Crazy train

Shay

Foulk: Hi! Well, we're kind of starting out here, as you can tell, a little bit crazy terrain with Ozzy Osbourne unfortunately here tonight with the Ag View Pitch, and we've got Chris Barron and Dewayne Lowery here. And Dewayne, go ahead and say hi, and we'll get the conversation going.

Duane

Lowry: Hello everybody. Chris, hi to you, and it definitely is feeling like crazy here, and I don't know exactly what that's going to look like, but it feels like we're kind of, you know, for the long weekend we kind of moved the calendar ahead 3 days, and it feels like everybody's kind of ratcheted up their level of understanding of what's going on, or their respect for it, or their fear of it, and all of it's kind of ratcheted forward 3 days very quickly. And I think that's kind of found in everybody's emotions on the subject.

Shay

Foulk: You bet. And I think we want to start out, you know, in the podcast and just kind of mention some disclaimers here. We're kind of entering into some uncharted territory here with all of the weather extremes that we've seen. And we've— and just all the challenges from across the Corn Belt with, with cold, wet conditions and a lot of challenges and everything. So You know, again, this podcast with the Ag View Pitch is for perspective, and so you're going to basically get to sit along and ride along here with the conversation that Duane and I have on some of the things that are going on. And really, that's, that's the point of the conversation, is just to bring you some perspective, hopefully talk about some things that you're thinking through that might help with some decisions.

And if any of you have specific questions and want to dial through specific issues or questions, you can feel free to either email or call Dwayne or myself, and we can kind of help you think through some specific situations because every operation is unique and different and going to have your own challenges, and we'll all have to deal with those in our own operations that way. So, so Dwayne, you want to, you want to kind of, kind of start out, give us a little brief intro on kind of some of the things you think we might be encountering here. And as we go forward, I've got some— I've got an agronomic list and a couple other things that I think I want to bring up. But let's get started with you, Dwayne, telling us a little bit about kind of what you're seeing as we move forward here in the next couple of days.

Duane

Lowry: Well, we all know that we have a problem with weather planning delays and under— trying to figure out what the acres are. The marketplace has known this for the most part prior to the last hour of trading on Friday. I would say the market has been somewhat subdued in, in how it reacted to all this. Yes, we put on 50, 60 cents, whatever it's been off the lows since in the last 2 weeks. So that's somewhat dramatic. But on the, on the action during the day, each given day, it wasn't really that dramatic. That may be about to change. The forecast today, if you want to count raindrops, it's possible you could say the forecast is a little bit drier today than what it was on Friday. There are some drier windows out there depending on your, your location.

You may get a few days of drying out, but those few days of, of lack of precip do not equate to the number of days you're going to be able to be in the field. So that's still an issue with keeping planting slow. We're also at the point where, you know, the South Dakota producer, which just received heavy rains again this weekend, they tend to be very respectful of the planting dates. They don't like to plant late. The plain states can get very hot, and they have actually pay a little bit of a premium to get a little better prevent plant coverage in their insurance policy. So you're led to believe that they're going to be more quick to take prevent plant option as opposed to the eastern Midwest producer that really doesn't have a history of utilizing the program. So we have a lot of, a lot of balls up in the air.

We really don't know how they're all going to fall and how they're going to be juggled up here. But forecast is slightly drier. So you do have that, but I don't think that is altering the overall situation very much. We still have the calendar moving forward. We're going to face prevent plant acreage that a week ago was still seen as a little bit uncertain and then quickly became a 3 million acre kind of conservative reasonable expectation. I think that figure is probably up to 4, 4.5 million acres now. You can find people talking about 10 million acres of prevent plant, but The— in order to get that to happen, you'd have to have the eastern Midwest producer utilize prevent plant, maybe a lot more than what he wants to. And I'm not sure that's the case yet. I think 6 million acres of prevent plant on corn is very possible.

The eastern Midwest producer has a high APH, he's very confident in his ability to grow corn. He knows if he plants corn on the 1st of June, he's going to take a yield reduction. But he thinks he might still pencil out better than a prevent plant option. And I think that's probably the case up for the first few days of June. If you get to June 5th through June 10th, I think that's a difficult decision for them to make. And if it's after June 10th, I don't think people are going to want to plant corn in the eastern Midwest. I think they'd take prevent plant. Right now, the forecast probably does not indicate that they won't be able to plant until the 10th of June. At least there's still a level of optimism that they'll get there. So I think you'll get some prevent plant in the east, but not as much as some of the maybe worst fears.

Then it becomes a question as to what kind of national yield are we dealing with. I happen to think that the acres in the east are some of your higher producing acres in the, in the national equation. And if you shave them, that has a bigger influence than if you're shaving places that are helping to weigh down the national yield. And so everybody will argue about how much of a, you yield potential that, that we might shave. But let's just put it this way. It's not difficult to get the corn carryout for next year plugged in at under a billion. And it doesn't take much of an imagination to actually get it down closer to zero. And I think the marketplace right now might want to protect against this idea of a zero carryout and an idea that we have to ration demand.. And then the question is, where's this going to come from?

If we have to ration demand, the marketplace sees that 50 cents from on top of current prices is not enough to do that. And all of a sudden, you're talking about $4.50 corn. And to be honest with you, I think the conversations are starting to evolve where suddenly $5 corn doesn't look like you're in crazy town, you know, $5 corn looks plausible.

Shay

Foulk: You're on crazy train.

Duane

Lowry: Crazy train, yeah. And so I don't know, anything I say here is going to sound very inflammatory, and I'm really trying to protect against doing that. But at the same token, I am trying to convey to you that the traders, the farmers themselves, the speculators, the commercial traders, every single sector of the trade that I talked to has elevated their level of respect and concern over the situation very significantly since say Thursday of last week. And I can't help but think that manifests itself in a notable price reaction this week. And I don't think people will care so much about exactly what the planting progress was or is in tomorrow afternoon's report.

I don't think they'll care a lot about how many days of drying we have in the forecast because Along with the planting date, you also have a lot of the acres that were planted this last week were planted in less than desirable conditions. You got, you know, waterlogged soils, you got a lot of things that agronomically are a potential problem. They're not a given that'll be a problem, but they certainly elevate the risk. And right now, I think the marketplace has to be concerned about all that. What's your thoughts, Chris?

Shay

Foulk: Well, I, I just started before we got on here. I think I was telling you before we started recording the podcast here that I just was kind of jotting down some of the things I'd been hearing from our clients on agronomic challenges, and I started jotting them down. It turned into the top 10 list, unfortunately, and I don't have it in any order, but just to rattle it off, you know, we've had limited GDUs, and so, you know, I don't know if that directly equates to yield, but it sure slowed us down a lot, you know, as far as having any kind of advantage to the earlier planting because of the cool conditions. We've got reduced stands across the board, and almost every grower I've talked to that has corn up, you know, not, not terrible, but reduced to a degree. They're just happy that they're as good as they are.

Saturated soils, compaction, and planting in conditions that weren't, weren't suitable. You know, late planting technically started last week. I know the— you know, so we talk about the prevent plant, but if you look at the, you know, talk to any of the agronomists, they'll tell you from any— anywhere along, along the Corn Belt, they'll tell you if, you know, a week ago, more than a week ago, we were outside of our optimal planting window, you know, just because it's the, it's the last planting date on insurance, you know, it's, it's a week ahead of that when you start sacrificing some yield. So that's number 5, and then you, you look at the forecast, which is number 6 and number 7 on the list of 10, you've got still really cool forecast.

You know, I was just watching 2 or 3 pretty well-respected forecasters out there looking at the whole month of June is going to be pretty cool, pretty much across the entire Corn Belt. And then, you know, it's wetter than above normal wetness across that whole time frame. So, you know, maybe that's a good thing though because we don't get super hot and dry. So we'll kind of see what that shakes out to. But all that water in that saturated soils for those who did have nitrogen on, they've got leaching potential. You know, we set— we're setting ourselves up for some disease issues and a few things like that down the road because of the, the conditions. So, you know, we've We've opened ourselves up to that.

And then the other thing too is I've talked to quite a few people that either have, or they're going to now start to switch to some earlier hybrids and earlier varieties on both the corn and soybean side of things. Maybe not so much yet on the soybean side, but the thought process is there and that all equates to lower yields. So that's my kind of top 10 list, Dwayne, of what I'm hearing. And that all equals significantly lower yields than trendline across the board. And that, and this is the good stuff. This is the stuff that's planted for the most part too. So, you know, the problem or the scary part for me, Dwayne, is that, you know, sometimes as producers, we can be smarter than the market. You know, we, we know what's going on and we think, well, we should have the price just go to the moon or really take off and compensate us for all the prevent plant and what's going on.

But I think there's, there's probably the need for caution here too, though, isn't there, Duane, to be aware of all these things and then just kind of watch this market and don't get overly emotional, but, but just keep track of things on a daily and weekly basis, both on the market and agronomy side, and you know, because there's going to be a lot of math to do here, I think, in the next week or two here for the unplanted acres and the planted acres as far as how we want to manage yields and, and potential as well. So I don't know, that's my comment, Dwayne.

Duane

Lowry: Well, it's often true, almost always true, that the farmer becomes more nervous about their yield potential than the marketplace in general, and that's probably been more true over the last several years than it would have been, say, 15, 20, 30 years ago. Then the speculator was maybe more interested in embracing those fears as well. The last several years, for maybe legitimate reasons, maybe not legitimate reasons, the marketplace has become extremely confident in seed genetics. They've become extremely confident in producers' ability to use technology to get an advantage with crop spacing and, and everything. And so, and oftentimes in recent years, the yields have been a pleasant surprise compared to some people that maybe had stress at different times in the growing season. And so that's been a common theme.

But I think it's also true that that creates a very complacent view on the part of the speculator that maybe is not wanting to embrace this potential bullish concern very much. I think that would be where that we were at for much of last week. I think where we're at today is slightly different. I think where we're at today is a much more significant concern on the part of the people that normally would be complacent. I think they do see the historic nature here. I mean, we've never had this small a percentage of our planned corn acreage planted as of this date, never had it. We've never had areas in the eastern Midwest that are contemplating or faced with the potential to consider prevent plant, like we are this year. We've never had so many acres planted later than the optimum timeframe.

We've probably never had so many acres impacted by such a broad area of excessive water this growing season. This is even worse than, you know, some of the wettest times we've mentioned in history. So to use the word historic here to describe the situation, I think is accurate. And I want to go back to something I've been saying for several months. And that is, it's important to recognize that we talked about the supply side. And that's basically what our focus is here. But we have a huge demand base. I mean, we have a huge demand base in corn from multiple sectors. And we have a situation that despite record yields the last couple of years, you still have had a declining carryout the last 2 years. And we're not going to have a record yield this year. And we're going to shrink our carryout projection and then it becomes a matter of degree.

And so I think the marketplace is beginning to agree with that concept. And then the trade is still short, you know, we've rallied corn corn as far as we have off the lows, 60, 70 cents, whatever it's been. And the spec is still carrying a large short position. And if you think the spec is just going to cover his shorts and then walk away, you're crazy. They are going to cover their shorts and they're going to build a long position, right, wrong or different. That's what they're going to do.

Shay

Foulk: And that's my question. How long do they hang on? I mean, it's been— they've been riding this. So I mean, how much longer before that portion of your description of, you know, optimism for the market to go up starts to impact it, you know, because I think they hit the panic button this week.

Duane

Lowry: I think, I think the calendar is too far. I think the long weekend helps to, to add to that level of urgency. And it is true that some will say, well, look, we got a few more dry days in the forecast. But I think that's a dangerous crutch to try to lean on. I don't think that will hold much support to them. So I think the specs seek the exit door this week.

Shay

Foulk: What about end users too?

Duane

Lowry: I mean, I think, I think they've been put on notice and I think they've been complacent, didn't see a need. But I'm guessing they're in the same boat. I think they're looking to get coverage. And if you happen to be a user in the Dakotas, you're probably wondering where in the world you're going to get your physical supply. You might be able to buy some paper or options or futures or spreads, but you're wondering, where am I going to get my physical supply? So it, it's an interesting scenario that's playing out here. And, and I know it sounds inflammatory how I'm describing it, but I, I don't see that it's an unreasonable way to describe it.

Shay

Foulk: So from a practical standpoint, then, you know, I mean, we're, we're we're dealing with this crazy train, basically, potentially. And as we look at where most of us are sold, you know, when we talk to growers across the U.S. and our, our, you know, cross-section of the world, let's put it that way. I think, you know, you and I have talked offline, and I think we've characterized, you know, there's probably a lot of growers out there somewhere in that you know, 10 to 45% sold, let's say average, maybe a lot of growers being around an average of 30% sold, but that's 30% sold of expected production.

And so let's say, you know, and obviously everybody's got to do this individually in their own situation, you know, it might be somebody that's completely planted or somebody that's not planted anything, but if you're that somebody that's limited on what you've got planted or very little done, or in an area where you're planted, but things aren't looking so hot, you know, all of a sudden that 30% sold could be 60% sold or even more. So, you know, from a practical standpoint, what should we be thinking about, or what actions should we be maybe starting to consider to mitigate that risk if it's there? What, what should we be doing?

Duane

Lowry: Well, everybody's in a different situation, both, both in their cost of production, their, their, you know, their overall financial picture, their willingness to manage risk. And I don't care what we think we might be dealing with, or where we think prices might go. If you go into the corn market and put on a long position after it's had a type of run-up that we've already had, you know, hey, that there's risk involved in that. I mean, you can't say that there's not, there's definitely risk involved in that. I am hesitant to say how a producer should react to this, but I think that it's quite common that people have maybe more corn sold in advance this year than they have in recent years because they've been so beat down in outlook and hope that through the winter months.

I was surprised when it— when I would talk to producers about their crop insurance discussions and their their considerations. Part of that process, you ask them how many acres or how many bushels they have sold, and it was very common to find 25 to 30% sold at that time. And I'm not so sure— so there hadn't been a few more sales done since then. So if, if you're in the certain area that you have not completed your corn planting yet, that 25 or 30% that you had sold Number one, it's sold at probably $0.20 lower than where it is right now. And all of a sudden, if you thought you were 25% sold using your APH or something even more optimistic than your APH, and now you think you're, you know, something less than your APH, all of a sudden that percentage is something higher.

My first thought is, and I understand that as prices go up, there's a desire to make sales because we're moving into profitable zones. I understand that, but my, my first thought is I think the producer needs to take an approach here that to be slow to make sales, because not only are we dealing with the here and the now and the planting delays and all that goes with that, your agronomic top 10 list, and you're, you're dealing with possible loss of acreage, we still have the growing season in front of us. And we have now pushed our key pollination period deeper into the summer where you're more prone to heat. It's also a situation that you're more prone to dryness if that were to suddenly change.

And all of that creates enough uncertainty that the marketplace is going to have a difficult time, you know, breaking much from current levels, given any input that we might imagine in front of us. If we're— so if we are just looking at stabilizing at current prices as a worst-case scenario, I think the producer should find value in just the value of time to be able to spend more time evaluating this and seeing what we're doing. So my inclination is to be very careful in pricing more bushels. We— maybe we would talk about this in a different segment in our podcast, but I'm thinking of it now, so I'm going to throw it out there. The other thing that— the one thing I have heard that concerns me a lot, I've heard a lot of producers talk about their December '20 next year's corn production. And they see prices out here at $4.14 is where that settled.

And they're saying, you know, maybe I need to make some of those sales, maybe I'll sell some Dec '20 at $4.25 or whatever figure they want to put on that. I think that's dangerous. Because if what I've described here overall is true, and the carryout gets to a level where we have to ration demand next year, there will be a push to increase corn acres.. And I don't know how much you can say it's 3 million or 6 million or whatever, how many acres you think we might have to increase. But the marketplace is going to send a signal for more corn acres next year. That means your cost of production for corn is going to go up. And I don't think it's going up a little. You got a lot of seed acres that aren't going to get planted in the US this year. That's cost of that 300-pound, $300 bag of seed is going up. The cost of fertilizer is going up.

That's a tightly held pricing structure controlled by a small group of entities. And we all have seen it before that when there's a demand for that product, suddenly prices go up significantly. And if the price of corn does move up, and they see an opportunity that you can pay more for it, you can bet that it's going to happen. So what, even if you think $4.14 or $4.25 Dec '20 corn is an attractive figure, you're making that decision based on current input costs, and I'm here to argue that input costs for next year could be significantly higher than what you were looking at this year.

Shay

Foulk: Yeah, one thing we do, Dwayne, sometimes if a grower is wanting to do that, you know, we'll, we'll look at a percentage of a, of, of a purchase of, say, their P&K or something, and it's a certain dollar amount, then maybe we'll sell that dollar amount of grain. But you want to do it one one-to-one and not exactly what you're saying. I agree 100%. You don't want to go out there because that happened. I think it was back in like 2009, if I remember right. You know, the, it kind of happened. Everybody did it the other way. They bought their inputs and then the price went down, you know. So if you're, if you're reaching out 2 years out or 1 year out, even you want to make sure you kind of align that margin of, of dollars and, and keep, keep a handle on exactly where you're at. So I buy into that for sure.

Duane

Lowry: Yeah, it's, it just looks like it's going to be a different set of numbers you're working with next year for costs. And part of that's going to depend on one, does the corn market actually go up? Number two, how much does it go up? And number three, the strength in this corn market is going to occur everything in the front end. And that means Dec '20 is going to be the last market that wants to go up because that is the opportunity for everybody to start over, hit the reset button, and return to expect a trendline or better yields. That's the opportunity where the user says, well, I don't need to buy anything out there, I'll worry about that later. My concern is in the, the 19-'20 marketing season, not the 20-'21 marketing season.

Shay

Foulk: Well, and the bad part of that too, Duane, the bad part of that is a lot of times that front-end movement influences the cost of production out there too, because you know, that adjustment made on NPK and some of those, you know, commodities that kind of the price will hold. And that's the challenge.

Duane

Lowry: Absolutely. And when we get to a point where, prices are inverted and nearby prices are higher than what the next crop year will be. It's been my experience that everyone, whether it's the producer, the supplier, the speculator, anything else, everybody's viewpoint as to what corn is worth is always based on the higher front-end price. They don't base anything off of that new crop price. So even if the new crop price stays, you know, discounted to old crop, I guarantee you the fertilizer industry will price it as if it was pricing the old crop. They won't give you a break for the new crop. So I'm just saying that I would exercise some caution about thinking about marketing anything in 2020 at the present time.

And I would be trying to figure out if there's anybody that will give you— lock in some of your input costs and, and how feasible that would be and what kind of price you'd be dealing with it. Maybe the opportunity won't be there, but I think it'd be worth exploring.

Shay

Foulk: Yeah. And, you know, and we're kind of, again, from a disclaimer perspective, we're talking about some big picture things here. And again, just to remind people, you know, to call us one-on-one and we can talk more specifically on a specific situation because everybody's— depending on where you're at in the country and all those kind of things, it has, an impact on, you know, what the right decision for somebody in South Dakota is going to be, probably quite a bit different in Ohio, or, or, you know, that as an example. But, um, because, you know, because I, I, you know, I think what a lot of growers would want me to be asking you, Dwayne, is, so what do we do? You know, what, what should we do now?

And I guess that's my answer is, you know, talk to us one-on-one if you have a specific question, because for us to do absolute specifics, with the exception of talking about perspective and where some of these things can trend and go, I think, and, and throwing caution out there where we see the need for caution is real important. And having said that, Duane, is there any other spots from the producer's perspective that we need to, to recognize that the caution light is on and see an area that we haven't discussed here yet today?

Duane

Lowry: Well, not one that comes to mind. I mean, the big picture thought is production costs for next year could be quite different than this year. And then the year percent sales of 2019 production, you know, might look different than what you thought based on your yield potential. And everybody's different. If you're, if you happen to be in an area that you didn't get the heaviest of rains, and you got stuff in, in April and your corn is up and your stand is relatively good, um, you probably feel relatively confident about your yield potential and justifiably so. The problem is there's a smaller percentage of acres than normal that are in that position and a larger percentage of normal, in fact historically a larger number of acres that are facing a much more challenging situation.

So I guess I'm inclined to think that producers always need to look for profit opportunities, but sometimes I think there's a little wisdom in just being a little slow and seeing if you— if time doesn't afford you a better understanding and a better picture of what you're dealing with. And I'm not so sure that time— embracing that time might not be a good investment right now.

Shay

Foulk: Mm-hmm. Yeah. Any other things? I think, you know, we're getting up close to half an hour here. There's probably some things that, you know, some of the growers out there thinking, you know, talk about this or talk about that. You know, if there are things that, that you guys specifically have questions on that you want us to talk about, you want us to discuss, make sure that you either email Dewayne or myself or Shay or Alyssa so that we can get, get that on the list of topics for discussion. And again, if there's anything specific that you guys want to want to talk about. So, you know, I think, Duane, just for a reference point for everybody, we're probably looking at having the next podcast, if it works for you, maybe Tuesday sometime after the report, Tuesday evening or late afternoon. Does that work for you?

Duane

Lowry: Yeah, I think we could address the weather, get a better picture on what the dry window looks like, if there is one. We'll be able to assess the planning progress. We'll also be able to assess how the market reacts to this after the long weekend. I do— I did think of one other thing I want to mention just in passing, and maybe we'll talk about it more in tomorrow's podcast. But there's a, there's a belief in the marketplace, and I understand it's justified on many levels, that soybean market is something completely different than the corn market. And we have such a huge and massive, excessive amount of supply in the US and South America, uh, for soybeans, and, and that's not an inaccurate statement.

But I would point out that, um, we don't know what our prevent plant acres will be in beans, and hopefully it won't be as, as much as, uh, the, the corn or anything like that, and hopefully this weather situation will turn. But if you take a few, a couple million acres of prevent plant and beans in some locations, and if you start shaving national yield potential because, and I, you know, maybe even more aggressive on the loss of potential than just the word saving. But because of the planting date, and the, I mean, as a week ago, we, or as of tomorrow night, or as of right now, the marketplace thinks it's going to, we're 30% planted, that's 70% of your beans are going to be planted basically June 1st or later. That, that is a concern. And all of a sudden, you could It's not difficult to take, you know, 300 million bushels off your bean carryout.

And then next year, if we're going to have a push for corn acres, because we— the marketplace says we need corn acres, and you start taking your soybean acreage down by 3 to 6 million because it's needed for corn, suddenly your bean carryout is no longer burdensome. And then you have to wonder if beans are justified at being at near 12-year lows. And so it's possible that it won't be too many weeks before we're having a completely different conversation about what the soybean market outlook is too. So I just wanted to throw that out.

Shay

Foulk: Yeah, that's definitely something we'll be watching as time goes on here. And well, thanks everybody for, for listening. Dwayne and I again are available, email or phone calls for conversation or discussion. Throw us topics, discussion that you'd like to hear. And from the Ag View Pitch and on behalf of everybody, Shay and Alyssa and myself, and thanks a lot, Dwayne, for being on here with us. And we want to keep things rolling here, and we'll see kind of what the action does here overnight and in the next day or so, and we'll talk again here late in the day on Tuesday. And thanks a lot. Talk to you soon, Dwayne. Thanks everybody for listening.