Pam Fretwell 0:00
Hello, everyone, and welcome to Channel Chat. I'm your host, Pam Fretwell. And today we're excited to introduce a new podcast series just for farmers. In today's episode, we're going to be talking about navigating soybean trade tariffs. We're going to look into and understand more, the increased tariffs on U.S. soybeans and also the impact that it's having on soybean farmers. With us today is Mr. Matt Bennett. Of course, one of the industry's most respected grain marketing consultants, a Channel grower himself and a fifth-generation farmer. With over 3,000 acres of corn and soybeans Matt really understands firsthand the challenges and the risks that are involved in being a farmer in today's market. He's traveled across the country, giving grain marketing advice to farmers and at Channel they're very proud to call him a part of the team and thankful for all that he does to help farmers become more profitable. Matt, welcome to the show today. And first of all, just for our listeners, can you kind of give me a little bit of your personal experience with grain marketing?
Matt Bennett 1:01
Yeah, I can. We started the grain business, actually, my family did a couple years before I was born. So, in the early 70s, we were in the grain business throughout my childhood I grew up looking at the DTN screen, grew up listening to my parents talk about the trucking industry, hedging, basis, things that were somewhat boring to me as a kid. But it gave me a really good background and a good foundation. And I realized when I got into high school, and then especially college, that I had some knowledge of the markets that I really didn't know that I had, I was always interested in farming, probably more so than anything. But I realized that I had a little bit of a knack for marketing and really enjoyed it. And so, it kind of helped establish kind of the direction that I'm going in now actually running a farm and working with producers on their marketing programs.
Pam Fretwell 1:59
Sounds like you're really passionate about what you do that's evident from your childhood and now becoming a grain marketing expert. So, I'm sure you're a great valuable resource to farmers, but how long have you partnered with Channel and why is that a brand that you've really chosen to partner with?
Matt Bennett 2:16
Basically, I started as a seed dealer early in my career farming with Crow’s in the Midwest and then I became a Channel seedsman as Channel was formed and from that point forward basically I have been a hundred percent Channel customer for quite some time but decided to turn over that part of my business to the person that I'm currently buying my seed off of due to my career growing, in the marketing spectrum.
Pam Fretwell 2:46
Now I would assume that in 2012, the markets were certainly different. We were talking about $8 corn there and, and was that an easier time for you than it is today?
Matt Bennett 2:55
Actually, what we found back in 2012 is people probably had as much or more anxiety about selling $8 corn than what they have at $3 corn now, it was certainly a better time, a better era in agriculture, we're making a lot more money. But we still have producers feel handcuffed. But you know, with higher prices, because they're just simply afraid of what's going to happen if they sell at that point in time. And so, we always try to impress upon producers. I guess my mantra, if you will, has been you figure out what's your breakeven prices as you look at your profitability per acre and not get too hung up on always maybe expecting more of a rally than what we've already seen.
Pam Fretwell 3:33
Today's world where we're talking about $3 corn and a lot of external things going on, besides the weather or any other market things that usually happen. We're talking about trade tariffs for the U.S. exports on soybeans. So, can you just kind of give me an overview of where we are when it comes to these trade tariffs for the U.S.
Matt Bennett 3:53
So essentially, our President has put together a program to try to balance trade, we do have a trade imbalance with China, typically, we buy a little over $500 billion worth of goods off of them, whereas they buy them maybe a quarter in that neighborhood thinking on a particular year, yet, they have about four times as many people. And so, we know there's a lot of major differences between the two countries. But essentially, we have put some tariffs on some of their products in order to try to impress upon them that we want to balance this trade issue. And unfortunately, soybeans have been one of the bigger targets that we've seen the Chinese go after, because that's been one of the major things they've purchased. If you look at probably the reason that we've had really good prices here in the last couple, three years, especially, is then because the purchases from China have been so overwhelmingly large. People may not know it, but the Chinese have around 57% of the world's pigs that they own right there in China. And so obviously, a pig, they consume a lot of soybean meal and so the Chinese have an insatiable demand for soybeans. So as far as the tariffs are concerned, the Chinese bought quite a few soybeans before we ever went ahead and followed through with the tariffs. But since that's happened, they've not been buying soybeans like they have. And most of those soybean purchases, they've actually gone to the Brazilians, which has definitely created a very interesting dilemma, here for U.S. producers.
Pam Fretwell 5:29
And of course, it causes a huge challenge for farmers. But what kind of monetary impact could we say that this might have.
Matt Bennett 5:38
Right. And so, looking here, the 2018 marketing year, the high for November soybeans that we had earlier in the year was right at 10 60. Currently, as we talk here, on the first day of August, we're looking at November being prices around 903, but the price actually got down into the 820s. And so, we essentially lost around $2 and 35 cents a bushel from the high to the low and that was in about six weeks of time. And so obviously, we take this market and we saw collapse. Now, it wasn't all trade tariffs, which has made it very tough, Anyone who's watched the markets knows that no one factor is going to do the things to a market that we've seen happen to our soybean market, we have to take into account but we have extremely good crop condition reports, the soybean crop is rated, it looks to be a pretty good sized crop, not to mention, we planted 89 million plus acres of beans. And so, you can't pinpoint everything on tariffs. But certainly the $2 and 35 cent drop you can you can attribute a pretty good chunk of that to the tariff situation by most people's standards.
Pam Fretwell 6:53
You talk about the differences from the high to the low of $2 and 35 cents in six weeks, have we ever seen or experienced anything like this in the recent past?
Matt Bennett 7:03
We haven't seen this for a while, but you have seen some collapses in the market before, this is probably one of those moves that your younger producers maybe haven't experienced. We've seen where the market the old adage, the market, take some steps on the way up and an escalator on the way down. But, essentially you haven't seen a $2 drop in a matter of just a few weeks, it doesn't happen often. And so, it's been really hard for producers to get a handle on that, not to mention the last three, four or five years, this soybean market has had a lot of supply thrown at it. To talk the marketing side of things a little bit, most producers have been skeptical of why bean prices have been so high. We have seen beans fall at times and then turn around and rally $1 when no one was expecting it. So, I think a lot of people are sitting around here in the summer of 2018 hoping to get that rally that they weren't expecting. But you know, when you're looking at a trade war between the two countries like U.S. and China, this is a completely different ballgame that most people have never experienced.
Pam Fretwell 8:16
So, what are your recommendations for farmers, soybean farmers in particular, that are facing this tax on soybeans? And how can they still remain profitable with those high tariffs?
Matt Bennett 8:28
That's a great question. One thing we do, I just want to back up a little, this past winter, whenever we're talking to a lot of the Channel growers, the meetings that we were able to go to, I talked to producers about having a marketing plan in place. Essentially for 2019, we're already talking to producers about putting their marketing plans together, we want to look at what our breakeven prices are, we want to look at, kind of our cost structure or know cost of production. But given the types of yields we're expecting, what kind of breakeven prices are we looking at? And so, we had marketing plans in place, we did make recommendations, based upon what I'm doing on my farm, I will talk about this is the sales level that I'm gonna have, these are the things that make sense to me. But what always makes the most sense for every producer, in my opinion, is that they know their farm and they should know their farm better than anyone else and when they can make money. And so how am I going to navigate trade tariffs is probably going to be a very similar answer to how I navigate other situations in the market, whether it be weather, I need to know what my preferences are, as far as how many bushels do I want to have sold going into harvest on the typical year, and let's just say that's, a third of my crop. So, if I want to get 33% of my crop sold before harvest, I need to know when I'm making money, and when I'm not and to be proactive when I am above those breakeven prices. And so, this has been a very tough ball game this year. I know producers have been stressed about it if they didn't get to those sales levels before the tariffs help precipitate collapse in the market, essentially, they need to be looking towards the end of the summer, as we speak about this, what kind of yield am I looking at, am I going to have a better than expected yield. And if I am, I'm plugging that into the profitability calculator that we have on the Channel website, like plug these in, and the higher the yield is, of course, the lower my breakeven. And so here late in the summer, we do see a few producers after we've seen market rally back up and take a little bit back of what we lost go ahead and look at making sales again.
Pam Fretwell 10:40
You've given so many great points about first of all, have a marketing plan and sticking to it. But it's all about knowing the costs. And like you said, if your yields are up, at least that's a good thing, you're gonna have a lower profitability layer.
Matt Bennett 10:54
Yeah, I mean, the thing is, is that one thing that we've gotten, I guess used to in the last several years, so I'm going to say, around 2007, and maybe 2014, 2013, 2014, we really had some great marketing opportunities. There were several years when there were essentially we could market any time of year, the marketing year, we're going to make money, really good money and, and so we got a little bit sloppy, I think we got away from the business side, of marketing our crops. I know a lot of producers struggle with marketing, just as I do at times. I mean, I'm supposed to be an expert at it, but it's still a tough task. And the reason for that is that we get a little too emotional at times, or it comes to this marketing situation. The way that we try to avoid that, though, is we do this on a black and white calculated approach. We want to look at it, look at spreadsheets, pen and paper if you want, but I'll need to know like you said, Hey, when am I making money? When am I not making money? And if I've got this all put in place ahead of time, and I've maybe put some orders in place based upon when I know I'm making money, that's a heck of a lot easier to do than to make those marketing decisions on the fly.
Pam Fretwell 12:05
Getting back to our tariffs. We don't know how long they're going to last. But what if they go ahead and last for the long run? Do you think it will even out a little bit after a while? Or is there any kind of long term benefits that the farmers might be able to have?
Matt Bennett 12:20
First of all, I think, when our president came out and announced that there was going to be program to try to help alleviate some of the challenges producers are seeing, with the part of his subsidy program, which could be up to $12 billion. Yeah, I think that was essentially a good reason for all of us to understand this could last for a while, and that maybe the U.S. is prepared for this to last long enough so that they can maybe accomplish some of their goals. As far as the tariffs are concerned, though, it's very interesting to note the day before, actually, yesterday, the last day of the month of July, we saw a little bit of talk that the Chinese would like to sit down and talk to the U.S. just simply seeing that precipitated a 28 cent rally in the soybean market. And so, I think we can all understand that this is a very touchy topic, if this does get resolved, you're certain to see some sort of appreciation in prices. But at the same time now, a few things that I would like to impress upon producers that none of us knows for sure what kind of programs the government is actually going to implement. And we don't want to bank on anything until we see some sort of payment show up. If you had producers asked, should I go ahead and market at $9 November soybeans if they're really going to give me $1 a bushel, and I said, if you knew that they were going to give you a dollar a bushel it would make it a whole lot easier to sell at $9. I understand that. But we can't count our chickens too quickly. So as far as tariffs go, how long do they last? I would love to think that we could get this resolved in the next few months. But in my opinion, it's anyone's guess. And I don't think there's any way of knowing just how long this might last.
Pam Fretwell 14:04
Do you think that there's any outcome that could really make them more profitable through these tariffs?
Matt Bennett 14:10
Yeah, I think that whenever we look at it the way this has all come about, it's a tough thing to comment on, because I don't really have a good handle on exactly what the outcomes might be. I do know that as far as the Chinese have been concerned, they've been purchasing a ton of soybeans off of us to date. So, we would like to see them continue to be our partner in that. But at the same time, are we going to be able to be on a level playing field on all trade? You know, and I think that's what our government is trying to get towards. If that is the case in the long run, is it going to increase soybean sales to China? And I guess my question to that is going to be I'm not sure that we're going to actually benefit terribly large as far as our soybeans go because I think the overriding factor most years as I sit and look at this market is going to be tied heavily to currency. So, if the Brazilians have cheaper beans because the real declines the Chinese are going to buy beans off of Brazil. If this trade tariff goes away, and our Dollar weakens and our beans are cheaper on the world market, they're gonna buy beans off of the U.S. And so, I would like to say that I think there could be an enormous impact for U.S. agriculture, but at this stage of the game, I'm not sure that I would want to step out and say that that would be the case definitively.
Pam Fretwell 15:36
Absolutely. And while these increased taxes on U.S. soybean exports are certainly challenging, just appreciate you joining us today to help our Channel soybean farmers navigate this new territory. And I know that we're going to have more updates on soybean tariffs in the upcoming months. Make sure that you join the conversation on Twitter by tagging your tweets with #channelchatpodcast and thank you to Matt Bennett for joining us today. To hear more from Matt throughout the year, sign up for his weekly grain marketing emails on Channel.com/markets. We have a lot of exciting episodes with more Channel folks in the coming months. You can learn more about this podcast at ChannelPodcasting.com and make sure to subscribe wherever you get your podcasts so you never miss an episode. Thank you, everyone.