About This Episode
Friday January 3 gave back 20 cents. Beans had made their best price in weeks and corn its best since June, both led by soybean meal on Argentine dryness. Argentina has exported more than half the world's soybean meal in most years, so heat there moves meal, which moves beans and sometimes corn. Then the two week forecast added rain and the trade lost its nerve. Andy Hruby pointed out that across the last six years, March bean contract highs have been set between December 28 and January 12.
Matt Bennett's answer to how much more is there was to make people do arithmetic instead. Farm Doc had the average central Illinois grower on average cash rent losing about $130 an acre in November. Cash corn had since rallied 40 to 70 cents. On 250 bushel corn, a 50 cent rally is $125 an acre. That is the whole loss recovered, and it arrived without anybody predicting it. His question back was what your margin looks like today, and how the banker meeting goes now.
On beans he was blunt. He did not want to own old crop, and he thought they could fall a dollar, because a Brazilian crop the size of the forecast pushes world stocks from roughly 101 million tonnes to 132 across two marketing years. For new crop corn near $4.50 he described a $4.50 by $3.80 put spread financed by selling a $5.20 call, done for 15 or 16 cents, and only against bushels crop insurance covers. With the bean to corn ratio near 2 to 1, he expected corn acres back toward 93 or 94 million.
“I think from a cash market perspective, I think a person has to respect this rally and reward it incrementally. I'm not saying you sell everything, but incrementally sell it.”
— Matt Bennett
Key Takeaways
Measure the rally against your loss, not against the high. Forty to seventy cents of cash rally on 250 bushel corn is about the $130 an acre Farm Doc said the average central Illinois grower was losing.
Corn made last year's high in the first ten minutes of the calendar year. A January high is not a rumor.
Bennett would not own old crop beans. If Brazil delivers, world stocks go from about 101 million tonnes to 132 across two marketing years and beans can lose a dollar.
A $4.50 by $3.80 put spread with a $5.20 call sold against it cost 15 to 16 cents and still participates up to $5. He only sells calls against bushels crop insurance covers.
Cheap corn worked. Exports and ethanol grind were both strong, which is what cheap corn is supposed to do, but ethanol margins had already started slipping.
A bean to corn ratio near 2 to 1 points at 93 to 94 million corn acres. Price that in before the March report, not after.
Full Transcript
Andy
Hruby: Welcome everybody to the Ag View Weekly Market Outlook. Today we have Andy Ruby with Matt Bennett. Matt, how are you?
Matt
Bennett: I'm doing good, Andy.
Andy
Hruby: How are you? Oh, we're doing good. It's starting to get cold here. It looks like we've got some cold weather coming in this week. So starting to feel more like winter.
Matt
Bennett: Yeah, yeah, we've got a, we've got a snowstorm coming. So this band right here through central Illinois, they're talking 8 to 15 inches of snow, which isn't super common for us. I mean, when I was a kid, we'd get big snows, but, uh, my kids just beg for snow. I'm like, uh, whatever, guys, you know, but they're wanting a big, they're wanting a big snow. I could settle for 3 or 4 and be happy with it, but if we get that much snow, it's going to be a bit of a pain.
Andy
Hruby: Yeah, yeah, no, for sure. As we kind of look at this, this marketing weekend screwed up with New Year's in there and it's kind of been a bit of a roller coaster. And I think that's at the top of everybody's mind. We seem to be headed in the right direction there for the last 2 or 3 weeks. And what's the big question on Friday is, you know, as you guys kind of evaluate the market, what were kind of the big indicators you guys were looking at?
Matt
Bennett: Yeah, I mean, you went into Friday with, you know, a little bit of momentum. I mean, uh, bean market had made the highs that we hadn't seen, you know, for a couple, uh, for several weeks. Corn market, uh, highest level we'd seen, uh, since last June. Um, I'll tell you what, it was a nice feel to the market. And then you come in with, uh, what was leading the market? First of all, let's say bean meal market was leading the market, uh, is because Argentine dryness and southern Brazil Argentina typically, and in the past more years than not, has exported over half the world's soybean meal on the market. So anytime you see the Argentine dryness and some heat, it always spills into that soybean meal market, which spills over into the corn— to the bean market, sometimes the corn market, you know. And so that was kind of leading the market higher.
Of course, you come in with a forecast with a little more rain over the next couple of weeks, he'd back off somewhat, and it basically spooked the market. So, you know, essentially what you're looking at is a pretty rough Friday. You go down 20 cents, and yeah, I know, like you and I were talking before we started, it just kind of took the wind out of the sails. I think a lot of people went home on Friday pretty frustrated, but, uh, you know, whenever we look at what's gonna, uh, occur on Sunday night into Monday, you just never know.
Andy
Hruby: Yeah. You know, and you and I were talking a little bit ahead of time, as you look at the last 6 years and when we set March contract highs in that bean market and when lows were set and those highs being set between the 28th of December and the 12th of January, it's like, is that, is that the feeling we're getting now? It's like, has that ship sailed? Did we see our high and where are we headed from here? Yeah.
Matt
Bennett: Yeah. Interestingly, last year the corn market made the high in the first 10 minutes of the calendar year. You know, it was all downhill from there. And I mean, we can kind of laugh about it. It's not funny, but it is kind of, it's unique, you know, to see something like that occur. And it's a stark reminder that whenever you get rallies, the worst thing you can do in my opinion is to say, well, how much more is there to have, you know? And so one thing I've tried to remind producers of here over the last few weeks, You know as well as I do, you get into that October, November, early November timeframe, things look bleak.
I know University of Illinois Farm Doc team put an article out that, you know, the average grower in central Illinois, which is, you know, where I'm at, if they were paying average cash rent, that the loss was going to be around $130 an acre, you know, just for the typical producer. And so I sit here and look at this, and again, cash prices, whenever you factor in basis basis and futures, cash prices for a lot of folks have rallied anywhere from 40 to 70 cents. And so, you know, what was your yield? I'll ask people, what was your yield? Well, you know, I had 240, 250 bushel corn, you know, take 250 bushel corn times a 50-cent rally, and there's your $125 an acre right there. And so, you know, when you're asking me the question, and I'm not saying you personally, but the average grower asking me the question, how much more is there? I'm saying, well, what do you have today?
What does your profit margin look like today? I mean, can you get your head above water? Do you feel significantly better about that conversation with the banker coming up here soon? Because we all know it's coming. And I think we gotta be very cautious as to a thumb or nose up at what I would say is a heck of a rally that really none of us really expected to occur.
Andy
Hruby: Yeah, yeah, definitely was a nice Christmas gift for most of us producers. And whether you capitalized on it or not, was, that may have been the, you know, that was the opportunity that a lot of us needed. So, you know, kind of as we look at the, the week ahead and, and wrapping up old crop, and, you know, we can kind of switch this conversation to new crop is, you know, what are things that you guys are keeping an eye on and producers need to be watching?
Matt
Bennett: Yeah, I mean, there's a few things to think about. You know, first of all, whenever it comes to old crop, again, basis has held together pretty darn good. I think the farther west you get in your neck of the woods and west, it's, it's even better. I mean, it's crazy, but we're still kind of holding on to some cash tightness, if you will, from a couple years ago's drought out west. I mean, it's just never really normalized compared to, you know, what you would typically see in my part of the world. Of course, we've got the river on both on both sides of us. You've got Decatur, which gobbles up tons of bushels, but yet our basis all year has trailed yours a fair amount. And so, but the thing is that it's improved. It's improved along with a rally.
And so, you know, with that being the case, I think from a cash market perspective, I think a person has to respect this rally and reward it incrementally. I'm not saying you sell everything, but incrementally sell it. As far as beans are concerned, I'm not a fan of really owning any old crop beans right now. I know a lot of growers like to have what you would call gambling bushels. I totally understand that. That's up to them on how they want to do it. But at the same time, you got to ask yourself what's your, you know, what's your risk. And if you do get yourself in a situation where, you know, with the downside, what could it be here? I mean, I think beans could go down a dollar from here.
And I hate to say that, but the concern is if Brazil has the size of crop that they think, you know, all of a sudden you're looking at the world stocks going up around 30% over the course of the 2 marketing years the USDA likes to look at, which was last marketing year and this marketing year. So go from about 101 million metric tons to 132, and that's just a massive increase, you know. And so if Argentina didn't have major weather issues over the long haul, I'd be very concerned. New crop, you know, for me on new crop, I think what you have to understand this time of year is that again, last year, you pretty much went down all year. And so the question is, well, what if I lock too much in here, you know, and the market takes off and rallies? And so we like to have some flexibility in our plan.
I know a lot of folks have been calling saying, hey, what do you think now that, D25 corn was getting closer to $4.50. You know, obviously we didn't end the week there, but get closer to $4.50, what do you think? And I'm like, you know, if I would set a floor in place, one thing we've liked doing, just to, just to throw something at you, that we've had some guys doing like a $4.50, $3.80 put spread, and then, you know, maybe selling like a $5.20 call against it. But those would only be on bushels that would be versus like your fertilizer. You know, I don't like selling calls on a lot of bushels, and I never sell calls on bushels that I haven't produced yet unless I buy crop insurance because you have to have a way to call that a true hedge. But I do like the flex in that strategy because if the market rallies, I can participate all the way up to $5 or above.
We've been doing those for 15, 16 cents. Now on Friday at the close, you wouldn't have been able to do that because the market had fallen. But, you know, setting offers in place on strategies like that makes a whole lot of sense. And beans would be the same. I'm concerned that if, if, uh, if you don't like the price at $10.25 beans or $10.08 or whatever we closed at this I think that that could look awfully good next fall. And I hope that's not the case. But if, if you do end up with, with weather benign, if you will, in South America overall, yes, you might have regional pockets, but if you end up with weather that is at least conducive to average production, and that's what the USDA is currently forecasting, then you've got massive stockpiles of soybeans. So we have to be very cautious not at least have some sort of protection in place.
Last thing I'll say, whenever you ask what we're looking at is, you know, this acreage discussion is pretty interesting this year. It always is interesting, but you know, the soybean to corn ratio is as low as we've seen in a long time. You know, it's down there to where you could make a case maybe it'll make a run at 2 to 1. Right now it suggests more corn acres. The interesting part of that discussion, as you know, is that it's not exactly a beauty queen whenever you look at profitability scenarios for corn or beans. And so it's a It's a tough discussion, but we've got to think that the average grower, you know, as long as financing is not a major issue, you know, is going to opt for as many or more corn acres than they typically might.
So I could see corn acres jumping up, and part of the reason for that is that 2 years ago you planted 94.6 million acres of corn, you know, and so corn acres going down this last year made some sense because you were so heavy corn 2 years ago. This year is probably going to jump back up. And so with that being the case, you need to factor that into your marketing plan as well, because I'll tell you what, if you have 93, 94 million acres of corn and anywhere close to the type of yield we had this year, you'll be looking at a lot of corn. So all around, it's challenging, but I do think flexibility is key, keeping floors in place.
Andy
Hruby: Yeah, I know, I think that's, that's really good information. And, you know, kind of hitting on, on what you said about basis is it has been relatively strong for this time of year in our area, and You know, we've said internally is don't delay haul today, is let's just get this stuff moved and take advantage of some of these opportunities. And we rewarded that market. And the new crop stuff has been interesting. You know, I think like you said, that $4.50, it's, it's no beauty queen, but is that a good spot to put some layers in with some flexibilities? Or, you know, you need to think about rolling that 2 or 3 times. And then what's this basis situation going to look like a year from now? Is you start getting into some, some areas that, that are close to the cost of production, if not somewhat profitable.
So it's, it's, it's staying optimistic in times like these and trying to come up with some, some strategies that, that keep you optimistic and keep you profitable.
Matt
Bennett: Absolutely. You know, I think the main thing we've got to do is understand, you know, that cheap corn did a phenomenal thing, and it's what it usually does. It does trying to cure cheap corn. I mean, we've had export activity has been phenomenal this year. We've had awfully good ethanol grind. I'm a little concerned right now that, you know, ethanol margins don't look quite as good as what they did before. I think you could see some, you know, some seasonal slowdown there, but overall demand's been fantastic, which is exactly what you would expect with the cheap price of corn. But have we done enough yet? I mean, that's the question, and I know sitting in my shoes. I do a lot of presentations in the winter, and I always tell people I'm not necessarily here to, to make friends. I mean, I'm not trying to be a jerk about it.
It's just that, like, I know you're not going to like what I have to say today, you know. And it's just, let's just talk reality. The reality of the situation is we've got enough corn in the U.S., and we've got plenty of beans in the U.S. and world. Now, one thing I would say on corn is that the trend of higher stocks-to-use ratios in the U.S. looks like, you know, this year it's going to have kind of come back the other way on stocks-to-use. And it's because we had so much corn, you know, but even better usage. And so the world stocks— stocks-to-use continues to actually go down somewhat each year. Now it's not burdensome, like we— I mean, it's not, it's not tight, it's not super tight.
But at the same time, I mean, that tells you that You know, if you do have some areas in the world with a world weather situation that is enough to impact their exports, you know, it could give you a reason to run. I don't wanna talk circles around it. The thing that's tough is that I could make a case for corn at least holding itself together. The problem is that the bean fundamentals are so freaking bearish that it's kind of an anchor right now on the entire situation. And so, you know, we've gotta be cognizant of that. Protective whenever we see profit margins come back in, or at least get ourselves to where we can lock in a worst-case scenario, break even. You know, if you can do that, I would highly recommend you do that with some sort of flexible strategy.
Andy
Hruby: Yeah, no, couldn't agree more. I think, you know, as we kind of wrap this up, guys keeping their eyes open and looking into strategies that allow them to break even and be profitable for this 2025 year are super important. Is there— you got any last comments, Matt, or if guys want to talk strategies with your team, what's the best way to do so?
Matt
Bennett: Yeah, I mean, if they just go to agmarket.net, they can get all of our information. You know, we do have a conference coming up February 2nd and 3rd. You know, if they want to learn about that, you know, we're going to have a pretty, pretty good lineup of folks, not just talking about corn and beans, but, you know, we've got someone there going to talk about the both now and long-term in Brazil. You know, we've got Dan Voss through that resource, Eric Snodgrass, you know, it's a really good group of speakers if they want to learn about that, if they want to get our contact info or, you know, see the technology that we put together for growers to figure breakevens and strategies and whatnot. It's just right there at agmarket.net.
Andy
Hruby: Okay, great. Well, thanks for the time today, Matt, and thanks everybody for joining us. We'll catch you next time on the Ag View Pitch.