4 things to know: November 2021

Shay

Foulk: Hey everyone, thanks for tuning in to another episode of the Ag View Pitch here today. This is Shea on November 21st. I'm going to be talking with Dwayne here, as you'll hear in a minute, and Chris and Alyssa are up in Minneapolis at a peer group meeting. And believe it or not, I am actually still cutting soybeans today. We have some flat corn to go, so just a little, little perspective on the week as we head into Thanksgiving here. Lots going on in the countryside, seeing a lot of ammonia going on here, a lot of fertilizer, and thankfully a lot of good crops in different areas from producers that we've been hearing. But weather's turning cold here. Looks like a low about 21 degrees tomorrow night. And it gets you thinking that maybe there's someplace warmer you'd rather be. And I'm gonna go ahead and give a little plug here for the conference that we have in January.

It's January 26th to 28th in sunny Phoenix, Arizona. And the main reason I wanted to bring this up, I know a lot of the listeners here have already looked into it. We got a great 2 days of speakers lined up, no advertisements. This is strictly just a value-providing experience for you all. We thought might as well have it in a good location. It's on a Thursday and Friday. A lot of people are getting in that Wednesday the night before to enjoy a cocktail hour and do some networking as well. Just a good, good place. The Tapatio Cliff Resorts that it's at is a beautiful location, great place to bring the family as well. The early pricing does end here on November 29th. So if you're considering going and you haven't made a decision yet, or it's something that you just haven't had the time with getting fieldwork wrapped up and making plans for 2022, this is your reminder.

Go now to agviewsolutions.com. You're gonna see the registration link right there at the top. And of course, if you have any questions, you can reach out to Chris or myself. Chris's phone number is 319-533-5703. Mine is 319-464-5708. Without a doubt, you're going to get a ton of value out of the experience, and really just looking forward to seeing everybody there. I know a lot of you have been listeners to the podcast for, for the last 2 years that we've been doing it here, and I think this event really gives you the opportunity to meet some of the people that you've listened to for a long time and have some of those one-on-one conversations. So if you're considering going to a winter conference at all, I encourage you to go to this one. Again, check it out, agviewsolutions.com. Thank you everyone for listening. Welcome back everyone to another episode of That Ag View Pitch.

Today you have Shea Polk with Dwayne Lowery. And Dwayne, I don't know about where you're at, but it's a beautiful sunshiny day. The wind's blowing and beautiful here in northwest Illinois.

Dwayne

Lowry: Well, I'm in northeast Iowa at the moment, and it's also a beautiful sunny day, and the wind is definitely blowing, and probably just what went by me right now is going fast enough you'll probably get it before the podcast is over. It feels like it's just really flying, but it's a beautiful day for November, for sure. Absolutely.

Shay

Foulk: Hard to believe it's November 21st already, and I You know, I think it's important for us to take a look as we discuss the markets here as we enter this season of thankfulness. There's a lot to be thankful for, and I think prices and yield are two of the things that we need to look at right now. Dwayne, you want to touch on that a little bit?

Dwayne

Lowry: Well, it's definitely a lot to be thankful for. At the same time, I'd start by saying we know there are some people in some regions that got hurt really badly, and you know, it's it's been more difficult for them. But we also know that there's a lot of acres over a lot of large footprint that versus what was expected with some of the real-time lack of precip we saw during the summer, yields ended up being a lot better than expected. And in the case of price, despite, you know, the national yields being better than expected, the prices have managed to stay fairly well elevated, and considering the cost that everybody's experiencing with everything, that's a lot to be thankful for.

So I think everybody's got a lot to be thankful for, and I guess we need to always approach everything in life with a spirit of Thanksgiving, but you're just looking at the focus in the '21 crop year for what it turned out to be versus what it feared to have been during much of the growing season. We have a lot to be thankful for.

Shay

Foulk: Yeah, that's something key to keep in mind here this time of month and as we move forward. You know, another thing I wanted to look at is kind of some of the global impacts that we have right now, and South America and China are of course two big ones. Let's start with South America. How are things coming with, you know, kind of their planting progress and development down in that area?

Dwayne

Lowry: Let's go back a little bit to get a proper perspective on this and to a period of time just before the planting season was about to begin. There was a lot of concern that La Niña and we'd have a dryness carryover from before, and it could be a delayed planting season because of being too dry, or we'd have a lot of dryness early on in Brazil. And what has turned out to be the case was a probably one of the earliest and fastest planting seasons they've had, an exceptional early start for most areas of Brazil. Possible exception would be the southern 15% of the country, and even that has just been drier than desired, but still not probably hurting anything at the present time. So everything looks quite optimistic. The private government estimates were all raised, I think, week before last. There's a mood in the air that the potential for a big crop is there.

They had the increase in acreage to set the foundation. But it's still early, you know, things can happen and change. There's optimism because the early planting date line on soybeans will lead to a favorable start and opportunity for their second corn crop, which is where the majority of their corn bushels are grown. So there's optimism there as well. Argentina is so far off to a good start. They've had some periods of dryness, but they had some rains here a week or so ago, and they have some slated for midweek this week. Then after that, it turns a little bit drier again, but this crop stage of development there is early enough that it's not a threat.

I would say there's a certain level of optimism and confidence building down there the crop is going to be good, but the reality is that we do have a La Niña backdrop, and we do know there's plenty of growing season left to create some concern. It's not a given, but at the present time there's more optimism than what was probably expected to have been for South American production potential.

Shay

Foulk: So let's say, you know, they continue to have a good outlook projecting on a good crop there. You know, this ties hand in hand with China's purchases, and we've seen that China's been real slow here lately buying agricultural products from the United States. How do these kind of go hand in hand, and what do you think from China's perspective here moving forward?

Dwayne

Lowry: Well, so many times the U.S. farmer is forced to recognize that this is a global market, and we don't— right now we're sitting on what we feel are pretty good prices. But South America, if they end up having a good production season, China has already shown a slowness to buy U.S.-origin products, and they're behind the pace needed to get to some of the targets out there, or the hopeful targets. And in some respects, we— you have to realistically ponder that if you're China, you probably don't want to buy U.S. unless it's your last resort. If you can wait until you get to South American supplies, you know, they're probably $80 a ton cheaper. The availability is going to be plentiful. They'll have a lot more exportable supplies than they had a year ago. The hope, if you're a Chinese buyer, is that that will lead to a softer price tone.

You've got a greater supply in Ukraine of corn available. Their export available supply is up significantly from last year. China is probably going to try to maximize their import potential from Ukraine before they come to, to the U.S. for any sizable amount of corn business. So South America and how that turns out is going to be a very important lever in the price discovery mechanism here over the next few months, and it's possible that that lever, if it's triggered and creates a favorable supply there, that could create a soft tone in the marketplace possibly the last through the rest of the marketing year or at least until we found out whether we had a production threat develop during the growing season in the US next summer. Otherwise, if you're China, you're hoping that South America has a good crop, and that could weigh on prices.

So I think that the fact that right now we don't have an immediate problem in South America is a concern if you're pondering, you know, what the price outlook might be here in the weeks ahead of us.

Shay

Foulk: When is too late to make a decision as a United States producer on that? You know, when do you start— when you start heavily considering that, I guess, Dwayne?

Dwayne

Lowry: Well, to be honest with you, I guess that moment in time could come at any point in time in terms of South American production. To get to that point, you, you might be talking about mid-January. Whether the marketplace will wait that long for that type of confirmation or not, I don't know. If there's a possibility that if we can avoid weather problems and weather forecast problems into the month of December, the marketplace might start to shift, you know, a greater chance that production will end up being normal or favorable. So I don't know how to answer that question. I wish I knew the answer to that question. But I think that there are other things to look at too that, that might also create a bit of a warning sign.

But I would say that the producer needs to look at it from the perspective of it's not so important trying to note— determine what that timeframe date is, but we are at price levels that we have been at before multiple times during the summer in the case of the corn. Just recently we had a run-up in the corn. This recovery rally that we had in beans here last week and a half only got us back to where we were at before, and I'm not sure that there's anything that I can see on the landscape, on the horizon, with South American production, Chinese demand, or concerns anywhere else in the world that offers a solid fundamental reason why the market is going to continue the trend higher. So if the best that we can anticipate over the next 30 or 60 days might be sideways, and in my mind that might be the best-case scenario, then, you know, I'm not sure there's a lot of value in waiting around.

Maybe this situation is two in the hand is, you know, one in the hand is worth more than two in the bush, you know. You don't, you just don't know what's out there. Yeah.

Shay

Foulk: No, I think that's really good perspective, and, you know, I wish my crystal ball was working too, sounds like. Yours is a little cloudy, and I've never gotten mine to work. So that's kind of a, you know, a 1- to 2-month outlook here. Let's talk a little bit longer term on something that a lot of people have had a question on, and that's inflation. You know, there's a lot going on globally, especially with the pandemic and a lot of other factors right now. United States just passed a $2 trillion infrastructure bill and looking at another $1.85 trillion in the Biden administration's Build Back Better plan. That's being proposed. How is inflation going to impact the U.S. producer, and what are some key things to keep in mind here over, you know, maybe the next 10 to 12 months, Duane?

Dwayne

Lowry: I think the first thing I'll say is it might impact the U.S. producer in a different way than he has in his mind right now. I would like to separate this out. We know we have inflation because we all experience the prices, whether it's at the grocery store, the feed store, the fertilizer store, the equipment store. The hired labor, whatever it is, we all see the inflation. We know on the expense side of our ledgers, that's an absolute fact. And that part will be slow to change if it is going to change and lessen. That'll be slow to change, and it's an absolute direct effect. What we do not have is we have nothing about inflation right now that guarantees that our revenue will be inflated just solely for the purpose of that inflation exists.

I don't think you can have commodity inflation without actually having a supply threat or a supply squeeze or too much demand coming at too little supply, which right now we do not have. And we're not going to have that unless we get a problem in South America, and then we won't have it unless we get a problem in the U.S. The outlook for this current marketing year, our supplies are adequate or plentiful depending on how you factor in demand. So I'm not convinced that we will get commodity inflation just because we have inflation in the form of expenses. It is my personal opinion that you can't have commodity inflation without the dollar being weaker to sharply weaker. Now I want to point out that in the commodity world, A lot of people have been bullish commodities because they expect inflation, or because they see inflation.

It's not an expectation anymore, it's an absolute fact that they're seeing, okay? So that's caused people to be bullish on commodities. There's been a lot of speculators that have established bullish positions in the commodities, and that's been in the form of long crude oil, heating oil, long corn, beans, wheat, take your pick of any commodity they want to have. Some are doing gold. But you know what the main premise for that was? And just like your lead-in to talk about the money that the government is printing and borrowing and spending, this is all based on an expectation that the U.S. dollar will weaken. Many people feel that the U.S. dollar is getting weaker day by day because of all this quote-unquote inflation or because of all the spending. The reality is, the U.S. dollar index is at a 20-month high right now. The last 2 weeks has had a lot of strength in that.

So all the commodity investors that have put on long bullish positions in different commodities— take your pick of what it is— they have to feel a little bit set back because their main underlying premise for doing so was a weak dollar, and that is not at all what's happening. The second main reason they put on bullish commodity positions was because they expected energy prices to do nothing but to go up. Right now crude oil is about $8 off its highs. It's the lowest it's been since about the first day of October. Heating oil is at the bottom side of its trading range for the last 2+ months. So things aren't quite right if you're a bullish commodity investor. Now, some of these commodity markets are still elevated up here, or levitating maybe, up here, but we're approaching the end of the year, and these speculators, if they have profits in their trade, they don't want to let that go.

They don't want to show a profit at the end of the third quarter and then have it all wiped away. So with crude oil breaking last week— crude oil was down, I think, about $4 for the week last night, or excuse me, last week. You had the Dow down 464 points, I think, for the week. You had the corn market finish 8 cents 8 cents lower for the week despite having multiple days during the week and during the last several days where corn at one point in time during the session was showing emotional strength only to give it up at the close. And yet on Friday we finished 8 cents lower for the week. The wheat was only up 5.75 cents and the strongest wheat, the tightest stocks we have is Hart spread spring wheat and Minneapolis for the week last week was down 32 cents. Now, January beans were up 19 cents, largely on short covering, and that was still well off the highs for the week.

So there are things happening out here in the commodity world on the investment speculative side that shouldn't be real comfortable, and there's a risk here that all of those factors end up having some sort of a liquidation pressure put on it, and all of a sudden we start to see our corn, wheat, soybean prices decline that has nothing to do with fundamentals. And I think that's a very real threat, and it's something that I've been talking about for several weeks and putting out there as a possibility and a warning to watch out for. And here we are, we've seen it. We've seen the crude break, we're seeing the dollar strength, we're seeing, uh, you know, break chinks in the armor of the corn market, which topped out on the second day of November. And here we are, you know, softening up despite having emotional activity at one time during the week last week.

So I think there are warning signs here that could see some— could trigger some speculative selling, and all of a sudden we're seeing prices go down and we're wondering, wait, wait, where is this coming from? Why is this happening? And so I think there's things to be concerned about that are happening right now.

Shay

Foulk: Yeah, that inflation and, you know, some of the talk on interest and the U.S. dollar strength, the U.S. dollar index there, I think is key. And I think most importantly too is, you know, what you said there at the end, Duane, is just understanding why some of these things are happening, and it makes it a little bit more actionable for the U.S. producer to be making decisions.

Dwayne

Lowry: So, as always— And I would say one other— add one more thing to that. The US producer knows prices are somewhat high. Everybody is— all the headlines are about high food prices, and that's been kind of going on globally for several months actually. And despite the fact that the raw product cost, that raw product impacting the cost at the grocery store is actually very small, it seems like throughout the years, of being in this business, if they want to go after food prices, somehow the raw price that the farmer receives takes a hit. And right now you've got food prices on a global scale by a lot of different metrics at the highest levels it's been in the last 15 years, as in terms of like a percentage of versus income. And I don't know if the powers that be were— are going to allow that to continue to happen.

And so there's going to be an awful lot of pressure to either get wages to go up more or to get food prices to come back in line. And all governments, it seems like, has a cheap food policy, including the US. And farmers that have been around for 30 or 40 years, they have seen many a time where the desire for cheap food has cost them in their own pocketbook through policy adjustments and things of this nature. And so I think that's another warning sign that we as producers need to remember also.

Shay

Foulk: Lots to watch out here for in the week ahead. Dwayne, anything else you want to add before we wrap up here?

Dwayne

Lowry: No, just a reminder to producers that when they start looking at 2022 and they know that they have the high inputs that they're stuck with and, and probably already paid for, applied some of them in some cases, pay very close attention to opportunities and protecting your revenue on that '22 crop. I don't know exactly what that looks like or how every producer is going to do it, but just realize if you're dealing with prices that are at the upper side of parameters for much of the last 10 years, and you're on, on the revenue side, and you're dealing with input prices that are at the high end of prices on the last 10 years, any mistake here, whether that comes, that inputs go up further or revenue surprises you to the downside, these are not going to be small mistakes.

They're going to be the potential for very volatile swings in terms of profit per acre just a lot of this stuff on based on things that are completely out of your control if you don't take some sort of a measure with price protection. And so I think there's a complacency going on right now because the input costs are so high. There's an assumption and a hope that the, the revenue price will stay high because it's seen as if that it has to. Well, it has to make it work, but the marketplace is not doesn't have to guarantee you a profitable cash flow projection, and we've seen many times where it doesn't. And I would— I just want to emphasize again that the— we're dealing with such large dollars that most producers have probably never had such an amount of total input cost into their '22 crop as what they're dealing with when they project it this year.

Therefore, any mistake, any surprise in price outcome creates a lot of volatility that most people aren't looking at right now. And so I would just caution everybody to very soberly run through their projections for 2022 and see if there's warrant for their operation to establish some sort of price protection plan.

Shay

Foulk: Yeah, that's, that's a very important message. You know, Chris and I started meeting with clients here again and getting a lot of profit managers in, and the thing about that is we're seeing a lot of profitability on the table for next year if the producers are, you know, locking in some, some prices, maybe making some marketing decisions to protect themselves like you're saying here, Duane, just to ensure some of that profitability. You're already writing the check for the inputs here. If you're going to write that check, you may need to look at protecting yourself and maybe locking in some profit to ensure, to ensure a good year for 2022. Like I said, there is there is opportunity for a lot of profitability out there despite what we're seeing right now in these crop input prices. Dwayne, thank you so much for taking the time. I always appreciate having the conversation here.

Wish you a happy Thanksgiving week as we move here into the last of November as well.

Dwayne

Lowry: Same to you, Shay, and to all our listeners. We hope you have a very thankful Thanksgiving and look forward to a Merry Christmas.

Shay

Foulk: Absolutely. And thank you everyone for listening to another episode of the Ag View Pitch.

Dwayne

Lowry: We will catch you next time.