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In this episode of the Farm Equipment Used Equipment Remarketing Roadmaps podcast, brought to you by Agrisolutions, host Casey Seymour sits down with guest Chip Nellinger of Blue Reef Agri Marketing.

Chip regularly joins the discussion to provide an update on the commodity markets, this week sharing some of his insights on how the Russian invasion of Ukraine is impacting the grain, oil and natural gas markets.

 
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Farm Equipment‘s podcast, Used Equipment Remarketing Roadmaps, is brought to you by Agrisolutions.

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Agrisolutions is the market leader in wearable parts, components, accessories and solutions for tillage, seeding, planting, fertilizing, hardware and inventory management solutions. Improve performance and durability with a wide range of in-field and extended life solutions.

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Full Transcript

Kim Schmidt:

I'm Kim Schmidt, executive editor of Farm Equipment. Welcome to Farm Equipment's Used Equipment Remarketing Roadmaps Podcast. In this episode host Casey Seymour sits down with Chip Nellinger, who regularly provides a commodity market update and insights on how the commodity markets could impact equipment sales.

Kim Schmidt:

Before we head over to Casey and Chip, I wanted to thank our sponsor, Agrisolutions. Agrisolutions is the market leader in wearable parts, components, accessories, and solutions for tillage, seeding, planting, fertilizing, hardware and inventory management solutions, improve performance and durability with a wide range of infield and extended life solutions. To learn more about Agrisolutions and their globally recognized brands, such Bellota, Ingersoll Tillage and Trinity Logistics. Visit agrisolutionscorp.com. If this is your first time listening, you can subscribe to the podcast on any of your favorite podcast platforms. Okay, let's get things going. Here's Casey and Chip discussing some recent moves in the commodity market and how the situation in Russia and Ukraine have already begun to impact the global market.

Casey Seymour:

Chip Nellinger is with Blue Reef Agri-Marketing out of Morton, Illinois and he is nice enough to come on once a week to talk about what's going on in the markets. So Chip, how you doing this morning, man?

Chip Nellinger:

Hey, doing well, Casey, trying to make sense of all this crazy, crazy time in the world and markets.

Casey Seymour:

Yeah. Yeah. It's definitely crazy. We're looking at the markets this morning, wheat is already limit up things are just exploding off the chart. I was looking at some local markets here as we were going. And we're looking at, across the scale, $9.50 to $9.40 cash prices for wheat. We're looking at corn right now, right about $7 across the scale, soybeans about $14.90 to $15 across the scale, with basis and everything figured into that. So I'll tell you what, man, this is one of those times, like you've talked about a million times on here Chip, knowing your plan, working your plan and executing that plan when the time comes to do whatever it is, if it's an up market or a down market,

Chip Nellinger:

Absolutely. There is no better example of right now, it's hard to know what to do. What's the next maneuver? How long is this war going to last? What's this going to mean? You got to have a plan. We've just averaged the highest spring price by about 80 cents that we've ever had for beans on crop insurance, going to be the second highest ever for corn, which is it $5.90. That's a big part of the plan as well and just crazy markets right now. Obviously it's great from a production standpoint, right? You look out there and everything, as far as you can see is in wildly profitable territory, but what do you do about that? And in the same breath, the perfect storm has built up, definitely have lost the Black Sea for an indefinite amount of time. Have we lost the Ukraine spring crop, spring planting? So in the same breath, even though it's wildly profitable, you don't want to give too much up on the table. And so it's hard to know what to do in this environment.

Casey Seymour:

Yep. One article I was reading this morning looks like China is buying some, they look like they've booked five cargos of soybeans and looks like maybe some corn as well, yeah, 10 cargos of US corn. And a lot of that has to do with what's going on in the Black Sea right now, in that area of Ukraine and Russia, with the turmoil there. I mean, this is going to be one of those deals where not only is the supply chain going to be under some pressure because of what's coming out of that area, but you have an entire port area of the world. That's a pretty busy port area of the world, especially when it comes to commodities, that is just flat not going to have anything coming in and out of it.

Chip Nellinger:

Yeah. It's not only funds that are buying this. A lot of times you can give the excuse of, oh, the funds are buying it. The funds are selling it. Yeah. Yeah. They have been buying it. But surprisingly, a lot of this is commercials, right? So there's supposedly about 15 million tons of corn that has been purchased from Ukraine, but yet to be shipped. Well, obviously that's not getting shipped out anytime soon. They've got port damage, they've got mines in some of their ports and obviously a hot war going on right now in that area. And so end users that were counting on that corn from Ukraine and other materials, right? It's not just corn, it's all kinds of different, raw materials, wheat, barley, sunflower oil, you name it. They're massive exporters of all of that stuff.

Chip Nellinger:

And so now world end users have to scramble and say, if it's not coming from Ukraine, where is it coming? I got to go somewhere else. I can't wait. I need it. I got to, and they're coming to the market in a lot of cases, that's the futures market that they buy as a hedge in order to lock that in. And then they worry about where's this coming from, where's it going to come from? Obviously South America, if they can. Those premiums are rising for beans. They've had a drought situation.

Chip Nellinger:

They kind of broke that drought here recently with some great rain, their second crop corn, still three, four months away from hitting the market. And so we're going to be one of the prime benefactors of any short run switching. It's going to come here to the United States for sure on corn, beans, any soy oil is a substitute for missing sunflower oil and potentially wheat. And I think the wheat market shows it best as to what's going on, limit up yesterday, expanded limit up overnight. What's that, $1.35 higher in basically 24 hours here in the wheat market as everyone scrambles to make adjustments.

Casey Seymour:

Yep. I think that was one thing that caught the world off guard there a little bit, when you look at what's happening there is, I don't think people truly understood how much commodity market stuff came out of the Black Sea area, whether that's Russia, Ukraine, Turkey, wherever that might be, all those things are all... So the amount of stuff that came out of there, like iron ore, like you talked about sunflower oil, they're one of the largest producers of sunflower oil to go to the veggie oil market across the world. I mean, so even if it ends tomorrow and things get, they stop and everyone goes back to where they, to their perspective countries. And everyone's back to the way it was, this is still a long way out from having any kind of clarity as to what the market's going to do and how it's going to react.

Chip Nellinger:

Absolutely, absolutely. Estimations right now that I've heard is if the war stopped today, 45 to 60 days at a minimum before those ports are back open, that seems actually aggressive to me. All the people have left, they've scattered other parts of the world, all the workers over there, port workers, a lot of foreign workers, a lot of foreign companies that had operations there in the Black Sea. And so it's going to be a long time.

Casey Seymour:

Yeah.

Chip Nellinger:

I think the worst case scenario is have we, and we don't know this yet, have we lost any spring planting? Have we lost any acreage or are they going to be able to get their crop in the ground this spring? There is roads blown up, bridges blown up, railways blown up. Obviously planning a crop is not the first thing on their mind right now. And that's a ways out, but it's not that far out. And that would be the worst case scenario. And I think that's what the market, the wheat market especially, is responding to. But you mentioned earlier, I didn't realize this either and I don't have the list in front of me, but I saw a list of all the things, the rankings of Ukraine and not just agricultural products, but all kinds of different products. It is-

Casey Seymour:

Yeah.

Chip Nellinger:

One of the richest countries in the world on dozens of things, you mentioned iron, oil, steel. Just unbelievable amounts of mineral, deposits there, obviously agricultural products, industrial products. It is not just ag, I mean, the world is going to feel this pinch as long as this war goes on. And so let's hope that comes to a quick resolution. That's a whole different story, right? A little disappointing last night in the State of the Union, a lot of people have the plan. It's going to cause a little bit of a pain. He choked his oil exports off. He'll be in a ground with a hole in his head from his inner circle within 90 days but we just don't seem to want to do that. We want to drive electric cars here and not pump more oil. So unfortunately he gets the benefit of $1.14 crude oil.

Casey Seymour:

Right.

Chip Nellinger:

To, to wage war with.

Casey Seymour:

Electric cars are great. And I think that's a great part of our energy solution, a hundred percent. Until you have the infrastructure to support 30 million, 40 million, 100 million electric cars running around the countryside, you kind of have to rely on the old playbook until you get that built up.

Kim Schmidt:

We'll get back to Casey and Chip in a moment. But first I wanted to pause to thank our sponsor, Agrisolutions. To learn more, visit agrisolutionscorp.com. Now back to Casey and Chip, as they continue their discussion about how the oil sector and natural gas are being impacted,

Casey Seymour:

What's going on right now in the oil sector, it's sad to say the least, I guess the best way to put that. We still are one of the largest oil producing countries in the world, if not the largest oil producing country in the world by day, by the amount of barrels produced in a day.

Casey Seymour:

But when you look at, like what you said for us to ramp up and get to offset this five or six million barrels of oil a day that Russia produces, that where they're not producing right now and for us to get back online, to go from 11 million barrels a day to 13 or 14 million barrels a day, which we can do, it's going to take us six to nine months to make that happen from everything that I've read and seen. So to your point, exactly. I mean, here we are, we got a guy that is waging war on a country and he's still getting paid by people, for natural gas and those kind of things that are, I don't know how you put it, man, I mean, it's just... You still pumping natural gas in Ukraine, you know what I mean? It's just-

Chip Nellinger:

Yeah.

Casey Seymour:

It's crazy. It's the most-

Chip Nellinger:

It's mind boggling. It is, it is mind boggling and it's not just United States, it's like there's a whole small minority segment of the world that just lost their rocker, you know?

Casey Seymour:

Yeah.

Chip Nellinger:

I read that even as of Friday, this past Friday, that Germany had six nuclear reactors left.

Casey Seymour:

Yeah.

Chip Nellinger:

They were one of the biggest producers of nuclear energy. Of three of the six they took offline Friday, just as regularly scheduled, we're going to deal with nuclear energy. I mean, it is mind boggling. The world could fix this, I say easily, it's an easy fix. It's a hard fix. But if you think back to World War II, some of the sacrifices that our parents, grandparents made, yeah. Energy prices that shoot up in the short run, but we would fix this thing in Ukraine. The world would be a better place. It would change, in my mind, for the good, for a long time. We just refuse to do it. And it would, I'm not saying it'd be easy. Particularly for Europe.

Casey Seymour:

Yeah.

Chip Nellinger:

Their gas prices are going up, but I'm not a military strategist, but if I was going to do what Putin did, I probably would've done about three months ago, going into winter, not coming out winter. It would've caused some more issues potentially if it were three months earlier, but again, I'm not a general.

Casey Seymour:

Yeah. And the natural gas thing, that's another thing too. I mean, we've got these skyrocketing fertilizer prices, natural gas is the primary component of [inaudible 00:12:11] so I mean, you start looking at that and what they're doing in, I don't know, we could do a whole podcast on just this topic. So it's-

Chip Nellinger:

I know I got on a tangent.

Casey Seymour:

Yeah. So we'll, we'll save that for another day, but there's just plenty of, plenty of opportunity there to, like you said, you just take the oil off the Swift account, all the oil transactions off of Swift and all of a sudden it's a whole different ballgame, so.

Chip Nellinger:

We'd have to turn the thermostat down, drive a little bit less, throw a blanket on, extra blanket on at night, we'd get through it. Because I truly believe if the world came together, banned his oil and his gas, 90 days.

Casey Seymour:

Yeah.

Chip Nellinger:

There's a new leadership regime, may not be much better, but it sure would be different and he'd be gone and we wouldn't have to worry about him anymore. Because he would be in a hole somewhere in Siberia.

Casey Seymour:

Yep. And yeah. And that's a good point. But the sad part of that too is now you've got China on the other side and they'll say yeah, whatever the world doesn't buy, we'll buy. So that's cool. We'll take everything too. So again, that's a whole other podcast that we can do.

Chip Nellinger:

It is, it is.

Casey Seymour:

All right. Let's jump down and talk about what is going on in the cash hog marketplace. Hog market still, man they are seeing some great indexes. Their things are climbing all across the board, whether it's cutouts or whether it's cash hogs going to market. So I guess as you look at that Chip, what are your thoughts there at the hog market as we move forward?

Chip Nellinger:

We had a correction that was probably much needed after a $30 straight up run in the hogs. We had a nice $7, $8 correction. The market shot up higher yesterday, $2.70 higher in the Aprils, $3.35 higher in the June. Some news there over the weekend that China wanting to rapidly expand porks' supplies, supposedly out of their own stocks. But nonetheless that's bullish as they've been and continue to be small buyers in the past, they've been massive buyers of US pork. They continue to be in there for small amounts, almost on a weekly basis, of US pork. So that was a good sign. And I think the other thing is we've talked about this, even the cattle kind of stabilized and traded higher yesterday . As corn and wheat and [soy 00:14:46] meal scream higher eventually that will have to drag along the livestock market as well. And I think you're starting to see some of the effects of that as well, especially in the hog market.

Casey Seymour:

Yep. All right. Let's jump over and talk about what's happening in the beef marketplace. It's a slow reaction. You're starting to see some slow down in that market, obviously with the price of oil, that's a good indicator as to what you see happening in the cattle complex, as price of oil goes up, the price of cattle usually comes down. But as you look at the cattle market, what are your thoughts there?

Chip Nellinger:

Well, kind of similar to what we just talked about, the feeder market obviously has been pressured with these sharply higher corn prices that we've seen over the last week or two. Eventually the live cattle market, the fat cattle market, has has stabilized. So that is one way to adjust to these higher feed costs. You put a little more margin back in the feeding side of it with feeders going lower and the live cattle kind of stabilizing in here. I think the other thing is eventually if corn keeps going, it will stabilize the feeders as well. And even the last two times, '08, 2012, that this happened some massive rally and the grains, it just drags the whole livestock, otherwise margins compress too much and you're forced with a lot of liquidation. So the market can't have that happen.

Chip Nellinger:

Not that it won't happen to some extent, but at a certain level, feed and feeders will respond to higher corn prices by being drug higher. So the cash market's holding together well, the box beef has broken pretty significantly over the last say months, six weeks, seems like it stabilized even though box beef broke and cash cattle rallied, there's still massive margins there, massive profitability for packers. I think things are in pretty good footing here, but obviously we're sitting there, you add basis on, and you're probably over $8 corn in the southern plains. And so this thing is not all roses from a livestock feeding perspective, especially.

Casey Seymour:

Yep. All right. You have good stuff as usual. Folks want to reach out to you and get more information about what you're doing over there at Blue Reef and that plan, like we just talked about, we opened up with working that plan, understanding that plan, making adjustments to that plan and moving forward with what the actual items of that plan are, wicked important right now. So as you take a look, what's the best way folks to get ahold of you and what you're doing over there at Blue Reef?

Chip Nellinger:

Yeah. Best way is just, just call our office. And that number is 309-550-7213. Would love to chat with you and just kind of give you our take on a few things you might want to keep at the top of your list here in this type of market environment.

Casey Seymour:

Right on, okay. Well Chip, appreciate you being on the podcast, man.

Chip Nellinger:

Hey, thanks for having me, Casey. It's always a pleasure and it seems like every week we talk, it just gets crazier and crazier.

Casey Seymour:

Yes, it does. For sure. So I am Casey Seymour, Moving Iron podcast. Make sure you check me on Facebook, Twitter, and Instagram. This is where you find the latest editions of the Moving Iron podcast. Also go to movingironllc.com. Give that a check out. I just posted a new blog up there and the blog's about taking a look at the planner market and kind of where it started out in 2012 and 2014 through the big purge. And then where we're at now and kind of some of my reactions of the planner market moving forward. So check that out, gets a good read.

Casey Seymour:

And there's a lot of information in there that took me a while to find. So I think there's a good off opportunity there to kind of, if you're looking at buying a planner or in the market of selling a planner, take a look at that and get my two cents there and go from there, so. Also you can find all the information for the Moving Iron summit coming up in Nashville, Tennessee, that's September 6th, 7th, and 8th. All the information's on the Moving Iron LLC website at movingironllc.com and you just go in there and sign up and we'll get you registered. And we'll see you guys in September. So with that, I am Casey Seymour with Chip Nellinger. Let's give me some iron folks.

Kim Schmidt:

Thanks, Casey, and Chip. And thank you to Agrisolutions for sponsoring this podcast. You can keep up on the latest industry news by registering online to receive our free newsletters, visit www.farm-equipment.com. For Casey and Chip, as well as our entire staff here at Farm Equipment, I'm Kim Schmidt. Thanks for listening.

Sound Effects: Jahzzar - Magic Mountain