Weekly market outlook May 22-26th: are the lows in?

Chris

Barron: Hey everybody, before we get going with the Market Outlook with Grant Schimmeck today, just want to remind you about our subscriber-only podcast called 19 Minutes. It comes out the 9th, the 19th, and the 29th. It's going to be in the show notes here. So all you got to do is click on it. It's $30 a month. We've already got 12 episodes in there. Lots of really good business content and just stuff that you can really gain a lot of information from that I think will really help your business. Last week on the 19th, I did an episode called Compensation, Employees and Retention. We've got one coming out the 29th called No Pain, No Gain. We're going to talk about some of the key things that we have to do in our businesses that really will make a difference.

So again, we also have some bonus episodes that come out occasionally too, in addition to the regular episodes on the 9th, the 19th and the 29th. So with that said, just check it out. Super easy. Just click on the link., in the podcast notes here, and you can get subscribed and, uh, listen to all 12 episodes if you haven't already been on there. Check it out and look forward to having you on there. And with that said, enjoy today's podcast with Grant Schiemek. Welcome everybody to another episode of the Ag View Pitch. We're heading into another marketing week, May 22nd through the 26th, and it's getting towards the latter part of May. A lot of planning progress is done, still a little bit going on. We are lucky enough today to have with us Grant Schimmeck with Black Oak Financial. Grant, how's it going?

Grant

Shimek: Good, yourself, Chris?

Chris

Barron: Uh, hanging in there. Um, I just wanted to corner you here. Tried to corner you last week, but I think you had a graduation and then you had state track meets and all kinds of fun stuff going on. It's that time of year, isn't it?

Grant

Shimek: Yeah, it's a busy life, that's for sure.

Chris

Barron: Yeah, yeah. A lot of graduations, a lot of things going on, and it's that time of year. And while all that's going on, I think there's a lot of guys done planting. There's a lot of guys getting going in the north still. You know, and out east, I know like you'd mentioned offline, there's some little bit slower pace in a few areas where they had plenty of water and still some areas super dry. So with that said, what are you hearing on planting pace? What's your— obviously the market doesn't really give a crap about the planting pace, but what are you hearing?

Grant

Shimek: Right. Parts of the Eastern Corn Belt, Indiana, Ohio, a little bit slower than the Western Corn Belt. And, um, the areas that are dry, some people, you know, a couple weeks ago were probably parking planters in parts of Missouri that didn't wanna, wanted to have some moisture. I think some of those areas obviously caught some rain. And even some of these areas in Nebraska I've seen where people posted that they've got as much rain in the last week as they did in 8, 10 months. And so things are, you know, it's a very, really different than it was a year ago or even 8, 10 months ago. So, yep, it's, it's a, it's been kind of in general a normal spring. There's always some, someplace that's behind or, or having some issues. Nothing given the calendar is intense enough to matter to the market at this stage. Be the best answer I can give you.

Chris

Barron: Yeah. And, and maybe the market does care. Maybe they're looking at it and figuring this crop's made, it's planted, it's in, in most areas and, and it does look good. I've had some, some different operations tell me it may be, you know, some of the stuff that's emerging in the stands and things look really good. And, and I know some Iowa farmers have told me it's the best looking crop already that they've, you know, the best start that they've maybe ever had. So there's, there's some really good areas for sure.

Grant

Shimek: Mm-hmm.

Chris

Barron: Very possible. Yeah. So, you know, it's a long ways from the crop being in and we've had— and I'm probably just going to title this ugly market picture or something like that. So, okay. Talk a little bit about, you know, this market's been super ugly. And so, and I think it's caught a lot of people off guard, and I think people were distracted trying to get crops in and just focused on the production side of things. While at the same time, this market just kind of went away from us in almost all aspects. Talk a little bit about how to manage the emotions of that and kind of what your perspective is.

Grant

Shimek: Well, since the— since April 18th, corn and beans have been heavy. Wheat also. And what I mean by heavy is obviously the, the offers keep taking the market down. We have corrections, but when you just even look at them technically, we don't get to targets there before the selling comes in and we break. If this market really has somewhere to go, I mean, it was a very poor close yesterday. And if you count 27 days, trading days, that is from April 18th, you're going to come depending on how you do it, which day you start on exactly, you're going to end up somewhere between the 23rd to 25th. So next week. So if we, you know, my opinion would be next week, if we continue to hammer this down, we might end up at least for this month anyway, reaching an exhaustion, though. The way this typically goes, you know, here we are in May, these things can drift well into June.

Just like when we, you know, have a bullish market, you tend to, to have support and right into and spikes up into June. Well, you just kind of flip it upside down this year is my take. If you can, those of you are listening, if you don't have it kind of committed memory, just go out there and Google the bean seasonal and the corn seasonal, and they're pretty much the same where we're firm right into the middle of June, give or take a week. And this year it's an inversion. So we could be under pressure into then. And, you know, think of how many years we get to that third Thursday in, in June and things could still have some weather premium and some risk premium in it., and then it tends to disappear as we go from there to say July 15th. My guess is, given we've taken all this premium out, we have very lofty USDA numbers.

I think corn is 2 or 3% higher than the, the record as far as their expectation. We'll probably get to a point where we start sliding the other direction, but we've got to get past some of these markers like this window between here and say June 21st. That being said, is it going to keep sliding all the way till third week of June? Is that what I'm trying to say? No, I think we might be able to get the bulk of this slide done this month. But given we closed lower for the month, and at this stage on, you know, as we ended this week at 19th, it looked like we're probably going to have a lower close for the month. That's going to be 5 consecutive months lower. And if you look at enough charts, you'll find that if a market has 5 bars down daily, weekly, monthly, it tends to want to keep going past that 5th bar extreme.

So what I'm saying is if we do close lower for the month, June probably historically holds a good chance of being a lower low than we're posting right now in Dec corn and no beans. But in the context of crop insurance and where our floors are, especially those of you of 85% or higher, you really got to kind of assess. And if you do have any hedges on, should you be protecting those or even consider lifting in the context of crop insurance? I think we could get to that, that level to where we price everything to perfection. And you really want to look the other way and be more optimistic because things probably aren't as perfect as they appear today.

Chris

Barron: Mm-hmm. So I guess let's stay on that, on the technical stuff for a minute, and then we'll go to some— I got some funds and demand questions for you, but Since you're kind of talking technicals, let me pin you down a little bit and say, okay, you know, what are you watching? I mean, you pay super close attention to the technicals. What do you— what are kind of some targets you're looking at for movements? Because I think what a lot of guys are thinking, they're sitting there thinking, well, holy crap, I should have made some sales, more sales in many cases on new crop. Maybe they needed to clean house on old crop. What are some of the targets if guys are wanting to put some offers in, you know, where do they— where should they be looking for like some zones to maybe be thinking about that?

And it's not a recommendation, but just kind of what you're looking at from a technical perspective.

Grant

Shimek: You know, how far— given how far we've fallen, you know, as far as magnitude-wise, you can recover a lot and just be bouncing. And as far as above us to where you could fade that, just, you know, I would say that at some point, do we have a shot at getting back to January lows? You have a lot of people out there every year that are going to be shooting for the market to take out Jan highs and using a specific percentage amount that we clear the Jan high, so forth. Well, just take a more pessimistic look to it and focus on the Jan lows. That's going to be around Oh, it's $5.83 zone on Dec corn for the Jan low, and that's going to be right at $13.30 on Nov beans. So we could, you know, look how far we've fallen. We can rebound to something close to that. And you might want to, especially if you get in what I consider some of these washout zones.

I think one of my targets for the year was like this $12.47, $12.10 down to $11.47 for Nov beans to be a value zone. We're getting close there to the bottom of that range. I would call on Novbeans kind of like a more significant panic zone. And to me, the— to me, it's more like the value bell rings louder the deeper we go into stuff. If we would get under that $11.40, I think the value bell's ringing really loud and we could have a pretty significant rebound from that. You might want to build some kind of structure that if we did bounce, that you could make some sales and not be caught, you know, you know, maybe that's an option strategy, so forth. That's the time to consider it when everybody's so pessimistic. Same thing on corn as far as, you know, value zone to me, you know, $5.35 to $4.77. Well, we got to $4.90 and some ticks this week.

I think a more significant panic zone there would be, you know, that $4.76 down to $4.43. And where I'm coming up with that on corn is if you just look at the long-term monthly chart, look at where all those highs terminated in that, uh, 2014 through 2019 time frame. We'd go nowhere but we'd get in the summer and we'd get into that, say, near $4.40 all the way up to $4.70, and then we'd fail. So to me it's logical. Well, if it gets that bad, we might be able to go down and check that, but if we did get that low, it's my opinion that we're not going to spend much time in those panic zones, whether it be corn or beans. But I mentioned—

Chris

Barron: okay, so I'm going to lay out a couple of things here for you and you can take it wherever direction you want. But on the demand side, you've got, you know, your domestic stuff, you've got ethanol and all the other things going on. You've got China that seems to cancel stuff and, you know, that freaks the market out, and we've seen issues there. There's geopolitical stuff that continues on with Russia and Ukraine and all kinds of other stuff going on. And then also, and then you can take this where you want, you've got the funds that we need, you know, and they're, they're going short instead of, you know, they've, they've been our friend and now they're not as much for a long time. Talk a little bit about those kind of 4 things in concert or what, what things are you watching that are, you know, are concerning or that may be giving us opportunities?

Grant

Shimek: But fundamentally, I think there was a contingent out there that wonders, well, why are we down here this low? The, the Black Sea grain deal, the passageway is kind of like a dead horse that has been kicked and kicked. And now every morning it seems like it gets shot a few times. I would completely ignore it. I think it's dead news. The main thing that if you take a look at how deeply discounted Brazilian grain, corn and beans are internally, and we're just doing some catch-up here and they, you know, we're just not competitive. And I think that was part of that. If you want an obvious fundamental reason why we have as much pressure as we do, I think that would be it. Cancellations. Don't play well, especially given the positions of where people are positioned and that the funds are, are short.

Again, I think it's— now that we're here, my attitude would be, well, I hope the funds get a lot more short, and at some point we'll go through a transition. And when we cross back through that line where they go from hopefully a much larger short position to net long, then we we have that flip. And if you watch the commercial positions, if, you know, they get in, depending on the market, they get long or heavily long. When those two entities, those two players trade places. So when you go from the commercial being a net long and the large fund being net short, and then they flip that, usually it's a process, a few-week process where they change positions and the commercial becomes where they typically are, net short. And that fund player goes net long, then we go through that distribution of those positions back, and then you get that bullish move. So right now, yeah, we need the funds.

We want, we want to be in a— always want to be in a bull market and be advancing financially that way. But at this stage, I would rather see the funds get cornered on the bearish side and everything continue to look so perfect, and, and then it typically flips. You know, here we are as we end May, if this corn starts to grow, it looks a little anemic, but now it hits that nitrogen, it looks better and everything looks better. It probably— that's the psychology that could still affect us. But it's a long growing season and I think we'll see those relationships change as we go through the season.

Chris

Barron: Yeah, it just seems like, you know, on the bullish side of things, you need news. And you need something to be going on, and we need the funds. And it just— hopefully we get an opportunity to, you know, because I think a lot of guys, you know, those numbers you're talking, you know, if we could get back to that $5.80-ish number on corn and that $13.30-something, I think, you know, people would probably do their quote-unquote catch-up sales or try to get a little bit more position. But, you know, I think a lot, a lot of people are pretty calm though. I mean, where we've got insurance and stuff, it's pretty good on old crop. I think the majority of people got a lot of stuff pretty well gone as far as cleaning stuff up. Basis is still strong. I do want to hit on basis though, on— unless you have some comments on old crop basis.

But I also want to hit on new crop basis and opportunities for early harvest. And if guys are making sales on that new crop, there doesn't seem to be a lot of carry. I mean, there's some carry, but with where interest rates are at and stuff, there's not enough carry. It looks to me like—

Grant

Shimek: true, true. As far as old crop basis, I would make a comment, you know, be careful with that as time goes on. We've had this carried and stick there for a while. And, you know, you get closer to that third week of June and we could see even this strong basis on the front end lose, break down and have erosion. As soon as you get into July, we're going to get close to that process where the southern part of the country is going to start a corn harvest. And it's not that they're going to rail corn from Texas to wherever in the Corn Belt.. But in between those two points, you're going to have some of these issues alleviated. So be careful with assuming that it's going to be, going to be there throughout this whole summer.

On the new crop, if the basis is reasonable and you know you gotta, you're going to be moving it out off the combine and so forth, I'm not going to tell you not to, to do those things because, you know, if it's, if it's a real basic question, you can see the value in it. By all means, lock some risk out that way. Would I— do I have a reason to be extremely concerned about basis in new crop? I don't, I don't have any clairvoyance on that one.

Chris

Barron: So as we get close to wrapping up, I guess what I'd like to do is have you just kind of give us your, your thoughts over the next couple of weeks, putting your farmer hat on. I mean, you farm as well. What, what, what are the main things you're watching? What are the key things? What actions are you going to take? What do you want to leave guys with here?

Grant

Shimek: Well, if you have old crop, it's, it's the toughest position because you've seen that erode a lot. I would not want to let that positive basis slip away. I'd rather own the new crop at these prices longer term over the next 8-10 months than hold on to the old crop at these levels. The— on the new crop, in the context of crop insurance, depending on what you have, I'm not too worried about it. I think that the pattern is an inversion of the seasonals. You just basically just flip it upside down what we usually do. And if we usually are— have our weather rallies and we have some risk premium built in the market and we, we typically have some spikes in May, June. Well, we're seeing the opposite of that.

So if that inversion continues, I think we're going to see a more abnormal latter half of the summer where we probably have some of our weather rallies and our best opportunities probably come after June 20th, not before. So don't lose hope with that. And Yeah, with all the news with the debt ceiling debate and so forth, it's adding emotion to everything. You know, it's kind of try to pull yourself out of the situation and find the worst marketers, you know, and if they're in pure panic mode, it's time to get optimistic and maybe get some option positions on so forth, take advantage of a rebound so you can get some sales on and not be necessarily just selling a small bounce and locked in there because we get that relief rally and you're fine. Oh, I'm, I'm able to sell something. I'm quite optimistic for how the year ends.

So I don't want to trap myself with too big a percentage sales in the low end of this range on a bounce on a relief rally. So just be cautious with that. I think there's lots of things that can happen in the world after we get through this debt ceiling debate. And the issues that we have will probably get some kind of policy reaction that juices the markets. And I mean the equity markets, commodity markets, the whole thing. So I'm not as pessimistic as the markets are acting right now. I think it's going to be still be some very good opportunities as we go through the growing season.

Chris

Barron: Awesome. Hey, I think that's a great way to wrap it up. As usual, you always have a lot of Good things to kind of hopefully calm people down a little bit too, and, and, um, you know, let the numbers and, and the information kind of drive some of the decisions. And, and, um, with that said, I really appreciate your time here today.

Grant

Shimek: No problem.

Chris

Barron: Thanks, Chris. You bet. And also like to thank everybody for listening. If you're wrapping up with planting, be safe out there. I know a lot of sprayers are rolling and A lot of people still moving and doing a lot of stuff yet, so just want to tell everybody be safe out there and, and do get a little rest and hang in there. And we will catch you again next time on the Ag View Pitch.