Odd Lots - This Year's American Wheat Harvest Has Been Awful

Episode Date: June 6, 2022

There are numerous macro factors driving elevated inflation. But in some categories, there also seems to be a lot of bad luck. When it comes to the US wheat market, the weather has been awful. After a long drought, farmers have been faced with an extraordinary amount of rain. As such, the spring planting season has been one of the worst on record. Of course, this comes amid overall bad conditions, with prices already elevated, owing in part to Russia's invasion of Ukraine. So to understand more about what's going on for farmers, we spoke with Angie Setzer, a co-founder of ConsusROI, which helps farmers make planting and hedging decisions. See omnystudio.com/listener for privacy information.

Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing

corporation distributor. Thanks for listening to All Thoughts. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, All Thoughts on Amazon Music. moves fast and when you need more room XYZ storage is here whether you're moving decluttering or just need extra space clean secure units are ready when you are students heading home or switching apartments between semesters save 50% off your first three months make space for what's next visit xyz storage dot CA and welcome to another episode of the odd lots podcast i'm joe wisenthal and i'm tracy alaway Tracy, you know, obviously when we talk about inflation, which we talk about all the time, a lot of the conversation. A lot, yeah.

Has to do, of course, with the macro, monetary policy, fiscal policy, the compensation for years of underinvestment in key commodities or key industries. But it really does seem like in some areas, I don't know if luck is the right word, but there are some areas where things are contributing to, shortages that do seem like sort of like bad luck and not necessarily related to the economic cycle directly. But here's the thing. So yes, I agree with you. But it feels like that bad luck just keeps continuing, right? It feels like we've had a number of specifically commodities at this point in time where we talk about, oh, a perfect storm of factors have come together to drive coffee prices higher or wheat prices higher or soybean prices higher or whatever. And it's always sort of different factors. Some of them have an underlying thing in common, which would be the

weather. But it just seems to keep happening. And I guess, yeah, it's weird. And I guess it makes me wonder whether or not there's something structural at play. Like maybe when it comes to certain commodities, something about the market is just less resilient than it used to. No, You're totally right. I think back to 2021, we probably had a number of episodes. We're like, the perfect storm in this or the perfect storm in lumber, the perfect storm at the ports. And it's like if you keep having perfect storms over and over again, A, maybe they're just normal storms. And B, they might reveal something underlying that maybe about the market or about the underlying good that it doesn't take much to wind up at a perfect storm. Because perfect storms aren't supposed to happen all the time.

Exactly. It pains me to quote to Lebb, but maybe there's a sort of anti-fragile thing happening here. But I think we should dig into this, right? And I think we should look at a specific crop or commodity that has experienced a perfect storm last year. And we talked about it back then. And I think the title of the episode was actually a perfect storm for this particular crop, which is heat. And now, fast forward to 2020. And it's even more of a perfect storm.

You still have bad weather. You still have subpar yields on crops. And now you also have what's happening in Ukraine and Russia, which is also eaten into the global market. So it's even more of a perfect storm. It's a perfecter storm. What we do know clearly is that plantings of wheat in the U.S. And so just basically the pace of new crop plantings has been really dismal in 2020. 22, which does not portend good things for the wheat supply, does not pretend good things for

food inflation and food shortages to ease dramatically. So we are going to dig into what's going on. So we're going to return with a guest we've spoken to last year with the original perfect storm in the space. We're going to be speaking with Angie Setzer. She is the co-founder of Consis ROI, which helps farmers manage their risk, hedge, and so forth. And so, Angie, thank you so much for coming back on Oddlots. Thanks for having me.

We were just talking about how long it's been. It was just late last fall, but I'm pretty sure it's been a decade, if not more, in the egg space currently. It's what it feels like. Last fall feels like a really long time ago, objectively. So it is high time we had you back. So plantings for wheat, they're really dismal, right? Yeah. So spring wheat.

So it's important to kind of one of the fun things that I love about my job is to be able to kind of educate or or kind of give you insight into all of the wonderful classes of wheat. And so in Kansas City and the Southern Plains, Kansas City wheat is what we call it. The Southern Plains grows hard red winter wheat. And then in the eastern corn belt, so east of the Mississippi, down to the Gulf of Mexico, up into Michigan where I am, we grow soft red winter wheat and soft white winter wheat. So we actually have farmers plant in the fall. On the soft red winter wheat side in the eastern corn belt here, specifically here in Michigan and in some of the states in the Great Lakes areas, they had a poor planting progress

or poor planting weather last fall. We just weren't able to get the soybeans off in time to get the wheat in in time. Winter kind of came on a little early. So we saw a pretty significant reduction in our acreage here in Michigan and in some surrounding states. In the southern plains, they're dealing with the drought so we can get to that later. But yes, in the spring wheat belt, which is actually the most important because that's kind of where we really had leaned heavily on a year ago. It was, okay, we can manage through, you know, this of course before the Russia-Ukraine situation and some of these other things. You know,

we can really manage through with a tighter wheat crop if we can make sure that the spring wheat crop looks good. Well, we obviously had a major drought in the Canadian prairies and into the spring wheat areas of the United States. So spring wheat's grown in Montana, North Dakota, parts of South Dakota, and western Minnesota. And so if you look at a summary of rainfall leading up to about the first of April when planting season would kick off, they had stayed incredibly dry. So in a, you know, cruel twist of irony, we started the year concerned that we were going to see continued drought development and we had been so exceptionally dry for so long, we were nervous about what would take place. So, you know, in true mother nature form over what's

taken place the last couple years, she brought all of the rain that you would want to have seen in the six months prior in about six weeks time. And so, yeah, we've seen record delays in planting specifically in North Dakota and in Minnesota. Most of them we feel should be close to having able to catch up prior to final planting, final insurance planting dates the middle of this week. There was a lot of progress that has taken place, although it took place in less than ideal conditions. And so some farmers are crossing their fingers and holding their breath that we're able to see that crop come up and get a normal year of production. So this is a really good reminder that there are different types of wheat that are planted at different times of the year and in different parts of the country.

Can you give us an idea of what yields actually look like on some of those crops at the moment? And my understanding is that the U.S. Department of Agriculture also grades the crops, you know, gives them like excellent designations or poor designations. What does it actually look like right now? How bad is it out there? Yeah, so the soft red wheat belt, like I said, the eastern region of the country, we're doing pretty good. Things look good. We continue to get reasonable rain. The wheat crop's starting to head out. And you want to see some continued rain, you know, for the next couple few weeks here until we get closer to harvest. Here in Michigan, we're the last ones in the soft red wheat belt to roll with harvest.

And that usually takes place the week after the 4th of July. So the soft red wheat crop is used for kids. cakes, donuts, you know, we like to say that we're the fun crop. It's used for the fun stuff. And the hard red wheat crop is really where a lot of the condition ratings, because the spring wheat crop is just getting planted. So we haven't had a chance yet to see what those look like. But the hard red winter wheat crop in the southern plains is one of the worst rated crops on record. As a result, the USDA has lowered yield expectations with acreage and yield expectations as is and the expected abandonment. So basically what you could see farmers do is

they could come into spring and recognize that the stand of their crop is poor and that the potential for the crop is below average and they can then transition into a different crop. They may choose to switch to corn, maybe Milo, maybe soybeans, depending on how planting is going, something of that nature. Sorghum. So yeah, so we'll call it Milo or Sorgum, depending on where you're at in the country. So that's the, that's one of those fun here in the industry, we call it Milo. But yeah, it's sorghum. So they may switch over to that, especially sorghum is a very drought tolerant crop. So if they're in the western portions of Kansas and parts of Texas that haven't seen the amount of rain that they had hoped for, the Oklahoma panhandle, you know,

you could see that transition take place. But yeah, so the crop is, is one of the worst rated on records. The USDA as a result, you know, has come in with yields that are well below. average 10, 10 bushels or so per acre below average expected in that hard red winter wheat crop area. And as a result, we're looking at one of the smallest U.S. winter wheat crops, hard red winter wheat crops specifically since the 60s. So we just keep, you know, the hits keep coming, so to speak. Now, we're just getting started in harvest. And so wheat is one of those things where a wheat trader will tell you that it takes a lot to kill wheat, like after a nuclear, a nuclear. bomb were to drop, you would have cockroaches and wheat. You know what I mean? Like you just,

it's very difficult to kill wheat. Now it may not average. Yield wise what you're hoping for, but you may get surprised when you get out into harvest. And so we'll get a much better feel for what all we're seeing from a production standpoint here over the next three to four weeks as harvest starts to progress to the north in the hard wheat belt and then the soft wheat belt. But for now, it does look to be one of the smaller crops that we've seen here in the U.S. in quite some time. Can you just put a few like numbers on this? Like what is, you know, like a sort of, I don't know, the best way to aggregate it,

but total volume, total acreage or total number of bushels, what we would normally be looking for, how big a part of the market it is, and then what the shortfall is going to be if we're really having like one of the worst planting seasons. One of the lowest, yeah. Yeah, I mean, we're going to want to pull up and see, you know, one of the benefits about the hard red winter wheat crop, it gets a lot of conversation here in the, you know, it gets a lot of attention from the world market. Everyone tries to pay attention,

especially considering it does set the stage. One of the things that we have seen is the USDA has anticipated thanks to the increase in price and the tight available supply. So you've seen the cash market, or at least our export offers, really kind of outpaced the rest of the world. So they have reduced export demand as a result just because we're more expensive. But to take it into, you know, kind of consideration there as to what you're looking at in the world wheat crop or the world wheat supply, you know, compared to maybe where we were in 2020 even, you know, production was about 1.83 billion bushels. We're expecting it to come in around 1.73 this year versus. So, I mean, you're talking 100 million bushel reduction in overall wheat production, but you're seeing ending

stocks, you know, deplete substantially. For a short period of time there between about 2015 into 2018, you know, we saw hard red winter wheat trade below $4, you know, more than once. And so that really kind of created this environment in which the farmers that traditionally would grow wheat looked to other crops, especially, you know, speaking of Milo or sorghum, you saw this big increase in Chinese sorghum demand. And so you saw a lot of folks really just kind of transition away. So you saw people transition away, you saw plantings getting smaller. You know, as we worked our way into 2020, 21, you know, you saw a reduction in area harvested. You see another reduction in area harvested this year, especially because of the increase

in abandonment, you know, but one of the things that we're seeing is when you break it down per class, that's when, you know, the noticeable reduction in supply becomes clear. You know, at one point, hard red winter wheat was flirting with. you know, above 500 million close to a billion bushel carryout. That's huge. That's considered burdensome. Now this year, they're expecting carryout to be around 360 million bushels. So it definitely is very evident. And as a result, you're seeing the farmer and the commercial elevators in those regions become very protective of the supply that they have on hand. And really, we kind of joke in the U.S. wheat industry. Like, our job is to keep our wheat.

expensive enough to where maybe it doesn't fly off the shelves into the global market, simply so we can make sure that we have enough at home to manage our feed use if we were to run into a production issue down the road. Another production issue down the road at this rate. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds. your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top grade products across the board of over 80 bond funds,

actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk Vanguard Marketing Corporation distributor. Eating well shouldn't be complicated,

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And does the U.S. tend to try to keep those goods at home or those commodities at home rather than export them and what other options are available to farmers and the industry to try to offset a bad harvest? Yeah. So we'll see that. We tend to see it in the cash market. So I always, I'm a cash trader. I'm a physical trader. You know, my job is to to get bushels from the farmers that I work with that produce them to the end users that need them. You know, and so I live in the cash market every day. And I will tell you the cash market is, is king, no matter. or how you slice it. Whatever the cash market is doing is it will eventually transition into futures in some way, shape, or form, or at the very least, the cash price is gravity, especially in wheat.

But if we do run into a situation to where we have a question regarding what production looks like, you know, one of the first steps that you see is, as I indicated before, everyone kind of pulls their arms and legs inside the vehicle, okay? We wait. You don't, you try to assess the market. you let someone other than you potentially put on a couple trades or make a couple trades to get a good feel as to what the actual cash value is. So futures can trade one price, depending on what the local supply and demand is or what the regional supply and demand is in a specific location surrounding a specific end user, you'll see a basis, which is that difference between cash price and futures. Sometimes it trades at a premium. Sometimes it trades at a, a,

a negative. But so what you'll tend to see is, is one of the first things that happens is the folks that tend to traditionally do the selling, whether that's an elevator or a farmer. If a crop scare comes about, we stop selling. Like, that's just human nature, right? If you don't know what you're going to have going forward, you stop selling. So then the market's job becomes getting it to a high enough value to where it entices a pickup in selling. So whether that's a enticing a farmer to liquidate his or her bushels at a certain price. Maybe it's a, you know, a farmer has a $8 target order in mind or something of that nature. You know, whatever it will take to get to those values to really kind of entice the farmer or entice the elevator. So there's a whole host of things

that you'll have to be able to offset or, you know, provide in the market price itself, you know, and so that's what you'll see is, is folks will start to discuss that basis is increasing and that spreads are, you know, spreads are tightening. So the other thing is that spreads will no longer incentivize you holding the product out of the pipeline, you know, they're going to punish you for doing so. So traditionally in the commercial elevator business, you know, you see what we call carry or contango and, you know, if you're fancy. We just call it carry because we're not. You know, so you'll see you typically would see carry, i.e., the market is paying you, we're providing you incentive to keep it out of the pipeline. The opposite comes true if it looks like you're

going to have a short crop. So one of the things that we pay attention to, to, you know, not only is basis, whether or not the end user is paying more or less yesterday, but what are the spreads doing? Because that will give us an insight into whether or not you could see supply come into the pipeline. And so, yeah, I mean, the first big step that is taken is you just stop selling, which is what we saw take place in India, right? Like, the concerns started to develop that we were selling too much. We were uncertain as to what we were going to have come into play for new crop. And so the government said, hold on, you know, we're going to take some time. Now, they did it through measures that, you know, are seen in a more government-centric

agricultural production system, whereas in the U.S., traders tend to manage their own reduction in market exposure, you know, i.e., they make their bids really, or their offers really expensive. The end users may firm up bids, you know, things of that nature, but we just kind of become, we start to play chicken, you could say, when it comes to purchases and sales. What is the shape of the futures curve right now? I mean, we know that a lot of, at least up until very recently, I can't remember the last time I looked, but all around the world, whether we're talking about ag or metals or energy

commodities, we have seen this sort of like front month, you know, high premium in the front month. What is the shape now of the wheat futures curve and what is it indicating? That's the ironic part. You know, you pull up the shape of the wheat futures curve, and we saw it go. I mean, I don't know how much attention folks paid to what the market had done here upon the news of the invasion. We saw some pretty substantial inversions or backwardation developed to where you saw the July, you know, go to a $2 inverse. I mean, just something that was just absolutely obscene, something that we had never seen happen before. And as a result, it kind of blew a lot of elevators out of the market because they, they, they, right.

So I was going to ask, like, their business must be premised on the idea that, like, you know, you hold, they hold, right? Or they hold, they hold grain. And if you hold, you know, grain is priced more valuable in a few months or a year or whatever it is. And so you get some sort of, I guess, as you said, carry. But it's got to be a terrible business in the opposite. when they're such a premium currently. Yeah, yeah. And that's what you saw. You saw wheat elevators, flower mills.

You know, they just basically withdrew bids. So the farmer was very frustrated in the sense that the board was rallying $12.50, $13 for Chicago wheat. And the end users and processors withdrew bids. As a result, you know, of the cash market, again, going back to the cash market, just basically being destroyed by that move in futures. You saw a lot of activity. You saw a lot of folks leave. you've seen the spreads unwind. So ironically, you know, a lot of folks are talking about how wheat

is the most bullish commodity out there. You know, it's the one thing that we tend to hear the most about. But when you look at the spreads, they're paying substantial carry or what has traditionally been solid carry for the last several years, at least out into the March board, you know, when you're looking at the Chicago crop. And even out into the March board when you're looking at the Kansas City crop. And so, you know, there's carry. There is incentive to hold. the crop, but I think that's more to do with the fact that the global pipeline or our export business or our delivery system, you know, simply couldn't handle all of the wheat coming off at harvest time. You know, and you could say the opposite is true in corn and soybeans where they're

pretty heavily inverted old crop to new crop, just, you know, especially, I think, considering the fact that for wheat, the new crop year starts on Wednesday. So for wheat, we have a June to June. And so we're basically ending up. We know what we did for old crop. We have an idea of what will be left over at the end of the year. And now we're facing, you know, a new crop coming in, full bins, hopefully, even with a smaller crop, you know, you're still going to have a lot to take off, you know, early on in the season. And so that market's providing some incentive and providing, you know, end users, elevators, flour mills, you know, a way of capturing some incentive to keep that stuff out of the pipeline, and that's helping to keep basis firm for the farmer.

So what happens to sort of end user prices in this type of scenario? So for instance, the hard red wheat that we use for bread and things like that, do bread makers, does the price of bread immediately go up because the spot price, the input cost goes up? Or is there some sort of hedging activity where they might have, you know, forward purchased their wheat needs a year before at a lower price? Like, how much of it actually feeds through into consumer goods and the things that we eat on a day-to-day basis? Yeah. On the plus side, you know, the cost of wheat for a flour miller is actually a very small, I think it's less than a, it's less than a third of the cost of the overall loaf of bread. You know, all of the other factors come into play, the transportation, the

and the staffing, the equipment, that this, that, and the other thing. And so it really isn't a direct correlation. Of course, during times of inflation, all other costs are increasing. So it's easy to say, okay, well, the cost of wheat is up X percent. So obviously the cost of bread needs to go up as well. But that's not necessarily the case. Now, you are seeing folks that didn't hedge. Traditionally, you'll see the majority of your wheat users in the United States at the very least

have a very deep and very experienced trading desk. So they're not just sitting there, you know, oh, wo is me. I didn't realize the price of wheat was going up. They're able to hedge, you know, they're able to make their purchases, book their basis levels, maybe trade their futures. They may own options against certain market moves and things of that nature. You know, so they're somewhat isolated. But when, you know, Russia invaded and you saw the market just surge limit higher day after day

after day, you did see them stop. You know, they were, we're looking at, you know, as a wheat miller, you know, not a flower end user, the wheat miller was looking at making a substantial amount of purchases in the July and in looking down the barrel of a $1.50, you know, inversion. And so there was a lot of frustration for folks that you just simply saw them step out, step away from the market, you know, and so in times of extreme volatility and concern, we have seen that happen. Now, Obviously, it can't last long term. You know, and for that reason, a lot of these folks have managed to hedge some of their risk, or at the very least are insulated from a good portion of it, but it gets concerning.

You know, when you see big moves like that and extremely volatile prices, you know, you start to worry about who your end user is or how they're protecting their risk. Eating well shouldn't be complicated, but somehow it turns into recipe. Fees, prep, cleanup, and half your Sunday gone. Factor solves all that. These are fresh, ready-to-eat meals designed by dietitians, delivered to your door, and ready in just minutes. No prep, no cleanup, no excuses. And it's not just about convenience. You're getting real food, balanced nutrition, and zero artificial stuff. Meals that help you stay on track for all of your goals without the grind of doing it all yourself. Grilled chicken, roasted veggies, steak plates,

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secure affordable storage you can count on. Whether you're storing a little or a lot, now's the time to make your move. Visit XYZ Storage.ca. So I want to sort of ask you about what Tracy and I were discussing in the intro, which is, is there some underlying frailty that's been exposed in the U.S. ag market or the ag market overall? I mean, we talked about this idea. It's like, okay, we can talk about perfect storms and this crazy weather that we've got, such that we had two years of drought, and then we got six months of rain all in six weeks and so forth. And so obviously, in any macro environment, that is going to wreak havoc when the weather is that unpredictable. But But is there something else that's being exposed here in your view?

Like if you sort of zoom out, the fact that we've seen such volatility, such high prices and so forth, that is really just like cannot be sort of explained by bad luck or perfect storm. Yeah. Yeah. I think, you know, to a certain extent, I think one of the things that we've seen, you know, really kind of become crystal clear here as of late is the idea that, you know, we've transitioned from, you know, what the U.S. used to be the breadbasket of the world. And when we ran into ethanol and when we had the drought in 2012 and prices ran up, and, you know,

I think the agricultural folks, the higher-ups, the elevators and, you know, your ABCDs and grain and your, you know, your ag input suppliers and your equipment suppliers and some of these things started to recognize that there was a huge amount. of opportunity around the world for far better margin than they could ever achieve in the United States. And you saw this massive expansion and, you know, the globalization of our food supply, which is great. We need it to happen. We have to have it happen. But I think, you know, one of the reasons that we're running into this situation, you know, with your Middle Eastern countries and your North African countries and the concern over what takes place, you know, theirs is because they were so heavily reliant upon one supplier. You know, over 60% of their purchases were made from Ukraine, which is great, but it's not great when something happens in the

supply. Now, granted, we haven't had a lot of just wars just break out randomly in our food producers. So maybe, you know, you didn't expect that to take place. But, you know, I would say one of the things that this has really kind of put a spotlight on is, you know, for one, what it is that China is doing. And I don't think that even can be answered. You know, part of the reason that spurred all of this was this substantial move by China to really kind of increase their government stockpiles. You know, their exports increased, you know, gosh, you can't even say how big their exports increased because we went from basically what was zero to 28 million metric ton of corn imports, you know, last year from China. You know, they're looking to import 23 million metric ton. I mean,

and prior to that baseline, you know, max was, was, was, was a handful, you know, a few metric ton. And so that really changed the global pipeline. And I think it kind of put, highlighted the power that China has when it comes to global logistics and global pipelines and global demand and all of these things. You know, and I would say that's probably one of the biggest is that, you know, prior to this exceptional increase in Chinese demand, you know, we were actually talking about burdensome stocks. I mean, in the, the, the, the, the, the, the, ahead of the fall of 2020, going into late 20 before everyone was really paying attention to grains, you know, we were looking at the potential of a 3 billion bushel corn carryout,

which is almost three times what some folks are expecting for this year's carryout. You know, we were talking. What does that carryout? Carry out. Yep. So when we're done at the end of every year, we have enough left over to get us into new crop production. So my entire life is always revolving around what are ending stocks or carry out? What is that going to look like?

How much are we going to have left over at the end of next? year. What does that mean for new crop production and demand? And then what will we have left over at the end of that year? And that's simply what we pay attention to in grains. But yeah, so prior to that big increase in Chinese demand, you know, we were kind of worried about what we would be looking at, you know, globally when it came to burdensome stocks. Now, of course, you saw, you know, major production issues in Brazil back to back. You know, La Nina looks like it's poised to make a, you know, the third appearance, and that tends to wreak havoc on South American weather. It tends to cause droughts in the Southern Plains, you know, things of that nature. But I would say, you know,

probably one of the biggest things that this market move is shining a spotlight on is just, you know, how vulnerable we are in the free market to someone kind of stepping in and taking, I don't want to say more than their share because that's an inadequate statement, you know, to use. But, you know, we're somewhat vulnerable to some folks just kind of stepping in and saying, you know, hey, we'll take this. It's cheap. We're going to take all of it. Thank you. And then other countries saying, we want to avoid that person coming in or those folks coming in and taking everything. So we're going to restrict our exports. So we just really saw this whole entire flip, you know, in global availability, you know, due to the fact that China really kind of stepped in and started

soaking up every piece, every kernel of feed grates they could get, you know, around the world. Yeah, this is something, we actually recorded a whole episode on this with Scott Irwin. I think it was one of the first episodes that we did, yeah, about China buying up and building up its stockpiles. But so I guess a natural question here is what can countries do in order to ease this

kind of tight supply? So we've already seen a cutback. on exports. I've seen some talk about things like subsidies for farmers, but there seems to be debate over whether or not those could actually make the problem even worse because people would be incentivized to just not grow anything. And this is sort of a classic criticism of subsidies. But what exactly could be done here? What sort of policies would help? I think it's so hard. I mean, it really, outside of improving weather or incentivizing, you know, and maybe that is through subsidies or something of that nature, you know, which we've seen. I mean, we've helped farmers with crop insurance. It's been one of the things that we've seen as of late is, you know, some conversation about whether or not crop insurance hinders the farmer or incentivizes the farmer not to plant. You know, one of the things that I'd point out in that conversation is the current crop insurance support price for December 22 corn is $1.30, $1.40, but, you know, one of the things that I'd point out in that conversation is, below where the market's currently trading. So the market is going to incentivize a continuation

of planting that's going to be the market's job, even if that crop insurance price is below. So helping provide that safety net via crop insurance or something of that nature to where as long as the producer is putting in a good faith effort to get that crop planted and a good faith effort to make sure that they're doing all that they can to try to produce as large of a crop as what they possibly can, you know, I think that would help around the world for a lot of folks. And I think you're seeing countries introduce that. You saw China basically credit the turn of their winter wheat crop to the millions of dollars that they poured into farmers in certain provinces to make sure that they were fertilizing and using fungicide and doing everything they could

to kind of maximize production. To me, I think the market is going to do its job as long as Mother Nature cooperates. You know, I think one of the things that, you know, you're seeing right now is you're seeing December 23 corn trading near 650. You know, you're seeing crop prices for next year's harvest, 18 months from now, you know, trading at relatively high levels wheat for next year at $11.14. You know, so I think the market will do the job to incentivize. I think you'll see some continued expansions in South America. I think you'll, you know, as long as farmers continue to be incentivized here in the U.S.,

you're going to see them, you know, roll past final planting dates. if weather allows it and some of these other things because the market price says, you know, you should be planting. And so I think that's the main thing. Just providing a safe place to land if there were to be a major weather issue is probably one of the best things they could do. Can you talk a little bit about what's happening on the input cost side with your clients? Of course, a big story over the last year has been the surge and the cost of fertilizer. Although there was actually a Bloomberg story yesterday about actually a significant pullback in the last month. But what are the different input costs or the primary input costs for your clients?

And what do you see happening there? Is there been any sort of like stabilization, improvement, et cetera? Yeah. I think one of the biggest things we've seen is everyone kind of breathed a sigh of relief in the sense that there was a real concern that we were going to have shortages. No one that I've seen or heard from across the country has really run into a situation where if a farmer needed a fertilizer, you know, of a certain type, that he or she couldn't get a hold of it. Prices have increased exponentially, of course, in that. They're record high.

They have stayed well elevated beyond when a lot of folks thought that they would. So that's created some concern. But you've also seen, as we talked about before, you know, the corn market basically has rallied almost $2. It's fallen off a bit as of late, but it had rallied, you know, a dollar after the invasion and another dollar after the planning intentions report. So you saw a pretty substantial increase in the amount of money that the farmer can get out of an acre of corn. You know, you can multiply $7.30 times anywhere between 150 to 200 to get a good feel for what a revenue, what kind of revenue a farmer is looking at. So there is room. Now, obviously, that's gross revenue and all of the

costs that continue to pile up, you know, really kind of put us in a situation to where we're working harder. We're laying out way more cash than we ever have before for the same hope of the same margin. And so that's one of the things is it feels as though the cash outlay being as high as what it was and being increased as much as what it was has put us in a situation to where there's far more stress this early in the marketing year to make sure that the farmer gets it right. You know, obviously they don't want to sell too soon and miss out on a major rally if we were to see some sort of drought develop or something like that, but they don't want to not sell and watch the market fall back to crop insurance or lower, you know, and so it's put us in a pretty

tight situation here where we've, we've outlaid way more cash than we ever have before and created, you know, far more worry than we ever have either as well. Huh. So what should we be watching for in terms of signs of improvement? Like what are some things or indicators that we should keep our eye on? Well, we really want to watch what the weather does here for the next four to six weeks, specifically for corn and for wheat. But wheat harvest is going to get started or has started in Texas is going to get started. And so we'll want to see, you know, really kind of pay attention or at least I'll be paying attention to what those cash markets look like, what takes place, you know, what the reports are, you know, from a yield standpoint. But from from some of, from someone

on the outside looking in, the biggest thing that I would recommend, you know, really kind of paying attention to is obviously what developments we see in the Russia-Ukraine situation. You know, we've never seen it to where we have upwards of 65 million metric ton, potentially, you know, sitting in countries that, you know, have it but may not be looking to ship it or may not be able to ship it into the global market. So if we see a shift in that, things will change. If we see these humanitarian corridors open, if we see some rollbacks, you know, potentially on the sanctions that Russia is asking for. or something of that nature. You know, that's going to have a huge influence on global supply.

The other thing is, obviously, weather through the month of June into July, we want to see decent rain, not too heavy, and warm temperatures, you know, but not too warm. So that's going to be the hard part is watching that. And then the other thing to really kind of pay attention to is going to be our shipment pace, in my opinion, you know, when it comes to export sales, the bulk of our export business currently for corn and as it stands, you know, recently for soybeans, has been to China, but we're starting to see, you know, this week was huge for corn shipments. Swabing shipments were a little bit below average, but sales pace has dropped off substantially. So the question now becomes, do you see China slow down on what they're taking?

And could that result in, you know, a potential reduction in export outlook and an increase in overall supply because China is unable to take the bushels that they, you know, had already purchased? So those will be the main factors that we're watching here over the next six weeks. So I just want to like pivot to one other topic before we go. And, you know, you talked about how you're in the cash market. Your job is to connect consumers of actual grains with producers of actual grains. And, you know, Tracy and I recently did an interview with Matt Piot, who's the CEO of Arrived Logistics.

And we talked about like, you know, the sort of exponentially complicated world of trucking and freight. And there's all different kinds of products that exist, all different. types of destinations, it's a really hard problem. And of course, you know, moving a truckload of, say, computers or couches or phones is going to be different than moving a truckload of wheat because it's different handling and different temperature and so forth. And I'm curious if you could talk a little bit about that market of the physical moving of wheat, how that works, and like what are what makes it difficult and like what are the sort of opportunities there in terms of how it could improve?

Yeah. It is probably my favorite part of the job, but it's the part of the job that makes me pull my hair out the most. And so yeah, you know, wheat movement, a lot of wheat movement, you know, for us locally here in Michigan is done via truck. And so, you know, one of the things that you really kind of look at is trying to make sure that, you know, from a farmer's standpoint, you know, not a lot of farmers are sitting around their bins waiting for a truck to show up. And so one of the biggest that we have obviously is communication between truckers and and where they're looking to load, you know, an understanding or a follow-through of what dumped where, you know, especially now that prices are increasing as they are. You know, you're looking at a pretty substantial price tag on, you know, moving $18 soybeans with a thousand bushel, you know, a thousand bushel at a crack. You know, you're basically, I tell my customers to make sure they're keeping track of everyone that loads, who it is, license plates, everything, you know, basically ask for a deposit of their first born child because you're you're shipping, you know, $18,000 worth of wheat with a thousand

bushel load. I mean, you, you, you're soybeans, excuse me, you know, you've got to recognize what is going out from a cash standpoint. And so there's always a real concern that you're going to lose a load, you know, that you're going to run into a situation where someone maybe loads something says they're taking it to one end user and it just, you know, you just can't track it down. And if you don't have the right information regarding who loaded it, where it was supposed to go, you know, when it was loaded and when it should have been there. And then the follow through of making sure that upon delivery you receive the ticket, you know, or have a copy of the ticket that is as good as money. This, that, a ticket, you know, it's a receipt of delivery, you know, is saying, this is mine. I delivered it.

This is, that money belongs to me. You know, and so all of these things have become incredibly difficult. And as a result have made it, you know, to where potential, you know, the farmer's opportunities may be a little bit more limited in the sense that because of the inability to track or because of the inability to feel comfortable with, you know, loading something or getting someone in there to properly load. You know, you may not have them do, they may not go into that certain market or something of that nature. And so, yeah, there's a lot of moving pieces with grain and feed, especially, you know, cattle still eat on Christmas, you know. So these sorts of things in freight have been, you know, very difficult to kind of pin down. And one of the things that we've been trying to work on is, you know, how can you get it established to where you can utilize technology to let you know when the truck is around the corner because the driver forgot to call? These types of things.

It automatically upload a ticket upon delivery so you have access to it and no one it'll be settled. You know, and so it's been a work in progress for part of the reason, for all of the reasons that you stated earlier in the sense that it's just not, it's not a when A happens, B takes. place because in grain movement, you know, a lot of different things can happen. You could have a load rejected. You could have a, you'd miss a dump time or a loading time. And so a different truck has to come in or something of that nature. And so it's still very much a work in progress, but it's one of those situations where if you could find the system to crack that, you know, you would be a hero, just simply because of all of the complications that come from, you know, not being able to really nail down that freight component.

cattle still eat on Christmas would be a really great country Western song. I might have to write one. Angie Sensor, it's always great to have you on the show. Thank you so much for coming back. Really appreciate it. Thank you for having me. I enjoy the heck out of it. Thanks, Angie.

That was so much fun, yeah. It's so crazy that, like, after years of drought that we get, that farmers got, like, half a year's rain in a matter of weeks. Yeah. I mean, one thing I would say is that if this kind of volatility in weather patterns keeps continuing, then it would seem that there's a fundamental change that has taken place when it comes to the weather. The other thing that I thought was interesting was Angie's suggestion of China being this massive buyer that sort of contributed to an overall level of tightness in the market that makes it maybe less able to deal with shorter-term change.

in particular harvests or crops. Yeah, you just don't have much, much slack at all. And then, you know, thinking about like, so, okay, what is, yes, weather is always volatile, right? I mean, farmers have been dealing with volatile weather for, you know, since the history of farming. But then, you know, you sort of think about, okay, there really were a lot of unusual things that happened in the last two years. one of them was the sort of emergence of China as this sort of like buyer of everything and trying to, trying to grab all the grains it can. And you sort of wonder like whether there are some

similarities between what's going on in grain and what we see in like retail where it's really hard to forecast. And it's really hard to know what is a sustainable trend versus something that was distinct to the last two years that's not going to persist. The agricultural bullwhip. The agricultural bulls actually eat. That's affecting what bulls actually eat. Cattle who have to eat on Christmas. I'm just going to keep going.

Okay. You should write that song, by the way. I will. I will for sure. Okay. All right. Well, I mean, it sounds like per Angie, one of the things to look out for is obviously what's happening in Russia and Ukraine, but also weather for the next four to six weeks. So everyone, you know, stay glued to your various meteorology apps, I guess.

It's always weather in the end. I mean, in the end, right? Like, that really is, like, what this market is all about. Because if, yeah, we get it, we need indoor, we need dome, dome agriculture. That probably, okay. Shall we leave it there? Let's leave it there. All right.

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Angie Setzer. She's on Twitter at Goddess of Grain. Follow our producer Carmen Rodriguez at Carmen Armin.

Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.