Weekly market outlook, April 10-14th: macro price pressure

Ryan

Moe: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. Before we get rolling, I do want to put a quick plug in here for 19 Minutes. If you're listening to this on Sunday, Easter Sunday, or after that, we just released another 19 Minutes podcast. They come out on the 9th, the 19th, and the 29th. And so the one that's out on the 9th is on banking, lending, and the 10 keys to a good loan. So if you have not yet subscribed to 19 Minutes, I highly recommend it. We've got quite a few people on there now. It's $30 a month, so it's basically $10 per per episode. Some of these episodes are not 19 minutes, they go a little longer, but the quality of the, of the content's pretty phenomenal. And so just to give you a little background, if you do, uh, uh, subscribe, you can go back and listen to all of them we have in there so far. Uh, the first one we did was on data-driven decisions.

We did one on crop insurance decisions and some of the things on risk management there. We did one on transition topics, turmoil, Timelines and taxes. Uh, we also did a two-part series on strip-till economics. And so that's a two-part series that's in there. And then the last one we did before this banking one that's out now was called You Are Not Unique. And so, um, not everybody gets a trophy. We're all a little different. And, uh, so that's a pretty lively discussion between Shay and I just talking about, you You are not unique. And so with that said, again, the 9th, the 19th, and the 29th, $30 a month. Please get signed up if you're interested. Great thing to listen to when you're out in the field planting. And with that said, we are heading into a new marketing week, April 10th through the 14th. And we have with us Ryan Moe, StoneX. Ryan, how's it going?

Ryan

Moe: It is going pretty well. Winter is finally subsiding here. I think we for the first time in recent memory, uh, we will have no below freezing days in the 10-day forecast moving forward. So it is time for spring to get here, trust me.

Chris

Barron: Yeah, so you know, we used to always talk about like the have and the have-nots during the growing season. Well, there's the haves of the snow and the have-nots of the of the, those who are maybe going to be planting this week of the 10th. You know, Illinois and some of those areas, part, parts of Indiana and, and parts of Iowa, I think are going to get rolling with planters this week the way the forecast looks. Conversely, there's a pretty stark line that if you go north of that line, say at about that Iowa border, it slows down and then you go about another 50 miles north of that and it almost comes to a screeching halt. South Dakota, North Dakota, some of those areas, sitting there with 3 feet of snow or so in some of those areas, unfortunately. The dust has settled from the March 31st report. We got another one coming up this week.

Start out by explaining to me how they're going to plant another million acres of corn in North Dakota and South Dakota that showed up on that, that planted acres report.

Ryan

Moe: Well, if you've ever traded before, you'll definitely know that betting against the American farmer is a bad bet. We also have talked in the past, it wasn't that many years ago that we had some farmers in North Dakota that were just finishing up their combining about this time. I can't remember exactly what year that was, but it wasn't all that long ago. These folks are resilient. They can do amazing things with just the tiniest window of time. And we, we are a long way from harvest. And we're a long way from that last day that they should be planting. So I don't want to count them out just yet. Can they get it done? I'm betting that they will.

Chris

Barron: And some of those acres could go to soybeans too. So it's not like they won't get planted, although Although, you know, if I was a betting person, you know, prevent plant is an option. Although, like, you know, you and I talked yesterday offline. I mean, that's the last thing farmers want to do. I mean, the first thing they want to do is actually plant a crop, you know, and grow something. That's what we do.

Ryan

Moe: Oh, yeah. Yeah. Growers want to grow stuff. I mean, there's just no question about that. If they can, it's, it's worth it to take a chance on it. They will. That's what they ultimately want to do. You can't hit, you can't hit anything more than a single when you're playing for insurance, right? But if you want to go ahead and hit the double, the triple, or the home run, you got to get that crop in the ground. And folks realize that they, and they have the means to do it. And I think they're going to really, they're going to do everything they possibly can. And when those people do everything that they possibly can, usually the people that bet against them, i.e., the marketers that are, you you know, pitching that, um, they end up losing out over the long haul.

Chris

Barron: So we come off this report in March, um, heading into this, you know, into this week of the 10th, and now all of a sudden, um, you know, we have another report on Tuesday the 11th. Um, talk a little bit about that because we came off, you know, we had that report with some hope You know, the markets responded, gave us some strength, gave everybody some hope. A lot of people probably did nothing because they were waiting for it to go a little higher yet. And then we've drifted back the other way again. So talk a little bit about this next report. What can we expect? What, what are the opportunities and threats that you see?

Ryan

Moe: Well, let's, let's first talk about the last report on the 31st and what we're seeing a lot more analysts talk about now. One thing we can't deny is the amount of algorithmic trading that's being taken place in the marketplace today. I don't know if this stat still holds up, but I had heard that about 85% of the volume that takes place in a market like the corn market is high-frequency traders. So what the people that use the grain markets for today are talking about— if using the grain markets as risk management tools and as actual business management tools, they aren't talking so much about the knee-jerk reaction after report. They're doing more and more analysis on what does the market look like 5 days after the report, because by that point, the algorithmic traders have come in, they've blown up the market or they've imploded it.

And then when, you know, the ladies and gentlemen enter the market, re-enter the market, what they end up doing then is then they, they trade for the report for what it truly is. So watch a lot of that here in the future so that you can get a better idea as to what the true direction is. Also, we want to tell people though, use these reports to get your open orders filled. I don't know why people don't use this magical tool called an open order in the marketplace more than they do, but they really need to learn how to use those open orders. And don't cancel them if they're close.

You put your open orders in, you stick to your targets, and then when that target hits because of an odd market move that it might get— might get created in some strange overnight market circumstance or some, uh, big report that comes out, then you go ahead and you take that win and then you move on to the next strategy. So utilization of open orders into reports, I think, is extremely critical and gotta see people do more of that. As far as this report coming up here, uh, on Tuesday, I mean, we're going to be talking about carryout both in the U.S. and the world, and I think we've got to really focus on world carryout more so than anything, because we've got this monster of a crop in Brazil that is going to continue to grow.

According to my sources down in Brazil, they are talking about just how big this crop is down there and how good a shape it is in and how it's a logistical nightmare handling such a big crop. Now, your farmers know as well as every other farmer If you have to solve a problem, isn't solving the problem of too big of a crop the best problem to solve? Yep.

Chris

Barron: We'll take it.

Ryan

Moe: Yeah. Yeah, right. And so what is that all going to do with world carryout numbers here? And you got to think about how great is the great in Brazil versus how terrible is the terrible in Argentina, because they're going to use a lot of soybeans from Brazil. To crush in Argentina, right? And then that's going to go ahead and be what Argentina uses to get through. But that's going to have a pretty significant— that's why it's going to be a significant swing factor, because Argentina's bad, is really bad, but Brazil's great, is good enough to cover for all the shortcomings in Argentina. Hmm.

Chris

Barron: Okay. So So that's the report. A lot of times I like your comments on open orders and, and taking advantage of a short-term bounce in the market, because that's really the only way you get to do that, because nobody knows, you know, how much time you have. And a lot of times you have about 10 seconds to catch something, right? You know, if you don't, if you don't put the glass—

Ryan

Moe: well, and yeah, you can't— there's no way you can keep up with a computer. I don't care how fast you think your thumbs are. You're not better than these multimillion-dollar algorithmic machines, right? No producer is, right? They'll totally— they will just absolutely manhandle you, chew up and spit you out. Right.

Chris

Barron: And the thing we do know is we do know pretty handily now our cost of production using our 5-year yield averages for our crops and saying, okay, here's, here's the number I need. Here's my margin target, which I preach all the time is figure out what your target is for margin, and then plug in your numbers. And, you know, and I think, you know, we've been in hope mode for quite a while now. I think it's a matter of, you know, recalibrating our, our realistic margin targets, and looking at prior sales too, and not looking at each individual sale, but looking at the average sale. Price, you know, so if guys have, you know, if they're sitting there 30% sold at $6.15, let's say, so, you know, a lot of people do not want to sell $5.70 when they're sitting there at an average because it's going to bring their average down.

Well, if you wait and sell it at $5, it's for sure going to bring your average down to— not saying corn's going to $5. I'm just saying look at that average and set that target, you know, and could we see $8 this summer? I don't know. You probably know better than me what the, what the upper limits are and the lower limits, but nobody knows for sure. And, and, you know, as farmers, we got to be accountable to ourselves. Couple of them.

Ryan

Moe: I mean, you're there, you're there to run a business. You don't need several million dollars worth of land and assets to spec the corn and soybean market. Right.

Chris

Barron: Right.

Ryan

Moe: So you're there to run a business, treat it like a business.

Chris

Barron: Right, right. So the next question I have for you, that's kind of the reports and kind of what we need to be watching and thinking about there. Energy prices, you know, oil has, you know, kind of been soft. Talk a little bit about that, as you know, and maybe that ties into Russia, Ukraine or something. I don't know. What does that tie into? What could drive that? And would that help the commodity prices or not? Or what's your thought there?

Ryan

Moe: Yeah. So Russia and Ukraine is going to be a thorn in the market's side for the foreseeable future. We talked about it last year at this time. Russian— Russia is not going to swoop in there and just take over in Ukraine because the Ukrainians are very tough and they're not going to allow that to happen. But the Russians also aren't going to give up either. So it's not like we're going to come back to work on Monday and hear that Zelensky and Putin got together over Easter. Figured out their differences and everybody just moves on. This is, this is going to take a long time to end. It's likely going to end pretty badly. And so we just have to kind of consider that this is going to be a function of the market. So when I'm talking to people about market outlooks, I basically assume that Ukrainian exports just aren't going to really be there.

And that, that really stinks having to say that, but that's how I have to kind of look at the world because it's going to take so long for this to recover and so long for everything to keep, uh, to get back to normal that it's— we just have to like work as if it's not going to be there. And then if it is there, that's going to be gravy. Um, energy prices, that's a very interesting one here because OPEC+, which I want everybody to understand that I have, um, very little love loss for the OPEC+ countries because the first liar doesn't stand a chance. They set these quotas, they cheat on these quotas, they say they're going to do something and then other countries do. I mean, they do it in their self-interest even though that they claim to be one united cartel. So I have to say that The first liar doesn't stand a chance.

They said that they're going to cut production here last week as OPEC+, and that made the market gap higher in crude oil. In turn, that ended up pushing the ethanol values up higher. So margins at ethanol plants are very, very solid right now because nat gas is dirt cheap and you've got really solid ethanol prices. And so your margins at the ethanol plants are very good right now, which is good for corn demand overall. Now, if we talk about what my outlook is for this summer, let me tell you, I am very negative on gasoline demand. Have you been anywhere lately, Chris, where you just did like a family road trip for spring break or a vacation?

Chris

Barron: I've been doing a lot of work travel.

Ryan

Moe: Yeah.

Chris

Barron: Yeah.

Ryan

Moe: Well, I'll give you a little example. So Tiffany and I went down to the Big 12 tournament from Minneapolis here. About 3 weeks ago. I mean, that's just always a great time. But the fuel prices, they were just fine. Didn't bother us at all. Everywhere else that we went cost us more. If you want, all of a sudden we started paying resort fees at a Marriott in Kansas City. You started paying more for dinner. You started paying more. Heck, beers at the T-Mobile Center were $12. So we got back from that trip and I had this idea as to what it was going to cost. And then I got back and that vacation, that little trip down to the Big 12 tournament, cost us 40% more than I expected it to. Families are going to see this all over the place.

And if they had two vacations scheduled for the summer, which our gasoline demand is very dependent upon families taking those trips, they're going to skip the second trip because the first one costs so dang much. And so that's where this inflation— it's not going to be so much the gas price is so high. It's that everything else that you— when you get to where you're going, costs so dang much. Well, that's what I think what's going to haunt the gasoline demand, this story this summer. Yeah.

Chris

Barron: And I would agree with that. I mean, I was— I've been in a lot of airports last, you know, couple of months traveling on farm meetings. And I have I'm not sure I've ever seen the airport so full.

Ryan

Moe: Right.

Chris

Barron: With travelers, people traveling. And then when Alyssa books my flights to get from point A to point B versus what we paid last year, flights are about double. I mean, our— oh yeah, you know, and so I don't think it's the fuel cost for the airlines. I think it's the airlines doing what's called catch-up, you know, from, from COVID You know, they're, they're trying to generate revenue while the demand is there. So, you know, as long as the demand's strong, they can pretty much set their price.

Ryan

Moe: Um, and I, I would agree. They're also— have you been on a flight that isn't totally full?

Chris

Barron: I, I haven't been on a flight where there isn't at least 7 or 8 people on standby waiting to get on.

Ryan

Moe: And that, like— and so it's— and so they're— the airlines are fighting the same thing all of us in business are too, is we are really missing that baby boomer generation that retired off during COVID And so there's fewer flights there because there's less labor, there's fewer baggage handlers. I mean, it's the— we are really missing that baby boomer generation that retired often. I think every operation in the country is feeling the same thing. Yeah, I know mine is. I mean, everybody is struggling there and the airlines are no exception. Yeah.

Chris

Barron: So that's a kind of a good segue into the next question I had on the funds. You know, the economy, commodities, the stock market, all those things, you know, require money flow. And so you got the funds sitting there looking at, you know, put money here, we put money there, we can park it, we can take risk off, we can, we can put risk in this area but not in that area. What, you know, what's the perception of a lot of these big investors and these funds from your perspective and from your angle, because we kind of need them in the commodity markets to give us some strength and some volatility, and they're— they've been running away. Talk a little bit about that.

Ryan

Moe: Yeah, yeah, we desperately need them. I'm looking right now through my charts here. StoneX does a really nice job of putting out some open interest charts. Um, so this is going to be more on the corn side of things. Wheat is the same thing. Hogs are actually really an issue as well. Open interest levels in corn, they're terrible. It's because the funds aren't trading them. And I saw this the other day, and, you know, let's say corn is a $6.50 product. A 10% move in corn would therefore be $0.65. 5% move in corn would be $0.32.5. Now, with corn at $6.50, you're a fund and you're going to come in and buy corn. You would need corn to move up to $6.85 in order to get your 5% rate of return, right? 5% return on investment. Or you can just march down to your local bank and grab 5% on a risk-free CD.

And that's where a lot of cash flow is going, is they are looking at— there's a lot easier ways to make money in an interest rate environment like this than going in and trying to spec the corn market. And so until open interest picks up, it's going to be really hard to go ahead and get behind a big fund-led rally in, in corn. Soybeans, the open interest is there because these people are headline readers, and they see the renewable diesel opportunity, and they recognize that the renewable diesel opportunity is very real. And they see a way to play in that renewable diesel opportunity is in the soybean space. Hogs, if you look at open interest in hogs, I mean, it's another, another sad story. And if we want to see $100+ summer hogs, we're really going to need the funds to get involved. And then we need to get them involved quickly. But I just gave you the reason why.

There's easier money to be made elsewhere. And that's what they're looking at.

Chris

Barron: Yeah. One, as these interest rates keep going up, like you said, it's kind of a no-brainer for You know, right. Still, you still get a return with very little risk.

Ryan

Moe: Yeah. Yeah. And that's where you're in that. That's, that's how they're looking at it. If they can't and if they're sitting in uncertain times and they're sitting in an uncertain macro environment, it's a lot easier to just go and take the easy money and then just see how this whole thing plays out. Yeah.

Chris

Barron: Another, another area too. And then I want to talk about production, production in a second too. But demand, you know, China stepped in there for a little bit. And I think after that report in March, while at the same time leading up to that, China was buying some stuff, and there was just enough news in there to kind of support the market or give it a little bit of strength. That's all kind of like bled away. Anything on China or anything on demand picture that you see ahead, or nothing there much?

Ryan

Moe: Well, I'm I gotta be careful with how negative on China I get.

Chris

Barron: Um, we haven't been very positive or anything yet, dude, so, you know, we gotta—

Ryan

Moe: well, uh, yeah, so China, China has some very serious demographic issues. Uh, China really doesn't want to deal with us. Um, China wants to buy everything they can from somebody other than the United States.

Chris

Barron: And they're growing it really good too.

Ryan

Moe: So, and that, yeah, and then they're going to introduce GMOs. And so we want to have a commodity story that's not dependent upon China. And so I do see now, I, I believe that China is not going to execute on these export sales. And we've seen them come in with these flash sales darn near every day for the last 3 and a half weeks, I want to say. And that's been good for the market. That's support that we definitely needed. I believe that those sales are basically insurance sales, because they want to see how the safrinha corn crop looks in South America— or excuse me, in Brazil. And if Brazil comes out with a big safrinha corn crop, and they can get the supplies that they need, I would see that those sales get switched from US ports down to Brazilian ports.

Now, if they do take all of those sales and we have to execute on those, um, later this summer, things could get pretty darn interesting. And that is— that, that could get kind of wild here with so much of the corn in the eastern Corn Belt sitting down in feedlots in, in western Kansas right now.

Chris

Barron: Yeah, yeah, that's all— that's almost a whole separate podcast just talking about basis levels throughout the year on old crop, where the corn is and where the corn is not at, and, and not to mention some other crops too.

Ryan

Moe: Right, right.

Chris

Barron: So, you know, so that's one thing, you know, I think, you know, guys gotta watch not only the new crop, which is kind of where I want to go next, but is also, you know, just as mentionable is, is whatever's remaining in that old crop inventory If you're pulling the trigger on some new crop stuff, probably should be cleaning house on the old crop stuff, right? Or what's your thought there?

Ryan

Moe: Yeah, I mean, the margin opportunities are very real. And so there's a lot of analysts that have a lot of farmers very well sold up on old crop. But I can tell you just from seeing trade flow, I believe that there's more corn and soybeans sitting in farmer bins than a lot of people, other people think. So, um, just because, just because a lot of really, really good farmer analysts put out a notification to have people 80% sold up, I just want people to realize there's not nearly that many people that are listening to those recommendations.

Yeah, and so for old crop here too, something that we need to consider is if we do not have export demand, and we are totally dependent upon just the domestic demand here, if you're a soybean crush plant that's going to buy 20 million bushels of soybeans, you're not going to buy a year, you're not going to buy 21 million bushels of soybeans for a year at these levels, right? At these basis levels. Yeah. Same thing with an ethanol plant. As soon as their needs get met, they're going to exit, they're going to exit the marketplace, and you're going to see bids crumble because they don't want to be paying big overs in a big inverse when they can wait till new crop and just take their chances there.

Another thing too that I was going to talk about, if we do happen to have time, is don't be surprised if we start to see some of these processors in the Western Corn Belt and probably the Eastern Corn Belt too just go straight to the Dec for bidding off for corn. And the same thing with bidding against the November for beans. People are going to think it sounds absolutely insane, but they're already bidding off the July here and we're quite a few days away from first notice day for May. But if you're a buyer, makes a lot of sense and it's going to really piss a bunch of people off. But bidding versus the Nov and bidding versus the Dec. Yeah. I— it's not a terrible recommendation for, you know, sitting in an ivory tower, but a lot of people that are boots-on-the-ground buyers are saying, I can't do that, it would just— I'd get shot.

So that's the only thing that's allowed— stopping them from doing it right now. But the math makes sense for these processors to be doing that. So don't be mad when that happens because it's, it's what the math tells them to do.

Chris

Barron: Yeah. And I, and I say this every year since we started the podcast in 2019, every spring, it's like You know, the best time to move that old crop a lot of times is when the planters are rolling. You don't have time to move grain and get it out of there when, you know, and that's where, you know, I don't know, find a truck driver somehow or another and get grain moving, manage that basis opportunity. And if you aren't okay with the price, figure out how to, you know, leave the topside open with a call or whatever, or just, you know, take advantage of that basis and make the sale. Um, you know, everybody's situation is slightly different, but those are those opportunities. And then also, you know, maybe you, you do the marketing, like you said, as a separate thing from the basis. And then when those, these spring basis opportunities are there, take advantage of it.

But, you know, I saw basis go away really fast for that week or so, and we did see some strength after that that March report and then all of a sudden it's really come back in a lot of areas really fast too. So they obviously need, need grain yet for a while. And like you said, that could, could really change as we get later in the summer, albeit it's going to be in high demand in the West and, and in those drought areas from last year.

Ryan

Moe: But maybe. But again, as an, as an end user, when you've got to pay these types of levels, you're not going to buy a bushel more than it's going to take to get to new crop. Right, exactly. People need to realize that. They just— they— there needs to be some recognition of that because that's the buyer's job. Yeah, I think what they need— not more.

Chris

Barron: I think the message here is, is there's a lot of potential pressure on the market. We're not predicting the market's going this way or that way or whatever, but I think the key here is just recognizing, you know, the things we've talked about— energy prices, the funds' absence. You know, the, the demand— questionable demand, I should say— of China and others, the strong crop in Brazil. And, um, you know, and the Russia-Ukraine war is sort of old news. No matter what happens over there, probably doesn't— you know, it's probably already factored into the market to a large extent.

Ryan

Moe: Probably it's gonna be— it's hard, it's hard to make it look worse.

Chris

Barron: Yeah, right. And so, you know, those are just a list of of things. So, you know, happy Easter, everybody. You know, it's like, you know, not to be a downer, but on the same token, there are things we can do. And, you know, typically seasonally we do see some price opportunities going into spring. So I like to wrap up with is just the reminder and your comments on what I'm going to say here is that, you know, the best time to make sales, I always say, is when your hands are greasy, you're working on a piece of equipment, you're thinking in your mind, I should make a sale, and then you don't. And the next day you're kicking yourself. I like your idea of open orders, you know, get those, you know, you know, get those targets in play, do a little math, and then go plant corn and forget about it and have those, those sites out there so that they get hit.

Ryan

Moe: I'm gonna get something and get something in for Tuesday. It's Tuesday at 11. Get them in for Tuesday at 11, right? Because that— we've got a report out at Tuesday at 11. If the algorithmic traders push the market higher for some odd reason because of something that we print on Tuesday, what are you going to do to take advantage of that, right?

Chris

Barron: Yeah, no, then that's exactly right. And that was the opportunity, um, in March, and it could be an opportunity again Tuesday. The guys listening to this for the first time on Wednesday will be like, well, it went down, or maybe it went up. You know, so, but, but if it did, you know, it's going to go one way or the other. So, you know, um, the key is to take advantage of these things. I'm gonna, I'm gonna stop there. I'm gonna let you wrap this baby up and we'll put a bow on it.

Ryan

Moe: No, I, uh, appreciate the opportunity to be here. Uh, I think, you know, I got a lot of respect for your business and, uh, the time I spent with your customers there. I got a lot of respect for those folks as well. But yeah, if you're marketing grain, uh, utilization of those open orders is going to be the best way to capture opportunities. And yeah, go out and grab some basis pushes that are coming out here during the planting window, especially if it happens to take a while to get this crop in the ground. Take advantage of those opportunities because they, they don't have to be there for you after the Fourth of July.

Chris

Barron: Yeah, for sure. Well, hey Ryan, as usual, you had a lot of really good comments. You got some great insight. StoneX, you guys have a wealth of information at your fingertips, and we sincerely appreciate you, uh, having the conversation and sharing your knowledge with us. Uh, thanks a lot. Really appreciate it.

Ryan

Moe: No, hey, thanks for letting us be here.

Chris

Barron: Yeah, appreciate it. And, and again, uh, as a reminder to everybody, um, if you have not checked out 19 Minutes, it's at the top of the notes here. You can click on it. It's super easy to sign up. Um, check it out. Let us know if you have topics you'd like us to hit. It's out on the 9th, 19th, and 29th. A lot of really good information there. And again, we really appreciate you listening. And we also want to just reach out to everybody and tell everybody, please be safe. Safety is a number one concern when you're out in the field doing things. One, one quick note, make sure you have your cell phone with you. You get out of the tractor to work on something or do, do something on a piece of equipment and get into trouble. It doesn't do any good if the cell phone's in the cab. So One of those things. The other thing I'd say is seatbelts, even in the tractors on the highway.

We've seen things happen and cars are not super smart when they're driving on the road. Closure rates are a big deal. Just be safe out there. We want everybody to go home safe to their families and, and have a productive business and a productive year. So with that said, thanks to Ryan and thanks everybody for listening and we will catch you again next time on The egg view pitch.