Is it backyard-itis season?

Joe

Paulson: Hi there, this is Joe Paulsen with the Ag View Pitch, and we're here with Greg McBride today, and we're gonna talk markets. How's things going there, Greg?

Greg

Mcbride: It was a red day. Today. Not a, not a good look for us. And it's just continuation. Um, but I mean, the problem right now is just perception. Uh, the funds are in charge, so we got to give them a reason or give them a perception of something to, to make them at least just kind of lighten up.

Joe

Paulson: When I, when I talked to you earlier this week and asked if you wanted to be on this, uh, you said, well, how How negative do you want me to be? And I thought that was really kind of interesting. And so what, so what are the, what are, what are some, we'll start with the negatives. What are some of the negatives that you're seeing that are keeping some downward pressure on prices here?

Greg

Mcbride: It's the pile of corn, the pile of beans from last season. Obviously, you know, the hurdles that we had last year with weather. Still didn't do enough to knock us back. We still had a heck of a crop. I mean, it was a record corn yield for a lot of guys. It was, you know, overall record corn yield. And, you know, the— I think the thing that we need to really consider here is, yes, you're at 2 billion carryout, and export demand is good. But when you have such a big crop, that's the hard part. You don't need just good exports. You need great exports. And Mexico, God love them, they're doing what they need to do to keep us afloat. But we want that Chinese demand. And Brazil opens up their doors to China back in, I think it was December of last year. We've seen very little from the Chinese.

I mean, a lot of it is we'll get an unknown purchase and then it gets switched over a couple of months later. So overall, I mean, you have good demand for corn, especially in the last, like, I think 7 weeks, corn demand has been phenomenal for this time of the year. But it's not enough to swing that, swing that ending stocks number back down below 2 billion, or significantly below 2 billion. So when you get that big crop from last year, you get that big carryout. And then we plant another 90 million acres this year, if that's what we're going to find out next Friday, you're, you're not, you're gonna have a hard time having them cut us back. And then so if you're talking about 180 bushels per acre, we're talking to $2 billion in, you know, $2.1 billion in carryout again, it just is, it's a big pile. And that's the same thing in beans.

But The problem with the beans, as good as crush is, the export demand is just not there. And that's why when you see us going from, you know, low $200s to all of a sudden worth $300+ and this new crop is $450, it's, it's too big of a pile to work from. But you need to give, you need to, at this point, it's not a matter of the funds turning bullish, it's a matter of giving them some doubt. And there is some, but for right now, with rain in the forecast, rain makes grain, we know that. So I have a hard time getting bullish. But I can tell you that there are a few things that we can look for that could give us a reason to go higher.

Joe

Paulson: Well, there's, you know, along those same lines of, you know, downward pressure is the the amount of farmer-owned corn that is still sitting in some of these elevators. I mean, I talked to two of my local elevators the other day looking for some trucking work, and both of them were like, we're, we're still sitting on, you know, I mean, between the two of them, they're sitting on like 2.5 million bushels of farmer-owned grain that still has not been sold. They can't do anything with it. And, uh, You know, they're like, hey, it's just, it's, it's crazy. So any pops that we're having, I'm sure, you know, there's, there's plenty of, plenty of, plenty of corn to put a, you know, put a wet blanket on any kind of rallies that we're having.

Greg

Mcbride: It's, it's true. And it kind of seems like, you know, we're always looking for that extra 5 or 10 cents. The, the thing that we've seen is we're getting close, but that extra 5 or 10 cents, we keep coming just short of it. So, you know, December made it to $4.96 and 3/4 last month or whatever. And oh, that puts into, that puts into target the $5.03 spot, the gap that we've got. You know, July, July is, is kind of floundered, but it made it up to about $4— I think it was like $4.75 or something like that. And then it backed off. So everybody, everybody has that $5 number in their, in their mind, whether that's the old crop or the new crop, well, your basis doesn't necessarily get you there. And then a lot of times when you have big carryout years, the basis doesn't improve very much.

So you're not going to get any help from the elevator, you're not going to get any help from the ethanol plant, or the, or the crushing plant when it comes to the beans. So that's the kind of game we play. And You got to within a nickel of $5 on December, and that was kind of everybody's trigger, and we missed it. So then the next time came up even shorter than that, like $4.93, and then the next time was like $4.78. So we're, we're just kind of getting close and get teasing everybody, and then you come, you fall short. And at this point, I mean, the funds doing what they're doing, it's not a surprise, but I I don't know, the amount of corn in everybody's hands right now. And you mentioned it with the, you know, the elevators having it, but that's not even to mention the corn that's still in the, you know, in the bin at the guy's farm. So that's a tough one right now.

I think it's like 53% is where we're at, or something like that. It was something crazy on the last USDA report, which for this time of the year. I mean, where's the— where's next year's crop going to go if you, if you sit on it? You've got to let it go.

Joe

Paulson: That's what everybody's talking about is, is that the— okay, what are we doing? I know that my one local elevator, they're already— they are already in the works of figuring out, okay, where are we going to put— where are we going to put piles? You know, we haven't put piles here for a couple of years. They're starting to make preparations there. You know, there's going to be some more ground piles. Um, you know, the, the other thing we got going on too that we need to all be careful of is, you know, it's backyarditis season. And, and, and I'm, and I'm, uh, affected with it as much as anybody. We're super dry right here, uh, in northern Illinois, north central Illinois. We're about 30 miles south of Wisconsin.

You go up into Wisconsin and talk to a few clients up there yesterday and the day before, you know, Wisconsin, they said corn crop looks like absolute shit up there, you know, just way too much water. Talk to a guy in Minnesota, they're cold and wet. Talk to a guy up by Minot the day before that. It was, it was, it was 93 where I was at and he was 55. And he says, we've got great moisture, but we just, we just haven't had any heat.

Greg

Mcbride: You go to the east and, and their issue is, is the opposite. It's hot and dry. You know, it's rough.

Joe

Paulson: Yeah, it, it is. It is. So what now, now that we've beat the dead horse on the negative side, what are, what are, what are some positive things we could look for?

Greg

Mcbride: Well, so today we got the, uh, the CPC, the Climate Prediction Center, put out their, their updated forecast. And what they did with that is they gave us a look at their, their thoughts for July, and then they gave us the long-term forecast, which is kind of a grouping of July, August, and September. The month of July looks hot and dry for almost the entire country. So if you're gonna look at a reason to maybe put some premium back into this market, some weather premium, which that's what we need. And that's like I said, you need to give the funds a little bit of a doubt. What's better than giving them some doubt with heat and dryness as you go into pollination? That's, that's, I mean, that is a perfect storm for giving you maybe some upward momentum. And it doesn't necessarily turn you bullish.

I mean, they're going to go back and they're going to look at what we did last year and say, Well, yeah, but they didn't have a whole heck of a lot of rain last year either. And then it got to be what, 105, you know, in the last 2 weeks of July, and we still had a crop. But it's just enough doubt to maybe let them loose, you know, 100,000 contracts and lighten up, lighten it up a little bit. So that's, you know, that's the potential. And if you're moving into a La Niña, La Niña is typically a drier period for the United States, mostly over the Western Belt. Belt, but if that bleeds into the eastern belt too, you know, that's the area that's already the driest, even though they were the wettest when it came to planting. So there's, there's that potential. Let's not forget, and I don't— I'm not going to get political, but it's an election year.

What happens if we have a, you know, we have a lot of back and forth? Well, we've been trying for the last essentially 4 years to get gas prices to come down, fuel prices to come down. We've done a good job of getting it from $120 a barrel down to $75 to $80 a barrel. But we're still talking about $3+ gas. Well, you know, make yourself, make yourself look good if you can get— if you can find a way to get gas under $3. Well, we pulled out of the SPR as much as possible. We have not replenished that nearly as fast as we should. If you start putting back into it, then your stocks go up. That can, that can help to, to do it. But you've pulled so much out of it in an— in a way to keep, keep prices down or to stabilize things that could help. But the other thing to think about not just politically, but we're looking at a more active Atlantic hurricane season this year.

So as you— if you look at the, you know, if you look at hurricanes that come through the Atlantic, whether they go up the coast, that's one thing. If they go up far enough up the coast to say New York or any of that kind of stuff, you're going to get maybe a, a, a hit for natural gas. But if it goes into the Gulf, that's where all those rigs are at. You get the, the Gulf rigs by New Orleans, you get all the production out of, out of Texas down by Houston. Depending on where those hit, that can spike those prices. And crude makes the world go round. So if you get a, if you get a hit to prices or a skyrocket in prices for crude because of damage to rigs or damage to production, that can have an inflationary effect, even though we're doing what we can to control inflation, that can have an inflationary effect and bring everything else up.

You know, when, when we have a bad day, a lot of times we can— we don't have to look at what happened in the grain markets, we can look at the macro markets like the crude or, or the natural gas and say, well, macro pressure is what really hit us. You know, so that's, that's another thing that as we go through this summer and we get hotter and hotter on this, uh, on this, uh, hurricane path and, and the, the election cycle, that those are things that could, could really help kind of push us along. And I'm like I said, I'm not going to get bullish on it, but it certainly would kind of loosen the noose, for a better, a better way to put it.

Joe

Paulson: So if, if the Fed would happen to lower some rates this year, and I know they've been, you know, there's been talk from both arguing both sides of that, but if, if inflation would, would, would take back off again, we, we could, we could possibly see some upward pressure on grain prices. But yeah, that's what, and that's interesting about the hurricane season, and if they end up in the Gulf, and if that affects some of the production down there.

Greg

Mcbride: That's— Well, you think about it this way, though, is that, you know, you look at the last few big hurricanes that hit Florida, and you saw orange prices go through the roof, orange juice prices go through the roof, you see lumber prices just go through the roof, well, then rebuilding and all that stuff. That's kind of the way things go. You do all this damage. Yes, you see the crude and the energy prices go up., but it has a ripple effect throughout because you've got to then rebuild everything, or you've got to, you know, or you take losses to production. And remember, the Delta is a, is still a very big agricultural center. There's a lot of corn down there. There's a lot of beans down there. There's wheat down there. There's not as much as maybe Kansas, but there's, you know, there's cotton down there.

So it can, it can ripple through because all you do is put them under, underwater, or you damage the crop. All of a sudden, maybe that ticks our production down.

Joe

Paulson: Yeah. Excellent points. Is there anything else that we need to kind of be thinking about? You had mentioned the macro markets. I mean, is there, is, you know, what are your thoughts there?

Greg

Mcbride: I mean, it's wild and it's been wild. I mean, you go back, we, you go into COVID in 2020 and everything falls apart. And then we came out of COVID in August, September, kind of started to see those markets turn and go back higher. We had worked out the demand situation with China because we finally had a trade deal with them, which lasted essentially a year. So the macro side of things, sees all that inflation come back into the market because all we did was just we cut rates and then we handed out money. Well, that's, that's gone away. But as you mentioned, with the Fed, their potential for cutting rates, it damages the dollar, it weakens the dollar. Well, look at the gold and silver prices. Multiple times have we hit— in gold, multiple times over the last year we've hit new all-time highs. You could see that happen in other precious metals like the silver.

I mean, silver at $35 to $50 is insane. Gold at, you know, $2,500 to, to $3,000 is, is amazing. But pull up a long-term chart. Those long-term charts show you that that's a market that is similar to the stock market. Yes, it has big swings back down to the low, to the low end, but over time it is just an up, up market. It just, it's, it's in a perpetual uptrend. So for the long haul, those can, those kind of things can, can take off and they can provide some support for us. But the other thing to think about on the, on a rate cut though is a lot of times we're not going to cut rates unless there's some sort of big economic issue that we need to stave off or that trying to fix.

You go back to 2008 when we had the housing bubble burst and all that kind of stuff, you had that situation where they cut rates and they basically left them at zero forever because they were trying to stave off Lehman Brothers going out of business and all these other companies and the banks and all this stuff. Well, that's a concern is that if there's something coming, the Fed sees it, They're going to be the first ones to see it, hopefully. But that's what they're going to try and do. They're going to try and cut rates more often than not to stave off some sort of economic disaster, whether that's a recession or global recession or anything like that. You have to remember that there's a lot of countries that rely on the dollar as backing their own currency. There's a lot of countries that are heavily invested in the United States, China being one of them.

And a lot of those countries are kind of on pins and needles right now as it is, because they're not exactly on strong ground. They're on thin ice. The housing market falls apart in China and that country doesn't necessarily collapse, but the second largest economy going into a full-blown recession, you start to see dominoes fall. If the biggest economy, our own, goes into a recession, dominoes fall. We almost saw Europe go into a full-on recession. You had basically default in Greece. I think it was really close to default in Italy. So these world markets have that ability to dictate what happens with our own Fed. They're not just watching our numbers, they're watching everything else to say, okay, we need to calm things down. We need to ratchet things down a little bit.

Yes, it could inflate things, but we've got to be careful that we don't, we don't, you know, spin it too far the other way. Luckily for right now, jobs are good. Unemployment is really good. So we'll take that. That's why they, that's why they're hesitant to cut those rates. Everything that they, they look at it for right now is saying we're doing okay. We're not, we're not in a point where we have to cut it. So they'll— it's, it's a, it's a, it's a balancing act.

Joe

Paulson: So Greg, you had, uh, mentioned about the, you know, the long-term trend of the S&P, you know, the, the macro markets, you know, like if you look at those charts, you know, it's just a constant upward trend. Um, you know, in looking at the grain, the grain markets here, you know, back in the, during the ethanol boom, everybody was talking about the new plateau. And when you draw a line on the top, you know, across the peaks of the corn market, and you draw a line along the lows of the corn, the corn market, are— have we moved to a new plateau in the corn market here? Are the 4s the new 3s?

Greg

Mcbride: You know, possibly. I think the upper 3s is now your kind of baseline at this point, which is still in— we're still in danger of seeing that. But I think the— I think, yes, we've seen maybe the bar has risen a little bit. But you look at, you know, we do, we talked back at the end of February with, at another meeting, and, and we showed it, you know, you have these booms in the, in the corn market specifically, you know, you had 2008 where we took off and we followed crude up to, you know, crude went to $1.20 or something like that, and beans or corn went up to like, you know, just shy of $8 or somewhere around $8.. And then you spent the next 2 or 3 years backing it off. Then you had 2012 happen. You saw another 2 or 3-year rally that took us way up, and then we backed it off. You spent basically '14, '15, '16 going to, to essentially zero, like until '19.

And then we saw the inflation boom. I think what we're seeing right now is, is one of these letdowns where we've come off the, those highs from '22. And we're going to go back, we're going to retest. Maybe I want to say— I don't want to say $3.75, but it feels better than testing $3. I think we're going to be sub-$4 at some point, but I don't think it stays there. I think, I think your new median point is more probably in this $4, $4.25 to $4.50 level, whereas that used to be like a few years ago. I think when you and I first started working together, I think $4.50 was like the high water point. And then it was okay, we're gonna spend the, we're gonna spend the fall and the winter, you know, sub-$4, between $3.50 and $4.

I think that's, that median point is, is up a little bit, but it still doesn't feel good because we're still working off of higher input prices, we're still working off higher rents, we're still working off higher, you know, higher labor costs, higher machinery costs.

Joe

Paulson: I mean, you know, machinery's basically doubled in price since we started working together.

Greg

Mcbride: And yeah, yeah, I mean, just even having somebody work with you is more expensive. Having a hired person on right now, I mean, what are you— you're held to like $15 to $20 an hour, maybe, you know, that I know that's what like minimum wage type stuff is, but that's the kind of stuff what I mean. When I was growing up, and probably when, when you were growing up, it was like if you got $4.25, man, you were making a ton of money. You know, my kids won't settle for anything less than $15. They, they— yeah. And it's like, well, what skills do you have? Well, none. You've never had a job, right? But I should get $15 an hour.

Joe

Paulson: But you could buy a— you know, when we were in high school, you know, you could buy a hell of a nice used vehicle for around $4,000 to $5,000. I mean, like a really nice one. Yep. And, and, and we were buying gas for 80 cents, 80, 90 cents, maybe a buck 10 if it was really bad. Yeah, yeah, yeah, yeah. And, uh, that's not the case anymore.

Greg

Mcbride: No, it's—

Joe

Paulson: and we also didn't have $100 a month, uh, cell phone bills and You know, it's— yeah, I mean, that's, that's just, that's the only constant is change.

Greg

Mcbride: Well, and we know that, you know, we know that inflation is, is that's exactly what it is. It prices going up. And this, this goofiness that we had because of the pandemic taking us to 9 to 10% above the previous year. Well, you have to remember, just because we're back down at, you know, nearly 3%, that's 3% over the year before, which was 3% over, you know, 9% from the previous year.

Joe

Paulson: Right.

Greg

Mcbride: Right. That's the— I understand the whole, you know, that, that argument. But that's where, you know, it's not going to get cheaper to do this stuff. So having prices, you know, for, for, you know, $4.50 or what, what was December corn today, $4.58 or something like that, $4.56 and three quarters at the close. That's the kind of thing that really hurts, hurts the farmer at this point is you're still dealing with a price that might have been the high from, from 7 or 8 years ago. But everything else has doubled in cost.

Joe

Paulson: Pay the bills.

Greg

Mcbride: Yeah. Yeah. And that's why it's one of those, what do you, what can you do to take advantage of it? What, you know, with somebody like me, or or having a good person at the elevator that you trust, because a lot of people at the— you know, and I'm not— I don't want to bash elevators, but a lot of times you have to remember their, their, their whole thing is they want to buy from you as cheap as they can. So if you're calling, trying to get advice, well, I know it's, you know, I know it's $475, but I think it can go up. I think you can sell it higher. Well, might not be the best, the best advice to take when they're trying to buy it from you cheaper. You know, but that's, I mean, that's, that's how everything is. You want to negotiate something, you never tell anybody what you want to get out of it.

Joe

Paulson: Yeah.

Greg

Mcbride: Because that's what they're, that's what they're gonna give you. They're never gonna give you a dollar over that.

Joe

Paulson: So, yeah. Yeah. Well, Greg, before we wrap this up, I mean, I, I mean, we've kind of covered the gamut here today. What, uh, is there anything else that you would like to add before we wrap it up.

Greg

Mcbride: Yeah, I wouldn't, I would not. With what we've seen here, yeah, obviously you made new lows for the move in the soybeans. You're darn near the February lows for corn. I wouldn't panic and make sales right now. And I know, you know, as a broker, I'm supposed to tell you that you need to be making sales, whether that's cash or whether that's hedges or anything like that. I obviously the cash side of things for the old crop is, is tough because that's, you know, hurry up and wait type situation. But I think, I think that there's potential. And this is, it's more of a, you know, I've said this with customers for years, we get to a certain point where we're either on our knees praying for a miracle, or we're smoking opium or whatever it is.

But I think that's what you have to be doing right now is you have to be looking for some of those little things that, that I was talking about before with maybe it's a weather situation, maybe it's an inflationary situation, maybe it's a hurricane thing, something that can give us a reason to bounce. And but the thing is, you can't— for right now, for what we know, you can't get so blindly bullish that you're— that you don't see the forest for the trees. You still have to keep your eyes on If we get a bounce, do we get another shot at $12 for beans? Yes, maybe, maybe that's where you have to be. You know, Greg says we can get $12. Good, good. Let's get $12. But let's take advantage of it, maybe front run some of those numbers, just like the, you know, just like we front run the $5 level in corn just a few weeks ago, we made it to $4.96 and three quarters.

Well, that's kind of what you have to do if your target, if you know, the people you're working with, or whoever, you know, all the talking heads on X, Twitter, whatever you want to call it, say, oh, the upside target is, is this, go in before them, you know, say, hey, absolutely, sure, yeah, I'm okay being, being a few, a few cents early because that's how you're going to be successful and get a little bit better price. Because if it doesn't go to where they say it can and you didn't do anything, we've seen how quickly these markets can turn. I mean, shoot, we were, we're essentially 20 cents off the highs from last Thursday.

Joe

Paulson: Yeah.

Greg

Mcbride: In 4 trading days in corn. And I mean, beans have been in an all-out rout. Even when you get a 20-cent rally in beans, the next day it's gone.

Joe

Paulson: Right now, it's, it's a good, it's a good lesson. Don't be greedy. And, you know, work, work into the rally., you know, go early to the party and then have offers in to scale it up. So that's all perfect perspective.

Greg

Mcbride: Yeah. And one of the things, like I mentioned, and this will be the last thing I, you know, that I think I leave you with is I mentioned the fact that basis doesn't typically improve in large carryout years. So if you happen to see an opportunity that looks pretty good, like, you know, and I'm just going to use dumb numbers. I'm not going to, you know, give exacts because it's different everywhere you look. But let's say you go from $0.20 under on corn to $0.15 or $0.10. Take advantage of it, lock it in. You know, it's, it's better than it was the day before. That's the, that's the thing at this point. The bumps that you're going to see in basis are not going to be massive. We're not going to— at this point, I don't have a reason to tell you that we're going to see a positive basis like we did a couple of years ago.

You know, it's just not there, not with a big carryout, because if you're not going to sell your corn, they're going to go knock at your neighbor's house and say, hey, you know, you want to sell some corn?

Joe

Paulson: Yeah. Well, and, and with all the farmer-owned corn, if these elevators aren't empty, you know, there's got a lot that's going to have to move during the fall. And, you know, basis levels could be not so great this fall. So no, that's—

Greg

Mcbride: I will say this though, Joe. One of the things to think about is that bean market. If we can get all of these crush plants across the, across the country up and operational, that could be a very big deal for beans and could really help us out, especially if we're missing out on this Chinese demand because Brazil just continues to have a whopper after a whopper after a whopper. That demand side of things for crush, it essentially becomes the new ethanol from 2006, 2008.

Joe

Paulson: Right, right, right. Excellent tailwind. Well, Greg, I appreciate all your time today. If anybody want to get a hold of you over there at Allendale, what's, what's a, what's a good email address for you?

Greg

Mcbride: They can get a hold of me at gmcbryde@allendale-inc.com.

Joe

Paulson: Fantastic. Well, thanks a lot, Greg, and, uh, we'll, we'll be in touch. And thanks everybody for listening to the Ag View Pitch.