Slow planting pace

Duane

Lowry: 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. We are heading into another new marketing week, April 24th through the 28th. It is planting season. However, the weather's not cooperating with all of us. And so we'll have a little conversation about that among other things. And today we're lucky enough to have with us Dwayne Lowery back again. Dwayne, how's it going?

Duane

Lowry: Good, Chris. Glad to be here.

Chris

Barron: Well, it's good to have you. Excited to see what kind of wisdom you can, you can share with us today here. So With that said, we'll talk a little bit about planning progress. I can give you my two cents on some stuff here in a bit. Are you hearing anything or what's going on in your neck of the woods?

Duane

Lowry: Well, I'm what, 30 miles north of you and we've had very little planning activity, but there has been a small, tiny amount, but very little. And I'm looking out my office window this morning on Saturday morning and snow drifting through the air, and enough so that you can scan the horizon and you see a little bit of snow on the ground, and the roofs are all white. And not the greatest weather, and temperatures are going to be kind of a cool temperature theme pretty much all the next 2 weeks with it, you know, quite cool compared to normal over the next 7 days and probably 3 or 4 out of the next 7 days, our overnight lows are going to be below zero. So not the greatest, but it's April 22nd on the calendar and I'm not sure it's that big of a deal yet.

Chris

Barron: Yeah, the thing that concerns me, Duane, a little bit is, you know, as people listen to this during the week, the 24th through 28th, and then, you know, that's the end of the month. And then, you know, your ideal window for a lot of the listeners, at least on soybeans, to capitalize on the best yield is, is that week, you know, and then even in the Dakotas, you know, they're a little ways away, obviously, with the snowmelt and wet and trying to get things warmed up and dried out a little bit. It's going to get a lot of people, you know, into May for sure. And I get it, you know, I keep hearing, well, everybody can plant everything in 5 days. Well, that's great if you can plant everything, you know, the, the weather's got to cooperate. We did quite a bit that couple of weeks ago when we, you know, we were in the 80s there for what, 5 or 6 days. Right or wrong, I don't know.

We put about 25, about a little over 20% of our corn in and almost all of our soybeans. We'd have finished the beans, but we, the weather was getting cold and, and there was you know, this, this cold, snowy, crappy weather was en route. So we shut everything off, park stuff. But, you know, I think the guys in Illinois this last week were able to run for a couple of days, you know, but like I said, this cold weather and everything. With that said, I just have a quick question for you. At what point do you think the market, if this does stay kind of a slow pace or a no pace at some point, You know, do you got to get to the 15th of May? Do you got to get to the 25th of May? I mean, before the market really does much or, or recognizes a slower, delayed pace?

Duane

Lowry: Well, I'm not sure the market, uh, uh, is going to care for a little bit. That being said, I don't think the market has been down in the last few or several days based on ideal weather or favorable planting conditions or anything else. I think it's been more of a tech-based, uh, liquidation route. And, um, um, I would imagine that is largely coming to an end, you know, pretty much immediately. And so the market's going to be relatively clean. We're back to the bottom side of parameters in the, the corn that we've been, uh, in the case of the beans, you know, where the this feels like a devastating break. But, you know, you're probably $0.50, $0.60 off the recent peak in beans, which probably was made even on Sunday night or Monday, I think, of this past week. And you're still, you know, $0.70 off the bottom, $0.60 off the lows made in the month of March.

The bean market's not acting poorly. The bean spreads Uh, the July NOV, which just peaked out, uh, within the last week probably, has only fallen a dime during this sell-off that we just had. And if the market was really no good, and if the market was, you know, collapsing and beginning a downtrend that was going to build momentum and be sustained and all this kind of thing, that spread would have probably collapsed from those, you know, record high levels. And it all— it fell was a dime. So I don't think that's very troubling. So I think the marketplace has not been trading favorable conditions. And will it embrace troubling conditions or concerning conditions? I'm not sure. I think it, uh, if it does so, it's going to have to be because rain events are drawing out and delaying the planting thing more than, you know, temperatures or anything else. Um, and that's certainly possible.

There's enough rain around. That we could extend this to where it becomes a little bit of a concern. I'm not sure concern is even the right word. The marketplace right now is dialing in and talking about a national yield in corn of 181. And what is that, like 5 bushels, 6 bushels above the record? And, and here we are talking about a 181. It seems a little difficult for me to Except not that, that it isn't possible, it's certainly possible, but it seems difficult to believe that we might already be dialing that type of number in. And as the planting date extends out a little bit, as germination pace becomes slow because of temperatures nullifying some of the early planting dates themselves.

And in the case of the beans, there's going to be, it feels like there's going to be a lot less acres taking advantage of early plant date in beans than there is in, in, uh, it might be more of a market factor there than it is in corn. And the balance sheet looking forward, um, it's difficult to grow the US balance sheet very much unless you have really optimum yields. And until we have something else to look at in terms of crop development conditions, The plant— early planting date is going to take a little bit of the edge off of at least a confident opinion about having exceptionally good bean yields. So maybe it's a storyline in beans before it is in corn. I could see that being the case. But I think the recent price action in, in corn and beans is more than likely a temporary short-term flushing event, and not the beginning of a more protracted move.

Chris

Barron: Mm-hmm. So you mentioned— I'm gonna hit you with two things. So you mentioned the, uh, the move in the market here, and, you know, maybe it's, it's quote unquote clean from a technical perspective. Um, do you think the funds are watching this, or what does it take to bring the funds back in a little bit more? What's your perspective on, on money flow? Because that's so important for us too, to, you know, that volatility creates opportunity not only for them, but it does for us too. Any comments on that?

Duane

Lowry: I think if you want the funds to come back into the agricultural markets, the first thing you probably need them to get, absent having a specific weather-related growing threat, I think the first thing you really want to cheer for if you want them back in is you want to cheer for energy prices to be going up. You want to cheer for a perception that China's economy is doing well, going to be doing well, that commodity markets in general will be well supported. And I think there is a legitimate merit for that type of a discussion. The marketplace hasn't really been wanting to embrace that very much, but I think that it could. I think the other thing that I think lurks on the horizon that could surface at any time and probably is getting to the point where it's, it's going to surface here very quickly. And that's again, Russia, Ukraine, the, the grain corridor situation.

I think that expires— the 60-day extension that we recently did expires on the 18th of May. And if Russia is going to— if ships are going to be able to get in and get back out by that deadline, They're running out of time to get an inspection going in. So that grain corridor thing is about to come to an end. Now, based on the timeframe on the calendar, I'm not sure how big of a deal it is if it does come to an end. But if it comes to an end, it's not renewed, Russia's military geographic footprint begins to expand west and/or it moves into Odessa. All of a sudden the marketplace is going to become worried about grain shipping out of that region through the Black Sea and through any type of grain corridor situation for the new crop. And that's where it becomes really important with the new crop wheat harvest, etc. And I think that's a very real thing.

And I think that we're probably likely to get some development or bring that story to the forefront sometime next week, just because of the sheer amount of time it takes them for a vessel to move into the region, get inspected, come back out, get inspected. And with it ending on the 18th of May, I think that window of ships coming in is, is just about near its end. Plus, Russia has really ratcheted up the rhetoric on that over the last 2 weeks. About being very, very unhappy with their perception that the West has not lived up to their agreement brokered through the UN to allow Russian grain and fertilizer to more freely be exported, or through financial restraints that are in place. And the West doesn't appear to be in any mood to change that. But Russia is extremely upset about it and definitely been ratcheting up the rhetoric. And I don't think they're going to extend that deal again.

And I think if for no other reason, they need some chips on the table if they want to— if there is a point in time in the months ahead where there's some negotiation taking place, they need something to offer up.. And, uh, opening up the grain export corridor would certainly be a chip to have on their side. So I think it's highly likely they're not gonna renew that. So I think that's a storyline that has been kind of poo-pooed in recent weeks, but I think that's gonna come to the forefront this next week again.

Chris

Barron: So is there something that moves wheat that, that corn or soybeans chase then, or is that not?

Duane

Lowry: Well, the wheat market is so, uh, discounted and so cheap from any interrelation, intermarket relationship, uh, looking through many different types of matrixes, uh, from a historical perspective, wheat is just super, super cheap. So theoretically, the wheat market could rally a dollar and corn and beans could actually drift lower, and it would be perfectly acceptable by a normal relationship standpoint. So I'm not sure that, that just because wheat were to rally, if that's the case, that corn and beans have to rally. But if corn and beans were to rally, there just isn't much room for them to gain on wheat without wheat participating. So wheat is by far the most undervalued market here and should have the most limited amount of downside risk in it. And might very well have the most upside potential depending on what the narratives are going forward.

But, uh, from a purely price relationship perspective, wheat definitely could have and maybe should have the most upside potential.

Chris

Barron: So you don't think there'd be much correlation though if wheat, you know, 'cause like there, like you just said, you know, if wheat takes off and moves up, you don't think it's gonna pull corn and soybeans along with it even though And you're saying just because the, the spread difference now is so far, wheat's so low in comparison.

Duane

Lowry: I'm saying that because the wheat is so historically cheap versus these other markets, that if the wheat market rallied, that by itself doesn't mean that corn and beans have to participate. But some of the most significant part of the grain moving through this grain export, uh, UN brokered corridor actually was corn. So, um, I think that if the wheat market rallies for whatever set of reasons, um, it's certainly possible that corn and beans may find a reason to want to participate as well. I'm just saying that, um, just because wheat rally, that's not necessarily a guarantee that corn and beans have to participate. But I think in the case of corn and beans, maybe they could find their own narrative for a reason for rally. The beans, number one, we got US bean carryout at 210 million bushels.

You got some Brazilian beans that are having to move into the US East Coast because they can't get enough beans to satisfy their crush desires. You've got China's import demand for this marketing year is higher than it was last year by several million tons. You, you've got this big Brazilian crop that everybody wants to talk about. But if you take a combined look at Argentina and Brazil total production this year versus last year versus 2 years ago, we've actually got, um, less, um, bean production from Argentina and Brazil this year than we had 2 years ago in the combined total. We are only about 5 or 6 million tons, uh, and that might even shrink, um, higher than we were a year ago. And yet you've got China's imports up 5 million tons, so that pretty much offsets that. And you got US carryout, it's probably 65 million less than it was last year.

That's, um, almost 2 million tons right there. So there is nothing abundant about the global soybean situation. And when you fast forward to the crop that we're going to plant in the, in the US now, it's very difficult to get that carryout to rise very much based on the yields, the acres that we have. And I'm not so sure that in the final analysis, the US soybean acreage won't be less than it was projected to be in March. So yeah, in the case of beans, I think there's plenty of, uh, fundamental fodder to keep the bean market nervous, um, at least going into early July when we get a look at the June 30th acreage report. The other thing I want to point out is, um, I already mentioned that the July-Nov bean spread didn't weaken very much during this last week's sell-off, which if the market was really making a major turn down that's what it would have done, and it did not do that.

And if you want to look at November soybeans, November soybeans on Friday settled at $12.85 and a quarter. Okay, $12.85 and a quarter, to give a perspective on that, if that was the spot value— and I know we're not trading, that's not spot now— but if that was, that would be the lowest spot price for soybeans since December of 2021. So you've already got new crop bean prices discounted by recent history that doesn't seem to be warranted when you look at raw supply and demand numbers, even projecting for 2023. So the marketplace has priced in a November soybean price that is probably representative of basically the upper side of reasonable plausible yield scenarios for 2023. That implies there is absolutely no what-if weather premium built into current values.

And if you take the same exercise and you apply it to Dec corn, which people that are bearish corn, that's where their focus is and has been, is on the December contract. And now we're at the bottom side of where we've been in that new crop Dec corn here for the last, you know, several weeks or a few months. And Dec corn at what it would see— I mean, look, it settled at $5.48 on on Friday. Well, if you apply that same comparison and, and say that's the spot contract, that's the lowest it's been since November of '21. So these new crop prices already have an extremely optimistic yield or production scenario plugged in, and yet we're at the beginning of the growing season and they're plugging in values that we've not seen in the spot markets for, you know, a year and a half plus. And, um, that seems like it's overly done.

And when, uh, we go back to one of the things I said earlier on, that the marketplace is kind of clean, we've had this technical washout, and the spread action doesn't really imply that it's the beginning of a downtrend, I think you have just witnessed a flush in the corn and the bean market that probably can't find any momentum to the downside even this next week, let alone over the next several weeks. And here we are entering a new growing season. So I think that, uh, new crop prices are undervalued for all those reasons. I think the wheat market is grossly undervalued for historical price relationship perspectives. I think you have the Ukraine-Russia grain corridor thing is going to come is going to become front and center probably this next week based on the calendar. And I think there's an excellent chance that it's not going to get renewed.

And I think the marketplace is going to be surprised about that. And so I think there are things to, to focus on. I think the energy markets, which had a one-week sell-off this past week, but they are still well above where they've been over the last several weeks. And probably are poised to have trending higher action there in the months ahead. And I think that is probably the key to getting the funds to want to take ownership, uh, in the grains again. And so I think it's very plausible that that scenario plays out.

Chris

Barron: So from a technical standpoint then, I guess, as we get closer to wrapping up here, the the new crop stuff, let's say, you know, corn in the $5.50-something range and soybeans in the $13-something range. If, if that's the lower end of the range, you know, where, where do you guys consider putting some targets in? Because I think a lot of people, you know, put targets in. In fact, I know I did, and they never quite got hit, you know, in that upper 5 range, you know, that 5.90-something range. I mean, what are, what are the probabilities of getting back to, you know, just shy of 6 or somewhere in that range, do you think? On, you know, I don't mean to throw you under the bus here, but just give you, get a little perspective from you on the probabilities.

And I know you don't have a crystal ball, but, um, and also on soybeans, you know, the, the challenge there is we need, you know, 14 plus and, you know, I think, you know, so do you just sit on your hands and, and wait or, or, uh, thoughts there?

Duane

Lowry: Well, uh, first of all, being under the bus is not that big a deal. I, I pick up my mail there on a daily basis, so that's not a big issue. Um, the, as far as the, um, uh, technical, um, technicals is a little bit like, uh, evaluating, walking into an art museum and evaluating art. It's more of an art than a science. I think many people will say after Friday's performance, through this past week's performance, that the technicals look weak and oh my gosh, and we're going to fall apart and things of this nature. I don't agree with that, but that— I wanted to put that out there. That's where most people are going to line up. I think in the case of the technical market perspective, I think what we witnessed was a completion, temporary one-off event. I don't think we get the downside momentum. I think to embrace that view, I think will be a trap.

And I think that's what we're going to see unfold over the next couple of weeks is we're going to find out that embracing this sell-off was and turned out to be a trap. That's just my opinion. As far as technical upside objectives, if we turn around here, I think that, um, if producers are keen to make sales, maybe don't have as much on as they wanted to have on, but not necessarily anxious to sell it at the lowest levels they've had for any corn they would've sold since December or November of '21, which I think there's an argument to be made for trying to avoid that sale, then I think $5.90 to $6.10 December corn is not at all an unreasonable possibility. And, that's where I would have offers in at the present time is at least at $5.90. In the case of November beans, you said you wanted to get to $14.

Well, before you say in those words, I would have said that I think a, a reasonable target is very plausible to get to back to $14. Contract highs in November beans are just shy of $14.50, if I remember correctly. Um, think it's unreasonable to believe we could actually go back to $14.50. Again, I want to look at how cheap November beans are versus the spot contract of any beans traded since, you know, November of '21. So we are already quite depressed. And I think it's very difficult to get a U.S. balance sheet that suddenly becomes burdensome with supplies, given the small carryout, given even the acres presented to us in March. Which I am suspicious it's going to be less than that. So I think there's still opportunities here ahead of us.

And I think that because we are so cheap, from using the logic that I've already laid out, I think a guy can be somewhat patient on trying to make additional sales. And I, I'm in no hurry to make sales here.

Chris

Barron: Yeah, I'm just a firm believer, though, putting those targets in because we're going to— we are going to be planting at some point there. Everybody does get busy. And it just seems like those opportunities present, they sneak up on you and they don't last very long, especially when it's a production-driven market. Or, you know, it's, it's not like, you know, it necessarily has to go there, stay there type of thing. So I think a person needs to really do the math, figure out where you need to be and get those, get those offers in.

Duane

Lowry: I definitely agree with the idea of putting the offers in. And I think the price areas that I put out there as legitimate places to have those targets. Yeah. And I think those targets are achievable despite how weak it might feel after the past week's price action. That's still plausible to get there. It's probably easier to build a bullish scenario in the, the bean market than it is to build one in the corn. Or said differently, it's easier to, uh, come up with a production scenario in the US for the '23 growing season that adds to carryout from the previous year, gets the carryout up to where it's more, you know, plentiful supplies. Um, it's easier to do that in the corn than it is in the bean.

So if a guy says a 50/50 operation and he, um, is going to be quicker to market something and slower to market something else, I'd probably be inclined to be quicker to market the corn on a rally and maybe a little bit more patient on the beans.

Chris

Barron: Yeah, that makes sense. So the last thing I want to hit on real quick here, and we need to get wrapped up, but old crop, uh, corn and soybeans, and there's, there's a little bit more corn out there than I would have thought that some people are still sitting on a little bit. A lot of it is just the quote-unquote gambling bushels, which I, I can't stand. I like my bins empty personally, but You know, basis got really strong there, at least like in our area in Cedar Rapids, it got super strong that week. The weather got— I mean, there were bids that were significantly higher than everything that was even being posted just because they needed grain all of a sudden. And now that the weather has gotten crappy the last week and a half or so, now all of a sudden, you know, the basis has gone away.

I think there's going to be another, another run of that almost in every region to clean up old crop basis. And it gets a lot of people at or above $7 in a lot of areas. If the basis comes back and, and we, you know, and we do see a little price strength in concert with that, what's wrong with if you can get, you know, $6.50 to $7, low $7s, what's wrong with just cleaning the bins out?

Duane

Lowry: I don't think there's anything wrong with cleaning it out at those prices. Those are good prices. And, you know, if a guy is sitting on old crop bushels and he has new crop bushels that he hasn't priced and he feels like he wished he would or should have or wants to, it's pretty difficult to argue holding on to those old crop bushels and remaining unpriced in new crop just from an exposure standpoint. But after having said that, I wouldn't argue anybody wanting to sell old crop bushels here, especially, you know, if you got some, you know, good basis values, I wouldn't argue against that at all. But in the same token, I think the cash corn market supplies are going to be tight enough that the old crop corn market is probably going, probably going to be very well supported through much of the summer. And I think that China's demand caught people by surprise. I doubt if that's done.

And even without that China, any additional new China demand, the cash corn market and how it responds and the basis it takes to move supplies, it sure seems like it's a lot tighter than, than the USDA carryout would suggest.

Chris

Barron: Yeah, that's interesting. I appreciate that. I just think people, we, we all need to kind of watch that close. And, and, you know, sometimes it's nice to clean house on the old crop so that your focus and attention is on the, on the new crop. Everybody's got to make their own decisions and not recommendation. It's just, just in our observation over the years, it just seems like when, you know, you don't want to look a gift horse in the mouth and not take advantage of it.

Duane

Lowry: So, no, I wouldn't want to talk anybody out of selling if that's what they were thinking about doing. I would definitely wouldn't want to do that.

Chris

Barron: Yeah, yeah. So, um, any last thoughts for guys as we, uh, um, head through the week of the 24th, 28th? Last final thoughts?

Duane

Lowry: Um, the last final thoughts would be that, um, it's going to take a pretty significant weather problem. Let's talk about corn. Let's focus on corn. It'll take a pretty significant weather problem in the, in the U.S. to create a balance sheet that justifies maintaining $6 or higher corn market. And therefore, if you get weather scares between now and the end of June or middle of June, that gets the market back up towards that $5.90 or $6 area. It's probably— you need to think in terms not of what the cash corn market has been the last couple of years, but what might it be on the downside? And it might end up being a $4.50 to $5 futures market for downside risk. And I think that's what a guy's got to focus on is what the downside risk is.

And I think that this would probably not be a good year to go into harvest and not have gotten bushels sold that you normally would have or that you would like to have. Because cost structure that everybody has, dealing with a $5 or less corn market would be awful.

Chris

Barron: Mm-hmm.

Duane

Lowry: Yep. So there's merit in, you know, being proactive and finding and reacting to levels that, you know, produce a profit for your operation.

Chris

Barron: Yeah, I wholeheartedly agree with that. I think, you know, we just gotta make sure, you know, we're cognizant of, of the opportunities. And, and this is, you know, a risky situation just because the amount of dollars we've got invested in this crop, especially in the corn crop. And, and then I think soybeans, you kind of follow along with the same logic. So, Dwayne, I think that's been a really good conversation. We hit a lot of stuff from the planting progress to needing energy prices to to kind of help support some things all the way through the Russia-Ukraine war and, and, uh, some of the other things we talked about. And I appreciate your, your parameters on the technical side. It kind of gives some guys some thoughts and ideas and ways to put in some, some, uh, some targets and, and maybe take advantage of some, some opportunities when they present themselves.

So with that said, Dwayne, um, as usual, thanks a lot for all your wisdom.

Duane

Lowry: All right. Thanks, Chris.

Chris

Barron: Yeah, you bet. And I'd like to thank everybody else for listening. One other quick thing too, make sure if you have not checked out 19 Minutes, check it out. We, we have another new episode coming out on the 29th. We've got a whole bunch of interesting episodes in there. And so if you need some stuff to listen to when you get back in the tractor, finally, it's, there's a bunch of episodes in there. You can, it's $30 a month, but you can go back and listen to any of the prior ones that are already in there. So there's a ton of really good information. And basically, we'll leave a link to 19 Minutes in the show notes here. So with that said, again, thanks to Duane Lowry. Thanks to everybody for listening. And we will catch you again next time on the IPO Pitch.