February: end of soybean price strength?

Shay: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Joe Vaklovic. Joe, how's it going today?

Joe

Vaclavik: Doing real good. It's Friday, ready for the weekend.

Shay: Absolutely. Yeah, we're closing in on Thanksgiving and I'll talk to you on that in a minute. For those of you that don't know, Joe does a podcast called Grain Markets and Other Stuff. It's great information. He does a daily commentary morning audio that he kicks out on that. He also does a newsletter. He's with Standard Grain there. Highly recommend if you guys have not checked out his daily podcasts, to go ahead and do that. But with that being said, you know, we mentioned Thanksgiving right around the corner there. I gotta ask you on this, uh, grain markets and other stuff. So other stuff, are you a turkey or beef guy when it comes to Thanksgiving, Joe?

Joe

Vaclavik: Uh, definitely turkey. And I have, um, I cook a lot of barbecue and I have been smoking my turkeys, uh, the last several years. And, uh, the first year, the first year we did it, it was kind of like an experiment because I had never done a turkey before and we just did it on Thanksgiving Day. So I actually bought two, and we had my wife do one in the oven and I did one on the smoker outside. And the one on the smoker actually turned out like 100 times better. So we've been smoking them every year. So that, that's my game plan.

Shay: And that's awesome. That's a different train of thought. We actually, we did turkey on the grill for 3 years and that's about a 3 or 4 hour affair. But the good part is, is you have to add a little beer into it in order to keep that moisture up. So it gives you something to do for 3 or 4 hours just to make sure you're topping off on that.

Joe

Vaclavik: Oh yeah, there's nothing wrong with that, and that's, that's the way I go too. And, and our, um, our deal with the turkey, like everybody, is you just load it with butter and, uh, just let it soak in. And it, uh, gosh, they turn out good.

Shay: I tell you what, last year we ended up moving to a deep fryer though, and I'm not sure I'm going to be able to convince my wife to ever turn back. So we'll see how it goes. And then, uh, are you a Macy's Day Parade guy?

Joe

Vaclavik: No, no. Uh, maybe I'll turn it on for the kids if they want to watch it. I'm not. I, I I really, uh, could not care less, to be honest.

Shay: I thought it was interesting they talked about it being a virtual experience this year, and I thought, isn't it a virtual experience every year when it comes to—

Joe

Vaclavik: for most of us it would be. Yeah, I guess for, for if you live in New York, maybe not, but, um, yeah, pretty much.

Shay: So final question, uh, it's pertinent, we got people all over the regions here listening in, uh, is it a casserole or is it a hot dish?

Joe

Vaclavik: Um, so I live in Nashville, and I bet they'd call it a hot dish down here, but we would call it a casserole where I came from in Chicago. Uh, so it probably— I could probably go either way, I guess.

Shay: I gotcha. Well, that's all right, we'll forgive you for that, Joe. Yeah, speaking of turkey, kind of shifting gears here, talking on the bowling side, but we've kind of had 3 strikes here that we've looked at over the last month, uh, particularly with South American weather. Some of the USDA adjustments that we saw, and then Chinese demand from some of those sales early here in November. And that seemed to be the narrative here for the last couple weeks and looks like it will be for the foreseeable future. Do you kind of agree on that?

Joe

Vaclavik: Um, well, the demand thing from China is still, is still very much in play. It's still something that traders are discussing on a daily basis, um, what sort of, of demand is still out there from China, uh, for U.S. corn, for U.S. soybeans. There's been a lot of chatter here just over the last week that China has been back in the market for U.S. corn and soybeans, yet we haven't seen any of it confirmed by the government. We have not seen a flash sale of corn or soybeans to China in the last, uh, I think 2 or 3 weeks. I think November 6th was the last one that we saw. We did not see one to China here on Friday. Um, the, the deal right now is, is this: when it comes to beans especially, um, we The United States, we are the only game in town right now. Between now and the time that these Brazilian beans come online in, say, February, the United States is the only game in town.

Once you get to February and you have some Brazilian beans available, the entire dynamic is going to change. And, uh, it's going to go from the US being the only game in town to the US is overpriced. And it's going to happen very quickly. As a matter of fact, they're already— we already can look and see how the markets are priced that far out for export pricing. Brazilian export pricing in February is well below US export pricing in February. And it actually— the advantage that Brazil has gets bigger over time. It gets bigger in March, even bigger in April. So barring some sort of real massive Brazilian crop failure between now and, say, the end of the growing season, you can bet that we're going to be overpriced here in the US on the world market come February.

Shay: From a farmer's perspective, when you think about that in that February time frame, I mean, what are some action steps right now if you have a guy that's, you know, liking what he's seeing with how the market's been improving here over the last month and a half, maybe a little bit perturbed at some of the early sales made this season, but, you know, how do you take advantage of this opportunity knowing that, you know, it does have a backstop here?

Joe

Vaclavik: Well, one thing to note first off in, in the bean market is that there's no carry in the bean market. So any beans that you put in the bin, um, you are simply speculating on better prices. You're not doing it for any other reason. You're not doing it to capture carry. There is no carry. Uh, the corn market, there's a little bit of carry, so it's a little bit different story this year. Um, for a lot of people, is going to change their marketing a little bit because, you know, the last 5 years was kind of this, this deal where we walked the tightrope between profits and no profits, right? And if you got to a situation where you were profitable to even a marginal extent, uh, that was when you made your sales. And now we're in this environment where profitability in a crop like soybeans has really improved drastically. So yeah, it led to a lot of early sales this year.

As a matter of fact, my— and in my own marketing, this, this 2020 bean crop is probably the worst marketing I've done ever. Because, you know, we had, we had been in this environment the last 5 or 6 years where selling rallies, selling when profits were available was, was the deal. And it worked very, very well for me for 4 or 5 years. And now, and I knew that there would be a day where it wouldn't work. And that day is, is today or this year. So it's a little bit of a change in the dynamic in grain marketing. You know, grain marketing is is not just as simple as selling when there are profits, because you don't want to just sell for a minimal profit. You want to obviously profit as much as you can. So, uh, it's, uh, this is gonna— this year is gonna change things for people for sure.

Shay: Do you think that we'll see more forward pricing, uh, in the next few months for farm operations that are looking to lock in that profit level if they know they have their profit margin in place here today and they can pull the trigger on 50, 60, 70% of production for next year?

Joe

Vaclavik: I'm always a fan of forward pricing, and historically speaking, being an aggressive forward marketer is generally good. This year is very, very abnormal in the way that the markets acted. The best marketing strategy this year would have been to do absolutely nothing. It would have been go to sleep in January and wake up this morning and start selling, you know. I mean, that That's the deal this year is that this is an odd year where forward sales didn't work out. We rallied all through late summer, all through fall, all through harvest, and that's just not normal. This is like a once in every probably 20 or 30 year deal that we just saw here. So if you made some mistakes with your marketing like I did, don't be kicking yourself for it because this is not normal. This is something that you don't see very often and you're probably not going to see very often again moving forward.

I would take a serious— I would seriously consider the acreage implications for next year. What kind of acreage does 410 DEEZ corn buy, or 1050 Novabeans? What sort of acreage does that buy? Keep in mind that we had a lot of prevent, tons of prevent plant, record prevent plant in 2019, and we actually had a lot of prevent plant this year. So you're going to have probably an extra I don't know, 6, 7 million acres of combined corn and soybean acres come back into rotation in 2021, barring some sort of big spring weather issue or something along those lines. And these prices are gonna encourage it. I mean, guys are really gonna wanna get these crops planted and a lot of them to capitalize on this. So I am not at all against doing a little bit of forward pricing for next year.

Shay: And just to review, when are those acreage estimates gonna start coming into play when, you know, are affecting the markets here into next season?

Joe

Vaclavik: Um, there's nothing out there right now that you can really hang your hat on, but, uh, I mean, toward, toward the end of this calendar year, you're going to hear people start talking about it more. And then of course the, the big USDA report, of course, is in March, but it'll be long before that, before people start tossing ideas out. So it's— the, the stuff comes at you fast, it does. And, and you're gonna blink your eyes and, and that's the discussion we're going to be having.

Shay: No, I hear you there. Uh, I want to hop back a minute to Chinese demand, and it seems like eons ago that we were having a discussion on, uh, the trade agreement, looking at purchasing agricultural commodities. You know, I think a lot of people have kind of lost sight of that narrative due to COVID and the election and everything else we've had going on. Uh, can you just give an overview on where we sit on that, and is that still a play in the market today, or is that old news?

Joe

Vaclavik: Uh, the trade deal from the get-go was hugely flawed, and the big flaw in the trade deal, uh, from the get-go was that they marked it in dollar amounts rather than in physical amounts, which makes it incredibly difficult for us to track. Um, I don't know that it matters a whole lot if we nail the exact target of the trade deal. In fact, the way that it looks from the numbers that I've seen— and everybody's numbers are different— but the numbers I've seen suggest that they're still going to fall short. That being said, I think that they've probably done enough to make the US happy. The most recent statement that we saw from the US Trade Rep's office essentially concluded that they were happy with the progress. They want to see this thing move forward. But then you throw this whole wrench in the works with, uh, with a Biden presidency, and now China wants to renegotiate.

Um, I think at the end of the day what matters is, is what does China actually need? And I think they actually do need beans. I think they actually do need the corn. And I think as long as that's the case, I think they're going to buy the beans and they're going to buy the corn. If we get to a point where they don't need them, um, I don't think they're going to buy them. I think they're going to remain a low-cost buyer, meaning that if the U.S. is, is the cheapest thing they can buy in regard to beans or in regard to corn, I think that's— this is where they're going to come. I think if they can buy it cheaper from Brazil, or the second that they can buy them cheaper from Brazil, that's exactly what they're going to do.

Shay: I hear you on that, and I appreciate you touching on that as well. Kind of one of the final topics I wanted to touch on here real quick is going back again to South American weather, and it's something that we throw around a lot, the La Niña and El Niño. Can you describe that from your perspective on how you think that actually impacts it and what that looks like from a production standpoint? Why are these terms such a big player in the markets?

Joe

Vaclavik: My pers— you may not like— well, my perspective is different. So if you listen to a meteorologist, and I'm not a meteorologist or weatherman, I know how to read a weather map, that's about it. But if you listen to the meteorologists and the weather people, they'll talk about La Niña, and it has to do with the temperature of the ocean and how it can limit rainfall in a year like this, and that that's a factor that could lead to, uh, drier conditions in Brazil or in Argentina. And that may very well be the case. In the same breath, I'll tell you that I have never ever in my career seen one of these long-term forecasts actually have a material impact on the, on the market. What we care about as, as traders is what's going to happen in the next 10 to 14 days. Very rarely do you see a market look out beyond that.

Every once in a while when we get into like a drought type situation in the United States or there's a real weather threat, I think traders will take a little bit closer look at maybe some stuff that's just, just out beyond that 14-day, maybe out to the, to the 20-day period. But it's the reason that we don't look out past that is because the forecasts are so hugely inaccurate. I mean, any farmer out there knows that the, that the weatherman is right about half of the time and wrong about half the time. And, and the further out that you go,, the higher margin for error that there is, I think, in regard to these forecasts. So I personally do not care at all about the term La Niña. Um, I, I don't care that it means that we could potentially see dry weather. That's a key word there, is potential. Um, from where I sit right now, uh, Brazil's had some decent rainfall.

They're going to have a few days of dry weather, and then there's some more, uh, rains on the back side of the forecast, and that's That's kind of all I'm interested in, to be honest.

Shay: I'm glad you hit on that. And that's exactly what I wanted to point out there. Sometimes we hear these terms and maybe put a little bit more weight in that than we should necessarily, instead of looking at, you know, fundamental, hey, what's the weather doing? How's the crop productivity coming along? What other challenges are we seeing in the markets?

Joe

Vaclavik: Yeah, that's like that La Niña is a big talking point. You know, guys are going to go to marketing meetings this winter, and they're going to hear people talk about that thing. But that it doesn't go beyond that for me beyond being just a talking point. Because as a grain marketer, there is absolutely nothing you can do with a long-term forecast. It's not an actionable piece of information. It's interesting to talk about, it's interesting to think about the prospects, but at the end of the day, there's not anything you can do with it.

Shay: No, I hear you on that. Anything else that we should be covering here? Kind of as we, you know, like you said, we're recording here on Friday morning. Of course, nothing we talk about here is— we're not making recommendations or giving advice. This is just for some value and perspective added. Anything else here, Joe, that we should be looking at in the markets or thinking about in the week ahead?

Joe

Vaclavik: Uh, one thing, bigger picture here, is, uh, the length that these large speculators or the funds have in these markets. And I, I talk about this frequently because what I've seen over my career is that your best marketing opportunities occur when the funds are long or heavy or heavily long, and almost never does a marketing opportunity occur when the funds are short. What we have going on right now is that the fund traders across the grain complex, corn, soybeans, and wheat, are holding what I would call an extremely long and an extremely large net long position as we get into the end of the year. I've seen in a lot of markets in my career in these last 4, 5, 6 weeks of the year, I've seen fund traders exit or lighten up on heavy positions in more than one market in more than one year.

It's something that happens So if there's a risk here over the next 5 or 6 weeks, I mean, there's always a lot of risks, but I would say that that's one of them is that you see some asset reallocation, you see some of these funds balance their books ahead of the end of the year. They've obviously got a lot of money made in these long positions in the corn market and in the soybean market also. So if there were to be some sort of just little piece of bearish news even that inspired some liquidation among these fund traders, That would not be surprising to me one bit.

Shay: Okay. No, that's great. I appreciate the perspective on that. I think today's conversation has been good. I appreciate the overview. And, you know, sometimes what we want to make sure that we're doing from the marketing perspective and asking the questions is we don't necessarily want to hear the same story over and over. And of course, we see things throughout the day within trading, look at capturing opportunities. And I think to avoid the redundancy of some of these conversations, that's why we like having folks like you on. Just to provide some different perspective. So from the Ag View Solutions standpoint, we really appreciate that, Joe.

Joe

Vaclavik: Yeah, absolutely. Thank you for having me, and I'm always happy to help you guys out.

Shay: Awesome. Well, and thanks everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.