Get out alive in 2024: weekly market outlook Dec 23rd-27th

Andy

Ruby: Welcome everybody to the weekly Market Outlook. Today you have Andy Ruby with Joe Backlovich. Joe, how are you?

Joe

Backlovich: Doing great, glad to be here. Thanks for having me.

Andy

Ruby: Yeah, thanks. Hey, you and I were talking a little bit before we got started. I think we got to start with, uh, with the bill that got passed overnight. I mean, that's been the topic of conversation all week, so You want to give us a little rundown there and what you're thinking?

Joe

Backlovich: Well, as it relates to the farm crowd, the direct payments are coming. It's going to be $10 billion. The numbers on a per acre basis that had been discussed prior last week look to be the numbers. Those are the numbers. There's going to be payment caps and limitations. Some people like it, some people don't. Doesn't really matter what you think at this point. The money's coming and everybody's going to cash the checks whether you like it or not. You don't cash the check, you're noncompetitive with your neighbor. So you have to cash the checks. It is what it is, I guess. I mean, what does it mean for the markets or for production? I don't know. Does it mean maybe guys don't skimp on fertilizer as much? Does it mean more corn acres next year? Those are all things that are up for debate, I guess.

Andy

Ruby: Yeah. Yeah, exactly. I, you know, I think there's a lot of mixed emotion about it.

Joe

Backlovich: Oh yeah.

Andy

Ruby: Like you said, you know, with your, with your survey that it's about 50/50 guys that are for or against it. For those areas that need it. I'm happy they're getting it. Yeah, it's, it's much needed. Is there— do you see any direct market impacts this week? You know, as we kind of think about the week ahead with this news and a final plan, do you see anything market related?

Joe

Backlovich: I don't think so, because I think even before anything was passed, I don't think the direct payment to farmers was ever really in question. I think that regardless of which version was passed, that $10 billion seemed to kind of be a lock. So I think going home on, you know, Thursday, Friday last week, I think that trade was aware that it was happening. And I mean, honestly, it's, it's, I always go back to this. Farmers are going to get $10 billion in direct payments plus the disaster relief. Does that add or subtract bushels to the balance sheets immediately? No. Does it in the future? I don't know. Maybe if you, run into some situation where farmers plant more corn acres because they feel a little bit better about their financial situation. But that's just, that's just a thought. I mean, that's not factual. So I know I don't think there's a market impact.

The one thing that was left out of the new and approved bill was the year-round E-15. In the, in the initial version, that 1,500-page version, there was language that would have allowed for year-round and nationwide E-15. And that language was removed. I don't think that's a negative. I think it could have been a potential positive. It doesn't make any sense to me why they took it out. It doesn't really cost money to implement that policy, but it wasn't in there.

Andy

Ruby: Okay. Yeah. You know, kind of while we're talking about corn, we've had solid demand for corn. And I guess you want to just elaborate on that some?

Joe

Backlovich: Well, demand is good and the balance sheet for the United States is substantially tighter right now than traders had expected it to be. The pace of export sales and shipments have been, been very good. The ethanol grind has been a little bit better than expected. And, you know, you go back a few months and we were thinking, okay, August 31st, 2025, the end of the marketing year, we're going to have 2 billion bushels of corn left over in the United States. It's now looking like that number is going to be 1.8, 1.7, uh, which is still burdensome. It's not bull market territory. But if that's, if that's the case and that's where we end up, which is what USDA is projecting now, um, it's probably not a, a corn market that's, you know, below $4 on the board. It probably leaves us a little bit more fairly priced in this like $4.25 to $4.60 type neighborhood.

So it's I don't have really anything bad to say about the fundamentals other than fast forward 2025 acreage prospects.

Andy

Ruby: Yeah, yeah, no, for sure. Do you think that this bean market is putting the brakes on the corn?

Joe

Backlovich: Yeah, especially in the new crop contracts. So when you've got Nov '25 beans sub $10 and you probably know better than me what the production costs are going to be for '25, I mean, you're talking north of $11. Certainly, I think for most people, when you include cost of living and those sort of things, I mean, it's, it's a bad, bad, bad deal. So you should see an increase in corn acres in 2025 versus this, versus '24. I think '24, we were just south of 91 million. Are we going to be 92, 93, 94, 95? I don't know. That's a big question mark right now. USDA told us in November '92, that was their long-term baseline projection. I'd probably go with something a little bit higher than that. But there's a lot of things to be determined.

Andy

Ruby: Yeah, we got a report coming on the 10th. I think, I think, you know, we know, does the trade know that we're looking at big corn acres? Do you see any implications?

Joe

Backlovich: Well, with the report, so, so if there's going to be a big implication for, in the report, would think, I mean, it could be anything, but it's going to be an old crop deal. So USDA in its November report, I think they revised, it was either October, November, they revised the soybean yield for 2024 United States lower, right? And some people think that, you know, we had this dry finish to the growing season in the US in August, September, it was hot. Maybe they could trim the soybean yield again. And that would help to offset some of the big supplies that are on the balance sheet. It's not going to turn turn it into a $14 bean market overnight. But it could help. It could help maybe, maybe eliminate the prospect of something below $9. I don't know. Corn, could they come down with the yield? I'd be a little more suspicious of that. But that's also possible.

They've made acreage adjustments in the past that have had big-time impacts on the market in this January report. And the thing about— the thing about yield and acres really is that they're— acres in particular, just impossible to predict. I mean, they can come out of nowhere with these acreage changes. I'm not predicting that that's going to happen, but just be aware that it's happened in the past. And that report, I think it's January 10th, is very often associated with a significant degree of volatility in the markets.

Andy

Ruby: Okay. Yeah. You know, we talked about some stuff that could have a positive impact on that bean market. The negative, I guess, is currently South America weather and just the huge crop down there. What, what else do you see? Or, you know, kind of what's the latest down there on how that crop's coming along?

Joe

Backlovich: Well, the Brazilian crop is— it appears to be in very good shape. They're done planting. Weather forecasts are nearly ideal. There's no such thing as perfect, but it's about as close to perfect as you're going to get. Argentina has actually turned dry, and they're going to be dry for a couple of weeks. Now, Argentina is only— I think the number was 12% of global soybean production. But it could have an impact. It could have an impact, especially on the product market. Argentina crushes a lot of beans. They export a ton of meal. And the meal market reacted positively this past week, I think, because of the dryness in Argentina. I think the statistic that I saw from one of the weather services that we use was that they're going to see 30— it was like 36% of normal rainfall in Argentina on average over the next 2 weeks as it relates to the soybean crop.

So you could lose some bushels there. I think it's going to be hard for that to turn the soybean market into a bull all of a sudden, just because you're talking 52 million metric tons out of Argentina where you're talking 170 out of Brazil. So the Brazil situation is by far the bigger needle mover. That's not to say that Argentina couldn't move it a little bit though.

Andy

Ruby: Okay. I think, don't hold me to the date, but roughly a month or so ago, you had some of your content of, you know, do we have a new seasonal with South America with what has gone on over there, weather related over the last month? Is that still how you feel like this market is closely watching what's going on down there?

Joe

Backlovich: 100%. Yeah, the market's watching the weather. I mean, if you're a trader and you're managing a book of soybean positions, you're watching Brazilian weather every single day. I mean, multiple times per day. It just so happens that we have not seen a weather threat It's almost similar to what we saw during the US growing season this past year. I mean, we got through June and July without a weather threat, which is kind of abnormal. Usually you get something, you get some sort of crop scare event, whether it's 3 days or 2 weeks or whatever. It would be certainly interesting and kind of odd to get through a US growing season and a Brazilian growing season without a crop scare event. But it looks like we could be headed in that direction. There's still time though.

Andy

Ruby: Yeah, you know, I think the biggest reason I bring that up is it's a good eye-opener for the listeners of— we, we as US farmers watch the US weather market so closely, watch that correlation and really keep an eye on watching the weather down there. Oh yeah, just as close as you watch your own backyard.

Joe

Backlovich: It's about the first thing that I look at every morning is the Brazilian weather forecast this time of year. And it just so happens that it hasn't really been a big volatility driver because there it's, it's been so good to this point. But it could change. I mean, you run into a dry forecast and it could change. We haven't seen it.

Andy

Ruby: Yeah. Yeah. You know, kind of as we wrap up 2024, you got anything you think guys should be keeping or producers should be keeping their eye on or considering?

Joe

Backlovich: Well, I think '24 with your 24 bushels, unless you were a super early and super aggressive forward marketer, your job with regard to grain marketing is to try to get out of your 2024 bushels alive. Basically, you want to try to make a little bit of money, break even. Maybe you're going to have a loss on soybeans. Maybe you make a little bit of money on corn. Maybe you lose a little bit of money on both. As you move into 2025, I think personally, from a marketing standpoint, it's awfully early for me to for as an advisor, it's very early for me to tell guys, let's throw in the towel and sell at a loss 10 months before harvest. That's not, that's not good business. I don't think if you want to take a look at some of the insurance products or take a look at options or something that leaves you with some flexibility. And I don't like that.

Generally speaking, I'm not a big proponent of any of that stuff. Hey, let's buy a bunch of puts and see what happens. I'm more of a cash sales, sell it once and be done type person.. But I'm not a fan of panicking and locking in losses here for '25. I just, I don't know that that's good business. I feel like, Vic, you have to maintain some degree of optimism and understand that you've got a couple of growing seasons to get through before that crop is harvested. For those of you guys with storage who have the ability to store grain, I mean, you've got more than a year to price that 2025 crop. So I'm optimistic. Not necessarily that we return to like some sort of incredible bull market in 2025. I'm optimistic that there will be opportunities. They may be short-lived. I think there's going to be opportunities though.

Andy

Ruby: Yeah, I think that's a really good point. You know, you think about the years, say, '14 through '19. Yeah, those are unprofitable, tough years, but there was always an opportunity at some point to sell something at a profit.

Joe

Backlovich: Like you said, it might have been short-lived, so Yeah, it's not to say it's going to be easy, and you might have to wait longer than you'd like. And I understand that there are implications with higher interest rates and storage costs, and it just, it makes waiting a little bit more difficult when it comes to everything, whether it's in the bin, it's not in the bin. It just, it makes that waiting a little bit more difficult. It makes people a little more anxious. This is tricky stuff. It really is. It's not easy by any stretch of the imagination.

Andy

Ruby: Yeah, I know for most of the listeners they have a good handle on cost of production. But, you know, like we always say, is know your numbers. And that's the first thing. If you're going to try to get to a profitable level, make sure you're spending the time now to figure out what it is costing us.

Joe

Backlovich: I'm going to go out on a limb and say that most of your listeners are budgeting and budgeting correctly. But for those of you guys who are listening and you are not and you don't have your numbers dialed in, That is the very first thing that you've got to do, especially when you're in an environment where margins are negative to razor thin. This, you know, if you're missing your production cost by $0.20 a bushel in corn, that could be make or break if you don't have it penciled right. So you've got to really have this stuff dialed in, like down to the, down to the penny per bushel, essentially. And you've got to be working with kind of like a fluid balance sheet, you know, adjusting for acres prospects, adjusting for yield prospects, constantly adjusting inputs, and just make sure you're dialed because that's how you make good decisions.

Andy

Ruby: Absolutely. Joe, I think that's probably a good ending point for us. Is there anything else you want to leave the listeners with?

Joe

Backlovich: Not really. Everybody have a Merry Christmas. It's going to be a short week coming up, so it doesn't mean there's going to be some volatility in the markets, but Merry Christmas, Happy New Year, stay safe.

Andy

Ruby: Yeah, Merry Christmas to you and everyone listening. Thank you for joining us. We'll catch you next time on the Ag View Pitch.