Brazilian farmer struggles: Weekly market outlook Nov 25-29

Andy

Hruby: Welcome everybody to the weekly market outlook. Today you have Angie Ruby with Angie Setzer of Kansas Ag. Angie, how are you?

Angie

Setzer: I am well. How are you doing?

Andy

Hruby: Doing good. Doing good. Kind of refreshing. Finished harvest a couple of weeks ago. So we got that behind us and just feel like now you shift gears to the post-harvest busy office work, year-end stuff, just, you know, hammer down on that. And it's a, it's a good different, let's just put it that way.

Angie

Setzer: Yeah, yeah. Nice change of pace.

Andy

Hruby: Yep. Hey, you and I were talking beforehand, and you had just gotten off a Zoom meeting with some Brazilian farmers and kind of a group there. I think it would be really interesting if you want to start there and kind of recap what you guys are doing and and what that consisted of.

Angie

Setzer: Yeah, so we got lucky. We do some work with a group, Agri Invest is what they're called. They're a Brazilian brokerage firm and like, I'll say analytical group. They put out a bunch of really interesting information on Brazilian cash markets and movements and what farmers are doing. And we've done a handful of webinars with them in the past. But this was the first one where it was a group of Brazilian farmers and agribusiness folks together and a group of US farmers and agribusiness folks together. And we had asked questions of each other ahead of time, and were able to kind of answer them and just go back and forth. And it was really enlightening. I think one of the biggest things that we took home, at least from my group, and it's funny, because I actually just got an email from an attendee who was like, hey, these points were great.

And so I'm like, it was awesome, because he just kind of was able to put it all in a nutshell. But You know, one of the biggest things that I think folks would be surprised to have learned in the conversation that we had is that the Brazilian grower is not really excited to expand further. So we have this constant conversation, right, of, you know, massive expansion potential in Brazil. And one of the topics there, one of the points that I've been trying to make over the last year when saying that there is that potential there is it's driven by economics. And so, so many times I think we think that the laws of economics are suspended when we leave the country, Apparently, I'm not sure entirely, but one of the things that they had talked about was the cost of a combine in Mato Grosso had went from 18,000 sacks of soybeans in 2017 to 35,000 sacks of soybeans today.

You know, and so basically your cost is doubled. And I'm sure US farmers, you know, don't necessarily look at their costs as bushels of soybeans, but you could, you know, and it was interesting just in that they also brought up the struggle that they're having to obtain credit and how that is limiting the expansion that you're seeing or some of the growth that you would have seen otherwise. You know, there was a huge surge in Chapter 11 bankruptcies in Brazil over the past year, you know, because of a reduction in crop production. They had poor yields, you know, the crop. Yeah, they produced 150-some million metric tons of soybeans, but they should have produced 165+ million, you know, and so they had some production issues, they had some things that had gone against them. And so I think that was the biggest takeaway was that, yes, Brazil is going to have a big crop this year.

Weather looks great. Production is in line with what the USDA looks like they're expecting here currently. But this idea that you're going to see this continual massive growth out of Brazil, probably not as great. And then the other thing that was interesting was the growth in domestic demand. And so we talk about how, you know, perhaps this growth or this expansion in production outside of technological— like, obviously you're going to see yield improvement and things like that that will come naturally or with science. But, you know, you're looking at sort of a plateau potentially in production, but you're seeing this real big ramp up in domestic demand. And so that was one of the topics that they had brought up was corn ethanol growth is just off the charts right now.

Like, they, they said that it feels like there's a new plant being announced almost every week down there currently, um, simply because sugarcane expenses had gone up. You know, the cost of sugarcane to produce ethanol, um, grew. And, and if you see a continuation of growth in their corn crop, um, you know, corn as a, a form of octane is great. And the Brazilian government is pushing towards a B35. They want a 30+% ethanol blend And they're also increasing their crush, 3 to 5 million metric tons next year. So it is interesting. It was an eye-opening conversation for sure.

Andy

Hruby: So does that— I guess it's interesting. Do you think it's going to, or do you and do they think that it's going to add a little more diversity to their crop rotation, you know, similar to the US? Or are they still, are they still thinking they can get this corn from safrinha crop?

Angie

Setzer: No, they— well, they do think they'll still be able to get it, uh, from the safrinha crop, though they do— they did add that there could be more diversity. Um, you could see farmers in the South, um, you know, because they have different rotations down there, you have more in the way of wheat, um, and dry beans potentially in the southern portions of the country from what they were talking about. Um, you know, so you could see some interesting shifts potentially in, in what growers produced down that way. I think the biggest thing to me and the biggest takeaway to me in it was that, yes, their production growth is great, but you're also seeing the economics incentivize demand expansions domestically. And so we like to think that if Brazil grows, it automatically gets dumped into the export pipeline. And that's not necessarily the case.

And I think that was one of the things too that was super important to to hear. And, you know, so yes, they are bringing more diversification in. Um, we did see this week the sorghum deal with China. Now, they don't produce a ton of sorghum. They don't have a really large export market. You know, most of their sorghum is, is used within the country. Um, you know, and so could you see some type of incentive if we were to end up in, in a trade war where they move away from one crop to another? Um, you know, the possibility is there. But yeah, it was, it was, it was an eye-opening conversation for sure.

Andy

Hruby: Yeah, no, it certainly sounds like it. What, what did the American farmers think? Or, you know, were they, were they caught off guard with, with the reactions and the comments they heard from Brazilian farmers? I mean, this is kind of a surprising conversation to me. Yeah, as a US farmer, it's like, you, I guess you always have it in the back of your head, well, they just keep growing, things must be hunky-dory down there.

Angie

Setzer: Yeah, no, and that I think that was part of what made the conversation so great. And it did open some eyes. There were some folks that were really surprised growers of mine that, you know, had no idea. I do try to facilitate the conversation actively, if best, so we're talking to someone directly who's working with growers. And it has been a point of conversation more than once in the past that, you know, no, it's not as great as what you want it to be or what we hear. But, you know, I feel like the narrative is like, oh, everyone else around here is in the— everyone in the world's doing great but the US farmer. And that's not the case. We're all in this together. It's like National Lampoon's Christmas Vacation at the end. You know, it doesn't matter if you're the in-law side of the family or if you're Helen, you know what I mean? You're staying. It's— we're all in this together.

And so that was the one thing I think that everyone— misery loves company, right? So I think that was part of it where the American farmers were like, wait a minute, Um, you know, and I think it's important to recognize that not everything is as black and white as we want it to be. So many times right now, we, we, you hear, you know, you read your headlines, you, you read your analysis each day, you see what traders are talking about, and you're like, oh well, you know, this is, it's 1 1 2, it's that simple. And it's, it's really not like that.

Andy

Hruby: Yeah, yeah, no, that's, that's some great insight on, on what's going on there. Really appreciate you sharing that. Hey, last time you were on, we were right ahead of harvest. I think it was end of August or so. And, you know, you and I spent a lot of time talking about things to keep in mind as we go into harvest. Now with harvest wrapped up, let's kind of shift that conversation to post-harvest. And as you work with your growers, you know, what are those top few things you're saying these are the things we need to be focusing on with all the distractions of year-end and holidays and plain wanting to take a break. What are those things that, that you have really been focused on?

Angie

Setzer: Yeah, there is a slew of things, which is hard, right? Because you're right, everyone wants to, to take that break and, and stop. And I have a lot of growers that are like, we'll circle back to this conversation the first part of January. And I, I get it, but, um, you know, I, I want to throw out there, there's a few different things to be thinking of. Um, you know, obviously quality. You know, to me, the first thing that I think of once harvest wraps up is making sure that you've cored your bin, that you've pulled out of the bins, that you've got your centers pulled, especially in a year like this one where you came, you know, a lot of stuff came off exceptionally dry compared to what we've seen in the years past.

I've got some of my best growers, you know, have found that it takes a little bit more than what they normally would maybe to pull the complete core, or that we're seeing more in the way of FM or you know, something of that nature where it just is going to make the most sense to make sure that you're pulling something out here over the next month or so to help with your airflow and all of that jazz. That's first and foremost. You know, secondly, let's be thinking about cash flow and what we need to be doing. And so one of the conversations that I've been having with my growers is that we've had, you know, a pretty tremendous snapback in basis here, like basis in the state, you know, at our largest ethanol plant here in Michigan,, popped 35 cents in 5 days. Like it just— and so I could— part of me is like, well, no wonder farmers think basis is theft.

Golly, like harvest stops on Tuesday and basis is firm 35 cents by Friday. Now you just answered your own question. The calls coming from inside the house as to why those things happen, you know, but I can see why you'd be a little, a little tender when you see something like that take place. But as a result, because of that pop in basis that has coincided with the market kind of moving a little higher this week, we went nowhere and corn went nowhere fast, really. But, you know, it's given us an opportunity where we went from at this one particular ethanol plant, you know, sub $3.25 corn. And when you and I were talking, it was about where we would have been was in the low 3s to this week. We were $4.15 cash.

And so the conversation has to be had where if you're behind the 8-ball on where you want to be from a selling standpoint, if you know you have to core the bins, if you know you need to generate cash, um, you know, a lot of times growers like to think that putting grain in the bin means it has to stay there for a certain amount of time. To me right now, I've been talking to my growers about generating some of the cash flow that they need to cover themselves into the end of the year, end of the calendar year, and even into the start of the year. I mean, right now for us currently, the cash price that is being paid today is still a dime or so better than the cash price that's being paid for January. And it costs you, you know, $0.10 to get out to January by keeping your money out of your pocket.

And so one of the things that I've been pushing my growers a lot, especially in corn, is that You know, if you've picked up 60, 70 cents of cash from the low side where you were looking at, um, values till to now— I mean, we were talking 90 cents there, um, at one particular plant— your bin's done its job, done, has done its job to a certain extent. And so don't be afraid to start turning some bushels into cash even if the price isn't that great. If I'd have told you to sell for, you know, $4.15 cash corn when the price was $3.20, you'd have told me I was crazy, honestly. I mean, so many people at the end of August told me why it had to continue to go lower. They still weren't selling, thank goodness, you know, but everyone was so darn bearish. And now here we sit and we're kind of like, what next?

Andy

Hruby: Right, right. No, that's very true. I think it's pretty easy for us as producers to take our eye off the ball this time of year. And yeah, you see those basis improvements, but I don't know, I kind of have a gut feeling in our areas, you know, we may be coming into some of the best basis opportunities we're going to see to get this crop moved.

Angie

Setzer: I agree. I look at Christmas. So one of the things that I was talking about this week with my growers was, you know, Christmas is going to be a great opportunity for farmers who are willing to work that Monday, Tuesday, you know, I mean, Monday, Tuesday will be a half a day. But I mean, like, Christmas is on a Wednesday this week, you guys. And I know for a lot of the farmers out there that are watching this, they're like, it is? Like, I— is that what, uh, when's Christmas? Is that happening again? You know, that sort of thing. But, um, it's on a Wednesday. And so that is in— when you're an end user, like, I remember I go back to my feed selling days, like, Christmas on a Wednesday is a nightmare because you don't have anyone working.

Maybe you're lucky and they'll work Monday, and maybe you're lucky and they'll work Friday, but you're going to lose, you know, half of your folks willing to do anything Christmas Eve. Christmas Day is definitely shut down, and then the day after, um, you know, so you're going to find probably some really great opportunities to help fill these spaces up, you know, that week before Christmas, the week of Christmas, and, and potentially the week after. The biggest thing I want to say to growers is like, You want to be selling when it feels counterintuitive to do so, right? Because the commercial is. The commercial right now, the farmer is sitting on the sidelines. He's decided that he/she, you know, they've decided that it's— they're tired. There's nothing. I'll circle back to this conversation in January.

The commercial right now is knocking on every door they can to every end user and wondering what they're willing to pay, what, you know, where they're sitting, what kind of package we could put together. You know, those types of things. And that's something that a farmer should be thinking about as well. You know, be engaged when no one else is.

Andy

Hruby: Yep. Oh, that's, that's great. You know, I think that was good insight on corn. You want to add anything on beans and where you're seeing on beans? I feel like that's, uh, kind of been the black sheep. It is the last month. Nobody wants to talk about it. It's not fun to look at. It's especially not fun to plan on planting next year. Well, so where, you know, where's this market headed? What do we do? What do you want to talk about on it? We knew it was coming.

Angie

Setzer: Like, we can't act surprised. You can't— you cannot be like, oh, we voted for Trump and, and, and now, you know, why, why are beans going down? You know, he said he was going to put a 61% blanket tariff on China. Now, do I believe that he's going to do that? Absolutely not. Do I believe it's part of the art of the deal and that it's a great negotiation tactic? Yeah. Um, but do I know that for sure? No, either. You know what I mean? So like, when it comes down to it, we're in a bear market, first off, like we're in a bear market. We transitioned into a bear market at the start of the year. And when you're in a bear market, uncertainty is bearish. It's just— well, it is. When you don't know what's going to happen next, you don't pile in and buy. It's, it's just, it's a bearish fundamental. You pull your money out, you go to the sideline, whatever.

And so there is some uncertainty over what Trump's going to do. We're also creatures of we only know what happened the last time, and we're going to think that that's exactly what's going to happen this time. Which history has shown us time and time again, that's not the case. Very rarely do we see history repeat itself, right? It often— at best it rhymes. So like, why we're acting as though China's gonna come in and go from 1 billion bushel of U.S. soybeans to 300 million next year like they did in '18, I'm not sure. You know, also part of the reason they were able to cut back in '18 was African swine fever. Um, you know, they wiped out a great portion of their hog herd. They were able to not buy as many soybeans. Beans. You know, and so to me, from an overall standpoint in soybeans, like, I think that the uncertainty surrounding China is a real risk.

But if I were to lean towards, do we see a massive loss in Chinese business because of Trump's trade tactics? At this point, no. I think the bigger surprise would be that he kind of forces their hands when it comes to Phase 1. And with Lutnick in charge, that's of Commerce. Commerce is responsible for tariffs and, you know, all of these types of things. Lutnick a big China hawk. That's part of why Bean sold off this week. But I think these are all things that are part of the negotiation. In addition, like, take off the, the China trade war worry hat. Let's look at what's going on around the world when it comes to vegetable oils and things like that. We've seen this massive surge in demand. The problem that we have is we have a lack of clarity with tax credits and some of these other things.

And so we have a lot of folks who are physical traders who need to purchase physical soybean oil that are still sitting on the sidelines. So the exporters, the importers, you know, your foreign buyers, India and some of these other folks are coming in. Our soybean oil export book has already surpassed the USDA's projection for the year 6 weeks in. Right. So like, I'm not 100% sure how we solve the soybean oil S&D problem that we have with the world vegetable oil demand surging that we see. With used cooking oil, you know, trade probably being restricted by China first and then the US, you know. And so to me, I think overall the trend is your friend. The trend right now is we're basically $9.70 to $10.40 soybeans on the January board. And so you kind of have to grit your teeth.

And if you're going to wait and watch and see where we bottom out, you really don't want to be a seller in this $9.70, $9.85 range.. But you do in the $10.40, you know, $10.25 to $10.40 range. I think basis will continue to strengthen. I think the cash market will probably continue to tighten. We're going to see a slowdown of movement here as we work our way through into the end of the year. And we still have really solid demand through the end of February. So, you know, I think beans will give you opportunity, but they're probably going to be fleeting and have to, you know, target orders will be your friend.

Andy

Hruby: Okay, that's, that's a good spot to leave it, I think. So target orders to be your friend, pay attention, take advantage of some of these basis opportunities we're going to have at the year end. And then I think the other most interesting part of our conversation today too has been the Brazilian farmers in a similar boat as us.

Angie

Setzer: Yes.

Andy

Hruby: So keep that in mind that the thing is things aren't always just perfect down there either.

Angie

Setzer: So no. No, agriculture around the world is struggling right now. And so that's the other thing, like if you can buy it on the board for cheaper than you can grow it, it's unsustainable.

Andy

Hruby: Correct. Yep. Angie, this has been great. If people want to reach out to you, what's the best way to get ahold of you?

Angie

Setzer: You can find us, you can check out the website first, that's ConsusAg.net. But you can shoot me an email, Angie@ConsusAg.net. Um, or you can check me out on Twitter or TikTok, uh, @goddessofgrain. Oh, and I added Blue Sky. Apparently that's a new thing we're supposed to pay attention to. Yeah, that's the new one. I don't know.

Andy

Hruby: All right, well, thanks everybody for joining us, and thank you, Angie. We'll catch you next time.