Hold on loosely

Chris: Well, here we go again. This is Chris Barron with the Ag View Pitch and Dwayne Lowery. And getting later in the, in the week here and wanted to kind of get together, have a conversation, talk a little bit about the markets, a little bit about prevent plant, and just kind of have a conversation. How's it going today, Dwayne?

Duane

Lowery: Good, Chris.

Chris: Good. Talk to me a little bit about what we've seen with the markets. You know, we had a little, a little pause, I guess you could call it, maybe a little settleback. How would you describe that, and what do you think the cause of that was? And then what's that mean as we move forward, if it does mean anything?

Duane

Lowery: Well, let's start with a little bit of recap about where we started the week. We came in Sunday night, and based on weather forecasts and 3 days of a long weekend for people to kind of digest and move that calendar ahead 3 days and get 3 days closer to where it was a panic, going to be a panic in terms of planting date. We came in expecting the markets to be higher. I remember writing on Sunday nights that we could be sharply higher, possibly at some point in time trade limit up. We came in, we opened really not that emotional, about 8 higher, but by the time the day was over, we got double-digit gains, and then we ended up having follow-through the next day that by the time Tuesday night rolled around, we were up more than 25 cents from the previous Friday's close.

And so what has happened here is we've, we had a sell-off yesterday from the early morning high to the low made late in the session, and that was a 26-cent break in corn. And, you know, markets ebb and flow. I don't care how bullish they are, how bearish they are, there tends to be a certain amount of ebb and flow. It's difficult to always explain why those things happen, but they do happen. But at the end of the day, There are times where, you know, the market's on a mission and we're on a mission right now. And we don't know exactly where the destination is, but we know the direction that we're going. And I think the marketplace is each day, we're getting a little bit more confidence or buy-in to the storyline that we've got a major problem here. You know, when there's 40 million acres left to plant, but you think that you're a long ways from that being a real problem.

It's not that big a deal. When you got 30 million acres left to plant and some of those acres are already past the prevent plant date and others are be— reach that prevent plant date before they actually able to get to the field. Now all of a sudden it's a new level of urgency. And I think that's the stage we're in now. The fact that we had that 26-cent break intraday yesterday, uh, from technical analysis perspective is probably healthy. And this is how markets, uh, function. There's a certain amount of new energy, I think, found again in today's trade. Even though we opened lower last night, that didn't stick around too long. And there's just a greater level of nervousness out there in the farm community. And now you've got people that a week ago didn't think they'd have to face that prevent plant decision. Now they're looking at it with a whole other level of seriousness.

So it's been an interesting week. And I think we got a lot more interesting times ahead.

Chris: Yeah, it's kind of looking that way. You know, on the— you talk a little bit about the prevent plant thing. You know, we've also got guys that have some of their corn in. Visited with a guy earlier today about a situation. He's two-thirds planted or so. 30% of his marketing is done on that. Portion of his production. And so, you know, his question was, you know, should I be taking a little bit more risk off the table, you know, as the market's rallying here on those bushels? Because his anticipation of yield is still pretty good on what he does have planted. And so he's looking at just those production bushels of that segment of his production and wanting to make sure he doesn't pass up an opportunity to take advantage of some of these price improvements that we've seen here recently. What's your thought on that?

I mean, how much risk should one be taking off, or is that a pretty subjective decision, or, you know, what's—

Duane

Lowery: It's definitely a subjective decision. I've been saying kind of as a general theme in these podcasts for the last week or two that just having more time to make that decision is valuable. And so I'm kind of still in that camp that if you can wait to make that decision, that might still be wise. Yes, there's opportunities to be had here, but when I look at the whole picture here, I don't think the markets are going to suddenly tip over and be all over. And even if that were to be the case, there's a lot of the growing season, virtually all the growing season for, for half of the crop still in front of us.

And when we're starting out, uh, with adversity and, and poor soil conditions, um, and we have a situation where suddenly the carryout situation is not the same as it was before, where people thought it was going to be in a plentiful type of supply, and now it's, uh, depending on how one views the situation, it's either, uh, uncomfortably tight or we're already at a point where we have to ration. That causes the market to react a lot differently. And so I'm still of the nature that I want to be somewhat patient. And so—

Chris: but once these things become a known— so like, you know, we talked in the middle of the week when we had that pause or settle back a bit of, okay, the news is out there, everybody knows we're in trouble, you know, or we get a report or whatever it is, whatever the news is, the market's going to trade that for a segment of time. And then it's going to look for some new news, right?

Duane

Lowery: Exactly. And I think what you're describing is probably something that could still happen, you know, over the next 5, 6, 7 trading days. And what that's going to be is the marketplace prior to the last day or two has been expecting that the prevent plant decision would be a difficult decision and the Eastern Midwest farmer would want to plant. And I think as we're getting closer to that time, all of a sudden that decision is a little bit in question. Partly because we don't see a planting window. And most of these guys don't have one day's worth of planting to do. They have several days of planning to do. So even if they want to plant, the law of time is going to be against them and just pure logistics. So that's a factor.

But as far as it being known, it's very possible that by the time we get to the middle or end of next week, the marketplace will have done all it can do to entice the farmer to plant more acres or to plant maximum amount of acres he possibly can. Once that is done, then it's very possible that the storyline shifts away from a loss of acreage and a weather shifts away from can't get it planted to a focus on, okay, that's known. What about the crops that are in the ground or they're already out of the ground? How's the weather look for that? And the answer is probably going to be favorable. We have warming temperatures coming. We'll have some drying out tendencies.

And, and so it is very possible that we reach a point here in the near term, within the next week, where the shift of focus does become more negative with the same set of inputs because we factored in these other factors and, and we start to focus on what's in the ground, and that'll probably be seen as favorable. The question is, when do we max that out? It doesn't feel to me like we've quite peaked that yet. But I'm guessing that within a week from today, we might have. And at that point in time, the market may have gone as far as it's going to go until it gets a new scary input, such as some hot and dry in July or August, or some development stage that we're not, you know, that we're not happy with the crop or whatever, or else verification exactly how many prevent plant acres we did get. Right now, it's a wide range of ideas about what that's going to be.

So I definitely want to take risk off the table. The question is the timing of it. And I think anything from here—

Chris: Well, and it's part of the question, the amount of it too, though. I mean, if you like the example I gave, if a person's 30% sold on what they're confident they're going to produce, then, you know, do you do 10% increments or do you, you know, because the timing is going to be hard, the hard part to hit.

Duane

Lowery: It's always hard part to hit, if not impossible to hit. Hit. So incremental selling when you're in a profitable zone, it's difficult to argue with that approach because that approach keeps you in business. I think the most important thing is to have realistic expectations of what your yields are going to be. And I mean that from both the perspective that being realistic that you're not maybe not going to grow your APH, but make your sales based on what is reasonable. At the same token, be realistic on the other side. Don't think you won't have a crop or don't think you'll have half a crop or less than a crop. Try to be realistic based on your combination of, of your crop insurance coverage and try to make sales based on that type of quantity.

Chris: Right. That's what we've been trying to do. So we've, to this point so far, Dwayne, we've done a number of prevent plant analysis And what kind of what we're seeing is a little bit of a mixed bag, but, but it's been a bit surprising that it's sort of difficult to, to probably plant some of these acres, not only because you can't get to them, but when you look at the economics of the prevent plant in some of these cases, if an individual has a high enough APH and has bought, say, 85% insurance. Their coverage level could be fairly high. I mean, we're seeing some in the high 3s and the low 4s, for example.

And when you look at that and, and compare that to, you know, taking 25% of your yield off what you think your 5-year yield average is on that parcel, and then, you know, start to toy with the price, we saw 2 or 3 of these yesterday where, you know, the price needed to be up around that $450,000 to $480,000 range to make it equal with the prevent plant. Now, I think we still want to make sure that we mention this as a disclaimer. I mean, you need to talk to your insurance agent well ahead of time and make sure you're really plugging in the right numbers and have them involved in that. Um, but these decisions are difficult, I think, emotionally because we all want to plant. I mean, that's just a given. I mean, that's why we do what we do.

But when we look at the economics and they start showing us that, you know, the prevent plant is probably a more viable option in some of these cases, particularly with the insurance levels that are high with high APHs. It's starting to tell us some of the things that we probably need to know. And so hopefully we can encourage people to still, if you don't have the tool or you're getting in a situation where you have to run the numbers, you know, we're here to help run those numbers.

Duane

Lowery: Then the other thing that, that's beyond just the market perspective, you also got the agronomic perspective, and you've got a situation where, you know, what that, what's that do to your field to drag equipment through there and drive through there when you know the soil is not at this place you'd like it to be, but you're— you need to get through there as quick as possible. So as a producer, how much does that factor into your decision?

Chris: Well, I think that's a big deal because, you know, again, just in conversations with growers the last couple of days, I mean, I've heard it a few times where, you know, if I'm in that late plant period and I need to go out and plant, and I— or I want to, And I got a 150-acre field that is half ready to go. Do you go out there and make a design in the middle of the field, or do you, you know, or do you wait until the field's fit? And if you run the numbers, it's starting to lean more toward, um, maybe not going out and damaging your field. So, but again, those are subjective decisions. It depends on the insurance and a whole bunch of stuff. So I can't emphasize enough You know, I don't know how anybody could make these decisions without sitting down and really critically analyzing the numbers.

Duane

Lowery: Yes.

Chris: It's not possible.

Duane

Lowery: You've got the financial, you've got the intangible, you got the personal part about, you know, you're not getting your crop planted. You have the landlord situation to contend with.

Chris: We have the MFP. Yeah. You know, you got the income coming in on the production side. If you do plant, you have that.

Duane

Lowery: You have a lot of different ways to look at it, a lot different conversation. And when it comes to the landlord, just being open upfront and including the landlord in the, in the thought process and why you're coming to the decision you're coming probably has, adds value to your overall relationship with your landlord, wouldn't you say?

Chris: Oh yeah, definitely. And I think that's the one thing is, you know, is we need to start thinking about how we have conversations with the landowner in terms of, you know, if you are going to prevent plant on their farm, that's probably the, after you talk to the insurance agent, the second phone call or the second meeting probably needs to be with that landowner. So that they don't hear it from somebody else. Oh, I understand you're not going to have any crops on your ground this year, you know, so.

Duane

Lowery: That's an opportunity to do land improvement. It's an opportunity to do cover crops and, and to do everything you can to prepare that soil and protect that soil for the next year's season.

Chris: Right. So I think there's two sides to this though. I mean, Dwayne, it's looking like there's some situations where, where I think guys are going to maybe try to plant all the way up to the very end of that. Late plant window, and there's going to be some situations where I think growers are going to have to opt to throw in the towel. One thing I would say that we've heard from a couple of agents is that if you are going to prevent plant and you get inside that window, you really need to be communicating with the agent like now. Like, don't wait till after the fact, or that's not a good deal. And so one thing we'll be doing here in I don't know, in the next week anyway, or maybe in the next day or two, we're going to have a podcast here too with someone on specifics with prevent plant that can give us the absolutes, what you need to know on the prevent plant.

So that should be useful too. So there's any, any other, any other thoughts, Dwayne?

Duane

Lowery: I do have a few things that I want to bring out today in terms of the producer marketing. Let's talk a minute about cash basis and how one might proceed if they want to take risk off the table, they want to make sales. And this will depend a little bit on areas because it'll vary from area to area. If you happen to be in an area where production will be short because of prevent plant or yield reduction, it'll be different than an area that's not. But if we look at the overall situation between prevent plant acreage loss, reasonable assessments of yield loss, Storage is not going to be a problem. And we've just come off a situation where the industry— and I'm talking about the futures market and cash markets— have had very wide basis. They've had very large spreads. The corn market has done away with the carry in the futures market.

All the front strength has been on the front end. That's probably going to continue. But the cash markets still have what I would consider to be a relatively wide basis structure built into them. And so if you're a producer and you're looking to take risk off the table, the cash forward contract may not be your best bottom line sales decision. Because if it's very possible that the physical commodity will have a very high value, it'll be in demand by all the feeders. You know, if you're a hog producer, you can't feed that pig options or your brokerage statement or paper. They need the physical commodity. And if the physical commodity is in supply and it's going to be tight just on raw sheer numbers, that's one thing. If it's going to be tight because your region just doesn't have the bushels, the farmer is going to be reluctant to let go of it, things of this nature.

I think the physical commodity is something that could have a lot of value, and you could have a situation where the corn market is inverse in the cash market as well as the futures market. And you could have situations where on the day that you want to make a sale, there might be a buyer out there willing to pay, you know, several cents more than their posted bid just to get your supply. So I would try to protect ownership of that physical commodity. I wouldn't want to give that up if I didn't have to. Even if you had limited storage space and you know you're going to have to give it up, as the season goes along, maybe you can find some relationship with a livestock feeder that will give you a little bit premium over just a regular bid to have that physical supply.

If you happen to be in an area where your prevent plant is really going to be high, like here in South Dakota, you know, that, that, that is even more prevalent. But I think it's a situation everywhere. So I, I would have a tendency to be very protective of that physical ownership, even when you want price protection, maybe look for a different way than you normally done it. And I would go so far to say that I would make that same statement about soybeans, even though we have a lot of carry in the soybean market, even though cash basis has been very wide, and we think we're going to still have a plentiful supply of soybeans. We haven't even got to the growing season yet. We don't even have the half the crop planted. We haven't got to the July-August period. A lot of things can happen. And I think maintaining that physical ownership, this will be a year you want to do that.

Chris: Yeah. And real quick to back to the corn and the basis conversation you had that I kind of forgot to mention in visiting with a grower today too on that sale. One of the discussions we had was obviously your basis topic you brought up. And the thing we were thinking was, you know, maybe you go ahead and do an HTA because that basis is probably going to improve. So if he wants to take some risk off the table and, you know, rather than just doing that cash sale, at least probably do that in HTA. Would you agree with that or what?

Duane

Lowery: I would agree with that. But if you happen to be in a location where there's a feeder market or there's a feed processing plant that's, you know, goes through a lot of corn, in a given time, I'm not sure I'd like to be committed to a single buyer with that HTA where they know they have a captive supply and they're going to pay you on your bid. Right. You know, so it might be better in cash flow contract. I'm just trying to emphasize that the physical commodity might have some real value over the next 12 months.

Chris: Awesome. Well, thanks. This is good conversation. Again, this is Chris Barron with the Ag View Pitch. You can reach me at cbarron@agviewsolutions.com. My phone number if you'd like to give me a call, 319-533-5703. And you can also check, check us out on the Ag View Pitch for Ag View Solutions on either Facebook or Twitter as well. So Duane, how can they get a hold of you? What's the best way?

Duane

Lowery: You can go to cropproductionscience.com, which would be one of my websites. My phone number is 563-419-1300. And my email address you can grab off my website, cropproductionscience.com.

Chris: Awesome, sounds good. Thanks a lot.