About This Episode
Chris Barron interviews Joe Vaclavik standing between a corn field and a bean field on the day of the June 30 USDA acreage report. Corn and soybean acreage came in low, which re-energized the market. Vaclavik previews the evening talk he is giving to Barron's Pioneer sales agency customers, including where acreage grew and shrank, noting corn expansion in the Dakotas and southern Minnesota, areas that are not in good shape right now.
His bigger warning is the 2022 crop. Barron's average customer is looking at roughly 40 more cents of cost per bushel of corn next year. December 2022 corn trades above $5, but a breakeven near $4.25 leaves little room. If this year's crop turns out huge and Dec 2022 slides under that breakeven by August, a farmer is left with higher inputs, rents already locked in, and no insurance guarantee to fall back on.
The two also talk about emotion. Vaclavik says he lives outside the Corn Belt on purpose, because looking at the same fields and forecasts every day would swing his marketing view week to week. Barron ties that back to recalibrating cost of production as seed and fertilizer settlements come in. Vaclavik adds that only about 52% of farmers respond to USDA acreage surveys, which explains much of the volatility in the printed numbers.
“The '22 crops and marketing is, in my opinion, the scariest thing out there right now if you're a farmer from a risk management standpoint because of the fact that you have or are going to have drastically higher input costs next year.”
— Joe Vaclavik
Key Takeaways
Corn and soybean acreage printed below expectations on the June 30 report, which re-energized prices.
Corn acres expanded in the Dakotas and southern Minnesota, where crop condition is poor, so those acres matter for later yield estimates.
Cost to grow a bushel of corn is running about 40 cents higher for 2022 based on Barron's client numbers.
December 2022 corn above $5 against a roughly $4.25 breakeven is the squeeze; rents and inputs get committed before there is any insurance guarantee.
On the 2021 crop, buying a put option to set a floor is cheap enough at current prices that it pays for itself.
Only about 52% of farmers respond to USDA acreage surveys, which is part of why acreage prints move so much.
Full Transcript
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch. Today we're standing out in the field here and lucky enough to have Joe Vaklovic with us. And so we're going to have this on YouTube and also on the podcast. So if you're on the podcast and want to take a look, check this out on YouTube. Joe, how's it going today?
Joe
Vaclavik: It's going good. It's been busy. It was USDA report day and I'm going to give a speech for you guys tonight. So busy day, did a little bit of driving yesterday, saw some crops. Keeping busy, I guess.
Chris
Barron: Yeah, that's good. Well, our family operation has a Pioneer sales agency. You're going to be speaking tonight to the group on kind of some of the things that went on. A lot of excitement today in the market. Any highlights of what you might be talking about tonight?
Joe
Vaclavik: Well, it's interesting because we had this speech or this presentation booked for tonight, right? Yeah. And it's the day of the report, which gives me a very limited amount of time to prepare for the whole thing. But I'll talk about the acreage report. I'll talk about, you know, the corn and soybean acreage numbers came in low. Why is that potentially? What are the implications of that? We'll talk about the stocks numbers a little bit. I want to talk a little bit about where we saw acreage grow and contract versus last year. I think that could be important when we get, you know, closer to harvest and we start to figure out yield potential. You know, we saw a lot of corn acreage expansion, for example, in the Dakotas and southern Minnesota where things are not in the best shape right now. So that is, uh, something that's gonna have implications.
I'm gonna talk a little bit more broadly on some things too. I think I'm gonna talk about inflation a little bit and bring up some examples and talk about how, um, it's going to impact things like input costs, um, you know, that sort of thing. I'm gonna talk, uh, a little bit about some, some of the outside market factors and, and really some of the things that I believe are really, uh, important and, and some of the biggest risks as a farmer in regard to grain marketing, you know, right now.
Chris
Barron: Right. So obviously it's sort of good news because we were getting this re-energizing of the market, probably going to give us some strength hopefully here for a little while. Talk just briefly for a minute here on the '22. I know you and I have had some conversations around '22 and the price implications there, but you know, there's always that different price level, we're, you know, we're a buck less when we look at Dec '20, you know, Dec '21 versus Dec '22, but it's probably something we need to be taking a look at, isn't it, on the '22?
Joe
Vaclavik: Well, the '22 crops and marketing is, in my opinion, the scariest thing out there right now if you're a farmer from a risk management standpoint because of the fact that you have or are going to have drastically higher input costs next year. We talked about that on that podcast episode that we did. And I think you told me that for your average customer, the cost to grow a bushel of corn next year is going to be what, 39 cents more than it was?
Chris
Barron: Yeah, about 40 cents more.
Joe
Vaclavik: 40 cents more a bushel. And you've got a Dec '22 corn contract that's, yeah, it's above $5, but your breakeven might be $4.25 or somewhere in that neighborhood. Picture this, picture this crop this year ends up being huge and by August Dec '22 corn is down below $4.25. That's going to leave you in a tough spot for next year because you've got higher input costs, you've got higher rents that have probably already been locked in and you have no insurance guarantee at that point. So it can really paint you into a corner. I don't think this year is actually the big concern in regard to marketing. I think the next 2 years probably are.
Chris
Barron: Yeah, just definitely like you've always said, it makes it really hard to market when the prices are as good as they are and there's always that emotional component. And so to transition into the emotional component, yesterday you did a quick little video when you got into Iowa and said this drives you crazy because you didn't think you could live in Iowa and do what you do. And so I wanted to get you out in the middle of a cornfield, a bean field, and stand in between them. And we're in an area where we were super dry for a long time. We caught rain just in time. So it's kind of that just-in-time formula where we saved the crop. We got, you know, we're not quite to the 4th of July yet. We're going to have corn almost ready to tassel by the 4th of July, getting close to that timeframe and managing that emotion.
Any advice for us as producers on managing this emotion and managing this backyarditis that we all get? There's clients we work with that are in North Dakota, South Dakota, where it's super dry, and we got guys that are flooding, and we got everything in between.
Joe
Vaclavik: So basically what I said in that short video I did to summarize it is that I think that for me personally, and this does not apply to everybody, but I think that for me personally, to try to analyze grain markets and, and provide any sort of marketing advice, if I lived where you live and I looked at this every day, I think that it would make things very difficult for me because I think that my emotions would change on a daily basis based on how the crops looked, how the weather forecasts looked. Did we just have a couple weeks of dry weather? Did we just have a bunch of rain? I feel like that would influence my decision or decisions throughout the year. And I think basically what I said in the video, I said, I think it's best that I live outside of the Corn Belt. And I can look at things more broadly. I can look at things statistically.
I can kind of take a sample of my customers all around the country. And I feel like over the years that way has probably suited me well, I think, at least in my experience. And no, I'm not saying that if you're a grain marketer and you live in the Corn Belt that you're bad or anything. I'm just saying for me personally, I feel like that's the way it works.
Chris
Barron: Yeah. And what that leads me then to is, Managing that emotion and being a good risk manager still has a lot to do with continually calibrating that cost of production, right? Because, yeah, you know, our cost of production, as we sit down and we're starting our summer rollout where we go and see our clients, we work on cost of production, we get these numbers dialed in. They've changed nitrogen, they've settled, done their settlements on their seed costs and fertilizer costs. Pretty well done. Maybe some more nitrogen, maybe not. Those types of things need to be reconciled and dialed in. And maybe the next couple of weeks we need to watch this market really close as we calibrate those numbers, don't we?
Joe
Vaclavik: Well, that's the name of the game. And, you know, honestly, if you were able to do so, any farmer who's growing corn or soybeans in this country could go sell all of this year's crop tomorrow and end up with a phenomenal year. I mean, that's the way the prices are set up.
Chris
Barron: So as long as you know you're going to grow that much, that's, that's, that's the problem, of course.
Joe
Vaclavik: And that's kind of where some of this emotional stuff comes in too, because if we run into a week of dry weather here in July and the market rallies on it, that may be your best marketing opportunity, but it may be next to impossible to make a sale. So there are some complicated issues here. I don't think anybody's ever said that grain marketing is easy, and it's not. It's, in my opinion, incredibly difficult.
Chris
Barron: It's really difficult when you've got these ebb and flows, and when you're on the high side of it, it's even harder because nobody wants to leave any on the top. Last question I'm going to have for you then tonight. You've had a little bit of time to, as we've talked here, to think about it. Any key things that would be a takeaway that you're going to throw out there tonight that, that those who aren't able to make it or whatever, you know, what are a couple key things that people need to keep in mind the next week or so?
Joe
Vaclavik: Well, I'm going to talk about '22 and '23 for sure, and I'm going to talk about how, like I said, I think that they're— as a risk manager, that's where I have my focus right now, more so than what's going on this year. This year has provided us with some excellent prices, the opportunity is there to even do something as simple as just buy a put option and pay for it, set your floor, that makes money for you on the farm, right? It's not that easy when it comes to '22 and '23. I'm going to talk about the USDA a little bit and their methodology. I'm not a USDA hater or denier or anything like that. But the fact of the matter is that the responses to these surveys are extremely low. It's for that reason, I think, in my opinion— It's for that reason, in my opinion, partially, that we've seen so much volatility in just the moves in the acreage prints that we see on paper.
When you only have 52% of farmers respond to the acreage survey and you think it's wrong, well, why is it wrong? It's because they only have half the data and they have to take that and basically extrapolate the rest of it. It's an incredibly difficult job that they're faced with. And yeah, I have my criticisms of USDA, but I'll talk about that a little bit too because I think people have misconceptions and maybe misplaced blame when it comes to USDA to some extent.
Chris
Barron: Yeah. All right. Well, thanks a lot, Joe. Really appreciate you being here tonight. I appreciate you kind of giving your insight as to what you're going to be talking about. And again, grain markets and other stuff, if people want to connect with you, what's the best way?
Joe
Vaclavik: Just go on YouTube, type in Grain Markets and Other Stuff. Go on any podcast app out there, whether it's Apple or Google or Spotify or Stitcher, whatever. Grain Markets and Other Stuff. My stuff's updated every business day pretty much. I've got 6 or 7 episodes typically per week. So definitely check it out.
Chris
Barron: Awesome. Thanks, Joe. Appreciate it. Absolutely. Thanks everybody for joining us this time on the Ag View Pitch, and we'll catch you again.