Looking ahead to 2024 - weekly market outlook: Jan. 2-5th

Narrator: 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.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new week and also a new year. Uh, we're going to have this out on Sunday as normal, but we're going to be talking about the markets on January 2nd through the 5th, first week of January. So we have with us today Matt Bennett. Matt, how's it going?

Matt

Bennett: It's going well. Just wrapping up the year. So excited to have another 3-day weekend here.

Chris

Barron: Yeah, for sure. For sure. So let's talk about the first week in January. Sometimes we see interesting things. You know, we're coming off a timeframe when the trade is really light, you know, it can— things can move a lot, you know, up and down and stuff. But talk a little bit about some of the things that, that producers need to be looking at as we head into this first week of, of 2024.

Matt

Bennett: Yeah, I mean, there's a few things that come to mind. You know, you and I talked before we started, there's been some real opportunity at the end of the year. A lot of these end users opened up, for instance, uh, uh, Jan contracts, uh, and tried to entice with free DP and kinds of neat things. Uh, producers seem fairly tight-fisted, so there were some really nice basis pops around the country. We have to understand that, uh, first week of January, that's not going to be the case. And so we do know that there'll be a lot of contracted grain moving around. Basis is unlikely to see any appreciation anytime soon. But at the same time, these markets have been awful depressed. So, you know, where are you going to look at for a rally-type action?

Well, you You know, if the forecasted rain for Brazil, which continues to seem to gain traction, you know, if it occurs, you're going to have a really hard time, I guess, getting the kind of rally. And, you know, I thought we might see— again, market's been pretty depressed. It's been kind of a lackluster end to '23, if you will. But I got to think sometime over the next 3 to 4 weeks, we could see some support in here, maybe even a little bit of a rally action. You know, I think that the market probably is going to get that opportunity Typically, we see it at some point in here this time of year. It's just, um, right now, right now it looks rough, Chris. I mean, you know, you got to ask yourself what's going to cause it.

You know, I was talking with Joe about that, uh, you know, Friday morning, and, and we both kind of agree that, uh, you need a catalyst, and maybe it's something none of us know about yet, uh, you know. But at the same time, we can talk more about this. I think learning something from the way that '23, uh, manifested itself to me is something that we need to be very, very aware of and cognizant of, of how it could affect the markets in '24. Mm-hmm.

Chris

Barron: A lot of times we see some strength that first, you know, part of January, you know, historically we have anyway. Anything of hope there that you guys are seeing that could give us some opportunities? And then if we do, obviously, you know, you got to watch basis close too, because the price goes up and what's basis do? It goes the other way.

Matt

Bennett: Yeah. I mean, there's definitely, you know, there could be some money flow. You know, a lot of new money could come into the market here at the start of the year. Quite frankly, some of this money lately has been looking for a home. There's a lot of good guaranteed money out there though, still. So, you know, it's tough to, to think that you're going to see a lot of flow into commodities, but the dollar, you know, obviously this last week was fairly weak overall, you know, actually some of the lowest posted, uh, prices that we've seen, uh, in several months. And so, you know, that should be supportive towards commodities. But at the same time, uh, again, you need a catalyst for a sustained move. You know, I could see maybe some money flow coming in here and get a propping us up.

Uh, but like you suggested, if you're looking to move old crop bushels, this is not the time of year, you know, to expect basis to hold steady if the market rallies, especially if the USDA is correct. And I think that they are in that we have the largest overall crop that we've ever seen, and there's about 15.2 billion bushels. And people say, well, geez, we didn't have the yield for that. Well, it doesn't— you don't have to when you plant 95 million acres, you know. So we got to understand there's going to be a wall of grain every time you see some sort of a rally, uh, you know. And with that being the case, um, it's going to be hard to get a sustained move higher.

Chris

Barron: So the next question I have as we move into the month, I want to not get too far ahead of ourselves, but we do have a pretty important report coming out on the 12th of January. With all of your teammates, you guys do a great job of kind of looking out ahead and kind of watching for those hurdles, watching for those potential opportunities as well. What are some of the things you and the rest of the team are kind of looking at for things to watch or to pay attention to as we head into that report? And what, if anything, should we be doing in front of that?

Matt

Bennett: Yeah, I mean, so going into the report, we know a few different things. I mean, whenever I try to figure out price direction moving forward, I always want to look at what our balance sheets look like. So for corn worldwide, we don't have a story. You know, you've got a 314 million metric ton carry. That's all kinds of corn. We don't have any fear there. Whenever we look at the US balance sheet, you know, you go from a 1.3 up to a 2.1 plus. With that being the case, you know, obviously we're increasing stocks by over 50%. So it's hard to say that you can get a bullish feel either one of those US or world for corn. Beans, you know, if Brazil does get all this rain, you still have an average type crop, you're gonna have plenty of beans in the world, a couple of marketing, the start of the previous marketing year, we were at 99 million metric tons.

Basically, we ended up at 100 this last year, that was with Argentina having an epic, like biblical level drought. And And so this year, let's say Brazil comes in at 155, which is 10 million tons off of the original estimate. Well, if Argentina raises the kind of crop we currently think, given the fact that they had that horrific drought last year, they go from what, 24, 25 million metric ton up to the forecast of 48 right now. So overall, South American production's probably going to be higher worldwide. You don't have a story. And then in the US it's tight. Okay. So yes, you've got crush industry expanding, a lot of good things going on, but world flow of beans. We're going to import beans into the US, into the Southeast. Yeah, I think it's possible. So I go into that report and I'm looking for something that's going to change that trajectory for me.

Whether we tighten up the balance sheet a little bit, I don't know. But the thing that's tough for me, Chris, is that, you know, when you take the yield from August to September to October down, and then you, you turn back higher for both corn and beans in November, you know, the history doesn't necessarily suggest that we're going to get a yield cut in January. A lot of times when you raise that yield in November, you see an additional increase. And I think with the Eastern Corn Belt this year finishing as good as what they did, I guess I'm a little, I'm a little wary that we're going to get a bullish surprise in January. So right now we're still, uh, you know, hoping for some sort of a friendly surprise. But, you know, at the same time, we have to be aware that this report also could have some bearish surprises in store for us.

Chris

Barron: If it does, is there any kind of protection or anything a person— I mean, there's people sitting there with, and you know this as well as anybody too, there's a lot of, uh, hope bushels sitting in grain bins right now. Um, yeah, I hope we get an opportunity bushels. So, you know, is there anything that a person should maybe be thinking about doing, or, or, you know, between now and you know, in that first week you get these little rallies, you know, be jumping in. What's your take on that?

Matt

Bennett: Yeah, I mean, when Dec went off the board, the carryout to July was like $0.40. I've never seen that before.

Chris

Barron: Okay. Yeah.

Matt

Bennett: So you look at July corn at $4.94. If I've got a bunch of bushels in the bin, I think we all know basis is going to be better at some point in the future than what it is the first week of January. So, you know, if I'm concerned about bin bushels, hedge the carry in the market, you know, go out to the July and hedge some. You say, well, gee whiz, Matt, what happens if we go to $5.20? If we go, if we go to $5.20, you're still likely to see basis work in your favor over the course of time whenever bushels aren't as plentiful as what they are at the start of January. So if you're super concerned about it, I think just locking in a price basis the board isn't a bad thing to do. Now, you know, I there's a whole lot of moving parts here that we have to understand how these things work.

And yeah, carry market, it's, it's a little tougher market sometimes, you know, than, than whenever the market's just screaming for your bushels when you, you've got this big inverse, you know. And that's what we've been blessed with here over the last couple years. The market just comes to us, we want your bushels, we want your bushels. And, you know, there's been times over the last two marketing years actually that we held on to bushels longer than what we should have, and we're still rewarded. So If we're honest with ourselves, we haven't had to be rocket scientists to be profitable in farming in '21 and '22. '23 is a little skinny for a lot of folks, but got a lot of money in our pockets still from '21 and '22. We're gonna have to get better at what we do and be a student of the markets and make sure we understand what a carry market means for us and how we can use it.

And if you got bushels at home, hedge them like the elevator does in town, because that's what they do is they hedge the carry in the market and they wait on the processor to want bushels more than when those bushels went in the bin.

Chris

Barron: That's, that's all really good perspective. And, and the other thing too, to tack on to what you said, uh, I think is, you know, that July $4.94 corn price, if the price does go up 30 cents, um, this is going to lead me into the next question, is there's going to be 2024 crop to sell too, right? Not just the '23 crop, but that's going to give us some additional strength, not one-to-one, but give us some pretty good opportunity probably on that Dec '24. Talk a little bit about that, uh, kind of what you're seeing, what people should—

Matt

Bennett: yeah, farmers, farmers always long, you know. So you got to understand, if you're super concerned about old crop and you do something and it doesn't necessarily turn out exactly like you thought because of a rally, I mean, what a beautiful thing. Now you've got, you know, maybe, uh, maybe it's only a 15, 20-cent rally, uh, for new crop, but it's still a rally. And so, uh, I want everyone to understand, last trading day of 2023, 2022, you know, Dec '24 corn settled at $5.62. And so we basically lost about 60 cents. And so the question I posed on Twitter actually on Thursday was, what do you think about this $5.05, $5.06 Dec '25 price? Do you think that we're going to see a 60-cent drop? Would you, you know, and I had all these different scenarios. And so 71% of people felt like Dec '25, as you closed out the '24 calendar year, would settle below $5.

Okay, so that tells me, Chris, that there's a whole lot of people that need to be running balance sheets, return on investments, you know, what's your breakeven and do something from a marketing standpoint. I'm not saying you sell the whole farm and you don't have any upside. I mean, that'd be crazy. But I also think that if you feel strongly that this market is set up against you and if you have a normal crop, that the market's going to fall apart again, you better be real careful because I think you and I have talked about this before. You know, you looked at '23 and we just put a fortune in that crop. We stacked the deck against ourselves because we didn't sell enough expensive— when we bought expensive fertilizer, we didn't sell enough high-priced corn. That's the only time you see really expensive fertilizer is when the price of corn is high.

Chris

Barron: Yeah.

Matt

Bennett: And so this year people have this false sense of security that, hey, fertilizer is not near as high this year. I don't need to be as worried about it as what I was last year, you know. Well, if you run your breakevens, then, you know, hey, I can make money at a lower price than what I could on this '23 crop. You know, how does it look if you take a 60-cent bath? You know, and I'm not saying it's going to happen, but a 2.1 carry, Chris, does not typically equate to $5 corn. And so, again, I got to be astute to that. I got to understand what is a big stocks number typically do to price levels? You know, how do markets act on the heels of a multi-year type rally? And so, yeah, coming out of '08, coming out of '12, especially coming out of '12, You know, the next several years were pretty rough sailing, as we all know.

And so are we going to see that kind of action repeat itself again? Potentially. And so I got to cover my rear end as I move forward here.

Chris

Barron: I love the tune you're singing there because that's the one Shay and I sing all the time, is it's all about margin management and, and making sure you're going to cash flow. We've seen a lot of balance sheets already in some of these farm meetings, and we've seen a lot of working capital erosion for for various reasons, things being purchased and changing the cash flow and the inventory of the grain at $4.50 versus $6-something, it really changes the outlook for sure. Yeah. Anything on soybeans? We've kind of been talking corn pretty heavily. Anything, you know, and what you can lead into acres too, because, you know, I think you look at the corn-bean ratio that's a consideration. But I also think a lot of guys are looking at cost of production. There's some agronomic considerations there. But as guys are thinking acre mix, a lot of them are already set.

But what do you think from a macro standpoint? What are you looking at?

Matt

Bennett: Yeah, so a few things here. 10 million acre disparity in 2023. We're not going to see that in '24. It's extremely unlikely. What you're, what you're going to see is that bean acres will be closer to corn acres. Now, how much closer is a big question. So yes, you drop the price of Dec '24 corn by $0.60 essentially over the course of the calendar year. That would lead you to believe, hey, you're really going to lose a lot of corn acres. But, you know, we know that the producer likes to plant corn in a lot of situations. And so with that being the case, fertilizer relief, if you will, as far as the cost standpoint goes, leads me to believe we're going to still hold on to some acres here. Now, where's my head at right now? Uh, I'm probably in that 91 to 92 camp as far as corn acres go. I don't think you'll plant anywhere close to this 94.9 that we planted a year ago.

Uh, as far as soybeans are concerned, you know, some of these new crush plants, uh, coming online, uh, we continue to expand that industry. An originator that works for that plant, their job, you know, is to get bushels secured. And so I do bids will be pretty strong, you know, like around Shell Rock, Iowa, for instance. I know some of my growers up there that I talked to, you know, they're going to go a little heavier beans than what they have in the past. And then your natural progression, you know, Chris, when you plant 94.9 and 83 and change, would be that bean acres would be very strong in '24. So I don't think we'll be 90 and 90 like I once thought we might. But I do, I do think acreage could be fairly close. Like, I wouldn't be shocked if you came in here with 90.5 and, you know, 88 or 88.5, total 180, I don't think it's going to happen.

You know, if you can't do 180 in 2023 when prevent plant was very low and commodity prices were sky high the previous calendar year, you're certainly not going to do it in 2024. So I'd say your, your total acreage at 178 or 179 is, is, is plenty rich. And I don't see you getting above that. And so the last thing to address that you asked about was just some thoughts on soybeans. And, you know, the thing is on soybeans once again is that we've got real tightness here in the U.S. If you've got old beans, I mean, there's been some places that really chased those around lately. Crush margins up until the last week or two really were pretty strong. Board crush really got hurt the last week of the calendar year. Do I expect though that crush margins will still stay fairly strong into '24? I do.

I think that the demand for soy oil and soy meal, which has gone on with the industry starting to really gain some foothold, is going to keep that margin fairly strong. And so, you know, I think bean prices— I can't get bullish mostly because of world stock situation, but at the same time, bean prices really hung in there. And so, you know, it's been very unfortunate to me that more people didn't take advantage of $13-plus, no $24. I'm not saying we won't get back there,, but I think sometimes what we do, and I know I'm getting a little windy here, but sometimes what we do is we look at, hey, we sold cash beans over the last year or two, you know, for what, $16, $17 in some cases? And, you know, by golly, I can't sell beans for $13 and make my— well, bullcrap, you can't. You know, I mean, that, that's a bunch of crap, and you and I both know it.

And so we've gotta, we've gotta get '21 and '22 out of our head whenever we're marketing, whether it's corn or beans. Yeah, you know, and get back to, hey, you know what, there's years you and I would have given our right arm for $10 beans, let alone $12.50. Yeah. And so, you know, as far as bean prices are concerned, run the math, look at what your profit margins are, lock in a worst-case scenario on enough bushels that you're going to be able to sleep at night this summer. If the bottom falls out, I'm not saying it will. But if Brazil ends up with a 160+, Katy, bar the door. I'm worried about what bean prices might look like here 6 months from now.

Chris

Barron: Yeah. And hopefully we get a chance to get back to some $13 sales too on the new crop. So, you know, we're a little ways from that, but hopefully as people are listening to this and as we head into January or maybe get some opportunities. Last question, and I didn't forewarn you on this one, so you can smile now, but I'm going to ask you a pretty, pretty— might be a simple question, might not be, but I want to know From 2023, what was your best marketing lesson that you took away from 2023? For you, Matt Bennett, the farmer and the advisor, what, what did you take away?

Matt

Bennett: You know, sticking to my guns whenever we tried to carry out the plan that we typically want to carry out. And what's that plan is looking at our profitability, running the calculations and stepping out and doing something with it. So we had a lot of grain hedged at this time of year. A year ago. I know talk's cheap, so anybody who, who wants to get the archives to the newsletter I put out over the weekend, I detail what we're doing as a group. And what we're doing as a group is what I follow as a producer, you know, because I could get checked up on those things. So I have to make sure that, that if I am advising, if you will, if I'm a farmer and I'm saying, hey, this is what I'm doing, I got to be doing that. So, you know, a lot of people a year ago said, I don't know why you guys are so heavily sold, that, you know, that's ridiculous.

Us after us having $7 corn this last year. If we, if we have a hiccup in production this next year, you know, we could be looking at $7 or $8 corn. And I guess the way that I looked at it is I'm basing my decision on what kind of profit margin I can personally lock in. And whenever I'm putting so much money into a crop, I, I cannot afford to take a big bath. Why? I've been fairly aggressive, you know, in buying some farm ground and, you know, in building my business, if you will. There's just been a lot of things I've tried to be very aggressive on.. And so I am very protective of my profit margins. And so I know that sometimes in my world, you know, everyone loves the Monday morning quarterback and sometimes you're a little concerned that, boy, if I made a big mistake here, I'm going to have egg on my face. Well, who cares?

What I always say, if you, if your first sale is your worst sale, but it's profitable, you're gonna have an awfully good year. So my main lesson was sticking to your guns, not worry about what everyone else is saying, market based on your farm's profit margins. And so, I preach it to everyone. And sometimes that means some of my producers may not market exactly like I do. Like, for instance, my dad doesn't market exactly like I do because he has no debt. You know, it's a totally different type of mindset. But yeah, we stayed, we stayed true to ourselves and it paid off. It paid really good dividends this year. It may not next year as far as being really at the top of the list, you know, as far as what our average price might look like. But we're still going to market for profit. And when we do that, I don't think we can lead ourselves wrong.

Chris

Barron: Yeah, yeah. No, I love that. I think that's such a key thing is, you know, with the insurance and the marketing and the things that we can do to mitigate risk, I think we really got to employ those tools and, and really pay attention. But I really appreciate your time today. Um, really hope you have a 2024 and look forward to having you back on throughout the course of 2024 when, when you can make the time. And, and with that said, any final comments you want to leave guys with and we'll wrap it up?

Matt

Bennett: Yeah, I think again, I think 2024 could be an awfully, awfully nice year compared to '23. We didn't— we again are not going to have as much wrapped up in this crop.

Chris

Barron: Yeah.

Matt

Bennett: As what we had with '23. And so there are opportunities now today they may not be here 6 weeks from now or 12 weeks or in the middle of summer. So, you know, I think, you know, a person needs to be cognizant of what their situation is today and be very protective of their farm's ROI because, you know, '23, as you suggested, I think we burnt through some cash. I think the liquidity ratios don't look anything like they did at the end of '22. And that's okay. You know, we're going to have good years, we're going to have bad years. Um, but every year, every year is different. And I gotta, as a producer, I gotta be a student of this game. I, I highly encourage people to journal what they did right and what they did wrong in '23 and make sure that they learn from it.

Go back and look at it over the course of time, you know, because, uh, it can definitely come in handy on down the road. So I wish everyone luck. I hope they have a great new year. And, uh, yeah, we'll be back on whenever you need me again in '24.

Chris

Barron: Awesome. Well, Matt Bennett, AgMarket.net, appreciate your time.

Matt

Bennett: Thank you. Absolutely.

Chris

Barron: Thank you. Yep. I'd like to wish everybody a great 2024, and we will be back again with the second week of January here next week. Thanks for listening. We'll catch you next time on the Ag View Pitch.