About This Episode
Chad Hart, extension marketing specialist at Iowa State, spends most of this conversation on the mechanics of a harvest with more bushels than homes for them. His first instruction is to keep futures and basis as separate decisions and try to maximize each. If basis is workable now, put it under a basis contract and leave futures open; if it is not, lock what you must and consider reowning on paper instead of fighting the basis market.
Where carry is wide, Hart favors a hedge or hedge to arrive that captures it and leaves room for basis improvement into spring. He is watching the funds as a demand signal, since a move toward length would suggest the export market is heating up. He is also watching energy prices and Fed policy as proxies for whether the global economy keeps growing, because export demand growth depends far more on growth than on recession.
The most portable idea arrives at the end. Fifty years of marketing studies, Hart says, point to smaller and more frequent sales producing a better average than fewer large ones, because incremental selling removes the pressure to call the top. If a sale is above breakeven it is a good sale whenever it falls on the calendar, and the first one you make should ideally end up being the worst one of the year.
“Anytime we can make a profitable sale, it is a good time to make that sale, no matter when it falls on the calendar.”
— Chad Hart
Key Takeaways
Price futures and basis as two separate decisions and try to maximize each, rather than accepting one bundled cash number.
When carry is wide and you have the storage, a hedge or hedge to arrive captures the carry and leaves basis improvement working for you.
Smaller, more frequent sales beat a few large ones. The studies point to a better average, not a better single trade.
Any sale above breakeven is a good sale regardless of where it falls on the calendar. Seasonal patterns are a tendency, not a rule.
Your first new-crop sale is supposed to end up being your worst sale of the year. Make it anyway, because it gets you started.
Watch fund positioning and energy prices as read-throughs on export demand and on whether the global economy is still growing.
Full Transcript
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week and we're lucky enough to have with us today Chad Hart from Iowa State University. How's it going, Chad?
Chad
Hart: I'm doing well. How are you today?
Chris
Barron: Well, I think I'm doing pretty good. I was drying corn, but I was just informed that my dryer shut off. And so that, that's kind of always how it works. You know, right when you're trying to do 3 things at once, only one of those things is probably going to work right, correct?
Chad
Hart: Well, possibly, but Amy, maybe this is just a sign it didn't need dried.
Chris
Barron: Yeah, well, I don't know. It is interesting as we record this, you know, on the, uh, going into the week of the 23rd of September, it's amazing how dry a lot of the corn is already. We're in a '99-day hybrid right now, and it's in that 22% range, and And, you know, we'll take it. The yields are phenomenal above APH, it looks like. I mean, we're not done with the field, and I'd— not that I don't trust yield monitors, but I like scales much better. And so we'll reserve what the yield is until we find out what the scales actually say. But with that said, what are you hearing on early harvest with the guys you work with? You hearing much information?
Chad
Hart: Well, that's the deal. It's early, but yeah, what I've been hearing is really good yields. Moistures are lower than people anticipated, But it does make sense given that we've had these drier conditions, especially through August to here in early September.
Chris
Barron: Mm-hmm. Yeah. What about on soybeans? Anything specific there? I know there were some guys running a little earlier on some soybeans. Anything you're hearing there specifically?
Chad
Hart: Again, it comes back to this idea of things are drier than anticipated. I've had a few folks tell me, if you will, they've been getting too dry. Yeah. And so needing to, in certain sense, delay the harvest a bit. So they'll get out there in the morning, capture the beans early, when they've got, you know, a couple more points of moisture to play with, and then having to pull back out for fear of shatter. So I think that's something we didn't expect to be worried about. Now, given what we went through earlier this spring, but it's kind of went from a wet year to a dry year here at the end of it.
Chris
Barron: Yeah, and, and that's with the heat we had and everything, it just really has accelerated stuff for sure. Um, with that said, you know, that this, this harvest pace is going to really pick up here in the next couple of weeks. I think one of the things I want you to touch on is just kind of what some things guys need to be thinking about as they manage basis, and specifically those bushels that are maybe unsold, that are those extra bushels that, you know, you don't have a home for? Any, any thoughts there? Because I think obviously there's probably some bushels out there that are yet unpriced and there's not a home for them.
Chad
Hart: Yeah. And I think that's going to be a challenge for us because, you know, we've been watching on the futures side of the equation, you know, prices got up north of $4 for corn, north of $10 for beans as we're looking at those harvest delivery dates. But they're not really moving very far away from that. And we've also seen that basis for the most part, as we looked at deferred contracts, is still weakening as we look out there. So it's more of a matter of, you know, I tell folks it depends on when we're pricing. We need to keep separate, you know, the idea of setting futures versus setting basis. And you want to try to maximize each of those pieces. And it may be what you want to do is you're sitting here going, okay, Can I lock in a better basis today, put it under a basis contract and leave that futures open for a bit in order to try to gain a little bit there?
Or am I going to play a longer game here and go, you know, okay, I don't have a home for it now. I may have to lock in a basis that I'm not comfortable with, but do I have an opportunity to maybe reown on paper and try to make a gain there as opposed to in the basis play? Yeah.
Chris
Barron: What about on the other side of the equation? You know, when you look, there's, there's pretty good carry out there. So those who know those bushels are, you know, they're going to be able to hang on to them. They're not going to sell everything. Do you think it's going to make sense here in the near term, or if we see some kind of price strength— excuse me— price strength during the month of October that is, you know, gives us some opportunity, I guess, for lack of a better term. Should we maybe be thinking about pricing some of that March or May corn, maybe that May corn for delivery during, you know, and do an HTA instead of, you know, you're talking about a basis contract, but maybe do an HTA, set yourself up for a better basis in that, you know, April timeframe type of deal.
Chad
Hart: Well, that's the deal. Yeah, if I know I have the room to hold it And as you say, carry is good. And so looking at that, well, I guess last time I looked, I didn't calculate today, but I think we were looking at what, Dec to March, or Dec to May corn was 40 cents. I think on the bean side, Nov to March was about 35 last time I looked. So you did have some decent carry out there. And so yeah, I would definitely be looking at either a hedge or hedge to arrive. Given myself that pricing opportunity now, locking in a floor underneath futures and looking for that basis improvement as we go into next spring. Because I think we will see some improvement not only on the basis side, but I'm also looking for the possibility of, okay, I think we'll have a chance to maybe escalate that hedge on the futures as we move through the springtime.
If we get what I'm thinking we will get, which in this case is we have seen demand remain fairly firm across the board. In fact, as USDA updated their numbers this month, you know, they, they raised exports a little bit, they raised ethanol a little bit, we continue to see strong feed demand out there. And I think that bodes well for us as we're headed into next spring, that if I could see the possibility of in October, USDA comes in with maybe a little bit smaller crop, and a little bit bigger demand, that helps put a reason for some stronger prices going into next spring.
Chris
Barron: Mm-hmm. Yeah. If, you know, as we watch demand and that kind of thing, talk about, you know, what kind of price opportunities can, can people be looking for if they are looking at maybe pricing that carry? Is there any kind of range that you would be looking for or any Any, any thoughts there on—
Chad
Hart: Well, I will put it this way. I'll give a relative range. As I'm looking right now, I'm, you know, I'm sitting here going, over the past 9 months, we've watched prices slide roughly $1, $1.20 on the corn market. I'm looking to gain back maybe half of that as we move into next spring. So it's not that we're gonna magically go back up to where we were at the beginning of this calendar year. But I think we could gain back 50, 60 cents here.
Chris
Barron: If—
Chad
Hart: and in this case, there's some data coming out, I noticed, actually, some of the chatter today around the markets were that we are expecting smaller crops elsewhere around the world. And that is going to help lower global ending stocks, which should help allow for some upward price movement deeper in the marketing year.
Chris
Barron: Gotcha. What about soybeans? Any kind of thoughts there?
Chad
Hart: Soybeans, a little tougher. Mainly just because, you know, we know we're staring at probably the biggest crop we've ever had, by far. We're also looking at Brazil, what, despite the problems down there, getting some rainfall now. And early projections had them growing 8% more beans, I think, than they did the year before. And so we don't have that same storyline about shrinking stocks, possibly globally. So the carry's there. I think the market is hopeful you could see the same pattern that, if you will, corn and wheat help lead soybeans higher this spring.
Chris
Barron: But I think I lost you there.
Chad
Hart: The other markets for us to fill in.
Chris
Barron: I lost you there when you said go back to where you said when corn and wheat starts going higher and take it. Okay.
Chad
Hart: So I got frozen. I— yeah, yep, yep. So like I say, you know, in this case, I'm looking at soybeans. I think I'm looking at a possibility maybe corn and wheat helping pull soybeans higher, just because with soybeans, we don't have that positive, or we don't have the good potential of that positive stock story because of global supplies being so large. But I think we could see, if we do see increased demand, especially coming out of China, where China may not buy directly from us, they may go to Brazil. But that means Brazil is not selling into other markets, which will open up for us. And so I think there's that same sort of possibility. It's just, it's smaller on the soybean side than it is for corn.
Chris
Barron: Yeah. What, as far as just thinking about the funds and their position, they played this game really good this year, really smart. What do you see the funds doing to impact the farmers? Is there anything that, that we need to be aware of? We need to be watching them do, us do, any, any correlations there or anything we need to be paying attention to?
Chad
Hart: Well, we definitely want to pay attention to them again because, you know, as you say, they played the game really well this year. They moved in strong when they were worried about, you know, if you will, how big this crop could get. Now you've seen them pull back a bit to create a more balanced situation from coming out of them. And so I'm going to be watching them to see, if you will, where they're betting we come out when it comes to the demand side of the market. Do we see them going more long as we move through the the fall and early winter here, because if they're moving that way, that tells you they're seeing signals that that export market may be heating up for us. And so I think we can get some additional signal by watching what the funds are up to.
Chris
Barron: Mm-hmm. Gotcha. Last question. We'll keep this one kind of short because I probably need to go see why my dryer shut off here. But I guess what I want to ask here lastly is long term. Okay, let's, let's think out all the way maybe to the end of 2025. We've got, you know, we're sitting here pretty dang long on '25 crop or extremely long, obviously, on the '25 crop, which is okay. But we just, as we record this, this last week, we just saw an interest rate decline. You know, inflation is, you know, arguably slowed down, but it's still there's still an increase in inflation. I don't care what anybody says, we're seeing it on, especially on the farm side of the equation with what things are costing and, and all that. Talk a little bit about anything that we should be watching as it, as it relates to interest rates, inflation, the stock market, some of these outside markets, energies.
Is there anything that is like, this could be a hurdle or this could be an opportunity as we look just a little bit longer term and also think about marketing the 2025 crop? Kind of a big picture deal.
Chad
Hart: Yep, big picture deal. I think for 2025, as you mentioned, it's okay to be really long right now. I mean, yeah, we should be. And typically, I tell farmers, you want to be thinking, okay, what are the moves maybe I want to take next spring? Because seasonally, you would figure again, you know, we, we like to look at that April, May, June period. Why? Because that's when we seasonally see the best prices. We can obtain. So look to set some price protection at that period of time. But as we look out there, you mentioned, you know, the Fed, you know, made a fairly dramatic move on interest rates this week. And I think that indicates some warning signs are flashing now that, yeah, we need to worry about our job growth out there and that they're trying to promote that now. And so inflation is still here, but it's taking a back seat right now.
And that the Fed is making the move to make sure that the— they're trying to keep the U.S. economy growing as we look out there. And I would say not only do we want to keep the U.S. economy growing, but if we can keep that going, that hopefully means that the global economy continues to grow as well. Because when I'm talking about that export demand growth that we're looking for, that's much more likely to happen if you've got growing economies as opposed to economies in recession. Mhm. So yeah, this is something we definitely need to watch. And, you know, we'll get a few key indicators there. We're seeing what the Fed's doing with the interest rate, but you mentioned energy. That's an area I'm going to watch closely. Do we continue to see, let's call it the slow climb up of crude oil? Do we see that with natural gas?
Because usually that's going to bode well for showing, again, growing economies worldwide, which translates into growing consumption for U.S. products worldwide.
Chris
Barron: Yeah, it's going to be interesting. There's going to be a lot of outside stuff to pay attention to on this '25 thing. Last, last question. Are you comfortable with anybody making some small sales for the '25 in this price range, or do you think a person just sit tight on corn, soybeans, and wheat? I mean, there's, there's kind of the three sisters there. Is there any any thoughts on the new crop that, you know, maybe a person should be thinking about? Not advice, but just things to pay attention to?
Chad
Hart: Well, I'd say it never hurts to look. And, you know, especially at this time of year, I tell folks, if you're just wanting to establish a toehold in the market right now, and hopefully we'll build to better pricing as we move forward, then no, I mean, it's, it's a good time to put in that toehold right now, especially if you're comfortable with that price that you see out there. You know, as we're looking at Dec '25 corn, I got to admit, I haven't looked at that price lately, but let's pull it up.
Chris
Barron: It's been in the $4.50 range, which a lot of our clients, it's kind of not a great price. But, you know, for maybe half of our clients, it's going to cover their expenses, you know, and pay themselves too, you know, their overhead cost as well, assuming— so each yield.
Chad
Hart: Yep. I could see making a small move there. I always like to tell folks, you know, you make this move today and what you hope is it's the worst sale you made. But at least, you know, even at that level, if it's making money for you, it's a good sale. And it gets you thinking about those opportunities over the course of time. Because while we oftentimes rely on the seasonal pattern to tell us when those higher prices will be, they're not always accurate. It's not always— life doesn't play that way. So anytime we can make a profitable sale, it is a good time to make that sale, no matter when it falls on the calendar.
Chris
Barron: Yeah, it seems like that's, that's the case all the time, is, you know, you, you get a— say you just use that $4.50 as an example on, on Dec corn. If it goes up to $4.70, you know, if a person didn't make that sale at at $450, it gets to $470, you probably don't make a big enough sale there. You know, maybe you should be pulling the trigger on 15 or so percent, you know, and if you didn't pull the trigger on any at that lower point, you maybe you start out with a 5% sale and you're kind of always could get behind depending on, you know, what the price movement is, you know, from, from moving forward from there.
Chad
Hart: So, oh yeah, I mean, one of the big things that we found over with marketing studies over the past 50 years is that people do better with smaller but more frequent sales. Incremental. Because then we're not trying to hit that home run. But what we're doing is we're building in and typically we're building in a really good price average over time. And so if I can start above breakeven, that's a great place to start.
Chris
Barron: Yeah. And that doesn't— it's not what any one sale is. It's, it's the average, right? It's always the average. That's what counts. That's what pays the bills. And, you know, and what the reality is.
Chad
Hart: Yep. Last of the year. It's the average that grows the farm.
Chris
Barron: Exactly.
Chad
Hart: All right.
Chris
Barron: Well, hey, I really appreciate your time today. If you're all right with it, I want to try to get you back as we get towards the, you know, latter part of harvest in that middle to third way through harvest. And we'll talk a little bit about what we're seeing and what the impact is. And we'll talk a little bit about the cash market and kind of see where basis is and have some more discussion at that point, if that's good for you.
Chad
Hart: Yep, I'd be glad to do that. Plus you can give me the update on the dryer.
Chris
Barron: Yeah, well, hopefully it'll be running way before that. So, all right, well, hey, and also to everybody else, um, Alyssa would be frustrated with me if I didn't mention this. Make sure you guys, um, if you're not signed up yet for the Ag View Executive Business Conference, January 22nd, 23rd, 24th, 25th, um, in Fort Lauderdale, Florida— if you're not signed up, check that out on our website, Ag View Solutions. .com, get signed up. It's a little over 3/4 full, I think, at this point now. So if you are going to go, get signed up soon. With that said, thanks everybody. We will catch you again next time on the Ag View Pitch.