Takeaway

The presenter argues that crop farmers face a significant margin squeeze as input costs are rising much faster than commodity prices. While corn and soy prices are up, the dramatic increase in diesel, fertilizer, and equipment costs is creating a challenging economic environment, a situation now entering its third year. Global supply shocks, rather than strong organic demand, are currently supporting prices.

What the presenter said

• Crop farmers are facing a third year where costs are outpacing prices received for their commodities. [00:10]
• The speaker is concerned that input prices will not come down commensurately with crop prices. [00:56]
• The presenter notes that input costs have risen sharply over the last year: diesel is up 50%, fertilizer is up 45%, and equipment is up at least 6%. [00:35 - 00:41]
• In comparison, soy and corn prices are up 30% over the same period. [00:31]
• The current market is being driven by supply shocks, such as the Russia-Ukraine war, rather than a robust, sustainable demand opportunity. [01:57]
• Despite this, the demand picture is improving, particularly with China buying soybeans. [02:31]
• A potential trade war with Canada is seen as a risk, as it could further increase equipment and manufacturing costs for farmers. [01:00]
• Geopolitical issues in the Middle East and the grain situation out of Europe and Russia are also key factors to watch. [01:37 - 01:49]

Trade ideas

None stated. The presenter's market view is that farmer margins are under severe pressure due to input cost inflation outpacing the rise in corn and soy prices.

Levels and data cited

• Price Levels:
  • Diesel: currently seeing "$6 diesel."
  • Corn: heard the "possibility of $6 corn."
• Data Cited (Dr. Crespi):
  • Diesel prices: up 50% over last year.
  • Fertilizer prices: up 45% over last year.
  • Equipment prices: up "at least 6%" over last year.
  • Soy prices: up 30% over last year.
  • Corn prices: up 30% over last year.

Risks and what would invalidate this

• Input prices failing to come down in line with commodity prices.
• A trade war with Canada, which would impact parts and manufacturing.
• Global events impacting planting and grain flows, specifically tensions in the Middle East and the Russia-Ukraine war.
• The impact of US policy on the agricultural sector.