Tag: Ag Commodities

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

Brian Leonard

312-761-2636

05 Sep 2023

Agriculture, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: AUGUST 21 – SEPTEMBER 1

Corn has been range bound lately looking for anything to give it direction. The heat and dryness currently happening across most of the US is bullish, but the rains and cool weather before may have given this crop enough to weather the heat. There has been some rain added to the forecast but far enough out to not get too excited about yet. Exports remain steady and within expectations with no major changes expected. Corn has been held down with wheat while Russia sells their wheat for cheap on the world market to pay for the war in Ukraine. Last week’s Pro Farmer tour came back with a 172 bu/ac yield for the US, below the latest USDA report by over 3 bu/ac. While many estimates think the latest USDA is still probably too high, a 172 yield is closer to other estimates even with the current heat. The long weekend always allows for news to change and create a volatile trade to start next week.

Soybeans fell this week following helpful rains before the heat. The Pro Farmer tour estimated the US crop to be 49.7 bu/ac, below the USDA projection of 50.9 bu/ac. The soybean balance sheets are tighter than corn and will only get worse the more this crop shrinks down the stretch. New crop sales are well behind USDA projections of an 8% decrease for the 23/24 marketing year, currently running 37% behind last year’s pace. With a shrinking crop it is hard to expect export sales to significantly ramp up but if drought conditions continue with heat and river levels stay low we could see logistic problems again this year. The next few weeks will be important to finish this crop but with harvest approaching most of the damage has likely been done.

Equity Markets

The equity markets rallied over the last two weeks with some important stocks posting strong quarters such as Nvidia. After a tough August the markets will look to bounce back in September with economic data and Fed decisions in the coming weeks.

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Drought Monitor

The drought monitors below show the change in drought conditions over the last 2 weeks.

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

28 Aug 2023

Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Report: The week was mixed as the futures market gave back half of its rally while cash continued higher

Lumber Weekly

Last Week:

The week was mixed as the futures market gave back half of its rally while cash continued higher. The futures market is in the middle of a rebalancing for the month’s end, so their dynamics are different. What is troublesome in this environment is that while the spread works, the second month gets clobbered. The risk management selling is in the next month. Also, the futures correctly projected a slowing cash market. Today, a slowing cash market doesn’t indicate lower prices. The futures will be the one making the new lows if all remains the same.

Factors:

The current trade is all about economic outlooks. No one is complaining about sales. The problem lies in the fact that there is no follow-through. The industry will not add to inventories and that is based on their projects. That won’t change anytime soon. The buy side will only step in when forced. The sell side is always $20 too high. There are bands established, but that isn’t anyone’s focus at this time.

Thought:

As we finish the third quarter many are starting to realize that covid aberration is behind us and we are back to a grind market fighting for dollars. The difference, I believe, is the ability for the market to go up. Just last 8 months ago the futures were trading at $627 mill. A complacent marketplace will cause strong rallies. My fear today is that we have to make a new low to make a new high…

Technical:

Where did the bull market go? Now that we are back in the $35/$70 mode again the 100-day moving average is the focal point. It traded back and forth on it only to fall apart by Friday. Thursday, the stochastics started to turn, as did the longs wishful thinking. The psychology of the market is not to get caught long and last week’s trade highlights that concept. Exiting and rolling could weigh on November next week.

Daily Bulletin:

Commitment of Traders:

About the Leonard Report:

Brian Leonard

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

312-761-2636

25 Aug 2023

Agriculture, Grain, Market Commentary, Other News, Research, Uncategorized rcmagserv 0 comment

The Role of Commercials and End Users in the Agriculture Industry: Understanding Price/Volatility Risk and Proactive Risk Management

Introduction

The penultimate step of the process for grain is reaching a commercial elevator before going to an end-user to be converted to a final product. These elevators range in size from your local country elevator with little storage capacity to large elevators with millions of bushels capacity. While some producers deliver straight to the end user in areas where that is an option, commercial elevators handle millions and millions of bushels a year of almost every commodity grown in the US. Once the elevators receive the grain, they ship it to the end-user by rail, barge, or other means.

Commercials and How They Fit In

While commercial elevators come towards the end of the process, they have made selling grain as a farmer easier with convenient locations and increased capacity. Railroads played the largest role in the growth and expansion of the United States in the West, which directly led to the growth in farming in the late 1800s. While all elevators are not along railroads or major waterways, you will find the larger ones here as these locations allow for more volume.

On-farm and off-farm storage (elevators) for grains have grown over the years as the US produces more and more while the world consumes it. For the last 20 years, storage capacities have grown close to even with the increase in production and will continue to grow as the world population grows and more supply is needed.

Another example of a commercial facility would be a crush facility. The growth of soybean crush capacity has expanded in the last several years and looks to continue as the demand for soybean oil used in renewable diesel continues to grow. The growth in renewable diesel over the last few years and years to come have made crush facilities a major commercial player now and will only get bigger in the future. Crush facilities close to the growers allow easier access to the beans and competitive prices increase demand.

While it will take time, we will see a shift from soybean meal to soybean oil as the main product coming from these crush facilities. Clean Fuels Alliance America projected renewable diesel production could hit 5.5 billion gallons but 2026 if expansions and new facilities continue. This increase would raise demand for more soy oil, changing the commercial structure that the US has seen in the last 20 years.

End Users and Their Role

End users consume the commodity in all sorts of ways. From feed yards to crush facilities (who then sell the oil and meal) to food production companies, end users cover a wide range of groups. These users face risk on several sides, with the cost of inputs going up and the value of their finished product going down due to other factors. End users face basic economic factors such as recessions and inflation that will affect their revenue, making them adjust their plans of inputs.

While the easy way to think about end users is who makes your cereal, it is crucial to remember how large the commodity space is and that it touches almost every industry. Homebuilders are end users and have seen an increase in their inputs, with lumber moving higher in 2021 before moving lower. If these types of companies cannot effectively manage their risk, it can cost consumers hundreds, if not thousands, of dollars each year.

Proactive and Disciplined Risk Management

Along with the enormous capacity, commercials, and end users also carry a tremendous amount of price/volatility risk requiring a proactive and disciplined risk management approach to maximize the margins of their operation and keep the system moving forward.

Today’s volatile markets have brought unprecedented levels of risk and reward, highlighting the significance of adapting to this environment. With its interdependent supply chain, the agriculture sector is particularly susceptible to the ripple effects of market fluctuations. This is especially true in the current inflation landscape, soaring prices, energy scarcity, and labor shortages.

How RCM Ag Services works with Commercials

RCM Ag Services utilizes our independent standing, national producer reach, and tech partnerships to bring our commercial agriculture customers best-in-class tools and resources to improve efficiency, increase revenues, and generate more customer volume. With our suite of tools and products, your operation can share in markup on products, improve risk management, achieve better FCM clearing rates, and produce more bushels.

Our market commentary allows commercial elevators to keep up with what is going on all over the country and other parts of the world in an easy-to-read and follow format. This allows you to focus on your operation and make it run to its best ability.

For more information on how RCM Ag Services can support your team, follow the link below. https://rcmagservices.com/commercial-agriculture/

22 Aug 2023

Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

Leonard Lumber Report: The futures market had a $39 trading range last week, all up

Lumber Weekly

Last Week:

The futures market had a $39 trading range last week, all up. Once we crossed the halfway point in August, the short side had to start rolling or exiting. It is usually a two-week process that works well for the spread but does little for the out rights. The difference this time is that the futures market has been sitting near the bottom for a long time. The next move was up, and the exiting got it started. I have noticed the extreme level of scrutiny held by the industry. Few views this as a supply and demand rally. The focus is on the futures and the typical positioning volatility, me included. This reluctance could keep upward pressure on the market.

Factors:

The trade is reverting back to its historical norm. A $35 move is good, and a $70 move is great. This type of trade allows the industry to make money, or at least it should. Today we face a tremendous cost of doing business throughout the industry. In the past five years, small companies have morphed into significant players with all the costs associated with playing in the big leagues. They now either need higher prices to allow for better revenues, or they need to par costs. If the outlook for 2024 is of steady starts and steady supply, then the $35/$70 model is here for a while.

Thought:

I’m still in the camp that this commodity should trade higher. All commodities have run up and settled higher than their norm. Lumber trading sub $400 is too close to the norm. There have been steadily added costs to subscribe to a higher norm. There is an issue. The higher price of the finished product in most other commodities was due to the higher cost of production. None of the finished products faced a 30% Federal regulation charge. Salad dressing is not higher because of the Federal regulations put on soybeans. You cannot expect the commodity to carry that added cost. And that is most likely why the price is in the $400’s and not $600.

Makeup:

It looks like the industry is going for the Texas hedge while the funds continued to add. That should mean the spread goes $10 over to $20 under again.

Technical:

The chart formation calls for trade through the $550 area. This is a grind and most likely will take work to get there. The wildcard is if the funds liquidate outright. For now, the points are:

542.80
547.20
555.30

RSI 65%

Daily Bulletin:

Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

21 Aug 2023

Agriculture, CME, Corn, Dow Jones, Grain, Market Commentary, Market Updates, Research, Risk Management, Soybeans, USDA Report, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: AUGUST 4 – 21

Corn had a rough two weeks with the cool and wet weather that covered large areas of the US coming just in time on a stressed crop. The August 11 USDA Report came in with a 175.1 bu/acre US yield, slightly below trade estimates. This yield seems very reasonable with the early drought stress and the recent rains to help stabilize the crop. The scorching heat and dry weather coming to most of the US the next week+ will stress the crop but the areas that are no longer experiencing drought conditions (see drought charts below) are positioned to handle it. The ProFarmer crop tour is this week and will give insights into what to expect from this crop and give insights we do not get from the USDA. If the USDA updates the planted acres lower from 94 million in September that will be news the market has eyes on.

Soybeans have held together well over the last couple of months with the low acreage number supporting it. The weather was not great for beans early on, but like corn, the last couple of weeks have been very beneficial and the heat over the next 10 days can cause some issues. The USDA updated their yield estimates to 50.9 bu/acre, below the trade estimates and previous report but also a reasonable number with how the growing season has gone so far. Bean demand appears to be increasing and if this continues into harvest, momentum behind beans could give it another push that corn seems to be missing. The ProFarmer crop tour will be the news this week along with the hot dry weather, an adjustment to acres down the road is a variable that can change the look of this crop.

Equity Markets

The equity markets have struggled the last few weeks as tech stocks stopped pulling the markets higher and seasonal trends took over. Earnings season is almost over with only a few big names left to report. Inflation and the Fed will be the news moving forward as markets are still unsure what their next move is.

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Drought Monitor

The drought monitors below show the change in drought conditions over the last 2 weeks.

Via Barchart.com

Contact an Ag Specialist Today

14 Aug 2023

Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: INCREDIBLE LACK OF MOVEMENT IN THIS MARKET

Lumber Weekly

Last Week:

The market had a $29 range but only closed 50 cents lower for the week. What is incredible is the lack of movement in this market. I keep searching for the correct equation to find value and have missed that a flat market has no value. Deals aren’t deals in a slow trading market. The conversations today are either about the massive underbuilt conditions out there or the numerous economic headwinds the industry could be facing. Let’s take a look at a few issues.

Factors:

Euro wood:

What once was considered a transitory issue is now becoming much stickier than expected. It almost has a bug-kill timber feel to it. That shit would never go away. That seems to be Euro today. While they have been able to reduce the amount at the ports, it won’t be enough when the next ships arrive. Will the euro mills keep shipping at a loss? The answer is yes. The slow European and Asian markets are forcing the cash flow issue into the equation.

*The supply of euro does not dictate prices in our industry, but it adds pressure to the buyer.

Lumber buyer patterns:

The “great run-up” in 2021 and then again in 2022 change the amount of risk the buyers would take. It went from the industry standard of 3 months to 30 days. In a bull cycle, the shorter term keeps upward pressure on the cash market. They are forced to be in all the time buying. In a down cycle, it adds to the weakness because while they are in to buy more often, the quantity isn’t significant enough to tighten up the entire market.

Demand:

Demand is good out there, no doubt. The problem is between VMI programs, contracts, and the wacky and wild euro wholesaler; the lumber buyers can only get in trouble if they become aggressive. Without building momentum, the market is range bound. Don’t expect that to change anytime soon.

Housing Dynamics:

Points:

2008 to 2012 was a housing depression. Equity in homes hit a 30-year low.
From 2012 to 2022 the industry saw record-low mortgage rates.
2020 saw covid and a major shift in the homeownership trend.
2016 to present the industry suffered from a labor shortage and logistic issues. That kept the pace of construction well below the growing demand. It also could not keep pace with the growing number of household formations.
Today there is a record amount of $$ in the system and now we see most of it headed toward wage increases.

The key takeaway is that this is a great industry to be in today. It should stay statistically underbuilt and underbought for years. That doesn’t mean prices will go up. It just means that there will be trading.

Market Make Up:

The futures open interest is closing in on 8000 as the funds are up to 2600. That is the highest number of shorts they have held in the new contract. The other side was picked up by the industry and the spec buying. Even the swap dealers got involved. They added most of the shorts in the hole. One would think there could be a bounce once they begin to roll.

Daily Bulletin:

Commitment of Traders:

About the Leonard Report:

Brian Leonard

https://agtransport.usda.gov/stories/s/Agriculture-on-Rail/25z9-isvp/#:~:text=Railroads%20Support%20Export%20and%20Domestic,the%20Texas%20Gulf%20for%20export

312-761-2636

11 Aug 2023

Agriculture, Market Commentary, Other News rcmagserv 0 comment

Transportation & Logistics: The Role of Moving Agricultural Commodities

Introduction

While producing crops and other commodities is essential, the transportation industry behind the scenes plays a critical role in getting it where it needs to go on time. Whether by truck, railroad, barges, or large over sea vessels, the transport of raw commodities is how the world is fed. Several commodities must be transported in a timely manner relying on a complex supply chain environment. This blog discusses the main areas listed above and their role in feeding the world.

Trucking

According to a report by the USDA titled “The Importance of Highways to U.S. Agriculture,” published in December 2020, the trucking industry plays a pivotal role in the agriculture sector of the United States. Trucks are the primary means of transporting commodities by weight, accounting for 83% of agriculture freight by weight and over 50% of agricultural freight ton-miles.

Although they are typically used for short distances, trucks are essential in the movement of commodities. In fact, even for grains commonly transported by rail and barge over long distances, over 70% of cargo is moved by trucks. This highlights the significant contribution of trucks to the transportation of agricultural goods, particularly for meat, poultry, fish, and seafood, where the truck mode share is greater than 95%. https://www.ttnews.com/articles/trucks-key-movement-agricultural-products-usda-report-finds

While railroads, barges, and other vessels are the preferred method for long-distance transport, almost every commodity touches a truck at some point in the transportation process. The US roads and highways are important in making trucking efficient; as the world progresses, so must the trucking process. As electric trucks and autonomous vehicles gain market share, this will be one way the trucking industry will change in the years to come, as efficiency will be important in feeding the growing world.

Railroad

Railroads cover millions of miles across the US and the world and transport both people and goods to where they need to be. Most agriculture production is done away from the coasts but needs to get there to be exported; this is where rail becomes an important player.

Corn, wheat, and soybeans are the most common farm products shipped via rail. The chart below shows the dispersion of amounts on the rails from 2015-2020.

The following chart shows the total tonnage shipped via rail of specific commodities. Clearly, rail freight for corn is monumental in its distribution across the country and world. Corn is used in so many goods, from the gas we put in our car to the food we eat, that getting it where it needs to go in a timely manner is crucial.

While railroads play a significant role in transporting raw farm commodities, it is also a major form of transport for materials used in the energy sector, such as coal and oil. In contrast, the U.S. has an extensive rail system, and part of the infrastructure upgrades over the next couple of decades must improve rail efficiency to handle the increase in production expected.

Barges

When discussing the role of barges, it is important to know the primary waterways that are used: the Mississippi, Illinois, Missouri, and Ohio Rivers. While other rivers below play their own role in the shipping of agricultural products, these rivers’ locations make them crucial to the supply chain.

The rivers and locks system can be complicated during flooding, drought, or maintenance and can disrupt these shipping lanes. While these rivers are not only used for agriculture shipping, but there are also elevators all along these rivers to make the distribution to ports easier. Cities like Los Angeles, New Orleans, Savannah, and New York play a major role in the US exporting grain worldwide.

Like with railroads, continued improvements in the barge infrastructure will be important as the U.S. continues to produce and export more grains as the world grows.

Oversea Vessels

In 2021, the U.S. exported over 60 million metric tons of grain and oilseeds, making it one of the top exporting countries in the world. Most of these exports were transported by sea vessels, with some of the largest ships capable of carrying over 200,000 metric tons of cargo at a time. These vessels provide a cost-effective means of transportation for large volumes of goods over long distances and play a vital role in connecting the U.S. to markets worldwide.

The movement of agricultural commodities via sea vessels has its challenges, however. Issues such as port congestion, container shortages, and weather disruptions can all impact the efficient movement of goods. Additionally, changes in global trade policies or economic conditions can lead to shifts in trade flows and impact the demand for shipping services. Despite these challenges, the use of overseas vessels remains a critical component of the global supply chain and will continue to play a vital role in the transportation of agricultural commodities for years to come.

Contact RCM Ag Services for Your Transportation and Logistics Needs

If you’re looking for reliable and efficient transportation and logistics services for your agricultural commodities, look no further than RCM Ag Services. Our team of experts is dedicated to providing the highest quality services to meet your specific needs and ensure your products are delivered on time and in optimal condition.

Contact us today at [email protected] to learn more about our transportation and logistics solutions and how we can help you streamline your supply chain and increase efficiency. We look forward to working with you and supporting your agricultural operations.

07 Aug 2023

Agriculture, CME, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: The quest for today’s value remains elusive

Lumber Weekly

The quest for today’s value remains elusive.

Last Week:

The futures markets fell another $19.50 as a weak cash market dominated. The makeup of the trade was the funds selling while the industry bought back shorts or got long. In this part of the cycle, all the focus is on the cash market. I am surprised at the extent of the erosion. In a hurry to raise prices, the mills did not establish a base level. The chase is on to find that level. The futures guys are hoping for a lessening of the fund selling next week could bottom futures. While I agree, it could be a tough week ahead.

Factors:

The struggle continues to determine the value of this commodity. The factors affecting the price are less production out of Canada—the slowing of Euro shipments, and the JIT inventory management strategy. The demand data shows a steady pace of construction, and reports from the field are of a good wood flow. Under these conditions, the commodity’s price will remain at or above breakeven. The reality is that the price continues to drift into the red for the mills. The lower price is also digging into the margins of most of the industry. The Milton Freeman School of Economics says that inflated profits are met with long-term deflation. That may be the easy answer here.

We have to go back to the actual supply and demand factors. The supply gap in housing continues to widen as family formation outpaces construction. There are limits to construction. Labor and government regulations are extending the timeline of all buildings. That lag is very positive long-term for housing. I did see something thought-provoking for the first-time home buyer. Here goes…

The first-time home buyer has roughly $100,000 saved for a down payment on a $350,000 home. These are estimates based on today’s data. If the buyer does an analysis, they see that they are earning 6% on $100,000 today. Buying a home, they would have $250,000 debt at roughly 8%. That is the 7.5% mortgage and the additional home expenses. Now the appreciation of a home averages 5% historically. At 8% the buyer loses 3% a year. If they do not buy a home, they make 6% on $100,000 with potential saving increases.

Summary:

This year’s actions of the lumber market highlight an industry preparing for less demand. While there isn’t data confirming a downturn, the marketplace stays guarded. I did look for less demand by the third quarter. I also looked for less supply to offset the decrease. This market doesn’t react that smoothly. At some point, the multifamily sector will show a slowing. Then the single-family sector will see a pause. In a JIT environment, prices will remain under pressure. That could be around for a long time. The good news is the market will continue to get caught short. The middle of the market can continue to benefit from those spikes.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Commitment of Traders:

About the Leonard Report:

Brian Leonard

312-761-2636

04 Aug 2023

Agriculture, CME, Corn, Grain, Market Commentary, Market Updates, Podcast, Research, Risk Management, Soybeans, Weather, Weekly Prices, Wheat rcmagserv 0 comment

AG MARKET UPDATE: JULY 20 – AUGUST 4

As quickly as corn rallied to get back over $5.50, the rains and favorable forecasts for August led it back below $5 just as quickly. The rains in late July provided much needed moisture over much of the corn belt, but as you can see in the drought charts below, varying levels of drought conditions remain. The forecast has shifted drier for August but after a record hot July, August is forecasted to be cooler. Reports of how much damage the first half of summer did to this crop are all over the place, which usually means it is somewhere in the middle. A 180+ yield is probably off the table, but a 172 yield seems to be just as unlikely unless the forecasts change to hot and dry for a long stretch soon. Russia’s bombing of Ukrainian ports in Odesa and the Danube River continue as the markets seem to shrug off any new damage. Over the weekend any forecast changes, new developments in Ukraine or world news will determine what the trade does to start the week.

Soybeans have a similar story to corn this week but were able to avoid the late June collapse that corn saw thanks to the low acreage number. StoneX estimate for bean yield this week was 50.5 bu/ac which would be a supportive number for beans, especially if the acreage number is accurate. China has begun showing up as frequent buyers in export reports helping the demand story that was questionable on world economic worries not too long ago. The lack of bullish news is good news for the bears as no news markets rarely tend to move higher. Weather in August will be important for this crop and next week’s USDA report will give us more information on US production.

Recent News

Click HERE to listen to RCM Ag Services’ Jody Lawrence join AgriTalk a couple weeks ago to discuss the current market.

Wheat

Wheat followed corn and beans lower for similar reasons. The markets have shrugged off Russian aggression of late but will be watching over the weekend for any escalation.

Equity Markets

The equity markets suffered losses this week with a big down day on Wednesday when Fitch downgraded US debt to AA+ and earnings continue to roll in. The job market seems to be moderating as hiring was slightly weaker than the previous month. The markets are looking for numbers that will keep the economy and markets going while also giving the Fed the signal to stop raising rates. This is a fine line that can feel like walking on eggshells with a long-predicted recession still the worry of most investors.