How much upside potential exists during the next 2-3 weeks?

Chris: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch! Welcome everybody to another episode of the Ag View Pitch. We're heading into a new week. You've got Chris Barron and Dwayne Lowery. This is take 3. Nobody else knows that except you and I, Dwayne, except for I just let the cat out of the bag. How you doing today?

Duane

Lowery: I'm doing good, Chris. We've hardly ever done retakes, but today we've had a year's worth, I think.

Chris: Yeah, I think so. I was trying to, I was trying to get us into July already and all kinds of crazy things. I'm, I'm sitting in the edge of a cornfield right now because we're still trying to finish up side dressing and things are going pretty good. Got a lot of rain in our area last week. I think we had locally about a little over 3 inches. I know north of us there were some areas of 5, 6 inches, and I think you guys got quite a bit of water too, didn't you?

Duane

Lowery: Yes, we had a lot of water north of you, and we had some flooding. And the statistics, historical records will show that there were a lot of 4 or 5-inch rains up here, but the soil probably only got to keep a couple inches of that, right?

Chris: Yeah, and that's the way it was here once we got to about little over 2 inches, I would say that, you know, that everything else kind of ran off, and, and that was what, 3 days ago, and we're outside dressing again now, and it's dry on top. We do have a good charge of subsoil moisture though, and just in talking to some clients over the last few days, I think everybody's sitting with pretty good subsoil. Obviously some areas too much, and there are some some dry areas now starting up. So having said all that, Dwayne, with where the forecast is calling for some drier, warmer weather, is the market going to pay attention to that, you think?

Duane

Lowery: Well, I think there's weather out there that can easily be spun by either the bull or the bear. I think the prevailing sentiment in terms of weather is probably that we have improved weather chances beginning Thursday and then stretching through maybe Monday of next week, and then about 5 or 6 days of dry weather, and then another chance of rain. Well, that second rain chance is out there too far to have confidence in. The first rain chance is, uh, looks relatively likely that there'll be rains. The amount of coverage, exact location, and the amounts might be in question. But let's just say that today's initial knee-jerk weather spin is a little bit bearish. The weather has been— had some weather bearish spins on Friday and to some extent on Thursday, and yet we have values settling up here at the, some of the highest Friday settlements that we've had.

So price action hasn't directly been tied to prevailing weather forecast. The other part about today's weather, it, it truly is mixed. I can read one forecast pretty much as I described to you. I can read another forecast that will take this Thursday through Monday forecast and say the precip totals will be light, it'll be scattered, and there'll be areas missed. Even in the wettest forecast, there seems to be areas that will show up as being more likely to be missed. I would classify the areas more likely to be missed or to get small amounts would be the eastern Midwest. You still have a lot of heat and dryness in the forecast for the southern Plains. Some forecasters have that advancing into the western Midwest over the next couple weeks, others do not. So it's not an easy, uh, one-size-fits-all type of forecast.

But I would just caution that even though the spin today is probably a little bit negative, it was that so last week on a few different days and the market didn't get a response. And there's also one eye needs to be placed in what's going on in China. China's main corn areas have a band in there that's been pretty hot and dry and they're going to continue to see hot temperatures over the next couple of weeks. Where they're going to have a lot of 90-plus days and they're going to have a few days of triple digits. So that needs to be monitored. You got areas in Russia, the Black Sea region, where it's been hot and dry and it's been negatively impacting their wheat, and that looks like they get— going to continue that hot, dry forecast. You also got a situation that's a little bit, not exactly weather-related, but probably has a root of weather in it.

Russia's domestic wheat prices are at record high levels, and, and this might be part of the fact that they were aggressive exporters and now they're having some hot, dry conditions in their, their crop. So there's other things to look at here other than just our own backyard weather. And with price action the way it was last week and Friday in general, So, if we have weakness tonight, which I think is probably the reasonable expectation, it may be a situation where it has a difficult time building momentum early part of the week, and that might give way to something else. So, there's a lot of mixed things to look at here today.

Chris: Yes. You always do a really good job of answering my questions before I ask them. The one question I wanted to ask, which I think you've pretty well answered it, but was, you know, this is the time of year when typically we get sort of the possibility, at least almost every year, for a weather rally. You know, are— is there anything else that could enhance that or give us some hope that we get, you know, some strength in the market? I mean, how much— and again, I want to throw you under the bus— but how much hope can we have, or, or do we need to be watching this real careful and, and be working on a plan to take some risk off the table on some of this new crop, uh, both corn and soybeans as we, as we work through the growing season and look for that pricing opportunity, especially for maybe some of those bushels that have to go off the combine. What are your thoughts there?

Duane

Lowery: Well, in the case of corn, you have estimates for new crop carryout at, you know, $3 billion to $4 billion depending on what you want to find and who you want to talk to and things of this nature. So you have a lot of surplus. So in terms of how much rally we can get, um, we have to have some pretty notable problems and/or some pretty sizable purchases, uh, overseas that's going to cause prices to go up significant, in the— during the next few months. Is it possible? Anything's possible, but in terms of realistic projections, you're probably dealing with somewhere of 10 to 30 cents upward in corn, and, and that may be about it. Um, and I say that, but I want to put a little asterisk behind this, and that is every single person that I know is bearish now.

Even If somebody says corn could rally 10 or 15 cents, or 10 to 30 cents like I just said, what people are still lining up to do is to sell it. That's the only thing people are looking at is looking for a place to sell it, and all those places that they are looking to sell are within 10 to 30 cents of where it's at. You also have people that walk in every single day and are worried that's the it, the corn will never rally again and it's going down. And the general expectation is that harvest time we will be $2.50 to $2.80 futures. I understand the logic behind that. They may very well prove to be correct, but in this business, you know, you've got to have multiple caution flags up when you realize that there's absolutely nobody you talk to that's actually bullish corn. If somebody says corn is going up 10 to 30 cents, that's not really that bullish.

And if they want to sell it somewhere along that window, that's not bullish either. All the, all the expectations here are bearish, and I find that concerning. I also, even though you can't hear, you're not, we haven't heard a lot about it in terms of it being a market commentary, you know, I find it interesting that we have some dryness in China in, in their corn areas, and I find it interesting they're looking at some pretty hot, dry weather, uh, or let's just say it's hot weather. They might have some chances of rain here, but, uh, they have a situation here where their usage is such and that it, um, there's a good chance that we have increased export business ahead of us over the next 6 months with China, but Here again, we've had nothing but disappointment when it came to the Chinese.

Chris: But Dwayne, that doesn't— I guess the question I have is, I'll get even more specific, those bushels that have to go off the combine, that gets too late for those probably, right? I mean, that demand picture, or is there a chance that demand picture comes in quicker? But it's got to be coupled with weather, right?

Duane

Lowery: Well, I would say that if the demand picks up, we are— the timeframe where that should pick up or be most likely to pick up might still well be in, in, in time for the stuff that had to be sold at harvest time. But how this plays out is more likely to be a peak relatively soon, a drift lower into the August-September timeframe. And then see what happens from there. Those that have to make sales on those, the harvest time as you're describing, they are probably going to make a decision in the near term on a small rally to make those sales. The problem is everybody that wants to make a sale on new crop, whether they are going to do a cash forward sale, HDA, or whether they want to buy puts, their main agenda is to try to get their bushels sold, protected, excuse me, and then have the market work lower, and they're hoping for this big insurance payout based on price.

And, uh, if that doesn't happen for whatever reason, like some problem develops, uh, the US later on, right, whatever, then the risk is that they've made those sales far below their cost of production. So that's what everybody's wanting to do is pick a place to sell or buy puts or HTA or whatever, but that's the reason that they're doing it. They're not doing it because they like the price and they put, they put themselves in greater risk. Maybe that's a good play, just make it understood that's what people are doing. And when you think about it, it's odd that the farmer is a willing seller here at this time of year. So I find a lot of caution signs. It doesn't mean you shouldn't make the sale, I just think a guy needs to go into it with his eyes wide open.

Chris: Well, it tells me that in the next few weeks, our conversations will get more and more important here. I mean, it seems like we've gone through a lag in time here where we've just been in this kind of sideways, and maybe that continues, but you know, there's been a lot of, you know, the best thing to do is sit on your hands and there's going to have to be some decisions made with a, in a lot of areas, a big, potentially anyway, a big crop coming on. And some decisions that producers are going to have to make as we work through the growing season. Um, anything, you know, I want to keep this one kind of short. Anything, um, specific that we haven't talked about on corn? And then I wanted to touch soybeans and just see if there was any comments there that you had.

Duane

Lowery: Yes, I'll touch on it. I'll try to keep it short, but I'll highlight a couple of things for those that are wanting to make sales on '20 crop. And they want to do it for the reasons we've already talked about. I think they want to consider keeping the HTA and the sales, cash sales part of the equation as a relatively small percentage, and if they want more agri— if they want to make a bigger bet that prices will be cheaper at harvest and therefore they could have benefited with prices or bushels being sold or priced now and then they get the insurance benefit possibly later, I think those strategies need to be heavily leaned towards buying a put. The other thing I want to say about corn, and I'll try to keep this quick, there should be a lot of focus, or there is a lot of focus, on the new— the 2021 crop.

And a lot of people are in a situation where they really wouldn't like to have new crop corn futures in December of '20 be sub-$3, which most everybody is fearful of, and at the same time be looking at maybe a Dec '21 price of say $3.30 or less, because that conversation for getting financing on the 2021 crop won't be a pleasant situation for a lot of people if Dec '21 is trading at that level. Now there's some things that one can do crop insurance-wise that I'm not going to go into, but there's things to explore and investigate there. But Dec '21 futures are at $3.73. If we could get a near-term bounce, and that market is anywhere from, you know, $3.75 to $4, that might be a reasonable place to make some sales, HTAs, um, or whatever, for the sole purpose that when you get to that winter period, you can tell your banker you've got these hedges in place, these sales on whatever it may be.

And the other thing, benefit of making those sales, concentrating efforts there as opposed to maybe not quite as heavily concentrating those efforts on the 2020 crop is, if there's a weather problem or increase in demand or anything like that that happens over the next several weeks, which we are, like you said earlier, we're in that timeframe, your back months, your Dec '21, your July '22, they will perform much less stronger, maybe hardly perform at all, because the focus will all be in the front end. So I am encouraging people to look at the '21 crop and see if there are price levels there that work. So in respect for your time limit, let's go to beans.

Chris: Go ahead. I just said I just curious if there's any, anything we need to be paying attention to in the next week or two as we're going to have to start watching stuff a lot closer here, I think, moving forward.

Duane

Lowery: Number one, I don't think soybean prices are at any type of a price level anybody likes. Number two, we've had a lot of times in the last several years where people have projected $6, $6.50, $7.50 beans. None of that has ever come to pass. Number three, we have certainly have an increase in, in China buying from the U.S. in recent terms, and we know that overall they've been very aggressive in buying. And setting record sales and shipments out of South America to China. So there's a pretty strong appetite there. Um, I think that we have people in the industry that know a lot more than I do that are building some level of optimism towards export potential of beans from the U.S. to China. You also have the funds building a long position here. At a time that most people have lost hope in the market being able to rally.

So I would say that you have some near-term upside potential in beans. As far as what is a good place to make a sale, I don't know what the answer to that is, but if we could get to $9.30 or $9.50 November beans, I think people might find that livable. Right now that seems like a bold statement, and I'm not necessarily making it as a projection, But I, with the important part of that growing season still ahead, I'm not too interested in making sales anywhere close to where we're at right now.

Chris: Sounds like another market we got to watch real close week to week or day to day, actually, probably as weather changes too. And the weather market for soybeans is a ways off anyway.

Duane

Lowery: So, yeah, in the near-term weather, you know, It's going to depend a lot what kind of amounts and coverage are in this next system, but I do not believe we are walking in here today on Sunday and the market is going to fall apart because there's a rain in the forecast. I don't think that's what we're dealing with. I think we're dealing with something where corn is going to be well supported 3 to 5 cents below where we're at. I doubt if we get into that zone from this week. Beans support is probably 10 or 15 cents below it. And if you think that the market's going to break, those are probably your— the scope of the weakness potential this week. Now, what were you going to say?

Chris: Well, that was about it. I was going to try to keep this one short because I'm doing probably what a lot of other people are doing right now is spraying, side dressing, and trying to get the crop laid by so we can worry about getting rid of some excess bushels that hopefully we produce.

Duane

Lowery: Yes, we're going to need the excess bushels, I think.

Chris: I think on the farm side we are. I don't know that we need them in the, in the grand scheme of things, but as individual farmers we need the extra bushels. But any final thoughts, Dwayne, as we enter into this new week?

Duane

Lowery: I think it's all about weather. I think that there— it's not unreasonable to believe we can get 10 or 30 cents upside potential in corn. To get more than that in the next 60 days would require a pretty significant problem. I'm not sure that's, uh, possible. I think it is very possible that soybean demand globally and China is still being understated. And I think it's very important to mention in beans that last week you had USDA lower carryout for the new crop season down to 395, and I think that was a surprise. And if we start to get into the more important part of the growing stage for soybeans. And if we get a weather concern, um, we'll be doing that weather concern with a backdrop of a sub-$400 million carryout versus $1 billion that we've kind of been dealing with before.

And of course, we got the acreage report at the end of the month, which will, uh, not statistically have a big impact on corn either way, whether we're adding to the pile or taking away from the pile. But in terms of the beans, any surprise smaller number in beans would catch the market completely off guard.

Chris: Sounds good. Hey, I think you did a great job of kind of summarizing things. Again, just getting that perspective out to everybody is great. Hopefully if anybody has any questions or things that you have questions on, want to ask Duane individually, feel free to give him or myself a phone call. I'd be happy to entertain those or have questions or things you'd like us to discuss on here, let us know. Duane, thanks a lot for your time today.

Duane

Lowery: One last thought, Chris. Yeah, another last thought. Yeah, let's take about 6 seconds. I just encourage producers to take a look at the '21 crop prices and start to think what that conversation is going to look like when you start planning for the '21 crop during the November-December timeframe. And don't let these prices slip away without at least exploring them. Who knows, maybe they'll end up being a cheap price, but compare current prices to what you fear old crop would be and then try to extrapolate that into new crop. That could be a difficult winter period if you were looking at that.

Chris: Right. I'll echo that just by saying if you've got your profit managers done or your cost production analysis done for '21, it's pretty easy to roll— or for '20, excuse me, it's pretty easy to roll that into '21 and take a look at that. A lot of the input costs aren't going to change that much and do some analysis. And that's an area where I can help people to kind of do some of that data analysis to kind of figure out if in fact there is possibly some margin opportunity there. So Dwayne, thank you. Appreciate your time and we will, we'll chat next time.

Duane

Lowery: All right, thanks, Chris.

Chris: You bet. Thanks again, and thanks everybody for listening. We will catch you next time on the Ag View Pitch. Thanks for joining us on today's episode of the Ag View Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net. We'll catch you next time on the Ag View Pitch.