Corn has been trading sideways since the end of October and nothing from today’s USDA Report gives it reason to change course. The main news for corn has been the lack of news. Corn did dip 20 cents in late November but bounced back to the middle of the range it has been in around $4.45. In today’s USDA report they kept US production the same while raising the export forecast by 125 million bushels, lowering US ending stocks to 2.029 billion bushels. The global stocks number was also revised lower with production cuts to other countries, including Ukraine. While the report was modestly bullish corn will need some more news to leg up to the $4.60 range as South America is off to a great start.
Beans have tumbled off their recent highs as the rocket higher ran out of fuel and has been giving back those gains. The USDA left US production the same with an overall neutral report with no major surprises. Global stocks were slightly raised as Brazil, India and Russia offset tighter supplies elsewhere. With no news to turn this recent downtrend around the market needs positive China trade news desperately as that was the initial “news” to drive markets higher.
Equity markets have rallied from the November dip and are within a couple % of new all time highs. The markets are expecting another rate cut this week and would be surprised if there is not.
The wheat numbers were mostly unchanged and did not have any major news to change the direction of trade but could turn around on global trade news.
Drought Monitor
Here is the most recent drought monitor.
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 blawrence@rcmam.com.
Light at the end of the tunnel. After 14 sessions in the same range, the bleeding may have slowed for now. The longer the market goes without a buy, the closer it gets to one. This year, each buy was triggered by some type of announcement. For the remainder, the buy side picked off deals. Last week, January futures were only down $4.50 after experiencing a $27.50 range for the week. During that period, open interest increased to 10,500. Interestingly, the CFTC report is gradually catching up, showing a rise in fund shorts on October 28. My belief all along is that the funds are holding many more shorts on this one than in most past years. This indicates that the funds are aggressive on the downside and will roll, staying short. They have been correct for several years. That roll should become evident soon, especially as the holidays shorten trading this month. Low volume could lead to rallies off the roll.
This year, the market never had a sustained rally. So why is that? Why has the marketplace held sufficient inventories all year long? We are underbuilt, correct? Supply is getting reduced monthly, and demand remains steady. That has led to spikes, followed by selloffs of a greater magnitude. The market is acting as if the normal factors leading the market are changing. I have touched upon “outside factors,” maybe generating a different-looking housing market. I like the term “great reset.” It isn’t a new development in the industry but rather a reset or return to a former norm. So, what is the new norm? Extremely low rates allowed many to buy up relative to their earnings. Then you had COVID, which chased many, including me, to a safer environment. Today, it appears more like the older market, where the buyer’s reasoning or budget doesn’t prompt them to move. Have the newer factors changed, dynamics? Or maybe resetting. If true, the market will see A. more inventories show up as rates lower. Those sellers are not necessarily buyers of new homes under these circumstances. The buyers will start to see a normal 3-5% return on their homes, slowing their ability to trade up. And finally, more families will be choosing a forever home and not the “next step up” home.
There is a real demand issue in our market. Less supply will help prices, but the overall business is down and just may stay there. We have the BBB coming on Jan 1 to help some, but there could just be a shift in buying a home back to the norm.
Technical:
Last week’s points were 554.20, 556.70, and 562.50. Those are still in play. The chart pattern is a bottoming formation. The roll and year-end could help create a buy push. This has been a year of scaled-in selling. Always being early has been a good thing. It looks as if the $70 basis could now be a $50 basis. Again, reverting back to the norm…. It has been about 2 months since the market pushed through the 13-day EMA. It sits at 544.40. Last Thursday’s spike traded through it but then closed lower. Let’s see if the January futures will test it this week.
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.
The cash market remains weak. There’s no arguing that most items hold little to no value. It’s a tough environment, but for the first time this year, the issue is more about logistics than demand. Demand is currently steady for this time of year, but mills are in a phase where they need to clear out wood. Historically, the trade would step in, buy their first quarter needs, and store it outside to freeze. This year, the problem is that the trade has been very proactive in maintaining high inventories due to macroeconomic risks. Futures led the decline lower. Last week, there were attempts to bottom out futures, with a few bounces, but with a liquidating cash market, these are short-lived. We can’t determine when the mills are finished liquidating versus when futures have reached their bottom. All signs suggest that the market will experience a few more weeks of this condition. So what are the issues?
The mills cannot add value to their product. We have spiked a few times this year based on a reduction in supply fear. If reduced supply is the only way to add value, it will be a long, cold winter.
The industry is not responsible for maintaining the mill’s profits.
Underbuilt isn’t a real number in an uncertain economy.
It’s the economy, stupid. Lower rates mean higher unemployment.
2026 planning should weigh less on the current, an underbuilt, and less inventory story. The macro is so much greater. In 2025, there were numerous great hedging opportunities and numerous great cash buying opportunities. Stick with the small ball.
Technical:
The RSI has been back and forth from 35% to 15% for 5 weeks now. The slow stochastics are flatlined. We are sitting in the middle of a micro flat market, which sits in the middle of a micro flat market. Maybe a better way to define it is that today’s market holds few opportunities, which has been the case for 3 years now. I’ll save you a few therapy dollars. It isn’t you or your trading. It is really a very difficult market for the entire industry.
There is a lot of support in the 520’s. We will see if the holiday week turns the market.
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.
This market remains challenging. Last week, futures hit new lows almost every day, with all focus on the daily EFP deals. Most of the cash trades occurred at one mill, forcing the others to work hard to find value. This type of trade signals a bear market that is likely to continue. Throughout the year, the market has rallied because of the duties and tariffs, but without an increase in demand. Supply is tightening, but not at a pace to boost prices. We are waiting for signs of that scarcity. While we wait, there’s a large gap between the November expiration price and the January contract. These gaps are filled, but recent history shows it usually happens near expiration. The market typically gets a relief bounce before setting the lows. The issue today is the timing. We’re heading into a quiet period through Thanksgiving. We’ll see if the trade hibernates until then.
Technical:
Not that my writing isn’t confusing enough, I’ll try to beat it this time. There is a gap left from the September 2024 expiration from 499.50 to 493.00. Last week’s low was 496.00. That gap is finally getting closed. The elephant in the room is that now we have the Nov expiration gap and the older gap hanging over the market. The January contract settled on Friday at 560.50 with an RSI of 19.97%. Two takeaways: you can’t sell the January here, but your inventory is at a substantial risk over time. Macro: Hedge at $60, $80, and $100. Micro: When demand catches up, buyers will have PTSD thinking it is 2021 again. Buy cash or hedge.
This is the first time in many years that the risk is so evenly matched. There is a possibility of a $100 move in either direction. Hedge your risk! Your hedging dollars, if wrong, will be pennies per truck. If you don’t hedge and you are wrong, it will be bitcoins per truck. Hedging is a cost of doing business. Hedging is a medical insurance policy. Hedging is a production builder. For the mills, hedging is a paying customer who pays the next day. Hedge your risk and sleep better.
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.
Corn’s Thursday rally was met with a post report Friday dip and gave up 10 cents back to $4.30. Despite the late season crop problems of drought and rust, the USDA did not find the corn yield loss that was expected and came in with a 186 bu/ac estimate, higher than the trade estimate. With higher production came higher US ending stocks, but those were not raised as much as yield as corn exports and domestic industrial demand has been exceptional this fall. The chart still looks constructive, but after a 30-cent rally in one month, the market will look to take a breather, especially after today’s report.
Beans have been on a great run higher, albeit with some volatility, until Friday’s USDA report. Coming in that hot to a report can lead to a let down which we saw to some extent. The bean yield numbers were not as surprising as corn, coming in close to estimates, but the market still took a hit. The number to look at was the US held bean imports to China unchanged at 112 MMT for the 25/26 marketing year. A flash sale report did show sales of 1.1 mbu to China around the time the trade deal was in the works. The delayed data is hard to fit with all the other news out there but China buying anything is a good sign.
Equity markets have been volatile the last few weeks as worries of an AI bubble continue and several large companies such as Palantir, Meta and Oracle are well off their 52 week highs. Volatility will likely remain in the market for a bit as we will get caught up on economic data that was missing during the government shutdown.
The wheat numbers were bearish as domestic and world stocks continue to climb on record world yields in all producing countries and exporters finding exports difficult to come by even at rock bottom prices. Wheat will remain an anchor on corn rallies.
Cotton adjustments show 900K more bales of US production, 200k more bales of US exports, and 700K more bales of US ending stocks compared to September.
Drought Monitor
Here is the most recent drought monitor as harvest rolls on.
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 blawrence@rcmam.com.
“It’s the economy, stupid.” Remember that wise response to a reporter’s question many years ago? After another muted reaction to another shutdown on Friday, I’m worried that it is a much bigger problem than rates and home prices. I keep going back and forth each month, wondering if there is something wrong in Mudville. With a continued contraction in supply, rates nearing 6% and flat employment numbers, one would expect some upside anxiety. The raw data has pointed to a better marketplace for about three years now. We are consumed by a flood of data that has repeatedly been proven wrong about the market. Lumber prices have been held artificially high by the duties and tariffs, not because of a better demand equation. That scenario has pushed the producers back into the red numerous times this year, with the buyers “good dealed” to death. Today, the 2026 first quarter decision is to either add more cheap wood to the pile and watch it sit for months or hold off. Some of the prices talked about on Thursday and Friday tell me the cash buyers are on the sidelines. Data shows that the mills cannot continue to lose money at this pace. My argument is that determining pace has to include the millions of dollars they made post-COVID. Factor that in, and it may show their ability to hang on for longer than we think.
Futures trading is rather easy. In premium markets, you basis trade. In discount markets, you forward price. In premium markets, you should also hold a higher percentage of futures to cash. The opportunities are in the items and species that are undervalued compared to the historical norm. Today, we can’t define value, so you are buying undervalued products and selling a high premium futures market. A. it allows you to hold more wood because it is hedged, and B. is an opportunity.
Finally, momentum has been generally down in lumber this year. We did have strong rallies, but they were based on shorts covering off of news. Absent that news, the market is always seeing selling. That selling is computer-generated, but all the same, it is momentum. Create true upward momentum, and the algo switches sides. Not today….
Technical:
The futures low was $516 in 2025. That’s the focal point this week for November. If the market can’t break $17 in 5 sessions, then we have a positive. The RSI in January is 24.50% which is a higher RSI than the last time we were down here. Jan is trading near its lows but is no longer oversold. The slow stochastics have crossed back into negative territory. The technical read is for a wallow around the bottom, not a big selloff.
At 1452, the November open interest is normal. The US government is no longer shut down. I’m not sure anyone noticed. That could be another economic indicator of a larger problem.
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.
It was another tough week as futures continue to decline. January futures are down $88 in just two weeks. This decline is scaring away all buyers from the cash market. Last week, the only activity was EFP’s layups. The market is showing signs of a shrinking business environment, even as reports still indicate steady sales. The main issue worsening the trade is inventories, which remain the key focus. Things have returned to a new normal pace. The slowdown occurred months ago, and the market is now settling into a slow rhythm. Once pipeline inventories decrease further, conditions will tighten again. Meanwhile, we are heading into a season of heavy holiday shutdowns, just as shipments from outside the US are slowing down. This situation resembles last year, when the market struggled most of November and December before turning up. Last year, we feared a reduction in supply caused by duties and tariffs. This year, we must be concerned about their actual effects. On Friday, I saw a 5.65% rate for a 15-year loan. Additionally, shipments from Canada and Europe are dropping. While these factors alone don’t resolve the housing market slump, they are moving in the right direction to help reduce producers’ losses.
Open interest was growing as the week came to an end. We are back in an area where the short funds add to their big winning position while the industry adds to their long position. We don’t get a CFTC report, but it would be the norm. Watch the open interest in November. It is holding over 2169 contracts with 10 sessions left. There is always a lag with the funds offsetting trades, so I’m not looking at it as important just yet. We also had the same open interest dynamics building last year at this time. There is a lot of deja vu on this one.
Technical:
January ended the week with a 19.40% RSI. It came into the week with a 34.60% RSI. It was off 1 to 1. Technically, the market is oversold. While not a perfect science, it usually isn’t off by more than a few days.
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.
Corn has continued to trade range-bound between $4.10 and $4.30 with a nice recent run to the top of the range. Follow through buying to push towards $4.50 will be needed as harvest heads toward a finish and the large supply coming out of the fields. All crops got a boost after positive news from Secretary Bessent over the weekend saying China will be buying US soybeans (and assume other commodities as well). The market still has downside risk with a large US crop and global economic issues that for now are not flashing major warning signals but the market has been recession warry since the tariffs went into place in April.
Beans continued their recent rally with positive news on US and China trade relations from Secretary Bessent. We will need to see these soybean purchases from China come to fruition without any more escalations that could put this progress at risk. With the continued Government shutdown the lack of information to trade from the USDA will make private reports the main news.
Equity markets continue to move higher after a recent dip as Gold has fallen off its recent highs but equities, lead by AI and tech, continue to climb higher with 2 months left in the year.
Cattle futures have fallen quickly off record highs as question marks around the USDA and white house about how they want to address high beef prices continue.
Cotton remains quiet with no major news to get it out of the mid 60 cent range.
The government shutdown continues.
Drought Monitor
Here is the most recent drought monitor as harvest rolls on.
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 blawrence@rcmam.com.
What is the definition of insanity? Hoping the market will rise to get a better hedge in place. That’s where the trade was coming into last week, only to see the market give back over two weeks of gains in a few minutes. What made it worse is that the market continued to decline for the rest of the week. The January contract settled at 619.50, which is still a good place to hedge, barring any shutdown announcement. The fundamentals point to a well-supplied pipeline. This is early in the cycle and will need a pickup in demand to clean it up before going into the first quarter decision time. There is nothing out there to indicate that possibility. What is more likely to occur is more shutdown news. That will increase the buying patterns. The issue is that you are just throwing more wood on the pile. It still needs to go out the door. A substantial announcement tomorrow would spike prices but then end up being bearish.
The January contract at $600 equates to $490 mill. The mills have no choice but to find ways to lessen their losses. That will keep a slight premium in the market. $600 January might be a good support area with the current dynamics. There would have to be some undefined issues in housing lurking to think we are going back to last year’s lows.
Technical:
The good news after last week’s debacle is that the January contract broke through the 61% retracement area of $618.20 and then closed above it. That isn’t a glass-half-full statement; rather, the glass has a few drops left in it. Fridays are tough to gauge. More rumors were swirling about potential shutdowns, which could have prompted added short covering late. Whatever the case, we will see direction right off the bat tomorrow. The downside momentum is in place. It will start again when the bell rings. If not, the market is in correction mode.
This is a tough time. The spread is indicating that the November expiration will be weak. It will be hard to build a bullish case in January with a Nov heading towards zero. You have three weeks of rumors and November selling in front of you.
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.
In this episode of The Hedged Edge, hosts Jeff Eizenberg and Ben Hetzel dive deep into the heart of agricultural markets with special guest Fred Seamon from CME Group. As harvest challenges mount with record-breaking rainfall across the Midwest, the conversation spans centuries of market innovation—from the early days of Chicago’s grain trade to cutting-edge futures contracts. Fred shares fascinating insights into the historical development of commodity exchanges, explaining how farmers went from local merchants to global market participants.
The discussion explores critical topics including harvest logistics, railroad transportation, the evolving role of the USDA, and emerging market tools like the new fertilizer futures contract. Listeners will gain a rich understanding of how technological advances and market innovations continue to transform risk management for producers. Whether you’re a farmer, trader, or agricultural enthusiast, this episode offers a comprehensive look at the complex ecosystem of agricultural markets, blending historical perspective with forward-looking analysis.
Packed with expert commentary, practical insights, and a touch of humor, this episode is a must-listen for anyone interested in understanding the intricate world of commodity trading and agricultural economics.
Check out the complete Transcript from our latest podcast below:
Harvest, Hedging, and History: Navigating Agricultural Markets from Grain Elevators to Futures Contracts
Jeff Eizenberg 00:57
Welcome to the next episode of The hedged edge. I’m your host, Jeff Eisenberg, and I’m here with my co host, Ben Hetzel. Ben, it’s almost big game season, and we’re talking waterfowl. What’s been going on? You get out any hunting yet?
Ben Hetzel 01:12
No, I haven’t. My my boys like to shoot some birds. I don’t mind going out a little bit. I much prefer to shoot the clay version, because I don’t know, I just, for some reason, I’ve always kind of grown up with the idea that if you’re gonna hunt
Speaker 1 01:28
wildlife, you have to be willing to eat the wild game that you hunt.
Ben Hetzel 01:33
And I’ve never been a real big fan of game bird, so I didn’t, we didn’t shoot a lot of them when I was a kid. So, but my boys like to hunt, and it’s a lot of our family hunts, so it’s, it’s just good to get out. But yeah, we’re coming up on, there’s, there’s tons of people out there along the roads, and sometimes not the safest practices going on with vehicles on these country roads. But definitely got bird season going on and and big games coming right around the corner, and that’s kind of what we do. We we enjoy that a little more, I’d say. So we’re excited.
Jeff Eizenberg 02:12
That’s good. Now, with all the weather we’ve had all the wet, rain and whatnot, that’s good for birds. Yeah,
Ben Hetzel 02:19
I mean, it’s, probably all right. In general, it’s good to have moisture versus drought, obviously, and it’s been crazy. I’d say this year has got to be right up there with a record for a lot of places. I hear producers talk across the trade area that they are at record levels. And when you have thunderstorms, they vary and that sort of thing. But it’s been an unbelievably wet year for this trade area, Southwest, North Dakota, Northwest South Dakota. I seen a visual on kind of the percentile, and we’re at like 150% to normal, is what our little area of the world showed, particularly right around where I live, near London, and so yeah, it’s, it’s good, but yet challenging at times. Harvest is slow to come off. These row crops are ready in a lot of areas, and harvest is definitely moving forward, but we see fields that are ready to be cut, fields that are cut. So it’s, we’re in the midst, and I know a lot of guys are anxious to get get everything out of those fields, especially when you got you know, we’ve had some high winds, 60 mile an hour us, and so guys are nervous about some of these row crops starting fall down or whatever it is. But again, the wildlife sure enjoy that cover. So more harvest that gets done makes it easier on the deer and antelope hunters, but it’s that season. Yep.
Jeff Eizenberg 03:52
And speaking of harvest, where, where are we in the process now, from the elevators perspective, you guys filling up, starting to put up any grain piles? What’s it look like as you’re driving around?
Ben Hetzel 04:04
I don’t see too many piles. You know, out here, we do a lot of grain bagging, past how that’s managed. Wildlife can be a challenge, especially in a wet year. No, you were curious of how that all kind of works. But for the most part, the bags are fine, unless wildlife get on them and start popping holes in them and then have some serious problems. But a lot of people manage them real close. Now, you know, there’s been some train wrecks on bags, but, yeah, it’s, there’s a there’s a fair amount of bags around, and guys were moving a little bit of small grain. A lot of canola has been moved. So I think there’s places to go with some of this row crop harvest, but we’re getting pressure all the time to continue to make space, pretty hard to keep the flax and the peas and the canola and the wheat, all that stuff moving because they want to try to market their corn and. And some fires as well. And so it’s been a real battle. Railroads kind of slipped a little bit. It’s gotten a little bit late on placements, so that’s a challenge as well. But it hadn’t been too bad, and I wouldn’t say we’re way behind. You know, seasonally, it’s not uncommon to expect some delays, but it’s it’s starting to show up a little bit more now, as corn harvest is ramping up in the east and and on the railroads defense, this soybean crop didn’t move like normal it was a non traditional flow for them, and so that they actually, I think, adjusted about as well as you could ever expect a large organization to shift their assets, and fortunately, it’s a smooth move to the Gulf. It’s not quite as smooth for us up here as going to the P and W, but that flow isn’t a bad flow, and so the railroad can do it fairly efficiently. And so that’s a positive. Unlike the Mexico market, where we can bottleneck the border and some of that stuff, and there is, there’s some congestion going on there. We’re hearing trains are getting held up across the border, slow to come back out, and so that is affecting some of this. But that’s just a volume issue, which is good. I mean, Mexico has been a great trade partner. We’ve talked about it on our podcast. People that tuned in to one of our earlier shows learned a lot about what’s going on with US and Mexico, and I think that’s key going forward still. But, you know, maybe we’ll get into a little bit of it today, on the rest of the world and what’s going on. There’s lots of news this last week that kind of rocked the market. China’s still obviously a big topic. So if
Speaker 2 06:52
you want to listen back to this episode or find past episodes of The hedged edge, visit kbjm.com or kndc radio.com under Listen Live and podcast options, or either station’s free mobile app under podcasts.
Jeff Eizenberg 07:08
Yeah, that’s a great segue. And yeah, I’m excited here today, we’re going to bring on a special guest that’s got a ton of history and experience in the markets, and take a look back in memory lane and understand what the importance is of the exchange, is how the exchange ultimately helps us to manage risk, and a lot of that comes down to understanding the history and how things flow, how trade flows, and how traders are able to manage some of the things you just talked about, people Bringing more crop to town than possibly in years past. How the rail systems could potentially slow down movement of grain from Southwest North Dakota down through to the Gulf, etc. So with that, we’ll take a minute here and introduce our guests. We have Fred Seaman joining us from the CME Group. Fred is with us, right out of Chicago, been part of the exchange for the last nearly 25 years. So welcome Fred.
Fred Seamon 08:08
Thank you, Jeff. Much appreciated. Really glad to be here.
Jeff Eizenberg 08:13
No thanks for jumping on this exciting for me, you and I basically have been involved in Chicago markets about the same amount of time you’re saying 2001 for you, I started out working at the Board of Trade, and in 2000 you know, our paths have kind of meandered, but we’ve never crossed until today. So this is exciting.
Fred Seamon 08:35
It’s amazing that we haven’t, but I did. I started in late 2001 and had been teaching at the University of Wyoming, so it was quite a change for me and my wife, but definitely haven’t looked back. It’s been the best job I’ve ever had by far.
Jeff Eizenberg 08:53
Yeah, you can’t beat the exchanges. The history goes back over. I think, I believe, 150 years, you know, the way in which they started out being Chicago, the center of the agricultural world, and the river and the rail all coming in, and now, now today, to be the place where innovation is happening, left and right. You know, the the thing that stands out to me, I think people miss and I always ask farmers that I meet, I ask elevator operators that I meet. Have you been to Chicago and have you seen the exchanges? And unfortunately, they transitioned away in our career, time from the pit traded. But I would love for you to help everyone remember the the training coats, the greens, the yellows, the blues, kind of the vibe that Chicago used to have.
Fred Seamon 09:46
I’m so glad that I got to witness peak four before, you know, it started to decline. And you know that did occur during my my tenure at the exchange. I. And, you know, it’s, it’s, it’s all electronic now, but you know that was, we got into a commodity boom in the, you know, early and mid, 2000s and you know, you would get really, really busy days. And I would hear from merchandisers, you know that, you know, they would, it would take some period of time before they would get confirmation on fills. So as efficient as the floor was, and it was extremely efficient, there’s a lot of things the floor did really, really well, but the markets had just grown to a point where, you know, the electronic screen just became, you know, the choice when, when we did start having daytime, electronic trade, the choice of most agricultural traders, and it started to to evolve away from the floor. But, you know, a lot of what happened on that floor is still relevant today. It’s just how we manage, you know, and how people enter and execute trades has changed. That’s all. But the underlying reason for them, the markets are still the same.
Jeff Eizenberg 11:10
Yeah, that’s That’s right. It’s a place to discover price and also manage risk. And the reality that the hedging community is what the exchanges were built for. Is so important for people understand it was built for hedgers, the speculators came in to provide liquidity. And today it’s a global marketplace that trades 24, six, effective, yeah. Well,
Fred Seamon 11:37
you know, it started as a spot market. If you go back into the 1840s you know what happened is, you know, everyone knows the US started 13 original colonies on the east coast. But as it started to expand westward, it didn’t take farmers long to recognize that they would rather farm ground in places like Ohio and Indiana and Illinois than they would Massachusetts and New York. So agricultural production moved westward, but most of the people were still in the east. So at harvest, you know, you’d have all these farmers bringing all of this grain into the major cities, Chicago, being one of them. And you know, they would try to find a merchant who was willing to buy their grain to, you know, arrange for it to be shipped back to the east where it would be consumed. And you know, some of those merchants were legitimate, some probably not. And you know, the the idea, did all producers get equal treatment? Well, probably not. So the exchange actually started. Well, there’s a few things. You know, the Board of Trade was a an organization that was started to promote commerce in the city of Chicago, and grain trade was one of those things. So, you know, their their first idea was just, let’s have merchant members, and let’s have them congregate in one place, and then, you know, a farmer can come to that one place, the members have been vetted, so, you know, hopefully they’re all legitimate, and something that we take for granted, but was real powerful at the time, was every time there was a transaction, they would post the price, so that the next farmer that came along probably wouldn’t receive the Same price, but would get an idea of the value of what they were, you know, selling, and that was the start of the exchange. It was just a spot market. Need to fall from there, eventually becoming forward contracts, and ultimately futures contracts in the 1860s that didn’t ultimately succeed, but corn, wheat and oak futures all launched on January 2. 1877 have existed continually since. It’s
Jeff Eizenberg 14:17
quite the history it is.
Ben Hetzel 14:19
It’s really kind of wild when you think about farmers and ranchers moving their goods far as they did. You know, I’ve got my aunt was going through the attic of the farmhouse where my grandparents lived for all my life anyway, and most of my mom and her siblings, but they found boxes of old receipts or tickets from when they would haul calves down to Sioux Falls, South Dakota. And mean to drive that today is a trek. I mean, it’s a six and a half hour drive. And to think back then they loaded their calves up and. The wagons and shipped them down there, or they took them in when the railroad came through, they took them in and put them on the rail and down there and sold them. And it’s just crazy to think of the dollars that they were transacting compared to what we’re transacting today. And of course, was cattle at all time highs. It’s just unbelievable. That journey that them, people went on to move that grain or those cattle was remarkable,
Fred Seamon 15:28
absolutely remarkable. And one of the things, Jeff, I think you, you mentioned, was about innovation and the farmers, indeed, the effort that they took to bring grain into the city, and then, you know, you got the railroads and so forth. And that certainly evolved. But, you know, transportation into the major merchandising points. But a couple of the innovations that occurred at the exchange early that we again take for granted, but it just completely revolutionized how grain was traded. Two of them were a system of grades and sampling. There wasn’t a USDA then, so a way to be able to differentiate grain so that it could be commingled in a grain elevator. And the first grain elevator in Chicago was was built in the late 1830s so the ability to commingle grain, and then the idea of receding grain within a facility, so that you could trade grain among multiple parties without it having to move to the multiple parties. It could just sit in one location, and you could just trade ownership of it. And that really revolutionized grain trade. And actually the center of grain trade in the Midwest. US moved from St Louis to Chicago because of those, those innovations, I
Jeff Eizenberg 17:08
think that’s really important for people to understand, is that the exchange has continued to evolve to support the farming community. It’s something that has been exciting the whole way through that, the point then became the delivery mechanism, right? Because that, I also believe is important to have multiple delivery points, of which the grade and quality is standardized. Was that the exchange that drove that? Or how did that come about?
Fred Seamon 17:35
They did and of course, there’s some great stories of shenanigans that went on along with that. But, yeah, a system of grades and a system of grading as well. But as you can imagine, when you know the Registrar of the exchange, the person that’s signing their checks, is a member of the change that also runs a grain elevator at the same time. There could be, from time to time, pressure on that exchange staff member to, you know, look one way or another when it came to grading grain. So at some point, the state of Illinois stepped in and said, enough of the shenanigans. We’re taking over. And those processes have existed at the government level, rather than the exchange level, for most of our existence. But did start at the exchange that’s
Ben Hetzel 18:39
kind of wild, because you’re talking like 1830 in the USDA started 1860 or Yeah?
Fred Seamon 18:47
Is that? Yeah? I think, I think that’s right. And it’s interesting. It was the 1860s when the state of Illinois took over inspection. So that was part of the learning process as things move from exchange regulated to state regulation and making it sound like the board was the Wild West. In some ways it was. But what they did and how, you know, they brought about organized trade. It definitely was a positive. You just anytime you have human beings and trade, there’s always going to be those few that are going to be looking for ways to benefit. So there definitely were some shenanigans.
Speaker 2 19:40
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Ben Hetzel 19:57
You can a wild west. Jeff, you’re I know you’re. Dying to jump on this. We have no government. USDA is not giving out reports.
Jeff Eizenberg 20:05
That’s right, that’s right. Ben, and that’s the part that he’s mentioned, the USDA didn’t exist back when the exchange started. The USDA effectively doesn’t exist today, because we don’t have a government operationally. And so you start to ask yourselves, the question is, how are we going to advance the needs that we have today for information without the USDA? And I’m going to go ahead and pose the question, do we even need the USDA anymore? After you know the innovation that could potentially happen as a
Fred Seamon 20:39
result. As of right now, we do, especially on the livestock side, feeder cattle is settled to our feeder cattle index, which is all based on USDA reported feeder cattle sales in the country and direct reports. We also use USDA reports for doing differentials in live cattle deliveries and lean hogs and pork cut out is all under mandatory price reporting. So one of the big things when you see a government shutdown coming, you know we always want to know is, is AMS market reporting going to be affected or not? And some of this, the shutdowns, they’ve been considered non essential, and those reports didn’t come out, and the exchange had nothing to to settle against. And other times they were deemed essential, and the reports continued to flow. Luckily, this time, the reports continued to flow at this point, so we haven’t had an adverse effect. And then on the grain side, you know, just having USDA price reporting adds additional trans transparency in the countryside relative to Chicago. So I think, you know, that’s a benefit to all. But, yeah, I mean that it’s we still rely pretty heavily on USDA, whether it’s for livestock settlements or for transparency when it comes to grains and oil seeds, and I should mention dairy too, that all is USDA based reporting as well. So we’d hate to see USDA go
Jeff Eizenberg 22:37
anywhere. Okay, so we’ll give them a break. They need to exist. Let’s get this government shut down, taken care of, and get these people back to work. Shifting gears a little bit, though, but similar topic, I do want to ask the question is from a research perspective, and as you start to think forward about news and information, you know, we’re having so many new private companies that have entered the market. We have private companies like stone X and many others that have existed over the years, and new ones are entering the marketplace for research yield updates, and we’re getting information from China and from Brazil, and you get all these questions of, How reliable is that data? How reliable is our own data? Are we going to eventually transition to a spot, kind of like when you and I were at the exchanges and the pit trade had existed, it was kind of slow. You mentioned it. People didn’t always get reported their trades in a timely manner to now it’s microseconds. Do you feel that perhaps, maybe even this government shutdown accelerates this but that we get to a point where the information is more real time and we rely on, call it an exchange of information, to truly understand where we are with yields and stocks and other things like that. Oh, I
Fred Seamon 24:04
feel for certain that we’re going to see incredible amounts of change going forward. The technology is just improving every day, right? And satellites, cameras, the I’m not one of these people that, oh my god, AI is going to replace people. I don’t believe that, but I think AI is going to be a good kind of first step for analyzing all of these data, and then people will ultimately, but it’ll be a massive amount of data that will come in, and the AI will make it manageable for a person to evaluate. So I think, yes, we will continue to see evolution, both in private companies, but also, I think at the USDA as well. We were just at an event at West Texas and a live cattle event. And, you know, some of the interesting things that they’re working on from that front. So I think there will be that, that evolution, and you will see a lot more data available in more real time or near real time, as we go forward. And that’s important. You know, one of my jobs at the exchange is new agricultural products. You know, me and my team are responsible for designing new agricultural futures contracts. And, you know, back in the floor days, and historically, that always meant physically delivered, right, you know, and that’s still the gold standard, don’t get me wrong. But bringing a physically delivered contract to market, you know, designing a delivery mechanism, getting firm signed up for, you know, participating in that. And, you know, it takes a lot of time and a lot of effort to do that, so the cost to bring a physically delivered contract to market is pretty high. So, you know, you’ve got to have, and again, it’s the gold standard. You would still do those, but you’ve got to have a lot of really strong supporting economics for the exchange to make that investment. But you have a lot of these, you know, firms, USDA data, but also, you know, price reporting agencies that are assessing, not just reporting markets, but assessing markets. And one of the areas that you know, we’ve had growth is the ability to bring cash settled contracts, based on these assessments, to market, and they’re a lot cheaper to bring to market. So things that historically probably would have never seen the light of day of a futures contract. The calculus is different just because the cost and the effort to bringing it is is there. So you know, that’s another area where we see a lot of evolution.
Speaker 2 27:10
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Ben Hetzel 27:22
Yeah, and I think one, one to call out that I recently learned about is the new fertilizer contract, the 10 ton, yeah, you know, I think that could be valuable. And there’s tons of arguments about size and and what the perfect fit would be, and is it more of a producer contract, or can commercials utilize it effectively and but I think it speaks to the innovation and some of what you’ve you’ve touched on today, and I think part of the challenges is promoting it and getting it utilized so that there’s plenty of liquidity and and and again, being cash settled makes that a more appealing situation.
Fred Seamon 28:05
Yeah, that’s been, you know, we’ve had fertilizer contracts for a long period of time, but they’re more wholesale directed contracts. And the idea was, hey, you know, could we package one of these and aim it more at the producer level. And that’s where the 10 ton came from. You know, the 10 ton urea. Let’s get some market makers involved. So there’s a good two sided market. And, you know, let’s put it out there. You know, that’s a major cost point for so many producers. And you know, a real inability to, you know, other than forward contracting. And then, you know, the elevators being able to have a tool to use. What could make better forward contracts to producers as well. But why can’t we do something at the producer level with respect to fertilizer, and this has been our first test case, and, you know, we’ve seen some uptake to it, so we’re still optimistic about it, but, you know, an idea that can certainly expand, you know, as we go kind of down from the wholesale level To the actual producer level with respect to fertilizer,
Ben Hetzel 29:22
I think every producer that that I deal with out here really recognizes the benefit of having a futures backed commodity with, you know, contract, because you take sunflowers and peas and and some of those type of products. A lot of the pulses are all the pulses, basically. And, you know, sunflowers can be really challenging to market, because there’s really no that gold standard you talked about having that backed by those contracts and and so thin markets. Obviously, the volumes dictate what, what? Makes sense to bring to market, but I think we all can really step back and realize that there’s a ton of value in and what’s what your company, the CME Group, and others, are doing, to bring these contracts to to the producers, or to the commercial side, or investors. And so I really, I think that’s a take home for people listening. Is this, this is a valid tool, and it’s been around a long, long time. It’s, it’s battle tested, it’s, it’s evolving still, and, and those are all great things, but really appreciate your insights. That’s that’s been fun to listen to that history, too.
Fred Seamon 30:40
Oh yeah, no, glad to share those things. And you know, that’s, that’s why we’re here. And, you know, I spend I’ve been here, you know, coming up on 24 years, and one of the big things for me is, you know, just because something didn’t work in the past does not mean that it won’t work in the future. So, you know, at least I, and I encourage my team to also not put on blinders. And, you know, it’s okay to evaluate something that maybe we tried, you know, a decade ago, 15 years ago, maybe the timings right now. So we work really hard to be non biased, and we are definitely customer driven, that’s for sure.
Jeff Eizenberg 31:29
Yeah, and we appreciate that tremendously, Fred. And you know the people that are listening here today, you recall the reason we brought this podcast on the radio and into the community and are taking taking your time and creating your time to listen is we want to focus on the importance of risk management and around producing crops, whether it’s corn, soybeans, wheat, you name it, trying to focus on helping people make the right decisions, forward thinking on how they actually are planning to sell and market their grain. And none of that exists without the exchange. And the exchange, again, the word innovation and willingness to continue to support the local communities. So for those that are that are listening, if you, if you have ideas of products that you’d love to hear or see. You can call us, you can text us, you can email us, and we’ll we’ll send it right out to chain to Fred. So the other way is obviously check in with Ben over at Scranton equity Co Op, and you know he’ll be able to explain all the different products that they use today, futures, options, some of the OTC solutions. And again, reminder, as we wrap up harvest and head out into the cold months that none of us want to talk about, that you still have grain in the bins, and we need to figure out the best timing to sell that, of course, but always think there’s opportunities to hedge manage risk and just put an offer out there to see if you can get something done. So thanks again to everyone who’s been listening and sharing their inputs, and thanks to Fred and Ben dear for all your time. It’s been a great it’s been a great week.
Ben Hetzel 33:19
Yeah, thanks Jeff, and thanks again, Fred, for bringing those insights. Good visit.
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