Fall storage: corn vs. soybeans

Chris: 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. Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week, September 11th through through the 15th, and we are lucky enough today to have with us Ryan Moe with StoneX. Ryan, how's it going?

Ryan

Moe: Pretty good, pretty good. Putting the miles on today, that's for sure.

Chris: That's good, that's good. Well, hey, as we get started here, let's talk crop conditions a little bit. What are you seeing as you're driving across Iowa and in the southern part of Minnesota?

Ryan

Moe: Yeah, this crop has matured rapidly in the last 2.5 weeks. It's been really surprising how quickly it turned. They were talking about it during the Pro Farmer tour, and I can tell you from what I've seen so far, I can back that up.

Chris: Yeah, yeah, it's a lot of variability for sure. In our area, we're seeing the same thing. We've shut a lot of our plants down. I'm looking at probably next or this week, we'll be starting harvest in our own, my own operation here, probably on Wednesday the 13th. June 18th and we'll have a pretty good idea of what things look like. But we definitely, instead of drying down, we are dying down. So the crop is really, really coming on fast and it's gonna, it's gonna, people are gonna, some people are gonna be caught off guard. I know you look at the stalk quality in some of those areas where the plants died early, stalk quality is really in question and stuff. But so that's kind of the crop conditions report. Things are pretty good in some areas, you know, Ohio, out east, there's some areas and Indiana, things look really good. Prospects for a really good crop are probably out there.

USDA is going to give us their numbers this week and that's going to be kind of what we're going to have to be trading and going off of. But with that said, what I wanted to do is first get you up on the idea of carry in the market. You look at Dec corn as we closed last week, say at that $4.82 range and you look at May in that $5.05 range, that's about 23 cents a carry. And if you think about the cost of carry from an interest standpoint, if you have money borrowed on a line of credit, it takes about 5 cents a month. So it's about a wash. And you see the same thing in soybeans. If you look at November to March, there's, you know, really not much carry in there.

And so I guess the question I want to get to here quickly is, are you going to store corn or are you going to store soybeans if guys have a limited amount of storage space and they're going to need to move some stuff off the farm and maybe haven't got that decision completely made? What's the thought?

Ryan

Moe: Yeah, when you're talking about interest expenses that are that high, those are numbers many people have not experienced in in their careers that are in ag. Now there's still some folks that have experienced some interest rate expenses that are significantly higher than that, but boy, that is— those are some big numbers that people definitely need to be taking into consideration when making these marketing decisions. From my perspective, I want to almost look at whether, you know, what I would be storing more from a calculator's perspective than what maybe the math will say. And I would look at it from a 15-plus percent carryout-to-use ratio, which is what corn is going to be in this year, versus a 5 to 6 percent carryout-to-use ratio on soybeans.

Now, my mentor always told me that if you are sub-10%, on carryout-to-use ratio in corn and soybeans, that was typically bull market territory. Corn is most certainly not in that area. But beans had such a tight carryout with such a strong demand and a questionable size crop in the field right now. The— it feels like if you're looking for some fireworks, beans would be the better risk.

Chris: Well, and you could see some basis improvement probably. You know, we're probably going to see that in corn and beans, but you could probably see a basis improvement. You know, you get into the hot spot of soybean harvest, and if you want to deliver beans off the combine, and depending on where the flat price is, basis usually kind of sucks, to put it mildly, when the combine's rolling right there the heat of that, you're probably gonna, gonna pick up a little bit of basis improvement too, wouldn't you?

Ryan

Moe: Yeah, one has to consider the amount of crush expansion that's taken place here in the last 18 months and the crush expansion that's going to continue to happen. Uh, there might be some soybean markets that are close to the clients here that were not there before. So yeah, there could definitely be some wild things happen with basis. And so we want to take those into consideration in these tight supply, strong demand markets, which we find ourselves in with soybeans. The 15% carryout-to-use ratio, I'll tell you what, the commercials and the end users, they all know it's there. They all know it's there. They don't, they don't want to overpay for it if they don't have to. And with just that amount of supply in the marketplace, that's, that's the statistic telling them that they don't have to.

Chris: Yeah. And it is a bit regional too. I think there's going to be some areas of the country regionally anyway that bean yields could be off the pace quite a bit. And there's going to be some areas where they're going to be spectacular too. So I think a person needs to take that into account. As well, and probably the same thing with corn too. I mean, you know, if you look at what percent you have sold of corn and what percent you have sold of soybeans, I think all those things factor into that decision individually. So not really any recommendations, but just all things to be thinking about for sure.

Ryan

Moe: It's amazing we put a man on the moon in 1969, yet we still can't accurately predict the soybean yield until we see it on the yield monitor. It's kind of amazing.

Chris: Yeah, well, they're, they're a funny plant, that's for sure. We've got a field that's, that looks like it's about ready, and I have no clue. I went out, looked at it thinking I'd be able to get kind of close, and you just, it's impossible until you combine.

Ryan

Moe: But right, so you work a lot with processors and elevators and stuff.

Chris: What are some of the things that they're thinking about? What, what are some things that, that you that the listeners here need to be aware of that processors, elevators, and them are thinking about on their end?

Ryan

Moe: Commercials are certainly the, the grain merchandiser, the middleman, your elevator, be it a co-op or private, is most certainly looking at this interest expense thing and really having to factor in what that means to their plans. Now, something that, that commercial merchandiser is also recognizing is that our new crop books are still very small. We don't have a great amount of ownership coming into harvest. Usually we have a much stronger book on at this point of both corn and soybeans. That's an indicator that the farmer just wants a better price because they don't need the money and they're, they're waiting for a better price and they want to hold off as long as they can.

Now, something that statistically shows up year in and year out is regardless of how good the book is coming into harvest, by December 31st, it's amazing how close to the percentage of overall intake a commercial gets, they end up owning roughly the same amount by the end of the year. So it's likely there's going to be some sales made off farm into the commercial before December 31st, even though we're not feeling it and seeing it right now. So that's being played in very carefully to the commercial's mindset. But they also are looking at the interest expense on those bushels that either they own or don't own yet differently because there's going to be a substantial amount of deferred pay once again in the ag sector that goes out January 2nd or 3rd. I can't remember what the first Monday in January is right now.

But when they see that, see, they essentially don't have to borrow money to hedge those bushels and keep that ownership. So that is, that's, that interest expense is weighing very heavily on what decisions the merchandiser makes. The end user, on the other hand, is looking at their position and are go— and it's having the same experience that the commercial is having, which is, holy cow, our new crop book is not that good right now. And so they are selling a lot more corn at the end user point because there's feed customers that are coming in and, and they're buying. And so those feed mills and those ethanol plants and those bean crush plants, they're all going through the experience of selling quite a bit more corn and beans than what they're buying, which is naturally friendly basis. Now, will we see explosive basis after gut slot harvest? I kind of don't think so.

I don't believe so because of, again, the comment I made about exiting the calendar year with about the same amount of percentage ownership year in and year out regardless of the market conditions. Very— speaks very heavily to the habitual nature of off-farm merchandising.

Chris: Mm-hmm. It's going to be a little bit— wouldn't it be a little bit regional too? I mean, river levels are pretty low as one factor, and then you've got areas where the crop is going to be way off the pace, and then you got areas where it's going to be really good. So there could be a lot of, a lot of basis variability, almost maybe wider than it was last year at some point, or what's your thought there?

Ryan

Moe: Yeah, last year is going to be tough to compete with though because of how wild stuff got down in like that Herford, Texas market. Yeah. I hope we don't have to live through that again. There's going to be variability. But I don't know if we'll be on par with just how radical the spread was between the eastern Corn Belt and the deep, deep western Corn Belt because of how bad that drought was in parts of Texas, Oklahoma, and Kansas last year. Will we see variability? Absolutely. We did this podcast here in late June, and we talked about the extreme localization of the weather events of the last 2 years. That did not change throughout the growing season.

That extreme localization is a very real situation where We heard report after report after report all season this year about people on the north side of town getting 1.3 inches of rain and people on the south side of town getting 2,500. Just amazing how the haves and have-nots— this, the mile spread between them was almost non-existent this year. It was just so darn spotty, and it stayed that way. And That's going to be reflected in basis and probably yields as well.

Chris: I like that, um, that word extreme localization that you invented. Did you submit that to the dictionary yet so that it shows up? And is that a hyphen word?

Ryan

Moe: Well, no, I think we need— with, uh, with your term earlier, uh, I'm, I'm dying, not drying. I think we need that printed on a t-shirt, and then the extreme localization, we could probably go ahead and put that in The, the, you know, you can be, you know, shopping local and stuff and fit in really cool on the West Coast. Maybe if you're extremely local, that just makes you even more hippie. How's that sound?

Chris: Yeah, yeah, I would say extreme localization on the front and dying not drying on the back, and only some— only the cool people know what that meant.

Ryan

Moe: I know, but we— but then, Chris, we'd only get to sell one t-shirt, not two.

Chris: Yeah, exactly. So So hey, let, let me ask a couple more questions here. Now, you know, you go into October, and that's, you know, though, that's when all this conspiracy theorists come out of the woodwork with, with, you know, well, you know, some people are rooting— I mean, Paul Niefer was on last week with Joe Vaklovic, and I think he titled last week— I was out of the office and he was doing it, and I think he titled it, you know, rooting for higher prices or lower prices during the month of October. And, and there's, there are two different camps, you know, there's those producers that don't have anything sold that want to see it go higher, that have a big crop coming on. And then you have the other side of it where guys have maybe half of their crop sold and really a bad crop looking and they're rooting for a lower price.

Um, what's your prognostication or what, what are you guys seeing and not predicting price or anything, but What are the probabilities, do you think, as far as up or down, or where is the harvest low coming in, I guess, with your crystal ball? And you don't have to— it's a question that I'm not— I don't mean to throw you under the bus, but I kind of am.

Ryan

Moe: No, just make sure that the backup beeping, so when you back over me with the bus too— I'm joking. So I'll just speak to an event that happened here earlier this week, which was, uh, on Thursday when the soybean market was down. I think it was down 16 cents. I don't have the chart in front of me, but what we saw though was an increase in open interest on the board. And what that typically means is that means that there are some new speculative shorts that entered into the marketplace. Now, due to the archaic nature of the way the CFTC only releases their fund position report on Friday, and that's as of last Tuesday, we are not going to get to know what that actually means as far as spec shorts entering the market in until next Tuesday. So that's kind of, that's kind of frustrating.

But when you look at what the funds are positioning themselves for, they are positioning themselves for producers getting into the field and reporting better than expected yields, even with the poor conditions that we've already talked about. So that's what the spec fund crowd is doing. And as Damian Mason says, just follow the money. And you can usually— you're usually in a better spot. Than if you try to buck the trend yourself.

Chris: Yeah, and you can only kill the crop about 5 times too, so.

Ryan

Moe: Yeah, and I mean, we've, we've sure tried to do that a few dozen times this year, it feels like.

Chris: Yeah, I think so. Well, and it's just going to be interesting in October, I guess. We're just going to have to continue this conversation and stay tuned, I guess, because, you know, that price discovery is going to be pretty critically important for a lot of people to pay attention to for sure, and we'll have to watch that. And I know there's even some talk about just protecting that, you know, by, you know, maybe buying some calls or some short-dated calls or something and opening that, you know, just in case that thing takes off, kind of protect that insurance level. I'm not— not advice. I'm not sure, you know, that's the smartest thing in the world, but I guess people are just gonna have to watch that, do their own thing.

Ryan

Moe: Yeah, everybody's marketing plan is so darn variable, and it's, it's going to be a case-by-case scenario. But if we're already in a position where margins are a little bit tight, do you want to go throw good money after bad on a strategy that you your broker is recommending simply because your broker hasn't had anything to trade in a while. We've noticed that, we've noticed that on our futures options and OTC book, which is the volume is way down, but that's because there's no real opportunities for farmers to be taking advantage of. Yet we started seeing a whole bunch of costless three-ways come across the desk and we're wondering what the heck are these doing out here? Why? Well, it's because so many brokers don't have anything to talk about, so they gotta, they gotta make a trade to make money. And so they just, they keep throwing stuff out there.

So some of that stuff, you got to make sure you're doing what's right for the business, not just getting out there and trading because you just got an itch you need to scratch.

Chris: Yeah, for sure. So the next thing I want to do is transition here over a little bit to '24 stuff. Fertilizer, like I said, you, you work with a lot of elevators and stuff. What, what you, what are you hearing there? A lot of guys have got their fertilizer pretty well locked up already. Any thoughts or any comments on fertilizer?

Ryan

Moe: Yeah, I had a great conversation with Jared Creed around this. Earlier, just a little bit ago, and we were talking about, hey, there's profit margin in locking up your inputs and then selling out, selling your Dec '24 corn. There's margin there. And when you're looking at a 15% carryout-to-use ratio and you have the ability to lock a positive margin, it feels like you should be doing something. Pre-call here, we were talking about cost of production there, Chris. And when you're looking at your cost of production numbers, and you're looking at what market potential is in a burdensome stocks-to-use ratio situation, locking some margin and booking some inputs, it seems to make a heck of a lot of sense in a year where things could get a little bit topsy-turvy.

So how Having some security around some good profit margins, or maybe not good profit margins, but at least profit, you know, that's, that's got to be something the producer has to be looking at right now.

Chris: Mm-hmm. Yeah, I know, just as you were talking there, just kind of looking, Dec '24 corn closed last Friday $5.08. Soybeans $12.95 per note. Um, when I'm looking at our cost production averages, and I need to get these updated, so these, these are probably going to change a little bit, but we're about $4.65 on corn. And I got, like I said, I got to update that. I think that's going to raise a little bit, so let's just, let's just call it $4.70. You know, there's, there's about a 15% ROI there, um, for a lot of guys depending on their yield. Prospects, where their APH is at and stuff. But, but like you said, I agree wholeheartedly. On soybeans, on the other hand, you know, we're seeing, we're seeing cost production somewhere in that $12.50 range. There's some margin there. It's not as good on soybeans. That ratio being 2.55, what's your thought there on acres for '24?

What might that mean, or any thoughts there?

Ryan

Moe: Well, when we look at how a lot of farmers are going to do this year with the nice revenues that they were able to secure through crop insurance programs, traditionally what we see after years of decent revenues and profits is that the farmers like to go in and plant corn because there's a much better chance of hitting a home run with corn than beans. And so when we just start to look at the planting decisions that are going to get made for a big chunk of the Corn Belt for next spring, it seems really kind of wild to talk about this because some people consider it, some people don't consider it, some people just plant 50/50. Everybody's different, right? But when we look at the likelihood that we're going to have another year of big corn acres simply because farmers like to let the big toys eat and they get to do that more with corn than they do beans.

We could be sitting next year, even if the economics turn around and tell people that they need to plant some soy— plant more soybean acres, I think we're going to plant more corn acres. And if you're looking at a 2.55 ratio right now on new crop '24, beans versus corn, the math is telling you to plant corn. So I think we're going to be in another state of short soybean situation. And boy, that leads me to believe that $2.55, that should go to $7.52, $8.50 just to inspire some producers and more producers to plant more bean acres. To satisfy this big crush demand that we've now got.

Chris: Yeah, I was just doing some math here. You need— so beans closed last Friday about $12.95. In order to get people to swing over, you need about a 2.7. You need beans to be at about $13.70 to entice a lot of those producers that you're talking about to swing switch over to beans. Otherwise, you might as well stay corn heavy or heavy corn. You know, like you said, there's a lot of listeners here, probably 50/50, and that's great. And there's probably agronomic reasons for this, that, and the other thing. But, but to your point, I would agree wholeheartedly. There's going to be, you know, last year the bean market, the beans just never bought any acres. And correct, you know, and then they sort of did at the end of the summer there, you know, and they kind of come back around a little bit, but not enough.

Ryan

Moe: Yeah, because we're already planted.

Chris: Yeah, exactly, exactly.

Ryan

Moe: I mean, Chicago realized it after— I mean, several months after you guys did. I mean, we talked about this in Florida at your Ag View conference, Ag View Solutions conference. Yeah, it was like we talked about it and it was like they there's just not going to be enough acres planted then at the end of February when folks were able to secure very handsome revenues on corn acres. Boy, that decision was made early. And we're making that same decision again if that ratio does not turn around very quickly. Mm-hmm.

Chris: Well, and that, and, and that ratio probably will for a period of time. That circles right back to when we were just talking about you put corn in the bin or beans in the bin. Not that it's the case for everybody, but there's going to be some people that are going to get paid handsomely for putting some of their unsold beans in the bin, probably, and waiting. That's not a recommendation again, but it's a probability for, for some areas, most likely. Uh, you can kind of see the, the writing on the wall.

Ryan

Moe: Your job as a producer in these decisions I mean, you're never going to be totally right, but you've got to do the best that you can to stack the deck in your favor. And that's how you have to look at it. And interest is going to be a substantial— that's going to be a substantial metric that needs to be paid attention to. But this again goes back into the case-by-case basis. There's some operations out here that they don't need money at all. And so interest kind of isn't nearly the factor. Then there's some younger producers where that's, that's the factor, right? And so it's given your particular situation, whether you're younger or older, capitalized, not well capitalized, those are all decisions that you've got to make. But your, your job as a producer is to do everything that you can to stack the deck in your favor, right?

And I just, I think, I just think it, there's going to be some pretty wild swings in, in beans this year. And I can't say the same for corn just because we've got so darn much of it that we've got to chew through in such little crappy demand. So yeah, definitely in, in a dry river. Yeah, exactly. Get rid of it if we wanted to, right?

Chris: So my last question, and And this is my last question, but it's around the idea of demand and farm— you know, so you just, you described earlier the industry recognizes that there's light farmer sales right now. There's just a lot of hope in the air from the farmer's side of the equation here that we see stronger prices, people feel undersold. I think the hope in the air there is, you know, and what we need is demand. Is there anything out there in the demand picture that, not negative. It seems like everybody talks about the negative side of all this stuff. Is there anything on the demand side that people can look to, or not just hope for, but that you could possibly see as a, you know, ending on a possible bright spot here, maybe?

Ryan

Moe: Well, I mean, soybeans, you're really renewable diesel in the green movement. Is going to be greatly beneficial to farmers. I mean, that's— but we've, we've talked about that exhaustively for several months.

Chris: And a lot of guys listening to this, not to interrupt you, but a lot of guys listening to this are thinking, I'm talking right now, I'm talking the '23 crop. I want, you know, I don't want— I don't want to hear about '25, '26. I want to hear about 2023, you know.

Ryan

Moe: Right, right, right. But I mean, it takes a while to build things. And so that's momentum that's building. From a demand perspective too, you know, when— now granted, if you can get accurate information out of China, you're a better man and better woman than I am.

Chris: Good luck.

Ryan

Moe: Yeah. Exactly, exactly. But there is some risks that are taking place there within China of some issues that might not be totally public yet about too much rain in too many of the wrong areas in China. Now, we won't see that business come to us until it's absolutely necessary from the Chinese, but we'll be able to see it from the commercial perspective because we'll start getting— we'll start getting calls to our commercials here probably late September, where shuttle trains will all of a sudden start to look mighty attractive, and this export program that is completely on its duff right now will start to pick up if the Chinese don't have enough corn. Mind you, China is the second largest corn producer in the world.

Everybody likes to talk about Ukraine and Argentina and Oh, they're out of the marketplace and so therefore there's nowhere else to export corn from other than the United States. The truth is, is a few rains or a few nice sunshiny days in China mean way more than Argentina. And so we need to take a look and realize that if things in China are not good, they're gonna need corn and they're gonna need it instantly. And you sure as heck can't depend on Argentina 'cause they're a bunch of grimy communists. And Ukraine, unfortunately for the wonderful people of Ukraine, they are just, they're kind of paralyzed with what they're able to provide the world marketplace right now. So there could be some bright spots in the export market from China. We're just not seeing those yet because we're not getting those shuttle trains sold yet.

And that's what got this whole thing started back in 2020, was when China had bad weather, all of a sudden they needed corn and they came to the U.S. to get it. But we started seeing it in the commercial sector with, with shuttles being sold at rather rapid clips, and that didn't make its way to the marketplace till a few weeks later. So that's what we're going to be watching for. Is what kind of shuttle demand is there going to be because China is recognizing and allowing the rest of the world to recognize that their crop is far shorter than what they're advertising right now. So there is a bright spot.

Chris: Yeah, that's good to know. That tells me, you know, stay tuned. We'll have, we'll have you back again and you can give us an update when we're, when you're a lot smarter in a few more weeks. You'll We'll continue to get smarter every few weeks.

Ryan

Moe: Well, trust me, everybody's going to be a lot smarter in a few days here once we can see what bean yields are. I mean, that's a big one here. We just don't know. I mean, we came out with our yield estimate at 50 bushels an acre and this week, and I'm not sure, Chris. I just don't know.

Chris: Mm-hmm.

Ryan

Moe: Yeah.

Chris: Well, USDA is going to tell us what whatever the number is they're going to tell us here on Tuesday, and then we're going to have to go with that for a while, and then the combines will start to answer the questions. It'll be a little bit of up or down or something will happen, and then it takes about 2 days, the dust settles, and we can trade the next stuff after that. So, yes. Any final comments?

Ryan

Moe: No, I appreciate the opportunity to come on. Look forward to seeing folks down in Arizona here in a few months. And yeah, we're all going to be a lot smarter at that point because there's going to be a lot of, a lot of interesting things come out of this harvest. And once again, tip your agronomist heavily because I think, I think we're going to see some things that are going to be just mind-blowing with how good these genetics are. Because it might look terrible, but who knows yet? I mean, we got to get in the combine and see. So that's for sure. I think I'm, I'm going to bet on the agronomist again because that's been a safe bet for the last several years.

Chris: Yeah, yeah, for sure. Yeah. And we're going to look forward to having you in Phoenix. You're kind of our podcast king and reporter and floater. So we're excited to have you back and have everybody down there on January 24th, 25th, and 26th. Appreciate you plugging that and getting that back out there again too. So, but with that said, Ryan, as usual, tons of good information. You're full of a lot of, a lot of resources and information. We really appreciate your time today.

Ryan

Moe: Well, I appreciate the opportunity to spin my yarn, I guess.

Chris: That sounds, sounds great. Well, we'll get you back here in a few weeks and, uh, kind of see once the combines are rolling a little heavier and we'll get you back and we'll kind of see what the processors and, and elevators are thinking and go from there. But with that said, thanks a lot, Ryan. And we also want to thank everybody for listening. I know a lot of you guys are getting close to harvest. Some of them won't be going yet this week, some are going already, and some are going to be starting up. But just please be safe out there, and if you need anything, reach out to us. Let us know if there's anything we can be doing for you or any other content you'd like us to get out to you while you're rolling in the combine, need something to listen to. So with that said, thanks everybody. We'll catch you again next time on the Ag View Pitch.