Transcript

00;00;01;09 – 00;00;25;13
Futures trading involves risk and is not suitable for all investors. Content provided in the segment is meant for educational purposes and is not a solicitation to buy or sell commodities. Welcome to Ag Smarter: The Dairy Feed, a new podcast from the team. Each week we bring you clear, timely insight across dairy, grain and feed markets. Focused on what’s moving, why it matters, and what it means for your operation.

00;00;25;14 – 00;00;57;10
I’m Jim Matthews. I’m joined today, as always, by the one and only Miss Kathleen Wolfley. It is 11:20 Chicago time on Wednesday, May 6th. It is a day beyond Cinco de Mayo. But Kathleen, a happy belated Cinco de Mayo.

Happy belated Cinco de Mayo. How did you celebrate, Jim?

Most graciously. I just enjoyed life. I enjoyed Words from Wichita that we will hear from Mr. Jake Kingsley later. He was my happy Cinco de Mayo inspiration with his video, so I can’t wait to hear from him and his Words from Wichita here later on.

00;00;57;10 – 00;01;29;25
Jim, we were talking before we started hitting record about if you’re looking at the board today, it’s not a bad day to be a dairyman.

Nope.

You’re exactly right. In our world of risk management, in this vacuum, it’s a little bit easier to hit the record button today because we’ve given — and this is not intentional, we were going to record yesterday on Cinco de Mayo — but now looking at the screen, yeah, on the feed side, we’ve got back-to-back days of some red on the screens, which for our dairy farmers feeding corn and bean meal and all these other products, red is a good thing on the screen when it comes to these markets.

00;01;55;24 – 00;02;19;01
So excited to chat about that. Kathleen, I think on the milk side, green is usually great.

Green is good.

Green is good. So milk’s up and feed is down. So in that vacuum, not a bad day to hit the record button. And cattle is up too. We shouldn’t forget cattle. Energy is down. I mean, we could go on. The list goes on, but we really only have about 15 minutes that we like to keep you all listening to The Dairy Feed.

00;02;19;02 – 00;03;09;01
So Jim, with that, can I go first? Can I talk about why I think the screens are a little greener today?

Let’s talk about that.

Okay. Well, I think to me two things are really important today. First thing, nonfat dried milk markets are still hot. That’s helping the Class IV market along. Yesterday CME spot markets landed at 228.25, still hitting those record-high levels. We’re seeing a pop up in the futures market as well.

We had an industry conference last week that I talked at length about on last week’s Ag Smarter: The Dairy Feed, but I still think that there’s a lot of demand out there in the U.S. market. Things still feel tight, and I think that overall is pushing that nonfat market a bit higher.

00;03;35;07 – 00;04;29;01
The butter market is a little spicier too, which to me is probably export related, if I were to guess. We saw yesterday surprising March export figures on butter — 25 million pounds up. I think that was almost 90% more than the year before.

South Korea took 5 million pounds of butter. That was up from 1 million pounds a year ago. The Middle East was the big one we were asking questions about. Even with the conflict in Iran starting up in that early March timeframe, MENA still took 4 million pounds of butter. That was 17% of the total U.S. exports for the month.

I still have a lot of questions around logistics into that region and whether or not we can continue to see longevity in butter exports into the Middle East, given all the noise there and the fact that European prices are starting to get a bit cheaper.

00;04;29;01 – 00;05;21;03
But at least for today, it seems like butter exports may be helping to give the butter market a little bit more friendly feelings.

I don’t want to miss the cheese export numbers, if I may. Cheese exports: 140 million pounds, a new record high. Shipments to Mexico: another new record high. Latin America outside of Mexico: 28 million pounds shipped, a big increase on a year-over-year basis. Shipments to South Korea up to 23 million pounds.

Hey Jim, guess what? We actually had a whole heck of a lot of cheese in the month of March. But to me, what’s really interesting is we made a bunch more cheese inventories — not all that exciting. In March, we saw an average increase between February and March stocks.

00;05;21;05 – 00;06;08;03
We shipped a lot of product, yet this cheese market doesn’t seem like it can really get past that $1.60 per pound mark, which tells me we are still extremely reliant on staying export competitive in this marketplace.

European prices have been moving a bit lower as Europe has lots of milk. They’re making a lot of cheese. They are being a pretty aggressive competitor into the international market. So even though we’re exporting a bunch, we’re not putting a bunch away in storage. Domestic demand I think is still only so-so.

This market just can’t seem to get up off the mat and blow past that $1.65 per pound mark. So I think we’re just kind of choppy here in the cheese market.

00;06;08;03 – 00;06;57;19
Okay. Well it’s certainly been an interesting ride here as we now move into the month of May. And Kathleen, you took this show on solo last week, so well done. But you had a big week last week. You had your Insights team in Chicago, you had ADPI in Chicago. Anything that you’d like to report on from then that you didn’t get a chance to in last week’s episode?

I don’t think so, but I am really curious. We’re past May Day, past Cinco de Mayo. I’m guessing we’re getting into May planting period. Is that wrong?

Yeah, it’s not wrong. We are planting. Today is Seis de Mayo, as some might say, and we are starting to cruise a little bit with the planting pace.

00;06;57;19 – 00;08;07;02
We have already been ahead of pace, and we’ve talked about how especially in the southern areas of the western Corn Belt — let’s think maybe like Peoria south, drawing a line east-west — we’ve had some pretty strong pace coming from folks in that part of the United States.

As we shift northward now from that region, those folks are starting to catch up a bit. So it has been chilly and wet most of this spring here in the Midwest. It’s nice and sunny today, but we’re still waking up to 40s. We’ve had a few splashes of rain day to day here, so folks are trying to be a bit more strategic.

Now that we are in May, they’re going to get a bit more aggressive when they do get that open window with some sunshine and dry out a little bit in terms of how aggressive they will plant.

But even on Monday afternoon’s crop progress report, corn’s at 38%. That’s ahead of the five-year average. Beans were 33%, also ahead of the five-year average.

00;08;07;02 – 00;09;16;13
So we’re going to continue to stay ahead of that pace. Folks are very excited to see that.

As we talked about a couple of weeks ago, wheat conditions still not great — and that’s specifically the hard red winter wheat area. So you think of the Kansas City wheat contract, conditions there are still very rough. But it feels like they might get a splash or two here in the next week or so, which at this point, anything will help.

But I think there’s a lot of folks that are also wondering: is that maybe too little, too late at this stage in the game for some of that hard red winter wheat?

I think what’s really interesting as we look forward here is that yes, we’re planting like crazy. So we’re going to start to see some of that seasonal pressure in the corn and bean market should we continue to get this crop in the ground, especially ahead of pace.

We have a couple other things happening in the macro space, if you will.

00;09;16;13 – 00;10;19;00
It feels like President Trump is still going to China next week. Feels like he’ll still meet with President Xi in China, and maybe we’ll talk about some soybeans and if we’re going to pick up the pace again on exports to China on beans.

Kathleen, you talked a lot about that cheese export pace. Things are still very aggressive. That’s been the case for corn as well. It’s a similar story. The corn export pace remains incredibly strong, but my goodness do we have a lot of corn available in this country.

So a similar storyline of supply is keeping pace with the demand on the export side.

What’s been happening then, as we’ve talked about at length, is that outside factor of what’s been happening in the Middle East. You’ve touched on it in the show here, but the Middle East is still the big factor for our grain and oilseed markets at the moment.

00;10;19;00 – 00;11;13;22
As we record on Wednesday, May 6th at 11:30 Chicago time, it feels like messaging from leadership in this country is a bit more positive about a deal or something happening. There was some commentary from the president this morning about the blockade maybe easing, maybe we’re close to terms.

The market is certainly trading that way. The crude oil market pulled back very aggressively. We’re back near $95 a barrel again on nearby. That’s provided some huge relief for the grain and seed markets.

Bean oil is down 2.5%, beans are down 2%, corn is down nearly 3% nearby and another 2.5% for the July delivery.

So there has been at least a couple of days now of hoping for some relief. It was tough for us to see Monday the grain and feed markets really driving higher for dairymen, and then hard to tell if yesterday was Turnaround Tuesday or if we were anticipating something like today where it’s kind of a rolling out of bed feeling of managed money taking profit, taking risk off the table after pouring into these markets.

00;11;13;22 – 00;12;07;12
So we’re in a wait-and-see approach in terms of trading this based off the war. We’re going to focus on the president’s trip to China. We’re going to focus on next week. And we’re going to focus on planting. There’s a lot happening in the grain and feed markets here as we push into May.

Very exciting. I had a question earlier today on fertilizer markets and what was the expectation for fertilizer impact on producer margins.

Yeah, so for one, it is to be assumed that fertilizer is going to be a squeeze on margins.

I think the conversation we’re having is: did December corn futures pushing up above $5 there for a hot minute — if folks were able to capture some of those pricing opportunities — was that able to offset a little bit of the input price squeeze you saw?

Not just fertilizer, but think of diesel and other farm inputs as we are running through the planting season now.

00;12;07;13 – 00;13;20;28
So was that enough? If folks were able to step in, manage risk, or at least be able to secure some sales at those levels, it does feel like despite some of the aggressive headlines, many people were able to already secure availability. Maybe they even secured pricing already.

The deep concerns are for what would happen the rest of this calendar year, and then what would be available and at what price point when we get into the fall.

Right. I think that’s what people are concerned about as well.

Timestamp May 6th: can we open the Strait of Hormuz? Can we get things flowing normally, if you will, around the world? Maybe we’re not as big of a squeeze or an issue as we get into fall for some of those fall applications that we might not have secured yet.

00;13;20;28 – 00;14;01;01
So yeah, is May 6th soon enough? Or is June 6th soon enough? At what point does it start getting too close for comfort on kind of letting the global supply chain get back to what we considered normal before this started?

So that’s going to be really interesting as we push into the rest of spring and summer.

Okay Jim, I’m going to turn the topics a little bit. You asked me about my last week. You also had a team meeting. Is there anything that folks should know on your team meeting?

We did have a big team meeting. It was a big week. We had ADPI, our dairy producer team all came into town meeting with both the commercial side, but we had some of our dairy farmers that we work with in Chicago.

Amazing to see them and have them in the Windy City and to have them be able to interact not just with other members of our team, but with members of the industry on the commercial side too.

00;14;01;03 – 00;15;00;08
So it’s always an amazing week. We doubled down and had some serious meetings with the team as well internally.

I think what’s really important for folks to remember is that this is a very important time of the year to manage risk on both sides of the market.

There are things happening in some of the risk management space thinking about insurance policy changes happening when it comes to either your beef-on-dairy opportunities to manage risk with culled cows, or maybe to utilize LGM and DRP concurrently as you move into the next crop year.

So I won’t get into some of those details here on the show, but please reach out to your agent to ask about some of those changes and how they could be very beneficial to the operation and to managing risk as we move forward.

And again, if you feel like capturing margins, today is a nice day to see that milk up, feed and energy down. And we’ll leave it at that as we turn to Mr. Jake Kingsley.

00;15;00;09 – 00;16;04;04
Kathleen, from his Words from Wichita.

Everyone, happy Cinco de Mayo. We’re one week away from the May WASDE, which should give us our first look at the itemized balance sheets for the 26/27 crop — the one we are planting right now.

Given 3 or 4 million fewer acres of corn this year, it’s likely to be a smaller ending stocks number than last year, but still healthy, just under 2 billion bushels.

Drought-stricken hard wheat and continued uncertainty in the Middle East have corn futures elevated once again. Fundamentals, though, would indicate that $4 corn is still a possibility. But until the crop is established and the previously mentioned supporting factors subside, we expect premium to remain in the market.

Cottonseed is another concern for feed buyers, and we’re watching that closely. Cotton futures have surged to break-even levels, and it should incentivize growers to produce and harvest a crop for the first time in multiple years.

But significant precipitation is needed to get the ball rolling. Without adequate rainfall in the Texas Panhandle in May, prices on seed could jump as much as $100 per ton in a matter of months.

00;16;04;09 – 00;16;23;12
We’re looking for opportunities to own next year’s needs and making plans with dairies nationwide to stay in front of this issue.

All right. That’s going to do it for today’s episode. If you found today’s episode helpful, be sure to like, subscribe, and share it with a colleague or friend who could use some market clarity right now.

We’ll see you next time on Ag Smarter: The Dairy Feed.