History rhymes: weekly market outlook, July 7th-11th

Shay

Foulk: Welcome back everyone to the Sunday Market Outlook on the Ag View Pitch. Today we have Dwayne Lowery. And Dwayne, you were just coming back from north central Minnesota, I guess I would call it. How were the crops looking up your way?

Duane

Lowry: Came into Minnesota from southeast Minnesota, went through the Rochester route. To get to the Twin Cities and then north. And I would say that the one word that I'd want to use to describe the crops on the tour was uniformity. It didn't matter whether you're in Minnesota or Iowa, it was very uniform. I would say the worst looking crops were actually close to my home, where we have nitrogen deficiency, or maybe better expressed as just excessive moisture. And I don't think that's a large area that is in that situation. So I would say uniformity, and I would say everything looks good. You might be able to find a bean field or two that seems a little slow in its development, but overall I would say things look very good.

Shay

Foulk: The uniformity piece I think is interesting. A lot of people have commented that maybe it's a fool's errand to try to predict the yield at this time of the year because who knows what's going to happen with rainfall and heat the next couple of months. But uniformity is a, is a pretty strong indicator of the potential for a good crop out there, I guess, is what I would say. We're, we're just hitting tasseling here where I am in north central Illinois. A lot of the, a lot of the county is starting to get first tassels on maybe those 104, 105-day hybrids that are out there. You know, conditions weather-wise seem to be pretty decent. I guess you'd call it a quote-unquote normal summer, mid-80s, upper 60s, low 70s at night, and potential of rain showers. It seems every day that they have a chance in or take a chance out here.

What's your thoughts as we look at weather here in the week ahead, Duane, and a good portion of the Corn Belt starts moving into that tasseling period?

Duane

Lowry: Well, as you look over the maps over the next 2 weeks, I don't like to get too far beyond that with forecasts. But over the next 2 weeks, it's difficult to see a problem. You've got a lot of areas that will get moisture, not every acre will get it. You don't have oppressive heat. And you've had enough moisture in the recent past and even over the entire growing season, really, that concerns about dryness are going to be difficult to get, and any concerns about production is, has got to be labeled as small pockets, not large thing, large areas. And the last thing I think that was important to talk about national yield is I think we need to take this conversation in, in light of context of the last couple of years. The last couple of years in real time, it seemed like we always had 35 to 50% of the key production areas under stress during the last 2 years.

And then look at the yields that we ended up getting, you know, it was very close to national records, or, you know, just barely made a new national record, I think this past year in corn. And if we were able to accomplish that with a large percentage of acres under, you know, what I would consider a notable amount of stress. You know, what is possible when we sit here and struggle to find any weather narrative for any region that is worthy of a national yield conversation concern? And I'm inclined to at least explore the possibility and thinking that we're probably going to, or we could possibly shattered national yields in corn and beans this year. And if that statement is not true, it's probably because of something in that is going to happen from here forward, not because of something that has already happened.

And I think that is something that the marketplace, we have a risk of seeing a market that might want to absorb that kind of thinking or that type of possibility here over the next several weeks.

Shay

Foulk: People get squirrely when you talk about the national corn yield and another potential record. I mean, there's big numbers out there, you know, 183, 184, 185 on corn. And the rebuttal to that is, well, we've had 5 years that have been below trendline yields, and it seems that the USDA has come in and made these projections as a higher national yield, and then we always end up several bushels lower. I think what I would maybe caution is when you go back over 30 or 40 years and look at that trend line, those trends are dictated by years of good crops, you know. So maybe we did have a below trend line yield last year. What if we're 3 bushel, 4 bushel above this year? You can have those drastic swings, and, uh, you know, history might not repeat itself, but it definitely rhymes.

And when you go back and look at the chart over, again, we'll call it 4 decades of how that national trendline is established. There's years when that happens. And I agree, Duane, I think nothing that exists out there today that would have us below trendline is from what's occurred so far this season, other than those pockets that you mentioned, Southern Illinois, parts of Indiana, Ohio. I know there's areas that have struggled out there. But man, there's, there's a lot of really good looking crop from the, from the travels that the Ag View team has had here over the last, call it 3 or 4 weeks. What are your thoughts on, I guess, my comment there about how you have those rapid swings sometime year to year from trendline yield to well above trendline?

Duane

Lowry: Well, I've been around long enough to remember 115, 120 bushel corn. And I remember one year that we had what you described where to get to that trend line or to maintain the trend line that we've now have seen happen. Uh, it takes that one year where you get a big spike up that was a surprise. And I remember getting that in the $130s to $140 range on a particular year. And we've seen it happen before, and we've stagnated here for a few years, that is correct. But again, like I said, in context, we had an awful lot of stress over a large and key geographic footprint in the last couple years with dryness. And we don't have that this year. And so this might be that year that we spike up, that give credibility to the trendline being in existence at all and using that weather model or that trendline yield modeling.

And, and, you know, we don't know exactly what's going to happen because we never know for sure until we get there. Bad things can happen and things can change on weather. But in the last 10 or 15 years, oftentimes by the 15th or 20th or 25th of June, the marketplace, right or wrong, has made the assessment that the crop is largely determined. And here we are, you know, the 6th day of June— or excuse me, 6th day of July— and we don't have a weather front threat in front of us. And we haven't had much in our past. So it's, uh, it's not unreasonable to at least ponder these things. And I think the marketplace maybe has not yet fully pondered that. And the reason I say that is we've had to deal with geopolitical threats, we've had to deal with things about inflation, tariffs, what's this all mean, you know.

Maybe there's been a certain amount of weather or, or what-if premium left in it in the form of the marketplace not wanting to bust prices down, uh, as they often do, and maybe that's still ahead of us. And it is true that prices are cheap, they are cheaper than the cost of production, uh, for many producers given a normal yield, but that doesn't guarantee that we can't get there again. And it's very possible that We have to, to be concerned that the— in order to get export business, the marketplace may have to take stuff to very cheap levels. And I have concerns that with war in Ukraine maybe winding down, or the leverage of the West on Russia winding down, with the Middle East war activity maybe coming to an end or a significant reduction, that maybe shipping of energy becomes more or becomes less expensive.

That OPEC announced this weekend that they're going to increase production, which was not a surprise, but the scope in which they increased it maybe was. It becomes quite clear that Saudi Arabia wants to gain market share. That's going to weigh on energy, and anything that weighs on energy tends to weigh on commodities in general. And again, without a problem in the US, it might be difficult to get a weather narrative to generate prices that are better than this or to prevent prices from getting cheaper. There is dryness in Europe. But it's been a long time since Europe has been— weather concerns have really driven global prices, and I'm not sure they're going to this time. So Even though prices aren't good, and I hate to sound bearish at this time of the year at these prices, knowing that they are not good prices for producers, we have to be concerned that they could get cheaper.

Shay

Foulk: Two comments on the geopolitical outlook there, Duane. You know, the first was President Trump in Iowa here this last week. I think there was maybe some hope around, you know, some agreements or some purchases there. And it kind of seemed like that turned out to be kind of a nothing burger. What was your take on that?

Duane

Lowry: A pure nothing burger. There were people hoping that he was going to say something, but there's, there's nothing there. I'm not sure there's anything that he can present to us in trade deals that's going to automatically create some new business. We might be able to create conditions that lead to business somewhere down the road, but over the last several years, if not more than that. Anytime we get a trade deal or some optimism that China is going to become a buyer, it seems like they don't become that buyer. Or even when a trade deal is announced, the conditions that manifest them to become a buyer don't occur at the time the deal is announced. And before they become a buyer, it seems like the market ends up having to have a washout.

And we have conditions like we've already talked about that make it plausible that we could get a washout to some level that maybe spurs some global buying. But so far, China has been largely absent buying new crop beans. I think ultimately they will end up buying new crop beans from us. But they haven't— done so in any big way yet. And it might not be until we get closer to actual harvest unfolding before that happens. So there are reasons to be concerned. You got the balance sheets that are plugged in with, you know, near record or very optimistic export projections on both corn and soybeans. And we have data that suggest that that could be in question. And the whole yield discussion we've had, you throw 3 bushels an acre onto corn, a couple bushels an acre onto beans, which are not an unreasonable thing to ponder.

All of a sudden you're at 2 billion bushel carryout in corn with these high record yield or export projections. And you got, you know, 450 million carryout beans, that are also built with a table that has exports at very lofty and quite possibly overstated levels. And so, you know, it isn't difficult to reach in and grab from a list of things that are concerning in this timeframe of the year. By the time we get to harvest, a lot of these things might no longer be a concern, they might have been priced in, we might get prices cheap enough that all of a sudden the export picture improves. But for the time being, there are legitimate reasons to be concerned.

Shay

Foulk: The second political comment is around the recent legislation that was signed into law here, looking at 45Z in particular. I think that has kind of had some drastic ebbs and flows and maybe fell off there pretty hard for a while. I know there were some conditions or provisions that were written in there around 45Z. And in tandem with that is you also mentioned energies there with OPEC's announcement. Maybe again, I think I mentioned this 2 weeks ago on the Sunday Market Outlook of, you know, we still have 3 years left of an administration whose motto is drill, baby, drill. We're looking at how do we continue dominance in the energy sector or reestablish dominance in the energy sector without biofuel mandates, uh, changing drastically there, we don't have internal demand or consumption to, you know, maybe handle some of this massive crop that we're looking at.

I guess, what's kind of your thoughts around that from a biofuels, a 45Z, and energies outlook, Dwayne?

Duane

Lowry: Well, you're true, uh, you're correct about the fact that without biofuels, we, we don't have a home for all that we can produce. Our production is geared around a significant amount of biofuel in the case of corn, and any optimism towards the future has to be driven— in terms of soybeans— has to be driven by biofuel consumed domestically, because we continue to lose market share of the global export business to South America. There's no reason to think that's going to change. I've been a very optimistic believer that 45Z and biofuels would remain the case, even though, you know, prior to Trump being elected, people said once Trump's elected, that all this is going to go away. I didn't think so, and I've maintained that attitude throughout, and I think what we've seen in the recent biofuel legislation is probably that this is going to stay on course.

Whether it grows fast enough and things follow through and, you know, at a fast enough pace, that might be debatable. But this 45Z, you know, the foundational component of that actually goes back into the early 2000s, and I think that, you know, the big, big money that is pushing this agenda benefits from the Uniparty and everything that that statement means. And we continue to see that in the legislation. So I think that the future is bright for us in terms of building the biofuels use in the soybean market. But it's going to take time. The— we're not ready to fully utilize that yet, but it's, it's going to take time. But the problem with that is everything we gain on that is probably going to do at best try to offset what we lose in export business.

Shay

Foulk: Good comments there, Duane, around that. I, I don't know where it goes. I think it's kind of an interesting outlook, and, uh, I think it's one of those things that only time will fix. So I'm not sure there's Much else to add on to that. Just, it's interesting, I guess, to see how rapidly some of those discussions or outlook have changed over the last year. And as, you know, as the American farmer trying to navigate that, I empathize with a lot of you out there that are looking at where does this demand come from, where do we utilize our products best, and what does that mean for our farm operation?

And I guess that's kind of where I wanted to go here, Duane, as we look towards wrapping up our conversation today is fertilizer prices are still at, you know, some, some areas are still at all-time highs while we're looking at, you know, what, what we kind of hinted at earlier is a possible bearish outlook here. So you have suppressed market prices, you have record high or near record high fertilizer outputs. What are you doing when you put on your farmer hat here to make strategic decisions to get through the next, the next 4 months and survive into and beyond 2026 with, with the environment that we're facing here. And I'll preface this by saying, you know, when I, when I came back to the Ag View team in 2019, I remember having similar discussions. You know, corn was $3.30 to $3.80. It was a very bleak outlook. It was before COVID Kind of a nasty place to be.

But it, again, history doesn't repeat itself, but it kind of rhymes a little bit. So, you know, you put your farmer hat on here, Duane, what's your, what's your thoughts to the listener here today?

Duane

Lowry: Well, it's a nightmare for the producer, because he can't come up with a confident projection of yield, costs, and price that actually works or works well. When he's facing rising costs, whether it's labor, interest, which interest, by the way, has been a big rising cost for him in the last couple of years. Equipment costs are through the roof. Repair costs, everything that he, the producer buys is up. And he's facing a lot of difficulty. As far as the next 4 months, if we look at a producer that hopefully has made some sales, at better than current values in the case of corn during that February rally that we had, maybe hopefully caught some of that. From here forward, regardless of what sales are on the books, his best shot at trying to find profitability is going to come from hopefully that he participates in getting, you know, optimum yields for his farm.

And if he's in a position where he feels like he has that potential now, then he needs to recalculate that, what his costs are and what current prices mean. And if he's got some sales on the books, or even if he doesn't have those sales on the books, if he elevates his yields and he bets on that, maybe he has to make some of these sales to try to make that a survivable year. I don't, I don't like to sound that bearish at these prices, knowing that the farmer can't make these prices work unless he gets exceptional yields. But all we can do is play the cards that are dealt to us. And I think right now, producers have to consider that maybe he's got to make some sales at current values, just to try to make it work. And then he's got to hope that everything goes well from now until harvest. And he gets these yields, gets some really good yields, and he can make that work.

At some point in time, if the theme that I've laid out here proves to be correct, and prices do work lower for all the reasons that we've talked about, maybe there'll come a point in time where he can get into an imaginary crop insurance payment based on low prices. And maybe then he can do something on paper to try to lock in that imaginary payment, because that will occur most likely before we actually get to the time where the, the harvest price is determined in the fall. And maybe he can make something work that way. Maybe the opportunity is, is taking the prices that are offered now market slides, maybe you can buy it back and do some of this activity. But I think that he has to— you can't just keep your head in the sand and say, well, this corn might go down to $3.85 to $4, but I'm not going to do anything about it with it sitting here close to $4.40.

Maybe we have to be concerned that November bean futures could go to $9.60 to $9.90. And at $10.50, we don't have the luxury of not doing something about it. The prices that we have for November futures right now is actually the upper part of parameters seen for the last several months. They're not good prices. But maybe if the yield is good enough on your, your farm, your operation, you can make that work into a survivable year. And I think all one can hope for here is to make this a survival year. As far as the cost of fertilizer, it's outrageous. It's theft. There's no justification for prices to be where they've been.

I got to hope that as geopolitic— politics winds down some and some of those uncertainty factors wind down, and maybe some more open and free trade between locations in the world where fertilizer comes from becomes better, and maybe as energy prices come down, maybe that'll be one of the benefits that agriculture can get from cheaper energy prices. You know, maybe this will work better for the 2026 calculations. The problem is, we might still have cheaper prices to experience first. So I think Right or wrong, the producer is forced to take a defensive approach.

And with the calendar being July 7th instead of May 7th, his confidence in taking that July approach is probably better now than it would have been on May 7th, or probably better than it would have been on February 7th, when everybody had a very low soil moisture profile, which has changed dramatically from what the calculation was at that time. So based on my years of experience and history, I think we have to be concerned, and therefore we have to take a proactive stance to try to protect against the cost of what you're hoping to produce here in the field gets even worse than where it has been and where it is today.

Shay

Foulk: I want to, I want to draw on your experience here too. You, I think you hit the nail on the head from the interest standpoint. It's much higher than what we've seen maybe in recent years. And because of suppressed prices and a pretty grim outlook, a lot of lenders are looking at farmers to have a better plan in place and saying, what are you going to do for cash flow purposes, capital expenditure needs? There's a lot of debt being termed out right now. And essentially, you know, I don't want to say forcing anybody to make a decision, but You know, in some operations that may be a point of, hey, you need cash, you need to pay off these debts, um, and, and we don't want you getting smoked on an interest expense. So maybe we need to move bushels here, uh, earlier than you would have, or, uh, you know, you're just not going to store it and ignore it. You got to do something with it.

You may not be able to just sit there and wait for higher prices. But what I want to draw on from your experience here, Dwayne, is looking back to, you know, past downturns, and we'll use the '80s as an example with much higher interest rates, uh, 15, 17, 20% interest rates for some, for some operations. Was it a similar scenario where, uh, cash was king and we just needed to move those crops at the end of harvest to get cash into the account? Or how were producers handling those types of situations in years where maybe the price outlook wasn't great but we needed to do something in order to get cash flowing into the bank?

Duane

Lowry: I think the level of debt in the '80s was much worse than it is now for most producers. I think in terms of cash is king in the last, let's just say the last 15 years when there have been economic stresses and bank conversations were very difficult, the cash is king was a, you know, a very common theme. And Um, if, if you look from here forward, probably the worst case scenario would be if a farmer did nothing, had little sold, found himself at harvest time, and he's trying to have a conversation with the banker about 2026, and he's got a lot of unsold bushels at prices that aren't very good. That's going to be a very difficult conversation. If the farmer makes the sales, maybe doesn't have a great 2025, but maybe he's lucky enough that he's had good yields. He's made sales better than whatever they are at harvest time.

And he might survive enough that the farmer— the banker will look at that situation, say, well, at least you don't have your crop unsold. We're not dealing with that. You're current on your loans for the '25 crop. That conversation for '26 is going to go a lot better, and I think that's part of the survivability outlook, you're trying to survive, and I think that, that to me tips the scale that for all the things that we've mentioned so far, it tips the scale to where making these sales now is more plausible and, and, you know, palatable than what they might be when you think about the situation you don't want to be in, in the fall trying to have conversations about '26, and you don't even have the '25 crop marketed. And bankers have a tendency of having 20/20 hindsight.

And they're going to wonder how you— why you don't have more stuff sold when the crop seemed in real time to be in pretty good shape. So I think you want to avoid that.

Shay

Foulk: Yep. And what I would say here for those of you listening is don't be an island. If you're concerned with this, as, as so many are— I mean, we have a lot of our clients, Dwayne, that are 10, 15, 20% sold, and a lot that have a lot less than that sold for 2025. No one is very comfortable with where they are right now, or very few are very comfortable with where they are right now. The only confidence, as you hit on, was, you know, maybe the revenue protection programs that are out there. But don't be an island. Reach out, you know, if you're having hesitations, if you're struggling with making decisions, if you just need some extra feedback, reach out to the Ag View team. Dwayne, I'm sure they can probably reach out and give you a call. But we just, we don't want people to be so overwhelmed with this decision and then look back and think, man, I should have done something.

You know, now is the time to be proactive in making decisions. And I would remind you too that making no decision is still a decision. And a lot of times doing something is better than doing nothing. So just, I guess that's kind of my last consideration that I would have there, Duane. Any parting messages that you wanna leave the audience with here today?

Duane

Lowry: Well, as bad as these prices might seem to be, They're not— they may not be so bad if you knew for sure that you had scale tickets across the scale, that your yields ended up being better than what you're calculating or pondering right now. That's number one. Number two, be honest and realistic with how cheap prices you, you have seen over your career get in the last half of July through the month of August, uh, anticipating a good harvest. And it's not unreasonable to believe that prices can get to, to a ridiculously cheap level. And if we have energy prices declining over the next few months, which is a very reasonable scenario based on things we've already mentioned, We have to find a place where the global buyer is going to decide to be a buyer in the US, and specifically we have to find what price does it take for China to buy US.

And I happen to think that China really doesn't want to buy US unless they're forced to, and we're not going to— they don't seem to be doing anything to try to go through a path of goodwill to express goodwill. So I, I'm, I think that China will be a buyer, but I think they're going to try to make prices really cheap before they do it. And I think that producers' only choice is to look at their own operation, forget about the price itself, and look at the price multiplier of this price and a favorable yield and see if you can't survive.— and you're going to have to make the decision off of that. That's how I feel.

Shay

Foulk: Absolutely. Well, Duane, I really appreciate today's conversation. Again, recording here on the 6th of July in 2025. A lot of time ahead of us here to wrap up this harvest, couple, 2, 3, 4 months before maybe we'll all be a little bit smarter. But as always, I appreciate your perspective and thanks for joining us, Duane.

Duane

Lowry: Yeah, thanks, Shea.

Shay

Foulk: And thank you everyone for listening to another episode of the Ag View Pitch Sunday Market Outlook. We will catch you next time.