Cautiously optimistic - weekly market outlook: Aug. 26-30th

Andy

Ruby: Welcome everybody to the weekly market outlook. Today you got Andy Ruby with Jared Creed. Jared, what's going on out your way?

Jarod

Creed: Oh, good. Nothing's stressing out this way, but it's going to be pretty interesting what the temperatures do here. For the next week or so. Some guys are getting a little bit concerned about maybe taking some of the top off this crop. But other than that, you know, nothing's really good in the markets depending on what side you're on it right now. So I guess I just say thank you for bringing me on and we'll see where this goes.

Andy

Ruby: Yeah, yeah, no, thanks for joining us. And, you know, I think kind of all the excitement or talk this week has been around the crop tour. So that's naturally the place to start. And you have a ton of experience on the tour. You know, I think we can talk about the results and I think it'd be good to, you know, why don't you just kind of give the rundown from being involved in the crop tour in the past of past experiences and how those kind of how these results have came in and what your thoughts are on them.

Jarod

Creed: Sure. So first off, when it comes to the tour, you know, just a very simple process. It's the same routes every year does not mean that the same field was sampled every year.— but lots of samples gathered between 7 to 12 routes depending on what the day is and what state they're in. But cumulatively, all the data that is put together, it's not meant to signify exactly, hey, this is the number, this is the yield in the field. Rather, I've always looked at it as a way to kind of identify a trend, a trend that is things trending higher, are things trending lower. And obviously you have the historical differences between what an actual tour result will show, any tour for that matter, versus, you know, perhaps the final USDA or the final yield monitor, the grain scale, when the crop is actually harvested.

This year, it seemed like, you know, we go through all the summer knowing that there's the potential of a pretty hefty crop size out there. And, you know, any tour for that matter at this point in time is basically kind of confirming the narrative of what we've known for quite a while. I guess maybe the surprise is maybe just from some of these tours, including the Pro Farmer Crop Tour, that the potential that is still out there in the field from today through the finish can maybe lead a guy to believe that the crop size is not done getting bigger. That it still has the potential to grow larger, especially on the corn side, based upon the finishing weather that it seems like it's going to get. You know, I'm talking about nationwide there as well, not just the tour area.

You know, in the last several years, it does seem that you, you probably finished up the tour absent of last year and you had, you know, the belief that you got good moisture out in the field, the bean crop's going to finish really, really good. And I think what the Pro Farmer Tour basically just showed us is that this record yield potential that's out there, you know, keyword potential, the crop has to finish. It seems like that's what the potential is based upon, you know, pod counts in the measurements that are done. And, you know, one last kind of comment around, you know, moving away from the beans, that's definitely, you know, maybe a little bit of a shock and awe type of number of seeing that large of a yield.

But on the corn side, I don't know if there's expectations that you're really trying to go out there and verify that the crop size is greater than 180, just a matter of how much above 180. But when it boils down to it, I'm not so sure that a couple bushel here or there really matters in the big picture either. So more than anything, I'm just going to say that the Pro Farmer Crop Tour this year, given how regionally— some guys probably hate me for saying this, but the growing conditions across the nation were rather benign. Uh, your top corn-producing states of Iowa, Illinois, Minnesota, Nebraska— 3 out of the 4 of them really didn't have all that much excitement this year. So naturally, with all the genetics and the technology and everything that's used in agriculture today, uh, it doesn't really seem all that far-fetched to actually bring in a 180-plus type of a crop.

But again, that 54 bean number— I'm rambling a little bit of what the tour kind of, uh, I shouldn't say the tour, but, you know, Pro Farmers own yield estimate using some of the data from the tour. You know, that's a big, big number. And that might, you know, that might create a little shock and awe in the marketplace, but I doubt it. It seems like the markets in general have, you know, we've got enough technology and enough information at our fingertips anymore that, again, it's kind of a confirmation of what we've known for quite a while.

Andy

Ruby: Yeah, no, I agree. It's as I, you know, kind of looked at state-by-state results and you compare year-over-year data and, you know, is it just put an up arrow or down arrow depending on what the trend was in this year's tour.

Jarod

Creed: It's—

Andy

Ruby: there's a heck of a lot of up, you know, up arrows. And then you look at the percentages on some of these beans and it's kind of an oh wow factor. And, you know, if that 54 is is true, and that's what, you know, what weather Mother Nature gives us here in the next few weeks to a month, what are going to be some of these market impacts over the next 10, 12 months if we do have this monster bean crop?

Jarod

Creed: Yeah, so I don't want to steer past your question, but I wanted to mention one other thing here. Keep in mind, like on the tour as well, you know, especially on the bean side, all your listeners know it's impossible to gauge a bean crop. By looking at it, by counting anything. Once the combine goes through, you're gonna know. On the corn side, maybe it's a little bit easier, but in that process, it's basically using a 90,000 kernel count to a bushel. I'm not trying to go down that rabbit hole of test weight and so on and so forth, but the potential to move the needle, you know, 2, 3 percentage points on less kernels to make a bushel, I think is real this year. With where the corn crop has got to at this point in time. And especially if you look at the last 7 days that this crop has had for finishing weather across the nation, it's been quite a gift.

So back to your question about, you know, a 53, 54, 55 bushel bean yield, what kind of impact can it have in the marketplace? Well, without a doubt, it runs the risk of probably, you know, popping our carryout by a couple hundred million bushels. But, you know, USDA has a pretty, uh, strong tendency that as production goes up, uh, your usage is going to climb, um, anecdotally as well. Is that a, a one-for-two type of a deal, as in if we produce 2 more bushels, are we going to increase our demand by 1 bushel? That's probably not all that far-fetched. And if I wanted to, you know, put a little bit of optimism to it, We've had a 5-day stretch here, first 5 days in God knows how long that we've been actually selling beans for export. And that's been one of the biggest issues in the US market on both corn and beans for what feels like an eternity now.

Our demand, especially on the export front, has just been dismal compared to where we once were. I mean, our corn and soybean demand combined on the export side at one point probably dropped a billion bushels off of where it once was. So it's not necessarily in the world that the US balance sheet has some more supply, especially if the rest of the world wants to come to us, buy some more beans. You know, we're definitely very, very competitive right now, one of the cheapest origination places in the world for beans. I really think to answer your question, for the next 10 to 12 months, you're gonna have to tell me about the Brazilian crop size. That we do still, even with that big yield number in the US, it's still a second fiddle crop anymore to Brazil. We got more and more domestic crush. We got another, let's see, 5, maybe 6 crush plants that'll be online by the end of the year.

That's additional usage. So just because we're not exporting, it doesn't necessarily mean that it's terrible for the balance sheet. We're going to still crush it domestically. That can possibly create a soybean meal problem to weigh on the bean market. But, you know, the estimate in Brazil right now growing a 6.8 billion bushel bean crop versus us growing, you know, 4.4. That's a big deal. And if Brazil weather doesn't straighten up, you know, the market's going to start caring about the dry conditions in Brazil. You know, that's going to start caring about lackluster planting pace here in a couple of months if the moisture doesn't start falling in Brazil. And they've been very, very, very dry. I hate to make it sound that simple. But tell me what Brazil weather is going to be this winter. You know, you got a coin flip on that.

And on the other front, tell me what the market's reaction or consideration is going to be on the result of the election here in a few months. Generally speaking, I think there's, there's plenty of bets to be made on the perspective view of increased US exports based upon who finds themselves in the White House here in a couple of months.

Andy

Ruby: Yeah. Yeah, it's definitely have the election year wildcards to keep in mind. But, you know, I think that gives, gives us pretty good perspective on, on the bean market and stuff to think about. You know, that's probably some of the more optimistic stuff we've talked about. And it seems like in the last 2 months is, yes, we, we do have some domestic demand coming online.

Jarod

Creed: So, you know, I think the slippery slope there, Andy, is that we could actually, from the market perspective, we could just stop going down. Maybe we can find a bottom somewhere right around here in both corn and beans. But just because you find a bottom doesn't mean it's going back up either. Right. I mean, we just don't have that headline risk out there today from a supply shock or a demand-led shock or a geopolitical issue that something will come about. We know that the only thing we've been accustomed to in the last several years is change. And those changes come out of left field, it seems like. And, you know, there you go. There's your guarantee. Something's gonna happen in the next several months. I just don't know what the hell it's going to be.

And the farmers obviously is going to need to be prepared to react in a way that their farm needs to for their own risk management plan.

Andy

Ruby: Yeah. I think that's a, you You know, kind of a good segue into the next topic we wanted to cover was, you know, you do a lot of financial work with producers all over the US and just the impacts that you are seeing. And I'm going to say the uniqueness and conversations you and I were talking a little bit beforehand that, you know, you said it's every operation, it really seems to be at a different standpoint. I think it, you know, if you want to provide listeners with a little perspective of what you're seeing as you work with these operations.

Jarod

Creed: Yeah, if you go from A to Z on really, really healthy farms to possibly very struggling farms, it's like, it's almost like we don't have 3 or 4 different paths for farms to take right now. You're either going to make okay money, break even, maybe make a little bit of money, or you're just going to be swimming in a pretty nasty financial situation to dig out of for a couple of years. And we've seen that cycle before. If you, if you just take a step back and think about, you know, APH yields at this last winter's prices of $12 to $13 beans and, you know, $4.80 to $5.20 corn, even at those prices and APH yields, nobody's balance sheet was necessarily screaming, look at all the money I'm going to make.. And that's a lot driven because of the cost of production and what it's done in the last several years.

And that's probably my biggest fear is that the cost of production, you know, a struggle that the ag economy is going to have to deal with here for a while is what are we really going to see in some of these costs? Are we going to see meaningful reductions based upon where prices are today? Something will have to give there. And it might not be domestically, it might be more of a global type of a deal. That, you know, we get frustrated by the cost of production here in the US. But if you take it one step further, there is an interesting situation to unfold in Brazil, and especially in Mato Grosso, where your safrinha corn crop is planted. Does a reduced margin on that first crop bean entice, or, you know, does it incentivize or de-incentivize planting the safrinha corn crop?

If you're already in tight margins on the front end, do you want to double down and look for something, you know, a way to probably make things worse or make things better? And I don't know the answer to that at this point. That's why I think something's going to have to give from a price or an input perspective. And, you know, maybe mildly optimistic here, I think that price is going to be the one that's going to have to give to kind of entice that global production to stay where it needs to be. But again, you bring that back to the US, uh, we're just not going to see the cost of production changes needed for 2025, especially on a corn and soybean front, and even for that matter wheat, to get really, really excited about the margins that we've seen in the last couple years. And again, you're two roads, either good or bad.

Even those good, we just had a couple meetings here today of producers coming through that are looking at really good crops coming their way, pretty darn good marketing, uh, done in the last 6 to 12, 18 months, a good crop insurance product, and still at today's prices, it's kind of a deal that I'm going to make some money, I'm going to keep the farm whole, I'm not going to burn working capital, not going to burn equity, I'm going to be able to take a step forward in the right direction. And you go back to the other side that You know, some, some real numbers that maybe just the sticker shock here. There's plenty of opportunities last year on a 2023 crop specific to corn that producers may have had a below APH yield, but the prices available, the insurance products available and such, they still might have been grossing somewhere, you know, let's just call it $1,200 to $1,500 an acre.

And you go to the other side of the equation, the producer that didn't do much marketing, held on to the corn throughout the entire summer, didn't have a great insurance product, they might have grossed, you know, 60% of what the individual on the other side grossed. As in, it's again, it's two different paths that there's going to be individuals coming out of all this smelling like a rose. That banks are happy to have them in their portfolio to help offset all the pain that's going to come on the other side.

I won't mention names, but a very, very large regional bank in the Midwest, you know, not your Farm Credit System, I'll clear them out of this, they're different in this space, but very large regional bank has basically expressed the idea that somewhere around a third of their operating money is going to have to see long-term debt restructure to renew that operating money for next year. And that's just like a glaring flashing red light that we got issues. And, you know, we were talking about it before we jumped on that. It's, it shouldn't have been a surprise to anybody. And what do we learn from that is what do we need to do to be prepared for whatever the heck can come our way 12 months from now? Do we get better? Do we get worse? And each individual operation measuring if things get worse. How do I need to be prepared to withstand that? What opportunities come from that?

If things get better, the same exact comment, what do I need to do to be prepared to make the most of the opportunity that comes our way? And those decisions probably should have started several months ago, but it's never too late to start. That's probably the biggest risk for the average grower right now is actually 2025, not 2024. And, you know, maybe put a bow on that is the risk for a lot of growers right now in '24 is we might have this perception that I'm really, really close to having a revenue floor because of my crop insurance product. But then we get to about the middle of October, yields are just good enough, prices just high enough. There's really not a lot of money to count there. And then the market takes another leg lower where that protection is gone..

And any producers right now that I think majority of the listeners to this, you know, to this group have probably at least explored using some of these higher-level insurance coverages, that the hedge has basically been done. The hedge on revenue has been done. And we don't want to run into a situation that come October 15th, when that average is halfway done, the market starts moving lower and we haven't let go of the physical grain. And that's probably a deal that this farmer just needs to be liquid, needs to turn this stuff into cash, use tools that are in the marketplace to keep a seat at the table if they so choose, but not lose sight of the total revenue picture. Sold grain, unsold grain, any insurance money, any type of hedge gains, what have you.

And make sure that when you get halfway through that month of October, when that insurance floor goes away, that you are not sitting there looking at, you know, opening a can of worms on 50-75% of a crop that doesn't have any type of coverage on it, which is probably light based upon record slow farmer selling pace. That's just where a bad thing can get into something even worse. So again, I guess that's just the easiest way to describe it right now. You got two different paths, the good and the ugly. There's nothing in between.

Andy

Ruby: Right, right. No, and you know, I think a solid point you hit on was just be prepared for '25 and let's not make the same mistakes we may have made in '24. Start thinking about '25 and getting those, those numbers dialed in and, and looking for any marketing opportunities there might be there. Just, just being aware of what those numbers are and what it's going to take to, to kind of keep things afloat.

Jarod

Creed: The sickening piece on that, Andy, I know we talked on crop insurance just briefly there, that imagine you get out to February and the insurance price is $10 in soybeans and $4 in corn, right? That's not all that much lower than where we are today. And you start thinking about revenue guarantees on that. I don't know. There's probably a very significant amount of US row crop production that can't even insure at that point, just their variable expenses. Let alone before we start talking about the land cost involved to operate. And that's a, that's a nasty, nasty situation that banking on almost two different things happening, having a market move higher, and coming away with a big, big yield next year. And, you know, that doesn't necessarily sound easy to say those two don't typically go hand in hand. Big crop, low price, high crop, low yield.

Um, just probably hit the nail on the head that you just gotta identify what that price opportunity needs to be for your farm and make sure that you get a little bit of optimism on what your yield potential is and think about what you can do, uh, via marketing strategies, via insurance. Just don't, uh, just don't make the assumption that I'm just going to wait for a better day. These things get a lot worse before they get better.

Andy

Ruby: Right. Yeah. You know, as we kind of wrap this up, is there any final thoughts you want to leave the listeners with?

Jarod

Creed: Um, you know, just touch back on, you know, maybe a little bit of just cautious optimism here that it's always darkest before whatever that phrase is. Everybody knows that. Darkest before the dawn. There you go. Can things get much, much worse from where we're at today. From a revenue standpoint, for most, I don't think it can get all that much worse if we control it on our, on our own. Uh, if you choose not to control anything, you make a decision to do nothing, that's still a decision. Um, the risk-reward in doing nothing in the next 3 months, uh, seems like a seems like a fast way to imploding several farm operations. And it's already happening on the countryside, we can't be surprised by it. And I think it just runs a risk of speeding that up.

I was with a group yesterday, we were kind of talking about general rule of thumb in the ag industry seems to kind of be like an 80/20 mix, 80% of your production comes from that top 20% grower. And it makes you wonder if all of a sudden that consolidation is going to speed up rapidly., based upon the decisions made in the last couple months, uh, you have a seat at the table or you don't. So it probably just gets back to control the destiny that you want, uh, and understand what tools are in the marketplace to help you, uh, achieve where you want to end up. Uh, it's not going to be what you want, but it might be more important to know what you need.

Andy

Ruby: Right, right. No, that's That's good. If, uh, listeners would like to get a hold of you and kind of talk through some of these strategies and tools that are available, what's the best way to get a hold of you guys?

Jarod

Creed: Well, cell phone's always the easiest. Area code 402-680-1744.

Andy

Ruby: Sounds good. Thank you, Jared, and thanks everybody for listening to the Ag View Pitch.

Jarod

Creed: Thanks, Andy.