Episode 43. Thad England: What’s going on with Iowa basis?

    Calling in from western Iowa, grain marketer Thad England gives an update on what he’s seeing and hearing from farmers and buyers as corn & beans continue their historic rally. Why does this year feel different than 2012? Which pricing contracts are screaming hot? How is new crop selling? Listen in for this and more — it’s an exciting time to be an American farmer.



    Rodney Connor: So for anybody that doesn't remember Thad, he's a grain marketing specialist here for Indigo, and boots on the ground, very much talking to farmers, talking to buyers in the area. I don't know anybody that's paying attention. There's maybe some wild markets happening here and there on the corn and bean market.

    Thad England: Just a little. From a basis standpoint, absolutely unprecedented what we've seen here, and in just kind of my chunk of western Iowa here where we've seen, we had grain buyers or other grain marketing specialists that I work with thinking, we're scratching our heads saying, "Hey, do you think we're going to see a positive basis on soybeans?" And then, looking here today, we're at 60 over in my local market, which is absolutely unprecedented. So this has been so exciting, and the conversations with both buyers and growers have been just eye opening across the board.

    Rodney Connor: Yeah. What do you learn? What's your takeaways these days?

    Thad England: If I had to say, hey, we know that there was a good crop locally. That's first and foremost. There are guys out there that had grain to sell, and there are buyers with great prices to buy that grain at.

    Thad England: The issue that we've ran into so far is that where's this number going to go? And there's a fear of missing out. There's all kinds of psychological things that are going on with the growers, as far as timing also and getting through planting season as well. There's opportunities in Iowa still to get above $7 corn. That has always been the big number. But then, you know what happens when you get $7 corn? Guys want eight.

    Rodney Connor: Yep, yeah.

    Thad England: Yeah. So that's been a really interesting conversation there as far as... And I always kind of end the conversation with growers, at the end of the day, I don't know where the market's going to go here. But if we're above $7, how does that work for you? Do you want to let go of some more at that level? 

    Thad England: And then, the opposite end of that spectrum is that growers have done their due diligence, sold along the way up here, and a lot of that grain is actually sitting in commercial hands.

    Rodney Connor: Yeah. And are you seeing that? Are guys selling into this rally, like long sold out of grain for the most part, just holding onto those lottery ticket bushels? Or what's the trend here?

    Thad England: There's always going to be growers that they look at those giant circular steel structures in their backyard and call them their piggy bank. But what I have liked and I really have enjoyed seeing is that growers are taking opportunity of this and laying off risk for a few years in the future.

    Thad England: So when those opportunities arise, we had some very, very good conversations about December '22 corn, kind of starting to to go off... laying that risk off to some extent here. Some of the more, I would say, savvy growers, they're at that 10, five to 10% on '22 right now. And I applauded him for that decision. Kind of the old saying here, if your worst sale is above $5, well, you're probably still going to be able to farm next year, right?

    Rodney Connor: Yeah.

    Aline Pezente: How much of new crop do you think they have been selling, Thad?

    Thad England: Yeah. So across the board, I would say on an average for the corn that they're currently, they're planting right now, they're going to be anywhere from 25 to 50% sold. There's outliers on both sides of that equation, though. I've got guys that they've done a stair-step approach and those stairs came at them pretty quick, and those orders have filled. But across the board, yeah, they've protected themselves up to about 30 to 50%, I'd say it's a pretty fair assessment.

    Rodney Connor: Soybeans higher or lower than that, you think?

    Thad England: Lower.

    Rodney Connor: Lower.

    Thad England: Just because, for me, I guess when I look at soybeans, yields can range pretty quickly across the board there. Obviously, you're protected on insurance with both corn and soybeans here locally. But to me, putting my agronomist hat back on here it's like, well, beans are a fairly fickle plant too. It doesn't take much to really knock those yields down, so I think they're pretty cautious on that right now.

    Rodney Connor: What's the sentiment been like for the farmers about this rally? Are they frustrated? Are they happy about it? What's it feel like?

    Thad England: Some of them get fairly frustrated at this, honestly. More often than not, it's created yet another headache because they are first and foremost, they're buying inputs, they're securing inputs for the '21 crop. They're trying to get the crop in the ground right now. Every day we're adding 15 to 20 cents on the corn market and early in that April time period. So it's just another headache at some point in time too where it behooves them to make better marketing decisions, like for farther out and make plans for the future. But it's just one more thing on their plate that is frustrating.

    Thad England: And so, that's where I think some of the tools that we had in place, like daily price was a great option for these growers here, like, "Hey, you have got a job to do. And I understand that you don't have time to be watching these markets and making decisions every day. So of the grain that you still have left in the bin or the grain that you're going to have growing in the field here, some sort of daily pricing here... " Where it's not as simple as hitting the easy button, but kind of like the old set it and forget it, and then, we can watch it. And if anything strange along the way happens, absolutely come and contact me, or I'll be in contact with you.

    Thad England: As a young professional, one of my biggest goals is to always have a program, product, anything that is good enough for my own father to use. Well, Doug England has some bushels enrolled in a daily price program right now.

    Rodney Connor: Nice.

    Thad England: So absolutely an uptick. Absolutely getting to that aha moment with these folks here, so that, yeah, that makes sense. Let's go ahead and ride this here. But that's just one of many products that's worked out very well here for the growers.

    Rodney Connor: Yeah, I know, I mean, it's funny, a year ago almost to the T, we were talking probably $4 corn. Everybody was trying to squeeze out as much as they could. So accumulators were really hot. What's hot now? What else are guys interested in? Are accumulators still hot?

    Thad England: I think there's levels, and it's psychological to some point too. I think when we have conversations like the daily indications where we're looking at some price pluses through here, those are good conversations, some numbers that we watched come and go. We could have got them considerably higher, but, hey, this is still an option here, these tools.

    Thad England: And so, that's a conversation that is still continuing to happen. Ask me in a month what's hot, I guess, when these guys finally settle down to make their next sale. What's screaming hot and what's so exciting right now is the guys that entered into price pivots back in February. So a price pivot, fairly simple product, you're penny up, penny down from wherever you entered that pivot at there.

    Thad England: And so, what we've seen, we've been able to add so much value to contracts, these cash contracts for growers, and it does nothing, but help them. It's helped them capture that market, participate in this rally here, but then, overall, we're adding value to their overall business. And so, what was a decision that they thought was favorable, like you said, a year ago, they've been able to add value on top of those contracts right now.

    Thad England: What we saw was just what we saw in our own backyard. Western Iowa as a whole was fairly dry. Yields were off quite a bit there too. We had watched the market rally. Let's see, December of 2020 futures rolled off, meaning on the pricing data in that late November time period, they closed at 4.20. And we saw from that point on that it went up and up and up and gained strength along the way here.

    Thad England: So when we had the intention of entering into these pivots, hopefully capturing a dime, maybe 20 cents here and there, well, we've added, I think at last check here, I've added $1.25, $1.30 to some of these contracts here.

    Rodney Connor: Yeah, right. And what's the plan to exit these things? How do you talk to farmers about making sure they keep that $1.30?

    Thad England: Yep. Yeah, so let's see here. So I have working orders on about a half of them right now. And then just in constant contact, so, "Hey, here's where we are standing at today on it." But then, "Okay, if there's a number that you want to exit out of this contract at, let me work that for you here. Don't let this number come and go because we've all seen these numbers can hit just for a split second overnight here too, so let me work this here."

    Thad England: Or on the opposite side too, we've added value to these contracts here. There's a do not go below button also. So, hey, if it gets below, I don't know, throw out a number, if it gets below six bucks on this contract here, exit me out of this. It's kind of like a stop loss when you're at the, for lack of a better term, at the casino, right?

    Rodney Connor: Yeah.

    Thad England: We put 20 bucks in our pocket here. I want to make sure I go home with that. So what's been so interesting to watch here recently, is that not only are we watching the cash basis markets here locally, there's so much information. We get inundated every day with this stuff. And I've, after a couple really quick text search that I get from some great marketing advisors that I work with is that on May 6th, so 12 days ago, speculators were long about 430 contracts on corn, right?

    Rodney Connor: Yep.

    Thad England: As of today, they're long about 230 contracts, so that's a 46% reduction right there, as far as they've exited out of that long position, and are they getting back into it right now or what's going on? So that's the interesting conversations that we're having with growers.

    Thad England: On the same token too, on that May 6th, there was 198 on soybeans, and they're down to 158 now. That's a 20% reduction. So when a grower calls and say, "Well, why is the market moving today?" There's no really one simple answer.

    Rodney Connor: Yeah. Yeah, exactly. Yeah. Interesting. So that exit was the big fall off we saw recently?

    Thad England: Yeah. That exit basically started on last Tuesday's report. It followed into... Or last Wednesday's rather, but yeah.

    Rodney Connor: And what should we know about that report last week?

    Thad England: Yeah. So looking at the numbers there, I wasn't shocked by anything there, but they added some levels of corn there. They added some supply in there as well. I think this must be more implied than anything here, but it's all kind of buying the rumor, get type information here, but there's these 5 million acres that are hanging out there that the speculators are thinking that these 5 million acres... Let me back up there. In the initial acres report that the USDA came out with, there was around 91 million acres. We think that, not just we, the overall industry thought that was about 5 million acres short of corn production in 2021.

    Thad England: So that's coming more to a head here. That number is being traded as if it's true. Now, we won't find that out until the June 30th report. So that's where we've got basically a month-and-a-half here before this report comes out, that what is going to happen? Where are the speculators going to end up at? And what is basis going to do along the way? And what does that mean for guys still holding onto grain, trying to figure out what they should do with it?

    Rodney Connor: Yeah. I mean, I would think, so you're talking a potential of like 96 million acres of corn planted next year?

    Thad England: Mm-hmm.

    Rodney Connor: Is that what the prediction is. That's got to be a record, right?

    Thad England: I believe it would be, yeah.

    Rodney Connor: Yeah. And what's that do to fall basis, fall corn basis? Any thoughts on that?

    Thad England: Well, I mean, it's a fairly simple here. What we're having, historically, some fairly aggressive fall basis offerings here. Probably, in my local market, I would say they were probably five to 10 cents more aggressive than they typically would be for fall delivered, like Oct/Nov delivered corn. They're coming off that a little bit. They're not putting up new grain bands every day. I'm sure they're trying, but it's not going to be able to offset a record crop here by any means. So what that's going to do, a larger supply. I could see that basis getting a little weaker here as we go forward.

    Rodney Connor: Yeah. So some frustrations probably for the farmer here, for anybody that sold too early, combined with some excitement around high prices and better returns, I would think. One more question on the farmer side of things, input prices eating up this profit? Are we seeing some pressure there?

    Thad England: Yes, absolutely. Input prices have been a big point of interest for growers here, not just this year, but for next year too. Two large operations that I had the chance to sit down with last week, they have started doing what they can to buy inputs for the 2022 crop already, knowing that, hey, we've got cash [inaudible 00:15:40] that they are assuming are going to go up because the landowners saw some fairly expensive corn in the market. That's just a foregone conclusion that this is going to happen. So what can we do to protect what we can, with some variable costs out there still, that are going to do what they do?

    Aline Pezente: Thad, I have a question. So everybody talks about the super cycle that we are observing in this industry. And how in your vision and basically in your experience, does this compare with 2012, 2008? And do you believe that these market conditions [inaudible 00:16:16] also persist for the next crop season or it's too early to say anything?

    Thad England: Right, absolutely. It's a perfect question actually because I was just looking into this. Because what I did for a while is that there were some guys that were comparing this to 2008 because, although correlation isn't gospel, but being able to correlate what these markets are doing and what these market conditions are two separate years, hindsight is always going to be 20/20.

    Thad England: So at one point in time, we were in like a 95% correlation with 2008. I've tried to go back and look at that too. But the reality is is that when we look at the carryout numbers that both the USDA is looking at and the planted acres for this year here, this has the potential of being a multi-year elevated price for the American grower.

    Thad England: Now, I always say, that's great. Okay, so what? Right. So what the American grower needs to focus on more than anything right now is growing the biggest crop they possibly can full stop, period, end of story. You need to grow the largest crop you possibly can. It's becoming like clockwork here. It's another day. It's another million metric tons of corn getting exported to China, or getting sold to China rather. The exports are fantastic right now. I think we have a solid, solid chance of getting 34 million metric tons exported or sold to China this year, which would be amazing.

    Thad England: We had $1.3 billion worth of corn sales in 2012. And on the overall ag products this year, the goal is to hit 40 billion right now. So we had 1.3 worth of corn in 2012. Well, this year, across the board, across the ag spectrum, we're looking to hit 40.

    Rodney Connor: Yeah. What's crazy to me about that, though, is 2012, I was just talking with my dad about this last week, 2012, there just wasn't much of a crop there. And those prices, while they're the same or roughly the same as where we are right now, they sure weren't sustained. It felt like back in 2012, we were $5 forever, then $6 then $7 then $8. Now, this feels way more sustained than what we had back in 2012, plus a decent sized crop.

    Rodney Connor: Man, we were just talking on our farm, it was shocking at the end of 2012 to realize like, hey, that's probably the biggest year we've ever had. And at the time, we thought that was going to be the biggest year we would ever have. And then, here we sit. I mean, I don't know. We'll see how it goes, but it feels like it's not even going to be close.

    Thad England: So you're thinking as far as from an overall yield standpoint or like gross revenue?

    Rodney Connor: So I'm talking gross revenue.

    Thad England: Okay.

    Rodney Connor: So in 2012, I don't know, dad wouldn't be impressed if I gave away yields, but let's just say, we were significantly into crop insurance payments based on yield. And here we sit today, we've got all the corn planted. It went in well. It's all up. Stands look good. I know we got a long ways to go, but it sure feels like this crop is off to be an average crop, right?

    Thad England: Yeah.

    Rodney Connor: I would bet almost anything on that. Same in your backyard?

    Thad England: Yeah. I'd say the weather patterns have really came out, and they've given the crop, I'd say... Let's talk corn and soybeans here. They've given the crop enough moisture to go ahead and get a good root established underneath of it. We've got corn emerging more and more every day. Planting's all but wrapped up here in western Iowa. There's some here and there that are still going. But no, I think ideal conditions and an adequate moisture has set us up for at least a decent start here, you know?

    Rodney Connor: Yeah. That's a big part of the battle, that it gets started right?

    Thad England: Right. There's always outliers like basically the hurricane that came through Iowa here last year, but outliers, right? So other than that, I think it's great. So far, I've only heard some very, very small reports of hail, and it's very, very spotty, you know?

    Rodney Connor: Sure.

    Thad England: Which, at this point in time too, that corn plant's small enough, the growing part's below the ground. That corn plant is pretty resilient at this point in time also.

    Rodney Connor: Yeah. So I haven't went back to look at the timing of this rally versus crop insurance. What's insurance look like for these guys, average, super high? Where's their guarantees?

    Thad England: Right. So I would say the vast majority of the guys, it made sense with these prices to bump up a little bit higher than what they had typically been. So if they were 75%, they're 80. I know some folks that they're at 85 for the first time ever. But yeah, as far as... I believe the insurance price is 4.83 on corn this year. So protecting that, it makes sense, right?

    Rodney Connor: I think it was 3.30 last year, right? Something like that or a buck higher.

    Thad England: Yeah. Yeah, a buck-fifty higher. So I think that's an excellent place, and it's always a benchmark to where you want to start marketing in that grain on. So that absolutely comes into, I would say, almost every marketing conversation as far as, "Okay, well, what have you done for insurance on this so far?" So if you're guaranteed 80% of that, where do you want that next sale to be?

    Thad England: So walking these growers, and that's what I enjoy the most about this, walking these growers down the path, as far as at what level... We want to talk ROI. We want to talk just flat numbers here. What level do you think it makes sense to make your next sale at?

    Rodney Connor: As we look out into the future, let's assume this ends up, we got a long ways to go, but let's assume this ends up being a profitable year for everybody the way it's shaping up right now. Where do you think those investments go in 2021 and 2022, both on the farm side and on the maybe grain elevator side? What do these guys invest in this capital back in?

    Thad England: Right. I think that, and hindsight's 2020, so they're always going to wish they had more storage on the farm. If they were selling corn at maybe $4 in December, but they had the opportunity if they had more storage to sell it for, say, $7 in April, you can put up a lot of bins for that kind of money. So that would have to be, put the farmer hat back on here a little bit, and say that's where my money would have to go towards, if they already don't have adequate storage.

    Thad England: So in my own backyard, some growers that I work with, they spent a million dollars on storage and last year, but then, they cut their projects short because of what we saw what the corn market did. We were looking at some very, very sub 3.30 corn here. And then, once these prices ramped back up, they said, "Well, Thad, I think we're going to spend about 1.5 on storage and finishing what they wanted to do to that site there," to me.

    Rodney Connor: Yeah. Yeah, if you think corn inputs went up, wait until you see what bin inputs did. That steel price went through the roof. I can't imagine.

    Thad England: Oh my gosh. Yes, meanwhile, speaking from the guy that just hired an electrician to put lights and some new lines in my shop here, yeah, those copper prices are no joke.

    Rodney Connor: Yeah, that's right. That's right. Good. Well, Thad, hey, man, it is always a pleasure to have you on the show. Just curious, what didn't we cover today that you were hoping to cover?

    Thad England: I really can't think of anything. I covered the high points that I'm excited about right now, a lot of the conversations that I'm having here. And I really can't thank you enough for giving me the opportunity to get on here and kind of show you and a wider audience, and hopefully get guys excited about this. This is a great time to be an American farm.

    Rodney Connor: Oh, man, man. Fun times. Fun times for sure. Yeah, I'm sick of those days that farming felt tough, ag business felt tough. So yeah, take advantage of it while it's hot.

    Rodney Connor: Thanks for listening to the GrainWaves podcast. If you'd like to learn more about how Indigo can help your farm be more profitable, you can find us at

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