Could grain markets rally back to May price levels?

Chris: Welcome everybody to another episode of the Ag View Pitch. We're heading into the second week of June, the 10th through the 14th, and a lot of things ahead. A lot of people are busy right now trying to get side dressing done and spraying and all that kind of fun stuff and probably finishing up a little bit of planting and stuff. We're lucky enough to have with us today Joe Vaklovic. Joe, how's it going?

Joe

Vaclavik: I'm good, Chris. Thank you for having me.

Chris: It's good to have you. Usually it gets to be the other way. I get to be on your subscriber videos occasionally and—

Joe

Vaclavik: Oh, it's good to do a little bit of back and forth, you know?

Chris: Yeah, yeah, definitely. And so I guess what I would like to start out with is the crop condition report. Yeah. A week ago or so that came out really strong. I think there was some surprise, but Before you give perspective on that, I drove from my operation in northeast Iowa to Purdue for a peer group meeting in West Lafayette. And when I left my place down to about Interstate 80, right around the Cedar Rapids, Iowa area, it looked pretty rough. And then from I-80 all the way on the northern route and on the way home, I brought a southern route and I would say the crop looked about as good as I've ever seen it look this time of year. And that probably doesn't make some people happy. It'd have been real easy for me to have backyarditis in my area because things look pretty rough. Yeah, but this crop could be huge, couldn't it? I mean, it— I mean, we've got a long ways to go yet.

A lot of things can happen, but I was shocked at how good it looked.

Joe

Vaclavik: Well, you would— I mean, you would probably agree, I guess, that the soil moisture recharge is a big deal. And that it buys you a lot in terms of like room for error or margin for error when it comes to the growing season. You could probably deal with a few dry weeks here and there and maybe it's not as consequential as it would be in a year that started dry. You know, the concern right now is not that we're gonna be too dry. Not to say that it, that couldn't happen. I think it would have to be what, 3, 4 weeks from now if it just totally stopped raining and shut off. It got hot and dry around end of June, Fourth of July, then maybe the trade becomes concerned about that. But for right now, I mean, it's a big moisture recharge. The drought's been busted. The crop ratings are good. I have doubts about the crop ratings. Pennsylvania is 100% good to excellent, like for real.

I mean, there's things in there that I don't agree with, but generally speaking, I mean, is the potential for a big crop there? Yeah, I mean, it sounds like it is.

Chris: Yeah, I think so.

Joe

Vaclavik: I mean, potential is the word.

Chris: Potential.

Joe

Vaclavik: It's not me saying it's going to be a big crop, it's that there's potential.

Chris: Yeah. I mean, we— who knows what can happen in July and August or late August with heat and, yeah, time temperatures and stuff. But I think, you know, all in all, you know, I'd be surprised if the market reacts to 3 weeks of hot and dry because this is the time of year we want hot and dry. We want the plants to root down. And I think the market's kind of figured that out and they figured out that You know, we had a drought in our area last year and still had pretty decent crops. And so, you know, it's— yeah, interesting. So another thing I want to hit on is next week or this, this week, I guess on Wednesday we have a USDA report. Anything you're watching there, that's usually not a big deal. Anything there?

Joe

Vaclavik: USDA typically doesn't— I know everyone's concerned about the production numbers and it's, it's not normal to see a production number shift. In this report. You may see some things on the demand side of the balance sheets. I think actually the global balance sheets might be the more interesting thing. You've got these discrepancies between USDA and their foreign counterparts, like your USDA versus CONAB when it comes to the Brazilian crop, USDA versus some of the entities in the Black Sea when it comes to the Russian wheat crop. USDA might have to come down with some of those overseas production numbers. As it relates to the United States, your bigger report's going to be that June 28th acreage report. And that's when you get the, you know, in air quotes, real acreage numbers, what was actually planted versus the intentions, which is what we're working with right now.

I think a lot of people believe that the corn acreage number ultimately will be higher than 90 million. But then at the same time, maybe, maybe there's some prevent plant out there, maybe the prices were poor enough to discourage those extra acres. So I don't really know. But that's, that's going to be your bigger report this month is June 28th.

Chris: Another thing I want to hit on is, you know, we had that May rally, right? Quote unquote.

Joe

Vaclavik: And that was a rally.

Chris: It was. And it gave a lot of us a chance. I know a lot of our clients had offers in, they hit, but I know they had a series of offers in, right? They had offers in, in that, say, $492 range and then again in that $497. So they just missed it by, you know, just a hair, you know, and then some other layers up higher.

Joe

Vaclavik: You know what I understand? My understanding of the target order situation is that most of them were not hit. I think there were a lot of them above $5. There was like a gap on the Decorn chart that was, I think, $5.03. That's still there. I think, I think, and I'm not talking about your customers, I'm talking about in general and what I've heard. I think a lot of stuff was in that $5 to $5.25 neighborhood and it, I mean, never got hit.

Chris: Mm-hmm. Well, we were, we were a long ways from it, and it just feels like, you know, if you get up close to that 5, that seems like some target areas. Um, one of the things I want to mention is if people that are listening to the Ag View Pitch, if you do not listen to Joe's subscriber, um, information, you need to, because, uh, I listen to it every day. I never miss one. And you guys had a conversation last week, um, you and Brian split and talked a lot about kind of some areas of retracement potentially, a technical perspective. Now, I mean, obviously there's things that can change this, but can you talk a little bit about, you know, kind of some areas that guys may want to be thinking? And it's going to make them sad probably because those numbers that you and Brian were talking about weren't real great.

Joe

Vaclavik: So do you have any comments on kind of what saying before the specific numbers. I don't want to give all Brian stuff away. I don't actually remember. I, I know kind of what he said, but the, the thing that I had mentioned in the last couple of videos with Brian was this. I said— and part of it was before the rally— I said, Brian, I know for a fact, like, I knew where the target orders were. I knew that there were farmers with target orders from, I don't know, call it $490 up to $525. I thought there was a ton of them in that neighborhood. I said— and I told Brian before it happened— I said, Brian, you know, one of two things is going to happen here. Either we're not going up to those target orders or you're going to go up and you're going to just blow the hell right through them and make everybody look bad or get nervous for a second.

And as it turns out, at least in this go-around, we never got to most of them. The numbers that Brian was kind of working with, at least in regard to Dec corn, was, was, yeah, again, stuff that, stuff that won't make you happy, like upside targets in the $4.70s and $4.80s Dec corn, which from a marketing standpoint is really It's really tricky. I did a marketing video that you probably saw earlier this week, and I talked about— I kind of talked about my, uh, how I'm kind of torn on this whole situation. Like, so as a grain marketing advisor, am I supposed to tell people that they should be sold up to their insurance guarantee before the marketing year even starts below the cost of production? I mean, is that what I'm supposed to do even if I'm bearish? Is that Does— I'm just, I'm thinking out loud. I'm not trying to— it's not a yes or no question.

It's just like, that's what I'm dealing with, you know? So it's, it's just, I mean, it just sucks. It's the shitty deal. It's, it's not a fun situation.

Chris: Yeah. Well, and it's, you know, you think about that as a producer. I had this conversation at the peer group, you know, 7 or actually 8 really great farmers there that, you know, you look at at the pricing opportunities. And for many of us, we have not got above our cost of production, assuming APH yields. Now, in, you know, from 2013 to 20, you know, to 2020, let's say there were a number of those years where there was an okay amount of money made because we yielded our way out of a potential catastrophe, right? The prices never got to the levels that we needed them to. I think this is one of those years where yield is going to be the number one thing. We damn well better be doing everything we can do to capitalize on those yields.

And then, you know, for those who yield their APH, who knows on this crop insurance thing, we could end up, you know, you could— we were $4.66 for the spring price. Is there— is, you know, do you have an argument that says there's no way that we could go to $3.70? These corn?

Joe

Vaclavik: Oh no, you absolutely could. You absolutely could. I—

Chris: if, if that happens, that puts 85% coverage, guys, well into the, into the indemnity payment.

Joe

Vaclavik: That's not an insurance check you want to collect. I mean, you don't, you don't want that. Is it possible? Yeah, it's possible. I mean, if you run into the perfect bear storm of, say, a yield that's slightly above trend and the demand just isn't there because we've got a recession or we've got a trade war or whoever knows what it is. I mean, yeah, that's absolutely a possibility. You hate to think that that's a possibility given this like post-inflationary environment that we're in now following the whole COVID debacle. You'd hope, you'd hate to see corn in the 3s again. I think that line in the sand where we bottomed out in February in the $3.80 spot month corn futures was like some sort of sign that maybe that's your new bottom of the barrel. But you know what, this is, this is like we're going on the second year maybe now of like what could be a multi-year bear market cycle.

So could you make lower lows in the second year? Yeah, I think you could.

Chris: Mm-hmm. Talk a little bit about soybeans. I mean, we've been kind of hitting on some price levels on corn and stuff and sort of the outlook there. What's your outlook on soybeans in general?

Joe

Vaclavik: Well, it's, it's similar in that there's no profitability. So even if you were to have made some really aggressive sales, you know, at the high of that last move in the mid-$12s or wherever we were, Is that profitable for you? No. I mean, the only way to like have a ton of profitability on the books for new crop corn and soybeans would have been to make a whole bunch of aggressive forward sales last summer when we were in the middle of the drought, you know, like last June, last July, sell stuff for '24. I did a little bit of that, but should have done more. Of course, in hindsight, it's, it's similarly very, very difficult. And I like to, I like to advise soybean sales when I advise corn sales.

I've always felt like the soybean market's like the Wild West where the corn market I have, it's not easy, but it's slightly easier to kind of use the typical indicators that I use and they work out a little bit more often. So I kind of like to key off of the corn market, but it's, it's similarly very difficult. The one thing to remember about beans is that a couple of things, the yield number is a huge— I mean, it's a monster swing item in corn too, but in soybeans it only takes like 3 bushels to totally change the balance sheet. Totally change the balance sheet. The other thing would be this China situation, which I've been talking about in the podcast every week, that China has not bought a single cargo of new crop US soybeans, which is not normal and a big problem.

Chris: Yeah, that's an issue. Is there any hope for anything in that area, do you think? Or do you think it doesn't— and it probably doesn't really matter which administration or anything at that point anyway, does it?

Joe

Vaclavik: You know, we had this Brazil story out last week. I don't know if you can see this on my camera. It's Brazil whatever, they had a tax thing and this is probably something we should talk about anyways. So the headline from Bloomberg was surprise tax changes upend trading crop powerhouses in Brazil. And what happened this last, last week, like Wednesday, Thursday, was a lot of your commercials in Brazil just kind of like stopped selling grain and soybeans on the export market because there was this uncertainty regarding these tax exemptions that they had had and maybe they might not get anymore. So I don't know, I don't think that's a deal breaker, but it's something to pay attention to. I think people are worried about, quite honestly, I think some people are worried about a Trump presidency and that it could turn into some trade war type stuff.

But I think the bigger concern, the bigger like tangible thing is just that US soybeans are overpriced versus Brazil to the tune of 60 or 70 cents per bushel. And that's the way it looks. That's going to stick around through harvest. And that's a function of two things. Brazil continues to expand acreage. They've had big crops and Brazil is just geographically closer to China. It's— the shipping's always going to be cheaper. It's never going to be any different. And that's just— they just have a natural advantage.

Chris: Mm-hmm. Awesome. Thanks for that.

Joe

Vaclavik: It's not awesome.

Chris: Well, I know. I mean, I think— thanks for the—

Joe

Vaclavik: maybe the way I said it was awesome. I know.

Chris: I know. I get it. What I want to do as we wrap up here is I want to talk about old crop for a minute and specifically bull crap corn. There's not that many soybeans left, and, and I think, you know, hopefully people are going to clean those up as fast as they do any, any leftover corn that's there. I got a text, as I was telling you before we started recording, from Ryan Moe about just some really strong basis that he was hearing rumors on in Iowa this last week. I anticipate seeing a really strong basis yet for maybe another week or days while we're dry here because farmers are not going to be paying attention to the markets that much, especially with deliveries and things, because like I said, we're side-dressing, we're spraying, we're trying to make sure the crop is up and growing and things are in good shape. So we're busy. Consequently, the basis is really good.

If we don't take advantage of that basis in this near term here, say a 10-day window while it's dry, and we need to be working on other things, what's your, what's your take on basis as we move through the summer?

Joe

Vaclavik: I mean, assuming that, assuming that you don't run into— I mean, the basis, probably the basis itself is probably going to weaken. Does that mean that, does that mean that you've seen your cash price high in the old crop corn market from now through, say, the end of August? Not necessarily, because you could have a situation where the basis backs off but the board spikes on a weather issue. Like, that's still, that's still a possibility. Is it's becoming less of a possibility as the weeks go on here, but it's still a possibility in terms of basis. Should you be like— should you be writing basis contracts? If you had— if I had anything close to a $5 cash corn offer in my neighborhood, I'm still sitting on 10 or 15%. Is that my cue to exit? Probably. Probably is, especially considering that I'm going to go with the notion that most guys are undersold when it comes to new crop.

You still got a lot to sell. So if the market rips this summer on weather and you price the last of your old crop on a really good basis here in June, I don't know that you can be overly upset about that.

Chris: Well, and again, people still got to look at that average selling price. I mean, yeah, you know, if you're sitting on 15%, let's say, left to sell or whatever, it really doesn't change your average that much. And no, many people are going to be at a point where that cash has value and the cost of holding on to the grain is expensive and you're going to have to empty it up. And then if basis is better, you know, it's going to be—

Joe

Vaclavik: and just think about how bad it was, you know, in late February when the board was sub-$4. I mean, in the progress that the cash market and the board has made since then. I mean, it's really— it could be a hell of a lot worse, honestly.

Chris: Mm-hmm. Yeah. Well, I'm going to give you last word. What do you want to hit on? Is there anything I didn't catch with you? Anything growers need to be paying attention to in these next few weeks or days when we've got nice weather and things are cooking along here? I would—

Joe

Vaclavik: I would still be on the lookout. I know a lot of people have a real bearish attitude right now, and maybe that's the correct attitude to have, but The crop is not made and therefore the market cannot be dead at this point. There's, there's still a chance here over the next 6 to 8 weeks for some sort of weather issue. And you know what, you could— I'm trying to be optimistic here. It's hard. There's also the, there's also the chance that you run into these, one of these late season weather anomaly type situations where maybe you get into September and October and maybe the overnight temperatures were too hot and the yields just aren't there. We've seen that happen before and it can happen again, especially in a year like this where you've got something going on with weather that's not normal. It's different than average that we have no drought throughout the Corn Belt.

I mean, 3% of the Corn Belt's experiencing a drought according to USDA. You could run into something like that. I personally— excuse me— I personally think like when it comes to the stuff that I've advised, I'm probably going to be carrying slightly more unpriced bushels into the fall than I normally do. I'm not thrilled about it, but it goes back to what I said earlier about like telling guys to sell below cost before the marketing year's even started. It's, it's tricky. No good answer.

Chris: Yeah. And when those opportunities come, that's again, I think where those, those offers have to be sitting there ready to go too, because it seems like a lot of times it's in the nighttime trade or you have 5 minutes and you would never get it if you were trying to pull the trigger actively versus having it already there.

Joe

Vaclavik: One thing I want to clarify too, I think most of the people that listen to you probably know this, but like when me and you talk about breakevens, we talk about like accounting for your labor, for your cost of living, for things like that. Like that's the way you do it and that's the way it should be done. So when we're talking about selling corn at breakeven, we're not meaning literally breakeven just when it comes to your farm operation in a vacuum. We're talking about like your living expenses, your labor, your, you know, to keep yourself afloat and comfortable-ish, you know. So that's kind of when we say breakeven, that's what we're talking about.

Chris: You got to, you got to be able to make your payments. You got to be like, pay yourself and you got to be able to pay your employees and your family.

Joe

Vaclavik: And so we're talking— so when you talk breakeven, you're talking about your own salary, your employee salary, that's all included in breaking.

Chris: Last time I checked, we didn't want to do this shit for free. You know, we'd like to, right? Like, exactly. Money. Exactly. Sounds good. Well, hey, again, Joe, I really appreciate your time. And as usual, good, good perspective, even though not all of it was awesome.

Joe

Vaclavik: No, none of it was awesome. I don't really have anything awesome to say. I wish I did.

Chris: I know. Well, we'll keep in touch and hopefully something will change and we'll get some opportunity.

Joe

Vaclavik: I hope so.

Chris: All right. Well, thanks a lot again, Joe. Appreciate it. Of course. All right, everybody, really appreciate it again. Also a reminder I haven't said this for a while, but the Ag View Executive Business Conference will be in 2025 in January the 22nd, 23rd, 24th. And then there's also a little surprise on the 25th. We've got some really cool stuff coming your way, but we'll be announcing that probably in late June. Looks like sign-up will probably be in, in, in late July, early August, and it will fill up fast. So make sure you mark your calendar for the Ag View Executive Business Conference. Again, the 22nd, 23rd, 24th. Of January 2025. That said, thanks everybody. We will catch you again next time on the IG Pitch.