December market rally? Weekly market outlook Dec. 4-8th

Jim

McCormick: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.

Chris: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new marketing week and we are at the front end of December 4th through the 8th. We're lucky enough to have with us today Jim McCormick, uh, with AgMarket.net. Jim, how's it going?

Jim

McCormick: Uh, I was doing well. Thanks for having me on, Chris. I appreciate it.

Chris: Yeah, well, we had you on, what, I don't know, a month and a half ago or a few weeks ago or something like that. Got a lot of good feedback, so you must have some good information.

Jim

McCormick: Oh, well, thank you. I appreciate that.

Chris: Yeah, yeah. Well, it's good to have you back. I'm excited to have a conversation here. We're coming off of an interesting week last week with December corn, for example, going off the board. There was some people that were having to make some decisions, right? You know, do we roll that December to March? Do we— how do we handle that? And I think a lot of those decisions had to be made. And now, you know, I think people are hoping that maybe we see a bit of a rally, a little bit of strength as we head through the December timeframe and into January. And I think a lot of it's hope. But talk a little bit about kind of what you guys are watching, what you're thinking, and what are some probabilities on the corn market as we move forward here?

Jim

McCormick: Well, right now, like you said, as we went into last week, we were running into plain and simple, the clock ran out for people. First Notice Day was coming in. There was a lot of producers out there, Chris, that I believe this year You know, it was a very challenging summer to market grain. You had the weather play in June when, when the market rallied, then it kind of came down, came back up. And a lot of producers, it seemed like out there, did a lot of basis contracts. They were hoping for that summer rally. It just did not materialize. And essentially, as we came into first notice day, the elevators are just forcing their hand. Either you had to price the grain or you had to pay the roll. And if you notice, the spreads just went absolutely crazy this year. Pushed out to $0.25.

So it forced a lot of producers, I think, to dump the market here late, late in the cycle, right before first notice day. And it does look like maybe that might at least put a temporary bottom in where it seems to happen, unfortunately, so often when people get panicked and forced to do something. Now that we've kind of switched the table, we've started to move into, into the holiday season. We are a little bit more optimistic. I think that we could get at least somewhat of a seasonal rebound here. Don't get too bold up on it, but look for, I think, maybe kind of that Santa Claus rally.

Chris: As you look for that Santa Claus rally, I guess you call it, is, um, how much do we look for? And then do we— you know, this is one of the things that I've been kind of thinking about, is, you know, do we maybe set the price and kind of hold tight a little bit on the basis if we see a bit of a rally or a price that might be attractive, maybe do an HTA or maybe, maybe lock that price in on the March and then hope for a little bit better basis? Or do you think, or is that kind of a regional thing? How do you think you manage the basis with that kind of decision?

Jim

McCormick: All right. Well, it's kind of a regional thing. Let's just start with the basis first. What's been interesting, Chris, what we found is when we did the roll, essentially going from Dec to March, if you're an— if you're a producer and you had corn locked in, let's say at a basis of $20 under the Dec. The roll, because it pushed out to $25, it would have been equivalent to $45 under the March if you would have chose to roll that hedge out to March. But what we found here in the last couple days is some of the elevators already are narrowing that basis up by 10 cents. So instead of making a producer pay that full roll, they're starting to narrow it. So I think that's an indication right now that the elevators, the end users, just do not have enough grain purchased. And I think that is going to give our producers out there a better opportunity to see a rebound in it.

Now, I think the further west you go, the better off it's going to be. If you're east of the Mississippi River, you get into Indiana, Ohio, Michigan, they had phenomenally good crops, their basis is going to struggle. The other indicator our group likes to look at is the commercial position right now. If you look at where the commercials are, they're short about 50,000 contracts of corn. Now, that sounds like a lot, but the reality is, Chris, in the last couple of years at this time of year, they've been short 250,000 to 300,000 contracts. The last time they were this short of corn, this short of a small position at this time of year was back in 2013, coming out of the drought year. So the commercials do not have a lot of grain sourced. That is going to potentially give us an opportunity to see a basis rally. So that's the one part of the equation.

So keep an eye on that if you're a producer. If you get that opportunity, don't be afraid to take it. On the other side of the equation is the board. We've seen a little bit of rebound off the lows so far as we put the low in early in the week. Technically, we've taken out the 10-day and 20-day moving average this past week. The 50-day moving average is right around that 485 level, which is very close to where we topped out roughly November 15th. Excuse me, 495. I apologize, 495. Where we were right around November 15th. If we take that out, you got a 100-day moving average right around $5.04, $5.05. It's between that 50-day and 100-day. I'm encouraging producers to get a little bit more aggressive and try to get stuff sold. Now, what might generate that? It's the funds. They're carrying a huge short position in the corn at the end of the year.

If they don't book those profits, they're going to get taxed on it. A lot of them like to cover and just essentially if they've got the profit, they're going to get taxed on it. Let's go ahead and book it. So we've seen this past week trade. What was going on? The corn market was firming up. The wheat market was firming up. The bean market was weakening a little bit as it looked like the funds were doing a little bit of essentially adjusting and booking profits as a wrap up to '23 trading year.

Chris: Mm-hmm. Okay. So as we go through that potential pricing opportunity. Are there any other things, you know, you talk about the funds moving that, you know, with like South American weather, or there is there anything else that, that might give us a little bit more strength or something more to hope for than the numbers you're saying, or are those kind of already hopeful?

Jim

McCormick: Well, I think those are the numbers you're looking at, shore up a little bit of hope. I think what we're looking at is we've got to keep an eye on the demand picture. Exports this past week were one of the best of the year. So that's a good sign. If you look at it right now, competitively priced, the last numbers I saw were that we are very competitively priced, if not the best deal in town between now and February. So we should hopefully start seeing some export demand down the line. You may have heard some rumors of China here and there interested in corn. It kind of depends on who you talk to. But I think there is a potential to see the exporters come in and buy. So if you can combine kind of the end of the year shortcoming rally combined with some export sales, we could get a push higher than people think.

Now, the one thing, Chris, I'm going to encourage people to do is look at your numbers, grind them out. Don't necessarily look at the price because the price is going to look a little bit disappointing compared to where you were a year ago. But look at the profitability. If you can make profits, I think it's, it's very, you know, you need to be— take a serious look at it, say, I like that profit number, get it working. If you look how these markets trade right now, they are so viciously, viciously fast. They may be there at 11 o'clock. By the time you make a decision to call the elevator, that price might already moved off your target. So don't be afraid to— once you've decided you got a number you like, get the order working.

Chris: A lot of that has to depend too with how much a grower already has sold. It sounds like there's a lot of producers out there that have a lot of bushels yet. To price. And so that's going to vary a little bit from grower to grower too, as to how aggressive they want to get with those decisions too, I imagine. So with that said, the other thing that is a consideration for everybody now too, as we head into 2024, is new crop. As you look at the corn, we're looking at cost productions, and I'll be a lot smarter here, Shay and I will be in another couple of months as we dial a lot of these projections in for the 2024 crop. But the initial ones that we did last summer and a few of them we've gotten in this fall looks to me like, you know, there's cost of productions in that, you know, upper $4 range for a lot of growers in that $4.60 to $4.90 range. And there's some margin there.

What's your thought on the '24 crop? I mean, if, if these markets move like you're saying on the old crop, on the March, the May, the July, you know, should a guy be continually plugging in sales at the same time on the '24 crop? Or what are you guys saying there? What are you thinking?

Jim

McCormick: You know, Chris, I hate being bearish. It's— I've been doing this for almost 28 years. Being bullish is much more— people like to hear you talk about being bullish. Let's be honest, it's much more easier conversation to be bullish. Than it is bearish. I, you know, the holiday season, I don't want to be a bearer of bad news, but I've always believed you've gotta, you gotta go into marketing eyes wide, wide open. And right now we are encouraging guys to start locking in some of this '24 if you have not. I mean, at a bare minimum, we're encouraging people to at least get their fertilizer costs covered. But if you look at where we're at, unfortunately the deck is, I believe unfortunately, getting stacked against the bull market run. Without a severe weather problem. Now, a lot of people are worried about dryness issues on the corn and what's going on in South America.

You got to remember the bulk of that South American crop in Brazil, which is dry, will not even get planted till the beans are harvested and they're just planting the beans. So you're looking at a weather play in the corn market that really may not come to fruition until late spring, summer. But if we've got a good Argentina corn crop and on top of it, we're talking 91 to 92 million acres of corn potentially because the profitability is there. You are setting yourself up for, unfortunately, a bird of some supply of corn. Look where the September corn market went off the board. It went off the board at about— had a low price of $4.55, went off the board at $4.62. Dec corn here in delivery went down below $4.50. It's a little bit above $4.50 here wrapping up the week. This is what happens in bear markets eventually, where the spot price goes off, the next month goes there.

This March contract, what I was talking about earlier, we think it's going to get between $4.95 up to $5.05 eventually, hopefully. I think it's critical, important to either sell futures or buy puts up in that range because history tells me what happened in SEP, what happened in Dec is going to happen in March and eventually March corn is going to be at $4.50. But what's scary about this process is you're looking at a stocks-to-use around 15%. If you add bushels to it, it's only going to build and your stocks-to-use could push to 17%, 18%. And 2013 through 2018, we had stocks-to-use ended up those years, Chris, between 13% and 15%. Unfortunately, the average cash price of those years averaged right around $3.50 nationally, plus or minus $0.20.

So if we've got a 15% stocks to use right now and we add acres and have a normal trendline yield, 181, 182 national yield, you're going to push that carryout even higher. That tells me corn eventually is going to work its way to $4. So it's a situation you may not be happy with that price at $5, $5.05, $5.12, $5.15. But the fact of the matter is, as you mentioned, it looks like it's going to be profitable. If you're not careful and the weather does cooperate and we happen to have the yields in Iowa that we're having in parts of Illinois, excuse me, parts of Indiana and Ohio, I think you'll see corn down in the fours and the board potentially with a three hanging up in front of it in the cash market. So there's a lot of downward risk, we believe, because of the carry and just the setup of the market at the moment.

Chris: Mm-hmm. Yeah, I think that's what, you know, you hit the nail on the head is looking at these inputs. What do you have bought? You know, a lot of our clients are in the 50 to 75% of their total cost of production is unknown, quote unquote unknown now. And so I think a person has to look at that really close and say, okay, what is my realistic margin target for this year? Is it 3% return? Is it 10% return? Is it a 15% return? What is that? And then try to achieve that margin target and not like to, to your point, not be quite so hung up on the price, the quote unquote the price, but look at, you know, maybe getting that floor set to eliminate some of the downside risk is kind of the scary part that Shay and I are looking at right now for sure.

Jim

McCormick: Well, I think, I think you nailed it. I mean, the problem we all have near-term when we come off of years like we've had the last couple of years, you're used to selling, you know, at $6, $7 price and your brain is just 5 is too cheap. Yeah, I can't sell corn at 5. It's too cheap. But the market— you got people that realize the market doesn't care. Yeah, I mean, I've had a couple of clients— I'm dead serious, guys— have said, well, there's no way the market can't go down there. I won't make money. I'm like, unfortunately, talk to a hog producer right now. Yeah. You know, about not making money. The market does not care. And if we would put together a decent crop out of South America,— and a good crop in the United States, there's just not enough demand at this point in time to suffice.

In the long run, hopefully the demand will come, but the market will take that as a knee-jerk reaction to drive the price down to stimulate demand or essentially suffocate, you know, the production supply in South America a year from now. And like I said, unfortunately, when you look at this carry-in over 2 billion, we've got such a buffer for the bear. Meat could really take a hold of this market, unfortunately.

Chris: So let's, let's switch over to beans here for a minute. Talk a little bit about what you guys are watching there. I mean, it looks to me like the majority of our clients, when I, I breezed through some of our stuff this morning, kind of looking at the 2023 cost of production. I don't have everybody's final yields, but I had enough of them. I was kind of looking at that. I'm like, man, these pretty darn good margins. With where the price is at now, if they just unloaded the rest of it, you know, at these price levels for old crop. Not a recommendation, just, just a fact of what I'm seeing. So there's, there's margin there. And if people have line of credit yet or interest, it just looks to me like, you know, what would be wrong with unloading the balance of the beans and, you know, and then kind of phasing into the corn?

Or, or is there any tactics or things you guys are looking at with old crop beans, if anybody's still sitting on some?

Jim

McCormick: Well, I think you nailed it right there. I mean, the profitability is there in the beans right now. I think you got to scale into it. I mean, look what happened this past week's trading. We had a lot of vicious moves late, late in the week. Friday, we puked the market back out. We are trading a weather market per se in South America, but the US supply is tight. You're going to see opportunity from basis improvement as they're trying to pull grain to the market. But the window is going to be very, very short. I mean, very, very short. As we get into Jan, Feb, we are no longer competitively priced.

And you do not be— as a producer, I don't think you want to hang— I'm not encouraging producers to hang on to grain past that timeframe, Chris, because do you want to compete with a South American crop, you know, an Argentina crop that's rebounding by all accounts, and a potential decent crop in Brazil? Even if Brazil's crop is down 10%, there's more than enough beans in the world, I believe, at least near-term, unless we have a weather problem. So I think you got to sell into it. And if you want to play the what-if, that's what we argue. Use the board, go out and buy like a July vertical call spread. Because like you said, I think the key you mentioned there, Chris, that a lot of producers have just have forgotten about is the cost of money with interest rates where they are right now. On average, you could argue it's 9, depending on who you talk to.

It's between 9.5, $0.10 a month interest fees on holding beans. So even you say, hey, look, my beans are in the bin, that's fine. But if you store your beans, you've already stored them for a month. If you store them into January now, you've added at least $0.30 storage fees. You go into March, you're now looking at $0.60. You get to June and July, you're looking at, you know, over $0.60 worth of just lost interest. Sell the beans, go out and buy a vertical call spread or something for $0.50 and say, hey, I've got the same money at risk. But if the market does go down because Brazil starts getting rain, I, you know, I limit the down— the downward risk.

Chris: Yeah. And then I also would like to convert that over to a 2024 conversation too, as we were just talking about, kind of like with corn. You know, if we're looking at, at the opportunities there, you know, we've, we've flirted above $16. On the November '24 soybean, or flirted above $13 a number of times. And when we look at, at margin opportunities there, on average, it's not, not as good as corn. Corn still is kind of looking like it's, you know, when corn's $5.10, $5.15, and soybeans are $13, there's still a little bit, at least with our client base, it looks like a little bit of advantage to the corn yet. However, if a person is going to grow beans, that person's really got to figure out a point where they're going to start. What, what are you guys looking at? What are you thinking on, on the '24 crop? What, what are you looking at there?

Jim

McCormick: I think you look at the charts up near $13 has been resistance. I think you've got to respect that chart resistance, sell some. I mean, if you sold 10%, 20% at $13 and then said, well, I'll sell the next 20 if it gets to $13.50, but without a weather problem, You know, our stocks domestically are very tight, projected to be very tight. But if Brazil ends up with a decent crop, Argentina ends up with a big crop, you're going to see a build out in the world supply. And I would argue, just like the corn, you're not going to be able to be holding $13 beans going into the fall, unfortunately. So I think when you look at the economic risk to the downside right now, you know, you've got to skew it like I want to make sure I can farm in '25 and '26 type of situation. Unfortunately, it's just a cycle of the beast. I mean, we've seen this over and over again.

As they say, history doesn't repeat itself, but it does rhyme. And we build out stocks, we build out price, the market runs up. All of a sudden we expand production. South America expands production and we do it quicker than what's going on. You know, a lot of the world feeds China. What's the news we heard out of China this past week? China said we got too big of a hog herd. They're essentially telling their hog producers to liquidate because they're not making money. That's not a bullish sign to me in the long run. If you've got the Chinese moving away from pork, you know, and, you know, the United States, like I said, our pork industry is in a very tough situation right now. And so it's a situation just like the corn. We got to say it's profit over price right now. And right now you want to guarantee yourself profit in 2024.

The economy, heck, man, look at that stock market is going crazy right now. But part of the reason why the market's going crazy is it's pricing in a 1.25% rate cut, Chris, is what they were saying today. Think about that. Now, that sounds good if you're long stocks and your 401, you're excited. But the other hand, what are economic people looking at that they believe that the Fed is going to think they The economy is slowing down so much that in the next year and a half, after raising rates to where they are, they're going to start slashing them 1, 1.25 points over the next year. That tells me somebody believes this economy's slowing down, and you do not want to be a producer holding an excess supply if the U.S. economy continues to slow down. The Chinese economy's struggling, world economies are still in fighting inflation. So, uh, you know, profit is the key. Going into 2024.

Chris: For sure. Yeah. And that it just— there's just going to be so much stuff to watch and there's so much risk and there are ways to mitigate a lot of that risk. We don't ever spend a lot of time on wheat, but is there anything you guys are watching on, on the wheat side of the market? I mean, we're, we're, we're doom and gloom so far in this conversation. We might as well add to it here, right?

Jim

McCormick: Well, I mean, I would argue one thing on the wheat. If you look at the chart performance the last couple of weeks, I think this wheat market market does look like it's trying to bottom out. Um, there's a lot of wheat in the U.S., of course, there's, there's no doubt about it. But if there's something that is bullish out there in the world right now, it actually is the wheat. The market's not trading it, I gotta, I gotta admit. But if you look at the wheat supply of the countries, you know, take China out of the equation, U.S., Europe, Australia, the countries that actually supply wheat to the world, That stocks-to-use is some of the tightest it's been in 10 or 15 years. So the reality is there is a relatively tight supply of wheat. The funds have got this market by the throat and they're just making money being bearish.

But if you could get something to change, concern about the Australia crop, Europe, we don't know. You know, we're talking about the South American weather, but what if Europe has a poor winter crop, winter wheat crop? Anything can change it. You could see a huge heck of a move up. Fundamentally, because like I said, the world supplies are tight. Technically, I'm going to argue we're trying to put a bottom in this wheat. We kind of weakened a little bit on Friday, but I think there's a decent shot, just like the corn, you're going to see a little bit more strength in the wheat, at least we go in the wheat market as we go into the holidays, hopefully.

Chris: As you look at the corn, soybeans, and wheat, is there anything out there as we get close to wrapping up the conversation here that that could surprise us? You know, I'm— and one of the things I just was thinking as you were talking there is like the energy market. Is there anything— because it seems like the funds— and I talked to Pete Meyer last week about this— it's like the funds are not that interested. It takes a lot of money flow to kind of move this stuff around. And it seems like, you know, we could use more, more influence, more dollars in the, in the market if the energy market were to take off or anything. Is there anything else, or is that just reach on my part.

Jim

McCormick: Well, the energy market is something we need to watch because, you know, as we get more and more renewable diesel as well as ethanol, that's something to watch. But maybe the one thing you really just need to watch is the US dollar. If the US dollar would really start to weaken for whatever reason, and we've seen the dollar weaken the last couple of months in general, we've had a bounce here recently, but in general it's weakening because what's going on, the market was sucking money in, the market being the US dollars. As the world was buying into our system because of our high interest rates, our money market at 5%. So it was pulling all sorts of money into the system.

Well, as the Fed talks about stalling raising interest rates and even starts talking about maybe lowering them per se down the line, like some people are hinting at, you're going to see people say, hey, maybe I don't want to own those US dollars. And if you would start seeing that dollar really start to break for whatever reason, that could be the wild card that could give us the, you know, kind of the black swan, what's causing this market to rally? A weaker dollar. But, you know, funds are long the dollar and they're short commodities. They're short corn or short wheat. They start getting out of that dollar and all of a sudden they start getting out of the corn and wheat and you're going to kind of get a rising tide lifts all ships in the commodity system. So that would be the one thing I'd say if you're out there looking for the wild card, it's the US dollar.

Chris: Yeah. Yeah. So now this has been a great conversation and I think that The take-home here is, you know, there could be some things to kind of be watching, but we better get some targets out there. We better figure out how to put a floor on some of this risk and be reaching out and trying to get some of this done, figure out what that margin target is and put some of these things in play to get it done. Any final comments from you?

Jim

McCormick: Well, the only comments I'm going to say, thanks for having me on again, but, you know, get the targets working if you're a producer out there. Like I said, I'm optimistic we are going to rally, Chris, but I am leery that I don't think it's going to be a long-driven rally. I mean, we've seen it multiple years where the high for the year comes right after the holidays coming out on January 2nd. Yeah, that could happen this year. I am on the corn market especially a little bit worried about this, what the government may say on that January WASDE number on the supply. I know you're out west. The guys out east, Illinois, southern Indiana, Ohio, they had a phenomenal corn crop. It would not surprise me if the crop gets a little bit bigger in January.

And if we would raise that crop a little bit more than the trade's thinking in January, is that enough to change the psychology from what could be a nice short covering rally to say, wait a second, the rally's over with, South American weather is, you know, looking good, and tops the market? You know, that's only about, what, 6 weeks away. So don't, you know, make the decisions now, I guess is what I'm saying. Don't kick the can down the road. Now's the time to figure out your breakevens, not just for the '23, but the '24 crop.

Chris: Awesome. Great advice. I think it's time to do a lot of math, a lot of soul searching, and then make some decisions. Right. So with that said, hey, Jim, this has been a great conversation. We're definitely going to have you back again and really appreciate your time today.

Jim

McCormick: I appreciate it and, uh, have a good holiday season.

Chris: Yeah, will do. And again, uh, Jim McCormick with AgMarket.net, appreciate your time and also appreciate everybody listening. And if you got anything else that you'd like us to be hitting on, um, we are gonna be coming out with a few more Dad's Wisdoms and a few other things on the Ag View Pitch. And then again, if you're not subscribed to 19 Minutes, be sure to check that out. I'll make sure Mac has that in the notes of the, uh, information here, both on YouTube and on the podcast. With that said, again, thanks to Jim McCormick at AgMarket.net. Thanks to everybody, and we'll catch you again next time on the Ag View Pitch.