Easter Sunday night market outlook

Dwayne

Lowry: And it all comes down to this. 2 on, 2 out, bottom of the 9th. The Farmers lead by 1. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we are starting a new week, and we were coming off of Easter, new beginning and springtime, and you've got Chris Barron and Dwayne Lowery. How are you doing today, Dwayne?

Dwayne

Lowry: Good, Chris. This is Easter like none other I've ever experienced. First time I've ever experienced an Easter where I'm never going to leave home.

Chris

Barron: Yeah, it's crazy. I know we had Easter with our family on actually on Good Friday. That evening we had Easter dinner with the kids and it's just kind of the immediate family at home and everybody else, I guess it's talk to them on FaceTime, on the phone. It's sure a different, different world right now we're living in, isn't it?

Dwayne

Lowry: Yes, it is. And actually, we're gonna have FaceTime with our kids today also. So I guess, I guess I'll be traveling electronically.

Chris

Barron: Yeah, exactly. It's just unbelievable the times we're going through. So, but with that said, you know, let's— we are going into a new week of marketing and Last week, just a real quick kind of touch back on the S&D report. Talk a little bit about, about what you saw there. Is there anything pertinent that needs to be discussed?

Dwayne

Lowry: I'm not sure there was anything that was a major surprise. Corn ending stocks probably about 200 million larger than what they were the month prior in corn. And maybe $100 million larger than what was expected. And I think that traders are fearful that without an immediate fix to the ethanol situation— and so far that immediate fix isn't visible— that ending stocks might continue to go up. The one place that might have some pleasant surprises there along the way might be in exports. We're seeing a few more export sales. I'm continuing to hear from people who are connected on the export arena that, uh, they think the outlook over the next few to several months is actually going to be pretty good for corn exports. So maybe we'll get some offsetting, um, extra use there. Uh, bean ending stocks were at 480 million. That was up about 55 million from the March estimate.

It was probably $30 or $40 million above what traders anticipated. Wheat carryout also was up about $30 million from March and a similar amount above expectations. I'm not sure any of these factors will have much of a lingering effect on the marketplace. Some of the components that created these numbers might have some lingering effects, but the marketplace, I don't think, will care a lot about pointing to these numbers for, you know, a direction. Just on Friday's price action, you know, between the corn and beans, the bean number was more of a surprise to get that large of a number, I think, than the corn was. And yet beans are up 9 cents and corn finished the day up about a penny and a half. So I think some of these things will be forgotten.

Other things that happened this week and, and to some extent are still ongoing, we have the crude oil teleconference between OPEC and, and their OPEC Plus trying to find an agreement. They basically came to an agreement to cut production by 10 million barrels a day, and, and everybody agreed to that with the exception of Mexico. They were supposed to cut 400,000 barrels a day. They only wanted to cut 100,000. So that kind of put a monkey wrench in the agreement at the time. President Trump stepped in and said that the— he would work out a way for the US to cover that part of Mexico's production that they did not want to cut, which everybody else signed off on. Saudi Arabia wasn't good with that. They wanted Mexico to cut on their own. And so here it is Sunday, and that agreement hasn't yet completely been finalized as to how that's going to come about.

A few other ideas have been floated around as possibilities. I think in the end the agreement will take place, but exactly what that looks like, I don't know. On Friday, the G20 met and their energy ministers met also through teleconference. And OPEC+ and Saudi Arabia wanted to see that group of countries commit to another 5 million barrels a day in production cut. They as a group did not meet an agreement, did not put anything in writing. And the US and others are saying that we're already on path to cut 5 million out of production just because prices caused that to happen. Where Saudi Arabia wanted more of a firm commitment. So there are some, some things up in the air in terms of crude oil that when we went away on Thursday that I think we thought we were going to have a completed transaction.

So to some extent that might be a little disappointing or discouraging to the crude oil market, and I suppose you could have some spillover discouragement in the grains. But I would say this, over the last week or two, the The grain markets have not at all been connected to either coronavirus or crude oil on any daily manner that you could, you know, clearly see we're up or down based off of coronavirus. There's just been no connection to that or the crude oil. So maybe the grain market is trying to focus on other things. But so I guess we got through the week not too bad a shape. It was kind of a stabilization week. And I think you could even go back into part of the previous week to be in kind of stabilizing action. So hopefully this means we're close to being done going down. The problem is we can't find a good reason to stage much of a rally.

So the marketplace is going to be looking forward, trying to figure out what the next inputs are. Weather for the upcoming weeks looks cool for sure over a large part of the central part of the Midwest. Moisture probably wetter in the eastern and southern areas. The western and northwestern areas are probably— don't have that much precip. So to some extent, the weather is maybe not ideal because we're going to be so cold, but doesn't look like it's starting out to be anything quite like last year. But some of the long-range maps do cause some people some concern because they might be a little bit wetter at the tail end of April.

Chris

Barron: Back to the crude oil for a minute. On the ethanol side of things, what's going on there? Any, any light at the end of the tunnel or any, any encouraging news or anything you're hearing there?

Dwayne

Lowry: Well, there definitely are plants that have closed because of the crude oil situation and the ethanol prices and the lack of profitability. There are other plants that have scaled back production, ranging from as little as 10% reduction to something greater. There remains— let's put it back up a minute. There are also companies that did plan to cut back and/or to close, and they changed course and decided to stay open and maybe only cut back as opposed to closing. Not sure why that is there. You get different viewpoints as to why that has happened, but there continues to remain some hope and expectation in the ethanol circles that one of these stimulus packages that will be forthcoming will have something in it for ethanol plants. And to some extent, I'm not so sure that these SBA might not fall into that category even on ethanol plants.

But there might be something more specifically targeted to it. President Trump has directed Secretary of Agriculture Sonny Perdue to find more and creative ways to help American farmers through these difficult times. I don't think he's ever mentioned the word ethanol, but that, you know, you keep wondering if there's going to be some move for ethanol. So that, that is something going on there. And the last thing I would point out is interesting, that whether it was an ethanol plant— I don't think ethanol plant was the drivers— but corn basis levels over the last several days have improved some. And we had one day this last week where Some river-connected facilities were pushing bids 5 or 10 cents, or raising their posted bids 5 or 10 cents, and having to push beyond that. So the river export market has got an appetite for corn, clearly.

And along with that, I saw some ethanol plants increase their bids some as well. So none of that seems to make sense when you look at ethanol profitability, but it is a little bit different picture than what what it looked like when this crude oil price first fell apart.

Chris

Barron: Yeah, and I think we'll get smarter on what's going on with ethanol depending, like you said, on, on what possibly the government might have a little assistance there. And I guess time will tell here, we'll get a little smarter on that. As far as the COVID-19 thing and any disruptions or impacts on that direct to the grains, Is there really, I mean, I know you've always been not really thinking that there's that much of a direct correlation there. Any thoughts there, any changes or anything different there?

Dwayne

Lowry: Well, first of all, the COVID-19 in terms of its impact on the U.S. economy has been much more than I ever dreamed because I did not believe that for something that was going to have a statistical death rate of 2% or less, I did not think in my wildest dreams that they would shut down the economy over this. I thought they might have reached a point where they would have directed people in certain risk factors, either by age group or by health-related conditions, that they would have directed them to stay at home, that they may have done other type of measures to try to mitigate this, but I never in my wildest dreams anticipated that they would shut down an entire economy.

In fact, I think that somewhere down the road in history, as we look back on this, I think the conclusion will be that they overreacted to this economically, and they should have found a different way to do this without shutting down the country, because you can't, you can't set a precedence where you're going to shut down a country for this type of an event. So I was surprised at that.. And to the extent that that's having an impact, you know, you tied it into, is it causing any plant closures? There's been a grain facility or two that have had to shut down because a worker had tested positive, and then one of them found a way to reopen with some other workers and changing their, their pattern for their workers.

There's been co-ops, private industries, both that have set forth guidelines regarding fertilizer plants and other ag support facilities that if one of their workers is test positive, or if somebody comes on the premise that is later found to have tested positive, that they will shut down the plant or the facility for 2 weeks. So there's been some of those. So it is possible to imagine scenarios where disruption of supply or services is a possibility, and as strange as that may sound in the current environment, I'm not sure that we should think anything is too strange.

The, the problem is that the businesses are afraid that if there is somebody that tests positive on their premise, whether it was a worker or somebody that visited their premise, And if they don't take action and they don't move to protect their employees to the extent of closing down operations, that's— they'll be liable for, you know, health costs, lawsuits, etc., not to mention, you know, the reputation and the, you know, kind of a shaming, so to speak. And so everybody's on high alert, heightened alert.. And I'm not sure the decisions, such decisions might make the most, you know, statistical sense, but we're not really basing things on statistics right now as we've got the whole economy shut down.

And so it's, this is an ongoing thing that even if, even if the answer to the question you posed is no, nothing has been disrupted yet, it's possible that we in the Midwest might, we may not have peaked yet. We may not have had this thing happen yet, and I think we have a situation where if some of these ag support facilities and locations are impacted, that there might still end up being a storyline where, where people are not able to get services or supplies or whatever in a timely manner. I don't know if that will be the case, but you know, how does one rule that out? I mean, what are you hearing about that, Chris?

Chris

Barron: Well, and just, I think in agriculture, we have not yet really been affected much in comparison to the rest of society, really, have we? Because, you know, we're deemed an essential industry. And so we're out still kind of living life normally. I mean, other than, you know, we're not spending time with extended family and we're social distancing and we're doing all those things. Which I think are important that we do. But, you know, I'm not sure we're going to escape it from a financial standpoint at a certain point. I mean, things have been pretty normal. You know, we socially distance this time of year anyway, as farmers. I mean, we go out and do field work and work in our shops and everything. I mean, sure, we're doing protocols and cleaning tractor cabs and the social distancing thing again and all that type of stuff.

But The economic impact to all this is yet to be seen, and I don't think anybody really knows, do they?

Dwayne

Lowry: Nobody knows, and you're right, agriculture is an essential service. But on top of this essential service, you still have these companies that have posted that— not all companies, but some of these agricultural companies have posted that if you their workers are detected or their site is detected as having been a place where they've been exposed to the virus, that they're going to shut down. Now, I'm sure all won't, but some will, and what you run the risk of is an outbreak that all of a sudden you get one of these places to close for those reasons, and then all of a sudden, how's the rest of them respond? Is it, is it going to become a situation that they feel compelled to where they have to shut down operations. I, I, I find it hard to believe that should be the case, but I have to respect that as a possibility that it could end up being the case.

Chris

Barron: Yep, time's gonna tell, that's for sure. As we go into the new week, I mean, kind of wrapping things up here, Any, any comments or any, any thoughts or ideas on, on commodity prices? I mean, we've been talking about a lot of important stuff, but as it relates directly to prices and that kind of stuff going into this next week, or what, what should farmers have in at the top of their mind?

Dwayne

Lowry: I think the first thing farmers need to have at the top of their mind is things that are within their control. They can't control coronavirus, they can't control market prices, they can't control basis or anything else, but they can control, uh, being ready to go and being ready to get to the field and do everything in their power to get the best crop they can. And, and, uh, that's the only place that they can put their focus. As far as markets are concerned, uh, the first thing that we have to do before we can go up is got to stop going down. In the case of corn, I think an argument could be made that we've seen a lot of stabilization over the last several days. We've seen stabilization and actually some improvement in some corn basis. I think that's a good sign. It doesn't necessarily mean that some of the problems the corn market is facing are gone.

It just means that maybe at current prices, current supplies, maybe that this stuff is factored in. It may rear its ugly head again, but maybe it doesn't do that for a while. An argument could be made that the place where corn is trading at now, we first traded this level on the 18th of March. So here we are 3 weeks later and we're at about the same price. So I think that's encouraging. I think in the case of wheat, not that it has a direct impact on corn, but the wheat market has been able to shake off some of this stuff and have staged some rallies. The soybean market has been able to shake off some of this stuff.

We had initial break with the, the soybean market from the crude oil price war that started on March 7th that unleashed, you know, a week or a little over a week of, of a sharp decline in prices, only to be followed by the next week and a week and a half of prices that strengthened again. And, you know, where bean prices are at right now, you're 40, 45 cents off of the lows that were made in the middle, middle of March. So the ag markets are doing some things that show stabilization and some ability to shake things off and move on to, to something different. I think there remains a chance that we can get a lot of export optimism that can surface at any given time over the next several weeks.

In terms of for this week, I think there is some risk that that we can see the markets drift a little bit lower than where we finished on Friday, just from the standpoint that we don't have a lot here to hang our head on. And unless we get some, you know, quick upturn in export announcements, maybe the market does set back a little bit. That being said, I don't think we're going materially lower in any of this stuff, and I think we still have opportunities for some pretty good price recovery during the next several weeks. So I'm encouraged by the stabilization aspects we've seen, and I'm encouraged by the economy looking to get past being shut down and looking to focus on when we're going to reopen, and expecting that to be, you know, May 1st in some locations. And I think the The rules and the guidelines are going to change. I think there'll be some sort of encouragement from that.

But in terms of agricultural prices, we need to see some exports if we want to talk about getting, you know, improvement to the price outlook. I think that there's a good chance that's going to happen. That's what I'm hearing from a lot of different people. But we've got to start to see some of that actually materialize into a fact as opposed to just an expectation.

Chris

Barron: Sounds good. All good discussion, and I think, you know, in uncertain times it's really hard to have an absolute playbook, I think. Any final comments that you have before we wrap up? Anything I didn't ask?

Dwayne

Lowry: I don't know if there's anything you didn't ask, but I know a lot of people have concerns focused on two different areas. One, when to price new crop grain, and two, what to do with old crop corn and how much fear is there in basis and things of this nature. And I guess dealing with the leftover, uh, '19 corn and the fears about basis, I would take the approach that, uh, during this period in front of us in the next 45 days, 60 days, whatever it is, as producers are working on focusing on on getting crops in the ground and less focus on moving supplies to marketplace. I think that we'll see basis levels improve in corn. Hopefully we can get some price recovery there as well. And so I would avoid making panic sales today on basis for old crop corn.

As far as new crop is concerned, if we can get Dec corn up into the $3.75, $3.85 range I think that creates a plausible opportunity given the current set of fundamentals that we have, that maybe that is a warranted place to, to consider some price protection strategies. I still am of the belief that with the markets not at a favorable price and having absorbed an awful lot of negativity, I think there is still an argument can be made that As you look for those price protection strategies, you pick strategies that might give you the protection but also give you some level of opportunity to participate in upside potential. And the list of what those things might— those strategies might look like are quite detailed. If somebody's interested, they certainly can call me or even send me an email if they would prefer that, and then we could talk about it that way.

But I, I'm of the opinion that it's okay to look for price protection strategies on a rally in front of us, but I'm not real comfortable about just locking in the prices and accepting those as being the best you're ever going to get. I just think there are too many things that could change in the— over the next several months that could make those sales look not so pleasant at all, especially since the sale itself is at a price that just doesn't work.

Chris

Barron: Well, and you talked about two key things, and we'll touch on them more next week. But you know, the demand side of things, the exports, and also weather. I mean, we haven't hardly touched on that yet and probably won't as much for a little while yet. But, but those— there'll be some, there'll be some uncertainty in there that hopefully will create some opportunity.

Dwayne

Lowry: That would be what I would expect, and I don't want to say hope for because you hate to hope for adversity, but you know, I've seen a lot of record crops be lost several times in the growing season before they ultimately end up being a good crop, and I think, right, that's what we're looking for, for an opportunity.

Chris

Barron: Yeah, exactly. Well, thanks, Dwayne. It was a great conversation, and hope you had a good Easter, and we'll Looking forward to spring rolling around and, uh, everybody can kind of, uh, keep working on kicking the dust up.

Dwayne

Lowry: Yep. Everybody have a very safe springtime harvest. Make sure all the focus is on safety and especially this year when, uh, you know, we got kids at home instead of at school.

Chris

Barron: That's right. We do have a podcast on that. So if you haven't listened to that one, uh, that Shay and I did just on on safety. Take a listen to that. And, um, and Dwayne, again, thanks for the conversation. Really appreciate it.

Dwayne

Lowry: Thanks, Chris.

Chris

Barron: You bet. And thanks everybody for listening to the Ag View Pitch, and we will catch you next week.

Dwayne

Lowry: Thanks for joining us on today's episode of the Ag View Pitch.

Chris

Barron: As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net.

Dwayne

Lowry: We'll catch you next time on the Egg View Pitch.