Sharpen your pencils: Sunday market outlook June 5-9

Shay: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Garret Brown on your Sunday Market Outlook. Garret, Northern Illinois, hot and dry here.

Garret

Brown: Yeah, I mean it's pretty hot and dry everywhere. One of my favorite maps or set of maps is the NASA GRACE satellite maps. I feel like they do a better job than that drought monitor does of showing the degrees of drought, where it's located, not just geographically, but in the soil as well. You know, a couple of weeks ago, we, you know, after those heavier rains, we saw a lot of that drought recede, you know, in the surface soil moisture, the root zone soil moisture, but, but groundwater was still very dry. I mean, within a week to 2 weeks, it seemed like we just went backwards way faster than most would have predicted. And You know, here we are now rallying this corn market with the question, I guess, of what comes next.

Shay: Seems to have gotten back into more of a, I guess, quote unquote, normal weather market pattern here last couple of weeks. Let's talk about the week ending May as we jumped into June here. Again, we're recording on June 3rd to come out on June 4th. You know, what are your thoughts on kind of how last week wrapped up? Any major moves, anything that surprised you there?

Garret

Brown: You know, it was, it was really interesting actually, you know, just going, stepping back just one week. We rallied into Memorial Day weekend, which isn't really that hard to believe. You have a lot going on, yet a pretty sizable fund short in the corn market, and anything can happen in a 3-day weekend. Things can turn on the forecast and get, you know, extremely wet, and at that point you get a couple days of consistency you might sell off and not get that bump while the market tries to wait and see what happens. Um, anyway, and I guess the, you know, we came out of that weekend, we were down I think 2 days in row in corn, uh, closing off the bottoms but still some pretty serious selling pressure. And, uh, it just kind of made you wonder, well, maybe we kind of did enough, you know, going into Memorial Day weekend.

And then we wrapped up the week pretty strong, you know, we were, you know, wetter, uh, you know, Friday morning again kind of started to sell off, and then things kind of, you know, midday started to come out a little drier on those forecast models, and we rallied again into the weekend. Again, a lot riding on this particular weekend here. So I guess on the, on the week, you know, Dec corn rallied about 6.75 cents, you know, but we were 30 cents off the, off the bottom for the week. November beans, you know, still down 6, but again, we rallied over 50 cents off the lows. And then, you know, up in my home country, spring wheat down 14 on the week, but still $0.28 off the low. So we're definitely, you know, putting some weather premium back in this market.

Shay: Yeah. When you think about that, the bigger weather picture here, of course, we're early in summer. You and I were talking offline about some of the weather models and maybe looking at some moisture in the central Corn Belt region 10 to 14 days out, depending on which model you're looking at. How do you think about this at this juncture? Anything that farm operations and folks who are marketing should consider?

Garret

Brown: Well, it's always a good time to be sharpening pencils and see where our breakevens are. Not that I believe that that determines the plan of attack necessarily, but it certainly helps you execute far, far more confidently if you know that you're making money as you get these rains. Because these, you know, these forecasts are pretty much make or break at this juncture. You know, we can talk all about this Russia-Ukraine business all we want, you know, with Russia now withholding, uh, inspection of ships. But it seems like, yeah, we've taken a lot of premium out, and— but it just seems like that's a talking point, not necessarily a main point of focus or even a secondary focus at this point. Um, because, you know, even looking at the spreads, uh, looking at flat price, this thing's all over the place. Um, so I— it seems as though everything is wrapped up into this forecast.

Obviously, there's macro things in the background with the deal that they push through in Congress and whatnot. But, but yeah.

Shay: So you were also saying, okay, sharpen your pencils. That's great. When you talk about the percent sold for a lot of these farm operations out there, again, you and I were just talking about that a couple of minutes ago. There's a lot of unsold new crop out there. So if we do have some sort of weather rally here, things continue to stay hot and dry. Who knows what demand does in that case. But, you know, do farm operations need to be looking at, hey, maybe we need to have some targets in place, maybe there's some protection measures we need to be thinking about. How do you think about that, knowing that there's a lot of new crop grain that's unsold at this point?

Garret

Brown: Yeah, absolutely. Like I was sharing offline, I was fortunate to be asked to participate in a little sort of survey amongst commercial brokers and grain buyers. And I think there was 25 respondents. I don't know where all they were located. But the questions were basically how much grain is left on farm, corn, beans, and then what kind of business has been done for new crop. And, you know, for corn, the consensus was 15% to 35%. You know, obviously, that's probably going to be more central eastern Corn Belt where you're going to have heavier stocks, one would assume. Based on basis levels and things out west, you know, obviously the crop was more challenged out there. So those supplies would typically be used up first. However, you know, for beans, less than 15%. And then for new crop, there just wasn't, wasn't much done.

And it sounds like that's the same thing with the South American farmer. And, you know, it's kind of a newsflash to us all, they're at the end of their season, we know that their crop has to move. So therefore, I mean, in addition, I guess a good chunk of their risk is gone, uh, as opposed to us. We're, you know, looking at the risk going forward. So, um, you know, as far as upside targets, a lot of, a lot of talk of, you know, a little bit of $540, uh, as was mentioned on, I think, the podcast last weekend. And he was pretty much right. That was a major point here on, on Friday that we had to get through and managed to close just above. Um, you know, $550 has been talked about for a long time on the way down, never quite got back there. Now it looks like we're knocking on the door.

And then on the daily chart of Dec corn, it looks like we have an inverted head and shoulders that we closed above a major level, $5.37, where that neckline was, which would project something in that neighborhood of, you know, probably $5.80 to $5.82. Now, I would, you know, something maybe to consider if one wants to work orders at some of those price points. But also, you know, if we don't charge on those, probably because of a continued bullish weather forecast, we could also be looking at retesting this recent week's lows at the same time, which I think— what'd I say— we're 30 cents from the close. So that's just something I think for people to keep in mind.

Shay: I had a conversation with a gentleman here in our area 2, 3 days ago, and we were talking about the crop. And at this point, there's very few decisions that you have left to make on the crop. You know, if you're, if you're You're under pivots, when to irrigate, how much to irrigate, they're probably running full bore right now. Are you putting fungicide on? Maybe some side dress post-spray application. And then when do you harvest? You know, there's, there's 3 or 4 key operational decisions. With marketing though, you know, this is a huge area that you can consistently make sales throughout the year. What percentage of your sales are you making? What target margins do you need to hit? And like you said, updating. Where those projections are.

So just for you to— just for the listeners to be thinking about here, it's not just about what do you have going on operationally, making so sure the roadside ditches look nice and all those things, but you need to really be honing in on the marketing, particularly with, um, you know, it's not as crazy maybe as it has been the last couple years, but there's still a lot riding, especially depending on what this weather does for the next little while. So, uh, shifting gears just a little bit, you When you look at the macro picture, what's going on? What's one thing that you're excited about in the markets from a market analysis standpoint? And then what's one thing that maybe makes you a little bit nervous at this point in the game?

Garret

Brown: What gets me excited? That's a really hard one. That's something you probably should have asked me beforehand so I had some time to ponder. I'm not real excited about the whole outlook with China. Um, it just doesn't— it doesn't look that good. Um, it sounds— I mean, I don't have the data in front of me, but some of the discussions have been that, um, even some of the shipments or sales coming out of Brazil have been rather slow. Um, so if, if I could just switch it maybe into like more of like an S&D perspective, knowing that none of that data is perfect, um, but some of the things that helped to boost this market early were the potential for plant in North Dakota, you know, and obviously, you know, that we work with a lot of folks up in that area. That was something that we were very nervous about. And we're not nervous anymore.

So, you know, they've actually kind of swung the other way. There's more discussion about dryness, particularly in northeastern corner. So that, that is something that we're watching. But also with all these HRW acres that, you know, got our supposedly getting ripped up down south now that now they're now seeing all of these rains. What is that going to do to acres? You know, and another thing, while we focus so much on supply side, you know, supply side rallies typically tend to be short-lived. And once they're done, you've successfully priced that in until you get to harvest to find out, were we right or were we wrong? One thing that we've all been kind of beat to death with is these demand concerns. Right now, you know, we are struggling despite positive margins to really crank out the ethanol, really to grind the corn.

And, you know, we could be 50 million bushels over in terms of the project— or excuse me, I should say 50 million bushels under USDA's current projection. We're also really struggling to export corn. You know, the, the outstanding sales continue to go down. We're just not doing much. I think we were like 100 to 300,000 tons of sales, which is probably like a multi-week high. It just— as we look at our competitiveness going forward, it did not look like we were competitive into China all through February. And so if our outstanding book of sales for next year are half of what they were a year ago, and that was with China in last year, are we going to hit the current year projections for next year, which are, you know, so next year's projections, USDA is reflecting 325 million bushels higher, I think.

So let's just say you take that by production, I think that's the equivalent of like 3 to 3.2 bushels per acre worth of production. So some of these supply side losses could easily be wiped out from demand in this old crop yet that's going to probably have to be added into carryout from export demand that doesn't happen next year. And then I don't know the answer to this, but a 375 million bushel increase in feed residual demand when cattle are 3 to 5% lower, and we're going to increase corn grind next year. So we'll have more distillers around. It just brings in a lot of questions of, is there room to decrease demand on USDA's end, as we potentially decrease these yield projections, which I will note that I also subscribe to some of these, quote, objective yield model programs, and they're not projecting south of trendline yet. So I don't know, I just, I think there's lots of questions.

I think as we, you know, on farm start to see rainfall, it's very case by case on what we need to be doing from here on out. But, you know, I guess as I think more on the positive side of things, I'm not sure that this is really macro But there have been just rains falling on this Chinese wheat crop over there. Sounds like there could be 20 million metric tons of poor quality wheat that they're essentially trying to get harvested as soon as possible. So that, I'm not sure, is really actionable until we start to see them pick up the imports to kind of say that, yes, there is a problem here and they need to bring in fresh supply. Um, but I guess those are a handful of things. But long story short, this is a supply-side rally at this point, and if it stays dry, there's nothing saying that this thing can't continue to rally for 20, 30, 40 cents.

And also to say that the, uh, the 2013 seasonal has been very, very accurate basically since the tail end of last summer. Um, in 2013, in fact, that rally started almost the same day is what we saw this year. Well, that rally in Dec corn was about $0.62. And I don't know exactly, I would assume we probably— are we $0.51 off the bottom here? $4.91 to $6.41. So, so $0.50 to $0.51. And I had some data here in 2013. We started at $6.05. That high was made on January 2nd. We eventually were down to $4.10 was the low. Uh, that was a 32.2% asset decline, or $0.195. So if this is going to continue to be highly correlated to 2013, that would probably suggest we have downside potential somewhere in that, you know, let's say $4.15 to $4.25 range. So again, a lot's going to depend on if we start to get some rains or whatnot, but the demand problem has not changed.

Um, and so we, you know, probably on a case-by-case need to be proactive And, uh, like you said, being prepared to work orders is probably not the worst thing in the world.

Shay: It's interesting when you bring up the 2013 technicals and historicals matter because people watch them. Right. And I think that's, it's really interesting from a farmer perspective. If you were farming during that time period and you have the information and the data, or you just remember off the top of your head, because it was such an interesting period of time. Go back and take a look at what you did. What do you wish that you would have done differently? How could you have been better prepared? You know, what decisions and decision points did you make that, hey, maybe we have an opportunity to go through and make some changes, or, you know, maybe here's some things that we did really well. Should we consider doing that again? Obviously, past performance is not indicative of future results, but just something for you to consider. What information do we have available?

What tools are in our toolbox, especially going back through that 2013 season.

Garret

Brown: Yeah, and one more thing, you know, obviously it's spring, we're on kind of the backslide of the seasonal, certainly with these corn from what we've seen here the past couple years, it seems like the market has really front run more and more every year. In fact, I was looking at my wallet, we've sold corn prior to this year, we sold corn on May 3rd, the prior 2 years. And so anyway, one time we were kind of on the front of it, I guess, just barely slightly on the front end of that seasonal. So, um, but as you look out to 2024, keep an eye on what urea is doing and the other fertilizer, uh, prices. Um, watching swaps here at the tail end last week, I think they were down, gosh, maybe in the $260, $270 a ton down in, in NOLA.

Um, and it was funny because we were talking about this, just like, man, we should— I know Dec corn for next year continues to look like it had been continuing to trend down, but now we kind of popped up again, and maybe we need to be, you know, increasing positions here for next year if margins are looking all right, you know, if we're going to reduce fertilizer costs, you know, 30-40%, maybe more. And lo and behold, there was, there's some more Twitter posts that had came out and basically said that, you know, corn to urea price is one of the cheapest that we've seen in quite some time. So that's something else for producers to be looking at next year. You know, it's really always a good idea to kind of have a 2-year margin outlook.

Shay: And, and you and I were talking about this, you know, we're not sponsored, we don't take ads or anything like that, but, you know, StoneX, a couple of those guys there just do a really good job posting some of that information, uh, you know, that, that urea outlook compared to corn prices. And, uh, Josh Linville and, and a couple of those other guys, they just do a fantastic job. So if you guys are on Twitter or follow some of their content, StoneX has put out some really, really good stuff there. So just worth consideration. Garret, as we head into, you know, this week ahead of June 5th, any, any thoughts, any considerations outside of what we've talked about here? Or what are you doing when you put your farmer hat on as you, as you think about things?

Garret

Brown: Head on a swivel. It's good. I mean, pretty, pretty, pretty self-explanatory. I mean, you know, take it day by day and, you know, just again, going back to knowing those cost. I know we hit that a lot, but it just makes things so much easier if you know exactly where you're at. And after the last couple years of hitting, you know, home runs, grand slams with, with strong crops, if you're— if you happen to fall underneath, you know, the rain here this past year and, you know, and had the crop to sell, you know, a lot of time, you know, the last like 3 years we've been rewarded for not being proactive and going out there. And at some point that's going to be over, right? So, you know, this, this bumper that we're seeing here is a saving grace to a lot of, a lot of bushels that haven't been sold here yet. And, you know, if you mentioned, what do we want to be thinking about here?

And from what happened, say, in 2013, I'm thinking there's probably a number of people that wish they maybe considered looking multiple years out to see what kind of an impact that would have on their operation. And, you know, like I said, obviously with Dec '24 corn, looks like there's an opportunity there. Um, and, uh, obviously now we're getting into 2023 as well.

Shay: Yeah. Oh, that's great. Well, Garret, I appreciate the time here. I know both you and I have some, some house projects to get back to this weekend. You're, uh, struggling, wrestling, wrestling with a playground set. I shouldn't say struggling, but you're wrestling with a playground set and I'm doing mulch and gravel. So, you know, if we can't make it rain, you ought to get your brain focused on something else. And that's what I got going on this weekend. So Garret, as always, thank you for, for hopping on. I appreciate it.

Garret

Brown: You bet, Jay. Thanks for having me on. And, uh, yeah, let's get to it.

Shay: All right. And thank you everyone for listening to another episode of the Ag View Pitch on today's Sunday Market Outlook, and we will catch you next time.