Transcript

Futures trading involves risk and is not suitable for all investors. Content provided in this 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 to your operation.

Jim Matthews:
I’m Jim Matthews. I’m joined today, as always, by the one and only Miss Kathleen Wolfley. It is about 9:15 a.m. Chicago time on Wednesday, May 13th. Kathleen, we have another busy week here.
Kathleen Wolfley:
Sure do, Jim. It was a WASDE week.
Jim Matthews:
Tell me what you took away from yesterday’s report, how the market’s reacting, etc., etc.
Kathleen Wolfley:
Yeah, so WASDE week. Yesterday, Tuesday, was our monthly report — our May release — and was our first look at new crop, which is always a fascinating moment to see what the U.S. government is going to do with some of that new crop balance sheet.
I’d say the report for corn and beans, let’s say, was not very surprising. We didn’t do a whole lot in terms of shocking this market. We kept old crop corn ending stocks, for example, above 2 billion bushels. We did pull new crop slightly below 2 billion bushels. So largely as expected by the market, because we also anticipated a lower planted acreage number this year based on those March numbers we got from projected plantings, which was a healthy cut from last year’s.
So, not surprising. I think the big number then that everyone would want to ask is, “Well, if it wasn’t surprising, why was corn up another decent chunk, and why were beans up another good decent chunk?”
For one, I think the soybean balance sheet was overall maybe a smidgen tighter than what people were anticipating. That new crop bean balance sheet edged a little bit closer to 300 million bushels than it would be closer to 400 million bushels. So I think that psychology there had an impact.
But there’s also a few outside things that we’ve been talking about a lot with our clients over the last couple of weeks and couple of months. It’s not exactly WASDE-related, but wheat was obviously related, and that’s something that we’ve talked about with folks and how detrimental those hard red winter wheat acreage conditions have been. It’s been a rough go.
And the USDA did update their forecasts for our wheat crop. So those wheat numbers were kind of a confirmation for the market in terms of what they thought the USDA would do with the wheat balance sheet. So notably tighter conditions ultimately then being baked into this data.
And you saw wheat trade up $0.40 to $0.45 for both Chicago, which is the soft red wheat, as well as Kansas City, that hard red winter wheat. Both of those contracts really, really firm yesterday.
So corn, even though one could actually argue the corn numbers were a bit more bearish even than market expectations, corn’s got to battle its cousin wheat trading significantly higher. You have moving out into deferred months on wheat — we’re at $7 wheat on some of those deferred months. So it’s very difficult for corn to not try and trade $5 on December, even though we are flirting with — we’re already over 2 billion bushels for this crop year, and we’re just under 2 billion for the next crop year.
And yet, as long as wheat’s going to trade seven bucks, it’s kind of hard for corn to take a stab lower. And Jake’s going to talk about this a little bit in his “Words from Wichita” segment.
But yeah, things are as bad as I think we thought they were on the wheat side. But there’s going to be a seasonal element that Jake refers to as well of, at the end of the day, we’ll be harvesting wheat here in the next month in some areas — probably starting already. Corn then is going to be done planting here in the next few weeks. So there is going to be seasonal pressure on this.
But then, of course, to add to the macro discussion a bit further, crude oil at 100 bucks — it’s going to be hard to shake corn strength. And then our president is currently meeting with the Chinese president, and so there’s a little bit of hope for some in the industry that he’s going to secure at least a dialogue, if not an actual deal around trade, specifically soybeans in terms of our markets.
So even though that report wasn’t largely extremely bullish, beans did firm up with a tighter balance sheet, but also hoping and maybe anticipating some sort of trade negotiation out of China.
So, Kathleen, that’s kind of been the drill over the last day or two in the grain and feed markets. I’d be curious, Kathleen — is there anything that would potentially come out of the summit in China that could impact the dairy markets?
Kathleen Wolfley:
I think it’s possible. Buyers in China like to have stability, right? And in the last several years, there’s been a lack of stability in trade dynamics on the dairy side. So it’s, again, possible that we could see a little bit of better feelings on especially the whey side.
But generally, China’s dairy demand has been pretty soft, especially as we look at the powder markets. And with U.S. prices, especially on the powder side, so strong relative to the rest of the world, I guess I don’t see any immediate impact from a China-U.S. relations perspective.
Jim Matthews:
If Trump and Xi decide, “Hey, we’re all good on tariffs, especially dairy-related,” right?
Well, I think it’s going to be super interesting to see what they do come up with. Obviously, we cannot help but talk about Iran almost on a daily basis here, of course. But I think that is also going to be incredibly impactful for the president’s negotiations with the Chinese.
Because even though, let’s say, I think the numbers can range from 10 to 20% of Chinese crude inputs come from Iran, I think in terms of Iranian crude exports, about 80 to 90% from their side goes to China. So there is going to be a significant storyline then between those two presidents when chatting.
So, Kathleen, is there anything really impacting the dairy market this week, or have things been a bit quieter?
Kathleen Wolfley:
I would say that this week has certainly been a bit quieter on the Class III market. Been a little up, a little down — well, I guess mostly down this week. We’re a little higher here this morning.
On the Class IV side of things, mostly lower, but I think that the nonfat market is still looking for some clear direction here. Prices on the CME spot market for nonfat remain very, very strong. Futures have been bouncing around a bit. Butter has been weaker.
And I think that drills down to the fact that we’re making more fat at the farm level each and every day. We’re pretty reliant on exports to clear our marketplace, to keep it from being overwhelmed.
I think you could say a similar story from a cheese perspective — that we are increasingly reliant on exports in order to keep our market from feeling too heavy, especially in this environment with domestic demand just being kind of meh.
Jim Matthews:
No, that’s a technical term.
Kathleen Wolfley:
Yeah, a technical term. Yes, trading term.
Jim Matthews:
But okay, so I look at last week’s average gas prices across the U.S. at $4.45 a gallon. I’m looking at crude oil prices today — they’re on the nearby trading near 103, which is a bounce back from where we were late last week. Still a lot of uncertainty around, hey, where do we go from here with the Iran war, as you commented on, Jim.
I think from a consumer perspective too, Jim, they’re looking at inflation numbers that came out yesterday — up 3.88%. That was in line with expectations, but it was the biggest year-over-year jump going back to May of 2023.
Okay, energy clearly the biggest driver, right? That’s what we expected given the hike in gas prices. But critically, I was looking at the food-at-home number, so this would be your grocery store numbers, of 3% year-over-year, up 0.7% month-to-month. That month-to-month gain was actually the biggest going back to August of 2022.
That to me says, hey, it’s not just more expensive to fill your car up with gas, but it’s also increasing the cost of goods to get to market, increasing the cost to get cheese to move from California to the upper Midwest, to go through a cut-and-wrap and get into your grocery store.
And I think you can see that across the grocery store items, whether it’s carrots, cheese, cereal boxes, etc. It’s more cost in diesel, and that ultimately is going to influence how much price inflation we’re seeing in the grocery store.
Jim Matthews:
Yeah, and I got to say, Kathleen, I’m tired. And this is where you then say, “You don’t look tired, Jim.” But I know you wouldn’t mean it.
It’s the kids have had me up the past couple nights. I didn’t get a nap, like we were talking about some naps before the episode started. But what also is rough when you’re low on sleep, kids got you up all night, and then you check out the gas pump, you check out the grocery store, you try and take the kids out to a restaurant, and you see these numbers come in up, up, up significantly from where they were a year ago.
It’s tough because the kids are then going to be out of school here pretty stinking soon. You’re supposed to be talking about summer, supposed to be talking about driving and barbecues and visiting family. And when you see these types of numbers, I was already tired, but it makes me a bit more worn out.
And so it’s going to be a very interesting summer. We’re not political analysts here, but you would have to think the president is going to need to take some sort of action. And it felt like he was flirting with the idea, at least on the beef side.
Earlier this week, there were a couple news announcements and then maybe reversals on what to do about import tariffs on beef here into the United States. So you have seen at least the livestock futures markets pull back here a little bit. There may be slightly mixed today between feeders and live cattle at the exchange, but largely we’re down to six-week lows, let’s say, on the feeder cattle market.
So something for the dairy farmers watching and listening — we got to keep a sharp eye on. We talk about just from a macro affordability context, but also from your beef revenue you are receiving on farm. If we are indeed going to try and take some measures, very important to manage some of that risk.
Some of those changes to LRP policies that are happening on July 1st to help you extend some of that cull cow coverage — please reach out and ask us about that.
But we’re going to hit a point here before the midterms where it feels like action should be taken to potentially try and bring some affordability back into the average American, regardless of their sleep schedule.
Kathleen Wolfley:
I think you bring up a great point though, Jim, because everywhere you look, costs are increasing. And I think that the administration, if they aren’t already, should be taking a hard look at that affordability question.
I know there was some chatter earlier this week about maybe rolling back some taxes on fuel to try to bring down those costs. Like you mentioned, some of that headline risk on the beef market — expect to see more of that rather than less, I suspect, in the next couple of weeks.
Jim Matthews:
Kathleen, on that note, should we just take a quick peek into the world of Wichita via “Words from Wichita”? The world of Wichita and the words from Wichita.
Kathleen Wolfley:
Jim, let’s hear from Jake.

Jake Kingsley:
Everyone, it’s WASDE day, and we just got our updated numbers from the USDA.
Old crop balance sheets saw minimal change, and our first itemized ledgers for the new crop year came in relatively healthy, with corn just shy of 2 billion bushels and beans slightly better than 300 million bushels of ending stocks.
Both were close to industry expectations, though this soybean number does keep markets supported if China does indeed resume normal purchasing volumes this fall.
Wheat continues to be the biggest supporter of corn price, but seasonal trends tend to take over even in a bad crop year, so strength from the Kansas City market could fade in the next month or so, taking corn lower with it.
Soy crush is robust, allowing for some opportunistic basis purchases even with weeks to go in the planting cycle. Fundamentals across the feed space are heavy, and we’re optimistic better prices will be available in most commodities later this summer.
As is often the case, the one to watch is cottonseed, as drought and low acres threaten supply while demand is expected to be robust on the back of lucrative crush.
Without rain in the Texas Panhandle in the next week or two, we may be forced to take prices as they sit today or find alternatives to feed in the year ahead.
Reach out to discuss your own feed needs, and we will see you next week.

Jim Matthews:
That’s going to do it for today’s episode. If you found this commentary helpful, be sure to like, subscribe, and share it with a friend or two — especially those that could use some market clarity right now.
We’ll see you next time on Ag Smarter: The Dairy Feed.