Turmoil and Opportunities in Minnesota Grain Marketing
Good day and welcome to the University of Minnesota CropCast from University of Minnesota Extension. I'm your host Dave Nicolai, University of Minnesota Extension educator in field crops and I'm here today with our co host Doctor. Seth Nave. Seth is at University of Minnesota Extension soybean specialist and Seth we have a really good opportunity here as we get into the fall in terms of soybean harvest to think a little bit about our markets and marketing. So we've invited in Ed Usset, Ed is the grain marketing specialist or grain marketing economist I should say for the Center for Farm Financial Management here at the University of Minnesota.
Dave Nicolai:So Ed how are you doing today?
Ed Usset:I'm doing great, doing great Dave.
Dave Nicolai:Well this is a good opportunity but there's a lot of information out there, there's a lot of things in the news when we talk about options in terms of our grain situation here in terms of our crop. We're going to be looking at a very good crop in a lot of cases. I don't know necessarily records but good yields I think across Minnesota for both corn and soybeans and with that Ed farmers have to consider a couple of things. One is they may have some old crop soybeans still around. I don't know if they necessarily they moving those out or they've been priced but of course, you know, the new crop is is going to be with us shortly.
Dave Nicolai:Your observations a little bit about how some of these national and international situations are going to affect here Minnesota farmers and we'll probably get into a little bit about what the options are for Minnesota soybean growers in terms of growing this crop. So I'm really basically unless Seth has got some other things he'd like to push in here at this point in time, going to turn the microphone over to you.
Ed Usset:Okay. Dave, thank you. I should we should note that just earlier today, USDA, released their September WASDE report, confirmed a very large, corn crop, a very large, soybean crop. They did pare back their expectations for the nationwide average yield. They were up at one eighty eight point eight bushels per acre in the August report.
Ed Usset:They paired that back to a mere one eighty six point seven bushels per acre. Both of that that's a record yield by far in The United States, setting the stage for a, 16,800,000,000 bushels of corn being produced, this year. The soybean figure, they they tapered it back nationwide, 53.5 versus 53.6 bushels per acre, 4,300,000,000 bushels in production. Those are yeah. The debate going into this report is would we have a huge crop, or would it just be massive?
Ed Usset:And, it's a huge crop. I think from a just very quickly, a little trivia here. It will be interesting to see where Minnesota comes in. I didn't have a chance to see their projection for the Minnesota crop, but Minnesota has never averaged more than 200 bushels per acre for corn. We did one ninety five, I think, three years ago.
Ed Usset:I think we have a shot at that 200 bushel mark. It's sort of trivia, but it it's a big, big crop. And I'll bet you didn't know that Minnesota set a record for soybean yields in 02/2016, nine years ago, 52 bushels per acre. I think we I like to think we'll top that this year.
Dave Nicolai:Well, it certainly looks like we've had some good weather. We've had variable rainfall. I did notice our growing degree day units for corn, actually we're tracking right well with the five year average based upon the GDUs and that we measured out at the Lamberton Research Center in Southwestern Minnesota. So we're right on par, know, in terms of that. Now, you know, one of the common things Seth that has always talked about is, know, August rains help to make that soybean crop and any things that you can talk a little bit about what we might be expecting here or observations that you've had?
Dave Nicolai:I know you had a chance to go down to your drainage site down at Wells, Minnesota here this last week. What are your thoughts on terms of crop numbers?
Seth Naeve:Well, think, you know, I think we got all got a little bit overly optimistic with the early, you know, when these kind of August conditions were around. I think Minnesota and what I'm hearing from other states is that, you know, the late season conditions just aren't as good as what, you know, things were tracking. And I guess this is pretty common in soybean when you have really good yields and the crop looks really good. That's when we start to see disease. You know, the classic one is white mold always shows up in years like this where we have really tall canopies and nice lush canopies.
Seth Naeve:But this year, just with the heavy rains and things, we were seeing a lot of disease that we don't normally see here in Minnesota in our soybeans. And I think that's going to nick things a little bit. And then we had this really cool temperatures a week or two ago now, and that really set our soybeans back. And that's tough on a soybean crop that kind of wants to thinks of itself as a little bit more of a tropical crop. So I think it's going to cut the top off of this thing a little bit.
Seth Naeve:But it's all about how many drown out spots and no plant areas we get. Those seem to really, really kill us in the end.
Dave Nicolai:Well, certainly either way we talk about this, Ed, there is a significant crop out there. We were talking a little bit before we started about some strategies and then you can reflect on some of the current situations, but let's talk a little bit about situations that might involve what last year's crop or what we refer to in the trade as old crop. Now, some of that obviously might be priced into the system, may or may not be any any observations or suggestions you might have if folks are dealing with that and I'm also thinking about the next question here is on farm storage but I'll turn it to you.
Ed Usset:Well, the two go together. If, anyone out there is holding old crop still, which I I hope they aren't, but I know there are a few bushels out there, they're gonna have to move before harvest just to make room for the new crop. And it's gonna be a painful, a bitter pill to swallow, but I don't know any way around that at this point. So move those old crop bushels. I like to talk about the eleventh commandment of grain marketing.
Ed Usset:Thou shall not hold unpriced corn or soybeans in the bin after July 1. But, you know, Dave, Seth, I think we have a few sinners out there. They're just gonna have to repent and move forward.
Dave Nicolai:Well, certainly, what are your thoughts and observations and what have you been hearing about, some of our elevators, you know, up and down the line, whether they're in Minnesota or just across the border into, Dakotas with the soybean crop? What do you hear about their situations in terms of availability for storage for both old and new?
Ed Usset:Well, I won't go by what I hear, I'll go by what I see in basis levels. And in Southwestern Minnesota, you've got basis levels 93 under the November contract. Now the last two years, basis levels were not very good at harvest, but they were 30 to 35¢ better than that. Now if we cross the border into the Dakotas, particularly North Dakota, but South Dakota too, the Dakotas and Western Minnesota is really a shut depends on exports, highly depends on exports. We've got these shuttle, loading facilities, in the Dakotas and West and throughout Minnesota designed to load 100 car, trains very quickly.
Ed Usset:They go to the West Coast to feed the export market. Dave, we have nothing on the books in terms of new crop sales. And by the way, the new the new marketing year started twelve days ago on September 1. We have nothing on the books with China. The export market is, frankly, for soybeans, sort of dead in the water.
Ed Usset:And that's why, basis levels in North Dakota are a 155 to a 170¢ under the November contract. They got nowhere to go with them. That's, you know, we've talked about this before and you and I shared exactly the same thoughts on on the Dakotas, especially North Dakota. And it's the way I talk about North Dakota is that the Chinese really built soybean production in North Dakota. It's it's there aren't any animals there.
Ed Usset:There wasn't any crushing capacity. It was just a big draw from China through the Pacific Northwest by rail that really created the current crop production system that has soybean so integral in that system. So when that pipe gets shut off, there's just nowhere for these things to go. You're And starting to look at those levels about what it would cost to truck a load of soybeans from North Dakota down into Southern Minnesota or Iowa to processing plant or something like that is what you end up paying for just to get rid of those soybeans from those areas if there's no way to get rid of
Seth Naeve:those by their most efficient route to the P And W.
Ed Usset:Now there are several crushing facilities in the Dakotas, some very big ones. Another one opened, I believe, in South Dakota just in the last week. But crush capacity can't take them all. I'd I'd wanna note that, our soybean crushing plants in Mankato and Fairmont are bidding 40 under the November contract. Sounds good compared to 93 under, but at this time of year, I would expect that to be 40 to 50¢ better in a normal year if there is such a thing.
Seth Naeve:Well, it's if you think what what is basis, it's it's it's mostly paying for this transportation to the the the demand point, and the demand point is Mankato. It literally should be something closer to zero, just by definition. And to have, to be penalized at that level, at the farm level, really disappointing. And it doesn't bode very well for us, does it?
Ed Usset:No. No. It doesn't. I, I've been talking about the soybean market, paraphrasing or or using an old Charles Dickens novel, A Tale of Two Cities. By the way, I wrote a report in high school on a tale of two cities and never read the book.
Ed Usset:Just a little bit for you.
Seth Naeve:Chat GTP, is that what you used
Ed Usset:when you were high school? Well, that wasn't around way back then. But, my point is the soybean market, it depends on exports and domestic demand. Domestic demand is crushed demand. Crush demand is doing very well.
Ed Usset:It's been expanding a lot throughout the country, but, of course, renewable diesel and some of the mandates there. That side of the market's looking good. But we have, over the last fifty years, consistently exported somewhere between 40 to 50% of our soybean production. We need the exports. Crush demand is not gonna make up for that big, deficit, and that's the that that crush demand is the best of times.
Ed Usset:Export demand is the worst of times.
Seth Naeve:I do, you know, these soybeans are gonna go somewhere. I think a lot of, I think my personal view, and I'm of course not as a non farmer, non economist, I have no skin in this game at all. But from the outside, the way I look at it, especially if we learned anything from Trump one, was that, you know, there was a period of adjustment where the market got pretty screwed up because nobody the Chinese quit buying from The US mostly, but there was still some purchasing. And then that had to just shift the whole market around. I think I think the market learned a lot, and I'm hopeful that things are going to go a little bit more smoothly.
Seth Naeve:They're definitely going to buy a lot more Brazilian soybeans this year than they've ever they're doing it right now. But that just means that some of those markets that we're buying Brazilian soybeans that I visit in the in the wintertime every year, they're those beans are gonna be a little bit more scarce for them, and so they're gonna be looking elsewhere. I just talked to my colleague from Arkansas, and he mentioned that the Taiwanese crushers are coming into Arkansas and to Little Rock to meet the governor next Tuesday, and he's going to meet with the producers in the after they're going to meet with the producers in the afternoon, sign some sort of MOU to purchase some soybeans out of Arkansas. And to me, that smells a lot like a those Arkansas soybeans smell like a replacement for Brazilian soybeans. So that's good news for American farmers is that there's indication that these folks are finding new ways around it.
Seth Naeve:And even for I would argue that even for Minnesota producers that selling Arkansas soybeans is to their benefit because that just that just pulls beans out of
Ed Usset:the pool. It drops the level. There's less there. So I think it's gonna help us all. It'd be great if they came to Minnesota and purchased some of ours, but, if they're gonna buy some from Arkansas, that's, that's probably the next best thing.
Ed Usset:All sales are good. And I'll I'll go back to 02/1819 too when when China shied away from us the first time, went to Brazil. And I recall reading, articles about, oh, look at this. We're exporting a lot more to Europe and different different destinations. US soybeans were gone.
Ed Usset:And and they're saying, see, we're building markets. And I'm I'm like, well, actually, they got crowded out of Brazil. They had to go somewhere for them. So they came to us, which was good. We'll take the sails.
Ed Usset:But that's gotta take time to, to develop that. And I'm very concerned about this upcoming harvest. We've got a whole lot of bushels searching for limited storage space. It's gonna be a problem.
Dave Nicolai:Well, let's talk about that a little bit in terms of, take your Southern Minnesota farmer or central or even the Red River Valley for that matter. What are some marketing strategies that the farmers as they get into this field if they haven't already pricings and so forth and if they're caught off the combine? Do they sell futures or what other tools might they use? Let's say they have capacity for storage someplace, okay. But they still have to deal with the crop and the pricing.
Dave Nicolai:What are some recommendations that you might have for this year's crop and the farmers if things aren't already priced in place?
Ed Usset:Well, we've got an oversupply, plenty of stocks and low prices. And with that comes large positive carrying charges. I'm talking about, you look at November soybeans, which, as I speak, are somewhere just shy of 10 by the way, we had a little, post market or post report rally. Soybeans were actually up 14¢ a bushel, when I left my office. So we you've got November being somewhere around $10.45 to $10.50 a bushel.
Ed Usset:But the March contract is at a premium. The May contract's at a big premium. The carries are large. If you've got a place to put the soybeans and you look out to bids for April, May delivery, you can get 40 to 50¢ a bushel premium. Gotta have a place to put those soybeans.
Ed Usset:And if you're going into town and finding a place to pay 4¢ a month, gotta take a lot of fun out of that if you're paying a commercial storage rate. But if you have storage, you can sell that big carry forward contract at a $40.50 cent premium. By the way, the same thing's going on in corn. But you have to have the storage, Dave.
Seth Naeve:So that's some optimism in the market that says at least there's going to be sales by then. Yes. So we're certainly assume so. But there is, you know, there is always risk that, you know, that some of this is going to linger on. And big crop here, and we don't know what South America is going to be next year.
Seth Naeve:So, you know, there is some downside risk of even holding on because we could go even the other way. But I think taking that option for that spring delivery might be good. I'm continually impressed by all the big shiny grain facilities that farmers have built in the years where they had a few dollars. A lot of that money clearly went into storage, and so I think that's really, really benefiting. I think the farmers built that for good times, but I think it's gonna maybe pay maybe they'll really pay off in these really tough times.
Ed Usset:The Dakotas have lagged behind a bit on building storage. They have built a lot producers that's built a lot of storage, but the, the Dakotas were really ramped up for small production, and the yields on small grains are a lot less than the corn. So they were behind the eight ball, if you will, on building storage. They've come a long way, caught up a lot. Dave, I I agree with you that, the thought being I'm I'm seeing these large carries of $40.50 cent premium out to spring delivery.
Ed Usset:And there will be a temptation if you've got storage. Well, I'll just put it in the bin, and I'll wait and see if I can do even better. Maybe they can. I don't know. I I think my biggest concern is there's just a tremendous amount of uncertainty in this market about trade policy, tariff policy, and I cannot trade uncertainty.
Ed Usset:Markets hate uncertainty. Risk risk can be measured. Uncertainty cannot be measured. And the problem, if you if you have just unpriced soybeans in the bin, and I don't mind if you wanna do it with some and and with some of your corn. But there's there's a chance that we get out the next spring, and today's prices, they're no different.
Ed Usset:There's no different.
Dave Nicolai:So if a grower has capacity for storage for both crops, do they look at or does it behoove them to say, well, know, maybe I'll move some of that corn someplace else to free up more room for soybeans. I mean, I don't know from a, you know, what they're committed to, but is there ability to shift things around a little bit from a storage standpoint on farm? Obviously, you know, elevators are gonna be restricted in this too. Yeah.
Ed Usset:Yeah. I'm just thinking of thinking of this situation from a basis standpoint. Mhmm. You know, the corn basis is not that bad. Yeah.
Ed Usset:Massive crop coming, and, we're we're looking at 45 under the Dees in South Southwestern Minnesota. If there's such a thing as normal, I'd say 45 under is pretty close. It's a decent basis. They've got a decent basis out to, April, May for delivery out there. Here's where the uncertainty comes in, but the basis is very poor in soybeans.
Ed Usset:And if you're an eternal optimist and you think we're gonna turn things around, you sell the corn now.
Seth Naeve:Mhmm.
Ed Usset:You hang on to the soybeans, which frankly is the opposite of what produce most producers like to do. But you hope for that soybean basis to firm up.
Dave Nicolai:Remind our listeners again, where does our corn crop go in terms of consumption here, exports, other countries, you know, and so forth. We were not necessarily exporting a great volume of it. We've sold obviously, you know cattle situations, other countries. But where do you see that corn crop being utilized in the next year?
Ed Usset:Well, here in Minnesota, and I didn't bring my notes with me, I think we've got ethanol production capacity that speaks to half of our crop in Minnesota. We're we're we were ahead of the curve decades ago on ethanol, And, I can't remember. We've we've got a good number of plants, and they're all huge. So roughly half our corn crop goes into ethanol. We've got a lot of hogs and cattle, big dairy operations, soak some up.
Ed Usset:Nationwide, we export roughly, 15 to 20% of the corn produced. And, yeah, we that that shuttle program I talked about going west for soybeans, we do that with corn too.
Dave Nicolai:So there's there's optimism and so forth in terms of probably some storage space someplace if that corn crop is moving.
Seth Naeve:Hopefully, yeah. I think maybe just to reflect on this question just a little bit, David, I think the other way to phrase this is this, these biofuel markets really help build a base around demand for us and so that we have this relatively consistent baseline that we can drive into biofuels and utilize a big chunk of our corn and our soybeans for those specific markets really just helps prop us up from the bottom side. You know, I think a lot of us got really excited about, you know, sustainable aviation fuels and the future of a lot of this stuff. And I think that optimism has been tamped down just a little bit recently. But I don't think overall that think that most people are considering this continued level of biofuels are still going to be important for the market.
Seth Naeve:Think energy self sufficiency is important for the administration. So I think there's going to be continued support for the next few years, at least, in that market is what I assume is going to happen.
Dave Nicolai:Are we going to be building more soybean crushing plants? Is that going to help, or is that just too so far down the line?
Ed Usset:Oh, we've already done it, in the last two and a half years. I think I've got a I've got a pretty chart. Doesn't work well on podcasts though, but I've got a pretty chart. I believe we have opened 11 plants in throughout the country in the last two and a half years. Now when I say plant, we've they're they're either brand new plants in a new facility or a major expansion of an existing plant.
Ed Usset:And as I said, one just opened a week ago in South Dakota. I think there are another, four or five in the country that are being constructed as we speak, and they will open in the next year, year and a half. By the way, when you open, or or expand 15 plants in a three, four year period, keep in mind, there's only about 60 soy crushing facilities in the country before this started. They tend to be very, very large. Yeah.
Seth Naeve:And this is this is this will save our bacon if we can really keep this thing rolling. Because I think by a lot of the calculations folks were considering that our soybean exports could reduce by about a quarter, I think, because they're getting soaked up by this additional crush in The US. So the available soybeans for export pre China tariff issues, I think for, you know, the coming few years at least once these things get built out, I think was a significant shrink. And so there was a lot of the folks that I was, the whole bean purchasers overseas that I meeting with were quite concerned that if they had to continue to bid against China, that there weren't going to be available soybeans in The U. S.
Seth Naeve:So flip side of that is if China's not in the equation, it just means that
Ed Usset:there's the glut of soybeans is gonna be smaller, with these processing plants. Just another way of of putting this whole whole the painting the whole story. The, the crushing facility, the expansion is very impressive, but it it really depends on some of these mandates and and tax policies around renewable diesel. That depends a lot on that. I'm not a policy expert.
Ed Usset:You'll have to get someone else in to talk about that.
Seth Naeve:And the other the other nice thing, and and Ed mentioned this at the beginning, was that that, you know, these crush plants are really being built kind of around the periphery. They're not they're not all right along the rivers necessarily. And so we've got North and South Dakota are building several. And so this is really soaking up some of those extra production acres of soybeans that would have gone off as whole soybeans. And so not necessarily competing directly with some of the They're looking, I think the processors were looking for some low basis areas probably.
Seth Naeve:Sure.
Ed Usset:Sure they were.
Seth Naeve:And so get in those areas and make some meal, and and oil. They really look you know, of course, they're making for the oil they're looking for the oil sales. So
Ed Usset:Yeah. Yeah. Hard to hard to exaggerate how large these plants are. Some of these plants, I know the ones in Minnesota, several of them take over a 100,000 bushels of soybeans every day. I think the biggest one might be more like a 125,000 bushels every day, And they try to run right around the clock, three you know, they they they hope to run three hundred and fifty, three hundred and sixty days in a year.
Ed Usset:Yeah. And that's you know, I'm
Seth Naeve:and we're a little bit off I'm dragging us off topic here. But it just talks about the complexities because the North Dakotans were really looking for a lot of that meal to be exported across into Canada. And so that's the export location for the meal coming out of North Dakota. And so, you know, those poor folks in North Dakota are watching negotiations with China and Canada quite eagerly and wanting to make sure that they have market access in those things. And so there's a real opportunity to sell soybeans into Canada and soybean meal into Canada.
Seth Naeve:Let them make some pork up there. But it gets tougher with some of these challenges.
Ed Usset:Well, like, I I don't know how we can negotiate our way into not getting along with our Canadian neighbors. Hell, I speak Canadian, you know, with and I meet them, talk to them. And I've I've talked to several people who deal with the Canadians and they're they're quite upset with us.
Dave Nicolai:Well, hopefully things will will work out. I know it's as you say, it's a tale of two cities and it's certainly a tale of of politics, tariffs, so forth as we go forward. I'm sure that there might be other situations where growers down the line might benefit from some other types of what I'll just call it outside payments,
Ed Usset:you
Dave Nicolai:know, in the government of also that but that's not necessarily a replacement for marketing and, you know, all long term and everybody's situation individually is gonna be different. So you know, your recommendation would be, you know, obviously if you're not sure is to maybe consult outside people or farm management or grain marketers, people that they work with or trust in in terms of on on farm situations. But other than hopefully, other than just, you know, locking the door and waiting.
Ed Usset:Yeah. You mentioned the possibility of payments to make up for some of the trade troubles. And I'm I have no insight on that, but I read they're talking about that. They're talking about it in in Washington. I think it's not the preferred way to make money, and it doesn't solve your problem if you don't know where to go with your soybeans in three weeks.
Ed Usset:But they are talking about those things.
Seth Naeve:So is there any last I've I've helped paint a kind of a dreary picture for us here. What's any last bit of advice you can give producers, especially from a risk management standpoint? What's one what's one thing that you could help them do to just reduce overall downside risk in this in this kind of market? What what kind of approach or what kind of solace can you give them, especially if things are are really, really tight for folks and they're really concerned?
Ed Usset:Well, you saved the easy questions for last. I'm not I'm not sure where to go with that, Seth. This is a very difficult time. Cash prices are well below production costs. Even those prices with a premium out to the spring are below production costs.
Ed Usset:You I think every producer listening is thinking about ways to reduce their costs, both on the farm and with the family, and they're gonna need to do that now and in in the next year because it doesn't look like we're gonna turn it around real quickly. It just we're in this period of uncertainty. I hate uncertainty because, if we could wave a magic wand and, do away with some of these tariff and trade issues, make friends again, we can turn this thing around relatively quickly, but that may not happen.
Dave Nicolai:Well, Ed, we're drawing to a close here in our our time frame today, but based upon your comments, I think we need to get together again here this fall and see where things are at because it does sound like things will probably change one way or the other. It changes certain and then so forth I think as we go forward with this. So thank you again for your time. Appreciate that. And I know that you're gonna be out and about on extension events and and other opportunities and in writing and being interviewed.
Dave Nicolai:So those certainly be that situation as we go forward for an opportunity with that. So with that, we'd like to thank Ed Usset who is our grain marketing economist for the Center for Farm Financial Management here at the University of Minnesota. I also like to thank my co host Doctor. Seth Nave. Seth is a University of Minnesota soybean extension specialist.
Dave Nicolai:This is Dave Nicolai with another episode of University of Minnesota CropCast.
