Apr 28 | Closing Market Report

Todd Gleason: 00:00

From the Lende Grant University in Urbana Champaign, Illinois. This is the closing market report. It's the April 2025. I'm extension's Todd Gleason. Kurt Kimmel is out of the office today.

Todd Gleason: 00:12

However, we will talk about the commodity markets with Chad Hurt. He's an agricultural economist at Iowa State University. We'll hear about the government payment trap from Carl Zulov, Emeritus Ag Economist from The Ohio State University. And then as we close out our time together, Mark Russo will join us from Aberstream Analytics on this Monday edition of the closing market report. Todd Gleason services are made available to WILL by University of Illinois Extension.

Todd Gleason: 00:39

May corn for the day settled at four seventy five and a half, 3 and a quarter lower. July at four eighty three and a quarter down two and a quarter. New crop December lower at $4.50 and a quarter. May beans at $10.52 up two and a quarter. July 3 and a quarter higher at $10.62 and a half, and November at $10.34 and three quarters, a quarter of a cent lower.

Todd Gleason: 01:00

Chad Hart from Iowa State University now joins us. He's an agricultural economist. Hi, Chad. Thank you for being with us. I do wanna start with the marketplace, but then transition to something else very quickly.

Todd Gleason: 01:11

Corn, soybeans, wheat, and the livestock. What are you watching most closely as we move into the month of May?

Chad Hart: 01:18

Well that's the deal. I think as we look now you're starting to see you know the supply side, starting to dominate the news story. How quick are we planting? Are we seeing moisture in the right places? And, you know, I think we've seen some downward pressure, especially on corn and wheat as we've, you know, for the corn side, we've got off to a really good start, especially in the Western Corn Belt in terms of that planting progress.

Chad Hart: 01:42

And in terms of wheat, we're seeing more rains especially come up as you think about that winter wheat belt in Kansas. It's getting that moisture that it needs to really finish off.

Todd Gleason: 01:53

Given that, when you look forward to the May WASDE, what are your expectations?

Chad Hart: 01:58

You know, as I think we look right now, I mean, it'll be interesting because May is the first time we get to see those 2025 numbers. USDA does tend to stick fairly closely to what they put out there for the ag outlook for them as you think back to February there. And so I don't expect to see big changes when it comes to the supply side of the market. In fact, one of the things I'll be watching for here is given that we're getting more corn area from the March planting intentions report. Do we see a little bit of adjustment in that trend line yield given the expansion in acres?

Chad Hart: 02:32

But given the start here, maybe USDA holds the line at a 81 bushels per acre there. So I'm mainly looking at what are they gonna say on the demand side there. I figured the supply side, they're gonna stay close to what they had.

Todd Gleason: 02:45

And on the demand side, we heard from China, in some news stories that they're saying, hey. We're good with Brazil. We don't need anything from The United States.

Chad Hart: 02:54

Well, that's easy to say now. You know, the idea is that this is when we typically see them transition to buying from South America. The question to me is really as we look towards August and September, how do they look then? Because that's when we would tend to see them really jump back in the market. And when you look at where we're at with China right now when it comes to the 2024 crop sales, we're about where we should be with them.

Chad Hart: 03:23

So in this case, that's why I think you're seeing, you know, the markets have been fairly calm about, you know, this sort of tit for tat, you know, are we negotiating or not here because they know this is a slow period of time between The US and China when it comes to soybean trade.

Todd Gleason: 03:39

On the May 12, USDA has said it will use the policies that are in place. There is a tariff on all goods coming out of The United States that would include soybeans. What will they show for new crop exports?

Chad Hart: 03:53

That's gonna be the fun number there. If you think about, for example, this year, we would be looking at China taking up a little over 800,000,000 bushels there. And so it's more the case to me of, okay, they're gonna say, yep, China probably not taking that given the hundred and, you know, 25% tariff that we're facing as we look over there. So it's more a matter of, okay, how do we redirect at least some of that 800,000,000 bushels to other markets? And then what do you assume is lost because of that?

Chad Hart: 04:24

I do believe we'll see that export number come down. The question will be how much.

Todd Gleason: 04:28

Let's transition now. Over the weekend, you took your spring classes or at least one of them on a tour of, fertilizer, and its route through The US and how it makes it into Iowa. Can you tell me, why and what it is you did?

Chad Hart: 04:45

Certainly. In this case, one of the things that we're trying to give to our students is that experience of thinking through, okay, when we talk about agriculture and being a global industry, sort of showing them that as opposed to just telling them about it. So last year we followed basically a bushel of soybeans from here in Iowa to leaving towards China as you look back there. This year it was all about fertilizer, looking at inputs and how they come in here to The US. And so we basically said when you're looking at the fertilizer market, whether you're talking about NPK or S, the idea is we have domestic sources, but we also pull from international destinations.

Chad Hart: 05:23

How do those products move here into Central Iowa. So we traveled here from Ames over to Dubuque to get on the river, talked about the lock and dam system there, but also met with rail companies and fertilizer companies as we moved from Dubuque down to St. Louis to basically connect with logistics, you know, as we're looking at marketing as well, but then talked about the flow, whether you're talking about barge, rail, or truck as you move that fertilizer around the country.

Todd Gleason: 05:54

So fertilizer coming into the country generally comes up the Mississippi River and other ways then?

Chad Hart: 06:00

It definitely does, when you think about it. The idea is we get most of them, especially as you're thinking about our inn, that's mainly coming up that Mississippi River as we think about it there. When it comes to something like potash though, that tends to come from Canada. That tends to be more rail coming down that way. But you see basically a variety of products.

Chad Hart: 06:20

Even here within The US, for example, when we visited in Dubuque, we visited a nitrogen plant and a sulfur plant there. So we have some domestic production as well.

Todd Gleason: 06:30

Mostly though, I believe, that production is either done in Canada for potash and Yep. Or overseas for nitrogen, though there I believe there are nitrogen production plants near New Orleans as well.

Chad Hart: 06:42

There are. There's nitrogen plants near New Orleans, but when it comes to, for example, like potash, yeah, we probably import somewhere around 80% of our potash from Canada. We produce less than 10% of what we need here within The US. When it comes to something like nitrogen, you know, when we're looking at our ammonia, we do produce a bit more, about 10 to 15% of what we utilize. But, yeah, we pull in a lot of nitrogen from various places around the world, but most likely probably The Caribbean where they have a lot of natural gas and if you will, a very quick turnaround to reach The US market.

Todd Gleason: 07:20

When you talk to the students, and the people along the river and the railways, what were the logistical bottlenecks or things that were most important to discuss?

Chad Hart: 07:31

Well, when you think about it is, you know, a lot of it since it's you know, we do move a lot with the river system. We spend a lot of time talking about the lock and dam system, how it works, where its constraints are, and if you will, how in some cases we're relying upon technology that was built nearly a hundred years ago. As we visited the lock and dam there in Dubuque, for example, it was built in the nineteen thirties. It's still fairly functional but it's small, if you will, for what we tend to move. And you tend to see that as we look up and down the river.

Chad Hart: 08:05

As we're going further upstream, if you will, towards Minneapolis, the idea is that's where we tend to see the older equipment, smaller equipment, and therefore, it constrains the size of the loads we can move up and down the river.

Todd Gleason: 08:18

And what did you find in Saint Louis?

Chad Hart: 08:20

In Saint Louis, the idea is, you know, when you look at the lock and dam system right there North of Saint Louis, that was basically one of the newest ones put in in the 1980s. You know, over, in this case, twice the size of what we saw in Dubuque could move product fairly quickly, but you still face some of the same logistical challenges as you do in Dubuque. The idea is that when when there's one ship in the lock, there can only be one ship in the block. It doesn't matter whether it's a 600 foot long block or a 1,200 foot long block. You're still kinda constrained to moving one ship at a

Todd Gleason: 08:54

And there are no plans to update?

Chad Hart: 08:56

Well, the idea is they're always doing continual maintenance, but the big challenge here will be, when can they upgrade some of these facilities to put in those larger tows as we look down there? Now we know that costs significant money. In fact, you know, as we think why, you know, we haven't done that in the past is that is because it is a significant budget, cost to upgrade these facilities. But as we continue to move more and more product up and down the river, that drives the need to put in those investments.

Todd Gleason: 09:31

There is a fund, the a tax on every gallon of fuel that's used by the tugs. Congress has tapped it from time to time, but it's still being drawn, I believe.

Chad Hart: 09:44

It's still being drawn. And in talking with the folks there with the core both in Dubuque and St. Louis is what we learned is that when you think about the regular maintenance, about half of that regular maintenance, the funds that come from that come from that fund. The other half basically comes from allocation from congress directly. And so the fund, while it still has a balance, the idea is they're trying to use that balance judiciously here.

Chad Hart: 10:11

And but that fund could not necessarily pay the full freight, if you will, to upgrade facilities.

Todd Gleason: 10:18

Hey. Thank you much. I appreciate it. We'll talk with you again in a month.

Chad Hart: 10:21

Alright. Thank you, sir.

Todd Gleason: 10:22

Chad Hart is an agricultural economist based on campus at Iowa State University in Ames. I'm University of Illinois Extension's Todd Gleason. We're now joined by Emeritus agricultural economist from The Ohio State University, Carl Zuloff, he and his colleagues here at the University of Illinois, members of the FarmDoc team, Gary Schneeke, Nick Paulson, and Jonathan Koppas, penned an article, entitled US Crop Agriculture's government payment trap for the Farm Doc Daily website. You can read that up on our website now. Look for that title at willag.0rg.

Todd Gleason: 11:04

Thank you for being with us, Carl. I appreciate you taking some time with me today. There has been some wonder in my mind for quite some time about the ever increasing price of farmland. That's pretty standard. However, it has increased pretty dramatically since the mid two thousands and even since 2013.

Todd Gleason: 11:27

I take it that's part of the reason you took a look at payments, the ad hoc payments in particular, as it's related to the price of farmland. Can you tell me a little bit about this article?

Carl Zulauf: 11:39

Yes, the genesis of the article was simply observations of what was going on and of course you mentioned the key one, the increasing price of farmland And I started looking at some data, we started looking at some data and there were, you know, things just started emerging and the article kind of in a sense Todd wrote itself. Specifically, the key data that we lift up in the article is that since the 2014 Farm Bill which is when the current crop safety net was authorized, government safety net payments have totaled $120,000,000,000 Over that period of time using USDA ERS's cost of production and the returns to that cost, The private market return has been a minus 32,000,000,000 At the same time, as you mentioned, crop land prices have been going up. The percentage increase is 52%. Associated with that has been an increase of debt of 79%. It seems reasonable to hypothesize that part, at least part of the increase in farmland value, 52% increase in a period when private market returns have not covered the total economic cost of production is due in part to the government payments and that's the story we tell in the article.

Todd Gleason: 13:27

So this is the numbers you've given us are for the nine cost of production crops. These would include the row crops corn, soybeans, and wheat. And I believe what you have just told me is that producers were making more money with the government payments than they would have anyway out of the marketplace?

Carl Zulauf: 13:52

Yes. Specifically the crops are what we refer to as the cost of production crops. USDA has calculated they required by law to calculate the economic returns and those crops are corn, soybean, excuse me, I have to do them in order, barley, corn, cotton, oats, peanuts, rice, sorghum, soybeans and wheat. So there is nine of them. It goes back to 1975 in terms of the cost.

Carl Zulauf: 14:26

It's an economic cost which is an important thing to keep in mind and as USDA ERS calculates that, that is every input including farm equity, own farmland and unpaid family labor is assigned to cost. The only input that not assigned to cost is management. So it is an economic cost, not a cash flow cost or there are other types of costs out there, Todd. But yes, basically by that calculation, government payments have augmented and they explain the returns above the total economic cost of production since 2014.

Todd Gleason: 15:13

You summarize this with three bullet points where you say the current economic picture of The US field crop sector is stark, even disturbing since 2013, saying the price of US crop land increased 52% as a production of nine large acreage field crops incurred private market losses and those were more than offset by these large crop safety net payments. What policy implications are there going forward?

Carl Zulauf: 15:43

Well, there's no question that there is financial stress in the sector, the crop sector right now. One of the questions that I think has to be addressed is why did this happen? And this is what this article is really looking at for the crops as a group. This is a composite study. So it's those nine crops taken as a group.

Carl Zulauf: 16:07

Those nine crops account for a large portion of the acreage in this country, so they're very important to the sector, very important to the country and particularly to certain regions and certain states. The fact that these payments have been this large and are probably in the real estate asset values, maybe even equipment, maybe other costs as well, they're going to it's hard to unwind that without having stress. Higher bankruptcies, for example. But if you don't do that, then you make the cost for a long time. So we're kind of in this trap where part of the reason we have the situation we have right now is because past payments have exceeded the losses of the private sector which is causing pressure for more payments to reduce the cost price squeeze, which actually probably doesn't reduce the cost price squeeze but increases cost.

Carl Zulauf: 17:26

So that's why we call it a trap. There's a circularity that occurs here. And so I think first of all, the lessons from policy is that for the sector, not just for individual farms, you have to keep both the sector and the farms in your perspective. But for the sector payments should not exceed the losses of the private market, that they are going to end up being spent somehow to raise the cost of production at least in part Todd. So that's the first lesson and I think an extension of that is that as we move forward we should be, we being policy makers and people involved in policy actors in agricultural policy should be reticent about giving more money to the sector than what the losses are in an individual year.

Carl Zulauf: 18:25

That would be a start towards unwinding this process that has been built up. So I think the policy lesson is to be really cautious about having government payments in total exceeding the sector losses relative to the economic cost of production.

Todd Gleason: 18:44

And even in that case, because those larger payments have been built in and the expectation would that they would be continued to be built in, there will be pain to be suffered within the sector.

Carl Zulauf: 18:56

Yes. The exceptions would be if returns, private market returns could increase, Todd, that would alleviate the pressure. Interest rates could decline, that would alleviate the pressure. But if those two things do not happen, then the only way to alleviate the pressure is to very slowly, and I would argue you want to do this slowly, you want to keep the pain to a minimum, but to withdraw the payments so that the market can return to a more private market sustainable profitability level.

Todd Gleason: 19:34

Thank you very much, Carl.

Carl Zulauf: 19:36

Thank you, Todd.

Todd Gleason: 19:36

Carl Zuloff is an emeritus agricultural economist from the Ohio State University. You can find the article he penned with the PharmDoc team on our website. Look for the title that includes the government payment trap. The theme music for the closing market report is written, performed, produced in courtesy of Logan County, Illinois Farmer Tim Gleason. Do visit our website, willag.org, where you can find many articles written by the ag economist, the crop scientist, and the animal scientist from the University of Illinois.

Todd Gleason: 20:21

Let's check the weather forecast. Now Mark Russo is here. He's with Everstream Analytics. Hello, Mark. Thanks for being with us.

Todd Gleason: 20:28

Let's start in the Western Corn Belt and our work our way eastward. What will the next week look like across those areas for planting corn and soybeans?

Mark Russo: 20:39

Well, Todd, the Western Midwest and into the plains, that's that's actually the most active zone for this week and even on into next week. Right now, nothing looks extremely wet or inundating. And plus, you know, going back last week and prior to that, actually, the belt needed the Western part of the Midwest actually needed some rain to improve topsoil moisture. So things will be a little bit slow there, but not really chain you know, not not a a big concern right now. And, and as you go east from there, then it quickly changes to actually a below normal rainfall pattern.

Mark Russo: 21:16

And so the Eastern Midwest, Northern Delta, that's going to be the areas that will see the quickest pant planting pace as a result of the drier bias and overall warmer temperature bias too.

Todd Gleason: 21:29

You know, we had heard that there would be, to begin with, persistent set of storms, two to three days apart. They moved then to three to five days apart. Now you're telling me they're just not going to come. What took place that changed all of that?

Mark Russo: 21:44

Yeah. We have seen, like, kind of a wholesale shift in what we call the long wave pattern across The US. So this trough of low pressure that had been a bit more further east has now shifted to the West, and that has really focused more of the rain activity in areas of the Western Midwest and Plains after what had been more of the Delta And Eastern Corn Belt back several weeks ago.

Todd Gleason: 22:07

Do you see anything in the following week that brings rainfall back into the forecast?

Mark Russo: 22:12

Not at this time. Again, a little bit of light rain activity, but but the but the below normal rainfall pattern looks to prevail, in week two of the forecast as well for the Eastern Corn Belt.

Todd Gleason: 22:22

Probably thought about May. We'll be into that week, fairly deep by then. What's the the the the week three and four you think look like?

Mark Russo: 22:31

Likely, we'll get back into summer rain, but more of kind of a normal, rainfall, pattern. At this time, we're not seeing any signals that either the Eastern Corn Belt or, for that matter, the Western Corn Belt gets into a really wet pattern that that that would be of any concern.

Todd Gleason: 22:48

Thank you very much. I appreciate it.

Mark Russo: 22:49

You're welcome, Todd.

Todd Gleason: 22:50

Mark Russo is with Everstream Analytics, joined us on this Monday edition of the closing market report. It came to you from Illinois Public Media. Find us online. Listen to us on demand whenever you'd like at willag.0rg. You have a great afternoon in the field.

Todd Gleason: 23:08

I'm Todd Gleason.