Trade | Field 2 Field

December 4, 2023December 4, 2023

2023, the Ag Economy, and a New Year Ahead

What’s the first thing that comes to mind when I say, “Describe the year 2023 farm economy in one word?” Actually, I’m not sure one word would be adequate, especially if you live and work in rural America. The best way to describe 2023 in the agricultural community for many may be “Is it 2024 yet?”

Ag Economy, 2023 — In today’s ag economy, 2023 saw many of us pinching pennies to grow crops.

Dave Widmar is an agricultural economist with Agricultural Economic Insights in West Lafayette, Indiana, and keeps a close eye on the ag economy. We had a conversation during the last National Association of Farm Broadcasting Annual Convention in Kansas City in November, a week before Thanksgiving.

“One of the biggest stories of 2023 is declining net farm income,” Widmar says as the crowd in the Trade Talk event walked by in the background. “That’s not a big shocker to most people in rural America, but we have to put it in perspective. It’s still historically high, so we need to bring it into balance.”

Unfortunately, that income balance doesn’t apply equally to all parts of farm country. He said the Midwest and the Corn Belt did especially well during the last three years combined. In fact, he called the last three years (2021-2023) the “best three-year run” since the 1940s.

“On the other side of the narrative, commodity prices have trended lower,” he said, “especially on corn. We also had another year of below trendline yields combined with higher interest rates.”

AEI isn’t necessarily watching the interest rates the general public hears about during the evening news. Those are the short-term rates the Fed adjusts at their meetings, and, since June, the Fed has raised short-term rates 25 basis points. “On the other hand, long-term rates have increased 150 basis points,” he said.

“That may continue into 2024 as that yield curve un-inverts as we move into a different economy next year,” Widmar said. “As the Fed spent time raising rates, the curve got inverted, meaning short-term interest rates got more expensive than long-term rates. This is often thought of as an indicator that recession may be coming.”

2023 ag economy — The 2023 farm economy showed producers it’s time to keep a tight reign on how they use debt.

Now the Fed has paused interest rate hikes, the long-term interest rates have continued higher. That means the yield curve is starting to un-invert, something he’ll continue watching.

There is some good news for the economy. The unemployment rate remains low, which is a positive trend, and inflation has come down “significantly.” In his words, “the genie isn’t back in the bottle yet.” The country isn’t back to two percent inflation, and the last 150 basis points on inflation are going to be the hardest to reduce. “A lot of moving pieces in 2023,” he added.

So, what do those moving pieces possibly mean for 2024? For those looking for the economy to settle down, they may be disappointed. Widmar said “hold on.”

“The volatility is probably going to continue,” he said ruefully. “That isn’t all bad. Despite record fertilizer prices, the uncertainty around usage, demand, and inflation, the farm economy had a good run between 2011 and 2023.

“We could see some reversion to the mean,” Widmar added. “Farm incomes might be lower next year but not necessarily historically bad. What we need to realize is the last three years are not normal.”

The last three years weren’t typical in terms of government payments, commodity prices, or profitability. Widmar says it’s time to start recalibrating our expectations as to what’s normal and what we should plan on being normal in the future. Speaking of the future, what should producers be thinking about heading into next year?

“One of the big things we’re keeping an eye on is acreage distribution,” Widmar said. “There’s always at least some reallocation. One of the things that we observed in 2023 was that we had a lot of corn acres and not as many soybean acres. That’s resulted in an imbalance in ending stocks.”

That’s put corn ending stocks are above the long-run average, closer to 15 percent than the average of 13 percent. Soybeans are closer to five or six percent instead of the long-run average of eight.

“That means we may see some acreage reallocation,” Widmar said. “Producers should keep an eye on the relative price ratio and how that’s going to impact their budgets.

“They also need to keep an eye on fertilizer expenses,” he added. “Fertilizer has come down a lot recently, and that’s going to benefit corn budgets quite a bit.”

Another thing to watch for is farm debt. One of the things the economists at AEI have observed is new farm loans with different terms than in the past. Take a machinery loan, for example. The payment terms have been stretched out. How does that affect the bottom line?

“For every $1,000 of farm debt one takes on, the payments are going to be about the same as they were the last few years,” he said. “The payment hasn’t changed. What’s changed is the ‘stretching out,’ which means more payments get added to the backside. The extra interest expense is backloaded into the form of additional payments.”

Interest expenses are increasing as we go forward, and it will take more payments to maintain the same level of debt that farmers have had in the past. He said a lot of the economic challenges we face today may be getting “kicked down the road.” But there is one good sign amid some uncertainty looking to the new year and 2024 spring planting.

“Lenders are still confident and comfortable making long-term loans on things like machinery,” he said. “One of the big differences between the 1980s and today is back then, we had very high interest rates and short repayment periods. Some repayment periods lasted less than a single year.”

That created a large problem of no access to capital in the ‘80s. Today, Widmar said there’s a lot of available access to debt markets, which are very accommodating right now. But, he says, just because someone will lend to you at those terms doesn’t mean you as a farmer need to accept them. “Always be thinking about the implications of any loan terms you accept,” he added.

“Stretching the terms out has kept the payments low, but now that we’re in a high-interest environment, how are producers going to adjust,” he asked. If costs like fertilizer, electricity, or gasoline go up, Economics 101 teaches that we should be using less of each input.

“What do we do then with the higher cost of money,” he said. “Using less of an input is one particular approach. We can also shift the way we’re using money, including using more long-term debt last year and then shift it to short-term debt going forward. We always have to be evaluating how we’re using debt.”

In closing, he pointed out that agriculture hasn’t been in many rising interest rate environments in the past. The 1980s was one, and farmers and now in another. Producers need to revisit the strategies they’ve been deploying around farm finances, the use of farm debt, and their cash flow.

February 20, 2023February 20, 2023

Shipping Commodities is Near-Normal, For Now

Shipping commodities up and down America’s inland waterway system got pretty hard to do in 2022, especially along the Mississippi River. Extended drought cut water levels to almost impassable levels and resulted in shipping grinding to a halt in the river. The good news is those levels are finally beginning to rebound.

Mike Steenhoek is the executive director of the Soy Transportation Coalition, a group that keeps a sharp eye on shipping and the waterways year-round. They’re happy to see those river levels starting to rise because ships are once again carrying commodities to southern ports in the U.S.

“Meaningful precipitation has occurred over the past several months,” he said from Ankeny, Iowa. “It’s made a significant impact throughout the entire inland waterway system.”

Steenhoek offered up Memphis, Tennessee, as an example, calling it one of the “ground-zero” locations for the low-water conditions last fall. That location is currently 10-10.5 feet of water depth in relation to the gauge.

“Last year at this time, we were at 19 feet,” he recalled. “So, we’re below last year. To give that some perspective, we were just about at a negative 11 feet in late October. We’re easily more than 20 feet better than we were in October, which is a significant increase making shipping easier.”

St. Louis, Missouri, was another example of “ground zero” in the low water level picture. That location is just a bit higher than at the same time in 2022, so the area has seen a nice rebound from the low levels. He says the moral of the story is the waterways have returned to a degree of “normalcy.” But there is a catch.

“It won’t take a lot of sustained dry conditions to tip us right back into lower conditions,” Steenhoek said. “It could critically impact some of those areas like St. Louis to Cairo, Illinois.”

Shipping commodities is getting back to near-normal levels, for now. The waterways need continued rainfall in case dry weather returns. (Photo by AgFax)

Cairo (pronounced KAY-row) is a significant point in the waterway system. That’s where the Ohio River meets the Mississippi and provides a big influx of water into the system so that St. Louis to Cairo area can be very susceptible to low water conditions.

How dry did some of those areas get? The levels sank so low that ships were actually running aground and getting stuck in the Mississippi River. When that happens, one of two things usually occurs.

“Those ships sometimes had to get dug out,” he recalled. “Sometimes, they had to sit there until water levels rose to the point they could move again.

We also had sediment buildup, or ‘shoaling,’ in multiple locations,” Steenhoek said. “That resulted in shipping having to stop or significantly slow down. That meant there was a lot of dredging activity occurring last year and continuing into 2023.”

The timing for ships getting stuck last fall was awful, as that’s a time when a high percentage of U.S. exports occurs between September and February. “That’s when the U.S. soybean spigot is turned on and we supply a lot of soybeans to the world market,” he said. “Bad time for one of the main ways we move product to our ports to go down.”

Steenhoek monitors shipping in the waterways closely and says there is good movement up and down the waterways right now. U.S. export volumes are comparable to even a little higher than where they were last year.

“That’s really good news,” he said. “The reports I’m getting, particularly from the export facilities down in the New Orleans area, say they are back to a healthy degree of normalcy.

“As I mentioned, we’d love to see steady precipitation continue,” Steenhoek added. “We don’t have a lot of excess water in the tank to rely on if things go that dry again.”

January 30, 2023January 30, 2023

Plant-2023 is Already Set in Stone

Plant-2023 is already on the minds of farmers across the country. As proof, Farm Futures recently did a survey of farmers in all parts of the country who will get right to work this spring. Jacqueline Holland is the grain marketing analyst for Farm Futures.

Even if wheat plant-2023 does put a cap on corn and soybean plantings, Holland says American farmers are still going to plant a whole bunch of both crops.

“For corn, we’re looking at 90.5 million acres,” she said. “For soybeans, that’s 88.9 million acres. And for winter wheat, we calculated 34.9 million acres. For spring wheat, which includes hard red spring, white spring, and durum wheat, we’re anticipating 13.9 million acres. That gives us a grand total of 228.3 million acres for the three principal crops.”

It’s been a few years since wheat took some acres from both corn and soybeans but rising input costs and still solid prices mean a lot of farmers may be giving wheat plant-2023 a second look. She was surprised when their winter wheat calculation came in lower than USDA’s prediction issued in January.

“But if you go back at Chicago winter wheat futures prices during peak planting season last October, they were 25 percent higher than the year before,” Holland said. “At the same time, input prices for corn and beans were still rising, so maybe it shouldn’t be that surprising that wheat is drawing interest for plant-2023.”

The one thing even more surprising to her was how narrow the gap was between corn and soybean acres. It’s probably going down to the wire to see how the acres shake out. But, going into spring, it looks like farmers have already made up their minds about what and how much they’re planting in the spring.

“A lot of growers had finalized their plant-2023 rotations before 2023 even began,” she said. “Seventy percent said they already had things locked in and weren’t expecting to make any last-minute changes.”

One thing she’s going to watch closely is the soybean harvest. Holland says 88.9 million acres of soybeans have the potential to lead to a “record-large” crop. If that happens, some of the supply pressure weighing on commodity markets may ease a bit.

“However, if we see more soy crush plants coming online and increasing capacity by the time we harvest the crop, there may not be much of a price break,” she said. “That added demand could keep soybean prices high even though we could be looking at a record crop.

“That’s a big one I’m going to be watching in the coming months,” Holland said.

November 30, 2022November 30, 2022

2023 and the year ahead for the ag economy

2023 and the ag economy combine to produce some trepidation as we look to next year. While the ag economy is doing okay despite several challenges like supply chain delays and high input costs, the question is how long this will last into next year. I talked with David Widmar, an agricultural economist with Agricultural Economic Insights in West Lafayette, Indiana.

There are no doubts that commodity prices are showing a lot of volatility at the end of this year, and Widmar says that’s causing a lot of angst. However, it’s generally still a positive story in the farm economy. But what’s ahead next year?

“We do expect that positive story to continue into 2023,” he said during the 2022 National Association of Farm Broadcasting’ annual convention in Kansas City. “One of the biggest reasons why is tight commodity inventories across all commodities in the U.S. and globally.”

The problem is when things get tight for corn, soybeans, and wheat, we really can’t substitute one crop for another. All of those crops will want to maintain their acreage shares. The idea of “robbing Peter to pay Paul” won’t work.

“We can’t plant fewer corn acres to make up for soybeans or vice versa,” he said. “So, everything is tight, and that will continue to be part of the narrative going into 2023.

“We know one thing about2023,” Widmar added. “There will come a point when we oversupply. We’ll bring in new production acres around the world, including South America, Southeast Asia, India, and hopefully Russia and Ukraine in the long term.”

The other thing that will eventually affect the markets is the possibility of big yields. There’s been a recent run of average to slightly below-average U.S. corn yields. “Eventually, more acres and yields will push us over again.”

Here’s the entire conversation during the NAFB’s Trade Talk event in Kansas City.

September 28, 2022September 28, 2022

Ag economic conditions strong, but for how long?

Ag economic conditions are still quite strong in 2022, but how long will that last? Nate Kaufman, vice president and Omaha bank executive for the Federal Reserve Bank of Kansas City, spoke during the recent Agricultural Outlook Forum in Kansas City. He told the audience during a presentation that incomes are still in good shape.

“Economic conditions in agriculture are remarkably strong. And I want to start here because this is not something I would have said probably two-and-a-half years ago. And I think it is an important place to start just because of how significantly different conditions are today relative to what we might have said back then. Incomes are incredibly high. We’ve seen commodity prices pick up, and yes, there are very high input costs that are leading to some concerns, but generally speaking, economic conditions in agriculture, with some caveats, are quite strong.”

Land values are a good example of the strength of the ag economic conditions.

“Land values, for example, are about 25 to 30 percent higher than what we might have seen before the pandemic. That was a time that land values had been declining the first couple of months of the pandemic, and it was maybe thought that we would see further declines, but here we are a couple of years later and seeing that conditions are much stronger. Before the pandemic, we worried about gradual increases in loan defaults. We looked at bankruptcy rates, we looked at other things that we thought there was going to be more financial stress and not less going forward. And the reality is that loan delinquencies are at one of their all-time lows, working capital levels are very high, and producers are generally in a strong position. And so, we’re seeing again from a financial picture things are rather strong there too.”

Despite the current strength of the ag economy, analysts expect slower economic growth next year.

‘Six percent growth in 2021 and 2022, that number is expected to be less than one percent, and there are concerns about economic growth in 2023. The second one is inflationary pressure. For those 10 years that we spent in the longest economic expansion on record after the financial crisis, inflation was generally less than two percent. And the Federal Reserve, as many of you may know, has a goal for inflation at two percent. We’re at eight percent, and that’s significantly higher than two. There are concerns about what inflationary pressures might do concerning some of the costs that have been mentioned.”

The other significant headwind is the interest rate.

The last one that I’ll mention then is interest rates. At the end of 2020. If you were to look at some of the projections that Federal Reserve officials would have suggested would be appropriate interest rate policy for 2022, many would have indicated that rates were likely to still be approximately zero by the end of this year. Instead, we’re in a different environment. And this is in large part because of inflation, where we’re now seeing interest rates closer to four to four-and-a-half percent by the end of this year.”

The Ag Outlook Forum was sponsored by the Ag Business Council of Kansas City and Agri-Pulse.

September 22, 2022September 22, 2022

Commodities, Sports, and Prognostication

Commodities and sports typically don’t go together most years. However, this fall, the two topics have come together in an interesting way.

Being a long-time sports broadcaster, I’ve noticed that when the major sports seasons wrap up, certain sports media love to immediately do what they call a “way-too-early” look to the next season. Evidently, it’s not just a sports thing.

I know harvest is just ramping up in many areas as I write this, but Farm Futures took what some might think is a “way-too-early” survey of planting intentions for 2023, and I couldn’t pass it up. It looks like corn will be king once again next spring among all commodities.

Commodities — Corn looks to be king when it comes to 2023 spring planting (photo from agriculture.com)

Jacqueline Holland is the grain market analyst for Farm Futures, and she wrote an article about the survey. She says the way-too-soon survey results are favoring corn for spring planting despite some challenges that come with the commodity.

“Even with higher fertilizer prices, farmers are still prepared to go all-in on corn,” she said. “Our survey found that farmers expect to plant 94.3 million acres of corn, a five percent increase from USDA’s current acreage estimates.”

If that prediction is realized, it would be the most corn planted in the U.S. since 95.4 million acres went into the ground in 2013. While soybean acres will be behind corn next year, U.S. growers are still sowing a lot of beans during spring planting in 2023.

“We expect farmers to plant 87.3 million acres of beans,” Holland said. “That’s almost a one percent decrease from this year’s acreage.” Cotton is one of the reasons that soybean acreage is going to drop a little. In the Mississippi Delta, a lot of acres in that region are going to provide “stiff competition” for soybeans during spring planting.

They also expect wheat acres to rise in 2023 thanks to more winter wheat acres in the Eastern Corn Belt. Farm Futures expects growers to plant 36.6 million acres of winter wheat. With more winter wheat acres going in the ground, spring wheat acres will back up from this year, with the 2023 estimate at 12.3 million acres.

“That means a grand total of 48.9 million acres of wheat will be planted in 2023,” she said.

Holland admits she was a little surprised at the survey results. She says there was a lot of price responsiveness to the rapidly-rising fertilizer prices heading into spring planting this year.

“When farmers were making their planting decisions in December last year, soybean prices were rallying strongly,” Holland recalled. “But with all of the issues we’ve seen with the flow of corn in the Black Sea this year, as well as the U.S. corn crop struggling with drought, corn has some bullish prospects for next year.”

She says if we do see a larger corn acreage next year, that might lead to some expansion back in the cattle market. In turn, that would likely revive some corn acreage in the Plains. Remember, about three million acres of corn went into prevent plant in the spring of this year.

“A lot of those acres were in the Dakotas and Minnesota,” she said. “Barring another bad weather event next year, I expect those acres to go back into corn in 2023.”

Farm Futures also has other questions in their survey beyond commodities and planting intentions. Those questions include where farmers are headed with input costs next year. Based on the survey responses, Holland says profit margins are going to shrink next year. The question is, how much?

“As of right now, it doesn’t look like growers are going to skimp on any fertilizer applications,” Holland said. “Most responses show farmers are ready to lock in their fertilizers at the lowest prices they can get. That will hopefully keep at least some liquidity in these crop budgets.

“We’ll see how these things ultimately shake out for planting and commodities,” she added. “There’s a long time between now and next spring.”

May 4, 2022May 4, 2022

Market Prices are Still Higher, But How long?

Market Prices are still higher, but for how long? Commodity markets are rarely dull and sometimes are outright wild. One-quarter of the way into 2022, and we’ve seen a lot of upward pressure in several commodities. The curious question is how long is this going to last given multiple outside factors that could bring the higher push to a halt.

Mike Zuzolo is the founder and president of Global Commodity Analytics in Atchison, Kansas. He’s been working in the markets in various positions since November 1995. Zuzolo has seen a lot of ups and downs over the years, and the corn market has been near all-time highs for quite a while.

“We’ve been within reach of the all-time high for corn set in August 2012, at $8.43 3/4,” he said on the phone from Kansas. “You have the Hard Red Wheat drought, you have the E15 blend increase this summer, planting delays that are pressuring a marketplace that’s expecting more acres than what the USDA predicted earlier this year.

“And then you have the soybeans getting support from the vegetable oil market, which is supported by the crude oil market, and that is supported by the biggest feature of all, the war in Ukraine,” Zuzolo added.

Over the past four months, Zuzolo said there are two overarching factors that had the most influence on the corn market prices. One is the idea from the Federal Reserve that the U.S. had transitory inflation. At roughly the same time the Fed began to publicly acknowledge that wasn’t the case, Russia began its attack on Ukraine. He said most people didn’t seem to truly expect that would happen.

He calls these two events “black rhinos.” Those are events the public knew were possible but kind of turned away from, not thinking they would actually happen. “They aren’t like black swans that we didn’t know where out there,” he said. “You didn’t think they would have the impact on the markets that’s happened so far.”

The market prices could potentially feel the impacts of the war in Ukraine for years. Zuzolo, a long-time market observer, says the length of the impact may depend on who “wins” the war and how big it may get before it’s done.

The commodity markets may feel the impact of the war in Ukraine for years to come. (Photo from Hindustantimes.com)

“Does NATO get involved?” he wondered, “It would then go from two countries directly involved with a lot of support from multiple other countries, or does it expand into a NATO and China and Syria and Iran conflict. The regional conflict would have a great chance of blossoming into more of a full-on world war.”

He thinks the trade is beginning to take the potential conflict escalation into account, “and they should.” A recent weekly stocks report of distillate fuels in the U.S., which is mainly heating oil and diesel fuel, showed America’s distillate fuels at their lowest point since 2008.

“All of the sudden, we have a situation where the wheat market is contending with a situation similar to 2008 in terms of drought potential, knocking down yields,” he said. “Now, we have the energy sector also looking like 2008. If you throw the Russia/Ukraine issue on top of that, then yes, you could have something that lasts for quite some time.”

There are a lot of negative features out there that can affect market prices. He said the trade can’t get a handle on what the supply is right now. Folks in the markets don’t know if the demand is being rationed aggressively enough at this point, because they don’t know if the supply has stopped going down yet.

“The Highly Pathogenic Avian Influenza is in 20-something states right now,” Zuzolo said, “we have a hog herd that is shrinking as of the March Hogs and Pigs Report, and we have a cattle herd that is seeing an almost-weekly drop of one-to-three pounds on a dressed basis. I think we’re only four or five pounds above where we were a year ago, and this is in the beginning of what could be one of the worst droughts in cattle country.”

The International Monetary Fund (IMF) recently cut world GDP by almost a full percentage point just since January. While the IMF puts a lot of it at the foot of the war in Ukraine, Zuzolo says it goes back to the supply chain issues. The U.S. couldn’t afford any more problems on the supply side with energy and crude oil than what the country already faced because of COVID-19.

Thinking long term, Zuzolo spoke to the possibility of the U.S. having to ration exports in order to make sure the U.S. had enough food to feed the country. He doesn’t think it will happen in terms of food exports, but it could happen in other sectors.

“In terms of crude oil, we recently lost a lot more barrels of oil than the trade expected,” Zuzolo said. “It wasn’t because of extra strong demand, it was three times more than the trade expected because we were exporting it out the door. If we can’t bring up the rig count here in the United States and start producing more to meet international and domestic demand, it will then be time to start thinking about rationing.”

Zuzolo said this will have to be a topic of conversation three-to-six months down the line if the war expands and the conflict gets any bigger than it already is. In the meantime, it’s harder than ever to guess what’s ahead in 2022 for the markets.

“I’m gonna stick with what I’ve said recently,” he said. “Because this is a supply cost-push, weather-induced, inflationary move, I still feel the first half of calendar year 2022 is the best time for grain hedgers to get their hedges in place, and yes, I do think they’ll need them. It’s because of the fact that it’s not demand led, and that we are on track for a recession, a greater than 50 percent chance, by the fourth quarter of this year.”

Commodity markets are never dull, are they? (Photo from wikipedia.com)

He says it’s important to get grain hedges in place by the end of June. For the livestock and poultry producer, the second half of 2022 is going to give them a better opportunity to hedge better profit.

“At that point, not only will high market price prices for grains pull down the weights, the HPAI will pull down supply, as will some natural herd reductions. That will all begin to be felt in the market price and the available supplies of market-ready cattle and hogs by the time we get to August and September.

“I still want to hedge the livestock markets, but I don’t think we’re on as big of a timeline as I am on the grains during the first half of the year,” he added.

April 27, 2022April 27, 2022

Port Slowdowns Continue – What’s Behind the Congestion

Port slowdowns are still clogging up the nation’s supply chains, and it’s a big problem to solve. Ray Bowman is Director of the Small Business Development Center of Santa Barbara and Ventura counties in Southern California. He’s also the program chair for the District Export Council of Southern California. The business veteran and trade consultant said things have improved a bit but only on one side of the import-export equation.

“Many things are going on to help with the port slowdowns,” he said on the phone from his office in Camarillo, California. “Most of us have seen the news footage of ships backed up and waiting to unload their cargo. A big part of the backup is the unprecedented buying demand we saw during COVID-19.”

He says the Biden administration moved to get the nation’s ports operating on a 24-hour basis or, at least, get that framework in place to help relieve congestion. Bowman says it’s helped somewhat on the import side of the business, where he says things are about 30 percent better than before.

“Unfortunately, I don’t see that it’s improved on the export side,” Bowman says. “So that’s been tough on American shippers who need to move their goods overseas.

“We knew there would be a significant increase in buying during COVID-19,” he said. “Up until recently, we haven’t seen much of a slowdown in purchasing. Companies are likely still trying to fill orders backlogged for months.”

Ray Bowman is an international trade consultant from southern California with over 30 years of experience. (Photo from edcollaborative.com)

With so much demand for containers on the import side, it’s very difficult for shippers to simply find export containers to load their goods in. Companies started focusing more and more on the import side because they were making so much more money.

When it comes to export containers, fewer goods are leaving the country, so it tends to be cheaper to purchase export containers. They aren’t worth as much to the steamship lines as the larger volume of goods coming into the country. “Because of the demand for imports, steamship companies put all their space availability on the import side,” he said. “They didn’t pay as much attention to the export side, making containers much harder to find.

“The price of those containers is another limiting factor,” Bowman said. “As demand increased, the price shot higher at an unprecedented rate. We knew the price would increase because those costs have gotten suppressed in recent years, but we didn’t expect it to climb by ridiculously huge amounts.”

Limited amounts of containers and exorbitantly high prices hit the small and medium-sized companies harder than the larger businesses. He said the larger companies have economies of scale built into their business structures. Many typically have contracts for consistent shipping availability and trucking services regularly available.

“Small and medium companies buy their services primarily off the spot market,” Bowman said. “So, those higher prices hit those companies even harder than their larger competitors. These things like container shortages haven’t come out of the blue. This has been going on for some time, but when buying spikes as we’ve seen recently, there’s a point at which a system can’t efficiently handle the excess demand. That’s when we get significant port slowdowns.”

In addition to the small pool of available containers, Bowman said warehousing space for unloaded goods is almost maxed out. American warehousing only has roughly three percent of its total space available, which is not a good thing. He says the West Coast ports have less than two percent of space available.

“That only makes the container shortage worse because you have to be able to empty containers to make them available,” he said.

Many truckers who deliver to ports run into something called a “dual transaction” requirement. Bowman said that means if a trucker has a container to drop off, they’d better have another one to pick up. If a driver has a container to pick up, they’d better have another one to drop off. It’s efficient on paper, but if a driver doesn’t have that second part of the dual transaction, they’ll have to go find one.

“Another big challenge at the ports is something called the ‘Box Rule,’” he said. “When a trucker drops off a container to a particular shipping company, you have to have a chassis. Those are the wheels on the bottom that you load the container on.

“These steamship companies have contracts with different chassis makers,” Bowman said. “A steamship line will say, ‘if you’re going to tender one of our containers, you also have the chassis of the company we’ve contracted with.’ If you don’t have the right chassis to go with the right container, you’ll find yourself with cargo, the booking, and nowhere to unload it.”

Bowman, a business veteran with over 30 years of experience, says there is a lot of conversation about not having a Box Rule at the country’s ports. Shippers don’t want to worry about where the chassis comes from. Instead, they want the companies to bill whoever needs to get billed to use a chassis.

“Because of rules like this, roughly 30 percent of truck drivers miss their appointments,” Bowman said. “if you aren’t there on time for whatever reason, such as looking for a chassis, there’s no recourse. You’ve missed your appointment. It’s not unusual, at all, for a trucker to get there hours early and miss their appointment because they’re stuck in a queue.”

Another big reason that things get bogged down is a backlog. A lot of the shipments coming in right now got booked 90 days ago, if not longer.

While shippers, port officials, and government officials are looking at how to rectify these different challenges, Bowman says one of the biggest challenges is a lack of adequate infrastructure at the ports. Most of America’s ports were built when ships were typically much smaller than they are today.

“When I started in the shipping industry, a large ship was around a 4,000-container capacity,” he recalled. “In the 1980s, that was a big ship. Now, we have ships that can hold between 10,000 and 20,000 containers.

“Not only are they bigger, but these ships also just aren’t one carrier like they used to be,” Bowman added. “It used to be one carrier, one ship. You now have what are called ‘Shipping Alliances.’ In fact, there are three big ones in the U.S. As many as four or more steamship lines can be sharing space on one ship.”

Bowman said one of his biggest personal concerns is agricultural goods. If a shipment of consumer electronics takes a long time to get where it needs to go, the products aren’t in any danger of spoiling. Agricultural shipments contain perishable products that won’t wait long for a container and ship.

“A lot of attention needs to get paid to that,” he said. “Those are some of our best exports, and we need to protect that part of the supply chain.”

Bowman is an internationally-respected business consultant who says he’s never seen anything like this before. “There have been port slowdowns in the past, but this is truly unprecedented,” he said.

April 4, 2022April 4, 2022

Soybean Harvest Disappoints South American Farmers

The South American soybean harvest is on the mind of many in the commodity markets this time of year. One expert says the Brazilian soybean harvest was about three-quarters complete, and, as of last week, the results may be a dramatic step down from last year. That could mean extra export opportunities for American soybeans in the months ahead.

Michael Cordonnier is an agronomist with Corn and Soybean Advisors, Incorporated, in Hinsdale, Illinois. The Brazil soybean harvest is 75-80 percent complete, and the Safriña, or second-corn crop, is all but completed at 99 percent after getting planted in the optimal window of time.

“I think the weather has been pretty good to allow the second-corn crop to get in the ground,” Cordonnier said while on the phone from his office in Illinois. “It’s off to a good start, but there’s still a long way to go. However, the market seems pretty confident that we’ll see a good-sized Safriña corn crop.”

In fact, he says there’s so much optimism around the potential of the corn crop that it’s pressuring Brazil’s domestic corn prices. There’s even more pressure on their domestic corn prices because the Brazilian real is strengthening when compared to the dollar. He said it’s trading at about 4.7 to the dollar, the strongest it’s been in a year.

“The South American market, at least in Brazil, is very confident that we could see a corn crop that’s 25 million tons larger than last year,” he said. “There is some concern about potential frost late in the season before the crop matures.

“La Niña is still out there,” Cordonnier added, “and it’s going to stay a couple of more months. That generally results in earlier-than-normal frost. Any frost, at all, before the end of June is important for the Safriña crop in Brazil.”

The pace is a lot slower in Argentina, where the South American crop expert says the corn is about ten percent harvested while the soybean crop is less than five percent in the bin. Early yields continue to be disappointing, early on, so he said it remains to be seen what will happen in Argentina.

South American growing areas struggled with a drought that, in some cases, stretched back to 2021 and earlier. He said some of those same areas are starting to see some rainfall. However, many areas are still looking for a consistent drink of water to recharge their soils.

The Brazilian soybean harvest may be disappointing, but the second corn crop is off to a good start, even though there’s a long way to maturity. (Photo from wikipedia)

“There’s still some dryness in east-central Brazil,” he said, “including the corn-producing states of Goias and Minas Gerais. It remains to be seen if the dryness gets resolved, but I’m not optimistic as South America is getting closer to what’s typically a dry season.

“The last summer rains usually occur in early May, so there’s a month or two left in the summer rainy season,” he added. “But it’s getting better.”

Cordonnier predicts a Brazil soybean harvest of 123 million tons, within a narrow range of an upside of 124 and a downside of 120. However, he says farmers are “pretty close” to being done with results in the low 120s. He predicts an Argentine soybean harvest of 39 million tons. “I’m a little bit on the low side,” he said. “But I expect the Buenos Aires Grain Exchange to lower their soybean number as well.

“I expect Brazil’s farmers to produce 112 million tons of corn,” Cordonnier said. “We’ll see what the weather does to and for the Safriña corn crop. In Argentina, I stayed at 49 million tons for their corn harvest, and the Grain Exchange agrees with me as they lowered their prediction to 49 million. I thought they should have been at that number a long time ago.”

His numbers continue to get narrower for both corn and soybeans in each country. The overall South American soybean crop is going to be down by a big number from last year.

“I have the South American soybean harvest at 171.6 million tons compared to 198 million last year,” Cordonnier said. “That’s down about 26 million tons from last year, which is a significant drop. The news is better for the South American corn crop, which I have at 167 million tons, compared to last year’s harvest of 143 million.

“That’s up a good amount from last year,” he added. “That jump happened because the Safriña corn crop was such a disaster in 2021. Corn will be better than last year, and soybeans will be worse than last year: It’s the reverse of what we had last year in South America.”

Does that mean some soybean export opportunities for the U.S. this year? It’s likely, but Cordonnier says the war in Ukraine and its impact on global commodity markets makes it hard to know for sure what’s ahead for the remainder of 2022.

February 23, 2022February 23, 2022

Spring: when does it get here?

Spring weather is always a fun conversation across farm country, whether in the local coffee shop, after church, or during a sidewalk stroll down any small-town street in America. I came across a recent article from the National Weather Service saying that March might have above-normal temperatures and was intrigued. So, I got on the phone for an assignment from the National Association of Farm Broadcasting and began digging.

My first phone call was to Dennis Todey, the director of the Midwest Climate Hub in Ames, Iowa. As far as the March forecast goes, the veteran meteorologist says it depends on one thing: location, location, and location.

“The farther north you go, the less chance you have of being above normal during March,” Todey said. “But we should begin to rebound fairly quickly after the recent cold stretch that brought snow into parts of the Upper Midwest.”

Spring weather — Dennis Todey is the director of the Midwest Climate Hub in Ames, Iowa. (photo from climatehubs.usda.gov)

What you may not know is most of the cold that covered parts of the Upper Midwest was originally supposed to stay well to the north, especially up in Canada. Some of that cold worked its way into the North Central U.S., but it’s been limited mainly to the areas with snow cover.

As you go further west in the Northern Plains, there is less snow cover, so the temps haven’t been quite as cold. “The probabilities are not big, but the possibility of some warmer temperatures is there,” Todey said.

Looking out beyond March to the spring weather forecast, again, it all depends on which location you’re referring to. Out in the Eastern Corn Belt from Central Illinois and further east, they’ve had several storm events move through the area. The outlook in that location continues to look wet there.

“Planting delays are definitely on the radar in that location,” Todey said.

It’s the opposite in the Central and Southern Plains, where drought conditions have steadily grown worse in recent months as it’s been a dry and warm winter. The big question is whether the area is going to get any moisture anytime soon.

“It’s going to be interesting in the eastern Dakotas and parts of Minnesota,” he said. “They got some moisture late last year and recently picked up some recent snow as well.

“Places like Missouri and Iowa are more of a mixed bag right now,” he said. “Iowa still has some carryover dry soils, and then we have some dry soils in parts of Wisconsin in areas that keep missing out on moisture events.”

Speaking of dry weather, a good-sized part of rural America is short of moisture. The shortage in the plains begins in Nebraska and stretches to the south. It’s dry to very dry, but the lack of moisture doesn’t stop there.

“Parts of Iowa and Wisconsin are quite dry,” Todey said. “It’s quite dry in northern Illinois, which is a carryover from last year. Depending on which part you’re talking about, parts of the Dakotas had moisture while others didn’t get enough moisture for runoff for ponds and dugouts from a livestock standpoint.”

The winter wheat crop is really struggling because of the dry weather. The spring weather forecast hopefully has some moisture in it to help the wheat crop to at least somewhat rebound from the poor conditions.

As winter begins to wind down and spring gets closer, Todey has noticed an interesting trend in recent years when it comes to winter weather. Up here in Minnesota, we were able to take the dog for a walk in short sleeves or light jackets into November of 2021, which is almost becoming more of the norm rather than the exception.

“Winter has been showing up later than normal in recent years,” he said after some thought on the matter. “Let me frame this climatologically for you.

“The 90 coldest days on average for most of the Upper Midwest are typically December, January, and February,” Todey said. “That’s based on looking at data over the last 30 years. We’ve seen some of the coldest events of the winter occurring in late February.”

While late-winter snow isn’t uncommon, the larger events have been coming later and later, so “something is going on that’s a little different.”