Episode 25: What is Grain Marketing?

From business owner to weatherman, mechanic, and even grain marketer, today’s grain farmer wears many hats. But no matter what hat is on for the day, profitability is always at the top of the goal list. And when it comes to the role of securing a good selling price for grain, Kirk Roetgerman, grain division manager at Mercer Landmark, lightheartedly sums up the way most producers feel about the role of being a grain marketer – “It’s not their first love,” he says.

Defining a profitable grain price is not an easy task. Many factors, both local and global, influence the prices available during the year. To add to the complexity, there are an array of contract options.

In this podcast episode, Kirk helps break down the basics of grain marketing, the different types of grain contracts, and a few of the many influences that drive grain prices.

Basics of Grain Marketing

Futures and basis levels are two important phrases in the world of grain marketing. Futures and basis levels both influence the price you receive for your grain.

To simplify, Kirk explains that “basis levels are what we look at for local markets, and futures are more of what’s happening in the world.”

Understanding the relationships between futures prices and basis prices are key to establishing a price for your grain.

Types of Grain Contracts

“When it comes to grain contracts, the biggest concept is the cash price,” explains Kirk. “In order to get a cash price, you need the Chicago Board of Trade futures and a local basis.”

 1. Fixed Price Contract

For a fixed price contract, “You lock in your futures, and you lock in your local basis, which gives you the cash price,” says Kirk. The cash price is the local price. This is the value agreed upon for immediate delivery of your grain or for accepting the current price for grain.

2. Basis Contract

In a basis contract, you lock in your basis and leave your futures open. “You think the market could go higher, but the local basis may go lower, so you’re locking in a contract that gives you the opportunity to lock in the futures later on,” explains Kirk.

3. Futures-Only Contract

Oppositely, with a futures-only contract, you are locking in your futures and leaving your basis open. “A lot of times, producers like to do these contracts in the January, February, March window of the following year,” explains Kirk. “Because you think the basis may be too low and that it will get a little stronger at a later time.”

4. Delayed Price Contract

With a delayed price contract, “you don’t lock in any of your futures or basis,” says Kirk. “You’re leaving them open to be priced at a later date.”

Market Environment

Another key to understanding grain marketing is the market environment that futures and basis levels are being based on.

Recently, events such as the Russia-Ukraine crisis, a drought-stricken Mississippi River, and impending railroad strikes, are all factors that can drive grain prices.

More locally, vomitoxin issues can drive base prices.

“The majority of the corn in the eastern cornbelt area of Ohio, Michigan, and Indiana, goes down to the southeast markets, including Georgia and the Carolinas, to feed the poultry and swine markets,” explains Kirk. As a result, feed mills and even ethanol facilities are calling for higher-quality corn.

Corn can only have a certain part per million amounts of vomitoxin when used for feed production. For layers and broilers, feed rations have to stay below five parts per million; for swine, below four parts per million; and for cattle, below ten parts per million.

“At some of our facilities, we had some corn that was as high as 40 parts per million, which is just unheard of,” says Kirk. “So, how do we work with that? We have to store it and blend it down to more manageable levels before it can go into the feed market.”

On the other hand, corn that goes into ethanol production with vomitoxin has triple the impact. “If you have three parts per million vomitoxin and you bring it to ethanol, when it gets to DDGs, it becomes nine parts per million,” illustrates Kirk.

Looking Ahead

From weather to inputs, and the market, Kirk anticipates “some major shifts to begin to occur” and says that the “U.S. farmer is going to have some hard decisions to make in the next two to three years.”

To put it into perspective, Kirk recalls, “There’s a record credential that we need an extra 500 million bushels of beans by the year 2025. That’s 10 million more acres of soybeans that we need to potentially plant, and there are only so many acres out there.”

Here’s a glance at this episode:

• [01:06] Kirk introduces himself and his background in grain marketing.
• [06:46] Kirk explains the four basic types of grain contracts and the differences between them.
• [10:38] Kirk discusses the difference between basis and futures.
• [11:30] Discussing current events, Kirk shares how different factors can drive grain prices, including the Russia-Ukraine crisis, the impeding railroad strike, and halted Mississippi River grain barges.
• [17:53] Discussing vomitoxin in corn, Kirk explains the testing protocols, guidelines for feed depending on the animal, and how vomitoxin is managed at grain facilities to keep a certain level quality of corn.
• [24:52] Krik illustrates how grain production in South American countries is expanding as worldwide demand for grain increases and how he anticipates it will affect U.S. producers.
• [36:13] Kirk leaves with how listeners can connect with Mercer Landmark through their new grain marketing hotline, mobile app, and website.

Mercer Landmark Grain Hotline: 844-676-CORN (2676)

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Bios

Guest Kirk Roetgerman

After graduating from The Ohio State University with a degree in Agribusiness and Applied Economics, Kirk started a career in the grain industry with ADM Countrymark. Throughout the progression of his career, he’s worked in the origination side of grain at legacy cooperatives, and beginning in 2014, managed a grain and barge track loop facility in Defiance, OH. In 2017, Kirk took an opportunity to be closer to home and family with his current position at Mercer Landmark as the grain division manager.

Host Phil Young

Phil is an account officer for AgCredit serving Van Wert County. He’s been in ag lending for over four years but his agricultural background goes back much farther. He grew up on his family’s farm where his father raised a large herd of sheep. Currently, he helps with the family farm raising corn, soybeans and wheat. Phil likes working at AgCredit because he can help people achieve their goals. Whether that is purchasing a new piece of farm ground, updating a piece of equipment, or helping a borrower understand their financials, helping his clients succeed is always his goal.

Host Brenna Finnegan

Brenna has been an account officer serving Lorain, Huron and Erie Counties for four years. She’s worked in the agricultural industry for over 17 years with experience in livestock production, specialty crop production, seed production, and processing/distribution. She grew up on a small family farm raising row crops and cattle. She currently has her own herd of beef cattle that she breeds and sells as show stock calves for 4-H and FFA members. At AgCredit, Brenna enjoys being able to work directly with the local farmers and especially helping young farmers achieve something that they didn’t think they could.

Transcription

Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must-have information on all things from farming to finances and everything in between.

Brenna Finnegan (00:26):Welcome back to another episode of AgCredit Said It. I'm Brenna Finnegan. I'm here in the Paulding office with Matt Adams. How are you doing today?

Matt Adams (00:33):I'm doing great, Brenna. Glad to be back with you for another exciting episode of AgCredit Said It. Today we are going to talk with Kirk Roetgerman. He is the grain division manager for Mercer Landmark. And we're going to touch on a lot of different topics today, from some of the basics of grain marketing to some of the driving factors that we're seeing in the industry today, from local to across the country to even some of the world markets. Welcome, Kirk.

Kirk Roetgerman (01:05):Thank you, Matt.

Matt Adams (01:06):So Kirk, tell us a little bit about yourself and what you do at Mercer Landmark.

Kirk Roetgerman (01:11):Sure. So, my name is Kirk Roetgerman. I work for Mercer Landmark. I started at the business back in 2017. Before that though, I'd started working with ADM Countrymark back in 1996.

(01:24):Graduated from Ohio State with a degree in Agricultural Communications and Business Economics and got into the grain business there, starting with ADM Countrymark over in Indianapolis, I was in Toledo.

(01:37):Eventually, took a job position at a co-op in Connersville, Indiana, and I got into the origination side. Really loved the origination from the grain side. The markets were changing every single day and that's what always excited me there.

(01:49):Through the progression of my career, I grew up in Minster, Ohio, and wanted the opportunity to come back into that area. I loved the Auglaize, Shelby County, Mercer County, Darke County area, in the northwest quadrant of Ohio. I had the opportunity to start with the Minster Farmer's Co-Op in 2001.

(02:07):Through a series of transitions, we became Advanced Ag, then became Trupointe. So, in 2014, after 13 years with legacy cooperatives, I took the opportunity to come up here to Defiance to manage the consolidated grain and barge, the new track loop facility that came into possession.

(02:25):I was able to do that for three years, but traveling an hour and a half from New Bremen, it got a little long and old. Plus my children at that time were in sports, et cetera. So Mercer Landmark had an opportunity to become the grain division manager at that time back in 2017.

(02:40):So, it was a great opportunity for me to be closer to home and work for Mercer Landmark. In the last five years though, we've seen a big transition from the grain side. We've built a brand new feed mill in NPS down in St. Henry.

(02:55):And then recently here in the last two years, we had the transition of the Latty agricultural campus there and that we got from the Church of Latter Day Saints. It's a great opportunity from my side there.

(03:06):What I do for Mercer though, what I get paid to do is, as I like to say, is I get the opportunity to manage roughly about 35 individuals and also oversee the facilities all the way from Sherwood down to New Weston, Ohio, which is in northern Darke County. So, we have approximately 18 facilities. And then I also work with all the consumers from the feed division.

Matt Adams (03:26):Gotcha. And I know just looking on the Mercer Landmark side, just here locally where I farm in Paulding County, the Latty terminal has been a huge asset to us local producers. And you guys have really turned it into almost a one-stop shop for agronomy from grain to fertilizer seed, and propane gas. I mean, you can get everything there in one place.

Kirk Roetgerman (03:55):Absolutely. And that was the concept when we looked at Latty there. We originally looked at it for the grain side, but we saw how many acres, et cetera, that was available, and so we're like we could really turn this into a nice agricultural campus for the whole entire Paulding/Defiance, Fayette County, Williams, Putnam, Van Wert. Really for northwest Ohio to give us some opportunities.

(04:16):Our little slogan is that "We like to feed the world" and I think getting on the mainline of Norfolk Southern Rail gives that opportunity. We've already seen that from the grain side. We have soybeans from this area that have gone all the way down to Mobile, Alabama this past fall.

(04:32):And we've had 300 car unit trains that we have shipped down. There are about a million plus bushels of beans from this area. Actually went down to the Gulf of Mexico and went on a boat that decided to go across seas.

Matt Adams (04:44):All starting off the rail.

Brenna Finnegan (04:46):It's funny to hear all this from the western side of the state because I'm from, I would say… the northcentral portion of the state and I think of Sentara and Sunrise and those types of places, and they're very similar in that they've gotten to the point where they have a campus of some sort for all of these activities within the ag industry.

Kirk Roetgerman (05:11):Correct. I mean, I think that's the vision, the direction that we're seeing a lot of agriculture going towards is that one-stop shop, as you said there, Matt. The idea is to bring your grain in, dump it, then you can backhaul some fertilizer back to your farm. And with the fuel prices that we're seeing today, anything can help us to earn that extra dollar or two per acre.

Brenna Finnegan (05:31):The backhaul pays for that.

Matt Adams (05:34):And you look at, as a producer, if we can almost control a price per acre on everything or we know going into it exactly all of our inputs and our end product, we have a pretty good idea on what profit we're going to see at the end. That just helps the growth of that operation and just eliminates a lot of the guesswork in it.

Brenna Finnegan (05:58):Well, it's nice to know you have a place to go. And having that opportunity and having different locations all over the place. Well, when I did popcorn we only had one place to take it so they all had to truck it right to us and that, I mean, sometimes it could be a little bit inconvenient that way because it's so specialized but to get into the broad spectrum and have options, it's great. But you mentioned in your intro of yourself, a lot of grain marketing type work, obviously going into the basics of grain marketing, cover contracts, what are they, the different types, all that stuff.

Kirk Roetgerman (06:46):Yes. When it comes to grain marketing, that's probably the... How do I want to say this here? For the producers, it's not their first love, okay? The producer prefers to grow the crop there and when it comes to marketing, as you mentioned earlier if we could just get that fixed price there, know where it is, and make sure we could sell at that profitable level. Cause that's what we want to do. We want the producer to be profitable.

(07:07):So there is an array of different types of grain contracts that are out there now. It's not one shop for everyone. You have to look at the different ways of using it, and the portfolios and mix them all together. It also depends on what your risk structure is, and what you're willing to do. But the biggest concept when it comes to grain contracts is the cash price.

(07:27):In order to get that cash priced, you need the Chicago Board of Trade futures plus or minus this local basis. And that gives you the cash price. So when we look at what I call our more simplistic type of contracts, you have your fixed price or a cash price, which is exactly what it does. You lock in your futures, you lock in your local basis, which gives you the cash price.

(07:46):And then we go to what's considered a basis contract. So you think about the same formula, well you're just not locking in the futures, now you leave the futures open because you think the market could go higher, but you're filling the basis levels, the local basis may go lower. So, you want to lock in that contract and that gives you the opportunity to lock in the futures later on.

(08:07):On a futures-only contract, we're going to lock in the futures, but we're going to leave that basis open. And a lot of times we like to do that in that January, February, March window for the following year because we think the basis is maybe too low at that point and it'll get a little stronger or better at a later time.

(08:20):So, we'd like the futures price, we want to get that opportunity to lock that in. And then the last contract is delayed price and that's basically a contract where you don't lock in any of your futures or basis. You're leaving that open, you're paying the elevator for that right to price at a later date.

(08:37):So, those are your four basic contracts that we have. And then we go into more of these, I call them solution-based contracts. We offer a CHS suite of Price Builders, Daily Price Plus, and Cash Plus.

(08:52):And this is really using more of the options that are in the marketplace. What I mean by the options you have, are calls and puts, and a lot of times as producers, we don't really want to go onto the Chicago Board of Trade and lock in those calls and puts, because one is they tend to be very expensive.

(09:07):Two is you have to do them in 5,000-bushel increments. So companies have come up with these different types of solution-based contracts so they can fit anyone. The ones that we offer through CHS allow the opportunity for the producer to lock up any incremental amount that they want to. If they want to do something for 300 bushels or for 30,000 bushels, it gives them that opportunity. And those are basically utilizing puts and calls and trying to give the producer a much better value than where the current marketplace is.

(09:37):With that, you basically have a potential of a second accumulation level or second commitment because you can't quite get a better value for free. So, there's a little bit of a cost there. We do charge 2 cents for those contracts there, but they're really good contracts to put in your whole portfolio.

(09:51):We usually don't like producers to do any more than between 10 to 20% because of that second commitment that could turn to 20 or 40% of your production. I started running these way back in 2011 and 2012. And if we remember what happened back in those years, we had a very poor, poor crop. I had some producers that were locking in $4.50 corn, which they thought was a tremendous level based on the 2009 and 2010 years. And before we know it, the crop was only maybe half of what we had. And then the market went all the way up to $7 to $8.

Brenna Finnegan (10:21):I remember all that.

Kirk Roetgerman (10:22):Next thing I know, we had guys that were almost overcommitted by over a hundred percent and had to work with them there. So, we learned really quickly that that may sound really good and they're great for their time, but every once in a while the market tends to kick us or it’s where we don't like it to be.

Brenna Finnegan (10:38):Now you mentioned basis, obviously going back to the basics again, the basis is what? And it can be positive, it can be negative?

Kirk Roetgerman (10:47):Correct. So, the basis levels, that's what we look more at being more for the local market. When I look at the futures, that's more macros. That's what's happening in the world, what's happening in the whole U.S., what's happening out in Iowa, Illinois, the “I” states. Whereas the basis is more about what's happening in northwest Ohio, what's happening maybe in northeast Indiana in the feed markets, and the rail markets.

(11:09):So, yes, you can have positive and negative basis levels depending on how the crop size is in that area, how the crop quality is in that area, and maybe what's also factoring at maybe some of the local processors, particularly on the soybean side, what the Bunges, the Cargills, and the ADMs over in Fostoria, OH and Claypool, IN with Louis Dreyfus Company.

Matt Adams (11:30):Looking at a lot of the different factors that drive our grain markets, whether it be local or even worldwide. Do you feel we're in a bit of an unprecedented time right now with so many different driving factors currently going on, which this episode won't actually drop here until December, but…

 

(11:52):We look at the crisis in Ukraine, the impeding railroad strike that we keep hearing about, the rivers drying up and barge traffic shutting down. Where do you see these driving factors pushing our markets? And do you guys have some ideas in place on how to counteract that a little bit?

Kirk Roetgerman (12:18):Well, I'll try to be Nostradamus here with the basis levels, et cetera, but they're all different factors here. I look at the Ukraine-Russia situation that we've heard about since last February. I would say probably 90% of us didn't have a clue what Ukraine meant to the world when it comes to grain – producing on the export side.

(12:36):I had no idea how big of an individual the country was to the world. We look at the wheat side there, Ukraine basically produces roughly about four and a half to 5% of the total wheat production. But yet when it comes to exports, they're around 18% of the exports of the whole world.

Matt Adams (12:55):That's crazy.

Brenna Finnegan (12:56):It's a big difference.

Kirk Roetgerman (12:57):Whereas in the U.S., we're right around about 6% of the total production and we're right around about 14% of the exports. So, Ukraine does export more wheat than we do here. Then we look at the corn side, and Ukraine is one of the top four when it comes to corn and when it comes to sunflower seeds, which a lot of us don't understand that, but with sunflower oil, for example, they're the number one exporter in the world when it comes to sunflowers.

(13:22):So, when this invasion happened there, it really spooked the market and we saw us go into a whole different tier level that we had no idea what to expect but it's just continuing to lay on us here. And I'm not too sure when this world war is going to end or what's going to happen from there but it's something that the markets constantly are looking at.

(13:43):For a quick example here, right before Thanksgiving the corn market we saw was trading. The bean markets were all trading about four or five cents lower. Well then, we had Russia launch some missiles over a cave and one of them got missed and hit in Poland.

(13:57):Well before we knew it there was a possible international crisis. We saw the core market go from four, five cents lower to up to 10 cents. We saw the beans being down about six, seven cents lower and they were up closer to 20 cents. And then the very next day after we realized that Poland wasn't saying it wasn’t okay, it's not a big deal, it is a big deal, but it's okay. It's not a big international crisis. The market comes completely off where you drop 16, 17 cents on beans and right around about eight cents on corn.

Brenna Finnegan (14:23):So, there's a one-day opportunity to capture something.

Kirk Roetgerman (14:26):Oh, definitely, yes.

Brenna Finnegan (14:26):That you just didn't know?

Kirk Roetgerman (14:28):Right. And you have those black swan events in this grain market. So how do you protect yourself against that? And that's what we're here to try to look at, on what to do there.

Brenna Finnegan (14:35):That's where we all wish we had the magical ball that tells us everything that's going to happen in the world. So that way we know what we're going to need to do.

Kirk Roetgerman (14:46):And you mentioned before, you know about basis-wise. So then all at once we look at the Mississippi River with the drought that was occurring all summer long and the Mississippi River really drying up here and what's happened there is it just really affected the basis from the negative side. They couldn't get the barges up and down. The barge rate got tremendously expensive at that time.

(15:06):So there's only so much space that these elevators have on the Mississippi and a lot of grain flows there. I mean during this harvest window. So, the next thing we saw was basis levels go to a dollar under the market down in Cincinnati. Well, next thing you know that just slowly works its way up to the north at Cargill in Sidney. They didn't have to pay as much because all those beans started to flow from the south that typically go to Cincinnati and up to Sidney.

(15:29):Well then all the beans that simply would have been in our area that would have gone to Sidney, decided let's go to Bunge because then they dropped their basis and it just worked itself up there. And that's what those plays in the market could do from a local basis side.

(15:41):Now, as the river comes back online, I think, basically we're going to get a little bit stronger here. We're already starting to see that now from where we were during the harvest window to where we're at today. And we've already jumped up roughly at the processors right around 25, 30 cents.

(15:54):And I think you're going to see that continue to go forward because we still have a lot of commitments to make on the export side. So we still have to get those beans down there. From a corn perspective, we think about the railroad, whether or not how long the strike will last, or if it actually does take place, but it's that fear.

(16:11):So, we're laying there and that's one of the things, the majority of our corn in this eastern corn belt area being northwest Ohio, Michigan, Indiana, goes down to the southeast markets and the Carolinas in Georgia to help feed the poultry and also the swine market.

Matt Adams (16:28):Mostly all feed production down there.

Kirk Roetgerman (16:29):All feed production. Correct.

Brenna Finnegan (16:30):It's amazing how much just transportation or movement of the product is the driving force behind all of it. I mean, if you think about Ukraine not being able to export things as much. Obviously, things are pretty restricted there right now.

(16:49):So, their exports are now declining, which obviously is driving ours up I would assume. And then helping distribute the pricing or increase these prices.

Kirk Roetgerman (16:59):That's the concept of the market, right? We're trying to anticipate. That's why I keep trying to remind our producers, even our own grain marketing associates that we have on our staff, is that this is a futures market. We are trying to project and predict what that future is.

(17:14):So, what you're hearing today affecting the market, and if it finally does occur, well it's already been in the marketplace. So that's usually when we scratch our head and go, “Well gosh darn, so and so came in here, bought quite a bit of beans from the U.S.” Well, we were anticipating that it's already got billed to the market and now we decided to drop that day. That's why a lot of times we'll say we're buying the rumor and we're going to sell the fact on the board.

Matt Adams (17:35):And it's crazy because we even see it on our side, on the financial side, where it's almost like real-time information. Even though it's sometimes even our rate environment will react quicker than what something actually has because we're anticipating that change.

Brenna Finnegan (17:52):Taking protection.

Matt Adams (17:53):Exactly. Yep. So, one other thing we look at more locally here with Mercer's NPS Feed Mill and a lot of our corn here locally that gets used for feed. We've had some vomitoxin issues this fall harvest, but we've come off some pretty good record yields in a lot of our areas.

(18:16):How does the vomitoxin really affect how we look on the feed side because I know when it gets to a certain percentage, we can't use it for feed... so how do we work with that corn and where does that corn go if we can't use it for that feed production?

Kirk Roetgerman (18:34):Yeah, vomitoxin this year has been something that we were hoping wasn't going to take place. We never do. And just for that reason, you think about the corn, that center area, I would say roughly 95% of our corn, if not 100% of the corn that Mercer Landmark actually uses goes into some type of feed product, where it goes into our feed mills through the Heartland Feed Services LLC that we have there or through our NPS mill. If it goes on the rail cars like up here at Latty to go down into the southeast end-user market.

Matt Adams (19:02):To their mills down there.

Kirk Roetgerman (19:03):Mills down there. Or even if it goes to the corn into the ethanol, they have a byproduct called dried distillers grain. And the vomitoxin there is even more of an impact because it's basically three times. So, if you have a three-part per million vomitoxin, you bring it to ethanol. When it gets to the DDGs, it becomes nine parts per million.

 

(19:22):So when we look at this, the nutritionists that we work with really are looking at that whole overall feed ingredient or basically the whole feed sample to say what is that whole total part of vomitoxin. And the FDA has set some guidelines on that one there probably the easiest ones that we use and we actually joked around about this year, instead of buying vomitoxin test kits, we should have just bought a bunch of pot bellies and had them sniff the corn because pigs won't eat it if it’s less than basically two parts per million.

 

(19:48):They'll root around and we're starting to hear about that at times but the feed industry can put some binders in there. They may reduce the rations on dried distillers and do a little bit more corn, so one of the things that we do here, we decide to isolate as much as we could. We want testing protocols there.

 

(20:09):We realize on the layer and the broiler side, they could go up to about 10 parts per million, but we have to make sure that feed ration stays below five parts per million. From the swine side at our Celina feed mill, which is strictly a swine facility, we were a pass or fail, we rejected anything above four parts per million and accepted anything else less than four parts per million. And at some of our cattle facilities, we have two of them there that do the grain for cattle, we did the same thing. We did a max of 10 parts per million.

 

(20:35):So at our other facilities within Mercer Landmark, we had some stuff that was as high as 40 parts per million, which is just unheard of there. So, how do you work with that? Well, we're basically going to be taking that in there and we're going to have to somehow blend it down at some point.

 

(20:51):Now, it may take a year or so, and I think that's why you're seeing a lot of these vomitoxin discount schedules being extremely high because we do have this marketplace that's an inverted market where you're at a much higher price today than you are out ahead in September or even next fall. And elevators are going to have to store this higher vomitoxin to eventually get it down at more manageable levels as it goes into the feed markets.

Brenna Finnegan (21:16):So, with vomitoxin being a big issue, we'll go ahead and take a quick break for the moment and then come back and we'll get more details on that.

Voiceover (21:28):As we near year-end, we have the holidays on our minds. But don't forget, it's also a great time to reach out to your account officer to update your balance sheets and turn in your year-end financials.

Voiceover (21:40):Also, business for 2022 will close at noon on Friday at all of our branches on December 30th. Be sure to have any payments or questions taken care of by then and have a Merry Christmas and a Happy New Year from all of us at AgCredit.

(21:57):And we're back with Kirk, talking about all the intricacies of grain marketing and the driving factors of everything. So, we left off Kirk, we were talking about vomitoxin, how Mercer has different products and different plans in place to work this corn through with blending.

(22:23):One thought I have as a producer is if we have to sit on this corn longer that it's not going to get through. So, we have to blend it so this corn is sitting longer. Does this affect the supply and demand overall for our corn product to where the market is going to start seeing that because the corn is not readily available to use?

Kirk Roetgerman (22:47):It's not necessarily going to affect the supply and demand, but what is really going to be affected is vomitoxin on a local basis. You're going to start to see, and we are already starting to see there, the ethanol facilities want a certain quality of corn. Certain feed locations, like our Celina mill, wants a certain quality of corn as well, the Coopers, but the Paulding facility also wants a certain quality of corn as well.

(23:13):So, you're going to see those base levels begin to increase or get stronger in order to drive that certain quality of corn. And at the vomitoxin levels there as we mix them into the bins, et cetera. And I would say the majority of the producers don't really know what they actually have in their bins. You might take samples, and this is one of the fallacies in my mind, as we look at it, are we have an individual producer bringing in 60,000 pounds of corn maybe on two wagons there or a truckload.

(23:42):When you take a representative sample, and that's what we're trying to do to do at the probe station. You're taking between four to five sticks of the probe there and you're getting roughly about a two pound sample of grain out of that 60,000 pounds. Well then, we cut that down through the dividers and things like that and we grind up about a thousand grams of that corn out of 60,000 pounds, and out of thousand grams we're spooning out 20 grams to run a vomitoxin test kit.

(24:08):So, yes, can there be variability in loads? Absolutely, because you're taking 20 grams out of 60,000 pounds to say this is what your representative load is. So yes, I mean, we do see some wide variabilities. And you think about it as you get in the fields, the way I like to do the analogy of the fields you're going through across the fields, and Matt, I'm sure when you're going across there, you got some areas that might be doing 180 bushels and you got some areas that might be doing 260 bushels.

(24:34):And guess what? Vomitoxin is the same way in those fields you might have some areas that are much higher, a lot of years that are a lot lower and we're trying to get it all through. So, as that corn goes in the bin and if you start pulling it out, we're not too sure exactly what to expect. We're going to see some high levels there and we're going to see some lower levels and that's going to be a frustration.

Brenna Finnegan (24:52):You've taken me back to some of my agronomy days. Now looking at that and seeing that it's there or knowing that it's there when every time you take a load in and that small sample comes back and it's a higher level. Like I said, going back to the agronomy side, what should people be looking at in the fields to help prevent some of this? I mean, what's causing it in the first place, and then what can they do to prevent it?

Kirk Roetgerman (25:20):Well Brenna, a great question there. And I'm going to plead the fifth here because I'm a grain guy, not an agronomy individual. I would say talk to one of your agronomy advisors. I know there are different products out there, but I think it's really about mother nature. I mean, we're trying to find some correlations with the whole vomitoxin. I mean, I've heard all types of things and we can't really just pinpoint exactly where it is.

Brenna Finnegan (25:42):That's what I'm going to look at because I think of what can we do to help prevent it from occurring. And I think, genetically, corn has been bred for such stalk strength and things like that that now if you notice driving down the road, ears aren't dropping like they used to. Therefore, the moisture is sitting in that husk and forming that fungus that's going to contribute.

Kirk Roetgerman (26:06):That's the correlation. I mean, the fields, I had the ears standing up, I would expect that they had the most potential vomitoxin there, but once again, I mean the yields were tremendous and that's what we look at there. We have to continue to feed the world and we needed that amount of supply on the corn side to help with the markets, et cetera.

Brenna Finnegan (26:22):Now, knowing that vomitoxin was being tested for and guys wanting to prevent it from occurring, did you notice more or higher moistures coming in to help get it out of the field faster that would prevent it from occurring?

Kirk Roetgerman (26:37):Not necessarily. I feel like we had this conversation earlier this day and we're talking about moistures back in 2018, we had a lot more higher moistures in that 20% to 24% range. This year it seemed like everything was more that 22% down to 16%, we had some stuff from the fields come down to 15%. Now we had a really warm summer, a lot more growing degrees. So, did that have something to do with that or not? I don't know that for a fact, but the correlation is there in my opinion.

Brenna Finnegan (27:07):It makes sense. I mean, if you think about hurry up and get it off so stuff doesn't grow on it.

Matt Adams (27:13):Well, and then you also look on the producer's side too with what I call an Indian Summer we've had. Let that stuff stand in the field a little bit and do some mother nature drying so we're not filling the propane tanks all the time, or running the burners. So, looking some more on that, the worldwide demand for corn. We touched on the Ukraine situation.

(27:35):Also, some of the means that we've set in, we talk about South America and how they continue to add acres every year and become a larger and larger player. In our U.S. market, do you see that affecting us more going forward? Where's South America end? I mean, are they going to continue to keep becoming the bigger and bigger player in the grain market?

Kirk Roetgerman (28:05):Simple answer. Brazil, yes. And there are a lot of reasons there. I mean, we look at our ending stocks number fundamentally, we had a pretty good crop this year on corn, but for the most part, with our amount of demand that we're looking for our feed consumption through the export business.

(28:22):We're looking at about an ending stocks number around that 1.2 billion bushels, very similar to last year. So, you would have to think that, hey, prices are going to be very similar to last year. And I'm not going to argue that point today. I think that's where things are at. A lot is going to depend on what happens in South America on the corn side.

(28:36):On the soybean side, same thing. We tend to have a lot of beans that tend to go to China from the export side. Exports are down just slightly because of the conversation earlier about the Mississippi River being dry. We weren't able to get things down, but we're trying to ramp back up on that one there. We had a few spot sales here recently, so that's good to see bean numbers there.

(28:56):We'll see here in the following month in January's report what their final number is. I would anticipate bean numbers to jump up just a little bit on the producer side. In the last report there, we were sitting right around about a little bit over 50 bushels to the acre. I think we might be closer to 51 bushels.

(29:14):So, if that jumps up there a little bit more from the production, that's going to affect the markets as well, but the big key is South America when it comes to soybeans. Brazil last year had a tremendous year in bean production. Now, the reason why the market decided to go to $17, almost $18 last spring was because Brazil also had a lot of issues and problems but they still have outproduced the U.S.

(29:38):And if you look at this year where they're currently at, we're expecting roughly about a 5% increase on acres if they have a normal weather year, whatever that might mean, but let's just say they have a normal year there. Brazil right now has the potential of producing almost 5.5 billion bushels of beans. Just Brazil.

(29:58):You take the U.S. for example, we're more in that 4.3 billion to 4.4 billion mark. So, they are really starting to out-produce us. Just over last year, that would be about a 900 million increase just in Brazil that's available to the world. That right there, if that does occur, and we'll know those answers more in February and March, but if that does occur, it's going to be really tough for us to have prices much above $15 today. If that decides to back off, maybe there's another La Nina, maybe it has some weather issues there.

(30:29):We could be around on that edge at a 200 million or plus carryout being close to $16, $17 beans being sold. So these next 30 to 60 days are really going to be key with the bean market there. And you're going have to be ready as a producer to, boom, I want to go ahead and liquidate if I think Brazil could have a big crop there.

(30:52):Argentina is no small pup either. I mean, they're looking at maybe a potential 200 million bushel increase over last year but Argentina has started off the planting season really dry. They're behind and we're not too sure how that's going to affect when they start taking off their beans more in that April-May timeframe but if you take those two numbers, 1.1 billion more bushels of beans, that's a lot. I mean, that is a lot of beans that are available to the world to suffice for China.

Matt Adams (31:20):In one part I can just remember through talks in the past when Brazil and Argentina became players in the market, it was their infrastructure that they were really lacking on getting that grain to market where, I think, it sounds like they're infrastructure keeps improving every year to where... Kirk, do you think that they're going to be able to get their product to market that much quicker? I mean, I just have heard that different countries are basically investing in that Brazilian market to help with that infrastructure part.

Brenna Finnegan (31:54):Well, they have a lot of the R&D portion of it too down there. I mean there's a lot of research and development that occurs within that. And so they have some of the best of the best coming out of there too. Correct?

Kirk Roetgerman (32:06):Yes, that would be correct there. And yes, people are investing, they're trying to figure out how can we get that out of there. Just think about a billion more bushels of soybeans. We're not even talking about corn yet on how much more corn keeps coming out.

(32:18):And where the majority of that is grown, it is roughly almost a thousand miles to get to the ports. So, it’s not just like you can just get over there overnight. I mean, we've seen the horror stories, 10, 12, 20-mile long lines to get into the ports, et cetera.

(32:36):They're trying to invest in some more rail. They're trying to invest in some more of what they call these floating barges on the Amazon to get to the ports there. So, that's going to be a challenge for them over time.

Matt Adams (32:48):All right. I still feel as local producers here, but for United States producers, we still strive to keep... We don't make ground anymore, the dirt's used up, but we keep increasing every year on how much we can produce off that acre, which I still feel that with our technology and our farming practices, we'll still continue to keep increasing our production just because of the technology and what we can produce per acre.

Kirk Roetgerman (33:23):And to go on that there, the U.S. farmer is going to have a really hard decision to make here in the next two to three years. And what I mean by that is, we're talking about the beans down in Brazil.

(33:33):We're also looking here in the U.S. we hear a lot about the low carbon fuel standards. We see a lot of information in commercials about electric vehicles, et cetera, but from a biodiesel standpoint, there are a lot of facilities that are getting built or even being expanded.

(33:53):For example, like Sidney with a Cargill facility. They're looking to come online in July of 23 and to double their capacity. So, all at once that means an extra 20 million bushels of beans need to come into Sidney. You think about how that's going to affect our markets there?

(34:10):In fact, all the announcements that we've seen by the year 2025, I mean, there's a record credential that we might need an extra 500 million bushels of beans and you figure out a 50-bushel number there, that's 10 million more acres of soybeans that by 2025 that we need to potentially plant.

(34:28):Is that going to happen with corn? I mean, like I said, there are only so many acres out there. So, who gives, who takes, or do we begin to import from the Brazils, basically from South America? All questions are going to be really a hard decision here in the next two to three years.

(34:44):And we're looking at you producers already making plans for '23. If you're going to be farming again in '24, you're already longing for the market. So, you're probably going to start making some plans for '24 and then we got '25, it's going to be right around the corner.

(34:56):So, I look for some major shifts to begin to occur. And I think, about northwest Ohio. We come off, I think, beans this year were just, I thought there were a tremendous amount of yields on the beans. We know that ground is a little bit hard. Guess you want to say more clay.

(35:13):So, beans tend to be more natural here. And I think that's where we're beginning to see, what shifts does the producer need to make? But yet, I'm in the feed business too. I need corn. I want you to produce all the corn you can.

Brenna Finnegan (35:25):Yes. It's amazing. The factors that go into everything from weather, inputs, and now the markets and how it all correlates together. And there's just so much that a farmer needs to know about it all. The joke is what? The jack of all trades, master of none because you trickle into every single part of it. You also got to be the guy that fixes the equipment and then obviously, the business side with the marketing and it gets complicated real quick.

Matt Adams (35:59):Yes, it does. And Kirk, I know you have a great team that you work with on the grain side at Mercer. If our listeners have questions for you or want to get in contact with somebody, how do they reach out to you?

Kirk Roetgerman (36:13):This past year we started a grain marketing hotline to make sure that you are able to get ahold of a marketing individual. Currently, right now we have three grain marketing advisors on our staff there. We have three grain marketing associates. We also have our lead marketing advisors.

(36:32):You’re able to reach out to seven people there. We're always constantly looking out for other-oriented individuals to come onto our team as well. You can reach us at our grain market hotline at 8-4-4-6-7-6-2-6-7-6. 2-6-7-6, is C-O-R-N. You need to know that.

Matt Adams (36:50):I like that. And then you guys also have a website too, Kirk, for Mercer?

Kirk Roetgerman (36:56):We do have a website. It's at mercerlandmark.com. And also something new that has come out here in the past year is we do have an app. It's ML Connect. We're in the process of getting that up to date with our grain site there.

(37:11):The whole concept there is as we go through it, you can be able to see your tickets, your settlements, your contracts with the app. This past harvest, we used it to send out harvest hours every single night with all our facilities. So, everybody knew.

 

(37:26):We've received a lot of good responses on that one there. In fact, received more responses when we didn't send it out one night or if we had a little bit of a delay.

Matt Adams (37:33):Yeah. Well, you think about as a producer, when you're sitting in the truck or the combine, especially harvest, we're checking the weather, we're checking our markets, we're doing everything else from our phone or our tablet anymore. So, just to have that real-time is great.

Brenna Finnegan (37:47):Making the plan for tomorrow.

Matt Adams (37:48):Exactly, yes. Kirk, I appreciate you being a part of our podcast today and all the great information you shared. And if you have any questions, feel free to reach out to the Mercer Landmark team on the website or the hotline and we'll talk to you next time on AgCredit Said It.

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