About This Episode
Joe Vaclavik draws a distinction that clears up a lot of confusion about fund activity. The funds discussed most weeks are hedge funds: trend followers that trade constantly and flip direction several times a year. Index funds are a different animal entirely. They are long only, never short, hold commodities as an inflation hedge inside a much larger portfolio, and rebalance once a year by trimming last year's winners and adding to last year's losers. Crucially, that rebalancing is telegraphed in advance.
He applies similar skepticism to the USDA report expectations. Consensus expects production cuts, and Vaclavik agrees they are likely, but he argues the carryout may not move because there is fluff in the demand column. Feed and residual looks too high, and ethanol usage may be overstated against actual production statistics, so the agency can cut the crop and cut demand by a similar amount. The lesson is to watch both sides of the balance sheet rather than the headline yield.
For 2026 planning, Vaclavik and Andy Hruby land on a margin question rather than a price forecast. Corn sits close to breakeven for some operations while soybeans remain far from it, which points at heavy corn acres again. In that setup, flat price will not carry anyone, so basis and carry become the difference between profitable and not. Vaclavik also flags that new crop insurance subsidies and add-ons change the safety net enough that marketing plans should be rebuilt around them.
“You got to nickel and dime this thing in any way that you can.”
— Joe Vaclavik
Key Takeaways
Know which fund you are watching: hedge funds are trend followers trading constantly, while index funds are long only and rebalance once a year.
Index fund rebalancing is telegraphed and inferable from public data, so treat it as a known event rather than a surprise move.
A production cut in a USDA report does not have to move the carryout; the agency can trim inflated demand by a similar amount.
In a thin-margin year, basis and carry separate profitable operations from breakeven ones, because flat price will not carry you.
When two crops are both unprofitable, sell the one closest to breakeven and stay patient on the other.
A safety net you can calculate before planting is worth more to a marketing plan than an unpredictable ad-hoc payment after the fact.
Full Transcript
Andy
Hruby: Before we jump in, a quick reminder that we publish our premium podcast, 19 Minutes, 3 times a month on the 9th, 19th, and 29th. It's a short, focused update designed to help you think ahead and make faster, clearer decisions. You can subscribe using the link in the description. Thanks. Welcome everybody to the Ag View Pitch for the weekly market outlook for the week of January 12th through through the 16th. Today you have Andy Ruby with Joe Vaklovic. Morning, Joe. How's it going?
Joe
Vaclavik: Doing good.
Andy
Hruby: Thanks for having me. Yeah, thanks for joining us. Hey, we were talking a little bit ahead of time about, you know, what's going on in these markets and things to watch. And, and part of, you know, your premium service, you had an interesting guest on this week that talked about the massive index fund correction and rebalancing. You want to kind of hit on a few of those highlights? I mean, I think that's really important stuff for, for all, for everybody involved in production ag.
Joe
Vaclavik: Yeah, so typically, you know, week in and week out, we talk about the activity of the funds. And those funds that we talk about are hedge funds. They are essentially trend followers, and they trade the markets every day, every day, every week, every month. They'll change direction or position multiple times per year or even per month sometimes. There's a whole bunch of them. The group that we talked about, uh, with Dave and the premium stuff this week is a totally different group called index funds. Index funds are long-only funds. They only buy the market. They're never short. They're always long, and they only rebalance and reweight their positions and portfolios once a year. They do it during, um, this period which began last Thursday, and it'll run for 5 days.
Essentially what they do is commodities that performed well in the prior year, they're going to offload some of those long positions, and commodities that performed poorly, they're going to add to the long positions there as a way of, of just rebalancing and reweighting and kind of equaling things out. They're going to kind of take some profits off the table in the winners and basically add to the losers and kind of even things out that way. It can and maybe will have market implications. Maybe more so in some markets than in others. The interesting thing is that it's all pretty much telegraphed. They, they pretty much, you pretty much know and you can infer based on, on publicly available data what they're going to do and in what markets they're going to do it. They're going to, they're going to buy some corn, they're going to sell some soybeans.
Is it going to have a big impact on the market? I don't know, but it's, it's certainly of interest.
Andy
Hruby: Yeah, I agree. It's, they're definitely very transparent about it and try not to rock the boat. Too much with these markets, but that doesn't mean that there's never going to be opportunity.
Joe
Vaclavik: The thing is that these, these index funds, they, they don't care what happens today, tomorrow, or even next week. They're in this thing for the very long haul. They own commodities, uh, most likely as part of a massive portfolio that consists of stocks and bonds and real estate and all sorts of other things. And they own this massive basket of commodities essentially as just kind of an inflation hedge. Just, hey, we're gonna we're just going to own these as an investment. And, you know, in the last year, some of them have worked out great. You look at precious metals, some of them have worked out poorly. You look at corn or wheat as an example. So, um, they, they rebalance every year, and that's kind of what we're in the midst of right now.
Andy
Hruby: Yeah, no, thanks for giving some insight on that. I think it's, it's important just for, for farmers to be aware of what's going on. So if we do see some, some unusual things, that's kind of what we got going on. But You know, as we kind of transition this to the grain markets, plans for 2026, I mean, I think everybody was frustrated with 2025 and the lack of opportunity as we kind of shift into 2026. You know, what are kind of some things you're keeping top of mind as we put together this plan?
Joe
Vaclavik: Well, this year, as it relates to, let's just call it corn and soybeans. It looks kind of similar to what we had last year. It's like, hey, the corn price for '26 delivery looks— I'm not going to say attractive, but it doesn't look terrible. There are maybe some people that can make money with these '26 corn futures at $4.64 if you play your basis and your carries and maybe you got a little bit lower cost of production, but you're, you're close-ish to break even there, whereas in soybeans you're still drastically removed from any sort of price that would resemble break even. So I think again, you're going to be a situation where we plant probably more corn acres than we need. And it could change, of course, it's January, you know, guys can still make decisions. But I think we're going to plant a lot of corn and more soybeans than last year.
But, but still, there's going to be a big divergence there. I think given what I know today, corn acres come in at, you know, 96 million, beans, you know, rise 2 or 3 from last year. But you're going to see, you're gonna see a lot of corn acres again, the way it looks.
Andy
Hruby: Yeah. And it's, you know, kind of everybody we're talking to, that's very similar to what we're seeing is it's— beans got a lot of work to do if they're going to become profitable. It's, it's interesting your comments on basis and carry opportunities in corn, because I do think that's going to be kind of the divider between operations that are profitable in 2026 and those that are closer to breakeven or maybe even below breakeven is how you manage that and how you take advantage of some of those opportunities. Yeah.
Joe
Vaclavik: I mean, you're talking margins in corn that if, if they are profitable for most guys on rented land, they're going to be razor thin. So you got to nickel and dime this thing in any way that you can. It's, it's not like a 2022 corn market where you can just go sell it and, you know, yeah, basis and carries matters a little bit, but the flat price was enough to carry you. You know, it's, it's totally different ballgame now. I think the— on a different note, the crop insurance situation has changed. And because of the Trump tax bill, we've got better subsidies, we've got better safety nets, and that's going to play a role for a lot of people. We'll know a little bit more once we set this February average.
But with all the add-on products available and the additional flexibility that's been provided, it's, it's going to be a big deal and that's going to have to play into your marketing as well.
Andy
Hruby: Yeah. Yeah, it's— I think you'd kind of be foolish not to revisit that with the way that these premiums have been adjusted and the opportunities we're going to have there. It'd be curious come, you know, April 1st to see what, what guys, what producers have decided to do and how that changes things.
Joe
Vaclavik: Everybody's insurance situation, the way I understand it, is going to look different than it did last year. You're going to be opting for different items, different add-ons. And all in all, it's, it's a good thing depending on your, your viewpoint. Of course, some people think that all these subsidies are not necessarily the best thing in the world. But in terms of, you know, a given farm operation in a vacuum, the added safety net is going to be a positive and it's going to be helpful.
Andy
Hruby: Yeah, it's a, you know, I guess my opinion is if there's a certain amount of dollars that are going to be thrown to us, I'd rather have them subsidize the crop insurance portion because we can calculate that, right? Opposed to the unknowns of, of these, you know, unpredictable payments that we receive.
Joe
Vaclavik: Yeah, the payments are unpredictable. And, you know, they were what they call a bridge payment. They weren't necessarily designed to make you whole this time around. It was just designed to help. So yeah, I would agree that something more consistent and predictable and something that you can actually hang your head on before the crop is planted is preferable to, you know, just a check.
Andy
Hruby: Yeah. Yeah. Is there, you know, anything that you kind of want to hit on as we look at corn and soybean markets here in the short term as we kind of try to put the nail in the coffin on some of these old crop sales and focus on 2026 crop?
Joe
Vaclavik: Well, we do have a USDA report on Monday. And general consensus is that USDA comes down with its estimates of last year's 2025 corn and soybean drops. I think more so in corn than in soybeans. And I think that, that if I had to guess, I'd say, yeah, that probably happens. But at the same time, USDA's got a lot of wiggle room on the demand side of the balance sheets so that if they do make these cuts, especially in the case of corn and maybe also in the case of soybeans, they've got some of the demand perhaps overestimated in that, hey, they cut the size of the crop. They can also just cut the demand projection and leave your corn carryout projection at 2 billion. I think that's probably the way that we're headed. There's, there's a lot of fluff, if you want to call it, in the demand projections. Feed and residual is too high.
You could almost make the argument that their projection for corn usage via ethanol is too high based on the ethanol production statistics. So there's gonna be a lot of moving pieces in both the supply and the demand columns on the balance sheets, I think. The markets themselves, I mean, you look at corn futures, we've been stuck and stuck in really a pretty tight range and it's been very unexciting and uneventful. There's been some basis pushes here and there around the holidays. We saw a little bit of that. So I mean, market's been more exciting. You had your, your really what was a pretty substantial rally in November when, you know, the administration announces this trade truce with China. Everybody gets excited. China's going to come back to the US bean market. And they did. But that was about the top of the market. And then we sold off. It became a known factor.
And now we're trying to bounce back a little bit. I think it's kind of a known what China has done and what they're going to do for this current marketing year. I think that that 12 million metric ton number that the government laid out, I think it's probably fairly close to reality. Their timeline was bad, didn't happen before the end of the year like they told us it would, but I think it's going to happen during the next couple of months. And then you're going to be onto demand. You're going to be onto South America, which looks very good right now. And it's, I'm not gonna say it's too late for a crop scare event, but it would be a late, later season one if it happened now. And then you're gonna be on to, you know, 26 Acres. Does China buy US soybeans next year as the government has told us that they will, or do they not? Or do they do it in a reduced manner?
These are all going to be question marks.
Andy
Hruby: Yeah, yeah. I do think it's been very interesting that there's been a lack of weather volatility in both the US and South American markets. It feels like it's just been very status quo and quiet.
Joe
Vaclavik: Brazil's been pretty, pretty steady eddy in terms of the rainfall. I mean, it's not perfect. There's no such thing as a perfect growing season, but we haven't had a real problem to speak of. There's been some dryness in Argentina, which the market has largely ignored to this point, and it's a little bit earlier in the growing season there as they're further south. But we'll see if that turns into anything.
Andy
Hruby: Yeah, yeah. No, I think, you know, this has been a pretty good conversation. And is there anything else that you want to add as we kind of wrap this up?
Joe
Vaclavik: A lot of stuff going on in the outside world. Like you've got your Venezuela situation, you've got your potential situations with Greenland and who knows where else. I just, it hasn't had those things as much as, you know, the general, you know, press and mainstream media, they like to love to focus on that. For our markets, none of that has really had a huge impact. We thought the Venezuela thing would maybe be a big thing for the energy markets, and it really hasn't been. It hasn't been a thing for the grain markets, uh, really in any way, shape, or form. So I mean, while all that stuff is certainly interesting from a geopolitical standpoint and from a number of other standpoints, as far as our market's concerned, it hasn't really mattered.
Andy
Hruby: Yeah, yeah. No, that's, that's good. And I think, you know, kind of as we— final comments as we wrap this up is just, just keep an eye on this stuff and there may be some opportunities, but, but knowing your numbers and looking for them, it's going to be the important part. Yeah.
Joe
Vaclavik: All of that. Of course, I think this, this could be a year again, you know, in hindsight, this last year, 2025, you look back, it would have been a year to sell corn early and kind of wait on soybeans. Like sell corn like January, February for $25 delivery and wait on soybeans. This year it could be something similar. I mean, if I had to pick something to sell right now, do you sell $26 corn or $26 soybeans? You sell $26 corn because you're, you're close to levels that achieve or that resemble profitability, whereas in soybeans you're not even close. It's, it's, it's eerily similar and hope it doesn't play out the same way. I hope the market changes for some reason, weather, demand, otherwise, that gives us some better opportunities than we had in '25.
Andy
Hruby: Yeah, same here. So, well, everybody, uh, thanks for joining us. Thanks, Joe, for your time, and we'll catch you next time.