. Wheat up in the Northwest is, you know, 80¢ off its lows on on cash prices. Here's what bothers me, these basis levels. Basis, I tell people that basis indicates, you know, it's a very local issue and it tells you about local supply and demand if if buyers are having a hard time getting grain.
Ed Usset:You've got elevators, just terrible basis levels, ethanol plants in Minnesota, 45 under the May. Now that's just a number to people, but I'm here to tell you 45 under the May at an ethanol plant in April, that's a lousy number. And it's in our 30¢ cheaper at the elevators. The crush plants are bidding 40 under the May. It's ridiculous.
Ed Usset:Last few years, I would expect it to be option price 10 under, 20 under. So when and when you have a weak basis that that that raises a little red flag like, why is this market so strong?
Seth:Well, you know, I think about basis as just this, you know, a transportation penalty to get it to the market. Right? If that that's one one portion of it. It's just a slice of it. But if you think that that should be the major piece, if the processor, if the ethanol plant is the ultimate user of that product, then that basis should be essentially zero.
Seth:It should be, we should be at some sort of a number. And maybe Chicago isn't actually zero itself, and we could probably debate that. But you should you should be able to get something closer to zero at least if you're getting it right all the way all the way to the to its destination. Yeah.
Ed Usset:By the way, spring wheat basis up in north in the Red River Valley. 70 under the May. I'm just you know, I just follow these things over the years, and and that's, the, proper description for 70 under the May is god awful.
Dave Nicolai:Well, we were talking before we started a little bit off the air in terms of the impact on acreage Mhmm. On the Dakotas and Minnesota on small grain. You wanna talk a little bit about that?
Ed Usset:Well, they are they are I'm not sure where all these acres are going. There seems to be a clean switch, in general from from corn acres to soybean acres, but wheat is also losing acreage. The spring wheat up in Minnesota, North Dakota, Montana is losing acreage, and I'm not sure where that those acres are going, but I know people don't want plant wheat. Yeah.
Dave Nicolai:Well, I'm I'm we're guessing. Obviously, a lot of it in soybeans depending upon the situation, but
Ed Usset:Yeah.
Dave Nicolai:We certainly have opportunity for that. So
Ed Usset:Yeah. Well, it it but it doesn't quite add up. There's a bigger decrease in wheat and corn than there is an increase in soybeans. Canola. Cannot there you are.
Ed Usset:There you are.
Seth:We got an answer for you. I don't think canola makes up enough. But when we're talking about small numbers on the wheat, I think it's those are you have to think about your axes on those charts when you look at corn and soybeans and then weed. Do have to do a little bit of math.
Dave Nicolai:Yeah. Well, you talked about crushed plants before. Are we, excuse me, are we expanded as far as we're going? I remember a couple of years ago, talked about all of these plants coming online. Are we done with that initial expansion?
Dave Nicolai:Do we have what we have? Is is there more to come yet or the I mean, we're not sure about the, you
Ed Usset:know, biofixes. We we not done. I my tracking of the industry says that over the last three years, there have been 12 major plants or expansions come on stream, 12 of them. But, according to what I see, there are three more big plants that will be opening sometime this year. None of them are have been in Minnesota.
Ed Usset:Minnesota was simply ahead of the curve. We had a lot of crush capacity. And, but there are three more big plants coming. Something to keep in mind on. And and this is good news.
Ed Usset:Right? We're more domestic crush, more renewable diesel. This is this is considered a good thing. And I noted, starting about six months ago that the crush numbers, monthly crush numbers were coming in and surprising the market. They might be 10,000,000 bushels more than we expected in a month, and it happened again the next month.
Ed Usset:And I did a little mental math, and I said to myself, okay. If we exceed expectations, 10,000,000 bushels a month for a full year, we've increased the the crush a 120,000,000 bushels more than we expected. And a 120,000,000 bushels is 10% of what we sold China three years ago. So just keep that in mind.
Seth:We need we need the export. Yeah. But, as you mentioned, we've got the South America's already in their harvest and, looks like a good crop. And so the Chinese don't really need us again for another nine or ten months. So, you know, I don't know that there's gonna be any real without any political pressure, I don't know that there's gonna be a lot of big purchasers because I think they're they're already looking to South America for purchasing.
Seth:Right?
Ed Usset:They've been doing that. They've been doing that, for a couple of years now. They're they're focused on that. But you mentioned there's gotta be, you know, the the possibility of political pressure. We're trying that.
Ed Usset:And we're and, you know, who knows? Maybe maybe we can get something done there. And this
Seth:is my biggest concern with the with the growing you know, there's a lot of discussion about transportation in Brazil and infrastructure related to transportation and getting the crop to the ports. But the reality is the farmers are putting up bins, and the local elevators are putting up bins. And there's more storage in Brazil. We we used to I used to think about Brazil as just a place where all the storage was in trucks lined up on the road at the ports. But the reality is they're getting more storage.
Seth:And as they get storage, that probably is the weaker link here in terms of them filling out this full marketing year cycle. And so the the if if China only needs us for a month or two in the winter, it kinda puts us out. We're we're kinda out of the loop on China again, and so we're gonna really have to look for other markets.
Ed Usset:Well, you laid out some big challenges here, Sapp, and Mhmm. That's a that's a depressing view of things, but it is happening. And and by the way, logistically, their tran system, they are working to upgrade that too. It's not gonna happen quickly, but they are working to upgrade that. Yeah.
Seth:I've been spending a little bit of time in Brazil trying to better understand some of their limitations. And and it's, you know, it's the good thing is when have prices up above $10 $11 here in The U. S, then we start thinking that, you know, this gives us an opportunity to at least to make ends meet on the farm. But the other side of it is that's the same way down south, and that they look at those markets too, and that's a good time for them to expand in Brazil. So it's just an opening for them to continue to put money in.
Seth:And their their crop is very sophisticated. Their production systems are very, very sophisticated in Brazil. It's not this isn't a backward system where they have these little tiny combines running around through the fields anymore and and drying systems in Mato Grosso. So it's all pushing one direction. So we're gonna have to figure out some things here, in The US in order to be competitive.
Ed Usset:Don't don't forget that in South America and Brazil in particular, they can continue to to expand acreage. They're not done. That's right. They're not done. No.
Ed Usset:They're finding more acres every year. There's plenty
Seth:of room in Brazil. So how about domestic? I know we're we're off topic just a little bit here, but I you know, you talked about domestic crush increasing and new three new plants coming on. We don't necessarily have a lot of opportunities for meal exports. I think there's there's opportunity to sell more internationally, but it's a tough we have a tough competition with expansion in Brazil.
Seth:And the Argentines, of course, really want a crush. So, what is our hope for getting more animals on, feed here in The US? What, what's what's the potential for more domestic use?
Ed Usset:Well, I've heard a lot of funny things about soybean meal as this expansion has happened. You know, someone suggesting that we would have to take it to to landfills or something like that. We'd have so much meal. That that's not gonna happen. What is gonna happen if you're a poultry producer, a a hog finisher, you're a happy person because the relative cost of soybean meal is staying subdued.
Ed Usset:Like I said, at at current levels, oil is the bigger part of the value from the soybean, and that's not normal. And but that might be the new normal moving forward. Meal prices are gonna be I don't wanna say depressed. They're just gonna be reasonable. And maybe that's good news for hog and, poultry producers.
Ed Usset:Yeah.
Seth:It'd be really nice if we could if we could get more animals on feed here in The US. I think that's ultimately the answer, but it's really a challenge these days to to get those, all the permitting and all, and the questions with scale, think those are really big challenges for us.
Dave Nicolai:You you have our nearby markets under, I understand obviously there's gonna be some trade talks between Mexico, Canada, you know, the North American. That's gonna have an impact. Hopefully, those things will, you know, come out. There's always a lot of what I call political posturing. You know, that's obviously going on now ahead of that, but I think when the day is done, that'll still be there.
Dave Nicolai:I just want to talk real briefly and switch to corn. Now something recently happened here in the news, know we have year round E15 here in Minnesota but now in the summertime what do you foresee? Is that going to be a big price driver or is that a seasonality thing I mean you got California markets and so forth or is that already been played into things?
Ed Usset:I think it's already priced into the market it's good news. I think the industry would like to see an E15 mandate nationwide year round, but we'll we'll start with the summer.
Dave Nicolai:Yeah. This this is not a permanent situation, but it is a temporary, what I call a bridge and and so forth in in regards regards to that. So there might be some other things I noticed. One of our major oil supplier here in the state of Minnesota seems to be now actually incorporating a little bit more e 15 where they haven't in the past. Yeah.
Dave Nicolai:So that that may have, you know, an impact as well. And we'll see, you know, geopolitically how this how this works. But you're thinking that's that's been in. Well, as we get towards the close here, excuse me, do you wanna revisit a little bit about these target prices for this fall in terms of corn and soybeans and in which month and and when you really see something that you need to be proactive. Obviously, everybody has their own cost production breakevens and and so forth.
Dave Nicolai:But sometimes, you know, you have to take things when they come around.
Ed Usset:Yeah. I'll tell you what. I I write pre harvest marketing plans every year. I've done it for twenty five years or more. And I'll give you my minimum price, which is based on production costs in Southern Minnesota.
Ed Usset:For corn, you show me December corn at $5 a bushel, I think I'm there. And we've toyed with that. We haven't been there, but we did get over $4.90 briefly. And we're currently at around the $4.80 mark. We're close, and I'm wondering if I shouldn't just screw up the courage and get get something done on the books because, again, we've been below $4 each of the last two years.
Ed Usset:November soybeans, these are numbers I wrote six months ago when we're a long ways away. Mhmm. I said, you show me $11.40 a bushel on November soybeans, and I'm interested. We're above that. And I and I've been on my mythical farm.
Ed Usset:I've been pricing some soybeans. Finally, in spring wheat, again, six months ago, I said, show me $6.80 on the September contract. And, we were a long ways away when I I wrote that. Well, guess what? We hit it a couple weeks ago.
Ed Usset:Now we've we've faded back. We're probably 20¢ below that. But we're we're toying with these numbers. We're there for soybeans, and we're awfully close in corn and wheat. And keep that in mind.
Ed Usset:It's an opportunity.
Dave Nicolai:Well, certainly, there are weather markets, and we know how the weather markets affect us in South America. Planting delays, you know, if if the word drought slips in here
Ed Usset:Mhmm.
Dave Nicolai:That situation. So some of those things are gonna affect that well, your final numbers certainly with that. Yeah. A certain amount of international demand and so forth. But sometimes it seems to me over the years we really have to watch that weather market because that's a good thing to take advantage of that.
Dave Nicolai:It may or may not occur.
Ed Usset:Yeah. Weather markets run run two ways, Dave. Sometimes we just go lower because the weather is just fine.
Seth:You know, and I'm I'm derailing things again here, but you wanna say a couple words about farmer psychology and marketing and kinda downtimes. And if we get a little you mentioned that you basically are looking at your same number targets from six months ago even though we've seen a nice uptick. You're not revising your numbers upward. Talk to me about farmer psychology and tough times. Do you run into a lot of folks that have a hard time if they if they sold a lot of grain at a loss, now they're having a hard time selling where they're where they're kinda just at at parity with their inputs?
Seth:Or Yeah. Or, you know, it's this kind of, you know, base run versus home runs at this point. What what's your recommendation just broadly from a psychological perspective?
Ed Usset:Well, well, psychologically, I have threatened for years to take a University of Minnesota psychology psychology professor with me on the road with a big red couch. We're gonna put it up front, bring people up one at a time and talk about these things. Psychologically, I and thinking of last year's sales and and last year was a problem and I sold too cheap. The three most important words in marketing Grain are forget last year. Just forget about it.
Ed Usset:And I know it's hard to do, easy to say hard to do, but just look ahead, look at the current opportunity. Disabuse yourself of the idea that you are somehow gonna find the highest price. It's nice to seek it out, but the fact is what you're aiming for is a good average price and today's a good place to get started on that.
Dave Nicolai:Great. Well, with that, if if there's any more questions or comments, I think we'll call this a wrap. And and certainly, Ed, we know things change. We know where to find you not too far away here.
Ed Usset:That sounds like a threat, Dave.
Dave Nicolai:Well I know, I know, I know. The last time when we book things sometimes is if I see you walk across the street and always say, hey, we haven't been together in a while, let's do it. So we appreciate Ed Usset, University of Minnesota Grain Marketing Economist dropping by to spend some time with us here as we talk about old crop and more importantly new crop and some strategies and some pricing things to consider. So thank you Ed for showing up. We do appreciate that and we know things change so that'll be the opportunity.
Dave Nicolai:So this is Dave Nicolai with the University of Minnesota CropCast Podcast Program. I'm here along with my cohost Doctor. Seth Nave University Minnesota soybean specialist and thanks for tuning in and we'll talk to you next time.
