In the News

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00;00;00;21 – 00;00;20;00
VOICEOVER
Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities. Opinions and statements of guests not affiliated with Ever Egg are of their own, and do not reflect the views of a brand. The accuracy of their statements cannot be guaranteed by every.

00;00;20;03 – 00;00;44;13
JIM
Hello and welcome to another edition of the Green Feed brought to you by Ever AG. This is your weekly news feed for all things green and all things feed. Each week we bring you updates on the markets with unique perspectives, but amazing team of analysts with the intention of helping dairy and livestock producers manage their risk. I’m your host, Jim Matthews, reporting from Chicago on a rainy little Thursday morning.

00;00;44;13 – 00;01;09;28
JIM
Joining me today, as always from Kansas, director of feed procurement Mr. Jake Kingsley, and from Washington DC, CEO of Waterways Council, Mr. Tracy Z. Team, how are we today doing very well this morning Jim. And excellent Jim. Thanks for having me. Absolutely. Great to have you on, Tracy. Thank you for joining us. I think we’ve got a lot of really fun stuff to talk about.

00;01;09;28 – 00;01;30;13
JIM
Jake. We had a big few days driving around your home state, good old Kansas. How did you feel about that? Jake felt great. First time to make my way all the way across state and back in better part of a decade. I think I finally got to show it off to somebody that, you know, probably didn’t appreciate it as much as he does now.

00;01;30;16 – 00;01;52;19
JIM
Well, I tell you. Well, the one thing I’ve taken back with me from Kansas is the pollen and a severe allergy attack here over the last 12 hours. But and, Jake, I did bring back some whiskey. I did bring back some whiskey in my old mail. checking back, checking that in at the gate at the Salina International Airport.

00;01;52;19 – 00;02;11;21
JIM
I want to make it sound grand. Probably it’s grand in this region at gate one of one at the Salina airport. I did get that whiskey through. So just letting folks know what else I brought back from Kansas. Not just pollen symptoms here but a little bit more fun as well. Got a lot to run through here.

00;02;11;21 – 00;02;32;28
JIM
But before we do, Tracy, would you mind just given the viewers and listeners just a quick intro? Tell us about yourself for a minute.

00;02;32;28 – 00;03;04;00
TRACY
Tracy Z president CEO for Waterways Council. For everyone who doesn’t know, the Waterways Council is our mission is to advocate for a modern, efficient, reliable inland waterway. Transportation system. So what does that actually mean? Our sole purpose is to advocate, to ensure that the infrastructure on the river is receiving the correct funding so that we can catch up to today’s standards. So if you think about a lock, it’s the elevator of the river. We are making sure that those are expanded. And then the other thing that we do is we make sure that the channels are dredged to the proper depths so that you can get in and out of the harbors so that, you know, products can make it to market.

00;03;04;00 – 00;03;29;25
TRACY
By Washington, DC standards, we are considered, a small association. We only have five employees. Three are based in Washington, DC, one in Paducah, Kentucky, and one in Saint Louis. We have a $2.8 million budget that is 90% paid for by membership dues. So we like to say we are a member led organization from the AV world just to name drop Cargill, ADM are all members.

00;03;29;25 – 00;03;56;18
TRACY
So, you know, very, very in touch with the agriculture side of things. Okay. Excellent. And we’ll be looking forward to some of those insights here on the show today. So excited to have you, Tracy. Real quick, Lexi, if you would kindly timestamped the broadcast, it’s about 1005 Chicago time on Thursday morning. Quick snapshot of the markets here. Just because we did have that big wised and crop production report on Monday.

00;03;56;18 – 00;04;22;18
JIM
So that gave the markets a little bit of a shake up. And despite having seemingly, let’s say, neutral to bearish corn numbers, we have seen corn make its way back up to $4 and attempting to hold it. Not with a ton of success at the moment, but as we record, we’re trading $4 even on December corn. So we had a little bit of that sell the rumor by the fact type of mentality after Monday’s report.

00;04;22;18 – 00;04;43;01
JIM
So but we’re still holding four bucks on this corn. We’ve got no beans though. Beans had a different story, right? They got beaten down Jake and not really recovering all that much from that beat down we’ve got no beans though is managing to come back up towards 980, which for our soybean producers is a better look. The 950, which we were flirting with there for a little bit.

00;04;43;01 – 00;05;08;18
JIM
December meal, that stubborn little byproduct is back up towards 310, right? So even though soybeans themselves were hammered, we have seen mule at least maintain a little bit of support. Not necessarily strength, let’s say, but holding it above 300. We flirted with that two handle. Finally. We’ll talk about that in a little bit. But back above 300 bucks per ton as we record on Thursday.

00;05;08;19 – 00;05;37;27
JIM
Now, Jake, we were driving around Kansas. Beautiful country out there across you know, we saw a pretty good chunk of that state over a handful of days. And I think the one big thing that obviously everyone is talking about, we even we witnessed corn silage chopping, at least at this stage already, that’s going to be happening a little bit further north up in my neck of the woods, probably in the next, let’s say, three weeks, depending on when you got your start and had that in the ground and what your weather has looked like here over the past couple weeks.

00;05;37;27 – 00;06;00;29
JAKE
But then the biggest excitement of all, of course, the US Midwestern grain harvest, it’s coming. That window is about to open up and we’re going to be super excited. And that grain is going to be moving. And that’s all we’ve got. Mr. Tracy’s here to talk about that exact movement and how we get that grain around the Midwest, but not only down through the Midwest, but of course out of country, potentially for export as well.

00;06;00;29 – 00;06;25;01
JIM
So, Tracy, what have you been seeing lately here in the, let’s say, US transportation system?

00;06;25;01 – 00;06;47;21
TRACY
From the inland waterways perspective, it’s been an interesting 2 to 3 years due to Mother Nature and her conditions. You know, we saw in 22 and 23 extreme low water conditions that we haven’t seen in about 16 to 17 years on the river. We had channels shut down and not at their deaths for over 50 to 60 days on average, which obviously hurts the farmer trying to get their commodity to market. You know, from a river infrastructure standpoint, it’s not a secret that these facilities are extremely old. The majority of the facilities were built in the New Deal era and the 1920s and 30s.

00;06;47;21 – 00;07;08;25
TRACY
There has been some modernization. Our average age of a lock right now is 59.7 years old. So, you know, problem with that is they’re only supposed to last 50 years. So the risk of failure goes up exponentially every year past 50 years. And 80% of our locks are past their 50 year design life. So the need to modernize these facilities.

00;07;08;25 – 00;07;38;17
TRACY
One thing though, there’s a good news story. So the last ten years, there’s been $4.7 billion in additional funding provided to these lock facilities, 2.5 billion of that came three years ago through the infrastructure package that helped modernize five facilities. The bad news is all five of those facilities were considered funded to completion under that package. It has came back due to inflation that all five of those facilities will need 100% more funding.

00;07;38;17 – 00;08;08;18
TRACY
So we need an infrastructure package for the infrastructure package. But, you know, Congress has recognized that there’s been a lack of funding for the Corps of Engineers in order to bring the system up to, you know, 2024 standards and has also provided additional 2.2 billion above the president’s budget. This is a very, very good news story. Just about 12 years ago, the Corps in total used to only receive $5 billion to manage navigation.

00;08;08;18 – 00;08;35;20
TRACY
That’s your locks and dams that support flood control and ecosystem restoration. This year, the upcoming bill is $10 billion. So they more than have doubled the Corps of Engineers budget. This is very good news story. But the problem is this should have been done about ten years ago. One thing, though, that we are watching at Waterways Council is that there’s been four projects that have been under construction, and the problem is it’s taken the Corps 20 years to construct.

00;08;35;23 – 00;09;03;27
TRACY
This cannot be the future. If we want to have our farmers remain competitive even for marketplaces. If you look at Brazil, China has dumped a lot of money into their infrastructure. We want to remain competitive. We have to construct these facilities in a 6 to 8 year time frame. The Corps has an opportunity with the infrastructure package and receiving those large sums to show that they can execute and construct these facilities in a six day time frame.

00;09;03;27 – 00;09;24;23
TRACY
Because if we continue down the 20 year construction mode, we have 218 locks. Each one takes 20 years. I mean, all of us on this call will be dead, our kids will be dead, and our kids will be dead. I hate to be upfront and honest, but it’s just the truth. And, you know, we just would have to look at different ways to build them.

00;09;24;23 – 00;09;51;16
TRACY
So, you know, Congress is providing the Corps the money. It’s time for the Corps to actually execute and build these facilities like they did in the 1920s and 30s. Okay. And are there ways for private contributions to also maybe step in where the government does not to help at least kick start more of these improvements, or as it’s always been historically, you know, this is owned maintained by the Corps of Engineers, funded by the U.S. Congress.

00;09;51;16 – 00;10;13;15
TRACY
And that’s how it’s always going to be. So that’s a that’s a great question, Jim. We are actually the original public private partnership. So we have a fuel tax that the operators pay that is $0.29 a gallon. That goes in and pays for 35% of all construction industry in 2014. Recognize the need to modernize the system. And we increased our fuel tax by 45%.

00;10;13;15 – 00;10;35;23
TRACY
So we went from 20 to $0.29. Now industry went to Congress and asked for a tax on themselves. I’m pretty sure every elected official thought we were crazy. But industry has stepped up and it’s time for the Corps to come to the table and actually execute. And that’s what you’re seeing with that $2.2 billion from Congress. Is that additional funding from industry contributing more dollars?

00;10;35;23 – 00;11;03;23
JIM
And Tracy, you mentioned the age of these locks. You know, within our river system. I mean, is there an element where if some of these begin to seriously falter, is it catastrophic in the sense of truly our river transportation systems come to a complete halt, or is it more of a like severe delays but in exports? Or what’s the impact there potentially as these you said, 200 plus locks that are average age 50 plus years.

00;11;03;26 – 00;11;23;13
TRACY
What’s the impact if they start to fail, shuts down the whole system. So that’s the one thing with the river and the lock is you’re only as good as the next lock. So you know, National Waterways Foundation, which is the research arm for the Inland Waterways, did a study on what happens if there’s an unexpected failure and who’s impacted.

00;11;23;13 – 00;11;45;09
TRACY
There’s a lock Lagrange that’s in Illinois just right off the Mississippi. The number one commodities that go through that lock in the state that’s impacted most by that lock is Texas. So if that lock fails, you shut down that whole system on Illinois, but also no tonnage scaling down the Mississippi. We actually had a catastrophic failure this year down in Alabama at Annapolis Lock.

00;11;45;09 – 00;12;12;06
TRACY
That lock had a failure. The sill below the gate, the concrete well and water just rushed through that shut down that whole system. No traffic moved north or south. And if you were, luckily you could go up and around down to the Mississippi. But that added 114 days. From the economic standpoint, when you’re looking at, you know, shipping grain or aggregates, that 114 days in that cost you might look at truck or rail.

00;12;12;06 – 00;12;29;20
TRACY
So the benefit of the rivers being a cheaper mode of transportation because the bulk goes away. But also, though, I mean, not only it’s a social impact to because the river is the greenest mode to move surface transportation. So when you’re taking tonnage off the river, you’re going to add it to truck and rail, which will pollute more.

00;12;29;26 – 00;12;55;07
TRACY
So it shuts down the whole system. There’s about 500 million tons of cargo that move on the inland waterways, and about 16% of that 500 million is grain. Every year. The number one product right now on in the waterways is petroleum. That represents about 20%. And, you know, coal used to be the King heather effort. But since 2008, there’s been some policy changes that have driven coal tonnage down.

00;12;55;07 – 00;13;22;12
TRACY
But I want to go back to petroleum. So river is the one place where you can add additional tonnage, and the American consumer can feel the benefit, but yet not sit in traffic and wait for it. You look at Nashville, Tennessee, is they used to receive less than 1% of their gasoline via barge. I don’t know if either of you’ve been to Nashville lately, but there’s been a little explosion of population there, and their pipelines are maxed out for receiving gasoline.

00;13;22;14 – 00;13;41;12
TRACY
And this year, Nashville is going to receive 40% of their gasoline via barge. So that is an example. you look at soy, you look at the crushing numbers, you know, the potential for jet fuel, you know, that could go to the river and we could ship and add additional tonnage on the river. Right now, Chicago O’Hare receives all their jet fuel via barge.

00;13;41;15 – 00;14;04;11
JIM
So adding additional, you know, products coming from crushing of soybeans, you know, could be done. And we can handle that on the river system. I think it’s something that, you know, a lot of folks probably don’t stop to reflect on. Is is how lucky we are as a country in terms of having this preexisting mode of transportation that other nations don’t exactly have.

00;14;04;11 – 00;14;33;00
JIM
And it’s the river, right? You said we’re at the whims of Mother Nature, of course, but we also have spent a long time trying to at least, you know, maintain that system ourselves. It’s not easy, right. And it has to be updated. And it’s hard to imagine the tonnage that you mentioned and being pulled off the river, not just, obviously, of course, we want to do what’s right for Earth, of course, but there’s also an element of that cost of those delays, the idea of putting all of these grain barges potentially onto rail or truck.

00;14;33;00 – 00;14;53;22
JIM
I mean, as Jake discusses at length with folks, we are watching how basis is impacted on a daily basis for our dairies, feeding animals and having to buy grain and feed off the rail and off truck. If you start to overload the Midwestern system, that has a massive impact on rail basis and truck freight on all corners of this country.

00;14;53;22 – 00;15;21;07
JIM
And that’s just on the AG side you mentioned too, I mean, O’Hare, I mean, that’s a massive, massive facility getting all of its fuel via barge. I mean, this has a huge impact. And you also noted, Tracy, that, you know, the Chinese have very much turned to Brazil, as you know, not only its key partner in purchasing grain from them, but those actual investments in infrastructure along many of their key boards, even helping build key ports.

00;15;21;11 – 00;15;44;10
JIM
Obviously, the Brazilians do have somewhat of a water system, but not nearly as efficient as what we have in the US. So if they continue to improve while we do not, obviously that’s a huge issue then for our markets here. So one thing, Jim, as the Belt and Road Initiative done for China is working right. You’re not seeing trucks getting stuck on mountain side roads anymore.

00;15;44;10 – 00;16;19;00
TRACY
They’re bruising that unpaved roads, and they’re having nice ports that are automated and efficient. And, you know, really reducing the cost. Where USDA puts out, you know, cost of transportation every year. And if you pay attention, it always compares, you know, same soybean to go from Iowa to China as Brazil to China. You know, the gap that US used to have that made us competitive and why China bought so much grain and soybeans from us was because of the inland waterway system, because Brazil had a truck it to the port.

00;16;19;03 – 00;16;54;02
TRACY
Well, now that gap is shrinking because Brazil’s cost on roads is shrinking. So much. So if we don’t continue to invest in the inland waterway system, you know, we’re going to be out of a market for our commodities. Jake, anything from your side you had mentioned jet fuel and all of this crush capacity. I think our feed buying listeners here have had a lot of questions about all this new crush capacity coming on in the soybean and soybean meal space, and obviously being able to move that oil around is going to be helpful to keep that market fluid.

00;16;54;02 – 00;17;19;22
JIM
Do you foresee us moving a lot more meal out of the country on the river, given that we’ll probably have an increase in supply? You had mentioned earlier that maybe it just moves up and down the river to get to different parts of the US a little more efficiently, but what do you guys foresee as far as having fewer beans to export and more mule sitting around?

00;17;19;22 – 00;17;45;22
JAKE
Where does that go on the river? I think if there’s a way that the economics makes sense, it will move on the river and that is what it will come down to. You know, the transition is coming and that our industry is paying attention and adapting and finding ways to make that economics make sense. I am association, I’m not a business, so I don’t want a forecast on what each of these businesses are doing.

00;17;45;22 – 00;18;12;00
TRACY
From my standpoint as an association, I hope they are preparing. I think they are, you know, if they economically make sense, we will move up via the river. Are you guys privy to any information like these exporters at the Gulf? Are they changing their facilities to handle some of those products? Yeah, it’s definitely that modernization. As far as the facility laying side goes on the capacity to take it.

00;18;12;00 – 00;18;35;20
TRACY
Right. So one thing with the river system, if you look at it, everyone keeps saying container on barge, container on barge. That’s the way of the future that’s been going around since the 80s. And the reason that container barges aren’t moving more is because the lands on infrastructure. So if you relate that to the crush side, you know, I think you’re going to see the modernization of these landside facilities in order to take that product.

00;18;35;22 – 00;18;59;20
JIM
Jake, in terms of these, we’ve talked a lot now about the Midwestern logistics here and how it does impact you know, all corners of the country. And you’ve been watching, of course, rail markets very closely, especially given the situation up north in Canada and how there’s this looming potential and very real potential for a strike and how that could impact, you know, not just our canola basis, but really any basis as that.

00;18;59;20 – 00;19;27;02
JAKE
You know, that whole system tries to figure out what a shutdown would mean. And the northern areas of the country, what have you been seeing or anticipating here in the last week or so in that regard? Like you said, it’s starting to look like it’s probable if we don’t get some sort of resolution very quickly. The authorities up there have stated that they will initiate a full stop midnight or a minute after midnight on August 22nd, which is just a week away.

00;19;27;02 – 00;20;09;28
JAKE
Now, that would mean that we stop movement of all product out of there. Our focus has primarily been canola, but obviously there’s plenty of other things that are going to be moving around in the feed world, some mineral and different things like that. But I think probably more important is the fact that not only do you stop rail cars moving for a day or two, or however long this lasts, talking this morning with some of the rest of our team and Natalie made a good point, is that these crush plants don’t want to and really can’t afford to go cold stop their facilities or days at a time if they have to because they can’t

00;20;09;28 – 00;20;38;28
JAKE
get product out of the way, then they will, obviously. But really what happens is they’ve already started slowing down production so that they can extend that storage capacity that they have on site or reduce their need for railcars of both oil and mill to move out of there. So they’ve already started reducing their crush capacity so that they can weather this thing a little longer without going full stop.

00;20;38;28 – 00;21;01;19
JAKE
So that’s going to and probably is largely priced into the market, but that’s going to affect prices particularly on basis. Right. You’re just producing less meal and it’s going to take weeks after this is resolved. Start the clock. Once it’s resolved, it’s going to take many weeks to unwind that backlog of railcars and lack of production and all that.

00;21;01;19 – 00;21;29;24
JAKE
And oh, by the way, it’s going to be just a handful of days ahead of the start of harvest when you have your highest demand for freight. So we could be in a real mess here if this thing doesn’t get sorted out very soon. And the best advice we can give is to be sure that you have probably the next 60 days worth of feed bought, and you have your inventories on farm fairly well padded, and you’re giving your vendors plenty of lead time on what you will need.

00;21;29;24 – 00;21;49;01
JIM
So that you can get the products that you need as reliably as possible in a situation like this. You know, I mean, you got to be moving ahead of it, really, that’s all that there is to say about it. So we saw that was the report this Monday come out, and it looks like we’ve got a heck of a good crop coming both in corn and beans.

00;21;49;01 – 00;22;06;19
JIM
We’re going to need to be able to move this stuff efficiently. So it’s going to have an effect on feed buyers, grain producers, everybody involved. So we’re watching that one fairly closely okay. Anything else from your side Jake. Really I think we saw some of these was the numbers coming out on Monday and kind of move the market around a little bit.

00;22;06;19 – 00;22;29;17
JAKE
But by and large our opinion is still the same. We think there may be some downside opportunity. It may take harvest to get some of those prices to move lower. But at the same time we’re seeing very attractive cash values that you got to be doing something here. I think a lot of our folks, we’ve got some at least half of their protein for the next feed year, but we’ve got a quarter to half of corn bought for the next year.

00;22;29;17 – 00;22;54;03
JAKE
And it’s starting to feel like, you know what? If you haven’t done that yet, it’s becoming very urgent. Basis could get pretty funky. We’ve seen futures already jump up ten $0.20, $0.30 in a couple of days. And on the protein side, 8 or $10 a ton in a day or two. So really we’re in the bottom probably 15% of price here in the last ten years.

00;22;54;03 – 00;23;14;02
JAKE
We run out of room to the downside. It’s time to get something done, especially if we get a little bit of a logistics snafu. Yeah. And I think, Jake, we’ve been talking about this for a handful of weeks now, but we continue to do so even after this was report on Monday. It is okay to be bearish this market and still step in and own it and or hedge it.

00;23;14;02 – 00;23;34;29
JIM
Right. Like you don’t have to start owning physical just because you’ve turned bullish. I think it’s okay to say we still feel that prices will remain under pressure and potentially move. And let’s say maybe a neutral sideways pattern here at least between now through harvest and say that’s okay to still step in and own it. We saw those from a futures perspective, right.

00;23;34;29 – 00;23;53;09
JIM
You’ve talked about how basis has come down to pretty pretty darn close to its lows. Historically. We’ve seen futures come down to levels we haven’t seen in three and a half to four years. It’s okay to be bearish and still start buying stuff at four year lows. In fact, I think it’s encouraged. So we don’t want to be too complacent.

00;23;53;09 – 00;24;12;16
JIM
I think we know there’s probably significantly more upside risk at this stage than there is downside potential from a physical feed perspective. And also, Jake, you know, talking with dairymen all week this week in Kansas. Look what milk’s doing. Let’s buy feed where it is. You take advantage of where milk where that is. Maybe he’s got a margin on your hands.

00;24;12;18 – 00;24;31;19
JIM
I don’t know, but it’s it’s something to think about. But we’ve got a lot happening here and very much value both of your respective inputs today. Tracy, thank you very much for being with us. Really great to have you. Thanks for having me too I appreciate it. Absolutely. We’d also like to thank Corey and the other Tech Insights group for their support.

00;24;31;22 – 00;24;45;17
JIM
Thank you to Lexie for her production magic, and thank you to the viewers for watching the grain feed contact information is on the screen. We greatly appreciate your feedback. That’s all for today. We’ll see you next time on the grain feed.

 

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