Ag Market Update: Crop Insurance Harvest Prices, Grain Storage, & Livestock Margins

About this episode

In this episode

1. 0:23The beef and pork spread
2. 1:40Cattle: fund liquidation and a $10 week
3. 3:14Will pork take beef’s demand?
4. 4:12Managing cattle downside risk
5. 5:16Corn: harvest past 60% and $4.50 futures
6. 5:49Crop insurance: the $4.75 harvest price
7. 7:20Mexico, rail freight and corn exports
8. 8:13Storing corn and options after harvest
9. 8:45Soybeans: a $12.63 harvest price
10. 9:47After China’s quota
11. 11:38Wheat: low prices buy new demand
12. 14:05Hogs: six-year lows and seasonal supply
13. 17:01Midwest rain and soil moisture
14. 18:00Following the fund money

Episode summary

1. 0:00Speaker AWelcome to the Ag Optimus Market update, brought to you by Ag Optimus at www.agoptimus.com. Please remember that futures and options trading involves substantial risk of loss and is not suitable for all investors and producers. Past performance is not indicative of future results, and all trading, marketing and hedging decisions are the sole responsibility of the producer.
2. 0:22Speaker BGlad to be here for this deep dive.
3. 0:23Speaker AYeah. So right now, um, a consumer walking into a typical grocery store to plan their holiday meals is staring at a massive, almost incomprehensible disconnect. Oh, absolutely. I mean, if they want to serve beef, the wholesale product supplying that aisle is priced like an absolute luxury.
4. 0:38Speaker AGood. It's sitting up around three hundred and sixty seven dollars per hundredweight. Right? It's incredibly high. But then, you know, if they walk a few feet over to the pork section, that wholesale product is practically being given away at seventy dollars.
5. 0:53Speaker BYeah, it's a wild spread.
6. 0:55Speaker ASo today we are doing a deep dive into the late October and early November agricultural market movements. And we are going to figure out how this massive extreme spread is ripping through the markets.
7. 1:07Speaker BWe really need to unpack that
8. 1:09Speaker ABecause we're looking at a board completely soaked in red ink across multiple commodities right now. And, you know, we need to separate the hard verified facts from the emotion of the sell off.
9. 1:18Speaker BWell, it's important to remember that commodity markets naturally experience ups and downs. That volatility is just their fundamental nature. Right? But what is dominating the screens right now is massive managed fund liquidation. The funds are unwinding positions. And that aggressive selling is thoroughly tested.
10. 1:37Speaker BSeveral key support levels across the board just pushing everything down.
11. 1:40Speaker AExactly. Our goal is to establish a calm objective framework for you. We have to look at the mechanics behind the money flow to understand what is actually happening to the physical commodities out there. So let's start with a market absorbing a lot of that liquidation pressure cattle.
12. 1:55Speaker AIt was, I mean, a genuinely brutal week on the board.
13. 2:01Speaker BIt really was.
14. 2:02Speaker AThe verified data shows the December live cattle contract dropped ten dollars seventeen cents for the week. It ultimately closed down in that two hundred and twenty ninety five to two hundred and twenty six thirty range.
15. 2:13Speaker BYeah, a steep drop.
16. 2:14Speaker AAnd this wasn't just paper trading reacting to outside noise either. The cash trade weakened right alongside it. We saw the cash market move down to two hundred and twenty three to two hundred and twenty six. Live. And three fifty to three fifty two dressed up in the north.
17. 2:27Speaker BYou see the cash market erosion is the anchor here. When you see cash prices paid directly to the producer falter. That's significantly. The futures market really has no choice but to recalibrate. It has to match the physical reality on the ground precisely. The board can't sustain a premium if the Packer isn't willing to pay up for the live animal in the yard.
18. 2:47Speaker AAnd we saw that volatility completely cascade into the feeder market to January. Feeder cattle took a wild ride, dipping all the way down to three hundred and thirty one dollars seventy seven cents before finding enough footing to see some upward movement. A lot of back and forth, though.
19. 3:00Speaker AYeah. But this brings me back to that grocery store scenario. The Packer cut out margins remains structurally massive. We have a very strong choice beef cutout, ranging between three hundred and thirty three and three hundred and sixty seven dollars.
20. 3:14Speaker BThey are definitely capturing immense value right now, right on the wholesale beef leaving the plant while the producer is taking a ten dollars hit on the live animal. So at a certain point, with wholesale beef sitting at three hundred and sixty seven dollars and pork at seventy dollars, isn't retail demand just going to violently pivot?
21. 3:32Speaker AIt's a valid question.
22. 3:33Speaker BI mean, consumers have breaking points at a nearly three hundred dollars spread. It seems inevitable that pork is going to steal substantial retail demand away from beef.
23. 3:41Speaker AWell, the spread is stark, and retailers are acutely aware of it as they plan their holiday featuring. But we also have to look at the global consumers breaking point. What do you mean? The recent data showed beef export sales falling forty one percent down to eleven thousand tons.
24. 3:47Speaker AOh wow. Forty one percent. Yeah. That suggests international buyers are also balking at these elevated price levels. So in our opinion, we are watching closely to see if the domestic cash cattle market stabilizes to prevent further technical chart damage.
25. 4:12Speaker BBecause if domestic retail demand slows down because of that spread, Packers will have even less incentive to bid up for live cattle. Exactly. So for the cattle producer watching the board bleed right now, how do you manage that specific risk? You have tight underlying supply.
26. 4:27Speaker BBut these macroeconomic pressures are just weighing everything down.
27. 4:32Speaker AWell, historically we've seen that overarching herd supply constraints, just a simple reality that we possess. A historically small national cattle inventory tend to provide a fundamental floor to the market.
28. 4:44Speaker BRight? You can't slaughter animals that don't exist.
29. 4:46Speaker AExactly. However, producers might consider futures and options strategies to manage their downside risk in the near term.
30. 4:52Speaker BOkay. Because of the outside noise?
31. 4:54Speaker AYes. If outside macroeconomic pressures like, say, the upcoming election volatility or broader equity market sell offs continue to drive fund liquidation, the fundamentals can be temporarily ignored by the market.
32. 5:06Speaker BRight? Money flow takes over.
33. 5:08Speaker AYeah. So options can help define that risk while keeping the producer positioned for when the tight supply narrative eventually returns to the forefront.
34. 5:16Speaker BMakes sense. And you know, anyone feeding those cattle is heavily focused on input costs, which is a perfect pivot into the corn harvest. Let's look at corn. We have officially passed the halfway mark. The USDA numbers show the U.S. corn harvest hitting sixty percent completion.
35. 5:29Speaker BIt's a solid pace, even if it's trailing the five year average just a bit.
36. 5:34Speaker AThe physical harvest is moving well, sure, but the pricing environment is where the tension lies, right?
37. 5:40Speaker BDecember corn futures have been hovering right around the four dollars fifty cents mark, heavily suppressed by that same managed fund selling we discussed in the cattle complex.
38. 5:49Speaker ABut the defining number for corn right now isn't the futures price, is it? It's the crop insurance data. Yes, that was a major development because the final October harvest price for crop insurance officially settled at four dollars seventy five cents a bushel, which is huge.
39. 6:00Speaker AYeah, that is a higher number than the spring guarantee, which was set at four dollars sixty two cents. We haven't seen a harvest price trigger higher than the spring price for corn in four years. It's been a while. So I want to drill down into the mechanics of this, because if you are a producer sitting in the combine right now, this fundamentally alters your marketing psychology, right?
40. 6:22Speaker AIt absolutely does. If the board is trading at four fifty, but your insurance floor is locked at four seventy five. Any indemnity payment you get has to come from a yield loss, not a price loss. Correct.
41. 6:33Speaker BThat is the mathematical reality of how revenue protection policies function in this specific environment. The harvest price is calculated using a rolling average of the December futures contract throughout the entire month of October. Okay. And because October's average held up stronger than the February average, the revenue guarantee physically increases.
42. 6:54Speaker ASo if my farm's actual harvested yield is normal or even slightly above average, the price hasn't dropped enough from that new four point seventy five baseline to trigger a payment.
43. 7:02Speaker BCorrect. Any shortfall would have to be driven purely by a lack of physical bushels per acre.
44. 7:08Speaker ASo the safety net shifts, if I know my price is somewhat insulated by this higher guarantee, I might be far less inclined to sell physical corn across the scale at four fifty right now.
45. 7:19Speaker BRight. You might just hold on to it,
46. 7:20Speaker AEspecially when we look at the export numbers. The verified data showed fifty one point three million bushels sold, which is, you know, a pulse, but accumulated outstanding sales are still lagging behind last year's pace. Yeah they are. And the big elephant in the room is Mexico.
47. 7:35Speaker AThey are our top buyer. But they've been stepping back.
48. 7:40Speaker BWell the logistics are dictating the Mexican demand right now. They are facing incredibly high rail freight costs. Oh okay. And that makes the landed price of U.S. corn much less attractive. They are effectively sitting on their hands, just waiting for either the freight costs to normalize or the underlying futures price to drop enough to offset the transportation penalty.
49. 8:01Speaker ASo they're playing a waiting game.
50. 8:02Speaker BExactly. In our opinion, if Mexico steps in and aggressively buys at these current levels, it could help forge a seasonal market low. The market is searching for a demand anchor right now.
51. 8:13Speaker ASo if we are waiting on international logistics to sort themselves out, what is the play for the producer holding the physical grain?
52. 8:19Speaker BWhat producers could consider post-harvest storage strategies if they have the physical bin space on the farm? Lock it up. Yes, storing the grain keeps it out of the commercial pipeline during peak harvest pressure. To complement that, they might consider utilizing options to capture any potential post-harvest recovery in the market
53. 8:38Speaker AThat makes sense
54. 8:39Speaker BAnd allows you to protect the value of the grain in the bin while participating. If Mexican demand finally ignites a rally,
55. 8:45Speaker AYou know, corn wasn't the only crop to get a jolt from the insurance calculations. Soybeans are carrying an even more dramatic story. They really are. The combines are rolling incredibly fast here. Harvest is sitting at seventy nine percent complete, running well ahead of the average pace.
56. 8:58Speaker BThey're getting it out of the field fast, and that crop insurance harvest price finalized at twelve dollars sixty three cents a bushel. That is a massive leap from the eleven dollars nine cents spring price. We haven't seen this happen for soybeans in half a decade.
57. 9:13Speaker AIt drastically changes the baseline revenue expectations for the roughly eighty million acres of soybeans insured this year. I bet. But while the insurance math is similar to corn, the physical demand narrative for soybeans is entirely different right now.
58. 9:27Speaker BYeah, because the export pace is blistering. Weekly exports are running eighty percent ahead of last year's pace. We just had a ten point nine million bushel flash sale hit the wire. That's a strong number. And the verified numbers show China has already purchased fifteen million metric tons toward an expected twenty five million metric ton target.
59. 9:47Speaker BThe market is celebrating this, but, um, I have a question. Sure. If China is functionally capped at twenty five million metric tons just to meet specific predetermined trade commitments, aren't we rapidly running out of runway? That's a concern. Once they buy those last ten million tons and check that box, this entire demand narrative basically evaporates.
60. 10:09Speaker BWe are just trading one bottleneck for another. Who steps in to buy U.S. soybeans the morning after China hits its quota, and then it's the exact strategic vulnerability of the current soybean board. From a broker's perspective, this reliance on a single quota driven buyer raises a massive red flag for the winter months.
61. 10:27Speaker BI mean, they aren't going to buy forever, right? Yeah. Historically, we've seen that once China meets its specific quota, the burden of export reliance shifts heavily. And the global trade flow typically pivots to South American origination. So they just move down south. Exactly.
62. 10:40Speaker BThe market desperately has to find secondary buyers to maintain this momentum. So if the export window slam shut, focus has to immediately shift to the domestic crush and whatever's happening down in Brazil. Precisely. We believe domestic crush demand will have to do the heavy lifting to support the basis.
63. 10:59Speaker BOkay. Concurrently, South American weather, specifically the planting conditions and early crop development in Brazil, will become the primary catalyst for the futures market As the US export window closes, the market will trade the southern hemisphere weather forecasts meticulously,
64. 11:15Speaker AWhich guarantees a highly volatile winter trading environment. It does. And regarding risk management, producers might consider option strategies to protect against the volatility that South American weather markets could indicate heading into winter. That makes a lot of sense. You can use options to establish a price floor without having to commit physical bushels in a market that could violently swing on just a fourteen day rain forecast in Mato Grosso.
65. 11:38Speaker BNot while soybeans are relying on a predetermined quota to move product. The wheat market is doing things the hard way.
66. 11:45Speaker AYeah, it's a totally different story. It is actively using low prices to buy brand new global demand. Winter wheat seeding is seventy six percent complete, but the action is entirely on the demand side right now. The demand side is where it's at. We saw a brutal two dollars per bushel price drop from the September highs, and it was painful for the producer, but it did exactly what a price break is supposed to do, right?
67. 12:06Speaker AIt triggered global end user buying.
68. 12:08Speaker BThe old market adage applies perfectly here. The cure for low prices is low prices. Yeah,
69. 12:15Speaker AWhen a commodity becomes cheap enough, it forces end users to change their
70. 12:18Speaker BBehavior and the data proves it. Weekly export sales hit a marketing year high of thirty one point two million bushels. We saw the Philippines and South Korea step up in a major way. Very strong buying. And there are credible rumors that China's state owned Cofco is quietly asking for U.S.
71. 12:34Speaker BSoft red winter wheat bids. Right. It functions just like a grocery store. Loss leader the store takes a brutal financial hit on a gallon of milk to get you in the door. Here, the U.S. wheat market took a two dollars hit, but it was severe enough to force major global buyers like South Korea to completely reroute their supply chains.
72. 12:53Speaker BThey're booking U.S. freight instead of relying on the Black Sea. Exactly. And that mechanism is vital to understand when you have ongoing logistical and geopolitical disruptions in major exporting regions like the Black Sea, global millers need a reliable alternative. And we became cheap enough to be that alternative.
73. 13:11Speaker BYes, in our opinion, this surge in end user buying is a strong positive signal. It proves that US wheat has finally found a price level where it is fiercely competitive on the global stage. But being globally competitive doesn't erase the grain sitting in our own backyard, does it?
74. 13:26Speaker BWe still have a massive pile of domestic ending stocks. Unfortunately, yes, it has to act as a ceiling on how high this market can realistically bounce, right? It absolutely acts as a fundamental headwind. The domestic supply is heavy and it takes time to chew through those ending stocks.
75. 13:40Speaker BSo what's the strategy from a risk management standpoint? Producers might consider forward hedging opportunities via futures. If this new burst of export demand successfully establishes a firm price floor, lock it in. Exactly. If this global buying creates a profitable rally, the sheer weight of our domestic stocks suggests producers should carefully evaluate locking in those margins rather than hoping for some runaway bull market.
76. 14:05Speaker BLet's shift from the grain bins back to the livestock sector. We talked earlier about cattle facing tight supplies but struggling with cash prices, lean hogs are facing a completely different structural nightmare. It's been tough for hogs. They are drowning in seasonal supply. The numbers here are just grim.
77. 14:21Speaker BThe December contract hit a life of contract and a six year low, bottoming out at fifty eight point twenty cents. That's a very hard floor. And the cash hog index plummeted to sixty seven point three cents, its lowest point since January of twenty twenty four.
78. 14:35Speaker BBecause the physical volume of hogs moving through the slaughter facilities right now is immense, it is severely testing the absolute limits of wholesale demand,
79. 14:44Speaker AAnd the pork cutout value reflects that entirely, slumping down to seventy dollars sixty nine cents, which we haven't seen since December of twenty twenty.
80. 14:53Speaker BThe cutouts just struggling to find support.
81. 14:55Speaker ANow, there was a glimmer of life in the export data, with pork sales up thirteen percent to forty two thousand three hundred metric tons, mostly heading to Mexico.
82. 15:04Speaker BThat's a bit of good news.
83. 15:06Speaker ABut even with Mexico buying, the overall market sentiment is suffocating. One source referred to it as a perpetual ball of bearishness.
84. 15:15Speaker BIt certainly feels that way to the producer.
85. 15:17Speaker AYeah, I mean, if you are a pork producer looking at beef priced at three hundred and sixty seven dollars wholesale, you'd think pork would be capturing all the budget conscious retail demand.
86. 15:28Speaker BYou would think so. Yeah.
87. 15:29Speaker ABut if Packers can't raise wholesale prices and the cash price keeps dropping. Isn't this just a mechanical self-fulfilling downward spiral until we finally exhaust the fourth quarter supply?
88. 15:41Speaker BThe frustration in the hog sector is palpable, but keeping an objective view of the seasonal mechanics is essential here.
89. 15:48Speaker AOkay,
90. 15:49Speaker BThe fourth quarter is historically the most difficult period for the hog industry. You are dealing with a simple, unavoidable reality of seasonal slaughter supply.
91. 15:58Speaker AThere are just too many of them, right? The spring farrowing numbers, combined with cooler weather weight gains mean maximum tonnage is hitting the packing plants right now. You cannot outrun the physical supply.
92. 16:09Speaker BSo what happens?
93. 16:10Speaker AIn our opinion, the cash market is buckling under this weight, and it is actively forcing the futures to chase it lower. The board cannot price in a premium when the physical cash market beneath it is eroding daily.
94. 16:22Speaker BSo if you are caught in the middle of this seasonal crush, what tools actually work? Because you can't stop the hogs from gaining weight?
95. 16:28Speaker ANo you can't. From a risk management perspective, producers should consider autumn margin protection strategies using futures or options. Okay, the goal here is to navigate these extreme seasonal contract lows by defining your floor. It is about deploying defensive strategies before the seasonal supply fully overwhelms the cash bids in your local region.
96. 16:48Speaker BThat makes a lot of sense. And you know that defensive mindset applies to the fields just as much as the barns. Oh, absolutely. Because before we finish up, we have to look at the one fundamental that dictates the pace for every crop. We've discussed the weather.
97. 17:01Speaker BWe always come back to the weather. The fourteen day extended Midwest forecast shows early November rains sweeping directly across the Corn Belt. We've got forty percent of the corn and twenty one percent of the soybeans still sitting out there.
98. 17:14Speaker ASo those remaining acres are highly vulnerable to weather delays, and combines are going to be parked for a few days.
99. 17:20Speaker BWell, how much of a threat is this rain to the final yield versus the benefit it brings to the soil?
100. 17:25Speaker AIt is a trade off, for sure, but fundamentally it leans heavily toward the positive. Really? Yeah. The rain will undoubtedly cause short term logistical headaches and slow down the remaining field work. However, these early November rains are critical for restoring fall soil moisture profiles ahead of the hard winter freeze.
101. 17:42Speaker BAh, I see.
102. 17:44Speaker AThink of soil moisture as the agronomic bank account. You start with next spring. Getting those reserves replenished right now before the ground locks up is a massive fundamental positive for next year's crop potential, even if it frustrates the producer trying to finish harvest this week.
103. 18:00Speaker BA short term logistical headache for a long term agronomic payoff, I like that. So as we wrap up this deep dive, I want to leave you, the listener, with a broader question to consider. It's an important one. We started today looking at a board covered in red, heavily driven by a managed fund liquidation.
104. 18:16Speaker BWe've seen how these algorithms and massive money managers can initiate simultaneous sell offs across completely disconnected commodities,
105. 18:23Speaker ARight? Dragging down live cattle and December corn in the same breath. Exactly. Regardless of their individual fundamentals. So the provocative thought is this are we entering an era of agriculture where tracking the macro money flow, understanding the behavior of these massive funds is becoming just as vital to your farm's survival and marketing strategy as tracking the weather radar over your own county.
106. 18:48Speaker BThat's something to deeply evaluate as you review your risk management plans this season.
107. 18:52Speaker AIt definitely is.
108. 18:53Speaker BThank you for tuning in to the Ag Optimus Market Update. For tailored risk management and hedging strategies, visit us at www.agoptimus.com. As a reminder, futures and options trading involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results, and all trading and hedging decisions remain the sole responsibility of the producer.