Crops, cattle, equities

Andy

Hruby: Welcome to the weekly market outlook for August 5th through 9th. Today you have Andy Ruby with Bryan Split. Good morning, Bryan. How are you doing?

Brian

Splitt: Great, Andy. Thanks for having me, man.

Andy

Hruby: Hey, thanks. Thanks for joining us. Hey, we were talking before we started about some topics we kind of wanted to hit on and I think that the first one that came on the list was old crop and, and the amount of old crop that's still out there to be priced and some of those impacts. So let's, let's start there and kind of share your thoughts around that.

Brian

Splitt: Yeah. So one of the estimates that we receive, and this is from some analysis at RJ O'Brien, a couple of weeks old, is about as of July 12th, I believe. But they had done some surveys of some major commercial entities across the country and The estimate was that the producer still has about 20% of their old crop bushels to market. And so that ends up to be roughly 3 billion bushels, which is the same amount actually that the USDA told us the producer has ownership of on that quarterly stock report at the end of June. So that in conjunction with their estimate of new crop and how much is marketed, that suggests the producers sold about 10% of new crop bushels and that number could have gotten smaller over the last couple of weeks if the crop got bigger.

So one of the things that, that presents as a problem as far as any types of rallies, there is a natural seller that's going to continue to remain in the marketplace, more so immediately for the old crop. And so when you have that many bushels that need to be priced, and likely most of it has to be done by the end of this month, you have a natural seller all month long that's going to be there to sell rallies to liquidate their old crop position. And it's— if you don't, it's going to turn into new crop rather quickly because we're going to have bushels out of the Delta, for example, the crop that went in early, it pollinated early, it'll be harvested early. You know, a lot of those bushels are along the river system that'll lead directly to the export market.

So there's going to be competition versus your old crop bushels for new, new crop bushels are gonna be hitting the marketplace rather soon.

Andy

Hruby: Right now, that makes sense. And, you know, as we kind of go forward, and I feel like that's kind of been a broken record for the last 2 months of, you know, there's all this old crop that needs priced, and it's just kind of been stagnant. But as we focus more on new crop and, and things to be watching for, you know, we got, got the report coming up here in about a week. What, what things is your group looking at and things that growers need to be considering going into that report?

Brian

Splitt: Well, just statistically, when you look at the typical USDA behavior, um, they— when the USDA doesn't make an early yield adjustment, which is going to be one of two things, in, in June, uh, they've made early yield adjustments, uh, to the downside, uh, because of extreme late planting and extreme wet weather. Otherwise, they will not make an adjustment in the month of June. They're not going to raise yield in June above the, the trend line that they're already using. Uh, so then the second opportunity for yield adjustment would be in the month of July, and that's generally going to be if we had a, uh, really, uh, warm and dry, uh, period, uh, leading up into that July. So we did not get that yield adjustment. So the next yield adjustment potential is, is then going to be in the August report.

And generally, if they didn't make one of the two adjustments, uh, in, in June or July, then the likelihood is that the yield adjustment in the month of August will be an upward revision. And so that's the potential that we're looking at right now. We've seen some estimates out of StoneX, for example, where we're looking at a new record yield, a yield that's above trend. Whether that's significantly different than what the trade has priced in currently, it's hard to nail that, that number down as far as what the trade is pricing in. But I can tell you that if we have StoneX type of a yield number at 180— was it 182.3? And then you start to look at the stocks to use that that suggests, and maybe we'll get a little bit of a revision in the acreage scenario. I think people will be looking for that and maybe reductions in either planted or harvested.

Either way, that may partially offset some additional yield. But the problem is your stocks to use is going to be at a level where historically when we've seen that type of stocks-to-use number, we've traded $3.50 on the futures market every, every year that we've had that type of stocks-to-use. So, um, a yield revision higher is likely to, uh, continue to put pressure on the marketplace, and it's just not going to let, uh, the, the, uh, balloon, uh, it's pressed underwater right now, it's going to not going to let it bounce here to get some sales. It's going to— you're going to continue to see weight on the marketplace if we see yield revisions higher. So, um, on the soybeans, we're looking at a little bit of potential hot weather coming in again. The yield is, is going to be impacted more on soybeans for a weather event in August than it will corn.

Corn still needs to fill the kernels, of course, but we know we're filling out the pods in the month of August. And so the European model and the GFS model are kind of in disagreement right now. The GFS really has in the 8 to 14 day period non-threatening weather. The European model has some heat coming in, in a pretty good chunk of the Midwest. And so, uh, if we look at the, the market as we're taping this morning, Andy, beans are, are trying to rally right now. And I think if that European model continues to be consistent, we're likely to see a short covering event in, in the bean market. Um, I think the bean market's overdone right now, and, and we're due for a bit of a bounce. But we should be looking at, at the charts for levels to be aware of, of where resistance will be on that bounce.

I can tell you the downtrend that we've been in since, uh, about a month ago, July 5th, is going to come in maybe around that $10.60 to $10.70 zone depending on the timing and how aggressively we go up. So we have to be really, really ready to sell bounces in that market. The thing that we need to really come to terms with is that these markets are in bear markets currently. There are bear market rallies, and a lot of times they can be pretty aggressive, but you, uh, you have to continue to be willing to sell those rallies until the trend changes.

Andy

Hruby: That makes sense. And I guess, you know, kind of what we're talking about that is kind of the cure for low prices is low prices. So what— where historically do these levels need to get to where these end users start getting aggressive about buying, or we really start seeing some of these export markets pick up?

Brian

Splitt: Right. So the whole low prices cure low prices thing is accurate. But possibly misleading. Because think about, um, you know, this— think about the market as a cruise ship, right? The big ugly trend, it's going in one direction, and it's going to take time to change the direction of that cruise ship, right? So to turn that boat around, right, it takes time. And if you think back to, uh, a decade ago, and that's really the similar, uh, time frame that we had where, uh— and just to kind of paint a picture for the viewers or listeners, think about 2010 and 2020, right? We're both in the low 3s for corn. And then all of a sudden we get a big demand pull. We go up into some major highs in 2011. In 2021, we made very similar highs from a price perspective. We pulled back off of those highs both years, went up and made new highs in 2012 and 2022.

2012 was drought, '22 is invasion of Ukraine. 2013 and 2023 are both transition years from bull market to bear market. And in 2014 and 2024 was full-fledged bear market. Right. And so what needed to happen in that period between roughly 2014 fall all the way through 2020, we had 6 years of lower values. And so it took the market 6 years to turn that boat around, right, to turn it to where the market wanted to go up. And so we lived multiple years of a sideways trading range in corn where really, you know, $4.20 to $4.50, if you're thinking December price objectives, every time you got up into that area, that was about it. That was your seasonal high. And the low-end value was somewhere in the $3 to maybe $3.30 area. So yes, low prices cure low prices, but it might be in the low to mid $3s for corn. For soybeans when we think about levels that we've seen previously.

And we've got a lot coming up. We've got an election coming up. And I think that's going to have a big impact on the sentiment of the market. You know, we have two candidates right now. One candidate was previously president and we were in a trade war with China. And that was bad to start and then really good because that was part of the demand story right in 2020 where all of a sudden China came in and they were buying corn and soybeans like gangbusters. Right. But it took the period of lower prices in the trade war to bring us down to those low prices before all that buying kicked in. So for soybeans, and we again, we'll talk about 10 years ago, the market went all the way down for a fall low on October 1st. And this was, this was back in 2014 of $9.04.

And so when I do my charting on soybeans, one of the major themes that I've been talking about is that $11 as a price, not an $11 handle. So I don't mean $11.80 or $11.90. I mean the actual price of $11. We don't trade at that price very often. So if you go back over the last 24 years to the early 2000s, there's been only about 16 months, right, out of 24 years where we trade at the $11 price. And generally what it is, it's a transition price. So we're, when we're at low levels and then we pop up through $11, then we've seen that move to $14, $15, $16, $17 beans, right? When we're above $11 for multiple years, like we just have been from 2011, or I should say 2021 through 2023. And then here we are in 2024, front month beans have broken down below $11. So what that leads to historically is a move into the low nines, into the eights.

And so when you think about where trade war level soybean values were, that was with an $8 handle in front of it. So we may need to see this market trade, you know, down into $9 to $9.50 potentially before we really start getting the market to turn. And again, I think the timing for both corn and soybeans without some type of a change to the outlook of the fundamentals, meaning, you know, a surprise yield adjustment lower or, you know, all of a sudden China is going on a major buying spree without those things. That I think we're going to continue to trade weak into the end of the quarter before bottoming.

Andy

Hruby: Okay. Okay. Now that makes sense. What, you know, if we— as we start to look for the bottom in this market, what are some things producers should be keeping in mind or strategies they should be considering as we go through the next 30 days here?

Brian

Splitt: Yeah, and maybe it's not just 30 days. I think it's potentially 60 days. But mentally, with the scope of the drop that we've seen in values, it can be very difficult to make a sale or to sell future contracts in order to hedge. And so for me, the thing that's made the producer the most comfortable is by having, you know, put protection under the marketplace. And I think if I'm in a bad spot right now,. And I'm having a difficult time mentally making decisions of whether to sell or to look for a bounce to sell. I think the October series of options— so you can buy an October put that's priced off of December corn or an October put that's off of November soybeans, they'll expire on September 20th. And so I think that gives you coverage to the downside for what I think would be the majority of the period where we can continue to see some weakness.

I don't think these options are actually that expensive for what I still feel could be the downside potential of the market. So when we look at, um, just simply buying a put, uh, having the premium paid for, um, not, you know, not opening yourself up to margin calls if something does change and then we get a very short, uh, a sharp short covering rally, um, I, I think that's the best way to go about it and, and still 100% leave your upside open while having that coverage to the downside for the next couple of months.

Andy

Hruby: Yeah, no, that's— that makes sense. And it's something that can be done relatively cheaply too. That's, that's the beauty of options. So one thing else I wanted to kind of get your opinion on was the new crop corn closing below $4. What, you know, what's the importance of that and how does that compare to some of the things we've seen in the past?

Brian

Splitt: Well, New crop corn below $4 is kind of a psychological barrier that we broke through. But I'll revert back to that 2014 discussion. There were some conditions technically, right, the structure of the market where in 2014 we made some winter lows very early in the calendar year. In 2014, it was in January, and in 2024, this year, it was in February. You've got that, that late winter low that was made both years. And then we rallied both years into May. Okay. And so from those May highs, we've broken down. And so what has been done recently on corn is that the front month futures have pushed below those early year lows. So again, in this year it was those February lows. In 2014, it was the January low. And when we did that in 2014, pushing below those, those early year lows, that led to additional selling as we got into the end of the quarter.

And so the level I'm really kind of focused on is $3.94 and a half. And that is not basis the December contract, that is basis the September contract because that is the front month that is being plotted on the continuous charts. So with the September contract having dropped through $3.94 and a half, that satisfies that same technical setup that we saw a decade ago. Again, that led to selling through the remainder of the quarter. So if we see bounces in corn, and again, this is basis the September contract, back up towards $3.94 and a half, that's going to be a rather significant resistance level. So when we equate that to where December is, I think that gives us maybe the potential to bounce about a dime from where we are. So Bottom line, you get up near $4.10, $4.12.

$4.12 was the low the day of the quarterly stock report at the end of June when we got the planting, the planted acreage numbers. Those are going to be strong resistance levels now. So again, I'm not so much focused on $4 for December. I'm focused on $3.94 and a half on the, on the September. And so we had a couple weekly closes below it and then we just had a monthly close for the month of July below that. So again, maybe you get some, some quick short covering bounces But the technical structure of corn is satisfying the same conditions that we had a decade ago that led to, to selling for the next 2 months.

Andy

Hruby: Yeah, no, that's, that's good to know and good information to leave us with. I guess the last thing I kind of want to hit on was the impact of July weather or lack of impact that the market had. You want to elaborate on that some?

Brian

Splitt: Yeah. So there are two— there's multiple factors that go into the potential for corn yield, but the two highest weighted factors are going to be precip in July and temperatures in July. And when we look at the type of precip that we had for the majority of the growing regions, and again, this doesn't mean everybody, but for the most part, we had plenty of precip, and we had non-threatening temperatures. And so both of those things combined would lead us to the very, very strong potential for record corn yields this year. Now, of course, we still have to fill the kernels out, and we're going to be doing that over the next several weeks. So August weather still has an impact on yield. But the two main drivers were very yield supportive. And so I think, you know, one of the terms or common phrases is is that big crops get bigger.

And so again, we talked earlier in the, in the program about the tendency for the USDA to adjust yield in the month of August. We did not see reason to, to have the USDA lower yield in June or July. So that suggests the yield will likely go higher in the month of August. And then once the USDA sets that stage of the crop is big, getting bigger, then the trade may continue to look for slight yield revisions, in the month of September and in the month of October. Um, and so that could really, you know, again, set the stage for a continued bear market as we get to the end of the quarter. Um, one thing I, I want to make sure we talk about, um, before we wrap this up is the cattle market too. Okay. I just think there's some important things going on. So, um, I don't know if you're kind of done on the grain side of things.

Andy

Hruby: Fine, go right ahead.

Brian

Splitt: Yeah. So I'm really concerned about cattle right now from a standpoint of some of the similarities that we saw structurally over the last couple of weeks compared to what we saw in that February-March timeframe. And so what I mean by that is in the February-March timeframe, the live cattle market was, was trending higher in that period. But the feeder cattle market was trending lower in that period. There was a divergence between the two markets. And so kind of fast forward now past that period, right? We had that big break into April and that was caused by the, the divergence where the feeder market pulled everything down. Okay, then we recovered. We had very strong cash trading in the, in the month of June. We had the June contract run up into expiration because of where cash was. We've had the August contract do something similar, but maybe not to the, to the same extent.

But basically the August live cattle contract got through a major peak that was made in May. Then we got through that major level of highs that were made in that February-March timeframe. And that looked really good. Okay. But the feeder cattle market has done the opposite. So as the live cattle have trended higher, gotten through those previous monthly highs, the feeder cattle market hasn't even gone up to test the May high, much less get through the, the February and March highs. So again, we're seeing a very divergence between the feeder market and the live cattle market. And so now when we look at the market technically, we've been in uptrends since those April lows. Right. And we made April lows around the 10th of the month and then we made May lows around the 10th of the month and then we made June lows around the 10th of the month and then July lows around the 10th of the month.

So I think you get the pattern, right? Yeah. And so, and all of those monthly lows were higher than the last month's low. So here we are to start the month of August, right on the first day of the month, we have feeder cattle break through the July monthly low. So we're kind of changing the pattern. And what happens is when you have all these monthly lows, they're all kind of stacked right above the next, right? And so when you take one out, you're very likely to go test the next one and you take that out, you go test the next one. So it can create a little bit of a waterfall cascade effect. Now, so we've taken out the uptrend that's been in place since April. Feeder cattle have broken through that uptrend much more aggressively than live cattle. So now live cattle did take out its uptrend yesterday, closed just slightly below it. We need to recover pretty quickly.

But my concern is when you look at what's going on in equity land, and so, you know, we're, we're in earnings season right now. The equity markets have been led higher by everything in, in the tech world, right? So the NASDAQ has been the, the ex— the, uh, the exchange or the, the stock market, if you will, that has led everything higher, right? The Dow has been really lagging and the S&P is kind of a mix of the two. And so I'll tell you what, I was looking at the stock market and the S&P and the Nasdaq in a 240-minute basis. And what that means is my chart is every bar is 4 hours of trade. Okay. And, um, the 4 hours that we saw yesterday was one of the tallest bars I have seen in equities, period. Uh, and, and it was to the downside, right?

So that means that this was about the strongest 4 hours of selling that I've seen in the equity markets, uh, probably going back to 2020 when we were in the, the grips of COVID right? And, and everything was, was under pressure because of that. Um, and so I'm concerned about a continued breakdown in the equity market and what that means sentiment-wise for, for the cattle markets. And a lot of that, if you think about cattle, it's been in an uptrend for 4 years. Right. And so the uptrend on live cattle will come in right around $180. Okay. When you look at the, the month of June, the June contract made lows of $180.92 before running up into expiration. Then we fast forward to the month of July. That's the August contract that's on the continuous chart, made a low of $180.82 before bouncing. And so you've got two monthly lows right back to back that are stacked with the same low.

When we look at the uptrend that we've been in for the last four years, that's going to come in right around that level here as we're in the month of August. So if we get front month cattle futures on the other side of $180, I think that's going to lead to a long liquidation event from the funds. Again, this is, this is a trend that's been in place for 4 years. So it's, it's very mature. And so my concern would be is if we break down below that support level, whether it's because of something changing fundamentally in the cattle market, I understand we're really not rebuilding the herd, but our weights are up significantly. And now we've got the demand side of the equation that we're also looking at. So, you know, have these record beef prices, are they starting to affect the consumer?

If we see the equity markets start to really come under pressure, does that change the sentiment from the consumer? And just from the fund behavior, Andy, if the fund manager wants to not be long anymore, that doesn't mean that they're going to go flat. That probably means that they're going to decide to go short. And so I think you could have a very extensive break in cattle values in front of us as we get into and potentially through part of the fourth quarter. I don't want to underestimate the amount of downside potential that this market could have. We saw this back in 2014, 2015, where once the, the cattle market— and at that point it was in an uptrend for about 5 years. But once we gave those long-term trend lines, we basically retraced about 62% of what the whole rally was over the course of those 5 years.

And so, you know, you're looking at live cattle values that could potentially break into the $130s. That would be a similar correction percentage-wise of what we saw from the market 10 years ago. And people may say, well, that's crazy, we can't do that. Let's just look at what wheat did. Let's look at what corn did. Let's look at what beans did. I mean, people have been screaming that we need to go higher and we've gone down. And so for— if you're a cattle producer, I would highly recommend that you have put protection focused around the $1.80 strike price, I'd be looking at your fall coverage, your winter coverage, even into next spring, because there's a very similar setup too with cattle as corn this year.

And what I mean by that is if you think back to last fall when, when Dec '25 was trading at $5.10 and we had the Dec '24 contracts up at the fall highs, there was a lot of talk about how, you know, this is the most expensive crop that we have ever grown for corn. Right. Yep. And so now we're significantly below the cost of production and, and the fund manager knows that and they're squeezing the producer. And whether you want to get into semantics of if that's right or wrong or moral or immoral, the fund manager was the producer's best friend when they were squeezing the end user in the bull market. Right. So there are tools to help you from feeling what is being felt right now. And so I would say it's the same thing in cattle where we look at the inputs on cattle right now and the price of calves, this is the most expensive time to, to feed these animals out.

And so if we get to a point where all of a sudden we're underwater and the fund manager says, well, I don't want to be long anymore, I want to be short, and they realize that the, the production side of it is, is underwater, they may squeeze it like they've squeezed the US, you know, row crop farmer. So again, There are tools out there to help you prevent that from happening. You just have to make a decision to use them.

Andy

Hruby: Right, right. Yeah, it's so true. Is there, um, you know, as we kind of wrap this up, is there anything else that you want to leave listeners with?

Brian

Splitt: Yeah, I mean, just, you know, to understand what I do, right? Um, I have a job to, to get to know people's operations, get to know their risk profiles, because like I said, there's a lot of tools out there you can use, but not all these tools are for everybody. So if you don't have help, I would just suggest finding someone that understands the market and understands how to use the tools, someone that's willing to educate you on how they work, someone that's willing to listen to you about your priorities and your risk profile. And try to help you find strategies that fit your risk and things you're comfortable with, um, whether it's me or somebody else out there. I, I think you just have to realize the amount of risk that's out there at this point. I don't know what's going to happen with the election.

I don't know what's going to happen with everything that's going on in the Middle East right now. I mean, we just had multiple events here. We've, we've, you know, hit, uh, some Hamas leaders in, in Iran. Iran's going to retaliate against Israel. Anytime there's kinetic activity out there in the world like that, it just makes me uneasy. And with the potential change in administrations or just the, the ongoings of the election, I think there's going to be a lot going on in the next several months. And so I just have to, you know, back to cattle for a second and just ask yourself, I mean, of all these things going on, do we expect to have cattle in the fourth quarter trading still at record cash prices? And if not, if the trend is not higher, and it starts to turn into lower, what does that mean for you?

So again, even though the market for, for the grains have come down substantially, the risk is still that prices go lower. And for old crop, you also have basis risk too, because cash has been trading pretty strong. But as all these bushels need to eventually come to the market, at a set period of time, it's kind of like a ticking time bomb. And if you have a grenade in your hand, and the the pin has already been pulled, how long are you going to hold it? So again, find somebody to help you if you need help. It doesn't have to be me, it doesn't have to be our company, but find somebody to help you kind of navigate through these times because it's, to me, I think it's going to be difficult moving ahead.

Andy

Hruby: Yeah, no, I couldn't agree more. Brian, if somebody wants to get a hold of you, what's the best way?

Brian

Splitt: You can, you know, if you want to look at some of our intel on the market, just go to our website, www.agmarket.net. If you want to reach me directly and have a conversation, my line's 815-665-0455.

Andy

Hruby: 463. All right, thanks Brian, and thanks everybody for listening. We'll catch you next time.

Brian

Splitt: Thanks Andy, appreciate it.