There are numerous factor seemingly conspiring to push inflation up. Some of it is related to the pandemic, and the various fiscal and monetary measures designed to mitigate the downturn. Some of it is due to the war. But also some is due to just bad luck. On the case of US wheat, the weather has been brutal. After years of drought, this year has seen historic amounts of rain, which has been brutal for the pace of plantings. On this episode, we speak with Angie Setzer of ConsusROI about the difficult conditions facing American farmers. The transcript has been lightly edited for clarity.
Points of interest in the pod:
On the terrible weather (4:05)
The quality of the current wheat crop (7:22)
The shape of the wheat futures curve (14:27)
Vulnerabilities of the grain market (25:35)
Grain logistics (38:42)
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Joe Weisenthal: (00:09)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:16)
Tracy. You know, obviously when we talk about inflation, which we talk about all the time, a lot of it is macro. Monetary policy, fiscal policy, the compensation for years of underinvestment in key commodities or key industries. But it really does seem like in some areas, I don't know if luck is the right word, but there are some areas where things are contributing to shortages that do seem like, sort of like bad luck and not necessarily related to the economic cycle.
Tracy: (00:54)
But here's the thing. So yes, I agree with you, but it feels like that bad luck just keeps continuing, right. It feels like we've had a number of commodities at this point in time where we talk about, oh, “a perfect storm” of factors have come together to drive coffee prices higher, or wheat prices higher, or soybean prices higher or whatever.
And it's always sort of different factors. Some of them have an underlying thing in, in common, which would be the weather, but it just seems to keep happening. And I guess, yeah, it's weird. And I guess it makes me wonder whether or not there's something structural at play. Like maybe when it comes to certain commodities, something about the market is just less resilient than it used to be.
Joe: (01:40)
You're totally right. I think like back to 2021, we probably had a number of episodes. We're like the perfect storm in this. So the perfect storm in lumber, the perfect storm at the ports. And it's like, if you keep having perfect storms over and over again, then maybe just normal storms. And they might reveal something underlying about the market or about the underlying good that it doesn't take much to wind up in a perfect storm. Because perfect storms aren't supposed to happen all the time.
Tracy: (02:12)
Exactly. It pains me to quote Taleb, but maybe there's a sort of antifragile thing happening here. But I think we should dig into this. Right. And I think we should look at a specific crop or commodity that has experienced a perfect storm last year. And we talked about it back then. And I think the title of the episode was actually a perfect storm for this particular crop. And now fast forward to 2022. And it's even more of a perfect storm. You still have bad weather, you still have subpar yields on crops. And now you also have what's happening in Ukraine and Russia, which is also eaten into the global market. So it it's even more of a perfect storm.
Joe: (02:55)
It's a perfect storm. We do know clearly is that plantings of wheat in the US have been really dismal in 2022, which does not portend good things for the wheat supply. It does not portend good things for food inflation and for food shortages to ease dramatically. So we are going to dig into what's going on. So we are gonna return with a guest we've spoken to last year with the original perfect storm in the space. We're gonna be speaking with Angie Setzer. She is the co-founder of ConsusROI, which helps farmers manage their risk hedge and so forth. And so Angie, thank you so much for coming back on Odd lots.
Angie Setzer: (03:42)
Thanks for having me. We were just talking about how long it's been. It was just late last fall, but I'm pretty sure it's been a decade in the ag space is what it feels like.
Joe: (03:53)
Last fall feels like a really long time ago objectively. So planting's for wheat they're really dismal, right?
Angie: (04:05)
Yeah. So spring wheat. So one of the fun things that I love about my job is to be able to kind of educate or, or kind of give you insight into all of the wonderful classes of wheat. And so in Kansas city, in the Southern Plains they grow hard red winter wheat, and then in the Eastern corn belt (So east of the Mississippi, down to the Gulf of Mexico, up into Michigan, where I am), we grow soft red winter wheat, and soft white winter wheat. So we actually have farmers plant in the fall the soft red winter wheat side in the Eastern corn belt here specifically here in Michigan. And in some of the states in the Great Lakes areas, they had a poor planting progress or poor planting weather.
Last fall we just weren't able to get the soybeans off in time to get the wheat in time. Winter kind of came on a little early. So we saw a pretty significant reduction in our acreage here in Michigan and in some surrounding states in the Southern Plains, they're dealing with the drought so we can get to that later.
But yes, in the spring wheat belt, which is actually the most important (because that's kind of where we really had leaned heavily on a year ago) was okay, we can manage through this, of course before the Russia-Ukraine situation. And some of these other things we can really manage through with a tighter wheat crop, if we can make sure that the spring wheat crop looks good. Well, we obviously had a major drought in the Canadian prairies and into the spring wheat areas of the United States.
So spring wheat's grown in Montana, North Dakota, parts of South Dakota and Western Minnesota. And so if you look at a summary of rainfall, leading up to about the 1st of April, when planting season would kick off, they had stayed incredibly dry. So in cruel twist of irony, we started the year concerned that we were going to see continued drought development. And we had been so exceptionally dry for so long. We were nervous about what would take place.
In true mother nature form over what's taken place the last couple years, she brought all of the rain that you would want to have seen in the six months prior in about six weeks time. And so we’ve seen record delays in planting specifically in North Dakota and in Minnesota. Most of them we feel should be close to being able to catch up prior to final planting final insurance planting dates the middle of this week. There was a lot of progress that has taken place, although it took place in less than ideal conditions. And so some farmers are crossing their fingers and holding their breath that we're able to see that crop come up and and get a normal year of production.
Tracy: (06:54)
So this is a really good reminder that there are different types of wheat that are planted at different times of the year and in different parts of the country. Can you give us an idea of what yields actually look like on some of those crops at, at the moment? And my understanding is that the US department of agriculture also grades the crops — gives them like excellent designations or poor designations. What does it actually look like right now? How bad is it out there?
Angie: (07:22)
Yeah the soft red wheat belt (the Eastern region of the country)... we're doing pretty good. Things look good. We continue to get reasonable rain, the wheat crop's starting to head out. And you wanna see some continued rain for the next couple of weeks until we get closer to harvest here in Michigan. We're the last ones in the soft red wheat belt to roll with harvest.
And that usually takes place the week after 4th of July. So the soft red wheat crop is used for cakes donuts. We like to say that we're the fun crop. It's used for the fun stuff. The hard red wheat crop is really where a lot of the condition ratings, because the spring wheat crop is, is just getting planted.
So we haven't had a chance yet to see what those look like, but the hard red winter wheat crop in the Southern Plains is one of the worst rated crops on record. As a result, the USDA has lowered yield expectations with the expected abandonment. So basically what you could see farmers do is, is they could come into Spring and, and recognize that the stand of their crop is poor, and that the potential for the crop is below average. And they can then transition into a different crop. They may choose to switch to corn, maybe Milo (sorghum), maybe soybeans, depending on how planting's going.
So they may switch over to that, especially sorghum is a very drought tolerant crop. So if they're in the Western portions of Kansas and parts of Texas, that haven't seen the amount of rain that they had hoped for the Oklahoma panhandle. You could see the transition take place. But yeah, so the crop is one of the worst rated on records. The USDA as a result has come in, um, with yields that are, are well below average, 10 bushels, or so per acre, below average expected in that hard red, um, winter wheat crop area. And as a result, we're looking at one of the smallest, um, us winter wheat crops, hard red winter wheat crops, specifically since the sixties.
So the hits keep coming, so to speak. Now we're just getting started in harvest. And so wheat is one of those things where a wheat trader will tell you that it takes a lot to kill wheat, like after a nuclear bomb drops, you would have cockroaches and wheat. You know what I mean? it's very difficult to kill wheat.
It may not get the average yield you're hoping for, but you may get surprised when you get out into harvest. And so we'll get a much better feel, for what all we're seeing from a production standpoint here over the next three to four weeks as harvest starts to progress to the north hard wheat belt and, and then the soft wheat belt. But does look to be one of he smaller crops that we've seen here in the US in quite some time.
Joe: (10:24)
Can you just put a few like numbers on this? Like, what is, you know, like a sort of, I don't know, the best way to aggregate it, but total volume, total acreage, or total number of bushels? What we would normally be looking for, how big a part of the market it is, and then what the shortfall is going to be if we're really having like one of the worst planting seasons.
Angie: (10:45)
So you've seen the cash market or at least our export offers really kind of outpace the rest of the world. They have reduced export demand as a result, just because we're more expensive. But to take it into kind of consideration there as to what you are looking at: The world wheat crop or the world wheat supply compared to maybe where we were... in 2020 production was about 1.83 billion bushels. We are expecting it to come in around 1.73 billion this year versus so you're, you're talking a hundred million bushel reduction in overall wheat production.
But you're seeing ending stocks deplete substantially for a short period of time there between about 2015 - 2018. We saw hard red winter wheat trade below $4 more than once.
And so that really kind of create this environment in which the farmers that traditionally would grow wheat looked to other crops, especially know milo or sorghum. You saw this big increase in Chinese sorghum demand. And so you saw a lot of folks really just kind of transition away as we worked our way into 2020, 2021. You saw reduction in area harvested.
You see another reduction in area harvested this year, especially because of the increase in abandonment. But one of the things that we're seeing is when you break it down per class -- that’s when the reduction in supply becomes clear. Hard red winter wheat was flirting with above 500 million close to a billion bushel carryout. And that's huge.
That's considered burdensome. Now this year, they're expecting carryout to be around 360 million bushels. So definitely is very evident. And as a result, you're seeing the farmer and the commercial elevators in those regions become very protective of the supply that they have on hand. And really we kind of joke in the US wheat industry, like our job is to keep our wheat expensive enough to where maybe it doesn't go fly off the shelves into the global market, simply so we can make sure that we have enough at home to manage our feed use if we were to run into a production issue down the road.
Tracy: (13:58)
So this was kind of gonna be my next question. So what typically happens in a tight market for a specific crop? Do you see farmers start to attempt to grow other things like sorghum, which you already mentioned, and does the US tend to try to keep those goods at home or those commodities at home rather than export them and what other options are available to farmers and the industry to try to offset a bad harvest?
Angie: (14:27)
We tend to see it in the cash market. So I’m a cash trader. I'm a physical trader. My job is to get bushels from the farmers that I work with that produce them to the end users that need them. And so I live in the cash market every day. And I will tell you, the cash market is king, no matter how you slice it.
Whatever the cash market is doing is it will eventually transition into futures in some way, shape or form. Or at the very least the cash price is gravity, especially in wheat. But if we do run into a situation to where we have a question regarding what production looks like one of the first steps that you see is, as I indicated before, everyone kind of pulls their arms and legs inside the vehicle.
We wait. You try to assess the market. You let someone other than you potentially put on a couple trades or make a couple trades to get a good feel as to what the actual cash value is. So futures can trade one price and depending on what the local supply and demand or what the regional supply and demand in a specific location surrounding a specific end user.
You know, you'll see basis, which is that difference between cash price and future. Sometimes it trades at a premium, sometimes it trades negative, but so what you'll tend to see is, is one of the first things that happens is the folks that tend to traditionally do the selling, whether that's an elevator or a farmer, if a crop scare comes about, we stop selling, like that's just human nature, right?
If you don't know what you're going to have going forward, you stop selling. So then the market's job becomes, getting it to a high enough value to where it entices a pickup in selling. So whether that's enticing a farmer, um, to, to liquidate, um, his or her bushels at a, a certain price, maybe it's a farmer has an $8 target order in mind or something of that nature. Whatever it'll take to get to those values to really kind of entice the farmer, or entice the elevator. So there's a whole host of things that you'll have to be able to offset in the market price itself. And so that's what you'll see is, is folks will start to discuss spreads are tightening.
So the other thing is, is that spreads will no longer incentivize your holding the product out of the pipeline. They're going to punish you for doing so. So traditionally in the commercial elevator business, you see what we call carry or contango if you're you're fancy. We just call it carry cuz we're not.
You typically would see carry. The market isn't paying. We're providing you incentive to keep it out of the pipeline. The opposite comes true. If it looks like you're gonna have a short crop. So one of the things that we pay attention to not only is basis, whether or not the end user is paying more or less yesterday, but what are the spreads doing? Because that'll give us an insight into whether or not you could see supply come into the pipeline.
And so, yeah, I mean, the first big step that is taken is you just stop selling, which is what we saw take place in India. Right. Like the concerns started to develop that we were, were selling too much. We were uncertain as to what we were gonna have come into play for new crop. And so the government said, hold on we're gonna take some time. Now. They did it through measures that you see in a more government-centric agricultural production system, whereas in the US, um, traders tend to, to, uh, manage their own reduction in market exposure. They make their offers really expensive. The end users may firm up bids things of that nature, but we just kind of become, we start to play chicken. You could say, when it comes to purchases and sales.
Joe: (18:21)
What is the shape of the future's curve right now? I mean we know that a lot of commodities up until very recently, I can't remember the last time I looked, but all around the world, whether we're talking about ag or metals or energy commodities, we have seen this sort of like front month premium.. What is the shape of the wheat futures curve and what is it indicating?
Angie: (18:49)
That's the ironic part? You pull up the shape of the wheat futures curve. I don't know how much attention folks paid to what the market had done here. Upon the news of the invasion, we saw some pretty substantial backwardation developed to where you saw the July go to a $2 inverse. I mean, just something that was just absolutely obscene, something that we had never seen happen before. And as a result, it kind of blew a lot of elevators out of the market…
Joe: (19:24)
So I was gonna ask. Their business must be premised on the idea that like they hold grain. And if you hold, you know, it's grain is priced more valuable in a few months or a year or whatever it is, you get some sort of carry, but it's gotta be a terrible business in the opposite when there's such a premium currently.
Angie: (19:50)
Yeah. And, and that's what you saw. You saw wheat elevators, flower mills. They just basically withdrew bids.
So the farmer was very frustrated in the sense that the board was rallying $12.50, $13 for Chicago wheat and the end users and processors withdrew bids as a result of the cash market. Again, going back to the cash market, just basically being destroyed by that move in futures.
You saw a lot of folks leave. You you've seen the spreads unwind. So ironically, a lot of folks are talking about how wheat is the most bullish commodity out there. It's the one thing that we tend to hear the most about, but when you look at the spreads, they're paying substantial carry, or what has traditionally been solid carry for the last several years, at least out into the March board.
When you're looking at the Chicago crop and even out into the March board, when you're, you're looking at the Kansas city crop. And so, you know, there there's carry, there is incentive to hold the crop, but I think that's more to do with the fact that the global pipeline or our export business or our delivery system, you know, simply couldn't handle all of the wheat coming off at harvest time, you know, and, and you could say the opposite is true in corn and soybeans where they're pretty heavily inverted old crop to new crop. Um, just, you know, especially, I think considering the fact that for wheat, the new crop year starts on Wednesday. So for wheat, um, we have a June to June, and so we're basically ending up, we know what we, we did for, for old crop.
We have an idea of, of what will be left over at the end of the year. And now we’re facing a new crop coming in full bins, hopefully even with a smaller crop, you know, you're still gonna have a lot to take off early on in the season. And so that market's providing some incentive and, and providing, um, you know, end users, elevators, flower mills, you know, a way of, of capturing some incentive to, to keep that stuff outta the pipeline. And, and that's helping to keep basis firm for the farmer.
Tracy: (21:50)
So what happens to the end user in this type of scenario? So for instance the hard red wheat that we use for bread and things like that, does the price of bread immediately go up because the spot price? Or is there some sort of hedging activity where they might have, you know, um, forward purchased their wheat needs a year before at a lower price? Like how much of it actually feeds through, into consumer goods and the things that we eat on a day to day basis?
Angie: (22:24)
Yeah. On the plus side the cost of wheat for a mill is actually a very small. I think it's less than a third of the cost of the overall loaf of bread.
All of the other factors come into play the, the transportation, the staffing, the equipment. And so it really isn't a direct correlation. Of course, during times of inflation, all other costs are increasing. So it's easy to say, “okay, well, the cost of wheat is up X percent. So obviously the cost of bread, uh, needs to go up as well.” But, that's not necessarily the case.
Traditionally you'll see the majority of your wheat users in the United States at the very least have a very deep and very experienced trading desk.
So they're not just sitting there. They're able to hedge, you know, they're able to make their purchases, book their basis levels, maybe trade their futures. They may own options against certain market moves and things of that nature.
But when Russia invaded and you saw the market just surge limit higher day after day after day, you did see them stop. They were looking as a wheat miller, not a flour end user. The wheat miller was looking at making a substantial amount of purchases in the July and looking down the barrel of a $1.50 inversion. And so there was a lot of frustration for folks that you just simply saw them step away from the market. You know, and so in times of extreme volatility and concern, we have seen that happen now, obviously it can't last long term. Um, you know, and for that reason, a lot of these folks have, have managed to, to hedge some of their risk or at the very least are, are insulated from a, a good portion of it, but it, it, it gets concerning. Um, you know, when you see big moves like that and, and extremely volatile prices, you know, you start to worry about who your, your end user is or how they're protecting their, their, their risk.
Joe: (24:45)
So I wanna sort of ask you about what Tracy and I were discussing in the intro, which is: is there some underlying frailty that's been exposed in the US ag market or the ag market overall? I mean, we talked about this idea. It's like, okay, we can talk about perfect storms and this crazy weather that we've got such, that we had two years of drought. And then we got six months of rain all in six weeks and so forth. And so obviously in any macro environment that is going to wreak havoc when the weather's that unpredictable? Is there something else that's being exposed here in your view?
Angie: (25:35)
I think to a certain extent, I think one of the things that we've seen that's really kind of become crystal clear here as of late is the idea that we've transitioned from what the US used to be to be the bread basket of the world. And we ran into ethanol and when we had the drought in 2012 and prices ran up and the agricultural folks the higher ups, the, the elevators and your ABCDs and grain and you know, your ag input suppliers and your equipment suppliers, and some of these things started to recognize that there was a, a huge amount of opportunity, um, around the world for far better margin than they could ever achieve in in the United States.
And you saw this massive expansion and globalization of our food supply, which is great. We needed it to happen. But I think one of the reasons that we're running into this situation your Middle Eastern countries and your, your north African countries and the concern over what takes place you know, there is, is because they were so heavily reliant upon one supplier… over 60% of their purchases were made from Ukraine, which is great, but it's not great when something happens in the supply.
Now, granted, we haven't had a lot of just wars just break out randomly in our food producers. You didn't expect that to take place, but I would say one of the things that this has really kind of put a spotlight on is what it is that China's doing.
Part of the reason that spurred all of this was this substantial move by China to, to really kind of increase their government stockpiles. Their imports increased. You can't even say how big their exports increased because we went from basically what was 0 to 28 million metric ton of corn imports last year from China.
They were looking to import 23 million metric tons -- I mean, and prior to that baseline, you know, max was, was a handful a few metric tons, so that really changed global pipeline. And I think it kind of put highlighted the power that China has when it comes to global logistics and global pipelines and global demand and all of these things, you know, and I would say that's, that's probably one of the, the biggest is that, you know, prior to this excess exceptional increase in Chinese demand, you know, we were actually talking about burdensome stocks.
I mean, fall of 2020 going into 2021 before everyone was really paying attention to grains, you know, we were looking at the potential of a 3 billion bushel corn carry out, which is almost three times what some folks are expecting for this year's carry out…
Joe: (28:30)
Wait, what’s carry out?
Angie: (29:00)
Yep. So when we we're done at the end of every year, we have enough left over to get us into new crop production. So my entire life is always revolving around what are ending stocks or carry out. What is that gonna look like? How much are we gonna have left over at the end of next year? What does that mean for, for new crop production and demand? And then what will we have left over at the end of that year?
That's what we pay attention to in grain. So prior to that big increase in Chinese demand we were kind of worried about what we would be looking at globally, when it came to, burdensome stocks. Now, of course you saw major production issues in Brazil back to back, you know, La Niña looks like it's poised to, to make a third appearance.
And that tends to wreak havoc on South American weather. It tends to cause droughts in the Southern Plains, things of that nature. But I would say, probably one of the biggest things that this market move is shining a spotlight on is how vulnerable we are in the free market to, to someone kind of stepping in and taking — I don't wanna say more than their share because that's an inadequate statement — but you know we're somewhat vulnerable to some folks just kind of stepping in and saying, you know, “Hey, we'll take this, it's cheap. We're gonna take all of it. Thank you.” And then other countries saying we wanna avoid that person coming in, or those folks coming in and taking everything. So we're gonna restrict our exports. So we just really saw this whole entire flip in global availability, you know, due to the fact that China really kind of stepped in and started soaking up every kernel of feed grade around the world.
Tracy: (30:14)
Yeah, this is something we actually recorded a whole episode on this with Scott Irwin. I think it was one of the first. it was like early in 2021 episodes episodes that we did yeah. About China buying up and building up its stockpiles. So I guess a natural question here is what can countries do in order to ease this kind of tight supply? So we've already seen a cutback on exports. I've seen some talk about things like subsidies for farmers, but there seems to be debate over whether or not those could actually make the problem even worse, cuz people would be incentivized to just not grow anything. And this is sort of a classic criticism of subsidies, but what exactly could be done here? What sort of policies would help?
Angie: (31:00)
I think it's so hard. I mean really outside of improving weather or incentivizing through subsidies or something of that nature, which we've seen. I mean, we've helped farmers with crop insurance. It's been one of the things that we've seen as of late is, some conversation about whether or not crop insurance hinders the farmer or incentivizes the farmer, not to plant. One of the things that I would point out in that conversation is the current crop insurance support price for December 22, corn was $1.30 or $1.40 below where the market's currently trading. So the market is going to incentivize a continuation of planting. That's gonna be the market's job, even if that crop insurance price is below. So helping provide that safety net via crop insurance or something of that nature to where as long as the producer is putting in a good faith effort to, to get that crop planted and a good faith effort to make sure that they're, they're doing all that they can to try to produce as large of a crop as what they possibly can.
I think that would help around the world for a lot of folks. And I think you're seeing countries introduce that you saw China basically credit the turn of their winter wheat crop to the millions of dollars that they poured into farmers in certain provinces to make sure that they were fertilizing and using fungicide and doing everything they could to maximize production. I think the market is going to do its job as long as mother nature cooperates. You know, I think one of the things that you're seeing right now is you're seeing December 23 corn trading near $6.50, you know, you're seeing crop prices for, for next year's harvest 18 months from now trading at relatively high levels wheat for next year at a do $11 and 14 cents.
So I think the market will do the job to incentivize. I think you'll see some continued expansions in South America. I think as long as farmers are continue to be incentivized here in the US, you're gonna see them roll past final planting dates as weather allows it. And some of these other things, because the market price says, “you know, you should be planting.” And so I think that's the main thing just providing a, a safe place to land. If there were to be a major weather issue was, is probably one of the best things they could do.
Joe: (33:12)
Can you talk a little bit about what's happening on the input cost side? Big story over the last year has been the cost of fertilizer. Although there was actually a Bloomberg story yesterday about a significant pullback in the last month. But what do you see happening with your clients on the input side?
Angie: (33:43)
I think one of the biggest things we've seen is everyone kind of breathed a sigh relief in the sense that there was a real concern that we were gonna have shortages. No one that I've seen or heard from across the country has really run into a situation where if a farmer needed a fertilizer, he or she couldn't get ahold of it. Of course prices have increased exponentially to record highs. They have stayed well elevated beyond what a lot of folks thought that they would. So that's created some concern. But you've also seen, as we talked about before the corn market basically has rallied almost $2. It it's fallen off a bit, as of late, but it had rallied a dollar after the, the invasion and another dollar after the planning intentions report.
So you saw a pretty substantial increase in the amount of money that the farmer can get out of an acre of corn. You can multiply $7.30 cents times anywhere between 150 to 200, to get a good feel for what kind of revenue a farmer is looking at. So there is room now, obviously, that's gross revenue and all of the costs that continue to pile up, and it really kind of put us in a situation to where we're working harder.
We're laying out way more cash than we ever have before and hope of the same margin. And so that's one of the things, it feels as though the cash outlay being as high as what it was and being increased as much as what it was, has put us in a situation to where there's far more stress this early in the marketing year to make sure that the farmer gets it right. Obviously they don't wanna sell too soon and miss out on a major rally, if we were to see some sort of drought develop, something like that, but they don't wanna not sell and, and watch the market fall back to crop insurance or lower and it's put us in a pretty tight situation here where we've outlayed way more cash than we ever have before and, and created, you know, far more worry than we ever have either as well.
Tracy: (35:41)
Huh. So what should we be watching for in terms of signs of improvement? Like what are some things or indicators that we should keep our eye on?
Angie: (35:50)
Well, we really wanna watch what the weather does here for the next four to six weeks, specifically for corn and for wheat. But wheat harvest is gonna get started or has started in Texas is gonna get started. And so we'll wanna see, you know, really kind of pay attention or at least I'll be paying attention to, to what those cash markets look like, what takes place, you know, what the reports are, you know, from a yield standpoint, but from, from, from someone on the outside, looking in the biggest thing that, that I would recommend, you know, really kind of paying attention to is obviously what developments we see in the Russia Ukraine situation, you know, where we, we've never seen it to where we have upwards of 65 million metric ton potentially, you know, sitting in countries that, you know, have it, but may not be looking to ship it or may not be able to ship it into the, the global market.
So if we see a shift in that things will change. If we see these humanitarian corridors open, if we see some rollbacks potentially on the sanctions that Russia's asking for or something of that nature then that's gonna have a huge influence on global supply. The other thing is obviously whether through the month of June into July, we want to see decent rain, not too heavy and, and warm temperatures but not too warm. So it's, that's gonna be the hard part is watching that. And then the other thing to really kind of pay attention to is going to be our shipments pace.
In my opinion when it comes to export sales, the bulk of our export business currently for corn and as it stands, you know, recently for, for soybeans has been to China, but we're starting to see, you know, this week was huge for corn shipments. Soybean shipments were a little bit below average, but sales pace is dropped off substantially. So the question now becomes, do you see China slow down on what they're taking? And could that result in a potential reduction in export outlook and an increase in overall supply because China is, is unable to, to take the bushels that they, you know, had already purchased? So those will be the main factors that we're watching here over the next year, over weeks, six weeks.
Joe: (37:43)
I just wanna pivot to one other topic before we go. And you talked about how you are in the cash market. Your job is to connect consumers of actual grains with producers of actual grains. And, you know, Tracy and I recently did an interview with Matt Pyatt who's the CEO of Arrive Logistics. And we talked about like the sort of exponentially complicated world of trucking and freight, and there's all different kinds of products that exist all different types of destinations. It's a really hard problem. And of course moving a truckload of say computers or couches or phones is gonna be different than moving a truckload of wheat because it's different handling and different temperature and so forth. And I'm curious if you could talk a little bit about that market of the physical moving of wheat, how that works and what are the sort of opportunities there in terms of how it could improve?
Angie: (38:42)
Yeah. It is probably my favorite part of the job, but is the, the part of the job that makes me pull my hair out the most. A lot of wheat movement, for us locally here in Michigan is done via truck. And one of the things that you really kind of look at is, is trying to make sure that, from a farmer's standpoint — not a lot of farmers are, are sitting around their bins, waiting for a truck to show up.
And so one of the biggest struggles that we have obviously is communication between truckers and where they're looking to load. An understanding or a follow through of what was dumped where. Especially now that prices are increasing as they are you're looking at a pretty substantial price tag on moving $18 soybeans with a thousand bushels.
Basically, I tell my customers to make sure they're keeping track of everyone that loads. Who it is. License plates. Everything. Basically ask for a deposit of their firstborn child, because you're shipping $18,000 worth of wheat with a thousand bushel load. Or soybeans, excuse me.
You've gotta recognize what is going out from a cash standpoint. And so there's always a real concern that you're gonna lose a load. That you're gonna run into a situation where someone maybe loads something says they're taking it to one end user and you just can't track it down. And if you don't have the right information regarding who loaded it, where it was supposed to go when it was loaded and when it should have been there, and then the follow through of making sure that upon delivery, you receive the ticket, or have a copy of the ticket that is as good as money, a receipt of delivery, you know saying this is mine. I delivered it.
This is that money belongs to me, you know? And so all of these things have become incredibly difficult and as a result have made it to where the farmer's opportunities may be a little bit more limited in the sense that because of the inability to track or because of the inability to feel comfortable with loading something or getting someone in there to properly load, they may not go into that certain market or something of that nature.
And so, yeah, there's a lot of moving pieces with grain and feed. Especially feed. Cattle still eat on Christmas. So these sorts of things in freight have been very difficult to kind of pin down. And one of the things that we've been trying to work on is how can you get it established to where you can utilize technology to let you know when the truck is around the corner, because the driver forgot to call these types of things automatically upload a ticket upon delivery.
So you have access to it and know it'll be settled. And, and so it's been a work in progress for part of the reason, for all of the reasons that you stated earlier in the sense that it's just not “when A happens B takes place” because in grain movement a lot of different things can happen. You could have a load rejected. You could miss dump time or a loading time. And so a different truck has to come in or something of that nature. And so it's still very much a work in progress, but it's one of those situations where if you could find the system to crack that you would be, you would be a hero just simply because of all of the complications that come from not being able to, to really nail down that, that freight component.
Joe: (42:01)
Cattle still eat on Christmas would be a really great country Western song. I might have to write one. Angie Setzer, it's always great to have you on the show. Thank you so much for coming back.
Angie: (42:15)
Thank you for having me. I enjoy the heck out of it.
Tracy: (42:18)
Thanks Angie. That was so much fun. Yeah.
Joe: (42:38)
It's so crazy that like, after years of drought that we get that the farmers got like a half a year's rain in a, in a matter of weeks.
Tracy: (42:47)
Yeah. I mean, one thing I would say is that if this kind of volatility in weather patterns keeps continuing, then it would seem that there's a fundamental change that has taken place when it comes to the weather. The other thing that I thought was interesting was Angie's suggestion of China being this massive buyer that sort of contributed to an overall level of tightness in the market that makes it maybe less able to deal with shorter term changes in particular harvest or crops.
Joe: (43:20)
Yeah. You just don't have much, much slack at all. And then thinking about like, so, okay, yes, weather is always volatile, right? I mean, farmers have been dealing with volatile weather weather for, you know, since the history of farming, but then, you know, you sort of think about, okay, there really were a lot of unusual things that happened in the last two years. One of them was the sort of emergence of China as this buyer of everything and trying to grab all the grains it can. And you sort of wonder, like, whether there are some similarities between what's going on in grain and what we see in like retail, where it's really hard to forecast. And it's really hard to know what is a sustainable trend versus something that was distinct to the last two years that's not going to persist.
Tracy: (44:12)
The agricultural bull whip,
Joe: (44:13)
Agricultural bull whip. Yeah.
Tracy: (44:15)
That's affecting what bulls actually eat cattle who have to eat on Christmas. I'm just gonna keep going. Okay. Um, you should write that song.
Joe: (44:23)
I will...
Tracy: (44:23)
Okay. All right. Well, I mean, it sounds like per Angie, one of the things to look out for is obviously what's happening in Russia and Ukraine, but also weather for the next four to six weeks. So everyone stay glued to your various meteorology apps.
Joe: (44:40)
It's always weather in the end. I mean, in the end, right. like, that really is like what this market is all about. We need indoor dome agriculture.
Tracy: (44:51)
Okay. All right. Shall we leave it there?
Joe: (44:53)
Let's leave it there.
Find Angie on Twitter @goddessofgrain.