Weekly market outlook: May 8-12th - planting season continues

Narrator: 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 marketing week, the 8th through the 12th of May. I am sitting in my pickup and I am talking to Jared Creed. Jared, how's it going?

Jarod

Creed: Can't complain. Are you anxiously waiting to start raining, I'm guessing?

Chris

Barron: Well, it sounds like there's a chance of rain. We need about 2 more days to finish planting as we record this. What is it, the 6th or whatever the date is? Anyway, we need a couple more days, but we do need rain. It is super dry. I just got done— Laying underneath field cultivator changed about 40 sweeps and planters. Both planters are rolling and we're getting something done. And it sounds like in some areas guys are done, some areas guys are rolling, in some areas it's super dry, in some areas it's super wet, in some areas they haven't turned a wheel yet. South Dakota, North Dakota. So what are you hearing from your clients?

Jarod

Creed: As a whole, I would say that we're probably right on an average pace. But inside that average, you definitely have some places that are running well above average, if not already done. Uh, it certainly feels like we were a little sluggish to start, but it's a constant reminder of just what today's technology can do. Get a lot of work done in a very short amount of time. I would say that across the group of producers we work with, uh, Nebraska surprisingly is probably the one that is a laggard. Primarily waiting on rain. Awfully, awfully dry there yet. And I shouldn't say necessarily a mixed bag across Iowa, but it really got a lot of pace done this last week. If I had to guess, for Iowa producers we work with, we're probably over 75% done on corn and probably around half done on soybeans.

But I think that number is obviously changing by the hour until Mother Nature pushes us out of the field. Once you get into Minnesota, really got running probably the middle of this week. I would— if they get moisture this weekend, I don't think that anybody's going to necessarily be done. Keep in mind, that's primarily the southern two-tier counties in Minnesota. Obviously, when you make your way up into west-central Minnesota and then into eastern and northern South Dakota and North Dakota, there's, you know, reports of guys scratching dirt here or there. Got a couple of guys that are trying to go, but I think you had a little bit of mixed bag up there. Some would actually welcome a little bit of moisture here to even things out because just 2 days ago, you know, up in the Aberdeen area, still a little bit of complaints about frost coming out in some spots of the field.

So far cry from being excellent conditions for them yet.. But I still think that based upon forecasts and everybody's— what their anticipations are, a week from now should look a lot different unless Mother Nature really plays with us.

Chris

Barron: Yeah, the market obviously isn't going to be concerned about planting pace, or at least for quite a while yet, or, you know, just acres that won't get planted or whatever. That's obviously not not in the cards for now. What is in the cards? Because we've seen this huge market slide, a lot of people scratching their head, a lot of people saying, uh, maybe I should have sold some, or whatever. You know, there's just, you know, just some frustration and maybe even a little panic in some areas.

Jarod

Creed: Talk a little bit about the pressure we've seen, although we did close a little, little stronger at the end of the week there, but Well, I would start on the front end of what you were talking about there from acres and market not being concerned about acres getting planted and suchnot. But keep in mind, we're gonna still have some prevent plant. We have prevent plant every single year. Collectively, that could be between spots in Wisconsin and Minnesota and South Dakota and North Dakota. And believe it or not, you're probably gonna run into some prevent plant issues in heavily— heavy corn production areas, Nebraska and Kansas, they're on the opposite end of the spectrum, just too dry. There's definitely situations where irrigated corn producers are unable to plant a corn crop and insure it as an irrigated corn crop.

They're gonna have to insure it as a dryland crop because they won't have access to the amount of water that it takes to certify it as irrigated corn. You know, so it's a mixed bag. You got too wet— and too cold, I should say, at this point— in certain places in the north, and obviously very, very dry once you get to southern South Dakota and on down into southern Kansas, Oklahoma, Texas. But does the market care about acres at this point? No. Has the market cared about anything fundamental in the last couple weeks? No. Did the market get a little caught off guard with some Chinese corn cancellations? Sure. But, you know, there's all kinds of different possibilities around that Chinese corn cancellation.

You know, this isn't really a tinfoil hat opinion, but when you look at what May-July corn spread did and you look at where July-September and July-December corn spread is right now, there's still a legitimate possibility, Chris, that sales could have been canceled on our end, and it could be a lack of procurement capability because of price from the farmer, or flat-out lack of being able to get the supply that's needed in timely fashion. And if you go back to the March stocks report, it's— I think it's pretty obvious at this point where the corn is and where it's not. You get into our part of the world, Chris, you know, we're seeing highest basis levels we've had since basically the front end of harvest.

You get into areas 100, 150 miles west of us, basis levels are still very, very extreme, uh, with possibility of some big-time ethanol plants probably going to be paying a dollar over basis in the very short term and still making money while they're doing it. So, on one hand, you could say that getting something down the river or by train should be easily doable. But on the other hand, we're trying to keep things as close to domestic use as possible based upon what the bid structures are, and certainly representative in the spreads. Big time inverses. The trade here in the last couple weeks, it certainly seems and feels like it's all recession-fear trade. And I shouldn't say necessarily feared, there is some big-time short bets taking place as a recession bet. And, you know, just this last week's Commitment of Traders report echoed that.

We had the third largest selling week in corn from managed money ever. And for what reason? I mean, legitimately, somebody has to ask themselves, well, for what reason? If you have a fundamental bias and you want to be short the corn market, this early in the calendar year, okay, that's great, but I think from a fundamental, um, analysis, yeah, our exports probably got room to come lower. Yeah, our ethanol is so-so, can maybe come a little bit lower as well, but you're still going to be stuck in a tight carryout and you're still looking at a very, very steep inverse on the board, which doesn't really correlate that well with any type of a speculative short position being built in the market, because, you know, a short position in a big inverse is no different than a farmer having an HTA that they ultimately have to roll to the next futures contract if they haven't got basis priced.

And if you're in an inverse and you're short, you're going to lose money on that hedge. The farmer does have the flexibility, or or the capability to somewhat offset that with change in basis based upon different delivery periods, but that's not how the speculative trade works. So the bet here recently has most definitely felt like it's been on the heels of a recession trade. You got all the nonsense around banks, and a lot of those, it certainly appears that it was the result of very poor management decisions, not good risk departments. And all in all, it's really just sparked an effort to try to step on the throat of the commodity market. But in general, like you said, we had a pretty decent rebound into the end of the week. You know, wheat rallied about a buck off its lows from Wednesday morning. Corn, $0.30 off its lows from Wednesday morning.

Not exactly sure what beans bounced off their lows from Wednesday morning, but still pretty significant amount. You know, there's always this possibility that all these big bearish bets that have been placed that doesn't have anything to do with fundamentals, they got to get paid. You got to get out of your position. There's one thing of putting a position on, there's a whole nother thing of getting out. And the farmer activity in the market is next to nothing. And here's a real story, um, big-time commercial in North America and South America hedged a whopping 4 contracts of soybeans for all South American producers and North American producers a couple days ago. 20,000 bushels across a company that can handle well over a billion bushels a year. So it goes to show you that there's plenty of different things in motion that is taking the farmer engagement from the market completely away.

Chris

Barron: At what point do the funds, you know, interject? I mean, is it just going to take— I mean, there's no, there's no like news, you know, to, to bring us back to the upside, really, is there? I mean, what's it going to take for the funds or for money flow to come back in? Is it going to take a pretty big weather issue or some sign of some demand that we don't know about yet? Or what would it take?

Jarod

Creed: What's it going to take? I would say in the near term, it's probably not merely a demand type of a deal. Weather can certainly do it. But a lot of it's money flow. And just again, kind of getting paid on a trade. What's the path of least resistance, higher or lower? I, my personal opinion, Chris, is that the the makeup of today's market— and again, I want to stress and emphasize my personal opinion here— that we are not out of the weeds for the production of this year's crop. I want to go back to last year. We know that we had a shortage. We know that in the January stocks report and the March stocks report, we saw greater than expected reductions of supply. What do we see in the June stocks report? And at the same time, on the June stocks report, what are we going to see for anticipated acres and yield? Well, we already know that number.

The May WASDE is going to use new crop acres and yield that we've known for a pretty decent timeframe here. Gonna be 92 million acres of corn, 88 of beans, and trend yields of 182 to 51.5, give or take. Those run the risk, especially in corn, of probably being the highest production number we see all year. And that's not really a bias, that's just historically speaking that we, we haven't ever yielded that. Not to say that we won't someday, but right now I think it's probably better safe bet to be talking about upper 170s type of a corn yield as a starting spot. Does that spook or aid the big fund short? And keep in mind, the fund short today is nowhere near the size that they have been in the past. But with that said, our total open interest in the market, our amount of participants, is greatly less than what it was years prior. So they're a bigger percentage of the overall pie.

So, what spooks them? You know, from a fundamental standpoint, I don't know if you really have anything coming our way in the short term that changes that. And from a threatening weather perspective, I think you gotta say that you're 30, 45 days out from really having that risk, with the exception of maybe just getting too wet in some places here for the balance of the month and slowing down the balance of bean planting. I think the main— I think the main thing that can really trigger a short covering is just the lack of being paid on a recession bet. S&P 500, the equity markets, has not blinked an eye. So if we're going into a recession, I think we talked about this last winter, when's a recession coming? Do you feel like we're in a recession? Where's the recession? Legitimate question for anybody to consider. Where's it at?

But there's all these bets that continue to be made on a recession coming our way. And it certainly doesn't help that there's all the, the questioning around how the US government is going to handle the debt ceiling. A little bit of a soapbox answer there, Chris, but it's, um, you know, fundamentally things really haven't changed that much. It's been a well-advertised situation that our demand was gonna falter in high prices. It's held in there enough, in my opinion, and demand, it doesn't come back overnight, but it will come back when we replenish supply. It's what that price movement is between now and the time we replenish that supply that's important. Mm-hmm.

Chris

Barron: From a farmer's perspective, and you look at, you know, where the market went down to for, you know, for all the grains. I mean, corn, soybeans, wheat especially, I mean, at or below the cost of production, um, dipped to those levels and we're hovering there around that cost of production, at least on average. For some it's not, it hasn't gotten there yet, but for others it blew through it. Talk a little bit about, you know, what, you know, what are some of the practical things that farmers need to be thinking about in the next couple of weeks as they, you know, get the crop in or not and think about their individual situation? What's Farmer Jared thinking about if you're in that situation?

Jarod

Creed: Well, an important reminder we talked about before, once the crop is planted, the bushels are guaranteed. And then it's about addressing what that potential moving target is. Using what the current prices are and with what your anticipated yields are versus your insurance guarantee and make sure that you are on top of that. And that's been a real situation. Try to relate this to a Kansas wheat farmer perhaps. The spring insurance price in wheat was about $8.80. At the beginning of this last week, Wheat was all the way down to the low 7s. At that point in time, if a producer is not going to be able to outyield what it would require to not have an insurance claim, which is few and far between in that neck of the woods, what revenue risk does the farmer have at that point? They don't, to the downside.

In fact, if they had existing sales in place that they're not going to be able to perform on, they were double-dipping in the market. They had a higher-than-the-market price, and the insurance price was higher than the market price, and the collection between— or the, the combination of those two, the lower the market went, the higher the revenue was going for the farmer. The flip side, there were some tremendous opportunities to market wheat over the prior 6 months since the crop was, was planted last fall. When the producer has the opportunity to, in essence, reestablish their own insurance price above and beyond the starting point, that is managing your worst-case revenue on your own. So now you translate that back to the corn and soybean market.

The producer is looking at a current price that is lower than insurance levels, But, for the majority, most likely at this point in time, not low enough to be able to not yield themselves out of a revenue hole. As in, insurance is not overly important yet for most producers. You know, 85% of the spring price is around $5 on corn. 80% around $4.70. 75% down around $440. You get to those type of price levels, that's when the risk profile might shift. But I'm still geared towards the idea— and again, a personal opinion— I've got some connections that are very, very sharp in the weather space, and they're still broadcasting concerns that we need to see some weather patterns change because there's a handful of years that I'm not even going to mention because everybody knows what they are. We're kind of tracking some of those analogs. Yeah.

And one of the big things that they keep talking about— I'm trying not to get over my edge of my skis on weather here, but we got some very cold, cold water off the West Coast, and that can create some challenges for both temperature and moisture throughout the Midwest. In the most critical time frames that we need them. So it's something to be mindful of because again, we were just talking about, well, what's the market done? Why is it sold off? What's the reasoning that we're at these prices currently? The cash market and the spreads are doing work to value physical grain at what it needs to be at, and flat price is doing its own thing. Arguably, the price of food being controlled by a computer and a damn algorithm. They don't care about the fundamental situation. So I'm still hopeful here that there are going to be some better pricing opportunities on the horizon.

So what I'm doing right now, Chris, I've got my crop planted, I'm reviewing my costs, and I'm identifying not just my next sale but my next couple marketing opportunities. And that can be both up and down in the market. If you're heavier sold and you got a good insurance policy, you might be better off just sitting on your hands. And that's kind of where our book is today, not necessarily heavier sold, but having a really solid insurance policy behind us. We've talked about margin protection a million times. On the lows of December corn this last week, all but 2 counties of all the counties that we work in required a record yield at that point. So I'm willing to play some probability and odds. Right. Mm-hmm. So the producer's risk in that standpoint was to not be as short as what they were.

The producer that doesn't have that, which is probably the majority of listeners, just needs to do that homework and come up with that next 2, 3 marketing strategies. But arguably most important is to identify what is my worst-case downside risk from where we are today. And that ties again back to crop insurance, and be able to quantify that. And if you can quantify it, maybe that leads to how you approach your future marketing decisions in regards to what tool you are specifically using. Uh, certainly I think that this early in the game, uh, our next selling decisions with the producers we work with is is highly likely to be some type of a minimum price program.

Give us a crack at a price that promotes, you know, solidifying the idea of profitability and add some calls onto it and it allows us to be able to do enough that further solidifying the idea that we're going to be okay no matter what. Mm-hmm.

Chris

Barron: A lot of that depends on the individual too, how much they already have sold as to how— aggressive or not.

Jarod

Creed: And that's the important piece about taking what is sold and what you can sell, that you might look at, say, $5.50 December corn futures and say, oh, well, that doesn't sound very good. Well, if you already got 30-40% of your crop closer to $6, selling another 10% really ain't gonna move your average that much, right? But it's gonna remove a little bit more downside risk in the event you have that downside risk. So certainly case by case, It just takes the good old words due diligence to identify what makes the most sense for your farm. Mm-hmm.

Chris

Barron: Yeah, and for those who can't store some of the stuff that's not yet priced either, that's got to go in the fall or whatever, some of those bushels or that volume has to be looked at fairly close too, doesn't it?

Jarod

Creed: Yes, you have to respect the calendar for sure. And it seems to me, at least last handful of years, 5, 6 years, that it used to be get the Fourth of July weekend, especially in the marketing world, that, oh gosh, 3-day weekend and you are not looking forward to the market open that next evening just because it's so darn volatile because you're looking at the next 2 weeks of forecast. Now, unless it feels like it's really gonna rain for 3 weeks or something, yeah, now we're really identifying that stuff probably closer to the middle of June. So I do— I'm going to make one more comment on weather that it seems like we're going to have this 5 to 10 day wetter stretch and then a— I shouldn't say extreme, but a pretty gradual warm-up to get through the balance of May. And just so happens to be that one of the analog years that we're in here is 2021. And I remember June of '21 vividly.

The corn looked tough, hot and dry. We still came out really, really well for the most part across the U.S., primarily on the back of timely rain. That timely rain got us through '21. Lack of profile last year. Yeah, we struggled in places. And now all of a sudden we're in the year 3 that from a corn production weighted average across the nation, we are way below normal and projected to be way below normal to go into, uh, Fourth of July timeframe. So we got to turn it wet, and that's when you get into great debate of all the weather folks of do we have El Niño, which here, or we in this ENSO pattern that's pushing it out further, or is this just a little teaser getting some moisture now? Uh, I'd just say that my radar of concern is building a little bit here. It's not a price-related comment. It's just that weather could be better and the forecast that we have could be better.

I think most of your listeners would say that this spring just felt just a little weird.

Chris

Barron: Yeah, but hot and dry in June, I mean, I'm speaking for myself now and a lot of producers though, I would bet, you know, that's when the crop is rooting down. If you, if you're getting moisture, you're developing that. Root system that's going to tolerate a dry, you know, late July throughout August way better. So you got a little better root system. You know, if you're dry early, it helps you get through a dry later in the season. But if you're wet through that June time frame, a lot of times you don't build up that root system that, that does sometimes get you through. Because that— like, you're talking '21, we had that situation where it was super dry and we were side dressing and doing all that stuff in really dry conditions and stuff was looking tough.

But we ended up having our one of our best crops ever just because we had this hellaciously big root system that, you know, and then caught the rains later.

Jarod

Creed: But, but it did come with marketing opportunities when things looked tough. Oh, yeah. Yeah, exactly. That's the end-all be-all connection. You're guaranteed bushels. Yeah. What can weather provide to us from a marketing scare or a production scare to be able to market against? And then, you know, after June, nobody's really that confident out there. Are we going to— are we going to have the rains to go replenish the supply to a comfortable level or not? Because we don't have an extreme cushion. It's going to certainly look like we have a massive cushion on this next WASDE just because of the new crop WASDE is going to look big on both corn and beans. But again, I think that production is probably at the highest number we see for the year. Mm-hmm.

Chris

Barron: Yeah, a lot of times, like you said, you know, that volatility that we don't like creates opportunities. And sometimes when the crop doesn't look so good in a lot of areas, that's— and you don't feel like you can make sales, that's the time to, to at least be using some of the tools, like you said, to at least get a minimum price or, you know, get some of that risk off the table in some form or fashion. Yeah.

Jarod

Creed: And I would say one other reasoning of that consideration, Chris, you know, we talked about the recession and the funds bets and, you know, supply and demand and balance sheets and such. Don't lose sight that it certainly appears that things are continuing to deteriorate between Russia and Ukraine. Is it priced in the market now? Yeah, you can make a pretty darn good case that the hysteria around that situation has dwindled, but it does not mean that spreads and basis won't have to do the work if an issue prolongs. On Friday morning, it was actually announced that they had their meeting to extend the grain deal and no resolution was created. And obviously earlier in the week you have the, the— I don't know if you want to call it a rumor or a fact— of something being shot at the Kremlin.

Um, you know, every day you still got air raid sirens going off in Kiev and different parts of Ukraine. There's, there's still an underlying issue there that is both alarming for not just agriculture, but, you know, still the world in general. Not to get into geopolitics, but there's still potential complications that have to be worked through there that can create all kinds of maddening type of moves in the marketplace. Mm-hmm.

Chris

Barron: Yeah, and there's things that could in that region that could make the market move that it's— we've kind of been lulled to sleep on that, on that quote-unquote news front, but that could change.

Jarod

Creed: Mm-hmm. I just lied to you, I said I was gonna have one more thing there. I got one more thing. One last, last thing. Wheat. Wheat has been a, you know, almost for any wheat producer that's facing a challenge crop, it's almost demoralizing just to see what wheat prices have done in the last 6 to 9 months. Almost halved in price, lower than where we were before both the, you know, more or less before inflation really ramped in and before Ukraine and Russia really kicked in. Well, you're looking at a crop that has been just devastated and real possibilities of the entire HRW crop in the U.S. being below 500 million bushels. Where we've kind of been accustomed to raising 700, 800 to, you know, a time or two we actually raised a billion bushels of HRW. The issue is even at our biggest crops we were barely 4% of total world supply.

And again it goes back to futures— excuse me, spreads and basis. The reason the HRW crop in the U.S. is important is for starters, we've had all kinds of acreage abandonment in the last 2-3 weeks. They probably got another week of that because technically speaking, once that wheat shoots ahead from the boot, it can no longer be zeroed out or adjusted to a very low number. It doesn't necessarily have to be taken to harvest, but it's no longer eligible to be tore up and plant a different crop and insure that following crop. But that abandonment will stop. That abandonment in Kansas could potentially be as high as 30% of the wheat acres, maybe a tad more. And why that matters is HRW for a period of time was really counted on as a backstop of feed supply to offset tight corn stocks in the western Corn Belt.

I'm optimistic as optimistic gets out that we're gonna have some big-time basis opportunities on the table this harvest. A little early to be jumping on any of those opportunities, but that's a conversation for later this year. And start to do your homework when you talk about what crop has to go to town. There's nothing wrong with making an optimistic view of saying, I'm gonna have above-normal basis levels come harvest. I think that in our neck of the woods, Chris, there's going to be plenty of $0.50 to $1 over basis opportunities the last 2 weeks of September and first week of October. That's how the supply is going to drag out. Yeah. And I could be low there. I know that my first year in Iowa, harvest 2013, was paying some ungodly $1.70, $1.80 over. No, no drying, just shrink only. Yeah, the situation's come around again. Those are huge bottom line changers.

Chris

Barron: Yeah, it's going to be a rush to the field for a lot of those guys that did get in earlier, had some early hybrids or varieties on the soybeans and the corn side of things. I think get— getting in early and getting some of that first stuff to market is going to pay big dividends this fall.

Jarod

Creed: Correct.

Chris

Barron: I agree, I agree. Hey, I think this has been a great conversation as usual, Jared. You always have a lot a lot of good stuff, a lot of good thoughts. If people want to reach out to you, get a hold of you again, what's the best way to reach you?

Jarod

Creed: The cell phone would be easiest, area code 402, 680-1744.

Chris

Barron: Awesome, that sounds good. So, well, as usual, thank you very much, really appreciate it, Jared.

Jarod

Creed: Thank you, Chris. Have a good one.

Chris

Barron: Yeah, you too. And also want to thank everybody for listening and just remind you that we do have 19 Minutes out there. If you're not signed up, get signed up when you're out in the field. It's something you can listen to. We've got a bunch of episodes already in there. Another new one does come out on the 9th. So this, this week, another one coming out called Family Communication Dysfunction. And I'm sure nobody out there has any, ever any communication dysfunction, but it's a interesting conversation I had with an individual that we've done some work with. Uh, great conversation.

Jarod

Creed: So check that out, 19 minutes.

Chris

Barron: And with that said, we'd like to thank everybody for listening, and we will catch you again next time on the Ag View Pitch.