A new marketing week and USDA announces assistance for farmers

Dwayne

Lowry: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's The Ag View Pitch! Welcome everybody to another episode of The Ag View Pitch, and today you've got Chris Barron and Dwayne Lowery. Hello, Dwayne.

Chris: Hi, Chris, how's it going?

Dwayne

Lowry: Uh, hanging in there. I'm actually out in the field right now, so hopefully I'm coming in okay and we're out strip-tilling and putting a little anhydrous on. And also I think we got a couple planters in the field sticking beans in the ground and I'm just looking at the temperature, it's 48 degrees, so I'm hoping it warms up.

Chris: Well, there is the— it appears like you got a few warmer days ahead of you this week, so yeah, it'll probably warm up just for you.

Dwayne

Lowry: Yeah, that'd be nice. I hope it warms up for everybody. I think we're, we're getting into a kind of the planning window timeframe, and, and looks like some of the areas are going to be able to roll this week, I think.

Chris: I think the weather is pretty decent for fieldwork activity and planning progress if you look at it from in the western areas and the northwestern areas. If you're in the eastern or southern parts of the Midwest, and, you know, that's going to be quite a bit more challenging and disruptive in those regions. There's areas in the south that are going to get extreme weather and had ample or excessive moisture. And, you know, they're not large corn-growing areas in some of those southern regions, but it's reached the point where they're probably going to reduce some of their corn acreage intentions in, in the south, I would imagine.

Dwayne

Lowry: Yeah, I know last, last week we get we had some snow move through some areas and some areas got over a foot of snow in, in, you know, in more southern areas where, where typically, you know, planters would be rolling. I guess my question is, is, you know, is the market paying any attention to any of that stuff yet? Or do we need another week or two of, of maybe some issues in some areas that are larger than that to have anybody pay attention?

Chris: I don't think the marketplace has found anything to trump the despair that it's currently in based on ethanol, lack of consumption, you know, supply disruptions, livestock industry under distress. I don't think the marketplace has found anything they want to latch on to that trumps that particular thing. As far as planting concerns or weather concerns in general, there's, you know, there's still spillover reactions to last summer, and the conclusion at that time was, and it still is a spillover now, is, man, if we couldn't have a problem in production last year, why are we going to be worried about a, you know, possible weather disruption someplace on the 19th day of April? You know, the marketplace just doesn't seem to care about anything that might possibly have a bullish slant to it.

And getting the threshold to find that point that it does care, I don't know, it's been a difficult task and looking forward it looks like it's going to remain a difficult task.

Dwayne

Lowry: Well, yeah, and if you look at, you know, these corn in that $3.43-ish range, you know, at the end of last week and soybeans $8.51-ish or so, I mean, even if we have a rally from those points, we're still in the red ink pretty heavily. What's your thoughts? Moving forward. I mean, you know, even if we get a rally, you know, it's going to take, it's going to, it would, it's going to take a lot more than probably what the weather would bring anyway.

Chris: Well, you're correct that we're probably not going to get a rally back to levels that we want. And if we have a weather problem that does warrant a price rally, that probably is something that is more in the growing part of the season as opposed to the planning part of the season, so that's some time in the distant future. And the only thing that would be of benefit if we got some sort of a short-term rally of, of consequence that, you know, was worth mentioning, it at least creates a sense that you have an opportunity. Right now it's difficult to say that you you have an opportunity. If the only opportunity you have is to sell prices, current prices, because they're never going to be any higher and they're only going to get lower, I mean, that's an awful bad state of the world to live in.

And, you know, I've seen a lot of doom and gloom and despair periods before in my life, and the vast majority of those times they proved to be mistakes to sell into that. And to sell into this one when you're so far below the cost of production, you are at price levels that if you had margin protection insurance, you're already getting price protection through your crop insurance. If you have traditional revenue protection insurance, you know, you're within a dime of what— where that price support is going to come into play. And so the incentive to make sales here in corn is just, is just very difficult to, to find it. And if you get, if you could get a 30 or 40 cent rally, at least would feel like you had an opportunity that you maybe could get some sales on the books. You could get through some hedging, even if you thought they were only going to be on there temporarily.

But at least it puts you in a position to have some sales above crop insurance levels that you could use that as a plus if in fact you know, we went to a scenario where this fall, your entire price protection was your crop insurance plan, but making sales now, it just feels like this is a time where the only safe place feels to be frozen. And I don't like that either, but I mean, I can't recommend any sales here.

Dwayne

Lowry: Yeah. Hey, Duane, on old crop,— you know, we had a pretty big basis, you know, it widened out quite a bit there. It's kind of come back and gotten a little bit better in some areas. I was talking to a processor last week and, you know, their basis really widened and now it's gotten a little better again on some of this old crop stuff. Does it make sense to take advantage of that basis maybe, and then maybe some sort of reownership to start kind of You know, if a person's sitting there on some, on some old crop that they wish was gone, or for cash flow or whatever, what's your thought there?

Chris: Well, cash basis in corn has definitely improved, um, over the last, uh, couple of weeks. And it's getting to the point where some buyers are paying, uh, more than their posted bids again. And, uh, I think it's right for producers to look at this basis strength as their, as an opportunity to get rid of that physical and to not worry about getting caught with that supply later in the summer. However, I think it's possible that this corn basis will continue to strengthen, um, possibly over the next 30 days, maybe even a little bit longer than that, as producers get in the field and, uh, uh, take away some of the opportunity to move the grain. I think there continues to be very strong indications from contacts I have in the export arena that says that, you know, conditions are right to see corn exports improve.

And some of them go so far as to say they feel like they've got an opportunity for a good export program. And most of your corn basis strength that you've got now is being driven by locations along the river and export terminals, and that may be pushing some of the processors So I think the corn basis actually is going to get firmer over the next 30 days. But in answer to your question, the concept I think is correct that, uh, producers need to be selling their, uh, basis on this strength, but this strength might last for another 30 days. So I don't think you have to be the first guy to make that sale. The, um, once we get everybody busy in the field I'm thinking that basis levels will still get better. So I think the concept is right. The timing is the key. And my thought is you've probably got another few weeks where you can expect basis to continue to get a little bit firmer.

Dwayne

Lowry: Yeah, and part of that too, is dependent upon where you live too. If you're out east, or if you're in an area where there was a better crop or more grain too, is going to have some bearing on it too, I suppose.

Chris: It is going to have some bearing. And the other sad thing is, if you're in an area dominated by ethanol, you can't get any improvement out of your bids, you know. Right, right. And, you know, that's the sad part about it. So if you're, if you're fortunate enough to be along a river market or a processor that has to react to the river market, you're probably getting some pretty good basis bids right now. If you don't have that luxury, you know, you're getting some very poor bids yet, and you've not seen this improvement, and sadly you might not get much of an improvement.

Dwayne

Lowry: Yeah, and speaking of ethanol and tying that back to the question of, you know, the announcement that was made on Friday from Sonny Perdue on the funds or the assistance coming to agriculture, any comments on that or any thoughts there?

Chris: Well, there— first of all, let's recap what he said for, uh, on Friday. There's basically $19 billion of, of, of an aid package for agriculture. $16 billion of that is going to be in the form of direct payments, and $3 billion in the form of the USDA through CCC, I assume, purchasing food, which will be delivered through food bank networks, possibly through faith-based food support networks. And out of that $16 billion, I think there's $5.1 billion that's going to be targeted to the cattle industry, $2.9 billion for the dairy industry, and $1.6 billion for hogs, and then $3.9 billion for row crops. A few things to mention along those lines, the dairy industry is dumping milk in locations. You got large milk cooperatives and organizations that are in the process of implementing plans where producers are not able to deliver all of their milk.

They'll be— they'll be cut back as much as 10 or 15%. And the rest will be dumped. And if they take it, they'll take it at a price that's like, you know, half the going rate for milk. And the going rate for milk is already cheap. So that's going to force the dairy industry in a lot of locations to cut back on production. The hog industry is being forced to try to deal with backed-up supplies and slaughtering plants closing. And I don't know how that works, but you hear reports of pigs being euthanized and cutting back and aborting litters. And so it's a mess. I don't know exactly how that works out. In terms of the grain production or the grain payout on this $3.9 billion of direct payments, it's going to be based on crops prices from the 1st of January to April 15th.

I'm not sure exactly what formula they're going to use to average that out, but if you look at the price of wheat, wheat might not even participate in this payment, and if it does, it'll probably be a very small payment because the price hasn't fallen enough because they said has to fall— you have to have at least a 5% drop in prices to qualify, and the wheat's gonna kind of borderline for that depending on how they price it. And in the case of corn and beans, You take $3.9 billion and, you know, that's going to end up being a small payment. I think producers might end up being disappointed with that. In turn, it's also a big disappointment that the ethanol industry is not even addressed, and it doesn't sound like they'll be addressed with any funds that are currently available.

And that would take an act of Congress to provide new funds for the ethanol industry, and Congress just hates to touch the ethanol industry because they're also dominated by oil lobby dollars that they don't even want to deal with the ethanol. So that doesn't paint a very pretty picture that the ethanol industry is going to get a support program. And the last thing I'd say, from a little bit of a soapbox perspective, in a world where agricultural supply is considered essential and very important, And the ag industry has already been, you know, suffered and under attack long before COVID-19 came along or the crude oil price declined.

In a world where the Fed and Congress and the Treasury Department is throwing trillions and trillions of dollars around like nothing, I find the package delivered for agriculture to be very meager, very light, and doesn't do anything to address underlying issues related to supply and, and disruptions in, in the, in the entire network of demand and everything else. So I, I find it all disappointing. I realize that there's a chance that the grains are going to get, you know, more attention later in July, August, or something like that. But for, you know, we're dealing with problems that require, you know, significant steps, and we're seeing those significant steps in a lot of places. But there's nothing that was announced Friday that looked like a significant step to me. I thought it was a very disappointing response on the part of USDA.

Dwayne

Lowry: Yeah, and part of it will be interesting to, to see once they start to implement things and describe specifically how the payouts are going to be and what that looks like. As you say, it'll be interesting to see how that, that looks for the row crop side of things as well. But I think the ones that are really hurting right now, obviously the, the dairy and the, uh, and the pork producers and the cattle, cattle operations as well. So hopefully we can— it just feels like we're on like day— feels like we're on like day 100 of of quarantine here, and supposedly in most areas you got about another 10 days of quarantine yet. And as farmers, we're, we're used to quarantine this time of year. So I guess our, our main role is going to be just to try to get this crop planted and focus on what we can control for now.

Like, I think you mentioned that last week, and do what we can do, control what we can, pay attention to what's going on around us, and, and move forward from there. Is there anything You know, we can keep this one kind of short. I mean, a lot of, a lot of guys out there wanting to get things done this week. Is there anything that we should have or be keeping in mind on the markets as we go into this, this new week overall?

Chris: I don't know what it would be. I mean, the prices, price action has been disappointing. It's not responded well to what we consider to be normal technical signals that might indicate some sort of price recovery. We've not got favorable response to that. I don't know how the marketplace will look at the ag package from USDA. The only thing that might be a sliver of hope to it is these payments to the livestock industry and the purchasing of, of dairy meat and meat products. Even though it's going to be stretched out, you know, there might be an opportunity that provides some support to livestock prices and And maybe that helps to provide some stabilization to the grain markets, but it's really hard-pressed to find anything here to say very positive about either price action or some new twist that's on the horizon.

It's, it's, uh, we're still in a period of, you know, discouragement, and there's not much we can do about it. And in terms of marketing decisions, it's very difficult to see any opportunity making sales at current times. So I think, uh, to a large extent, we need to just kind of wait and sit in our hands and try to avoid making a mistake. And in the case of the, the basis in corn, maybe there's an opportunity we'll get a little improvement there, and that might require a need to, uh, address old crop supplies. Um, there's, uh, continues to be a lot of interest on my part as to what the US dollar is going to do. You've got Brazil experiencing domestic, you know, record high prices for soybeans. You got China, domestic soybean prices are very high. Both of those are based on currency more than anything else.

And the— as far as I'm concerned, the US dollar seems to be overpriced If the printing of money begins to erode the confidence in the dollar and the dollar ends up being— and it goes into a weaker period, and there's certainly plenty of fundamental signs to suggest that's possible. We don't know about the timing. And I think there are technical signals that suggest this dollar index is very vulnerable also. And that could be something that could suddenly and quickly develop. To change the outlook of dollar-based commodities like our ag markets. But here again, that's not really on anybody's radar. And it's not on the market's radar. But I do think it's something that's worth keeping an eye on.

Dwayne

Lowry: Yeah, yeah, I think moving a little that old crop and paying attention to basis and getting the, getting the new crop in, in the ground and focusing on some things and trying to stay positive is probably the key going into the new week, if I hear you right.

Chris: Anytime you can stay positive, it's always the better, but it's always the better path.

Dwayne

Lowry: Yep, I, that's kind of the way I'm going to take this week, and I hope everybody else can too, and put a smile on and be happy that if you can be in the field, and if you can't, there'll be better days, and, and we'll, uh, get this crop in, and we'll just take things a day at a time.

Chris: Sounds like a plan, Chris.

Dwayne

Lowry: All right, well, thanks, Dwayne, for your time today, and, uh, We will be back again next week with some more conversation on the markets. And, uh, thanks everybody for listening, and we will catch you next time on the Ag View Pitch. Thanks for joining us on today's episode of the Ag View Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net. We'll catch you next time on the Ag View Pitch.