Tag: Risk Management

15 Apr 2024

LEONARD LUMBER REPORT: The futures market got crushed last week


The futures market got crushed last week. The lack of a cash market increased the negative momentum. It was, as one trader put it, a “strange change in dynamics.” On almost every break in the last 16 months, the mantra was to buy it lower. We did that dance under $520 and again under $500 numerous times. Last week, the majority were preaching to sell a bounce. That is a definite change. That said, let’s wait to sell the farm.

The starts and permits report come out on Tuesday. They are looking for a number around 1.5. I struggle to see how, with the current reduced production, there can be an abundance of wood. We do generate abundance with every buy, but that is drained over time. This last buy round was more aggressive than usual. Traders became more confident and added purchases showed this. Today, we are living in the glow of that abundance. It will get cleaned up.


We talked for months, going on years, about the probability of something breaking in the system. I’m worried the Fed can upset the marketplace with continued bad decisions. They want to cut interest rates while still carrying a large balance sheet. Continuing to push money into the system and cutting rates in an inflationary environment will choke off the market. And just to be clear, we are the first to feel the choke. I am worried we are seeing it in the multifamily sector already. Disrupt the apple cart, causing unemployment to rise, and we get the single-family sector to start to feel that choke.

Our last rally was a needed fill-in that was better than expected. This current downturn is the clearing out of those extras. Once done, another fill-in will be needed.


The downside move last week was violent, to say the least. This pushed the RSI down to 11.80%. The selling is computer-related, driving markets well beyond the norm. Lumber futures went from $1250 to $1700 purely on computer buying. My point is that computers can move markets. Now that said, here it comes: the futures market has been following the cash market lower. The move in futures has been as much fundamentally driven as it has been computer driven.

This RSI extreme will correct itself.


Daily Bulletin:


The Commitment of Traders:


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

[email protected]


08 Apr 2024


Corn has traded in about a 20 cent range the last month spending much of its time in July corn between $4.40 and $4.60. The USDA acreage intention report gave the markets an initial bullish reaction but struggled to follow through past the report as prices have fallen back from the post report highs. Corn acreage for 2024 came in at 90.036 million acres (91.776 estimate) which was a surprise to the market. The trade appears to believe that the acreage number is likely higher as it has given some of the gains back quickly. While lower prices and high input costs are likely to affect farmer’s decisions, if the weather this April and May is friendly to planting it will be hard for farmers to leave acreage on the table. South America harvest in Brazil and Argentina is in line or slightly behind average.

Via Barchart

Soybeans have fallen from their recent highs as the USDA Report did not provide the market with any actionable news. The USDA came in at 86.510 million acres (86.530 estimate), because the acres were so close to the estimate the report was not a big mover for the bean market. The market has slowly traded lower since the report as the next market mover will be the April USDA and April CONAB Reports this week. The more information we can get on South America’s harvest the clearer the picture will become as the discrepancies between the USDA and CONAB still have the markets confused.

Via Barchart

Equity Markets

The equity markets have pulled back from recent highs with the pullback in some tech names but the market and economy are still strong as inflation remains sticky and the Fed trying to decide when, or if, to cut rates this year.

Via Barchart


Other News

  • US wheat acres will be lower than last year. Winter wheat plantings shrunk from the estimate in January, but spring wheat will be slightly higher than last year.
  • The transmission of bird flu in cattle in several states this week drove cattle prices lower and is a development to keep an eye on.

Drought Monitor

Here is the current drought monitor as we head toward planting with subsoil moisture a focus.

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].

18 Mar 2024

LEONARD LUMBER REPORT: Last week, the futures market saw a healthy correction


Last week, the futures market saw a healthy correction, dropping $22 in 4 sessions. March expired at 560, which was right in line with expectations. What was different was that most expected it to carry a premium, not a discount. My point is that this cash run has been far more significant than most expected. That leads to the question of how much was bought and whether it is enough. The cash side has hit the pause button to get a read of where they are. This is typical in any run but also leads to a quieter cash market and a futures correction. That sums up the week. Now what?

The industry focus is always on the micro. Today, wood continues to go out the door at a good pace. It has been a fluid trade for 18 months so that that feature will remain. The mills do have a tighter grip on certain items. This is related to logs and production. Most items are still under and over-produced within the typical timeframe. Timing that imbalance has always been a challenge. What remains in place is that a cash market run will not continue with some items tight and others abundant. The focus for this upcoming week will be on items liquidity. A sharply lower trade in May futures on Monday will give an immediate answer.

The macro picture has to be looked at. We can see the data on fewer shipments, log issues, fires, and the “worm.” What we can’t measure today is the potential headwinds of a slowing economy, rates that are higher for longer and affordability. All that is slowly creeping into the multifamily side of the business. That we can measure. The question is if a slowing multifamily sector takes the energy out of the starts number going into the fall. If it happens, we can expect a flat trading range that mirrors 2023.

The industry has to look to futures to lock in a profit or to mitigate risk. Playing supply spikes isn’t the best strategy.

Technically, this market has strong support all the way down from here. The key points are the 38% at 598.80, the 50% at 590.70, and the 61% at 582.60. A close over $620 indicates the funds are back in charge. 


Daily Bulletin:


The Commitment of Traders:


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

[email protected]


16 Jan 2024

USDA Final 2023 Yield and Stocks Overview

USDA Final 2023 Yield and Stocks


January 12, 2024

First Glance:


USDA Yield:   177.3 BPA (174.9 Estimate – 174.9 Nov)

Total Crop: 15.342 BBU (15.226 Estimate – 15.234 Nov)

Harvested Area:  86.513 MA (87.036 Estimate – 87.096 Nov)

23/24 US Ending Stocks: 2.162 BBU (2.111 Estimate – 2.131 Nov)

23/24 World Stocks: 325.2 MMT (312.9 Estimate – 315.2 Nov)

Brazil/ARG Crop: 182 MMT (180 Estimate – 184 Nov)


USDA Yield:   50.6 BPA (49.9 Estimate – 49.9 Nov)

Total Crop: 4.165 BBU (4.134 Estimate – 4.129 Nov)

Harvested Area:  82.356 (82.757 Estimate – 82.791 Nov)

23/24 US Ending Stocks:  280 MBU (245 Estimate – 245 Nov)

23/24 World Stocks: 114.6 MMT (111.9 Estimate – 114.2 Nov)

Brazil/ARG Crop: 212.0 MMT (204.9 Estimate – 209 Nov)


23/24 US Ending Stocks:  648 MBU (659 Estimate – 659 Nov)

Winter Wheat Seedings: 34.425 MA (35.786 Estimate – 36.699 LY)

23/24 World Stocks: 260.0 MMT (258.3 Estimate – 258.2 Nov)


The USDA found larger than expected totals in almost every category, increasing corn yield 2.4 bpa over the November estimate to 177.3 bpa. This is both a record yield and record total crop of 15.342 billion bushels. Bean yield was also raised .7 bpa to 50.6 and a total crop of 4.165 bbu. Both corn and bean harvested acres were slightly trimmed, the only bullish news in the report.

Higher yields were pushed through to higher ending stocks with US corn carryover raised to 2.162 bbu (+31 mbu from Nov) and 803 mbu above last year’s stocks. Beans had a similar fate with stocks set at 280 mbu, up 35 mbu from November but only 16 mbu above last year. Wheat stocks were slightly smaller than expected at 648 mbu but still up 78 mbu from 22/23.

Despite the rough start to Brazil’s growing season in their northern regions, Brazil’s bean and corn crops were not cut as much as expected. The weather has improved hurting the bullish narrative of a bad year for Brazil but the expanded acreage will also help offset any damage done earlier in the year.

There has not been any good news lately and prices reflect that. In June there was concern over the US crop with corn a $6.25 and beans at $14, now today has made new contract and multi-year lows in corn, soybeans and wheat.

08 Jan 2024

Leonard Lumber Report: The futures trade last week looked flat


On the surface, the futures trade last week looked flat. The net change for the week was up $2. In fact, the last seven sessions have seen closes within a $4 range. A digestion phase after the run-up? Underneath the surface, things are changing. We have shifted the fund shorts over to the industry. Wood is now hedged. We have also shifted some of the industry longs over to new fund longs. The makeup of the futures market today is friendly. It is not a signal to buy, but it could generate higher prices on its own.

The futures market is closed on Monday the 15th, so January expires on Friday. The current open interest is normal for five sessions to go. With the growing industry’s short number, we may see some upward pressure again. We could see a shift to expirations now having an upward bias.

As far as the cash market goes, it remains fluid. That has been the case for months now. It has the feel of the covid slowdown that never occurred. This time, we spent a year expecting a recession and higher unemployment. What we found was steady business.

With mills coming back online and wholesalers owning wood, it could be sloppy for a while. The funds are the key.

This recent sideways trade is nearing an end…….

Daily Bulletin:


The Commitment of Traders:


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

[email protected]


11 Dec 2023



“The season of contentment.” Most have closed up shop for the rest of the year. There is minimal volume in either the futures or cash. The futures trade is a liquidation of all sides. The outlook is also fuzzy. As the daily traders look for a crack at the mills the long-term traders wonder if that was enough of a buy. In 2023, there have been three good buy rounds, each at a lower cash price and futures bounce. Does the trend continue? I will say this: most of the industry does not want lower cash prices. That tells me it could be more of the same, dragging the market lower until the next round.

It’s been over a year of complacency, confusion, and a content market. The data shows a loss of 20% from the retail sector side versus a drop in supply of roughly 20%. You can be more balanced. Historically, this industry doesn’t come out of that phase quietly. With less production, less Euro, and a construction needle that doesn’t move, the volatility will be on the upside. The futures market is quietly indicating that with the support we are seeing. It’s going to take more time.


The lower objectives of 518.50 and 510.50 are still in play. These are corrective objectives. If you look at the wedge pattern that formed in 2023, the bands are 568.80 and 495.30. Today, lower mill prices will not stimulate buying. With an RSI of 49.40%, those bands look a mile away.

Daily Bulletin:


The Commitment of Traders:


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

[email protected]


21 Nov 2023

Merucci- Milk, Feed, Cattle market update

As we head into end of year, take time to make sure you have minimized your risk and kept yourself open for better prices if they may occur.  It has been a difficult stretch for milk prices which is evident by clients that have had consistent coverage in place are shaping up to get DRP indemnities for their 6th quarter in a row!  Don’t get caught thinking that you know where prices are heading next year.  Here are good ways to protect negative outcomes and still be positioned for better prices in milk, feed and cattle.


Milk-  This part is simple, DRP has worked as advertised over the last few years.  There have been both good and bad prices.  DRP has paid out nicely in the low price times and still allowed for availability to participate in some of the highest milk checks on record.  I strongly recommend having at minimum 25% of milk protected in both Q2 and Q3.  Utilizing the 1.5 factor, this will protect 33% and still leave plenty of room to add coverage if prices improve.  Looking at the historical comparisons, milk prices are pretty good and with the subsidy provided for DRP purchase, the cost is well worth the investment in price security.


Corn and Meal-  Now the attention is south of the equator.  Don’t put yourself in a position of guessing weather outcomes and China demand, which we will be hearing a lot about in the next few months.  There are plenty of technical and fundamental cases being made for higher or lower prices for corn and meal.  It is unnecessary to take this risk.  Buy May calls in meal; buy calls or risk reversals in corn.  Calls in May meal will give protection against a disastrous crop in Argentina and Brazil.  For corn, whichever timeframe you are concerned about March through December, add an option strategy that best fits your needs.


Cattle-  Cattle prices, not to mention DRP,  have been a savior to many dairies.  Now that the straight climb up has seemingly ended, we now will be experiencing some volatility and up and down markets.  With the emergence of beef/dairy, I’m an advocate of LRP for all dairies.  Beef prices affect dairy revenue, why not have subsidized coverage to protect that revenue stream?  Look to add LRP on upticks in feeders or live cattle and be open to trading futures and options vs. LRP policies.


Looking back to the beginning of this year and the newsletters that charge subscription fees and “predict” market direction, not very many, if any, predicted this market.  Don’t get caught thinking you know what is ahead.  Your business won’t have a bad year because your invested in downside protection, but it could have a bad year if you don’t.


I look forward to hearing from you and discussing individualized risk management plans that best fit your business.  Have a wonderful Thanksgiving weekend.



Mike Merucci


[email protected]

17 Nov 2023

Hedging: Futures and Options 101

Futures trading has been around for hundreds of years with the first exchange, Dojima Rice Exchange, starting in Japan in 1730.

The United States got its first official commodity trading exchange in 1848 when the Chicago Board of Trade (CBOT) was created. Chicago was the ideal location for the exchange with rail lines and proximity to the heartland of American agriculture and an already booming metropolis. As one would expect, corn, soybeans, and wheat were among the first futures contracts traded with corn leading the way.

Eventually the CBOT merged with the CME (Chicago Mercantile Exchange) to form the CME Group that exists today as the world’s largest financial derivatives exchange. While futures and options are used to trade several asset classes through the CME, we will focus on the agriculture sector and the uses there.

What are Futures and Options?

Futures and options are tools that traders use to both speculate and hedge. A futures contract is a legally binding financial instrument that allows someone to buy or sell a standardized asset for delivery at a set future time for a set price. Futures are different from forward contracts because of the standardized contracts, and they are traded on exchanges. While a forward may be customized with the point of delivery the contracts traded on exchange have defined contract amounts (see chart below).

An options contract is the right but NOT the obligation between two parties to make a potential transaction of an underlying security at a preset price before or on the expiration date.

As we go through all the uses and potential ways futures and options can be used here are some questions you should be able to answer at the end.

  • What are the basic uses of futures and options?
  • What advantages and disadvantages does using futures and options have?
  • How can I use these as risk management tools?
  • How to calculate the profit or loss from a trade?

Hedging with Futures

Hedging in the futures world can best be thought of as a type of insurance. It is used to manage the risk that prices could move adversely to your interests. Hedging is used in all markets to manage positions and reduce exposure to various risks including but not limited to dramatic increases or decrease in price.

Hedging is used in the production agriculture industry to help protect downward price movements and for buyers/ end users to lock in prices for goods that will be sold/bought in the future. Whether you are a farmer selling your crop or an end user buying the grain there are hedge strategies that are available for your operation.

While futures are the most straight forward method of hedging, options are also very popular as they provide some flexibility. Let’s look at a couple examples:

Ex. You are a producer and want to hedge the risk of prices moving lower:

A farmer believes the basis, currently -$0.20, will improve over the next couple months but is happy with a $6.50 futures price. They sell $6.50 March futures while storing the grain. They were right and basis is flat come February, but the price fell to $6.40. This would result in a final price of $6.50 for the farmer minus fees and commissions ($0.10 trade profit + $0.00 basis + $6.40 cash price – fees and commissions). If they had just made the sale at the time when basis was -$0.20 they would have only received a price of $6.30.

On the other side if prices had gone up to $7.00 and basis had remained at -$0.20 the farmer would receive that $6.30 price minus fees and commissions ($7.00 price at time of sale to elevator -$0.50 loss from trade – $0.20 basis – fees and commissions = $6.30). If they were right about basis and it did improve to $0.00, then the price they would receive is $6.50 minus fees and commissions ($7.00 price from elevator – $0.50 loss from trade + $0.00 basis – fees and commissions)

*Fees and commissions vary by broker

Ex. You are an end user that buys grain to feed cattle.

The feeder is comfortable paying current prices because they believe they can make a profit locking in part of the input costs at current levels but is worried prices will move higher. They buy 25,000 bushels for a future month (let’s use July) for $6.00. If prices go up to $6.50 when it is time to buy the corn in July, basis remains the same, they will save themselves $.50 cents a bushel or a total of $12,500 – minus any fees and commissions* ($6.50 x 25,000 = $162,500; $6.00 x 25,000 = $150,000). In this scenario they were right and were able to protect against adverse price movements and save themselves money.

If they had been wrong and prices moved lower by 50 cents, then they would have cost themselves $12,500. The payoff of hedging comes with knowing you have certain prices locked in and help set ceilings and floors to help you budget and manage risk.

While these are some straightforward ways in which futures can be used to hedge, there are other strategies that traders employ that may be specific to the customer. For more information on hedging grains check out the education courses on the CME Group website.

Hedging with Options

Being long an options contract is the right, but not the obligation, to buy or sell the underlying futures contract at a predetermined price on or before a given date in the future. Many customers like these because they require less capital up front, but that does not eliminate risk. Below the charts show the difference in movement.




Via Schwab

Via StackExchange

Options can be used to reduce uncertainty and limit loss without significantly reducing the potential returns from the other side. There are put and call options that each have different uses and strategies around. Here is an example with each.

Ex. You are a farmer looking to limit downside risk.

1 Dec corn put option is bought for 20 cents per bushel with a strike of $6.50 expiring in Nov. The 1 contract represents 5,000 bushels. The farmer is risking the $1,000 + commissions and fees he paid up front (5,000 bu x $0.20) to protect a move lower. If the price when the option approaches maturity of Dec corn is $6.00 then the farmer successfully protected that $6.50 price while risking the $0.20 (the option would cost around $0.50 then and you would sell it to get out of it or exercise it and get assigned a short position from $6.50).  The total profit on the trade would be $0.30 less commissions (Option strike price of $6.50 – Market settlement $6.00 – cost of the option $0.20).

If the price had moved higher to $7.00 you would benefit from the higher price to make your sale but the $0.20 you paid for the option would be worth close to $0.00, making your actual price $6.80.

            Ex. You are an end user looking to limit the upside price risk.

1 Dec corn call option is bought for 20 cents with a strike of $6.50 expiring in Nov. The end user is risking the $1,000 + commissions and fees he paid up front to protect against a move higher. If the price when the option approaches maturity of Dec corn is $7.00 then you are protected against that move while risking the $0.20. The option would be worth close to 50 cents ($2,500-commissions and fees – the cost of the option $1,000 for a total profit of $1,500 per contract).

If the price had moved lower to $6.00 then you would benefit from buying at a lower price but would lose the 20 cents with the price of the option being close to $0.00, making your real purchase price closer to $6.20.

There are advantages and disadvantages to using either hedging strategy, so it is important to think about what you are trying to accomplish when taking a position. The advantages include ease of pricing, liquidity, and price risk hedging. By actively hedging you can work to limit the price risk or lock in prices that you like or believe can lock in a profit margin for your business. The disadvantages are the risk of being wrong and adverse price movements against your position. As shown above, while these tools can be very helpful it is important to understand their limitations and risks.


Futures and options are also used in the markets every day for speculative purposes allowing for additional volume and liquidity to support the hedging side of the market. That said, with additional volume comes increased volatility and price movement forcing all market participants (hedgers and speculators) to be highly focused on managing risk and profit margins.  Practically, the examples above work the same way for someone trading these contracts that do not deal with the physical side.

For more on how hedge funds are utilizing commodity markets, check out the RCM Alternatives Guide to Commodity Trend Following: https://info.rcmalternatives.com/trend-following-guide.


Futures initial margin is the amount of money that you must deposit in advance of entering a futures position with the FCM (Futures Clearing Merchant). Unlike the margin in a stock account, there is no money being borrowed or an interest rate to be paid for using house funds.  Rather, margin is cold / hard cash deposited by the customer in their account at the FCM that acts like a partial downpayment to hold the position.  If the market moves against the initial trade, traders can expect that additional funds will need to be deposited.

Similar to futures margin, option margins are an important factor when using options strategies. Margin is the cash an investor must have on deposit as collateral before purchasing (buying) or writing (selling) options. Often times, the initial margin requirement for an option is low; however, there are more factors to consider with option margin pricing – including but not limited to changes in volatility or the proximity to option expiration.

In the case of both futures and options, margin requirements are set by the exchanges and change from time to time at the sole discretion of either the exchange or FCM.

Maintenance margin is the minimum equity an investor must hold in the account after the purchase to continue to hold the position.

Expiration and Settlement

Expiration dates vary based on the derivative being traded but is the last day that derivatives contracts are valid. Most option contracts are closed or rolled before expiration to avoid assignment.

If the futures contract is held too long, then the customer could risk being assigned delivery. Over 95% of the derivatives are exited early but there are options to take delivery should that be desired.

A link to the expiration calendar can be found here.


In summary, futures and options trading offer a dynamic landscape for both hedging and speculative purposes. Whether you’re a farmer safeguarding against price fluctuations or a trader seeking to capitalize on market movements, understanding these financial instruments is crucial.

The advantages of ease of pricing and liquidity come hand in hand with the responsibility to manage risks diligently. As we’ve explored the intricacies of hedging with futures and options, delving into the significance of margin requirements and the nuances of expiration and settlement, it’s evident that these tools wield immense potential when managed properly.

RCM Ag Services

Farmers, producers and end users have special needs that our experienced hedging/ag trading team have been working through with clients for years. Improve your hedging strategy by making use of RCM’s market analysis and discussing hedge solutions with our local experienced agricultural advisors.  Contact us Here: https://rcmagservices.com/contact/


To dive even deeper into the world of futures and options, explore the education materials on the CME Group website here.

Happy trading!

02 Feb 2023

Old & New Crop Risk Management Strategies & 2023 Market Outlook

As we start 2023 – the stakes could not be higher for the agriculture sector! The world population is growing rapidly, crossing 8 Billion in November of last year. Due to the historic drought and war, there are lower stocks of the major grain supplies globally. Energy and interest rates have accelerated rapidly vs. this time last year, leading to higher input costs and raising the break-even levels for farmers and end users to unprecedented levels…plus there is still a war going on. To help give us some insight and answers to what lies ahead, we’re lucky to have two highly respected panelists with us today from both the banking and commodity risk management sides of the business; Rebecca King, Old National’s Agriculture Group, and Jody Lawrence, RCM Ag Services.

Webinar links:






Check out the complete Transcript from this week’s podcast below:

Old & New Crop Risk Management Strategies & 2023 Market Outlook


Jeff Eizenberg  00:14

Welcome to the hedge edge by RCM AG Services where we’re getting out of the field and onto the mic to bring you weekly market updates, commentary from commodity experts in monthly interviews with the biggest names in agribusiness. Welcome to the old new crop risk management strategies and 2023 agricultural market outlook webinar. I’m your host, Jeff Eisenberg on the managing director for our RCM AG Services, and host of the RCM AG podcast, The Hedged Edge, be sure to follow us on YouTube and Twitter. I’ll put the links inside the chat here in a little bit. So today, really, as we started 2023, the stakes couldn’t be higher in the agriculture sector. The world population is growing at a rapid pace, we’ve crossed 8 billion as of last November, in terms of population across the world. There are lower stocks of our major grain supplies globally, due to the historic drought and continued war in interest rates have accelerated rapidly versus this time last year, lead to higher input costs, and raising the breakeven levels for both farmers and end users to unprecedented level levels. Oh, yeah, just like I just said, there’s still a war going on. So we got to remember that. So anyway, to help give us some insight and answers to what lies ahead. We’re lucky to have two highly respected panelists with us today, from both the banking side community and the risk management side of the business. Welcome, Rebecca. And Jody,


Rebecca King  01:54

thank you.


Jody Lawrence  01:55

Thank you, Jeff.


Jeff Eizenberg  01:57

Yes, great. Well, it’s, it’s nice to be talking with you both today. I know it’s snowy here, we got a snow day for the kids in Ohio. You know, it’s been a wild, wild year. What we’d like to do here today is what we’ll do kind of a brief intro and bio for both of you, and then jump into some questions for Rebecca. And then Jody’s got a nice presentation for us on the status of the world when it comes to agriculture. So throughout the time, encourage anyone who’s listening to type questions inside the chat, you can send those messages will either address them in real time as they come through or perhaps at the end. So the more questions of course, the better. Everybody likes questions. And so without further ado, let me let me introduce our two panelists. First of all, we have Rebecca King. She is the Senior Vice President of Old National Agriculture group. She has over 25 years of banking experience, and takes the time to gain an understanding of your client’s needs and then works to tailor those needs into a plan to fit each individual operation. Rebecca oversees the Ag banking relationship team. The Ag portfolio of Old National is geographically diverse across the upper Midwest. So again, welcome Rebecca. Thank you so much, Jeff. Absolutely. And Jody Jody Lawrence. Jody is the head of research for RCM ag services. Jody began his career as an accountant. After receiving a degree from Memphis State University in 1989. You gotta take that year off your bio, God makes me sound old.


Jody Lawrence  03:38

I think the beard takes care of that. Nobody, nobody really cares. They care that I graduated, but the beard kind of gives it away that I am not a Gen X or,


Jeff Eizenberg  03:48

Fair enough. Fair enough. Shortly after, Jody started working with farmers and business and marketing plans, which ultimately ultimately led to the founding of strategic trading advisors in 1999, a consulting brokerage firm with a well followed daily newsletter, Jodi’s research and agmarkets now attracts more than 7000 farmers across 33 states, opening up a tremendous network of ag specialists across the grain and meat complex for which Jody to draw upon and assisting select clients in structuring agriculture hedging the futures and options markets. So again, welcome Jody, appreciate you taking the time while you’re on the road.


Jody Lawrence  04:30

Thank you, Jeff. Good to be here. Rebecca. Good to see you again.


Rebecca King  04:33

You too, Jody.


Jeff Eizenberg  04:35

So so let’s let’s start here. Again, the world is volatile. There’s a lot going like a little bit of q&a here with Rebecca. We’ll start on the banking side. Yeah, so Rebecca, oh, let me Don’t let me forget this part. We do need to move forward with our disclaimer and reminder all that there are risks. So when With that, we’ll skip over to two old national, Rebecca Old National, really, you were working with first Midwest and then was acquired by old national last year, you’ve had an excellent transition, you’ve got an awesome team, that we’ve had a chance to meet with ourselves. And, you know, it’s growing. So before we kind of get into, you know, what’s happening in markets, could you just give us an update on the transition and all the good things about Old National?


Rebecca King  05:29

Sure, absolutely. Thank you. So first Midwestern, Old National completed their merger in July of 2022. We brought together agricultural professionals from each bank to form one team, which is called the Ag vertical, we have about 25 members that are completely dedicated to agriculture on the sales, the credit and the customer support side. All of these individuals have farm backgrounds, either directly continuing to farm with their families, or having been raised on a farm. Myself, I farm with my husband in west central Illinois. So all of these personal experiences really help us to bring to the table and understanding of your business, and how things are going for you because we’re experiencing the same things. One of the great things about our merger is that we’ve really expanded our footprint. So Jeff has that on a slide here, I don’t know if it’s possible to make that any bigger or not Jeff, but you can see where the blue dots are. Those are locations with national locations. Not all of them are ag locations. But that is where our primary business is located, as we said earlier in the Upper Midwest, so our dedicated ag bankers are in more of our rural locations. We also have in 2022, added an agribusiness piece. We previously were very heavily centered in production agriculture. But we have added agribusiness by hiring an agribusiness expert who’s actually working out of our St. Louis office. And he is touring around the footprint, meeting agribusiness prospects, and also speaking with other financial institutions with regards to working with them on some of their larger agribusiness clients. So we feel very fortunate to be part of such a large organization and have the reach that we do. And our merger of is behind us now. So it’s all forward looking for 2023. And I would any other questions you have with regards to the bank, I’m happy to answer. Perfect.


Jeff Eizenberg  07:48

That’s that’s super helpful. And I guess when we were meeting in December, you also offer added adding an office in Ohio as well, Cleveland area.


Rebecca King  07:58

Yeah, in the Cleveland area, those are primarily healthcare specialists in the Cleveland area. But we definitely can talk to customers in the Ohio region, as we as that is considered part of old national banks footprint.


Jeff Eizenberg  08:13

Perfect. So sounds, yeah, like good, good opportunity to grow, especially, you know, matching both the farmer and the commercial side, there seems to be some nice synergies that could develop out of that, as well. So I’m going to go ahead and stop the screen share for a minute, we’ll just kind of go back and forth with each other. And Jody, of course, if you have questions here to jump in. But let’s just let’s just jump into it here. Rebecca. I mean, people that are listening, we’ve talked to you at the beginning, interest rates are way different than they were a year ago. And since you’re in banking, I know it’s not the most fun thing to talk about. But it’s probably on everybody’s mind. You know, where are we here with the the interest rates and two things. One, I can say it and maybe your compliance doesn’t want you to, but I think we’re probably nearing the end of the tightening of the tightening schedule, you know, another 50 base, maybe a point. But so there’s more risk, the major part of the risk is gone. But how is that impacting and affecting both agribusiness on the buy side, production side, etc, from the people you’re talking to?


Rebecca King  09:27

Sure. Well, I think this kind of summed it up. I had a meeting with a client last week, and I said, What’s, what’s the biggest challenge you’re facing in 2023? And he said interest rates. And I think that was right on interest rates are twice of what they were one year ago, when we would have been having a similar conversation. You’re welcome to predict I don’t have a crystal ball. But we do know the Fed is meeting next week. We know that with certainty and there’s a very high probability that we’ll see another rate increase of 25 to 50. debase points, I think we’re all hopeful that the end is in sight. And that 2023, we’ll start to perhaps even see a stability towards the second half of the year and rates. So that being a very large part of a farmer’s budget, it makes me want to recommend to everyone that they’re really doubling down on, you know, on their pencil, penciling of all of their expenses. And really being aware of where that interest expense is affecting them. Certainly, as a banker of interest rates are high topic of conversation with each one of our customers. So we have those every time we meet with them. But taking a look at other areas of expense and making sure that your production costs are where they need to be. This is this is a definite threat to profitability down the road. So before we’re looking, pay attention to where you are, pay attention to your marketing, take advantage of the prices available to you when they are available to you. We can’t change the interest rates, but we can sort of massage what we’re doing around them until we start to see things change and hopefully, some sort of relief, you know, in 2024.


Jeff Eizenberg  11:18

Right, yeah, I mean, relief. The government likes to give us all money. So hopefully soon enough, they’ll want to give it give it to us again. In the meantime, as we’ll talk here with with Jody shortly, you know, the reality is, it’s a new world, in terms of breakevens as you’re talking and costs. And, you know, last year was largely, hopefully wildly profitable for a lot of farmers and other agri businesses. But it’s last year’s crop is financing this year’s crop, and it’s going to that cycle continues. Where are you seeing from your customers, and from the bankers that you’re in your network? Where are they seeing the breakevens, particularly on the production side, kind of coming in for corn and beans. And, you know, we could talk how that reflects today’s price after that.


Rebecca King  12:13

Sure. And I mean, let me just caveat that every producer is going to have a different set of costs based on the number of acres that they’re farming. So I’m not going to give you like specific numbers that you should this should be your cost of production. But from the analysis that we’ve done, we definitely see that corn input expenses have increased by at least 10% year over year. And if you go back two years, it’s almost a 50% increase, it can be almost a 50% increase. So that’s significant for beans, beans don’t have quite the big jump, I would say that for the last year over a year, maybe a 5% increase in producing your beans. And bean prices have remained very strong. And I know I’m not Jody, so I’m not going to go down that path. But I believe that when you’re looking at your mix of corn and beans, you’ve got to take into consideration where are you going to make the most profit, you know, for the coming year, and then make plans accordingly. So it’s a significant issue. And if you don’t understand where your costs are, now is definitely the time to meet with your banker. And you know, get the help, you need to be able to determine how your profitability is going to be impacted for 2023.


Jeff Eizenberg  13:28

Yeah, that’s good. And we kind of run some numbers Jody, where we add, generally $1,000 for corn 800 for beans,


Jody Lawrence  13:36

might be a little bit lower on veins than that. But it’s certainly, as Rebecca pointed out, costs have really gone up as we’ve emerged from the pandemic, because you’re you’re in a position where nobody really understood about, you know, the manufacturing and everything that was going on what could have happened in the supply availability in 2020, and 21 of fertilizers. But then as prices have risen in corn and beans because of weather markets, and yield loss and northern sun sets, the northern and southern hemispheres, the manufacturers at the highest level of those products, the CFC, the mosaics of the world have increased their prices because they know that they have some margin while there is you know, coming out of a couple really strong years on farm from a cash perspective from everybody so it Yeah, cost farming is expensive. I get asked the question all the time, when’s the price of land going to stabilize? I think everybody’s now just hoping for stabilization rather than actually thinking the price of land may go down. But really the bottom line on everything is as long as the production continues to rise in that acre, the APA H is increase year after year after year, the value of that land will hold at worst, very steady. And then if you get in a situation where you have very motivated buyers, we have seen some really astronomical sale prices that just don’t, they don’t pencil land and the old way of buying farmland, but you look at farmland now, it’s not the means to the end that you have to have land rented or owned, to be able to farm. It’s now an investment vehicle for so many others in the industry, people that have sold land and have a 1031 transfer come in, and they don’t want to pay any taxes. So they pay more than historically it would have brought from a production standpoint, you have neighbors bidding against each other, sometimes in a friendly, friendly competition, and sometimes in an unfriendly competition. And then and there’s generational transfer of the land and up the farm and up the wealth that we’re seeing. You had grandparents farm and you’ve got a lot of grandparents not on the farm, who when they’re fortunate enough to inherit this, don’t understand the economics, the people that are farming it, all they see is an income producing asset, like a mutual fund or a CD or something and they want to maximize the value of that. And they though they get lost in the pursuit of some dollars, at the expense of the relationships from the people that have been farming it for years, decades, maybe even generations. So farming is expensive. And it starts with the land. And as the price of corn and beans, the variance there and the volatility and those prices. That’s what we’re seeing now with high prices to start the year. We’re saying the high input prices falling.


Jeff Eizenberg  17:07

Yeah, thank you for that, Jody. And I’m guessing it was an old national that financed that $27,000 per acre purchase in Nebraska. Rebecca,


Rebecca King  17:16

probably not. But if it was they had some good equity in that purchase.


Jeff Eizenberg  17:21

Yeah, yep. Exactly. Exactly. Very good. So Rebecca, I just want to finish up with you. And we’ll jump over to Jodi, he made a comment and you’ve commented already. The importance of risk management today is is essential. And so what are you talking to? How are you talking to your customers about that? What percentage of your customers are typically forward pricing versus those that probably shouldn’t be?


Rebecca King  17:51

I think that those who forward price have are usually the customers that are farming, greater number of acres, but that doesn’t mean that everyone can’t forward price. You know, it’s a cost of production, as we talked about, some clients would prefer to segregate that cost off into a separate note, separate loan, that they’re just accounting for their costs of their marketing activities, right? That’s something that we do, you can call it a hedge line of credit, or you can call it a marketing note. We can call it any anything you really want to know. But it serves a purpose really to show what you’re spending, and are you getting the return for the activity that you’re doing. So it is good to keep that separate? In some cases, some of our clients don’t do as much and they just continue that through their regular operating line of credit. But we do discuss the need to either, even if it’s just working with your local elevator, doing something, having a plan, paying attention to the advice that God gives, and making sure that you’re understanding that what’s available to you today may not be available to tomorrow. And if you do some sensitivity and your cash flow, you’re going to know what your best cost or excuse me what your best price is going to be. And it allows you to really focus on that this is the right time of year to be doing that. So that as you get busy in the field and other things, take your attention away, if you really know what their breakeven prices and where you want to be on your marketing. as things change quickly, and you’re not always able to be sitting in front of your computer. You have that in the back of your mind doing that pre work. And certainly working on that with your banker is also really important so that they have the confidence that you know what you’re looking for.


Jeff Eizenberg  19:48

Yeah, thank you and obviously we’ve had a chance to meet your team and everyone is got a exceptional amount of experience and giving that guidance and feedback and you know, obviously we’re Working with you guys to, you know, share some of the content and recommendations that that are out there as well. So from our side, so that’s super helpful. Rebecca, was there any other comments or questions you had for Jodi right before we shift the show over to him, and then come back at the end.


Rebecca King  20:20

I’m happy to take any questions from the participants at the end. God always gives a great presentation. So looking forward to seeing what he’s got for us today.


Jeff Eizenberg  20:31

Excellent. So without further ado, I do see some questions coming in, related to price and input costs. And so we’ll, we’ll address those, you know, throughout and or near the end. So thank you continue to please ask the questions. And I’ll help source them. And you know, what, what Jody and Rebecca and I can help answer. So, Rebecca, thank you very much. Looking forward to flip it over here to Jodi. So without further ado, Jodi, I’m going to share the screen. And then if you need me to move slide, just go ahead and say Slide No, and I’ll flip it. So you should now see


Jody Lawrence  21:09

the screen. Yep, I can see it. Thank you, Jeff. Apologize, up, I got a bottle of water. And I might do a little bit of coughing, winter cold travel cold, as they always said in but I appreciate everybody logging in today to follow through with this and just kind of see what we’re thinking about the markets. As you can see from the title, the changing dynamics for markets, and 23, their variety of things that we think 2023 will see pretty noticeable change, if not very sizable change in from 21 and 22. From a production standpoint, from a weather standpoint, pricing standpoint, let you look at outside events. We already talked about the Federal Reserve and the interest rates. But just so many things, we think this is one of those very transitional years, that last year’s marketing plan, really the past two years marketing plan where you were able to be patient, or procrastinate, depending on which one of those you really want to label it. The markets kept going up because South America had a bad crop. And then the US got off to a tough start. In April May when December corn rallied for 21 Straight trading days. And everybody was richly rewarded for holding on to their grain. But we’re getting to a point now where that philosophy we don’t believe is solid anymore, heading for what we know and what we’re seeing in 23. So I’m gonna talk a lot about the changes that we see coming and hopefully how we can address those Mike Tyson, famous American philosopher that everybody knows was a particular favorite of mine. In high school and college watching him box, it was a little bit like watching Tiger Woods when he was at his peak and golfer Jack Nicklaus. And, you know, Joe Montana or Tom Brady on the football grid, or somebody like Michael Jordan playing basketball, because he clearly was the very best at what he did. And his great quote that stays stays with him and stays in my mind for 2023 is that everybody has a plan until they get punched in the mouth. And what that how that really applies to your marketing plan is, you know, just the last week this is a perfect example, we saw how much beans have dropped. On Sunday night after the extra rain in Argentina started to fall, horn followed and then the volatility after that, because the rally that we saw after the January crop report, the three weeks ago tomorrow does faded pretty quickly in the face of the one thing we do see changing is this transition. The El Nino La Nina transition that should bring in historically has brought more more conducive weather around the world for global production. Next slide, please, Jeff. And this, all of these things we could spend the entire time on but I’m gonna break them down and talk deeply enough about each one where you can see where I’m standing on it. The ridiculous volatility that we’re seeing is with us to stay you will never see it go away anymore, because we just have too many interior and exterior in PACs from around the world, whether it’s the Russian Ukraine war, poor and our poor relationship with China, China’s relationship with Russia, what’s going on in Brazil and Argentina, the world banking situation with rising interest rates is there going to be a world recession, there’s so many things out there. And we haven’t really talked about weather too much to this point. But it’s just a situation where the volatility is going to be here. So however you set up your marketing plan, just know that you were going to see these, you know, big spike rallies, followed by sharp pull backs, and vice versa. And sometimes there’s news sometimes there isn’t news. And a lot of volatility now is being driven, because we have billions of dollars of outside investment money in our markets, whether it’s on the ground that we talked about earlier, or whether it is speculative money, who trades, the charts, and they’re just looking to diversify their portfolio with raw materials rather than Microsoft stocks and things like that. And with that, we’re just going to continue to see this volatility. They they report that mentioned briefly last three weeks ago was the USDA is look at what they’re considering the final 2022 numbers for the US crop. That crop, while the you the USDA will not adjust the corn yield that came in at 170 2.3. Or the acreage harvested for corn or beans, they will still play around with their supply and demand balance sheets as things change. And they can notice and go back even as far to make some corrections on mistakes that they’ve made. And those corrections may go all the way out to June, July or August before they make them but for what they said as far as yield and acreage, the 170 2.3 while still a top 10 National yield historically, it was right at five bushels below trendline expectations and right at you know 11% And the USDA are assuming not 11% But right at 111 and a half percent. The USDA considers anything lower than three den two bushels away from trend to be a low crop. And with this one being five bushels below, it certainly kind of falls into their definition of an underachieving crop. But the crazy thing about it is you can divide the corn yield in the Corn Belt this year in between Eastern Corn Belt and western corn belt with a line vertically through through to Moines and everybody west of Des Moines had really really tough conditions this year. A lot of huge production areas in eastern Nebraska, South Dakota, Kansas, ended up getting 20 30% of their normal rainfall and with yield losses, in some cases pushing 60 70% of normal IPH. So while the western Corn Belt struggled, the eastern Corn Belt or everybody east of Des Moines did exceptionally well to pull that average up just to get the yield to a 170 2.3. And that’s a combination of things. It’s wonderful stewardship of the ground from every farmer who’s trying to coax all the bushels out of it that they can improve genetics in seed improved technology, soil mapping, all the GPS function and efficiency that you get from that technology bump and all of your equipment all across the board. It’s helping us get more out of that acre than 10 years ago, we probably thought we would be getting in 10 years. The 79 point 2 million acres harvested that was really the bullish hook and this because historically, the USDA uses 8% as their number from what we plant we planted just under 90 million acres. So I’ll call it 90,000,008 8% of 90 million would be 7.2. Right at 7 million. So that number historically would have been closer to 81 and a half to 82 million acres harvested but because of all the abandonment in the western Corn Belt, due to the in bad conditions, that number was a little bit higher and losing a million acres of harvested corn as much as much bigger impact on the bottom line. And on the on the supply side of things because that took off 172 million bushels. Whereas if you just adjust the yield a half a bushel, a you’re talking about, you know, 40 or 50 million bushels, so they that this year and it bears out because everyone across the country is seeing better basis historically, than you will see at this time of year, especially through harvest because you had such corn deficit in the western Corn Belt with all the feedlots and cattle industries out there. And people were paying up to get it shipped out of a more corn rich area of the eastern Corn Belt, the Bane number, the not great at 50.2 on the yield the harvested acres at 86.3. That number was not affected nearly as aggressively as corn planted about 88 million acres so only and this is pretty much standard for the USDA. USDA expects about one to one and a half million acres of beans not to be harvested. And they were pretty much right in line with that this year. But the 50.2 yield does show that crop ran into some headwinds, mainly from the western Corn Belt. Because the trendline to start the year last year was 52 bushels an acre the South American crops were also updated. And the USDA does their own guidance on expectations for Brazil and Argentina is corn and bean crops. While the governments and the private analyst in Brazil and Argentina do their own, there is still a good bit of separation between what we would consider a high USDA porn estimate for Argentina. And we’ll see how that bears out because Argentina has been stuck really for almost the past two and a half years and drought similar that we have had that we had last on the US in 2012. So we know that their corn yields down. Even though the rains have come a lot of it has is past the point of help, will stabilize. So we will see how that works moving forward. You look at Brazil’s corn crop. And one thing I want to show you is go back up to the US we produced a 13 point 7 billion bushel crop, Brazil and Argentina to produce just right at 7 billion bushels. So under normal circumstances, South America will produce about half of what the US normally does. So keep that in mind because that’s why the US the world needs us planting corn far more than they need us planting beans. And the main reason is highlighted by how many beans are grown in Brazil and Argentina, just in Brazil, at a 5.6 5 billion bushel bean crop. They outproduce the us about 1.4 About right at 30% larger and the US will never catch up to Brazil because Brazil has it seemingly an unending amount of available acres that they can bring into production whether they go into the highly productive areas by taking down the rainforest or adding new agricultural standards to some previously less than productive ground. They’ve got a lot more ground to expand on than the US or Argentina Argentina has pretty much capped out with where they are they may have a million or so that they could move around. But the real growth of acres and production is in that ball is in Brazil’s port right now. And on the Bane side, why the US number is right at 4.3 billion bushels when you add Argentina and Brazil together you now have a seven and a quarter billion bushel bean crop which is you know it’s what 60 70% higher than the US so we will always be behind them and bean production. The world’s still needs our veins but they need our core and a lot more. And the point I want to make to highlight how just where we are in the world production against South America. It is right now and heading into this break. You know, the rain that started in Argentina, whenever a US farmer gets an opportunity because of the weather rally on South American crops, whether it’s corn, wheat, cotton beans, whatever the case may be, it’s a wonderful opportunity to advance sales. Because the nice thing about South America’s weather is we know that it is not going to affect one bushel produced on your farm in the US, it’s a great time to take advantage of weather rallies or whatever may be happening down there. They have labor union port strikes and stevedore strikes all the time. So it’s it gives you an opportunity without having to be concerned that your yield may be hurt, because of a dry hot pattern in you know, Iowa and Illinois gets larger and starts to affect other states. So keep that in mind marketing, beans and corn during the winter is a very productive and a very safe time to do it simply because you have no yield at risk, at consequence, because of their weather. What the USDA did tell us that made the market rally out of the report was that the US and world ending stocks were a little bit smaller than expected, small enough, smaller enough to get a rally out of it and take prices. Corn in particular Oh, crop corn, up to about three months has very close to it. And beans back a good solid rally out of it. But they also said that they’re not high enough that we have the type of setup that we had in 21 and 22, where US production was absolutely critical to everything that was going to happen to be able to sustain prices. So we’ve got a wouldn’t call it an equilibrium, but we certainly have. We haven’t, it’s tight enough to be concerned about but there’s enough of it, that we can’t get overly bullish simply because stops are a little bit tight. I’ll skip over the break and go back to that the biggest thing that the number one factor that we are looking at moving forward into 23. And why I say this as a transitional year, and you’re going to have to be flexible with your marketing plan is you are finally starting to see this lawn mania pattern which historically means more inconsistent growing weather in both hemispheres. That is beginning to transition to the neutral El Nino. And the El Nino pattern pattern historically, not always but historically has been more conducive to higher world yields more consistent rainfall, more consistent temperatures. And what what you’re you’re used to seeing when you think about normal spring and summer weather. So and one of the things that may be that we have to keep in the back of our mind is the last three years crops 2021 and 22. All benefited from extremely long growing seasons that we went deep into September, you know whether people call it Indian summer, or just the natural pattern of La Nina to where we got an extended growing season that really added bushels, that historically, you kind of figure everything’s done by Labor Day, that the past couple of years have seen extended growing seasons into into the late summer and early fall that we made may be one of the things that we sacrifice for the rain in the summer. So I guess everybody would be happy to do it. But that typically is the trend. And if we get into a neutral El Nino, I’ll point back up to what our yields were at the top this year at 170 2.3 and 50.2. That when the USDA Economic Forum comes out with their numbers in February trendline yields this year going to be 178 and a half, and maybe 52 and a half, or 50 and a quarter or 52 and a quarter for veins. So what we know especially looking at the corn number is we are one good weather season growing season away in both of the entirety of the Corn Belt from 180 Plus bushel national yield. And we know it’s coming. It’s a matter of when not if and with all of the improved genetics. All we need is mother nature to cooperate and we’ll set a new national record and I expect that will happen within the next couple yours. The problem with national records, they’re great. And they show that every farmer is doing a wonderful job getting this yield. But farming historically, unfortunately, is a very cannibalistic business. Excuse me, you go into the year hoping for the very best yields you’ve ever seen. You participate in competitions, whether it’s a local with your retailer, whether it’s a county, whether it’s a statewide yield contest, and winning those things, is great. Everybody loves competition, and everybody loves to be good at what they do. But the problem with agriculture is the goal of agriculture is to produce as much as possible. But the goal of farming is to make money and sometimes producing the very absolute most that you can ends up having very detrimental effects to the market. So it for everybody who wants high yield and high prices, we’ll get will we always get one of those years, you know, once every decade and 22 certainly was one of those yields years to where the eastern Corn Belt had exceptional yield, and high prices. But the western Corn Belt didn’t. So very rarely do we see a whole corn belt where we have record deals and very profitable prices. So you know, it’s always situation, when you’re talking about yield and higher yield, you have to be careful what you wish for because as soon as you produce more of something, that there’s not enough demand to fill, the prices will fall to a level where there is demand. And that’s kind of in the situation, where we believe these markets are transitioning, because if South American production comes in as expected, and that would be a record Bane crop in Brazil to top it off. We will be looking at plenty of beans, China being able to buy cheaper Brazilian beans, and over the course of the spring and summer, rather than the the available supplies that we have. So it’s going to be a balance and something we’re really going to have to pay attention to. And that’s why I wouldn’t say that I am overly bearish. And because I’m cautiously optimistic about several things I’m gonna talk about, but looking at this transition year, the previous years we’ve seen higher yield. And right now we simply do not know with the interest rate hikes the fight against inflation, the looming apparent world recession and what Chan is going to do with their economic rebound from COVID. Now that they are taking steps to develop herd immunity, and reopen their country and their their enormous economy, that’s going to be really interesting to watch. Because if you have if you have more supply, but stagnant demand, prices will go down and there’s a good bit of downside especially in veins, you could easily paint a picture where November veins even after this 60 cent drop. If everything stays through the year in the US, it’s 52 bushel trendline yield. That’s summer, you could see beans, it easily back in the low $12 area instead of the 1330 to 1350 where we are today in the fourth, certainly not the $14 where we were over the past couple of weeks. They so get that in mind. One of the things that you know we already talked about Federal Reserve in the interest rates world recession hit on the Chinese COVID policy that they are now they did a complete about face a month ago to reopen their economy to stop the shelter at home orders every time they had, you know, a small, statistically insignificant number of COVID cases in a 2030 40 million person town to make them all go inside and shattered the economy. And with them on celebrating Lunar New Year this week, where they are in that is they believe the last report I said that 80 to 85% of the entire population of 1.8 billion people has either had COVID or been exposed to it. So if they are able with their increased vaccines and the herd immunity does kick in And China’s economy could potentially back back bounce back much faster than everyone thinks. And if that happens, then you get into the battle between the Federal Reserve and other World Bank’s trying to calm inflation, as China comes back in and for demand in the markets, as opposed to China wanting to come back in. So we still have a couple very formidable foes that could be fighting this out. If China gets back into the market, I think that China coming back in is obviously bullish. And we will see what happens with the Federal Reserve. The optimistic part of the Federal Reserve is if they meet next week and see numbers and continue to see weekly and monthly job claims and consumer price index numbers that allow them to stop raising the rates and they tap the brakes a little bit, then that also could be something that helps with demand. So there are a couple of things out there that are just unpredictable. Certainly the trends are not good now. But if they reversed even modestly, could very easily help to start to do some of these extra bushels that I’m talking about. One thing that is been a developing problem for the last 15 years, and will continue to be for decades to come is the growing alliance between Brazil, Russia, India and China. And you can see referred to these bricks, if you see it in an ag article, or if you see it in a financial article when they say brick like that, that stands for Brazil, Russia, India and China. And the reason why those countries are becoming more and more aligned, is because China needs Brazil’s production to feed their population. India needs Brazil’s production to feed their growing population, because now that the population is over 8 billion people, a third of those people. Gosh, 2.4, give or take two or 2.6 billion people live in India and China. And by in the next 15 to 20 years, they expect India to take over China is the most populated country in the world. And while India’s diets are certainly not as Western, and as meat based protein driven, as the Western diet, and where China is going with in between their hog hearts and their chickens and cattle and everything that they import from around the world, it is something that we need to pay attention to India is involved in this alliance, more by necessity than by choice, because they share a border with Russia and with Russia and China. And clearly you can’t, you know, be at odds with such large and powerful neighbors. So India is trying to be involved in in this BRIC Alliance, and India figures into this because they’re the only democracy, true democracy out of those three countries. And they are their true democracy elected president. And we are on good standing from a national policy support of their national policy, much more so than the US is with China or Russia. And obviously, we know that China and Russia would just wipe the US off the face of the earth and take over what was left. So when you’re talking about a growing Alliance, where a third of the world a third, more than a third of the world’s population, a demand base for your agricultural exports, and are all getting together, and you have very poor international relationships with them on the political side, it’s something that needs to be addressed. And that can only start in Washington, because they are going to we’re going to have to get getting a better position with China, because China at some point could use all of these billions that they’ve been investing in the infrastructure in Brazil and Argentina, they could get to a point where Brazil and Argentina not in corn, but certainly could get far enough advanced that China would need very little corn and beans from the US which obviously is a huge disruption. When you’re talking about you’re typically your best customer being able to go to someone else. So keep that in line. India does figure well from this standpoint, that we’re on good terms with them and If India can get some constellations and you know, improved relationships between China, Russia and the US, then we can get better moving forward so that we aren’t at the mercy of Brazil’s agriculture expanding, you know, even further year after year after year, but it time will tell, but it is something to keep in the back of your mind, because you’ll be hearing more about it as we move forward. Biggest thing, and this goes back to the interest rate that I’ve got two really good examples. What I want everybody to think about is are your bins, your friends in 2023. And if you look at the Chicago Board of Trade prices, for corn and beans, there is no carry in the market. And what that carry means is that they are not paying you say that, like the May corn contract is not a nickel higher than the March corn track contract, that would be the carry that they usually put in the market to give you an incentive to keep bushels on farm. But right now, it’s inverted to where basis is so good and front month futures are higher than back month that you really, they are trying to pull every bushel off farm and get it into the pipeline, because of the problems that the western Corn Belt faced this year. So with that, think about two different things. We talked about rising interest rates. And if you’re farming today, and anything of size, just call it starting at 2500 acres, it’s almost impossible to run that farm the way you need to run it without a million dollar line of credit. And that line of credit interest rate for simple figuring. Last year, the interest rate was roughly 3%. And this year, the interest rates 6% That 3% on that million dollars is another $30,000 of interest that’s coming right out of your pocket to pay back the interest. And you’re not gonna be able to hire you know, extra help buy new equipment, or lease or buy new ground, because that’s $30,000, you’re not going to be able to touch it’s gonna come right off the top. So the example I want to use is, if you have a been a 50,000 bushel bin that has, you know, corn, and you’re you could get $7 A bushel for that corn. And we’ve been able to get that, you know, depending on where you are, some people are above some people below, we’ll call it $7 for easy figuring, you could call the elevator and they would write you a $350,000 check. So that’s great, thank you very much appreciate it. Let’s say you go to the bank, and you have an exactly a $350,000 loan at 6% 6%. On $350,000 in interest is $21,000. We know that that interest cost is not going away. It’s it’s a fixed cost to you. And if you were to take that 350,000 and pay off that note, you would save yourself $21,000 Over the next year as opposed to that corn just sitting there and man is down even a little bit further than $21,000 on 50,000 bushels of grain is 40 cents. If you’re sitting there with bins full of grain, you are saying to the market, I made a 40 cent rally just to break even if you owe money. And when you look at it that way. That’s where and they’re years past couple years it’s paid handsomely to have storage and to keep bushels on farm this year right now it just doesn’t pencil out the interest expense. And the other side of it is opportunity cost because you can I got several emails today that I could get savings rates and even short term CDs at 4%. Let’s say you’re fortunate enough to operate an all cash operation, you have no debt. And if you do congratulations on that for great stewardship of your business through the years. But that $350,000 of corn sitting in the bank, you could easily take that 350,000 Put it in a CD or in a savings account and that 4% on $350,000 would be $14,000 that $14,000 On 50,000 bushels is About 20 A is exactly 28 cents a bushel. So one way or the other, if you are holding bushels on farm, and the example we’re using his corn, and the same math and the same ratios apply to beans or wheat, whatever you might have, you are telling the market are taking the chance that I have to have at least a 28 cent rally, and possibly a 40 cent rally just to break even for the luxury of holding this grain. So keep that in mind because it’s it’s just one of those years that your bans are going to be there for the convenience of at harvest, to keep you in the field and keep you moving. But they are not a long term investment of holding grain this year. Because with rising interest rates that that puts been storage space at a very expensive premium, even if it is on your own farm. So keep that in mind that that’s a lot to expect out of a market that certainly is struggling to develop any bullish trend at all. And if anything right now it’s in more of a neutral to bearish trend. Sa diesel has been all over the board lately. It has rallied from this 290 price that I mentioned in the example, the 290 price pretty tightly correlated with 72 $72 a barrel crude oil, and that 70 to $72. Barrel crude is important because the either the conversation or the memo got out that the Department of Energy and this current administration is going to bat back and refill the Strategic Petroleum Reserve in that 70 to $72 range when crude gets down there. When that got out, it immediately set a floor in the price. And we’ve not traded below $70 in quite a while since that was found out in the market. And where we sit now, because China said that when they do get reopened, they’re intending to import more crude and more basil and 23 and 24 than they did at pre COVID lead levels. So this is not you know, this is an absolute apples to apples comparison that you’re talking about strong demand before COVID. And they want even more of it, once they get the herd immunity in the economy reopen. So if you get a break on and what I’m talking about is on the March futures and be whatever the the front futures month is that’s not in delivery. Go in and talk to your supplier top off your tanks, because we know that OPEC would prefer the price to be 95 to $100 a barrel. And if for whatever reason, we do not have a world recession, China comes out of their recession and COVID quicker and the rate hikes stop, there will be a very optimistic outlook start to develop and where we’re trading at 280 $3 a barrel and $3.30 to $3.40 a gallon on diesel. We know how quickly diesel can get to $4 on futures and how quickly it can get you know well over $5 at the pump so keep that in mind there are some opportunities. Natural gas is another energy one because the UN I’d say warm but it’s you can’t call anywhere warm unseasonably not as cold as expected in Europe in the US to this point other than the Christmas cold snap. Natural gas prices plummeted because the US it was almost at seven and now it’s at three so it’s gone down over 50% And for those of you that dry your corn, whatever you do with your propane and natural gas, you do have some opportunities because the price down here is really low. I’m not as optimistic that it’s going to rally sharply out of here. But it is something that from a historical perspective if you use a lot of natural gas to dry your corn and your bushels your means that it might be a good time to look at hedging some of that because the price is certainly falling off board as I sit here I’m going to take the Better safe than sorry cautious approach and my general outlook is that I am more bearish beans but slightly bearish corn. Going back to the if we transition into neutral El Nino and we move into more production and have more world supply prices are gonna go down basic economic theory. Whereas with wheat, I’m more neutral bullish, because I still believe that as but when this war keeps grinding on in Ukraine, he looks at what happened to us and Germany are sending more tanks to the Ukraine for their defense, scheming that at some point, Putin is going to do something to disrupt what is has now, what’s now going on a very smooth flow out of the Black Sea port that you manage what the humanitarian export corridor, and if he backs out of that and shuts that down and takes the offensive to the to several of those ports, then you have something that we’re it’s hard to believe, a year, you know, we’re 11 months from the invasion, we saw wheat go from $7 to $15. And now we’re back, you know, under $7. And wheat is now 60 to 70 cents cheaper, while the war is still going on, than it was when the war started. So some of it’s hard to figure out, but predicting the unpredictable is always one of the fun things when you’re talking about a marketing plan. And certainly, you’ve got to think that there is going to be a disruption that Russia is going to get tired of toying around with letting Ukraine export their weight to bring in money to finance a war against Russia, and Russia could control the whole thing. So it’s, sometimes it’s a horrible thing that’s happening, but you have to look at it on how can affect price. And if we were to get a, you know, a quick dollar bounce out of that, something like that, then you would certainly see corn be pulled with it. And that and what were believe what we believe we’re going to see is continued like that, that goes back to the volatility. But you’re going to have spikes, Spike rallies, that only give you a very brief amount of time to price bushels. Unlike the long extended rallies that we had in, you know, 21 and 22, where you just kind of got on board and kept selling a little all the way up and felt comfortable doing it, you’re going to have to be prepared, you’re going to have to move quickly, you’re going to have to have sale orders above the market in with your buyers, whether it’s an elevator, a feedlot, a processor, whoever that is, because everything happens in Russia happens while we’re asleep. And unless you unless your elevator has a 24 hour call. And you’re going to watch the markets for that one spike and wait that drags corn up 25 or 30, you’re probably going to miss the opportunity. And I’ll give you the example right before Christmas. When one of the defense missiles landed in Poland, we went from 15 lower to lock limit up basically a 55 cent move in the course of about 15 or 20 minutes. But then when I found out that it was a Russian Ukrainian defense rocket, and not a Russian rocket in Poland, in a native country, wait immediately gave back every bit of it by the end of the next day. So you’re gonna have to be able to learn how to market the spikes, because that’s what we’re going to see in 2023. We’re not going to see, oh, I’ll wait a couple of days, see if it gets better. Because if you look back at price charts on these rallies over the, you know, since June, May, June, since we topped out the rallies had been harder to find and quicker to disappear. So that’s my advice. have sales targets above the market with your buyers so that you don’t have to get really lucky and be at the right place at the right time. With a phone in your hand to call your buyers. Jeff That’s about it. I will do the last photo was the last slide. In the newsletter that I publish. This is what I put on the second page that newsletter I publish goes out to over 7000 recipients in 33 states and a couple of different countries last time we checked and what we try to do is I will read 35 to 40 pages of information every day from all sorts of sources across the world. scuze me some of the sources you’re familiar with some of them you’ve never heard of, but what I’ve tried to do is get a really good idea and a broad picture, boil that down into the newsletter into a five to seven minute read to give you an actionable plan. It’s an education tool, we’re in the education business, we are not in the prognostication business or trying to, you know, pick absolutes on what the market is going to do. But if we educate everybody and educate ourselves, about the general trends, we certainly can do better. And I’ll always have standing sales targets, happy, always happy to put out my track record. Because what I know in the marketing game, I can look back and go, gosh, you know, that year wasn’t very good, or that was kind of a dumb move, or I can look back and go, Wow, that was really, really smart to sell, you know, to sell that even though I was it didn’t seem like it at the time. Because I know that everybody that markets, every farmer that has ever marketed his own grain goes through those same same emotions, and we’re very happy with our track record, I’ll put it up against anybody’s. And what I tried to do was have, like, you can see on the 22 crop we sold a little bit more today. Because like I said, I’m in the Better safe than sorry, a trend rather than the, you know, hopeful of a rally, and try to always look out and have the window of a couple, three years, because farming is, you know, a long term business where, you know, you’ve got 23, crops to plant probably still have a little 22 crop to sell. And even looking out when we make this transition and a couple months to bring our ideas about where 2024 Prices are, they’ll always be something in there to give you a little guidance about, you know, what we’re thinking. And what I’m worried about with old crop corn. And while I’m close to being finished, is the basis is going to start to fade basis has been so strong, that you got some you got some of the best prices of the entire marketing year. Well after harvest, better prices than you could have gotten in May in June, when the futures price was actually higher, simply because of the demand and shortage in a lot of areas. So but I have no problem trying to find a spot for a spike to be out of all of my old crop, simply back to the example I used that that money can be better used to pay off debt to stop that interest, or to invest it in a short term CD, right? And take it out of harm’s way from if these markets continue to go lower on improved weather in South America. And then on 23. Got started that 608. We lowered that. And we did sell a little bit today. I’m sorry, we had to put this slide deck together. And I’ve changed it since then. But if if you sold some December corn above, above YouTube’s at 590 or any rally up towards six, I think you’re really starting off the year in a good spot, I would have loved to have started at 625. But the drought in Argentina kind of scared me away from that, unfortunately. So that’s our outlook. That’s what we do. And I’m happy to be associated with Old National Bank and to be able to be here today. And Jeff, have you seen any questions pop up that we can answer?


Jeff Eizenberg  1:08:45

Yes. No. Thank you, Jody, thanks for that outlook. And one question kind of came in. And it’s also kind of Top of Mind with what you’re speaking about here is, you know, in general, two things. One is short term old crop prices, you know, we’ve got a gentleman, so he’s looking to know if we can see soybeans back up above 1502. On the on the front side of the curve. He says he stores them and is thinking about, you know, marketing and more in May or into June. I think the equation is straight there for you. You’ve said you’ve got interest rate costs that are out there that could you know, I just did quick back of the napkin, you know, 10 Maybe 15 cents in interest costs if you’re borrowing money between now and June plus storage costs, plus the fact that we’re starting to hide bases in most areas, particularly he’s mentioned he’s in North Dakota. So you know, there seems to be more risk in holding on then the going ahead and contracting but welcome your feedback, additional feedback.


Jody Lawrence  1:09:52

Yeah, that question is directly why I made the point about all the bins your friends because I think we’re just going into a period especially in to prepay when you can take advantage of some discounts and do some other things, right writing checks whether that you can definitely, you’re better off with cash in the bank and paying off whatever loans that you have. Because even if you just put it in a to 3% interest, it’s like you said, instead of begging the market to prove you, right, and rally so that you can sell it just to break even, it doesn’t make any sense to ever adopt that as a marketing plan. Because hoping the market bails you out, it leads to more heartache than it does to good times.


Rebecca King  1:10:42

Can I just add in something really quickly, that if you’re an old national customer, please talk to your old national banker. We do have some money market and some CD rates that I think would be attractive to you if you end up with that additional cash.


Jeff Eizenberg  1:11:01

Yeah, and that’s, that’s it, because you have to really write no, you have to search for those online rates. And then you go through the process of opening banks bank, new bank accounts, it’s much easier just to go to the bank. And potentially, like I said, I was hosting a podcast couple weeks ago. And I said, What CD what is that? You know, I have an old stack boom in my garage. But the reality is, it’s probably a good, good opportunity.


Rebecca King  1:11:27

Yeah, definitely a good opportunity right now.


Jeff Eizenberg  1:11:31

So get that. That’s one. And since we’re stuck with you, Rebecca, there was a question related to interest rate costs, and, you know, the function of is there a way to hedge interest rates? You know, maybe we’ve already gone through most of the cycle, but there still seems to be some upside. What are your thoughts on hedging? And how do we how do we engage that? So


Rebecca King  1:11:55

let me break this into two sections. If you really want to go out there into the marketplace and hedge your interest rates, you’re going to need to talk to a broker, it’s not something you can do through a bank. But if you have floating rate debt, and you want to hedge that by purchasing an interest rate swap and converting that to a fixed rate, that’s an all in rate for you, we can definitely talk to you about that. And happy to introduce you to our Capital Markets team, our, our lenders have familiarity with this, but they are the experts. So we would, you know, stay there with you every step of the way, and make sure you understood what your options were. So if it’s a bank or a loan related product, please speak to one of our relationship managers. But if you’re looking at hedging in the marketplace, that is going to be I’m gonna leave that in Jeff’s hands.


Jeff Eizenberg  1:12:45

Yeah, and I think just a comment related to the hedging and interest rates or fuel costs, which is another question that came in is, the first question is, how much are you trying to hedge? You know, are you dealing with a quarter million dollar note or amount of interest that needs to be financed or 10 million? And with most strategies, and same thing with fuel? You know, are you talking about 10,000 gallons or 100,000 gallons that needs to be hedged? And I think Jody would agree with me that you know, our philosophy is really never to go all in, you know, you’re really everything is incremental, you saw Jodi’s recommendations on his on the grain marketing, slow and steady wins the race, take advantage of opportunities, have a plan, trade your plan. And the same thing would apply to interest rates in energy you you know, if you have a massive amount of debt that’s coming due and want to protect that we can help if you using you know significant amount of energy over the summer versus your neighbor who’s smaller. And, you know, your your fuel broker in town is trying to sell you on just, you know, waiting it out. Listen, you’re in charge of your business. And we can help we can put some hedges in place to help you protect some of that risk. But Joe, did you have any more comments on that?


Jody Lawrence  1:14:12

Now, you know, that’s that just wipe it the same thing with buying what you need. You just inverse the way you hedge grain you love to sell rallies, when you’re selling your corn and beans and you loved about dips when you’re hedging your fuel. It’s you know, you just have to think in one big picture, that there’s always an opportunity when prices were low during COVID. You know, everybody kicked themselves for not buying, you know, $15 crude oil. And because we’ve already, you know, gotten over $100 Since then you could have been hedged for the next 10 years of use on farm with a couple of things like that, and there’s in so much stuff happened during COVID I certainly I hope we don’t get another pandemic. But it seems like we’re getting more and more of what we would call Oh, that’s a once in a lifetime event that’s a Black Swan. And they come so often anymore, that we’re getting great pricing opportunities on the sales side, and also some good purchase hedge opportunities on the low end, when things do break that way, and 2023 may be a year where we get both, because we’re, you know, as the world economy settles out, whatever may happen.


Jeff Eizenberg  1:15:33

Yep. Now, that’s a very fair assessment. But, you know, you know, overall, I think recap from today is that, you know, a lot of market risk out there. Last question that actually I came up with those. Make sure I’m doing the math right, your God, we’re saying soybean breakevens, around eight 100. Or sorry, yeah. breakevens. On 800. If you’re telling us yields might be 52. That means we need 1538. Price soybeans to break even, am I


Jody Lawrence  1:16:03

yeah, that’s where that 800 might be a little hard. Everybody should know now or be real close to what it is. But certainly where the cost where the price of beans is now that we’ve broken, you have substantially this week, even if you got a flat 1350 for it and your yield was 60, you’re still you’re still only $810 on you know what may be, you know, a full fertility program for that acre of beans. So in the margins on vein certainly have shrunk this week, to a point they’re not as attractive as corn. And with corn. You can you know, get fat at 590. Let’s take bait normal basis all 550 200 There’s your 1100. And if it’s costing you 1000, you’re making money, but it’s certainly not the three $400 An acre that we made in 21 and 22.


Jeff Eizenberg  1:16:59

Perfect. Yeah, thank you for that, because I just need to check myself for a second. But nope, this is this has been super helpful. And great. Rebecca, did you have any last thoughts or questions for Jodi or the group?


Rebecca King  1:17:12

Well, we just really appreciate the partnership with our CN. And Jodi’s expert guidance that he provides to us. In terms of questions, not really for today, but please feel free. I know you just put my phone numbers in the chat. I don’t know. Yep, there you go. Thank you. Yep, my numbers there. So please reach out to me. If you have any specific questions on the banking side, I can connect you with a relationship manager or I might be able to answer your questions directly. Keep in mind, you know, to make sure that you’re looking out for opportunities to learn more about marketing, such as this webinar. And please reach out to Jeff or Jodi, if you’d like to work with them or talk to them in, you know, in future.


Jeff Eizenberg  1:17:58

Absolutely. No, thanks, Rebecca, for setting this up. And including your group. It’s been great working with you and the team. And obviously, we had some nice live events in the last few weeks. So that’s been fun. I look forward to continuing those. And God we gotta wish you well wishes here in the snow and the, you know, the treacherous winter that you have, how many more meetings do you have this year?


Jody Lawrence  1:18:21

Oh, gosh, we’re booked all the way up to the end of March and my biggest concern because they start to get a little bit warmer, I will be a commodity classic. My biggest customer is Helen agri business and I’ll be hanging around there but it’s a commodity classic. So that’s an Orlando I get to go to Phoenix for another customer event. But next week we’ll be all over Central and Northern Illinois and southern Wisconsin and we’re looking at a bunch of single digit nighttime lows and you don’t live in Nashville for single digit nighttime loves. So if I can get by the by the end of next week without frostbite, I should be okay.


Rebecca King  1:19:02

That’s gonna be all right. On how to dress just let us know. Layers.


Jeff Eizenberg  1:19:09

Yes, if anybody would like to reach out to find out where God is gonna be if you can get out and see him, just send us a message or send me a message and I can get you his schedule. But other than that, I appreciate everybody taking the time. We look forward to doing this again with Old National here and God and keep people updated with what’s going on. So again, I was I’m Jeff Eisenberg. We had Jody Lawrence and Rebecca King. Thanks again to everyone have a great rest of your day.


Rebecca King  1:19:37

Thanks so much.


This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.

27 Oct 2021

Cracking The Cotton Commodities Code With Ron Lawson

The Hedged Edge is back, and we’re jumping into the thick of the commodity markets with RCM’s own King of Cotton – Ron Lawson. Cotton prices have exploded since the COVID crash, rising more than 236% from the March 2020 lows. While prices have backed off from the October 8th high, cotton is one of the purest supply + demand-driven markets around the world and has caught fire along with the global inflation bug currently running rampant across many commodity markets.

Will it be hedge fund influence in cotton that costs consumers more this Holiday season or will the continued logistical issues tie up cotton at ports send consumers scrambling to eBay for their “snuggies”? For cotton producers, merchants, spinning mills, and banks financing the backbone of the cotton supply, risk management must remain at the top of mind for the remainder of this year and into 2022 (as the current cycle is likely to continue to last for at least the next 12-18 months.) We’ll dive into the thick of it in this episode and more — Hold on to your hats and enjoy!

Follow CME Group on Twitter @CMEGroup  learn more about Agriculture Options and the new CVOL Index on their website here https://www.cmegroup.com/agoptions and here https://www.cmegroup.com/cvol. And last but not least, don’t forget to subscribe to The Hedged Edge on your preferred platform, and follow us on Twitter @ag_rcm, LinkedIn, and Facebook.