June 30th acreage report ahead

Shay

Foulk: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome back everyone to another episode of the Ag View Pitch. Today you have Shea Polk with Garret Brown. Garret, how are you today?

Garret

Brown: Good, good. How are you?

Shay

Foulk: Well, it's a beautiful central Illinois sunny day. We've seen a fair amount of rain here over the last week or so and You and I were talking about that a little bit offline. It's been kind of hit and miss, and I think we've seen a lot of that kind of across the Corn Belt. And maybe weather is one of the first things that we jump into here as we look at a weekly market outlook for the week of June 28th. What are we kind of seeing across the Green Belt and into the Dakotas there as well with what we saw for rain events this last week?

Garret

Brown: You know, just, uh, looking at the rainfall received map, you know, we had a pretty heavy band, narrow band. I would say maybe a little more narrow than what it was projecting kind of as we went through the week. I know things kind of narrowed up as we went at the tail end of it, uh, you know, really trending from, I would say, eastern Oklahoma, you know, up into Michigan. And, uh, you know, we actually saw with a lot of the folks that we worked with up in North Dakota, um, what I would say maybe more than more rainfall than expected. You know, definitely a wide area that did get some precip, but you know, like, right where we're located here northwest of Peoria, you know, maybe we got an inch and a half or so, whereas it wasn't very far away and they were getting, you know, 7, 8, 9 inches of rain. So more rain, it looks like, is coming.

Iowa was definitely that pivot point, you know, northwest there, you know, hotter, drier southeast wetter, cooler, definitely going to be one of those things where it's a, you know, can the east outproduce the shortfalls of the west? Although you can't really count out the west here yet, obviously, with some of these key rains here, you know, long ways to go until this crop is made.

Shay

Foulk: I think it's really important that we as farmers kind of take a step back out of, you know, our backyard and look at what's going on bigger picture. In general, rain makes grain, right? And a lot of times that's how the market perceives it. We I've talked with a lot of people here over the last week or so that have had some pretty severe events. Like you were saying, 7, 8, 9 inches of rain causes a lot of flooding, washouts. I know there's areas in Missouri that are struggling with replant for second or third times, and hail events, tornadoes, things like that. But in the grand scheme of things, unfortunately for those who are impacted by those events, the market sees that, hey, we're getting good rainfall. We've been lacking on that here for a little while in some of the key areas and has maybe had a push on markets here over the last week.

So any comments on kind of how that weather might have played into how we closed out last week and what we can expect moving into this week?

Garret

Brown: Well, you bet. It looks like we said offline, I, I don't know that I'm totally in the camp that weather is kind of what broke this market, but it certainly has weighed on things, and it's probably added to the same pressure that we've seen throughout the week last week. There was definitely a downward pressure and it would seem like it would try to catch, and then we'd get some kind of other fundamental news that, you know, in addition to the downward pressure on the market, we have to remember that July options expired on Friday, and that can also have an impact on positioning of the different players in the market, and sometimes they're pretty big hitters as well.

Shay

Foulk: And from the technical side, I know, I know you kind of like the technical aspect a little bit. And instead of getting into the weeds on that, talk a little bit about how, you know, when you have some of this market pressure, when you get to that time period where those options are expiring, you know, what are, what are people in the market looking at when it comes to the technical perspective that might drive this even a little bit further from normal?

Garret

Brown: Well, you bet. Well, I mean, Typically, you know, just looking at a chart, you might see, well, where has the market, or where has the chart found support and resistance before? And as, you know, we're looking at these options, where are some of these high open interest strike prices at on the puts and calls? And, you know, if you're sitting there with a large position of puts or calls, you might be thinking, well, how do I want to trade this? How do I want to take a position against this? You know, how do I maybe want to defend that position? You know, a lot of times the market will try to gravitate towards those those heavy strikes and get— it seems like at least— and try to get those options to expire worthless. So that's just something, I guess, to kind of keep in mind as kind of anchors to the market.

And obviously now with those options expired, we could see, you know, additional volatility here as we enter this next week.

Shay

Foulk: Let's talk a little bit about that report coming out here next week, and I don't know if we need to jump into it wholly right away, but You know, as that looms in the near future, uh, we've talked about weather that's going on, we talk about some of the market pressures and some of the industry news that's maybe affecting those. Uh, one thing that we haven't mentioned here is looking at general crop conditions. And again, it's one of those things where you talk with farmer in Kansas that, you know, maybe hasn't been getting some of the rains they were seeing in southern Kansas, and they're saying, well, we got one more week before corn crop burns up. And then you got people that are you know, southern Michigan that are having, you know, maybe some of the best corn crops that they've ever seen in their life.

Overall, what have we seen for grain and crop conditions as we move through the summer here?

Garret

Brown: You know, I think we started okay as we originally got going, but we continued to see declining crop conditions, and we just didn't really see a lot of support coming from those crop conditions. We had other things come to the news that that just kind of came in and added downside pressure, and the weather just gradually kind of continuing to improve. Um, and obviously now with these great big rain events, uh, acting as a kind of a big wet blanket, it definitely bought us some time even in some of these rougher areas. Uh, the tougher areas are getting a little smaller, and, uh, so obviously tomorrow I would say most are probably looking for, uh, ratings to probably at least stabilize, if not potentially increase here some. And, you know, that I guess could potentially weigh on the market.

That being the case, it will be interesting to see how long that actually does trade in the market with the report here on Wednesday, as the market, you know, traders, market participants are gonna be looking to get things squared away to make sure they're ready for Wednesday.

Shay

Foulk: So let's, let's head there, let's head that direction. For the farmers listening, what's going on Wednesday? What do we have coming at us? And could you give us just a little bit of an overview on the historical significance of that.

Garret

Brown: You bet. So on Wednesday, 11 AM, USDA is going to release their, uh, their June acreage, planted acreage report, as well as the quarterly stocks. So they're going to give us kind of that accounting of what was on, uh, you know, on farm and off farm as of June 1st. Uh, so I guess obviously on the quarterly stocks, looking for big cuts versus last year on the corn. By about 20% versus last year. For beans, a very significant cut versus the prior year, and a pretty significant cut, around 20%, I think, as well in wheat. On the acreage side, you know, the average analyst estimates— and I'll just, I'll give some numbers here— I think I'm seeing something like 93.7, 93.8 on corn. We'll just call it 89 million acres on beans, and all wheat around 45.

So these are looking, you know, going to be an increase in corn of around 2.5 million acres, for beans around 2.3 million acres, and for wheat, a slight decrease of maybe 300,000-400,000 acres. You know, nothing overly crazy here. I mean, just logically, we had, you know, in general, obviously there's problem areas, but fairly dry conditions, so good planting conditions. This spring. We had huge financial incentives like we haven't seen before. So what, you know, this report could be extremely volatile because I've seen some very low private estimates that I would consider to be very bullish versus what the market is thinking about today, given the tightness of the balance sheet.

On the other hand, there's also been some private estimates that are very, very high, and it would just seem like, you know, it would take a severe weather event to knock yield enough to where it would drastically put us in a super, super tight balance sheet again without some very strong demand. So historically, lots of volatility in this report. In fact, as I'm looking here, from 2008 through 2015, we were producing near-limit moves, certainly what we call limit move 30 cents, virtually every year during that time period with the exception of 2012 in December corn. You know, soybeans, given that, you know, probably a little bit less volatility, certainly seeing some higher price moves than that, but, you know, the overall commodity price is higher.

Looking at the acres, you know, it's pretty common, you know, or I should say maybe it's far less common to see acreage decline from March to June. So I don't think most are really looking for any acreage declines there, but just to kind of throw out that little statistic with spring wheat, One of the things that we track here, due to where our clients are located, very variable as far as whether we see increases or decreases in those acres. One little note on that is that, I guess from what we're seeing, it would seem a little bit unlikely that we see the average estimate beat out significantly. Though this, for Spring Wheat, though the June acreage number, obviously it's a big deal to know what you're starting with. What's actually going to be harvested could be a significantly reduced number due to the damage up there to the drought.

Shay

Foulk: Right, right. No, it's always a challenge when it comes to, you know, some of the conditions that we've been facing here recently. I want to look at something that you mentioned there with private estimates. And as farmers constantly making decisions, we have all this information coming at us. You have to sift through kind of, you know, what fits your business, what's applicable, and what can you make decisions off of. So when it comes to these private estimates of acreage reports or, you know, even talking with a market analyst or someone that you're working with in risk management strategies, you know, how much merit is there in things like these private estimates, acreage reports, when some people feel that the USDA can really be a moving target? You know, how much weight should a farmer be putting into some of those estimates that are coming in?

Garret

Brown: You know, I don't know how much weight you can put in them at all, honestly. I mean, it's something that it's good to be aware of. But over the last 18 to 24 months in particular, it just seems like the low probability events, or actually the high probability events, have not always been the ones that are the outcome. You know, the stock report several times in a row, the derecho that came across Iowa, and just numerous other events as well. You line all those up, it's like how many times could you flip a coin to get that kind of probability and to get the outcome that you expected. So, you know, all in all, I think as we're thinking about, you know, how do we position ourselves, I don't know that we necessarily try to outguess this thing.

I think we figure out, you know, how do we get comfortable and, you know, what is going to hurt us the most or the least, probably based on that probability, and just decide on an individual basis, is this right for me or is this not? Is this a risk that's worth taking? Because obviously, like I said, this report is one of the most volatile, if not the most volatile of the year, you know, year in, year out. So really anything could happen. And, you know, there are those that would say, well, USDA reports don't matter, they're not even, you know, they're just guessing. Well, when you go and you look at those price changes year in, year out, it does matter because the market trades those numbers. Right.

Shay

Foulk: Now that was a difficult question. I think you handled it well. So sorry to throw you a curveball there, but You know, we were talking a little bit on, you know, some slowdown maybe in shipments, maybe some slowdown in sales. You pair this with kind of what you were mentioning there on a low likelihood of seeing a decrease in some of these acres. Is it a doom and gloom outlook, you know, as we head into Wednesday here? Or, you know, how should I be thinking about this as a farmer? What should the listeners be thinking about moving here into this week?

Garret

Brown: You know, I'm not real doom and gloom. I mean, as I look at prices here, I'm just going to go to my quote dashboard just to quote some numbers. You know, we're basically $5.20 Dec corn, we're basically $12.70 Nov beans. You know, we have September spring wheat for the northwestern Corn Belt, Northern Plains farmer, you know, at $8.08. I mean, these are some of the best values that we've seen in, you know, a dozen years. Pretty hard to be doing a bloom with these types of numbers, right? And, you know, unless we come in at, say, uh, you know, 96 or 97 million acres— and I'm not saying that we will or we won't, but historically, uh, you know, we'd be still valuing corn at some pretty decent levels.

But that doesn't mean we don't want to protect these, doesn't mean that we couldn't get some kind of bullish response, uh, you know, whether we, you know, get a number that is within our expectations or not. You know, that sometimes the market will trade, uh, differently than we would have expected. You know, sometimes if even if we had the report results, we wouldn't necessarily trade it, uh, profitably. But as I'm, let's just say, a farmer here thinking about this, I want to figure out, okay, well, what is my— what's my trigger? You know, obviously a lot of times we think about our breakevens, and that's good to know, but what happens when we have years that are not like this one? And profitability is below our, you know, what the market's offering us. So we need to go back to, well, how can we be consistent?

Well, figure out what our trigger is, whether that's, you know, a changing of the trend, whether that's a stochastic oscillator, which is a common one that market, you know, traders or advisors like to use when we get overbought or oversold. Figuring out that trigger that's going to tell us that we need to go make sales or hedges or whatever, or purchase if you're on the buy side. Is really important because it just helps speed up that execution because that's the hardest part for all of us is making a decision. The second part is what kind of a method are we going to use? So if we're an option trader or we're a cash contract type individual or head-to-arrive or whatever, just having that method and knowing how to use it and how we're, you know, get ourselves comfortable with that, again, it helps to speed up that execution. And create that consistency.

And then also, you know, what kind of volume, you know, if you're not comfortable or have a hard time making sales, you know, maybe you're looking at going and using smaller increments. You don't have that fear of missing out or that, uh, you know, man, I sold too much, I shouldn't have sold so much. And just doing smaller increments and doing more of them, um, deciding what's right for you is really important. And just, uh, having that confidence to execute, because at the end of the day You know, this report on Wednesday, we don't know exactly what USDA is gonna put out. We could go with that high probability option and we could still be wrong. Right. So we just need to get ourselves comfortable, expect a lot of volatility, realize that yes, you know, prices were very, very good back there. They could be very, very good again. They're very, very good now.

They could certainly get worse. So we just have to work with what we have.

Shay

Foulk: Absolutely. Anything else as we kinda head into this week specific to the report, Eric?

Garret

Brown: Um, boy, I don't, I don't think so. I think, you know, we're going to get a couple additional USDA data points, I guess, here. We'll get shipments, we'll get, uh, you know, tomorrow morning I believe about 10 o'clock, 3 o'clock we'll get, uh, the crop conditions again. You know, we'll get some ethanol information here again Wednesday before the report. But, uh, you know, all in all, I think we'll be looking for some position square— position, position squaring. Trading the newest model runs with weather. And, you know, we'll just be, just be kind of waiting for the numbers.

Shay

Foulk: That sounds great. As we kind of wrap up here, one thing that I wanted to make sure we were, you know, at least making a note on for the listeners— we've had some questions on this— looking at some of the stuff that's going on with the renewable fuel standards. And I think you and I were talking offline here a little bit, but not sure anyone understands it maybe as well as they wish that they would. With everything that's going on, but could you just give us kind of a 30 to 60-second outlook on what's going on in that part of the world and how it affects some of the things we're seeing in the marketplace?

Garret

Brown: You bet. Well, initially, you know, with the drop, I had kind of told you offline there that soybean oil had started to drop. Initially, we started hearing that there were some Midwestern Congress folks who had sent some letters to the White House saying, hey, please don't mess with the biofuel standard, which is saying a lot if you have members of your own party sending something like, don't mess with the RFS, or what have you. And that probably gives some credence to there a chance that could happen, and that would be a big risk. So anyway, we started to see liquidation of soybean oil, and then we then, you know, that put pressure on soybeans when in general the whole row crop fell off, and that was kind of, you know, so it seemed like that was driving more so than possibly weather.

Obviously then I made a comment to you that it seemed like we were kind of trying to get this market to stabilize a little bit as we headed towards the end of the week, uh, maybe because we had, you know, kind of sold things off decently hard here over the past couple weeks. Uh, and then we got the blow that the Supreme Court had issued a ruling that the EPA could, uh, issue waivers for these small refineries, uh, to kind of get around the biofuel blending mandate. Now, as I understand it, That doesn't necessarily mean it's going to happen. I think they still have to make their case, but it opens the door, you know, to that potentially happening here. So, you know, initially when we, you know, I, first thing I did is I went to the people in the industry that I thought would know.

This was prior to the Supreme Court ruling, and I just, you know, seemed like we were kind of generally all in the dark on this. So as of right now, I guess I don't know that anything has necessarily changed. Other than it's opened the door to potential changes in policy, right? Or certainly additional waivers that could come into play, I should say.

Shay

Foulk: Something to be on, on the lookout for, uh, at least on the horizon as we look to move through the summer and maybe even beyond that. So Garret, I really appreciate you taking the time to kind of have this market outlook here. And as we move into the report in particular, I know it's going to be weighing on people's minds this week. So always appreciate the perspective. And if listeners want to learn more about, you know, who you are, what you do, where could they find some of that information?

Garret

Brown: Sure, we have a website, thecodagroup.com, for Codak Risk Advisory, uh, and also Lakefront Associates, persons of Lakefront Futures and Options. So we can assist clients, uh, you know, with whatever they need as far as managing their risk on the farm. Um, and so, uh, yeah, that's probably the best, best place to reach out to us.

Shay

Foulk: Absolutely. Hey, thanks a lot, Garret. I really appreciate your time.

Garret

Brown: You betcha. Appreciate you having me on.

Shay

Foulk: And thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.