Breaking news! Market volatility! What's next?

Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now here is your host, Chris Barron.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We are jumping in here to have a marketing discussion kind of in the middle of the week, towards the end of the week.

Joe

Vaclavik: Week.

Chris

Barron: Actually, we've got Joe Bakalovic with us. How's it going, Joe?

Joe

Vaclavik: Doing good. I've had, I've had a few busier days in the commodity business, but I can probably count them on one hand.

Chris

Barron: Yeah, it's kind of some crazy stuff going on. It looks like there's no question now, Russia's jumping all over Ukraine right now. A lot of action, a lot of things going on. Obviously, the market has responded massively to this. Event and there's just creating even more volatility. Talk to us a little bit about what we need to be paying attention to as producers.

Joe

Vaclavik: Well, the volatility here, first off, today on Thursday, it is Thursday, right? Yeah. The volatility was phenomenal. I mean, you look at some of the daily trading ranges in corn and soybeans in particular. I mean, we had a $1.10 trading range in November soybeans. We had a very similar trading range even in the nearby soybean contracts, huge trading ranges in corn.. So a phenomenal amount of volatility. Volatility can sometimes equal opportunity. It can also make you nervous. It can cause a lot of sort of emotional reactions, I suppose, to the markets. We know that Russia and Ukraine combined export a lot of wheat. Ukraine exports a lot of corn. So fundamentally, I mean, there's a story there, but that doesn't, doesn't mean the markets need to go up forever. I mean, the corn market in particular and the soybean market certainly found some selling interest late in the day today.

I mean, beans finished with some fairly steep losses in these new crop contracts.

Chris

Barron: Mm-hmm. Is there— and with that said, is there anything that is going to allow these prices to kind of continue on? I mean, it seems like when you get this kind of drive to the upside, you know, it just kind of— a lot of people have that feeling this thing's going to keep moving. Um, what, what are some of the threats? What are some of the opportunities? What are some things you see coming here? I mean, is this sustainable, I guess?

Joe

Vaclavik: It's probably not sustainable, but it could be sustainable over a given period of time. What is that period of time? Is it, is it one day? Was that it this morning? Does this last for 2 or 3 days? Does it last for a month or 2 months? Those are things I don't really know the answer to. I feel like this is probably some sort of opportunity, and that may have been the best opportunity you'll ever see out of this deal last night into this morning, or this thing could escalate. You could see Russia get involved with other European countries. A lot of these other Baltic countries that are former Soviet countries are not happy about this. I don't really know what Putin's endgame is here.

So from a supply and demand standpoint, I mean, if there is a big disruption and an extended or prolonged disruption of exports of wheat in particular, and maybe corn to a lesser extent out of that area. I mean, this thing could, could last quite a bit longer. And one of the other things that is a contributing factor here is just the big flow of money into these markets. And that's something that was going on long before we had a Russia invasion of Ukraine. I mean, we've just had a lot of interest in commodity markets, some commodity markets, but grains, certainly wheat is kind of a new player here because wheat had been under a lot of pressure up until these last few days. The energy markets are very strong. I know we've backed off of the highs, but crude oil did trade above $100 this morning. So that, that's the other factor.

It's like, you know, do these money managers want to continue into this deal? Or do we get to a point here where there's just nobody left to buy? And then when they want to sell, who's left to buy it from them?

Chris

Barron: Mm-hmm. Well, that's just it with the funds. You know, and I guess I'll put it this way as a question with the funds and the computer algorithms and all those kinds of things, you know, it almost makes you wonder, is that a flash in the pan? And do we see more?

Joe

Vaclavik: There have been periods in the past where large money managers will stay long, or even heavily long the row crop markets for a real extended period of time. And I would call this period just in the context of the last, say, 15 years, this has been an extended period of time for the funds to stay long corn. I mean, they've been long the corn market since like September, October of 2020, and they haven't been short since. That's not something we're used to. You got to go back to like that 2012-13 timeframe to find that. In, say, '14 through '20, these large money managers were long and short just about every year. They'd be short for a while, they'd be long for a while. And now you're in this environment where they're kind of holding like a static long. And how long does that last? I don't really know. I mean, part of it's an inflation hedge.

Part of it's because we've got fundamental stories here. I think a lot of people who track supply and demand in grains would argue that we're overpriced. They'd argue corn's overpriced at $7. They'd argue new crop corn is overpriced at $6. They'd argue old crop beans are overpriced at $6.50. And a lot of those same people were making the same argument when everything was a buck or two cheaper too. So the influence of large money managers here cannot be overstated. It's tremendous.

Chris

Barron: I'm going to have a couple more questions for you, then we'll wrap it up. We'll keep this one short, but talk to us a little bit about the non-emotional side of this. Joe, you're one of the best people I've ever met to work with that does a really good job of managing the emotions, staying disciplined, making sales, and managing risk. So talk a little bit about you know, just managing your emotions and keeping your head on straight when all these things are going on. And, and it's easy to look back and say, geez, I don't know why I made those sales and stuff. Talk about that for just a minute, if you would.

Joe

Vaclavik: I sent a video out to my subscribers yesterday, and the title of the video was Grain Marketing Can Make You Feel Silly. And grain marketing will make you feel silly if you are a farmer and you've made a corn sale, a soybean sale, now a wheat sale at any point over the last several months or even several years in some cases, I mean, these prices will make you feel silly because you sit around, you spend all this time crunching numbers and trying to manage risk and looking at budgets, and then the market does this. And it feels like everything you've done, all the marketing decisions, all the effort, all the stress you've put into it, they just fly out the window and they were all for naught. Right? I think that in general, You can't look at your old sales and say they were bad.

You know, a lot of guys made a lot of money selling corn at, at $5.50 this past year, even cheaper than that. A lot of guys made a lot of money selling soybeans at $12 or $13. And yeah, they missed the boat on some of this stuff. But that's just, that's the nature of the beast in these markets. I don't think you can beat yourself up about the past grain sales, and everybody's got sales that they're not happy about now. You've got to just Focus on the future, focus on what is in front of you. Do not focus on the past. Don't try to do anything goofy to make those sales that you view as being bad, better. Just focus on what's unpriced. If you got some old crop bushels that are unpriced, take a look at your budgets, see how profitable you are at the close today. Same thing for new crop production. Just keep your focus forward and not behind you.

And I know that that is much, much easier said than done. But I think that's the only way you can do it.

Chris

Barron: Right. Well, and in the grand scheme of things too, you know, the crop insurance numbers as we record this here on Thursday, you know, we're estimating $5.90 on corn and about $14.34 on soybeans. That's a pretty good support level. I think, I think that'll work. I mean, those are, those are record support levels on the insurance side. But what with the rally that we've seen and with this kind of strength, has this created an opportunity for '23 or should we still not get too wild on '23, or what's your thought there?

Joe

Vaclavik: I personally advised my very first 2023 corn and soybean sale just yesterday, as a matter of fact. And I'm— it makes me nervous because I can't rule out— this is a long conversation— but I can't rule out the possibility of continued inflation into next year, especially with this Russia issue. I mean, they export a lot of fertilizer. There's, there's a lot of issues that could develop there. I would be surprised if it took $6 or $5.50 to break even in corn next year to grow corn, but I'm not going to say it's impossible either. So there's that risk. Could the cost of production in corn rise like $2 over 2 years? We've never seen that before, but it's not impossible, not in this environment.

Chris

Barron: Yeah, it could go really fast, though. That's the risk or the challenge. So Appreciate that. Anything else? I mean, we want to keep this short and not, you know, as volatile as everything is right now. That's why we wanted to jump in here and just have a quick little conversation. Anything else that I didn't hit on? Maybe the fertilizer or anything else?

Joe

Vaclavik: The fertilizer thing is tricky. There were some quotes that I saw from the Gulf and from elsewhere with some highly elevated prices just this morning. This could all be a knee-jerk reaction or it could turn into the real deal. We also had those USDA Ag Farm acreage numbers out this morning. They're totally useless. Don't pay any attention to them. Other than that, I mean, the big thing in these kinds of markets, I mean, so, so let's separate it out. Old crop corn and soybeans, it's a layup. If you screw up, if you screw up that deal and anything you have unpriced here, that's on you. The options are dirt cheap. You can buy some puts, you can protect the downside. A lot of guys are sold out and that's totally fine too, because you probably made a ton of money. And you probably had one of the best years you've ever had. New crop is what concerns me.

New crop, '22 crop corn, soybeans, even this new crop wheat situation. I mean, the market gives and the market takes, and it typically goes down faster than it goes up. So I think there's a ton of risk there. I think you've got to identify it. It seems like we go up every day, but that's probably not going to last forever.

Chris

Barron: Awesome. Well, hey, Joe, I think it's probably time for you to go get some rest. You're about like a farmer. You got about a 13-hour day in. So welcome to the club.

Joe

Vaclavik: Happy to be here. I'm happy to be busy, to be honest. I mean, being busy is a good thing. If I was sitting here staring at screens, not talking to anybody, I'd be doing something wrong. So I don't mind being busy. I am tired though.

Chris

Barron: Yeah. Well, you've been working hard, 3:00 AM in the morning and getting rolling. Hey, One thing I do want to get out to our clients, you know, I'm a subscriber. I think you do a phenomenal job with the subscriber-only videos. What's the best way to get a hold of, you know, to get a hold of you or to get signed up for that?

Joe

Vaclavik: Well, first thing, if you want to get a feel for what I do and what I talk about and how I think about things, either check out my podcast or check out my YouTube channel. Grain Markets and Other Stuff is the name of both of those. So there's a YouTube channel called Grain Markets and Other Stuff, and there's a podcast. It's on every podcast app. There's a new video every single morning at about 6:30 AM. So check that out if you want to just see, you know, for free how I think about things, how I talk about things. And then the subscription service I offer is, is, it's pretty involved. I do a morning newsletter every day, it goes out at about 6:15 AM Central or so. And I include pretty much, it's, it's everything that's on my mind. It's every overnight headline, it's charts, it's weather information, it's all my grain marketing recommendations.

And then those subscriber-only videos, you mentioned. I do a new one every day. I hit a different topic. Sometimes it's grain marketing. A lot of times it's charts. Sometimes I'll talk about oddball items like the stock market or the Fed or, or Bitcoin, but mostly related to grain markets. You can sign up for it on my website, standardgrain.com. It's $50 a month. You can cancel it at any time. I won't try to sell you any additional brokerage services, won't charge any acreage fees. It's literally just a standalone product. A lot of people seem to really like it. So check that out.

Chris

Barron: Yeah, you do a great job with it, Joe. And hey, again, thanks a lot. Go get some sleep.

Joe

Vaclavik: That's the plan, man.

Chris

Barron: All right, take care. Thanks everybody for listening. We'll be back in touch again here. Shay will be with you over the weekend with our regular market update. Take care, catch you next time on the Ag View Pitch.